NEW YORK PREFERRED ADVISOR PROSPECTUS
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
VARIABLE ACCOUNT K
AND
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
The variable annuity contract (form number FLEX(4V)NY, referred to as the
Contract ) described in this prospectus provides for accumulation of Contract
Values on a variable basis and the payment of periodic annuity payments on a
fixed and/or a variable basis. The Contract is designed for use by individuals
for retirement planning purposes.
Purchase payments will be allocated to a segregated investment account of
Liberty Life Assurance Company of Boston ( Liberty Life ), designated the
Variable Account K ( Variable Account ). The Variable Account currently invests
in shares of the following Eligible Funds of SteinRoe Variable Investment Trust
("SteinRoe Trust") at their respective net asset values: Cash Income Fund
("CIF"); Mortgage Securities Income Fund ("MSIF"); Managed Assets Fund ("MAF");
Managed Growth Stock Fund ("MGSF"); and Capital Appreciation Fund ("CAF" ). The
Variable Account also invests in shares of the following Eligible Funds of
Keyport Variable Investment Trust ("Keyport Trust") at their net asset value:
Colonial-Keyport Growth and Income Fund ("CKGIF"); Colonial-Keyport Strategic
Income Fund ("CKSIF"); Colonial-Keyport Utilities Fund ("CKUF"); Colonial-
Keyport U.S. Fund for Growth ("CKUSFG"); Colonial-Keyport International Fund for
Growth ("CKIFG") and Newport-Keyport Tiger Fund ("NKTF").
Liberty Life may also offer group variable annuity contracts issued with respect
to the Variable Account. Any such group contract would be offered by a separate
prospectus.
A Statement of Additional Information dated the same as this prospectus has been
filed with the Securities and Exchange Commission and is herein incorporated by
reference. It is available, at no charge, by writing the Distributor, Keyport
Financial Services Corp. at 125 High Street, Boston, MA 02110, by calling
Liberty Life's Service Office at (800) 437-4466, or by returning the postcard on
the back cover of this prospectus. A table of contents for the Statement of
Additional Information is on Page 23.
The Contract may be sold by or through banks or other depository institutions.
The Contract: is not insured by the FDIC; is not a deposit or other obligation
of, or guaranteed by, the depository institution; and is subject to investment
risks, including the possible loss of principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR SHOULD KNOW
BEFORE INVESTING. THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE OR JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED BY LIBERTY
LIFE TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THIS OFFERING, AND IF GIVEN OR
MADE, SUCH UNAUTHORIZED INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED
UPON.
The date of this prospectus is May 1, 1996
TABLE OF CONTENTS
Page
Glossary of Special Terms 3
Summary of Expenses 4
Synopsis 6
Condensed Financial Information 7
Liberty Life and the Variable Account 8
Purchase Payments and Applications 9
Investments of the Variable Account 9
Allocations of Purchase Payments 9
Eligible Funds 10
Dollar Cost Averaging 11
Transfer of Contract Value 12
Substitution of Eligible Funds and Other Variable
Account Changes 13
Deductions 13
Deductions for Contract Maintenance Charge 13
Deductions for Mortality and Expense Risk Charge 13
Deductions for Daily Sales Charge 14
Deductions for Contingent Deferred Sales Charge 14
Deductions for Transfers of Contract Value 15
Deductions for Premium Taxes 15
Deductions for Income Taxes 15
Total Expenses 15
The Contracts 15
Contract Value 15
Valuation Periods 15
Net Investment Factor 15
Modification of the Contract 16
Right to Revoke 16
Death Provisions for Non-Qualified Contracts 16
Death Provisions for Qualified Contracts 17
Ownership 17
Assignment 18
Surrenders 18
Annuity Provisions 18
Annuity Benefits 18
Income Date and Settlement Option 18
Change in Income Date and Settlement Option 18
Settlement Options 18
Variable Annuity Payment Values 19
Fixed Annuity Payment Values 20
Proof of Age, Sex, and Survival of Annuitant 20
Suspension of Payments 20
Tax Status 20
Introduction 20
Taxation of Annuities in General 20
Qualified Plans 21
Tax-Sheltered Annuities 22
Individual Retirement Annuities 22
Corporate Pension and Profit-Sharing Plans 22
Deferred Compensation Plans with Respect to
Service for State and Local Governments 22
Variable Account Voting Rights 22
Distribution of the Contract 23
Legal Proceedings 23
Inquiries by Contract Owners 23
Table of Contents Statement of Additional Information 23
Appendix A Telephone Instructions 24
Appendix B Dollar Cost Averaging 25
GLOSSARY OF SPECIAL TERMS
Accumulation Unit: An accounting unit of measure used to calculate Contract
Value.
Annuitant: The Annuitant is the natural person to whom any annuity payments will
be made starting on the Income Date. The Annuitant may not be over age 80 on the
Issue Date (age 75 for Qualified Contracts).
Contract Anniversary: The same month and day as the Issue Date in each
subsequent year of the Contract.
Contract Owner: The person (or persons in the case of joint ownership) who
possesses all the ownership rights under the Contract. An owner may not be over
age 80 on the Issue Date (age 75 for Qualified Contracts).
Contract Value: The sum of all amounts under the Contract, prior to the Income
Date, less any surrenders.
Contract Year: Any period of 12 months commencing with the Issue Date and each
Contract Anniversary thereafter shall be a Contract Year.
Designated Beneficiary: The person who may be entitled to receive benefits
following the death of the Annuitant or Contract Owner. The Designated
Beneficiary will be the first person among the following who is alive on the
date of death: primary owner; joint owner; primary beneficiary; contingent
beneficiary; and if no one is alive, the primary owner's estate. If the primary
owner and joint owner are both alive, they will be the Designated Beneficiary
together.
Eligible Funds: The mutual funds that are eligible investments for the Variable
Account.
In Force: The status of the Contract before the Income Date so long as it is not
totally surrendered and there has not been a death of the Annuitant or any
Contract Owner that will cause the Contract to end within at most five years of
the date of death.
Income Date: The date on which annuity payments are to begin.
Issue Date: The effective date of the Contract; it is shown on Page 3 of the
Contract.
Non-Qualified Contract: Any Contract that is not issued under a Qualified Plan.
Qualified Contract: Contracts issued under Qualified Plans.
Qualified Plan: A retirement plan established pursuant to the provisions of
Sections 401, 403 or 408 of the Internal Revenue Code. Liberty Life treats
Section 457 plans as Qualified Plans.
Service Office: Liberty Life's Service Office, which is 125 High Street, Boston,
Massachusetts 02110.
Surrender Value: The Contract Value less deductions made upon a total surrender
of the Contract. See Surrenders on Page 18.
Variable Account: A separate investment account of Liberty Life, designated
Variable Account K, into which purchase payments may be allocated. The Variable
Account is divided into Sub-Accounts ( Sub-Account or Investment Account ) that
correspond to the Eligible Funds in which they invest.
Written Request: A request written on a form satisfactory to Liberty Life,
signed by the Contract Owner and a disinterested witness, and filed at its
Service Office.
SUMMARY OF EXPENSES
The expense summary format below, including the examples, was adopted by the
Securities and Exchange Commission to assist the owner of a variable annuity
contract in understanding the transaction and operating expenses the owner will
directly or indirectly bear under a contract. The values reflect expenses of the
Variable Account as well as the Eligible Funds. The expenses shown for the
Eligible Funds are from 1995 and the examples should not be considered a
representation of future expenses.
Contract Owner Transaction Expenses
Sales Load Imposed on Purchases: 0%
Maximum Contingent Deferred Sales Charge
(as a percentage of purchase payments): 7%1
Years from Date of Payment Sales Charge
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 or later 0%
Maximum Total Contract Owner Transaction Expenses2
(as a percentage of purchase payments): 7%
Annual Contract Fee $36
Variable Account Annual Expenses
(as a percentage of average net assets)
Mortality and Expense Risk Charge: 1.25%
Asset-based Sales Charge: .15%
Total Variable Account Annual Expenses 1.40%
SteinRoe Trust and Keyport Trust Annual Expenses3,4
(as a percentage of average net assets)
Management Other Total Fund
Fund Fees Expenses Operating Expenses
CIF .50% .13% .63%
MSIF .55 .14 .69
CKGIF .65 .16 .81
CKSIF .65 .15 .80 (.94%)3
MAF .60 .06 .66
CKUF .65 .18 .83
MGSF .65 .09 .74
CKUSFG .80 .20 1.00 (1.07%)3
CAF .65 .11 .76
CKIFG .90 .50 1.40
NKTF .90 .82 1.72
Example #1 Assuming surrender of the Contract at the end of the periods shown.5
A $1,000 investment in each Sub-Account listed would be subject to the expenses
shown, assuming 5% annual return on assets.
Sub-Account 1 Year 3 Years 5 Years 10 Years
CIF $ 91 $ 118 $ 154 $ 302
MSIF 92 120 158 310
CKUSFG 95 129 175 349
CKGIF 93 124 164 325
MAF 92 119 156 306
CKSIF 93 123 164 324
CKUF 93 124 166 328
MGSF 92 122 161 316
CAF 93 122 162 319
CKIFG 99 141 214 398
NKTF 102 151 214 436
Example #2 Assuming annuitization of the Contract at the end of the periods
shown.5
A $1,000 investment in each Sub-Account listed would be subject to the expenses
shown, assuming 5% annual return on assets.
Sub-Account 1 Year 3 Years 5 Years 10 Years
CIF $ 21 $ 69 $ 124 $ 302
MSIF 22 71 128 310
CKUSFG 25 81 145 349
CKGIF 23 75 134 325
MAF 22 70 126 306
CKSIF 23 74 134 324
CKUF 23 75 136 328
MGSF 22 73 131 316
CAF 23 73 132 319
CKIFG 29 93 167 398
NKTF 32 103 184 436
Example #3 Assuming the Contract stays in force through the periods shown.
A $1,000 investment in each Sub-Account listed would be subject to the same
expenses shown in Example #2, assuming 5% annual return on assets.
1Contingent Deferred Sales Charges are deducted only if the Contract is fully or
partially surrendered. A surrender will not incur the charge percentage shown to
the extent the amount of that surrender does not exceed the Contract's increase
in value at the time of surrender or, after the first Contract Year, 10% of the
Contract Value on the prior Contract Anniversary if this 10% amount is greater.
The full amount of the Contingent Deferred Sales Charge will not be deducted if
(a) such amount plus any prior Contingent Deferred Sales Charges plus the
cumulative .15% asset-based sales charge exceeds (b) the Contract's maximum
cumulative sales charge of 8.5% of the total purchase payments made to the
Contract. If the (a) amount exceeds the (b) amount, the full amount of the
Charge will be reduced by the excess amount.
2Liberty Life reserves the right to impose a transfer fee after prior notice to
Contract Owners, but currently does not impose any charge. Premium taxes are not
shown. Liberty Life deducts the amount of premium taxes, if any, when paid
unless Liberty Life elects to defer such deduction.
3Keyport Trust's manager has agreed until 4/30/97 to reimburse all expenses,
including management fees, in excess of the following percentage of the average
annual net assets of each Fund, so long as such reimbursement would not result
in the Fund's inability to qualify as a regulated investment company under the
Internal Revenue Code: .80% for CKSIF; 1.75% for CKIFG and NKTF, and 1.00% for
CKUF, CKGIF and CKUSFG. The total percentages shown in the table for CKSIF and
CKUSFG are after expense reimbursement. Each percentage shown in the parentheses
is what the total for 1995 would have been in the absence of expense
reimbursement: for CKSIF, .94%; and for CKUSFG, 1.07%.
4SteinRoe Trust's adviser has voluntarily agreed until 4/30/97 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 MGSF and CAF.
5The annuity is designed for retirement planning purposes. Surrenders prior to
the Income Date are not consistent with the long-term purposes of the Contract
and the applicable tax laws.
The examples should not be considered a representation of past or future
expenses and charges of the Sub-Accounts. Actual expenses may be greater or less
than those shown. Similarly, the assumed 5% annual rate of return is not an
estimate or a guarantee of future investment performance. See Deductions in this
prospectus, How the Funds are Managed in the prospectus for SteinRoe Variable
Investment Trust, and Trust Management Organizations and Expenses of the Funds
in the prospectus for Keyport Variable Investment Trust.
SYNOPSIS
The Contract allows Contract Owners to allocate purchase payments to the
Variable Account only. The Variable Account is a separate investment account
maintained by Liberty Life. Contract Owners may receive annuity payments from
the Variable Account and/or Fixed Account. The Fixed Account is part of Liberty
Life's general account, which consists of all Liberty Life's assets except the
Variable Account and the assets of other separate accounts maintained by Liberty
Life. The Contract Value and annuity payments made from the Variable Account
will fluctuate according to the investment performance of the Eligible
Funds chosen. If the Contract Owner selects a fixed annuity payment option
from the Fixed Account, annuity payments will be of a fixed amount.
The Contract permits purchase payments to be made on a flexible purchase payment
basis. The minimum initial payment is $5,000. The minimum amount for each
subsequent payment is $1,000 or such lesser amounts as Liberty Life may permit
from time to time for certain types of contracts (currently $250). (See Purchase
Payments and Applications on Page 9.)
There are no deductions made from purchase payments for sales charges at the
time of purchase. A Contingent Deferred Sales Charge may be deducted in the
event of a total or partial surrender (see Surrenders on Page 18). The
Contingent Deferred Sales Charge is based on a graded table of charges. The
charge will not exceed 7% of that portion of the amount surrendered that
represents purchase payments made during the seven years immediately
preceding the request for surrender. (See Deductions for Contingent Deferred
Sales Charge on Page 14.) Liberty Life deducts a sales charge which is equal on
an annual basis to .15% of the average daily net asset values in the
Variable Account attributable to the Contracts. (See Deductions for Daily
Sales Charge on Page 14.)
Liberty Life deducts a Mortality and Expense Risk Charge, which is equal on an
annual basis to 1.25% of the average daily net asset values in the Variable
Account attributable to the Contracts. (See Deductions for Mortality and Expense
Risk Charge on Page 13.)
Liberty Life deducts an annual Contract Maintenance Charge (currently $36.00)
from the Contract Value for administrative expenses. Prior to the Income Date,
Liberty Life reserves the right to change this charge for future years. (See
Deductions for Contract Maintenance Charge on Page 13.)
Premium taxes will be charged against Contract Value. Currently such premium
taxes range from 0% to 5.0%. (See Deductions for Premium Taxes on Page 15.)
There are no federal income taxes on increases in the value of a Contract until
a distribution occurs, in the form of a lump sum payment, annuity payments, or
themaking of a gift or assignment of the Contract. A federal penalty tax
(currently 10%) may also apply. (See Tax Status on Page 20.)
The Contract allows the Contract Owner to revoke the Contract within 10 days of
delivery (see Right to Revoke on Page 16). Since Liberty Life will refund the
Contract Value, the Contract Owner bears the investment risk during the
revocation period.
CONDENSED FINANCIAL INFORMATION
Accumulation Unit Values*
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation Units
Sub-Account Beginning of Year** End of Year End of Year Year
Cash Income $12.322 $12.833 54,470 1995
Fund ("CIF") 12.036 12.322 110,638 1994
11.883 12.036 19,344 1993
Mortgage Securities 14.104 16.099 232,298 1995
Income Fund 14.529 14.104 141,459 1994
("MSIF") 13.930 14.529 161,996 1993
Colonial-Keyport
Growth and Income 10.205 13.097 113,172 1995
Fund ("CKGIF") 10.426 10.205 87,234 1994
10.000 10.426 34,520 1993
Managed Assets 15.071 18.650 307,463 1995
Fund ("MAF") 15.785 15.071 202,386 1994
14.644 15.785 106,655 1993
Colonial-Keyport 8.625 11.497 180,656 1995
Utilities Fund 9.747 8.625 207,084 1994
("CKUF") 10.000 9.747 218,876 1993
Managed Growth 16.770 22.780 70,419 1995
Stock Fund ("MGSF") 18.158 16.770 60,134 1994
17.451 18.158 39,837 1993
Capital Appreciation 21.192 23.357 142,813 1995
Fund ("CAF") 21.236 21.192 149,229 1994
15.765 21.236 65,816 1993
Colonial-Keyport
Strategic Income
Fund ("CKSIF") 10.000 11.684 29,737 1995
Colonial-Keyport
U.S. Fund for
Growth ("CKUSFG") Available in 1995 but no accumulation units were purchased.
Colonial-Keyport
International Fund 9.314 9.723 19,912 1995
for Growth ("CKIFG") 10.000 9.314 20,356 1994
Newport-Keyport
Tiger Fund ("NKTF") 10.000 11.445 2,242 1995
*Accumulation Unit values are rounded to the nearest tenth of a cent and numbers
of accumulation units are rounded to the nearest whole number.
**Except for the six Keyport Trust Funds, each initial unit value is as of
January 1, 1993, which precedes the February 15, 1993 date beginning of
operations of the Sub-Accounts. The $10.00 value for CKGIF, CKUF, CKSIF, CKIFG,
CKUSFG and NKTF is as of the date the Fund Sub-Account first became available:
July 23, 1993; July 13, 1993; May 2, 1994; October 13, 1995; October 13, 1995;
and October 13, 1995, respectively.
The full financial statements for the Variable Account and Liberty Life are in
the Statement of Additional Information.
The Variable Account may from time to time advertise certain performance
information concerning its various Sub-Accounts.
This performance information is not intended to indicate either past performance
under an actual Contract or future performance.
The Sub-Accounts, other than CIF Sub-Account, may advertise total return
information for various periods of time. Total return performance information is
based on the overall percentage change in value of a hypothetical investment in
the specific Sub-Account over a given period of time.
Average annual total return information shows the average percentage change in
the value of an investment in the Sub-Account from the beginning date of the
measuring period to the end of that period. This standardized version of average
annual total return reflects all historical investment results, less all charges
and deductions applied against the Sub-Account and a Contract (including any
Contingent Deferred Sales Charge that would apply if a Contract Owner
surrendered the Contract at the end of each period indicated). Average total
return does not take into account any premium taxes and would be lower if these
taxes were included.
In order to calculate average annual total return, Liberty Life divides the
change in value of a Sub-Account under a Contract surrendered on a particular
date by a hypothetical $1,000 investment in the Sub-Account made by the
Contract Owner at the beginning of the period illustrated. The resulting total
rate for the period is then annualized to obtain the average annual percentage
change during the period. Annualization assumes that the application of a single
rate of return each year during the period will produce the ending value,
taking into account the effect of compounding.
The Sub-Accounts may present additional total return information computed on a
different basis.
First, the Sub-Accounts may present total return information computed on the
same basis as described above, except deductions will not include the Contingent
Deferred Sales Charge. This presentation assumes that the investment in the
Contract continues beyond the period when the Contingent Deferred Sales Charge
applies, consistent with the long-term investment and retirement objectives of
the Contract. The total return percentage will thus be higher under this method
than the standard method described above.
Second, the Sub-Accounts may present total return information calculated by
dividing the change in a Sub-Account's Accumulation Unit value over a specified
time period by the Accumulation Unit value of that Sub-Account at the beginning
of the period. This computation results in a 12-month change rate or, for longer
periods, a total rate for the period which Liberty Life annualizes in order to
obtain the average annual percentage change in the Accumulation Unit value for
that period. The change percentages do not take into account the Contingent
DeferredSales Charge, the Contract Maintenance Charge and premium taxes. The
percentages would be lower if these charges were included.
Third, the Sub-Accounts may present total return information for the SteinRoe
Trust's Funds for periods prior to the date the Variable Account began
operations. For such periods, any total return information for the Sub-Accounts
will be calculated based on the actual performance of the Funds and on the
assumption that the Sub-Accounts and the Contract were in existence since the
inception date of the Funds.
The CIF Sub-Account is a money market Sub-Account that may advertise yield and
effective yield information. The yield of the Sub-Account refers to the income
generated by an investment in the Sub-Account over a specifically identified
7-day period. This income is annualized by assuming that the amount of income
generated by the investment during that week is generated each week over a
52-week period and is shown as a percentage. The yield reflects the deduction of
all charges assessed against the Sub-Account and a Contract but does not take
into account Contingent Deferred Sales Charges and premium taxes. The yield
would be lower if these charges were included.
The effective yield of the Sub-Account is calculated in a similar manner but,
when annualizing such yield, income earned by the Sub-Account is assumed to be
reinvested. This compounding effect causes effective yield to be higher than
yield.
LIBERTY LIFE AND THE VARIABLE ACCOUNT
Liberty Life Assurance Company of Boston was incorporated on September 17, 1963
as a stock life insurance company. Its executive and administrative offices are
at 175 Berkeley Street, Boston, Massachusetts 02117.
Liberty Life writes individual life insurance on both a participating and a non-
participating basis and group life and health insurance and individual and group
annuity contracts on a non-participating basis. The variable annuity contracts
described in this prospectus are issued on a non-participating basis. Liberty
Life is licensed to do business in all states and in the District of Columbia.
