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)
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
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
<PAGE>
KEYPORT AMERICA VARIABLE ANNUITY SEPARATE ACCOUNT PROSPECTUS
for the
Flexible Premium Variable Deferred Annuity Policy
offered by
KEYPORT AMERICA LIFE INSURANCE COMPANY
_______________________________________________________________________________
This Prospectus describes the Flexible Premium Variable Deferred Annuity Policy
("Policy") 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 offered by this
Prospectus are designed for use in connection with personal retirement plans,
some of which may qualify for federal income tax advantages available under
Sections 401 or 408 of the Internal Revenue Code of 1986, as amended. THE
POLICIES CEASED BEING AVAILABLE IN AUGUST 1988.
The Policyowner of a Policy may allocate net Premium Payments to one or more of
the fourteen Sub-Accounts of the Keyport America Variable Annuity Separate
Account (the "Separate Account"). Subject to certain restrictions, the
Policyowner can transfer the total Investment Base among the Sub-Accounts. The
total Investment Base of the Policy will vary in accordance with the Investment
Return of the Sub-accounts selected by the Policyowner. Therefore, prior to the
Annuity Date, the Policyowner bears the entire investment risk under the Policy.
Assets of each Sub-Account are invested in a corresponding Fund of the SteinRoe
Variable Investment Trust ("SteinRoe Trust") and the Keyport Variable Investment
Trust ("Keyport Trust"). The SteinRoe Trust has seven Funds which are available
to Policyowners: 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 Keyport Trust has seven Funds which are available
to Policyowners: Colonial-Keyport U.S. Government Fund ("CKUSGF"),
Colonial-Keyport U.S. Fund for Growth ("CKUSFG"), Colonial-Keyport Growth and
Income Fund ("CKGIF"), Colonial-Keyport Utilities Fund ("CKUF"),
Colonial-Keyport Strategic Income Fund ("CKSIF"), Colonial-Keyport International
Fund for Growth ("CKIFG") and Newport-Keyport Tiger Fund ("NKTF"). MIF, SMAF and
CKUSGF Sub-Accounts are not available to receive either allocations of new
purchase payments or transfers of Contract Value since a filing is pending with
the Securities and Exchange Commission seeking its approval of the substitution
of shares of CKSIF, MAF and MSIF for the shares of MIF, SMAF and CKUSGF,
respectively.
The Policyowner may withdraw all or part of the Cash Value of the Policy at any
time before the earlier of the Annuitant's death or the Annuity Date, although
withdrawals may be subject to a Surrender Charge and tax penalty. The
Policyowner has flexibility in determining the Annuity Date, on which Income
Payments are scheduled to commence if the Policyowner elects a Payment Option.
Income Payments are made only on a fixed basis and the Policyowner can select
among several forms of Payment Options.
This Prospectus sets forth the basic information that a prospective investor
should know before investing. A "Statement of Additional Information" containing
more detailed information about the Policies and the Separate Account is
available free by writing Keyport America at the mailing address shown below or
by calling (800) 500-5512. The Statement of Additional Information, which has
the same date as this Prospectus and may be supplemented from time to time, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The table of contents of the Statement of Additional
Information is included at the end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES 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 For
SteinRoe Variable Investment Trust And Keyport Variable Investment Trust.
Please Read This Prospectus Carefully And Retain It For Future Reference.
Executive Mailing
Office: 125 High Street Address: Keyport America Service Office
Boston, MA 02110 c/o Keyport Life Insurance Co.
125 High Street
Boston, MA 02110-2712
The Date of This Prospectus is May 1, 1995
1
<PAGE>
TABLE OF CONTENTS
Page
DEFINITIONS................................................................. 3
INTRODUCTION TO POLICIES.................................................... 5
FEE TABLE................................................................... 8
CONDENSED FINANCIAL INFORMATION............................................. 11
THE ISSUING COMPANY......................................................... 13
THE SEPARATE ACCOUNT........................................................ 13
Investments of the Separate Account.................................... 14
Additions, Deletions or Substitutions of
Investments.......................................................... 15
Investment Management.................................................. 16
PRINCIPAL POLICY FEATURES................................................... 16
Premium Payments....................................................... 17
Deductions from Premium Payments....................................... 17
Charges Against the Sub-Accounts and the Funds......................... 17
Surrender Charge....................................................... 18
Other Charges.......................................................... 19
Investment Base and Cash Value......................................... 19
Investment Return...................................................... 20
DISTRIBUTIONS UNDER THE POLICY.............................................. 20
Surrenders and Partial Withdrawals..................................... 20
Death Benefit.......................................................... 21
Annuity Date........................................................... 21
Payment Options........................................................ 21
OTHER POLICY FEATURES....................................................... 22
Payment of Proceeds.................................................... 22
Ownership.............................................................. 23
Beneficiary............................................................ 23
Policyowner Inquiries.................................................. 23
FEDERAL TAX MATTERS......................................................... 24
Introduction........................................................... 24
Taxation of Annuities in General....................................... 24
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT
PROGRAM................................................................... 25
DISTRIBUTION AGREEMENT AND OTHER CONTRACTUAL ARRANGEMENTS................... 26
VOTING RIGHTS............................................................... 26
FINANCIAL STATEMENTS........................................................ 26
STATEMENT OF ADDITIONAL INFORMATION......................................... 27
2
<PAGE>
DEFINITIONS
Annuitant: The person named in the Policy and on whose life the first Income
Payment is to be made.
Annuity Date: The date on which the first Income Payment is to be made if the
Policyowner elects a Payment Option.
Beneficiary: The person who has the right to receive the Death Benefit set forth
in the Policy.
Cash Value: The Policy's total Investment Base less any Surrender Charges.
Contingent Policyowner: The person, persons or entity named to become the new
Policyowner if the Policyowner dies prior to the Annuity Date.
Income Payment: One of a series of payments made under a Payment Option.
Investment Base: The dollar amount that the Policy provides for investment at
any time while the Annuitant is living and before the Annuity Date.
Non-Qualified Policy: A Policy used in connection with a retirement plan which
does not receive favorable federal income tax treatment under Sections 401 or
408 of the Internal Revenue Code.
Payment Option: One of the methods that may be chosen by the Policyowner for
receiving Income Payments.
Payee: The recipient of any proceeds under the Policy.
Policyowner: The person, persons or entity entitled to the ownership rights
stated in the Policy and in whose name or names the Policy is issued.
Policy Anniversary: Any anniversary of the Policy Date.
Policy Date: The date on which the application and initial Premium Payment are
received and accepted.
Policy Year: A period of 12 months starting with the Policy Date or any Policy
Anniversary.
Premium Payment: An amount paid to Keyport America by the Policyowner or on the
Policyowner's behalf as consideration for the benefits provided by the Policy.
The net Premium Payment is the Premium Payment less any applicable premium tax.
Qualified Policy: A Policy used in connection with a retirement plan which
receives favorable federal income tax treatment under Sections 401 or 408 of the
Internal Revenue Code of 1986, as amended.
3
<PAGE>
Sub-Account: One of fourteen subdivisions of the Separate Account established by
Keyport America. The fourteen Sub-Accounts are: Cash Income Fund Sub-Account,
Mortgage Securities Income Fund Sub-Account, Managed Income Fund Sub-Account,
Managed Assets Fund Sub-Account, Strategic Managed Assets Fund Sub-Account,
Managed Growth Stock Fund Sub-Account, Capital Appreciation Fund Sub-Account,
Colonial-Keyport U.S. Government Fund, Colonial-Keyport U.S. Fund for Growth
Sub-Account, Colonial-Keyport Growth and Income Fund Sub-Account, Colonial-
Keyport Utilities Fund Sub-Account, Colonial-Keyport Strategic Income Fund
Sub-Account, Colonial-Keyport International Fund for Growth Sub-Account and
Newport-Keyport Tiger Fund Sub-Account. The Managed Income Fund Sub-Account,
Strategic Managed Assets Fund Sub-Account and Colonial-Keyport U.S. Government
Fund Sub-Account are not available to receive either allocations of new purchase
payments or transfers of Contract Value.
