SUPPLEMENT DATED OCTOBER 13, 1995 TO
PROSPECTUS DATED MAY 1, 1995 FOR
KEYLIFE
INDIVIDUAL SINGLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
ISSUED BY
KEYPORT VARIABLE ACCOUNT I
AND
KEYPORT LIFE INSURANCE COMPANY
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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 Policy for any purpose.
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SERVICE HOTLINE (800) 367-3653, option 6
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
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KEYLIFE
INDIVIDUAL SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY
KEYPORT VARIABLE ACCOUNT I
AND
KEYPORT LIFE INSURANCE COMPANY
The individual variable life insurance policy ("Policy") described in this
Prospectus is a single premium variable life insurance policy. The Policy has
been designed to be used in connection with estate planning and other insurance
needs of individuals. THE POLICY CEASED BEING AVAILABLE FOR PURCHASE IN AUGUST
1990.
Premiums may be allocated to a segregated investment account of Keyport
Life Insurance Company ("Keyport") which account has been designated Keyport
Variable Account I ("Variable Account") and/or to the General Account of
Keyport. The Variable Account invests in shares of the Eligible Funds of
SteinRoe Variable Investment Trust ("SteinRoe Trust") and Keyport Variable
Investment Trust ("Keyport Trust") at their net asset value (see "Eligible
Funds" on Page 8). Policy Owners bear the complete investment risk for all
amounts allocated to the Variable Account.
With respect to amounts allocated to the Variable Account, the cash value
and, under certain circumstances, the death benefit of the Policy may increase
or decrease depending on the investment experience of the Variable Account. A
Guaranteed Minimum Death Benefit is provided which is unaffected by investment
experience.
Any policy entered into on or after June 21, 1988 is a "modified endowment
contract" under the Internal Revenue Code. Loans and other distributions made
under any such Policy while the Insured is alive will be taxed in a manner
similar to distributions from annuity contracts (see "Tax Status of the Policy"
on Pages 20-22).
Right to Examine the Policy--Free Look Period
The Policy may be returned within 10 days after receipt or within 45 days
after the Policy Owner completes the application for insurance, whichever is
later. It can be mailed or delivered to either Keyport or the agent who sold it.
The returned Policy will be treated as if never issued and Keyport will refund
any premium paid. The premium paid will be deposited in the General Account and
held there at interest until the end of the Free Look Period, at which time the
premium will be allocated as specified in the application in one or more
Sub-Accounts of the Variable Account and/or the General Account.
PURCHASERS SHOULD NOTE THAT IT MAY OR MAY NOT BE ADVANTAGEOUS TO REPLACE
EXISTING LIFE INSURANCE WITH THE POLICY DESCRIBED IN THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
The date of this Prospectus is May 1, 1995.
Executive Office: 125 High Street, Boston, MA 02110, (617) 526-1400
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TABLE OF CONTENTS
Page
Right to Examine Policy--Free Look Period 1
Glossary of Special Terms 4
Beneficiary, Contingent Beneficiary 4
Date of Issue 4
General Account 4
Indebtedness 4
Insured 4
Loan Account 4
Monthly Anniversary 4
Office 4
Policy Owner, Joint Policy Owner, Contingent Policy Owner 4
Policy Year, Policy Anniversary 4
Variable Account 4
Written Request 4
Summary 5
Introduction 5
The Variable Account 5
Charges and Deductions 5
Loans 6
Surrenders 6
Keyport 6
The Variable Account 7
Allocation of Investments Under the Policy 7
General Account 7
Variable Account 7
Eligible Funds and Sub-Accounts in the Variable Account 8
Eligible Funds 8
Cash Income Fund 9
Mortgage Securities Income Fund 9
Managed Income Fund 9
Managed Assets Fund 9
Strategic Managed Assets Fund 9
Managed Growth Stock Fund 10
Capital Appreciation Fund 10
Colonial-Keyport U.S. Government Fund 10
Colonial-Keyport Growth and Income Fund 10
Colonial-Keyport Utilities Fund 10
Colonial-Keyport U.S. Fund for Growth 10
Colonial-Keyport International Fund for Growth 10
Colonial-Keyport Strategic Income Fund 11
Newport-Keyport Tiger Fund 11
Transfers 11
Substitution of Eligible Funds 12
Charges and Deductions 12
Deductions from Premium 12
Deductions from Sub-Account Values 12
Daily Deduction 12
Monthly Deduction 12
Sales Load Charge 14
2
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TABLE OF CONTENTS (Continued)
Page
Deduction from Surrendered Values 14
Deduction from Transferred Values 14
The Policy 14
General 14
Insurance Underwriting 14
Illustrations 14
Cash Value and Surrender Rights 15
Cash Value 15
Crediting of Additional Variable Account Cash Values 15
Reduction in Cost of Insurance and Reduction or Elimination
of Policy Maintenance Charge 15
Cash Surrender Value 16
Loan Privileges 16
Policy Loans 16
Policy Loan Interest 16
Loan Repayment 17
Death Benefits 17
The Death Benefit 17
Payment of Death Benefit 17
Payment Options 18
Valuation 18
Valuation of Assets 18
Method of Determining Variable Account Values 18
Other Policy Provisions 19
Ownership 19
Change of Policy Owner or Beneficiary 19
Assignment 19
Incontestability 20
Suicide 20
Misstatement of Age (or Sex) 20
Suspension of Payments 20
Tax Status 20
Introduction 20
Keyport Tax Status 20
Tax Status of the Policy 21
Variable Account Voting Rights 22
Disregard of Voting Instructions 23
Keyport Management 23
Distribution of the Policy 25
Other Policies Issued by Keyport 25
State Regulation 25
Reports to Policy Owners 25
Legal Proceedings 25
Experts 25
Registration Statement 26
Legal Matters 26
Financial Statements 26
Appendix - A, B, C, D and E 67
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The Policy is not available in all States.
NO PERSON IS AUTHORIZED BY KEYPORT TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATION,OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH
THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF OR SOLICITATION OF AN OFFER TO ACQUIRE ANY INTEREST OR PARTICIPATION IN
THE VARIABLE LIFE POLICY OFFERED BY THIS PROSPECTUS TO ANYONE IN ANY STATE OR
JURISDICTION IN WHICH SUCH SOLICITATION OR OFFER MAY NOT BE MADE LAWFULLY.
GLOSSARY OF SPECIAL TERMS
Beneficiary, Contingent Beneficiary--The Beneficiary is the person or persons
who will receive any death benefit. The Contingent Beneficiary, if any, will
become the Beneficiary should the Beneficiary die prior to the date of death of
the Insured.
Date of Issue--The date on which the Policy takes effect.
General Account--The general asset account of Keyport which contains all the
assets of Keyport, other than the assets of the Variable Account and other
separate investment accounts.
Indebtedness--The amount of any existing loans and a pro rata portion of any
loan interest due on the next Policy Anniversary.
Insured--The person whose life is covered by the Policy.
Loan Account--That portion of the General Account that contains cash values
attributable to policy loans.
Monthly Anniversary--The Monthly Anniversary is the same day each month as the
day of issue, or the first day of the next month should that day fall on a day
beyond the end of any month.
Office--The Executive Office of Keyport which is located at 125 High Street,
Boston, Massachusetts 02110. The transactions to be performed under the Policy
are to be performed at the Executive Office.
Policy Owner, Joint Policy Owner, Contingent Policy Owner--The Policy Owner is
the person or persons having all rights under the Policy. Joint Policy Owners
are two or more natural persons who own the Policy equally with a right of
survivorship. The Contingent Policy Owner is the person or persons who will own
the Policy following the Policy Owner's death (or the deaths of all the Joint
Policy Owners).
Policy Year, Policy Anniversary--The first Policy Year starts on the Date of
Issue. Future Policy Years start on the same month and day in each subsequent
year, known as a Policy Anniversary.
Variable Account--A separate investment account maintained by Keyport into which
a portion of its assets has been allocated for the Policy described herein and
certain other policies offered by Keyport. It has been designated as Keyport
Variable Account I. Sub-Accounts have been established within the Variable
Account for each Eligible Fund.
Written Request--A request written on a form satisfactory to Keyport and filed
at the Office of Keyport.
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SUMMARY
Introduction
The Variable Account is a separate investment account maintained by Keyport. The
General Account consists of all Keyport's assets other than the Variable Account
and the assets of other separate accounts maintained by Keyport.
The minimum premium Keyport will accept for a Policy is $5,000. Policy Owners
may allocate premiums to either the Variable Account or the General Account, or
both. If the Policy Owner invests in the Variable Account, the cash value and,
under certain circumstances, the death benefit of the Policy, may increase or
decrease depending on the investment experience of the Eligible Fund chosen
which serves as an underlying investment for a Sub-Account of the Variable
Account. (For further information, see "Cash Value and Surrender Rights" and
"Death Benefits" on Pages 15 and 17, respectively.) No additional premiums will
be accepted by Keyport under a Policy after it is issued. However, additional
Policies may be purchased. At the present time the Policies will not be issued
on Insureds with less than standard mortality factors.
If the Policy Owner allocates premium to the General Account, the cash value
and, under certain circumstances, the death benefit of the Policy, will increase
at guaranteed interest rates and, at Keyport's discretion, at such higher rates
of interest that may be credited.
A Guaranteed Minimum Death Benefit is provided which is unaffected by investment
experience.
There are no federal income taxes on increases in the cash value of a Policy
until a distribution occurs while the Insured is alive. A taxable distribution
can be a total surrender payment and, for Policies entered into on or after June
21, 1988 ("MEC Policies"), also a loan or the making of an assignment of the
Policy. A federal penalty tax (currently 10%) may also apply to MEC Policies.
This federal income tax treatment applies to a MEC Policy since it is a
"modified endowment contract" under Section 7702A of the Internal Revenue Code
(the Single Premium is greater than the premium defined under that Section's
"7-pay test"). (See "Tax Status of the Policy" on Pages 20-22.)
The Variable Account
The Variable Account is a separate account of Keyport established to hold the
investments which underlie the Policy. The assets of the Variable Account will
be invested in one or more Eligible Funds designated as permissible investments
of the Variable Account. The Variable Account is divided into Sub-Accounts on
the basis of each Eligible Fund. (See "The Variable Account" on Page 7.)
Charges and Deductions
From Premium
There are no deductions from the Single Premium.
From Sub-Accounts of the Variable Account
There is a daily deduction for assuming the risk of guaranteeing the
mortality and expense charges, which is equal on an annual basis to .60%
of the net assets in the Sub-Account. (See "Charges and
Deductions-Deductions from Sub-Account Values" on Page 12.)
5
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Keyport may also make a charge against each Sub-Account of the Variable
Account for any provision for taxes established by Keyport as a result of
the operation of the Sub-Accounts. Keyport is not currently making
provision for any taxes.
The value of the assets in each Sub-Account will reflect the value of the
Eligible Fund's shares and therefore the deductions from and expenses paid
out of the assets of the Eligible Fund. For Eligible Funds of the SteinRoe
Trust, the advisory and administrative fees are from .50% to .70% of daily
net assets. For the Eligible Funds of the Keyport Trust, the advisory and
administrative fees are from .60% to .90% of the daily net assets. These
fees and other Fund expenses are described in the prospectuses for
SteinRoe Trust and Keyport Trust in the "How the Funds are Managed"
section under the captions "Advisory and Administrative Fees" and
"Expenses of the Funds."
From Cash Values
There is a monthly deduction made from the cash value of the Policy. The
monthly deduction is for the cost of insurance and policy maintenance
charge. A sales load totaling 6.264% of the Single Premium is deducted in
equal installments on a monthly basis beginning in the second policy year
or from surrendered values if the total sales load has not been otherwise
deducted.
Under certain circumstances and after a specified number of years the cost
of insurance and policy maintenance charge may be reduced. (See "Cash
Value and Surrender Rights-Reduction in Cost of Insurance and Reduction or
Elimination of Policy Maintenance Charge" on Page 15.)
From Surrendered Values
There is a deduction from cash value of any unpaid sales load charge. (See
"Charges and Deductions-Deduction from Surrendered Values" on Page 14.)
From Transferred Values
Keyport has reserved the right to deduct a fee for implementing a transfer
of cash value from one Sub-Account to another and to or from the General
Account and the Variable Account. Keyport is not currently charging any
such fee. (See "Charges and Deductions-Deduction from Transferred Values"
on Page 14.)
Loans
Policy Owners may make policy loans. (See "Loan Privileges" on Page 16.) For
Policies entered into on or after June 21, 1988, policy loans can be taxable
(see "Tax Status of the Policy" on Pages 20-22).
Surrenders
Policy Owners may surrender the Policy for its cash surrender value at any time.
(See "Cash Value and Surrender Rights" on Page 15.)
KEYPORT
Keyport was incorporated in Rhode Island in 1957 as a stock life insurance
company. Its executive and administrative Office is at 125 High Street, Boston,
Massachusetts 02110 and its home office is at 235 Promenade Street, Providence,
Rhode Island 02903. Prior to January 1, 1991, Keyport's name was Keystone
Provident Life Insurance Company.
6
<PAGE>
Keyport writes individual and group life insurance and annuity contracts on a
non-participating basis. Keyport is licensed to do business in all states other
than New York. Keyport 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. "Superior" is Best's the highest rating category, which also
includes A++. Best's Ratings merely reflect Best's opinion as to the relative
financial strength of Keyport.
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
The Variable Account was established by Keyport pursuant to the provisions of
Rhode Island law on September 2, 1982. Prior to January 1, 1991, the Variable
Account's name was Keystone Provident Variable Account I. Keyport has caused the
Variable Account to be registered with the Securities and Exchange Commission as
a Unit Investment Trust type of separate account pursuant to the provisions of
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.
The assets of the Variable Account are the property of Keyport and are not
chargeable with liabilities arising out of any other business Keyport may
conduct. The income, gains or losses, whether or not realized, from assets
allocated to the Variable Account, are, in accordance with the Policy, credited
to or charged against the Variable Account without regard to any other income,
gains or losses of Keyport.
Keyport does not guarantee the investment performance of the Variable Account.
When amounts are allocated to the Variable Account, cash values and, under
certain circumstances, the death benefit will vary with the investment
performance of the investments in the Sub-Accounts of the Variable Account in
which values are held.
ALLOCATION OF INVESTMENTS UNDER THE POLICY
Premiums applied to the Policy may be allocated in whole or in part to the
General Account and/or the Variable Account. The minimum allocation to the
General Account or to any Sub-Account of the Variable Account is 10% of the
Single Premium.
General Account
This Prospectus has no applicability to the General Account. However, for the
information of Policy Owners some occasional references will be made to the
General Account and the right to allocate or re-allocate the Single Premium,
cash values, or loan repayments to the General Account.
Variable Account
Premium applied to the Variable Account will be invested in one or more of the
Eligible Funds at net asset value, in accordance with the directions of the
Policy Owner(s) in the application, subject to any terms and conditions imposed
on such selection by Keyport. The assets of the Variable Account will be
segregated by Eligible Fund, thus establishing a series of Sub-Accounts within
the Variable Account. Keyport may, from time to time, withdraw, substitute,
merge or add Eligible Funds. When a new Eligible Fund is added, the Policy Owner
may be permitted to select such Fund as an underlying investment for a Policy
subject to any terms and conditions Keyport may impose. (See "Transfers" on Page
11.)
7
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Eligible Funds and Sub-Accounts in the Variable Account
The Sub-Accounts in the Variable Account and the corresponding Eligible Funds of
SteinRoe Trust are as follows:
Eligible Funds of
SteinRoe Variable Investment Trust Sub-Accounts
Cash Income Fund ("CIF") CIF Sub-Account
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
* The MIF and SMAF Sub-Accounts are not available to receive transfers of Policy
value.
Keyport Trust Sub-Accounts in the Variable Account and the corresponding
Eligible Funds of Keyport Trust are as follows:
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 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
Colonial-Keyport Strategic Income Fund ("CKSIF") CKSIF Sub-Account
Newport-Keyport Tiger Fund ("NKTF") NKTF Sub-Account
** The CKUSGF Sub-Account is not available to receive transfers of Policy value.
(Note - Other Sub-Accounts and Eligible Funds may be added from time to time.)
Eligible Funds
The Eligible Funds which are permissible investments of the Variable Account are
the separate funds of the SteinRoe Trust, the separate funds of the Keyport
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 the Policies.
Stein Roe & Farnham Incorporated ("Stein Roe") is the investment adviser for
each Eligible Fund of the 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 to
the Eligible Funds (other than Newport-Keyport Tiger Fund). Colonial has
provided investment advisory services since 1931. Newport Fund Management Inc.,
an affiliate of Keyport, serves as sub-adviser for the Newport-Keyport Tiger
Fund.
8
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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 the 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.
Cash Income Fund
Cash Income Fund seeks high current investment income from investment in
short-term money market instruments while emphasizing preservation of
capital and maintaining excellent liquidity.
Mortgage Securities Income Fund
Mortgage Securities Income Fund seeks to provide the highest possible level
of current income, consistent with safety of principal and maintenance of
liquidity, by investing under ordinary circumstances at least 65% of its
total assets in various types of investments known as Mortgage Pass-Through
Certificates representing beneficial interests in mortgage pools.
Managed Income Fund
Managed Income Fund seeks a high level of current income. Capital
preservation and appreciation are secondary objectives. The Fund invests in
debt and convertible debt securities rated BBB or above by Standard &
Poor's; obligations of the U.S. Government or its agencies; obligations of
U.S. banks that belong to the Federal Reserve System, not to exceed 25% of
the Fund's total assets; preferred stocks and convertible preferred stocks
rated BBB or above by Standard & Poor's; highest-grade commercial debt
repurchase agreements; and bank deposits, not to exceed 10% of total assets.
In addition, the Fund may invest up to 20% of its assets in debt and
convertible debt securities rated as low as CCC by Standard & Poor's to
increase the Fund's yield. The MIF Sub-Account is no longer available to
receive transfers of Policy value.
Managed Assets Fund
Managed Assets Fund seeks to provide a high total investment return. To do
this, the Fund adjusts its overall exposure to risk by shifting its
investment emphasis among investments providing alternatives for capital
growth, capital stability and income as market and economic trends change.
This flexible, total investment return approach is a fully managed
investment policy which makes use of equity, debt, convertible and money
market securities. The Fund expects that over longer periods a larger
portion of the Fund's portfolio will consist of equity securities.
Strategic Managed Assets Fund
Strategic Managed Assets Fund seeks to provide maximum total investment
return. To do this, the Fund aggressively adjusts its overall exposure to
risk by shifting its investment emphasis among investments providing
alternatives for capital growth, capital stability and income as market and
economic trends change. This flexible total investment return approach is a
fully managed investment policy which makes use of all types and grades of
equity, debt, convertible and money market securities. The Fund seeks to
achieve below-average volatility in a falling market and above-average
volatility in a rising market. The Fund may invest all or a part of the
equity portion of its portfolio in equity securities of newer and smaller
companies, of companies that are speculative with respect to financial
strength and
9
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stability of earnings and dividends, and of well-seasoned companies of any
size. The Fund may also invest all or a part of the debt portion of its
portfolio in securities rated below BBB and in unrated securities. The SMAF
Sub-Account is no longer available to receive transfers of Policy value.
Managed Growth Stock Fund
Managed Growth Stock Fund seeks long term growth of capital. It is expected
that under ordinary circumstances at least 65% of the Fund's total assets
will be invested in common stock of growth companies, including foreign
companies, whose earnings are expected to increase more rapidly than most
public companies.
Capital Appreciation Fund
Capital Appreciation Fund seeks to provide growth of capital. The Fund
pursues this objective by investing primarily in common stocks, securities
convertible into common stocks, and securities having common stock
characteristics, including rights and warrants, selected primarily for
prospective capital growth. Investments in newer and smaller companies
(those having a market capitalization of less than $5,000,000), particularly
those believed to be in the earlier phases of growth, are emphasized.
Colonial-Keyport U.S. Government Fund
The Colonial-Keyport U.S. Government Fund seeks a high level of current
income, consistent with the preservation of capital, by investing primarily
in U.S.Government Securities. The Fund may invest in U.S. Government
Securities of any maturity and in zero coupon securities. The CKUSGF is no
longer available to receive transfers of Policy value.