However, the contracts described in this prospectus are currently offered only
in New York. Liberty Life has been rated "A" by A.M. Best and Company,
independent analysts of the insurance industry. The Best's A rating is in the
second highest rating category, which also includes a lower rating of A-. Best's
Ratings merely reflect Best's opinion as to the relative financial strength of
Liberty Life and Liberty Life's ability to meet its contractual obligations to
its policyholders. Even though assets in the Variable Account are held
separately from Liberty Life's other assets, ratings of Liberty Life may still
be relevant to Contract Owners since not all of Liberty Life's contractual
obligations relate to payments based on those segregated assets (e.g., see
Death Provisions on pages 16-17 for Liberty Life's obligation after certain
deaths to increase the Contract Value if it is less than the guaranteed minimum
death value amount).
Liberty Life is a wholly-owned subsidiary of Liberty Mutual Insurance Company
and Liberty Mutual Fire Insurance Company. Liberty Mutual Insurance Company is a
multi-line insurance and financial services institution.
The Variable Account was established by Liberty Life pursuant to the provisions
of Massachusetts Law on September 13, 1989. The Variable Account meets the
definitions of separate account under the federal securities laws. The Variable
Account was registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940 on June 12, 1991. Such
registration does not involve supervision of the management of the Variable
Account or Liberty Life by the Securities and Exchange Commission, and the
Variable Account is subject to regulation as an investment company.
Obligations under the Contracts are the obligations of Liberty Life. Although
the assets of the Variable Account are the property of Liberty Life, these
assets are held separately from the other assets of Liberty Life and are not
chargeable with liabilities arising out of any other business Liberty Life may
conduct. Income, capital gains and/or capital losses, whether or not realized,
from assets allocated to the Variable Account are credited to or charged against
the Variable Account without regard to the income, capital gains, and/or capital
losses arising out of any other business Liberty Life may conduct. The Contract
Value and the amount of variable annuity payments will vary with the investment
performance of the investments in the Variable Account. Liberty Life does not
guarantee the investment performance of the Variable Account.
PURCHASE PAYMENTS AND APPLICATIONS
The initial purchase payment is due on the Issue Date. The minimum initial
purchase payment is $5,000. Additional purchase payments can be made at the
Contract Owner's option. Each subsequent purchase payment must be at least
$1,000 or such lesser amount as Liberty Life may permit from time to time for
certain types of contracts (currently $250). Liberty Life may reject
any purchase payment.
If the application for a Contract is in good order, Liberty Life will apply the
initial purchase payment to the Variable Account as instructed by the Contract
Owner and credit the Contract with Accumulation Units within two business days
of receipt. If the application for a Contract is not in good order, Liberty Life
will attempt to get it in good order within five business days. If it is not
complete at the end of this period, Liberty Life will inform the applicant of
the reason for the delay and that the purchase payment will be returned
immediately unless the applicant specifically consents to Liberty Life keeping
the purchase payment until the application is complete. Once it is complete, the
purchase payment will be applied within two business days of its completion.
Liberty Life has reserved the right to reject any application.
Liberty Life confirms, in writing, to the Contract Owner the allocation of all
purchase payments and the re-allocation of values after any requested transfer.
Liberty Life must be notified immediately by the Contract Owner of any
processing error.
Liberty Life will permit others to act on behalf of an applicant in two
instances. First, Liberty Life will accept an application for a Contract that
contains a signature signed under a power of attorney if a copy of that power
of attorney is submitted with the application. Second, Liberty Life will issue
a Contract that is not replacing an existing life insurance or annuity policy
without having previously received a signed application from the applicant.
Certain dealers will inform Liberty Life of an applicant's answers to the
questions in the application by telephone or by order ticket and cause
the initial purchase payment to be paid to Liberty Life. If the information
is in good order, Liberty Life will issue the Contract with a copy of
an application completed with that information. The Contract will be delivered
to the Contract Owner with a letter from Liberty Life that will give the
Contract Owner an opportunity to respond to Liberty Life if any of the
application information is incorrect. Alternatively, Liberty Life's letter
may request the Contract Owner to confirm the correctness of the information by
signing either a copy of the application or a Contract delivery receipt that
ratifies the application in all respects (in either case, a copy of the signed
document would be returned to Liberty Life for its permanent records). All
purchases are confirmed, in writing, to the applicant. Liberty Life's liability
under a Contract extends only to amounts so confirmed.
INVESTMENTS OF THE VARIABLE ACCOUNT
Allocations of Purchase Payments
Purchase payments will be invested in one or more of the Eligible Fund Sub-
Accounts designated as permissible investments in accordance with the selection
made by the Contract Owner in the application. Any selection must specify the
percentage of the purchase payment that is allocated to each Sub-Account. The
percentage for each Sub-Account, if not zero, must be at least 10% and must be a
whole number. A Contract Owner may change the allocation percentages without
fee, penalty or other charge. Allocation changes must be made by Written Request
unless the Contract Owner has by Written Request authorized Liberty Life to
accept telephone allocation instructions from the Contract Owner or from a
person acting for the Contract Owner as an attorney-in-fact under a power of
attorney. By authorizing Liberty Life to accept telephone changes, a Contract
Owner agrees to accept and be bound by the conditions and procedures established
by Liberty Life from time to time. The current conditions and procedures are
described in Appendix A and Contract Owners authorizing telephone allocation
instructions will be notified, in advance, of any changes.
The Variable Account is segmented into Sub-Accounts. Each Sub-Account invests in
the shares of one of the Eligible Funds and such shares are purchased at net
asset value. Eligible Funds and Sub-Accounts may be added or withdrawn as
permitted by applicable law. The Sub-Accounts of the Variable Account and the
corresponding Eligible Funds currently are as follows:
Eligible Funds of SteinRoe Variable Investment Trust Sub-Accounts
Cash Income Fund ("CIF") CIF Sub-Account
Mortgage Securities Income Fund ("MSIF") MSIF Sub-Account
Managed Assets Fund ("MAF") MAF Sub-Account
Managed Growth Stock Fund ("MGSF") MGSF Sub-Account
Capital Appreciation Fund ("CAF") CAF Sub-Account
Eligible Funds of Keyport Variable Investment Trust Sub-Accounts
Colonial-Keyport Growth and Income Fund ("CKGIF") CKGIF Sub-Account
Colonial-Keyport Strategic Income Fund ("CKSIF") CKSIF Sub-Account
Colonial-Keyport Utilities Fund ("CKUF") CKUF Sub-Account
Colonial-Keyport U.S. Fund for Growth ("CKUSFG") CKUSFG Sub-Account
Colonial-Keyport International Fund for Growth ("CKIFG") CKIFG Sub-Account
Newport-Keyport Tiger Fund ("NKTF") NKTF Sub-Account
Eligible Funds
The Eligible Funds which are the permissible investments of the Variable Account
are the separate funds of SteinRoe Variable Investment Trust, the separate funds
of Keyport Variable Investment Trust, and any other mutual funds with which
Liberty Life and the Variable Account may enter into a participation agreement
for the purpose of making such mutual funds available as Eligible Funds under
certain Contracts.
Stein Roe & Farnham Incorporated ( Stein Roe ) is the investment adviser for
each Eligible Fund of SteinRoe Trust. In 1986, Stein Roe was organized and
succeeded to the business of Stein Roe & Farnham, a partnership. Stein Roe is an
affiliate of Liberty Life. Stein Roe and its predecessor have provided
investment advisory and administrative services since 1932.
Keyport Advisory Services Corp. ( KASC ), an affiliate of Liberty Life, is the
manager for Keyport Trust and its Eligible Funds. Colonial Management
Associates, Inc. ("Colonial"), an affiliate of Liberty Life, serves as sub-
adviser for the Eligible Funds (except for Newport-Keyport Tiger Fund). Colonial
has provided investment advisory services since 1931. The portfolio of the
Colonial-Keyport U.S. Fund for Growth is managed by State Street Global
Advisors, a division of State Street Bank and Trust Company. Newport Fund
Management, Inc., an affiliate of Liberty Life, serves as sub-adviser for the
Newport-Keyport Tiger Fund.
The investment objectives of the Eligible Funds are briefly described below.
More detailed information, including investor considerations related to the
risks of investing in a particular Eligible Fund, may be found in the current
prospectus for that Fund. An investor should read that prospectus carefully
before selecting a fund for investing. The prospectus is available, at no
charge, from a salesperson or by writing the Distributor, Keyport Financial
Services Corp. at 125 High Street, Boston, MA 02110 or by calling
(800) 437-4466.
Eligible Funds of SteinRoe
Variable Investment Trust and
Variable Account Sub-Accounts Investment Objective
Cash Income Fund
(CIF Sub-Account) High current income from short-term money
market instruments while emphasizing
preservation of capital and maintaining
excellent liquidity.
Mortgage Securities Income Fund
(MSIF Sub-Account) Highest possible level of current income
consistent with safety of principal and
maintenance of liquidity through invest-
ment primarily in mortgage-backed
securities.
Managed Assets Fund
(MAF Sub-Account) High total investment return through
investment in a changing mix of
securities.
Managed Growth Stock Fund
(MGSF Sub-Account) Long-term growth of capital through
investment primarily in common stocks.
Capital Appreciation Fund
(CAF Sub-Account Capital growth by investing primarily in
common stocks, convertible securities and
other securities selected for prospective
capital growth.
Eligible Funds of Keyport
Variable Investment Trust and
Variable Account Sub-Accounts Investment Objective
Colonial-Keyport Growth and Income Fund
(CKGIF Sub-Account) Primarily income and long-term capital
growth and, secondarily, preservation
of capital.
Colonial-Keyport Strategic Income
Fund (CKSIF Sub-Account) A high level of current income, as is
consistent with the prudent risk, and
maximizing total return, by diver-
sifying 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").
Colonial-Keyport Utilities Fund
(CKUF Sub-Account) Primarily current income and,
secondarily, long-term capital growth.
Colonial-Keyport U.S. Fund for
Growth (CKUSFG Sub-Account) Growth exceeding over time the S&P
500 Index (Standard & Poor's
Corporation Composite Stock Price
Index) performance.
Colonial-Keyport International Fund
for Growth (CKIFG Sub-Account) 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.
Newport-Keyport Tiger Fund
(NKTF Sub-Account) 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
Asia (Malaysia, Thailand, Indonesia,
China and the Philippines).
There is no assurance that the Eligible Funds will achieve their stated
objectives.
SteinRoe Variable Investment Trust is a funding vehicle for variable annuity
contracts offered by the separate accounts of Liberty Life and of insurance
companies affiliated and unaffiliated with Liberty Life. Keyport Variable
Investment Trust is a funding vehicle for variable annuity contracts offered by
the separate accounts of Liberty Life and of insurance companies affiliated with
Liberty Life. Both Trusts also are funding vehicles for variable life insurance
policies offered by the separate accounts of insurance companies affiliated with
Liberty Life. The risks involved in this mixed and shared funding are disclosed
in the Trusts' prospectuses under the caption The Trust.
Dollar Cost Averaging
Liberty Life offers a dollar cost averaging program that Contract Owners may
participate in by Written Request. The program periodically transfers
Accumulation Units from the CIF Sub-Account to other Sub-Accounts selected
by the Contract Owner. The program allows a Contract Owner to invest in non-
money market Sub-Accounts over time rather than having to invest in those Sub-
Accounts all at once. The program is available for initial and subsequent
purchase payments and for Contract Value transferred into the CIF Sub-Account.
Under the program, Liberty Life makes automatic transfers on a periodic basis
out of the Sub-Account into one or more of the other Sub-Accounts (Liberty
Life reserves the right to limit the number of Sub-Accounts the Contract
Owner can choose but there are currently no limits). A transfer under the
program will not be counted as a transfer for the purposes of the limitations
in Transfer of Contract Value below. The automatic transfer program does not
guarantee a profit nor does it protect against loss in declining markets. The
program is described in detail in Appendix B on Page 25.
Transfer of Contract Value
Contract Owners may transfer Contract Value from one Sub-Account to another Sub-
Account.
The Contract allows Liberty Life to charge a transfer fee and to limit the
number of transfers that can be made in a specified time period. Contract
Owners should be aware that transfer limitations may prevent an Owner from
making a transfer on the date he or she wants to, with the result that the
Owner's future Contract Value may be lower than it would have been had
the transfer been made on the desired date.
Currently, Liberty Life is not charging a transfer fee but it is limiting
transfers to 12 per calendar year except as follows. For transfers under
different Contracts that are being requested under powers of attorney with a
common attorney-in-fact or that are, in Liberty Life's determination,
based on the recommendation of a common investment adviser or broker/dealer,
the transfer limitation is instead one transfer every 30 days.
Regardless of which transfer limitation is applicable, Liberty Life is also
limiting each transfer to a maximum of $500,000. All transfers requested for a
Contract on the same day will be treated as a single transfer and the total
combined transfer amount will be subject to the $500,000 limitation. If the
$500,000 limitation is exceeded, no amount of the transfer will be executed by
Liberty Life.
In applying the limitation of 12 transfers in a year of up to $500,000 apiece,
Liberty Life may treat as one transfer all transfers requested by a Contract
Owner for multiple Contracts he or she owns. If the $500,000 limitation is
exceeded for multiple transfers requested on the same day that are treated
as a single transfer, no amount of the transfer will be executed by Liberty
Life.
In applying the limitation of one $500,000 transfer every 30 days, Liberty Life
will treat as one transfer all transfers requested under different Contracts
that are being requested under powers of attorney with a common attorney-in-fact
or that are, in Liberty Life's determination, based on the recommendation of a
common investment adviser or broker/dealer. If the $500,000 limitation is
exceeded for multiple transfers requested on the same day that are treated as a
single transfer, no amount of the transfer will be executed by Liberty Life. If
a transfer is executed under one Contract and, within the next 30 days, a
transfer request for another Contract is determined by Liberty Life to be
related to the executed transfer under this paragraph's rules, the transfer
request will not be executed by Liberty Life (in order for it to be executed, it
would need to be requested again after the 30 day period and it, along
with any other transfer requests that are collectively treated as a single
transfer, would need to total less than $500,000).
Liberty Life's interest in applying these limitations is to protect the
interests of both Contract Owners who are not engaging in significant transfer
activity and Contract Owners who are engaging in such activity. Liberty Life
has determined that the actions of Contract Owners engaging in significant
transfer activity among Sub-Accounts may cause an adverse affect on the
performance of the underlying Fund for the Sub-Account involved. The movement of
Sub-Account values from one Sub-Account to another may prevent the appropriate
underlying Fund from taking advantage of investment opportunities because
it must maintain a liquid position in order to handle redemptions. Such movement
may also cause a substantial increase in Fund transaction costs which must be
indirectly borne by Contract Owners.
Contract Owners will be notified, in advance, of the imposition of any transfer
fee or of a change in the limitation on the number of transfers. Any fee will
not exceed $25 per transfer and the fee will not exceed the cost of effecting a
transfer.
Transfers must be made by Written Request unless the Contract Owner has by
Written Request authorized Liberty Life to accept telephone transfer requests
from the Contract Owner or from a person acting for the Contract
Owner as an attorney-in-fact under a power of attorney. By authorizing Liberty
Life to accept telephone transfer instructions, a Contract Owner agrees to
accept and be bound by the conditions and procedures established by Liberty
Life from time to time. The current conditions and procedures are in Appendix
A and Contract Owners authorizing telephone transfers will be notified, in
advance, of any changes. Written transfer requests may be made by a person
acting for the Contract Owner as an attorney-in-fact under a power of attorney.
Transfer requests received by Liberty Life's Service Office before the close of
regular trading on the New York Stock Exchange (currently 4:00 PM Eastern Time)
will be initiated at the close of business that day. Any requests received later
will be initiated at the close of the next business day. Each request from a
Contract Owner to transfer value will be executed by both redeeming and
acquiring Accumulation Units on the day Liberty Life's Service Office initiates
the transfer.
If 100% of any Sub-Account's value is transferred and the allocation formula for
purchase payments includes that Sub-Account, then the allocation formula for
future purchase payments will automatically change unless the Contract Owner
instructs otherwise. For example, if the allocation formula is 50% to Sub-
Account A and 50% to Sub-Account B and all of Sub-Account A's value is
transferred to Sub-Account B, the allocation formula will change to 100% to Sub-
Account B unless the Contract Owner instructs otherwise.
Substitution of Eligible Funds and Other Variable Account Changes
If the shares of any of the Eligible Funds should no longer be available for
investment by the Variable Account or if in the judgment of Liberty Life's
management further investment in such fund shares should become inappropriate in
view of the purpose of the Contract, Liberty Life may add or substitute shares
of another Eligible Fund or of another mutual fund for Eligible Fund shares
already purchased under the Contract. No substitution of Fund shares in any Sub-
Account may take place without prior approval of the Securities and Exchange
Commission and notice to Contract Owners, to the extent required by the
Investment Company Act of 1940.
Liberty Life has also reserved the right, subject to compliance with the law as
currently applicable or subsequently changed:(a) to operate the Variable Account
in any form permitted under the Investment Company Act of 1940 or in any other
form permitted by law; (b) to take any action necessary to comply with or obtain
and continue any exemptions from the Investment Company Act of 1940 or to comply
with any other applicable law; (c) to transfer any assets in any Sub-Account to
another Sub-Account, or to one or more separate investment accounts, or to
Liberty Life's general account; or to add, combine or remove Sub-Accounts in the
Variable Account; and (d) to change the way Liberty Life assesses charges, so
long as the aggregate amount is not increased beyond that which may be charged
to the Variable Account and the Eligible Funds in connection with the Contracts.
DEDUCTIONS
Deductions for Contract Maintenance Charge
Liberty Life has responsibility for providing all administration of the
Contracts and the Variable Account. Liberty Life has sub-contracted to an
affiliate the actual day to day administration of the Contract, owner accounting
and administration for a fee. This administration includes, but is not limited
to, preparation of the Contracts, maintenance of Contract Owners' records, and
all accounting, valuation, regulatory and reporting requirements. Liberty Life
has contracted with Keyport Life Insurance Company, an affiliate, to provide all
administration for the Contracts, as its agent. Liberty Life makes a Contract
Maintenance Charge for such services. At the present time the Contract
Maintenance Charge is $36.00 per Contract Year. For Contracts issued prior to
May 1, 1996, the $30 charge will increase to $36 on July 1, 1996. PRIOR TO THE
INCOME DATE THE CONTRACT MAINTENANCE CHARGE IS NOT GUARANTEED AND MAY BE CHANGED
BY LIBERTY LIFE. The amount of the charge will not exceed $100 per year and it
will not exceed the costs of administering the Contract.
Prior to the Income Date, the full amount of the charge will be deducted from
the Contract Value on each Contract Anniversary and on the date of any total
surrender not falling on the Contract Anniversary. On the Income Date, a pro-
rata portion of the charge due on the next Contract Anniversary will be deducted
from the Contract Value. This pro-rata charge covers the period from the prior
Contract Anniversary to the Income Date. For example, if the Income Date occurs
73 days after that prior anniversary, then one-fifth (i.e., 73 days/365 days) of
the annual charge would be deducted on the Income Date. The charge will be
deducted from each Sub-Account in the proportion that the value of each bears to
the Contract Value.
Once annuity payments begin on the Income Date or once they begin after
surrender benefits are applied under a settlement option, the yearly cost of
the Contract Maintenance Charge for a payee's annuity will be the same as the
yearly amount in effect immediately before the annuity payments begin. Liberty
Life may not later change the amount of the Contract Maintenance Charge deducted
from the annuity payments. The charge will be deducted on a pro-rata basis from
each annuity payment.
For example, if annuity payments are monthly, then one-twelfth of the annual
charge will be deducted from each payment.
Deductions for Mortality and Expense Risk Charge
Although variable annuity payments made to Annuitants will vary in accordance
with the investment performance of the investments of the Variable Account,
they will not be affected by the mortality experience (death rate) of persons
receiving such payments or of the general population. Liberty Life guarantees
certain total surrenders after the death of the Annuitant or Contract Owner
will not result in payments that are reduced by a Contingent Deferred Sales
Charge or in payments that are lower than the amount of purchase payments less
any prior partial surrenders. Liberty Life assumes an expense risk since the
Contract Maintenance Charge after the Income Date will stay the same and not be
affected by variations in expenses.
To compensate it for assuming these mortality and expense risks, Liberty Life
deducts from each Sub-Account for each Valuation Period, a Mortality and Expense
Risk Charge equal on an annual basis to 1.25% of the average daily net asset
value of the Sub-Account. The charge is deducted during both the accumulation
and annuity periods (i.e., both before and after the Income Date).
Deductions for Daily Sales Charge
Liberty Life also deducts from each Sub-Account each Valuation Period a sales
charge equal on an annual basis to 0.15% of the average daily net asset value of
the Sub-Account. This charge compensates Liberty Life for certain sales
distribution expenses relating to the Contract. This charge will not be deducted
from Sub-Account values attributable to Contracts that have reached the maximum
cumulative sales charge limit defined in the next section. The charge is also
not deducted from Sub-Account values attributable to Annuity Units.