Valuation Period: The period of time which starts on a Valuation Day and ends on
the next succeeding Valuation Day. A Valuation Day will be each day the New York
Stock Exchange is open for trading.
4
<PAGE>
INTRODUCTION TO POLICIES
What is the purpose of the Policy?
The Policy allows a Policyowner who is a natural person to accumulate funds on a
tax-deferred basis reflecting the investment performance of the assets
underlying the Policy and to receive Income Payments on a fixed basis. The
Policy can be purchased on a non-tax qualified basis ("Non-Qualified Policy") or
it can be purchased with the proceeds from certain plans qualifying for
favorable federal income tax treatment ("Qualified Policy"). The Policyowner can
allocate net Premium Payments to one or more of the Sub-Accounts of the Keyport
America Variable Annuity Separate Account ("Separate Account"). Each Sub-Account
will invest in a corresponding portfolio of the SteinRoe Variable Investment
Trust ("SteinRoe Trust") and the Keyport Variable Investment Trust ("Keyport
Trust"). Because the Investment Base depends on the Investment Return of the
selected Sub-Accounts, the Policyowner bears the entire investment risk under
the Policy prior to the Annuity Date.
What is an annuity?
The Policy provides for a series of Income Payments beginning on the Annuity
Date if the Policyowner elects a Payment Option. The Policyowner may select from
a number of Payment Options, including income for a fixed period, income for
life, income for life with payments for 10 years guaranteed, and income for
joint and survivor payees. Income Payments are made on a fixed basis.
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 and its home office at 235 Promenade Street, Providence, Rhode
Island 02903. Keyport and Keyport America are both Liberty Financial Companies
and ultimately controlled by Liberty Mutual Insurance Company of Boston,
Massachusetts, a multi-line insurance and financial services 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.
What types of investments underlie the Separate Account?
Each of the fourteen Sub-Accounts of the Separate Account invests solely in a
corresponding Fund of the SteinRoe Trust and the Keyport Trust. The SteinRoe
Trust currently has seven Funds which are available to the Separate Account:
Cash Income Fund, Mortgage Securities Income Fund, Managed Income Fund, Managed
Assets Fund, Strategic Managed Assets Fund, Managed Growth Stock Fund, and
Capital Appreciation Fund. The Keyport Trust currently has seven Funds which are
available to the Separate Account: Colonial-Keyport U.S. Government Fund,
Colonial-Keyport U.S. Fund for Growth, Colonial-Keyport Growth and Income Fund,
Colonial- Keyport Utilities Fund, Colonial-Keyport Strategic Income Fund,
Colonial-Keyport International Fund for Growth and Newport-Keyport Tiger Fund.
Managed Income Fund, Strategic
5
<PAGE>
Managed Assets Fund and Colonial-Keyport U.S. Government Fund are not available
to receive allocations of new purchase payments or transfers of Contract Value.
The assets of each Fund are held separately from the other Funds and each has
distinct investment objectives and policies which are described in the
prospectuses for the SteinRoe Trust and Keyport Trust.
(See "Investments of the Separate Account", page 14.)
Stein Roe and Farnham, Incorporated, an affiliate of Keyport America, acts as
investment adviser to the SteinRoe Trust and is paid fees by the SteinRoe Trust
for rendering such investment advice. Keyport Advisory Services Corp. ("KASC"),
an affiliate of Keyport America, acts as investment adviser to the Keyport Trust
and is paid fees by the Keyport Trust for rendering such investment advice.
Pursuant to sub-advisory agreements, Colonial Management Associates, Inc., an
affiliate of Keyport America, serves as sub-adviser for the Eligible Funds of
Keyport Trust (other than Newport-Keyport Tiger Fund) and its sub-advisory fees
are paid by KASC. Newport Fund Management, Inc., an affiliate of Keyport
America, serves as sub-adviser to the Newport-Keyport Tiger Fund and its
sub-advisory fees will be paid by KASC. (See "Investment Management", page 16.)
How is the Policy purchased?
The Policy may be purchased with an initial Premium Payment of at least $5,000.
Additional Premium Payments must be at least $1,000, and generally may be made
at any time prior to the Annuity Date as long as the Annuitant is living. The
maximum amount of Premium Payments that may be paid into one Policy without the
consent of Keyport America is $2,500,000. (See "Premium Payments", page 17.)
How are amounts allocated to each Sub-Account of the Separate Account?
On the Policy Date, the net initial Premium Payment is allocated to one or more
of the Sub-Accounts of the Separate Account in accordance with the allocation
percentages specified by the Policyowner in the Policy application. Any
allocation must be a whole number not less than 10%. The total allocation must
equal 100%. Allocations for additional Premium Payments may be changed by
sending written notice to Keyport America's Service Office. (See "Premium
Payments", page 17.)
Can the Policyowner transfer the Investment Base?
The Policyowner may redistribute the total Investment Base up to twelve times
during a Policy Year without Keyport America's consent and without charge. Each
approved transfer in excess of twelve in a single Policy Year will be assessed a
$25 charge. (See "Other Charges", page 19.)
Can the Policy be surrendered or money withdrawn?
All or part of the Cash Value of the Policy may be withdrawn by the Policyowner
before the earlier of the Annuitant's death or the Annuity Date. Keyport America
imposes a Surrender Charge (contingent deferred sales charge) depending on how
long the withdrawn Premium Payments have been invested in the Policy. This
charge is also applied on the Annuity Date. KEYPORT AMERICA GUARANTEES THAT THE
AGGREGATE SURRENDER CHARGES WILL NEVER EXCEED 5% OF AGGREGATE PREMIUM PAYMENTS.
(See "Surrenders and Partial Withdrawals", page 20 and "Surrender Charge", page
18.) In addition, withdrawals may be subject to a penalty tax.
(See "Federal Tax Matters", page 24.)
Are there any deductions from Premium Payments?
For Policies issued in most states, there will be no deductions from Premium
Payments. However, Keyport America will incur premium taxes where imposed by
state law and will deduct such taxes either from Premium Payments or upon
application of the proceeds to a Payment
6
<PAGE>
Option, depending on when the tax is imposed by the particular state. A net
Premium Payment is a Premium Payment less any applicable premium tax. (See
"Premium Payments", page 17 and "Deductions from Premium Payments", page 17.)
Are there charges against the Sub-Accounts and the Funds?
Keyport America deducts a daily charge equal to a percentage of the value of the
net assets in the Separate Account for the mortality and expense risks assumed.
the effective annual rate of this charge is 1.25% of the value of the net assets
in each Sub-Account. (See "Charges Against the Sub-Accounts and the Funds", page
17.)
Keyport America also deducts a daily charge equal to a percentage of the value
of the net assets in the Separate Account for the cost of administering the
Policies. The effective annual rate of this charge is .30% of the value of the
net assets in each Sub-Account. (See "Charges Against the Sub-Accounts and the
Funds", page 17.)
Charges for investment advisory and management services are accrued daily for
each Eligible Fund at the following annual rates: .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 Strategic Income Fund,
Colonial-Keyport Growth and 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 "Investment Management",
page 16.)
How are Income Payments Made?
Income Payments will be made only on a fixed basis. The Policyowner has
flexibility in choosing the Annuity Date, subject to Keyport America's Policy
restrictions and applicable law.
Four Payment Options are included in the Policy: (1) income for a fixed period;
(2) income for life; (3) income for life with payments for 10 years guaranteed;
and (4) income for joint and survivor payees. (See "Payment Options", page 21.)
What happens if the Annuitant dies before the Annuity Date?
In the event that the Annuitant dies prior to the Annuity Date, the Death
Benefit is calculated as of the date due proof of death of the Annuitant is
received at Keyport America's Executive Office. The Death Benefit will be equal
to the greater of the Investment Base or the Premium Payments made (less any
partial withdrawals and any Surrender Charges thereon). (See "Death Benefit",
page 21.)
