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As filed with the Securities and Exchange Commission on
October 7, 1996
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1 REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------------------
KEYPORT LIFE INSURANCE COMPANY
------------------------------
(Exact name of registrant as specified in its charter)
Rhode Island 05-0302931
------------------------------- ----------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
6355
--------------------------------------------------------
(Primary Standard Industrial Classification Code Number)
-----------------------------
125 High Street
Boston, Massachusetts 02110
(Address of Principal Executive Office)
----------------------------
Bernard R. Beckerlegge, Esquire
Senior Vice President and General Counsel
(617) 526-1610
(Name, address, and telephone number of agent for service)
----------------------------
Approximate date of commencement of proposed sale to the public. As soon as
practicable following effectiveness of this registration statement.
---------------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
===============================================================================
CALCULATION OF REGISTRATION FEE
Title of Each Amount to be Proposed Proposed Amount of
Class of Registered(1) Maximum Maximum Registration
Securities to Offering Price Aggregate Fee
be Registered Per Unit Offering Price(2)
Deferred Group $100
and Individual
Annuity
Contracts [TO BE DETERMINED]
and
Participating
Interests
therein
- --------------------------
(1) The amount being registered and the proposed maximum offering price per
unit is not applicable in that these contracts are not issued in predetermined
amounts or units.
(2) The maximum aggregate offering price is estimated solely for the purpose
of determining the registration fee.
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KEYPORT LIFE INSURANCE COMPANY
Cross Reference Sheet Pursuant to
Regulation S-K, Item 501(b)
FORM S-1 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
- -------------------------------- ---------------------
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus . . . . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus. . . . . . . . . . . Inside Front Cover
3. Summary Information, Risk Factors
and Ratio of Earnings to
Fixed Charges. . . . . . . . . . . Summary; Accumulation Period
4. Use of Proceeds. . . . . . . . . . Investments by Keyport
5. Determination of Offering Price. . Description of Contracts and
Certificates
6. Dilution . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders . . . . . Not Applicable
8. Plan of Distribution . . . . . . . Distribution of Contracts and
Certificates
9. Description of Securities to be
Registered . . . . . . . . . . . . Description of Contracts and
Certificates
10. Interests of Named Experts
and Counsel. . . . . . . . . . . . Experts; Legal Matters
11. Information with Respect to the
Registrant . . . . . . . . . . . . The Company; Company
Management; Executive
Compensation; Compensation of
Directors; Financial
Statements; Legal Proceedings
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities. . . . . . . . . . . . See Part II, Item 17
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GROUP AND INDIVIDUAL FLEXIBLE PREMIUM
ANNUITY CONTRACTS
KEYPORT LIFE INSURANCE COMPANY
EXECUTIVE & ADMINISTRATIVE OFFICES
125 HIGH STREET, BOSTON, MASSACHUSETTS 02110
(617) 526-1400
SUMMARY
This Prospectus describes interests in group and individual deferred annuity
contracts ("Contract(s)") which are designed and offered by Keyport Life
Insurance Company ("Keyport" or "Company") to provide retirement benefits for
eligible individuals. Eligible individuals include persons who collectively
form a group of employees of an employer or participate in certain plans
established for eligible individuals and members of other eligible groups. As
required by certain states, the Contract may be offered as an individual
Contract.
(This "SUMMARY" section continues on page 2.)
The Contract may be sold by or through banks or other depository institutions.
The Contract and Certificates: are not insured by the FDIC; are not a deposit or
other obligation of, or guaranteed by, the depository institution; and are
subject to investment risks, including the possible loss of principal amount
invested, as described below.
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 INFORMATION A PROSPECTIVE CONTRACT OWNER SHOULD KNOW
BEFORE PURCHASING A CONTRACT. THIS PROSPECTUS SHOULD BE RETAINED FOR FURTHER
REFERENCE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE OR
JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO PERSON IS
AUTHORIZED BY KEYPORT TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS,
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THIS OFFERING
AND, IF GIVEN OR MADE, SUCH UNAUTHORIZED INFORMATION OR REPRESENTATIONS SHOULD
NOT BE RELIED UPON. SURRENDER OF THESE SECURITIES AT TIMES OTHER THAN THE END
OF A TERM COULD RESULT IN THE RECEIPT OF LESS THAN THE CONTRACT OWNER'S PREMIUM
PAYMENT(S).
The date of this Prospectus is [xx], 1996.
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Each individual's interest under a group Contract designed to separately account
for individuals' interests ("Allocated Contract") is held in a specific Account
established for that individual. Each participant in a Non-Qualified plan and
in certain Qualified Plans will be issued a Certificate evidencing interest in
an Allocated Contract and will have a 100% vested interest in all values
credited to the participant's Account. Under certain Contracts issued with
respect to Qualified Plans ("Non-Allocated Contracts"), however, a participant's
interest may be vested in the Plan rather than in a Certificate. In such cases,
the Certificate will usually be owned by the Trustee(s) of the Plan, and a
single Account will be established and held on behalf of all participants in the
plan on a non-allocated basis. Each Account is further accounted for by
establishing Sub-Accounts.
Unless otherwise noted or the context so requires, all references to
"Certificates" include Allocated and Non-Allocated Contracts, Certificates
issued thereunder, and Individual Contracts.
An Initial Premium of at least $5,000 per Certificate Owner's Account must
accompany the Certificate application or the Enrollment Form for a participant
under an Allocated Certificate. No money needs to accompany the Group
Certificate Application. The Initial Premium is the only premium payment
required with respect to a particular Certificate. An Index Sub-Account may
only be established with a minimum premium payment, transfer, or Indexed Value
upon renewal of $1,000. Eligible individuals may make Subsequent Premium
payments unless the Annuitant's age is within 10 years of the Income Date. The
minimum Subsequent Premium is $1,000; the maximum is $100,000. (See "Enrollment
Forms and Premium Payments", page ___.)
Premium payments credited to a Certificate Owner's Account become part of the
assets of Keyport. Keyport owns its General Account and separate account
assets, and generally intends to invest these payment amounts in U.S. Government
securities and certain commercial debt securities having maturities generally
matching the applicable Terms. Keyport may also invest a portion of its assets
in various instruments, including equity options, futures, forwards, and other
instruments based on the S&P Index to hedge its obligations with respect to
Index Sub-Accounts. Keyport may also buy and sell interest rate swaps and caps,
Treasury bond futures, and similar instruments to hedge its exposure to changes
in interest rates. (See "Investments by Keyport", page ___)
The Certificate provides that the Initial Premium and Subsequent Premium
payments may be allocated to two types of Sub-Accounts; an Interest Sub-Account
and an Index Sub-Account of varying durations ("Terms"). The Sub-Accounts are
the method used to keep track of a Certificate Owner's values accrued through
the crediting of a declared interest rate on an Interest Sub-Account, or accrued
through the application of Index Increases or Index Decreases, and
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End-of-Term Adjustments on an Index Sub-Account. A Certificate Owner may
establish one Interest Sub-Account to which all premium payments and
transfers may be allocated. A Certificate Owner may establish multiple Index
Sub-Accounts because each premium payment and transfer that is allocated to
an Index Sub-Account establishes a new Index Sub-Account.
INTEREST SUB-ACCOUNT
Interest is credited to an Interest Sub-Account at an interest rate declared
(the "Declared Rate") on the first day of each calendar month and guaranteed for
that month. The Declared Rate will never be less than an effective annual rate
of 3%. An Interest Sub-Account has an Accumulated Value and a Surrender Value
which are used to determine death benefits, transfer and surrender amounts, and
annuity values. (See "Interest Sub-Account", page___.)
INDEX SUB-ACCOUNT
Index Sub-Accounts have both an Indexed Value and a Surrender Value. Interest
credited to the Indexed Value ("Index Increases") or decreases in Indexed Value
("Index Decreases") may be subject to a minimum ("Floor") and maximum ("Cap").
As long as the Floor is zero or greater, there will never be Index Decreases.
Index Increases or Index Decreases are calculated by reference to Guaranteed
Interest Rate Factors, set and guaranteed at the beginning of the Term for the
duration of the Term, which are applied to changes in the Standard & Poor's 500
Composite Stock Price Index ("S&P Index") using a formula set forth in the
Certificate.
If the publication of the S&P Index is discontinued or the calculation of the
S&P Index is changed substantially, Keyport will substitute a suitable index.
Index Increases, if any, are based on a percentage (Participation Rate) of the
percentage increase in the S&P Index since the beginning of the Term. Index
Increases are calculated and credited proportionately over the selected Term on
each Index Sub-Account Anniversary. The total Index Increases that may be
applied to an Index Sub-Account during a Term are subject to a Cap and Floor,
both of which are set and guaranteed at the beginning of the Term. (See "Index
Sub-Account", page ___.)
If there is no Floor or the Floor is less than zero, and the S&P Index at the
first Sub-Account Anniversary is less than it was at the beginning of the Term,
an Index Decrease is applied to the Indexed Value of the Sub-Account. Index
Decreases are calculated using the same formula as Index Increases except that
the Floor may limit the amount of any decrease. The Participation Rate
determines the percentage of the decrease which is applied to the Indexed Value
and that decrease is applied proportionately over the
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selected Term. If there are subsequent Index Increases, those increases are
first offset by the Index Decrease. If a subsequent S&P Index Value exceeds the
S&P Index Value at the beginning of the Term, Index Decreases are no longer
proportionately applied to the Indexed Value over the remaining Term and only
Index Increases are credited going forward.
The amount of Index Increases credited to an Index Sub-Account may be more or
less than the amount of interest credited to an Interest Sub-Account.
Index Sub-Accounts also provide for a minimum value called the Surrender Value
to be used in certain circumstances instead of the Indexed Value to calculate
benefits. The Surrender Value of each Index Sub-Account in its initial Term is
equal to: 90% of the premium payment allocated to that Index Sub-Account or 100%
of the amount transferred (See "Transfers", page ___); plus any Sub-Account
Anniversary Adjustment in Surrender Value (as described below); less any partial
surrender. Interest is credited to the net amount at an annual effective
guaranteed rate of 3% per year. In addition, on each Sub-Account Anniversary,
additional interest, I.E., a "Sub-Account Anniversary Adjustment in Surrender
Value", is credited to an Index Sub-Account's Surrender Value, so that the total
interest credited to the Surrender Value during a Term will at least be equal to
the Index Increases credited to that Index Sub-Account.