Deductions for Contingent Deferred Sales Charge
A sales charge is not deducted from the Contract's purchase payments when
initially received. However, a Contingent Deferred Sales Charge may be deducted
upon a surrender.
In order to determine whether a Contingent Deferred Sales Charge will be due
upon a partial or total surrender, Liberty Life maintains a separate set of
records. These records identify the date and amount of each purchase payment
made to the Contract and the Contract Value over time.
A surrender in any Contract Year will be free of Contingent Deferred Sales
Charge to the extent the surrender amount does not exceed the Contract's
increase in value at that time. The increase in value is equal to: the Contract
Value at the time of surrender; less that portion of purchase payments that are
still remaining at the time of surrender.
After the first Contract Year, Liberty Life guarantees that a minimum amount of
Contract Value will be free of Contingent Deferred Sales Charge each year. This
amount is equal to 10% of the Contract Value at the beginning of each Contract
Year (i.e., on the Contract Anniversary). This 10% amount will be reduced by
the amount of each surrender in a year that represents the Contract's increase
in value. The portion of any surrender in excess of this increase in value but
not in excess of the remaining 10% amount will be free of Contingent Deferred
Sales Charge. This portion will be deducted from the purchase payments in
chronological order from the oldest to the most recent until the amount is
fully deducted. Any amount so deducted will not be subject to a charge.
The following additional amounts will be deducted from the purchase payments in
the same chronological order: the amount of any surrender in the first Contract
Year in excess of the Contract's increase in value at the time of surrender; and
the amount of any surrender in any later Contract Year in excess of the
Contract's increase in value at the time of surrender (or in excess of the 10%
limit if it applies). The Contingent Deferred Sales Charge for each purchase
payment from which a deduction is made will be equal to (a) multiplied by (b),
where:
(a) is the amount so deducted; and
(b) is the applicable percentage for the number of years that have elapsed from
the date of that payment to the date of surrender. Years are measured from
the month and day of payment to the same month and day in each subsequent
calendar year. The percentages applicable to each purchase payment during
the seven years after the date of its payment are: 7% during Year 1; 6%
during Year 2; 5% during Year 3; 4% during Year 4; 3% during Year 5; 2%
during Year 6; 1% during Year 7; and 0% thereafter.
The applicable Contingent Deferred Sales Charges for each purchase payment are
then totalled. The lesser of this total amount and the Contract's maximum
cumulative sales charge will be deducted from the Contract Value in the same
manner as the surrender amount. The maximum cumulative sales charge is equal
to (a) less (b), where (a) is 8.5% of the total purchase payments made to the
Contract and (b) is the sum of all prior Contingent Deferred Sales Charge
deductions from the Contract Value and all prior Variable Account sales
charges applicable to the Contract from the 0.15% sales charge factor. After
each surrender, Liberty Life records will be adjusted to reflect any deductions
made from the applicable purchase payments.
Example: Two purchase payments were made one year apart for $5,000 and $7,000.
The Contract Value has grown to an assumed $13,200 when the Owner decides to
withdraw $8,000. The Contract Value at the beginning of the Contract Year of
surrender was $13,000. The Contingent Deferred Sales Charge percentages at the
time of surrender are an assumed 5% for the $5,000 payment and 6% for the $7,000
payment. The portion of the surrender representing the Contract's increase in
value ($13,200 less $12,000, or $1,200) would not be subject to charges. Since
$1,200 is less than the amount guaranteed not to have charges (10% of $13,000,
or $1,300) an additional $100 would not be subject to charges. This $100 would
be deducted from the oldest purchase payment, reducing it from $5,000 to $4,900.
The $1,200 increase in value plus the additional $100 leaves $6,700 ($8,000,
$1,200, $100) to be deducted. This $6,700 would be deducted from the $4,900 of
the first payment still left and $1,800 of the second payment. The total
Contingent Deferred Sales Charge would be $4,900 multiplied by the applicable 5%
and $1,800 times the applicable 6%, or a total of $353. The sales charge
records would now reflect $0 for the 1st payment and $5,200 for the 2nd payment.
The $8,000 requested plus the $353 charge would be deducted from Contract Values
under the rules specified in the Surrenders section on Page 18.
The Contingent Deferred Sales Charge, when it is applicable, will be used to
cover the expenses of selling the Contract, including compensation paid to
selling dealers and the cost of sales literature. Any expenses not covered by
the Charge will be paid from Liberty Life's general account, which may include
monies deducted from the Variable Account for the Mortality and Expense Risk
Charge. A dealer selling the Contract can receive up to 6% of purchase payments.
Liberty Life may establish a program to allow a Contract Owner to request
systematic partial surrenders in the first Contract Year up to a total of 10% of
the initial purchase payment to the Contract. Under such a program, Liberty Life
may waive the Contingent Deferred Sales Charge on the amount of any partial
surrender that is in excess of the Contract's increase in value (defined in the
third paragraph of this section) at the time the surrender occurs. Any such
excess surrender amount will not be deducted from the initial purchase payment
under the procedure described in the fourth paragraph of this section. This
means that the waiver of Contingent Deferred Sales Charge is not a permanent
waiver and the Charge can potentially be collected by Liberty Life in the event
the Contract Owner later makes a non-systematic partial or total surrender.
Deductions for Transfers of Contract Value
The Contract allows Liberty Life to charge a transfer fee. Currently no fee is
being charged. Contract Owners will be notified, in advance, of the imposition
of any fee. Any fee will not exceed $25 per transfer and the fee will not exceed
the cost of effecting a transfer.
Deductions for Premium Taxes
Liberty Life deducts the amount of any premium taxes levied by any state or
governmental entity when paid unless Liberty Life elects to defer such
deduction. Such premium taxes may depend, among other things, on the type of
Contract (Qualified or Non-Qualified), on the state of residence of the
Contract Owner, the state of residence of the Annuitant, the status of Liberty
Life within such states, and the insurance tax laws of such states. For New York
Contracts, the current premium tax rate is 0%.
Deductions for Income Taxes
Liberty Life will deduct from any amount payable under the Contract any income
taxes that a governmental authority requires Liberty Life to withhold with
respect to that amount.
See Income Tax Withholding on Page 21 and Tax-Sheltered Annuities on Page 22.
Total Expenses
The Variable Account's total expenses in relation to the Contract will be the
Contract Maintenance Charge, the Mortality and Expense Risk Charge, and the
Daily Sales Charge.
The value of the assets in the Variable Account will reflect the value of
Eligible Fund shares and therefore the deductions from and expenses paid out of
the assets of the Eligible Funds. These deductions and expenses are described
in the Eligible Fund prospectus.
THE CONTRACTS
Contract Value
The Contract Value for a Contract is the sum of the value of each Sub-Account to
which values are allocated under a Contract. The value of each Sub-Account is
determined at any time by multiplying the number of Accumulation Units
attributable to that Sub-Account by the Accumulation Unit value for that Sub-
Account at the time of determination. The Accumulation Unit value is an
accounting unit of measure used to determine the change in an Accumulation
Unit's value from Valuation Period to Valuation Period.
Each purchase payment that is made results in additional Accumulation Units
being credited to the Contract and the appropriate Sub-Account thereunder. The
number of additional units for any Sub-Account will equal the amount allocated
to that Sub-Account divided by the Accumulation Unit value for that Sub-Account
at the time of investment.
Valuation Periods
The Variable Account is valued each Valuation Period using the net asset value
of the Eligible Fund shares. A Valuation Period is the period commencing at the
close of regular trading on the New York Stock Exchange on each Valuation Date
and ending at the close of regular trading for the next succeeding Valuation
Date. A Valuation Date is each day that the New York Stock Exchange is open for
business. The New York Stock Exchange is currently closed on weekends, New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Net Investment Factor
Contract Value will fluctuate in accordance with the investment results of the
underlying Eligible Funds. In order to determine how these fluctuations affect
value, Liberty Life utilizes an Accumulation Unit value. Each Sub-Account has
its own Accumulation Units and value per Unit. The Unit value applicable during
any Valuation Period is determined at the end of that period.
On January 1, 1993, Liberty Life valued each Accumulation Unit as follows:
CIF $11.882756; MSIF $13.930256; MAF $14.643832; MGSF $17.450604 and
CAF $15.765195. The Accumulation Units for CKUF, CKGIF, CKIFG, CKSIF, CKUSFG and
NKTF were valued at $10.000000 when Liberty Life first purchased these Eligible
Fund shares on behalf of the Variable Account. The Unit value for each Sub-
Account in any Valuation Period thereafter is determined by multiplying the
value for the prior period by a net investment factor. This factor may be
greater or less than 1.0; therefore, the Accumulation Unit may increase or
decrease from Valuation Period to Valuation Period. Liberty Life calculates a
net investment factor for each Sub-Account by dividing (a) by (b) and then
subtracting (c) (i.e., (a/b) - c), where:
(a) is equal to:
(i) the net asset value per share of the Eligible Fund at the end of the
Valuation Period; plus
(ii) the per share amount of any distribution made by the Eligible Fund if
the ex-dividend date occurs during that same Valuation Period.
(b) is the net asset value per share of the Eligible Fund at the end of the
prior Valuation Period.
(c) is equal to:
(i) the Valuation Period equivalent of the 1.25% per year Mortality and
Expense Risk Charge; plus
(ii) the Valuation Period equivalent of the .15% per year Daily Sales
Charge; plus
(iii) a charge factor, if any, for any tax provision established by
Liberty Life as a result of the operations of that Sub-Account.
If a Contract ever reaches the maximum cumulative sales charge limit defined in
Deductions for Contingent Deferred Sales Charge, Unit values without (c)(ii)
above will be used thereafter.
Modification of the Contract
Only Liberty Life's President or Secretary may agree to alter the Contract or
waive any of its terms. Any changes must be made in writing and with the
Contract Owner's consent, except as may be required by applicable law.
Right to Revoke
The Contract Owner may return the Contract within 10 days after he or she
receives it by delivering or mailing it to Liberty Life's Service Office. The
return of the Contract by mail will be effective when the postmark is affixed to
a properly addressed and postage-prepaid envelope. The returned Contract will be
treated as if Liberty Life never issued it and Liberty Life will refund the
Contract Value.
DEATH PROVISIONS FOR NON-QUALIFIED CONTRACTS
Death of Primary Owner, Joint Owner or Annuitant
These provisions apply if, before the Income Date while the Contract is In
Force, the primary Owner, any joint Owner, or the Annuitant dies. The Designated
Beneficiary will control the Contract after such death.
The Contract Value will be increased, as provided below, if it is less than the
guaranteed minimum death value amount ( GMDV ). The GMDV is the greater of the
following two amounts: (a) Liberty Life will add up all purchase payments made
through the date of death, and then subtract all partial surrenders made through
the date of death and (b) Liberty Life will compute an "Anniversary Value" for
each Contract Anniversary (if any) before the 81st birthday of the covered
person and Liberty Life will use the greatest of such "Anniversary Values". The
covered person is the Primary Owner or, if there is a non-natural Owner such as
a trust, the Annuitant is the covered person. The "Anniversary Value" for each
applicable Contract Anniversary initially equals the Contract Value on that
Anniversary. It is then increased by any purchase payments made from that
Anniversary until the date of death, and decreased by the following amount at
the time of each partial surrender made from that Anniversary until the date of
death: the partial surrender amount divided by the Contract Value right before
the surrender, multiplied by the "Anniversary Value" right before the surrender.
For any Contract issued before November 1, 1995, the GMDV is the greatest of (a)
and (b) above and (c) the Contract Value on the seventh Contract Anniversary,
plus any purchase payments made from that Anniversary until the date of death,
less any partial surrenders made from that Anniversary until the date of death.
When Liberty Life receives due proof of death, Liberty Life will compare, as of
the date of death, the Contract Value to the GMDV. If the Contract Value was
less than the GMDV, Liberty Life will increase the current Contract Value by the
amount of the difference. Note that while the amount of the difference is
determined as of the date of death, that amount is not added to the Contract
Value until Liberty Life receives due proof of death. The amount to be credited
will be allocated to the Variable Account based on the purchase payment
allocation selection that is in effect when Liberty Life receives due proof of
death. Whether or not the Contract Value is increased because of this minimum
death provision, the Designated Beneficiary may surrender the Contract within 90
days of the date of death for the Contract Value (i.e., any applicable
Contingent Deferred Sales Charge will be waived). For a surrender after 90 days,
the Surrender Value is payable instead. If the Contract is not surrendered, it
will stay in force for the time period specified below.
If the decedent's surviving spouse (if any) is the sole Designated Beneficiary,
the surviving spouse will automatically become the new sole primary owner as of
the Annuitant's date of the death. And, if the Annuitant is the decedent, the
new Annuitant will be any living contingent Annuitant, otherwise the surviving
spouse. The Contract can stay in force until another death occurs (i.e., until
the death of the Annuitant, primary Owner or joint Owner). Except for this
paragraph, all of Death Provisions will apply to that subsequent death.
In all other cases, the Contract can stay in force up to five years from the
date of death. During this period, the Designated Beneficiary may exercise all
ownership rights, including the right to make transfers or partial surrenders
or the right to totally surrender the Contract for its Surrender Value. If the
Contract is still in force at the end of the five-year period, Liberty Life will
automatically end it then by paying the Contract Value to the Designated
Beneficiary. If the Designated Beneficiary is not alive then, Liberty Life will
pay any person(s) named by the Designated Beneficiary in a Written Request;
otherwise the Designated Beneficiary's estate.
Payment of Benefits
Instead of receiving a lump sum, the Owner or any Designated Beneficiary may
direct by Written Request that Liberty Life pay any benefit of $2,000 or more
under an annuity payment option that meets the following: (a) the first payment
to the Designated Beneficiary must be made no later than one year after the date
of death; (b) payments must be made over the life of the Designated Beneficiary
or over a period not extending beyond that person's life expectancy; and (c)
any payment option that provides for payments to continue after the death of
the Designated Beneficiary will not allow the successor payee to extend the
period of time over which the remaining payments are to be made.
DEATH PROVISIONS FOR QUALIFIED CONTRACTS
Death of Annuitant
If the Annuitant dies before the Income Date while the Contract is In Force, the
Designated Beneficiary will control the Contract after such a death. The
Contract Value will be increased, as provided below, if it is less than the
guaranteed minimum death value amount ( GMDV ). The GMDV is the amount defined
on page __.
When Liberty Life receives due proof of the Annuitant's death, Liberty Life will
compare, as of the date of death, the Contract Value to the GMDV. If the
Contract Value was less than the GMDV, Liberty Life will increase the current
Contract Value by the amount of the difference. Note that while the amount of
the difference is determined as of the date of death, that amount is not added
to the Contract Value until Liberty Life receives due proof of death. The amount
to be credited will be allocated to the Variable Account based on the purchase
payment allocation selection that is in effect when Liberty Life receives due
proof of death. Whether or not the Contract Value is increased because of this
minimum death provision, the Designated Beneficiary may surrender the Contract
within 90 days of the date of the Annuitant's death for the Contract Value
(i.e., any applicable Contingent Deferred Sales Charge will be waived). For a
surrender after 90 days, the Surrender Value is payable instead.
If the Contract is not surrendered, it can stay in force for the time period
permitted by the Internal Revenue Code provisions applicable to the particular
Qualified Plan. During this period, the Designated Beneficiary may exercise all
ownership rights, including the right to make transfers or partial surrenders or
the right to totally surrender the Contract for its Surrender Value. If the
Contract is still in force at the end of the period, Liberty Life will
automatically end it then by paying the Contract Value to the Designated
Beneficiary. If the Designated Beneficiary is not alive then, Liberty Life will
pay any person(s) named by the Designated Beneficiary in a Written Request;
otherwise the Designated Beneficiary's estate.
Payment of Benefits
Instead of receiving a lump sum, the Owner or any Designated Beneficiary may
direct by Written Request that Liberty Life pay any benefit of $2,000 or more
under an annuity payment option that meets the following: (a) the first payment
to the Designated Beneficiary must be made no later than one year after the date
of death; (b) payments must be made over the life of the Designated Beneficiary
or over a period not extending beyond that person's life expectancy; and (c) any
payment option that provides for payments to continue after the death of the
Designated Beneficiary will not allow the successor payee to extend the period
of time over which the remaining payments are to be made.
OWNERSHIP
The Contract Owner shall be the person designated in the application. The
Contract Owner may exercise all the rights of the Contract.
Joint Owners are permitted but not contingent Owners.
The Contract Owner may by Written Request change the Owner, primary beneficiary,
contingent beneficiary or contingent annuitant. An irrevocably-named person may
be changed only with the written consent of such person.
Because a change of Owner by means of a gift (i.e., a transfer without full and
adequate consideration) may be a taxable event, a Contract Owner should consult
a competent tax adviser as to the tax consequences resulting from such a
transfer.
Any Qualified Contract may have limitations on transfer of ownership. A Contract
Owner should consult a competent tax adviser as to the tax consequences
resulting from such a transfer.
ASSIGNMENT
The Contract Owner may assign the Contract at any time. A copy of any assignment
must be filed with Liberty Life's Service Office. The Contract Owner's rights
and those of any revocably-named person will be subject to the assignment. Any
Qualified Contract may have limitations on assignability.
Because an assignment may be a taxable event, a Contract Owner should consult a
competent tax adviser as to the tax consequences resulting from any such
assignment.
SURRENDERS
The Contract Owner may partially surrender the Contract. Liberty Life's Service
Office must receive a Written Request and the minimum amount to be surrendered
must be at least $300 or such lesser amount as Liberty Life may permit in
conjunction with a program of systematic partial surrenders. If the Contract
Value after a partial surrender would be below $2,500, Liberty Life will treat
the request as a surrender of only the excess amount over $2,500. The amount
surrendered will include any applicable Contingent Deferred Sales Charge and
therefore the amount actually surrendered may be greater than the amount of the
surrender check requested. Unless the request specifies otherwise, the total
amount surrendered will be deducted from all Sub-Accounts of the Variable
Account in the proportion that the value in each Sub-Account bears to the total
Contract Value.
The Contract Owner may totally surrender the Contract by making a Written
Request. Surrendering the Contract will end it. The Surrender Value is equal to
the Contract Value for the Valuation Period during which Liberty Life's Service
Office has received the request less: the Contract Maintenance Charge; any
applicable Contingent Deferred Sales Charge; and any applicable premium taxes
not previously deducted.
Liberty Life will pay the amount of any surrender within seven days of receipt
of such request. Alternatively, the Contract Owner may purchase for himself or
herself an annuity payment option with any surrender benefit of at least $2,000.
Liberty Life's consent is needed to choose an option if the Contract Owner is
not a natural person.
Settlement Options based on life contingencies cannot be surrendered after
annuity payments have begun. Settlement Option 1, which is not based on life
contingencies, may be surrendered as described on Page 19.
Because of the potential tax consequences of a full or partial surrender, a
Contract Owner should consult a competent tax adviser regarding a surrender.
ANNUITY PROVISIONS
Annuity Benefits
If the Annuitant is alive on the Income Date and the Contract is In Force,
payments will begin under the payment option or options the Contract Owner has
chosen. The amount of the payments will be determined by applying the Contract
Value (less any premium taxes not previously deducted and less any applicable
Contract Maintenance Charge) on the Income Date in accordance with the option
selected.
Income Date and Settlement Option
The Contract Owner may select an Income Date and Settlement Option at the time
of application. If the Contract Owner does not select a Settlement Option,
Option 2 will automatically be designated. If the Contract Owner does not select
an Income Date for the Annuitant, the Income Date will automatically be the
first day of the calendar month following the later of the Annuitant's 75th
birthday or the 10th Contract Anniversary.
Change in Income Date and Settlement Option
The Contract Owner may choose or change a Settlement Option or the Income Date
by making a Written Request to Liberty Life's Service Office at least 30 days
prior to the Income Date. However, any Income Date must be: (a) for variable
annuity payment options, not earlier than the second calendar month after the
Issue Date (e.g., if the Issue Date is in January, the earliest Income Date is
March 1); (b) for fixed annuity options, not earlier than the first calendar
month after the end of the first Contract Year; (c) not later than the calendar
month after the Annuitant's 85th birthday; and (d) the first day of a calendar
month.
Settlement Options
The payment options are: Option 1: Income for a Fixed Number of Years; Option 2:
Life Income with 10 Years of Payments Guaranteed; and Option 3: Joint and Last
Survivor Income. Other options may be arranged by mutual consent. Each option is
available in two forms as a variable annuity for use with the Variable Account
and as a fixed annuity for use with the Fixed Account. Variable annuity payments
will fluctuate while fixed annuity payments will not. Unless the Owner chooses
otherwise, Contract Value will be applied to a variable annuity option. Whether
variable or fixed, the same Contract Value amount applied to each option will
produce a different initial annuity payment as well as different subsequent
payments.
The payee is the person who will receive the sum payable under a payment option.
Any payment option that provides for payments to continue after the death of the
payee will not allow the successor payee to extend the period of time over which
the remaining payments are to be made.
If the amount available to apply under any variable or fixed option is less than
$2,000, Liberty Life has reserved the right to pay such amount in one sum to the
payee in lieu of the payment otherwise provided for.