Colonial-Keyport Growth and Income Fund
The Colonial-Keyport Growth and Income Fund seeks primarily income and
long-term capital growth and, secondarily, preservation of capital. The Fund
may invest without limit in U.S. and foreign common stocks that, when
purchased, meet quantitative standards that, in Colonial's judgment,
indicate above average financial soundness and high intrinsic value relative
to price. The Fund may also invest in debt securities, but currently intends
to limit those investments to U.S. Government and agency obligations (except
for temporary or defensive investments). The market value of debt securities
will fluctuate with changing interest rates which could affect the value of
Fund shares. The portion of total assets invested in common stocks and debt
securities will vary based on the availability of common stocks meeting the
Fund's criteria and Colonial's judgment of the investment merit of common
stocks relative to debt securities.
Colonial-Keyport Utilities Fund
The Colonial-Keyport Utilities Fund seeks primarily current income and,
secondarily, long-term capital growth. The Fund normally invests at least
65% of its total assets in common and preferred equity securities of utility
companies.
Colonial-Keyport International Fund for Growth
Colonial-Keyport International Fund for Growth seeks long-term capital
growth by investing primarily in non-U.S. equity securities. The Fund
normally invests at least 65% of its assets in equity securities of issuers
in at least three countries other than the U.S. The Fund may also invest up
to 35% of its assets in high
10
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quality foreign government debt securities. The value of debt securities
usually fluctuates inversely to changes in interest rates. The Fund is
non-diversified and may invest more than 5% of its total assets in the
securities of a single issuer, thereby increasing the risk of loss compared
to a diversified fund. The Fund may invest up to 10% of its total assets in
closed-end investment companies commonly referred to as "country funds".
Colonial-Keyport U.S. Fund for Growth
Colonial-Keyport U.S. Fund for Growth seeks growth over time exceeding the
performance of the S&P 500 Index (Standard & Poor's Corporation Composite
Stock Price Index). The Fund normally invests at least 65% of its total
assets in U.S. common stocks and up to 10% in American Depository Receipts
that State Street Global Advisors, a division of State Street Bank and Trust
Company, believes have superior growth and value characteristics selected
from a universe which meets certain guidelines for liquidity and investment
information. The Fund's investments are not limited to securities in the S&P
500 Index, but may be managed to correlate with the sectors, capitalization
and volatility of the S&P 500 Index.
Colonial-Keyport Strategic Income Fund
Colonial-Keyport Strategic Income Fund seeks, primarily, a high level of
current income and total return as is consistent with the prudent risk by
diversifying investments primarily in U.S. and foreign government 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") and therefore may not be suitable for all
investors. High risk, high yield bonds are regarded as speculative as to
payment of principal and interest. Purchasers should carefully assess the
risks associated with an investment in the Fund.
Newport-Keyport Tiger Fund
Newport-Keyport Tiger Fund seeks long-term capital growth by investing
primarily in equity securities of companies located in the four Tigers of
Asia (Hong Kong, Singapore, South Korea and Taiwan) and the other
mini-Tigers of South East Asia (Malaysia, Thailand, Indonesia, China and the
Philippines). The Fund may invest 10% of its total assets in closed-end
investment companies commonly referred to as "country funds".
There is no assurance that the Eligible Funds will achieve their stated
objectives.
The SteinRoe Trust and Keyport Trust are funding vehicles for variable
annuity contracts and variable life policies offered by separate accounts of
Keyport; for variable annuity contracts and variable life policies offered
by separate accounts of Keyport's wholly-owned subsidiary, Keyport America
Life Insurance Company, and for variable annuity contracts offered by
separate accounts of life insurance companies affiliated and unaffiliated
with Keyport. The risks involved in this "mixed funding" are disclosed in
the Trust prospectus under the caption "The Trust."
Transfers
Policy Owners may, by Written Request, transfer non-loaned cash values among
the Sub-Accounts of the Variable Account and the General Account subject to
the following:
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(a) the minimum value that may be transferred from any Sub-Account
or the General Account is $1,000 (or the total value if it is
less than $1,000);
(b) following a transfer, the remaining value in a Sub-Account or
General Account must be either zero or at least $1,000;
(c) Keyport has reserved the right to limit the number of transfers
to no more than four every Policy Year (the current limitations
are five transfers per calendar year and three per calendar
quarter);
(d) any amounts allocated or transferred to the General Account may
not be transferred from the General Account for a period of one
year following such allocation or transfer (Keyport accounts for
multiple transfers on a first-in, first-out basis); and
(e) the deduction of any fees that Keyport may impose on such
transfer. There is currently no charge for such transfer.
Substitution of Eligible Funds
If the shares of any of the Eligible Funds should become unavailable for
investment by the Variable Account or if in the judgment of Keyport's Board
of Directors further investment in such Fund shares should become
inappropriate in view of the purpose of the Policy, Keyport may add or
substitute shares of another Eligible Fund or of another mutual fund for
Eligible Fund shares already purchased under the Policy. No substitution of
Fund shares in any Sub-Account may take place without prior approval of the
Securities and Exchange Commission and under such requirements as it may
impose.
CHARGES AND DEDUCTIONS
Deductions from Premium
No deduction of any type is made at the time of payment of the Single Premium.
Thus, 100% of the premium is immediately applied to the Policy.
Deductions from Sub-Account Values
Daily Deduction
Keyport deducts from the assets of a Sub-Account a daily charge for assuming
the risk of guaranteeing mortality factors and the expense charges which is
equal on an annual basis to .60% of the net assets in that Sub-Account. This
charge is referred to as the Mortality and Expense Risk Charge. The
mortality risk assumed by Keyport is that the insureds, as a group, may not
live as long as expected. The expense risk assumed by Keyport is that actual
expenses may be greater than those assumed. Keyport is responsible for all
administration of the Policies and the Variable Account. (See "Monthly
Deduction" below.)
The amount of the monthly deduction specified in the Policy (see "Monthly
Deduction" below) is based on assumed life spans of the Insureds, as a
group, and on assumed levels of expenses which will be borne by Keyport.
Keyport guarantees that it will not increase charges against the Policy
despite any increases in its costs as a result of a higher death rate of
Insureds or of increased expenses above assumed levels. If the life spans of
the Insureds, as a group, are equal to or greater than those assumed in
setting the deductions specified in the Policies, or if the actual
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expenses borne by Keyport are equal to or less than those assumed in the
Policies, then Keyport will derive a profit from the daily deduction. On the
other hand, if the life spans of the Insureds are less than those assumed,
or if the actual expenses are greater than those assumed, then Keyport's
profit from the daily deduction will be reduced or eliminated, or Keyport
may experience a loss. Keyport expects to profit from the daily deduction.
Keyport may also charge for any provision for income taxes established by
Keyport as a result of the operations of the Variable Account and the
Sub-Accounts thereunder. Keyport is not currently charging for any tax
provisions.
Monthly Deduction
Keyport makes a monthly deduction for the cost of insurance and the policy
maintenance charge from the cash value of the Policy. Any monthly deduction
will be allocated among all Sub-Accounts of the Variable Account and any
values in the General Account, exclusive of the Loan Account, in the
proportion that the cash value in each bears to the total cash value,
exclusive of the Loan Account. The monthly deduction will be made at the end
of each policy month during the valuation period in which the Monthly
Anniversary falls.
The cost of insurance is determined on each Monthly Anniversary. The cost of
insurance amount will vary by the difference between the death benefit and
the cash value as well as the Insured's age last birthday (and sex in those
states that do not permit unisex tables), all as of the prior Monthly
Anniversary. The cost of insurance will generally increase as the Insured
gets older. The table in the Policy which is used to determine the cost of
insurance is based on the Commissioners' 1980 Standard Ordinary Table,
Blended Table B, age last birthday, at 4%.
The policy maintenance charge reimburses Keyport for administrative costs
related to the Policy, for the costs of absorbing state and local premium
taxes, and for assuming certain risks associated with providing a Guaranteed
Minimum Death Benefit. Administration of the Policy includes Policy
underwriting and issuance, maintenance of policy records, Policy Owner
service, all accounting, reserve calculations, regulatory and reporting
requirements, and audits of the Variable Account. Policy administration is
supported by a computer system. The expenses associated with its
acquisition, modification and maintenance are recognized in this charge.
The policy maintenance charge is calculated and deducted on each Monthly
Anniversary. The Guaranteed Maximum Monthly Policy Maintenance Charge is
determined by multiplying the lesser of (i) the Guaranteed Minimum Death
Benefit and (ii) 3.5 times the Single Premium by the applicable policy
maintenance charge factor and dividing the result by $1,000. The applicable
policy maintenance charge factors are determined at the time the Policy is
issued and are shown on the Policy's specifications page. If the Single
Premium is not over $40,000, the factor for issue ages through 45 is $0.25
for policy years 1-15 and $0.15 for policy years thereafter. If the Single
Premium is over $40,000, the factor for issue ages through 45 is less than
$0.25 (i.e., it equals $10,000 divided by the Single Premium) for policy
years 1-15 and is less than $0.15 (i.e., it equals $6,000 divided by the
Single Premium) for policy years thereafter. For issue ages above 45 the
factors noted above are increased by 3.2% for each year the issue age
exceeds 45. See Appendix B on Page 77 for an illustrative example of the
calculation of this Charge.
Under certain circumstances, the policy maintenance charge may be less than
the Guaranteed Maximum Monthly Policy Maintenance Charge. (See "Reduction in
Cost of Insurance and Reduction or Elimination of Policy Maintenance Charge"
on Page 15.)
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Sales Load Charge
The charge for sales load reimburses Keyport for expenses incurred in
connection with the promotion, sale and distribution of the Policy. The
amount of this charge is equal to 6.264% of the Single Premium. This charge
is deferred and is deducted from the Policy's cash value, exclusive of the
Loan Account, in equal installments on each Monthly Anniversary during
Policy Years 2 through 10. Any uncollected sales load charges will be
deducted from the cash value if the Policy is surrendered during Policy
Years 1 through 10. The charges are allocated in the same manner as
described for the monthly deduction. Keyport anticipates that the sales load
charge will be sufficient to cover its distribution expenses. If such charge
is not sufficient, any deficit will be made up from Keyport's general
assets.
Deduction from Surrendered Values
As noted in the discussion under "Sales Load Charge" above, any uncollected
sales load charges are deducted from the cash value if the Policy is surrendered
during Policy Years 1 through 10.
Deduction from Transferred Values
Keyport has reserved the right to deduct a fee for implementing a transfer of
cash value from one Sub-Account to another and to or from the General Account
and the Variable Account. Keyport is not currently charging any fee.
THE POLICY
General
The Policy is an individual single premium variable life insurance policy. The
premium for the Policy must be paid in United States currency. Coverage under
the Policy does not commence until a Policy has been issued and the premium paid
during the Insured's lifetime.
Insurance Underwriting
Insurance underwriting is designed to group applicants of the same age (and sex
in those states that have not adopted the unisex tables) into classifications
which can be expected to produce mortality experience consistent with the
actuarial model for that class. Keyport uses two methods of underwriting: (a)
simplified underwriting; and (b) medical underwriting which may require a
medical exam. Simplified underwriting will be used if the Single Premium for a
Policy is $35,000 or less. Simplified underwriting is based on answers to
medical questions in the application and physicians' statements.
To purchase a Policy, a completed application must be sent to Keyport at its
Office at 125 High Street, Boston, Massachusetts 02110. The minimum Single
Premium is $5,000. Acceptance of the application is subject to Keyport's
underwriting rules. Keyport may, in its sole discretion, reject any application
or premium for any reason.
Illustrations
This Prospectus contains illustrations which may be helpful in understanding how
the Policy works. The tables in the illustrations show how the cash surrender
value and death benefits of a Policy can change with the investment experience
of the Variable Account. The tables show how the cash surrender values and death
benefits of a Policy issued to an Insured (of either sex) at various ages vary
with certain assumed yields (see Appendix A on Page 67). For illustrations at
ages and for Guaranteed Minimum Death
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Benefit amounts not shown therein, the prospective Policy Owner should contact
his agent who will request illustrations from Keyport.
CASH VALUE AND SURRENDER RIGHTS
Cash Value
The cash value of the policy is the total of all Sub-Account, General Account
and Loan Account values.
Crediting of Additional Variable Account Cash Values
Beginning with the 9th Policy Anniversary, Keyport guarantees to credit
additional cash values to the Variable Account (not to General Account) values
of a Policy if the investment experience of the Variable Account exceeds certain
assumed levels for that Policy. On each applicable Policy Anniversary
thereafter, Keyport will determine whether or not additional cash values will be
added to the Variable Account values by the application of an actuarial formula
set forth in the Policy. (See "Charges and Deductions--Daily Deduction" on Page
12.)
Keyport has guaranteed the crediting of such additional cash values because
certain costs of Keyport are more rapidly amortized when actual investment
experience exceeds assumed levels for certain time periods. A different formula
is used for the 16th Policy Anniversary and thereafter than is used for Policy
Anniversaries 9 through 15.
If the condition stated above is met, then Keyport will add to the cash value in
each Sub-Account on such Policy Anniversary an amount equal to .30% of the cash
value of each Sub-Account. The crediting of such values is accomplished by the
purchase of full or fractional Sub-Account units. For an illustrative example of
a cash value adjustment, see Appendix C on Page 78.
Reduction in Cost of Insurance and Reduction or Elimination of Policy
Maintenance Charge
On each Monthly Anniversary, Keyport makes a deduction from the cash value of a
Policy for the cost of insurance and the policy maintenance charge.
Beginning with the 8th Policy Year, Keyport guarantees to reduce the monthly
deduction for the cost of insurance and policy maintenance charge under certain
conditions. In the event the investment experience of the Variable Account is
below certain anticipated levels assumed in constructing the Policy, Keyport
will, pursuant to an actuarial formula contained in the Policy, reduce the
monthly deduction for the cost of insurance and policy maintenance charge. In
order to sustain the cash values and death benefits of a Policy and to encourage
Policy Owner retention of a Policy, Keyport reduces these charges when actual
investment experience is below the assumed levels. Any reduction of these
charges is only applicable for a monthly period at a time; the charges may be
increased or reimposed in each subsequent monthly period to their original
level.
Beginning with the 9th Policy Year, Keyport guarantees to reduce or eliminate
the monthly deduction for the policy maintenance charge under certain
conditions. In the event the investment experience of the Variable Account is
above certain anticipated levels assumed in constructing the Policy, Keyport
will, pursuant to an actuarial formula contained in the Policy, reduce or
eliminate the monthly deduction for the policy maintenance charge. While a
reduction of the charge can occur at any time after the beginning of the 9th
Policy Year, elimination of the charge can occur only during the 9th through
15th Policy Years. Keyport has provided for such a reduction or elimination of
the deduction because a deduction in the original amount is not actuarially
necessary when actual investment experience is above assumed levels. Any
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reduction in or elimination of this charge is only applicable for a monthly
period at a time; the charge may be increased or reimposed in each monthly
period to the original level. For an illustration of the reduction or
elimination of this charge, see Appendix C on Page 78.
Cash Surrender Value
The Policy Owner may surrender the Policy for its cash surrender value by
submitting a Written Request for surrender to Keyport. The cash surrender value
is equal to:
(a) the cash value; less
(b) any uncollected sales load charges; less
(c) any Indebtedness.
Surrendering the Policy will cancel it. Keyport will normally pay the amount of
any surrender within seven (7) days of receipt of such request, unless the
Suspension of Payments provision of the Policy is in effect. (See "Suspension of
Payments" on Page 20.)
LOAN PRIVILEGES
Policy Loans
Subject to the rights of any assignee, after the first Policy Year, Keyport will
grant to the Policy Owner a loan on the Policy. Keyport will not make a loan for
less than $1,000. Subject to this minimum, the Policy Owner may borrow any
amount less than or equal to 80% of the cash value of the Policy (or any other
amount required by state law), less any existing Indebtedness. For Policies
entered into on or after June 21, 1988, policy loans can be taxable (see "Tax
Status of the Policy" on Pages 20-22).
A portion of cash value in the Variable Account and/or General Account equal to
the requested policy loan amount is placed in the Loan Account. An amount equal
to the loan will be deducted: (a) from the Sub-Account(s) of the Variable
Account and/or the General Account in the manner that the Policy Owner chooses
by Written Request; or (b) from each Sub-Account in the Variable Account in the
proportion that the cash value in each Sub- Account bears to the loan amount
requested if the Policy Owner does not specify how the loan is to be allocated.
If there is no value, or insufficient value, in the Variable Account, then the
loan amount, or the insufficient portion, will be deducted from the General
Account. Unpaid interest will also be transferred to the Loan Account (see
"Policy Loan Interest" below). Cash Values in the Loan Account, including unpaid
loan interest that has been added to the loan balance, will be credited with
interest at an annual effective rate of 4.00% per year. Since cash values are
placed in the Loan Account when a loan is made, such cash values do not
participate in the investment experience of the Variable Account; therefore the
investment yield on cash values held in the Loan Account is limited to the 4%
rate credited by Keyport. Thus, a loan will have a permanent effect on cash
values and death benefits of a Policy.
Keyport may defer granting a loan from the General Account for up to six months.
The six-month period begins on the date Keyport receives the Written Request for
a loan. No such delay is applicable to loans made from the Variable Account.
Policy Loan Interest
Interest on any existing loan is due on each Policy Anniversary. The maximum
loan interest rate, which may vary from time to time, will never be higher than
the amount
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shown in the Policy. If the Policy Owner pays loan interest when due, the
increase in borrowed cash value amounts will be removed from the Loan Account
and re-invested in the Sub-Account(s) of the Variable Account and/or in the
General Account:
(a) in accordance with the proportionate allocation in the Policy; or
(b) in such other manner that the Policy Owner chooses by Written Request.
If the Policy Owner does not pay the loan interest when due, Keyport will:
(a) pay off part of the loan interest due by applying the increase in
borrowed cash value amounts to pay loan interest; and if that is
insufficient,
(b) add the remaining loan interest due to the loan balance and transfer
such amount from the Variable Account and/or the General Account in
the same manner as described for policy loans, above.
The Indebtedness may not exceed the cash surrender value of the Policy. Should
this occur, the Policy will lapse. However, the Policy will not lapse until 31
days after a notice is sent to the Policy Owner. A notice will also be sent to
any assignee of record.
Loan Repayment
If the Policy is still in force, the Policy Owner may repay a loan in whole or
in part. In order to fully repay an existing loan, a pro rata portion of the
loan interest due on the next Policy Anniversary must also be paid. Upon
repayment, the cash value in the Loan Account supporting the policy loan being
repaid will be removed and re-invested in the Sub-Account(s) of the Variable
Account and/or the General Account in the same manner as described for the
payment of loan interest described above under "Policy Loan Interest."
DEATH BENEFITS
The Death Benefit
The cash value and the death benefit of the Policy generally will increase or
decrease depending on the investment experience of Variable Account cash values
and/or the amount of interest credited on the General Account cash values. The
death benefit of the Policy at any time is the cash value of the Policy divided
by an appropriate actuarial amount (the net single premium shown in the Policy),
which varies according to the Insured's attained age. However, at no time will
the death benefit be less than it is on the Date of Issue (see Appendix D on
Page 80 for factors that may be used to calculate the approximate death
benefit). This death benefit floor is called the Guaranteed Minimum Death
Benefit. The death benefit will be reduced by any Indebtedness.
Appendix E on Page 81 is a Table of Net Single Premium Factors contained in the
Policy. The net single premium factor increases with the age of an Insured.
Therefore, when divided into the cash value of a Policy, it will reduce the
death benefit under such Policy unless the cash value has increased at a greater
rate than the increase in the applicable net single premium factor.
Payment of Death Benefit
The death benefit will be calculated on the date Keyport receives written proof
of death of the Insured. Before Keyport pays any death benefit it requires
written proof of death of the Insured and the return of the Policy or a lost
policy certificate.
