SUPPLEMENT DATED OCTOBER 13, 1995 TO
PROSPECTUS DATED MAY 1, 1995 FOR
PREFERRED ADVISOR
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
KMA VARIABLE ACCOUNT
AND
KEYPORT LIFE INSURANCE COMPANY
- ------------------------------------------------------------------------------
On September 27, 1995, the Securities and Exchange Commission issued an order
approving the substitution of shares of the Colonial-Keyport Strategic Income
Fund for shares of the Managed Income Fund ("MIF"); the substitution of shares
of the Mortgage Securities Income Fund for shares of the Colonial-Keyport U.S.
Government Fund ("CKUSGF") and the substitution of shares of the Managed Assets
Fund for shares of the Strategic Managed Assets Fund ("SMAF"). MIF, CKUSGF and
SMAF Sub-Accounts are no longer available under the Contract for any purpose.
- ------------------------------------------------------------------------------
SERVICE HOTLINE (800) 367-3653, option 3
Issued by: Keyport Life Insurance Company
Distributed by: Keyport Financial Services Corp.
SteinRoe Trust managed by: Stein Roe and Farnham Incorporated
One South Wacker Drive, Chicago, Illinois 60606
Keyport Trust managed by: Keyport Advisory Services Corp. and
Sub-advised by Colonial Management Associates, Inc.
One Financial Center, Boston, Massachusetts 02110
Keyport Companies located at:
125 High Street, Boston, Massachusetts 02110-2712
<PAGE>
KEYPORT PREFERRED ADVISOR
PROSPECTUS
MAY 1, 1995
<PAGE>
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
KMA VARIABLE ACCOUNT
AND
KEYPORT LIFE INSURANCE COMPANY
The variable annuity contract (form number FLEX(4), referred to as the
"Contract") described in this prospectus provides for accumulation of
Contract Values and payment of periodic annuity payments on a variable basis
and, except for Contracts issued to New Jersey and Washington residents, also
on a fixed basis. The Contract is designed for use by individuals for
retirement planning purposes.
This prospectus generally describes only the variable features of the
Contract (for a summary of the fixed features, see Appendix A on Page 25). If
the Contract Owner elects to have Contract Values accumulated on a variable
basis, purchase payments will be allocated to a segregated investment account
of Keyport Life Insurance Company ("Keyport"), designated the KMA Variable
Account ("Variable Account"). The Variable Account invests in shares of the
following Eligible Funds of SteinRoe Variable Investment Trust ("SteinRoe
Trust") at their net asset value: Cash Income Fund ("CIF"); Mortgage
Securities Income Fund ("MSIF"); Managed Income Fund ("MIF"); Managed Assets
Fund ("MAF"); Strategic Managed Assets Fund ("SMAF"); Managed Growth Stock
Fund ("MGSF"); and Capital Appreciation Fund ("CAF"). The Variable Account
also invests in shares of the following Eligible Funds of Keyport Variable
Investment Trust ("Keyport Trust") at their net asset value: Colonial-Keyport
U.S. Government Fund ("CKUSGF"); Colonial-Keyport Growth and Income Fund
("CKGIF"); Colonial-Keyport Strategic Income Fund ("CKSIF"); Colonial-Keyport
Utilities Fund ("CKUF"); Colonial-Keyport U.S. Fund for Growth ("CKUSFG");
Colonial-Keyport International Fund for Growth ("CKIFG"); and Newport-Keyport
Tiger Fund ("NKTF"). The MIF, SMAF and CKUSGF Sub-Accounts are not available
to receive either allocations of new purchase payments or transfers of
Contract Value since a filing is pending with the Securities and Exchange
Commission seeking its approval of the substitution of shares of CKSIF, MAF
and MSIF for the shares of MIF, SMAF and CKUSGF, respectively.
Persons who have purchased Variable Account variable annuity contracts before
May 1, 1992 may continue to make purchase payments under those contracts
subject to the terms and conditions of those contracts and Appendix B on Page
28.
Keyport may also offer group variable annuity contracts issued by the
Variable Account. Any such group contract would be offered by a separate
prospectus.
A Statement of Additional Information dated the same as this prospectus has
been filed with the Securities and Exchange Commission and is herein
incorporated by reference. It is available, at no charge, by writing Keyport
at 125 High Street, Boston, MA 02110, by calling (800) 437-4466, or by
returning the postcard on the back cover of this prospectus. A table of
contents for the Statement of Additional Information is on Page 24.
The Contract may be sold by or through banks or other depository
institutions. The Contract: (bullet) is not insured by the FDIC; (bullet) is
not a deposit or other obligation of, or guaranteed by, the depository
institution; and (bullet) is subject to investment risks, including the
possible loss of principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR SHOULD KNOW
BEFORE INVESTING. THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE OR JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED BY
KEYPORT TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THIS OFFERING, AND IF
GIVEN OR MADE, SUCH UNAUTHORIZED INFORMATION OR REPRESENTATIONS SHOULD NOT BE
RELIED UPON.
The date of this prospectus is May 1, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Glossary of Special Terms 3
Summary of Expenses 4
Synopsis 6
Condensed Financial Information 7
Keyport and the Variable Account 9
Purchase Payments and Applications 9
Investments of the Variable Account 10
Allocations of Purchase Payments 10
Eligible Funds 10
Dollar Cost Averaging 12
Transfer of Variable Account Value 12
Substitution of Eligible Funds and Other Variable
Account Changes 13
Deductions 13
Deductions for Contract Maintenance Charge 13
Deductions for Mortality and Expense Risk Charge 14
Deductions for Daily Sales Charge 14
Deductions for Contingent Deferred Sales Charge 14
Deductions for Transfers of Variable Account Value 15
Deductions for Premium Taxes 15
Deductions for Income Taxes 15
Total Expenses 15
The Contracts 15
Variable Account Value 15
Valuation Periods 16
Net Investment Factor 16
Modification of the Contract 16
Right to Revoke 16
Death Provisions for Non-Qualified Contracts 17
Death Provisions for Qualified Contracts 18
Ownership 18
Assignment 18
Surrenders 18
Annuity Provisions 19
Annuity Benefits 19
Income Date and Settlement Option 19
Change in Income Date and Settlement Option 19
Settlement Options 19
Variable Annuity Payment Values 20
Proof of Age, Sex, and Survival of Annuitant 20
Suspension of Payments 21
Tax Status 21
Introduction 21
Taxation of Annuities in General 21
Qualified Plans 22
Tax-Sheltered Annuities 22
Individual Retirement Annuities 23
Corporate Pension and Profit-Sharing Plans 23
Deferred Compensation Plans with Respect to
Service for State and Local Governments 23
Texas Optional Retirement Program 23
Variable Account Voting Rights 23
Distribution of the Contract 24
Legal Proceedings 24
Inquiries by Contract Owners 24
Table of Contents--Statement of Additional Information 24
Appendix A--The Fixed Account (also known as the
Guaranteed Rate Account) 25
Appendix B--Prior Contracts of the Variable Account 28
Appendix C--Telephone Instructions 35
Appendix D--Dollar Cost Averaging 36
</TABLE>
2
<PAGE>
GLOSSARY OF SPECIAL TERMS
Accumulation Unit: An accounting unit of measure used to calculate Variable
Account Value.
Annuitant: The Annuitant is the natural person to whom any annuity payments
will be made starting on the Income Date. The Annuitant may not be over age 80
on the Issue Date (age 75 for Qualified Contracts).
Contract Anniversary: The same month and day as the Issue Date in each
subsequent year of the Contract.
Contract Owner: The person (or persons in the case of joint ownership) who
possesses all the ownership rights under the Contract. The primary Owner may
not be over age 80 on the Issue Date (age 75 for Qualified Contracts and age
85 for a joint Owner).
Contract Value: The sum of the Variable Account Value and the Fixed Account
Value.
Contract Year: Any period of 12 months commencing with the Issue Date and each
Contract Anniversary thereafter shall be a Contract Year.
Designated Beneficiary: The person who may be entitled to receive benefits
following the death of the Annuitant or Contract Owner. The Designated
Beneficiary will be the first person among the following who is alive on the
date of death: primary Owner; joint Owner; primary beneficiary; contingent
beneficiary; and if no one is alive, the primary Owner's estate. If the
primary Owner and joint Owner are both alive, they will be the Designated
Beneficiary together.
Eligible Funds: The mutual funds that are eligible investments for the
Variable Account.
Fixed Account: Part of Keyport's general account into which purchase payments
may be allocated.
Fixed Account Value: The value of all Fixed Account amounts accumulated under
the Contract prior to the Income Date.
In Force: The status of the Contract before the Income Date so long as it is
not totally surrendered and there has not been a death of the Annuitant or any
Contract Owner that will cause the Contract to end within at most five years
of the date of death.
Income Date: The date on which annuity payments are to begin.
Issue Date: The effective date of the Contract; it is shown on Page 3 of the
Contract.
Non-Qualified Contract: Any Contract that is not issued under a Qualified
Plan.
Office: Keyport's executive office, which is 125 High Street, Boston,
Massachusetts 02110.
Qualified Contract: Contracts issued under Qualified Plans.
Qualified Plan: A retirement plan established pursuant to the provisions of
Sections 401, 403 or 408 of the Internal Revenue Code. Keyport treats Section
457 plans as Qualified Plans.
Surrender Value: The Contract Value less the deductions made upon a total
surrender of the Contract. See "Surrenders" on Page 19.
Variable Account: A separate investment account of Keyport, designated on Page
1, into which purchase payments may be allocated.
Variable Account Value: The value of all Variable Account amounts accumulated
under the Contract prior to the Income Date.
Written Request: A request written on a form satisfactory to Keyport, signed
by the Contract Owner and a disinterested witness, and filed at Keyport's
Office.
3
<PAGE>
SUMMARY OF EXPENSES
The expense summary format below, including the examples, was adopted by the
Securities and Exchange Commission to assist the owner of a variable annuity
contract in understanding the transaction and operating expenses the owner
will directly or indirectly bear under a contract. The values reflect
expenses of the Variable Account as well as the Eligible Funds. The expenses
shown for the Eligible Funds and the examples should not be considered a
representation of future expenses.
Contract Owner Transaction Expenses
<TABLE>
<CAPTION>
<S> <C>
Sales Load Imposed on Purchases: 0%
Maximum Contingent Deferred Sales Charge
(as a percentage of purchase payments): 7%(1)
</TABLE>
<TABLE>
<CAPTION>
Years from Date of Payment Sales Charge
- ----------------------------- ---------------
<S> <C>
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 or later 0%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Maximum Total Contract Owner Transaction Expenses(2)
(as a percentage of purchase payments): 7%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Annual Contract $36
Fee
</TABLE>
<TABLE>
<CAPTION>
Variable Account Annual Expenses
(as a percentage of average net assets)
<S> <C>
Mortality and Expense Risk Charge: 1.25%
Asset-based Sales Charge: .15%
----
Total Variable Account Annual Expenses 1.40%
</TABLE>
SteinRoe Trust and Keyport Trust Annual Expenses(3)
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Total Fund
Management Other Operating
Fund Fees Expenses Expenses
- ------- -------- ------- -----------------
<S> <C> <C> <C>
CIF .50% .12% .62%
CKUSGF .60 .26 .86
MSIF .55 .15 .70 (.71%)(5)
MIF .55 .23 .78
CKGIF .65 .22 .87
CKSIF .65 .15 .80 (1.60%)(4)
MAF .60 .08 .68
CKUF .65 .21 .86
SMAF .70 .15 .85 (.88 %)(5)
MGSF .65 .12 .77
CKUSFG .80 .20 1.00 (1.64%)(4)
CAF .65 .15 .80
CKIFG .90 .84 1.74
NKTF .90 .45 1.35
</TABLE>
4
<PAGE>
Example #1 -- Assuming surrender of the Contract at the end of the periods
shown.(6, 7)
A $1,000 investment in each Sub-Account listed would be subject to the
expenses shown,
assuming 5% annual return on assets.
<TABLE>
<CAPTION>
1 3 5
Sub-Account Year Years Years 10 Years
- ------------ ----- ------ ------ ---------
<S> <C> <C> <C> <C>
CIF $ 91 $118 $154 $300
CKUSGF 94 125 167 331
MSIF 92 120 158 310
MIF 93 123 163 321
CKGIF 94 125 168 332
CKSIF 93 123 -- --
MAF 92 120 157 308
CKUF 94 125 167 331
SMAF 93 125 166 330
MGSF 93 122 162 319
CKUSFG 95 129 -- --
CAF 93 123 164 323
CKIFG 102 151 214 438
NKTF 98 140 -- --
</TABLE>
Example #2 -- Assuming annuitization of the Contract at the end of the
periods shown.(6)
A $1,000 investment in each Sub-Account listed would be subject to the
expenses shown,
assuming 5% annual return on assets.
<TABLE>
<CAPTION>
Sub-Account 1 Year 3 Years 5 Years 10 Years
- ------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
CIF $21 $ 69 $124 $300
CKUSGF 24 76 137 331
MSIF 22 71 128 310
MIF 23 74 133 321
CKGIF 24 80 138 332
CKSIF 23 74 -- --
MAF 22 71 127 308
CKUF 24 76 137 331
SMAF 23 76 136 330
MGSF 23 73 132 319
CKUSFG 25 81 -- --
CAF 23 74 134 323
CKIFG 32 104 185 438
NKTF 28 92 -- --
</TABLE>
Example #3 -- Assuming the Contract stays in force through the periods shown.
A $1,000 investment in each Sub-Account listed would be subject to the same
expenses shown in
Example #2, assuming 5% annual return on assets.
(1)Contingent Deferred Sales Charges are deducted only if the Contract is
fully or partially surrendered. A surrender will not incur the Charge
percentage shown to the extent the amount of that surrender does not exceed
the Contract's increase in value at the time of surrender or, after the first
Contract Year, 10% of the Contract Value on the prior Contract Anniversary if
this 10% amount is greater.
(2)Keyport reserves the right to impose a transfer fee after prior notice to
Contract Owners, but currently does not impose any charge. Premium taxes are
not shown. Keyport deducts the amount of premium taxes, if any, when paid
unless Keyport elects to defer such deduction.
(3)The SteinRoe Trust expenses are for 1994. The expenses for MIF have been
restated for inclusion in the table to reflect a new expense reimbursement
level beginning May 1, 1995 (see footnote 5). The Keyport Trust expenses are
for 1994 with the exception of those for NKTF, which are estimated since NKTF
commenced operations in May 1995. The expenses for CKSIF have been restated
for inclusion in the table to reflect a new expense reimbursement level
beginning May 1, 1995 (see footnote 4).
5
<PAGE>
(4)Keyport Trust's manager has agreed until 4/30/96 to reimburse all
expenses, including management fees, in excess of the following percentage of
the average annual net assets of each Fund, so long as such reimbursement
would not result in the Fund's inability to qualify as a regulated investment
company under the Internal Revenue Code: .80% for CKSIF; 1.75% for CKIFG and
NKTF; and 1.00% for the CKUSGF, CKGIF, CKUF and CKUSFG. The total percentages
shown in the table for CKSIF and CKUSFG are after expense reimbursement. Each
percentage shown in the parentheses is what the total for 1994 would have
been in the absence of expense reimbursement: for CKSIF, 1.60% and CKUSFG,
1.64%.
(5)SteinRoe Trust's adviser has voluntarily agreed until 4/30/96 to reimburse
all expenses, including management fees, in excess of the following
percentage of the average annual net assets of each Fund, so long as such
reimbursement would not result in the Fund's inability to qualify as a
regulated investment company under the Internal Revenue Code: .65% for CIF;
.70% for MSIF; .75% for MAF; .80% for MIF, MGSF and CAF; and .85% for SMAF.
The total percentages shown in the table for MSIF and SMAF are after expense
reimbursement. Each percentage shown in the parentheses is what the total for
1994 would have been in the absence of expense reimbursement: for MSIF, .71%;
and for SMAF, .88%.
(6)The annuity is designed for retirement planning purposes. Surrenders prior
to the Income Date are not consistent with the long-term purposes of the
Contract and the applicable tax laws.
(7)The CIF-DCA Sub-Account is not shown because it is available under
previously issued Contracts only for automatic monthly transfers that will
deplete a Contract Owner's Sub-Account values by the end of either the first
or second Contract Year. This Sub-Account was not generally available for
Contract Owners who began automatic monthly transfers after July 31, 1993.
See Appendix D on Page 36.
The examples should not be considered a representation of past or future
expenses and charges of the Sub- Accounts. Actual expenses may be greater or
less than those shown. Similarly, the assumed 5% annual rate of return is not
an estimate or a guarantee of future investment performance. See "Deductions"
in this prospectus, "How the Funds are Managed" in the prospectus for
SteinRoe Variable Investment Trust, and "Trust Management Organizations" and
"Expenses of the Funds" in the prospectus for Keyport Variable Investment
Trust.
SYNOPSIS
The Contract allows Contract Owners to allocate purchase payments to the
Variable Account and, except for Contracts issued to New Jersey and
Washington residents, also to the Fixed Account. The Variable Account is a
separate investment account maintained by Keyport. The Fixed Account is part
of Keyport's "general account", which consists of all Keyport's assets except
the Variable Account and the assets of other separate accounts maintained by
Keyport. Contract Owners may allocate payments to, and receive annuity
payments from, the Variable Account and/or Fixed Account. If the Contract
Owner allocates payments to the Variable Account, the accumulation values and
annuity payments will fluctuate according to the investment performance of
the Eligible Funds chosen. If the Contract Owner allocates payments to the
Fixed Account, the accumulation values will increase at guaranteed interest
rates and annuity payments will be of a fixed amount. (See Appendix A on Page
25 for more information on the Fixed Account.) If the Contract Owner
allocates payments to both Accounts, then the accumulation values and annuity
payments will be variable in part and fixed in part.