Annuity payments will be made monthly unless quarterly, semi-annual or annual
payments are chosen by written request. However, if any payment provided for
would be or becomes less than $100, Liberty Life has the right to reduce the
frequency of payments to such an interval as will result in each payment being
at least $100.
Option 1: Income For a Fixed Number of Years. Liberty Life will pay an annuity
for a chosen number of years, not less than 5 nor over 50 (a period of years
over 30 may be chosen only if it does not exceed the difference between age 100
and the Annuitant's age on the date of the first payment). At any time while
variable annuity payments are being made, the payee may elect to receive the
following amount: (a) the present value of the remaining payments, commuted
at the interest rate used to create the annuity factor for this option (this
interest rate is 5% per year unless 3% per year is chosen by Written Request);
less (b) any Contingent Deferred Sales Charge due by treating the value defined
in (a) as a total surrender. (See Deductions for Contingent Deferred Sales
Charge on Page 14). Instead of receiving a lump sum, the payee can elect another
payment option and the amount applied to the option will not be reduced by the
charge defined in (b) above. If, at the death of the payee, Option 1 payments
have been made for less than the chosen number of years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present value of
the remaining payments, commuted at the interest rate used to create the
annuity factor for this option. For the variable annuity, this interest rate
is 5% per year unless 3% per year is chosen by Written Request. For variable
annuity payments under Option 1, the Mortality and Expense Risk Charge is
deducted during the payment period but Liberty Life has no mortality risk
during this period.
The Mortality and Expense Risk Charge is deducted during the Option 1 payment
period but Liberty Life has no mortality risk during this period.
Liberty Life has available a "level monthly" payment option that can be chosen
for variable payments under Option 1. Under this option, the monthly payment
amount changes every 12 months instead of every month as would be the case
under the standard monthly payment frequency. The "level monthly" option
converts an annual payment amount into 12 equal monthly payments as follows.
Each annual payment will be determined as described in "Variable Annuity Payment
Values" on page 29. Each annual payment will then be placed in Liberty Life's
general account, from which it will be paid out in twelve equal monthly
payments. The sum of the twelve monthly payments will exceed the annual payment
amount because of an interest rate factor used by Liberty Life that will vary
from year to year. If the payments are commuted, (1) the commutation method
described above for calculating the present value of remaining payments applies
to any remaining annual payments and (2) any unpaid monthly payments out of
the current twelve will be commuted at the interest rate that was used to
determine those twelve current monthly payments.
See "Annuity Payments" on page __ for the manner in which Option 1 may be taxed.
Option 2: Life Income with 10 Years of Payments Guaranteed. Liberty Life will
pay an annuity during the lifetime of the payee. If, at the death of the payee,
payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present value of
the remaining payments, commuted at the interest rate used to create the
annuity factor for this option. For the variable annuity, this interest rate
is 5% per year unless 3% per year is chosen by Written Request. The amount
of the annuity payments will depend on the age of the payee at the time
annuity payments are to begin and it may also depend on the payee's sex.
Option 3: Joint and Last Survivor Income. Liberty Life will pay an annuity for
as long as either the payee or a designated second natural person is alive. The
amount of the annuity payments will depend on the age of both persons at the
time annuity payments are to begin and it may also depend on each person's sex.
IT IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF BOTH
PAYEES DIE AFTER THE RECEIPT OF THE FIRST PAYMENT OR TO RECEIVE ONLY TWO ANNUITY
PAYMENTS IF THE PAYEES BOTH DIE AFTER RECEIPT OF THE SECOND PAYMENT AND SO ON.
Variable Annuity Payment Values
The amount of the first variable annuity payment is determined by Liberty Life
using an annuity purchase rate that is currently based on an assumed annual
investment return of 5%, unless 3% is chosen by Written Request. Subsequent
variable annuity payments will fluctuate in amount and reflect whether the
actual investment return of the selected Sub-Account(s) (after deducting the
Mortality and Expense Risk Charge) is better or worse than the assumed invest-
ment return. The total dollar amount of each variable annuity payment will be
equal to: (a) the sum of all Sub-Account payments; less (b) the pro-rata amount
of the annual Contract Maintenance Charge. A payee can instruct Liberty Life's
Service Office to change the Sub-Account(s) used to determine the amount of the
variable annuity payments. Any change requested must be at least six months
after a prior selection.
Fixed Annuity Payment Values
The dollar amount of each fixed annuity payment will be determined by deducting
from the value being applied to the Fixed Account any premium taxes not
previously deducted and then dividing the remaining value by $1,000 and
multiplying the result by the greater of: (a) the applicable factor shown in the
appropriate table in the Contract; or (b) the factor currently offered by
Liberty Life at the time annuity payments begin. This current factor may be
based on the sex of the payee unless to do so would be prohibited by law.
Proof of Age, Sex, and Survival of Annuitant
Liberty Life may require proof of age, sex or survival of any payee upon whose
age, sex or survival payments depend. If the age or sex has been misstated,
Liberty Life will compute the amount payable based on the correct age and sex.
If income payments have begun, any underpayments Liberty Life may have made will
be paid in full with the next annuity payment. Any overpayments, unless repaid
in one sum, will be deducted from future annuity payments until Liberty Life is
repaid in full.
SUSPENSION OF PAYMENTS
Liberty Life reserves the right to suspend or postpone any type of payment from
the Variable Account for any period when: (a) the New York Stock Exchange is
closed other than customary weekend or holiday closings; (b) trading on the
Exchange is restricted; or (c) an emergency exists as a result of which it is
not reasonably practicable to dispose of securities held in the Variable
Account; or determine their value. The applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
described in (b) and (c) exist.
TAX STATUS
Introduction
The Contract is designed for use by individuals in retirement plans which may or
may not be Qualified Plans under the provisions of the Internal Revenue Code
(the Code). The ultimate effect of federal income taxes on the Contract Value,
on annuity payments, and on the economic benefit to the Contract Owner,
Annuitant or Designated Beneficiary depends on the type of retirement plan for
which the Contract is purchased and upon the tax and employment status of the
individual concerned. The discussion contained herein is general in nature
and is not intended as tax advice. Each person concerned should consult a
competent tax adviser. No attempt is made to consider any applicable state or
other tax laws. Moreover, the discussion herein is based upon Liberty Life's
understanding of current federal income tax laws as they are currently
interpreted. No representation is made regarding the likelihood of continuation
of those current federal income tax laws or of the current interpretations by
the Internal Revenue Service.
Taxation of Annuities in General
Section 72 of the Code governs taxation of annuities in general. There are no
income taxes on increases in the value of a Contract until a distribution
occurs, in the form of a full surrender, a partial surrender, an assignment or
gift of the Contract, or annuity payments.
Surrenders, Assignments and Gifts. A Contract Owner who fully surrenders his or
her Contract is taxed on the portion of the payment that exceeds his or her cost
basis in the Contract. For Non-Qualified Contracts, the cost basis is generally
the amount of the purchase payments made for the Contract and the taxable
portion of the surrender payment is taxed as ordinary income. For Qualified
Contracts, the cost basis is generally zero and the taxable portion of the
surrender payment is generally taxed as ordinary income subject to special 5-
year income averaging. A Designated Beneficiary receiving a lump sum surrender
benefit after the death of the Annuitant or Owner is taxed on the portion of the
amount that exceeds the Contract Owner's cost basis in the Contract. If the
Designated Beneficiary elects to receive annuity payments within 60 days of the
decedent's death, different tax rules apply. See Annuity Payments on page 21.
For Non-Qualified Contracts, the tax treatment applicable to Designated
Beneficiaries may be contrasted with the income-tax-free treatment applicable
to persons inheriting and then selling mutual fund shares with date-of-death
value in excess of their basis.
Partial surrenders received under Non-Qualified Contracts prior to annuitization
are first included in gross income to the extent Contract Value exceeds purchase
payments. Then, to the extent the Contract Value does not exceed purchase
payments, such surrenders are treated as a non-taxable return of principal to
the Contract Owner. For partial surrenders under a Qualified Contract, payments
are treated first as a non-taxable return of principal up to the cost basis and
then a taxable return of income. Since the cost basis of Qualified Contracts is
generally zero, partial surrender amounts will generally be fully taxed as
ordinary income.
A Contract Owner who assigns or pledges a Non-Qualified Contract is treated as
if he or she had received the amount assigned or pledged and thus is subject to
taxation under the rules applicable to surrenders. A Contract Owner who gives
away the Contract (i.e., transfers it without full and adequate consideration)
to anyone other than his or her spouse is treated for income tax purposes as if
he or she had fully surrendered the Contract.
A special computational rule applies if Liberty Life issues to the Contract
Owner, during any calendar year, (a) two or more Contracts or (b) one or more
Contracts and one or more of Liberty Life's other annuity contracts. Under
this rule, the amount of any distribution includable in the Contract Owner's
gross income is to be determined under Section 72(e) of the Code by treating
all the Liberty Life contracts as one contract. Liberty Life believes that this
means the amount of any distribution under one contract will be includable in
gross income to the extent that at the time of distribution the sum of the
values for all the contracts exceeds the sum of the cost bases for all the
contracts.
Annuity Payments. The non-taxable portion of each variable annuity payment is
determined by dividing the cost basis of the Contract by the total number of
expected payments while the non-taxable portion of each fixed annuity payment is
determined by an exclusion ratio formula which establishes the ratio that the
cost basis of the Contract bears to the total expected value of annuity payments
for the term of the annuity. The remaining portion of each payment is taxable.
Such taxable portion is taxed at ordinary income rates. For Qualified Contracts,
the cost basis is generally zero. With annuity payments based on life
contingencies, the payments will become fully taxable once the payee lives
longer than the life expectancy used to calculate the non-taxable portion of the
prior payments. Because variable annuity payments can increase over time and
because certain payment options provide for a lump sum right of commutation, it
is possible that the IRS could determine that variable annuity payments under
commutable options should not be taxed as described above but instead should be
taxed as if they were received under an agreement to pay interest. This
determination would result in a higher amount (up to 100%) of certain payments
being taxable.
With respect to the "level monthly" payment option available under Option 1,
pursuant to which each annual payment is placed in Liberty Life's general
account and paid out with interest in twelve equal monthly payments, it is
possible the IRS could determine that receipt of the first monthly payout of
each annual payment is constructive receipt of the entire annual payment. Thus,
the total taxable amount for each annual payment would be accelerated to
the time of the first monthly payout and reported in the tax year in which
the first monthly payout is received.
Penalty Tax. Payments received by Owners, Annuitants, and Designated
Beneficiaries under Contracts may be subject to both ordinary income taxes and a
penalty tax equal to 10% of the amount received that is includable in income.
The penalty tax is not imposed on amounts received: (a) after the taxpayer
attains age 59-1/2; (b) in a series of substantially equal payments made for
life or life expectancy; (c) after the death of the Contract Owner (or,
where the Owner is not a human being, after the death of the Annuitant); (d)
if the taxpayer becomes totally and permanently disabled; or (e) under a Non-
Qualified Contract's annuity payment option that provides for a series of
substantially equal payments, provided only one purchase payment is made to the
Contract, the Contract is not issued as a result of a Section 1035 exchange, and
the first annuity payment begins in the first Contract Year.
Income Tax Withholding. Liberty Life is required to withhold federal income
taxes on taxable amounts paid under the Contract unless the recipient elects
not to have withholding apply. Liberty Life will notify recipients of their
right to elect not to have withholding apply.
Section 1035 Exchanges. A Non-Qualified Contract may be purchased with proceeds
from the surrender of an existing annuity contract. Such a transaction may
qualify as a tax-free exchange pursuant to Section 1035 of the Code. It is
Liberty Life's understanding that in such an event: (a) the new Contract will be
subject to the distribution-at-death rules described in the Death Provisions
for Non-Qualified Contracts section on Page 16; (b) purchase payments made
between 8/14/82 and 1/18/85 and the income allocable to them will, following an
exchange, no longer be covered by a grandfathered exception to the penalty tax
for a distribution of income that is allocable to an investment made over ten
years prior to the distribution; and (c) purchase payments made before 8/14/82
and the income allocable to them will, following an exchange, continue to
receive the following grandfathered tax treatment under prior law: (i) the
penalty tax does not apply to any distribution; (ii) partial surrenders are
treated first as a non-taxable return of principal and then a taxable
return of income; and (iii) assignments are not treated as surrenders subject to
taxation. Liberty Life's understanding of the above is principally based on
legislative reports prepared by the Staff of the Congressional Joint Committee
on Taxation.
Diversification Standards. The U.S. Secretary of the Treasury has issued
regulations that set standards for diversification of the investments underlying
variable annuity contracts (other than pension plan contracts). The Eligible
Funds are designed to be managed to meet the diversification requirements for
the Contract as those requirements may change from time to time. If the
diversification requirements are not satisfied, the Contract would not be
treated as an annuity contract. As a consequence to the Contract Owner, income
earned on a Contract would be taxable to the Contract Owner in the year in which
diversification requirements were not satisfied, including previously
non-taxable income earned in prior years. As a further consequence, Liberty Life
would be subjected to federal income taxes on assets in the Variable Account.
The Secretary of the Treasury announced in September 1986 that he expects to
issue regulations which will prescribe the circumstances in which a Contract
Owner's control of the investments of a segregated asset account may cause the
Contract Owner, rather than the insurance company, to be treated as the owner of
the assets of the account. The regulations could impose requirements that are
not reflected in the Contract. Liberty Life, however, has reserved certain
rights to alter the Contract and investment alternatives so as to comply with
such regulations. Since the regulations have not been issued, there can be no
assurance as to the content of such regulations or even whether application of
the regulations will be prospective. For these reasons, Contract Owners are
urged to consult with their own tax advisers.
Qualified Plans
The Contract is designed for use with several types of Qualified Plans. The tax
rules applicable to participants in such Qualified Plans vary according to the
type of plan and the terms and conditions of the plan itself. Therefore, no
attempt is made herein to provide more than general information about the use
of the Contract with the various types of Qualified Plans. Participants under
such Qualified Plans as well as Contract Owners, Annuitants, and Designated
Beneficiaries are cautioned that the rights of any person to any benefits
under such Qualified Plans may be subject to the terms and conditions of the
plans themselves regardless of the terms and conditions of the Contract issued
in connection therewith. Following are brief descriptions of the various types
of Qualified Plans and of the use of the Contract in connection therewith.
Purchasers of the Contract should seek competent advice concerning the terms and
conditions of the particular Qualified Plan and use of the Contract with that
Plan.
Tax-Sheltered Annuities
Section 403(b) of the Code permits public school employees and employees of
certain types of charitable, educational and scientific organizations specified
in Section 501(c)(3) of the Code to purchase annuity contracts and, subject to
certain contribution limitations, exclude the amount of purchase payments from
gross income for tax purposes. However, such purchase payments may be subject
to Social Security (FICA) taxes. This type of annuity contract is commonly
referred to as a Tax-Sheltered Annuity (TSA).
Section 403(b)(11) of the Code contains distribution restrictions. Specifically,
benefits may be paid, through surrender of the Contract or otherwise, only (a)
when the employee attains age 59-1/2, separates from service, dies or becomes
totally and permanently disabled (within the meaning of Section 72(m)(7) of the
Code) or (b) in the case of hardship. A hardship distribution must be of
employee contributions only and not of any income attributable to such
contributions. Section 403(b)(11) does not apply to distributions attributable
to assets held as of December 31, 1988. Thus, it appears that the law's
restrictions would apply only to distributions attributable to contributions
made after 1988, to earnings on those contributions, and to earnings on amount
held as of December 31, 1988. The Internal Revenue Service has indicated that
the distribution restrictions of Section 403(b)(11) are not applicable when TSA
funds are being transferred tax-free directly to another TSA issuer, provided
the transferred funds continue to be subject to the Section 403(b)(11)
distribution restrictions.
Liberty Life will notify a Contract Owner who has requested a distribution from
a Contract if all or part of such distribution is eligible for rollover to
another TSA or to an individual retirement annuity or account (IRA). Any amount
eligible for rollover treatment will be subject to mandatory federal income tax
withholding at a 20% rate if the Contract Owner receives the amount rather than
directing Liberty Life by Written Request to transfer the amount as a direct
rollover to another TSA or IRA.
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity. These
Individual Retirement Annuities are subject to limitations on the amount which
may be contributed, the persons who may be eligible, and on the time when
distributions may commence. In addition, distributions from certain types of
Qualified Plans may be placed on a tax-deferred basis into an Individual
Retirement Annuity.
Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 403(a) of the Code permit corporate employers to establish
various types of retirement plans for employees. Such retirement plans may
permit the purchase of the Contract to provide benefits under the plans.
Deferred Compensation Plans With Respect to Service for State and Local
Governments
Section 457 of the Code, while not actually providing for a Qualified Plan as
that term is normally used, provides for certain deferred compensation plans
that enjoy special income tax treatment with respect to service for tax-exempt
organizations, state governments, local governments, and agencies and instru-
mentalities of such governments. The Contract can be used with such plans. Under
such plans, a participant may specify the form of investment in which his or her
participation will be made. However, all such investments are owned by and
subject to the claims of general creditors of the sponsoring employer.
VARIABLE ACCOUNT VOTING RIGHTS
In accordance with its view of present applicable law, Liberty Life will vote
the shares of the Eligible Funds held in the Variable Account at regular and
special meetings of the shareholders of the Eligible Funds in accordance with
instructions received from persons having the voting interest in the Variable
Account. Liberty Life will vote shares for which it has not received
instructions in the same proportion as it votes shares for which it has received
instructions.
However, if the Investment Company Act of 1940 or any regulation thereunder
should be amended or if the present interpretation thereof should change, and
as a result Liberty Life determines that it is permitted to vote the shares of
the Eligible Funds in its own right, it may elect to do so.
The person having the voting interest under a Contract shall be the Contract
Owner. The number of shares held in each Sub-Account which are attributable to
each Contract Owner is determined by dividing the Contract Owner's interest in
each Sub-Account by the net asset value of the applicable share of the Eligible
Fund. The person having the voting interest under an annuity payment option
shall be the payee. The number of shares held in the Variable Account which are
attributable to each payee is determined by dividing the reserve for the annuity
payments by the net asset value of one share. During the annuity payment period,
the votes attributable to a payee decrease as the reserves underlying the
payments decrease.
The number of shares which a person has a right to vote will be determined as of
the date coincident with the date established by the respective Eligible Fund
for determining shareholders eligible to vote at the meeting of the Fund and
voting instructions will be solicited by written communication prior to such
meeting in accordance with the procedures established by the Eligible Fund.
Each person having the voting interest in the Variable Account will receive
periodic reports relating to the Eligible Fund(s) in which he or she has an
interest, proxy material and a form with which to give such voting instructions
with respect to the proportion of the Eligible Fund shares held in the Variable
Account corresponding to his or her interest in the Variable Account.
DISTRIBUTION OF THE CONTRACT
Keyport Financial Services Corp. ( KFSC ) serves as the Principal Underwriter
for the Contract described in this prospectus. The Contract will be sold by
salespersons who represent Liberty Life as variable annuity agents and who are
registered representatives of broker/dealers who have entered into distribution
agreements with KFSC. KFSC is registered under the Securities Exchange Act of
1934 and is a member of the National Association of Securities Dealers, Inc. It
is located at 125 High Street, Boston, Massachusetts 02110.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the Principal
Underwriter are a party. Liberty Life is engaged in various kinds of routine
litigation which in its judgment is not of material importance in relation to
the total capital and surplus of Liberty Life.
INQUIRIES BY CONTRACT OWNERS
Contract Owners with questions about their Contracts can write Liberty Life
Service Office, 125 High Street, Boston, MA 02110, or call (800) 367-3653.
TABLE OF CONTENTS STATEMENT OF ADDITIONAL INFORMATION
Page
Liberty Life Assurance Company of Boston 2
Variable Annuity Benefits 2
Variable Annuity Payment Values 2
Re-Allocating Sub-Account Payments 3
Principal Underwriter 4
Custodian 4
Experts 4
Investment Performance 4
Average Annual Total Return for a Contract that is
Surrendered and for a Contract that Continues 5
Change in Accumulation Unit Value 7
Yields for CIF Sub-Account 8
Financial Statements 9
Liberty Life Assurance Company of Boston 9
Variable Account-K 25
APPENDIX A
TELEPHONE INSTRUCTIONS
Telephone Transfers of Contract Values
1. If there are joint Contract Owners, both must authorize Liberty Life to
accept telephone instructions but either Owner can give Liberty Life telephone
instructions.
2. All callers will be required to identify themselves. Liberty Life reserves
the right to refuse to act upon any telephone instructions in cases where the
caller has not sufficiently identified himself/herself to Liberty Life's
satisfaction.
3. Neither Liberty Life nor any person acting on its behalf shall be subject to
any claim, loss, liability, cost or expense if it or such person acted in good
faith upon a telephone instruction, including one that is unauthorized or
fraudulent; however, Liberty Life will employ reasonable procedures to confirm
that a telephone instruction is genuine and, if Liberty Life does not, Liberty
Life may be liable for losses due to an unauthorized or fraudulent instruction.