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Keyport will pay the death benefit in a lump sum to the Beneficiary, if alive on
the date of death, otherwise, to any Contingent Beneficiary alive on that date,
and otherwise to the Policy Owner or to the estate of the Policy Owner.
If the Policy Owner names more than one person as Beneficiary or Contingent
Beneficiary and does not state otherwise, any non-survivor will not receive any
benefit, the survivors will receive equal shares, and if there is only one
survivor, that person will receive the entire benefit. Any death benefit will be
paid in accordance with any applicable laws governing the payment of death
proceeds.
Payment Options
Any amount of $5,000 or more payable under the Policy may be received under a
payment option.
The payment options are:
Option 1. Income for a Fixed Number of Years. Keyport will pay equal payments
for a chosen number of years, not over 30.
Option 2. Life Income with a Fixed Number of Years Guaranteed. Keyport will make
a payment once each month for as long as the payee lives. Payments are
guaranteed for at least the number of months chosen even if the payee dies
before then. The minimum amount of each payment will depend on the payee's sex
and age before the payments start.
Option 3. Interest Income. Keyport will pay interest on the amount left with
Keyport at a rate of at least 2.5% per year, compounded annually, for a chosen
number of years, not over 30. Interest payments will be made annually,
semi-annually, quarterly or monthly, as chosen.
Option 4. Income of a Fixed Amount. Keyport will make payments of a specified
amount. Keyport will credit interest on the balance of the amount payable left
with Keyport. This interest will be at a rate of at least 2.5% per year,
compounded annually. Payments will last until the amount payable plus interest
runs out.
Other payment options (including variable payout options, if permitted by
applicable law) are available from Keyport.
VALUATION
Valuation of Assets
Eligible Fund shares held in the Sub-Accounts of the Variable Account will be
valued at their net asset value by each Fund. The Sub-Accounts of the Variable
Account are valued each valuation period. A valuation period is the period
commencing at the close of trading of 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.
Method of Determining Variable Account Values
The cash value of the Policy held in the Variable Account will fluctuate daily
in accordance with the investment results of the underlying Eligible Funds. In
order to determine how these fluctuations affect the cash value, a valuation
unit is utilized.
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The valuation unit applicable during any valuation period is determined at the
end of that period.
When a Policy is issued, Sub-Account units are credited to the Policy. When
charges are deducted Sub-Account units are surrendered. On any valuation date,
the Variable Account cash value is the sum of all Sub-Account units multiplied
by the respective valuation units. When Keyport first purchased Eligible Fund
shares on behalf of the Variable Account, each valuation unit was valued at $10
for each Sub-Account. The valuation unit for each Sub-Account in any valuation
period thereafter is determined by dividing (a) by (b), where:
(a) is equal to:
(i) the total value of the net assets in that Sub-Account; less
(ii) a charge for assuming the risk of guaranteeing mortality
factors and expense charges, which is equal to (i) above
multiplied by the valuation period equivalent of .60% per
year; less
(iii) a charge, if any, for any tax provision established by Keyport
as a result of the operations of that Sub-Account.
(b) is the total number of units in that Sub-Account at the end of the
valuation period.
OTHER POLICY PROVISIONS
Ownership
The Policy Owner, any Joint Policy Owners, and any Contingent Policy Owner are
named in the Policy. If more than one person is named as Policy Owner or
Contingent Policy Owner and the designation does not state otherwise, Keyport
will treat such persons as Joint Policy Owners. Any designations may be changed
by the Policy Owner.
While the Insured is alive, the Policy Owner may exercise all the rights of the
Policy, subject to the rights of: (a) any assignee under an assignment filed
with Keyport; and (b) any irrevocably-named Beneficiary. If the Policy Owner
dies, the Policy Owner's rights will pass to any surviving Joint Policy Owner or
Owners, otherwise to any Contingent Policy Owner then alive, and otherwise to
the Policy Owner's estate.
Change of Policy Owner or Beneficiary
By Written Request, the Policy Owner may change the Policy Owner, the Contingent
Policy Owner, Beneficiary, or Contingent Beneficiary while the Insured is alive.
An irrevocably-named person may be changed only with the written consent of such
person. After the request is recorded, the change will take effect as of the
date the request is signed. The change will not affect any payments Keyport may
make or actions it may take before recording the request.
Assignment
The Policy Owner may assign the Policy. A copy of any assignment must be filed
with Keyport. Keyport is not responsible for the validity of any assignment. If
the Policy Owner assigns the Policy, the Policy Owner's rights and those of any
revocably-named person will be subject to the assignment. An assignment will not
affect any payments Keyport may make or actions it takes before the assignment
is recorded. Any assignment made of the Policy will be subject to any
Indebtedness. For Policies entered into on
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or after June 21, 1988, assignments can be taxable (see "Tax Status of the
Policy" on Pages 20-22).
Incontestability
Keyport will not contest the Policy after it has been in force, during the
Insured's lifetime, for two years from its Date of Issue.
Suicide
If the Insured commits suicide, whether sane or insane, within two years from
the Date of Issue, the death benefit payment will be limited to the greater of
the amount of the Single Premium paid or the cash value, less any Indebtedness.
Misstatement of Age (or Sex)
If the Insured's age (or sex in those states that have not adopted unisex
tables) has not been stated correctly, Keyport will change any amount payable to
what the premium paid would have bought at the true age (or sex).
SUSPENSION OF PAYMENTS
Keyport reserves the right to postpone surrender payments from the General
Account for up to 6 months. Keyport reserves the right to postpone any type of
payment from the Variable Account for any period when: (a) the New York Stock
Exchange is closed on other than customary weekend and holiday closings; (b)
trading on that 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 of the Securities and Exchange Commission shall govern as to whether the
conditions described in (b) and (c) exist.
TAX STATUS
NOTE: The following description is based upon Keyport's understanding of current
federal income tax law applicable to life insurance in general. Keyport cannot
predict the probability that any changes in such laws will or will not be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. Keyport does not guarantee the tax status of the Policies.
Purchasers bear the complete risk that the Policies may not be treated as "life
insurance" under federal income tax laws.
Introduction
The discussion contained herein is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax advisor. 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.
Keyport Tax Status
Keyport is taxed as a life insurance company under the Internal Revenue Code
("Code"). For federal income tax purposes, the Variable Account is not a
separate entity from Keyport and its operations form a part of Keyport.
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Tax Status of the Policy
The Code includes a definition of life insurance for tax purposes. The Policies
described herein are designed to meet this definition of life insurance under
the "Cash Value Accumulation" test. The death benefit under a policy meeting
this definition will be excluded from the gross income of the beneficiary under
Section 101(a)(1) of the Code. The owner of such a policy will not be considered
to have received any increases in the policy due to interest or investment
experience before a total surrender of the policy.
The U.S. Secretary of the Treasury has issued regulations that set standards for
diversification of the investments underlying variable life insurance policies
in order for such policies to be treated as life insurance. The Eligible Funds
are designed to be managed to meet the diversification requirements for the
Policies as those requirements may change from time to time. If diversification
requirements are not satisfied, the Policy would not be treated as a life
insurance contract. As a consequence to the Policy Owner, income earned on a
Policy would be taxable to the Policy 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 their 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 Policy
Owner's control of the investments of a segregated asset account may cause the
Policy 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 Policy. Keyport, however, has reserved certain rights to
alter the Policy 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, Policy Owners are urged
to consult with their own tax advisers.
Provisions of the Technical and Miscellaneous Revenue Act of 1988 apply to all
single premium life insurance policies, including the Policies described in the
prospectus. The Act affects the federal income tax treatment of distributions
made while the Insured is alive. Basically, these distributions will be taxed in
a manner similar to annuity contracts, as described below.
Any Policy entered into on or after June 21, 1988 is treated as a "modified
endowment contract" subject to the following four new requirements.
First, a loan is includable in gross income to the extent the Policy's total
cash value exceeds the Policy's cost basis. Any additional amount of the loan is
not includable in gross income. The Policy's cost basis is initially the Single
Premium amount (or the old policy's cost basis in the case of a Policy issued
following an exchange under section 1035 of the Code). The cost basis is then
increased after a loan by any portion of the loan includable in gross income.
The Policy's annual loan interest charge, to the extent it is paid for by a new
loan rather than a payment to Keyport, may be treated by the Act as a
distribution and thus may result in taxable income even though no money is
actually received by the Policy Owner.
Second, Policy Owners who assign or pledge a Policy will be treated as if they
had received the amount assigned or pledged and the taxable portion of such
amount will be determined under the rules above for loans.
Third, any distribution (a loan, an assignment or pledge treated as a loan, or a
total surrender payment) will be subject to a federal penalty tax of 10% of the
amount
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includable in income unless the distribution occurs: (a) after the taxpayer
attains age 59 l/2; (b) in a series of substantially equal payments made for
life or life expectancy; or (c) after the taxpayer becomes totally disabled.
Fourth, a special computational rule applies if Keyport issues to the Policy
Owner during any calendar year (a) two or more Policies or (b) one or more
Policies and one or more of Keyport's other single premium life insurance
policies. Under this rule, the amount of any distribution includable in gross
income is to be determined by treating all the Keyport contracts as one
contract. Keyport believes that this means the amount of a loan or total
surrender of one contract will be includable in gross income to the extent that
at the time of the distribution the sum of cash values for all the contracts
exceeds the sum of the cost bases for all the contracts.
Any Policy entered into before June 21, 1988 may become subject to the "7-pay
test" of section 7702A of the Code on the date that the Policy's death benefit
first exceeds the sum of the Policy's death benefit on October 20, 1988, and
$150,000. If the 7-pay test does apply and the Policy fails that test, the
Policy will be treated as a "modified endowment contract." The rules described
in the prior paragraphs would then govern (a) any distributions made in the
Policy Year in which the failure occurs and any succeeding Policy Year and (b)
any distributions made in anticipation of such failure (to be defined by
regulations of the Secretary of the Treasury). The Act states that a
distribution made within 2 years before the failure to meet the 7-pay test shall
be treated as made in anticipation of such failure.
The United States Congress has in the past and may in the future consider
legislation that, if enacted, could adversely affect the tax treatment of life
insurance policies, including loans and other distributions and undistributed
appreciation. There is no way of predicting whether, when or in what form
Congress will enact legislation affecting life insurance policies. Any such
legislation could have retroactive effect regardless of the date of enactment.
THE INDIVIDUAL SITUATION OF EACH POLICY OWNER OR BENEFICIARY WILL DETERMINE HOW
OWNERSHIP OR RECEIPT OF POLICY PROCEEDS WILL BE TREATED FOR PURPOSES OF FEDERAL
INCOME AND ESTATE TAXES AS WELL AS STATE AND LOCAL ESTATE, INHERITANCE AND OTHER
TAXES. YOU SHOULD CONSULT YOUR OWN TAX ADVISER AS TO ANY TAX QUESTIONS YOU MAY
HAVE ABOUT THE POLICIES.
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. Keyport will vote interests held in its own name in the same
proportion as it votes shares based on Policy Owners' 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 voting interests of the Policy Owner (or the beneficiary) in the Eligible
Funds will be determined as follows: Policy Owners may cast one vote for each
$100 of cash value of the Policy allocated to a Sub-Account on the record date
for the shareholder meeting for the Fund. Fractional votes are counted. If,
however, a Policy Owner has taken a loan secured by the Policy, amounts
transferred from the Variable Account to the General
22
<PAGE>
Account in connection with the loan will not be considered in determining the
voting interests of the Policy Owner.
The number of shares which a person has a right to vote will be determined as of
the date to be chosen by Keyport not more than 90 days prior to the meeting of
the Eligible Fund. Voting instructions will be solicited by written
communication at least 14 days prior to such meeting.
Each person having the voting interest in the Variable Account will receive
periodic reports relating to the Eligible Fund in which they have an interest,
proxy material and a form with which to give such voting instructions with
respect to the proportion of the shares held in the Variable Account
corresponding to their interest in the Variable Account.
Disregard of Voting Instructions
Keyport may, when required to do so by state insurance authorities, vote shares
of the Eligible Fund without regard to instructions from Policy Owners if such
instructions would require such shares to be voted to cause the Eligible Funds
to make (or refrain from making) investments which would result in changes in
the sub-classification or investment objectives of the Eligible Fund. Keyport
may also disapprove changes in the investment policy if initiated by the Policy
Owners or directors of the Eligible Fund, if such disapproval is reasonable and
is based on a good faith determination by Keyport that the change would violate
state law or the change would not be consistent with the investment objective of
the Eligible Fund which vary from the general quality and nature of investments
and investment techniques used by other Eligible Funds with similar investment
objectives underlying other separate accounts of Keyport or of an affiliated
life insurance company.
KEYPORT MANAGEMENT
The following are the directors and principal officers of Keyport.
Name Principal Occupation
Kenneth R. Leibler Chairman of the Board of Keyport; Director, President
and Chief Executive Officer of Liberty Financial
Companies, Inc.
Frederick R. Ballou Director of Keyport; President of B.A. Ballou & Co.,
Inc., East Providence, RI
Frederick Lippitt Director of Keyport; Chairman of The Providence Plan,
Providence RI
Erskine N. White, Jr. Director of Keyport; President of E.N. White
Management Corp., Providence, RI
John W. Rosensteel Director, President and Chief Executive
Officer of Keyport and Keyport America Life Insurance
Company; Chairman of the Board, Director and President
of Keyport Financial Services Corp.; Chairman of the
Board and President of Keyport Advisory Services Corp.
23
<PAGE>
John E. Arant, III Senior Vice President - Chief Sales
Officer of Keyport and Keyport America Life Insurance
Company; Director and Senior Vice President - Chief
Sales Officer of Keyport Advisory Services Corp.; Vice
President and Chief Sales Officer Keyport Financial
Services Corp.
Paul H. LeFevre, Jr. Senior Vice President-Chief Financial Officer of
Keyport; Director and Senior Vice President-Chief
Financial Officer of Keyport Advisory Services Corp.
and Keyport America Life Insurance Company
Francis E. Reinhart Senior Vice President-Chief Administrative Officer of
Keyport, Keyport America Life Insurance Company and
Keyport Advisory Services Corp.; Director and Vice
President-Administration of Keyport Financial
Services Corp.
Bruce J. Crozier Vice President and Chief Actuary of Keyport and
Keyport America Life Insurance Company
William L. Dixon Vice President-Compliance and Assistant Secretary of
Keyport; Vice President-Compliance of Keyport America
Life Insurance Company, Keyport Financial Services
Corp. and Keyport Advisory Services Corp.
Jacob M. Herschler Vice President-Strategic Marketing of Keyport
Kenneth M. Hughes Vice President-National Director of Institutional
Sales of Keyport
James J. Klopper Vice President, Counsel and Assistant
Secretary of Keyport and Keyport America Life
Insurance Company; Vice President, Counsel and
Clerk of Keyport Advisory Services Corp.; Clerk
of Keyport Financial Services Corp.
Leslie J. Laputz Vice President-Information Systems of Keyport
Suzanne E. Lyons Vice President-Human Resources of Keyport
Jay L. Marmer Vice President-Product Research and Development of
Keyport
Jimmie D. Massingill Vice President-Marketing Operations of Keyport and
Keyport Financial Services Corp.
Stewart R. Morrison Vice President-Investments of Keyport, Keyport
America Life Insurance Company and Keyport Advisory
Services Corp.
Deborah A. Re Vice President-Administrative Operations of Keyport
Lee R. Roberts Vice President-Planning and Corporate Affairs of
Keyport; Director and Treasurer of Keyport Financial
Services Corp.
Jeffery J. Whitehead Vice President, Treasurer and Controller
of Keyport and Keyport America Life Insurance Company;
Vice President and Treasurer of Keyport Advisory
Services Corp.
24
<PAGE>
DISTRIBUTION OF THE POLICY
The Policy will be sold by licensed insurance agents in those states where the
Policy may be lawfully sold. Such agents will be registered representatives of
broker-dealers that have entered into distribution agreements for the Policies.
Such broker-dealers are registered under the Securities Exchange Act of 1934 and
are members of the National Association of Securities Dealers, Inc. (NASD). The
Policy will be distributed through Keyport Financial Services Corp., which is a
subsidiary of Keyport and also a member of the NASD and affiliated with the
investment adviser for the Eligible Funds.
OTHER POLICIES ISSUED BY KEYPORT
Keyport may, from time to time, offer other life insurance policies which may be
similar to those offered herein. Keyport also issues several forms of fixed
premium life plans and fixed and variable annuity contracts.
STATE REGULATION
Keyport is subject to the laws of Rhode Island governing insurance companies and
to regulation by the Rhode Island Insurance Department. An annual statement in
prescribed form is filed with the Insurance Department each year covering the
operation of Keyport for the preceding year and its financial condition as of
the end of such year. Regulation by the Insurance Department includes periodic
examination to evaluate Keyport's liabilities and reserves so that the Insurance
Department may certify the items are correct. Keyport's books and accounts are
subject to review by the Insurance Department at all times and a full
examination of its operations is conducted periodically by the Insurance
Department. Such regulation does not, however, involve any supervision of
management or investment practices or policies. In addition, Keyport is subject
to regulation under the insurance laws of other jurisdictions in which it may
operate.
REPORTS TO POLICY OWNERS
Keyport will send to the Policy Owner, at the last known address of record, at
least annually, a report showing the death benefit, cash value, all charges made
since the last report, and any Indebtedness. The report will also show
investment information as of the Policy Anniversary and any other information or
reports required by law. Keyport will also send the Policy Owner semi-annual and
annual reports of the applicable Eligible Funds and/or such other reports as may
be required by federal securities' laws.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the Distributor
is 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.
EXPERTS
The consolidated financial statements of Keyport as of December 31, 1994 and
1993 and for each of the years in the three-year period ended December 31, 1994,
and the financial statements of Keyport Variable Account I as of December 31,
1994 and for each of the years in the three-year period ended December 31, 1994,
included herein, have been included herein in reliance on the reports of KPMG
Peat Marwick LLP, independent certified public accountants, and upon the
authority of that firm as experts in accounting and auditing.
25
<PAGE>
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policy offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement and amendments thereto and exhibits filed as
a part thereof, to all of which reference is hereby made for further information
concerning the Variable Account, Keyport, and the Policy offered hereby.
Statements contained in this Prospectus as to the content of Policies and other
legal instruments are summaries. For a complete statement of the terms thereof,
reference is made to such instruments as filed.
LEGAL MATTERS
Legal matters in connection with the Policy described herein have been passed
upon by James J. Klopper, Esq., Vice President and Counsel of Keyport.
FINANCIAL STATEMENTS
The financial statements of Keyport that are included herein should be
considered only as bearing upon the ability of Keyport to meet its obligations
under the Policy.
26
<PAGE>
Independent Auditors' Report
The Board of Directors
Keyport Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Keyport Life
Insurance Company and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1994.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Keyport
Life Insurance Company and subsidiaries as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in note 2(b) to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, effective
January 1, 1994.