The amount used to calculate death benefits, surrender amounts, and annuity
values of an Index Sub-Account will never be less than the Surrender Value. If
at the end of a Sub-Account Term the Indexed Value is less than the Surrender
Value of that Sub-Account, Keyport will credit interest to the Sub-Account's
Indexed Value so that it equals the Surrender Value. (See "Surrender Value",
page ___, "Index Sub-Accounts," page __.)
Initial and subsequent Terms of one to ten years may be available. Keyport may
discontinue offering Terms of certain durations or offer Terms of other
durations from time to time. The Terms offered for Initial Terms may differ
from the Terms available upon renewal. The Guaranteed Interest Rate Factors
declared by Keyport may vary depending on the duration of the Term. Keyport
should be contacted to determine the Terms currently being offered.
FACTORS IN DETERMINING THE DECLARED RATE AND GUARANTEED INTEREST RATE FACTORS
The level of the Declared Rate for an Interest Sub-Account and the Guaranteed
Interest Rate Factors for Index Sub-Accounts set by Keyport will depend on a
variety of factors, including the interest rates generally available on the
types of instruments in which Keyport will invest Certificate Owners' premium
payments, the duration of the Term, regulatory and tax requirements, sales
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commissions and expenses borne by Keyport, general economic trends, and
competitive factors.
RISK
IF THERE IS NO FLOOR OR THE FLOOR IS LESS THAN ZERO AND THE S&P INDEX DECREASES
IN THE FIRST YEAR OF ANY TERM, THE INDEXED VALUE OF AN INDEX SUB-ACCOUNT AT THE
END OF THE FIRST YEAR COULD BE LESS THAN PREMIUM. THEREAFTER, INCREASES IN THE
S&P INDEX WILL PRODUCE INDEX INCREASES THAT ARE FIRST USED TO OFFSET ANY PRIOR
INDEX DECREASES AT ANY ONE OR ALL SUB-ACCOUNT ANNIVERSARIES. (SEE "APPENDIX A",
ILLUSTRATION NO. 3)
Any Payment or Benefit, interest at the Declared Rate, and Index Increases
credited to Certificate Owner's Sub-Accounts are based on guarantees made by
Keyport. The initial and subsequent Declared Rate and Guaranteed Interest Rate
Factors apply to the original principal sum and reinvested earnings.
If a partial surrender is made during a Term it will result in the loss of that
portion of previously calculated Index Increases attributable to the amount
surrendered, because Index Increases are credited and vested over the duration
of the Term. Keyport's Management makes the final determination as to Declared
Rate and Guaranteed Interest Rate Factors to be declared. Keyport cannot
predict or guarantee future Rates and Factors.
RENEWAL OF TERMS
At the end of each Index Sub-Account Term, a subsequent Term of the same
duration will begin subject to the new Term's Guaranteed Interest Rate Factors.
However, within the thirty (30) day period before the end of the Term, the
Certificate Owner may instruct Keyport otherwise. The Certificate Owner will
have the opportunity to transfer the Indexed Value to an Interest Sub-Account or
choose an Index Sub-Account that has a Term of any duration then offered (See
"Renewal Terms", page ___.) except that no renewal will be allowed into a Term
that extends beyond the Income Date or the maximum date allowed following the
death of the Certificate Owner, Joint Owner, or Annuitant where the Certificate
Owner is a non natural person. (See "Death Provisions", page___.)
SURRENDERS: PARTIAL OR TOTAL
Subject to certain restrictions, partial and total surrenders of a Certificate
Owner Account are permitted.
PARTIAL SURRENDERS ARE NOT ALLOWED IF YOU HAVE CHOSEN AN INDEX SUB-ACCOUNT AND
THE CERTIFICATE IS ISSUED UNDER A CORPORATE OR KEOGH QUALIFIED PLAN THAT IS
ESTABLISHED PURSUANT TO THE PROVISIONS OF SECTION 401 OF THE INTERNAL REVENUE
CODE.
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The minimum partial surrender amount is $250. After a partial surrender, there
must be at least $4,000 Combined Surrender Value remaining in the Certificate.
Each Index Sub-Account must maintain a minimum balance of $1,000 Surrender
Value. There is no minimum balance for an Interest Sub-Account.
TRANSFERS
Any portion of the values of an Interest Sub-Account may be transferred to
establish a new Index Sub-Account at any time before the Income Date. The
minimum amount that may be transferred from an Interest Sub-Account to an Index
Sub-Account is $1,000.
The values of an Index Sub-Account may be transferred to an Interest Sub-Account
only at the end of the Index Sub-Account's Term. (See "Transfers", page ___.)
DEFERRAL OF PAYMENT
Keyport may defer payment of any partial or total surrender for a period not
exceeding six (6) months from the date of receipt of a request for surrender or
for the period permitted by state insurance law, if less. A deferral of payment
for a period greater than thirty (30) days would occur only under highly unusual
circumstances. (See "Surrender procedure", page ___).
ANNUITY PERIOD
On the Income Date, Keyport pays the designated Annuitant a series of annuity
payments under an Annuity Option. The Annuity Option selected determines the
timing and basis of the annuity payments. (See "Annuity Payment Provisions",
page ___.)
DEATH BENEFIT
The Certificate provides for a death benefit if the Certificate Owner dies
before the Income Date or if the Annuitant dies before the Income Date and the
Certificate Owner is not a natural person. Within ninety (90) days of the date
of such death, the Designated Beneficiary may surrender the Certificate to
Keyport for the sum of the Accumulated Value of an Interest Sub-Account, if any,
plus the greater of: (a) the Indexed Value as adjusted for any proportionate
credit for prior Index Increases and any partial surrender (see "Death
Provision", page ___) or (b) the Surrender Value, for all Index Sub-Accounts, if
any. If the Floor is greater than zero, (a) is the Indexed Value as of date of
death less any subsequent partial surrenders.
PREMIUM TAXES
Keyport deducts the amount of any premium taxes levied by any State or
governmental entity when the premium tax is actually paid,
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unless Keyport elects to defer such deduction until the time of surrender or the
Income Date. It is not possible to describe precisely the amount of premium tax
payable on any transaction. Such premium taxes depend, among other things, on
the type of Certificate (Qualified or Non-Qualified), on the state of residence
of the Certificate Owner or participant, the state of residence of the
Annuitant, the status of Keyport within such states, and the insurance tax laws
of such states. Currently such premium taxes range from 0% - 5.0%. For a
schedule of such taxes, see Appendix C, at page of this Prospectus.
ANNUAL REPORTS TO CERTIFICATE OWNERS
At least once each Certificate Year, Keyport sends each Certificate Owner a
report showing for each Sub-Account that is open at any time during the year,
the following values:
i) for an Interest Sub-Account, the Surrender Value and Accumulated Value
at the beginning and end of the Certificate Year; the amount of any surrenders,
transfers, and interest credits during the Certificate Year; and any premium
payments allocated to an Interest Sub-Account during the Certificate Year.
(ii) for each Index Sub-Account, the Surrender Value and Indexed Value at
the beginning and end of the Certificate Year; the amount of any surrenders
during the year; the S&P Index value as of the most recent Sub-Account
Anniversary and the Index Increase or Index Decrease, if any, during the
Certificate Year.
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TABLE OF CONTENTS
SUMMARY
GLOSSARY OF SPECIAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . .
DESCRIPTION OF CONTRACT AND CERTIFICATES
A. Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Enrollment Form and Premium Payments
C. Accumulation Period . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Interest Sub-Account. . . . . . . . . . . . . . . . . . . . . . . .
3. Index Sub-Accounts. . . . . . . . . . . . . . . . . . . . . . . . .
4. Risk Considerations . . . . . . . . . . . . . . . . . . . . . . . .
5. Surrenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6. Dollar Cost Averaging Programs. . . . . . . . . . . . . . . . . . .
7. Transfer of Values. . . . . . . . . . . . . . . . . . . . . . . . .
8. Premium Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
9. Death Provisions. . . . . . . . . . . . . . . . . . . . . . . . . .
10. Non-Qualified Certificates. . . . . . . . . . . . . . . . . . . . .
11. Qualified Certificates. . . . . . . . . . . . . . . . . . . . . . .
D. Annuity Payment Provisions. . . . . . . . . . . . . . . . . . . . . . . .
1. Annuity Benefits. . . . . . . . . . . . . . . . . . . . . . . . . .
2. The Income Date and Form of Annuity . . . . . . . . . . . . . . . .
3. Change of Annuity Option
4. Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Frequency and Amount of Payments. . . . . . . . . . . . . . . . . .
6. Proof of Age, Sex, and Survival of Annuitant. . . . . . . . . . . .
INVESTMENTS BY KEYPORT . . . . . . . . . . . . . . . . . . . . . . . . . . .
AMENDMENT OF CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . .
ASSIGNMENT OF CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . .
DISTRIBUTION OF CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . .
TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Taxation of Keyport. . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Taxation of Annuities in General . . . . . . . . . . . . . . . . . . . .
1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Surrender, Assignments, and Gifts . . . . . . . . . . . . . . . . .
3. Annuity Payments. . . . . . . . . . . . . . . . . . . . . . . . . .
4. Penalty Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Income Tax Withholding. . . . . . . . . . . . . . . . . . . . . . .
6. Section 1035 Exchanges. . . . . . . . . . . . . . . . . . . . . . .
D. Qualified Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. Tax Sheltered Annuities . . . . . . . . . . . . . . . . . . . . . .
2. Individual Retirement Annuities . . . . . . . . . . . . . . . . . .
3. Corporate Pension and Profit Sharing Plans. . . . . . . . . . . . .
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TABLE OF CONTENTS (CONTINUED)
Page
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . .
C. Management Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . .
1. Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Results of Operations - 1995 Compared to 1994 . . . . . . . . . . .
3. Results of Operations - 1994 Compared to 1993 . . . . . . . . . . .
4. Guaranty Fund Assessments . . . . . . . . . . . . . . . . . . . . .
5. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . .
D. Reinsurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F. Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G. Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
H. Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. State and Federal Regulation . . . . . . . . . . . . . . . . . . . . . .