The Contract Owner thus bears the risk that an unauthorized or fraudulent
instruction that is executed may cause the Contract Value to be lower than it
would be had no instruction been executed.
4. All conversations will be recorded with disclosure at the time of the call.
5. The application for the Contract may allow a Contract Owner to create a power
of attorney by authorizing another person to give telephone instructions. Unless
prohibited by state law, such power will be treated as durable in nature and
shall not be affected by the subsequent incapacity, disability or incompetency
of the Contract Owner. Either Liberty Life or the authorized person may cease
to honor the power by sending written notice to the Contract Owner at the
Contract Owner's last known address. Neither Liberty Life nor any person acting
on its behalf shall be subject to liability for any act executed in good faith
reliance upon a power of attorney.
6. Telephone authorization shall continue in force until (a) Liberty Life
receives the Contract Owner's written revocation, (b) Liberty Life discontinues
the privilege, or (c) Liberty Life receives written evidence that the Contract
Owner has entered into a market timing or asset allocation agreement with an
investment adviser or with a broker-dealer.
7. Telephone transfer instructions received by Liberty Life's Service Office at
800-367-3653 before the close of regular trading on the New York Stock Exchange
(currently 4:00 P.M. Eastern Time) will be initiated that day based on the unit
value prices calculated at the close of that day. Instructions received after
the close of trading on the NYSE will be initiated the following business day.
8. Once instructions are accepted by Liberty Life, they may not be canceled.
9. All transfers must be made in accordance with the terms of the Contract and
current prospectus. If the transfer instructions are not in good order, Liberty
Life will not execute the transfer and will notify the caller within 48 hours.
10. If 100% of any Sub-Account's value is transferred and the allocation formula
for purchase payments includes that Sub-Account, then the allocation formula for
future purchase payments will change accordingly unless Liberty Life receives
telephone instructions to the contrary. For example, if the allocation formula
is 50% to Sub-Account A and 50% to Sub-Account B and all of Sub-Account A's
value is transferred to Sub-Account B, the allocation formula will change to
100% to Sub-Account B unless Liberty Life is instructed otherwise.
Telephone Changes to Purchase Payment Allocation Percentages
Numbers 1 - 6 above are applicable.
APPENDIX B
DOLLAR COST AVERAGING
Liberty Life offers a dollar cost averaging program that Contract Owners may
participate in by Written Request. The program periodically transfers
Accumulation Units from the CIF Sub-Account to other Sub-Accounts selected by
the Contract Owner. The program allows a Contract Owner to invest in non-money
market Sub-Accounts over time rather than having to invest in those Sub-Accounts
all at once.
The program is available for initial and subsequent purchase payments and for
Contract Value transferred into the CIF Sub-Account. Under the program, Liberty
Life makes automatic transfers on a periodic basis out of the CIF Sub-Account
into one or more of the other Sub-Accounts (Liberty Life reserves the right to
limit the number of Sub-Accounts the Contract Owner can choose but there are
currently no limits). The automatic transfer program does not guarantee a
profit nor does it protect against loss in declining markets.
The Contract Owner by Written Request must specify the monthly amount to be
transferred (minimum $150) and the Sub-Account(s) to which transfers are to be
made from the CIF Sub-Account. The first transfer will occur at the close of the
Valuation Period that includes the 30th day after receipt of the Contract
Owner's Written Request. Each succeeding transfer will occur one month later
(e.g., if the 30th day after the Issue Date is April 8, the second transfer
will occur at the close of the Valuation Period that includes May 8). When the
remaining Sub-Account value is less than the monthly transfer amount, that
remaining value will be transferred and the program will end. Before this final
transfer, the Contract Owner may extend the program by allocating additional
purchase payments to the CIF Sub-Account or by transferring Contract Value to
the CIF Sub-Account. The Contract Owner may by Written Request or by telephone
change the monthly amount to be transferred, change the Sub-Account(s) to which
the transfers are to be made, or end the program. The program will automatically
end if the Income Date occurs. Liberty Life reserves the right to end the
program at any time by sending the Contract Owner a notice one month in advance.
Written or telephone instructions must be received by Liberty Life by the end
(currently 5:00 P.M. Eastern Time) of the business day preceding the next
scheduled transfer in order to be in effect for that transfer. Telephone
instructions are subject to the conditions and procedures established by Liberty
Life from time to time. The current conditions and procedures appear below and
Contract Owners in a dollar cost averaging program will be notified, in advance,
of any changes.
1. If there are joint Contract Owners, either Owner can give Liberty Life
telephone transfer instructions.
2. All callers will be required to identify themselves. Liberty Life reserves
the right to refuse to act upon any telephone instructions in cases where the
caller has not sufficiently identified himself/herself to Liberty Life's
satisfaction.
3. Neither Liberty Life nor any person acting on its behalf shall be subject to
any claim, loss, liability, cost or expense if it or such person acted in good
faith upon a telephone instruction, including one that is unauthorized or
fraudulent; however, Liberty Life will employ reasonable procedures to confirm
that a telephone instruction is genuine and, if Liberty Life does not, Liberty
Life may be liable for losses due to an unauthorized or fraudulent instruction.
The Contract Owner thus bears the risk that an unauthorized or fraudulent
instruction that is executed may cause the Contract Value to be lower than it
would be had no instruction been executed.
4. All conversations will be recorded with disclosure at the time of the call.
5. Telephone authorization shall continue in force until (a) Liberty Life
receives the Contract Owner's written revocation, (b) Liberty Life discontinues
the privilege, or (c) Liberty Life receives written evidence that the Contract
Owner has entered into a market timing or asset allocation agreement with an
investment adviser or with a broker-dealer.
6. Telephone instructions must be received by Liberty Life's Service Office at
800-367-3653 before the end (currently 5:00 P.M. Eastern Time) of the business
day preceding the next scheduled transfer in order to be in effect for that
transfer.
7. Once instructions are accepted by Liberty Life, they may not be canceled. New
telephone instructions may be given on the following business day.
8. All instructions must be made in accordance with the terms of the Contract
and current prospectus. If the instructions are not in good order, Liberty Life
will not execute them and will notify the caller within 48 hours.
NEW YORK PREFERRED ADVISOR
PROSPECTUS
MAY, 1996
Distributed by:
Keyport Financial Services Corp.
125 High Street, Boston, MA 02110-2712
Issued by:
Liberty Life Assurance Company of Boston
175 Berkeley Street
Boston, Massachusetts 02117
Liberty Life Service Office
125 High Street
Boston, MA 02110-2712
Service Hotline 800-367-3653 (Press 3)
Preferred Advisor used by permission
PAP/NY 5/96
Yes. I would like to receive the Liberty Life Variable Annuity Statement of
Additional Information.
Yes. I would like to receive the SteinRoe Variable Investment Trust Statement of
Additional Information.
Yes. I would like to receive the Keyport Variable Investment Trust Statement of
Additional Information.
Name
Address
City State Zip
BUSINESS REPLY MAIL FIRST CLASS MAIL
PERMIT NO. 6719 BOSTON, MA
POSTAGE WILL BE PAID BY ADDRESSEE
LIBERTY LIFE SERVICE OFFICE
125 HIGH STREET
BOSTON MA 02110-9773
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
VARIABLE ACCOUNT - K
AND
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON ("Liberty Life")
This Statement of Additional Information is not a prospectus but it relates to,
and should be read in conjunction with, the variable annuity prospectus dated
May 1, 1996. The prospectus is available, at no charge, by writing Keyport
Financial Services Corp. at 125 High Street, Boston, MA 02110 or by calling
(800)-437-4466.
TABLE OF CONTENTS
Page
Liberty Life Assurance Company of Boston 2
Variable Annuity Benefits 2
Variable Annuity Payment Values 2
Re-Allocating Sub-Account Payments 3
Principal Underwriter 4
Custodian 4
Experts 4
Investment Performance 4
Average Annual Total Return for a Contract that is Surrendered
and for a Contract that Continues 5
Change in Accumulation Unit Value 7
Yield for CIF Sub-Account 8
Financial Statements 9
Liberty Life Assurance Company of Boston 9
Variable Account - K 31
The date of this statement of additional information is May 1, 1996.
LLIFE.SAI
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
Liberty Life Assurance Company of Boston is a wholly-owned subsidiary of
Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance Company.
Liberty Mutual Insurance Company is a multi-line insurance and financial
services institution. For additional information about Liberty Life, see page 8
of the prospectus.
VARIABLE ANNUITY BENEFITS
Variable Annuity Payment Values
For each variable payment option, the total dollar amount of each periodic
payment will be equal to: (a) the sum of all Sub-Account payments; less (b) the
pro-rata amount of the annual Contract Maintenance Charge.
The first payment for each Sub-Account will be determined by deducting any
applicable Contract Maintenance Charge and any applicable state premium taxes
and then dividing the remaining value of that Sub-Account by $1,000 and
multiplying the result by the greater of: (a) the applicable factor from the
Contract's annuity table for the particular payment option; or (b) the factor
currently offered by Liberty Life at the time annuity payments begin. This
current factor may be based on the sex of the payee unless to do so would be
prohibited by law.
The number of Annuity Units for each Sub-Account will be determined by
dividing such first payment by the Sub-Account Annuity Unit value for the
Valuation Period that includes the date of the first payment. The number of
Annuity Units remains fixed for the annuity payment period. Each Sub-Account
payment after the first one will be determined by multiplying (a) by (b), where:
(a) is the number of Sub-Account Annuity Units; and (b) is the Sub-Account
Annuity Unit value for the Valuation Period that includes the date of the
particular payment.
Variable annuity payments will fluctuate in accordance with the investment
results of the underlying Eligible Funds. In order to determine how these
fluctuations affect annuity payments, Liberty Life uses an Annuity Unit value.
Each Sub-Account has its own Annuity Units and value per Unit. The Unit value
applicable using any Valuation Period is determined at the end of such period.
Liberty Life initially valued each Annuity Unit as follows: January 1,
1993: CIF - 11.883555; MSIF - 13.864802; MAF - 14.646064; MGSF - 17.540544 and
CAF - 15.871076; which precede the February 15, 1993 date beginning of
operations of the Sub-Accounts; July 13, 1993: CKUF -$10.00; July 23, 1993:
CKGIF - $10.00; May 3, 1994: CKIFG - $10.00; October 13, 1995: CKSIF - $10.00;
October 13, 1995: CKUSFG - $10.00; October 13, 1995: NKTF - $10.00. The Unit
value for each Sub-Account in any Valuation Period after the initial period is
determined by multiplying the value for the prior period by a net investment
factor. This factor may be greater or less than 1.0; therefore, the Annuity
Unit may increase or decrease from Valuation Period to Valuation Period. For
each assumed annual investment rate (AIR), Liberty Life calculates a net
investment factor for each Sub-Account by dividing (a) by (b), where:
(a) is equal to the net investment factor defined on page 15 of the
prospectus without any deduction for the sales charge defined in
(c)(ii) on that page; and
(b) is the assumed investment factor for the current Valuation Period.
The assumed investment factor adjusts for the interest assumed in
determining the first variable annuity payment. Such factor for any
Valuation Period shall be the accumulated value, at the end of such
period, of $1.00 deposited at the beginning of such period at the
assumed annual investment rate (AIR). The AIR for Annuity Units based
on the Contract's annuity tables is 5% per year. An AIR of 3% per year
is also currently available upon Written Request.
With a particular AIR, payments after the first one will increase or
decrease from month to month based on whether the actual annualized investment
return of the selected Sub-Account(s) (after deducting the Mortality and Expense
Risk Charge) is better or worse than the assumed AIR percentage. If a given
amount of Sub-Account value is applied to a particular payment option, the
initial payment will be smaller if a 3% AIR is selected instead of 5% AIR but,
all other things being equal, the subsequent 3% AIR payments have the potential
for increasing in amount by a larger percentage and for decreasing in amount by
a smaller percentage. For example, consider what would happen if the actual
annualized investment return (see the first sentence of this paragraph) is 7%,
5%, 3%, or 1% between the time of the first and second payments. With an actual
7% return, the 3% AIR and 5% AIR payments would both increase in amount but the
3% AIR payment would increase by a larger percentage. With an actual 5% return,
the 3% AIR payment would increase in amount while the 5% AIR payment would stay
the same. With an actual return of 3%, the 3% AIR payment would stay the same
while the 5% AIR payment would decrease in amount. Finally, with an actual
return of 1%, the 3% AIR and 5% AIR payments would both decrease in amount but
the 3% AIR payment would decrease by a smaller percentage. Note that the
changes in payment amount described above are on a percentage basis and thus do
not illustrate when, if ever, the 3% AIR payment amount might become larger than
the 5% AIR payment amount. Note though that if Option 1 (Income for a Fixed
Number of Years) is selected and payments continue for the entire period, the 3%
AIR payment amount will start out being smaller than the 5% AIR payment amount
but eventually the 3% AIR payment amount will become larger than the 5% AIR
payment amount.
Re-Allocating Sub-Account Payments
The number of Annuity Units for each Sub-Account under any variable annuity
option will remain fixed during the entire annuity payment period unless the
payee makes a written request for a change. Any change requested must be at
least six months after a prior selection. The payee's request must specify the
percentage of the annuity payment that is to be based on the investment
performance of each Sub-Account. The percentage for each Sub-Account, if not
zero, must be at least 10% and must be a whole number. At the end of the
Valuation Period during which Liberty Life receives the request, Liberty Life
will: (a) value the Annuity Units for each Sub-Account to create a total
annuity value; (b) apply the new percentages the payee has selected to this
total value; and (c) recompute the number of Annuity Units for each Sub-Account.
This new number of units will remain fixed for the remainder of the payment
period unless the payee requests another change.
PRINCIPAL UNDERWRITER
The Contract, which is offered continuously, is distributed by Keyport
Financial Services Corp. ("KFSC"), which is an affiliate of Liberty Life.
During the fiscal year ended December 31, 1995 and 1994, Liberty Life paid KFSC
underwriting commissions for the Contract of $0.00 and $0.00, respectively.
CUSTODIAN
The custodian of the assets of the Variable Account - K is Liberty Life.
Liberty Life has responsibility for providing all administration of the
Contracts and the Variable Account. This administration includes, but is not
limited to, preparation of the Contracts, maintenance of Contract Owners'
records, and all accounting, valuation, regulatory and reporting requirements.
Liberty Life has contracted with Keyport Life Insurance Company, an affiliate,
to provide all administration for the Contracts, as its agent. Keyport Life
Insurance Company's compensation is based on the number of Contracts and on the
Contract Value of these Contracts.
EXPERTS
The financial statements of Liberty Life as of and for the three years
ended December 31, 1995 and 1994, included herein and the financial statements
of Variable Account - K as of December 31, 1995 and 1994, included herein, have
been included herein in reliance on the reports of KPMG Peat Marwick LLP,
independent certified public accountants, and upon authority of said firm as
experts in accounting and auditing.
INVESTMENT PERFORMANCE
The Variable Account may from time to time quote performance information
concerning its various Sub-Accounts. A Sub-Account's performance may also be
compared to the performance of sub-accounts used with variable annuities offered
by other insurance companies. This comparative information may be expressed as
a ranking prepared by Financial Planning Resources, Inc. of Miami, FL (The VARDS
Report) or by Morningstar, Inc. of Chicago, IL (Morningstar's Variable Annuity
Performance Report), which are independent services that compare the performance
of variable annuity sub-accounts. The rankings are done on the basis of changes
in accumulation unit values over time and do not take into account any charges
(such as sales charges or administrative charges) that are deducted directly
from contract values.
Ibbotson Associates of Chicago, IL provides historical returns from 1926 on
capital markets in the United States. The Variable Account may quote the
performance of its Sub-Accounts in conjunction with the long-term performance of
capital markets in order to illustrate general long-term risk versus reward
investment scenarios. Capital markets tracked by Ibbotson Associates include
common stocks, small company stocks, long-term corporate bonds, long-term
government bonds, U.S. Treasury Bills, and the U.S. inflation rate. Historical
total returns are determined by Ibbotson Associates for: Common Stocks,
represented by the Standard and Poor's Composite Index (an unmanaged weighted
index of 90 stocks prior to March 1957 and 500 stocks thereafter of industrial,
transportation, utility and financial companies widely regarded by investors as
representative of the stock market); Small Company Stocks, represented by the
fifth capitalization quintile (i.e., the ninth and tenth deciles) of stocks on
the New York Stock Exchange for 1926-1981 and by the performance of the
Dimensional Fund Advisors Small Company 9/10 (for ninth and tenth deciles) Fund
thereafter; Long Term Corporate Bonds, represented beginning in 1969 by the
Salomon Brothers Long-Term High-Grade Corporate Bond Index, which is an
unmanaged index of nearly all Aaa and Aa rated bonds, represented for 1946-1968
by backdating the Salomon Brothers Index using Salomon Brothers' monthly yield
data with a methodology similar to that used by Salomon Brothers in computing
its Index, and represented for 1925-1945 through the use of the Standard and
Poor's monthly High-Grade Corporate Composite yield data, assuming a 4% coupon
and a 20-year maturity; Long-Term Government Bonds, measured each year using a
portfolio containing one U.S. government bond with a term of approximately
twenty years and a reasonably current coupon; U.S. Treasury Bills, measured by
rolling over each month a one-bill portfolio containing, at the beginning of
each month, the shortest-term bill having not less than one month to maturity;
Inflation, measured by the Consumer Price Index for all Urban Consumers, not
seasonably adjusted, since January, 1978 and by the Consumer Price Index before
then. The stock capital markets may be contrasted with the corporate bond and
U.S. government securities capital markets. Unlike an investment in stock, an
investment in a bond that is held to maturity provides a fixed rate of return.
Bonds have a senior priority to common stocks in the event the issuer is
liquidated and interest on bonds is generally paid by the issuer before it makes
any distributions to common stock owners. Bonds rated in the two highest rating
categories are considered high quality and present minimal risk of default. An
additional advantage of investing in U.S. government securities and Treasury
bills is that they are backed by the full faith and credit of the U.S.
government and thus have virtually no risk of default. Although government
securities fluctuate in price, they are highly liquid.
The tables below provide performance results for each Sub-Account through
December 31, 1995. The results shown in this section are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Contract Owner.
The Sub-Accounts, other than Cash Income Fund Sub-Account, may advertise
total return information for various periods of time. Total return performance
information is based on the overall percentage change in value of a hypothetical
investment in the specific Sub-Account over a given period of time.
Average Annual Total Return for a Contract that is Surrendered and for a
Contract that Continues
An average annual total return assuming the Contract is surrendered is
calculated using the method prescribed by the Securities and Exchange
Commission. This method illustrates each Sub-Account's average annual total
return, assuming a single $1,000 initial purchase payment and the surrender of
the contract at the end of the period being calculated. The Sub-Account's
average annual total return is the annual rate that would be necessary to
achieve the ending value of an investment kept in the Sub-Account for the
period.
Each calculation assumes that the $1,000 initial purchase payment was
allocated to only one Sub-Account and no transfers or additional purchase
payments were made. The rate of return reflects all charges assessed against a
Contract and the Sub-Account except for any premium taxes that may be payable.
The charges reflected are: a Contingent Deferred Sales Charge that applies when
the hypothetical Contract is surrendered; the annual l.25% Mortality and Expense
Risk Charge and the annual 0.15% Sales Charge; and, on an allocated basis, the
Contract's Contract Maintenance Charge that is deducted at the end of each year
and upon surrender. The Contingent Deferred Sales Charge used in the
calculations for a particular Sub-Account is equal to the percentage charge in
effect at the end of the period multiplied by: the assumed $1,000 payment less
any amount of that payment that is free of Contingent Deferred Sales Charge
under the Contract's surrender provisions. The percentage charge declines from
7% to 1% over 7 years by 1% per year. The Contract Maintenance Charge used in
the calculations for a particular Sub-Account is equal to a dollar and time-
weighted average for that Sub-Account based on a yearly charge of $30 for the
portion of the period shown that is before 7/1/94 and $36 for any later portion
of that period. A particular Sub-Account's pro-rated portion is then equated to
a $1,000 basis by multiplying it by a fraction equal to $1,000 divided by the
average Contract Value in that Sub-Account during the period shown.
A second type of average annual return is calculated in the same manner as
the first except no Contingent Deferred Sales Charge is deducted since it is
assumed the Contract continues through the end of the period.
Total Return for a Contract Total Return for a Contract
Surrendered on 12/31/95 Still in force on 12/31/95
Hypothetical $1,000 Purchase Payment* Hypothetical $1,000 Purchase Payment*
Length of Investment Period Length of Investment Period
Since Contract Since Contract
Sub-Account One Year Inception Shown One Year Inception Shown
MSIF 8.13% 3.56% (1/1/93) 14.13% 5.10% (1/1/93)
MAF 17.70 6.92 (1/1/93) 23.70 8.36 (1/1/93)
MGSF 29.80 7.66 (1/1/93) 35.80 9.08 (1/1/93)
CAF 4.16 12.43 (1/1/93) 10.16 13.73 (1/1/93)
CKUF 27.26 3.89 (7/13/93) 33.26 5.78 (7/13/93)
CKSIF N/A 9.84**(10/13/95) N/A 16.84**(10/13/95)
CKGIF 22.31 9.90 (7/23/93) 28.31 11.66 (7/23/93)
CKIFG -1.25 -4.93 (5/3/94) 4.39 -1.68 (5/3/94)
NKTF N/A 9.84**(12/18/95) N/A 14.45**(12/18/95)
* See footnote 4 on page 6 of the prospectus for the expense reimbursement
percentages applicable to all the SteinRoe Trust Funds beginning May 1, 1993.