[Signature KPMG Peat Marwick LLP]
February 17, 1995
27
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1993
---------- ------------
<S> <C> <C>
Assets
- -------------------------------------------------------
Cash and investments:
Fixed maturities available for sale: 1994 at fair
value:
1993 at amortized cost (amortized cost: 1994--
$6,795,065; fair value: 1993--$5,732,404) $ 6,509,815 $ 5,516,905
Fixed maturities held to maturity (fair value: 1994--
$1,442,665; 1993--$2,438,718) 1,448,680 2,276,955
Equity securities at fair value (cost: 1994--$13,627;
1993--$1,627) 12,941 1,813
Mortgage loans 129,452 155,972
Policy loans 477,293 442,150
Other invested assets 11,944 17,873
Cash and cash equivalents 684,618 500,858
-------- ----------
Total cash and investments 9,274,793 8,912,526
Accrued investment income 111,936 108,280
Deferred policy acquisition costs 439,232 262,646
Value of insurance in force 139,221 101,036
Deferred federal income taxes 42,361 21,387
Intangible assets 21,444 22,575
Federal income taxes recoverable 4,911 356
Other assets 10,772 3,732
Separate account assets 828,934 794,789
-------- ----------
Total assets $10,873,604 $10,227,327
======== ==========
Liabilities and Stockholder's Equity
- -------------------------------------------------------
Policy liabilities:
Policyholder account balances $ 9,277,074 $ 8,630,712
Future policy benefits 48,913 40,727
Policy and contract claims 7,768 6,030
Other policyholders' funds 10,289 20,166
-------- ----------
Total policy liabilities 9,344,044 8,697,635
Current federal income taxes -- 6,138
Payable for investments purchased -- 10,129
Guaranty association fees 24,688 24,548
Other liabilities 57,978 56,100
Separate account liabilities 764,409 748,507
-------- ----------
Total liabilities 10,191,119 9,543,057
======== ==========
Stockholder's equity:
Common stock, $1.25 par value; authorized 8,000
shares; issued and outstanding 2,412 in 1994 and
1,206 in 1993 3,015 1,508
Additional paid-in capital 505,933 505,933
Net unrealized investment gains (losses) (64,464) 546
Retained earnings 238,001 176,283
-------- ----------
Total stockholder's equity 682,485 684,270
-------- ----------
Total liabilities and stockholder's equity $10,873,604 $10,227,327
======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1994 1993 1992
------- ------- ---------
<S> <C> <C> <C>
Revenues:
Net investment income $689,575 $669,667 $704,473
Insurance revenues 36,266 31,599 21,495
Net realized investment gains (losses) (8,220) 11,403 3,084
----- ----- -------
Total revenues 717,621 712,669 729,052
----- ----- -------
Benefits and expenses:
Interest credited to policyholders 478,797 501,073 569,563
Policy benefits and claims 18,960 19,686 11,771
Other operating expenses 47,095 36,983 30,730
Guaranty association expenses 7,200 3,714 35,000
Amortization of deferred policy acquisition
costs 52,174 41,003 17,022
Amortization of value of insurance in force 16,989 22,375 32,418
Amortization of intangible assets 1,130 1,130 1,151
----- ----- -------
Total benefits and expenses 622,345 625,964 697,655
===== ===== =======
Income before federal income taxes 95,276 86,705 31,397
Federal income tax expense 32,051 28,710 8,810
----- ----- -------
Net income $ 63,225 $ 57,995 $ 22,587
===== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Statements of Stockholder's Equity
(in thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Additional Investment
Common Paid-In Gains Retained
Stock Capital (Losses) Earnings Total
----- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $1,508 $430,933 $ 4,175 $ 95,701 $532,317
Net income 22,587 22,587
Change in net unrealized investment
gains (losses) 1,512 1,512
--- ------ ------ ----- -------
Balance, December 31, 1992 1,508 430,933 5,687 118,288 556,416
--- ------ ------ ----- -------
Net income 57,995 57,995
Capital contribution by parent 75,000 75,000
Change in net unrealized investment
gains (losses) (5,141) (5,141)
--- ------ ------ ----- -------
Balance, December 31, 1993 1,508 505,933 546 176,283 684,270
--- ------ ------ ----- -------
Net income 63,225 63,225
100% Common stock dividend (1,206
shares) 1,507 (1,507) --
Change in net unrealized investment
gains (losses) (65,010) (65,010)
--- ------ ------ ----- -------
Balance, December 31, 1994 $3,015 $505,933 $(64,464) $238,001 $682,485
=== ====== ====== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1994 1993 1992
---------- ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 63,225 $ 57,995 $ 22,587
Adjustments to reconcile net income to net
cash
provided by operating activities:
Interest credited to policyholders 478,797 501,073 569,563
Net realized investment (gains) losses 8,220 (11,403) (3,084)
Amortization of value of insurance in force
and intangible assets 18,120 23,505 33,569
Net amortization (accretion) on investments 12,215 (3,132) (10,277)
Change in deferred policy acquisition costs (38,852) (50,531) (57,512)
Change in current and deferred federal
income taxes 7,731 10,988 (11,857)
Change in guaranty association fees 140 (3,669) 28,860
Net change in other assets and liabilities (13,729) (102) 57,576
-------- -------- ----------
Total adjustments 472,642 466,729 606,838
-------- -------- ----------
Net cash provided by operating activities 535,867 524,724 629,425
-------- -------- ----------
Cash flows from investing activities
Investments purchased--held to maturity (277,626) (2,674,315) (3,665,513)
Investments purchased--available for sale (2,624,493) -- --
Investments sold--held to maturity 10,637 97,816 767,124
Investments sold--available for sale 950,885 387,305 --
Investments matured--held to maturity 576,021 1,195,083 1,644,987
Investments matured--available for sale 854,441 758,279 --
Increase in policy loans (35,143) (38,661) (36,456)
Decrease in mortgage loans 26,520 3,416 9,865
Acquisition of subsidiary, net of cash
acquired (961) (24,831) --
-------- -------- ----------
Net cash used in investing activities (519,719) (295,908) (1,279,993)
-------- -------- ----------
Cash flows from financing activities:
Withdrawals from policyholder accounts (1,034,464) (1,295,617) (678,324)
Deposits to policyholder accounts 1,202,076 856,339 876,504
Capital contribution by parent -- 75,000 --
-------- -------- ----------
Net cash provided by (used in)
financing activities 167,612 (364,278) 198,180
-------- -------- ----------
Change in cash and cash equivalents 183,760 (135,462) (452,388)
Cash and cash equivalents at beginning of year 500,858 636,320 1,088,708
-------- -------- ----------
Cash and cash equivalents at end of year $ 684,618 $ 500,858 $ 636,320
======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(in thousands)
(1) ORGANIZATION
The consolidated financial statements include Keyport Life Insurance
Company and its wholly owned subsidiaries, Keyport America Life Insurance
Company, Keyport Advisory Services Corporation, and Keyport Financial
Services Corporation (collectively, the "Company"). The Company is a
wholly owned subsidiary of Stein Roe Services Incorporated ("Stein Roe").
Stein Roe is a wholly owned subsidiary of Liberty Financial Companies,
Incorporated ("Liberty Financial") which is a wholly owned, indirect
subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Reporting and Principles of Consolidation
The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles (GAAP)
which vary in certain respects from reporting practices prescribed or
permitted by state insurance regulatory authorities. All significant
intercompany transactions and balances have been eliminated.
(b) Investments
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115). SFAS 115 segregates fixed
maturity investments into three classifications: "held to maturity,"
"trading" and "available for sale." Securities may be designated as
held to maturity only if a company has the positive intent and ability
to hold these securities to maturity. Securities held to maturity are
carried at amortized cost. Securities purchased for short-term resale
are classified as trading and are carried at fair value. Unrealized
gains and losses on trading account securities are recognized in
income. Fixed maturity investments are classified as available for
sale if they might be sold in response to changes in market interest
rates, changes in the security's prepayment risk, general liquidity
needs, or other factors. Available for sale securities are carried at
fair value and unrealized gains and losses (net of related adjustments
to deferred policy acquisition costs, value of insurance in force and
deferred income taxes) are recorded directly to stockholder's equity.
In previous periods, securities available for sale were carried at the
lower of aggregate amortized cost or market. Unrealized losses, if
any, where charged directly to stockholder's equity, net of applicable
deferred income taxes. Equity securities are classified as available
for sale and are carried at fair value. Unrealized gains and losses on
equity securities are credited or charged directly to stockholder's
equity, net of applicable deferred income taxes.
At January 1, 1994, the Company reclassified certain fixed maturity
investments from the held to maturity to the available for sale
category to conform to the new classification criteria as prescribed
in SFAS 115. The following table summarizes the effect of adopting
SFAS 115 as of January 1, 1994:
<TABLE>
<CAPTION>
Balance
Before Adjusted
Balance Sheet Caption Adjustment Adjustment Balance
------------------------------------------------- ------------ --------- -----------
<S> <C> <C> <C>
Fixed maturities available for sale $5,688,689 $215,499 $5,904,188
Deferred policy acquisition costs 262,646 (84,800) 177,846
Value of insurance in force 101,036 (63,600) 37,436
Deferred federal income tax asset/(liability) 21,387 (23,485) (2,098)
Net unrealized investment gains 546 41,614 42,160
</TABLE>
32
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
Fixed maturities and mortgage loans with premiums and discounts are amortized
using the interest method. Unamortized premiums and discounts on mortgage
backed securities are amortized using the interest method over the estimated
remaining term of the securities, adjusted for anticipated prepayments.
Policy loans are carried at the unpaid principal balance plus accrued
interest. Cash and cash equivalents are carried at cost, which approximates
market.
Realized investment gains and losses are calculated on a first-in, first-out
basis. For each investment security where a decline in value is determined to
be other than temporary, the Company's policy is to write down the investment
security to fair value with the charge to realized investment losses. Sales
of securities supporting the Company's single premium deferred annuities and
single premium whole life products result in adjustments to the amortization
of the deferred policy acquisition costs and the value of insurance in force.
The increase or decrease in the amortization is included in the realized
investment gains and losses to reflect the acceleration or delay in the
incidence of the estimated gross profits on those products.
(c) Derivative Financial Instruments
Effective December 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" (SFAS 119). SFAS 119
requires specific disclosures about derivative financial instruments such
as forward, swap and option contracts. It requires distinguishing between
financial instruments held or issued for trading purposes and financial
instruments held or issued for purposes other than trading. As part of
the Company's overall risk management policy, the Company uses interest
rate swaps and interest rate caps. Interest rate swaps are used to reduce
the risk in rising interest rate environment by providing additional
investment income to cover higher competitive credited rates to
policyholders; to reduce the invested asset duration; and, to better
match the interest rates earned on invested assets with those interest
rates credited to policyholders. The interest rate swaps are considered
synthetic alterations since the objectives of the swaps are to change the
characteristics of the underlying invested assets to reduce the impact of
rising interest rates. Since the interest rate swaps are designated as
synthetic alterations of securities available for sale, the interest rate
swaps are carried at fair value with those securities and the unrealized
gain or loss is included in stockholder's equity.
The net differential to be paid or received on interest rate swaps is
recorded monthly in investment income as interest rates change. From time
to time, swap positions may be terminated. If the terminated swap was
accounted for as a hedge, realized gains or losses are amortized over the
remaining life of the swap. Conversely, if the terminated swap was not
accounted for as a hedge, or the assets and liabilities which were
altered no longer exist, the swap position is marked to market, and
realized gains or losses are immediately recognized in income. The
Company is exposed to potential credit loss in the event of
nonperformance by the other party to the interest rate swap agreements
with respect to only the net differential payments.
The Company acquires interest rate caps to minimize exposure to rising
interest rates. The Company receives payments when the indexed rate
exceeds the stated strike rate. The cost of interest rate caps is
amortized on a straight-line basis over the period to maturity. Since the
interest rate caps are designated as synthetic alterations of securities
available for sale, the interest rate caps care carried at fair value and
the unrealized gain or loss is included in stockholder's equity.
33
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
The Company also utilizes derivative financial instruments to replicate
positions in a trading portfolio of FNMA mortgage pass-throughs. As a result,
these derivatives are classified as trading instruments and are recorded at
fair value. Realized and unrealized changes in fair value are recognized in
realized investment gains and losses. Interest income arising from these
trading instruments is included in net investment income.
(d) Recognition of Insurance Revenues and Policy Benefits
Revenues from single premium whole life policies and single premium
deferred annuities include mortality charges, surrender charges, policy
fees and contract fees and are recognized when assessed. Policyholder
account balances consist of deposits received plus credited interest,
less accumulated policyholder charges and assessments and withdrawals. On
December 31, 1994, credited interest rates ranged from 3.75% to 8.50%.
(e) Deferred Policy Acquisition Costs and Value of Insurance in Force.
Policy acquisition costs are costs of acquiring new business which vary
with, and are primarily related to, the production of new business. These
costs are deferred to the extent that they are deemed recoverable from
future gross profits. Such costs include commissions, costs of policy
issuance and underwriting, and variable agency expenses. Costs deferred
on single premium whole life and single premium deferred annuities are
amortized in relation to the present value of estimated gross profits
from mortality, investment, and expense margins. The amortization of such
cost is adjusted to reflect actual experience.
Value of insurance in force represents the actuarially determined present
value of projected future profits from policies in force at the purchase
date. The amount is amortized in proportion to the projected emergence of
profits over periods not to exceed fifteen years for annuities and
twenty-five years for life insurance.
Deferred policy acquisition costs and value of insurance in force are
adjusted to reflect the amounts associated with realized and unrealized
investment gains and losses pertaining to single premium deferred
annuities and single premium whole life products.
(f) Intangible Assets
Intangible assets consist primarily of "goodwill." Goodwill is the excess
of the purchase price and the fair value of the net assets acquired by
Liberty Mutual and is amortized on a straight-line basis over twenty-five
years.
(g) Separate Account
Separate account assets, which are carried at fair value, consist
principally of investments in mutual funds and are included as a separate
caption in the consolidated balance sheets. The investment income and the
changes in asset values related to contract holders are fully allocated
to variable annuity and variable life contract holders and, therefore, do
not affect the operating results of the Company. The Company provides
administrative services and bears the mortality risk related to these
contracts. Fees earned by the Company related to these contracts were
$13,964, $8,489, and $5,455, for the years ended December 31, 1994, 1993
and 1992, respectively. As of December 31, 1994 and 1993, the Company
also classified $64,962 and $46,282, respectively, of its investments in
certain mutual funds sponsored by the Company and its affiliates as
separate account assets.
34
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
(h) Federal Income Taxes
Beginning in 1994, the Company is included in Liberty Mutual's
consolidated tax return. The Company calculates its consolidated income
tax liability as if it filed its own consolidated federal income tax
return.
Effective January 1, 1992, the Company adopted the asset and liability
method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment date.
(i) Cash and Cash Equivalents
Cash and cash equivalents include short-term investments which have an
original maturity of three months or less from the time of purchase.
(j) Reclassifications
Certain reclassifications have been made to the prior year consolidated
financial statement amounts to conform to the current year presentation.
(3) ACQUISITION
On October 1, 1993, the Company acquired the common stock of Crown
America Life Insurance Company (Crown America), a Michigan insurance
company, for $27,877. The acquisition was accounted for as a purchase
and, accordingly, operating results are included in the accompanying
consolidated financial statements from date of acquisition. In connection
with the acquisition, the Company acquired assets with a fair value of
$185,735 and assumed liabilities of $157,858.
On December 29, 1993, Crown America was redomesticated to the state of
Rhode Island and, on January 10, 1994, the name was changed to Keyport
America Life Insurance Company.
On February 22, 1994, the acquisition was completed with the contingent
purchase price payment of $1,479, which increased the value of insurance
in force.
35
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
(4) INVESTMENTS
(a) Fixed Maturities
Fair values of publicly-traded securities are as reported by an
independent pricing service. Fair values of conventional mortgage
backed securities not actively traded in a liquid market are obtained
through broker-dealer quotations. Fair values of private placement
bonds are determined by obtaining market indications from various
broker-dealers. The amortized cost and fair values of investments in
fixed maturities at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- -------- --------- -----------
<S> <C> <C> <C> <C>
Held to maturity:
Mortgage backed securities of
U.S. Government
corporations and agencies $ 206,569 $ 8,683 $ (18) $ 215,234
Obligations of states and
political subdivisions 21,452 277 (28) 21,701
Corporate securities 843,669 14,564 (17,005) 841,228
Other mortgage backed
securities 79,164 44 (3,385) 75,823
Asset backed securities 297,826 88 (9,235) 288,679
------- ------ ------- ---------
Total fixed maturities
held to maturity $1,448,680 $23,656 $ (29,671) $1,442,665
======= ====== ======= =========
Available for sale:
U.S. Treasury securities $ 271,700 $ 2 $ (8,390) $ 263,312
Mortgage backed securities of
U.S. Government
corporations and agencies 1,238,925 1,244 (76,651) 1,163,518
Obligations of states and
political subdivisions 37,718 433 -- 38,151
Debt securities issued by
foreign governments 82,608 1,049 (4,079) 79,578
Corporate securities 2,607,712 17,951 (116,077) 2,509,586
Other mortgage backed
securities 1,186,515 14,577 (70,250) 1,130,842
Asset backed securities 1,123,803 654 (45,713) 1,078,744
Senior secured loans 246,084 -- -- 246,084
------- ------ ------- ---------
Total fixed maturities
available for sale $6,795,065 $35,910 $(321,160) $6,509,815
======= ====== ======= =========
</TABLE>
36
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
<TABLE>
<CAPTION>
December 31, 1993
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- -------- -------- -----------
<S> <C> <C> <C> <C>
Held to maturity:
Mortgage backed securities of
U.S. Government
corporations and agencies $ 697,473 $ 40,701 $ (211) $ 737,963
Obligations of states and
political subdivisions 20,696 2,088 -- 22,784
Debt securities issued by
foreign governments 20,443 1,503 -- 21,946
Corporate securities 972,789 114,846 (4,304) 1,083,331
Other mortgage backed
securities 165,882 3,480 (2,374) 166,988
Asset backed securities 227,888 6,143 (109) 233,922
Senior secured loans 171,784 -- -- 171,784
------- ------ ------ ---------
Total fixed maturities
held to maturity $2,276,955 $168,761 $ (6,998) $2,438,718
======= ====== ====== =========
Available for sale:
U.S. Treasury securities $ 135,083 $ 7,456 $ (113) $ 142,426
Mortgage backed securities of
U.S. Government
corporations and agencies 1,326,703 25,452 (7,469) 1,344,686
Obligations of states and
political subdivisions 39,526 3,351 -- 42,877
Debt securities issued by
foreign governments 62,318 5,245 (486) 67,077
Corporate securities 2,481,952 172,683 (13,552) 2,641,083
Other mortgage backed
securities 693,629 7,215 (4,706) 696,138
Asset backed securities 777,694 22,398 (1,975) 798,117
------- ------ ------ ---------
Total fixed maturities
available for sale $5,516,905 $243,800 $(28,301) $5,732,404
======= ====== ====== =========
</TABLE>
At December 31, 1993, an investment valuation reserve of $33,516 was
deducted from the investment carrying values of the Company's investments
in fixed maturity investments.
At December 31, 1994 and 1993, bonds with an amortized cost of $7,657 and
$5,796, respectively, were on deposit with regulatory authorities.
37
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
(b) Contractual Maturities
The carrying value and estimated fair value of fixed maturities for
the various categories at December 31, 1994, by contractual maturity,
are shown below. Expected maturities may differ from contractual
maturities because borrowers have the right to call or repay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1994
------------------------
Amortized Fair
Cost Value
--------- -----------
<S> <C> <C>
Held to maturity:
Due in one year or less $ 25,000 $ 25,265
Due after one year through five years 224,113 222,024
Due after five years through ten
years 423,794 422,684
Due after ten years 192,214 192,956
------- ---------
865,121 862,929
Mortgage and asset
backed securities 583,559 579,736
------- ---------
Total fixed maturities
held to maturity $1,448,680 $1,442,665
======= =========
Available for sale:
Due in one year or less $ 322,374 $ 321,222
Due after one year through five years 1,181,390 1,150,538
Due after five years through ten
years 1,397,397 1,328,889
Due after ten years 344,661 336,062
------- ---------
3,245,822 3,136,711
Mortgage and asset
backed securities 3,549,243 3,373,104
------- ---------
Total fixed maturities
available for sale $6,795,065 $6,509,815
======= =========
</TABLE>
38
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
(c) Net Unrealized Investment Gains (Losses)
Net unrealized gains and losses at December 31, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
December 31,
------------------
1994 1993
-------- ------
<S> <C> <C>
Fixed maturities:
Gross unrealized gains $ 35,910 $ --
Gross unrealized losses (321,160) --
------ ----
(285,250)
Adjustments for:
Deferred acquisition costs 135,059 --
Value of insurance in force 53,344 --
------ ----
Total fixed maturities (96,847) --
------ ----
Equity securities and investments in separate
account:
Gross unrealized gains 1,932 962
Gross unrealized losses (4,261) (123)
------ ----
Total equity securities (2,329) 839
------ ----
Deferred federal income (taxes) benefit 34,712 (293)
------ ----
Net unrealized investment gains (losses) $ (64,464) $ 546
====== ====
</TABLE>
(d) Net Investment Income
Net investment income is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1994 1993 1992
------- ------- ---------
<S> <C> <C> <C>
Fixed maturities $635,947 $619,847 $640,338
Equity securities 2,132 2,368 4,443
Mortgage loans 15,416 17,252 17,116
Policy loans 26,295 22,766 20,790
Cash and cash
equivalents 20,727 18,551 34,504
----- ----- -------
Gross investment income 700,517 680,784 717,191
Investment expenses (10,942) (11,117) (12,718)
----- ----- -------
Net investment income $689,575 $669,667 $704,473
===== ===== =======
</TABLE>
The carrying value of fixed maturity investments that were non-income
producing for the preceding twelve months was $4,967 and $2,332 at
December 31, 1994 and 1993, respectively.