COMPANY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX A (ILLUSTRATIONS OF INDEX INCREASES AND INDEX DECREASES). . . . . .
APPENDIX B (CALCULATION OF DEATH BENEFIT). . . . . . . . . . . . . . . . . .
APPENDIX C (SCHEDULE OF STATE PREMIUM TAXES) . . . . . . . . . . . . . . . .
APPENDIX D (TELEPHONE INSTRUCTIONS). . . . . . . . . . . . . . . . . . . . .
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GLOSSARY OF SPECIAL TERMS
The following terms in this Prospectus have the indicated meanings:
ACCUMULATED VALUE The value of an Interest Sub-Account, equal to all allocations
or transfers to an Interest Sub-Account, less all amounts transferred or
surrendered from an Interest Sub-Account, plus all interest credited to an
Interest Sub-Account. (See Interest Sub-Account Value)
ANNUITANT The natural person upon whose life annuity payments are based and to
whom any annuity payments will be made starting on the Income Date.
ANNUITY OPTIONS Options available for annuity payments.
CAP The maximum percentage by which the Indexed Value of an Index Sub-Account
may increase during a single Term.
CERTIFICATE The document issued to each Certificate Owner.
CERTIFICATE ANNIVERSARY,
CERTIFICATE YEAR A continuous twelve-month period commencing on the Certificate
Date and each anniversary thereof.
CERTIFICATE DATE The date a Certificate is issued and the Certificate Owner's
rights and benefits begin.
CERTIFICATE OWNER Such person, persons, or entity who are entitled to the
ownership rights stated in the Certificate and in whose name(s) the Certificate
is issued.
CERTIFICATE OWNER
ACCOUNT The Account established under a Certificate for all of the values
attributable to a Certificate Owner and accounted for separately by Certificate
Owner Sub-Accounts.
CERTIFICATE OWNER
SUB-ACCOUNT The accounting method used to value and maintain records of each
Certificate Owner's values under a Certificate. Interest and/or Index Sub-
Account(s) are established by Keyport for a Certificate Owner under which the
Initial Premium and any Subsequent Premium paid by or on behalf of a Certificate
Owner or transfers are recorded.
DESIGNATED
BENEFICIARY The person who may be entitled to receive benefits following the
death of the Annuitant, the Certificate Owner, or the Joint Certificate Owner.
The Designated Beneficiary will be the first person among the following who is
alive on the date of death: Certificate Owner, Joint Certificate Owner, Primary
Beneficiary, Contingent Beneficiary, and, otherwise, the Certificate Owner's
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estate. If the Certificate Owner and Joint Certificate Owner are both alive,
they will together constitute the Designated Beneficiary.
FLOOR If the Floor is a positive number or zero, it represents the minimum
percentage by which the Indexed Value of an Index Sub-Account can increase
during a single Term. If the Floor is a negative number or there is no Floor,
it represents the maximum percentage by which the Indexed Value of an Index Sub-
Account may decrease during a single Term.
GENERAL ACCOUNT Keyport's general investment account which contains all of
Keyport's assets, except those in separate accounts.
DECLARED
RATE The rate of interest declared and guaranteed by Keyport at the beginning of
each calendar month which is used to calculate the interest to be credited to an
Interest Sub-Account.
GUARANTEED INTEREST
RATE The rate of interest which when compounded will equal an annual rate of 3%.
GUARANTEED INTEREST
RATE FACTORS The Participation Rate, Cap, and Floor, which are set and
guaranteed by Keyport at the beginning of each Term of an Index Sub-Account and
used to calculate Index Increases and Index Decreases under a formula set forth
in the Certificate and described in Appendix A.
INCOME DATE The date on which annuity payments to an Annuitant are to begin.
INDEX DECREASE A negative adjustment of Indexed Value which is calculated using
the Guaranteed Interest Rate Factors as applied to percentage changes in the S&P
Index. This can only occur if there is no Floor or the Floor is less than zero
and the S&P Index value on the First Sub-Account of a Term is lower than it was
at the beginning of the Term.
INCOME VALUE The sum under a Certificate of the Accumulated Value for an
Interest Sub-Account and the Indexed Value in each Index Sub-Account on the
Income Date.
INDEX SUB-ACCOUNT A Certificate Owner Sub-Account to which Keyport applies Index
Increases and Index Decreases.
INDEX INCREASE Interest credited to an Index Sub-Account, which is calculated
using the Guaranteed Interest Rate Factors as applied to percentage changes in
the S&P Index.
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INDEXED VALUE The value of an Index Sub-Account, equal to all allocations,
transfers to, or renewals of that Index Sub-Account, plus all Index Increases
credited to the Index Sub-Account, or less Index Decreases if the Floor is less
than zero or there is no Floor, plus any End-Of-Term Adjustments, less all
amounts surrendered from the Index Sub-Account.
INDIVIDUAL
CERTIFICATE A Certificate issued to a natural person as Certificate Owner.
IN FORCE The status of a Certificate before the Income Date, so long as it is
not totally surrendered and there has not been a death of the Annuitant or any
Certificate Owner that would cause the Certificate to end within, at most, five
(5) years from the date of death.
INITIAL PREMIUM The premium payment which must be submitted with the application
for a Certificate.
INTEREST
SUB-ACCOUNT The Certificate Owner Sub-Account to which Keyport credits interest
based on a monthly declared and guaranteed rate of interest. Each Certificate
Owner has one Interest Sub-Account.
JOINT CERTIFICATE
OWNER Any person designated by the Certificate Owner jointly to possess rights
in the Certificate Owner Account. Keyport requires that the Certificate Owner
and any Joint Certificate Owner act together.
NON-QUALIFIED
CERTIFICATE Any Certificate that is not issued under a Qualified Plan.
OFFICE Keyport's executive office, which is at 125 High Street, Boston,
Massachusetts 02110.
PARTICIPATION RATE The percentage of the percentage increase or decrease in the
S&P Index used in the formula to calculate Index Increases or Index Decreases.
QUALIFIED
CERTIFICATE Any Certificate issued under a Qualified Plan.
QUALIFIED PLAN A retirement plan established pursuant to the provisions of
Sections 401, 403 and 408 of the Internal Revenue Code of 1986, as amended, and
HR-10 Plans for self-employed persons.
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S&P INDEX Standard & Poor's 500 Composite Stock Price Index, also referred to as
the "S&P 500 Index" and "S&P 500" which is used to calculate Index Increases and
Index Decreases.
SUB-ACCOUNT YEAR,
SUB-ACCOUNT
ANNIVERSARY A continuous twelve-month period commencing on the date that an
Index Sub-Account is opened by allocation, transfer, or renewal and each
anniversary thereof, including the end of any applicable Term of an Index Sub-
Account.
SUBSEQUENT PREMIUM Any premium payment made after the Initial Premium is
submitted.
SURRENDER VALUE The guaranteed minimum value of each Sub-Account, calculated as
described in this Prospectus. The Surrender Values of an Interest Sub-Account
and Index Sub-Accounts are calculated separately by differing formulas. The sum
of the Surrender Values in an Interest Sub-Account and the Index Sub-Account(s)
is referred to as the Combined Surrender Value.
TERM The period for which Guaranteed Interest Rate Factors are used to
calculate Index Increases or Index Decreases for an Index Sub-Account. Terms
may be selected by a Certificate Owner from among those offered by Keyport.
WRITTEN REQUEST A written request in a form satisfactory to Keyport, signed by
the Certificate Owner, and received at Keyport's Office.
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DESCRIPTION OF CONTRACTS AND CERTIFICATES
A. OWNERSHIP
The Certificate Owner is the individual or legal entity that has the power to
exercise the rights of an owner under the Certificate. The Certificate Owner is
the person or entity designated in the application for a Certificate or the
individual so designated in the Enrollment Form for a Certificate issued under
an Allocated Contract.
The Certificate Owner may exercise all rights summarized in the Certificate.
Joint Certificate Owners are permitted but not contingent Certificate Owners.
Prior to the Income Date, the Certificate Owner together with any Joint
Certificate Owner may, by Written Request, change the Certificate Owner, Joint
Certificate Owner, Beneficiary, Contingent Beneficiary, Contingent Annuitant, or
in certain instances, the Annuitant. An irrevocably-named person may be changed
only with the written consent of such person.
Because a change of Certificate Owner by means of a gift (I.E., a transfer
without full and adequate consideration) may be a taxable event, a Certificate
Owner should consult a competent tax adviser as to the tax consequences
resulting from such a transfer. Any Qualified Certificate may have limitations
on transfer of ownership. A Certificate Owner should consult a competent tax
adviser as to the tax consequences resulting from such a transfer.
B. ENROLLMENT FORM AND PREMIUM PAYMENTS
The Initial Premium is due on the Certificate Date. The Initial Premium may not
be less than $5,000. There is currently no maximum for the Initial Premium.
Certificate Owners may purchase multiple Certificates, although Keyport reserves
the right to limit the total premiums paid on multiple Certificates with respect
to any one Certificate Owner. Keyport may reject any premium payment.
The Initial Premium is credited to a Certificate Owner Account, which is
established on the date of receipt of a properly completed application or
Enrollment Form along with the required premium payment. Keyport will issue a
Certificate and confirm the receipt of the Initial Premium in writing. If the
Certificate is issued on a Non-Allocated basis, a single Certificate Owner s
Account is opened for the Certificate Owner. A Certificate Owner Account starts
earning interest on the day following the date the Certificate Owner account is
established on his or her behalf. A Certificate Owner may choose to allocate
the Initial Premium to an Interest Sub-Account and/or one or more Index Sub-
Accounts, as described below.
In the event Keyport determines that an application or Enrollment Form is not
properly completed, Keyport will attempt to contact the
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Certificate Owner by letter or telephone to obtain the information necessary to
complete the form.
Keyport will return the Initial Premium and any improperly completed application
or Enrollment Form, along with the corresponding premium payment, which cannot
be properly completed within three weeks of its receipt.
Keyport will permit others to act on behalf of an applicant in certain
instances, including the following two examples. First, Keyport will accept an
application for a Certificate that contains a signature signed under a power of
attorney, if a copy of that power of attorney is submitted with the application.
