SUPPLEMENT DATED OCTOBER 13, 1995 TO
PROSPECTUS DATED MAY 1, 1995 FOR
INDIVIDUAL SINGLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
ISSUED BY
INDEPENDENCE LIFE VARIABLE LIFE SEPARATE ACCOUNT
(formerly named Keyport America Variable Life Separate Account)
AND
INDEPENDENCE LIFE AND ANNUITY COMPANY
(formerly named Keyport America 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.
Effective July 13, 1995, Keyport America Life Insurance Company changed its name
to Independence Life and Annuity Company.
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SERVICE HOTLINE (800) 500-5512
Issued by: Independence Life and Annuity 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
Independence Life Service Office and Keyport Companies located at:
125 High Street, Boston, Massachusetts 02110-2712
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KEYPORT AMERICA LIFE INSURANCE COMPANY
Single Premium Variable Life Insurance Policies
Issued by
Keyport America Life Insurance Company
(Formerly Crown America Life Insurance Company)
This prospectus describes individual Single Premium Variable Life Insurance
Policies (the "Policies") offered by Keyport America Life Insurance Company
("Keyport America"), a stock life insurance company which is a wholly-owned
subsidiary of Keyport Life Insurance Company ("Keyport"). THE POLICIES CEASED
BEING AVAILABLE FOR PURCHASE IN DECEMBER, 1988.
Each Policy is designed to provide lifetime insurance protection on the insured
named in the Policy. Each Policy also provides for a net cash value while the
insured is living. After the "Right to Examine Policy" period, each Policyowner
may allocate the premium for his or her Policy to one or more of the available
investment Sub-Accounts of the Keyport America Variable Life Separate Account
("Variable Account"), with certain restrictions, to the fixed-rate option (the
General Account of Keyport America), or both, after certain deductions have been
made. The death benefit and cash values can vary based on investments made in
one or more Sub-Accounts of the Variable Account. A Policy's death benefit can
vary annually, depending on the net investment performance of the Sub-Accounts
to which the Policyowner allocates the Policy's premium. Keyport America
guarantees that a Policy's death benefit will never be less than a guaranteed
minimum amount, which is specified in the Policy, as long as there is no
outstanding policy loan. A Policy's cash value varies with net investment
performance as of each Valuation Day. There is no guaranteed minimum cash value.
Each Sub-Account of the Variable Account invests in the shares of one mutual
fund portfolio of the SteinRoe Variable Investment Trust ("SteinRoe Trust") or
of the Keyport Variable Investment Trust ("Keyport Trust"). Each portfolio of
the SteinRoe Trust uses the investment advisory services of Stein Roe & Farnham
Incorporated ("Stein Roe"). Each portfolio of the Keyport Trust uses the
investment advisory services of Keyport Advisory Services Corp. and sub-advisory
services of Colonial Management Associates, Inc. or Newport Fund Management Inc.
It may not be advantageous to replace existing insurance with a Variable Life
Insurance Policy. (See "Charges Deducted from the Premium" and Appendix B
- --"Calculation of Change in Variable Death Benefit".)
This prospectus generally describes only the portion of the Policy invested in
the Sub-Accounts of the Keyport America Variable Life Separate Account. For a
brief summary of the Fixed-Rate Option, see "The General Account".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY THE CURRENT PROSPECTUSES OF
STEINROE TRUST AND KEYPORT TRUST. THESE PROSPECTUSES SHOULD BE READ AND RETAINED
FOR FUTURE REFERENCE.
Executive Office: 125 High Street Mailing Address: Keyport America Service
Boston, MA 02110 Office
c/o Keyport Life Insurance
Company
125 High Street
Boston, MA 02110
The date of this prospectus is May 1, 1995.
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION TO POLICIES .............................................. 4
What is single premium variable life insurance?............... 4
Who are Keyport America and Keyport?.......................... 5
How is Keyport America regulated?............................. 5
Under what conditions are the Policies available?............. 5
What is the Guaranteed Minimum Death Benefit?................. 6
How does the death benefit vary?.............................. 6
How does the cash value vary?................................. 6
What is the loan provision, what loan interest rates are
available, and how does a policy loan affect the death benefit
and cash value?............................................... 7
How is the premium determined?................................ 7
What are the Sub-Accounts of the Variable Account?............ 7
What is the Fixed-Rate Option?................................ 8
What is the Policy's net premium?............................. 8
How are amounts allocated to each Sub-Account of the Variable
Account?...................................................... 9
What is the Policy's investment base?......................... 9
Are there charges against the Sub-Accounts of the Variable
Account and against the Eligible Funds?....................... 9
Is there a short-term cancellation right?..................... 10
Can a Policy be surrendered for its net cash value?........... 10
When are communications and payments deemed received at the
Keyport America Service Office?............................... 10
What is the tax treatment of cash value increases?........... 10
Is the death benefit excludable from gross income for tax
purposes?..................................................... 11
THE ISSUING COMPANY.................................................... 11
THE VARIABLE ACCOUNT................................................... 12
Investments of the Variable Account........................... 12
Investment Management......................................... 15
PRINCIPAL POLICY FEATURES.............................................. 16
Premiums...................................................... 16
Charges Deducted from the Premium............................. 17
Charges Against the Eligible Funds and the Sub-Accounts of the
Variable Account.............................................. 18
Guarantee of Premiums and Certain Charges..................... 19
The Investment Base........................................... 19
Actual Investment Return...................................... 19
Net Investment Performance.................................... 20
Death Benefit................................................. 20
Guaranteed Minimum Death Benefit.............................. 21
Variable Death Benefit........................................ 21
Cash Value of the Policy...................................... 22
Loan Provision................................................ 23
Additional Premium Payments to Increase the Guaranteed
Minimum Death Benefit ........................................ 24
THE GENERAL ACCOUNT - FIXED-RATE OPTION................................ 25
OTHER POLICY FEATURES.................................................. 26
Payment of Proceeds........................................... 26
Investment Option............................................. 26
Transfer Option............................................... 26
Group or Sponsored Arrangements............................... 27
Legal Considerations for Employers............................ 27
Payment Options............................................... 28
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Policyowner................................................... 28
Beneficiary................................................... 28
Assignments................................................... 29
DISTRIBUTION AGREEMENT AND OTHER CONTRACTUAL ARRANGEMENTS.............. 29
OTHER POLICIES ISSUED BY KEYPORT AMERICA............................... 29
LIMITS TO KEYPORT AMERICA'S RIGHT TO CHALLENGE THE POLICY.............. 29
Misstatement of Age or Sex.................................... 30
Suicide....................................................... 30
TAX CONSIDERATIONS..................................................... 30
Tax Status of the Policy...................................... 30
Tax Treatment of Policy Benefits.............................. 31
Charge for Insurance Company Income Taxes..................... 34
MANAGEMENT............................................................. 34
VOTING RIGHTS.......................................................... 35
RIGHTS RESERVED BY KEYPORT AMERICA..................................... 36
REPORTS................................................................ 36
LEGAL MATTERS.......................................................... 37
LEGAL PROCEEDINGS...................................................... 37
REGISTRATION STATEMENT................................................. 37
EXPERTS................................................................ 37
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES............ 39
APPENDIX B: CALCULATION OF CHANGE IN VARIABLE DEATH BENEFIT............ 47
APPENDIX C: HOW THE INVESTMENT BASE RELATES TO NET CASH VALUE.......... 48
APPENDIX D: GUARANTEED COST OF INSURANCE RATES......................... 49
FINANCIAL STATEMENTS................................................... 50
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THE PURPOSE OF THE POLICIES IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY NAMED IN A POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN ANY WAY
SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
You are urged to examine this prospectus carefully. Any variations from
information in the Prospectus, which may be required in certain states, are
contained in supplements to the Prospectus or in the individual policies
delivered in a particular state, as appropriate. Except as otherwise stated, the
discussion assumes the premium has been paid and there is no outstanding policy
loan.
The INTRODUCTION TO POLICIES will briefly describe Keyport America and the
Single Premium Variable Life Insurance Policies. More detailed information will
be found later in the prospectus.
INTRODUCTION TO POLICIES
What is single premium variable life insurance?
The single premium variable life insurance being offered by Keyport America is,
in many respects, similar to traditional "fixed-benefit" single premium whole
life insurance. In other respects, it is quite different.
The main similarities are:
--- The Policyowner pays a single premium for a Policy that
provides a death benefit which is payable to the beneficiary
upon the insured's death.
--- A minimum death benefit is guaranteed.
--- The Policy has a cash value that the Policyowner may obtain by
surrendering the Policy.
The main differences are:
--- The Policyowner may allocate the Policy's investment base to one or
more of the Sub-Accounts available under his Policy of the Keyport
America Variable Life Separate Account ("Variable Account"), to the
General Account, or both. The Sub-Accounts invest in shares of the
Eligible Funds of the SteinRoe Variable Investment Trust. These
Funds are: Cash Income Fund ("CIF"), Mortgage Securities Income
Fund ("MSIF"), Managed Income Fund ("MIF"), Managed Assets Fund
("MAF"), Strategic Managed Assets Fund ("SMAF"), Managed Growth
Stock Fund ("MGSF"), and Capital Appreciation Fund ("CAF"). The MIF
and SMAF Sub-Accounts are not available to receive transfers of
Policy value. The Sub-Accounts also invest in shares of the
Eligible Funds of the Keyport Variable Investment Trust. These
Funds are: Colonial-Keyport U.S. Government Fund ("CKUSGF"),
Colonial-Keyport Growth and Income Fund ("CKGIF"), Colonial-Keyport
Strategic Income Fund ("CKSIF"), Colonial-Keyport International Fund
for Growth ("CKIFG"), Colonial-Keyport U.S. Fund for Growth
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("CKUSFG"), Colonial-Keyport Utilities Fund ("CKUF") and Newport-
Keyport Tiger Fund ("NKTF"). The CKUSGF Sub-Account is not
available to receive transfers of Policy value.
--- The death benefit under a Policy can increase or decrease
annually depending on the investment performance of the
investment Sub-Accounts to which the Policy's investment base
is allocated; but the death benefit will never decrease below
the guaranteed minimum face amount of the Policy if there is
no outstanding policy loan.
--- The Policy offers the opportunity for appreciation of its net cash
value based upon investment results. The cash value may increase or
decrease as of each Valuation Day. When the premium is allocated to
the Sub-Accounts, it is possible, if investment results are
unfavorable, for the cash value to decrease to zero; the Policyowner
bears the total risk of decreases in the cash value, since no
minimum amount is guaranteed.
Who are Keyport America and Keyport?
Keyport America is a life insurance company incorporated in Rhode Island and
admitted in 49 states and the District of Columbia. It is a wholly-owned
subsidiary of Keyport Life Insurance Company, a Rhode Island insurance company
with its executive and administrative office at 125 High Street, Boston,
Massachusetts 02110 and its home office at 235 Promenade Street, Providence,
Rhode Island 02903. Keyport and Keyport America are both Liberty Financial
Companies and are ultimately controlled by Liberty Mutual Insurance Company of
Boston, Massachusetts, a multi-line insurance and financial service institution.
Prior to January 10, 1994, Keyport America's name was Crown America Life
Insurance Company.
How is Keyport America regulated?
Keyport America is subject to regulation and supervision by the Rhode Island
Insurance Commissioner. In addition, Keyport America is subject to the
applicable insurance laws and regulations of all jurisdictions in which it is
authorized to do business. Keyport America submits annual reports of its
operations and finances to insurance officials in jurisdictions in which it is
authorized to do business.
The Policy described in this prospectus has been filed with, and approved, where
required, by insurance officials in those jurisdictions where it is sold.
Under what conditions are the Policies available?
A Policy may be issued to an insured from the ages of 0 through 75. Individual
consideration may be given to insureds at higher ages. All persons insured must
meet certain health and other criteria. Non-smokers who meet preferred
underwriting requirements and females may have lower cost of insurance charges
deducted from their cash values than will males insured in a smoker
classification. (See "How does the death benefit vary?", "Variable Death
Benefit", "Cash Value of the Policy" and Appendix D --- "Guaranteed Cost of
Insurance Rates".) A higher premium, relative to those in a standard
classification, is charged for a Policy in a substandard risk classification.
The minimum basic single premium (after deducting substandard extra premiums)
that will be accepted is $5,000. In certain group or sponsored arrangements, the
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minimum single premium requirement may be reduced. (See "Group or Sponsored
Arrangements".)
What is the Guaranteed Minimum Death Benefit?
Keyport America guarantees that the death benefit payable under a Policy will
never be less than its Guaranteed Minimum Death Benefit regardless of the
investment performance of the Variable Account, as long as there is no
outstanding policy loan. (See "Guaranteed Minimum Death Benefit" and "Loan
Provision".)
It is possible for the Policyowner to increase the Guaranteed Minimum Death
Benefit of an in-force Policy by making an additional payment to Keyport
America. In certain instances, however, increases to the Guaranteed Minimum
Death Benefit may change the tax status of the Policy. (See "Tax
Considerations"). This increase is discussed in more detail later. (See
"Additional Premium Payments to increase the Guaranteed Minimum Death Benefit".)
Unless otherwise noted, the discussion of the Policy in this prospectus will
assume that there have been no additional premium payments and, therefore, no
increase in the Guaranteed Minimum Death Benefit.
How does the death benefit vary?
The death benefit payable with respect to a particular Policy is the greater of
the Guaranteed Minimum Death Benefit and the Variable Death Benefit, subject to
certain adjustments. (See "Death Benefit" and "Variable Death Benefit".)
The Variable Death Benefit can increase or decrease annually, depending on the
investment performance of the Sub-Account or Sub-Accounts of the Variable
Account in which the Policyowner selected to have the investment base invested
(the "Policy's Sub-Accounts").
If the Policy's net investment performance is more than 4% per year, the
Variable Death Benefit will be greater than the Guaranteed Minimum Death Benefit
and if less than 4% per year, the Variable Death Benefit will generally be
smaller than the Guaranteed Minimum Death Benefit. (See "Net Investment
Performance".) Any increase or decrease in the Variable Death Benefit will not
bear a dollar-for-dollar relationship to the Policy's net investment
performance. (See Appendix A --- "Illustrations of Death Benefits and Cash
Values", Appendix B --- "Calculation of Change in Variable Death Benefit".) Any
change in the Variable Death Benefit will, in most circumstances, be more
favorable to the owner of a non-smoker or a female insured's policy than for a
comparable male insured's smoker policy.
Increases and decreases in the Variable Death Benefit are cumulative, so they
carry into each succeeding policy year. Therefore, if the Variable Death Benefit
is below the Guaranteed Minimum Death Benefit, it will not exceed the Guaranteed
Minimum Death Benefit until the Policy has net investment performance at an
annual rate of more than 4% for a sufficient period of time to more than offset
the amount by which the Guaranteed Minimum Death Benefit exceeds the Variable
Death Benefit. The death benefit may be automatically increased in certain years
in order to maintain the tax status of the Policy. (See "Tax Considerations".)
How does the cash value vary?
A Policy's cash value, like its Variable Death Benefit, can increase or decrease
depending on the Policy's net investment performance. Any increase or decrease
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in the cash value will not bear a dollar-for-dollar relationship to the Policy's
net investment performance because the cash value also reflects the cost of
insurance protection (see "Charges Against the Eligible Funds and the
Sub-Accounts of the Variable Accounts"). Any change in the cash value will, in
most circumstances, be more favorable to the owner of a non-smoker or a female
insured's policy than for a comparable male insured's smoker policy. The cash
value will be subject to variation as of each Valuation Day. Although Keyport
America guarantees a minimum death benefit, when the premium is allocated to the
Sub-Accounts, Keyport America does not guarantee a minimum amount of cash value.
Accordingly, the Policyowner will bear the entire investment risk with respect
to the amount of the cash value. (See "Cash Value of the Policy", Appendix A,
Appendix D.)
What is the loan provision, what loan interest rates are available, and how does
a policy loan affect the death benefit and cash value?
The Policyowner may obtain a loan of up to 75% in the first year and 90% in
later years of the Policy's cash value, adjusted in the manner described in
"Loan Provision". Interest accrues daily at an annual rate of 4.7%, is due on
policy anniversaries and is deducted from the Policy's cash value if not paid
when due. A policy loan may be repaid in whole or in part at any time. (See
"Loan Provision".)
While a policy loan is outstanding, an amount equal to the loan is removed from
the Policy's Sub-Accounts and from the fixed-rate option. Loan amounts are
credited with interest at an annual rate of 4%, meaning that amounts borrowed
will not contribute to any possible increase or decrease in the Policy's
Variable Death Benefit. Cash value is also affected because the 4% interest
credited can be different than the net investment performance of the Policy's
Sub-Accounts or the interest credited to amounts held in the fixed-rate option.
Thus, the future net cash values and Variable Death Benefits can be permanently
affected by any policy loan, whether or not the policy loan is repaid in whole
or in part. Also, the death benefit and cash value otherwise payable are reduced
by the amount of any outstanding policy loan and interest accrued thereon. (See
"Loan Provision".)
It should be noted, however, that a loan taken from, or secured by, a Policy may
have federal income tax consequences. (See "Tax Considerations".)
How is the premium determined?
In return for insurance benefits and other policy rights, the owner makes a
single premium payment. The premium amount depends on a Policy's face amount and
the insured's sex, age, and risk classification.
The minimum basic single premium that will be accepted is $5,000. In certain
group or sponsored arrangements, the minimum single premium requirement may be
reduced. (See "Group or Sponsored Arrangements".)
What are the Sub-Accounts of the Variable Account?
The Keyport America Variable Account has 14 Sub-Accounts. Each Sub-Account will
invest only in the shares of a single mutual fund. (See "Investments of the
Variable Account".)
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The Sub-Accounts in the Variable Account and the corresponding Eligible Funds
are as follows:
Eligible Funds of SteinRoe Variable
Investment Trust Sub-Accounts
Managed Income Fund ("MIF") MIF Sub-Account*
Cash Income Fund ("CIF") CIF Sub-Account
Mortgage Securities Income Fund ("MSIF") MSIF Sub-Account
Managed Assets Fund ("MAF") MAF Sub-Account
Strategic Managed Assets Fund ("SMAF") SMAF Sub-Account*
Managed Growth Stock Fund ("MGSF") MGSF Sub-Account
Capital Appreciation Fund ("CAF") CAF Sub-Account
Eligible Funds of Keyport Variable Sub-Accounts
Investment Trust
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 Strategic Income Fund ("CKSIF") CKSIF Sub-Account
Colonial-Keyport U.S. Fund for Growth ("CKUSFG") CKUSFG Sub-Account
Colonial-Keyport International Fund for Growth ("CKIFG") CKIFG Sub-Account
Newport-Keyport Tiger Fund ("NKTF") NKTF Sub-Account
* The MIF, SMAF and CKUSGF Sub-Accounts are not available to receive transfers
of Policy value.
(Note - Other Sub-Accounts and Eligible Funds may be added from time to time.)
What is the Fixed-Rate Option?
A Policyowner may allocate or transfer all or part of his or her investment base
to a fixed-rate option funded by Keyport America's General Account. The
fixed-rate option provides for the crediting of interest on the amount invested
under this option at a periodically declared rate that lasts until the next
policy anniversary. The interest rate declared is at Keyport America's sole
discretion, but may not be less than an effective annual rate of 4%. (See "The
General Account - Fixed-Rate Option".)
What is the Policy's net premium?
The Policy's "net premium" will equal the basic single premium (the single
premium payable less any extra premiums to cover substandard risk
classification) less the policy loading consisting of:
--- a policy administration charge of $200;
--- an additional administration charge which will not exceed $500;
--- a charge for sales loads which will not exceed 6.7% of the basic
single premium;
--- a risk charge of 1.5% of the basic single premium; and
--- state premium tax charge of 2.25% of the basic single premium.