The Contract permits purchase payments to be made on a flexible purchase
payment basis. The minimum initial payment is $5,000. The minimum amount for
each subsequent payment is $1,000 or such lesser amount as Keyport may permit
from time to time (currently $250). (See "Purchase Payments" on Page 9.)
There are no deductions made from purchase payments for sales charges at the
time of purchase. A Contingent Deferred Sales Charge may be deducted in the
event of a total or partial surrender (see "Surrenders" on Page 18). The
Contingent Deferred Sales Charge is based on a graded table of charges. The
charge will not exceed 7% of that portion of the amount surrendered that
represents purchase payments made during the seven years immediately
preceding the request for surrender. (See "Deductions for Contingent Deferred
Sales Charge" on Page 14.)
Keyport deducts a Mortality and Expense Risk Charge, which is equal on an
annual basis to 1.25% of the average daily net asset values in the Variable
Account attributable to the Contracts. (See "Deductions for Mortality and
Expense Risk Charge" on Page 14.) Keyport also deducts a sales charge which
is equal on an annual basis to .15% of the same values. (See "Deductions for
Daily Sales Charge" on Page 14.)
Keyport deducts an annual Contract Maintenance Charge (currently $36.00) from
the Variable Account Value for administrative expenses. Prior to the Income
Date, Keyport reserves the right to change this charge for future years. (See
"Deductions for Contract Maintenance Charge" on Page 13.)
Premium taxes will be charged against Contract Value. Currently such premium
taxes range from 0% to 5.0%. (See "Deductions for Premium Taxes" on Page 15.)
There are no federal income taxes on increases in the value of a Contract
until a distribution occurs, in the form of a lump sum payment, annuity
payments, or the making of a gift or assignment of the Contract. A federal
penalty tax (currently 10%) may also apply. (See "Tax Status" on Page 21.)
The Contract allows the Contract Owner to revoke the Contract within 10 days
of delivery (see "Right to Revoke" on Page 16). For most states, Keyport will
refund the lesser of the initial purchase payment or Contract Value. The
Contract Owner will thus bear the investment risk during the revocation
period.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION
Accumulation Unit Values*
<TABLE>
<CAPTION>
Accumulation
Unit Accumulation Number of
Value Unit Accumulation
Beginning of Value Units
Sub-Account Year** End of Year End of Year Year
- ----------------------------------------------- ---------------- ------------- -------------- -----
<S> <C> <C> <C> <C>
Cash Income Fund ("CIF") $12.036 $12.322 2,006,163 1994
11.884 12.036 1,406,317 1993
11.646 11.884 945,998 1992
11.163 11.646 1,090,836 1991
10.492 11.163 821,676 1990
10.000 10.492 148,835 1989
Cash Income Fund-DCA ("CIF-DCA") 11.004 11.423 46,801 1994
10.715 11.004 384,348 1993
10.335 10.715 1,228,989 1992
10.000 10.355 513,367 1991
Colonial-Keyport U.S. Government Fund
("CKUSGF") 10.092 9.812 1,203,605 1994
10.000 10.092 1,393,092 1993
Mortgage Securities Income Fund ("MSIF") 14.529 14.104 3,002,643 1994
13.865 14.529 3,692,561 1993
13.269 13.865 3,006,271 1992
11.752 13.269 1,756,957 1991
10.923 11.752 601,483 1990
10.000 10.923 57,088 1989
Managed Income Fund ("MIF") 10.695 10.083 2,353,843 1994
10.000 10.695 2,671,432 1993
Colonial-Keyport Growth and Income Fund
("CKGIF") 10.428 10.207 2,866,727 1994
10.000 10.428 1,221,301 1993
Colonial-Keyport Strategic Income Fund
("CKSIF") 10.000 10.014 314,502 1994
Managed Assets Fund ("MAF") 15.785 15.071 8,164,856 1994
14.646 15.785 7,302,625 1993
13.811 14.646 4,438,508 1992
10.947 13.811 2,031,594 1991
11.183 10.947 1,027,228 1990
10.000 11.183 283,776 1989
Colonial-Keyport Utilities Fund ("CKUF") 9.762 8.638 4,028,555 1994
10.000 9.762 4,153,150 1993
Strategic Managed Assets Fund ("SMAF") 16.578 16.345 3,241,383 1994
16.492 16.578 3,164,084 1993
14.796 16.492 1,468,487 1992
10.832 14.796 413,805 1991
12.010 10.832 181,322 1990
10.000 12.010 40,720 1989
Managed Growth Stock Fund ("MGSF") 18.158 16.770 3,415,076 1994
17.541 18.158 3,278,749 1993
16.681 17.541 2,574,438 1992
11.426 16.681 1,294,859 1991
11.784 11.426 468,587 1990
10.000 11.784 135,505 1989
Colonial-Keyport U.S. Fund for Growth
("CKUSFG") 10.000 10.369 442,457 1994
Capital Appreciation Fund ("CAF") 21.236 21.192 4,371,837 1994
15.872 21.236 2,769,483 1993
14.058 15.872 1,128,248 1992
10.386 14.058 683,185 1991
11.578 10.386 216,272 1990
10.000 11.578 34,624 1989
Colonial-Keyport International Fund for Growth
("CKIFG") 10.000 9.314 872,971 1994
Newport-Keyport Tiger Fund ("NKTF") (Not available before 1995)
</TABLE>
7
<PAGE>
*Accumulation Unit values are rounded to the nearest tenth of a cent and
numbers of accumulation units are rounded to the nearest whole number. See
Appendix B (Page 28) for historical values for the contracts described in
that appendix.
**Except for CIF-DCA, MIF, and the seven Keyport Trust Funds, each $10.00
value is as of May 1, 1989, which is the date the Fund Sub-Account first
became available for Accumulation Units based on a 1.40% asset-based charge.
The $10.00 value for CIF-DCA, CKUSGF, CKGIF and CKUF is as of the date the
Fund Sub-Account first became available: May 1, 1991; July 7, 1993; July 1,
1993; and July 1, 1993, respectively. The unit values for the MIF, CKIFG,
CKSIF and CKUSFG Sub-Accounts were valued at $10.00 on February 1, 1993; May
2, 1994; July 5, 1994 and July 5, 1994, respectively. The unit value for the
NKTF Sub- Account will be valued at $10.00 when NKTF shares are first
purchased.
The full financial statements for the Variable Account and Keyport are in the
Statement of Additional Information.
The Variable Account may from time to time advertise certain performance
information concerning its various Sub-Accounts.
Keyport and the Variable Account have been offering contracts for periods
prior to the commencement of the offering of the Contracts described in this
prospectus. The performance information will be based on historical results
of Eligible Funds that apply to the Contract for the specified time periods.
This performance information is not intended to indicate either past
performance under an actual Contract or future performance. Moreover, the
performance information for each SteinRoe Trust Sub-Account other than MIF
and SMAF may reflect the investment experience of the current Eligible Funds
and Eligible Funds previously available under the Variable Account. The Funds
of the SteinRoe Variable Investment Trust replaced these other mutual funds
beginning January 1, 1989. These other funds had a different investment
adviser (Keystone Custodian Funds, Inc.) than the SteinRoe Trust (Stein Roe &
Farnham, Incorporated). See Appendix B on Page 28. Performance information
for periods prior to May 1, 1989 will reflect historical asset-based charges
that are at a lower level than the current asset-based charges.
The Sub-Accounts, other than CIF Sub-Account, may advertise total return
information for various periods of time. Total return performance information
is based on the overall percentage change in value of a hypothetical
investment in the specific Sub-Account over a given period of time.
Average annual total return information shows the average percentage change
in the value of an investment in the Sub- Account from the beginning date of
the measuring period to the end of that period. This standardized version of
average annual total return reflects all historical investment results, less
all charges and deductions applied against the Sub-Account and a Contract
(including any Contingent Deferred Sales Charge that would apply if a
Contract Owner surrendered the Contract at the end of each period indicated).
Average total return does not take into account any premium taxes and would
be lower if these taxes were included.
In order to calculate average annual total return, Keyport divides the change
in value of a Sub-Account under a Contract surrendered on a particular date
by a hypothetical $1,000 investment in the Sub-Account made by the Contract
Owner at the beginning of the period illustrated. The resulting total rate
for the period is then annualized to obtain the average annual percentage
change during the period. Annualization assumes that the application of a
single rate of return each year during the period will produce the ending
value, taking into account the effect of compounding.
The Sub-Accounts may present additional total return information computed on
a different basis.
First, the Sub-Accounts may present total return information computed on the
same basis as described above, except deductions will not include the
Contingent Deferred Sales Charge. This presentation assumes that the
investment in the Contract continues beyond the period when the Contingent
Deferred Sales Charge applies, consistent with the long-term investment and
retirement objectives of the Contract. The total return percentage will thus
be higher under this method than the standard method described above.
Second, the Sub-Accounts may present total return information calculated by
dividing the change in a Sub-Account's Accumulation Unit value over a
specified time period by the Accumulation Unit value of that Sub-Account at
the beginning of the period. This computation results in a 12-month change
rate or, for longer periods, a total rate for the period which Keyport
annualizes in order to obtain the average annual percentage change in the
Accumulation Unit value for that period. The change percentages do not take
into account the Contingent Deferred Sales Charge, the Contract Maintenance
Charge and premium taxes. The percentages would be lower if these charges
were included.
The CIF and CIF-DCA Sub-Accounts are money market Sub- Accounts that may
advertise yield and effective yield information. The yield of the Sub-Account
refers to the income generated by an investment in the Sub-Account over a
specifically identified 7-day period. This income is annualized by assuming
that the amount of income generated by the investment during that week is
generated each week over a 52-week period and is shown as a percentage. The
yield reflects the deduction of all charges assessed against the Sub-Account
and a Contract but does not take into account Contingent Deferred Sales
Charges and premium taxes. The yield would be lower if these charges were
included.
The effective yield of the Sub-Account is calculated in a similar manner but,
when annualizing such yield, income earned by the Sub-Account is assumed to
be reinvested. This compounding effect causes effective yield to be higher
than yield.
8
<PAGE>
KEYPORT AND THE VARIABLE ACCOUNT
Keyport Life Insurance Company was incorporated in Rhode Island in 1957 as a
stock life insurance company. Its executive and administrative offices are at
125 High Street, Boston, Massachusetts 02110 and its home office is at 235
Promenade Street, Providence, Rhode Island 02903.
Keyport writes individual life insurance and individual and group annuity
contracts on a non-participating basis. Keyport is licensed to do business in
all states except New York and is also licensed in the District of Columbia
and the Virgin Islands. Keyport has been rated A+ (Superior) by A.M. Best and
Company, independent analysts of the insurance industry. Keyport has been
rated A+ each year since 1976, the first year Keyport was subject to Best's
alphabetic rating system. Standard & Poor's ("S & P") has rated Keyport AA-
for excellent financial security, Moody's has rated Keyport A1 for good
financial strength and Duff & Phelps has rated Keyport AA- for very high
claims paying ability. The Best's A(plus) rating is in the highest rating
category, which also includes A(plus)(plus). S & P and Duff & Phelps have one
rating category above AA and Moody's has two rating categories above A. The
Moody's "1" modifier signifies that Keyport is in the higher end of the A
category while the S&P and Duff & Phelps "-" modifier signifies that Keyport
is at the lower end of the AA category. These ratings merely reflect the
opinion of the rating company as to the relative financial strength of
Keyport and Keyport's ability to meet its contractual obligations to its
policyholders. Even though assets in the Variable Account are held separately
from Keyport's other assets, ratings of Keyport may still be relevant to
Contract Owners since not all of Keyport's contractual obligations relate to
payments based on those segregated assets (e.g., see "Death Provisions" on
Pages 17-18 for Keyport's obligation after certain deaths to increase the
Contract Value if it is less than the guaranteed minimum death value amount).
Keyport is one of the Liberty Financial Companies. Keyport is ultimately
controlled by Liberty Mutual Insurance Company of Boston, Massachusetts, a
multi-line insurance and financial services institution.
The Variable Account was established by Keyport pursuant to the provisions of
Rhode Island Law on January 9, 1980. The Variable Account meets the
definition of "separate account" under the federal securities laws. The
Variable Account is registered with the Securities and Exchange Commission as
a unit investment trust under the Investment Company Act of 1940. Such
registration does not involve supervision of the management of the Variable
Account or Keyport by the Securities and Exchange Commission.
Obligations under the Contracts are the obligations of Keyport. Although the
assets of the Variable Account are the property of Keyport, these assets are
held separately from the other assets of Keyport and are not chargeable with
liabilities arising out of any other business Keyport may conduct. Income,
capital gains and/or capital losses, whether or not realized, from assets
allocated to the Variable Account are credited to or charged against the
Variable Account without regard to the income, capital gains, and/or capital
losses arising out of any other business Keyport may conduct. Thus, Keyport
does not guarantee the investment performance of the Variable Account. The
Variable Account Value and the amount of variable annuity payments will vary
with the investment performance of the investments in the Variable Account.
PURCHASE PAYMENTS AND APPLICATIONS
The initial purchase payment is due on the Issue Date. The minimum initial
purchase payment is $5,000. Additional purchase payments can be made at the
Contract Owner's option. Each subsequent purchase payment must be at least
$1,000 or such lesser amount as Keyport may permit from time to time
(currently $250). Keyport may reject any purchase payment.
If the application for a Contract is in good order and it calls for amounts
to be allocated to the Variable Account, Keyport will apply the initial
purchase payment to the Variable Account and credit the Contract with
Accumulation Units within two business days of receipt. If the application
for a Contract is not in good order, Keyport will attempt to get it in good
order within five business days. If it is not complete at the end of this
period, Keyport will inform the applicant of the reason for the delay and
that the purchase payment will be returned immediately unless the applicant
specifically consents to Keyport keeping the purchase payment until the
application is complete. Once it is complete, the purchase payment will be
applied within two business days of its completion. Keyport has reserved the
right to reject any application.
Keyport confirms, in writing, to the Contract Owner the allocation of all
purchase payments and the re-allocation of values after any requested
transfer. Keyport must be notified immediately by the Contract Owner of any
processing error.
Keyport will permit others to act on behalf of an applicant in two instances.
First, Keyport will accept an application for a Contract that contains a
signature signed under a power of attorney if a copy of that power of
attorney is submitted with the application. Second, Keyport will issue a
Contract that is not replacing an existing life insurance or annuity policy
without having previously received a signed application from the applicant.
Certain dealers will inform Keyport of an applicant's answers to the
questions in the application by telephone or by order ticket and cause the
initial purchase payment to be paid to Keyport. If the information is in good
order, Keyport will issue the Contract with a copy of an application
completed with that information. The Contract will be delivered to the
Contract Owner with a letter from Keyport that will give the Contract Owner
an opportunity to respond to Keyport if any of the application information is
incorrect. Alternatively, Keyport's letter may request the Contract Owner to
confirm the correctness of the information by signing either a copy of the
application or a Contract delivery receipt that ratifies the application in
all respects (in either case, a copy of the signed document would be returned
to Keyport for its permanent records). All purchases are confirmed, in
writing, to the applicant. Keyport's liability under a Contract extends only
to amounts so confirmed.
9
<PAGE>
INVESTMENTS OF THE VARIABLE ACCOUNT
Allocations of Purchase Payments
Purchase payments applied to the Variable Account will be invested in one or
more of the Eligible Fund Sub-Accounts designated as permissible investments
in accordance with the selection made by the Contract Owner in the
application. Any selection must specify the percentage of the purchase
payment that is allocated to each Sub- Account. The percentage for each
Sub-Account, if not zero, must be at least 10% and must be a whole number. A
Contract Owner may change the allocation percentages without fee, penalty or
other charge. Allocation changes must be made by Written Request unless the
Contract Owner has by Written Request authorized Keyport to accept telephone
allocation instructions from the Contract Owner or from a person acting for
the Contract Owner as an attorney-in-fact under a power of attorney. By
authorizing Keyport to accept telephone changes, a Contract Owner agrees to
accept and be bound by the conditions and procedures established by Keyport
from time to time. The current conditions and procedures are in Appendix C
and Contract Owners authorizing telephone allocation instructions will be
notified, in advance, of any changes.
The Variable Account is segmented into Sub-Accounts. Each Sub- Account
contains the shares of one of the Eligible Funds and such shares are
purchased at net asset value. Eligible Funds and SubAccounts may be added or
withdrawn as permitted by applicable law. The Sub-Accounts in the Variable
Account and the corresponding Eligible Funds currently are as follows:
<TABLE>
<CAPTION>
Eligible Funds of SteinRoe Variable Investment Trust Sub-Accounts
- ---------------------------------------------------------- -----------------------------
<S> <C>
Cash Income Fund ("CIF") CIF and CIF-DCA Sub-Accounts*
Mortgage Securities Income Fund ("MSIF") MSIF Sub-Account
Managed Income Fund ("MIF") MIF Sub-Account**
Managed Assets Fund ("MAF") MAF Sub-Account
Strategic Managed Assets Fund ("SMAF") SMAF Sub-Account**
Managed Growth Stock Fund ("MGSF") MGSF Sub-Account
Capital Appreciation Fund ("CAF") CAF Sub-Account
Eligible Funds of Keyport Variable Investment Trust Sub-Accounts
- ---------------------------------------------------------- -----------------------------
Colonial-Keyport U.S. Government Fund ("CKUSGF") CKUSGF Sub-Account**
Colonial-Keyport Growth and Income Fund ("CKGIF") CKGIF Sub-Account
Colonial-Keyport Strategic Income Fund ("CKSIF") CKSIF Sub-Account
Colonial-Keyport Utilities Fund ("CKUF") CKUF Sub-Account
Colonial-Keyport U.S. Fund for Growth ("CKUSFG") CKUSFG Sub-Account
Colonial-Keyport International Fund for Growth ("CKIFG") CKIFG Sub-Account
Newport-Keyport Tiger Fund ("NKTF") NKTF Sub-Account
</TABLE>
*The CIF-DCA Sub-Account is available only under previously issued Contracts
that allocated the initial purchase payment under Keyport's Value-Added
Dollar Cost Averaging program. This Sub- Account was not generally available
after July 31, 1993 for the allocation of any payment. See Appendix D on Page
36.