Before then, the expense reimbursement was applicable to MSIF to the extent
expenses, including management fees, exceeded 1.00% of average annual assets.
For expense reimbursement applicable to the Keyport Trust Funds beginning July
1, 1993, see footnote 3 on page 5 of the prospectus. The return percentages
would be lower without this expense reimbursement.
** Non-annualized total returns are shown since this Sub-Account has been in
existence for less than one year.
Change in Accumulation Unit Value
The change in Accumulation Unit values for each Sub-Account is computed
differently than the standardized average annual total return information.
A Sub-Account's change in Accumulation Unit values is the rate at which the
value of a Unit changes over the time period illustrated. For time periods
prior to the date the Variable Account commenced operations, Accumulation Unit
values are calculated based on the performance of the SteinRoe Trust Funds and
the assumption that the Sub-Accounts and the Contract were in existence since
the inception date of the Funds. Rates of change in Accumulation Unit values
reflect the Contract's annual 1.25% Mortality and Expense Risk Charge and the
annual .15% Sales Charge. They do not reflect deductions for any Contingent
Deferred Sales Charges, Contract Maintenance Charges, and premium taxes. The
rates of change would be lower if these charges were included.
Average Annual Change 12-Month Period Change
In Accumulation Unit in Accumulation Unit Value*
Value Since 1/1/89*
Sub-Account 1989 1990 1991 1992 199 1994 1995
MSIF 7.34% 11.40% 7.59% 12.90% 4.49% 4.79% -2.93% 14.15%
MAF 10.56 21.10 -2.11 26.17 6.04 7.78 -4.52 23.75
MGSF 14.02 29.64 -3.04 45.98 5.16 3.52 -7.64 35.84
CAF 14.69 29.39 -10.29 35.36 12.90 33.80 -0.21 10.21
CKUF 5.81 -2.53** -11.51 33.29
CKSIF N/A 16.84**
CKGIF 11.69 4.26** -2.12 28.34
CKIFG -1.67 -6.86** 4.39
NKTF N/A 14.45**
* See footnote 4 on page 6 of the prospectus for the expense reimbursement
percentages applicable to all the SteinRoe Trust Funds beginning May 1, 1993.
Before then, the expense reimbursement was applicable to MSIF to the extent
expenses, including management fees, exceeded 1.00% of average annual assets.
For expense reimbursement applicable to the Keyport Trust Funds beginning July
1, 1993, see footnote 3 on page 5 of the prospectus. The return percentages
would be lower without this expense reimbursement.
** Percentage of change is for less than 12 months; it is for the period from
the inception date to the end of that year (CKUF - 7/13/93; CKGIF - 7/23/93;
CKIFG - 5/3/94; CKSIF - 10/13/95 and NKTF 12/18/95).
Yield for CIF Sub-Account
Yield and effective yield percentages for the CIF Sub-Account are
calculated using the method prescribed by the Securities and Exchange
Commission. The yield reflects the deduction of the annual l.40% asset-based
Contract charges. The yield also reflects, on an allocated basis, the
Contract's annual $36 Contract Maintenance Charge. The yield does not reflect
Contingent Deferred Sales Charges and premium taxes. The yield would be lower
if these charges were included. The following are the standardized formulas:
Yield equals: (A - B - 1) X 365
C 7
Effective Yield Equals: (A - B)365/7 - 1
C
Where: A = the Accumulation Unit value at the end of the 7-day period.
B = hypothetical Contract Maintenance Charge for the 7-day period.
The assumed annual CIF charge is equal to the $36 Contract charge
multiplied by a fraction equal to the average number of Contracts
with CIF Sub-Account value during the 7-day period divided by the
average total number of Contracts during the 7-day period. This
annual amount is converted to a 7-day charge by multiplying it by
7/365. It is then equated to an Accumulation Unit size basis by
multiplying it by a fraction equal to the average value of one
CIF Accumulation Unit during the 7-day period divided by the
average Contract Value in CIF Sub-Account during the 7-day
period.
C = the Accumulation Unit value at the beginning of the 7-day period.
The yield formula assumes that the weekly net income generated by an
investment in the CIF Sub-Account will continue over an entire year. The
effective yield formula also annualizes seven days of net income but it assumes
that the net income is reinvested over the year. This compounding effect causes
effective yield to be higher than the yield.
For the 7-day period ended 12/31/95, the yield for the CIF Sub-Account was
3.91% and the effective yield was 3.99%.
Independent Auditors' Report
The Board of Directors
Liberty Life Assurance Company of Boston:
We have audited the accompanying balance sheets of Liberty Life Assurance
Company of Boston as of December 31, 1995 and 1994 and the related statements of
income, stockholder's equity, and cash flows for each of the years in the three-
year period 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Liberty Life Assurance Company
of Boston as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the years in the three-year period then ended, in
conformity with generally accepted accounting principles.
February 16, 1996 /s/KPMG Peat Marwick LLP
<TABLE> LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
<CAPTION> Balance Sheets
December 31, 1995 and 1994
(Dollars in thousands)
Assets 1995 1994
<S> <C> <C>
Cash and investments:
Fixed maturities available for sale $ 1,522,447 $ 1,226,277
Equity securities 4,191 882
Policy loans 40,672 36,586
Short-term investments 121,471 39,558
Other long-term investments 32,339 20,270
Total investments 1,721,120 1,323,523
Cash and cash equivalents 64,801 5,055
Amounts recoverable from reinsurers (note 3) 36,919 41,816
Due and uncollected premiums 4,974 5,387
Investment income due and accrued 17,275 15,866
Deferred policy acquisition costs (note 5) 62,762 54,283
Other assets 7,545 9,079
Separate account assets 899,519 694,564
Total assets $ 2,814,915 $ 2,149,573
Liabilities and Stockholder's Equity
Liabilities:
Future Policy benefits (notes 3 and 4) $ 890,042 $ 720,118
Investment contracts:
Structured settlements without life
contingencies (note 4) 306,636 282,431
Policy account balances 134,983 131,753
Policy and contract claims 19,344 20,867
Dividends to policyholders 12,309 11,742
Other policy liabilities 1,190 1,700
Liability for participating policies 65,256 61,859
Federal income taaxes payable - 5,830
Deferred federal income taxes 93,158 30,198
Due to Parent 9,334 133
Accrued expenses and other liabilities 191,894 40,659
Separate Accounts liabilities 899,519 694,564
Total liabilities 2,542,665 2,001,854
Commitments and contingencies (notes 3 and 12)
Stockholder's equity:
Common stock, $312.50 par value; authorized 8,000
shares; authorized, issued and outstanding 2,500 2,500
Additional paid-in capital 2,500 2,500
Net unrealized investment gains on equity and
other long-term investments, net of deferred
federal income taxes of $1,603 and $717 (note 2) 2,966 1,326
Cumulative foreign currency translations, net of
deferred federal income taxes of $515 and $248 957 463
Net unrealized gains on fixed maturities, net of
valuation adjustment DAC of $2,834 and $213
and deferred federal taxes of $64,788 and $5,916 119,909 10,948
Retained earnings 143,418 129,982
Total stockholder's equity 272,250 147,719
Total liabilities and stockholder's equity $ 2,814,915 $ 2,149,573
</TABLE>
See accompanying notes to financial statements.
<TABLE> LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
<CAPTION> Statements of Income
Years Ended December 31, 1995, 1994 and 1993
(Dollars if thousands)
1995 1994
1993
<S> <C> <C>
<C>
Revenues:
Premiums, net (notes 3 and 4) $197,017 $130,606
$101,984
Net investment income (note 2) 108,721 97,022
92,153
Realized gains on investments (note 2) 5,091 3,043
4,810
Contractholder charges and assessments 5,428 4,943
3,869
Other considerations 4,323 3,776
2,893
Total revenues 320,580 239,390
205,709
Benefits and expenses:
Death and other policy benefits 126,029 110,158
104,939
Recoveries from reinsurers on ceded claims (note 3) (10,489) (5,858)
(4,858)
Change in future policy benefits and other
policy liabilities 88,903 41,609
34,567
Interest credited to policyholders 27,527 18,347
16,353
Deferred policy acquisition costs (note 5) (11,101) (9,921)
(7,922)
General expenses (note 4) 52,555 38,381
31,602
Insurance taxes and licenses 4,997 3,550
3,009
Dividends to policyholders 12,277 11,671
11,003
Total benefits and expenses 290,698 207,937
188,693
Income for continuing operations before federal
income taxes and earnings of participating policies 29,882 31,453
17,016
Federal income taxes (note 6) 10,782 11,003
6,611
Income for continuing operations before earnings of
participating policies 19,100 20,450
10,405
Earnings of participating policies net of federal
income tax benefit of $2,581 in 1995,
$835 in 1994 and $1,042 in 1993 3,397 1,545
1,928
Income from continuing operations 15,703 18,905
8,477
Discontinued operations: (note 14)
Inocme/(loss) from operations on discontinued
group health, net of federal income taxes/(benefits)
of ($1,236) in 1995, $100 in 1994 and ($3,648) in 1993 (2,267) 24
(6,710)
Cumulative accounting change:
Reserve method, net of federal taxes of $3,457 in 1993
6,398
Income taxes
43
Net income $ 13,436 $ 18,929 $
8,208
</TABLE>
See accompanying notes to financial statements.
<TABLE> LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
<CAPTION> Statements of Stockholder's Equity
Years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
Unrealized
Gains on Cumulative Unrealized
Additional Other Foreign Gains on
Common Paid-In Long-term Currency Fixed
Retained
Stock Capital Investments Transaltion Maturities
Earnings Total
<S> <C> <C> <C> <C> <C> <C>
<C>
Balance
December 31, 1992 $2,500 2,500 149 - - 102,845
$107,994
Net income 8,208
8,208
Net unrealized gains
on equity and other
long-term investments,
net of deferred
federal income taxes
of ($217) 392
392
Cumulative foreign
currency translations,
net of deferred
federal income taxes
of ($108) 203
203
Net unrealized gains
on fixed maturities,
net of valuation
adjustment deferred
policy acquisition
costs of ($2,049) and
deferred federal
income tax benefit
of ($56,859) 105,233
105,233
Balance
December 31, 1993 $2,500 2,500 541 203 105,233
111,053 $222,030
Net income
18,929 18,929
Net unrealized gains
on equity and other
long-term investments,
net of deferred
federal income taxes
of ($425) 785
785
Cumulative foreign
currency translations,
net of deferred
federal income taxes
of ($140) 260
260
Net unrealized gains
on fixed maturities,
net of valuation
adjustment deferred
policy acquisition
costs of $1,836 and
deferred federal
income tax benefit
of $50,943 (94,285)
(94,285)
Balance
December 31, 1994 $2,500 2,500 1,326 463 10,948 129,982
$147,719
Net income 13,436
13,436
Net unrealized gains
on equity and other
long-term investments,
net of deferred
federal income taxes
of ($886) 1,640
1,640
Cumulative foreign
currency translations,
net of deferred
federal income taxes
of ($267) 494
494
Net unrealized gains
on fixed maturities,
net of valuation
adjustment deferred
policy acquisition
costs of $2,622 and
deferred federal
income tax benefit
of $58,872 108,961
108,961
Balance
December 31, 1995 $2,500 2,500 2,966 957 119,909 143,418
$272,250
</TABLE>
See accompanying notes to financial statements.
<TABLE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
<CAPTION> Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
1995 1994
<S> <C> <C>
<C>
Cash flows from operating activities:
Premiums collected $ 197,607 $ 127,716
$ 199,818
Investment income received 89,412 80,817
82,131
Other considerations received 9,421 22,599
324
Policyholder claims paid (101,922) (123,676)
(168,455)
Surrender benefits paid (5,927) (5,317)
(6,409)
Policyholder dividends paid (11,685) (11,081)
(10,930)
General expenses paid (56,736) (41,915)
(50,480)
Insurance taxes and licenses paid (6,000) (6,346)
(6,764)
Federal income taxes paid, including
capital gains taxes (12,878) (4,897)
(13,849)
Intercompany net (payments)/receipts 9,201 (16,620)
942
Other (2,782) (6,904)
(76)
Net cash flows from operating activities 107,711 14,376
26,252
Cash flows from investing activities:
Proceeds from fixed maturities sold 41,763 66,835
5,419
Proceeds from fixed maturities matured 75,084 124,347
182,020
Cost of fixed maturities acquired (224,725) (315,121)
(283,231)
Proceeds from equity securities sold 87,449 45,632
451
Cost of equity securities acquired (86,390) (45,898)
(509)
Change in policy loans (4,087) (3,827)
(3,032)
Investment cash in transit (182) 34
(56)
Proceeds from short-term investments sold or matured 485,257 902,371
1,474,483
Cost of short-term investments acquired (566,870) (879,643)
(1,446,420)
Proceeds from securities loaned 148,710 -
-
Proceeds from other long-term investments sold 4,320 2,657
2,230
Cost of other long-term investments acquired (13,427) (5,772)
(4,254)
Net cash used in investing activities (53,098) (108,385)
72,899
Cash flows from financing activities:
Policyholder's deposits on investment contracts 62,019 124,565
73,278
Policyholder's withdrawals from investment contracts (56,886) (30,608)
(28,787)
Net cash provided by financing activities 5,133 93,957
44,491
Net increase/(decrease) in cash 59,746 (52)
(2,156)
Cash and cash equivalents, beginning of year 5,055 5,107
7,263
Cash and cash equivalents, end of year $ 64,801 $ 5,055
$ 5,107
Reconciliation of net income to net cash flows
from operating activities:
Net income 13,436 18,929
8,208
Adjustments to reconcile net income to net cash flows
from operating activities:
Realized capital gains on investments (5,091) (3,211)
(4,906)
Accretion of bond discount (17,822) (16,297)
(11,884)
Interest credited to policyholders 27,543 18,347
16,353
Contractholders' charges and assessments (5,428) (5,084)
(3,869)
Changes in assets and liabilities:
Investment cash in transit 182 (34)
57
Proceeds from securities loaned (148,710) -
-
Amounts recoverable from reinsurers 4,897 (16,735)
(962)
Due and uncollected premiums 413 (418)
4,197
Investment income due and accrued (1,409) (1,336)
249
Deferred policy acquisition costs (10,888) (9,921)
(7,922)
Other assets 1,354 (1,846)
96
Future policy benefits 88,924 45,660
28,502
Policy and contract claims (1,523) (494)
(1,846)
Dividends to policyholders 567 590
102
Other policy liabilities (510) 550
(2,050)
Liability for participating policies 3,397 1,544
1,928
Federal income taxes payable (5,830) 4,643
(6,419)
Deferred federal income taxes 3,235 1,563
(1,166)
Due to Parent 9,201 (16,620)
942
Accrued expenses and other liabilities 151,773 (5,454)
6,642
Net cash flows from operating activities $ 107,711 $ 14,376
$ 26,252
</TABLE>
See accompanying notes to financial statements.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(Dollars in thousands)
(1) Summary of Significant Accounting Policies
(a) Organization
Liberty Life Assurance Company of boston (the "Company") is directly owned 90%
by Liberty Mutual Insurance Company and 10% by Liberty Mutual Fire Insurance
Company ("Liberty Mutual"). The Company insures life, annuity and accident and
health risks for groups and individuals. The Company also issues structured
settlement contracts and administers separate account contracts.
(b) Basis of Presentation
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles which vary in certain respects from
reporting practices prescribed or permitted by state insurance regulatory
authorities. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual amounts could subsequently differ
from such estimates.
(c) Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions and certain costs
of issuing policies, all of which vary with and are primarily related to the
production of new business, have been deferred to the extent they are deemed
recoverable from future profits.
Costs relating to traditional life insurance are amortized over the premium
paying periods of the related policies in proportion to the ratio that annual
premium revenue bears to total anticipated premium revenue. Anticipated premium
revenue was estimated using the same assumptions which were used for computing
liabilities for future policy benefits. Costs deferred on universal life
policies are amortized over the estimated lives of the policies, in relation
to the present value of estimated gross profits from investment yield, mortality
and surrender charges, and administrative fees (see note 5). Deferred policy
acquisition costs are adjusted to reflect the amounts associated with unrealized
gains on fixed maturities for universal life-type products.
The Company began deferring acquisition costs relating to group life and
disability insurance as of January 1, 1995. Costs relating to these policies ar
amortized over a five year period. Anticipated premium revenue was estimated
using the same assumptions which were used for computing liabilities for future
policy benefits (see note 5).
(d) Investments in Securities
Effective December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS 115), Accounting for Certain Investments in
Debt and Equity Securities. SFAS 115 segregates fixed maturity investments into
three classifications: "held to maturity", "trading" and "available for sale."
Securities may be designated as held to maturity only if there is the positive
intent and ability to hold these securities to maturity. Securities held to
maturity are carried at amortized cost. Securities purchased for short-term
resale are classified as trading and are carried at fair value. Unrealized gains
and losses on trading account securities are recognized in income. Fixed
maturity investments are classified as available for sale if they might be sold
in response to changes in market interest rates, changes in the security's
prepayment risk, general liquidity needs, or other factors. Available
for sale securities ar carried at fair value and unrealized gains and losses
(net of related adjustments to deferred policy acquisition costs, value of
insurance in force and deferred income taxes) are recorded directly to
stockholder's equity. Equity securities ar classified as available for sale
and are carried at fair value. Unrealized gains and losses on equity
securities are recorded directly to stockholder's equity, net of applicable
deferred income taxes.
The Company classified all fixed maturities as "available for sale" and carries
then at fair value. Other long-term investments which principally include
investments in limited partnerships, are carried at the equity method with
changes therein reflected in unrealized gains (losses) on investments, net of
applicable deferred income taxes. Short-term investments, consisting primarily
of money market instruments and other debt issued purchased with an
original maturity of 1 year or less, are carried at cost which approximated fair
value. Policy loans are stated at the aggregate of unpaid principal balances.
Realized gains and losses on sales of investments have been determined on the
specific identification method (see note 2).
(e) Recognition of Traditional Life Premium Revenue and Related Expenses
Premiums on traditional life insurance policies are recognized as revenue when
due.Benefits and expenses are associated with premiums so as to result in the
recognition of profits over the life of the policies. This association is
accomplished by providing liabilities for future policy benefits and the
deferral and subsequent amortization of acquisition costs.
(f) Recognition of Universal Life Revenue and Policy Account Balances
Revenues from universal life policies represent investment income from the
related invested assets and amounts assessed against policyholders. Included
in such assessments are mortality charges, surrender charges paid and
administrative fees. Policy account balances consist of consideration received
plus credited interest, less accumulated policyholder charges, assessments
and withdrawals. Credited interest rates were between 6.3% and 6.5% in both 1995
and 1994 and between 6.8% and 7.5% in 1993.
(g) Investment Contracts
The Company writes certain annuity and structured settlement contracts without
mortality risk which are accounted for as investment contracts. Revenues for
investment contracts consist of investment income from the related invested
assets, with profits recognized to the extent investment income earned exceeds
the amount credited to the contract. This method of computing the liability for
future policy benefits effectively results in recognition of profits over the
benefit period. Policy account balances consist of consideration received plus
credited interest less policyholder withdrawals. Credited interest rates were
between 5.6% and 7.25% in 1995, between 5.0% and 5.25% in 1994 and between
6.0% and 6.25% in 1993 for annuity contracts. Credited interest rates were
between 6.2% and 11.4% in 1995, 1994 and 1993 for structured settlement
contracts.
(h) Future Policy Benefits
Liabilities for future policy benefits for traditional life policies have been
computed using the net level premium method based on estimated future investment
yield, mortality and withdrawal experience. Interest rate assumptions
were between 4.5% and 10.25% for all years of issue. Mortality assumptions have
been calculated principally on an experience multiple applied to the 1955-60
and 1965-70 Select and Ultimate Basic Tables for issued prior to 1986, the 1986
Bragg Non-Smoker/Smoker Select and Ultimate Basic Tables for 1986 to 1992 issues
and the 1991 Bragg Non-Smoker/Smoker Select and Ultimate Basic Tables for 1993
and subsequent issues. Withdrawal assumptions are generally based on the
Company's experience.
The liability for future policy benefits with respect to structured settlement
contracts with life contingencies and single premium group annuities (group
pension) is determined based on interest crediting rates between 6.0% and
11.4%, and the mortality assumptions are based on the 1971 GAM and IAM tables.