Second, Keyport will issue a Certificate that is not replacing a non-affiliated
companies existing life insurance or annuity policy without having previously
received a signed application from the applicant. Certain dealers or other
authorized persons such as employers and Qualified Plan fiduciaries will inform
Keyport of an applicant's answers to the questions in the application by
telephone or by order ticket and cause the Initial Premium to be paid to
Keyport. If the information is in good order, Keyport will issue the
Certificate with a copy of an application completed with that information. The
Certificate will be delivered to the Certificate Owner with a letter from
Keyport that will give the Certificate Owner an opportunity to respond to
Keyport if any of the application information is incorrect. Alternatively,
Keyport's letter may request the Certificate Owner to confirm the correctness of
the information by signing either a copy of the application or a Certificate
delivery receipt that ratifies the application in all respects. (In either
case, a copy of the signed document would be returned to Keyport for its
permanent records.) All purchases are confirmed, in writing, to the applicant
by Keyport. Keyport's liability extends only to purchases so confirmed.
Eligible individuals may make Subsequent Premium Payments; the minimum and
maximum of which are $1,000 and $100,000 respectively. Subsequent Premium
Payments may not be made after the first Certificate Year if the Annuitant's age
is within 10 years of the Income Date. Subsequent Premium will be allocated to
Sub-Accounts based on the Certificate Owner s instructions. In the absence of
instruction, the Subsequent Premium will be added to an Interest Sub-Account.
C. ACCUMULATION PERIOD
1. GENERAL
This Certificate consists of a series of Sub-Accounts, including a single
Interest Sub-Account and multiple Index Sub-Accounts. A new Index Sub-Account
is created every time a premium payment is allocated or a transfer is made to
establish a new Index Sub-Account. All benefits under this Certificate are
calculated by
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first calculating the appropriate value of each Sub-Account and then aggregating
all Sub-Account values to get the values of a Certificate Owner Account.
Amounts allocated to an Interest Sub-Account will earn interest and amounts
allocated to an Index Sub-Account may earn Index Increases.
2. INTEREST SUB-ACCOUNT
Any amount allocated to an Interest Sub-Account will earn interest at a rate
calculated and credited daily based on the declared interest rate ("Declared
Rate"). The Declared Rate is an annual effective interest rate that will be
credited when daily interest credits have compounded for a full year. The
Declared Rate is set by Keyport on the first business day of each calendar month
and is guaranteed for that month. The Declared Rate will never be less than a
rate which when compounded will equal a 3% annual rate.
The determination of the Declared Rate will be reflective of interest rates
generally available on the types of investments in which Keyport intends to
invest the proceeds attributable to Certificate Owner Interest Sub-Accounts.
(See "Investments by Keyport".) In addition, Keyport's management may consider
various other factors in determining Declared Rates for a given period,
including regulatory and tax requirements, sales commissions and administrative
expenses borne by Keyport, general economic trends, and competitive factors.
KEYPORT'S MANAGEMENT WILL MAKE THE FINAL DETERMINATION AS TO THE DECLARED RATE.
An Interest Sub-Account will have an Accumulated Value and a Surrender Value.
The Accumulated Value is equal to the Initial and Subsequent Premiums allocated
to an Interest Sub-Account plus any transfers to an Interest Sub-Account, less
amounts transferred or surrendered from an Interest Sub-Account. Interest at
the Declared Rate is credited to this net amount.
The Accumulated Value is available only during three time periods. First, as a
surrender payable if all or part of an Interest Sub-Account is surrendered
within the first 5 days of any calendar month. Second, as a Death Benefit that
is payable if the Certificate is surrendered within 90 days after the date of
certain deaths. Third, as a value applied on the Income Date to determine the
amount of income payments. At all other times, the Surrender Value is available
to You while the Certificate is In Force.
The Surrender Value at any time is equal to 90% of the Initial and Subsequent
Premiums allocated to an Interest Sub-Account plus any Surrender Values
transferred to this Sub-Account less Surrender Values transferred or surrendered
from this Sub-Account. Interest, both guaranteed and excess, is then credited
to this net amount.
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Guaranteed interest is credited daily at a rate which when compounded will
equal a 3% annual rate.
Excess interest is the excess, if any, of interest credited to the Accumulated
Value over interest credited to the Surrender Value from the last date of excess
interest credits to the current date. Excess interest is added on the first of
each calendar month plus on any date of a transfer or surrender from this Sub-
Account.
On each Certificate Anniversary within 10 years of the Income Date, if the
Accumulated Value exceeds the Surrender Value, then the Surrender Value will be
increased by 1% of the Accumulated Value, but not to an amount greater than the
Accumulated Value.
3. INDEX SUB-ACCOUNT
Multiple Index Sub-Accounts may be open at any time. Each Index Sub-Account
that is open will have its own Term, Participation Rate, Cap, Floor and values.
All of the descriptions below are for a single Index Sub-Account. All
activities that are described herein relate to activities within a specific
Index Sub-Account (i.e. a partial surrender is a partial surrender from a
particular Index Sub-Account).
An Index Sub-Account will have an Indexed Value and a Surrender Value. The
Indexed Value is available only during three time periods. First, as a
surrender payable if the Index Sub-Account is surrendered within 45 days after
the end of its Term. Second, as a Death Benefit that is payable if the
Certificate is surrendered within 90 days after the date of certain deaths.
Third, as an amount applied on the Income Date to determine the amount of income
payments. At all other times, the Surrender Value is available to You while the
Certificate is In Force.
The Indexed Value is equal to the premium payment allocated to or the
Accumulated Value transferred to the Index Sub-Account plus or minus any Index
Increase or Index Decrease plus End-Of-Term Adjustments less any partial
surrenders.
Index Increases are determined on each Sub-Account anniversary using the S&P
Index and the Participation Rate, Floor and Cap. This calculation may result in
an Index Decrease if there is a reduction in the S&P Index on the first Sub-
Account Anniversary of a Term and there is no Floor or the Floor is less than
zero. Any Index Increase or Index Decrease will be proportionately spread over
the remainder of the Term (See "Appendix A").
Keyport will calculate and apply Index Increases and Index Decreases to a Sub-
Account at each Sub-Account Anniversary after the start of a Term. The
Certificate contains a formula for using the S&P Index and the Guaranteed
Interest Rate Factors established at the beginning of the Term to calculate the
Index Increases and
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Index Decreases on each Sub-Account Anniversary in the Term. All Index
Increases and Index Decreases are applied to the Sub-Account proportionately
over the entire Term. Thus, an Index Increase or Index Decrease attributable to
the first year in a five year Term will be applied over the first to fifth years
in equal amounts. (See "Appendix A", Illustration 1-5).
The first part of the formula calculates the proportionate credit for any
increase in the S&P Index from its prior highest Sub-Account Anniversary value
to its new highest value on the current Sub-Account Anniversary. The second
part determines the proportionate credit for any change in the S&P Index
occurring on a prior Sub-Account Anniversary(ies). The second part is always
zero on the first Sub-Account Anniversary in a Term.
This Section Applies if the Floor is Zero or Greater
At the first Sub-Account Anniversary of a Term, the Index Increase, if any,
is calculated by multiplying the Participation Rate by the change in the S&P
Index from the beginning of the Term to the first Sub-Account Anniversary,
divided by its beginning of Term value. The result is then divided by the
number of years in the Term. This percentage is then multiplied by the
smaller of the Indexed Value at the beginning of the Term and the Indexed
Value (prior to the crediting of any Index Increases) on the first
Sub-Account Anniversary.
After the first Sub-Account Anniversary in any Term;
Part one is calculated as follows:
Multiply the Participation Rate by any increase in the S&P Index from its
prior highest Sub-Account Anniversary value to its current highest
Sub-Account Anniversary value divided by its beginning of Term value. The
result is then multiplied by the ratio of the number of completed Sub-Account
Years in the Term to the total number of Sub-Account Years in the Term. This
percentage is then multiplied by the smaller of the Indexed Value at the
beginning of the Term and the Indexed Value (prior to the crediting of any
Index Increases) on any Sub-Account Anniversary in the Term.
Part two is calculated as follows:
Multiply the Participation Rate by the percentage change in the S&P Index
since the beginning of the Term, calculated using the highest value attained
by the S&P Index at any Sub-Account Anniversary during the Term excluding the
value of the S&P Index at the beginning of the Term and on the current
Sub-Account Anniversary. Divide the resulting percentage by the number of
Sub-Account Years in the Term. This percentage is then multiplied by the
smaller of the Indexed Value at the beginning of the Term and the
Indexed Value (prior to the crediting of any Index Increases) on
any Sub-Account Anniversary in the Term.
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This Section Applies if there is no Floor or the Floor is Less than Zero
At the first Sub-Account Anniversary of a Term, the Index Increase or the
Index Decrease is calculated by multiplying the Participation Rate by the
change in the S&P Index from the beginning of the Term to the first
Sub-Account Anniversary, divided by its beginning of Term value. The result
is then divided by the number of years in the Term. This percentage is then
multiplied by the smaller of the Indexed Value at the beginning of the Term
and the Indexed Value (prior to the crediting of any Index Increase or Index
Decrease) on the first Sub-Account Anniversary.
If there is no decrease in the S&P Index on the first Sub-Account Anniversary
of a Term, there will not be any Index Decreases during the Term.
After the first Sub-Account Anniversary, the following two-part calculation
is used to determine any Index Increases and proportionately distribute the
first year decrease, if any, and any subsequent increases over the remainder
of the Term.
Part one is calculated as follows:
Multiply the Participation Rate by any increase in the S&P Index from its prior
highest Sub-Account Anniversary value to its current highest Sub-Account
Anniversary value divided by its beginning of Term value. The result is then
multiplied by the ratio of the number of completed Sub-Account Years in the Term
to the total number of Sub-Account Years in the Term. This percentage is then
multiplied by the smaller of the Indexed Value at the beginning of the Term and
the Indexed Value (prior to the crediting of any Index Increases) on any Sub-
Account Anniversary in the Term.