**The MIF, SMAF and CKUSGF Sub-Accounts are not available to receive either
allocations of new purchase payments or transfers of Contract Value.
Eligible Funds
The Eligible Funds which are the permissible investments of the Variable
Account are the separate funds of SteinRoe Variable Investment Trust, the
separate funds of Keyport Variable Investment Trust, and any other mutual
funds with which Keyport and the Variable Account may enter into a
participation agreement for the purpose of making such mutual funds available
as Eligible Funds under certain Contracts.
Stein Roe & Farnham Incorporated ("Stein Roe") is the investment adviser for
each Eligible Fund of SteinRoe Trust. In 1986, Stein Roe was organized and
succeeded to the business of Stein Roe & Farnham, a partnership. Stein Roe is
an affiliate of Keyport. Stein Roe and its predecessor have provided
investment advisory and administrative services since 1932.
Keyport Advisory Services Corp. ("KASC"), a subsidiary of Keyport, is the
manager for Keyport Trust and its Eligible Funds. Colonial Management
Associates, Inc. ("Colonial"), an affiliate of Keyport, serves as sub-adviser
for the Eligible Funds (except for Newport- Keyport Tiger Fund). Colonial has
provided investment advisory services since 1931. The portfolio of the
Colonial-Keyport International Fund for Growth is managed by Gartmore Capital
Management Ltd. The portfolio of the Colonial-Keyport U.S. Fund for Growth is
managed by State Street Global Advisors, a division of State Street Bank and
Trust Company. Newport Fund Management, Inc., an affiliate of Keyport, serves
as sub-adviser for the Newport-Keyport Tiger Fund.
The investment objectives of the Eligible Funds are briefly described below.
More detailed information, including investor considerations related to the
risks of investing in a particular Eligible Fund, may be found in the current
prospectus for that Fund. An investor should read that prospectus carefully
before selecting a fund for investing. The prospectus is available, at no
charge, from a salesperson or by writing Keyport at the address shown on Page
1 or by calling (800) 437-4466.
10
<PAGE>
<TABLE>
<CAPTION>
Eligible Funds of SteinRoe
Variable Investment Trust and
Variable Account Sub-Accounts Investment Objective
- ---------------------------------- --------------------------------------------------------------------------------
<S> <C>
Cash Income Fund High current income from short-term money market instruments while emphasizing
(CIF and CIF-DCA Sub-Accounts)* preservation of capital and maintaining excellent liquidity.
Mortgage Securities Income Fund Highest possible level of current income consistent with safety of principal and
(MSIF Sub-Account) maintenance of liquidity through investment primarily in mortgage- backed securities.
Managed Income Fund High current income, with capital preservation and appreciation as secondary
(MIF Sub-Account)** objectives.
Managed Assets Fund High total investment return through investment in a changing mix of securities.
(MAF Sub-Account)
Strategic Managed Assets Fund Maximum total investment return through aggressive investment in a changing mix
(SMAF Sub-Account)** of securities.
Managed Growth Stock Fund Long-term growth of capital through investment primarily in common stocks.
(MGSF Sub-Account)
Capital Appreciation Fund Capital growth by investing primarily in common stocks, convertible securities,
(CAF Sub-Account) and other securities selected for prospective capital growth.
*The CIF-DCA Sub-Account was not generally available after July 31, 1993 for
the allocation of an initial purchase payment. See Appendix D on Page 36.
**The MIF and SMAF Sub-Accounts are not available to receive either
allocations of new purchase payments or transfers of Contract Value.
Eligible Funds of Keyport
Variable Investment Trust and
Variable Account Sub-Accounts Investment Objective
- ---------------------------------- ------------------------------------------------------------------------------
Colonial-Keyport U.S. Government Fund A high level of current income, as is consistent with prudent risk, by investing
(CKUSGF Sub-Account)* exclusively in U.S. Government securities.
Colonial-Keyport Growth and Primarily income and long-term capital growth and, secondarily, preservation of
Income Fund capital.
(CKGIF Sub-Account)
Colonial-Keyport Strategic A high level of current income, as is consistent with prudent risk, and maximizing
Income Fund total return, by diversifying investments primarily in U.S. and foreign government
(CKSIF Sub-Account) and high yield, high risk corporate debt securities. The Fund may invest a substantial
portion of its assets in high yield, high risk bonds (commonly referred to as "junk
bonds").
Colonial-Keyport Utilities Fund Primarily current income and, secondarily, long-term capital growth.
(CKUF Sub-Account)
Colonial-Keyport U.S. Fund Growth exceeding over time the S&P 500 Index (Standard & Poor's Corporation Composite
for Growth Stock Price Index) performance.
(CKUSGF) Sub-Account)
Colonial-Keyport International Fund Long term capital growth, by investing primarily in non-U.S. equity securities.
for Growth The Fund is non-diversified and may invest more than 5% of its total assets in the
CKIFG Sub-Account) securities of a single issuer, thereby increasing the risk of loss compared to a
diversified fund.
Newport-Keyport Tiger Fund Long-term capital growth by investing primarily in equity securities of companies
(NKTF Sub-Account) located in the four Tigers of Asia (Hong Kong, Singapore, South Korea and Taiwan)
and other mini-Tigers of East Asia (Malaysia, Thailand, Indonesia, China and the
Philippines).
*The CKUSGF Sub-Account is not available for the allocation of new purchase
payments or for transfers of Contract Value.
</TABLE>
There is no assurance that the Eligible Funds will achieve their stated
objectives.
SteinRoe Variable Investment Trust is a funding vehicle for variable annuity
contracts and variable life insurance policies offered by separate accounts
of Keyport and of insurance companies affiliated and unaffiliated with
Keyport. Keyport Variable Investment Trust is a funding vehicle for variable
annuity contracts and variable life insurance policies offered by sepa-
11
<PAGE>
rate accounts of Keyport and of insurance companies affiliated with Keyport.
The risks involved in this "mixed and shared funding" are disclosed in the
Trusts' prospectuses under the caption "The Trust."
Dollar Cost Averaging
Keyport offers a dollar cost averaging program that Contract Owners may
participate in by Written Request. The program periodically transfers
Accumulation Units from the CIF Sub- Account or the One-Year Guarantee Period
of the Fixed Account to other Sub-Accounts selected by the Contract Owner.
The program allows a Contract Owner to invest in non-"money market"
Sub-Accounts over time rather than having to invest in those Sub-Accounts all
at once. The program is available for initial and subsequent purchase
payments and for Contract Value transferred into the CIF Sub-Account or
One-Year Guarantee Period. Under the program, Keyport makes automatic
transfers on a periodic basis out of the CIF Sub-Account or the One-Year
Guarantee Period into one or more of the other available Sub- Accounts
(Keyport reserves the right to limit the number of Sub- Accounts the Contract
Owner may choose but there are currently no limits). The One-Year Guarantee
Period option of the program is not available under Contracts issued to New
Jersey and Washington residents.
A transfer under the program will not be counted as a transfer for purposes of
the limitations in "Transfer of Variable Account Value" below. The automatic
transfer program does not guarantee a profit nor does it protect against loss
in declining markets. The program is described in detail in Appendix D on Page
36. Appendix D also describes the prior availability of the CKUSGF Sub-Account
for transfers out of it. Appendix D also describes the Value-Added Dollar Cost
Averaging Program (with its CIF-DCA Sub-Account), which was not generally
available after July 31, 1993 for the allocation of an initial purchase
payment.
Transfer of Variable Account Value
Contract Owners may transfer Variable Account Value from one Sub-Account to
another Sub-Account and/or to the Fixed Account.
The Contract allows Keyport to charge a transfer fee and to limit the number
of transfers that can be made in a specified time period. Contract Owners
should be aware that transfer limitations may prevent an Owner from making a
transfer on the date he or she wants to, with the result that the Owner's
future Contract Value may be lower than it would have been had the transfer
been made on the desired date.
Currently, Keyport is not charging a transfer fee but it is limiting transfers
to 12 per calendar year except as follows. For transfers under different
Contracts that are being requested under powers of attorney with a common
attorney-in-fact or that are, in Keyport's determination, based on the
recommendation of a common investment adviser or broker/dealer, the transfer
limitation is instead one transfer every 30 days.
Regardless of which transfer limitation is applicable, Keyport is also
limiting each transfer to a maximum of $500,000. All transfers requested for a
Contract on the same day will be treated as a single transfer and the total
combined transfer amount will be subject to the $500,000 limitation. If the
$500,000 limitation is exceeded, no amount of the transfer will be executed by
Keyport.
In applying the limitation of 12 transfers in a year of up to $500,000 apiece,
Keyport may treat as one transfer all transfers requested by a Contract Owner
for multiple Contracts he or she owns. If the $500,000 limitation is exceeded
for multiple transfers requested on the same day that are treated as a single
transfer, no amount of the transfer will be executed by Keyport.
In applying the limitation of one $500,000 transfer every 30 days, Keyport
will treat as one transfer all transfers requested under different Contracts
that are being requested under powers of attorney with a common
attorney-in-fact or that are, in Keyport's determination, based on the
recommendation of a common investment adviser or broker/dealer. If the
$500,000 limitation is exceeded for multiple transfers requested on the same
day that are treated as a single transfer, no amount of the transfer will be
executed by Keyport. If a transfer is executed under one Contract and, within
the next 30 days, a transfer request for another Contract is determined by
Keyport to be related to the executed transfer under this paragraph's rules,
the transfer request will not be executed by Keyport (in order for it to be
executed, it would need to be requested again after the 30 day period and it,
along with any other transfer requests that are collectively treated as a
single transfer, would need to total less than $500,000).
Keyport's interest in applying these limitations is to protect the interests
of both Contract Owners who are not engaging in significant transfer activity
and Contract Owners who are engaging in such activity. Keyport has determined
that the actions of Contract Owners engaging in significant transfer activity
among Sub-Accounts may cause an adverse affect on the performance of the
underlying Fund for the Sub-Account involved. The movement of Sub-Account
values from one Sub-Account to another may prevent the appropriate underlying
Fund from taking advantage of investment opportunities because it must
maintain a liquid position in order to handle redemptions. Such movement may
also cause a substantial increase in Fund transaction costs which must be
indirectly borne by Contract Owners.
Contract Owners will be notified, in advance, of the imposition of any
transfer fee or of a change in the limitation on the number of transfers.
Keyport does not guarantee any maximum transfer fee that it may charge, but
the fee will not exceed the cost of effecting a transfer. Contracts delivered
in Pennsylvania, South Carolina and Texas contain a stated maximum of $15 per
transfer.
12
<PAGE>
Transfers must be made by Written Request unless the Contract Owner has by
Written Request authorized Keyport to accept telephone transfer requests from
the Contract Owner or from a person acting for the Contract Owner as an
attorney-in-fact under a power of attorney. By authorizing Keyport to accept
telephone transfer instructions, a Contract Owner agrees to accept and be
bound by the conditions and procedures established by Keyport from time to
time. The current conditions and procedures are in Appendix C and Contract
Owners authorizing telephone transfers will be notified, in advance, of any
changes. Written transfer requests may be made by a person acting for the
Contract Owner as an attorney-in-fact under a power of attorney.
Transfer requests received by Keyport before the close of trading on the New
York Stock Exchange (currently 4:00 PM Eastern Time) will be initiated at the
close of business that day. Any requests received later will be initiated at
the close of the next business day. Each request from a Contract Owner to
transfer value will be executed by both redeeming and acquiring Accumulation
Units on the day Keyport initiates the transfer.
For all transfers other than those defined in the prior paragraph, each
request from a Contract Owner to transfer value will be executed by both
redeeming and acquiring Accumulation Units on the day Keyport initiates the
transfer (see above).
If 100% of any Sub-Account's value is transferred and the allocation formula
for purchase payments includes that Sub- Account, then the allocation formula
for future purchase payments will automatically change unless the Contract
Owner instructs otherwise. For example, if the allocation formula is 50% to
Sub-Account A and 50% to Sub-Account B and all of Sub- Account A's value is
transferred to Sub-Account B, the allocation formula will change to 100% to
Sub-Account B unless the Contract Owner instructs otherwise.
Substitution of Eligible Funds and Other Variable Account Changes
If the shares of any of the Eligible Funds should no longer be available for
investment by the Variable Account or if in the judgment of Keyport's
management further investment in such fund shares should become inappropriate
in view of the purpose of the Contract, Keyport may add or substitute shares
of another Eligible Fund or of another mutual fund for Eligible Fund shares
already purchased under the Contract. No substitution of Fund shares in any
Sub-Account may take place without prior approval of the Securities and
Exchange Commission and notice to Contract Owners, to the extent required by
the Investment Company Act of 1940.
Keyport has also reserved the right, subject to compliance with the law as
currently applicable or subsequently changed: (a) to operate the Variable
Account in any form permitted under the Investment Company Act of 1940 or in
any other form permitted by law; (b) to take any action necessary to comply
with or obtain and continue any exemptions from the Investment Company Act of
1940 or to comply with any other applicable law; (c) to transfer any assets in
any Sub-Account to another Sub- Account, or to one or more separate investment
accounts, or to Keyport's general account; or to add, combine or remove Sub-
Accounts in the Variable Account; and (d) to change the way Keyport assesses
charges, so long as the aggregate amount is not increased beyond that
currently charged to the Variable Account and the Eligible Funds in connection
with the Contracts.
DEDUCTIONS
Deductions for Contract Maintenance Charge
Keyport has responsibility for all administration of the Contracts and the
Variable Account. This administration includes, but is not limited to,
preparation of the Contracts, maintenance of Contract Owners' records, and all
accounting, valuation, regulatory and reporting requirements. Keyport makes a
Contract Maintenance Charge for such services. At the present time the
Contract Maintenance Charge is $36.00 per Contract Year. PRIOR TO THE INCOME
DATE THE CONTRACT MAINTENANCE CHARGE IS NOT GUARANTEED AND MAY BE CHANGED BY
KEYPORT. The Contract Maintenance Charge of any Contract delivered in
Pennsylvania, South Carolina, or Texas may not be changed by Keyport to exceed
$100 per year. There is no such limit under Contracts delivered in other
jurisdictions, but the charge will not exceed the yearly costs of
administering the Contract.
Prior to the Income Date, the full amount of the charge will be deducted from
the Variable Account Value on each Contract Anniversary and on the date of any
total surrender not falling on the Contract Anniversary. On the Income Date, a
pro-rata portion of the charge due on the next Contract Anniversary will be
deducted from the Variable Account Value. This pro-rata charge covers the
period from the prior Contract Anniversary to the Income Date. For example, if
the Income Date occurs 73 days after that prior anniversary, then one-fifth
(i.e., 73 days/365 days) of the annual charge would be deducted on the Income
Date. The charge will be deducted from each Sub-Account in the proportion that
the value of each bears to the Variable Account Value.
Once annuity payments begin on the Income Date or once they begin after
surrender benefits are applied under a settlement option, the yearly cost of
the Contract Maintenance Charge for a payee's annuity will be the same as the
yearly amount in effect immediately before the annuity payments begin. Keyport
may not later change the amount of the Contract Maintenance Charge deducted
from the annuity payments. The charge will be deducted on a pro-rata basis
from each annuity payment. For example, if annuity payments are monthly, then
one-twelfth of the annual charge will be deducted from each payment.
13
<PAGE>
Deductions for Mortality and Expense Risk Charge
Although variable annuity payments made to Annuitants will vary in accordance
with the investment performance of the investments of the Variable Account,
they will not be affected by the mortality experience (death rate) of persons
receiving such payments or of the general population. Keyport guarantees
certain total surrenders after the death of the Annuitant or Contract Owner
will not result in payments that are reduced by a Contingent Deferred Sales
Charge or in payments that are lower than the amount of purchase payments less
any prior partial surrenders. Keyport assumes an expense risk since the Con-
tract Maintenance Charge after the Income Date will stay the same and not be
affected by variations in expenses.
To compensate it for assuming these mortality and expense risks, for each
Valuation Period Keyport deducts from each Sub- Account (other than the
CIF-DCA Sub-Account from which no deduction is made) a Mortality and Expense
Risk Charge equal on an annual basis to 1.25% of the average daily net asset
value of the Sub-Account. The charge is deducted during both the accumulation
and annuity periods (i.e., both before and after the Income Date). Less than
the full charge will be deducted from Sub-Account values attributable to
Contracts issued to employees of Keyport and other persons specified in
"Distribution of the Contract" on Page 24.