(See "Charges Deducted from the Premium".)
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How are amounts allocated to each Sub-Account of the Variable Account?
On the policy date, which is either the date the application is signed (the
later of Part I or Part II, if required) or the date the premium is received, if
later, the Policy's investment base is automatically allocated to the Money
Market Sub-Account. (This Money Market Sub-Account no longer exists but was in
existence when the automatic allocation occurred under all the Policies.) After
the Right To Examine Policy period, the investment base, which will reflect any
net investment experience and charges imposed against assets in the Variable
Account during that period, may be allocated at the choice of the Policyowner
among the available Sub-Accounts and the fixed-rate option. The percentage
allocated to any one Sub-Account may not be less than 10% of the investment
base, and must be a whole number. A Policyowner may redistribute the investment
base among the Sub-Accounts available under his Policy and from these
Sub-Accounts to the fixed-rate option up to twelve times in a policy year
without the consent of Keyport America. The greater of 50% of the investment
base in the fixed-rate option on the day of the transfer and $10,000 may be
transferred from the fixed-rate option to the Sub-Accounts available under his
Policy once each policy year, within sixty days following the policy
anniversary. (See "Investment Option" and "Transfer Option".)
What is the Policy's investment base?
The investment base of a Policy on the policy date is the net premium plus the
policy loading. At the beginning of the second policy year and continuing
through the eleventh, Keyport America will reduce the Policy's investment base
by 10% of the policy loading. Thus, the amount of the policy loading originally
deducted from the single premium but added to the initial investment base will
be subtracted from a Policy's investment base in equal installments at the
beginning of the second through the eleventh policy years.
Are there charges against the Sub-Accounts of the Variable Account and against
the Eligible Funds?
Keyport America charges the Sub-Accounts of the Variable Account for the
mortality and expense risks Keyport America assumes. The charge is made daily at
an effective annual rate of .60% of the value of each Sub-Account's assets
attributable to the Policy. Keyport America also makes a charge for the cost of
insurance with respect to each Policy.
Charges for investment advisory and management services are accrued daily for
each Eligible Fund at the following annual percentage rate of the average daily
net asset value of the Fund: .50% - Cash Income Fund; .55% - Mortgage Securities
Income Fund and Managed Income Fund; .60% - Managed Assets Fund and Colonial-
Keyport U.S. Government Fund; .65% - Managed Growth Stock Fund, Capital
Appreciation Fund, Colonial-Keyport Growth and Income Fund, Colonial-Keyport
Strategic Income Fund and Colonial-Keyport Utilities Fund; .70% - Strategic
Managed Assets Fund; .80% - Colonial-Keyport U.S. Fund for Growth; and .90% -
Colonial-Keyport International Fund for Growth and Newport-Keyport Tiger Fund.
Other expenses incurred by each of the Eligible Funds are also deducted from the
particular Fund. (See the prospectuses for SteinRoe Trust and Keyport Trust.)
Mortality and expense risk charges and investment advisory expenses are not
deducted from the amounts held in the fixed-rate option. Keyport America takes
this into consideration when determining the interest rate which will be
credited to amounts invested under that option.
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Currently, no charge is made against Keyport America's Variable Account for
company federal income taxes that may be attributable to variable life insurance
operations. Keyport America may incur state and local taxes (in addition to
premium taxes) in several states, which taxes will be charged against the
Variable Account. (See "Charge for Insurance Company's Income Taxes".)
Is there a short-term cancellation right?
The Policyowner may cancel the Policy within 45 days after the date Part I of
the application is signed or within 10 days after receipt of the Policy by the
Policyowner, whichever is later. The Policy may be returned to Keyport America
or its Agent. Immediately upon return, the Policy shall be deemed void from the
beginning. Within 7 days after receipt of the returned Policy at Keyport
America's Executive Office, Keyport America will refund any premium paid; except
that if permitted by law we will refund any premium paid plus or minus any
separate account investment experience as of the date the Policy is received by
us or our Agent. This period is known as the "Right To Examine Policy". (See
"When are communications and payments deemed received at the Keyport America
Service Office?".)
Can a Policy be surrendered for its net cash value?
The Policy can be surrendered for its net cash value at anytime after the
short-term cancellation right. The net cash value is the Policyowner's share of
the net assets in the Sub-Accounts plus any amounts held under the fixed-rate
option less any policy loan balance.
The Policy's net cash value on the Policy date and during the first ten policy
years will be less than the investment base by the amount of unrecovered policy
loading. If the Policy is surrendered during the first Policy year, a refund of
sales load equal to 4% of the basic single premium will also be paid. The
investment base will equal the net cash value only on Policy anniversaries after
the tenth.
When are communications and payments deemed received at the Keyport America
Service Office?
A Policyowner's request for a particular transaction (other than a policy loan)
or a Policyowner's submission of payments or other items (for example, a
returned Policy) is deemed received at Keyport America's Service Office on any
day when the New York Stock Exchange is open if received there before 4:00 p.m.
New York City time on such day. A request for a policy loan is deemed received
at Keyport America's Service Office on a day when the New York Stock Exchange is
open if received at Keyport America's Service Office before 4:00 p.m. New York
City time on such day. However, if any such item is received at or after the
above specified times, the request will be deemed received as of the next such
day.
What is the tax treatment of cash value increases?
With respect to a Policy entered into before October 21, 1988, or entered into
after October 20, 1988 that is issued on the basis of a standard rate class,
Keyport America believes such a Policy should meet the definition of a life
insurance contract for Federal income tax purposes. As for a Policy entered into
after October 20, 1988 that is issued on a substandard basis, it is not clear
whether or not such a Policy would qualify as a life insurance contract for
Federal tax purposes. Assuming that a Policy qualifies as a life insurance
contract for Federal income tax purposes, the cash value under a Policy is
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subject to the same Federal income tax treatment as the cash value under fixed
benefit life insurance. Therefore, the Policyowner will not be deemed to be in
constructive receipt of the cash value, including any yearly increases, unless
and until there is an actual distribution from the Policy. Generally, for
Policies issued on or after June 21, 1988, all policy loans, surrenders, and
maturity benefits are treated first as distributions of taxable income and then
as a return of the basis or investment in the Policy. In addition, prior to age
59 1/2 such distributions generally are subject to a 10% penalty tax.
(Generally, different rules apply to Policies entered into before June 21,
1988.)
See "Tax Considerations".
Is the death benefit excludable from gross income for tax purposes?
Assuming that a Policy qualifies as a life insurance contract for Federal income
tax purposes, the death benefit under a Policy is subject to the same Federal
income tax treatment as proceeds of fixed-benefit life insurance. Therefore, the
death benefit will be fully excludable from gross income of the beneficiary
under Section 101(a) (1) of the Internal Revenue Code of 1986, as amended. (See
"Tax Considerations".)
THE ISSUING COMPANY
Keyport America was incorporated under Kentucky law in October 1945 and was re-
domiciled in Michigan, effective December 28, 1989. In December, 1993 the
company was re-domiciled in Rhode Island. The company is authorized to transact
life insurance business in all states and the District of Columbia except New
York. Keyport America has obtained licensing and approval to sell the policies
in all United States jurisdictions where variable life insurance may be sold
except New York and Maine. The mailing address of Keyport America is Keyport
America Service Office, c/o Keyport Life Insurance Company, 125 High Street,
Boston, MA 02110. The toll free telephone number is 1-800-500-5512.
Under the terms of the agreement relating to Keyport's purchase of Keyport
America, "Crown" was eliminated from the Crown America name on January 10, 1994.
In connection with state regulatory approvals of the purchase of Keyport
America, Keyport agreed with its state of domicile, Rhode Island, and Keyport
America agreed with its state of domicile, Michigan, to change Keyport America's
state of domicile from Michigan to Rhode Island.
Keyport, Keyport America's parent company, was founded in 1957 as a stock life
insurance company. Prior to January 1, 1991, Keyport's name was Keystone
Provident Life Insurance Company.
Keyport and Keyport America are both Liberty Financial Companies. Keyport
America is ultimately controlled by Liberty Mutual Insurance Company of Boston,
a multi-line insurance and financial services institution.
Keyport America is subject to regulation and supervision by the Rhode Island
Insurance Department. In addition, Keyport America is subject to the applicable
insurance laws and regulations of all jurisdictions in which it is authorized to
do business. Keyport America submits annual reports of its operations and
finances to insurance officials in jurisdictions in which it does business.
The Policy described in this prospectus has been filed with, and approved, where
required by insurance officials in those jurisdictions where it is sold.
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THE VARIABLE ACCOUNT
The Variable Account was established as a separate investment account of Keyport
America on June 29, 1984 by Keyport America's Board of Directors in accordance
with applicable insurance law. The Variable Account is registered with the
Securities and Exchange Commission (the "SEC") under the Investment Company Act
of 1940 as a unit investment trust. A unit investment trust is a type of
investment company which invests its assets in specified securities, such as the
shares of one or more investment companies, rather than in a portfolio of
unspecified securities. Registration under the Investment Company Act of 1940
does not involve supervision by the SEC of the management or investment
practices or policies of the Variable Account or of Keyport America. Under Rhode
Island law, however, both Keyport America and the Variable Account are subject
to regulation by the Rhode Island Insurance Commissioner. Keyport America and
its variable life insurance operations, including the investment of assets held
by the Variable Account, are also subject to the insurance laws and regulations
of all jurisdictions in which Keyport America is authorized to do business.
Although the assets of the Variable Account are owned by Keyport America, that
portion of the Variable Account assets equal to the reserves and other
liabilities of the Variable Account may not be used to satisfy any obligations
that may arise out of any other business Keyport America may conduct. But
Keyport America may transfer to its General Account assets which exceed the
reserves and other liabilities of the Variable Account. Before making any such
transfer, Keyport America will consider any possible adverse impact the transfer
might have on the Variable Account.
Income and realized and unrealized capital gains and losses of the Variable
Account are credited to the Variable Account without regard to any of Keyport
America's other income or realized and unrealized capital gains and losses.
Keyport America may accumulate in the Variable Account the charge for expense
and mortality risks, mortality gains and losses and investment results
applicable to those assets that are in excess of net assets supporting the
Policies.
Investments of the Variable Account
The Eligible Funds which are permissible investments of the Variable Account are
the separate funds of the SteinRoe Variable Investment Trust, the separate funds
of the Keyport Variable Investment Trust, and any other mutual funds with which
Keyport America 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.
On each valuation day the Variable Account purchases or redeems shares of the
Eligible Fund portfolios based on, among other things, the amount of premiums
invested in the Variable Account, transfers among Sub-Accounts of the Variable
Account, policy loans, policy loan repayments, surrender payments and death
benefit payments to be effected on that day. Such purchases and redemptions are
effected at the net asset value per share for each Eligible Fund portfolio
determined as of 4:00 p.m. New York City time, on that same day.
The investment objectives of the 14 Eligible Funds currently available through
each corresponding Sub-Account are set forth below. There is, of course, no
assurance that these objectives will be met. 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.
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An investor should read the prospectus carefully before selecting a Fund for
investing. The prospectus is available, at no charge, by writing Keyport America
at the mailing address shown on Page 1 or by calling 1-800-500-5512.
Since the Eligible Funds of SteinRoe Trust and Keyport Trust are available to
registered separate accounts of Keyport America and its affiliates offering
variable annuity and variable life products, there is a possibility that an
irreconcilable material conflict may arise between the interests of the Variable
Account and one or more of the other separate accounts investing in the Eligible
Funds of the Trusts. The Boards of Trustees of the two Trusts intend to monitor
events to identify any irreconcilable material conflict. In the even of an
irreconcilable material conflict, Keyport America will take any necessary steps,
including removing the assets of the Variable Account from one or more Eligible
Funds, to resolve the matter. See the Trust prospectuses under the caption "The
Trust" for greater details.
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 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 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 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 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
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speculative with respect to financial strength and 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 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 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 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 Sub-Account is no longer
available to receive transfers of Policy value.
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 the judgement of Colonial Management Associates,
Inc. ("Colonial"), 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 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 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 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 seeks long-term capital 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
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total assets in U.S. common stocks and up to 10% in American Depositary 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 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 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".
Investment Management
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 America. Stein Roe and its predecessor have provided
investment advisory and administrative services since 1932. Charges for
investment advisory services are accrued daily from each Fund of the SteinRoe
Trust.
Keyport Advisory Services Corp., an affiliate of Keyport America, acts as
investment adviser to the Keyport Trust and its Eligible Funds. Pursuant to
sub-advisory agreements, Colonial Management Associates, Inc., an affiliate of
Keyport America, serves as sub-adviser for the Eligible Funds (other than
Newport-Keyport Tiger Fund) and Newport Fund Management, Inc., an affiliate of
Keyport America, serves as sub-adviser for the Newport-Keyport Tiger Fund.
Charges for investment advisory expenses are accrued daily from each Fund of the
Keyport Trust.
Charges for investment advisory and management services are accrued daily for
each Eligible Fund at the following annual percentage rate of the average daily
net asset value of the Fund: .50% - Cash Income Fund; .55% - Mortgage Securities
Income Fund and Managed Income Fund; .60% - Managed Assets Fund and Colonial-
Keyport U.S. Government Fund; .65% - Managed Growth Stock Fund, Capital
Appreciation Fund, Colonial-Keyport Growth and Income Fund, Colonial-Keyport
Strategic Income Fund, and Colonial-Keyport Utilities Fund; .70% - Strategic
Managed Assets Fund, .80% - Colonial-Keyport U.S. Fund for Growth; .90% -
Colonial-Keyport International Fund for Growth and Newport-Keyport Tiger Fund.
Other expenses incurred by each of the Eligible Funds are also deducted from the
particular Fund. (See the prospectuses for SteinRoe Trust and Keyport Trust.)
For a discussion of the other provisions of the investment advisory and
sub-advisory agreements, see the Trust prospectuses.
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PRINCIPAL POLICY FEATURES
The benefits payable under the variable life insurance policies sold by Keyport
America are funded by Keyport America's Variable Account and by Keyport
America's General Account to the extent that amounts have been allocated to the
fixed-rate option. The premium paid, net of certain deductions, is allocated to
one or more of the Variable Account's Sub-Accounts available under the Policy
each of which invests, in turn, in shares of the SteinRoe Trust, the Keyport
Trust or a portion may be allocated to the fixed-rate option funded by Keyport
America's General Account. Policies are non-participating and have no right to
share in Keyport America's earnings or surplus.
Premiums
Payment of the single premium is required to put a Policy in effect. The minimum
single premium is $5,000. The amount of the single premium is based on the age
and sex of the insured. For a Policy in a substandard risk classification, a
higher single premium must be paid. In certain group or sponsored arrangements,
the minimum single premium requirement may be reduced. (See "Group or Sponsored
Arrangements".)
The basic single premium is the single premium payable less any extra premium to
cover substandard risk classification. The Policy's net premium, which is
allocated to the Variable Account or the fixed-rate option, is the basic single
premium less the policy loading. (See "Charges Deducted From The Premium".) The
difference between the basic single premium and the net premium (the "Policy
Loading") also is allocated to the Variable Account or the fixed-rate option.
Regardless of the Actual Investment Return, the full amount of the policy
loading is subtracted from the investment base in equal installments at the
beginning of the second through the eleventh policy years.
Illustrations of Premium Rates. The following table illustrates Guaranteed
Minimum Death Benefits for a single premium for a male in a standard risk
classification.
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$5,000 SINGLE PREMIUM POLICY
Guaranteed Minimum
Male Age at Issue Death Benefit
----------------- ------------------
5 $44,135
45 $12,361
55 $ 9,213
$10,000 SINGLE PREMIUM POLICY
Guaranteed Minimum
Male Age at Issue Death Benefit
----------------- ------------------
5 $90,333
45 $25,301
55 $18,857
Charges Deducted from the Premium
Certain deductions are made from the basic single premium to arrive at a net
premium for a Policy. These deductions are called the policy loading and are as
follows:
Policy Administrative Charge. The Policy administrative charge is $200 and
covers administrative expenses which include: (i) processing claims, paying net
cash values upon surrender and making Policy changes; (ii) record keeping; (iii)
communication with Policyowners; and (iv) other expenses, such as communication
with agents. This charge has been set at a level that will recover no more than
the actual costs associated with administering the Policy.
Additional Administrative Charge. Keyport America makes an additional
administrative charge which varies by premium size but will not exceed $500.
This charge is 1% of the basic single premium in excess of $20,000. It covers
the cost of: (i) processing applications; (ii) conducting medical examinations;
(iii) establishing Policy records; and (iv) determining insurability and
assigning the insured to a risk classification. This charge has been set at a
level that will recover no more than the actual costs associated with
administering a Policy subject to this charge.
Sales Charge. The charge for sales load made by Keyport America will not be
greater than 6.7% of the basic single premium payment. The amount of the sales
charge in a policy year is not necessarily related to Keyport America's actual
sales expenses for that year. To the extent sales expenses are not covered by
the sales charge, they will be paid from surplus and other funds of Keyport
America, including any profit derived from the mortality and expense risk
charge.
Risk Charge. Keyport America charges 1.5% of the basic single premium to provide
for the possibility that the insured will die at a time when the Variable Death
Benefit would be less than the Guaranteed Minimum Death Benefit of the Policy.
State Premium Tax Charge. Keyport America deducts 2.25% of the basic single
premium to cover state premium taxes. These taxes vary from state-to-state and
the 2.25% rate is an average.
Illustration of Net Premium. The following table shows basic single Premiums for
a standard risk policy and the corresponding net premiums.
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__________________________________________________________________
Basic Single Premium Net Premium
-------------------- -----------
$ 5,000 $ 4,277.50
$ 50,000 $44,275.00
$100,000 $88,850.00
__________________________________________________________________
Timing of Deduction of Charges. As discussed above, the charges deducted from
the basic single premium (the "Policy Loading") are allocated to the Variable
Account and the fixed-rate option and become part of the Policy's investment
base. At the beginning of the second policy year and continuing through the
eleventh, the policy loading will be removed from the Policy's investment base
in equal installments.
Charges Against the Eligible Funds and the Sub-Accounts of the Variable Accounts
Investment Advisory Charge. Charges for investment advisory expenses and certain
other costs are deducted from the assets of the Eligible Funds of the Variable
Accounts. (See "Investment Management" and Appendix A.)
Mortality and Expense Risk Charge. Keyport America charges the Sub-Accounts of
the Variable Account for the mortality and expense risks Keyport America
assumes. The charge is made daily at an effective annual rate of .60% of the
value of each Sub-Account's assets that are attributable to a Policy. The
mortality risk Keyport America assumes is that insureds may live for shorter
periods of time than Keyport America estimated. The expense risk Keyport America
assumes is that Keyport America's costs of issuing and administering Policies
may be more than Keyport America estimated.
If all the money Keyport America collected from this charge is not needed to
cover death benefits and expenses, the money will be contributed to Keyport
America's general assets which may result in a profit. Conversely, even if the
money Keyport America collects is insufficient, Keyport America will provide for
all death benefits and expenses, which may result in a loss to Keyport America.