What happens if the Policyowner dies before the Annuity Date?
In the event that the Policyowner dies prior to the Annuity Date, a Contingent
Policyowner becomes the new Policyowner. The Policyowner may appoint or change a
Contingent Policyowner at any time prior to the Annuity Date. If the Policyowner
does not name a Contingent Policyowner or a Contingent Policyowner is not living
at the Policyowner's death, ownership will pass to the Policyowner's estate.
(See "Ownership", page 23.)
When are communications and Premium Payments deemed received at Keyport
America's Service Office?
A Policyowner's request for a particular transaction or a Policyowner's
submission of Premium Payments or other items (for example, a returned Policy)
is deemed received at Keyport
7
<PAGE>
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. However, if any
such item is received at or after the above specified time, the request will be
deemed received as of the next such day.
Is there a right to examine the Policy?
The Policyowner has a right to examine the Policy. The Policyowner can cancel
the Policy by sending it to the Executive Office or to the agent through whom
the Policy was purchased within ten days after receipt of the Policy. Keyport
America will return the Premium Payments as of the date the Policy is received
at the Executive Office or by the agent.
Questions
Any question about procedures or the Policy will be answered by the Keyport
America Service Office, c/o Keyport Life Insurance Company, 125 High Street,
Boston, MA 02110-2712. All inquiries should include the Policy number, the
Policyowner's name and the Annuitant's name.
* * *
Note: The foregoing questions and answers are qualified in their entirety by the
detailed information in the remainder of this prospectus and the prospectuses
for the SteinRoe Variable Investment Trust and the Keyport Variable Investment
Trust, all of which should be referred to for more detailed information. With
respect to Qualified Policies, it should be noted that the requirements of a
particular plan, an endorsement to the Policy, or limitations or penalties
imposed by the Internal Revenue Code of 1986, as amended, may impose limits on
Premium Payments, withdrawals, distributions, benefits, or on other provisions
of the Policies, and this Prospectus does not describe any such limitations or
restrictions.
(See "Federal Tax Matters", page 24.)
FEE TABLE
The following illustrates the charges and deductions under the Policy, as well
as the fees and expenses of the SteinRoe Trust and the Keyport Trust.
Information regarding the Trusts has been provided by the Trusts for use in this
Fee Table.
Policyowner Transaction Expenses
Sales Load imposed on Premium Payments NONE
Maximum Surrender Charge in the form of a contingent
deferred sales load (as a percentage of premium when
there is a partial withdrawal from the Policy or
when the Policy is surrendered or 5%
annuitized)
Other Surrender Fees NONE
Transfer Charge (transfers made between Sub-Accounts
and the fixed-rate option during a policy year)
First 12 transfers NONE
Each transfer after the twelfth $25.00
Annual Policy Fee NONE
8
<PAGE>
Separate Account Annual Expenses (as a percentage
of average Investment Base)
Mortality and Expense Risk Charge 1.25%
Administrative Charge 0.30%
-----
Total Separate Account Annual Expenses 1.55%
-----
SteinRoe Trust Annual Expenses (as a percentage of average net assets for the
1994 calendar year)1
Management Other Total Fund
Fund Fees Expenses Operating Expenses
- ---- ---------- -------- ------------------
CIF .50% .12% .62%
MSIF .55 .15 .70 (.71%)2
MIF .55 .23 .78
MAF .60 .08 .68
SMAF .70 .15 .85 (.88%)2
MGSF .65 .12 .77
CAF .65 .15 .80
Keyport Trust Annual Expenses (as a percentage of average net assets for the
1994 calendar year)3
Management Other Total Fund
Fund Fees Expenses Operating Expenses
- ---- ---------- -------- ------------------
CKUSGF .60% .26% .86%
CKGIF .65 .22 .87
CKSIF .65 .15 .80 (1.60%)4
CKUF .65 .21 .86
CKUSFG .80 .20 1.00 (1.64%)4
CKIFG .90 .84 1.74
NKTF .90 .45 1.355
1 The expenses for MIF have been restated for inclusion in the table to reflect
a new expense reimbursement level (see footnote 2).
2 SteinRoe Trust's adviser has agreed until 4/30/96 to reimburse all expenses,
including management fees, in excess of the following percentage of the average
annual net assets of each Fund, so long as such reimbursement would not result
in the Fund's inability to qualify as a regulated investment company under the
Internal Revenue Code: .65% for CIF; .70% for MSIF; .75% for MAF; .80% for MIF,
MGSF and CAF; and .85% for SMAF. The total percentage in the table for MSIF and
SMAF are after expense reimbursement. The percentage shown in the parentheses is
what the total for 1994 would have been in the absence of expense reimbursement:
for MSIF, .71%; and for SMAF, .88%.
3 The expenses for CKSIF have been restated for inclusion in the table to
reflect a new expense reimbursement level (see footnote 4).
4 Keyport Trust's manager has agreed until 4/30/96 to reimburse all expenses,
including management fees, in excess of the following percentage of the average
annual net assets of each Fund, so long as such reimbursement would not result
in the Fund's inability to qualify as a regulated investment company under the
Internal Revenue Code: .80% for CKSIF; 1.00% for CKUSFG, CKGIF, CKUF, and
CKUSGF; and 1.75% for CKIFG and NKTF. The expense percentages shown in the table
for CKSIF and CKUSFG are after expense reimbursement. The percentage shown in
9
<PAGE>
the parentheses is the total for 1994 would have been in the absence of expense
reimbursement: for CKSIF, 1.60% and for CKUSFG, 1.64%.
5 The expenses for NKTF are an estimate for 1995 and are not based on NKTF's
operating history since it commenced operations in May, 1995.
The Fee Table is designed to assist the Policyowner in understanding the various
costs and expenses that the Policyowner will bear directly or indirectly, which
includes the expenses of the Separate Account as well as expenses of the Trusts.
This Fee Table does not reflect any premium tax which may be deducted from a
premium payment. For more information on the charges and deductions described in
this table, see "Deductions from Premium Payments", "Charges Against the
Sub-Accounts and the Fund", "Surrender Charge" and "Other Charges" in this
prospectus, "How the Funds are Managed" in the prospectus for SteinRoe Trust,
and "Trust Management Operations" and "Expenses of the Funds" in the prospectus
for Keyport Trust.
Example
You would pay the following expenses on a $1,000 investment in a Sub-Account,
assuming 5% annual return on assets.
1 3 5 10
Year Years Years** Years
---- ----- ------- -----
If you surrender or annuitize your
Policy at the end of the applicable
time period and you invested in:
CIF Sub-Account $72 $119 $177 $307
MSIF Sub-Account 73 122 181 317
MIF Sub-Account* 73 124 185 327
MAF Sub-Account 72 121 180 315
SMAF Sub-Account* 74 126 189 336
MGSF Sub-Account 73 124 185 326
CAF Sub-Account 74 125 187 330
CKUSGF Sub-Account* 74 127 190 338
CKUSFG Sub-Account 76 131 --- ---
CKGIF Sub-Account 74 127 190 339
CKUF Sub-Account 74 127 190 338
CKSIF Sub-Account 74 125 --- ---
CKIFG Sub-Account 83 153 --- ---
NKTF Sub-Account 79 141 --- ---
* MIF Sub-Account, SMAF Sub-Account and CKUSGF Sub-Account are not available to
receive either allocations of new purchase payments or transfers of Contract
Value.
10
<PAGE>
** Values shown in the "5 Years" column would apply if the Policy was
surrendered. If the Policy was annuitized, each value would be $50 less since
proceeds applied to a Payment Option are subject to Surrender Charges for a
fewer number of years (see "Surrender Charge", page 18).