Deductions for Daily Sales Charge
Keyport also deducts from each Sub-Account (other than the CIF-DCA Sub-Account
from which no deduction is made) each Valuation Period a sales charge equal on
an annual basis to 0.15% of the average daily net asset value of the
Sub-Account. This charge compensates Keyport for certain sales distribution
expenses relating to the Contract. This charge will not be deducted from
Sub-Account values attributable to Contracts that have reached the maximum
cumulative sales charge limit defined in the next section and to Contracts
issued to employees of Keyport and other persons specified in "Distribution of
the Contract" on Page 24. The charge is also not deducted from Sub-Account
values attributable to Annuity Units. Keyport may decide not to deduct the
charge from Sub-Account values attributable to a Contract issued in an
internal exchange or transfer of an annuity contract of Keyport's general
account.
Deductions for Contingent Deferred Sales Charge
A sales charge is not deducted from the Contract's purchase payments when
initially received. However, a Contingent Deferred Sales Charge may be
deducted upon a surrender.
In order to determine whether a Contingent Deferred Sales Charge will be due
upon a partial or total surrender, Keyport maintains a separate set of
records. These records identify the date and amount of each purchase payment
made to the Contract and the Contract Value over time.
A surrender in any Contract Year will be free of Contingent Deferred Sales
Charge to the extent the surrender amount does not exceed the Contract's
increase in value at that time. The increase in value is equal to: the
Contract Value at the time of surrender; less that portion of purchase
payments that are still remaining at the time of surrender.
After the first Contract Year, Keyport guarantees that a minimum amount of
Contract Value will be free of Contingent Deferred Sales Charge each year.
This amount is equal to 10% of the Contract Value at the beginning of each
Contract Year (i.e., on the Contract Anniversary). This 10% amount will be
reduced by the amount of each surrender in a year that represents the
Contract's increase in value. The portion of any surrender in excess of this
increase in value but not in excess of the remaining 10% amount will be free
of Contingent Deferred Sales Charge. This portion will be deducted from the
purchase payments in chronological order from the oldest to the most recent
until the amount is fully deducted. Any amount so deducted will not be subject
to a charge.
The following additional amounts will be deducted from the purchase payments
in the same chronological order: the amount of any surrender in the first
Contract Year in excess of the Contract's increase in value at the time of
surrender; and the amount of any surrender in any later Contract Year in
excess of the Contract's increase in value at the time of surrender (or in
excess of the 10% limit if it applies). The Contingent Deferred Sales Charge
for each purchase payment from which a deduction is made will be equal to (a)
multiplied by (b), where:
(a) is the amount so deducted; and
(b) is the applicable percentage for the number of years that have elapsed
from the date of that payment to the date of surrender. Years are
measured from the month and day of payment to the same month and day in
each subsequent calendar year. The percentages applicable to each
purchase payment during the seven years after the date of its payment
are: 7% during year 1; 6% during year 2; 5% during year 3; 4% during
year 4; 3% during year 5; 2% during year 6; 1% during year 7; and 0%
thereafter.
The applicable Contingent Deferred Sales Charges for each purchase payment are
then totalled. The lesser of this total amount and the Contract's maximum
cumulative sales charge will be deducted from the Contract Value in the same
manner as the surrender amount. The maximum cumulative sales charge is equal
to (a) less (b), where (a) is 8.5% of the total purchase payments made to the
Contract and (b) is the sum of all prior Contingent Deferred Sale Charge
deductions from the Contract Value and all prior Variable Account sales
charges applicable to the Contract from the 0.15% sales charge factor. After
each surrender, Keyport's records will be adjusted to reflect any deductions
made from the applicable purchase payments.
Example: Two purchase payments were made one year apart for $5,000 and $7,000.
The Contract Value has grown to an assumed $13,200 when the Owner decides to
withdraw $8,000. The Contract Value at the beginning of the Contract Year of
surrender was
14
<PAGE>
$13,000. The Contingent Deferred Sales Charge percentages at the time of
surrender are an assumed 5% for the $5,000 payment and 6% for the $7,000
payment. The portion of the surrender representing the Contract's increase in
value ($13,200 less $12,000, or $1,200) would not be subject to charges.
Since $1,200 is less than the amount guaranteed not to have charges (10% of
$13,000, or $1,300), an additional $100 would not be subject to charges. This
$100 would be deducted from the oldest purchase payment, reducing it from
$5,000 to $4,900. The $1,200 increase in value plus the additional $100
leaves $6,700 ($8,000 - 1,200 - 100) to be deducted. This $6,700 would be
deducted from the $4,900 of the first payment still left and $1,800 of the
second payment. The total Contingent Deferred Sales Charge would be $4,900
multiplied by the applicable 5% and $1,800 times the applicable 6%, or a
total of $353. The sales charge records would now reflect $0 for the 1st
payment and $5,200 for the 2nd payment. The $8,000 requested plus the $353
charge would be deducted from Contract Values under the rules specified in
the "Surrenders" section on Page 18.
The Contingent Deferred Sales Charge, when it is applicable, will be used to
cover the expenses of selling the Contract, including compensation paid to
selling dealers and the cost of sales literature. Any expenses not covered by
the Charge will be paid from Keyport's general account, which may include
monies deducted from the Variable Account for the Mortality and Expense Risk
Charge. A dealer selling the Contract can receive up to 6% of purchase
payments with additional compensation later based on the Contract Value of
those payments. During certain time periods selected by Keyport and the
Principal Underwriter, the percentage may increase to 6.25%.
The Contingent Deferred Sales Charge will be eliminated under Contracts issued
to employees of Keyport and other persons specified in "Distribution of the
Contract" on Page 24.
Keyport may reduce or change to 0% any Contingent Deferred Sales Charge
percentage under a Contract issued in an internal exchange or transfer of an
annuity contract of Keyport's general account.
Keyport may establish a program to allow a Contract Owner to request
systematic partial surrenders in the first Contract Year up to a total of 10%
of the initial purchase payment to the Contract. Under such a program, Keyport
may waive the Contingent Deferred Sales Charge on the amount of any partial
surrender that is in excess of the Contract's increase in value (defined in
the third paragraph of this section) at the time the surrender occurs. Any
such excess surrender amount will not be deducted from the initial purchase
payment under the procedure described in the fourth paragraph of this section.
This means that the waiver of Contingent Deferred Sales Charge is not a
permanent waiver and the Charge can potentially be collected by Keyport in the
event the Contract Owner later makes a non-systematic partial or total
surrender.
Deductions for Transfers of Variable Account Value
The Contract allows Keyport to charge a transfer fee. Currently no fee is
being charged. Contract Owners will be notified, in advance, of the imposition
of any fee. Keyport does not guarantee any maximum transfer fee that it may
charge, but the fee will not exceed the cost of effecting a transfer.
Contracts delivered in Pennsylvania, South Carolina and Texas contain a stated
maximum of $15 per transfer.
Deductions for Premium Taxes
Keyport deducts the amount of any premium taxes levied by any state or
governmental entity when paid unless Keyport elects to defer such deduction.
It is not possible to describe precisely the amount of premium tax payable on
any transaction involving the Contract offered hereby. Such premium taxes
depend, among other things, on the type of Contract (Qualified or
Non-Qualified), on the state of residence of the Contract Owner, the state of
residence of the Annuitant, the status of Keyport within such states, and the
insurance tax laws of such states. Currently such premium taxes range from 0%
to 5.0% of either total purchase payments or Contract Value.
Deductions for Income Taxes
Keyport will deduct from any amount payable under the Contract any income
taxes that a governmental authority requires Keyport to withhold with respect
to that amount. See "Income Tax Withholding" and "Tax-Sheltered Annuities" on
Page 22.
Total Expenses
The Variable Account's total expenses in relation to the Contract will be the
Contract Maintenance Charge, the Mortality and Expense Risk Charge, and the
Daily Sales Charge.
The value of the assets in the Variable Account will reflect the value of
Eligible Fund shares and therefore the deductions from and expenses paid out
of the assets of the Eligible Funds. These deductions and expenses are
described in the Eligible Fund prospectus.
THE CONTRACTS
Variable Account Value
The Variable Account Value for a Contract is the sum of the value of each
Sub-Account to which values are allocated under a Contract. The value of each
Sub-Account is determined at any time by multiplying the number of
Accumulation Units attributable to that Sub-Account by the Accumulation Unit
value for that Sub-Account at the time of determination. The Accumulation Unit
value is an accounting unit of measure used to determine the change in an
Accumulation Unit's value from Valuation Period to Valuation Period.
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Each purchase payment that is made results in additional Accumulation Units
being credited to the Contract and the appropriate Sub-Account thereunder. The
number of additional units for any Sub-Account will equal the amount allocated
to that Sub-Account divided by the Accumulation Unit value for that Sub-
Account at the time of investment.
Valuation Periods
The Variable Account is valued each Valuation Period using the net asset
value of the Eligible Fund shares. A Valuation Period is the period
commencing at the close of trading on the New York Stock Exchange on each
Valuation Date and ending at the close of trading for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock Exchange
is open for business. The New York Stock Exchange is currently closed on
weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Net Investment Factor
Variable Account Value will fluctuate in accordance with the investment
results of the underlying Eligible Funds. In order to determine how these
fluctuations affect value, Keyport utilizes an Accumulation Unit value. Each
Sub-account has its own Accumulation Units and value per Unit. The Unit value
applicable during any Valuation Period is determined at the end of that
period.
When Keyport first purchased Eligible Fund shares on behalf of the Variable
Account, Keyport valued each Accumulation Unit at $10. The Unit value for each
Sub-Account in any Valuation Period thereafter is determined by multiplying
the value for the prior period by a net investment factor. This factor may be
greater or less than 1.0; therefore, the Accumulation Unit may increase or
decrease from Valuation Period to Valuation Period. Keyport calculates a net
investment factor for each Sub-Account by dividing (a) by (b) and then
subtracting (c) (i.e., (a / b) -- c), where:
(a) is equal to:
(i) the net asset value per share of the Eligible Fund at the end of the
Valuation Period; plus
(ii) the per share amount of any distribution made by the Eligible Fund
if the "ex-dividend" date occurs during that same Valuation Period.
(b) is the net asset value per share of the Eligible Fund at the end of the
prior Valuation Period.
(c) is equal to:
(i) the Valuation Period equivalent of the 1.25% per year Mortality and
Expense Risk Charge; plus
(ii) the Valuation Period equivalent of the .15% per year sales charge;
plus
(iii) a charge factor, if any, for any tax provision established by
Keyport as a result of the operations of that Sub-Account.
For the CIF-DCA Sub-Account only, (c)(i) and (c)(ii) above are not applicable.
If a Contract ever reaches the maximum cumulative sales charge limit defined
in "Deductions for Contingent Deferred Sales Charge", Unit values without
(c)(ii) above will be used thereafter. For Contracts issued to employees of
Keyport and other persons specified in "Distribution of the Contract" on Page
24, Unit values with .35% in (c)(i) above and without (c)(ii) above will be
used. Unit values without (c)(ii) above may be used for certain Contracts
issued in an internal exchange or transfer (see "Deductions for Daily Sales
Charges" on Page 14).
Modification of the Contract
Only Keyport's President or Secretary may agree to alter the Contract or waive
any of its terms. Any changes must be made in writing and with the Contract
Owner's consent, except as may be required by applicable law.
Right to Revoke
The Contract Owner may return the Contract within 10 days after he or she
receives it by delivering or mailing it to Keyport's Office. The return of the
Contract by mail will be effective when the postmark is affixed to a properly
addressed and postage- prepaid envelope. The returned Contract will be treated
as if Keyport never issued it and Keyport will refund: (a) the initial
purchase payment for Contracts delivered in Connecticut, Georgia, Idaho, North
Carolina, South Carolina, Utah, Washington and West Virginia; (b) the Contract
Value for Contracts delivered in Arizona, California if the Contract Owner is
age 60 or older (see below), Kansas, Minnesota, North Dakota and Pennsylvania;
and (c) the lesser of the initial purchase payment or the Contract Value for
Contracts delivered elsewhere, including in California if the Contract Owner
is under age 60.
For Contracts delivered in California to a Contract Owner age 60 or older, the
Contract Owner may return the Contract to Keyport's Office or to the agent
from whom the Contract was purchased. If the Contract is received at Keyport's
Office or by the agent within 30 days after the Owner receives the Contract,
Keyport will refund the Contract Value.
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DEATH PROVISIONS FOR NON-QUALIFIED CONTRACTS
Death of Primary Owner, Joint Owner or Certain Non-Owner Annuitant
These provisions apply if, before the Income Date while the Contract is In
Force, the primary Owner or any joint Owner dies (whether or not the decedent
is also the Annuitant) or the Annuitant dies under a Contract with a
non-natural Owner such as a trust. The Designated Beneficiary will control
the Contract after such a death.
The covered person under this paragraph shall be the primary Owner or, if
there is a non-natural Owner such as a trust, the Annuitant shall be the
covered person. If the covered person dies, the Contract Value will be
increased, as provided below, if it is less than the guaranteed minimum death
value amount ("GMDV"). Except for Contracts issued to New Jersey, South
Carolina and Vermont residents and certain previously issued Contracts, the
GMDV is the greater of:
(a) the sum of all purchase payments made through the date of death, less
all partial surrenders made through the date of death; and
(b-1) Keyport will compute an "Anniversary Value" for each Contract
Anniversary (if any) before the 81st birthday of the covered person and
Keyport will use the greatest of such "Anniversary Values". The
"Anniversary Value" for each applicable Contract Anniversary initially
equals the Contract Value on that Anniversary. It is then increased by
any purchase payments made from that Anniversary until the date of
death, and decreased by the following amount at the time of each partial
surrender made from that Anniversary until the date of death: the
partial surrender amount divided by the Contract Value right before the
surrender, multiplied by the "Anniversary Value" right before the
surrender.
For Contracts issued to New Jersey, South Carolina and Vermont residents, the
GMDV is the greater of (a) above and (b-2) the Contract Anniversary on the
seventh Contract Anniversary, plus any purchase payments made from that
Anniversary until the date of death, less any partial surrenders made from
that Anniversary until the date of death. Once the insurance department of
one of the three states listed above has approved Keyport's change to the
death provisions (you or your agent should call 800-437-4466 to see if the
change has been approved in your state), Contracts subsequently issued to
residents of that state will have a GMDV that is the greater of (a) and (b-1)
above.
The GMDV will be different for any Contract issued on or after July 1, 1993
using application form number FLEX-APP(REV)3, FLEX-APP-OH(REV)3 or
FLEX-APP-PA(REV)3, but before the later of July 5, 1994 and the date the
insurance department of the state of issue of a Contract has approved
Keyport's change to the death provisions, (you or your agent should call
800-437-4466 to see if (and when) the change has been approved in your
state). The GMDV for such a Contract is the greatest of (a), (b-1) and (b-2)
above.
When Keyport receives due proof of the covered person's death, Keyport will
compare, as of the date of death, the Contract Value to the GMDV. If the
Contract Value was less than the GMDV, Keyport will increase the current
Contract Value by the amount of the difference. Note that while the amount of
the difference is determined as of the date of death, that amount is not
added to the Contract Value until Keyport receives due proof of death. The
amount to be credited will be allocated to the Variable Account and/or the
Fixed Account based on the purchase payment allocation selection that is in
effect when Keyport receives due proof of death. Whether or not the Contract
Value is increased because of this minimum death provision, the Designated
Beneficiary may surrender the Contract within 90 days of the date of the
covered person's death for the Contract Value (i.e., any applicable
Contingent Deferred Sales Charge will be waived). For a surrender after 90
days and for a surrender at any time after the death of a non-covered person,
the Surrender Value is payable instead. If the Contract is not surrendered,
it will stay in force for the time period specified below.
If the decedent's surviving spouse (if any) is the sole Designated
Beneficiary, the surviving spouse will automatically become the new sole
primary Owner as of the decedent's date of the death. And, if the Annuitant
is the decedent, the new Annuitant will be any living contingent annuitant,
otherwise the surviving spouse. The Contract can stay in force until another
death occurs (i.e., until the death of the Annuitant, primary Owner or joint
Owner). Except for this paragraph, all of "Death Provisions" will apply to
that subsequent death.
In all other cases, the Contract can stay in force up to five years from the
date of death. During this period, the Designated Beneficiary may exercise
all ownership rights, including the right to make transfers or partial
surrenders or the right to totally surrender the Contract for its Surrender
Value. If the Contract is still in force at the end of the five-year period,
Keyport will automatically end it then by paying the Contract Value to the
Designated Beneficiary. If the Designated Beneficiary is not alive then,
Keyport will pay any person(s) named by the Designated Beneficiary in a
Written Request; otherwise the Designated Beneficiary's estate.
Payment of Benefits
Instead of receiving a lump sum, the Owner or any Designated Beneficiary may
direct by Written Request that Keyport pay any benefit of $5,000 or more
under an annuity payment option that meets the following: (a) the first
payment to the Designated Beneficiary must be made no later than one year
after the date of death; (b) payments must be made over the life of the
Designated Beneficiary or over a period not extending beyond that person's
life expectancy; and (c) any payment option that
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provides for payments to continue after the death of the Designated
Beneficiary will not allow the successor payee to extend the period of time
over which the remaining payments are to be made.
Death of Certain Non-Owner Annuitant
These provisions apply if, before the Income Date while the Contract is In
Force, (a) the Annuitant dies, (b) the Annuitant is not an Owner, and (c) the
Owner is a natural person. The Contract will continue in force after the
Annuitant's death. The new Annuitant will be any living contingent annuitant,
otherwise the primary Owner.