Future policy benefits for long-term disability cases are computed using the
1987 Commissioners' Group Disability Table.
(i) Policy and Contract Claims
Accident and health business policy and contract claims principally include
claims in course of settlement and claims incurred but not reported, which are
determined based on a formula derived as a result of the Company's past
experience. Claims liabilities may be more or less than the amounts paid when
the claims are ultimately settled. Such differences are considered changes in
estimates and are recorded in the statements of income in the year the claims
are settled.
(j) Federal Income Taxes
The Company has adopted the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which thosetemporary differences are expected to be recovered or settled. The
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that include the enactment date.
(k) Participating Policies
Participating policies approximate 35% and 38% of life insurance in force at
December 31, 1995 and 1994, respectively, and 56% and 60% of individual life
insurance premium revenue in 1995 and 1994, respectively. Dividends to
participating policyholders are calculated as the sum of the difference between
the assumed mortality, interest and loading, and the actual experience of the
Company relating to participating policyholders. As a result of statutory
regulations, the major portion of earnings from participating policies inures
to the benefit of the participating policyholders and is not available
to stockholders. Undistributed earnings of the participating block of business
is represented by the liability for participating policies in the accompanying
balance sheets. The payment of dividends to stockholders is further restricted
by insurance laws of the Commonwealth of Massachusetts (see note 7).
(l) Foreign Currency Translations
The Company entered into certain transactions that are denominated in a currency
other than the U.S. dollar. Functional currencies are assigned to foreign
currencies. The resulting translation adjustments from such transactions are
accumulated and then converted to U.S. dollars. The unrealized gain or loss
from this translation is recorded as a separate component of stockholders'
equity, net of deferred federal income taxes. The translations are calculated
using current exchange rates for the balance sheet and average exchange rates
for the statement of operations.
(m) Separate Account Contracts
Separate Accounts assets and liabilities represent designated funds held and
invested by the Company for the benefit of contractholders. Separate Accounts
assets are carried at fair value. Investment income and changes in asset
values do not affect the operating results of the Company. Separate Accounts
business is maintained independently from the general account of the
Company. The Company provides administrative services for these contracts. Fees
earned by the Company related to these contracts included in other
considerations were $1,434 and $880 for the years ended December 31, 1995 and
1994, respectively.
(n) Certain reclassifications were made to the 1994 financial statements to
conform to the 1995 presentation.
(2) Investments
(a) Fixed Maturities
The amortized cost, gross unrealized gains and losses, and estimated fair value
of investments in fixed maturities at December 31, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION> 1995
Gross Gross
Estimated
Amortized Unrealized Unrealized
Fair
Cost Gains Losses
Value
<S> <C> <C> <C>
<C>
U.S. Treasury securities and
obligations of U.S government
corporations and agencies $ 380,296 $116,737 $ (37)
$ 496,996
Debt securities issued by
foreign governments 19,651 1,839 (7)
21,483
Corporate securities 313,686 18,727 (2,797)
329,616
U.S. government guaranteed
mortgage-backed securities 621,282 53,523 (453)
674,352
Total fixed maturities $1,334,915 $190,826 $ (3,294)
$1,522,447
</TABLE>
<TABLE>
<CAPTION> 1994
Gross Gross
Estimated
Amortized Unrealized Unrealized
Fair
Cost Gains Losses
Value
<S> <C> <C> <C>
<C>
U.S. Treasury securities and
obligations of U.S government
corporations and agencies $ 386,941 $ 57,271 $ (6,741)
$ 437,471
Debt securities issued by
foreign governments 17,772 378 (581)
17,569
Corporate securities 258,413 2,145 (11,825)
248,733
U.S. government guaranteed
mortgage-backed securities 546,024 7,216 (30,786)
522,454
Total fixed maturities $1,209,150 $ 67,010 $(49,933)
$1,226,227
</TABLE>
The amortized cost and estimated fair value of fixed maturities at December 31,
1995, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION> Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 29,797 $ 30,053
Due after one year through five years 169,624 177,635
Due after five years through ten years 166,178 186,073
Due after ten years 348,034 454,334
U.S. government guaranteed mortgage-
backed securities 621,282 674,352
Total fixed maturities $1,334,915 $1,522,447
</TABLE>
At December 31, 1995 and 1994, fixed maturities with an amortized cost of
$10,422 and $8,156, respectively, were on deposit with regulatory authorities.
(b) Equity Securities and Other Long-term Investments
The cost of equity securities and other long-term investments at December 31,
1995 and 1994 were as follows:
<TABLE>
1995 1994
<S> <C> <C>
Equity securities $ 3,086 $ 704
Other long-term investments 28,874 18,405
Total equity and other long-term investments $ 31,960 $ 19,109
</TABLE>
Gross unrealized gains and losses on equity securities and other long-term
investments includes in retained earnings at December 31, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION> 1995 1994
<S> <C> <C>
Equity Securities:
Gross unrealized gains $ 1,105 $ 180
Gross unrealized losses - (2)
Total net unrealized gains 1,105 178
Deferred federal income taxes 388 63
Net unrealized gains $ 717 $ 115
</TABLE>
<TABLE>
<CAPTION> 1995 1994
<S> <C> <C>
Other long-term investments:
Gross unrealized gains $ 4,045 $ 2,308
Gross unrealized losses (580) (443)
Total net unrealized gains 3,465 1,865
Deferred federal income taxes 1,216 654
Net unrealized gains $ 2,249 $ 1,211
</TABLE>
(c) Net Investment Income
Net investment income for the years ended December 31, 1995, 1994 and 1993 was
as follows:
<TABLE>
<CAPTION> 1995 1994 1993
<S> <C> <C> <C>
Fixed maturities $104,779 $ 95,837 $ 89,984
Equity securities 214 22 -
Policy loans 2,397 2,111 2,458
Short-term investments and cash equivalents 2,034 1,711 1,900
Other long-term investments 878 342 397
Gross investment income 110,302 100,023 94,739
Less: Investment expenses 1,581 1,942 1,154
Discontinued operations - 1,059 1,432
Net investment income $108,721 $ 97,022 $ 92,153
</TABLE>
(d) Realized Gains on Investments
Realized gains (losses) on investments for the years ended December 31, 1995,
1994 and 1993 were derived from the following sources:
<TABLE>
<CAPTION> 1995 1994 1993
<S> <C> <C> <C>
Fixed maturities $ 366 $ 1,752 $ 3,744
Equity securities 3,441 434 389
Short-term investments - (4) -
Other long-term investments 1,284 1,029 800
Foreign exchange - -
(27)
Gross realized capital gains 5,091 3,211 4,906
Less: Discontinued operations - 168 96
Realized capital gains on investments $ 5,091 $ 3,043 $ 4,810
Proceeds from sales of investments in fixed maturities during 1995, 1994 and
1993 were $116,847, $191,182 and $187,439, respectively. Gross gains of $811,
$2,353 and $3,860 and gross losses of $445, $601 and $116 were realized on those
sales during 1995, 1994 and 1993, respectively.
(e) Concentration of Investments
Investments in a single entity's fixed maturities in excess of ten percent of
total stockholder's equity at December 31 are as follows:
There were no investments in a single entity's fixed maturities in excess of ten
percent of stockholders' equity at December 31, 1995.
1994
% of
Stockholders'
Amount Equity
Walmart Stores, Inc. $ 18,430 12.5%
(f) Fixed Maturities Credit Quality
The Company invests mainly in U.S. government fixed maturities. The following
table illustrates the book value and percentage of the portfolio for long-term
and short-term fixed maturities invested by the NAIC designation:
1995
NAIC Rating Agency Book % of
Designation Designation Equivalent Value Total
1 Aaa/Aa/A $ 1,412,648 97.0%
2 Baa 40,367 2.8%
Subtotal 1,453,015 99.8%
3 Ba 3,338 0.2%
4 B 32 -
5 Caa and lower 0 -
6 In or near default 0 -
Total $ 1,456,385 100.0%
1994
NAIC Rating Agency Book % of
Designation Designation Equivalent Value Total
1 Aaa/Aa/A $ 1,182,555 94.7%
2 Baa 63,321 5.1%
Subtotal 1,245,876 99.8%
3 Ba 2,797 0.2%
4 B - -
5 Caa and lower 35 -
6 In or near default - -
Total $ 1,248,708 100.0%
The book values of publicly traded and privately placed maturities at December
31 were as follows:
1995
Book % of
Value Total
Public $ 1,422,480 97.7%
Private 33,905 2.3%
Total $ 1,456,385 100.0%
1994
Book % of
Value Total
Public $ 1,194,979 95.7%
Private 53,729 4.3%
Total $ 1,248,708 100.0%
(3) Reinsurance
The Company reinsures with other companies portions of its risks underwritten
and assumes portions of risks on policies underwritten by other companies. The
Company generally reinsures risks on life insurance policies over two hundred
fifty thousand dollars as well as selected risks of lesser amounts. Life
insurance in force and premium information for the years ended December 31,
1995 and 1994 were as follows:
</TABLE>
<TABLE>
<CAPTION> 1995
Assumed Ceded to
Direct From Other Other Net
Amount Companies Companies Amount
<S> <C> <C> <C> <C>
Life insurance in force $17,374,371 $ 56,753 $ 1,110,191 $
16,320,933
Premiums:
Group life and disability 105,415 68 12,223
93,260
Individual life and annuity 103,732 123 2,477
101,378
Group pension 2,379 - -
2,379
Total premiums $ 211,526 $ 191 $ 14,700 $
197,017
</TABLE>
<TABLE>
<CAPTION> 1994
Assumed Ceded to
Direct From Other Other Net
Amount Companies Companies Amount
<S> <C> <C> <C> <C>
Life insurance in force $14,824,724 $ 46,532 $ 793,839 $
14,077,417
Premiums:
Group life and disability 86,390 262 13,715
72,937
Individual life and annuity 56,617 135 2,120
54,632
Group pension 3,037 - -
3,037
Total premiums $ 146,044 $ 397 $ 15,835 $
130,606
</TABLE>
<TABLE>
<CAPTION> 1993
Assumed Ceded to
Direct From Other Other Net
Amount Companies Companies Amount
<S> <C> <C> <C> <C>
Life insurance in force $13,264,605 $ 19,470 $ 545,849 $
12,738,226
Premiums:
Group life and disability 42,251 15,852 3,316
54,787
Individual life and annuity 49,288 102 3,416
45,974
Group pension 1,223 - -
1,223
Total premiums $ 92,762 $ 15,954 $ 6,732 $
101,984
</TABLE>
The Company assumes certain disability premiums and claims for Liberty Mutual
under a reinsurance agreement effective January 1, 1986. Disability premiums
assumed relating to this agreement amounted to $67, $262 and $67 in 1995, 1994
and 1993, respectively.
Amounts recoverable from reinsurers are presented as an asset in the
accompanying financial statements at December 31, 1995 and 1994 and were as
follows:
1995 1994
Group life and health $ 19,377 $ 25,651
Individual life and annuity 17,542 16,165
Total amounts recoverable from reinsurers $ 36,919 $ 41,816
Contingent liabilities exist with respect to reinsurance ceded which would
become liabilities of the Company in the event the assuming reinsurers are
unable to meet their obligations under reinsurance agreements.
(4) Related Party Transactions
Under a Service Agreement between the Company and Liberty Mutual, the latter
provides personnel, office space, equipment, computer processing and other
services. The Company reimburses Liberty Mutual for these services at cost, and
for any other special services supplied at the company's request. Substantially
all of the Company's general expenses incurred in 1995, 1994 and 1993 related
to this agreement.
The Company insures the group term life and disability risks for Liberty Mutual
employees. Premiums associated with these policies amounted to $14,755, $13,562
and $9,793 in 1995, 1994 and 1993, respectively.
The Company insures key officers of Liberty Mutual Group under an Optional Life
Insurance Plan. Premiums associated with this plan amounted to $4,278 and $3,986
in 1995 and 1994, respectively.
Liberty Mutual purchases structured settlement annuity contracts, with an
without life contingencies, from the Company. Premiums under the life contingent
contracts amounted to $40,998, $6,159 and $4,751 in 1995, 1994 and 1993,
respectively. The related liability with respect to the life contingent
contracts amounted to $143,647, $101,660 and $93,772 at December 31, 1995, 1994
and 1993, respectively. Deposits under the non-life contingent contracts
amounted to $37,568, $104,819 and $51,452 in 1995, 1994 and 1993, respectively.
The related liability with respect to the non-life contingent contracts amounted
to $242,918, $281,587 and $186,037 at December 31, 1995, 1994 and 1993,
respectively.
Liberty Mutual deposited $2,761 and $52,546 with the Company in 1995 and 1994,
respectively, to fund certain Liberty Mutual environmental claim transaction.
Such amounts have been included in deposit type fund revenues for the year ended
December 31, 1995 and 1994, as well as in the liability for premium and other
deposit funds.
(5) Deferred Policy Acquisition Costs
Details with respect to deferred policy acquisition costs for the years ended
December 31, 1995 and 1994, are as follows:
1995 1994
Balance, beginning of year $ 54,283 $ 42,526
Additions 13,931 11,745
Amortization (2,830) (1,824)
Valuation adjustment for unrealized gain
on fixed maturities (2,622) 1,836
Balance, end of year $ 62,762 $ 54,283
(6) Federal Income Taxes
The Company is included in a consolidated Federal income tax return with Liberty
Mutual and its other subsidiaries. Under the terms of an intercompany taxation
treaty, income taxes are determined as if the Company filed its own tax
return. Tax settlements are paid to or received from Liberty Mutual.
Federal income tax expense attributable to income from operations for the years
ended December 31, 1995, 1994 and 1993 was comprised of the following
components:
1995 1994 1993
Continuing operations:
Current $ 7,848 $ 9,559 $10,717
Deferred 2,934 1,444 (4,106)
Federal income tax expense $10,782 $11,003 $ 6,611
1995 1994 1993
Discontinued operations:
Current $(1,236) $ (19) $(3,497)
Deferred 0 119 (151)
Federal income tax expense $(1,236) $ 100 $(3,648)
The total federal income tax expense from operations amounted to $6,612, $9,540
and $7,220 in 1995, 1994 and 1993, respectively. The total deferred federal
income tax expense from operations amounted to $3,393, $1,563 and ($4,257) in
1995, 1994 and 1993, respectively.
A reconciliation of federal income tax expense as recorded in the statements of
income with expected federal income tax expense computed at the applicable
federal tax rate of 35% is as follows:
1995 1994 1993
Expected income tax expense $10,458 $11,009 $ 5,956
Increase in income taxes resulting from:
Reconciliation of 1994 tax return 401 - -
Change in the 1993 tax rate on beginning
of year deferred tax liability from
34% to 35% 675
Other, net (77) (6) (20)
Federal income tax expense $10,782 $11,003 $ 6,611
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred liabilities at December 31, 1995 and 1994,
are as follows:
1995 1994
Deferred tax assets:
Dividends to policyholders $ 3,230 $ 3,242
Experience rating service 14 102
Unearned interest on policy loans 283 -
Unearned group premium adjustment 585 448
1987 disability reserve tax adjustment 215 334
Other 29 281
Total deferred tax assets 4,356 4,407
Deferred tax liabilities:
Future policy benefits (11,181) (12,002)
Deferred acquisition costs (16,201) (13,742)
Bonds purchased at market discount (1,769) (1,509)
Bonds market valuation adjustment (64,788) (5,916)
Unrealized gain on other long-term investments (1,603) (717)
Cumulative foreign currency translations (515) (248)
Reconciliation of taxes on other long-term investments (829) (134)
Deferred and uncollected premium adjustment (565) (337)
Other (63) -
Total deferred tax liabilities $ (97,514) $ (34,605)
Net deferred tax liability $ (93,158) $ (30,198)
There was no valuation allowance for deferred income tax assets as of December
31, 1994. There was no change in the total valuation allowance for the year
ended December 31, 1995. In assessing the realization of deferred tax assets,
the Company considers whether it is more likely than not that the deferred
tax asset will be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. The Company considers
primarily the timing of deferred tax liabilities and tax planning strategies in
making this assessment and believes it is more likely than not the Company will
realize the benefits of these deductible differences at December 31, 1995.
The Company paid taxes to the federal government in the amount of $12,878,
$4,897 and $13,849 in 1995, 1994 and 1993, respectively.
As a result of the provisions of the Deficit Reduction Act of 1984, the Company
has deferred income approximating $4 million, including in its unassigned
surplus, which may become taxable in the future upon the occurrence of
certain conditions that management considers to be remote; therefore, Federal
income taxes relating to this deferred income have not been provided for in
the accompanying financial statements.
(7) Dividend Restrictions
According to a resolution voted by the Board of Directors of the company, not
more than the larger of 10% of statutory profits on participating business or
fifty cents per thousand dollars of participating business in force in a
given year may accrue to the benefit of stockholders. The amount of statutory
unassigned surplus held for the benefit of participating policyholders
is $(845) and for the stockholders is $79,536 at December 31, 1995. Dividends
paid to policyholders were $11,685, and there were no dividends paid to
stockholders in 1995. The payment of dividends to stockholders is restricted by
insurance laws of the Commonwealth of Massachusetts.
(8) Fair Value of financial Instruments
(a) Fixed Maturities
Estimated fair values for publicly traded fixed maturities are determined using
values reported by an independent pricing service. Estimated fair values of
private placement fixed maturities are determined by obtaining market
indications from various broker-dealers.
(b) Policy Loans
The carrying value of policy loans approximates fair value.
(c) Cash and Cash Equivalents and Short-term Investments
The carrying value of cash and cash equivalents and short-term investments
approximates fair value.
(d) Structured Settlements Without Life Contingencies
The fair value of structured settlements without life contingencies totals
approximately $306,636 and $282,431 at December 31, 1995 and 1994, respectively,
and is estimated using discounted cash flow analyses, using the Company's
current interest rates offered for similar contracts.
(e) Policy Account Balances
The fair value of policy account balances is equal to the amount payable on
demand. The Company considers its policy account balances to be similar to
deposit liabilities. The fair value of policy account balances totals
approximately $134,338 and $131,125 at December 31, 1995 and 1994, respectively.
(9) Segment Information
Future policy benefits, premiums, revenues and income from continuing operations
before federal income tax expense for each of the Company's segments for the
years ended December 31, 1995, 1994 and 1993, are as follows:
<TABLE>
<CAPTION> 1995 1994
1993
<S> <C> <C>
<C>
Revenues for continuing operations:
Group life and disability $ 108,132 $
84,872 $ 66,646
Individual life and annuity 175,960
116,966 101,986
Group pension 36,488
37,552 37,077
Total revenues for continuing operations 320,580
239,390 205,709
Income from continuing operations before federal
income tax expense and earnings from participating
policies:
Group life and disability $ 5,723 $
11,559 $ 15,369
Individual life and annuity 22,444
18,284 19,837
Group pension 1,715
1,610 (18,190)
Total income from continuing operations before
federal income tax expense and earnings of
participating policies $ 29,882 $
31,453 $ 17,016
</TABLE>
(10) Unpaid Claims Liability for Group Accident and Health Business
The activity in the liability for unpaid claims is summarized as follows:
1995 1994
Balance at January 1 $ 76,630 $ 66,869
Less: reinsurance recoverables 444 417
Net balance at January 1 76,186 66,452
Claims incurred related to:
Current year 52,747 33,246
Prior years 6,813 472
Total incurred 59,560 33,718
Claims paid related to:
Current year 15,413 9,197
Prior years 18,447 14,787
Total paid 33,860 23,984
Net balance at December 31 101,886 76,186
Plus: reinsurance recoverables 203 444
Balance at December 31 $ 102,089 $ 76,630
As a result of changes in estimates of insured events in prior years, the
provision of claims increase by $6,813 in 1995 and $472 in 1994, respectively.
(11) Reconciliation to Statutory Basis Accounting
The company is required to file statutory financial statements with state
insurance regulatory authorities. Account principles used to prepare statutory
financial statements differ from the financial statements reported herein which
are prepared on the basis of generally accepted accounting principles.
Reconciliations of statutory net income and capital and surplus, as determined
using statutory accounting principles, to the amounts included in the
accompanying financial statements for the years ended December 31, are as
follows:
<TABLE>
<CAPTION> Net income: 1995 1994
1993
<S> <C> <C>
<C>
Statutory basis, net income $ 6,952 $ 4,289
$ 2,448
Increases/(decreases)
Deferred policy acquisition costs 11,101 9,921
7,922
Policy reserves 2,779 8,971
(5,470)
Participating policies (3,397) (1,545)
(1,928)
Deferred federal income taxes (2,934) (1,563)
4,300
Furniture and fixtures - -
(154)
Deferred premiums (1,763) (1,644)
(935)
Interest maintenance reserve (439) 687
1,948
Other 1,137 (187)
77
Net income as reported herein $ 13,436 $ 18,929
$ 8,208
</TABLE>
<TABLE>
<CAPTION> Stockholders' equity: 1995 1994
<S> <C> <C>
Statutory basis, capital and surplus $ 84,441 $ 76,434
Increases/(decreases)
Deferred policy acquisition costs 65,597 54,283
Policy reserves 92,583 88,531
Participating policies (65,256) (61,859)
Asset valuation reserve 9,372 6,969
Interest maintenance reserve 4,853 5,292
Deferred federal income taxes (93,158) (30,198)
Deferred premiums (15,487) (9,970)
Net unrealized gain on fixed maturities 184,696 17,077
Other 4,609 1,160
Stockholders' equity as reported herein $ 272,250 $ 147,719
</TABLE>
(12) Contingencies
In the normal course of its business operations, the Company is involved in
litigation from time to time with claimants, beneficiaries and others, and
several lawsuits were pending on December 31, 1995. In the opinion of
management, the ultimate liability, if any, would not have a material adverse
financial effect upon the Company.