If you do not surrender your Policy and you invested in:
1 3 5 10
Year Years Years Years
---- ----- ----- -----
CIF Sub-Account $22 $70 $127 $307
MSIF Sub-Account 23 73 131 317
MIF Sub-Account* 23 75 135 327
MAF Sub-Account 22 72 130 315
SMAF Sub-Account* 24 78 139 336
MGSF Sub-Account 23 75 135 326
CAF Sub-Account 24 76 137 330
CKUSGF Sub-Account* 24 78 140 338
CKUSFG Sub-Account 26 82 --- ---
CKGIF Sub-Account 24 78 140 339
CKUF Sub-Account 24 78 140 338
CKSIF Sub-Account 24 76 ---- ----
CKIFG Sub-Account 33 105 ---- ----
NKTF Sub-Account 29 93 ---- ----
* The MIF Sub-Account, SMAF Sub-Account and CKUSGF Sub-Account are not available
to receive either allocations of new purchase payments or transfers of Contract
Value.
This example should not be considered representative of past or future expenses
or performance or return. Actual expenses may be greater or lesser than those
shown. This example assumes that the percentage amounts listed under "Separate
Account Annual Expenses" and "Fund Annual Expenses" remain the same in each of
the period of years shown, and that no transfers are made during those periods.
This example also assumes that the maximum sales load will be deducted from the
investment upon surrender or annuitization.
CONDENSED FINANCIAL INFORMATION
The financial statements for Keyport America and the Separate Account (as well
as the reports of the independent auditors thereon) are in the Statement of
Additional Information.
11
<PAGE>
ACCUMULATION UNIT VALUES*
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION UNITS
SUB-ACCOUNT BEGINNING OF PERIOD END OF PERIOD END OF PERIOD PERIOD
- ----------- ------------------- ------------- ------------- ------
<S> <C> <C> <C> <C>
Cash Income 130.42 133.32 387 1994
Fund 130.04 130.42 343 1993 (beginning 10/1)
Crown America 128.99 130.04 1,141 1993 (through 10/1)
Series Fund - 126.84 128.99 1,466 1992
Money Market 121.57 126.84 1,577 1991
1,142.17 121.57 3,036 1990**
1,062.33 1,142.17 3,193 1989
1,004.21 1,062.33 221 1988
-------- 1,004.21 0 1987
Mortgage Securities 162.98 157.98 12 1994
Income Fund 162.83 162.98 12 1993 (beginning 10/1)
Crown America 149.97 162.83 665 1993 (through 10/1)
Series Fund - 143.65 149.97 450 1992
Bond Income 125.02 143.65 665 1991
1,163.43 125.02 990 1990**
1,065.55 1,163.43 50 1989
1,055.95 1,065.55 1 1988
-------- 1,005.95 0 1987
Managed Assets 186.86 178.14 0 1994
Fund 185.05 186.86 1,170 1993 (beginning 10/1)
Crown America 174.57 185.05 839 1993 (through 10/1)
Series Fund - 166.55 174.57 1,146 1992
Managed 135.27 166.55 1,117 1991
1,342.00 135.27 606 1990**
1,155.61 1,342.00 36 1989
1,057.72 1,155.61 40 1988
-------- 1,057.72 0 1987
Managed Growth 207.20 191.08 302 1994
Stock Fund 199.92 207.20 984 1993 (beginning 10/1)
Crown America 191.16 199.92 838 1993 (through 10/1)
Series Fund - 183.11 191.16 1,919 1992
Capital Growth 138.59 183.11 2,138 1991
1,592.71 138.59 1,560 1990**
1,300.26 1,592.71 387 1989
1,089.18 1,300.26 759 1988
-------- 1,089.18 0 1987
Capital 107.34 106.96 5 1994
Appreciation Fund 100.00 107.34 386 1993 (beginning 10/1)
Strategic Managed 100.46 98.90 0 1994
Assets Fund 100.00 100.46 106 1993 (beginning 10/1)
</TABLE>
* As shown above, four of the SteinRoe Trust Funds replaced four series of the
Crown America Series Funds, Inc., beginning 10/1/93. Accumulation unit values
for one SteinRoe Trust Fund (MIF) and the Keyport Trust Funds (CKUSGF, CKGIF,
CKUF, CKSIF, CKIFG, CKUSFG and NKTF) are not shown since no units have been
purchased since the Funds became available on,
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respectively, 10/1/93 and the date of this prospectus. Accumulation unit values
are rounded to the nearest tenth of a cent and numbers of accumulation units are
rounded to the nearest whole number.
** In October, 1990, each accumulation unit value was divided by ten. At the
same time, the accumulation units outstanding were multiplied by ten so that the
value of the Sub-Account would not be affected by the accumulation unit value
reduction.
THE ISSUING COMPANY
Keyport America was incorporated in 1945 under Kentucky law 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 and annuity business in all states and the District of Columbia except
New York. Keyport America obtained licensing and approval to sell the Policies
in all United States jurisdictions where variable annuities may be sold except
New York. 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. Prior to January 10, 1994,
Keyport America's name was Crown America Life Insurance Company.
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.
THE SEPARATE ACCOUNT
The Keyport America Variable Annuity Separate Account (the "Separate Account")
was established as a separate investment account of Keyport America on June 26,
1987, by Keyport America's Board of Directors in accordance with applicable
insurance law. The Separate 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 Separate Account or of Keyport America. Under Rhode Island law, however,
both Keyport America and the Separate Account are subject to regulation by the
Rhode Island Insurance Commissioner. Keyport America and its variable annuity
operations, including the investment of assets held by the Separate 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 Separate Account are owned by Keyport America, that
portion of the Separate Account assets equal to the reserves and other
liabilities of the Separate 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 Separate Account. Before making any such
transfer, Keyport America will consider any possible adverse impact the transfer
might have on the Separate Account.
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<PAGE>
Income and realized and unrealized capital gains and losses of the Separate
Account are credited to the Separate 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 Separate Account the charge for mortality
and expense risks, the administration charge and investment results applicable
to those assets that are in excess of net assets supporting the Policies.
Investments of the Separate Account
The Eligible Funds which are permissible investments of the Separate 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 Separate 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 Separate Account purchases or redeems shares of the
Eligible Fund portfolios based on, among other things, the amount of net Premium
Payments invested in the Separate Account, transfers among Sub-Accounts of the
Separate Account, and surrender, withdrawal 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 Series determined as of 4:00 p.m. New York City
time, on that same day.
The investment objectives of the Eligible Funds currently available to
Policyowners through each corresponding Sub-Account are set forth below.
Cash Income Fund seeks high current income from 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
through investment primarily in mortgage-backed securities.
Managed Income Fund seeks a high level of current income, with capital
preservation and appreciation as secondary objectives. The MIF Sub-Account is
not available to receive either allocations of new purchase payments or
transfers of Contract Value.
Managed Assets Fund seeks to provide a high total investment return through
investment in a changing mix of securities.
Strategic Managed Assets Fund seeks to provide maximum total investment return
through aggressive investment in a changing mix of securities. The SMAF
Sub-Account is not available to receive either allocations of new purchase
payments or transfers of Contract Value.
Managed Growth Stock Fund seeks long-term growth of capital through investment
primarily in common stocks.
Capital Appreciation Fund seeks to provide capital growth by investing primarily
in common stocks, convertible securities, and other securities selected for
prospective capital growth.
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 CKUSGF Sub-Account is not available to receive either
allocations of new purchase payments or transfers of Contract Value.
Colonial-Keyport U.S. Fund for Growth seeks long-term capital growth over time
exceeding the S&P 500 Index's performance.
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<PAGE>
Colonial-Keyport Growth and Income Fund seeks primarily income and long-term
capital growth and, secondarily, preservation of capital.
Colonial-Keyport Utilities Fund seeks current income and, secondarily long-term
capital growth.
Colonial-Keyport International Fund for Growth seeks to provide long-term
capital growth, by investing primarily in non-U.S. equity securities. 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.
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").
Newport-Keyport Tiger Fund seeks to provide 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 other Mini-Tigers of
South East Asia (Malaysia, Thailand, Indonesia, China and the Philippines).
THERE IS NO ASSURANCE THAT ANY OF THESE FUNDS WILL ACHIEVE THEIR STATED
OBJECTIVES.