DEATH PROVISIONS FOR QUALIFIED CONTRACTS
Death of Annuitant
If the Annuitant dies before the Income Date while the Contract is In Force,
the Designated Beneficiary will control the Contract after such a death. The
Contract Value will be increased, as provided below, if it is less than the
guaranteed minimum death value amount ("GMDV"). The GMDV is the amount
defined on page 17. When Keyport receives due proof of the Annuitant's death,
Keyport will compare, as of the date of death, the Contract Value to the
GMDV. If the Contract Value was less than the GMDV, Keyport will increase the
current Contract Value by the amount of the difference. Note that while the
amount of the difference is determined as of the date of death, that amount
is not added to the Contract Value until Keyport receives due proof of death.
The amount to be credited will be allocated to the Variable Account and/or
the Fixed Account based on the purchase payment allocation selection that is
in effect when Keyport receives due proof of death. Whether or not the
Contract Value is increased because of this minimum death provision, the
Designated Beneficiary may surrender the Contract within 90 days of the date
of the Annuitant's death for the Contract Value (i.e., any applicable
Contingent Deferred Sales Charge will be waived). For a surrender after 90
days, the Surrender Value is payable instead.
If the Contract is not surrendered, it can stay in force for the time period
permitted by the Internal Revenue Code provisions applicable to the
particular Qualified Plan. During this period, the Designated Beneficiary may
exercise all ownership rights, including the right to make transfers or
partial surrenders or the right to totally surrender the contract for its
Surrender Value. If the Contract is still in force at the end of the period,
Keyport will automatically end it then by paying the Contract Value to the
Designated Beneficiary. If the Designated Beneficiary is not alive then,
Keyport will pay any person(s) named by the Designated Beneficiary in a
Written Request; otherwise the Designated Beneficiary's estate.
Payment of Benefits
Instead of receiving a lump sum, the Owner or any Designated Beneficiary may
direct by Written Request that Keyport pay any benefit of $5,000 or more
under an annuity payment option that meets the following: (a) the first
payment to the Designated Beneficiary must be made no later than one year
after the date of death; (b) payments must be made over the life of the
Designated Beneficiary or over a period not extending beyond that person's
life expectancy; and (c) any payment option that provides for payments to
continue after the death of the Designated Beneficiary will not allow the
successor payee to extend the period of time over which the remaining
payments are to be made.
OWNERSHIP
The Contract Owner shall be the person designated in the application. The
Contract Owner may exercise all the rights of the Contract.
Joint Owners are permitted but not contingent Owners.
The Contract Owner may by Written Request change the Owner, primary
beneficiary, contingent beneficiary or contingent annuitant. An
irrevocably-named person may be changed only with the written consent of such
person.
Because a change of Owner by means of a gift (i.e., a transfer without full
and adequate consideration) may be a taxable event, a Contract Owner should
consult a competent tax adviser as to the tax consequences resulting from
such a transfer.
Any Qualified Contract may have limitations on transfer of ownership. A
Contract Owner should consult a competent tax adviser as to the tax
consequences resulting from such a transfer.
ASSIGNMENT
The Contract Owner may assign the Contract at any time. A copy of any
assignment must be filed with Keyport. The Contract Owner's rights and those
of any revocably-named person will be subject to the assignment. Any
Qualified Contract may have limitations on assignability.
Because an assignment may be a taxable event, a Contract Owner should consult
a competent tax adviser as to the tax consequences resulting from any such
assignment.
SURRENDERS
The Contract Owner may partially surrender the Contract. Keyport must receive
a Written Request and the minimum amount to be surrendered must be at least
$300 or such lesser amount as Keyport may permit in conjunction with a
program of systematic par- tial surrenders. If the Contract Value after a
partial surrender would be below $2,500, Keyport will treat the request as a
surrender of only the excess amount over $2,500. The amount surrendered will 21
include any applicable Contingent Deferred Sales Charge and
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therefore the amount actually surrendered may be greater than the amount of
the surrender check requested. Unless the request specifies otherwise, the
total amount surrendered will be deducted from all Sub-Accounts of the
Variable Account in the proportion that the value in each Sub-Account bears
to the total Variable Account Value. If there is no value, or insufficient
value, in the Variable Account, then the amount surrendered, or the
insufficient portion, will be deducted from the Fixed Account.
The Contract Owner may totally surrender the Contract by making a Written
Request. Surrendering the Contract will end it. The Surrender Value is equal
to the Contract Value for the Valuation Period during which Keyport has
received the request less: the Contract Maintenance Charge if there is any
Variable Account Value; any applicable Contingent Deferred Sales Charge; and
any applicable premium taxes not previously deducted.
Keyport will pay the amount of any surrender within seven days of receipt of
such request. Alternatively, the Contract Owner may purchase for himself or
herself an annuity payment option with any surrender benefit of at least
$5,000. Keyport's consent is needed to choose an option if the Contract Owner
is not a natural person.
Settlement Options based on life contingencies cannot be surrendered after
annuity payments have begun. Settlement Option 1, which is not based on life
contingencies, may be surrendered as described on Page 20.
Because of the potential tax consequences of a full or partial surrender, a
Contract Owner should consult a competent tax adviser regarding a surrender.
ANNUITY PROVISIONS
Annuity Benefits
If the Annuitant is alive on the Income Date and the Contract is In Force,
payments will begin under the payment option or options the Contract Owner has
chosen. The amount of the payments will be determined by applying the Contract
Value (less any premium taxes not previously deducted and less any applicable
Contract Maintenance Charge) on the Income Date in accordance with the option
selected.
Income Date and Settlement Option
The Contract Owner may select an Income Date and Settlement Option at the time
of application. If the Contract Owner does not select a Settlement Option,
Option 2 will automatically be designated. If the Contract Owner does not
select an Income Date for the Annuitant, the Income Date will automatically be
the first day of the calendar month following the later of the Annuitant's
75th birthday or the 10th Contract Anniversary.
Change in Income Date and Settlement Option
The Contract Owner may choose or change a Settlement Option or the Income Date
by making a Written Request to Keyport at least 30 days prior to the Income
Date. However, any Income Date must be: (a) for variable annuity payment
options, not earlier than the second calendar month after the Issue Date
(e.g., if the Issue Date is in January, the earliest Income Date is March 1);
(b) for fixed annuity options, not earlier than the first calendar month after
the end of the first Contract Year; (c) not later than the calendar month
after the Annuitant's 90th birthday; and (d) the first day of a calendar
month.
Settlement Options
The payment options are:
Option 1: Income for a Fixed Number of Years;
Option 2: Life Income with 10 Years of Payments Guaranteed; and
Option 3: Joint and Last Survivor Income.
Other options may be arranged by mutual consent. Each option is available in
two forms--as a variable annuity for use with the Variable Account and as a
fixed annuity for use with the Fixed Account. Variable annuity payments will
fluctuate while fixed annuity payments will not. (See Appendix A on Page 25
for a discussion of fixed annuity payments.) Unless the Owner chooses
otherwise, Variable Account Value will be applied to a variable annuity
option and Fixed Account Value will be applied to a fixed annuity option.
Whether variable or fixed, the same Contract Value applied to each option
will produce a different initial annuity payment as well as different
subsequent payments.
The payee is the person who will receive the sum payable under a payment
option. Any payment option that provides for payments to continue after the
death of the payee will not allow the successor payee to extend the period of
time over which the remaining payments are to be made.
If the amount available to apply under any variable or fixed option is less
than $5,000, Keyport has reserved the right to pay such amount in one sum to
the payee in lieu of the payment otherwise provided for.
Annuity payments will be made monthly unless quarterly, semi-annual or
annual payments are chosen by Written Request. However, if any payment
provided for would be or becomes less than $100, Keyport has the right to
reduce the frequency of payments to such an interval as will result in each
payment being at least $100.
Option 1: Income For a Fixed Number of Years. Keyport will pay an annuity for
a chosen number of years, not less than 5 nor over 50 (a period of years over
30 may be chosen only if it does not exceed the difference between age 100
and the Annuitant's age on the date of the first payment). At any time while
variable annuity payments are being made, the payee
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may elect to receive the following amount: (a) the present value of the
remaining payments, commuted at the interest rate used to create the annuity
factor for this option (this interest rate is 6% per year (5% per year for
Oregon Contracts), unless 3% per year is chosen by Written Request); less (b)
any Contingent Deferred Sales Charge due by treating the value defined in (a)
as a total surrender. (See "Deductions for Contingent Deferred Sales Charge"
on Page 14). Instead of receiving a lump sum, the payee can elect another
payment option and the amount applied to the option will not be reduced by
the charge defined in (b) above. If, at the death of the payee, Option 1
payments have been made for less than the chosen number of years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present value
of the remaining payments, commuted at the interest rate used to create
the annuity factor for this option. For the variable annuity, this
interest rate is 6% per year (5% per year for Oregon Contracts), unless 3%
per year is chosen by Written Request.
The Mortality and Expense Risk Charge is deducted during the Option 1 payment
period but Keyport has no mortality risk during this period.
If annual payments are chosen for Option 1, Keyport has available a
"stabilizing" payment option that can be chosen. Each annual payment will be
determined as described below in "Variable Annuity Payment Values". Each
annual payment will then be placed in Keyport's general account, from which
it will be paid out in twelve equal monthly payments. The sum of the twelve
monthly payments will exceed the annual payment amount because of an interest
rate factor used by Keyport that will vary from year to year. The commutation
method described above for calculating the present value of remaining
payments applies to the annual payments. Any monthly payments remaining
before the next annual payment will be commuted at the interest rate used to
determine that year's monthly payments.
See "Annuity Payments" on Pages 21-22 for the manner in which Option 1 may be
taxed.
Option 2: Life Income with 10 Years of Payments Guaranteed. Keyport will pay
an annuity during the lifetime of the payee. If, at the death of the payee,
payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present value
of the remaining payments, commuted at the interest rate used to create
the annuity factor for this option. For the variable annuity, this
interest rate is 6% per year (5% per year for Oregon Contracts), unless 3%
per year is chosen by Written Request.
The amount of the annuity payments will depend on the age of the payee at the
time annuity payments are to begin and it may also depend on the payee's sex.
Option 3: Joint and Last Survivor Income. Keyport will pay an annuity for as
long as either the payee or a designated second natural person is alive. The
amount of the annuity payments will depend on the age of both persons at the
time annuity payments are to begin and it may also depend on each person's
sex. IT IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF
BOTH PAYEES DIE AFTER THE RECEIPT OF THE FIRST PAYMENT OR TO RECEIVE ONLY TWO
ANNUITY PAYMENTS IF THE PAYEES BOTH DIE AFTER RECEIPT OF THE SECOND PAYMENT
AND SO ON.
Variable Annuity Payment Values
The amount of the first variable annuity payment is determined by Keyport
using an annuity purchase rate that is based on an assumed annual investment
return of 6% (5% for Oregon Contracts), unless 3% is chosen by Written
Request. Subsequent variable annuity payments will fluctuate in amount and
reflect whether the actual investment return of the selected Sub-Account(s)
(after deducting the Mortality and Expense Risk Charge) is better or worse
than the assumed investment return. The total dollar amount of each variable
annuity payment will be equal to: (a) the sum of all Sub-Account payments;
less (b) the pro-rata amount of the annual Contract Maintenance Charge. A
payee can instruct Keyport to change the Sub-Account(s) used to determine
the amount of the variable annuity payments. Any change requested must be at
least six months after a prior selection.
Proof of Age, Sex, and Survival of Annuitant
Keyport may require proof of age, sex or survival of any payee upon whose
age, sex or survival payments depend. If the age or sex has been misstated,
Keyport will compute the amount payable based on the correct age and sex. If
income payments have begun, any underpayments Keyport may have made will be
paid in full with the next annuity payment. Any overpayments, unless repaid
in one sum, will be deducted from future annuity payments until Keyport is
repaid in full.
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SUSPENSION OF PAYMENTS
Keyport reserves the right to postpone surrender payments from the Fixed
Account for up to six months. Keyport reserves the right to suspend or
postpone any type of payment from the Variable Account for any period when:
(a) the New York Stock Exchange is closed other than customary weekend or
holiday closings; (b) trading on the Exchange is restricted; (c) an emergency
exists as a result of which it is not reasonably practicable to dispose of
securities held in the Variable Account or determine their value; or (d) the
Securities and Exchange Commission permits delay for the protection of
security holders. The applicable rules and regulations of the Securities and
Exchange Commission shall govern as to whether the conditions described in
(b) and (c) exist. If the Variable Account surrender amount after death
exceeds the Variable Account Value, any payment delay will not apply to the
excess amount.
TAX STATUS
Introduction
The Contract is designed for use by individuals in retirement plans which may
or may not be Qualified Plans under the provisions of the Internal Revenue
Code (the "Code"). The ultimate effect of federal income taxes on the Contract
Value, on annuity payments, and on the economic benefit to the Contract Owner,
Annuitant or Designated Beneficiary depends on the type of retirement plan for
which the Contract is purchased and upon the tax and employment status of the
individual concerned. The discussion contained herein is general in nature and
is not intended as tax advice. Each person concerned should consult a
competent tax adviser. No attempt is made to consider any applicable state or
other tax laws. Moreover, the discussion herein is based upon Keyport's
understanding of current federal income tax laws as they are currently
interpreted. No representation is made regarding the likelihood of
continuation of those current federal income tax laws or of the current
interpretations by the Internal Revenue Service.
Taxation of Annuities in General
Section 72 of the Code governs taxation of annuities in general. There are no
income taxes on increases in the value of a Contract until a distribution
occurs, in the form of a full surrender, a partial surrender, an assignment or
gift of the Contract, or annuity payments.
Surrenders, Assignments and Gifts. A Contract Owner who fully surrenders his
or her Contract is taxed on the portion of the payment that exceeds his or her
cost basis in the Contract. For Non-Qualified Contracts, the cost basis is
generally the amount of the purchase payments made for the Contract and the
taxable portion of the surrender payment is taxed as ordinary income. For
Qualified Contracts, the cost basis is generally zero and the taxable portion
of the surrender payment is generally taxed as ordinary income subject to
special 5-year income averaging. A Designated Beneficiary receiving a lump sum
surrender benefit after the death of the Annuitant or Owner is taxed on the
portion of the amount that exceeds the Contract Owner's cost basis in the
Contract. If the Designated Beneficiary elects to receive annuity payments
within 60 days of the decedent's death, different tax rules apply. See
"Annuity Payments" below. For Non-Qualified Contracts, the tax treatment
applicable to Designated Beneficiaries may be contrasted with the
income-tax-free treatment applicable to persons inheriting and then selling
mutual fund shares with a date-of-death value in excess of their basis.
Partial surrenders received under Non-Qualified Contracts prior to
annuitization are first included in gross income to the extent Contract Value
exceeds purchase payments. Then, to the extent the Contract Value does not
exceed purchase payments, such surrenders are treated as a non-taxable return
of principal to the Contract Owner. For partial surrenders under a Qualified
Contract, payments are treated first as a non-taxable return of principal up
to the cost basis and then a taxable return of income. Since the cost basis of
Qualified Contracts is generally zero, partial surrender amounts will
generally be fully taxed as ordinary income.
A Contract Owner who assigns or pledges a Non-Qualified Contract is treated as
if he or she had received the amount assigned or pledged and thus is subject
to taxation under the rules applicable to surrenders. A Contract Owner who
gives away the Contract (i.e., transfers it without full and adequate
consideration) to anyone other than his or her spouse is treated for income
tax purposes as if he or she had fully surrendered the Contract.
A special computational rule applies if Keyport issues to the Contract Owner,
during any calendar year, (a) two or more Contracts or (b) one or more
Contracts and one or more of Keyport's other annuity contracts. Under this
rule, the amount of any distribution includable in the Contract Owner's gross
income is to be determined under Section 72(e) of the Code by treating all the
Keyport contracts as one contract. Keyport believes that this means the amount
of any distribution under one contract will be includable in gross income to
the extent that at the time of distribution the sum of the values for all the
contracts exceeds the sum of the cost bases for all the contracts.
Annuity Payments. The non-taxable portion of each variable annuity payment is
determined by dividing the cost basis of the Contract by the total number of
expected payments while the non-taxable portion of each fixed annuity payment
is determined by an "exclusion ratio" formula which establishes the ratio that
the cost basis of the Contract bears to the total expected value of annuity
payments for the term of the annuity. The remaining portion of each payment is
taxable. Such taxable portion is taxed at ordinary income rates. For Qualified
Contracts, the cost basis is generally zero. With annuity payments based on
life contingencies, the payments will become fully
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taxable once the payee lives longer than the life expectancy used to
calculate the non-taxable portion of the prior payments. Because variable
annuity payments can increase over time and because certain payment options
provide for a lump sum right of commutation, it is possible that the IRS
could determine that variable annuity payments should not be taxed as
described above but instead should be taxed as if they were received under an
agreement to pay interest. This determination would result in a higher amount
(up to 100%) of certain payments being taxable.
Penalty Tax. Payments received by Owners, Annuitants, and Designated
Beneficiaries under Contracts may be subject to both ordinary income taxes and
a penalty tax equal to 10% of the amount received that is includable in
income. The penalty tax is not imposed on amounts received: (a) after the
taxpayer attains age 59-1/2; (b) in a series of substantially equal payments
made for life or life expectancy; (c) after the death of the Contract Owner
(or, where the Owner is not a human being, after the death of the Annuitant);
(d) if the taxpayer becomes totally and permanently disabled; or (e) under a
Non-Qualified Contract's annuity payment option that provides for a series of
substantially equal payments, provided only one purchase payment is made to
the Contract, the Contract is not issued as a result of a Section 1035
exchange, and the first annuity payment begins in the first Contract Year.