Cost of Insurance Charge. The cost of providing insurance protection for a
Policy is deducted annually on the policy anniversary. The cost of insurance
charges are calculated by multiplying the average monthly difference between the
actual death benefit payable and the cash value times the cost of insurance rate
at the time of deduction. The cost of insurance rates used in this calculation
are guaranteed never to be greater than the guaranteed cost of insurance rates
shown in the Policy which are based on the 1980 Commissioner's Standard Ordinary
Mortality Tables. The guaranteed cost of insurance rates vary annually and are
based on the age and sex of the insured. Currently, actual cost of insurance
rates are less than the guaranteed rates, and actual rates for non-smoker
Policies are less than rates for smoker Policies. If the actual cost of
insurance rate used in the calculation of the cost of insurance charge is less
than the guaranteed cost of insurance rate, the benefits of the Policy will be
greater than if the guaranteed cost of insurance rates were used. (See "Variable
Death Benefit".) (See Appendix C and Appendix D.)
In the future, if appropriate, Keyport America may impose a charge for certain
income taxes incurred in connection with the Variable Account. (See "Charge for
Insurance Company Income Taxes".)
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Timing of Deduction of Charges. As discussed above, the Investment Advisory
Charge and Mortality and Expense Risk Charge are deducted from the Eligible
Funds and the Sub-Accounts on a daily basis. The Cost of Insurance Charge,
however, is deducted on each policy anniversary.
Guarantee of Premiums and Certain Charges
Keyport America guarantees, and may not increase, charges deducted from premiums
and charges to the Sub-Accounts of the Variable Account for mortality and
expense risks. Charges for providing insurance protection will never be greater
than the maximum costs shown in the Policy which are based on the 1980
Commissioners Standard Ordinary Mortality Tables.
The Investment Base
The investment base is the amount that a Policy provides for investment at any
time. It is the sum of the investment bases in each Sub-Account of the Variable
Account and the investment base in the fixed-rate option. The policyowner
decides how to allocate the investment base, between the Sub-Accounts and the
fixed-rate option, at the time the Policy is delivered. The investment base may
be redistributed among the Sub-Accounts available under the policy or
transferred to the fixed-rate option up to twelve times in a policy year without
charge while any additional transfers in a policy year are subject to a $25.00
per transfer administration charge. This administrative charge has been set at a
level to recover no more than the actual cost associated with these additional
transfers. The charge is deducted from the investment base of each Sub-Account
from which the transfers are being made, in proportion to the amount being
transferred from each Sub-Account. The greater of 50% of the investment base in
the fixed-rate option on the day of the transfer and $10,000 transferred from
the fixed-rate option to the Sub-Accounts available under the Policy once each
policy year, within sixty days following the policy anniversary.
On the policy date, the investment base is the net premium plus the policy
loading. This amount will automatically be allocated to the Money Market
Sub-Account on the policy date. After the Right To Examine Policy period, the
investment base will be allocated to the Sub-Accounts and the fixed-rate option
according to the allocation elected by the Policyowner.
At the beginning of the second policy year and continuing through the eleventh,
Keyport America will reduce the Policy's investment base by 10% of the policy
loading. Thus, the amount of the policy loading originally deducted from the
single premium but added to the initial investment base will be subtracted from
a Policy's investment base in equal installments at the beginning of the second
through eleventh policy years. The amount deducted from each Sub-Account and the
fixed-rate option will be in proportion to the investment base in each
Sub-Account and the fixed-rate option as of the date of the deduction.
On each Valuation Day during a policy year, the investment base allocated to any
particular Sub-Account will be adjusted to reflect the investment experience of
that Sub-Account. (See "Actual Investment Return" and "Net Investment
Performance".)
Actual Investment Return
A Policy's Actual Investment Return is the aggregate rate of return of the
Policy reflecting the proportion of the investment base allocated to each
Sub-Account and the fixed-rate option. It reflects the investment experience of
each
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designated Sub-Account during a policy year and interest credited to amounts in
the fixed-rate option.
A Policy's Actual Investment Return is determined on each policy anniversary.
The investment experience of a Sub-Account is determined as of each day the New
York Stock Exchange is open for trading ("Valuation Day"). This calculation is
made as of 4:00 p.m. New York City time.
The investment experience of a Sub-Account reflects increases or decreases in
the net asset value of the underlying Eligible Fund's shares, any charges
against the assets in each Sub-Account and any dividend or capital gains
distribution declared by the Fund. Such dividends and distributions will be
re-invested in Fund shares and will thereby affect subsequent investment
experience. Charges against the Policy's Sub-Accounts initially will be made
only for the mortality and expense risks Keyport America assumes. In the future,
Keyport America will also impose a charge against the Sub-Accounts for income
taxes to the extent that they are attributable to the Account. (See "Charges
Against the Eligible Funds and the Sub-Accounts of the Variable Account" and
"Charge for Insurance Company's Income Taxes".)
The effect on the Actual Investment Return of the Policy of including the policy
loading in the investment base is to create a greater increase in benefits if
the Actual Investment Return is greater than zero, and to create a greater
decrease in benefits if the Actual Investment Return is less than zero, than if
the policy loading were not included in the investment base. Keyport America
assesses the mortality and expense risk charge against the investment base
including policy loading in each Sub-Account.
Net Investment Performance
The determination of the net investment performance for a Policy, which is the
dollar amount used to calculate the Variable Death Benefit, is based upon a
Policy's Actual Investment Return.
The determination of the net investment performance for a Policy starts on the
first day of each policy year and ends on the last day of the same policy year.
The net investment performance for a Policy is the Policy's Actual Investment
Return multiplied by the investment base on the first day of the policy year.
Death Benefit
Subject to the adjustments referred to below, the death benefit will equal the
greatest of the Variable Death Benefit as of the last policy anniversary, the
Guaranteed Minimum Death Benefit, and the death benefit calculated as of the
date of death of the insured. Whether a Policy's Variable Death Benefit is
higher than the Guaranteed Minimum Death Benefit depends on the Policy's net
investment performance. (See Appendix A.) The death benefit calculated as of the
date of death is calculated in the same manner as a Variable Death Benefit, thus
reflecting the Policy's net investment performance from the last policy
anniversary to the date of death.
The amount of death benefit actually paid to the insured's beneficiary will be
reduced by any outstanding policy loan plus accrued interest. The death benefit
will reflect any adjustments necessary as a result of misstatement of the
insured's age or sex made in the application for insurance or the insured's
suicide within two years from the Policy's date of issue (or less as required by
the applicable state law). (See "Misstatement of Age or Sex" and "Suicide".)
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Interest will be paid from the date of death to the date the death benefit is
paid at the annual rate of not less than 3.5%, as determined by Keyport America
from time to time, taking into consideration Keyport America's General Account
investment experience and other economic factors. (See "Payment Options" and
"Payment of Proceeds".)
Guaranteed Minimum Death Benefit
The Guaranteed Minimum Death Benefit depends upon the issue age and sex of the
insured and is specified in the Policy. It will not vary with the investment
performance of the Policy's Sub-Accounts or participation in the fixed-rate
option.
Variable Death Benefit
The Variable Death Benefit reflects all past net investment performance. A
Policy's Variable Death Benefit is determined annually as of the policy
anniversary. Once determined, the Variable Death Benefit for a Policy remains
the same until the following policy anniversary. The Variable Death Benefit will
increase if the net investment performance is greater than 4% per year, and
generally will decrease if the net investment performance is less than 4% per
year. The amount by which the Variable Death Benefit will increase or decrease
for any year is the amount of paid-up life insurance which the excess or
shortfall in net investment performance over a net investment performance based
on 4% per year would purchase at net single premium rates described in the
Policy for the insured's age and sex. (See Appendix B.) The death benefit may be
automatically increased in certain years in order to maintain the tax status of
the Policy. (See "Tax Considerations".)
The Variable Death Benefit will be greater than otherwise calculated if the cost
of insurance charge deducted from the cash value is calculated using current
cost of insurance rates which are less than the guaranteed cost of insurance
rates. The amount by which the Variable Death Benefit will increase is the
amount of paid-up life insurance which the excess of the cost of insurance based
on the guaranteed cost of insurance rates over the actual cost of insurance
deducted would purchase at net single premium rates described in the Policy for
the insured's age and sex. (See Appendix B.)
The Variable Death Benefit for a Policy is cumulative. Increases and decreases
in the Variable Death Benefit are carried into each succeeding Policy year. The
Variable Death Benefit for a Policy can be higher or lower than the Guaranteed
Minimum Death Benefit. If the Variable Death Benefit is higher than the
Guaranteed Minimum Death Benefit, subsequent net investment performance on the
Policy's investment base at annual rates in excess of 4% will produce a larger
Variable Death Benefit. If the Variable Death Benefit is lower than the
Guaranteed Minimum Death Benefit, subsequent net investment performance on the
Policy's investment base at annual rates in excess of 4% must, in most cases,
first offset the amount by which the Variable Death Benefit is lower than the
Guaranteed Minimum Death Benefit; the Variable Death Benefit will then become
higher than the Guaranteed Minimum Death Benefit if the Policy's investment base
experience further subsequent net investment performance at annual rates in
excess of 4%.
Example: Using the Policy illustrated on page 48, assume a hypothetical constant
gross annual rate of return for the Policy's investment base of 0% for the first
5 policy years. This results in a Variable Death Benefit below the Guaranteed
Minimum Death Benefit. Net investment performance at a constant annual rate of
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approximately 30.75% in the 6th policy year would be necessary to offset the
amount by which the Variable Death Benefit is lower than the Guaranteed Minimum
Death Benefit so that they would be equal at the end of that year. Any
subsequent net investment performance at an annual rate in excess of 4% would
produce a Variable Death Benefit higher than the Guaranteed Minimum Death
Benefit.
In general, equal net investment performance will produce a larger change in the
Variable Death Benefit for a younger insured than for an older insured and a
slightly larger change for a female insured than for a male insured.
Any increase in the Variable Death Benefit will not bear a dollar-for-dollar
relationship to the net investment performance of the Policy's investment base.
(See Appendix B.) Nor will any Variable Death Benefit increase necessarily be
related to inflation rates. There is no guarantee that net investment
performance will be sufficient to result in any increase in the Variable Death
Benefit. As stated above, the death benefit paid will never be less than the
Guaranteed Minimum Death Benefit, as long as there is no outstanding policy
loan.
Cash Value of the Policy
Amount of Net Cash Value. The cash value of a Policy for a given day is equal
to:
The single premium paid for the Policy less any extra premium to cover
substandard risk classification and less the policy loading.
Plus --- any accumulated net investment performance (positive or
negative) for the Policy adjusted through the given day
(includes accumulated investment performance on any un-
recovered policy loading);
Plus --- any interest payable by Keyport America on amounts transferred
to its General Account as a result of a policy loan;
Minus --- accumulated annual deductions for the cost of
insurance adjusted to the given day.
The net cash value for a Policy is its cash value minus any outstanding policy
loan and accrued interest.
If the Policy is surrendered during the first Policy year a refund of sales load
equal to 4% of the basic single premium will also be paid. (See "Charges
Deducted from the Premium", Appendix C --- "How the Investment Base Relates to
Net Cash Value" and Appendix D.)
The net cash value of a Policy may increase or decrease between Valuation Days,
depending on the Policy's net investment performance. It is possible, because of
unfavorable net investment performance of a Policy's Sub-Accounts, for such
Policy's net cash value to be reduced to zero. The Policyowner bears the entire
risk for such a reduction since there is no guaranteed minimum cash value.
Surrender. A Policy may be surrendered for its net cash value while the insured
is living. To surrender a Policy, the Policyowner must send a written request,
signed by the Policyowner, together with the Policy to Keyport America's Service
Office. The net cash value of a surrendered Policy will be determined as of the
date of receipt of the necessary documentation at Keyport America's Service
Office. (See "Payment of Proceeds" and "When are communications and payments
deemed received at the Keyport America Service Office?".)
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Loan Provision
Loan Conditions. After the Policy comes into effect, policy loans may be made at
any time. The Policy will be security for the policy loan. Keyport America will
make a policy loan as of the policy loan date --- the date as of which a loan
request is received at Keyport America's Service Office. (See "When are
communications and payments deemed received at the Keyport America Service
Office?".) A loan taken from, or secured by, a Policy may have Federal tax
consequences. (See "Tax Considerations").
The amount borrowed may not exceed 75% in the first year and 90% in later years,
of the cash value after deduction of any outstanding cost of insurance charges,
as of the date of receipt of the loan request at Keyport America's Service
Office.
If there is a policy loan balance, which includes unpaid accrued interest on the
policy loan principal, and the net cash value is not enough to cover the cost of
insurance, the difference will be treated as an excess policy loan. If the
policy loan charge balance at any time exceeds the cash value of the Policy
(excess policy loan), Keyport America will mail a notice to the Policyowner and
to any assignee at the address on record with Keyport America. If the excess
amount is not paid to Keyport America within 31 days after mailing such notice,
the Policy will terminate without value. Such a Policy termination may have tax
consequences (see "Tax Treatment of Policy Benefits" Nos. 1,3 & 4).
Effect of Policy Loan. The investment base in the Policy's Sub-Accounts and in
the fixed-rate option are reduced by the amount of a policy loan, as of the date
of the policy loan. Repayment of principal of the policy loan, in whole or in
part, causes this investment base to increase by the amount of the repayment, as
of the date of the repayment. (See "When are communications and payments deemed
received at the Keyport America Service Office?".)
Keyport America attributes a policy loan to the Policy's Sub-Accounts and the
fixed-rate option in proportion to the investment base in each such Sub-Account
and the fixed-rate option, unless the Policyowner requests otherwise. However,
Keyport America reserves the right to limit the portion of the policy loan
attributed to the fixed-rate option. Similarly, Keyport America attributes
repayment of a policy loan to the Policy's Sub-Accounts in proportion to the
investment base in each, unless the Policyowner requests otherwise.
The amount removed from the Policy's Sub-Accounts and the fixed-rate option as a
result of a policy loan will earn 4% interest. This interest will be credited to
the Policy's investment base annually in proportion to the Policy's cash value
in each such Sub-Account and the fixed-rate option as of the date of crediting.
The interest charged to the Policyowner on the policy loan balance will be at a
rate of 4.7% per year. The interest on the policy loan balance is due on policy
anniversaries and will be deducted from the Policy's cash value if not paid when
due.
The amount removed from the Policy's investment base as a result of a policy
loan is not affected by the investment experience of those Sub-Accounts or the
fixed-rate option from which the amount provided for investment was withdrawn.
Therefore, the Variable Death Benefit and the net cash value can be permanently
affected by the existence of any policy loan, whether or not repaid in whole or
in part. The amount of any outstanding policy loan, plus interest accrued
thereon, is subtracted from the amount otherwise payable when the Policy
proceeds become payable.
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Additional Premium Payments to Increase the Guaranteed Minimum Death Benefit
Subject to state availability and Keyport America's rules as set forth below, a
Policyowner may make additional premium payments in order to increase the
Guaranteed Minimum Death Benefit of an in-force Policy. Additional payments may
be made any time after the Right to Examine Policy period with no limit on the
number and frequency of the additional payments. However, the insured must be in
the same underwriting classification at the time of the additional payment as at
the original issue date. Satisfactory evidence of insurability will be required
with each additional payment and Keyport America reserves the right to reject
additional payments when evidence satisfactory to it is not provided, and to
limit the total amount paid in additional payments. Additional premium payments
may change the tax status of the policy in some instances. (See "Tax
Considerations".)
Additional premium payments may be made by submitting such payment with an
application for change to Keyport America. The minimum payment which will be
accepted is $1,000 and the maximum is the amount of single premium paid for the
original Policy.
The payment will be added to the Policy's investment base as of the effective
date of such payment. Unless the Policyowner specifies otherwise, this payment
will be allocated among the Sub-Accounts and the fixed-rate option in proportion
to the investment base as of the effective date. The charges deducted from the
payment will be the same as those deducted from the basic single premium;
however, the additional administrative charge will be 0. These charges will be
included in the investment base and will be deducted in ten equal installments
beginning on the policy anniversary following the effective date of the payment.
(See "Charges Deducted from the Premium".)
The effective date of any payment and the corresponding increase in the
Guaranteed Minimum Death Benefit, is the date Keyport America receives the
payment and the application with any evidence of insurability that Keyport
America may require.
Guarantee of Insurability Rider. This rider gives the Policyowner guaranteed
options to make additional payments in order to increase the Guaranteed Minimum
Death Benefit at certain times, without evidence of insurability. While the
rider is in effect, the Policyowner has the right to make additional payments on
each of the first five policy anniversaries. The minimum amount of each
additional payment which will be allowed is $1,000. Keyport America reserves the
right to limit the total amount made in additional payments under this rider.
Subject to evidence of insurability and meeting the issue age requirements, the
Policyowner may extend the guaranteed options to include the sixth through tenth
policy anniversaries.
To keep this rider in effect, Keyport America must receive a payment within 60
days following the policy anniversary. If a payment is not made for a particular
policy anniversary, the right to make future payments under this rider is
forfeited and the rider is no longer in effect. The charges deducted from each
additional payment are as stated above.
Effect of an Additional Premium Payment. As of the effective date of the
payment, the investment base will be increased by the total payment made. The
cash value will also increase as of the effective date, by the amount of the
payment less the charges discussed above. The Guaranteed Minimum Death Benefit
will be
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increased by the amount of insurance the net payment will buy. The Variable
Death Benefit, however, will remain the same until the next policy anniversary
and when recalculated will reflect net investment performance on the increased
investment base from the effective date of the additional payment. If the
insured dies before the next policy anniversary, the death benefit paid will be
the greatest of the Guaranteed Minimum Death Benefit, the Variable Death Benefit
then in effect and the death benefit calculated as of the date of death (taking
into account the additional payment).
If the Policy has an outstanding loan amount, unless specified otherwise by the
Policyowner, any additional payments made will first be applied to the loan
balance.
THE GENERAL ACCOUNT - FIXED-RATE OPTION
A Policyowner may allocate or transfer all or part of the investment base,
including the policy loading, of a Policy to a fixed-rate option funded by
Keyport America's General Account. Because of exemptive and exclusionary
provisions, interests in the General Account have not been registered under the
Securities Act of 1933 and the General Account has not been registered as an
investment company under the Investment Company Act of 1940. Accordingly,
neither the General Account nor any interests therein are subject to the
provisions of these Acts and, therefore, the Securities and Exchange Commission
has not reviewed the disclosures in this prospectus relating to the General
Account. Disclosures regarding the General Account may, however, be subject to
certain of the Federal securities laws relating to the accuracy and completeness
of statements made in prospectuses.
The General Account contains all assets owned by Keyport America except those in
the Variable Account and in other separate accounts that may be established by
Keyport America. Subject to applicable law, Keyport America has sole discretion
over the investment of the assets of the General Account.
As explained earlier, a Policyowner may elect to allocate all or part of the
premium payment to the fixed-rate option funded by the General Account, or may
transfer funds from the separate account to the fixed-rate option. The
allocation or transfer of funds to the General Account does not entitle a
Policyowner to share in the investment experience of the General Account.
Instead, Keyport America guarantees that the part of the investment base
invested under the fixed-rate option will accrue interest daily at an effective
annual rate that Keyport America declares periodically. This rate will be in
effect from the date money is invested under that option until the next policy
anniversary. The interest rate declared will never be less than an effective
annual rate of 4%. Upon request, Keyport America will inform a Policyowner of
the then applicable rate. Keyport America is not obligated to credit interest at
a rate higher than 4%, although in its sole discretion it may declare a higher
rate which would then be applicable until the next policy anniversary. The
crediting rate declared by Keyport America regarding amounts allocated to the
fixed-rate option is net of all charges except the annual cost of insurance
charge which is determined and deducted in the same manner as the cost of
insurance charge deducted from assets allocated to the Sub-Accounts, and the
policy loading. At the beginning of the second policy year and continuing
through the eleventh, Keyport America will reduce the Policy's investment base
in the fixed-rate option by the proportionate amount of policy loading being
subtracted from the Policy's investment base. (See "The Investment Base".)