(13) Risk Based Capital
In accordance with instructions set forth by the National Association of
Insurance Commissioners the Company is required to calculate Risk Based Capital
(RBC). 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. The Company's total adjusted capital significantly exceeds RBC
requirements at December 31, 1995 and 1994, respectively.
(14) Discontinued Operations
On December 31, 1993, the Company discontinued its Group Medical insured and
administrative services line of business. Substantially all of the insured
operating assets and future policy liabilities, as of December 31, 1993,
were ceded to Liberty Mutual effective January 1, 1994, until the termination
date of the contracts. After termination there is no additional insurance
risk associated with this particular line of business and all insured operating
assets and future policy liabilities will be extinguished.
(15) Pension Plan
The Company shares personnel with Liberty Mutual which has a noncontributory
defined benefit pension plan covering employees who have attained age twenty-one
and have completed one year of service. Benefits are based on years of service
and the employee's "final average compensation" which is the employee's
average compensation for the highest five consecutive calendar years during the
ten years immediately preceding retirement. Liberty Mutual's funding and
accounting policies are to contribute annually the maximum amount that can be
deducted for Federal income tax purposes and to charge such contributions to
expense in the year deductible for income tax purposes. Liberty Mutual's pension
cost charged to operations for the entire plan in 1995 and 1994 was $26,613
and $594 respectively. The Company's allocated pension cost in 1995 and 1994
was $628 and $70, respectively.
As of January 1, 1995 and 1994, the actuarial present value of accumulated
vested and nonvested benefits for the entire plan, based on a valuation interest
rate of 8%, approximated $611,034 and $563,073, respectively, and the net
assets, at fair market value, available for plan benefits approximated $781,957
and $814,167 in 1995 and 1994, respectively. Assets of the plan consist
primarily of investments in life insurance company separate accounts and a
collective investment trust fund. At January 1, 1995 and 1994, separate account
investments of the company, included in plan assets at fair market value,
amounted to approximately $521,220 and $458,679, respectively.
(16) Postretirement Benefits
Liberty Mutual provides certain health care and life insurance benefits
("postretirement") for retired employees. Substantially all employees may
become eligible for these benefits if they reach retirement age while working
for the Liberty Companies. Alternatively, retirees may elect certain prepaid
health care benefit plans. Life insurance benefits are based upon a
participant's final compensation subject to the plan maximum.
Liberty Mutual records the costs of its postretirement benefits by the accrual
accounting method and has elected to amortize its transition obligation for
retirees and fully eligible or vested employees over 20 years. The unamortized
transition obligation was $165,580 and $175,320 at December 31, 1995 and 1994,
respectively.
Net postretirement benefit costs for Liberty Mutual were approximately $30,979
in 1995 and $29,419 in 1994 and includes the expected cost of such benefits for
newly eligible or vested employees, interest cost, gains and losses arising
from differences between actuarial assumptions and actual experience, and
amortization of the transition obligation. Liberty Mutual made payments of
$14,000 in 1995 and $13,000 in 1994, as claims were incurred.
At December 31, 1995 and December 31, 1994, the accrued unfunded postretirement
benefit obligation for Liberty Mutual's retirees and other fully eligible plan
participants were $45,848 and $28,866, respectively. The accumulated benefit
obligation for non-vested employees was $108,600 and $96,900 at December 31,
1995 and 1994, respectively. The discount rates used in determining the
accumulated postretirement benefit obligation were 7% and 8% in 1995 and 1994,
respectively, and the health care cost trend rates were 11.25% and 12.75%,
graded to 5% and 6% over 10 years, in 1995 and 1994, respectively.
The company's share of postretirement benefit costs were approximately $282 and
$362 for 1995 and 1994, respectively.
The health care cost trend rate assumption has a significant effect on the
amount reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the postretirement
benefit obligation of the entire plan as of December 31, 1995 by approximately
$16,317, and the estimated eligibility cost and interest cost components
of net periodic postretirement benefit cost for 1995 by approximately $2,126.
(17) Reserve Method Change
Effective January 1, 1993 the Company changed from Group Life Disability
valuation basis on the 1970 Inter-Co. disability Table from 2.5% to 5.0%. In
addition, the Company changed the Group Long-term Disability valuation basis on
the 1987 Commissioners' Group Disability Table from 5.5% to 6.5%.
Independent Auditors' Report
The Contract Owners of
Liberty Life Assurance Company's
Variable Account K:
We have audited the accompanying statement of assets and liabilities of the sub-
accounts comprising Liberty Life Assurance Company's Variable Account K as of
December 31, 1995, and the related statements of operations and changes in
net assets for each of the years, or other periods as applicable, in the
two-year period ended December 31, 1995. 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
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the sub-accounts comprising
Liberty Life Assurance Company's Variable Account K at December 31, 1995, and
the results of their operations and changes in their net assets for each of
the years, or other periods as applicable, in the two-year period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Boston, Massachusetts /s/ KPMG Peat Marwick LLP
April 5, 1996
<TABLE>
LIBERTY LIFE ASSURANCE COMPANY
VARIABLE ACCOUNT - K
<CAPTION> Statement of Assets and Liabilities
December 31, 1995
<S> <C>
Assets
Investments at market value:
SteinRoe Variable Investment Trust
Cash Income Fund - 704,868 shares (cost $704,868) $
704,868
Capital Appreciation Fund - 211,744 shares (cost $3,511,420)
3,457,775
Managed Assets Fund - 409,121 shares (cost $5,494,929)
5,760,419
Mortgage Securities Income Fund - 368,082 shares (cost $3,885,689)
3,739,708
Managed Growth Stock Fund - 71,257 shares (cost $1,443,371)
1,680,956
Keyport Variable Investment Trust
Colonial-Keyport Growth and Income Fund - 119,664 shares
(cost $1,282,049)
1,508,967
Colonial-Keyport Utilities Fund - 197,803 shares (cost $2,011,052)
2,076,927
Colonial-Keyport International Fund for Growth - 98,280 shares
(cost $192,942)
193,612
Colonial-Keyport Strategic Income Fund - 31,614 shares (cost $355,804)
347,442
Newport-Keyport Tiger Fund - 11,204 shares (cost $25,212)
25,658
Total assets
$19,496,332
Net assets
Variable annuity contracts (note 6)
$19,238,474
Annuity reserves (note 2)
252,026
Retained by Liberty Life Assurance Company (note 5)
5,832
Total net assets
$19,496,332
</TABLE>
<TABLE>
LIBERTY LIFE ASSURANCE COMPANY
VARIABLE ACCOUNT - K
Statements of Operations and Changes in Net Assets
For the periods ended December 31, 1995 and 1994
<CAPTION> Cash Income Fund Capital Appreciation Fund
Managed Assets Fund
1995 1994 1995 1994
1995 1994
<S> <C> <C> <C> <C> <C>
<C>
Income
Dividends $ 54,010 $ 52,096 $ 29,587 $ 361,047 $
451,389 $ 123,668
Expenses (note 3)
Mortality and Expense
risk and administrative
charges 14,172 18,367 50,366 37,586
63,729 38,800
Net investment income 39,838 33,729 (20,779) 323,461
387,660 84,868
Realized gain (loss) - - 26,355 (2,962)
30,181 (895)
Unrealized appreciation
(depreciation) during
the period - - 326,488 (271,933)
487,959 (201,413)
Net increase (decrease) in
net assets from operations 39,838 33,729 332,064 48,566
905,800 (117,440)
Purchase payments from
contract owners 57,768 2,138,062 449,730 1,517,610
396,921 1,287,415
Transfers between accounts (441,588) (981,613) 2,631 391,663
1,752,337 512,617
Contract terminations and
annuity payouts (319,947) (129,033) (512,498) (169,676)
(368,735) (292,067)
Other transfers (to) from
Liberty Life Assurance
Company (1,766) 2,145 - -
- -
Net increase (decrease) in
net assets from contract
transactions (705,533) 1,029,561 (60,137) 1,739,597
1,780,523 1,507,965
Net assets at beginning of
period 1,370,563 307,273 3,185,848 1,397,685
3,074,096 1,683,571
Net assets at end of period $ 704,868 $1,370,563 $3,457,775 $3,185,848
$5,760,419 $3,074,096
</TABLE>
See accompanying notes to financial statements
<TABLE>
LIBERTY LIFE ASSURANCE COMPANY
VARIABLE ACCOUNT - K
Statements of Operations and Changes in Net Assets, continued
For the periods ended December 31, 1995 and 1994
<CAPTION> Mortgage Securities Managed Growth
Strategic Managed
Income Fund Stock Fund
Assets Fund
1995 1994 1995 1994
1995 1994
<S> <C> <C> <C> <C> <C>
<C>
Income
Dividends $ 201,991 $ 145,663 $ 90,954 $ 63,362 $
178,612 $ 92,161
Expenses (note 3)
Mortality and Expense
risk and administrative
charges 35,114 31,894 19,473 13,305
16,781 20,821
Net investment income 166,877 113,769 71,481 50,057
161,831 71,340
Realized gain (loss) (13,318) (14,032) 4,957 (1,106)
(32,728) 398
Unrealized appreciation
(depreciation) during
the period 147,134 (167,283) 316,567 (113,632)
101,065 (85,515)
Net increase (decrease) in
net assets from operations 300,693 (67,546) 393,005 (64,681)
230,168 (13,777)
Purchase payments from
contract owners 131,005 129,543 387,886 388,698
- 371,567
Transfers between accounts 1,772,609 (170,193) 64,056 75,036
(1,837,317) 407,203
Contract terminations and
annuity payouts (459,682) (250,297) (172,425) (113,970)
(118,819) (74,849)
Other transfers (to) from
Liberty Life Assurance
Company - - - -
- -
Net increase (decrease) in
net assets from contract
transactions 1,443,932 (291,047) 279,517 349,764
(1,956,136) 703,921
Net assets at beginning of
period 1,995,083 2,353,676 1,008,434 723,351
1,725,968 1,035,824
Net assets at end of period $3,739,708 $1,995,083 $1,680,956 $1,008,434 $
- $1,725,968
</TABLE>
See accompanying notes to financial statements
<TABLE>
LIBERTY LIFE ASSURANCE COMPANY
VARIABLE ACCOUNT - K
Statements of Operations and Changes in Net Assets, continued
For the periods ended December 31, 1995 and 1994
<CAPTION> Colonial-Keyport
Colonial-Keyport
Managed Income Fund Growth and Income Fund
Utilities Fund
1995 1994 1995 1994 1995
1994
<S> <C> <C> <C> <C> <C>
<C>
Income
Dividends $ 22,292 $ 30,440 $ 50,977 $ 22,242 $
87,293 $ 113,585
Expenses (note 3)
Mortality and Expense
risk and administrative
charges 4,673 5,526 18,137 11,421
28,188 29,156
Net investment income 17,619 24,914 32,840 10,821
59,105 84,429
Realized gain (loss) (17,936) (978) 570 (1,193)
(3,211) (22,989)
Unrealized appreciation
(depreciation) during
the period 54,726 (44,812) 258,287 (29,485)
479,794 (317,393)
Net increase (decrease) in
net assets from operations 54,409 (20,876) 291,697 (19,857)
535,688 (255,953)
Purchase payments from
contract owners 720 170,578 102,994 531,570
23,398 383,054
Transfers between accounts (401,874) 3,606 277,588 78,899
(110,036) (307,195)
Contract terminations and
annuity payouts (42,850) (118,183) (77,001) (36,843)
(158,229) (167,156)
Other transfers (to) from
Liberty Life Assurance
Company - - - -
- -
Net increase (decrease) in
net assets from contract
transactions (444,004) 56,001 303,581 573,626
(244,867) (91,297)
Net assets at beginning of
period 389,595 354,470 913,689 359,920
1,786,106 2,133,356
Net assets at end of period $ - $ 389,595 $1,508,967 $ 913,689
$2,076,927 $1,786,106
</TABLE>
See accompanying notes to financial statements
<TABLE>
LIBERTY LIFE ASSURANCE COMPANY
VARIABLE ACCOUNT - K
Statements of Operations and Changes in Net Assets, continued
For the periods ended December 31, 1995 and 1994
<CAPTION> Colonial-Keyport
Colonial-Keyport International
Colonial-Keyport
U.S. Government Fund Fund for Growth* Strategic
Income Fund**
1995 1994 1995 1994 1995
<S> <C> <C> <C> <C>
<C>
Income
Dividends $ 67,205 $ 79,702 $ 1,952 $ - $
17,720
Expenses (note 3)
Mortality and Expense
risk and administrative
charges 14,975 19,105 2,911 1,034
1,101
Net investment income 52,230 60,597 (959) (1,034)
16,619
Realized gain (loss) (44,909) (267) 2,047 (105)
51
Unrealized appreciation
(depreciation) during
the period 118,297 (94,143) 8,712 (8,041)
(8,362)
Net increase (decrease) in
net assets from operations 125,618 (33,813) 9,800 (9,180)
8,308
Purchase payments from
contract owners 960 439,864 25,390 112,409
-
Transfers between accounts (1,415,016) (102,489) (29,407) 90,444
345,654
Contract terminations and
annuity payouts (71,579) (137,449) (1,770) (4,074)
(6,520)
Other transfers (to) from
Liberty Life Assurance
Company - - - -
-
Net increase (decrease) in
net assets from contract
transactions (1,485,635) 199,926 (5,787) 198,779
339,134
Net assets at beginning of
period 1,360,017 1,193,904 189,599 -
-
Net assets at end of period $ - $1,360,017 $ 193,612 $ 189,599 $
347,442
</TABLE>
* Commencement of operations - May 2, 1994
** Commencement of operations - October 13, 1995
See accompanying notes to financial statements
<TABLE>
LIBERTY LIFE ASSURANCE COMPANY
VARIABLE ACCOUNT - K
Statements of Operations and Changes in Net Assets, continued
For the periods ended December 31, 1995 and 1994
<CAPTION> Newport-Keyport
Tiger Fund*** Total Total
1995 1995 1994
<S> <C> <C> <C>
Income
Dividends $ 223 $ 1,254,205 $ 1,083,967
Expenses (note 3)
Mortality and Expense
risk and administrative
charges 11 269,631 227,015
Net investment income 212 984,574 856,952
Realized gain (loss) - (47,941) (44,129)
Unrealized appreciation
(depreciation) during
the period 446 2,291,113 (1,333,650)
Net increase (decrease) in
net assets from operations 658 3,227,746 (520,827)
Purchase payments from
contract owners - 1,576,772 7,470,370
Transfers between accounts 25,00 4,637 (2,022)
Contract terminations and
annuity payouts - (2,310,055) (1,493,697)
Other transfers (to) from
Liberty Life Assurance
Company - (1,766) 2,145
Net increase (decrease) in
net assets from contract
transactions 25,000 (730,412) 5,976,796
Net assets at beginning of
period - 16,998,998 11,543,029
Net assets at end of period $ 25,658 $19,496,332 $16,998,998
</TABLE>
*** Commencement of operations - October 13, 1995
See accompanying notes to financial statements
LIBERTY LIFE ASSURANCE COMPANY
VARIABLE ACCOUNT - K
Notes to Financial Statements
December 31, 1995
1. Organization
Variable Account - K (the "Variable Account") is a separate investment account
established by Liberty Life Assurance Company (the "Company") to receive and
invest premium payments under flexible purchase payment deferred and immediate
variable annuity contracts issued by the Company. The Variable Account operates
as a Unit Investment Trust under the Investment Company Act of 1940 and invests
in eligible mutual funds.
There are currently two funding vehicles available to the Variable Account, the
SteinRoe Variable Investment Trust ("SRVIT") and the Keyport Variable Investment
Trust ("KVIT"). There are currently eleven available sub-accounts within the
Variable Account to which contract funds may be allocated. The Colonial-Keyport
International Fund for Growth was made available to contractholders on May 2,
1994. The Colonial-Keyport Strategic Income Fund, the Colonial-Keyport U.S.
Fund for Growth, and the Newport-Keyport Tiger Fund were made available to
contractholders on October 13, 1995. As of December 31, 1995, no
contractholders were invested in the Colonial-Keyport U.S. Fund for Growth.
On October 13, 1995, the Securities and Exchange Commission approved the
substitution of shares from the Strategic Managed Assets Fund, the Managed
Income Fund, and the Colonial-Keyport U.S. Government Fund to shares in the
Managed Assets Fund, the Colonial-Keyport Strategic Income Fund, and the
Mortgage Securities Income Fund, respectively.
2. Significant Accounting Policies
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results could
differ from these estimates, any such differences are expected to be immaterial
to the Variable Account.
Shares of the SRVIT and KVIT are sold to the Variable Account at the reported
net asset values. Transactions are recorded on the trade date. Income from
dividends is recorded on the ex-dividend date. Realized gains and losses on
sales of investments are computed on the basis of identified cost of the
investments sold.
Annuity reserves are computed for contracts in the income stage according to the
1983a Individual Annuity Mortality Table. The assumed investment rate is either
4.0% or 6.0% unless the annuitant elects otherwise, in which case the rate may
vary from 3.0% to 6.0%, as regulated by the laws of the respective states. The
mortality risk is fully borne by the Company and may result in additional
amounts being transferred into the Variable Account by the Company.
The operations of the Variable Account are included in the federal income tax
return of the Company, which is taxed as a Life Insurance Company under the
provisions of the Internal Revenue Code.
3. Expenses
There are no deductions made from purchase payments for sales charges at the
time of purchase. In the event of a contract termination, a contingent deferred
sales charge, based on a graded table of charges, is deducted. An annual
contract maintenance charge to cover the cost of contract administration is
deducted from each contractholder's account on the contract anniversary date.
Daily deductions are made from each sub-account for assumption of mortality and
expense risk fees at an effective annual rate of 1.25% of contract value. A
daily sales charge is also deducted at an effective annual rate of 0.15% of
contract value.
4. Affiliated Company Transactions
Administrative services necessary for the operation of the Variable Account are
provided by Keyport Life Insurance Company (Keyport Life), an affiliate of the
Company. The Company has absorbed all organizational expenses including the
fees of registering the Variable Account and its contracts for distribution
under federal and state securities laws. Stein Roe & Farnham, Inc., an affiliate
of the Company, is the investment advisor to the SRVIT. Keyport Advisory
Services Corporation, a wholly-owned subsidiary of Keyport Life, is the
investment advisor to the KVIT. Colonial Management Associates, Inc., an
affiliate of the Company, is the investment sub-advisor to the KVIT. Keyport
Financial Services Corporation, a wholly-owned subsidiary of Keyport Life, is
the principal underwriter for SRVIT and KVIT. The investment advisors'
compensation is derived from the mutual funds.
5. Amounts Retained by Liberty Life Assurance Company
If a contractholder's financial transaction is not executed on the appropriate
investment date, a correcting buy or sell of shares is required by the Company
in order to make the contractholder whole. The resulting risk of a gain or loss
has no effect on the contractholder's account and is fully assumed by the
Company. Amounts retained by the Company are invested in the Variable Account
for this purpose.
6. Unit Values
A summary of the accumulation unit values at December 31, 1995 and 1994 and the
accumulation units and dollar value outstanding at December 31, 1995 are as
follows:
<TABLE>
<CAPTION> 1994
1995
Unit Unit
Value Value
Units Dollars
<S> <C> <C> <C>
<C>
Cash Income Fund $12.322293 $12.833324
54,470.3563 $ 699,036
Cash Income Fund-Dollar Cost Averaging 11.422977 12.062817 -
-
Capital Appreciation Fund 21.192232 23.356516
142,813.0207 3,335,615
Managed Assets Fund 15.070997 18.649799
307,462.6743 5,734,117
Mortgage Securities Income Fund 14.103610 16.098763
232,297.8655 3,739,708
Managed Growth Stock Fund 16.769681 22.779503
70,418.8723 1,604,107
Strategic Managed Assets Fund 16.345229 - -
-
Managed Income Fund 10.083378 - -
-
Colonial-Keyport Growth and Income Fund 10.205214 13.097361
113,171.7768 1,482,252
Colonial-Keyport Utilities Fund 8.625030 11.496571
180,656.1778 2,076,927
Colonial-Keyport U.S. Government Fund 9.804679 - -
-
Colonial-Keyport International Fund for Growth 9.314037 9.723230
19,912.2860 193,612
Colonial-Keyport Strategic Income Fund - 11.684000
29,736.5460 347,442
Newport-Keyport Tiger Fund - 11.445356
2,241.7737 25,658
1,153,181.3494 $19,238,474
</TABLE>