Part two is calculated as follows:
Multiply the Participation Rate by the percentage change in the S&P Index
since the beginning of the Term, calculated using the highest value attained
by the S&P Index at any Sub-Account Anniversary during the Term excluding the
value of the S&P Index at the beginning of the Term and on the current
Sub-Account Anniversary. Divide the resulting percentage by the number of
Sub-Account Years in the Term. This percentage is then multiplied by the
smaller of the Indexed Value at the beginning of the Term and the Indexed
Value (prior to the crediting of any Index Increases or Index Decreases) on
any Sub-Account Anniversary in the Term.
Any Index Increases calculated above may be reduced if the Cap is applicable and
increased if a Floor in excess of zero is applicable. Index Decreases may be
reduced if a Floor is applicable. The sum of the two parts equals the total
amount that is added to the Sub-Account Indexed Value. If the S&P Index on each
Sub-Account Anniversary in a Term is less than the S&P Index at the beginning of
the Term, there will not be any Index Increases credited during the Term.
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In the event the S&P Index Value increases on a Sub-Account Anniversary
during a Term, the effect of this formula is to provide that, in the absence
of any Index Decrease or any partial or total surrender during a Term, the
total Index Increases, if any, credited to an Index Sub-Account during a Term
will equal the Sub-Account Indexed Value at the beginning of the Term
multiplied by a percentage (Participation Rate) of the percentage increase in
the S&P Index since the beginning of the Term (subject to the Cap and the
Floor), using the highest value attained by the S&P Index on any Sub-Account
Anniversary in the Term, excluding the value of the S&P Index at the
beginning of the Term and on the current Sub-Account Anniversary.
In the event the S&P Index value decreases on the first Sub-Account
Anniversary of a Term, the effect of this formula is to provide that, in the
absence of any subsequent Index Increases or any partial or total surrender
during a Term, the total Index Decreases, if any, applied to an Index
Sub-Account during a Term will equal the Indexed Value at the beginning of
the Term multiplied by a percentage (Participation Rate) of the percentage
decrease in the S&P Index since the beginning of the Term (subject to the
Floor), using the value attained by the S&P Index on the first Sub-Account
Anniversary of a Term.
Partial surrenders in excess of Index Increases or Index Decreases will reduce
the amount of the Index Increases or Index Decreases credited after such
surrender, but do not affect the portion of Index Increases or Index Decreases
previously applied.
Total Index Increases credited to an Index Sub-Account may be more or less than
the amount of interest credited to an Interest Sub-Account established at the
same time, depending on the change in the S&P Index and the Guaranteed Interest
Rate Factors over the course of the Term.
The formula may produce Index Increases or Index Decreases to the Indexed Value,
or the Indexed Value may remain unchanged. Over time, the Indexed Value of an
Index Sub-Account may be less than the Surrender Value of that same Index Sub-
Account. In those circumstances, the Surrender Value is used to calculate any
benefit payable under the Certificate. In addition, if at the end of a Term,
the Indexed Value of an Index Sub-Account is less than the Surrender Value of
that Sub-Account, Keyport will credit the Indexed Value with an End of the Term
Adjustment equal to the excess of the Surrender Value over the Indexed Value.
The Surrender Value of an Index Sub-Account at any time is equal to the
Initial Surrender Value plus any Sub-Account Anniversary Adjustments (defined
below), less any partial surrenders. Interest is credited to the net amount
at an annual effective rate of 3%.
A Sub-Account Anniversary Adjustment occurs when the Indexed Value and the
Surrender Value are compared on each Sub-Account Anniversary. If (a) the
Indexed Value exceeds the Surrender Value and (b) the total to date of all
Index Increases or Index Decreases during the Term exceed "all increases in
the Surrender Value during the Term", then the Surrender Value will be
increased by the difference between the two amounts in (b). "All increases in
the Surrender Value during the Term" equal the total to date during the Term
of all prior Sub-Account Anniversary adjustments to the Surrender Value and
all interest credited to the Surrender Value (the interest for each
Sub-Account year equals: the Surrender Value at the end of the Sub-Account
year plus the amount of any partial surrender(s) during the Sub-Account year,
less the Surrender Value at the start of the Sub-Account year).
After the above adjustment, on each Sub-Account Anniversary within 10 years
of the Income Date, if the Indexed Value exceeds the Surrender Value, then
the Surrender Value will be increased by the lesser of (a) and (b), where:
(a) is 1% of the Indexed Value multiplied by the number of elapsed
Sub-Account Anniversaries within this 10-year period, less any prior
increases that were made pursuant to this provision; and
(b) is the difference between the Indexed Value and the Surrender Value.
The Initial Surrender Value of an Index Sub-Account is equal to ninety
percent (90%) of the premium allocated to the Index Sub-Account if opened by
a premium payment, and to one
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hundred percent (100%) of the Surrender Value transferred to the Index Sub-
Account if opened by a transfer.
Currently the index is the Standard and Poor's 500 Composite Stock Price Index
("S&P Index"). The S&P Index is a widely accepted and broad measure of the
performance of the major United States stock markets. The S&P Index is a market
value weighted measure of changes in the prices of the underlying securities and
does not reflect any stock dividend income on the underlying securities.
"S&P-Registered Trademark-", "S&P 500-Registered Trademark-", and "Standard &
Poor's 500" are trademarks of The McGraw Hill Companies, Inc., and have been
licensed for use by Keyport. The Certificate is not sponsored, endorsed, sold,
or promoted by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of purchasing the Certificate.
If the publication of the S&P Index is discontinued, or the calculation of the
S&P Index is changed substantially, Keyport will substitute a suitable index and
notify the Certificate Owner.
The formula used to calculate Index Increases and Index Decreases and
illustrative examples are set forth in Appendix A.
RENEWAL TERMS. For Index Sub-Accounts, a new Term will begin automatically at
the end of a Term, unless a Certificate Owner elects a total surrender. (See
"Surrenders".) Prior to the end of each Term of each Index Sub-Account, Keyport
will notify the Certificate Owner of the durations available for the next Terms.
A Certificate Owner may choose from among the Terms offered by Keyport at that
time. Keyport may discontinue offering Terms of certain durations currently
available or offer Terms of different durations from time to time. The then
available Guaranteed Interest Rate Factors may vary based on the duration of the
Term selected and may differ from the rates currently available for new
Certificates. The Certificate Owner may not select a Term for a period longer
than the number of years remaining until the Income Date or the maximum date
allowed following the death of a Certificate owner, Joint Certificate Owner, or
Annuitant, if the Owner is a non-natural person. If the selected Term exceeds
these limits, Keyport will automatically transfer the value of the Index Sub-
Account to the Interest Sub-Account.
The Indexed Value at the beginning of any subsequent Term will be equal to the
value at the end of the previous Term. In the absence of any partial or total
surrender or transfer (the effects of which are described below), the Indexed
Value will earn and be credited with any Index Increases for each year in the
subsequent Term, using the Guaranteed Interest Rate Factors established at the
beginning of the subsequent Term and the Term selected by the Certificate Owner
or established by default (as described above) in the absence of other
instructions. The Surrender Value at the beginning of any subsequent Term will
be equal in value to the
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Surrender Value at the end of the prior Term. The Indexed Value at the
beginning of a new Term can be greater than or equal to, Surrender Value
depending on Index Increases, Index Decreases, and surrenders during the
prior Term. As a result, the Initial Surrender Value for a new Term will be
equal to or less than the Initial Indexed Value for the new Term bearing the
same relationship between Indexed Value and Surrender as was determined at
the end of the prior Term. For example, if it was 95% of the Indexed Value at
the end of the prior Term, it will be 95% of the Initial Indexed Value for
the new Term. Absent any partial surrenders in the prior Term, the Initial
Surrender Value will never be less than 90% of the Initial Indexed Value in
the new Term.
ESTABLISHMENT OF GUARANTEED INTEREST RATE FACTORS. Guaranteed Interest Rate
Factors for initial and renewal Terms will be established periodically. Keyport
will declare Guaranteed Interest Rate Factors for the Term chosen at the time of
the initial purchase or at the time of renewal. Differing Guaranteed Interest
Rate Factors may be established for Terms of different durations. Keyport also
may offer differing Guaranteed Interest Rate Factors for initial allocations,
transfers, and renewal Terms.
Keyport has no specific formula for determining the Guaranteed Interest Rate
Factors that it will declare in the future. KEYPORT'S MANAGEMENT WILL MAKE THE
FINAL DETERMINATION AS TO GUARANTEED INTEREST RATE FACTORS TO BE DECLARED.
KEYPORT CANNOT PREDICT OR GUARANTEE FUTURE GUARANTEED INTEREST RATE FACTORS.
INFORMATION ON RENEWAL RATE FACTORS. A Certificate Owner is provided with a
toll-free number to call to inquire about Guaranteed Interest Rate Factors
for Terms then being offered. In addition, prior to the beginning of each
subsequent Term, Keyport will notify the Certificate Owner in writing of the
Terms available. Guaranteed Interest Rate Factors will be declared prior to
renewal. At the end of any Term, a Certificate Owner has the opportunity to
select any other duration of Term then being offered.
4. RISK CONSIDERATIONS
The interest rates and Index Increases credited to a Certificate Owner's
Account are based on guarantees made by Keyport. The initial and subsequent
Guaranteed Interest Rates and Guaranteed Interest Rate Factors apply to the
original principal sum and reinvested earnings. The amount of any Index
Increases credited to an Index Sub-Account may be more or less than the
amount of interest credited to an Interest Sub-Account. Moreover, it is
possible that an Index Decrease will be applied at certain Index Sub-Account
Anniversaries if the S&P Index does not exceed its beginning value on any
subsequent Index Sub-Account Anniversary in a Term. If the Floor established
for a Term is less than zero, and the S&P Index declines in the first year of
the Term it could result in an Indexed Value that is less than principal
(i.e., premium payments).
5. SURRENDERS
GENERAL.
A Certificate Owner may make a partial or total surrender of the Certificate
Owner Account at any time prior to the Income Date while the Certificate is In
Force, subject to specified charges and conditions described below. Partial
surrenders may be requested
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from any specified Sub-Account, either an Interest Sub-Account or any Index Sub-
Account. Partial and total surrenders are not subject to a surrender charge.
Therefore, the total amount deducted from the values of the Certificate Owner
Account upon a partial surrender will be the gross surrender amount.
PARTIAL SURRENDERS.