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OTHER POLICY FEATURES
Payment of Proceeds
As long as the Policy is not being contested, Keyport America will ordinarily
pay any net cash value, policy loan or death benefit proceeds within 7 days
after receipt at Keyport America's Service Office of a signed request for
surrender of a Policy, a request to make a policy loan or proof of death of the
insured, respectively, in a form satisfactory to Keyport America. (See "When are
communications and payments deemed received at the Keyport America Service
Office?" and "Limits to Keyport America's Right to Challenge the Policy".)
However, Keyport America reserves the right to suspend or postpone the payment
of such proceeds for any period: (i) when the New York Stock Exchange is closed
for trading, (ii) when the Securities and Exchange Commission determines that a
state of emergency exists which may make payment or transfer impractical, or
(iii) at any other time when an Eligible Fund may, under applicable laws and
regulations, suspend payment on the redemption of its shares. Keyport America
may also delay making a policy loan if Keyport America receives a written or
telephone loan request during the period when a transfer to a Sub-Account is
being delayed. (See "Transfer Option".)
The payee may elect to receive the death benefit or cash value proceeds in a
lump sum or under other payment options. (See "Payment Options".)
Keyport America reserves the right to postpone payments of policy values
attributable to the fixed rate option for up to six months.
Investment Option
On the policy date, which is either the date the application is signed (the
later of Part I or the Part II, if required) or the date the premium is
received, if later, the Policy's investment base is automatically allocated to
the Money Market Sub-Account. (This Money Market Sub-Account no longer exists
but was in existence when the automatic allocation occurred under all the
Policies.) After the Right To Examine Policy period, the Policyowner has the
option to allocate this amount, which will reflect any net investment experience
and charges deducted during that time, among the available Sub-Accounts of the
Variable Account and the fixed-rate option in any combination. Any portion
allocated to one of the Policy's Sub-Accounts or the fixed-rate option must be
at least 10% of the investment base on the date the allocation takes effect.
Percentages allocated must be in whole numbers. The initial election must be
made by the Policyowner at the time the Policy is delivered.
Transfer Option
The Policyowner may redistribute the investment base among available
Sub-Accounts and the fixed-rate option up to twelve times during a policy year
without Keyport America's consent.
Amounts may be transferred from the fixed-rate option to the Sub-Accounts once
each policy year, within sixty days following the policy anniversary. The amount
which may be transferred from the fixed-rate option is limited to the greater of
50% of the investment base in the fixed-rate option on the day of the transfer
and $10,000.
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All Sub-Account transfer requests made at the same time will be treated as a
single redistribution and will be effective at net asset value as of the date of
receipt of the transfer request at Keyport America's Service Office. (See "When
are communications and payments deemed received at the Keyport America Service
Office?".) Keyport America may refuse to process transfer requests under one or
more Policies in order to maintain the status of the Policies under the Internal
Revenue Code.
Keyport America may also delay making a policy loan if Keyport America receives
a written or telephone loan request during the period when a transfer to a
Sub-Account is being delayed.
Group or Sponsored Arrangements
The sales load, the administrative charge, and the minimum premium set forth in
this prospectus may be reduced for Policies issued in connection with group or
sponsored arrangements. In addition, under such group or sponsored arrangements,
underwriting classifications may be modified. A "group arrangement" includes a
program under which a trustee, employer or similar entity purchases Policies
covering a group of individuals on a group basis. A "sponsored arrangement"
includes a program under which an employer permits group solicitation of its
employees for the purchase of Policies on an individual basis, often through a
voluntary payroll deduction arrangement.
Keyport America will reduce these charges in accordance with its rules in effect
on the date an application for a Policy is approved. To qualify for such
reductions, a group or sponsored arrangement must satisfy certain criteria as
to, for example, size and number of years in existence. Generally, the sales
effort, administrative cost, and mortality cost per Policy vary with the size of
the group or sponsored arrangement, its stability as indicated by its term of
existence and certain characteristics of its members, the purposes for which
Policies are purchased, and other factors. The amounts of reductions and the
criteria for qualification will reflect the reduced sales effort and
administrative costs resulting from, and the different mortality experience
expected as a result of, sales to qualifying group and sponsored arrangements.
Keyport America's current rules call for reductions resulting in a sales load of
not more than 5.7% of the premium.
Keyport America may modify from time to time, on a uniform basis, both the
amounts of reductions and the criteria for qualification. In no event, however,
will group or sponsored arrangements established for the sole purpose of
purchasing Policies, or that have been in existence for less than six months,
qualify for such reductions. Reductions in these charges will not be unfairly
discriminatory against any person, including the affected Policyowners and all
other Policyowners funded by the Variable Account.
Legal Considerations for Employers
In 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V. NORRIS that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title VII of the Civil Rights Act of 1964, vary between
men and women on the basis of sex.
The policy offered by this prospectus is based on mortality tables that
distinguish between men and women. As a result, the policy pays different
benefits to men and women of the same age. Employers and employee organizations
should check with their legal advisers before purchasing this policy.
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The States of Montana and Massachusetts prohibit the use of actuarial tables
that distinguish between men and women in determining premiums and policy
benefits for policies issued on the life of their residents. Therefore, the
policy offered by this prospectus to insure residents of Montana and
Massachusetts will have premiums and benefits which are based on actuarial
tables that do not differentiate on the basis of sex.
Payment Options
The death benefit or net cash value proceeds of a Policy can be paid in a lump
sum, or the Policyowner or payee can choose to apply all or part of the proceeds
under one of the payment options described below. Other types of options are
available and may be agreed to upon application to Keyport America's Service
Office. Keyport America will pay interest on the death benefit proceeds at a
rate set by us or that required by State law if greater, from the date of death
to the date of payment in a lump sum or to the effective date of the elected
payment options. The rate will not be less than 3 1/2% a year compounded yearly.
Proceeds applied under a payment option will no longer be affected by investment
performance.
Plan A --- Income for a Fixed Period
We will pay a monthly income for a fixed period of time agreed on, not exceeding
30 years.
Plan B --- Income for Life
We will pay a monthly income during the lifetime of the payee. Payments will
cease on the payee's death.
Plan C --- Income for Life with Payments for 10 Years Guaranteed
We will pay a monthly income during the lifetime of the payee or, if the payee
dies before 120 months have expired, for 120 months.
Plan D --- Income for Joint and Survivor Payees
We will pay a monthly income as long as either payee survives.
Amounts less than $1,000 can be applied to a payment option only with Keyport
America's consent. If income payments under an option would be less than $50
each, Keyport America can change the interval of payments to 3 or 6 or 12 months
in order to increase each payment to at least $50.
Policyowner
The Policyowner is named in the application for the Policy and is addressed as
"you" in the Policy. While the insured is living, the Policyowner may exercise
all the rights and privileges granted by the Policy. But these may be limited
by: any statutory restrictions; the rights of any beneficiary appointed
irrevocably; or the rights of any assignees. The rights of the Policyowner will
terminate at the death of the insured, except for the rights to payment of
benefits.
Beneficiary
The Policyowner names in the application for this Policy one or more
beneficiaries to receive any proceeds payable on the death of the insured. While
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the insured is living, the beneficiary may be changed from time to time. A
written notice, satisfactory to Keyport America, must be dated and signed by the
Policyowner who is making the change. The change will be subject to all payments
made and action taken by Keyport America under the Policy before the signed
change form is received by Keyport America at its Service Office. If the
appointment of the previous beneficiary was irrevocable, that beneficiary's
consent is required. The change of beneficiary will be effective as of the date
the notice of change is signed.
The beneficiary has no rights in the Policy until the death of the insured. An
individual must survive the insured to qualify as beneficiary. If no beneficiary
is alive when the insured dies, the proceeds will be paid to the Policyowner, if
living, or to the Policyowner's estate.
Assignments
An absolute assignment of the Policy by the Policyowner is a change of
Policyowner and beneficiary to the assignee. A collateral assignment of the
Policy by the Policyowner is not a change of Policyowner or beneficiary;
however, their rights will be subject to the terms of the assignment.
Assignments will be subject to all payments made and actions taken by Keyport
America before a signed copy of the assignment form is received by the Company
at its Service Office. Keyport America will not be responsible for determining
whether or not an assignment is valid. An assignment may have Federal income tax
consequences.
(See "Tax Considerations".)
DISTRIBUTION AGREEMENT AND OTHER CONTRACTUAL ARRANGEMENTS
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 an
affiliate of Keyport America and also a member of the NASD.
Keyport America and Keyport Life Insurance Company have entered into an
administrative services agreement under which Keyport will, on behalf of Keyport
America as its agent, provide all administration for the Policies.
OTHER POLICIES ISSUED BY KEYPORT AMERICA
Keyport America may, from time to time, offer other life insurance policies
which may be similar to those offered herein. Keyport America also previously
issued several forms of fixed premium life plans and fixed and variable annuity
contracts.
LIMITS TO KEYPORT AMERICA'S RIGHT TO CHALLENGE THE POLICY
Keyport America generally cannot challenge the validity of the Policy or any
increase in the Guaranteed Minimum Death Benefit after it has been in effect
during the insured's lifetime for 2 years from the date of issue or for two
years from the date of any additional premium payment. However, Keyport America
can, of course, challenge at any time any claim believed to have been improperly
submitted under the Policy.
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Misstatement of Age or Sex
If the insured's age or sex is misstated in the Policy application, the Policy's
cash value and death benefit will be what the premium paid would have purchased
based on the insured's true age and sex.
Suicide
If the insured commits suicide within two years from the Policy's date of issue
(or less as required by the applicable state law), the death benefit will be
limited to the premium paid minus any outstanding policy loan and accrued
interest. If the insured commits suicide within two years from the effective
date of any increase in the Guaranteed Minimum Death Benefit, the Death Benefit
attributable to such increase will be limited to the additional premium paid for
such increase.
TAX CONSIDERATIONS
The following discussion provides a general description of the Federal income
tax consequences associated with the purchase of the Policy. It does not purport
to be complete or to cover all situations. This discussion is not intended as
tax advice. A qualified tax adviser should be consulted for detailed information
regarding tax implications with respect to specific purchases. The discussion is
based upon Keyport America's understanding of the present Federal income tax
laws as they are currently interpreted by the Internal Revenue Service. No
representation is made regarding the likelihood of continuation of these present
Federal income tax laws or of the current interpretations by the Internal
Revenue Service.
Tax Status of the Policy
Section 7702 of the Code sets forth a definition of a life insurance contract
for Federal tax purposes. This definition can be satisfied by complying with
either of two tests set forth in section 7702. Although the Secretary of the
Treasury (the "Treasury") is authorized to prescribe regulations interpreting
the manner in which these tests are to be applied, such regulations have not
been issued. In addition, for Policies entered into after October 20, 1988, the
Technical and Miscellaneous Revenue Act of 1988 ("TAMRA") provides certain new
requirements with respect to the mortality (i.e., cost of insurance) and other
expense charges that are to be used in determining compliance with section 7702.
Guidance as to how these new requirements are to be applied is extremely
limited. If a policy were determined not to be a life insurance contract for
purposes of section 7702, such policy would not provide most of the tax
advantages normally provided by a life insurance policy.
With respect to a Policy entered into before October 21, 1988, although there
are no regulations interpreting the manner in which the tests under section 7702
are to be applied, Keyport America believes that such a Policy should meet the
definition of a life insurance contract for Federal tax purposes. However, an
exchange of a Policy entered into before October 21, 1988, or possibly other
changes, might cause such a Policy (or in the case of an exchange, the new
Policy received in such exchange) to be treated as entered into after October
20, 1988, and, in such circumstances, the Policy (or the new Policy in the case
of an exchange) would be subject to the new mortality and other expense charge
requirements prescribed by TAMRA. Accordingly, the Owner of a Policy entered
into before October 21, 1988, should contact a competent tax adviser before
exchanging, or making any other change to, such Policy to determine whether the
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exchange or change would cause the Policy (or the new Policy in the case of an
exchange) to be treated as entered into after October 20, 1988.
With respect to a Policy entered into after October 20, 1988 that is issued on
the basis of a standard rate class, while there is some uncertainty due to the
lack of regulations and the limited guidance on the section 7702 requirements
prescribed by TAMRA, Keyport America nonetheless believes that such a Policy
should meet the section 7702 definition of a life insurance contract.
With respect to a Policy entered into after October 20, 1988, that is issued on
a substandard basis (i.e., a rate class involving higher than standard mortality
risk), there is even less guidance, in particular as to how the requirements
prescribed by TAMRA are to be applied in determining whether such a Policy meets
the section 7702 definition of a life insurance contract. Thus, it is not clear
whether or not such a Policy would satisfy section 7702, particularly if the
Policyowner pays the full amount of premiums permitted under the Policy.
If it is subsequently determined that a Policy does not satisfy section 7702,
Keyport America will take whatever steps are appropriate and reasonable to cause
such a Policy to comply with section 7702. For these reasons, Keyport America
reserves the right to modify the Policy as necessary to qualify it as a life
insurance contract under section 7702.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Variable Account to be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for Federal tax purposes. The Variable Account, through the
Eligible Funds, intends to comply with the diversification requirements
prescribed by the Treasury in Reg. Sec. 1.817-5, which affect how the Eligible
Funds' assets may be invested. Although Stein Roe & Farnham Inc., Keyport
Advisory Services Corp., Newport Fund Management Inc. and Colonial Management
Associates, Inc. are affiliates of Keyport America, Keyport America does not
control the Trusts or their investments. Keyport America, however, believes that
each Fund in which the Variable Account owns shares will be operated in
compliance with the requirements prescribed by the Treasury.
The Treasury has also announced that the diversification regulations do not
provide guidance concerning the tax consequences of the extent to which
Policyowners may direct their investments to sub-accounts of a separate account.
Additional guidance in this regard is expected in the near future. It is not
clear what this additional guidance will provide nor whether it will be applied
on a prospective basis only. It is possible that when additional guidance on
this issue is announced, the Policy may need to be modified to comply with such
guidance. For these reasons, Keyport America reserves the right to modify the
Policy as necessary to prevent the Policyowner from being considered the owner
of the assets of the Variable Account or otherwise to qualify the Policy for
favorable tax treatment.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Policy Benefits
1. In general. Keyport America believes that the proceeds and cash
value increases of a Policy should be treated in a manner consistent
with a fixed-benefit life insurance policy for Federal income tax
purposes. Thus, the death benefit under the Policy should be
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excludable from the gross income of the Beneficiary under section
101(a)(1) of the Code.
The exchange of the Policy, a change of the Policy's
Guaranteed Minimum Death Benefit, a Policy loan, an additional
premium payment, a Policy lapse with an outstanding loan, an
assignment or pledge of a Policy, or a surrender may have tax
consequences depending on the circumstances. Federal estate
and state and local estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend
upon the circumstances of each Policyowner or Beneficiary.
Interest paid on a Policy loan is not tax deductible. A
competent tax adviser should be consulted for further information.
Generally, the Policyowner will not be deemed to be in
constructive receipt of the cash value, including increments
thereof, under the Policy until there is a distribution. The
tax consequences of distributions from, and loans taken from,
or secured by, a Policy depend on whether the Policy is
classified as a "modified endowment contract" under section
7702A, which was recently added to the Code by TAMRA.
2. Modified endowment contracts. Because of the premium level
contemplated under the Policies, all Policies entered into after
June 20, 1988, will be treated as modified endowment contracts.
Moreover, a Policy entered into before June 21, 1988, that is
"materially changed" after June 20, 1988, may in certain
circumstances be treated as a modified endowment contract. With
respect to a Policy entered into before June 21, 1988, a change in
such Policy's Guaranteed Minimum Death Benefit, the payment of an
additional premium, or the exchange of such a Policy, among other
things, may cause a material change to such Policy, which could
result in the treatment of the Policy (or the new Policy in the case
of an exchange) as a modified endowment contract. The material
change rules for determining when a Policy entered into before June
21, 1988, will be treated as a modified endowment contract are
extremely complex and, therefore a Policyowner should contact a
competent tax adviser before paying any additional premium or
effecting any other change in, including an exchange of, a Policy
entered into before June 21, 1988. In addition, a life insurance
contract received in exchange for a Policy classified as a modified
endowment contract will be treated as a modified endowment contract.
3. Distributions from Policies Classified as Modified Endowment
Contracts. Policies classified as modified endowment contracts will
be subject to the following tax rules: First, all pre-death
distributions, including distributions upon surrender and benefits
paid at maturity, from such a Policy are treated as ordinary income
subject to tax up to the amount equal to the excess (if any) of the
cash value immediately before the distribution over the investment
in the Policy (described below) at such time. Second, loans taken
from, or secured by, such a Policy are treated as distributions from
such a Policy and taxed accordingly. In this regard, the Internal
Revenue Service could take the position that capitalized interest on
such loans is to be treated as a distribution from such a Policy and
taxed accordingly. Third, a 10 percent additional income tax is
imposed on the portion of any distribution from, or loan taken from
or secured by, such a Policy that is included in income except where
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the distribution or loan is made on or after the Policyowner
attains age 59 1/2, is attributable to the Policyowner's
becoming disabled, or is part of a series of substantially
equal periodic payments for the life (or life expectancy) of
the Policyowner or the joint lives (or joint life expectancies)
of the Policyowner and the Policyowner's Beneficiary.
4. Distributions from Policies not Classified as Modified Endowment
Contracts. Distributions from a Policy entered into before June 21,
1988, and which is not materially changed (see discussion above)
after June 20, 1988, or, if materially changed, is not classified as
a modified endowment contract after such material change, are
generally treated as first recovering the investment in the Policy
(described below) and then, only after the return of all such
investment in the Policy, as distributing taxable income. An
exception to this general rule occurs in the case of a decrease in
the Policy's death benefit or any other change that reduces benefits
under the Policy in the first 15 years after the Policy is issued
and that results in a cash distribution to the Policyowner in order
for the Policy to continue complying with the section 7702
definitional limits. Such a cash distribution will be taxed in whole
or in part as ordinary income (to the extent of any gain in the
Policy) under rules prescribed in section 7702.
Loans from, or secured by, a Policy that is not a modified
endowment contract are not treated as distributions. Instead,
such loans are treated as indebtedness of the Owner.
Upon a complete surrender or lapse of a Policy that is not a
modified endowment contract, or when benefits are paid at such
a Policy's maturity date, if the amount received plus the
amount of indebtedness exceeds the total investment in the
Policy, the excess will generally be treated as ordinary
income subject to tax.
Finally, neither distributions (including distributions upon
surrender or lapse) nor loans from, or secured by, a Policy
that is not a modified endowment contract are subject to the
10 percent additional income tax.
5. Investment in the Policy. Investment in the Policy means (i) the
aggregate amount of any premiums or other consideration paid for a
Policy, minus (ii) the aggregate amount received under the Policy
which is excluded from the gross income of the Policyowner (except
that the amount of any loan from, or secured by, a Policy that is a
modified endowment contract, to the extent such amount is excluded
from gross income, will be disregarded), plus (iii) the amount of
any loan from, or secured by, a Policy that is a modified endowment
contract to the extent that such amount is included in the gross
income of the Policyowner.
6. Multiple Polices. Under TAMRA, all modified endowment
contracts that are issued by Keyport America (or its
affiliates) to the same Policyowner during any calendar year
are treated as one modified endowment contract for purposes of
determining the amount includable in gross income under
section 72(e) of the Code.