39
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
(e) Net Realized Investment Gains (Losses)
Net realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1994 1993 1992
------- ------- ---------
<S> <C> <C> <C>
Fixed maturities--held to maturity:
Gross gains $ 3,493 $ 31,594 $ 42,174
Gross losses (755) (3,070) (25,943)
Other than temporary declines (7,904) -- --
Provisions for possible investment losses -- (16,609) (10,402)
Fixed maturities--available for sale
Gross gains 26,043 7,097 --
Gross losses (26,831) (6,311) --
Other than temporary declines (3,610) -- --
Provisions for possible investment losses -- 7,487 --
Equity securities (845) 11,228 2,062
Interest rate swaps (28) (16,193) --
Interest rate caps -- (6,082) (4,447)
Other (809) 1,412 --
----- ----- -------
Gross realized investment gains
(losses) (11,246) 10,553 3,444
Amortization adjustments:
Deferred acquisition costs 2,675 785 (32)
Value of insurance in force 351 65 (28)
----- ----- -------
Net realized investment gains (losses) $ (8,220) $ 11,403 $ 3,084
===== ===== =======
</TABLE>
Proceeds from sales of investments in fixed maturities were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Fixed maturities--available for
sale $927,779 $313,568 $ --
Fixed maturities--held to maturity 10,637 97,816 721,300
----- ----- ------
Total proceeds $938,417 $411,384 $721,300
===== ===== ======
</TABLE>
The sale of fixed maturities held to maturity during 1994 relates to a
security, with an amortized cost of $10,630, which was sold due to a
significant deterioration in the issuer's creditworthiness.
40
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
(f) Concentration of Investments
Investments in a single entity (all of which are fully collateralized
and guaranteed by an agency or agencies of the U.S. Government) in
excess of ten percent of total stockholder's equity as of December
31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Carrying Value at
December 31,
-------------------
1994 1993
------- --------
<S> <C> <C>
Mortgage backed securities:
FNMA Pool #303075 $125,212 $ --
Morgan Stanley CMO (33-5) 101,832 111,619
FNMA Pool #303074 98,470 --
FHLMC Pool #G00413 -- 155,963
FNMA Pool #050656 -- 73,370
</TABLE>
The Company's investments are diversified in over one hundred
industries with concentrations in certain industries as follows:
<TABLE>
<CAPTION>
Carrying Value at
December 31,
--------------------
1994 1993
------- ---------
<S> <C> <C>
Financial services $539,537 $500,970
Electrical services 437,339 438,669
Telecommunications 276,559 231,293
Oil and gas 274,026 302,958
Retail stores 247,874 229,886
Banks 247,514 97,735
Credit institutions 173,565 139,107
Food and beverage 151,758 170,365
Transportation equipment 146,593 168,454
Paper products 146,472 149,490
</TABLE>
41
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
(g) Quality Ratings
The carrying values of publicly traded and privately placed fixed
maturities at December 31, 1994 represented by each quality ratings
category were as follows:
<TABLE>
<CAPTION>
Carrying Value at December 31, 1994
------------------------------------
Publicly Privately
Traded Placed Total
--------- --------- ----------
<S> <C> <C> <C>
Investment grade: $
U.S. Government $ 263,312 -- $ 263,312
Class 1 4,235,466 1,255,442 5,490,908
Class 2 788,963 796,642 1,585,605
------- ------- --------
Total investment grade 5,287,741 2,052,084 7,339,825
------- ------- --------
Below investment grade:
Class 3 258,191 184,749 442,940
Class 4 120,443 34,772 155,215
Class 5 -- 18,183 18,183
Class 6 -- 2,332 2,332
------- ------- --------
Total below investment
grade 378,634 240,036 618,670
------- ------- --------
Total fixed maturities $5,666,375 $2,292,120 $7,958,495
======= ======= ========
</TABLE>
Securities that are rated class 1 or 2 by the Securities Valuation
Office of the National Association of Insurance Commissioners (NAIC),
or, if not so rated, securities that are rated "BBB-" or above by
S&P, or "Baa3" or above by Moody's (using the lower of the S&P or
Moody's rating) are considered "investment grade" securities.
Securities included in the U.S. Government category in the preceding
table are those as defined by the NAIC.
The distribution of fixed maturities quality ratings were as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1994 1993
------ --------
<S> <C> <C>
Class 1 (including U.S. Governments) 72.3% 73.5%
Class 2 19.9% 19.9%
Class 3 5.6% 3.9%
Class 4 2.0% 2.3%
Class 5 0.2% 0.0%
Class 6 0.0% 0.4%
</TABLE>
Fixed maturities with a carrying value of $517,897 at December 31,
1993 were classified as below investment grade securities.
42
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
(h) Derivative Financial Instruments
The Company's primary objective in acquiring certain derivative
financial instruments is the management of interest rate risk.
Interest rate risk results from a mismatch in the timing and amount
of invested asset and policyholder liability cash flows. The Company
seeks to manage this risk through various asset-liability strategies,
such as the setting of renewal rates and by investment portfolio
actions designed to address the interest rate sensitivity of asset
cash flows in relation to liability cash flows. Portfolio actions
used to manage interest rate risk include managing the effective
duration of the portfolio securities and utilizing interest rate
swaps and caps.
Interest Rate Swaps
The Company uses a combination of three distinct classes of interest
rate swaps to reduce interest rate risk. The following table
summarizes the categories of swaps used, their notional amounts,
their weighted average interest rates as of the reporting period
date, and their effects on the consolidated balance sheets and
statements of operations. The majority of swaps mature in 1998 and
1999. The fair values of the interest rate swaps are primarily
obtained from dealer quotes. These values represent the estimated
amounts the Company would receive or pay to terminate the contracts,
taking into account current interest rates and, when appropriate, the
current creditworthiness of the counterparties.
<TABLE>
<CAPTION>
December 31,
-----------------------------
1994 1993
------------- -------------
<S> <C> <C>
Interest rate swaps:
(1) Pay fixed, receive variable rate--notional amount $775,000 $475,000
Average pay rate 7.19% 6.83%
Average receive rate 7.61% 5.59%
Amount included in net investment income $ (1,213) $(5,502)
Fair value $ 27,587 $(4,078)
Carrying value--unrealized gain (loss) included in fixed
maturities available for sale $ 27,587 --
(2) Pay variable, receive variable rate--notional amount $300,000 $300,000
Average pay rate 5.85% 3.42%
Average receive rate 6.42% 7.10%
Amount included in net investment income $ 6,781 $10,628
Fair value $(14,550) $3,319
Carrying value--unrealized gain (loss) included in fixed
maturities available for sale $(14,550) --
(3) Spread lock swap--notional amount $150,000 $150,000
Seven year swap spread 0.34% 0.33%
Amount included in net investment income -- --
Fair value $ 731 $683
Carrying value--unrealized gain (loss) included in fixed
maturities available for sale $ 731 --
</TABLE>
(1) The Company has twenty interest rate swap contracts ($775,000
notional at December 31, 1994) on which it pays a fixed rate of
interest and receives variable rates based on the five and ten year
"constant maturity" treasury or swap rate. The variable rates are
reset to current market levels at six month intervals. The objective
of holding this class of derivatives is to reduce invested asset
duration and better match the interest rates earned on medium to
long-term (greater than two year maturity) fixed rate assets with the
43
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
interest credited rates paid to policyholders. The Company has medium
to long-term invested assets of approximately $5,600,000. For the
majority of new and existing single premium deferred annuities,
credited rates are reset annually. In addition, credited rates paid
on annuity policies are closely correlated with longer term interest
rates, e.g., five or ten year market interest rates. This derivative
class allows the Company to swap the fixed interest rates received on
the medium to long-term fixed rate invested assets for a variable
rate which is better correlated with the policy credited rates. This
reduces the Company's risk in rising interest rate environments by
providing investment income to cover higher competitive credited
rates.
(2) The Company has six interest rate swap contracts ($300,000
notional at December 31, 1994) on which it pays a variable rate of
interest based on the six month LIBOR and receives a variable rate
based on the ten year swap rate minus 1.5%. Each rate is reset to
current market levels at six month intervals. The objective of
holding this class of derivatives is to better match the interest
rates earned on short term and floating rate assets with the interest
credited paid to policyholders. The Company has approximately
$850,000 of invested assets where the Company receives interest
income based on interest rates closely correlated with short-term
LIBOR. This derivative class allows the Company to swap variable
interest income received on short term and floating rate assets for a
variable rate which is better correlated with policyholder interest
credited rates. This reduces the Company's risk to a divergence
between interest rates earned on short term assets and interest
credited rates paid to policyholders.
(3) The Company entered into a $150,000 notional "spread lock" swap
that terminates in 1995. The swap is a forward contract entered in
May 1993 with an effective date of January 15, 1995. The Company
would receive/(pay) the present value of a seven year swap if
corporate spreads widened/(compressed) above/ (below) the seven year
swap spread of 26 basis points based on the 7.5% U.S. Treasury Note
maturing November 15, 2001 on the effective date. The objective of
this derivative is to reduce the exposure of the Company's fixed
maturity investments to widening corporate spreads. The value of the
Company's corporate bond portfolio decreases as corporate spreads
widen. The Company's spread lock swap increases in value as spreads
widen and thus reduces the Company's risk.
During 1993, the Company unwound interest rate swap contracts with a
notional amount of $200,000. The swaps were unwound when the
associated liabilities no longer existed, resulting in a loss of
$16,193, which was recognized immediately.
During 1992, the Company unwound interest rate swap contracts with a
notional amount of $300,000. The gain of $16,230 was deferred and
amortized over the original remaining terms of the contracts. The
following table summarizes the deferred gain amount included in the
consolidated balance sheet and the expected recognition of income by
year:
<TABLE>
<CAPTION>
December 31,
----------------
1994 1993
----- -------
<S> <C> <C>
Expected amounts included in net
investment income:
Within one year $4,720 $ 4,720
Within one to five years 891 5,611
--- -----
Balance, end of year $5,611 $10,331
=== =====
</TABLE>
44
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
Interest Rate Caps
The Company has acquired six interest rate caps ($400,000 notional at
December 31, 1994) indexed to either the three month LIBOR, or the
two or five year constant maturity swap (CMS) rates. Under these
contracts, the Company has paid a premium for the right to receive
payments when the index rises above a predetermined level, i.e., the
strike rate. The objective of holding these derivatives is to reduce
the Company's risk in rising interest rate environments by providing
additional investment income to cover higher competitive interest
crediting rates on policy liabilities.
The following table summarizes the interest rate caps, their notional
amounts, their weighted average strike and index rates as of the
reporting period date, and their effects on the consolidated balance
sheets and statements of operations. The majority of caps mature in
1997 and 1999. The fair values of the interest rate swaps are
obtained from dealer quotes. These values represent the estimated
amounts the Company would receive or pay to terminate the contracts,
taking into account current interest rates and, when appropriate, the
current creditworthiness of the counterparties.
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1993
------- ---------
<S> <C> <C>
Interest rate caps:
Index: three month LIBOR--notional amount $200,000 $200,000
Weighted average strike rate 8.50% 8.50%
Weighted average current index 6.44% 3.38%
Amortization expense included in net investment income $ (649) $ (1,157)
Fair value $ 2,698 $ 935
Carrying value $ 1,903 $ 2,552
Unrealized gain (loss) included in fixed maturities AFS $
$ 795 --
Index: two year CMS--notional amount $100,000 --
Weighted average strike rate 7.25% --
Weighted average current index 7.91% --
Amortization expense included in net investment income $ (144) --
Fair value $ 4,930 --
Carrying value $ 5,001 --
Unrealized gain (loss) included in fixed maturities AFS $ (71) --
Index: five year CMS--notional amount $100,000 --
Weighted average strike rate 7.93% --
Weighted average current index 7.83% --
Amortization expense included in net investment income $ (38) --
Fair value $ 2,806 --
Carrying value $ 2,800 --
Unrealized gain (loss) included in fixed maturities AFS $ 6 --
</TABLE>
During 1993 and 1992, the Company sold interest rate caps with
notional amounts of $300,000 and $600,000, respectively, resulting in
realized losses of $4,082 and $4,447. Also in 1993, due to an other
than temporary decline in value, the Company reduced the carrying
value of the remaining interest rate caps by $2,000 resulting in a
realized loss.
45
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
Trading Instruments
The Company currently owns $50,000 notional of a current coupon
mortgage swap. The Company pays the total return of a seven year swap
to receive the total return of a current coupon, thirty year FNMA
pass-through mortgage backed security plus .40%. The swap resets to
market levels at two month intervals. The objective of the strategy
is to replicate a position in FNMA pass-throughs with an enhanced
return.
The following table summarizes the current coupon mortgage swap and
the effects on the consolidated balance sheets and statements of
operations. The swap matures in 1995. The fair values represents the
estimated amount the Company would pay to terminate the contracts,
taking into account current interest rates and, when appropriate, the
current creditworthiness of the counterparties.
<TABLE>
<CAPTION>
December 31,
-------------
1994
-------------
<S> <C>
Current coupon mortgage swap:
Notional amount $50,000
Pay rate at reporting period date 8.05%
Receive rate at reporting period date 8.90%
Amount included in net investment income $ 455
Amount included in realized gain and
losses $ (28)
Fair value $ 153
</TABLE>
There were no current coupon mortgage swaps during 1993.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values for the Company's investments in fixed
maturities and equity securities are presented in Note 4. Fair value
estimates, methods and assumptions are set forth below for the
Company's other financial instruments.
(a) Mortgage Loans
For purposes of estimating fair value, mortgage loans are
segregated by type into commercial real estate and residential
mortgages. The fair value of the commercial real estate loans is
calculated by discounting scheduled cash flows through the stated
maturity using estimated market rates. The estimated market rate
is based on the five year prime mortgage rate. The fair value of
the residential mortgages is estimated by discounting contractual
cash flows adjusted for expected prepayments using an estimated
discount rate. The discount rate is an estimated market rate
adjusted to reflect differences in servicing costs, and the
expected prepayments are estimated based upon Company experience.
46
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
Mortgage loans are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------
Average Estimated Estimated
Carrying Historical Discount Fair
Value Yield Rate Value
------ -------- ------- ---------
<S> <C> <C> <C> <C>
Commercial real estate
loans $87,000 9.4% 8.3% $89,795
Residential mortgages 42,452 13.7% 8.3% 49,003
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------
Average Estimated Estimated
Carrying Historical Discount Fair
Value Yield Rate Value
------- -------- ------- ---------
<S> <C> <C> <C> <C>
Commercial real estate
loans $100,000 9.4% 8.0% $102,015
Residential mortgages 55,972 12.0% 8.0% 63,402
</TABLE>
The weighted average maturities (which may be different from the
stated maturities) of the cash flows used in deriving the estimated
fair values for commercial real estate loans and residential
mortgages are 1.3 years and 2.7 years, respectively, at December 31,
1994, and 2.3 years and 2.9 years, respectively at December 31, 1993.
(b) Policy Loans
The carrying value of policy loans approximates fair value at
December 31, 1994 and 1993.
(c) Policy Liabilities
The fair value of deposit liabilities with no stated maturity is
equal to the amount payable on demand. The Company considers its
policy liabilities to be similar to deposit liabilities.
The carrying value and estimated fair value of the policyholder
account balances are $9,344,044 and $8,821,450, respectively at
December 31, 1994, and $8,697,635 and $8,211,361, respectively at
December 31, 1993.
(6) EMPLOYEE BENEFIT PLANS
Effective July 1, 1992, the Retirement Plan for Employees of Keyport Life
Insurance Company was amended to extend participation to certain
employees of Liberty Financial and was renamed the Liberty Financial
Companies, Inc. Pension Plan ("the Plan"). Under the Plan, all employees
are vested after five years of service. Benefits are based on years of
service, the employee's average pay for the highest five consecutive
years during the last ten years of employment, and the employee's
estimated social security retirement benefit. The Company's funding
policy is to contribute the minimum required employer contribution under
the Employee Retirement Income Security Act of 1974. The Company may,
from time to time, increase its employer contributions beyond the minimum
amount, but within IRS guidelines.
47
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
The Company's accounting policy is to amortize changes in prior service costs
over the expected future service of active participants expected to receive
benefits under the Plan as of the date such costs are first recognized, and
amortize cumulative net actuarial gains and losses in excess of a corridor
amount over the expected future service of active participants expected to
receive benefits under the plan.
The following table sets forth the plan's funded status for the Company and
amounts recognized in the Company's consolidated balance sheets.
Substantially all of the Plan's assets are invested in mutual funds sponsored
by an affiliated company.
<TABLE>
<CAPTION>
December 31,
------------------
1994 1993
------ --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $4,197 in 1994 and $3,967 in 1993 $ 5,025 $ 4,870
==== ======
Projected benefit obligation for service to date $ 6,523 $ 6,431
Plan assets at fair value (4,459) (4,204)
---- ------
Projected benefit obligation in excess of Plan
assets 2,064 2,227
Unrecognized net actuarial loss (227) (1,200)
Prior service costs not yet recognized in net
periodic
pension cost (660) (251)
---- ------
Accrued pension cost $ 1,177 $ 776
==== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1994 1993 1992
---- ---- ------
<S> <C> <C> <C>
Pension cost includes the following
components:
Service-cost benefits earned during the
period $ 532 $ 392 $ 506
Interest cost on projected benefit
obligation 534 423 366
Actual return on Plan assets 63 (185) (117)
Net amortization and deferred amounts (338) (88) (117)
-- -- ----
Net periodic pension cost $ 791 $ 542 $ 638
== == ====
</TABLE>
The assumptions used to develop the actuarial present value of the projected
benefit obligation, and the expected long-term rate of return on Plan assets
are as follows:
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1994 1993 1992
---- ---- ------
<S> <C> <C> <C>
Discount rate 8.25% 7.25% 8.00%
Expected long-term rate of return on
assets 8.50% 8.50% 8.50%
Rate of increase in compensation levels 5.25% 5.25% 5.50%
</TABLE>
The Company also provides a thrift plan with a matching savings program
containing several investment options for which substantially all employees
are eligible. In addition, the Company has a non-qualified deferred
compensation plan for certain employees.
48
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
(7) DEFERRED POLICY ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE
The amounts of policy acquisition costs deferred and amortized are
summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1994 1993 1992
------- ------- ---------
<S> <C> <C> <C>
Balance, beginning of year $262,646 $211,330 $154,150
----- ----- -------
Additions:
Deferred during period:
Commissions 82,626 81,515 64,963
Other expenses 8,400 10,019 9,571
----- ----- -------
Total deferrals 91,026 91,534 74,534
Adjustments for unrealized investment
losses 135,059 -- --
Adjustments for realized investment losses 2,675 785 --
----- ----- -------
Total additions 228,760 92,319 74,534
----- ----- -------
Deductions:
Amortized during the period (52,174) (41,003) (17,022)
Adjustments for realized investment gains -- -- (332)
----- ----- -------
Total deductions (52,174) (41,003) (17,354)
----- ----- -------
Balance, end of year $439,232 $262,646 $211,330
===== ===== =======
</TABLE>
The value of insurance in force is summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1994 1993 1992
------- ------- ---------
<S> <C> <C> <C>
Balance, beginning of year $101,036 $115,824 $148,270
----- ----- -------
Additions:
Value of insurance purchased 1,479 7,522 --
Interest accrued on unamortized balance 4,994 6,124 8,672
Adjustments for unrealized investment
losses 53,344 -- --
Adjustments for realized investment losses 351 65 --
----- ----- -------
Total additions 60,168 13,711 8,672
----- ----- -------
Deductions:
Amortized during the period (21,983) (28,499) (41,090)
Adjustments for realized investment gains -- -- (28)
----- ----- -------
Total deductions (21,983) (28,499) (41,118)
----- ----- -------
Balance, end of year $139,221 $101,036 $115,824
===== ===== =======
</TABLE>
Interest is accrued on the unamortized value of insurance in force
balance at the contract rate of 5.49%, 6.01%, and 6.79% for the years
ended 1994, 1993 and 1992, respectively.