Income Tax Withholding. Keyport is required to withhold federal income taxes
on taxable amounts paid under Contracts unless the recipient elects not to
have withholding apply. Keyport will notify recipients of their right to elect
not to have withholding apply. See "Tax-Sheltered Annuities" (TSAs) on page 22
for an alternative type of withholding that may apply to distributions from
TSAs that are eligible for rollover to another TSA or an individual retirement
annuity or account (IRA).
Section 1035 Exchanges. A Non-Qualified Contract may be purchased with
proceeds from the surrender of an existing annuity contract. Such a
transaction may qualify as a tax-free exchange pursuant to Section 1035 of the
Code. It is Keyport's understanding that in such an event: (a) the new
Contract will be subject to the distribution-at-death rules described in
"Death Provisions for Non-Qualified Contracts" on Page 17; (b) purchase
payments made between 8/14/82 and 1/18/85 and the income allocable to them
will, following an exchange, no longer be covered by a "grandfathered"
exception to the penalty tax for a distribution of income that is allocable to
an investment made over ten years prior to the distribution; and (c) purchase
payments made before 8/14/82 and the income allocable to them will, following
an exchange, continue to receive the following "grandfathered" tax treatment
under prior law: (i) the penalty tax does not apply to any distribution; (ii)
partial surrenders are treated first as a non-taxable return of principal and
then a taxable return of income; and (iii) assignments are not treated as
surrenders subject to taxation. Keyport's understanding of the above is
principally based on legislative reports prepared by the Staff of the
Congressional Joint Committee on Taxation.
Diversification Standards. The U.S. Secretary of the Treasury has issued
regulations that set standards for diversification of the investments
underlying variable annuity contracts (other than pension plan contracts). The
Eligible Funds are designed to be managed to meet the diversification
requirements for the Contract as those requirements may change from time to
time. If the diversification requirements are not satisfied, the Contract
would not be treated as an annuity contract. As a consequence to the Contract
Owner, income earned on a Contract would be taxable to the Contract Owner in
the year in which diversification requirements were not satisfied, including
previously non-taxable income earned in prior years. As a further consequence,
Keyport would be subjected to federal income taxes on assets in the Variable
Account.
The Secretary of the Treasury announced in September 1986 that he expects to
issue regulations which will prescribe the circumstances in which a Contract
Owner's control of the investments of a segregated asset account may cause the
Contract Owner, rather than the insurance company, to be treated as the owner
of the assets of the account. The regulations could impose requirements that
are not reflected in the Contract. Keyport, however, has reserved certain
rights to alter the Contract and investment alternatives so as to comply with
such regulations. Since the regulations have not been issued, there can be no
assurance as to the content of such regulations or even whether application of
the regulations will be prospective. For these reasons, Contract Owners are
urged to consult with their own tax advisers.
Qualified Plans
The Contract is designed for use with several types of Qualified Plans. The
tax rules applicable to participants in such Qualified Plans vary according to
the type of plan and the terms and conditions of the plan itself. Therefore,
no attempt is made herein to provide more than general information about the
use of the Contract with the various types of Qualified Plans. Participants
under such Qualified Plans as well as Contract Owners, Annuitants, and
Designated Beneficiaries are cautioned that the rights of any person to any
benefits under such Qualified Plans may be subject to the terms and conditions
of the plans themselves regardless of the terms and conditions of the Contract
issued in connection therewith. Following are brief descriptions of the
various types of Qualified Plans and of the use of the Contract in connection
therewith. Purchasers of the Contract should seek competent advice concerning
the terms and conditions of the particular Qualified Plan and use of the
Contract with that Plan.
Tax-Sheltered Annuities
Section 403(b) of the Code permits public school employees and employees of
certain types of charitable, educational and scientific organizations
specified in Section 501(c)(3) of the Code to purchase annuity contracts and,
subject to certain contribution limitations, exclude the amount of purchase
payments from gross income for tax purposes. However, such purchase payments
may be subject to Social Security (FICA) taxes. This type of annuity contract
is commonly referred to as a "Tax-Sheltered Annuity" (TSA).
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Section 403(b)(11) of the Code contains distribution restrictions.
Specifically, benefits may be paid, through surrender of the Contract or
otherwise, only (a) when the employee attains age 59-1/2, separates from
service, dies or becomes totally and permanently disabled (within the meaning
of Section 72(m)(7) of the Code) or (b) in the case of hardship. A hardship
distribution must be of employee contributions only and not of any income
attributable to such contributions. Section 403(b)(11) does not apply to
distributions attributable to assets held as of December 31, 1988. Thus, it
appears that the law's restrictions would apply only to distributions
attributable to contributions made after 1988, to earnings on those
contributions, and to earnings on amounts held as of 12/31/88. The Internal
Revenue Service has indicated that the distribution restrictions of Section
403(b)(11) are not applicable when TSA funds are being transferred tax-free
directly to another TSA issuer, provided the transferred funds continue to be
subject to the Section 403(b)(11) distribution restrictions.
Keyport will notify a Contract Owner who has requested a distribution from a
Contract if all or part of such distribution is eligible for rollover to
another TSA or to an individual retirement annuity or account (IRA). Any
amount eligible for rollover treatment will be subject to mandatory federal
income tax withholding at a 20% rate if the Contract Owner receives the amount
rather than directing Keyport by Written Request to transfer the amount as a
direct rollover to another TSA or IRA.
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity."
These Individual Retirement Annuities are subject to limitations on the amount
which may be contributed, the persons who may be eligible, and on the time
when distributions may commence. In addition, distributions from certain types
of Qualified Plans may be placed on a tax-deferred basis into an Individual
Retirement Annuity.
Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 403(a) of the Code permit corporate employers to establish
various types of retirement plans for employees. Such retirement plans may
permit the purchase of the Contract to provide benefits under the plans.
Deferred Compensation Plans With Respect to Service
for State and Local Governments
Section 457 of the Code, while not actually providing for a Qualified Plan as
that term is normally used, provides for certain deferred compensation plans
that enjoy special income tax treatment with respect to service for tax-exempt
organizations, state governments, local governments, and agencies and
instrumentalities of such governments. The Contract can be used with such
plans. Under such plans, a participant may specify the form of investment in
which his or her participation will be made. However, all such investments are
owned by and subject to the claims of general creditors of the sponsoring
employer.
Texas Optional Retirement Program
If Keyport is an approved carrier under the Texas Optional Retirement
Program ("ORP"), any Contract issued to an ORP participant will contain an
ORP endorsement that will amend the Contracts in two ways. First, if for any
reason a second year of ORP participation is not begun, the total amount of
the State of Texas' first-year contribution will be returned to the
appropriate institution of higher education upon its request. Second, no
benefits will be payable, through surrender of the Contract or otherwise,
unless the participant dies, accepts retirement, or terminates employment in
all Texas institutions of higher education. The value of the Contract may,
however, be transferred to other contracts or carriers during the period of
ORP participation.
VARIABLE ACCOUNT VOTING RIGHTS
In accordance with its view of present applicable law, Keyport will vote the
shares of the Eligible Funds held in the Variable Account at regular and
special meetings of the shareholders of the Eligible Funds in accordance with
instructions received from persons having the voting interest in the Variable
Account. Keyport will vote shares for which it has not received instructions
in the same proportion as it votes shares for which it has received
instructions.
However, if the Investment Company Act of 1940 or any regulation thereunder
should be amended or if the present interpretation thereof should change, and
as a result Keyport determines that it is permitted to vote the shares of the
Eligible Funds in its own right, it may elect to do so.
The person having the voting interest under a Contract shall be the Contract
Owner. The number of shares held in each Sub-Account which are attributable
to each Contract Owner is determined by dividing the Contract Owner's
interest in each Sub-Account by the net asset value of the applicable share
of the Eligible Fund. The person having the voting interest under an annuity
payment option shall be the payee. The number of shares held in the Variable
Account which are attributable to each payee is determined by dividing the
reserve for the annuity payments by the net asset value of one share. During
the annuity payment period, the votes attributable to a payee decrease as the
reserves underlying the payments decrease.
The number of shares which a person has a right to vote will be determined as
of the date coincident with the date established by the respective Eligible
Fund for determining shareholders eligible to vote at the meeting of the Fund
and voting instructions will be solicited by written communication prior to
such meeting in accordance with the procedures established by the Eligible
Fund.
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Each person having the voting interest in the Variable Account will receive
periodic reports relating to the Eligible Fund(s) in which he or she has an
interest, proxy material and a form with which to give such voting
instructions with respect to the proportion of the Eligible Fund shares held
in the Variable Account corresponding to his or her interest in the Variable
Account.
DISTRIBUTION OF THE CONTRACT
Keyport Financial Services Corp. ("KFSC") serves as the Principal Underwriter
for the Contract described in this prospectus. The Contract will be sold by
salespersons who represent Keyport Life Insurance Company (KFSC's corporate
parent) as variable annuity agents and who are registered representatives of
broker/dealers who have entered into distribution agreements with KFSC. KFSC
is registered under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. It is located at 125
High Street, Boston, Massachusetts 02110.
Different Contracts are sold (1) to a person who is an officer, director, or
employee of Keyport, a trustee or officer of SteinRoe Variable Investment
Trust or Keyport Variable Investment Trust, an employee of the investment
adviser or sub-investment adviser of either Trust, or an employee of a
company that is under contract with either Trust to provide management or
administrative services or (2) to any Qualified Plan established for such a
person. Such Contracts are different from the Contracts sold to others in
that (1) they are not subject to the deduction for the Contract Maintenance
Charge, the asset-based sales charge or the Contingent Deferred Sales Charge
and (2) they have a Mortality and Expense Risk Charge of 0.35% per year.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the Principal
Underwriter are a party. Keyport is engaged in various kinds of routine
litigation which in its judgment is not of material importance in relation to
the total capital and surplus of Keyport.
INQUIRIES BY CONTRACT OWNERS
Contract Owners with questions about their Contracts can write Keyport Life
Insurance Company, Client Service Department, 125 High Street, Boston,
MA 02110, or call (800) 367-3653.
TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Keyport Life Insurance Company 2
Variable Annuity Benefits 2
Variable Annuity Payment Values 2
Re-Allocating Sub-Account Payments 3
Principal Underwriter 4
Custodian 4
Experts 4
Investment Performance 4
Average Annual Total Return for a Contract that is Surrendered and for
a Contract that Continues 5
Change in Accumulation Unit Value 7
Yields for CIF and CIF-DCA Sub-Accounts 8
Financial Statements 11
Keyport Life Insurance Company 11
KMA Variable Account 39
</TABLE>
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APPENDIX A
THE FIXED ACCOUNT (ALSO KNOWN AS THE GUARANTEED RATE ACCOUNT)
Introduction
This Appendix describes the Fixed Account option available under the
Contract. The Fixed Account is not available under either the Contract (form
number FLEX(4)V) that is issued to New Jersey residents or the Contract (form
number FLEX(4)/WA) that is issued to Washington residents.
Purchase payments allocated to the Fixed Account option become part of
Keyport's general account. Because of applicable exemptive and exclusionary
provisions, interests in the Fixed Account options have not been registered
under the Securities Act of1933 ("1933 Act"), nor is the general account an
investment company under the Investment Company Act. Accordingly, neither the
general account, the Fixed Account option, nor any interest therein, are
subject to regulation under the 1933 Act or the Investment Company Act.
Keyport understands that the Securities and Exchange Commission has not
reviewed the disclosure in the prospectus relating to the general account and
the Fixed Account option.
Investments in the Fixed Account and Capital Protection Plus
Purchase payments will be allocated to the Fixed Account in accordance with
the selection made by the Contract Owner in the application. Any selection
must specify that percentage of the purchase payment that is to be allocated
to each Guarantee Period of the Fixed Account. The percentage, if not zero,
must be at least 10%. The Contract Owner may change the allocation
percentages without fee, penalty or other charge. Allocation changes must be
made by Written Request unless the Contract Owner has by Written Request
authorized Keyport to accept telephone allocation instructions from the
Contract Owner. By authorizing Keyport to accept telephone changes, a
Contract Owner agrees to accept and be bound by the conditions and procedures
established by Keyport from time to time. The current conditions and
procedures are in Appendix C and Contract Owners authorizing telephone
allocation instructions will be notified, in advance, of any changes.
Keyport currently offers Guarantee Periods of 1, 3, 5, and 7 years. Keyport
may change at any time the number of Guarantee Periods it offers under
newly-issued and in-force Contracts, as well as the length of those Guarantee
Periods. If Keyport stops offering a particular Guarantee Period, existing
Fixed Account Value in such Guarantee Period would not be affected until the
end of the Period (at that time, a Period of the same length would not be a
transfer option). Each Guarantee Period currently offered is available for
initial and subsequent purchase payments and for transfers of Contract Value.
Keyport offers a Capital Protection Plus program that a Contract Owner may
request. Under this program, Keyport will allocate part of the purchase
payment to the Guarantee Period selected by the Contract Owner so that such
part, based on that Guarantee Period's Maturity Rate in effect on the date of
allocation, will equal at the end of the Guarantee Period the total payment
amount. The rest of the purchase payment will be allocated to the
Sub-Account(s) of the Variable Account based on the Contract Owner's
allocation. If any part of the Fixed Account Value is surrendered or
transferred before the end of the Guarantee Period, the Value at the end of
that Period will not equal the original purchase payment amount.
For an example of Capital Protection Plus, assume Keyport receives a payment
of $10,000 when the Maturity Rate for the 7-year Guarantee Period is 6.75%
per year. Keyport will allocate $6,331 to that Guarantee Period because
$6,331 will increase at that interest rate to $10,000 after 7 years. The
remaining $3,669 of the payment will be allocated to the Sub-Account(s)
selected by the Contract Owner.
Fixed Account Value
The Fixed Account Value at any time is equal to:
(a) all purchase payments allocated to the Fixed Account plus the interest
subsequently earned on those payments; plus
(b) any Variable Account Value transferred to the Fixed Account plus the
interest subsequently earned on the transferred value; less
(c) any prior partial surrenders from the Fixed Account; less
(d) any Fixed Account Value transferred to the Variable Account.
Interest Credits
Keyport will credit interest daily (based on an annual compound interest
rate) to purchase payments allocated to the Fixed Account at rates declared
by Keyport for Guarantee Periods of one or more years from the month and day
of allocation. Each Guarantee Period will have a Basic Interest Rate and a
Maturity Interest Rate. During the Guarantee Period, Keyport will credit
interest at the Basic Rate. At the end of the Guarantee Period, Keyport will
credit an additional interest amount so that the original allocation amount
remaining at that time will have earned interest at the Maturity Rate for the
entire Guarantee Period.
Under this method of crediting interest: (a) the Maturity Rate will be
credited only on amounts held for the entire Guarantee Period; and (b) if the
Contract Owner or a Designated Benefi-
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ciary surrenders or transfers any part of an allocated amount before the end
of a Guarantee Period, only the Basic Rate will be credited on that part.
Any Basic and Maturity Interest Rates set by Keyport will be at least 3.5%
per year.
Keyport's method of crediting interest means that Fixed Account Value might
be subject to different rates for each Guarantee Period the Contract Owner
has selected in the Fixed Account. For purposes of this section, Variable
Account Value transferred to the Fixed Account and Fixed Account Value
renewed for another Guarantee Period shall be treated as a purchase payment
allocation.
Transfers when Guarantee Periods End
The total accumulated amount at the end of a Guarantee Period will be
transferred to the new Guarantee Period(s) and/or Sub-Account(s) of the
Variable Account that the Contract Owner has selected by Written Request. If
the Contract Owner has not made a selection, Keyport will automatically
transfer the total accumulated amount at the end of the Guarantee Period to
the CIF Sub-Account. If the Guarantee Period selected exceeds the time
remaining to the Income Date but does not exceed the time remaining to the
latest Income Date allowable under the Contract, the Income Date will
automatically change to the latest allowable date, thereby allowing the
selected Guarantee Period to go into effect. The Contract Owner may not
otherwise select a Guarantee Period that would end after the Income Date.
Transfers of Fixed Account Value
The Contract Owner may transfer Fixed Account Value from one Guarantee Period
to another or to one or more Sub-Accounts of the Variable Account. If the
Fixed Account Value represents multiple Guarantee Periods, the transfer
request must specify from which values the transfer is to be made.
The Contract allows Keyport to limit the number of transfers that can be made
in a specified time period. Currently, Keyport is limiting Variable Account
and Fixed Account transfers to generally 12 transfers per calendar year with
a $500,000 per transfer dollar limit. See "Transfer of Variable Account
Value" on Page 12. These limitations will not apply to any transfer made at
the end of a Guarantee Period. Contract Owners will be notified, in advance,
of a change in the limitation on the number of transfers.
Transfer requests must be by Written Request unless the Contract Owner has
authorized Keyport by Written Request to accept telephone transfer
instructions from the Contract Owner or from a person acting for the Contract
Owner as an attorney-in-fact under a power of attorney. By authorizing
Keyport to accept telephone transfer instructions, a Contract Owner agrees to
accept and be bound by the conditions and procedures established by Keyport
from time to time. The current conditions and procedures are in Appendix C
and Contract Owners authorizing telephone transfers will be notified, in
advance, of any changes. Written transfer requests may be made by a person
acting for the Contract Owner as an attorney-in-fact under a power of
attorney.
Transfer requests received by Keyport before the close of trading on the New
York Stock Exchange (currently 4:00 PM Eastern Time) will be executed at the
close of business that day. Any requests received later will be executed at
the close of the next business day.
The amount of the transfer will be deducted from the specified values in the
manner stated in the next section below.