33
<PAGE>
Charge for Insurance Company Income Taxes
Keyport America is taxed as a life insurance company under Part I of sub-chapter
L of the Code. Since the Variable Account is not an entity separate from Keyport
America and its operations form a part of Keyport America, the Variable Account
will not be taxed separately as a "regulated investment company" under sub-
chapter M of the Code. Keyport America does not expect to incur any Federal
income tax liability attributable to investment income and realized net capital
gains on assets of the Variable Account. Based upon this expectation, it is
anticipated that no charges will be made against the Variable Account for
Federal income taxes. If any Federal income taxes are incurred by Keyport
America with respect to the Variable Account, Keyport America may make a charge
to the Variable Account to pay such taxes.
Under current laws Keyport America may incur state and local taxes (in addition
to premium taxes) in several states. At present these taxes are not significant.
If there is material change in applicable state or local tax laws, charges for
such taxes, if any, attributable to the Variable Account may be made.
MANAGEMENT
The Directors and Executive Officers of Keyport America and their principal
business experience during the past five years are as follows:
Principal Business Experience During
Name the Past Five Years
John W. Rosensteel Formerly, Senior Vice President, Aetna Life and
Casualty, Hartford, CT; Currently, Director, President
and Chief Executive Officer of Keyport America, Keyport
Life Insurance Company and Keyport Advisory Services
Corp.; Chairman of the Board and President of Keyport
Financial Services Corp.
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. Director, Senior Vice President and Chief Financial
Officer of Keyport America and Keyport Advisory
Services Corp.; Senior Vice President and Chief
Financial Officer of Keyport Life Insurance Company.
Francis E. Reinhart Senior Vice President and Chief Administrative Officer
of Keyport America, Keyport Life Insurance Company and
Keyport Advisory Services Corp.; Director and Vice
President-Administration Keyport Financial Services Corp.
William L. Dixon Vice President - Compliance and Assistant Secretary of
Keyport America and Keyport Life Insurance Company;
Vice President - Compliance of Keyport Advisory
Services Corp. and Keyport Financial Services Corp.
34
<PAGE>
Bruce C. Crozier Vice President and Chief Actuary of Keyport America and
Keyport Life Insurance Company.
James J. Klopper Vice President, Counsel and Assistant Secretary of
Keyport America and Keyport Life Insurance Company; Vice
President, Counsel and Clerk of Keyport Advisory
Services Corp.; Clerk of Keyport Financial Services Corp.
Lee R. Roberts Vice President - Planning and Corporate Affairs of
Keyport America and Keyport Life Insurance Company;
Director and Treasurer of Keyport Advisory Services
Corp. and Keyport Financial Services Corp.
Jeffery J. Whitehead Vice President, Treasurer and Controller of Keyport
America and Keyport Life Insurance Company.
Stewart R. Morrison Vice President - Investments of Keyport America,
Keyport Life Insurance Company, and Keyport Advisory
Services Corp.
The principal business address for each of the Directors and Executive Officers
is 125 High Street, Boston, MA. 02110.
VOTING RIGHTS
Keyport America is the legal owner of all Variable Account assets, which consist
primarily of shares of the Eligible Funds held in the investment Sub-Accounts of
the Variable Account. As such, Keyport America is the legal owner of such shares
with the corresponding right to vote them. However, in accordance with Keyport
America's view of the present applicable law, the Policyowner will be permitted
to give instructions as to how shares of each series, in which such Policyowner
has an interest, should be voted at meetings of shareholders.
Those Policyowners permitted to give instructions and the number of shares for
which instructions may be given will be determined as of the record date for the
meeting, which shall not be more than 90 days before the date of the meeting.
The number of shares of each Sub-Account for which a Policyowner may give
instructions is determined by dividing the portion of that Policy's net cash
value derived from participation in that Sub-Account by the value of one share
in the portfolio of the corresponding Trust. Whether or not voting instructions
are actually given by a particular Policyowner or particular Policyowners, all
shares of the Eligible Funds held in any Sub-Account will be voted for, against,
or withheld from voting on any proposition in the same proportion as (i) the
aggregate record date net cash value held in such Sub-Account for Policies
giving instructions, respectively, to vote for, against, or withhold votes on
such proposition, bears to (ii) the aggregate record date net cash value held in
the Sub-Account for all Policies for which voting instructions are received.
Other separate accounts of Keyport America may also invest premiums for variable
life insurance policies and payments for variable annuity contracts in shares of
the Trusts. Those shares will probably be voted according to the instructions of
the owners of insurance policies and annuity contracts funded through those
other separate accounts. This will dilute the effect of the voting instructions
of the owners of policies funded through the Variable Account. Keyport America
does not foresee any disadvantage to Policyowners from that dilution.
Nevertheless, the Board of Trustees of the Trusts will monitor events to
identify
35
<PAGE>
conflicts that may arise and determine appropriate action. If Keyport America
thinks that any Trust action is insufficient, Keyport America will see that
appropriate action is taken to protect Policyowners.
Keyport America may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the investment objectives of an Eligible Fund
or to approve or disapprove an investment advisory or underwriting contract for
such an Eligible Fund. In addition, Keyport America itself may disregard voting
instructions in favor of changes initiated by a Policyowner or the Trusts' Board
of Trustees in the investment policy, investment adviser or principal
underwriter of an Eligible Fund if Keyport America (i) reasonably disapproves of
such changes and (ii) in the case of a change in investment policy or investment
adviser, makes a good faith determination that the proposed change is contrary
to state law or prohibited by state regulatory authorities or that the change
would be inconsistent with a Sub-Account's investment objectives or would result
in the purchase of securities which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts of
Keyport America or of an affiliated life insurance company, which separate
accounts have investment objectives similar to those of the Sub-Account. In the
event Keyport America does disregard voting instructions, a summary of that
action and the reasons for such action will be included in the next semi-annual
report to Policyowners.
RIGHTS RESERVED BY KEYPORT AMERICA
The voting procedures described in this prospectus are based on Keyport
America's current understanding of requirements under applicable Federal
securities laws. In the future, to the extent that Keyport America is no longer
legally required to accept voting instructions for shares of the Trusts from
Policyowners, Keyport America reserves the right not to do so. Keyport America
also reserves the right, subject to compliance with applicable law, including
approval of Policyowners if so required, (1) to create new investment accounts;
(2) to combine any two or more separate investment accounts including the
Variable Account; (3) to make available additional Sub-Accounts of the Variable
Account investing in additional Eligible Funds; (4) to substitute other
investment company shares for those of the Eligible Funds; (5) to operate the
Variable Account as a management investment company under the Investment Company
Act of 1940 or in any other form permitted by law; and (6) to de-register the
Variable Account under the Investment Company Act of 1940 in the event such
registration is no longer required. Policyowner approval would probably not be
required for Keyport America to exercise most of these rights. However, Keyport
America will notify a Policyowner if any such exercise of rights were to result
in a material change in the Variable Account or its investments, although notice
may not be legally required in all cases. Except as set forth above and as
required by Federal or state law or regulation, Keyport America will not take
any action adversely affecting the rights of Policyowners without their consent.
REPORTS
Annually, as of the policy anniversary, Keyport America will send a statement to
the Policyowners setting forth the death benefit, cash value of the Policy and
any outstanding policy loan principal. Keyport America will also send
confirmations of significant financial activities, such as policy loans,
reallocations among Sub-Accounts, and surrenders, when the transactions occur.
36
<PAGE>
Policyowners will be sent semi-annually a report containing the financial
statements of the Eligible Funds.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus have
been passed upon by James J. Klopper, Esq., Vice President and Counsel of
Keyport America.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party or to
which the assets of the Variable Account are subject. Keyport America is not
involved in any litigation that is of material importance in the relation to its
total assets or that relates to the Variable Account.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. Copies of such additional
information may be obtained from the SEC upon payment of the prescribed fee.
EXPERTS
The statutory financial statements of Keyport America Life Insurance Company as
of December 31, 1994 and 1993 and for the years then ended December 31, 1994 and
the financial statements of Keyport America Variable Life Separate Account 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 upon
the reports of KPMG Peat Marwick LLP, independent certified public accountants,
and upon the authority of that firm as experts in accounting and auditing.
37
<PAGE>
[This page is intentionally left blank]
38
<PAGE>
APPENDIX A
Illustrations of Death Benefits and Cash Values
The tables in Appendix A illustrate sample Policies and the tables, and the
assumptions and estimates upon which they are based, are as of April 10, 1990,
since the Policies have not been available for sale. The tables show how the
death benefit, investment base and net cash value could vary over an extended
period of time assuming hypothetical gross rates of return equivalent to
constant after tax annual rates of 0%, 4%, 8% and 12%, respectively. The tables
are based on a single premium of $10,000 for males aged 5, 45 and 55, in a
standard risk classification and illustrate both Keyport America's maximum and
current (as of April 10, 1990) non-smoker mortality. These tables will assist in
the comparison of death benefits, investment bases, and net cash values of the
policy with other variable life insurance plans.
Death benefits, investment bases and net cash values for a Policy would be
different from the amount shown if the actual gross rates of return averaged 0%,
4%, 8% or 12%, but varied above and below that average for the period. They
would also be different depending on the allocation of the investment base among
the Variable Account's Sub-Accounts, if the actual gross rate of return for all
Sub-Accounts averaged 0%, 4%, 8% or 12%, but varied above or below that average
for individual Sub-Accounts. They would also differ if any policy loan were made
during the period of time illustrated.
The illustrations in Appendix A assume the cost of insurance charges are based
on either current (as of April 10, 1990) cost of insurance rates (pages 40, 42 &
44), or guaranteed cost of insurance rates (pages 39, 41 & 43).
The death benefit investment base and net cash values shown in the tables
reflect the fact that deductions have been made from the single premium. They
also reflect a daily charge assessed against the Variable Account for mortality
and expense risks equivalent to an annual charge of .60% of the average daily
value of the assets in the Variable Account attributable to the Policies. The
amounts shown in the table also reflect the investment advisory expenses
incurred by the Crown Series Fund, Inc. (the formerly available Eligible Funds)
during 1989 at an annual rate of .40% of the average daily net assets of each
series of the Crown Series Fund. This amount does not reflect expenses incurred
by the Crown Series Fund in 1989 in excess of .20% of average daily net assets
of each of the Zero Coupon Bond Series and .40% of the average daily net assets
of each of the other Series. Pursuant to its agreement with Crown Series Fund,
the Fund's investment adviser reimbursed the Crown Series Fund for this excess
which was $365,198. The actual investment advisory expenses may be more or less
than .40%, and will depend on the allocations made by the Policyowner. If the
reimbursement agreement with the Fund's investment adviser had not been in
effect, all of the actual expenses incurred by the Crown Series Fund would be
included in the calculation of the death benefits and the net cash value for a
Policy with the result that the amount of any increase in the death benefit from
the guaranteed minimum death benefit and the amount of the cash surrender value
of the Policy would be reduced.
Taking account of the charges for expense and mortality risks in the Variable
Account and the 1989 investment advisory fees in the Crown Series Fund, the
gross annual rates of return of 0%, 4%, 8% and 12% correspond to Actual
Investment Returns of (1.0%), 3.0%, 7.0% and 11.0%, respectively.
39
<PAGE>
The hypothetical rates of return shown in the tables do not reflect any tax
charges attributable to the Variable Account since no such charges are currently
made. If any such charges are imposed in the future, the gross annual rate of
return would have to exceed the rates shown by an amount sufficient to cover the
tax charges, in order to produce the death benefits, investment base and cash
values illustrated. (See "Charge for Insurance Company Income Taxes".)
The third column of each table shows the amount which would accumulate if an
amount equal to the single premium was invested to earn interest, after taxes,
of 5% per year, compounded annually.
The tables show that if a Policy is returned in its early years for payment of
its net cash value, the net cash value will be low in comparison to the premium
accumulated with interest. This means that the cost of maintaining insurance for
a relatively short time will be high.
40
<PAGE>
SINGLE PREMIUM VARIABLE LIFE
Issue Age 5
$10,000 Single Premium for MALE
$90,333 Guaranteed Minimum Death Benefit
Using Guaranteed Cost of Insurance Rates
End of Year
DEATH BENEFIT
Total Premiums Assuming Hypothetical Gross
End of Paid Plus5% as Annual Investment Return of
Policy Interest at 5% as -------------------------------------
Year Payments of End of Year 0% 4% 8% 12%
- ------ -------- ----------------- ------- ------- ------- --------
1 $10,000 $10,500 $90,333 $90,333 $93,872 $97,843
2 0 11,025 90,333 90,333 97,441 105,727
3 0 11,576 90,333 90,333 101,008 113,981
4 0 12,155 90,333 90,333 104,580 122,640
5 0 12,763 90,333 90,333 108,162 131,739
6 0 13,401 90,333 90,333 111,761 141,319
7 0 14,071 90,333 90,333 115,382 151,420
8 0 14,755 90,333 90,333 119,032 162,086
9 0 15,513 90,333 90,333 122,716 173,364
10 0 16,289 90,333 90,333 126,439 185,302
15 0 20,789 90,333 90,333 146,441 257,801
20 (age 25) 0 26,533 90,333 90,333 169,607 358,665
30 (age 35) 0 33,864 90,333 90,333 227,513 694,218
60 (age 65) 0 146,356 90,333 90,333 549,148 5,034,046
<TABLE>
<CAPTION>
End of Year End of Year
INVESTMENT BASE CASH SURRENDER VALUE*
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Investment Return of Annual Investment Return of
Policy ---------------------------------- -------------------------------
Year 0% 4% 8% 12% 0% 4% 8% 12%
- ------ ------ ------- ------- --------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $9,714 $10,111 $10,508 $10,905 $8,993 $9,390 $9,788 $10,185
2 9,441 10,234 11,058 11,913 8,445 9,238 10,062 10,917
3 9,177 10,365 11,648 13,033 8,306 9,493 10,777 12,161
4 8,921 10,502 12,282 14,273 8,174 9,755 11,535 13,526
5 8,670 10,646 12,959 15,648 8,047 10,024 12,336 15,025
6 8,423 10,794 13,681 17,167 7,925 10,296 13,183 16,669
7 8,177 10,943 14,446 18,841 7,804 10,569 14,072 18,467
8 7,930 11,089 15,251 20,678 7,681 10,840 15,002 20,429
9 7,680 11,228 16,096 22,687 7,555 11,104 15,971 22,563
10 7,427 11,361 16,978 24,882 7,427 11,361 16,978 24,882
15 6,762 12,607 22,789 40,119 6,762 12,607 22,789 40,119
20 (age 25) 6,177 14,036 30,690 64,900 6,177 14,036 30,690 64,900
30 (age 35) 5,287 17,846 57,099 174,228 5,287 17,846 57,099 174,228
60 (age 65) 2,961 32,762 328,378 3,010,245 2,961 32,762 328,378 3,010,245
</TABLE>
* The cash surrender value in the first year includes a refund of 4% of the
gross single premium.
It is emphasized that the hypothetical gross annual rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future gross annual rates of return. Actual gross
rates of return may be more or less than those shown and will depend on a number
of factors, including the investment allocations made by a Policyowner, and the
investment experience of the Policy's Sub-Accounts.
The death benefit, investment base and cash value for a Policy would be
different from those shown if the actual gross annual rates of return averaged
0%, 4%, 8%, and 12% over a period of years, but varied above or below that
average during the period. They would also be different if any policy loan were
made during the period. No representations can be made by Crown America or the
series fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
41
<PAGE>
SINGLE PREMIUM VARIABLE LIFE
Issue Age 5
$10,000 Single Premium for MALE
$90,333 Guaranteed Minimum Death Benefit
Using Guaranteed Cost of Insurance Rates
End of Year
DEATH BENEFIT
Total Premiums Assuming Hypothetical Gross
End of Paid Plus Annual Investment Return of
Policy Interest at 5% as --------------------------------------
Year Payments of End of Year 0% 4% 8% 12%
- ------ -------- ---------------- ------- ------- ------- ---------
1 $10,000 $10,500 $90,333 $90,646 $94,646 $98,646
2 0 11,025 90,333 90,846 98,941 107,345
3 0 11,576 90,333 90,938 103,218 116,458
4 0 12,155 90,333 90,941 107,499 126,038
5 0 12,763 90,333 90,872 111,800 136,139
6 0 13,401 90,333 90,754 116,153 146,834
7 0 14,071 90,333 90,620 120,603 158,226
8 0 14,775 90,333 90,501 125,200 170,436
9 0 15,513 90,333 90,418 129,900 183,585
10 0 16,289 90,333 90,381 135,001 197,789
15 0 20,789 90,333 90,847 164,144 288,878
20 (age 25) 0 26,533 90,333 90,016 198,922 420,528
30 (age 35) 0 33,864 90,333 90,333 284,783 868,706
60 (age 65) 0 146,356 90,333 90,333 791,977 7,257,871
<TABLE>
<CAPTION>
End of Year End of Year
INVESTMENT BASE CASH SURRENDER VALUE*
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Investment Return of Annual Investment Return of
Policy ----------------------------------- -----------------------------------
Year 0% 4% 8% 12% 0% 4% 8% 12%
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $9,786 $10,186 $10,586 $10,986 $9,065 $9,465 $9,865 $10,265
2 9,573 10,377 11,213 12,080 8,577 9,381 10,217 11,084
3 9,362 10,574 11,884 13,297 8,491 9,702 11,013 12,425
4 9,154 10,777 12,603 14,648 8,407 10,030 11,856 13,901
5 8,947 10,987 13,374 16,150 8,324 10,364 12,751 15,527
6 8,742 11,203 14,199 17,818 8,244 10,705 13,701 17,320
7 8,538 11,426 15,082 19,671 8,165 11,052 14,709 19,298
8 8,337 11,655 16,029 21,730 8,088 11,406 15,780 21,481
9 8,138 11,892 17,042 24,018 8,013 11,768 16,918 23,893
10 7,940 12,136 18,128 26,559 7,940 12,136 18,128 26,559
15 7,589 14,138 25,544 44,956 7,589 14,138 25,544 44,956
20(age 25) 7,253 16,469 35,995 76,095 7,253 16,469 35,995 76,095
30(age 35) 6,626 22,349 71,472 218,019 6,626 22,349 71,472 218,019
60(age 65) 4,276 47,272 473,584 4,340,042 4,276 47,272 473,584 4,340,042
</TABLE>
* The cash surrender value in the first year includes a refund of 4% of the
gross single premium.
It is emphasized that the hypothetical gross annual rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future gross annual rates of return. Actual gross
rates of return may be more or less than those shown and will depend on a number
of factors, including the investment allocations made by a Policyowner, and the
investment experience of the Policy's Sub-Accounts.