At any time prior to the Income Date, a Certificate Owner may make a Written
Request for a partial surrender. Partial surrenders may only be made if:
(i) the surrender request is at least $250;
(ii) the Surrender Value remaining in each Index Sub-Account after the
partial surrender has been made is at least $1,000; and
(iii) the Combined Surrender Value remaining in the Certificate after
the partial surrender has been made is at least $4,000.
If after complying with a request for a partial surrender there would be
insufficient value in the Certificate Owner Account to keep the Certificate In
Force, Keyport will treat the request as a request to surrender only the excess
amount over $4,000.
SURRENDER PROCEDURES. In the event the Certificate Owner does not specify
from which Sub-Account(s) the partial surrender is to be taken, it will be
withdrawn from Sub-Accounts in the following order: from the Interest
Sub-Account; then from any Index Sub-Account where the Indexed Value is
available, starting with the most recently established Index Sub-Account;
then from any Index Sub-Account where the Indexed Value currently is not
available, starting with the most recently established Index Sub-Account.
Keyport has established these default procedures with the goal of minimizing the
adverse impact on Certificate Owners, but does not represent that the order of
surrenders will necessarily be the most favorable sequence for any individual
Certificate Owner. Factors such as the length of the Terms, timing of the
partial surrender, the Guaranteed Interest Rate Factors, and the Indexed Value
of each Sub-Account need to be evaluated by each Certificate Owner in
determining the appropriate Sub-Account from which to take a partial surrender.
TOTAL SURRENDERS.
The Certificate Owner may make a Written Request for a total surrender.
Surrendering the Certificate will end it. The Surrender Value will be
determined as of the date Keyport receives the Written Request for surrender.
Keyport will pay the Certificate Owner the Combined Surrender Value, which is
the sum of the Surrender Value(s) of an Interest Sub-Account and each Index
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Sub-Account, less a deduction for any premium taxes not previously paid. For
any total surrender made after the first Certificate Year, the Certificate Owner
may receive the Surrender Value under an Annuity Option, rather than in a lump
sum.
Keyport will, upon request, inform a Certificate Owner of the amount payable
upon a partial or total surrender. Any partial or total surrender may be
subject to tax and tax penalties. (See "Tax Considerations".)
Keyport may defer payment of any partial or total surrender for a period not
exceeding six (6) months from the date the Written Request for surrender is
received, or any shorter period permitted by state insurance law. Only under
highly unusual circumstances will a surrender payment be deferred more than
thirty (30) days. While all circumstances under which deferral of surrender
payment might be involved are not be foreseeable at this time, such
circumstances could include, for example, a period of unusually high surrender
requests, accompanied by a radical shift in interest rates. If Keyport decides
to defer payment for more than thirty (30) days, the Certificate Owner will be
notified in writing of that decision.
6. DOLLAR COST AVERAGING PROGRAMS
Keyport offers Dollar Cost Averaging Programs that Certificate Owners may
participate in by Written Request. The programs periodically transfer values
from the Interest Sub-Account to new Index Sub-Accounts of specific Terms
selected by the Certificate Owner. The programs allows a Certificate Owner
to allocate premium payments to Index Sub-Accounts over time rather than
having to invest in an Index Sub-Account all at once. The programs are
available for initial and subsequent Premium payments and for values
transferred into the Interest Sub-Account. Under the programs, Keyport makes
automatic transfers on a periodic basis out of the Interest Sub-Account to
establish one or more of the available Index Sub-Account Terms. The
Certificate Owner may not choose an Index Sub-Account with a Term that would
extend beyond the Income Date or the maximum date allowed following the death
of a Certificate Owner, Joint Owner, or Annuitant,if the Owner is a
non-natural person. Keyport reserves the right to limit the number of Index
Sub-Account Terms the Certificate Owner may choose but there are currently no
limits.
Under the programs, each transfer from the Interest Sub-Account will be to a new
Index Sub-Account of a Term selected by the Certificate Owner which will have
declared Guaranteed Interest Rate Factors unique to that Sub-Account. As
described in "Establishment of Guaranteed Interest Rate Factors" these factors
are established periodically by Keyport and will be established prior to each
transfer. BECAUSE THE DOLLAR COST AVERAGING PROGRAMS ARE ELECTED IN ADVANCE OF
KEYPORT'S DECLARATION OF THE GUARANTEED INTEREST RATE FACTORS FOR INDEX SUB-
ACCOUNTS ESTABLISHED UNDER THE PROGRAMS, THE CERTIFICATE OWNER IS ADVISED TO
CONTACT KEYPORT PRIOR
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TO ANY TRANSFER DATE TO DETERMINE THE GUARANTEED INTEREST RATE FACTORS
APPLICABLE TO THE CERTIFICATE OWNER'S PLANNED TRANSFER. THE CERTIFICATE OWNER
MAY ELECT TO TERMINATE THE PROGRAMS AT ANY TIME.
Keyport offers two Dollar Cost Averaging programs:
i) Under the first program, The Certificate Owner by Written Request must
specify the amount (minimum $1,000) of each periodic transfer and the Index Sub-
Account Term(s) to which the transfers are to be made. Transfers will be made
until all values are transferred from the Interest Sub-Account. When the value
in the Interest Sub-Account reaches an amount that would leave, after the
current transfer, a remaining value that is less than the periodic transfer
amount, that remaining value is added to the current transfer and
allocated proportionally to the designated Index Sub-Account(s) and the program
will end, e.g., Certificate Owner has designated $1,000 to a 3 year Term Index
Sub-Account and $1,000 to a 5 year Term Index Sub-Account and has $2,500
remaining in the Interest Sub-Account. The final transfer will be for $1,250 to
a 3 Year Term Index Sub-Account and $1,250 to a 5 year Term Index Sub-Account.
ii) Under the second program, the Certificate Owner by Written Request must
specify the amount (minimum $1,000) of each periodic transfer, the duration of
the periodic transfers (e.g. 15 months) and the Index Sub-Account Term(s) to
which the transfers are to be made.
The first transfer will occur on a particular date designated in advance by
Keyport (the "designated date") as long as notice of the Certificate Owner's
Written Request is received within five (5) business days of the designated
date. Each subsequent transfer will occur one month following the designated
date, e.g., if the designated date is the 10'th of a month and the notice is
received on April 2, the first transfer will occur on April 10 and on the 10'th
of each successive month.
Before any final transfer, the Certificate Owner may extend program (i) by
allocating Subsequent Premium to the Interest Sub-Account or by transferring
the Indexed Value of any Index Sub-Account at the end of its Term to the
Interest Sub-Account.
Partial Surrenders from the Interest Sub-Account are allowed while a Dollar
Cost Averaging Program is in effect. The duration of the program may be
impacted.
The Certificate Owner may, by Written Request or by telephone, change the
periodic amount to be transferred, change the Index Sub-Account(s) Terms to
which the transfers are to be made, or end the program. The program will
automatically end if the Income Date
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occurs. Keyport reserves the right to end the program at any time by sending
the Certificate Owner a notice one month in advance.
Written or telephone instructions must be received by Keyport by the end
(currently 4:00 PM Eastern Time) of the business day preceding the next
scheduled transfer in order to be in effect for that transfer. Telephone
instructions are subject to the conditions and procedures established by Keyport
from time to time. The current conditions and procedures appear in Appendix D,
and Certificate Owners in a Dollar Cost Averaging Programs will be notified, in
advance, of any changes.
7. TRANSFER OF VALUES
The Certificate Owner may transfer account values between an Interest Sub-
Account and Index Sub-Accounts, subject to the following restrictions:
(a) all requests for transfers must be made before the Income Date by
telephone or by Written Request;
(b) the number of transfers may not exceed any limit Keyport may set for a
specified time period. Currently, Keyport does not limit the number
of permissible transfers in a single Certificate Year;
(c) all or part of an Interest Sub-Account (but not less than $1,000) may
be transferred to establish a new Index Sub-Account at any time before
the Income Date;
(d) a transfer from an Index Sub-Account to an Interest Sub-Account must
include the entire Indexed Value of the Sub-Account and may only be
made at the end of a Term;
(e) the Term of a new Index Sub-Account cannot be longer than the number
of years remaining until the Income Date or the date allowed following
the death of a Certificate Owner, Joint Certificate Owner or
Annuitant, if the Owner is a non-natural person.
While no charge currently applies to transfers, Keyport reserves the right to
charge $25 per transfer if a Certificate Owner makes more than 4 transfers in
a single Certificate Year. This restriction will not apply to Dollar Cost
Averaging Programs. Keyport reserves the right, at any time and without prior
notice, to terminate, modify, or suspend the transfer privileges described
above.
8. PREMIUM TAXES
Keyport deducts the amount of any premium taxes levied by any state or
governmental entity when the premium tax is incurred, unless Keyport elects to
defer such deduction until the time of surrender or the Income Date. It is not
possible to describe precisely the amount of premium tax payable on any
transaction involving a Certificate. Such premium taxes depend, among other
things, on the type of Certificate (Qualified or Non-Qualified), on the state of
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residence of the Certificate Owner, the state of residence of the Annuitant, the
status of Keyport within such states, and the insurance tax laws of such states.
Currently such premium taxes range from 0% to 5.0%. For a schedule of such
taxes, see Appendix C of this Prospectus.
9. DEATH PROVISIONS
(A) NON-QUALIFIED CERTIFICATE
DEATH OF A CERTIFICATE OWNER, JOINT CERTIFICATE OWNER, OR CERTAIN NON-
CERTIFICATE OWNER ANNUITANTS. These provisions apply if, before the Income Date
while the Certificate is In Force, the Certificate Owner or any Joint
Certificate Owner dies (whether or not the decedent is also the Annuitant) or
the Annuitant dies under a Certificate with a non-natural Certificate Owner such
as a trust. The Designated Beneficiary will control the Certificate Owner
Account after such a death.
If the decedent was the Certificate Owner or the Annuitant (if the Certificate
Owner is not a natural person), the Designated Beneficiary may surrender the
Certificate Owner Account Value within ninety (90) days of the date of death for
the death benefit. If the Certificate Owner Account is not surrendered, the
Certificate will stay In Force for the time period specified below.