If 100% of a Guarantee Period's value is transferred and the current
allocation for purchase payments includes that Guarantee Period, then the
allocation formula for future purchase payments will automatically change
unless the Contract Owner instructs otherwise. For example, if the allocation
formula is 50% to the one-year Guarantee Period and 50% to Sub-Account A and
all Fixed Account Value is transferred to Sub-Account A, the allocation
formula will change to 100% to Sub-Account A.
Reductions of Guarantee Period Values After a Transfer or Surrender
As stated elsewhere in the prospectus, a transfer request must specify from
which Guarantee Period's values the transfer is to be made and a partial
surrender request may, at the Contract Owner's option, similarly specify the
Guarantee Period. The specified amount will be deducted from both the
allocated purchase amount and its associated interest in the proportion that
each bear to their total sum. For example, if $600 is to be deducted from a
$800 payment that was allocated for a three-year Guarantee Period and the
interest earned up to the date of transfer is $200 (for a total value of
$1,000), $480 will be deducted from the payment allocation [($800/$1,000) x
$600] and $120 will be deducted from the interest [($200/$1,000) x $600]. The
$400 remaining after the transfer or surrender would thus represent $320 of
payment allocation and $80 of interest. This $320, if it remains until the
end of the Guarantee Period, would receive the Maturity Interest Rate credit
described in "Interest Credits" on Page 25.
If a partial surrender request does not specify any Guarantee Period, the
ordering rule in "Surrenders" on Page 19 may result in a certain amount of
Fixed Account Value being automatically deducted. Any amount determined under
that rule will be deducted from each Guarantee Period's values in the
proportion that each bears to the total Fixed Account Value. For example, if
$500 is to be deducted from two Guarantee Periods' values of $4,000 and
$1,000, $400 will be deducted from the first Guarantee Period's values
[($4,000/$5,000) x $500] and $100 will be deducted from the second
[($1,000/$5,000) x $500]. Each of these amounts (the $400 and the $100 in the
example) will then be deducted from the allocated purchase amount and its
associated interest in the manner stated in the preceding paragraph.
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<PAGE>
The above rules automatically determine the amount of the allocated purchase
payment and its associated interest that still remains after any transfer or
surrender. The rules do not, however, determine in any way the amount of
Contingent Deferred Sales Charge that may be due since that Charge is based
on different rules and different records.
Fixed Annuity Payment Values
The dollar amount of each fixed annuity payment will be determined by
deducting any premium taxes not previously deducted and then dividing the
remaining Fixed Account Value by $1,000 and multiplying the result by the
greater of: (a) the applicable factor shown in the appropriate table in the
Contract; or (b) the factor currently offered by Keyport at the time annuity
payments begin. This current factor may be based on the sex of the payee
unless to do so would be prohibited by law.
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<PAGE>
APPENDIX B
PRIOR CONTRACTS OF THE VARIABLE ACCOUNT
Persons who purchased the variable annuity contracts identified below before
May 1, 1992 may continue to make purchase payments under those contracts
subject to the terms and conditions of those contracts and this Appendix. All
contracts are subject to the transfer limitations and procedures described in
"Transfer of Variable Account Value" on Page 12. Persons who purchased
non-qualified contracts between April 9, 1981 and September 25, 1981 are not
permitted to make any additional purchase payments under those contracts.
Such non-qualified contracts are not included in number 4 below.
1. KEYFLEX Contracts (Form #FLEX(4)). The current Eligible Funds are those
listed on Page 11. MIF, CKUSGF, CKGIF, CKUF, CKIFG, CKUSFG, CKSIF and NKTF
were added effective 1/15/93, 7/1/93, 7/1/93, 7/1/93, 5/2/94, 7/5/94, 7/5/94
and 5/1/95, respectively. Accumulation unit values are shown on Page 7. The
Dollar Cost Averaging program for use with the CIF Sub-Account or the
One-Year Guarantee Period of the Fixed Account is available (see "Dollar Cost
Averaging" on Page 12).
2. KEYFLEX Contracts (Form #FLEX-I). The current Eligible Funds are those
listed on Page 11. SMAF, MIF, CKUSGF, CKGIF, CKUF, CKIFG, CKUSFG, CKSIF and
NKTF were added effective 5/1/89, 1/15/93, 7/1/93, 7/1/93, 7/1/93, 5/2/94,
7/5/94, 7/5/94 and 5/1/95, respectively. CIF, MSIF, MAF, MGSF and CAF were
substituted on 1/1/89 for, respectively, the former eligible mutual funds:
Cash Income Trust; Mortgage Securities Income Trust; Managed Assets Trust;
Managed Growth Stock Trust; and Aggressive Stock Trust. Accumulation unit
values are shown on Page 29.
3. FLEX 2 Contracts (Form #FLEX-II). The current Eligible Funds are those
listed on Page 11. SMAF, MIF, CKUSGF, CKGIF, CKUF, CKIFG, CKUSFG, CKSIF and
NKTF were added effective 5/1/89, 1/15/93, 7/1/93, 7/1/93, 7/1/93, 5/2/94,
7/5/94, 7/5/94 and 5/1/95, respectively. CIF, MSIF, MAF, MGSF and CAF were
substituted on 1/1/89 for, respectively, the former eligible mutual funds:
Cash Income Trust; Mortgage Securities Income Trust; Managed Assets Trust;
Managed Growth Stock Trust; and Aggressive Stock Trust. Accumulation unit
values are shown on Page 30.
4. All K-100 and KeySource Contracts (Form #VA-1-81) Other than those
Identified in Numbers 5 and 6 below. The current Eligible Funds are those
listed on Page 11. SMAF, MIF, CKUSGF, CKGIF, CKUF, CKIFG, CKUSFG, CKSIF and
NKTF were added effective 5/1/89, 1/15/93, 7/1/93, 7/1/93, 7/1/93, 5/2/94,
7/5/94, 7/5/94 and 5/1/95, respectively. CIF, CIF, MAF, and CAF were
substituted on 1/1/89 for, respectively, the former eligible mutual funds:
Cash Income Trust; Money Market/Options Investments, Inc.; Managed Assets
Trust; and Aggressive Stock Trust. Accumulation unit values are shown on
Pages 31-32.
5. K-100 Qualified Contracts (Form #VA-1-81) Issued Before May 1, 1986
Pursuant to Section 457 of the Internal Revenue Code. The Eligible Mutual
Funds are: Keystone Liquid Trust; Keystone Custodian Fund, Series B-1, B-2,
B-4, S-1, S-3, and S-4. Accumulation unit values are shown on Pages 33-34.
6. All Other K-100 Qualified Contracts (Form #VA-1-81) Issued Before
September 25, 1981. The current Eligible Funds are those listed on Page 11.
SMAF, MIF, CKUSGF, CKGIF, CKUF, CKIFG, CKUSFG, CKSIF and NKTF were added
effective 5/1/89, 1/15/93, 7/1/93, 7/1/93, 7/1/93, 5/2/94, 7/5/94, 7/5/94 and
5/1/95, respectively. CIF, CIF, MGSF, ASF and CAF were substituted on 1/1/89
for, respectively, the former eligible mutual funds: Keystone Liquid Trust;
Money Market/Options Investments, Inc.; Keystone Custodian Fund, Series S-1,
S-3, and S-4. Accumulation unit values for 1989-1994 are shown on Page 32 and
values for 1985-1988 are shown on Pages 33-34.
28
<PAGE>
ACCUMULATION UNIT VALUES FOR CONTRACTS DESCRIBED IN NUMBER TWO
<TABLE>
<CAPTION>
Accumulation
Unit Accumulation Number of
Value Unit Accumulation
Beginning of Value Units
Sub-Account Year* End of Year End of Year Year
- -------------------------------------------- --------------- ------------- -------------- -----
<S> <C> <C> <C> <C>
Cash Income Fund $ 15.062 $15.443 475,023 1994
14.849 15.062 514,598 1993
14.530 14.849 582,150 1992
13.906 14.530 907,810 1991
13.052 13.906 1,756,598 1990
12.118 13.052 1,993,108 1989
Cash Income Trust 11.459 12.118 2,740,761 1988
10.917 11.459 2,543,770 1987
10.396 10.917 467,956 1986
10.000(5/8/85) 10.396 133,266 1985
Colonial-Keyport U.S. Fund for Growth
10.000(8/11/94) 10.048 5,259 1994
Colonial-Keyport U.S. Government Fund 10.115 9.849 9,644 1994
10.000(7/22/93) 10.115 5,352 1993
Mortgage Securities Income Fund 16.065 15.617 233,588 1994
15.307 16.065 299,033 1993
14.627 15.307 381,266 1992
12.936 14.627 443,240 1991
12.005 12.936 503,751 1990
10.773 12.005 601,466 1989
Mortgage Securities Income Trust 10.183 10.773 541,052 1988
10.184 10.183 634,675 1987
10.000(10/27/86) 10.184 114,841 1986
Managed Income Fund 10.713 10.115 595,683 1994
10.000(2/1/93) 10.713 948,465 1993
Colonial-Keyport Growth and Income Fund 10.464 10.258 66,152 1994
10.000(7/22/93) 10.464 20,759 1993
Managed Assets Fund 25.692 24.566 861,315 1994
23.802 25.692 1,055,478 1993
22.412 23.802 1,241,344 1992
17.737 22.412 1,462,279 1991
18.092 17.737 1,633,069 1990
14.959 18.092 1,882,766 1989
Managed Assets Trust 13.867 14.959 1,902,679 1988
13.747 13.867 2,544,739 1987
11.694 13.747 1,214,374 1986
10.000(5/14/85) 11.694 87,774 1985
Colonial-Keyport Utilities Fund 9.727 8.621 31,506 1994
10.000(7/21/93) 9.727 52,776 1993
Strategic Managed Assets Fund 16.151 15.948 63,130 1994
16.044 16.151 86,439 1993
14.372 16.044 45,415 1992
10.506 14.372 36,620 1991
11.631 10.506 33,241 1990
10.000(7/5/89) 11.631 28,744 1989
Colonial-Keyport Strategic Income Fund Available in 1994 but no accumulation units were purchased.
Colonial-Keyport International Fund for
Growth 10.000(5/3/94) 9.323 24,303 1994
Managed Growth Stock Fund 19.374 17.919 294,345 1994
18.687 19.374 327,760 1993
17.744 18.687 377,851 1992
12.137 17.744 346,524 1991
12.498 12.137 409,288 1990
9.635 12.498 525,196 1989
Managed Growth Stock Trust 9.202 9.635 511,030 1988
10.000(5/26/87) 9.202 539,305 1987
Capital Appreciation Fund (formerly 28.059 28.043 301,017 1994
named Aggressive Stock Fund) 20.939 28.059 316,873 1993
18.519 20.939 404,666 1992
13.662 18.519 424,426 1991
15.206 13.662 730,255 1990
11.751 15.206 667,685 1989
Aggressive Stock Trust 10.810 11.751 675,561 1988
11.887 10.810 884,826 1987
10.946 11.887 680,204 1986
10.000(5/16/85) 10.946 418,680 1985
</TABLE>
*The date after each $10.00 value is when Keyport first purchased mutual fund
shares for that Sub-Account of the Variable Account.
Accumulation unit values are rounded to the nearest tenth of a cent and
numbers of accumulation units are rounded to the nearest whole number.
The full financial statements for the Variable Account and Keyport are in the
Statement of Additional Information.
29
<PAGE>
ACCUMULATION UNIT VALUES FOR CONTRACTS DESCRIBED IN NUMBER THREE
<TABLE>
<CAPTION>
Accumulation
Unit Accumulation Number of
Value Unit Accumulation
Beginning of Value Units
Sub-Account Year* End of Year End of Year Year
- ------------------------------------- --------------- ------------- -------------- -----
<S> <C> <C> <C> <C>
Cash Income Fund $ 14.813 $15.173 25,550 1994
14.617 14.813 16,027 1993
14.317 14.617 28,411 1992
13.717 14.317 43,912 1991
12.886 13.717 63,361 1990
11.976 12.886 50,088 1989
Cash Income Trust 11.336 11.976 73,710 1988
10.811 11.336 65,700 1987
10.304 10.811 54,645 1986
10.000(6/26/85) 10.304 4,481 1985
Colonial-Keyport U.S. Fund for Growth Available in 1994 but no accumulation units were purchased
Colonial-Keyport U.S. Government Fund Available in 1993 & 1994 but no accumulation units were purchased
Mortgage Securities Income Fund 16.033 15.571 21,047 1994
15.292 16.033 23,129 1993
14.627 15.292 18,834 1992
12.949 14.627 19,947 1991
12.029 12.949 20,699 1990
10.804 12.029 831 1989
Mortgage Securities Income Trust 10.223 10.804 1,315 1988
10.000(5/8/87) 10.223 1,180 1987
Managed Income Fund 10.632 10.029 39,511 1994
10.000(2/1/93) 10.632 50,570 1993
Colonial-Keyport Growth and Income Fund Available in 1993 & 1994 but no accumulation units were purchased
Managed Assets Fund 24.754 23.646 44,913 1994
22.956 24.754 54,901 1993
21.636 22.956 59,345 1992
17.140 21.636 72,706 1991
17.501 17.140 77,976 1990
14.484 17.501 86,066 1989
Managed Assets Trust 13.440 14.484 78,797 1988
13.336 13.440 93,727 1987
11.355 13.336 58,003 1986
10.000(6/17/85) 11.355 6,748 1985
Colonial-Keyport Utilities Fund Available in 1993 & 1994 but no accumulation units were purchased
Strategic Managed Assets Fund 14.001 13.811 4,818 1994
13.921 14.001 8,406 1993
12.482 13.921 4,475 1992
10.000(2/6/91) 12.482 1,479 1991
Available in 1989 & 1990 but no accumulation units were purchased
Colonial-Keyport Strategic Income Fund Available in 1994 but no accumulation units were purchased
Colonial-Keyport International 10.000(5/24/94) 9.371 599 1994
Fund for Growth
Managed Growth Stock Fund 17.787 16.435 6,259 1994
17.173 17.787 6,593 1993
16.323 17.173 8,430 1992
11.176 16.323 3,630 1991
11.520 11.176 3,545 1990
8.889 11.520 5,212 1989
Managed Growth Stock Trust 8.497 8.889 2,999 1988
10.000(6/18/87) 8.497 2,355 1987
Capital Appreciation Fund (formerly 28.698 28.653 29,605 1994
named Aggressive Stock Fund) 21.437 28.698 39,376 1993
18.978 21.437 47,198 1992
14.014 18.978 40,776 1991
15.614 14.014 40,304 1990
12.078 15.614 50,936 1989
Aggressive Stock Trust 11.121 12.078 44,345 1988
12.241 11.121 53,129 1987
11.283 12.241 45,205 1986
10.000(6/17/85) 11.283 20,111 1985
</TABLE>
*The date after each $10.00 value is when Keyport first purchased mutual fund
shares for that Sub-Account of the Variable Account.
Accumulation unit values are rounded to the nearest tenth of a cent and
numbers of accumulation units are rounded to the nearest whole number.
The full financial statements for the Variable Account and Keyport are in the
Statement of Additional Information.
30
<PAGE>
1989-1994 ACCUMULATION UNIT VALUES FOR CONTRACTS
DESCRIBED IN NUMBERS FOUR AND SIX
<TABLE>
<CAPTION>
Accumulation
Unit Accumulation Number of
Value Unit Accumulation
Beginning of Value Units
Sub-Account Year* End of Year End of Year Year
- -------------------------------------------- --------------- ------------- -------------- -----
<S> <C> <C> <C> <C>
Cash Income Fund $ 20.996 $21.580 1,184,102 1994
20.648 20.996 1,384,339 1993
20.155 20.648 1,697,243 1992
19.243 20.155 2,138,976 1991
18.016 19.243 2,936,979 1990
16.686 18.016 3,493,117 1989
Colonial-Keyport U.S. Fund for Growth Available in 1994 but no accumulation units were purchased.
Colonial-Keyport U.S. Government Fund 10.093 9.852 7,714 1994
10.000(7/16/93) 10.093 15,154 1993
Mortgage Securities Income Fund 14.990 14.608 72,190 1994
14.248 14.990 114,507 1993
13.582 14.248 85,079 1992
11.983 13.582 78,913 1991
11.093 11.983 60,390 1990
10.000(1/13/89) 11.093 12,608 1989
Managed Income Fund 10.703 10.131 557,737 1994
10.000(2/1/93) 10.703 686,608 1993
Colonial-Keyport Growth and Income Fund 10.344 10.165 10,136 1994
10.000(8/3/93) 10.344 8,415 1993
Managed Assets Fund 25.524 24.465 299,672 1994
23.589 25.524 348,975 1993
22.156 23.589 339,963 1992
17.492 22.156 372,220 1991
17.799 17.492 356,575 1990
14.681 17.799 459,250 1989
Colonial-Keyport Utilities Fund 9.737 8.651 18,049 1994
10.000(7/21/93) 9.737 23,195 1993
Strategic Managed Assets Fund 15.640 15.481 75,366 1994
15.498 15.640 77,675 1993
13.849 15.498 38,281 1992
10.099 13.849 11,299 1991
11.153 10.099 14,508 1990
10.000(7/14/89) 11.153 16,766 1989
Colonial-Keyport Strategic Income Fund Available in 1994 but no accumulation units were purchased.