The death benefit, investment base and cash value for a Policy would be
different from those shown if the actual gross annual rates of return averaged
0%, 4%, 8%, and 12% over a period of years, but varied above or below that
average during the period. They would also be different if any policy loan were
made during the period. No representations can be made by Crown America or the
series fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
42
<PAGE>
SINGLE PREMIUM VARIABLE LIFE
Issue Age 45
$10,000 Single Premium for MALE
$25,301 Guaranteed Minimum Death Benefit
Using Guaranteed Cost of Insurance Rates
End of Year
DEATH BENEFIT
Total Premiums Assuming Hypothetical Gross
End of Paid Plus Annual Investment Return of
Policy Interest at 5% as -----------------------------------
Year Payments of End of Year 0% 4% 8% 12%
- ------ -------- ----------------- ------- ------- ------- -------
1 $10,000 $10,500 $25,301 $25,301 $26,287 $27,399
2 0 11,025 25,301 25,301 27,286 29,607
3 0 11,576 25,301 25,301 28,286 31,920
4 0 12,155 25,301 25,301 29,288 34,347
5 0 12,763 25,301 25,301 30,293 36,898
6 0 13,401 25,301 25,301 31,302 39,583
7 0 14,071 25,301 25,301 32,318 42,415
8 0 14,775 25,301 25,301 33,342 45,405
9 0 15,513 25,301 25,301 34,375 48,566
10 0 16,289 25,301 25,301 35,418 51,912
15 0 20,789 25,301 25,301 41,021 72,222
20 (age 65) 0 26,533 25,301 25,301 47,511 100,478
25 (age 70) 0 33,864 25,301 25,301 55,026 139,790
30 (age 75) 0 43,219 25,301 25,301 63,731 194,482
End of Year End of Year
INVESTMENT BASE CASH SURRENDER VALUE*
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Investment Return of Annual Investment Return of
Policy --------------------------------- ---------------------------------
Year 0% 4% 8% 12% 0% 4% 8% 12%
- ------ ------ ------- ------- ------- ------ ------ ------ -------
1 $9,707 $10,104 $10,500 $10,897 $8,986 $9,383 $9,780 $10,177
2 9,421 10,212 11,034 11,888 8,425 9,216 10,038 10,892
3 9,137 10,318 11,596 12,974 8,265 9,447 10,725 12,103
4 8,854 10,424 12,189 14,166 8,107 9,677 11,442 13,419
5 8,574 10,528 12,814 15,472 7,951 9,905 12,191 14,849
6 8,295 10,630 13,471 16,903 7,797 10,132 12,973 16,405
7 8,017 10,729 14,162 18,470 7,644 10,355 13,788 18,096
8 7,741 10,824 14,887 20,184 7,492 10,575 14,638 19,935
9 7,465 10,916 15,648 22,057 7,341 10,791 15,523 21,932
10 7,190 11,002 16,445 24,102 7,190 11,002 16,445 24,102
15 6,447 12,024 21,738 38,273 6,447 12,024 21,738 38,273
20(age 65) 5,715 12,991 28,410 60,084 5,715 12,991 28,410 60,084
25(age 70) 4,997 13,844 36,622 93,036 4,997 13,844 36,622 93,036
30(age 75) 4,304 14,533 46,504 141,913 4,304 14,533 46,504 141,913
* The cash surrender value in the first year includes a refund of 4% of the
gross single premium.
It is emphasized that the hypothetical gross annual rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future gross annual rates of return. Actual gross
rates of return may be more or less than those shown and will depend on a number
of factors, including the investment allocations made by a Policyowner, and the
investment experience of the Policy's Sub-Accounts.
The death benefit, investment base and cash value for a Policy would be
different from those shown if the actual gross annual rates of return averaged
0%, 4%, 8%, and 12% over a period of years, but varied above or below that
average during the period. They would also be different if any policy loan were
made during the period. No representations can be made by Crown America or the
series fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
43
<PAGE>
SINGLE PREMIUM VARIABLE LIFE
Issue Age 45
$10,000 Single Premium for MALE NON SMOKER
$25,301 Guaranteed Minimum Death Benefit
Using Guaranteed Cost of Insurance Rates
End of Year
DEATH BENEFIT
Total Premiums Assuming Hypothetical Gross
End of Paid Plus Annual Investment Return of
Policy Interest at 5% as -----------------------------------
Year Payments of End of Year 0% 4% 8% 12%
- ------ -------- ----------------- ------- ------- ------- -------
1 $10,000 $10,500 $25,301 $25,333 $26,451 $27,569
2 0 11,025 25,301 25,365 27,626 29,974
3 0 11,576 25,301 25,385 28,815 32,512
4 0 12,155 25,301 25,392 30,018 35,197
5 0 12,763 25,301 25,388 31,239 38,043
6 0 13,401 25,301 25,374 32,480 41,063
7 0 14,071 25,301 25,351 33,744 44,276
8 0 14,775 25,301 25,319 35,033 47,696
9 0 15,513 25,301 25,301 36,350 51,343
10 0 16,289 25,301 25,301 37,696 55,235
15 0 20,789 25,301 25,301 45,135 79,444
20 (age 65) 0 26,533 25,301 25,301 53,926 114,015
25 (age 70) 0 33,864 25,301 25,301 63,698 161,775
30 (age 75) 0 43,219 25,301 25,301 75,722 231,013
End of Year End of Year
INVESTMENT BASE CASH SURRENDER VALUE*
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Investment Return of Annual Investment Return of
Policy --------------------------------- -------------------------------
Year 0% 4% 8% 12% 0% 4% 8% 12%
- ------ ------ ------- ------- ------- ------ ------ ------ -------
1 $9,761 $10,160 $10,559 $10,958 $9,041 $9,440 $9,839 $10,238
2 9,527 10,327 11,159 12,023 8,531 9,331 10,163 11,027
3 9,294 10,496 11,797 13,199 8,422 9,625 10,925 12,327
4 9,060 10,667 12,474 14,498 8,313 9,920 11,727 13,751
5 8,827 10,840 13,194 15,933 8,205 10,217 12,572 15,310
6 8,595 11,014 13,959 17,517 8,097 10,516 13,461 17,019
7 8,362 11,189 14,770 19,264 7,988 10,816 14,397 18,890
8 8,129 11,365 15,630 21,190 7,880 11,116 15,381 20,941
9 7,896 11,541 16,540 23,311 7,771 11,416 16,415 23,186
10 7,662 11,715 17,502 25,645 7,662 11,715 17,502 25,645
15 7,102 13,325 23,919 42,100 7,102 13,235 23,919 42,100
20 (age 65) 6,495 14,751 32,246 68,178 6,495 14,751 32,246 68,178
25 (age 70) 5,792 16,032 42,393 107,668 5,792 16,032 42,393 107,668
30 (age 75) 5,120 17,275 55,254 168,569 5,120 17,275 55,254 168,569
* The cash surrender value in the first year includes a refund of 4% of the
gross single premium.
It is emphasized that the hypothetical gross annual rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future gross annual rates of return. Actual gross
rates of return may be more or less than those shown and will depend on a number
of factors, including the investment allocations made by a Policyowner, and the
investment experience of the Policy's Sub-Accounts.
The death benefit, investment base and cash value for a Policy would be
different from those shown if the actual gross annual rates of return averaged
0%, 4%, 8%, and 12% over a period of years, but varied above or below that
average during the period. They would also be different if any policy loan were
made during the period. No representations can be made by Crown America or the
series fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
44
<PAGE>
SINGLE PREMIUM VARIABLE LIFE
Issue Age 55
$10,000 Single Premium for MALE
$18,857 Guaranteed Minimum Death Benefit
Using Guaranteed Cost of Insurance Rates
End of Year
DEATH BENEFIT
Total Premiums Assuming Hypothetical Gross
End of Paid Plus Annual Investment Return of
Policy Interest at 5% as ----------------------------------
Year Payments of End of Year 0% 4% 8% 12%
- ------ -------- ----------------- ------- ------- ------- -------
1 $10,000 $10,500 $18,857 $18,857 $19,583 $20,412
2 0 11,025 18,857 18,857 20,329 22,059
3 0 11,576 18,857 18,857 21,076 23,785
4 0 12,155 18,857 18,857 21,824 25,596
5 0 12,763 18,857 18,857 22,574 27,500
6 0 13,401 18,857 18,857 23,329 29,505
7 0 14,071 18,857 18,857 24,088 31,618
8 0 14,775 18,857 18,857 24,852 33,849
9 0 15,513 18,857 18,857 25,623 36,208
10 (age 65) 0 16,289 18,857 18,857 26,402 38,702
15 0 20,789 18,857 18,857 30,578 53,845
20 (age 75) 0 26,533 18,857 18,857 35,415 74,911
30 (age 85) 0 43,219 18,857 18,857 47,506 144,995
End of Year End of Year
INVESTMENT BASE CASH SURRENDER VALUE*
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Investment Return of Annual Investment Return of
Policy --------------------------------- ------------------------------
Year 0% 4% 8% 12% 0% 4% 8% 12%
- ------ ------ ------- ------- ------- ------ ------ ------ -------
1 $9,673 $10,069 $10,464 $10,860 $8,953 $9,348 $9,744 $10,139
2 9,358 10,143 10,960 11,808 8,362 9,147 9,964 10,812
3 9,044 10,213 11,478 12,841 8,172 9,342 10,606 11,970
4 8,732 10,279 12,019 13,968 7,985 9,532 11,272 13,221
5 8,422 10,341 12,585 15,196 7,799 9,718 11,963 14,573
6 8,114 10,397 13,176 16,533 7,616 9,899 12,678 16,035
7 7,808 10,448 13,792 17,987 7,434 10,075 13,418 17,613
8 7,503 10,493 14,432 19,567 7,254 10,244 14,183 19,318
9 7,200 10,530 15,098 21,283 7,075 10,406 14,973 21,158
10 (age 65) 6,898 10,560 15,788 23,143 6,898 10,560 15,788 23,143
15 6,031 11,253 20,351 35,836 6,031 11,253 20,351 35,826
20 (age 75) 5,195 11,813 25,842 54,662 5,195 11,813 25,842 54,662
30 (age 85) 5,665 12,379 39,624 120,936 3,665 12,379 39,624 120,936
* The cash surrender value in the first year includes a refund of 4% of the
gross single premium.
It is emphasized that the hypothetical gross annual rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future gross annual rates of return. Actual gross
rates of return may be more or less than those shown and will depend on a number
of factors, including the investment allocations made by a Policyowner, and the
investment experience of the Policy's Sub-Accounts.
The death benefit, investment base and cash value for a Policy would be
different from those shown if the actual gross annual rates of return averaged
0%, 4%, 8%, and 12% over a period of years, but varied above or below that
average during the period. They would also be different if any policy loan were
made during the period. No representations can be made by Crown America or the
series fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
45
<PAGE>
SINGLE PREMIUM VARIABLE LIFE
Issue Age 55
$10,000 Single Premium for MALE NON SMOKER
$18,857 Guaranteed Minimum Death Benefit
Using Guaranteed Cost of Insurance Rates
End of Year
DEATH BENEFIT
Total Premiums Assuming Hypothetical Gross
End of Paid Plus Annual Investment Return of
Policy Interest at 5% as ----------------------------------
Year Payments of End of Year 0% 4% 8% 12%
- ----------- -------- ----------------- ------- ------- ------- -------
1 $10,000 $10,500 $18,857 $18,938 $19,774 $20,610
2 0 11,025 18,857 19,021 20,716 22,477
3 0 11,576 18,857 19,095 21,675 24,457
4 0 12,155 18,857 19,160 22,651 26,559
5 0 12,763 18,857 19,217 23,646 28,797
6 0 13,401 18,857 19,267 24,663 31,181
7 0 14,071 18,857 19,310 25,704 33,727
8 0 14,775 18,857 19,348 26,772 36,450
9 0 15,513 18,857 19,380 27,869 39,365
10 (age 65) 0 16,289 18,857 19,409 28,998 42,491
15 0 20,789 18,857 19,543 35,319 62,167
20 (age 75) 0 26,533 18,857 19,206 41,986 88,774
30 (age 85) 0 43,219 18,857 18,857 59,117 180,357
End of Year End of Year
INVESTMENT BASE CASH SURRENDER VALUE*
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Investment Return of Annual Investment Return of
Policy --------------------------------- --------------------------------
Year 0% 4% 8% 12% 0% 4% 8% 12%
- ----------- ------ ------- ------- ------- ------ ------ ------ -------
1 $9,758 $10,156 $10,555 $10,954 $9,037 $9,436 $9,835 $10,234
2 9,519 10,318 11,149 12,012 8,523 9,322 10,153 11,016
3 9,280 10,481 11,779 13,179 8,408 9,609 10,908 12,308
4 9,040 10,643 12,447 14,465 8,293 9,896 11,700 13,718
5 8,800 10,806 13,153 15,883 8,177 10,184 12,531 15,260
6 8,559 10,969 13,901 17,444 8,061 10,471 13,403 16,946
7 8,318 11,130 14,692 19,162 7,944 10,757 14,319 18,788
8 8,076 11,291 15,528 21,051 7,827 11,042 15,279 20,802
9 7,833 11,450 16,410 23,128 7,709 11,325 16,285 23,003
10 (age 65) 7,590 11,606 17,340 25,409 7,590 11,606 17,340 25,409
15 6,979 13,007 23,506 41,375 6,979 13,007 23,506 41,375
20 (age 75) 6,170 14,015 30,637 64,778 6,170 14,015 30,637 64,778
30 (age 85) 4,569 15,415 49,307 150,430 4,569 15,415 49,307 150,430
* The cash surrender value in the first year includes a refund of 4% of the
gross single premium.
It is emphasized that the hypothetical gross annual rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future gross annual rates of return. Actual gross
rates of return may be more or less than those shown and will depend on a number
of factors, including the investment allocations made by a Policyowner, and the
investment experience of the Policy's Sub-Accounts.
The death benefit, investment base and cash value for a Policy would be
different from those shown if the actual gross annual rates of return averaged
0%, 4%, 8%, and 12% over a period of years, but varied above or below that
average during the period. They would also be different if any policy loan were
made during the period. No representations can be made by Crown America or the
series fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
46
<PAGE>
APPENDIX B
CALCULATION OF CHANGE IN VARIABLE DEATH BENEFIT
The amount by which the Variable Death Benefit will increase or decrease for any
year is the amount of paid-up life insurance which the excess or shortfall in
net investment performance over a net investment performance based on 4% per
year would purchase at net single premium rates described in the Policy for the
insured's age and sex.
To calculate the change in the Variable Death Benefit, the positive or negative
net investment performance for the preceding policy year is divided by a net
single premium per $1 of paid-up life insurance based on the insured's issue age
and sex. (See table of net single premiums.)
Example: Using the Policy illustrated on page 52 for a male age 45 standard and
assuming a constant 8% hypothetical gross annual rate of return (equivalent to
an Actual Investment Return of 7.1%), the following example illustrates how the
change in the Variable Death Benefit is calculated for year 6.
Calculation of Change in
Variable Death Benefit
Standard Policy for Year 6
- --------------- ----------------------
(1) Variable Death Benefit for Year 5............ 29287.72
(2) Net Cash Value at Beginning of Year 6........ 12191.20
(3) Net Single Premium for Year 6................ .40245
(4) Variable Death Benefit for Year 6 (2) / (3).. 30292.51
(5) Change in Variable Death Benefit (4) - (1)... 1004.78
________________________________________________________________________________
NET SINGLE PREMIUM. Net single premiums are used to convert the net investment
performance of a Policy into increases or decreases in the Variable Death
Benefit. Net single premiums depend upon the sex and age. The net single premium
increases as the insured advances in age; thus, larger dollar amounts of net
investment performance are required each policy year to result in the same
increases in the Variable Death Benefit.
TABLE OF SAMPLE NET SINGLE PREMIUMS
PER $1 OF PAID-UP LIFE INSURANCE
Attained Age Male Female
------------ ------ ------
5 .09692 .08038
45 .34604 .29598
55 .46429 .39952
47
<PAGE>
APPENDIX C
HOW THE INVESTMENT BASE RELATES TO NET CASH VALUE
The investment base will exceed the Policy's net cash value on the Policy date
and on the first ten policy anniversaries by the amount of the unrecovered
policy loading. During a policy year, there is an additional difference between
the investment base and net cash value, because the net cash value reflects a
daily adjustment for the cost of insurance protection, while the corresponding
adjustment to the investment base is made once at the end of a policy year.
Thus, the investment base is not a measure of the cash value to which the owner
is entitled except on policy anniversaries after the tenth assuming no
additional premiums have been made.
Example: Using the Policy illustrated for a male age 45 standard on page 52, and
assuming a hypothetical constant gross annual rate of return of 8% (equivalent
to an Actual Investment Return of 7%), the investment base and net cash value in
a Policy's Sub-Accounts would change as follows from the Policy's 5th
Anniversary to the Policy's 6th Anniversary:
(1) Net Cash Value at End of Year 5............... 12191.20
(2) Unrecovered Policy Load at End of Year 5...... 747.00
(3) Investment Base at End of Year 5 (1) + (2).... 12938.20
(4) 10% of Total Policy Load...................... 124.50
(5) Investment Base at the Beginning of Year 6
(3) -(4)...................................... 12813.70
(6) Actual Investment Return...................... .07
(7) Net Investment Performance on Investment
Base (5) X (6)................................ 896.96
(8) Cost of Insurance Charge...................... 127.94
(9) Net Cash Value End of Year 6 (1) + (7) - (8) 12960.22
48
<PAGE>
APPENDIX D
GUARANTEED COST OF INSURANCE RATES
Guaranteed cost of insurance rates vary by the insured's sex and age. The
following table illustrates sample guaranteed annual cost of insurance rates per
1,000 of the amount at risk for a Policy. In general, the cost of insurance
rates will increase with the age of the insured and will be higher for males
than for females. As of a Policy's anniversary, the Policy's amount at risk
equals the Policy's Variable Death Benefit minus the Policy's cash value.
SAMPLE GUARANTEED COST OF ANNUAL INSURANCE RATES
PER $1,000 OF AMOUNT AT RISK
Attained Age Male Female
------------ ----- ------
5 .88 .75
45 4.73 3.68
55 10.96 7.33
The cost of insurance deducted annually may be less, but never greater than, the
guaranteed cost of insurance.
49
<PAGE>
KEYPORT AMERICA LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
The financial statements of Keyport America Life Insurance Company ("Keyport
America") included herein should be distinguished from the financial statements
of the Keyport America Variable Life Separate Account ("Variable Account") and
should be considered only as bearing upon the ability of Keyport America to meet
its obligations under the Policies.
50
<PAGE>
*********************MISSING MANUSCRIPT PAGES 172-185*************************
<PAGE>
KEYPORT AMERICA LIFE INSURANCE COMPANY
Keyport America Variable Life Separate Account
Financial Statements
December 31, 1994
(With Independent Auditors Report Thereon)
<PAGE>
The Board of Directors
Keyport America Life Insurance Company:
We have audited the accompanying statutory statements of admitted assets,
liabilities and capital and surplus of Keyport America Life Insurance Company
as of December 31, 1994 and 1993, and the related statutory statements of
operations, capital and surplus and cash flow for the years then ended. 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.
As described in note 2, these financial statements were prepared in
conformity with accounting practices prescribed or permitted by the Insurance
Department of the State of Rhode Island, which is a comprehensive basis of
accounting other than generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities and capital and
surplus of Keyport America Life Insurance Company as of December 31, 1994 and
1993 and the results of its operations and its cash flow for the years then
ended, on the basis of accounting described in note 2.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included
in the accompanying Schedule 1 is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
This report is intended solely for the information and use of the board of
directors and management of Keyport America Life Insurance Company and for
filing with regulatory authorities and should not be used for any other
purpose.