A full description of each Fund, its investment objectives, policies and
restrictions, its expenses and other aspects of its operation, as well as a full
description of risks related to investment in a particular Fund, may be found in
the current prospectus for that Fund. An investor should read the prospectus
carefully before selecting a Fund for investing. The prospectus is available, at
no charge, by writing Keyport America at the mailing address shown on Page 1 or
by calling 1-800-500-5512.
SteinRoe Variable Investment Trust is a funding vehicle for variable annuity
contracts and variable life insurance policies offered by separate accounts of
Keyport and of insurance companies affiliated and unaffiliated with Keyport
America. Keyport Variable Investment Trust is a funding vehicle for variable
annuity contracts and variable life insurance policies offered by separate
accounts of Keyport America and of insurance companies affiliated with Keyport
America. The Board of Trustees of the two Trusts intend to monitor events to
identify and irreconcilable material conflict. In the event of an irreconcilable
material conflict, Keyport America will take any necessary steps, including
removing the assets of the Separate Account from one or more Funds, to resolve
the matter. The risks involved in this "mixed and shared funding" are disclosed
in the Trusts' Prospectuses under the caption "The Trust".
Additions, Deletions or Substitutions of Investments
Keyport America reserves the right to eliminate the shares of any of the
Eligible Funds and to substitute shares of another Fund of the applicable Trust,
or of another registered open-end management investment company, if the shares
of the Eligible Fund are no longer available for investment, or if in Keyport
America's judgment, investment in any Eligible Fund would be inappropriate in
view of the purposes of the Separate Account. To the extent required by the
Investment Company Act of 1940, substitutions of shares attributable to a
Policyowner's interest in a Sub-Account will not be made until the Policyowner
has been notified of the change. Nothing contained herein shall prevent the
Separate Account from purchasing other securities for other series or classes of
contracts, or from effecting a conversion between Eligible Funds or classes of
contracts on the basis of requests made by Policyowners.
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<PAGE>
New Sub-Accounts may be established when, in the sole discretion of Keyport
America, marketing, tax, investment or other conditions so warrant. Any new
Sub-Accounts will be made available to existing Policyowners on a basis to be
determined by Keyport America. Each additional Sub-Account will purchase shares
in a Fund of the applicable Trust or in another mutual fund or investment
vehicle. Keyport America may also eliminate one or more Sub-Accounts if, in its
sole discretion, marketing, tax, investment or other conditions so warrant.
In the event of any such substitution or change, Keyport America may, by
appropriate endorsement, make such changes in the Policies as may be necessary
or appropriate to reflect such substitution or change. Furthermore, if deemed to
be in the best interests of persons having voting rights under the Policies, the
Separate Account may be operated as a management company under the Investment
Company Act of 1940 or any other form permitted by law, may be de-registered
under such act in the event such registration is no longer required, or may be
combined with one or more other separate accounts.
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, serves as
investment adviser to the Keyport Trust. Pursuant to a sub-advisory agreement,
Colonial Management Associates, Inc., an affiliate of Keyport America, acts as
sub-adviser to the Eligible Funds of the Keyport Trust (except Newport-Keyport
Tiger Fund). Newport Fund Management Inc., an affiliate of Keyport America,
serves as sub-adviser to 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 or 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; .70% - Strategic Managed Assets Fund;
.65% - Managed Growth Stock Fund, Capital Appreciation Fund, Colonial- Keyport
Strategic Income Fund, Colonial-Keyport Growth and Income Fund and
Colonial-Keyport Utilities 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.
PRINCIPAL POLICY FEATURES
The benefits payable under the variable annuity Policies sold by Keyport America
are funded by the Separate Account. The net Premium Payments are allocated to
one or more of the Separate Account's ten Sub-Accounts each of which invests, in
turn, in the shares of the SteinRoe Trust or the Keyport Trust. Policies are
non-participating and have no right to share in Keyport America's earnings or
surplus.
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<PAGE>
Premium Payments
An applicant must complete an application form and enclose an initial Premium
Payment. Upon acceptance, the Policy is issued to the Policyowner and the net
initial Premium Payment must be applied within two Valuation Days of receipt by
Keyport America of a completed application. Keyport America may retain the
Premium Payment for up to five Valuation Days while attempting to complete an
incomplete application. If the application cannot be made complete within five
Valuation Days, the applicant will be informed of the reasons for the delay and
the Premium Payment will be returned immediately unless the applicant
specifically consents to Keyport America's retaining the Premium Payment until
the application is made complete. Thereafter, the net Premium Payment must be
applied within two Valuation Days.
The minimum initial Premium Payment is $5,000. The Policyowner may make
additional Premium Payments during the Annuitant's lifetime and before the
Annuity Date. The minimum additional Premium Payment is $1,000. Additional net
Premium Payments will be applied upon receipt. The Policyowner must obtain
Keyport America's prior approval before making an additional Premium Payment
which would cause the amount of Premium Payments in the Policy to exceed
$2,500,000.
A net Premium Payment is a Premium Payment less any applicable premium tax.
Premium taxes will be deducted from Premium Payments in those states which
impose such a tax when Premium Payments are made. (See "Deductions from Premium
Payments" below.)
The Policyowner elects the Sub-Accounts available under his policy to which the
net Premium Payments are to be allocated in the application. The amount
allocated to an elected Sub-Account must be a whole number not less than 10%.
Any additional net Premium Payments will be allocated in the same manner as the
net initial Premium Payment unless, at the time of payment, the Policyowner
instructs Keyport America to allocate them differently.
Deductions from Premium Payments
Premium Taxes. Keyport America will incur premium taxes where such taxes are
imposed by state law. The current range of state premium taxes is from 0.0% to
5.0% of Premium Payments. In those states which impose a premium tax upon
payment of a Premium Payment, Keyport America will deduct the premium tax from
the Premium Payment. In all other states that impose a premium tax, the tax will
be deducted upon application of the proceeds to a Payment Option. No premium tax
will be deducted in the case of a surrender, a partial withdrawal, the death of
the Annuitant or the Annuity Date, unless the proceeds are taken under a Payment
Option.
Charges Against the Sub-Accounts and the Funds
Mortality and Expense Risk Charge. Keyport America charges the Sub-Accounts of
the Separate Account for the mortality and expense risks Keyport America
assumes. The charge is made daily at an effective annual rate of 1.25% of the
value of the net assets in each Sub-Account (this charge is not made after the
Annuity Date). Of that amount, approximately .85% is allocated to cover the
mortality risks, and approximately .40% is allocated to cover the expense risks.
If this charge is insufficient to cover actual costs and assumed risks, the loss
will fall on Keyport America. Conversely, if the charge proves more than
sufficient, any excess will be a profit to Keyport America. Keyport America
currently anticipates a profit from this charge.
The mortality risk borne by Keyport America arises from its obligation to make
Income Payments (determined in accordance with the annuity tables and other
provisions contained in the Policy) regardless of how long all Annuitants or any
individual Annuitant may live. This undertaking assumes that neither an
Annuitant's own longevity, nor an improvement in general life expectancy greater
than expected, will have any adverse effect on the Income Payments
17
<PAGE>
the Annuitant will receive under the Policy. It therefore relieves the Annuitant
from the risk that he will outlive the funds accumulated for retirement. The
mortality risk also arises from the possibility that the Death Benefit will be
greater than the Cash Value.
The expense risk borne by Keyport America is that the deductions for Surrender
Charges, transfer charges and administrative charges under the Policies may be
insufficient to cover the actual future costs incurred by Keyport America for
providing the various Policy administrative services.
Keyport America anticipates that the Surrender Charge will not generate
sufficient funds to pay the cost of distributing the Policies. If these charges
are insufficient to cover the expenses,the deficiency will be met from Keyport
America's general corporate funds, which will include amounts derived from the
charge for mortality and expense risks.
Administrative Charge. To cover the costs of administering the Policies, Keyport
America deducts an administrative charge from each Policy. The charge is made
daily at an effective annual rate of .30% of the value of the net assets in each
Sub-Account. Keyport America does not anticipate any profit from the
administrative charge. Because the charge for administrative expenses is a
percentage of net assets, larger Policies may bear a portion of the cost of
administering smaller Policies.