Estimated net amortization expense of the value of insurance in force as
of December 31, 1994, is as follows: 1995--$12,452; 1996--$10,463;
1997--$8,914; 1998--$7,811; 1999--$7,041; and thereafter--$39,196.
49
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
(8) FEDERAL INCOME TAXES
The provision for federal income taxes, computed under the asset and
liability method, is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1994 1993 1992
------ ------ --------
<S> <C> <C> <C>
Current $18,118 $24,878 $16,055
Deferred 13,933 3,832 (7,245)
---- ---- ------
Federal income tax
expense $32,051 $28,710 $ 8,810
==== ==== ======
</TABLE>
A reconciliation of federal income tax expense as recorded in the
accompanying consolidated statements of operations with expected federal
income tax expense computed at the applicable federal tax rate of 35% in
1994 and 1993 (34% for 1992) is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1994 1993 1992
------ ------ --------
<S> <C> <C> <C>
Expected income tax expense $33,347 $30,347 $10,675
Increase (decrease) in income taxes resulting
from:
Nontaxable investment income (2,099) (2,189) (2,230)
Amortization of goodwill 396 396 385
Other, net 407 156 (20)
---- ---- ------
Actual federal income tax expense $32,051 $28,710 $ 8,810
==== ==== ======
</TABLE>
In August 1993, the Omnibus Budget Reconciliation Act of 1993 was
enacted. This law increased the Company's top marginal tax rate to 35%
from 34% retroactive to January 1, 1993. The effect of this change in tax
rates on the Company's consolidated financial statements was not
material.
50
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
The components of deferred federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1993
-------- ----------
<S> <C> <C>
Deferred tax assets:
Policy liabilities $ 127,558 $ 120,296
Excess of tax over book bases--investments 69,039 --
Guaranty association fees 8,642 8,592
Net operating loss carryforward 3,573 3,941
Deferred gain on interest rate swap agreements 1,964 3,616
Other 3,914 --
------ --------
Total deferred tax assets 214,690 136,445
------ --------
Deferred tax liabilities:
Deferred policy acquisition costs (137,909) (80,062)
Value of insurance in force and intangible
assets (34,420) (13,865)
Excess book over tax bases--investments -- (20,991)
------ --------
Other -- (140)
Total deferred tax liabilities (172,329) (115,058)
------ --------
Net deferred federal income tax asset $ 42,361 $ 21,387
====== ========
</TABLE>
The Company believes that is more likely than not that the Company will
realize the benefits of the total deferred tax assets and, accordingly,
believes that a valuation allowance with respect to the realization of
the total deferred tax assets is not necessary. While there are no
assurances that this benefit will be realized, the Company expects that
the net deductible amounts will be recoverable through the reversal of
taxable temporary differences, taxes paid in the carryback period, tax
planning strategies, and future expectations of taxable income.
As of December 31, 1994 and 1993, the Company had approximately $10,208
and $11,260, respectively, of net operating loss carryforwards relating
to Keyport America's operations prior to the acquisition by Keyport.
These operating loss carryforwards are limited to use against future
taxable profits of Keyport America and expire through 2006.
Income taxes paid were $28,811, $17,722, and $20,667 for the years ended
December 31, 1994, 1993 and 1992, respectively.
51
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
(9) STATUTORY INFORMATION AND DIVIDEND RESTRICTIONS
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ from GAAP. In
converting to GAAP, adjustments to insurance statutory amounts include:
the deferral and amortization of costs of acquiring new policies, such as
commissions and other issue costs; the deferral of federal income taxes;
the recognition as revenues of premiums for investment-type products for
statutory purposes but as deposits to policyholders' accounts under GAAP.
In addition, different assumptions are used in calculating future
policyholders' benefits; different methods are used for calculating
valuation allowances for statutory and GAAP purposes; and, realized gains
and losses on fixed income investments due to interest rate changes are
not deferred for GAAP.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1994 1993 1992
------- ------- ---------
<S> <C> <C> <C>
Statutory surplus $546,440 $517,181 $377,654
Statutory net income 24,871 65,315 59,623
</TABLE>
The maximum amount of dividends which can be paid by the Company without
prior approval of the Insurance Commissioner of the State of Rhode Island
is subject to restrictions related to statutory surplus and statutory net
gains from operations. For 1995, such restriction would limit dividends
to approximately $42,100. The Company has not paid dividends since the
acquisition by Liberty Mutual.
(10) TRANSACTIONS WITH AFFILIATED COMPANIES
During 1993 the Company received a $75,000 capital contribution from
Liberty Financial.
As of December 31, 1994 and 1993, the Company had $87,000 and $100,000,
respectively, of commercial real estate loans of affiliated investment
partnerships. These mortgages are unconditionally guaranteed by Liberty
Mutual.
The Company reimbursed Liberty Financial and certain affiliates for
expenses incurred on its behalf for the years ended December 31, 1994,
1993 and 1992. These reimbursements included corporate general and
administrative expenses, corporate overhead, such as executive and legal
support, and investment management services. The total amounts reimbursed
were $7,345, $7,444 and $7,340 for the years ended December 31, 1994, 1993
and 1992.
52
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(in thousands)
(11) COMMITMENTS AND CONTINGENCIES
The Company leases data processing equipment, furniture and certain office
facilities from others under operating leases expiring in various years
through 2001. Rental expense amounted to $3,011, $3,042 and $2,656 for the
years ended December 31, 1994 and 1993, and 1992 respectively. For each of
the next five years, and in the aggregate, as of December 31, 1994, the
following are the minimum future rental payments under noncancelable
operating leases having remaining terms in excess of one year:
<TABLE>
<CAPTION>
<S> <C>
1995 $
3,123
1996 2,888
1997 2,565
1998 2,462
1999 2,340
Thereafter 4,609
------
Total minimum future rental $
payments 17,987
======
</TABLE>
Under existing guaranty fund laws in all states, insurers licensed to do
business in those states can be assessed for certain obligations of
insolvent insurance companies to policyholders and claimants. The actual
amount of such assessments will depend upon the financial outcome of
rehabilitation proceedings and will be paid over several years. In 1994,
1993 and 1992, the Company was assessed $7,674, $7,314 and $6,231,
respectively. However, based in part on information provided by an
industry association, the Company increased its reserve in 1992 by
$28,200, reflecting the Company's estimate of the future assessments with
respect to known insolvencies. During 1994, 1993 and 1992, the Company
recorded $7,200, $3,704, and $35,000, respectively, of provisions for
state guaranty fund association expenses.
Based on information provided by the industry association with respect to
aggregate assessments related to known insolvencies, the range of future
assessments with respect to known insolvencies is estimated by the
Company to be between $15,000 and $25,000, taking into account the
industry association information as well as the Company's own estimate of
its potential share of such aggregate assessments. At December 31, 1994
and 1993, the reserve for such assessments was $24,700 and $24,500,
respectively.
The company is involved, from time to time, in litigation incidental to
its business. In the opinion of management, the resolution of such
litigation is not expected to have a material adverse effect on the
Company.
53
<PAGE>
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
54
<PAGE>
Independent Auditors' Report
The Policy Owners of
Keyport Life Insurance Company's
Variable Account I:
We have audited the accompanying statement of assets and liabilities of the
sub-accounts comprising Keyport Variable Account I as of December 31, 1994,
and the related statements of operations and changes in net assets for each
of the years, or other periods as applicable, in the three-year period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the sub-accounts comprising
Keyport Variable Account I at December 31, 1994, and the results of their
operations and changes in their net assets for each of the years, or other
periods as applicable, in the three-year period ended December 31, 1994 in
conformity with generally accepted accounting principles.
[Signature KPMG Peat Marwick LLP]
Boston, Massachusetts
April 14, 1995
55
<PAGE>
<TABLE>
<CAPTION>
KEYPORT VARIABLE ACCOUNT 1
Statemetn of Assets and Liabilities
December 31, 1994
<S> <C>
Assets
Investments at market value:
SteinRoe Variable Investment Trust
Cash Income Fund - 1,488,261 shares (cost $1,488,261) $ 1,488,261
Capital Appreciation Fund - 72,271 shares (cost $1,022,763) 1,065,278
Managed Assets Fund - 573,783 shares (cost $5,935,656) 6,988,682
Mortgage Securities Income Fund - 102,179 shares (cost $992,870) 948,217
Managed Growth Stock Fund - 50,933 shares (cost $628,994) 922,392
Strategic Managed Assets Fund - 37,141 shares (cost $223,061) 216,532
Managed Income Fund - 58,428 shares (cost $594,769) 527,608
Keyport Variable Investment Trust
Colonial-Keyport Growth and Income Fund - 553 shares (cost $5,702) 5,547
Colonial-Keyport Utilities Fund - 3,038 shares (cost $30,283) 24,642
Colonial-Keyport U.S. Government Fund - 2,121 shares (cost $20,972) 19,448
Colonial-Keyport International Fund for Growth - 11,312 share (cost $21,711) 21,267
------------
Total assets $ 12,227,874
============
Net Assets
Variable life contracts (Note 7) $ 12,207,730
Retained by Keyport Life Insurance Company (Note 6) 20,144
------------
Total net assets $ 12,227,874
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KEYPORT VARIABLE ACCOUNT I
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
Cash Income Fund High Yield Bond Fund
1994 1993 1992 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income
Dividends $ 58,338 $ 24,117 $ 47,141 $ -- $ 13,070 $ 75,256
Expenses (Note 3)
Mortality and expense risk
and administrative charges 55,449 36,537 52,622 -- 9,232 33,070
----------- ----------- ----------- ----------- ----------- -----------
Net investment income 2,889 (12,420) (5,481) -- 3,838 42,186
Realized gain (loss) -- -- -- -- (160,846) 9,403
Unrealized appreciation (depreciation)
during the year -- -- -- -- 190,008 29,402
Net increase (decrease) in net assets
from operations 2,889 (12,420) (5,481) -- 33,000 80,991
----------- ----------- ----------- ----------- ----------- -----------
Transfers between accounts (7,576) 1,015,465 (363,188) -- (748,454) (15,337)
Contract terminations (256,302) (181,359) (82,141) -- (82,359) (34,670)
Contract loans (Note 5) 7,761 (5,361) (19,388) -- (25,192) (104,524)
Net increase (decrease) in net assets
from contract transactions (256,117) 828,745 (464,717) -- (856,005) (154,531)
----------- ----------- ----------- ----------- ----------- -----------
Net assets at beginning of period 1,741,489 925,164 1,395,362 -- 823,005 896,545
----------- ----------- ----------- ----------- ----------- -----------
Net assets at end of period $ 1,488,261 $ 1,741,489 $ 925,164 $ -- $ -- $ 823,005
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KEYPORT VARIABLE ACCOUNT I
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
Capital Appreciation Fund Managed Assets Fund
1994 1993 1992 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income
Dividends $ 126,345 $ 216,135 $ 172,420 $ 281,101 $ 359,708 $ 645,351
Expenses (Note 3)
Mortality and expense risk
and administrative charges 35,344 46,699 40,455 246,548 289,669 285,854
----------- ----------- ----------- ----------- ----------- -----------
Net investment income 91,001 169,436 131,965 34,553 70,039 359,497
Realized gain (loss) (1,721) 157,592 21,520 165,281 256,812 154,891
Unrealized appreciation (depreciation)
during the year (115,013) 66,545 6,297 (693,315) 179,311 (142,421)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from operations (25,733) 393,573 159,782 (493,481) 506,162 371,967
Transfers between accounts 126,361 (624,721) (47,925) (121,234) (184,008) (109,070)
Contract terminations (112,626) (11,688) (31,259) (648,353) (827,327) (710,690)
Contract loans (Note 5) (29,133) (56,575) 12,210 (91,428) (344,633) (178,547)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from contract transactions (15,398) (692,984) (66,974) (861,015) (1,355,968) (998,307)
----------- ----------- ----------- ----------- ----------- -----------
Net assets at beginning of period 1,106,409 1,405,820 1,313,012 8,343,178 9,192,984 9,819,324
----------- ----------- ----------- ----------- ----------- -----------
Net assets at end of period $ 1,065,278 $ 1,106,409 $ 1,405,820 $ 6,988,682 $ 8,343,178 $ 9,192,984
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KEYPORT VARIABLE ACCOUNT I
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
Mortgage Securities Income Fund Managed Growth Stock Fund
1994 1993 1992 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income
Dividends $ 69,190 $ 88,373 $ 98,782 $ 58,711 $ 25,078 $ 37,570
Expenses (Note 3)
Mortality and expense risk
and administrative charges 38,478 46,487 42,647 36,939 39,619 29,550
----------- ----------- ----------- ----------- ----------- -----------
Net investment income 30,712 41,886 56,135 21,772 (14,541) 8,020
Realized gain (loss) 6,027 8,415 3,054 2,732 2,618 (896)
Unrealized appreciation (depreciation)
during the year (96,750) (12,119) (21,013) (136,737) 31,969 41,983
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from operations (60,011) 38,182 38,176 (112,233) 20,046 49,107
----------- ----------- ----------- ----------- ----------- -----------
Transfers between accounts (36,149) 87,449 (4,171) (20,096) 21,436 332,335
Contract terminations (267,217) (193,585) (19,754) (128,846) (18,694) (8,644)
Contract loans (Note 5) (6,714) (11,263) (25,089) (17,161) (6,811) (25,185)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from contract transactions (310,080) (117,399) (49,014) (166,103) (4,069) 298,506
----------- ----------- ----------- ----------- ----------- -----------
Net assets at beginning of period 1,318,308 1,397,525 1,408,363 1,200,728 1,184,751 837,138
----------- ----------- ----------- ----------- ----------- -----------
Net assets at end of period $ 948,217 $ 1,318,308 $ 1,397,525 $ 922,392 $ 1,200,728 $ 1,184,751
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KEYPORT VARIABLE ACCOUNT I
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
Investment Grade Bond Strategic Managed Assets Fund
1994 1993 1992 1994 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income
Dividends $ -- $ 12,363 $ 30,522 $ 11,609 $ 11,095 $ 19,432
Expenses (Note 3)
Mortality and expense risk
and administrative charges -- 1,902 10,846 10,406 11,323 6,958
--------- --------- --------- --------- --------- ---------
Net investment income -- 10,461 19,676 1,203 (228) 12,474
Realized gain (loss) -- 20,833 (171) (357) 620 1,126
Unrealized appreciation (depreciation)
during the year -- (16,235) (8,378) (11,228) (4,646) (424)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets
from operations -- 15,059 11,127 (10,382) (4,254) 13,176
--------- --------- --------- --------- --------- ---------
Transfers between accounts -- (355,595) (36,538) (47,505) 143,243 53,235
Contract terminations -- (4,494) (1,765) -- (318) (13,564)
Contract loans (Note 5) -- -- (3,802) (9,728) (21,000) --
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets
from contract transactions -- (360,089) (42,105) (57,233) 121,925 39,671
--------- --------- --------- --------- --------- ---------
Net assets at beginning of period -- 345,030 376,008 284,147 166,476 113,629
--------- --------- --------- --------- --------- ---------
Net assets at end of period $ -- $ -- $ 345,030 $ 216,532 $ 284,147 $ 166,476
========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KEYPORT VARIABLE ACCOUNT I
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
International Stock Fund Managed Income Fund *
1994 1993 1992 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income
Dividends $ -- $ 7,544 $ 1,693 $ 41,539 $ 36,215
Expenses (Note 3)
Mortality and expense risk
and administrative charges -- 1,280 3,902 21,701 19,134
--------- --------- --------- --------- ---------
Net investment income -- 6,264 (2,209) 19,838 17,081
Realized gain (loss) -- (1,095) 54 (5,435) 5,096
Unrealized appreciation (depreciation)
during the year -- 6,458 (6,144) (65,020) (2,141)
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets
from operations -- 11,627 (8,299) (50,617) 20,036
--------- --------- --------- --------- ---------
Transfers between accounts -- (169,865) 146,830 (28,667) 717,822
Contract terminations -- -- -- (53,921) (28,620)
Contract loans (Note 5) -- -- -- (14,008) (34,417)
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets
from contract transactions -- (169,865) 146,830 (96,596) 654,785
--------- --------- --------- --------- ---------
Net assets at beginning of period -- 158,238 19,707 674,821 --
--------- --------- --------- --------- ---------
Net assets at end of period $ -- $ -- $ 158,238 $ 527,608 $ 674,821
========= ========= ========= ========= =========
* Commencement of operations - January 15, 1993
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KEYPORT VARIABLE ACCOUNT I
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
Colonial-Keyport Colonial-Keyport Colonial-Keyport
Growth and Income Fund ** Utilities Fund ** U.S. Government Fund **
1994 1993 1994 1993 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income
Dividends $ 135 $ -- $ 1,566 $ 520 $ 1,139 $ 404
Expenses (Note 3)
Mortality and expense risk
and administrative charges 28 -- 795 503 415 128
-------- -------- -------- -------- -------- --------
Net investment income 107 -- 771 17 724 276
Realized gain (loss) -- -- (98) 1 (1) 1
Unrealized appreciation (depreciation)
during the year (156) -- (4,370) (1,272) (1,338) (187)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net assets
from operations (49) -- (3,697) (1,254) (615) 90
-------- -------- -------- -------- -------- --------
Transfers between accounts 5,596 -- (1) 29,594 5,438 14,535
Contract terminations -- -- -- -- -- --
Contract loans (Note 5) -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net assets
from contract transactions 5,596 -- (1) 29,594 5,438 14,535
-------- -------- -------- -------- -------- --------
Net assets at beginning of period -- -- 28,340 -- 14,625 --
-------- -------- -------- -------- -------- --------
Net assets at end of period $ 5,547 $ -- $ 24,642 $ 28,340 $ 19,448 $ 14,625
======== ======== ======== ======== ======== ========
** Commencement of operations - July 1, 1993
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KEYPORT VARIABLE ACCOUNT 1
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
Colonial-Keyport
International Fund
for Growth*** Total Total Total
1994 1994 1993 1992
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income
Dividends $ -- $ 649,673 $ 794,622 $ 1,128,167
Expenses (Note 3)
Mortality and expense risk
and administrative charges 550 446,653 502,513 505,904
------------ ------------ ------------ ------------
Net investment income (550) 203,020 292,109 622,263
Realized gain (loss) (2,314) 164,114 290,047 188,981
Unrealized appreciation (depreciation)
during the year (444) (1,124,371) 437,691 (100,698)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from operations (3,308) (757,237) 1,019,847 710,546
------------ ------------ ------------ ------------
Transfers between accounts 24,575 (99,258) (53,099) (43,829)
Contract terminations -- (1,467,265) (1,348,444) (902,487)
Contract loans (Note 5) -- (160,411) (505,252) (344,325)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from contract transactions 24,575 (1,726,934) (1,906,795) (1,290,641)
------------ ------------ ------------ ------------
Net assets at beginning of period -- 14,712,045 15,598,993 16,179,088
------------ ------------ ------------ ------------
Net assets at end of period $ 21,267 $ 12,227,874 $ 14,712,045 $ 15,598,993
============ ============ ============ ============
*** Commencement of operations - May 2, 1994
</TABLE>
<PAGE>
KEYPORT VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
1. Organization
Variable Account I (the "Variable Account") is a separate investment account
established by Keyport Life Insurance Company (the "Company") to receive and
invest premium payments under variable life insurance contracts issued by the
Company. The Variable Account operates as a Unit Investment Trust under the
Investment Company Act of 1940 and invests in eligible mutual funds.