/s/ KPMG Peat Marwick LLP
February 17, 1995
<PAGE>
KEYPORT AMERICA LIFE INSURANCE COMPANY
Statutory Statements of Admitted Assets, Liabilities
and Capital and Surplus
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1994 1993
------------ ------------
<S> <C> <C>
Admitted Assets
---------------
Cash and investments:
Fixed maturities $ 18,888,317 $ 13,469,296
Policy loans 32,417,044 29,407,711
Cash and cash equivalents 5,465,501 8,783,074
------------ ------------
Total cash and investments 56,770,862 51,660,081
Investment income due and accrued 333,981 343,272
Other assets 4,004,877 5,317,700
Separate account assets 105,438,745 123,824,205
------------ ------------
Total admitted assets $166,548,465 $181,145,258
============ ============
Liabilities and Capital and Surplus
-----------------------------------
Liabilities:
Reserves for future policy benefits $ 38,157,885 $ 35,850,607
Policy and contract claims 93,261 244,802
Interest maintenance reserve 64,298 111,223
------------ ------------
Total policy liabilities 38,315,444 36,206,632
Accrued liabilities 625,132 11,144
Current federal income taxes 441,418 12,498
Other liabilities 60,822 139,937
Separate account liabilities 105,438,745 123,824,205
------------ ------------
Total liabilities 144,881,561 160,194,416
------------ ------------
Capital and surplus:
Common stock, $1 par value; authorized 5,000,000
shares;
issued and outstanding 2,541,722 shares 2,541,722 2,541,722
Paid-in surplus 22,678,309 22,678,309
Unassigned deficit (3,553,127) (4,269,189)
------------ ------------
Total capital and surplus 21,666,904 20,950,842
------------ ------------
Total liabilities and capital and surplus $166,548,465 $181,145,258
============ ============
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
KEYPORT AMERICA LIFE INSURANCE COMPANY
Statutory Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1994 1993
------------ -------------
<S> <C> <C>
Revenues:
Premiums, net of reinsurance $ (517,538) $ (120,403)
Net investment income 2,433,066 5,559,243
Management fee income 225,375 --
------------ -------------
Total revenues 2,140,903 5,438,840
------------ -------------
Benefits and expenses:
Increase (decrease) in reserves for future policy
benefits 2,307,278 (156,646,303)
Death benefits 1,297,741 1,098,778
Other benefits 10,009,605 173,965,781
------------ -------------
13,614,624 18,418,256
Other operating expenses:
General insurance expenses 643,115 373,909
Net transfers from separate accounts (15,256,266) (14,175,228)
Taxes, licenses and fees 66,713 271,866
Other expense 1,517 20,260
------------ -------------
Total benefits and expenses (930,297) 4,909,063
------------ -------------
Income before federal income taxes and net realized
investment gains 3,071,200 529,777
Federal income taxes 918,190 20,000
------------ -------------
Income before net realized investment gains 2,153,010 509,777
Net realized investment gains -- 1,829,468
------------ -------------
Net income $ 2,153,010 $ 2,339,245
============ =============
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
KEYPORT AMERICA LIFE INSURANCE COMPANY
Statutory Statements of Capital and Surplus
Year Ended December 31,
--------------------------
1994 1993
----------- -----------
Capital and surplus, beginning of year $20,950,842 $25,025,409
Net income 2,153,010 2,339,245
Change in unrecovered loads (1,436,948) (2,081,000)
Change in separate account surplus -- 258,545
Change in unrealized capital gains -- 165,362
Change in non-admitted assets -- 27,343
Change in asset valuation reserve -- 1,215,938
Capital contribution from former
parent -- 1,500,000
Repayment of surplus notes -- (7,500,000)
----------- -----------
Capital and surplus, end of year $21,666,904 $20,950,842
=========== ===========
See accompanying notes to statutory financial statements.
<PAGE>
KEYPORT AMERICA LIFE INSURANCE COMPANY
Statutory Statements of Cash Flow
Year Ended December 31,
----------------------------
1994 1993
----------- -------------
Cash provided:
From operations:
Premiums, net of reinsurance $ (517,538) $ (945,786)
Net investment income 2,509,918 7,722,103
Life and health claims paid (1,528,522) (1,025,253)
Surrender benefits paid (9,972,288) (173,957,970)
Other benefits to policyholders (37,317) (11,662)
Increase in policy loans (3,009,333) (4,024,437)
Commissions and other expenses (662,359) (933,105)
Federal income taxes (489,270) (77,502)
Net transfers to separate accounts 15,252,760 14,183,249
Other, net 220,868 (3,333,170)
----------- -------------
Net cash provided (used in) operations 1,766,919 (162,403,533)
----------- -------------
From investments sold or matured 2,000,000 140,387,210
Repayment of notes receivable -- 49,292,449
Capital contribution by former parent -- 1,500,000
Other sources 1,437,058 9,717,652
----------- -------------
3,437,058 200,897,311
----------- -------------
Total cash provided 5,203,977 38,493,778
----------- -------------
Capital applied:
For investments acquired 7,535,938 10,671,205
Payable to former affiliates and parent -- 15,355,418
Other applications 985,612 7,624,614
----------- -------------
Total cash applied 8,521,550 33,651,237
----------- -------------
Increase (decrease) in cash and cash
equivalents (3,317,573) 4,842,541
Cash and cash equivalents, beginning of year 8,783,074 3,940,533
----------- -------------
Cash and cash equivalents, end of year $ 5,465,501 $ 8,783,074
=========== =============
See accompanying notes to statutory financial statements.
<PAGE>
KEYPORT AMERICA LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
December 31, 1994 and 1993
(1) Organization:
On October 1, 1993, Keyport Life Insurance Company ("Keyport Life") acquired
the common stock of Crown America Life Insurance Company (the "Company"), a
Michigan insurance company, for $27,877,000 from Crown America Holding
Company, a wholly owned subsidiary of Crown Life Insurance Company ("Crown
Life", collectively). 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 to Crown
Life of $961,000.
The Company is a wholly owned subsidiary of Keyport Life. Keyport Life is
a wholly owned subsidiary of SteinRoe Services Incorporated ("SteinRoe").
SteinRoe 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
The accompanying financial statements have been prepared in accordance
with insurance accounting practices prescribed or permitted by the Insurance
Department of the State of Rhode Island. Pursuant to statutory requirements
(a) acquisition costs such as commissions and other costs related to
acquiring new business are charged to current operations as incurred, whereas
premiums are recorded upon issuance of the related policies; (b) policy
reserves are based on statutory mortality and interest requirements without
consideration of withdrawals. A majority of the Company's policies are
subject to surrender charges. Mortality assumptions utilize the 1980 CSO
actuarial tables for life insurance with a 4% assumed rate; (c) deferred
federal income taxes are not provided; (d) certain assets designated as
"non-admitted assets" (principally amounts receivable) have been excluded
from the statements of admitted assets, liabilities and capital and surplus
by a charge to surplus; (e) bonds are generally carried at amortized cost
irrespective of the Company's investment portfolio activity; (f) the asset
valuation reserve, which is in the nature of a contingency reserve for
possible losses on investments, is recorded as a liability through a charge
to surplus; and (g) the interest maintenance reserve, which is designed to
include deferred realized gains and losses (net of applicable federal income
taxes) due to interest rate changes on fixed income investments, is also
recorded as a liability. These deferred net realized investment gains or
losses are amortized into future income generally over the original period to
maturity of the assets sold.
(b) Investments
All investments are valued in accordance with guidelines provided by the
National Association of Insurance Commissioners (NAIC). Fixed maturities are
carried at amortized cost. Policy loans are carried at the unpaid principal
balance plus accrued interest.
Net realized investment gains or losses include gains on sales of equity
securities and credit related gains and losses on fixed maturities, net of
applicable federal income taxes. Interest related investment gains or losses
are deferred in the interest maintenance reserve and amortized under the
grouped method. The grouped method classifies realized investment gains and
losses, net of applicable taxes, according to the number of calendar years to
expected maturity. The groupings are in bands of five calendar years with
amortization factors for each band provided by the NAIC's Securities
Valuation Office.
Due and accrued investment income is excluded from investment income for
bonds where the collection of interest is uncertain.
(c) 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.
(d) Separate Accounts
Separate account assets, which are valued at market, consist principally
of investments in mutual funds and are included as a separate caption in the
statement of admitted assets, liabilities and capital and surplus. Investment
income and changes in asset values are fully allocated to variable contract
holders and, therefore, do not affect 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
<PAGE>
were $3,196,000 and $3,245,000 for the years ended December 31, 1994 and
1993, respectively, and are included in net transfers to separate accounts on
the Statement of Operations.
(3) Investments:
(a) Fixed Maturities
Fair values of publicly traded securities are as reported by an
independent pricing service. The carrying value and fair value of investments
in fixed maturities at December 31, 1994 and 1993 are as follows:
December 31, 1994
---------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----------- -------- --------- -----------
U.S. Treasury securities $18,888,317 $4,713 $(877,092) $18,015,938
=========== ====== ========= ===========
December 31, 1993
--------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
---------- -------- --------- -----------
U.S. Treasury securities 13,469,296 $159,818 $(105,897) $13,523,217
========== ======== ========= ===========
The carrying value and fair value of fixed maturities at December 31,
1994 and 1993, by expected maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right
to call or repay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
------------------------ -------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 6,504,400 $ 6,388,125 $ 1,946,108 $ 1,980,072
Due after one year through five
years 12,383,917 11,627,813 11,523,188 11,543,145
----------- ----------- ----------- -----------
Total fixed maturities $18,888,317 $18,015,938 $13,469,296 $13,523,217
=========== =========== =========== ===========
</TABLE>
At December 31, 1994 and 1993, bonds with an amortized cost of
$1,950,976 and $3,857,123, respectively, were on deposit with regulatory
authorities.
(b) Net Investment Income:
Net investment income is summarized as follows:
Year Ended December 31,
------------------------
1994 1993
---------- -----------
Fixed maturities $ 907,608 $2,354,551
Policy loans 1,441,096 1,254,187
Cash and cash equivalents 37,437 127,437
Mortgage loans -- 1,337,366
Notes receivable -- 833,958
---------- ----------
Gross investment income 2,386,141 5,907,499
Investment expenses -- 406,163
---------- -----------
2,386,141 5,501,336
Amortization of interest maintenance
reserve 46,925 57,907
---------- -----------
Net investment income $2,433,066 $5,559,243
========== ===========
(c) Net Realized Investment Gains and Losses:
Proceeds of sales of investments in fixed maturities during 1994 and
1993 were $0 and $93,453,112, respectively. For 1993, net realized investment
gains of $1,829,468 included gross gains of $1,990,975 and gross losses of
$161,507.
(4) Fair Value of Financial Instruments:
Estimated fair values for the Company's investments in fixed maturities and
equity securities are presented in Note 3. Fair value estimates, methods and
assumptions are set forth below for the Company's other financial
instruments.
<PAGE>
(a) Policy loans
The carrying value of policy loans approximates fair value at December
31, 1994 and 1993.
(b) Reserves for Future Policy Benefits
The fair value of deposit liabilities with no stated maturity is equal
to the amount payable on demand. The Company considers its reserve for future
policy benefits to be similar to deposit liabilities.
The carrying value and estimated fair value of the reserves for future
policy benefits are $38,157,885 and $35,556,709, respectively at December 31,
1994, and $35,850,607 and $33,026,993, respectively at December 31, 1993.
(5) Federal Income Taxes:
The Company is taxed as a life insurance company under the provisions of the
Internal Revenue Code. The Company has loss carryforwards for Federal income
tax purposes of approximately $10,208,000. These operating loss carryforwards
are limited to use against future taxable profits of the Company and expire
through 2006.
Federal income tax expense differs from the amount computed by applying
the statutory federal income tax rate of 34% to income before federal income
taxes and net realized gains (losses) on investments for the following
reasons:
Year Ended December 31,
------------------------
1994 1993
---------- --------
Computed expected tax expense $1,044,208 $180,124
Net operating loss carryforward (516,718) (89,000)
Net amortization of investment
discounts and premiums (49,386) (23,498)
Excess of statutory over tax
reserves 455,940 (46,652)
Other (net) (15,854) (974)
---------- --------
Federal income tax expense $ 918,190 $ 20,000
========== ========
Income taxes paid were $489,270 and $77,502 for the years ended December
31, 1994 and 1993, respectively.
The Company will file a separate return until it is eligible to file a
consolidated return with Liberty Mutual in 1999.
(6) Transactions with Affiliated Companies:
The Company reimbursed Keyport Life for expenses incurred on its behalf for
the year ended December 31, 1994. The reimbursements included corporate
general and administrative expenses, corporate overhead, such as executive
and legal support, and investment management services. The total amount
reimbursed in 1994 was $450,000.
The Company receives a management fee from an affiliated company based on
the level of separate account assets. The total amount received in 1994 was
$225,375.
During 1993, prior to its acquisition by Keyport Life, the Company
received a $1,500,000 capital contribution from Crown Life.
At December 31, 1989, the Company entered into a coinsurance agreement
with Crown Life for certain guaranteed investment contracts. The agreement
with Crown Life was terminated on October 1, 1993. The Company paid
$164,141,000 during 1993 for maturities, surrenders and recaptures related to
these contracts.
During the years 1992 and 1991, the Company sold mortgages to Crown Life
in exchange for notes carrying the same interest yield, term to maturity and
characteristics as the mortgages sold. Crown Life repaid these notes during
1993.
During 1993 and 1992, the Company advanced $1,913 and $2,000,000,
respectively, to Crown Life by way of demand promissory notes which bear
interest at the United States prime rate. These notes were repaid on October
1, 1993.
At December 31, 1992, the Company was indebted to Crown Life in the amount
of $18,881,000 by way of demand promissory notes. These notes were repaid
during 1993.
The debenture due to Crown Life in the amount of $7,500,000 at December
31, 1992 was a subordinated surplus debenture which was repaid on October 1,
1993.
<PAGE>
(7) Capital and Surplus and Shareholder Dividend Restrictions:
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 $2,153,000.
(8) Reinsurance:
In the ordinary course of business the Company reinsures certain risks
associated with its life and annuity policies. Although reinsurance
agreements contractually obligate the Company's reinsurers, the Company is
contingently liable for these amounts in the event the assuming insurance
organizations are unable to meet their contractual obligations. At December
31, 1994, the Company's reinsurance was concentrated with one company. At
December 31, 1994 and 1993, total reinsurance in force ceded was $124,209,000
and $140,591,000, respectively. Premiums ceded were $517,538 and $120,403 for
the years ended December 31, 1994 and 1993, respectively.
(9) Commitments and Contingencies:
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 affect on the Company.
(10) Risk Based Capital:
Effective December 31, 1993, life and health insurance companies are
required to calculate Risk Based Capital (RBC) in accordance with
instructions set forth by the NAIC. RBC is a means of setting the capital
standards for insurance companies to support their operations and encompasses
various risks associated with the business including asset quality, premium
volume, policy reserves and interest rates. The RBC is then compared to the
Company's total adjusted capital, which is comprised of reported capital and
surplus adjusted for the asset valuation reserve. The Company's capital and
surplus significantly exceeds RBC requirements at December 31, 1994.
<PAGE>
KEYPORT AMERICA LIFE INSURANCE COMPANY
Annual Statement for the Year Ended December 31, 1994
Schedule 1 -- Selected Financial Data
The following is a summary of certain financial data included in our
exhibits and schedules subjected to audit procedures by independent auditors
and utilized by actuaries in the determination of reserves.
<TABLE>
<CAPTION>
<S> <C>
Investment income earned
Government bonds $ 907,608
Other bonds (unaffiliated) --
-----------
Bonds of affiliates --
-----------
Preferred stocks (unaffiliated) --
-----------
Preferred stocks of affiliates --
-----------
Common stocks (unaffiliated) --
-----------
Common stocks of affiliates --
-----------
Mortgage loans --
-----------
Real estate --
-----------
Premium notes, policy loans and liens 1,441,096
-----------
Collateral loans --
-----------
Cash on hand and on deposit 20,423
-----------
Short-term investments 17,014
-----------
Other invested assets --
-----------
Derivative instruments --
-----------
Aggregate write-ins for investment income --
-----------
Gross investment income $2,386,141
===========
Real estate owned--book value less encumbrances --
===========
Mortgage loans--book value:
Farm mortgages --
-----------
Residential mortgages --
-----------
Commercial mortgages --
-----------
Total mortgage loans --
===========
Mortgage loans by standing--book value:
Good standing --
===========
Good standing with restricted terms --
===========
Interest overdue more than three months, not in foreclosure --
===========
Foreclosure in process --
===========
Other long-term assets--statement value --
===========
Collateral loans --
===========
Bonds and stocks of parents, subsidiaries and affiliates--book value
Bonds --
===========
Preferred stocks --
===========
Common stocks --
===========
</TABLE>
<PAGE>
KEYPORT AMERICA LIFE INSURANCE COMPANY
Annual Statement for the Year Ended December 31, 1994
Schedule 1 -- Selected Financial Data
(continued)
<TABLE>
<CAPTION>
<S> <C>
Bonds and short-term investments by class and maturity:
Bonds by maturity--statement value
Due within one year or less $ 6,504,400
-------------
Over 1 year through 5 years 12,383,917
-------------
Over 5 years through 10 years --
-------------
Over 10 years through 20 years --
-------------
Over 20 years --
-------------
Total by maturity $ 18,888,317
=============
Bonds by class--statement value
Class 1 $ 18,888,317
-------------
Class 2 --
-------------
Class 3 --
-------------
Class 4 --
-------------
Class 5 --
-------------
Class 6 --
-------------
Total by class $ 18,888,317
=============
Total bonds publicly traded $ 18,888,317
=============
Total bonds privately placed --
=============
Preferred stocks--statement value --
=============
Common stocks--market value --
=============
Short-term investments--book value --
=============
Financial options owned--statement value --
=============
Financial options written and in force--statement value --
=============
Financial futures contracts open--current price --
=============
Cash on deposit $ 5,465,501
=============
Life insurance in force:
Industrial --
=============
Ordinary $318,477,385
=============
Credit life --
=============
Group life --
=============
Amount of accidental death insurance in force under ordinary policies --
=============
Life insurance policies with disability provisions in force:
Industrial --
=============
Ordinary --
=============
Credit life --
=============
Group life --
=============
</TABLE>
<PAGE>
KEYPORT AMERICA LIFE INSURANCE COMPANY
Annual Statement for the Year Ended December 31, 1994
Schedule 1 -- Selected Financial Data
(continued)
<TABLE>
<CAPTION>
<S> <C>
Supplementary contracts in force:
Ordinary--not involving life contingencies --
=========
Amount on deposit --
=========
Income payable --
=========
Ordinary--involving life contingencies
Income payable --
=========
Group--not involving life contingencies
Amount on deposit --
=========
Income payable --
=========
Group--involving life contingencies
Income payable --
=========
Annuities:
Ordinary
Immediate--amount of income payable --
=========
Deferred--fully paid account balance --
=========
Deferred--not fully paid--account balance $111,795
=========
Group
Amount of income payable --
=========
Fully paid account balance --
=========
Not fully paid--account balance --
=========
Accident and health insurance--premiums in force
Ordinary --
=========
Group --
=========
Credit --
=========
Deposit funds and dividend accumulations:
Deposit funds--account balance --
=========
Dividend accumulations--account balance --
=========
</TABLE>
<PAGE>
KEYPORT AMERICA LIFE INSURANCE COMPANY
Annual Statement for the Year Ended December 31, 1994
Schedule 1 -- Selected Financial Data
(continued)
<TABLE>
<CAPTION>
<S> <C>
Claim payments 199X:
Group accident and health year - ended December 31, 199X
1994 --
=========
1993 --
=========
1992 --
=========
Other accident and health
1994 --
=========
1993 --
=========
1992 --
=========
Other coverages that use developmental methods to calculate claims
reserves
1994 --
=========
1993 --
=========
1992 --
=========
</TABLE>
<PAGE>
Independent Auditors' Report
The Policy Owners of
Keyport America Life Insurance Company's
Keyport America Variable Life Separate Account:
We have audited the accompanying statement of assets and liabilities of the
sub-accounts comprising Keyport America Variable Life Separate Account 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 America Variable Life Separate Account 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.