Taxes. Under present laws, Keyport America will incur state or local taxes (in
addition to the premium taxes) in several states. At present, Keyport America
does not charge for these taxes but Keyport America reserves the right to charge
for such taxes.
Keyport America does not expect to incur any federal income tax liability
attributable to investment income or capital gains retained as part of the
reserves under the Policies. Based upon these expectations, no charge is being
made currently to the Separate Account for federal income taxes which may be
attributable to the Separate Account. Keyport America will periodically review
the question of a charge to the Separate Account for federal income taxes
related to the Separate Account. Such a charge may be made in future years for
any federal income taxes incurred by Keyport America. This might become
necessary if the tax treatment of Keyport America is ultimately determined to be
other than what Keyport America currently believes it to be, if there are
changes made in the federal income tax treatment of annuities at the corporate
level, or if there is a change in Keyport America's tax status. In the event
that Keyport America should incur federal income taxes attributable to
investment income or capital gains retained as part of the reserves under the
Policies, the Investment Base of the Policy would be correspondingly adjusted by
any provision or charge for such taxes.
Investment Advisory Charge. Charges for investment advisory expenses and certain
other costs are deducted from the assets of the Eligible Funds. (See "Investment
Management", page 16.)
Surrender Charge
Since no deduction for a sales charge is made from Premium Payments, a Surrender
Charge contingent deferred sales charge) is imposed on certain surrenders and
partial withdrawals to cover certain expenses relating to the sale of the
Policies, including commissions to registered representatives and other
promotional expenses. This charge is also applied on the Annuity Date. This
charge is not applied to the Death Benefit (see "Death Benefit", page 21).
The amount of the Surrender Charge imposed in connection with a particular
transaction in which the Policyowner receives the proceeds in a lump sum is
determined by multiplying the amount of the surrender, partial withdrawal or, on
the Annuity Date, Investment Base that Keyport America deems attributable to
Premium Payments made during that Policy Year and the four preceding Policy
Years ("new Premium Payments") by 5%. Keyport America deems all
18
<PAGE>
amounts to be withdrawn first from Premium Payments that are not new Premium
Payments, then from new Premium Payments and finally from Cumulative Investment
Return (total Investment Base less total Premium Payments). For partial
withdrawals, the amount of the Surrender Charge will be 5% of that portion of
the withdrawal amount requested by the Policyowner that is deemed to be new
Premium Payment and, as described further below, the Surrender Charge will be
deducted from the Investment Base remaining after the Policyowner has received
the partial withdrawal amount.
The Surrender Charge will also be applied when determining the amount of
proceeds to be applied to a Payment Option except new Premium Payments will be
limited to Premium Payments made during that Policy Year and the two preceding
Policy Years.
In no instance will the sum of the Surrender Charges deducted over the life of a
Policy exceed 5% of total Premium Payments.
The Policyowner may, in the first withdrawal of any Policy Year, withdraw up to
10% of the total Investment Base at the time of the withdrawal without a
Surrender Charge.
In the case of a partial withdrawal, Keyport America will deduct any Surrender
Charge from the Investment Base remaining in each Sub-Account in proportion to
the amount withdrawn from each Sub-Account. In the event that the Investment
Base in a Sub-Account is not sufficient to pay the portion of the Surrender
Charge attributable to that Sub-Account, the unpaid portion of the Surrender
Charge will be deducted from the other Sub-Accounts in proportion to the amounts
withdrawn from such Sub-Accounts (or if no such amounts are withdrawn, in
proportion to the Investment Base in the other Sub-Accounts).
Other Charges
Transfer Charge. The Policyowner may redistribute the total Investment Base
among the Sub-Accounts available under his policy up to twelve times during a
Policy Year without the consent of Keyport America and without charge. Each
approved transfer in excess of twelve in a single Policy Year will be assessed a
$25 charge. Any such charge would be deducted from the amount transferred.
Ordinarily, 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 Premium Payments deemed received at
Keyport America's Service Office?") Keyport America will process the transfer
from the Sub-Account on the date that Keyport America receives the request.
Investment Base and Cash Value
The total Investment Base is the dollar amount that a Policy provides for
investment at any time while the Annuitant is living and before the Annuity
Date. It is the sum of the Investment Base in each Sub-Account.
On the Policy Date, the total Investment Base is equal to the net initial
Premium Payment and is allocated to the Sub-Accounts available under the policy
according to the allocation elected by the Policyowner. The dollar amount
allocated to a Sub-Account is the Investment Base in that Sub-Account.
On each Valuation Day thereafter the Investment Base in a Sub-Account equals the
Investment Base in the Sub-Account on the preceding Valuation Day; plus the
Policy's portion of the Sub-Account's Investment Return; plus any net Premium
Payments allocated to the Sub-Account; plus any transfers to the Sub-Account;
minus any transfers from the Sub-Account; minus any partial withdrawals from the
Sub-Account (including any Surrender Charges thereon deducted
19
<PAGE>
from that Sub-Account).
The Cash Value is the total Investment Base less any applicable Surrender
Charge. The Cash Value of a Policy is not guaranteed and may increase or
decrease between Valuation Days, depending on the Policy's Investment Return. It
is possible, because of unfavorable Investment Return, for a Policy's 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.
Investment Return
A Sub-Account's Investment Return for any Valuation Day equals: - any
investment income and dividends; - plus any realized and unrealized
capital gains; - minus any realized and unrealized capital losses; -
minus any charges for taxes or amounts set aside as a
reserve for taxes;
- plus any credits for taxes or amounts set aside as a
reserve for taxes;
- minus the mortality and expense risk charge and
administrative fee.
A Policy's Investment Return is the sum of the Policy's portion of each
Sub-Account's Investment Return and the interest credited on amounts allocated
to the fixed-rate option. The Policy's portion of a Sub-Account's Investment
Return is the amount which bears the same proportion to a Sub-Account's
Investment Return as the Investment Base in that Sub-Account on the preceding
Valuation Day bears to the total assets in that Sub-Account on the preceding
Valuation Day.
DISTRIBUTIONS UNDER THE POLICY
Surrenders and Partial Withdrawals
A Policy may be surrendered for its Cash Value while the Annuitant is living and
before the Annuity Date. The Cash Value is the total Investment Base less any
Surrender Charge. (See "Surrender Charge", page 18.) 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 Policyowner may also withdraw part of the Cash Value of a Policy upon
written request at any time before Income Payments begin. The Policyowner can
specify the amount to be withdrawn from each Sub-Account. If the Policyowner
does not so specify, the amount withdrawn will be withdrawn in the same
proportion that the Investment Base in each Sub-Account bears to the total
Investment Base on the Valuation Day the request is received at Keyport
America's Service Office. Upon a withdrawal, a Surrender Charge may be deducted
from the Policy's Investment Base. (See "Surrender Charge", page 18.)
The amount available for surrender or partial withdrawal is the Cash Value at
the end of the Valuation Day during which a written request for surrender or
partial withdrawal is received at Keyport America's Service Office. The dollar
amount of a surrender or withdrawal may be paid in a lump sum or under a Payment
Option. (See "Payment Options", page 21.)
If a partial withdrawal plus any applicable Surrender Charge would reduce the
total Investment Base to less than $1,000, Keyport America will treat the
partial withdrawal as a total surrender of the Policy and will pay out the
entire Cash Value.
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<PAGE>
Death Benefit
If the Annuitant dies prior to the Annuity Date, a Death Benefit will be paid to
the Beneficiary. The Death Benefit will be equal to the greater of the
Investment Base or the total Premium Payments (less any partial withdrawals and
any Surrender Charges deducted thereon) as of the date due proof of death of the
Annuitant is received at Keyport America's Service Office. The dollar amount of
the Death Benefit may be paid in a lump sum or under a Payment Option. If the
Annuitant is the Policyowner, the payment of the Death Benefit at the death of
the Annuitant will be subject to certain distribution requirements under the
federal income tax laws, as explained more fully in the Statement of Additional
Information. (See "Payment Options" below and "Payment of Proceeds", page 22.)