There are currently two funding vehicles available to the Variable Account,
the SteinRoe Variable Investment Trust ("SRVIT") and the Keyport Variable
Investment Trust ("KVIT"). There are currently thirteen available
sub-accounts within the Variable Account to which contract funds may be
allocated. The KVIT was established on July 1, 1993, offering the following
funds to contractholders: Colonial-Keyport Growth and Income Fund,
Colonial-Keyport Utilities Fund, and Colonial-Keyport U.S. Government Fund.
The Colonial-Keyport International Fund for Growth became available to
contractholders on May 2, 1994. The Colonial Keyport Strategic Income Fund
and the Colonial Keyport U.S. Fund for Growth became available to
contractholders on July 5, 1994. As of December 31, 1994, no contractholders
were invested in the Colonial Keyport U.S. Fund for Growth or the Colonial
Keyport Strategic Income Fund. The Managed Income Fund of the SRVIT was made
available to contractholders on January 15, 1993. In May 1993, the Securities
and Exchange Commission approved the substitution of shares of the Strategic
Managed Assets Fund for shares of the International Stock Fund. This same
order approved the substitution of shares of Managed Income Fund for shares
of High Yield Bond Fund and shares of Investment Grade Bond Fund.
2. Significant Accounting Policies
Shares of the Trusts are sold to the Variable Account at the reported net
asset values. Transactions are recorded on the trade date. Income from
dividends is recorded on the ex-dividend date. Realized gains and losses on
sales of investments are computed on the basis of identified cost of the
investments sold.
The operations of the Variable Account are included in the federal income tax
return of the Company, which is taxed as a Life Insurance Company under the
provisions of the Internal Revenue Code.
3. Expenses
There are no deductions made from purchase payments for sales charges at the
time of purchase. Instead, a deferred sales charge is deducted in monthly
installments from the cash value in years two through ten. Any unpaid charge
will be deducted from the cash value at the time of contract termination. A
monthly policy maintenance charge, based upon a contractholder's age,
contract premium, and a series of factors, is deducted on the
contractholder's monthly anniversary date. Daily deductions are made from
each sub-account for assumption of mortality and expense risk fees at an
effective annual rate of 0.60% of the contract value.
64
<PAGE>
4. Affiliated Company Transactions
Administrative services necessary for the operation of the Account are
provided by the Company. The Company has absorbed all organizational expenses
including the fees of registering the Variable Account and its contracts for
distribution under federal and state securities laws. SteinRoe & Farnham,
Inc., an affiliate of the Company, is the investment advisor to the SRVIT.
Keyport Advisory Services Corporation, a wholly owned subsidiary of the
Company, is the investment advisor to KVIT. Keyport Financial Services
Corporation, a wholly owned subsidiary of the Company, is the principal
underwriter for SRVIT and KVIT. The investment advisors' and principal
underwriter's compensation is derived from the mutual funds.
5. Contract Loans
Contractholders are permitted to take loans which causes an amount equal to
the loan to be deducted from the Variable Account and placed in the Company's
general account.
6. Amounts Retained by Keyport Life Insurance Company
If a contractholder's financial transaction is not executed on the
appropriate investment date, a correcting buy or sell of shares is required
by the Company in order to make the contractholder whole. The resulting risk
of a gain or loss has no effect on the contractholder's account and is fully
assumed by the Company. Amounts retained by the Company are invested in the
Variable Account for this purpose.
7. Unit Values
A summary of the accumulation unit values at December 31, 1994 and 1993 and
the accumulation units and dollar value outstanding at December 31, 1994 are
as follows:
<TABLE>
<CAPTION>
1993 1994
--------- ---------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Cash Income Fund $14.806049 $15.278217 96,092.2993 $ 1,468,119
Capital Appreciation Fund 22.726373 22.859865 46,600.3414 1,065,278
Managed Assets Fund 20.495044 19.722939 354,342.8521 6,988,682
Mortgage Securities Income Fund 16.578926 16.220997 58,456.1210 948,217
Managed Growth Stock Fund 19.008075 17.694435 52,128.9217 922,392
Strategic Managed Assets Fund 14.665163 14.574120 14,857.2627 216,532
Managed Income Fund 10.700171 10.168579 51,886.1104 527,608
Colonial-Keyport Growth and Income Fund 10.000000 9.954493 557.2065 5,547
Colonial-Keyport Utilities Fund 9.717310 8.667210 2,843.0851 24,642
Colonial-Keyport U.S. Government Fund 10.125354 9.922501 1,959.9538 19,448
Colonial-Keyport International Fund for Growth -- 9.557398 2,225.1795 21,267
--------- ---------
681,949.3335 $12,207,730
========= =========
</TABLE>
65
<PAGE>
66
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS AND CASH SURRENDER VALUES
The following tables, and the assumptions and estimates upon which they are
based, are as of May 1, 1993, since the Policies have not been available for
sale. The tables illustrate how the cash surrender values and death benefits of
a Policy change with the investment experience of the Variable Account. The
tables show how the cash surrender values and death benefits of a Policy issued
to both males and females at a given age and a $l0,000 single premium would vary
over time if the investment return on the assets held in each Sub-Account were a
uniform, gross, after-tax annual rate of 0%, 4%, 6%, 8% or 12%. The tables on
pages 69 through 76 illustrate a Policy issued at ages 30, 40, 50, and 60. The
cash surrender values and death benefits would be different from those shown if
the gross annual investment rates of return averaged 0%, 4%, 6%, 8% or 12% over
a period of years, but fluctuated above and below those averages for individual
Policy Years. Values would also be different if policy loans were made or if the
Policy is sold in states that have not adopted unisex mortality rates (the
Policy's cost of insurance rates for those states would be based on sex distinct
mortality tables).
The tables are divided into two parts. The upper half of each table shows death
benefits. The lower half shows cash surrender values. The second column shows
the accumulated value of the premium paid at a stated interest rate. Columns 3
through 5 show the death benefits and cash surrender values at various assumed
gross investment returns. The maximum cost of insurance rates allowable under
the Policy are based upon the Commissioners' l980 Standard Ordinary Mortality
Table, Blended Table B.
The amounts shown for the death benefits and cash surrender values reflect the
fact that the net investment return of the Sub-Accounts is lower than the gross
investment return on the assets held in the Eligible Funds and charges levied
against the Sub-Accounts. The daily average asset-based investment advisory fee
is assumed to be equivalent to an annual rate of 0.62% of the aggregate average
daily net assets of the SteinRoe Trust Funds available on May 1, 1993. The
tables also reflect other expenses of such Funds at the estimated rate of 0.24%
of the aggregate average daily net assets of such Funds, which is an estimated
rate based on operating history. The daily charge by Keyport to each of the
Sub-Accounts for assuming mortality and expense risks is equivalent to a charge
at an annual rate of 0.60% of the average net assets of the Sub-Accounts. After
deduction of these amounts, the illustrated gross annual investment rates of
return of 0%, 4%, 6%, 8% and 12% correspond to approximate net annual rates of
- -1.46%, 2.54%, 4.54%, 6.54% and 10.54%, respectively.
The SteinRoe Trust's advisor and administrator voluntarily agreed for the period
5/1/93 - 4/30/94 to reimburse all expenses, including management fees, in excess
of the following percentage of the average annual net assets of each listed
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%
- - CIF; .70% - MSIF and MIF; .75% - MAF; .80% - MGSF and CAF; and .85% - SMAF.
The MIF and SMAF Sub-Accounts are not currently available to receive transfers
of Policy values.
The hypothetical values shown in the tables do not reflect any charges for
Federal income taxes against the Variable Account, since Keyport is not
currently making such charges. However, such charges may be made in the future
and, in that event, the gross annual investment rate of return would have to
exceed 0%, 4%, 6%, 8% or l2% by an amount
67
<PAGE>
sufficient to cover the tax charges in order to produce the death benefits and
cash surrender values illustrated.
The tables illustrate the policy values that would result based upon
hypothetical investment rates of return if the entire premium is allocated to
the Variable Account, and if no policy loans have been made. The tables are also
based on the assumption that no transfers have been made.
The following illustrations reflect additional crediting of cash values and the
reduction of cost of insurance and/or policy maintenance charges where Policy
provisions would provide for such actions at the investment rates assumed in the
illustrations (see "Crediting of Additional Variable Account Cash Values" and
"Reduction in Cost of Insurance and Reduction of Elimination of Policy
Maintenance Charge" on Page l5).
Upon request, Keyport will provide an illustration based upon comparable
assumptions and upon the age of the proposed Insured, the death benefit and the
single premium requested.
68
<PAGE>
KEYLIFE
KEYPORT LIFE INSURANCE COMPANY
Illustration of Death Benefits and Cash Surrender Values
Single Premium Variable Life Insurance (SPVLI)
FOR: JOHN DOE PLAN ID:KEYLIFE
GUARANTEED MINIMUM DEATH BENEFIT
AGE: 30 $47,494
CLASS: STANDARD SINGLE PREMIUM AMOUNT
$10,000
END OF TOTAL PREMIUM DEATH BENEFITS (1) ASSUMING HYPOTHETICAL
POLICY YEAR PAID PLUS INTEREST GROSS ANNUAL INVESTMENT RETURN OF
AT 4% 0% 4% 8%
1 $10,400 $47,494 $47,494 $48,111
2 10,816 47,494 47,494 48,442
3 11,249 47,494 47,494 48,806
4 11,699 47,494 47,494 49,204
5 12,167 47,494 47,494 49,636
6 12,653 47,494 47,494 50,101
7 13,159 47,494 49,494 50,600
8 13,686 47,494 47,494 51,132
9 14,233 47,494 47,494 51,698
10 14,802 47,494 47,494 52,298
15 18,009 47,494 47,494 56,964
20 21,911 47,494 47,494 64,838
25 26,658 47,494 47,494 73,827
30 32,434 47,494 47,494 84,067
35 39,461 47,494 47,494 95,763
40 48,010 47,494 47,494 109,163
CASH SURRENDER VALUES (1)
END OF TOTAL PREMIUM ASSUMING HYPOTHETICAL GROSS
POLICY YEAR PAID PLUS INTEREST ANNUAL INVESTMENT RETURN OF
AT 4% 0% 4% 8%
1 $10,400 $ 9,062 $ 9,453 $ 9,844
2 10,816 8,753 9,532 10,341
3 11,249 8,446 9,609 10,863
4 11,699 8,140 9,683 11,412
5 12,167 7,836 9,754 11,987
6 12,653 7,532 9,820 12,591
7 13,159 7,227 9,880 13,224
8 13,686 7,099 10,110 13,887
9 14,233 6,972 10,343 14,581
10 14,802 6,848 10,578 15,308
15 18,009 6,238 11,817 19,520
20 21,911 5,713 13,192 25,843
25 26,658 5,201 14,664 33,966
30 32,434 4,689 16,022 44,208
35 39,461 4,165 16,989 56,967
40 48,010 3,610 17,977 72,506
(1) Assumes no policy loans have been made.
THE HYPOTHETICAL RATES SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
INTERPRETED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY, THE VARIABLE ACCOUNT, OR THE ELIGIBLE
MUTUAL FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. ACTUAL INVESTMENT RESULTS WILL DEPEND
UPON MANY FACTORS, INCLUDING THE CHOICE OF INVESTMENT SUB-ACCOUNT AND DIFFERENT
INVESTMENT EXPERIENCE OF THE ELIGIBLE MUTUAL FUNDS.
69
<PAGE>
KEYLIFE
KEYPORT LIFE INSURANCE COMPANY
Illustration of Death Benefits and Cash Surrender Values
Single Premium Variable Life Insurance (SPVLI)
FOR: JOHN DOE PLAN ID:KEYLIFE
GUARANTEED MINIMUM DEATH BENEFIT
AGE: 30 $47,494
CLASS: STANDARD SINGLE PREMIUM AMOUNT
$10,000
<TABLE>
<CAPTION>
END OF TOTAL PREMIUM DEATH BENEFITS (1) ASSUMING HYPOTHETICAL
POLICY YEAR PAID PLUS INTEREST GROSS ANNUAL INVESTMENT RETURN OF
AT 5% 0% 6% 12%
<S> <C> <C> <C> <C>
1 $10,500 $47,494 $47,494 $49,904
2 11,025 47,494 47,494 52,155
3 11,576 47,494 47,494 54,572
4 12,155 47,494 47,494 57,161
5 12,763 47,494 47,494 59,935
6 13,401 47,494 47,494 62,903
7 14,071 47,494 49,494 66,076
8 14,775 47,494 47,494 69,466
9 15,513 47,494 47,494 73,559
10 16,289 47,494 47,494 78,058
15 20,789 47,494 47,494 106,723
20 26,533 47,494 47,494 145,904
25 33,864 47,494 47,494 199,486
30 43,219 47,494 47,494 272,814
35 55,160 47,494 47,494 373,235
40 70,400 47,494 47,494 510,940
CASH SURRENDER VALUES (1)
END OF TOTAL PREMIUM ASSUMING HYPOTHETICAL GROSS
POLICY YEAR PAID PLUS INTEREST ANNUAL INVESTMENT RETURN OF
AT 5% 0% 6% 12%
1 $10,500 $ 9,062 $ 9,649 $10,235
2 11,025 8,753 9,934 11,177
3 11,576 8,446 10,226 12,204
4 12,155 8,140 10,526 13,325
5 12,763 7,836 10,833 14,547
6 13,401 7,532 11,146 15,879
7 14,071 7,227 11,466 17,332
8 14,775 7,099 11,792 18,916
9 15,513 6,972 12,123 20,777
10 16,289 6,848 12,458 22,848
15 20,789 6,238 14,233 36,570
20 26,533 5,713 16,411 58,155
25 33,864 5,201 18,751 91,778
30 43,219 4,689 21,123 143,463
35 55,160 4,165 23,339 222,027
40 70,400 3,610 24,940 339,367
</TABLE>
(1) Assumes no policy loans have been made.
THE HYPOTHETICAL RATES SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
INTERPRETED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY, THE VARIABLE ACCOUNT, OR THE ELIGIBLE
MUTUAL FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. ACTUAL INVESTMENT RESULTS WILL DEPEND
UPON MANY FACTORS, INCLUDING THE CHOICE OF INVESTMENT SUB-ACCOUNT AND DIFFERENT
INVESTMENT EXPERIENCE OF THE ELIGIBLE MUTUAL FUNDS.
70
<PAGE>
KEYLIFE
KEYPORT LIFE INSURANCE COMPANY
Illustration of Death Benefits and Cash Surrender Values
Single Premium Variable Life Insurance (SPVLI)
FOR: JOHN DOE PLAN ID: KEYLIFE
AGE: 40 GUARANTEED MINIMUM DEATH BENEFIT
$34,165
CLASS: STANDARD SINGLE PREMIUM AMOUNT
$10,000
<TABLE>
<CAPTION>
END OF TOTAL PREMIUM DEATH BENEFITS (1) ASSUMING HYPOTHETICAL
POLICY YEAR PAID PLUS INTEREST GROSS ANNUAL INVESTMENT RETURN OF
AT 4% 0% 4% 8%
<S> <C> <C> <C> <C>
1 $10,400 $34,165 $34,165 $34,617
2 10,816 34,165 34,165 35,863
3 11,249 34,165 34,165 35,132
4 11,699 34,165 34,165 35,424
5 12,167 34,165 34,165 35,740
6 12,653 34,165 34,165 36,078
7 13,159 34,165 34,165 36,440
8 13,686 34,165 34,165 36,825
9 14,233 34,165 34,165 37,233
10 14,802 34,165 34,165 37,664
15 18,009 34,165 34,165 41,028
20 21,911 34,165 34,165 46,086
25 26,658 34,165 34,165 52,409
30 32,434 34,165 34,165 59,722
35 39,461 34,165 34,165 68,126
40 48,010 34,165 34,165 77,870
CASH SURRENDER VALUES (1)
END OF TOTAL PREMIUM ASSUMING HYPOTHETICAL GROSS
POLICY YEAR PAID PLUS INTEREST ANNUAL INVESTMENT RETURN OF
AT 4% 0% 4% 8%
1 $10,400 $ 9,054 $ 9,445 $ 9,836
2 10,816 8,731 9,511 10,320
3 11,249 8,406 9,571 10,825
4 11,699 8,078 9,623 11,351
5 12,167 7,746 9,667 11,899
6 12,653 7,410 9,701 12,470
7 13,159 7,067 9,726 13,066
8 13,686 6,928 9,939 13,688
9 14,233 6,789 10,155 14,336
10 14,802 6,652 10,372 15,012
15 18,009 5,999 11,493 18,876
20 21,911 5,416 12,697 24,235
25 26,658 4,823 13,909 31,177
30 32,434 4,197 15,038 39,668
35 39,461 3,516 15,934 49,823
40 48,010 2,763 16,329 61,611
</TABLE>
(1) Assumes no policy loans have been made.
THE HYPOTHETICAL RATES SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
INTERPRETED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY, THE VARIABLE ACCOUNT, OR THE ELIGIBLE
MUTUAL FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. ACTUAL INVESTMENT RESULTS WILL DEPEND
UPON MANY FACTORS, INCLUDING THE CHOICE OF INVESTMENT SUB-ACCOUNT AND DIFFERENT
INVESTMENT EXPERIENCE OF THE ELIGIBLE MUTUAL FUNDS.
71
<PAGE>
KEYLIFE
KEYPORT LIFE INSURANCE COMPANY
Illustration of Death Benefits and Cash Surrender Values
Single Premium Variable Life Insurance (SPVLI)
FOR: JOHN DOE PLAN ID: KEYLIFE
AGE: 40 GUARANTEED MINIMUM DEATH BENEFIT
$34,165
CLASS: STANDARD SINGLE PREMIUM AMOUNT
$10,000
<TABLE>
<CAPTION>
END OF TOTAL PREMIUM DEATH BENEFITS (1) ASSUMING HYPOTHETICAL
POLICY YEAR PAID PLUS INTEREST GROSS ANNUAL INVESTMENT RETURN OF
AT 5% 0% 6% 12%
<S> <C> <C> <C> <C>
1 $10,500 $34,165 $34,165 $35,907
2 11,025 34,165 34,165 37,535
3 11,576 34,165 34,165 39,281
4 12,155 34,165 34,165 41,152
5 12,763 34,165 34,165 43,154
6 13,401 34,165 34,165 45,295
7 14,071 34,165 34,165 47,582
8 14,775 34,165 34,165 50,025
9 15,513 34,165 34,165 52,926
10 16,289 34,165 34,165 56,092
15 20,789 34,165 34,165 76,706
20 26,533 34,165 34,165 104,901
25 33,864 34,165 34,165 143,501
30 43,219 34,165 34,165 196,426
35 55,160 34,165 34,165 269,160
40 70,400 34,165 34,165 369,554
<CAPTION>
CASH SURRENDER VALUES (1)
END OF TOTAL PREMIUM ASSUMING HYPOTHETICAL GROSS
POLICY YEAR PAID PLUS INTEREST ANNUAL INVESTMENT RETURN OF
AT 5% 0% 6% 12%
<S> <C> <C> <C> <C>
1 $10,500 $ 9,054 $ 9,641 $10,226
2 11,025 8,731 9,913 11,154
3 11,576 8,406 10,189 12,161
4 12,155 8,078 10,467 13,253
5 12,763 7,746 10,748 14,439
6 13,401 7,410 11,031 15,727
7 14,071 7,067 11,316 17,125
8 14,775 6,928 11,636 18,644
9 15,513 6,789 11,943 20,408
10 16,289 6,652 12,235 22,358
15 20,789 5,999 13,719 35,290
20 26,533 5,416 15,407 55,164
25 33,864 4,823 16,983 85,364
30 43,219 4,197 18,123 130,466
35 55,160 3,516 18,186 196,846
40 70,400 2,763 18,007 292,394
</TABLE>
(1) Assumes no policy loans have been made.