Colonial-Keyport International Fund for 10.000(5/25/94) 9.390 44,610 1994
Growth
Managed Growth Stock Fund 44.377 41.147 56,165 1994
42.701 44.377 66,644 1993
40.447 42.701 67,611 1992
27.598 40.447 54,873 1991
28.349 27.598 43,639 1990
21.801 28.349 38,197 1989
Capital Appreciation Fund (formerly 56.611 56.716 346,355 1994
named Aggressive Stock Fund) 42.142 56.611 398,198 1993
37.181 42.142 446,136 1992
27.361 37.181 466,795 1991
30.380 27.361 581,842 1990
23.420 30.380 611,392 1989
</TABLE>
*The date after each $10.00 value is when Keyport first purchased mutual fund
shares for that Sub-Account of the Variable Account.
Accumulation unit values are rounded to the nearest tenth of a cent and
numbers of accumulation units are rounded to the nearest whole number.
The full financial statements for the Variable Account and Keyport are in the
Statement of Additional Information.
31
<PAGE>
1985-1988 ACCUMULATION UNIT VALUES FOR CONTRACTS DESCRIBED IN NUMBER FOUR
(QUALIFIED CONTRACTS ONLY)
<TABLE>
<CAPTION>
Accumulation
Unit Accumulation Number of
Value Unit Accumulation
Beginning of Value Units
Sub-Account Year End of Year End of Year Year
- --------------- -------------- ------------- -------------- -----
<S> <C> <C> <C> <C>
Cash Income $15.741 $16.686 1,632,674 1988
Trust 14.960 15.741 1,885,426 1987
14.211 14.960 1,954,861 1986
13.321 14.211 2,403,306 1985
Managed Assets 13.576 14.681 219,163 1988
Trust 13.425 13.576 293,796 1987
11.392 13.425 217,076 1986
10.000(5/21/85)* 11.392 47,627 1985
Aggressive
Stock 21.491 23.420 409,556 1988
Trust 23.575 21.491 571,229 1987
21.655 23.575 791,432 1986
16.954 21.655 1,094,586 1985
</TABLE>
1985-1988 ACCUMULATION UNIT VALUES FOR CONTRACTS DESCRIBED IN NUMBER FOUR
(NON-QUALIFIED CONTRACTS ONLY)
<TABLE>
<CAPTION>
Accumulation
Unit Accumulation Number of
Value Unit Accumulation
Beginning of Value Units
Sub-Account Year End of Year End of Year Year
- --------------- -------------- ------------- -------------- -----
<S> <C> <C> <C> <C>
Cash Income $15.747 $16.692 2,498,152 1988
Trust 14.966 15.747 3,219,029 1987
14.216 14.966 2,949,285 1986
13.321 14.216 2,991,076 1985
Managed Assets 13.636 14.746 312,640 1988
Trust 13.484 13.636 382,205 1987
11.442 13.484 357,954 1986
10.000(5/22/85)* 11.442 79,564 1985
Aggressive
Stock 18.951 20.651 414,759 1988
Trust 20.788 18.951 711,443 1987
19.095 20.788 1,233,989 1986
14.950 19.095 2,231,084 1985
</TABLE>
*This date is when Keyport first purchased mutual fund shares for that
Sub-Account of the Variable Account.
Accumulation unit values are rounded to the nearest tenth of a cent and
numbers of accumulation units are rounded to the nearest whole number.
The full financial statements for the Variable Account and Keyport are in the
Statement of Additional Information.
32
<PAGE>
ACCUMULATION UNIT VALUES FOR QUALIFIED CONTRACTS DESCRIBED
IN NUMBER FIVE (1985-1994) AND NUMBER SIX (1985-1988)
<TABLE>
<CAPTION>
Accumulation
Unit Accumulation Number of
Value Unit Accumulation
Beginning of Value Units
Sub-Account Year End of Year End of Year Year
- -------------------- -------------- ------------- -------------- -----
<S> <C> <C> <C> <C>
Keystone Liquid
Trust $21.718 $22.238 21,067 1994
21.483 21.718 24,968 1993
21.102 21.483 27,163 1992
20.269 21.102 58,684 1991
19.042 20.269 76,538 1990
17.724 19.042 83,706 1989
16.780 17.724 444,750 1988
16.002 16.780 560,681 1987
15.254 16.002 592,852 1986
14.344 15.254 657,509 1985
Keystone Custodian 33.702 31.679 2,523 1994
Fund, Series B-1 31.286 33.702 2,731 1993
30.422 31.286 2,563 1992
26.897 30.422 2,880 1991
25.457 26.897 2,688 1990
22.978 25.457 2,541 1989
21.834 22.978 27,480 1988
22.649 21.834 29,482 1987
20.083 22.649 41,291 1986
16.669 20.083 40,336 1985
Keystone Custodian 33.798 31.149 414 1994
Fund, Series B-2 29.983 33.798 254 1993
27.600 29.983 149 1992
23.489 27.600 714 1991
24.242 23.489 851 1990
23.330 24.242 1,392 1989
21.238 23.330 26,902 1988
21.429 21.238 38,962 1987
19.232 21.429 49,621 1986
15.752 19.232 50,104 1985
Keystone Custodian 32.345 28.120 514 1994
Fund, Series B-4 25.880 32.345 579 1993
22.132 25.880 571 1992
15.763 22.132 3,596 1991
20.364 15.763 4,427 1990
21.699 20.364 5,688 1989
19.605 21.699 36,779 1988
20.605 19.605 53,498 1987
18.971 20.605 104,299 1986
15.904 18.971 86,871 1985
</TABLE>
(Accumulation unit values continue on the next page)
33
<PAGE>
ACCUMULATION UNIT VALUES FOR QUALIFIED CONTRACTS DESCRIBED
IN NUMBER FIVE (1985-1994) AND NUMBER SIX (1985-1988)
(CONTINUED)
<TABLE>
<CAPTION>
Accumulation
Unit Accumulation Number of
Value Unit Accumulation
Beginning of Value Units
Sub-Account Year End of Year End of Year Year
- ---------------- -------------- ------------- -------------- -----
<S> <C> <C> <C> <C>
Keystone
Custodian $35.621 $33.202 5,248 1994
Fund, Series S-1 32.763 35.621 6,382 1993
33.076 32.763 7,180 1992
25.924 33.076 14,956 1991
27.459 25.924 18,927 1990
21.801 27.459 21,757 1989
20.301 21.801 49,631 1988
19.774 20.301 63,034 1987
17.026 19.774 52,544 1986
13.841 17.026 54,412 1985
Keystone
Custodian 35.401 33.423 6,753 1994
Fund, Series S-3 32.874 35.401 7,178 1993
31.567 32.874 7,388 1992
22.434 31.567 20,839 1991
24.838 22.434 18,451 1990
20.108 24.838 20,928 1989
17.800 20.108 47,781 1988
17.903 17.800 70,665 1987
15.566 17.903 102,227 1986
12.760 15.566 112,264 1985
Keystone
Custodian 32.527 32.263 12,813 1994
Fund, Series S-4 26.208 32.527 13,929 1993
24.094 26.208 16,338 1992
14.071 24.094 53,908 1991
15.122 14.071 61,931 1990
12.355 15.122 70,739 1989
11.166 12.355 133,891 1988
11.969 11.166 177,623 1987
11.405 11.969 291,787 1986
8.982 11.405 527,940 1985
</TABLE>
Accumulation unit values are rounded to the nearest tenth of a cent and
numbers of accumulation units are rounded to the nearest whole number.
The full financial statements for the Variable Account and Keyport are in the
Statement of Additional Information.
34
<PAGE>
APPENDIX C
TELEPHONE INSTRUCTIONS
Telephone Transfers of Contract Values
1. If there are joint Contract Owners, both must authorize Keyport to accept
telephone instructions but either Owner can give Keyport telephone
instructions.
2. All callers will be required to identify themselves. Keyport reserves the
right to refuse to act upon any telephone instructions in cases where the
caller has not sufficiently identified himself/herself to Keyport's
satisfaction.
3. Neither Keyport nor any person acting on its behalf shall be subject to
any claim, loss, liability, cost or expense if it or such person acted in
good faith upon a telephone instruction, including one that is
unauthorized or fraudulent; however, Keyport will employ reasonable
procedures to confirm that a telephone instruction is genuine and, if
Keyport does not, Keyport may be liable for losses due to an unauthorized
or fraudulent instruction. The Contract Owner thus bears the risk that an
unauthorized or fraudulent instruction that is executed may cause the
Contract Value to be lower than it would be had no instruction been
executed.
4. All conversations will be recorded with disclosure at the time of the
call.
5. The application for the Contract may allow a Contract Owner to create a
power of attorney by authorizing another person to give telephone
instructions. Unless prohibited by state law, such power will be treated
as durable in nature and shall not be affected by the subsequent
incapacity, disability or incompetency of the Contract Owner. Either
Keyport or the authorized person may cease to honor the power by sending
written notice to the Contract Owner at the Contract Owner's last known
address. Neither Keyport nor any person acting on its behalf shall be
subject to liability for any act executed in good faith reliance upon a
power of attorney.
6. Telephone authorization shall continue in force until (a) Keyport receives
the Contract Owner's written revocation, (b) Keyport discontinues the
privilege, or (c) Keyport receives written evidence that the Contract
Owner has entered into a market timing or asset allocation agreement with
an investment adviser or with a broker/dealer.
7. Telephone transfer instructions received by Keyport at 800-367-3653
before the close of trading on the New York Stock Exchange (currently 4:00
P.M. Eastern Time) will be initiated that day based on the unit value
prices calculated at the close of that day. Instructions received after
the close of trading on the NYSE will be initiated the following business
day.
8. Once instructions are accepted by Keyport, they may not be canceled.
9. All transfers must be made in accordance with the terms of the Contract
and current prospectus. If the transfer instructions are not in good
order, Keyport will not execute the transfer and will notify the caller
within 48 hours.
10. If 100% of any Sub-Account's value is transferred and the allocation
formula for purchase payments includes that Sub-Account, then the
allocation formula for future purchase payments will change accordingly
unless Keyport receives telephone instructions to the contrary. For
example, if the allocation formula is 50% to Sub-Account A and 50% to
Sub-Account B and all of Sub-Account A's value is transferred to
Sub-Account B, the allocation formula will change to 100% to Sub-Account B
unless Keyport is instructed otherwise.
Telephone Changes to Purchase Payment Allocation Percentages
Numbers 1-6 above are applicable.
35
<PAGE>
APPENDIX D
DOLLAR COST AVERAGING
Keyport offers a dollar cost averaging program that Contract Owners may
participate in by Written Request. The program periodically transfers
Accumulation Units from the CIF Sub-Account or the One-Year Guarantee Period
of the Fixed Account to other Sub-Accounts selected by the Contract Owner.
The program allows a Contract Owner to invest in non-"money market"
Sub-Accounts over time rather than having to invest in those Sub-Accounts all
at once.
The program is available for initial and subsequent purchase payments and for
Contract Value transferred into the CIF Sub-Account or One-Year Guarantee
Period. Under the program, Keyport makes automatic transfers on a periodic
basis out of the CIF Sub-Account or One-Year Guarantee Period into one or
more of the other available Sub-Accounts (Keyport reserves the right to limit
the number of Sub-Accounts the Contract Owner may choose but there are
currently no limits). The automatic transfer program does not guarantee a
profit nor does it protect against loss in declining markets. The One-Year
Guarantee Period option of the program is not available under Contracts
issued to New Jersey and Washington residents.
The Contract Owner by Written Request must specify the CIF Sub-Account or
One-Year Guarantee Period from which the transfers are to be made, the
monthly amount to be transferred (minimum $150) and the Sub-Account(s) to
which the transfers are to be made. The first transfer will occur at the
close of the Valuation Period that includes the 30th day after the receipt of
the Contract Owner's Written Request. Each succeeding transfer will occur one
month later (e.g., if the 30th day after the receipt date is April 8, the
second transfer will occur at the close of the Valuation Period that includes
May 8). When the remaining value is less than the monthly transfer amount,
that remaining value will be transferred and the program will end. Before
this final transfer, the Contract Owner may extend the program by allocating
additional purchase payments to the CIF Sub-Account or One-Year Guarantee
Period or by transferring Contract Value to the CIF Sub-Account or One-Year
Guarantee Period. The Contract Owner may, by Written Request or by telephone,
change the monthly amount to be transferred, change the Sub-Account(s) to
which the transfers are to be made, or end the program. The program will
automatically end if the Income Date occurs. Keyport reserves the right to
end the program at any time by sending the Contract Owner a notice one month
in advance.
Before March 6, 1995, Contract Owners could also specify that transfers under
the program were to be made from the CKUSGF Sub-Account. For those Contract
Owners still participating in the program with the CKUSGF Sub-Account,
substituting "CKUSGF" for "CIF" above describes their program.
Written or telephone instructions must be received by Keyport by the end
(currently 5:00 PM Eastern Time) of the business day preceding the next
scheduled transfer in order to be in effect for that transfer. Telephone
instructions are subject to the conditions and procedures established by
Keyport from time to time. The current conditions and procedures appear below
and Contract Owners in a dollar cost averaging program will be notified, in
advance, of any changes.
1. If there are joint Contract Owners, either Owner can give Keyport
telephone transfer instructions.
2. All callers will be required to identify themselves. Keyport reserves the
right to refuse to act upon any telephone instructions in cases where the
caller has not sufficiently identified himself/herself to Keyport's
satisfaction.
3. Neither Keyport nor any person acting on its behalf shall be subject to
any claim, loss, liability, cost or expense if it or such person acted in
good faith upon a telephone instruction, including one that is
unauthorized or fraudulent; however, Keyport will employ reasonable
procedures to confirm that a telephone instruction is genuine and, if
Keyport does not, Keyport may be liable for losses due to an unauthorized
or fraudulent instruction. The Contract Owner thus bears the risk that an
unauthorized or fraudulent instruction that is executed may cause the
Contract Value to be lower than it would be had no instruction been
executed.
4. All conversations will be recorded with disclosure at the time of the
call.
5. Telephone authorization shall continue in force until (a) Keyport receives
the Contract Owner's written revocation, (b) Keyport discontinues the
privilege, or (c) Keyport receives written evidence that the Contract
Owner has entered into a market timing or asset allocation agreement with
an investment adviser or with a broker/dealer.
6. Telephone instructions must be received by Keyport at 800-367-3653 before
the end (currently 5:00 P.M. Eastern Time) of the business day preceding
the next scheduled transfer in order to be in effect for that transfer.
7. Once instructions are accepted by Keyport, they may not be canceled. New
telephone instructions may be given on the following business day.
8. All instructions must be made in accordance with the terms of the Contract
and current prospectus. If the instructions are not in good order, Keyport
will not execute them and will notify the caller within 48 hours.
Keyport previously offered a Value-Added Dollar Cost Averaging Program for
initial purchase payments made under Contracts issued generally before August
1, 1993. The remainder of this Appendix describes that program for the
benefit of Contract Owners who are still participating in it.
The Value-Added Dollar Cost Averaging program uses the CIF-DCA Sub-Account
and was available only for the initial purchase payment (and for subsequent
payments under Qualified
36
<PAGE>
Contracts meeting the conditions described below). The CIF-DCA Sub-Account
is the only Sub-Account with no deduction for the Contract's 1.40%
asset-based charge.
A Contract Owner was able to allocate all or part of the initial purchase
payment to the CIF-DCA Sub-Account for automatic transfers over either 12
months or 24 months. The Contract Owner allocated at least $1,800 if 12
months was selected and at least $3,600 if 24 months was selected. Based on
the period the Owner selected, Keyport transfers each month either 1/12 or
1/24 of the original allocated amount from the CIF-DCA Sub-Account to the
Sub-Account(s) chosen by the Owner. The first transfer occurred at the close
of the Valuation Period that included the 30th day after the Issue Date of
the Contract. Each succeeding transfer occurs one month later (e.g., if the
30th day after the Issue Date is April 8, the second transfer occurred at the
close of the Valuation Period that included May 8). The last transfer (the
12th or 24th transfer, as applicable) will be of all the remaining value in
the CIF-DCA Sub-Account. Before this final transfer, the Contract Owner may,
by Written Request or by telephone, change the Sub-Account(s) to which the
transfers are to be made or end the program (see the fourth paragraph of this
Appendix). If the Contract Owner transfers any CIF-DCA Sub-Account value
outside the program, the program will automatically end. The program will
also automatically end if the Income Date occurs. If the program ends for any
reason, Keyport, in the absence of instructions to the contrary, will
transfer any remaining CIF-DCA Sub-Account value to the CIF Sub-Account.
Once the program ends, a Contract Owner may not restart it.
If a Qualified Contract application stated the Value-Added Dollar Cost
Averaging program was to apply to multiple transfer or rollover payments that
would all be made to Keyport within a reasonable time, the program began as
stated above with the first transfer or rollover payment received by Keyport.
Then, as each subsequent transfer or rollover payment was received, that
payment was added to the then-current CIF-DCA Sub-Account value and divided
by the applicable 1/12 or 1/24 to determine a new monthly transfer amount.
The total CIF-DCA Sub-Account value will then be transferred out monthly for
the applicable 12 or 24 transfers. Each monthly transfer continues to occur
on the monthly transfer date established for the first payment allocated to
the program.
37
<PAGE>
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125 HIGH STREET
BOSTON, MA 02110-9773
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NECESSARY
IF MAILED
IN THE
UNITED STATES
<PAGE>
Distributed by:
Keyport Financial Services Corp.
125 High Street, Boston, MA 02110-2712
[Keyport Logo]
Issued by:
Keyport Life Insurance Company
125 High Street, Boston, MA 02110-2712
Keyport Life Insurance Company
is an affiliate of
Liberty Mutual Insurance Company.
Service Hotline 800-367-3653 Keyline 800-367-3654
Keyport Logo is a registered service mark of Keyport Life Insurance Company.
KVAP 5/95
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Statement of Additional Information.
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