The total death benefit is the sum of the death benefit(s) of an Interest Sub-
Account and each Index Sub-Account(s). The death benefit of an Interest Sub-
Account is equal to the Accumulated Value of an Interest Sub-Account, i.e., (a)
the portion of the Initial Premium allocated to an Interest Sub-Account; plus
(b) the portion of any Subsequent Premium(s) allocated to the Interest Sub-
Account; plus (c) any amounts transferred to an Interest Sub-Account; less (d)
any partial surrender amounts from an Interest Sub-Account; less (e) any amounts
transferred from an Interest Sub-Account; plus (f) interest on the net amount at
the Declared Rate set on the first day of each calendar month and guaranteed for
that month.
The death benefit of each Index Sub-Account is the greater of the Death
Benefit and the Surrender Value. The Death Benefit is equal to (a) minus
(b), where (a) is the Indexed Value at the start of the Sub-Account Year in
which death occurs, with the applicable Index Increase recalculated as
described in Appendix B, and (b) is the sum of any partial surrenders since
the start of the Sub-Account Year. If the Floor is greater than zero, (a) is
"the Indexed Value as of the date of death, less any subsequent Partial
Surrender."
For a surrender after ninety (90) days and for a surrender following the death
of a Joint Certificate Owner, the Surrender Value is payable instead.
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If the decedent's surviving spouse (if any) is the sole Designated Beneficiary,
the surviving spouse will automatically become the new sole Certificate Owner as
of the Annuitant's date of the death. If the decedent is the Annuitant, the new
Annuitant will be any living Contingent Annuitant named in the application,
otherwise the surviving spouse. The Certificate Owner Account can stay in force
until another death occurs (i.e., until the death of the Annuitant, Certificate
Owner, or Joint Certificate Owner). Except for this paragraph, all of "Death
Provisions" will apply to that subsequent death.
In all other cases, the Certificate can stay In Force up to five (5) 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 Certificate pursuant to the
surrender provisions of the Certificate. If the Certificate is still In Force
at the end of the five-year period, Keyport will automatically end it by paying
to the Designated Beneficiary the Surrender Value. If the Designated
Beneficiary is not alive then, Keyport will pay any Person(s) previously 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 Certificate Owner or
any Designated Beneficiary may, by Written Request, direct Keyport to pay any
benefit of $5,000 or more under an Annuity Option that meets the following
requirements: (a) the first payment to the Designated Beneficiary must be made
no later than one (1) 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 any Annuity Option that provides for
payments to continue after the death of the Designated Beneficiary will not
permit the successor payee to extend the period of time over which the remaining
payments are to be made. The Certificate Owner may also direct that any benefit
payable to a Designated Beneficiary be paid under an Annuity Option meeting
these same requirements.
DEATH OF CERTAIN NON-CERTIFICATE OWNER ANNUITANTS. These provisions apply if,
before the Income Date while the Certificate is In Force, (a) the Annuitant
dies, (b) the Annuitant is not a Certificate Owner, and (c) the Certificate
Owner is a natural person. The Certificate will continue In Force after the
Annuitant's death. The new Annuitant will be any living Contingent Annuitant,
otherwise the Certificate Owner.
(B) QUALIFIED CERTIFICATES
DEATH OF ANNUITANT. If the Annuitant dies while the Certificate is In Force,
the Designated Beneficiary will thereafter control the Certificate. The
Designated Beneficiary may surrender the
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Certificate within ninety (90) days of the date of death for the death benefit,
calculated as described above. For a surrender after ninety (90) days and for a
surrender following the death of an older Annuitant, the Surrender Value is
payable instead.
If the Certificate is not surrendered, the Certificate 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 partial surrenders or
the right to totally surrender the Certificate pursuant to the surrender
provisions of the Certificate. If the Certificate is still In Force at the end
of the period, Keyport will automatically end it then by paying to the
Designated Beneficiary the Surrender Value. If the Designated Beneficiary is
not alive then, Keyport will pay any person(s) named by the Designated
Beneficiary in a Written Request, otherwise the Designated Beneficiary's estate.
PAYMENT OF BENEFITS. Instead of receiving a lump sum, the Certificate Owner or
any Designated Beneficiary may, by Written Request, direct Keyport to pay any
benefit of $5,000 or more under an Annuity Option that meets the following
requirements: (a) the first payment to the Designated Beneficiary must be made
no later than one (1) 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
permit the successor payee to extend the period of time over which the remaining
payments are to be made. The Certificate Owner may also direct that any benefit
payable to a Designated Beneficiary be paid under an Annuity Option meeting
these same requirements.
D. ANNUITY PAYMENT PROVISIONS
1. ANNUITY BENEFITS
If the Annuitant is alive on the Income Date and the Certificate is In Force,
payments will begin under the payment option the Certificate Owner has chosen.
The amount of the payments will be determined by applying the Income Value (less
any premium taxes or other taxes not previously deducted) on the Income Date in
accordance with the option selected. The total Income Value is the sum of the
Accumulated Value for an Interest Sub-Account and the Indexed Value of the Index
Account(s).
2. THE INCOME DATE AND FORM OF ANNUITY
The Income Date is shown on the Certificate Specifications page. If the
Annuitant dies before the Income Date and there is a successor Annuitant, the
Income Date will be based on the successor
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Annuitant's birthday if the successor Annuitant is younger than the deceased
Annuitant.
The Certificate Owner may elect, at least thirty (30) days prior to the Income
Date, to have the Income Value applied on the Income Date under any of the
Annuity Options described below. In the absence of such election, the Income
Value will be applied on the Income Date under Option 3 to provide a monthly
life annuity with ten (10) years of payments guaranteed.
No surrenders may occur after the Income Date. Other special rules may apply to
qualified retirement plans. (See "Qualified Plans".)
3. CHANGE OF ANNUITY OPTION
The Certificate Owner may change the Annuity Option from time to time, but the
change must be made by Written Request and received by Keyport at least thirty
(30) days prior to the scheduled Income Date.
4. ANNUITY OPTIONS
In addition to the following options, other options may be arranged with the
mutual consent of the Certificate Owner and Keyport.
OPTION 1 -- INCOME FOR A FIXED NUMBER OF YEARS. Keyport will pay an annuity for
a chosen number of years, not less than five (5) or more than thirty (30). 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) the successor payee may elect to receive in a lump sum the present value of
the remaining payments, commuted at the rate of 3% per year or at any greater
interest rate used to create the annuity factor for this Option 1.
See "Annuity Payments" for the manner in which Option 1 may be taxed.
OPTION 2 -- LIFE INCOME. Keyport will pay an annuity for as long as the
payee is alive. The amount of the annuity payments will depend on the age of
the payee at the time annuity payments are to begin and may also depend on
the payee's sex. IT IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE
ANNUITY PAYMENT IF THE PAYEE DIES AFTER THE RECEIPT OF THE FIRST PAYMENT OR
TO RECEIVE ONLY TWO ANNUITY PAYMENTS IF THE PAYEE DIES AFTER RECEIPT OF THE
SECOND PAYMENT AND SO ON.
OPTION 3 -- LIFE INCOME WITH 5 OR 10 YEARS GUARANTEED. Keyport will pay an
annuity during the lifetime of the payee. If, at the death
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of the payee, payments have been made for less than the selected number of
years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) the successor payee may elect to receive in a lump sum the present
value of the remaining certain payments, commuted at the rate of 3%
per year or at any greater interest rate used to create the annuity
factor for this Option 3.
The amount of the annuity payments will depend on the age of the payee at the
time annuity payments are to begin and may also depend on the payee's sex.
OPTION 4 -- JOINT AND LAST SURVIVOR INCOME. Keyport will pay an annuity for as
long as either the payee or a designated second natural person is alive. The
amount of the annuity payments will depend on the age of both persons at the
time annuity payments are to begin and 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 BOTH PAYEES DIE AFTER RECEIPT OF THE SECOND PAYMENT AND SO ON.
5. FREQUENCY AND AMOUNT OF PAYMENTS
Payments will normally be made in monthly installments. However, if the net
amount available to apply under any Annuity Option is less than $5,000, Keyport
has the right to pay the amount in one lump sum, in lieu of the payment
otherwise provided. In addition, if the payments would be or become less than
$100, Keyport has the right to change the frequency of payments to such
intervals as will result in payments of at least $100 each.
6. PROOF OF AGE, SEX, AND SURVIVAL OF ANNUITANT
Keyport may require proof of age, sex, or survival of any payee upon whose age,
sex, or survival payments depend. If the age or sex has been misstated, Keyport
will compute the amount payable based on the correct age and sex. If income
payments have begun, any underpayment Keyport may have made will be paid in full
with the next annuity payment. Any overpayment, unless repaid in one sum, will
be deducted from future annuity payments until Keyport is repaid in full.
INVESTMENTS BY KEYPORT
Assets of Keyport must be invested in accordance with the requirements
established by applicable state laws regarding the nature and quality of
investments that may be made by the general accounts and separate accounts of
life insurance companies and the
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percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in Federal, state, and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate, and certain other investments. (See F. INVESTMENTS,
below for further information on the investments of Keyport.)
All of Keyport's General Account assets will be available to fund a Certificate
Owner's claims under a Certificate.
In establishing the Guaranteed Interest Rates and Guaranteed Interest Rates
Factors under the Certificates, Keyport intends to take into account, among
other factors, the yields available on the instruments in which it will invest
the proceeds from the Certificates. (See "Interest Sub-Account",and
"Establishment of Guaranteed Interest Rate Factors".) Keyport's obligations and
the values and benefits under the Certificates, however, do not vary as a direct
function of the returns on the instruments in which Keyport will have invested
the proceeds from the Certificates.
Keyport's investment strategy with respect to the proceeds attributable to
Certificates generally will be to invest in debt securities which it will use to
match its liabilities with respect to the Terms of Index Accounts to which the
proceeds are allocated. This will be done, in Keyport's sole discretion, by
making investments which are authorized by applicable state law. Keyport
expects to invest a substantial portion of the premiums received in securities
issued by the United States Government, its agencies, and instrumentalities,
which may or may not be guaranteed by the United States Government. This could
include T-Bills, Notes, Bonds, Zero Coupon Securities, and Mortgage Pass-Through
Certificates, including Government National Mortgage Association backed
securities (GNMA Certificates), Federal National Mortgage Association Guaranteed
Pass-Through Certificates (FNMA Certificates), Federal Home Loan Mortgage
Corporation Mortgage Participation Certificates (FHLMC Certificates), and
others.