Annuity Date
The Policyowner may specify an Annuity Date in the application. The Annuity Date
is the date on which Income Payments are scheduled to commence under the Policy
if the Policyowner elects a Payment Option, unless the entire Cash Value has
been withdrawn or the Death Benefit has been paid to the Beneficiary prior to
that date. If the Policyowner does not elect a Payment Option the proceeds on
the Annuity Date will be paid in a lump sum.
The Annuity Date for Qualified Policies generally may not be a date beyond the
first day of April of the calendar year after the Annuitant attains age 70-1/2.
For Non-Qualified Policies, the Annuity Date must be not later than the first
day of the month after the Annuitant attains age 85.
An Annuity Date may only be changed by written request during the Annuitant's
lifetime. The request must be received by Keyport America at least 30 days
before the then current Annuity Date and the new Annuity Date must be at least
30 days after the date the request is received. The Annuity Date and Payment
Options available for Qualified Policies may also be controlled by endorsements,
the plan or applicable law.
Payment Options
The 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. Proceeds applied under a
Payment Option will no longer be affected by the investment performance of the
Separate Account.
While the Annuitant is living and prior to the Annuity Date, the Policyowner may
elect or change the election of a Payment Option from time to time by sending
written notice to Keyport America's Service Office. If no Payment Option is on
file at Keyport America's Service Office on the Annuitant's death, the Payee may
choose a Payment Option. If Keyport America does not receive notice of a choice
of a Payment Option within 7 days after receipt of due proof of death, Keyport
America will pay the Death Benefit to the Payee in a lump sum.
(See "Payment of Proceeds", page 22.)
When a Payment Option is chosen, a Payee may not assign the payments, commute
payments, or make any other changes to the Payment Option. Payment Options are
not available to any assignee, unless that assignee is a Beneficiary of the
Policy, any corporate Beneficiary, partnership or trustee, or the executors or
administrators of the Payee's estate.
Any proceeds applied under a Payment Option will be subject to the imposition of
a premium tax in those states which impose such a tax upon annuitization.
On the Annuity Date, the proceeds will be the total Investment Base less any
applicable Surrender Charge and any premium tax. The proceeds will be applied to
a Payment Option only
21
<PAGE>
if the Policyowner has elected a Payment Option. In the event that the
Policyowner has not elected a Payment Option, Keyport America will pay the
proceeds in a lump sum.
Income Payments will be based on the sex and age of the Payee on his or her last
birthday. The dollar amount of the Income Payments will be the larger of: (a)
the income based on the rates shown in the annuity tables in the Policy for the
plan chosen; or (b) the income calculated by applying the proceeds as a single
premium to the single premium annuity rates in effect on the date of the first
Income Payment for the same plan. The annuity tables in the Policy distinguish
between men and women, therefore the Policy may not be appropriate for purchase
by certain employee deferred compensation plans. See the Statement of Additional
Information for more information.
Plan A - Income for a Fixed Period. Keyport America will pay a monthly income
for a fixed period of time agreed on, not exceeding 30 years.
Plan B - Income for Life. Keyport America 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. Keyport America
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. Keyport America 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, 6 or 12 months
in order to increase each payment to at least $50.
Keyport America will pay the first Income Payment on the date on which the
proceeds would have been paid if they had been taken in a lump sum. Proof of
age, acceptable to Keyport America, of the Payee will be required before any
Income Payment is made. Keyport America may require proof that the Payee is
still living before any Income Payments are made after any guaranteed period.
Any guaranteed Income Payments remaining at the death of the Payee will be paid
to the executors or administrators of the Payee's estate.
OTHER POLICY FEATURES
Payment of Proceeds
Proceeds include any amount payable on the death of the Annuitant, on the
Annuity Date or on surrender or partial withdrawal. Keyport America will
ordinarily pay any proceeds from the Separate Account within 7 days after
receipt at Keyport America's Service Office of written due proof of death or a
signed request for surrender or withdrawal in a form satisfactory to Keyport
America.
Keyport America reserves the right to suspend or postpone the payment of
proceeds from the Separate Account 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.
Payments of any amounts derived from Premium Payments made by check may be
delayed until such time as the check has cleared the Policyowner's bank. If, at
the time the Policyowner makes
22
<PAGE>
a surrender or partial withdrawal request, he or she has not provided Keyport
America with a written election not to have federal income taxes withheld and
their taxpayer identification number, Keyport America must by law withhold such
taxes and remit that amount to the federal government. Moreover, the Internal
Revenue Code provides that a 10% penalty will be imposed on certain early
withdrawals. (See "Federal Tax Matters", page 24.)
Ownership
The Policyowner is named in the application for the Policy and is addressed as
"you" in the Policy. While the Annuitant is living, the Policyowner may exercise
all the rights and privileges granted by the Policy. If the Policyowner is not
the Annuitant and dies before the Annuitant, a Contingent Policyowner becomes
the new Policyowner. If the Policyowner does not name a Contingent Policyowner
or a Contingent Policyowner is not living at the Policyowner's death, ownership
will pass to the Policyowner's estate. The Contingent Policyowner, if any, is
shown in the application unless changed as provided below.
The Policyowner may change the Contingent Policyowner at any time while the
Annuitant is living by giving written notice. The written notice will not be
effective until it is received, in a form satisfactory to Keyport America, at
Keyport America's Service Office. Once received, the change will be effective as
of the date the notice was signed whether or not the Policyowner or the
Annuitant is alive when the notice is received. However, the change will be
subject to any payments made or other action taken by Keyport America before the
notice was received.
The Policyowner's right to name a Contingent Policyowner may be restricted under
the provisions of the retirement or deferred compensation plan for which the
Policy is issued. The person named as Contingent Policyowner is designated as a
beneficiary by the Policyowner and thus shall be considered the "designated
beneficiary" of the Policyowner for the purposes of the required distribution
rules of Section 72(s) of the Internal Revenue Code of 1986, as amended, if the
Policyowner dies prior to the Annuity Date. The required distribution rules are
explained more fully in the Statement of Additional Information.
Beneficiary
The Policyowner names in the application for the Policy one or more
Beneficiaries to receive any proceeds payable on the death of the Annuitant.
While the Annuitant 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
notice 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, once received, will be effective as of the
date the notice is signed.
If no Beneficiary is alive when the Annuitant dies, the proceeds will be paid to
the Policyowner, if living, or to the Policyowner's estate.
Policyowner Inquiries
Policyowner inquiries should be addressed to Keyport America's Service Office.
All inquiries should include the Policy number and the Policyowner's and
Annuitant's names.
23
<PAGE>
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL
AND IS NOT INTENDED AS TAX ADVICE.
Introduction
This discussion is not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or may receive a
distribution under a Policy. Any person concerned about these tax implications
should consult a competent tax adviser before initiating any transaction. This
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 as to the likelihood of the continuation of
the present federal income tax laws or of the current interpretation by the
Internal Revenue Service. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
The Policy may be purchased on a non-qualified tax basis ("Non-Qualified
Policy") or purchased and used in connection with plans qualifying for favorable
tax treatment ("Qualified Policy"). The Qualified Policies were designed for use
by individuals whose Premium Payments are comprised solely of proceeds from
and/or contributions under retirement plans which are intended to qualify as
plans entitled to special income tax treatment under Sections 401(a) or 408 of
the Internal Revenue Code of 1986, as amended (the "Code"). The ultimate effect
of federal income taxes on the total Investment Base, on Income Payments and on
the economic benefit to the Policyowner, the Annuitant or the Beneficiary
depends on the type of retirement plan, on the tax and employment status of the
individual concerned and on Keyport America's tax status. In addition, certain
requirements must be satisfied in purchasing a Qualified Policy with proceeds
from a tax qualified plan in order to continue receiving favorable tax
treatment. Therefore, purchasers of Qualified Policies should seek competent
legal and tax advice regarding the suitability of the Policy for their
situation, the applicable requirements and the tax treatment of the rights and
benefits of a Policy. The following discussion assumes that Qualified Policies
are purchased with proceeds from and/or contributions under retirement plans
that qualify for the intended special federal income tax treatment.