THE HYPOTHETICAL RATES SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
INTERPRETED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY,THE VARIABLE ACCOUNT, OR THE ELIGIBLE
MUTUAL FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. ACTUAL INVESTMENT RESULTS WILL DEPEND
UPON MANY FACTORS,INCLUDING THE CHOICE OF INVESTMENT SUB-ACCOUNT AND DIFFERENT
INVESTMENT EXPERIENCE OF THE ELIGIBLE MUTUAL FUNDS.
72
<PAGE>
KEYLIFE
KEYPORT LIFE INSURANCE COMPANY
Illustration of Death Benefits and Cash Surrender Values
Single Premium Variable Life Insurance (SPVLI)
FOR: JOHN DOE PLAN ID: KEYLIFE
AGE: 50 GUARANTEED MINIMUM DEATH BENEFIT
$25,089
CLASS: STANDARD SINGLE PREMIUM AMOUNT
$10,000
<TABLE>
<CAPTION>
END OF TOTAL PREMIUM DEATH BENEFITS (1) ASSUMING HYPOTHETICAL
POLICY YEAR PAID PLUS INTEREST GROSS ANNUAL INVESTMENT RETURN OF
AT 4% 0% 4% 8%
<S> <C> <C> <C> <C>
1 $10,400 $25,089 $25,089 $25,459
2 10,816 25,089 25,089 25,676
3 11,249 25,089 25,089 26,910
4 11,699 25,089 25,089 26,159
5 12,167 25,089 25,089 26,424
6 12,653 25,089 25,089 26,705
7 13,159 25,089 25,089 27,002
8 13,686 25,089 25,089 27,315
9 14,233 25,089 25,089 27,644
10 14,802 25,089 25,089 27,989
15 18,009 25,089 25,089 30,619
20 21,911 25,089 25,089 33,978
25 26,658 25,089 25,089 37,835
30 32,434 25,089 25,089 42,288
35 39,461 25,089 25,089 47,474
40 48,010 25,089 25,089 53,620
CASH SURRENDER VALUES (I)
END OF TOTAL PREMIUM PAID ASSUMING HYPOTHETICAL GROSS
POLICY YEAR PAID PLUS INTEREST ANNUAL INVESTMENT RETURN OF
AT 4% 0% 4% 8%
1 $10,400 $ 9,041 $ 9,433 $ 9,824
2 10,816 8,703 9,485 10,294
3 11,249 8,358 9,527 10,782
4 11,699 8,003 9,557 11,286
5 12,167 7,638 9,573 11,809
6 12,653 7,260 9,573 12,350
7 13,159 6,868 9,558 12,910
8 13,686 6,722 9,761 13,491
9 14,233 6,577 9,966 14,094
10 14,802 6,431 10,172 14,718
15 18,009 5,770 11,218 18,214
20 21,911 5,130 12,296 22,568
25 26,658 4,445 13,313 27,670
30 32,434 3,685 14,137 33,458
35 39,461 3,853 14,603 40,061
40 48,010 1,981 14,409 47,562
</TABLE>
(1) Assumes no policy loans have been made.
THE HYPOTHETICAL RATES SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
INTERPRETED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY, THE VARIABLE ACCOUNT, OR THE ELIGIBLE
MUTUAL FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. ACTUAL INVESTMENT RESULTS WILL DEPEND
UPON MANY FACTORS, INCLUDING THE CHOICE OF INVESTMENT SUB-ACCOUNT AND DIFFERENT
INVESTMENT EXPERIENCE OF THE ELIGIBLE MUTUAL FUNDS.
73
<PAGE>
KEYLIFE
KEYPORT LIFE INSURANCE COMPANY
Illustration of Death Benefits and Cash Surrender Values
Single Premium Variable Life Insurance (SPVLI)
FOR: JOHN DOE PLAN ID: KEYLIFE
AGE: 50 GUARANTEED MINIMUM DEATH BENEFIT
$25,089
CLASS: STANDARD SINGLE PREMIUM AMOUNT
$10,000
<TABLE>
<CAPTION>
END OF TOTAL PREMIUM DEATH BENEFITS (1) ASSUMING HYPOTHETICAL
POLICY YEAR PAID PLUS INTEREST GROSS ANNUAL INVESTMENT RETURN OF
AT 5% 0% 6% 12%
<S> <C> <C> <C> <C>
1 $10,500 $25,089 $25,089 $26,407
2 11,025 25,089 25,089 27,642
3 11,576 25,089 25,089 28,964
4 12,155 25,089 25,089 30,377
5 12,763 25,089 25,089 31,888
6 13,401 25,089 25,089 33,502
7 14,071 25,089 25,089 35,224
8 14,775 25,089 25,089 37,061
9 15,513 25,089 25,089 39,181
10 16,289 25,089 25,089 41,488
15 20,789 25,089 25,089 56,709
20 26,533 25,089 25,089 77,626
25 33,864 25,089 25,089 106,362
30 43,219 25,089 25,089 146,021
35 55,160 25,089 25,089 201,080
40 70,400 25,089 25,089 278,283
CASH SURRENDER VALUES (1)
END OF TOTAL PREMIUM ASSUMING HYPOTHETICAL GROSS
POLICY YEAR PAID PLUS INTEREST ANNUAL INVESTMENT RETURN
AT 5% 0% 6% 12%
1 $10,500 $ 9,041 $ 9,629 $10,214
2 11,025 8,703 9,888 11,125
3 11,576 8,358 10,147 12,110
4 12,155 8,003 10,406 13,174
5 12,763 7,638 10,663 14,323
6 13,401 7,260 10,918 15,564
7 14,071 6,868 11,170 16,905
8 14,775 6,722 11,510 18,355
9 15,513 6,577 11,837 20,005
10 16,289 6,431 12,128 21,817
15 20,789 5,770 13,389 33,734
20 26,533 5,130 14,584 51,559
25 33,864 4,445 15,303 77,786
30 43,219 3,685 15,986 115,533
35 55,160 2,853 16,978 169,684
40 70,400 1,981 17,988 246,842
</TABLE>
(1) Assumes no policy loans have been made.
THE HYPOTHETICAL RATES SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
INTERPRETED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY, THE VARIABLE ACCOUNT, OR THE ELIGIBLE
MUTUAL FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. ACTUAL INVESTMENT RESULTS WILL DEPEND
UPON MANY FACTORS, INCLUDING THE CHOICE OF INVESTMENT SUB-ACCOUNT AND DIFFERENT
INVESTMENT EXPERIENCE OF THE ELIGIBLE MUTUAL FUNDS.
74
<PAGE>
KEYLIFE
KEYPORT LIFE INSURANCE COMPANY
Illustration of Death Benefits and Cash Surrender Values
Single Premium Variable Life Insurance (SPVLI)
FOR: JOHN DOE PLAN ID: KEYLIFE
AGE: 60 GUARANTEED MINIMUM DEATH BENEFIT
$19,016
CLASS: STANDARD SINGLE PREMIUM AMOUNT
$10,000
<TABLE>
<CAPTION>
END OF TOTAL PREMIUM DEATH BENEFITS (1) ASSUMING HYPOTHETICAL
POLICY YEAR PAID PLUS INTEREST GROSS ANNUAL INVESTMENT RETURN OF
AT 4% 0% 4% 8%
<S> <C> <C> <C> <C>
1 $10,400 $19,016 $19,016 $19,304
2 10,816 19,016 19,016 19,474
3 11,249 19,016 19,016 19,655
4 11,699 19,016 19,016 19,847
5 12,167 19,016 19,016 20,051
6 12,653 19,016 19,016 20,266
7 13,159 19,016 19,016 20,493
8 13,686 19,016 19,016 20,731
9 14,233 19,016 19,016 20,981
10 14,802 19,016 19,016 21,242
15 18,009 19,016 19,016 23,260
20 21,911 19,016 19,016 25,869
25 26,658 19,016 19,016 28,920
30 32,434 19,016 19,016 32,549
35 39,461 19,016 19,016 36,883
40 48,010 19,016 19,016 42,680
CASH SURRENDER VALUES (1)
END OF TOTAL PREMIUM ASSUMING HYPOTHETICAL GROSS
POLICY YEAR PAID PLUS INTEREST ANNUAL INVESTMENT RETURN OF
AT 4% 0% 4% 8%
1 $10,400 $ 9,004 $ 9,397 $ 9,788
2 10,816 8,622 9,408 10,218
3 11,249 8,222 9,402 10,660
4 11,699 7,802 9,376 11,114
5 12,167 7,357 9,326 11,580
6 12,653 6,883 9,250 12,058
7 13,159 6,377 9,145 12,549
8 13,686 6,219 9,325 13,055
9 14,233 6,071 9,505 13,574
10 14,802 5,937 9,685 14,109
15 18,009 5,250 10,575 17,011
20 21,911 4,513 11,430 20,468
25 26,658 3,699 12,148 24,405
30 32,434 2,805 12,596 28,872
35 39,461 1,897 12,603 34,471
40 48,010 765 10,065 42,680
</TABLE>
(1) Assumes no policy loans have been made.
THE HYPOTHETICAL RATES SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
INTERPRETED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY, THE VARIABLE ACCOUNT, OR THE ELIGIBLE
MUTUAL FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. ACTUAL INVESTMENT RESULTS WILL DEPEND
UPON MANY FACTORS, INCLUDING THE CHOICE OF INVESTMENT SUB-ACCOUNT AND DIFFERENT
INVESTMENT EXPERIENCE OF THE ELIGIBLE MUTUAL FUNDS.
75
<PAGE>
KEYLIFE
KEYPORT LIFE INSURANCE COMPANY
Illustration of Death Benefits and Cash Surrender Values
Single Premium Variable Life Insurance (SPVLI)
FOR: JOHN DOE PLAN ID: KEYLIFE
AGE: 60 GUARANTEED MINIMUM DEATH BENEFIT
$19,016
CLASS: STANDARD SINGLE PREMIUM AMOUNT
$10,000
<TABLE>
<CAPTION>
END OF TOTAL PREMIUM DEATH BENEFITS (1) ASSUMING HYPOTHETICAL
POLICY YEAR PAID PLUS INTEREST GROSS ANNUAL INVESTMENT RETURN OF
AT 5% 0% 6% 12%
<S> <C> <C> <C> <C>
1 $10,500 $19,016 $19,016 $20,023
2 11,025 19,016 19,016 20,965
3 11,576 19,016 19,016 21,972
4 12,155 19,016 19,016 23,048
5 12,763 19,016 19,016 24,198
6 13,401 19,016 19,016 25,426
7 14,071 19,016 19,016 26,735
8 14,775 19,016 19,016 28,132
9 15,513 19,016 19,016 29,621
10 16,289 19,016 19,016 31,208
15 20,789 19,016 19,016 42,452
20 26,533 19,016 19,016 58,281
25 33,864 19,016 19,016 80,249
30 43,219 19,016 19,016 111,049
35 55,160 19,016 19,016 154,492
40 70,400 19,016 19,016 219,159
CASH SURRENDER VALUES (1)
END OF TOTAL PREMIUM ASSUMING HYPOTHETICAL GROSS
POLICY YEAR PAID PLUS INTEREST ANNUAL INVESTMENT RETURN OF
AT 5% 0% 6% 12%
<S> <C> <C> <C> <C>
1 $10,500 $ 9,004 $ 9,594 $10,176
2 11,025 8,622 9,813 11,043
3 11,576 8,222 10,028 11,974
4 12,155 7,802 10,237 12,974
5 12,763 7,357 10,438 14,047
6 13,401 6,883 10,629 15,199
7 14,071 6,377 10,811 16,436
8 14,775 6,219 11,117 17,765
9 15,513 6,071 11,427 19,193
10 16,289 5,937 11,738 20,729
15 20,789 5,250 13,136 31,047
20 26,533 4,513 14,130 46,113
25 33,864 3,699 15,066 67,719
30 43,219 2,805 16,021 98,502
35 55,160 1,897 17,052 144,388
40 70,400 765 17,974 219,159
</TABLE>
(1) Assumes no policy loans have been made.
THE HYPOTHETICAL RATES SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
INTERPRETED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY,THE VARIABLE ACCOUNT, OR THE ELIGIBLE
MUTUAL FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. ACTUAL INVESTMENT RESULTS WILL DEPEND
UPON MANY FACTORS, INCLUDING THE CHOICE OF INVESTMENT SUB-ACCOUNT AND DIFFERENT
INVESTMENT EXPERIENCE OF THE ELIGIBLE MUTUAL FUNDS.
76
<PAGE>
APPENDIX B
ILLUSTRATIVE EXAMPLES OF THE CALCULATION OF THE
GUARANTEED MAXIMUM POLICY MAINTENANCE CHARGE
The Maximum Policy Maintenance Charge is based on the lower of the Minimum
Guaranteed Death Benefit ("MGDB") and 3.5 times the Single Premium paid under a
Policy. The following examples assume a $l0,000 Single Premium has been paid:
Example Number One For an Insured With Issue Age Thirty
1. The MGDB is $47,494 (see the illustrations in Appendix A).
2. 3.5 times the Single Premium is $35,000.
3. Thus, the Policy Maintenance Charge is based on $35,000, not on the
$47,494 MGDB.
4. Therefore, the Maximum Policy Maintenance Charge during Policy Years 1
through 15 is .25 times 35,000 divided by 1,000 or $8.75. For Policy
Years after the 15th, the Maximum Policy Maintenance Charge is .15
times 35,000 divided by 1,000 or $5.25.
Example Number Two For an Insured With Issue Age Sixty
1. The MGDB is $l9,016 (see the illustrations in Appendix A).
2. 3.5 times the Single Premium is $35,000.
3. Thus, the Policy Maintenance Charge is based on $l9,016, not on the
$35,000 which was the case with Example Number One above.
4. Therefore, the Maximum Policy Maintenance Charge for Policy Years l
through 15 is .37 times l9,016 divided by l,000 or $7.04. For Policy
Years after the l5th, the Maximum Policy Maintenance Charge is .222
times l9,0l6 divided by l,000 or $4.22.
77
<PAGE>
APPENDIX C
ILLUSTRATIVE EXAMPLE OF REDUCTION OR ELIMINATION
OF POLICY MAINTENANCE CHARGE
AND
CREDITING OF ADDITIONAL CASH VALUES TO THE VARIABLE ACCOUNT
Example Number One for Insureds in Their 9th Through l5th Policy Years
The Cash Value at the end of the l0th Policy Year for an Insured issued a Policy
at age 30, who paid a $l0,000 Single Premium that earned a hypothetical interest
rate of l2%, is $22,848 (see the illustration in Appendix A).
To determine whether or not the Monthly Policy Maintenance Charge is to be
eliminated in the first month of the eleventh Policy Year, the following test is
performed:
1) The above Cash Value is compared to the Single Premium ($l0,000)
multiplied by 1 plus a factor equal to:
a) Policy Year (11) times [.085 plus (Policy Year (11) times
.0023)], or l.2133.
b) Therefore, $l0,000 times (1 + l.2133) equals $22,133.
2) Since $22,133 is less than the Policy's Cash Value, the Policy
Maintenance Charge is not taken on the next Monthly Anniversary. This
test is performed in each month during Policy Years 9-15, and if the
condition is met the Policy Maintenance Charge is eliminated.
If the above test is satisfied as of the beginning of the last month of a Policy
Year, then on the next Policy Anniversary Keyport will credit additional Cash
Value in an amount equal to .30% of the existing Cash Value. For example, if the
Cash Value at the end of the last month of the Policy Year is $24,000 before any
monthly deductions, and the above test is satisfied, then Cash Values equal to
$72 (.0030 times $24,000) will be credited.
Example Number Two for Insureds in Policy Years l6 and Greater
The Cash Value at the end of the 20th Policy Year for an Insured of a Policy
issued at age 40, who paid a $l0,000 Single Premium that earned a hypothetical
interest rate of l2%, is $55,164 (see the illustration in Appendix A).
To determine whether or not the Policy Maintenance Charge is to be reduced in
the first month of the twenty-first Policy Year, the following test is
performed:
1) The above Cash Value is compared to the Single Premium ($l0,000)
multiplied by l plus a factor equal to:
a) Policy Year (21) times [.032 plus (Policy Year (21) times
.0018)], or 1.4658.
b) $10,000 times (1 + 1.4658) equals $24,658.
78
<PAGE>
2) Since $24,658 is less than the above Cash Value, only a portion of the
already reduced Policy Maintenance Charge is deducted. This fraction
equals:
a) .02 times the Guaranteed Minimum Death Benefit for an Insured
of this issue age ($34,165); times
b) the Policy Year (21) minus l5; divided by
c) the death benefit at the end of the twentieth Policy Year
($104,901);
or .03908; i.e., the otherwise applicable Policy Maintenance Charge
will be multiplied by .03908. This test is performed in each month
after Policy Year l5.
If the above test is satisfied as of the beginning of the last month of a Policy
Year, then on the next Policy Anniversary Keyport will credit additional Cash
Values as in Example Number One above.
79
<PAGE>
APPENDIX D
FACTORS TO CALCULATE APPROXIMATE
GUARANTEED MINIMUM DEATH BENEFIT
<TABLE>
<CAPTION>
Insured's Age Insured's Date Insured's Age
on Date of Issue Factor* on Date of Issue Factor* on Date of Issue Factor*
<S> <C> <C> <C> <C> <C>
1 11.79 25 5.58 48 2.66
2 11.45 26 5.41 49 2.58
3 11.12 27 5.23 50 2.50
4 10.79 28 5.07 51 2.43
5 10.47 29 4.90 52 2.36
6 10.14 30 4.74 53 2.29
7 9.82 31 4.59 54 2.23
8 9.51 32 4.44 55 2.17
9 9.20 33 4.29 56 2.11
10 8.90 34 4.15 57 2.05
11 8.61 35 4.02 58 2.00
12 8.32 36 3.89 59 1.95
13 8.05 37 3.76 60 1.90
14 7.80 38 3.64 61 1.85
15 7.56 39 3.52 62 1.80
16 7.33 40 3.41 63 1.76
17 7.11 41 3.30 64 1.72
18 6.90 42 3.20 65 1.68
19 6.70 43 3.10 66 1.64
20 6.50 44 3.01 67 1.60
21 6.31 45 2.91 68 1.57
22 6.12 46 2.82 69 1.53
23 5.94 47 2.74 70 1.50
24 5.76
</TABLE>
80
<PAGE>
APPENDIX E
TABLE OF NET SINGLE PREMIUM FACTORS
Net Single Premiums ("NSP") Based On Insured's Age Last Birthday
Age NSP Age NSP Age NSP Age NSP
1 0.08481 26 0.18481 51 0.41049 76 0.74385
2 0.08727 27 0.19086 52 0.42261 77 0.74385
3 0.08988 28 0.19717 53 0.43493 78 0.76797
4 0.09262 29 0.20373 54 0.44742 79 0.77969
5 0.09550 30 0.21055 55 0.46007 80 0.79121
6 0.09853 31 0.21764 56 0.47289 81 0.80250
7 0.10173 32 0.22498 57 0.48586 82 0.81349
8 0.10510 33 0.23257 58 0.49902 83 0.82408
9 0.10863 34 0.24041 59 0.51236 84 0.83422
10 0.11231 35 0.24852 60 0.52587 85 0.84386
11 0.11614 36 0.25687 61 0.53952 86 0.85306
12 0.12008 37 0.26547 62 0.55330 87 0.86187
13 0.12409 38 0.27431 63 0.56714 88 0.87038
14 0.12815 39 0.28339 64 0.58101 89 0.87872
15 0.13225 40 0.29270 65 0.59487 90 0.88702
16 0.13638 41 0.30224 66 0.60872 91 0.89544
17 0.14056 42 0.31200 67 0.62257 92 0.90418
18 0.14480 43 0.32198 68 0.63643 93 0.91347
19 0.14916 44 0.33221 69 0.65031 94 0.92357
20 0.15364 45 0.34267 70 0.66420 95 0.93460
21 0.15829 46 0.35336 71 0.67804 96 0.94652
22 0.16313 47 0.36430 72 0.69176 97 0.95894
23 0.16819 48 0.37548 73 0.70526 98 0.97096
24 0.17348 49 0.38691 74 0.71847 99 0.98058
25 0.17902 50 0.39859 75 0.73133 100 1.00000
81