KPMG Peat Marwick LLP
Boston, Massachusetts
April 14, 1995
65
<PAGE>
KEYPORT AMERICA VARIABLE LIFE SEPARATE ACCOUNT
Statement of Assets and Liabilities
December 31, 1994
<TABLE>
<S> <C>
Assets
Investments at market value:
SteinRoe Variable Investment Trust
Cash Income Fund - 16,408,577 shares (cost $16,408,577) $ 16,408,577
Capital Appreciation Fund - 334,990 shares (cost $5,481,526) 4,937,751
Managed Assets Fund - 2,284,437 shares (cost $30,778,912) 27,824,441
Mortgage Securities Income Fund - 2,369,776 shares (cost $25,443,059) 21,991,520
Managed Growth Stock Fund - 1,707,541 shares (cost $34,351,600) 30,923,574
Strategic Managed Assets Fund - 200,021 shares (cost $1,245,977) 1,166,122
Managed Income Fund - 97,830 shares (cost $1,016,737) 883,403
Keyport Variable Investment Trust
Colonial-Keyport Growth and Income Fund - 48,020 shares (cost $497,750) 481,639
Colonial-Keyport Utilities Fund - 15,706 shares (cost $138,164) 127,374
Colonial-Keyport U.S. Government Fund - 13,918 shares (cost $135,938) 127,633
Colonial-Keyport International Fund for Growth - 224,707 shares (cost $447,644) 422,449
Colonial-Keyport U.S. Fund for Growth - 3,161 shares (cost $33,291) 32,467
--------------
Total assets $ 105,326,950
==============
Net assets
Variable life contracts (note 6) $ 105,326,950
--------------
Total net assets $ 105,326,950
==============
</TABLE>
See accompanying notes to financial statements
66
<PAGE>
KEYPORT AMERICA VARIABLE LIFE SEPARATE ACCOUNT
Statements of Operations and Changes in Net Assets
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Cash Income Fund* Capital Appreciation Fund* Managed Assets Fund*
1994 1993 1994 1993 1994 1993
--------------------------- --------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Income
Dividends $ 673,226 $ 140,459 $ 530,635 $ 214,395 $ 1,125,639 $ 1,454,528
Expenses (note 3)
Mortality and expense risk
and administrative charges 529,600 149,311 103,152 5,532 803,465 207,280
------------ ------------ ----------- ----------- ----------- -----------
Net investment income 143,626 (8,852) 427,483 208,863 322,174 1,247,248
Realized gain (loss) - - (19,921) (1,230) (191,145) 2,836
Unrealized appreciation (depreciation)
during the year - - (410,330) (133,445) (1,949,712) (1,004,759)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from operations 143,626 (8,852) (2,768) 74,188 (1,818,683) 245,325
------------ ------------ ----------- ----------- ----------- -----------
Transfers between accounts (940,790) 23,560,753 3,922,599 1,334,036 (1,232,073) 33,813,073
Contract terminations (2,819,117) (499,274) (64,556) (14,685) (1,834,536) (451,211)
Contract loans (note 5) (1,595,200) (1,432,569) (342,836) 31,773 (820,285) (77,169)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from contract transactions (5,355,107) 21,628,910 3,515,207 1,351,124 (3,886,894) 33,284,693
------------ ------------ ----------- ----------- ----------- -----------
Net assets at beginning of period 21,620,058 - 1,425,312 - 33,530,018 -
------------ ------------ ----------- ----------- ----------- -----------
Net assets at end of period $ 16,408,577 $ 21,620,058 $ 4,937,751 $ 1,425,312 $27,824,441 $33,530,018
============ ============ =========== =========== =========== ===========
</TABLE>
* Commencement of Operations - October 1, 1993
See accompanying notes to financial statements
67
<PAGE>
KEYPORT AMERICA VARIABLE LIFE SEPARATE ACCOUNT
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Mortgage Securities Income Fund* Managed Growth Stock Fund* Strategic Managed Assets Fund*
1994 1993 1994 1993 1994 1993
-------------------------------- -------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Income
Dividends $ 1,604,855 $ 1,823,545 $ 1,969,631 $ 807,188 $ 62,520 $ 14,831
Expenses (note 3)
Mortality and expense risk
and administrative charges 565,565 141,159 874,541 258,256 40,977 1,303
------------ ------------ ----------- ----------- ----------- --------
Net investment income 1,039,290 1,682,386 1,095,090 548,932 21,543 13,528
Realized gain (loss) (254,443) 521 (248,389) 8,916 1,079 29
Unrealized appreciation (depreciation)
during the year (1,757,554) (1,693,985) (4,122,747) 694,721 (68,235) (11,620)
------------ ------------ ----------- ----------- ----------- --------
Net increase (decrease) in net assets
from operations (972,707) (11,078) (3,276,046) 1,252,569 (45,613) 1,937
------------ ------------ ----------- ----------- ----------- --------
Transfers between accounts (2,903,586) 26,820,648 (1,877,793) 38,413,927 1,143,097 402,249
Contract terminations (810,318) (174,214) (2,226,227) (519,946) (152,234) (24,666)
Contract loans (note 5) (291,953) 334,728 (582,647) (260,263) (163,201) 4,553
------------ ------------ ----------- ----------- ----------- --------
Net increase (decrease) in net assets
from contract transactions (4,005,857) 26,981,162 (4,686,667) 37,633,718 827,662 382,136
------------ ------------ ----------- ----------- ----------- --------
Net assets at beginning of period 26,970,084 - 38,886,287 - 384,073 -
------------ ------------ ----------- ----------- ----------- --------
Net assets at end of period $ 21,991,520 $ 26,970,084 $30,923,574 $38,886,287 $ 1,166,122 $384,073
============ ============ =========== =========== =========== ========
</TABLE>
* Commencement of Operations - October 1, 1993
See accompanying notes to financial statements
68
<PAGE>
KEYPORT AMERICA VARIABLE LIFE SEPARATE ACCOUNT
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Colonial-Keyport Colonial-Keyport
Managed Income Fund* Growth and Income Fund** Utilities Fund**
1994 1993 1994 1993 1994 1993
----------------------- ------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
Income
Dividends $ 69,451 $ 24,758 $ 11,447 $ - $ 8,095 $ -
Expenses (note 3)
Mortality and expense risk
and administrative charges 25,114 6,104 4,849 - 1,000 -
--------- --------- --------- ------ --------- ------
Net investment income 44,337 18,654 6,598 - 7,095 -
Realized gain (loss) (3,334) 49 (1,370) - (5) -
Unrealized appreciation (depreciation)
during the year (108,562) (24,772) (16,111) - (10,790) -
--------- --------- --------- ------ --------- ------
Net increase (decrease) in net assets
from operations (67,559) (6,069) (10,883) - (3,700) -
--------- --------- --------- ------ --------- ------
Transfers between accounts 514,981 503,789 495,810 - 131,074 -
Contract terminations (40,312) (4,963) (5,398) - - -
Contract loans (note 5) (10,658) (5,806) 2,110 - - -
--------- --------- --------- ------ --------- ------
Net increase (decrease) in net assets
from contract transactions 464,011 493,020 492,522 - 131,074 -
--------- --------- --------- ------ --------- ------
Net assets at beginning of period 486,951 - - - - -
--------- --------- --------- ------ --------- ------
Net assets at end of period $ 883,403 $ 486,951 $ 481,639 $ - $ 127,374 $ -
========= ========= ========= ====== ========= ======
</TABLE>
* Commencement of Operations - October 1, 1993
** Commencement of Operations - December 19, 1993
See accompanying notes to financial statements
69
<PAGE>
KEYPORT AMERICA VARIABLE LIFE SEPARATE ACCOUNT
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Colonial-Keyport Colonial-Keyport
Colonial-Keyport International Fund U.S. Fund
U.S. Government Fund** for Growth*** for Growth****
1994 1993 1994 1994
--------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Income
Dividends $ 7,473 $ - $ - $ 529
Expenses (note 3)
Mortality and expense risk
and administrative charges 1,012 - 6,938 32
--------- ------- --------- --------
Net investment income 6,461 - (6,938) 497
Realized gain (loss) (109) - (2,033) -
Unrealized appreciation (depreciation)
during the year (8,306) - (25,195) (824)
--------- ------- --------- --------
Net increase (decrease) in net assets
from operations (1,954) - (34,166) (327)
--------- ------- --------- --------
Transfers between accounts 129,587 - 469,142 32,794
Contract terminations - - (13,781) -
Contract loans (note 5) - - 1,254 -
--------- ------- --------- --------
Net increase (decrease) in net assets
from contract transactions 129,587 - 456,615 32,794
--------- ------- --------- --------
Net assets at beginning of period - - - -
--------- ------- --------- --------
Net assets at end of period $ 127,633 $ - $ 422,449 $ 32,467
========= ======= ========= ========
</TABLE>
** Commencement of Operations - December 19, 1993
*** Commencement of Operations - May 2, 1994
**** Commencement of Operations - July 5, 1994
See accompanying notes to financial statements
70
<PAGE>
KEYPORT AMERICA VARIABLE LIFE SEPARATE ACCOUNT
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Money Market Fund Bond Income Fund
1994 1993 1992 1994 1993 1992
-------- ------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income
Dividends $ - $ 443,000 $ 923,000 $ - $ 768,000 $ 1,180,000
Expenses (note 3)
Mortality and expense risk
and administrative charges - 531,000 860,000 - 252,000 321,000
------- ------------ ------------ ------- ------------ ------------
Net investment income - (88,000) 63,000 - 516,000 859,000
Realized gain (loss) - - - - 626,000 239,000
Unrealized appreciation (depreciation)
during the year - - - - (2,000) (604,000)
------- ------------ ------------ ------- ------------ ------------
Net increase (decrease) in net assets
from operations - (88,000) 63,000 - 1,140,000 494,000
------- ------------ ------------ ------- ------------ ------------
Transfers between accounts - (22,162,000) (802,000) - (14,713,000) (521,000)
Contract terminations - (1,251,000) (4,009,000) - (455,000) (387,000)
Contract loans (note 5) - (1,048,000) 176,000 - (146,000) (322,000)
------- ------------ ------------ ------- ------------ ------------
Net increase (decrease) in net assets
from contract transactions - (24,461,000) (4,635,000) - (15,314,000) (1,230,000)
------- ------------ ------------ ------- ------------ ------------
Net assets at beginning of period - 24,549,000 29,121,000 - 14,174,000 14,910,000
------- ------------ ------------ ------- ------------ ------------
Net assets at end of period $ - $ - $ 24,549,000 $ - $ - $ 14,174,000
======= ============ ============ ======= ============ ============
</TABLE>
See accompanying notes to financial statements
71
<PAGE>
KEYPORT AMERICA VARIABLE LIFE SEPARATE ACCOUNT
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Capital Growth Fund Managed Fund
1994 1993 1992 1994 1993 1992
-------- ------------ ------------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income
Dividends $ - $ 1,881,000 $ 818,000 $ - $ 1,694,000 $ 3,273,000
Expenses (note 3)
Mortality and expense risk
and administrative charges - 816,000 984,000 - 638,000 775,000
------- ------------ ------------ ------- ------------ ------------
Net investment income - 1,065,000 (166,000) - 1,056,000 2,498,000
Realized gain (loss) - 4,291,000 4,480,000 - 2,936,000 227,000
Unrealized appreciation (depreciation)
during the year - (3,747,000) (2,753,000) - (2,079,000) (1,345,000)
------- ------------ ------------ ------- ------------ ------------
Net increase (decrease) in net assets
from operations - 1,609,000 1,561,000 - 1,913,000 1,380,000
------- ------------ ------------ ------- ------------ ------------
Transfers between accounts - (41,980,000) 399,000 - (35,157,000) 1,398,000
Contract terminations - (1,878,000) (1,919,000) - (1,135,000) (1,389,000)
Contract loans (note 5) - (120,000) (753,000) - (889,000) 203,000
------- ------------ ------------ ------- ------------ ------------
Net increase (decrease) in net assets
from contract transactions - (43,978,000) (2,273,000) - (37,181,000) 212,000
------- ------------ ------------ ------- ------------ ------------
Net assets at beginning of period - 42,369,000 43,081,000 - 35,268,000 33,676,000
------- ------------ ------------ ------- ------------ ------------
Net assets at end of period $ - $ - $ 42,369,000 $ - $ - $ 35,268,000
======= ============ ============ ======= ============ ============
</TABLE>
See accompanying notes to financial statements
72
<PAGE>
KEYPORT AMERICA VARIABLE LIFE SEPARATE ACCOUNT
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Zero Coupon Bond Fund-1996 Zero Coupon Bond Fund-2006
1994 1993 1992 1994 1993 1992
------- ----------- ----------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income
Dividends $ - $ 1,883,000 $ 583,000 $ - $ 1,818,000 $ 454,000
Expenses (note 3)
Mortality and expense risk
and administrative charges - 152,000 166,000 - 74,000 86,000
------ ----------- ----------- ------ ----------- -----------
Net investment income - 1,731,000 417,000 - 1,744,000 368,000
Realized gain (loss) - (411,000) 101,000 - (480,000) 9,000
Unrealized appreciation (depreciation)
during the year - (712,000) (50,000) - (153,000) (21,000)
------ ----------- ----------- ------ ----------- -----------
Net increase (decrease) in net assets
from operations - 608,000 468,000 - 1,111,000 356,000
------ ----------- ----------- ------ ----------- -----------
Transfers between accounts - (8,874,000) (151,000) - (5,673,000) (48,000)
Contract terminations - (316,000) (44,000) - (63,000) (67,000)
Contract loans (note 5) - (449,000) (175,000) - (59,000) (98,000)
------ ----------- ----------- ------ ----------- -----------
Net increase (decrease) in net assets
from contract transactions - (9,639,000) (370,000) - (5,795,000) (213,000)
------ ----------- ----------- ------ ----------- -----------
Net assets at beginning of period - 9,031,000 8,933,000 - 4,684,000 4,541,000
------ ----------- ----------- ------ ----------- -----------
Net assets at end of period $ - $ - $ 9,031,000 $ - $ - $ 4,684,000
====== =========== =========== ====== =========== ===========
</TABLE>
See accompanying notes to financial statements
73
<PAGE>
KEYPORT AMERICA VARIABLE LIFE SEPARATE ACCOUNT
Statements of Operations and Changes in Net Assets, continued
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Total Total Total
1994 1993 1992
------------ ------------- -------------
<S> <C> <C> <C>
Income
Dividends $ 6,063,501 $ 12,966,704 $ 7,231,000
Expenses (note 3)
Mortality and expense risk
and administrative charges 2,956,245 3,231,945 3,192,000
------------ ------------- -------------
Net investment income 3,107,256 9,734,759 4,039,000
Realized gain (loss) (719,670) 6,973,121 5,056,000
Unrealized appreciation (depreciation)
during the year (8,478,366) (8,866,860) (4,773,000)
------------ ------------- -------------
Net increase (decrease) in net assets
from operations (6,090,780) 7,841,020 4,322,000
------------ ------------- -------------
Transfers between accounts (115,158) (3,710,525) 275,000
Contract terminations (7,966,479) (6,786,959) (7,815,000)
Contract loans (note 5) (3,803,416) (4,115,753) (969,000)
------------ ------------- -------------
Net increase (decrease) in net assets
from contract transactions (11,885,053) (14,613,237) (8,509,000)
------------ ------------- -------------
Net assets at beginning of period 123,302,783 130,075,000 134,262,000
------------ ------------- -------------
Net assets at end of period $ 105,326,950 $ 123,302,783 $ 130,075,000
============= ============= =============
</TABLE>
See accompanying notes to financial statements
74
<PAGE>
KEYPORT AMERICA VARIABLE LIFE SEPARATE ACCOUNT
Notes to Financial Statements, continued
1. Organization
The Keyport America Variable Life Separate Account (the "Variable Account")
is a separate investment account established by Keyport America 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.
On October 1, 1993, Keyport Life Insurance Company (Keyport Life) acquired
the common stock of the Company from Crown Life Insurance Company. On December
29, 1993, the Company was redomesticated from the State of Michigan to the state
of Rhode Island. On January 10, 1994, the Company's name was changed from Crown
America Life Insurance Company (Crown America) to Keyport America Life Insurance
Company and the Variable Account name was changed from Crown America Variable
Life Separate Account to Keyport America Variable Life Separate Account.
There are currently two funding vehicles available to the Variable Account,
the SteinRoe Variable Investment Trust ("SRVIT") and the Keyport Variable
Investment Trust ("KVIT"). The SRVIT was made available on October 1, 1993, when
all of the assets of the six funds of the Crown America Series Fund, Inc.
("Crown Series") were transferred to four corresponding funds in the SRVIT. The
transfer took place as follows:
Crown Series SRVIT
------------ -----
Capital Growth Fund Managed Growth Stock Fund
Managed Fund Managed Assets Fund
Bond Income Fund Mortgage Securities Income Fund
Zero Coupon Bond Fund-1996 Mortgage Securities Income Fund
Zero Coupon Bond Fund-2006 Mortgage Securities Income Fund
Money Market Fund Cash Income Fund
The remaining eligible SRVIT funds are the Capital Appreciation Fund, the
Strategic Managed Assets Fund and the Managed Income Fund. The KVIT was made
available to contractholders on December 19, 1993 with the following eligible
funds:
Colonial-Keyport Growth and Income Fund
Colonial-Keyport U.S. Government Fund
Colonial-Keyport Utilities 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. No contractholders were invested in the Colonial-Keyport Strategic
Income Fund at December 31, 1994.
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 of 6.7% of purchase
payments is deducted in annual installments from the cash value in years two
through eleven. Any unpaid charge will be deducted from the cash value at the
time of contract termination. An annual policy maintenance charge, based upon a
contractholders's age, contract premium, and a series of factors, is deducted on
the contractholder's annual anniversary date. Daily deductions are made from
each sub-account for assumption of mortality and expense risk by the Company at
an effective annual rate of 0.60% of the contract value.
75
<PAGE>
4. Affiliated Company Transactions
Administrative services necessary for the operation of the Account are
provided by the Company's parent, Keyport Life. 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 Keyport Life, is the investment advisor to KVIT. Keyport Financial Services
Corporation, a wholly owned subsidiary of Keyort Life, is the principal
underwriter for SRVIT and KVIT. The investment advisors' and principal
underwriter's compensation is derived from the mutual funds.
Prior to October 1, 1993, C.A.L. Investment Services, Inc., was a wholly
owned subsidiary of Crown America and acted as the distributor and principal
underwriter for the Variable Account. Prior to October 1, 1993, Crown America
Investment Management, Inc., a wholly owned subsidiary of Crown America , acted
as the investment advisor to the Crown Series funds. The above two subsidiaries
were not acquired by Keyport Life.
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.
76
<PAGE>
6. 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 $ 157.659772 $ 162.696055 100,854.1710 $ 16,408,577
Capital Appreciation Fund 107.575199 108.204598 45,633.4700 4,937,751
Managed Assets Fund 219.087710 210.835179 131,972.4800 27,824,441
Mortgage Securities Income Fund 194.478699 190.280250 115,574.3720 21,991,520
Managed Growth Stock Fund 216.015650 201.087262 153,781.8640 30,923,574
Strategic Managed Assets Fund 100.833527 100.206100 11,637.2340 1,166,122
Managed Income Fund 99.774195 94.818075 9,316.8190 883,403
Colonial-Keyport Growth and Income Fund - 96.121190 5,010.7470 481,639
Colonial-Keyport Utilities Fund - 94.024372 1,354.6890 127,374
Colonial-Keyport U.S. Government Fund - 98.491752 1,295.8700 127,633
Colonial-Keyport International Fund - 94.618476 4,464.7630 422,449
Colonial-Keyport U.S. Fund for Growt - 98.547634 329.4590 32,467
------------ ------------
581,225.9380 $105,326,950
============ ============
</TABLE>
77