Taxation of Annuities in General
The following discussion assumes that the Policy will qualify as an annuity
contract for federal income tax purposes. The Statement of Additional
Information summarizes why Keyport America believes the Policy qualifies as an
annuity and discusses issues associated with such qualification, including
certain diversification requirements the Separate Account must meet, possible
regulations which may be issued concerning the extent to which annuity contract
owners can direct their investments to particular sub-accounts of a separate
account, and tax required distributions.
Section 72 of the Code governs taxation of annuities in general. Keyport America
believes that a Policyowner who is a natural person generally is not taxed on
increases in the value of a policy until distribution occurs by withdrawing all
or part of the Cash Value (e.g., partial withdrawals and surrenders) or as
Income Payments under the Payment Option elected. For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the
Investment Base (and in the case of a Qualified Policy, any portion of an
interest in the qualified plan) generally will be treated as a distribution. The
taxable portion of a distribution (in the form of a lump sum payment or an
annuity) is taxable as ordinary income.
An owner of any deferred annuity contract who is not a natural person generally
must include in income any increase in the excess of the Policyowner's Cash
Value over the Policyowner's "investment in the contract" during the taxable
year. However, there are some exceptions to
24
<PAGE>
this rule and the Policyowner may wish to discuss these with a competent tax
adviser.
The following discussion applies to Policies owned by natural persons.
In the case of a withdrawal under a Qualified Policy, a ratable portion of the
amount received is taxable, generally based on the ratio of the "investment in
the contract" to the participant's total accrued benefit or balance under the
retirement plan. The "investment in the contract" generally equals the portion,
if any, of any Premium Payments paid by or on behalf of an individual under a
Policy which was not excluded from the individual's gross income. For Policies
issued in connection with qualified plans, the "investment in the contract" can
be zero.
In the case of a withdrawal under a Non-Qualified Policy before the Annuity
Date, generally amounts received are first treated as taxable income to the
extent that the Investment Base immediately before the withdrawal exceeds the
"investment in the contract" at that time. Any additional amount withdrawn is
not taxable.
Although the tax consequences may vary depending on the Payment Option elected
under the Policy, generally only the portion of the Income Payment that
represents the amount by which the Investment Base exceeds the "investment in
the contract" will be taxed. For fixed Income Payments, in general, there is no
tax on the amount of each payment which represents the same ratio that the
"investment in the contract" bears to the total expected value of the Income
Payments for the term of the payments; however, the remainder of each Income
Payment is taxable. After the "investment in the contract" is recovered, the
full amount of any additional Income Payments is taxable.
In the case of a distribution pursuant to a Non-Qualified Policy, there may be
imposed a federal penalty tax equal to 10% of the amount treated as taxable
income. In general, however, there is no penalty tax on distributions: (1) made
on or after the date on which the Policyowner attains age 59-1/2, (2) made as a
result of death or disability of the Policyowner, or (3) received in
substantially equal periodic payments as a life annuity. Other tax penalties may
apply to certain distributions pursuant to a Qualified Policy.
All annuities entered into after October 21, 1988 that are issued by Keyport
America (or its affiliates) to the same owner during any calendar year are
treated as one annuity contract for purposes of the amount includible in gross
income under section 72(e) of the Code.
A transfer of ownership of a Policy, or designation of an Annuitant or other
Beneficiary who is not also the Policyowner, may result in certain tax
consequences to the Policyowner that are not discussed herein. A Policyowner
contemplating any such transfer or assignment of a Policy should contact a
competent tax adviser with respect to the potential tax effects of such a
transaction.
As noted above, the foregoing comments about the federal tax consequences under
these Policies are not exhaustive and special rules are provided with respect to
other tax situations not discussed in this prospectus. Further, the federal
income tax consequences discussed herein reflect Keyport America's understanding
of current law and the law may change. Federal estate and state and local
estate, inheritance and other tax consequences of ownership or receipt of
distributions under a Policy depend on the individual circumstances of each
Policyowner of the Policy or recipient of the distribution. A competent tax
adviser should be consulted for further information.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 36.105 of the Texas Educational Code permits participants in the Texas
Optional Retirement Program ("ORP") to withdraw their interest in a variable
annuity policy issued under the ORP only upon (1) termination of employment in
the Texas public institutions of
25
<PAGE>
higher education, (2) retirement, or (3) death. Accordingly, a participant in
the ORP (or the participant's estate if the participant has died) will be
required to obtain a certificate of termination from the employer or a
certificate of death before the account can be redeemed.
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.
VOTING RIGHTS
To the extent deemed to be required by law, the Eligible Fund shares held in the
Separate Account will be voted by Keyport America at regular and special
shareholder meetings of the Fund in accordance with instructions received from
persons having voting interests in the corresponding Sub-Accounts. If, however,
the Investment Company Act of 1940 or any regulation thereunder should be
amended, or if the present interpretation thereof should change, or if Keyport
America determines that it is allowed to vote the Fund shares in its own right,
Keyport America may elect to do so.
The number of votes which are available to a Policyowner will be calculated
separately for each Sub-Account of the Separate Account. The number of votes
attributable to a Sub-Account will be determined by applying the Policyowner's
percentage interest, if any, in a particular Sub-Account to the total number of
votes attributable to that Sub-Account. The Policyowner holds a voting interest
in each Sub-Account to which the Investment Base is allocated. Policyowners only
have voting interests prior to the Annuity Date.
The number of votes of an Eligible Fund which are available will be determined
as of the date coincident with the date established by that Fund for determining
shareholders eligible to vote at the meeting of the Fund. Voting instructions
will be solicited by written communication prior to such meeting in accordance
with procedures established by the Fund.
Fund shares as to which no timely instructions are received and shares held by
Keyport America in a Sub-Account as to which Policyowners have no beneficial
interest will be voted in proportion to the voting instructions which are
received with respect to all Policies participating in that Sub-Account. Voting
instructions to abstain on any item to be voted upon will be applied on a pro
rata basis to reduce the votes eligible to be cast.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports and other materials relating to the appropriate Fund.
FINANCIAL STATEMENTS
The financial statements for Keyport America and the Separate Account (as well
as the reports of the independent auditors thereon) are in the Statement of
Additional Information.
26
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more details
concerning subjects discussed in this Prospectus. The following is the Table of
Contents for that Statement:
TABLE OF CONTENTS
Page
THE POLICY..................................................... 3
IRS Required Distributions................................ 3
Non-Participating......................................... 3
Incorrect Age and Sex..................................... 3
Proof of Existence and Age................................ 3
Assignment................................................ 3
Restriction on Assignments and Change of Ownership........ 3
Periodic Reports.......................................... 3
Contestability of Policy.................................. 4
Entire Contract........................................... 4
Changes in the Policy..................................... 4
Protection of Benefits.................................... 4
CASH INCOME FUND ("MONEY MARKET") SUB-ACCOUNT
YIELD CALCULATION............................................ 4
FEDERAL TAX MATTERS............................................ 5
Taxation of Keyport America............................... 5
Tax Status of the Policies................................ 5
DISTRIBUTION OF THE POLICIES................................... 6
LEGAL DEVELOPMENTS REGARDING
EMPLOYMENT-RELATED BENEFIT PLANS............................. 6
SAFEKEEPING OF ACCOUNT ASSETS.................................. 7
KEYPORT AMERICA................................................ 7
STATE REGULATION............................................... 7
RECORDS AND REPORTS............................................ 7
LEGAL PROCEEDINGS.............................................. 7
LEGAL MATTERS.................................................. 7
EXPERTS........................................................ 7
OTHER INFORMATION.............................................. 7
FINANCIAL STATEMENTS........................................... 8
27
Independent Auditors' Report
<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>