In addition, Keyport may invest its assets in various instruments, including
equity options, futures, forwards, and other instruments based on the S&P Index
in order to hedge Keyport's obligations with respect to Index Sub-Accounts.
Keyport may also buy and sell interest rate swaps and caps, Treasury bond
futures, and other instruments to hedge its exposure to changes in interest
rates. These derivative instruments will be purchased from counterparties which
conform to Keyport's Policies and Guidelines regarding derivative instruments.
Investments in these instruments generally involve the following types of risks:
in the case of over-the-counter options and forward Certificates, there is no
guarantee that markets will exist for these investments when Keyport wants to
close out a position; futures exchanges may impose trading limits which may
inhibit Keyport's ability to close out positions in
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exchange-listed instruments; and if Keyport has an open position with a dealer
that becomes insolvent, Keyport may experience a loss.
While the foregoing generally describes Keyport's investment strategy with
respect to the proceeds attributable to the Certificates, Keyport is not
obligated to invest assets, including the proceeds attributable to the
Certificates, according to any particular strategy, except as may be required by
Rhode Island and other state insurance laws.
AMENDMENT OF CERTIFICATES
Keyport reserves the right to amend the Certificate to meet the requirements of
any applicable Federal or state laws or regulations. Keyport will notify
Certificate Owners in writing of any such amendments.
ASSIGNMENT OF CERTIFICATES
A Certificate Owner may assign a Certificate at any time, as permitted by
applicable law. A copy of any assignment must be filed with Keyport. An
assignment will not be binding upon Keyport until it receives a written copy.
The Certificate Owner's rights and those of any revocably-named person will be
subject to the assignment.
Any Qualified Certificate may have limitations on assignability. Keyport
assumes no responsibility for the validity or effect of any assignment.
Because an assignment may be a taxable event, a Certificate Owner should consult
a competent tax adviser as to the tax consequences of any assignment.
DISTRIBUTION OF CERTIFICATES
Keyport Financial Services Corp. ("KFSC") serves as the Principal Underwriter
for the Certificate described in this Prospectus. The Certificate will be sold
by salespersons who represent Keyport Life Insurance Company (KFSC's corporate
parent) as insurance agents and who are registered representatives of broker-
dealers who have entered into distribution agreements with KFSC. KFSC is a
wholly-owned subsidiary of Keyport and is registered with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934 ("Exchange
Act") as a broker-dealer. KFSC is a member of the National Association of
Securities Dealers, Inc. ("NASD"). It is located at 125 High Street, Boston,
Massachusetts 02110.
Keyport will pay a maximum commission of 5.25% on sales of the Certificate.
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TAX CONSIDERATIONS
1. GENERAL
SINCE THE LAW IS COMPLICATED AND SINCE TAX CONSEQUENCES WILL VARY ACCORDING TO
THE ACTUAL STATUS OF THE CERTIFICATE OWNER, LEGAL AND TAX ADVICE MAY BE NEEDED
BY A PERSON, EMPLOYER, OR OTHER ENTITY CONTEMPLATING THE PURCHASE OF A
CERTIFICATE DESCRIBED IN THIS PROSPECTUS.
It should be understood that any detailed description of the tax consequences
regarding the purchase of a Certificate cannot be made in this Prospectus and
that special tax rules may be applicable with respect to certain purchase
situations not discussed herein. In addition, no attempt is made to consider
any applicable state or other tax laws. For detailed information, a competent
tax adviser should always be consulted.
This discussion is based upon Keyport's understanding of Federal income tax laws
as they are currently interpreted. The United States Congress has in the past
and may in the future consider legislation that, if enacted, could adversely
affect the tax treatment of annuity Certificates, including distributions and
undistributed appreciation. There is no way of predicting whether, when, or in
what form Congress will enact legislation affecting annuity Certificates. Any
such legislation could have retroactive effect regardless of the date of
enactment. 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.
2. TAXATION OF KEYPORT
Keyport is taxed as a life insurance company under Part I of Subchapter L of the
Internal Revenue Code ("Code"). The assets underlying the Certificates will be
owned by Keyport. Any income earned on those assets will be Keyport's income.
3. TAXATION OF ANNUITIES IN GENERAL
(A) GENERAL
Section 72 of the Code governs the taxation of annuities in general. A
Certificate Owner is not taxed on increases in Certificate Owner Account Value
until a distribution occurs, either in the form of a lump sum payment (e.g., a
full or partial surrender of the Certificate Owner Account Value), an
assignment, a gift of the Certificate, or as annuity payments. The provisions
of Section 72 of the Code concerning distributions are briefly summarized below.
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(B) SURRENDERS, ASSIGNMENTS, AND GIFTS
A Certificate Owner who fully surrenders the Certificate is taxed on the portion
of the payment that exceeds the Certificate Owner's cost basis in the
Certificate. For Non-Qualified Certificates, the cost basis is generally the
amount of the Initial Premium and any Subsequent Premium(s), and the taxable
portion of the surrender payment is taxed as ordinary income. For Qualified
Certificates, 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 Certificate Owner is taxed on the
portion of the amount that exceeds the Certificate Owner's cost basis in the
Certificate. If the Designated Beneficiary elects to receive annuity payments
within sixty (60) days of the decedent's death, different tax rules apply. See
"Annuity Payments" below.
Partial surrenders received under Non-Qualified Certificates prior to the Income
Date are first included in gross income to the extent that Certificate Owner
Account Value exceeds the Initial Premium and any Subsequent Premium. Then, to
the extent Certificate Owner Account Value does not exceed the Initial Premium
and any Subsequent Premium, such surrenders are treated as a non-taxable return
of principal to the Certificate Owner. For partial surrenders under a Qualified
Certificate, 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 Certificates is generally zero, partial surrender amounts will
generally be fully taxed as ordinary income.
A Certificate Owner who assigns or pledges a Non-Qualified Certificate is
treated as having received the amount assigned or pledged and thus is subject to
taxation under the rules applicable to surrenders. A Certificate Owner who
gives away the Certificate (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 Certificate.
A special computational rule applies if Keyport issues to the Certificate Owner,
during any calendar year, (a) two or more Certificates or (b) one or more
Certificates and one or more of Keyport's other annuity Certificates. Under
this rule, the amount of any distribution includable in the Certificate Owner's
gross income is to be determined under Section 72(e) of the Code by treating all
the Keyport Certificates as one Certificate. Keyport believes that this means
the amount of any distribution under one Certificate will be includable in gross
income to the extent that, at the time of distribution, the sum of the values
for all the Certificates or Certificates exceeds the sum of the cost bases for
all the Certificates.
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(C) ANNUITY PAYMENTS
The non-taxable portion of each annuity payment is determined by an "exclusion
ratio" formula which establishes the ratio that the cost basis of the
Certificate 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 Certificates, 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.
(D) PENALTY TAX
Payments received by Certificate Owners, Annuitants, and Designated
Beneficiaries under Certificates may be subject to both ordinary income taxes
and a penalty tax equal to ten percent (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
Certificate Owner (or, where the Certificate 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 Certificate's annuity payment option that
provides for a series of substantially equal payments, provided the Certificate
is not issued as a result of a Section 1035 exchange and the first annuity
payment begins in the first Certificate Year.
(E) INCOME TAX WITHHOLDING
Keyport is required to withhold Federal income taxes on taxable amounts paid
under Certificates unless the recipient elects not to have withholding apply.
Keyport will notify recipients of their right to elect not to have withholding
apply. See "Tax-Sheltered Annuities" ("TSAs") for an alternative type of
withholding that may apply to distributions from TSAs that are eligible for
rollover to another TSA or to an individual retirement annuity or account
("IRA").
(F) SECTION 1035 EXCHANGES
A Non-Qualified Certificate may be purchased with proceeds from the surrender of
an existing annuity Certificate. Such a transaction may qualify as a tax-free
exchange pursuant to Section 1035 of the Code. It is Keyport's understanding
that in such an event: (a) the new Certificate will be subject to the
distribution-at-death rules described in "Death Provisions for Non-Qualified
Certificates"; (b) premium payments made between August 14, 1982 and January 18,
1985,
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<PAGE>
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 (10) years prior to the
distribution; and (c) premium payments made before August 14, 1982, and the
income allocable to them will, following an exchange, continue to receive the
following "grandfathered" tax treatment under prior law: (i) the penalty tax
does not apply to any distribution; (ii) partial surrenders are treated first as
a non-taxable return of principal and then a taxable return of income; and (iii)
assignments are not treated as surrenders subject to taxation.
Keyport's understanding of the above is principally based on legislative reports
prepared by the Staff of the Congressional Joint Committee on Taxation.
4. QUALIFIED PLANS
The Certificate 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 Certificate with the various types of Qualified Plans.
Participants under such Qualified Plans as well as Certificate 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 Certificate issued in connection therewith. Following are brief
descriptions of the various types of Qualified Plans and of the use of the
Certificate in connection therewith. Purchasers of the Certificate should seek
competent advice concerning the terms and conditions of the particular Qualified
Plan and use of the Certificate with that Plan.
(A) 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 501c(3) of the Code to purchase annuity Certificates and, subject to
certain contribution limitations, exclude the amount of premium payments from
gross income for tax purposes. However, such premium payments may be subject to
Social Security ("FICA") taxes. This type of annuity Certificate is commonly
referred to as a "Tax-Sheltered Annuity".
Section 403(b)(11) of the Code contains distribution restrictions.
Specifically, benefits may be paid, through surrender of the Certificate or
otherwise, only (a) when the employee attains age
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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 those contributions. Section 403(b)(11) does
not apply to distributions attributable to assets held as of December 31, 1988.
Thus, it appears that the law's restrictions would apply only to distributions
attributable to contributions made after 1988, to earnings on those
contributions, and to earnings on amounts held as of 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.
Keyport will notify a Certificate Owner who has requested a distribution from a
Certificate if all or part of the distribution is eligible for rollover to
another TSA or to an IRA. Any amount eligible for rollover treatment will be
subject to mandatory Federal income tax withholding at a twenty percent (20%)
rate if the Certificate Owner receives the amount rather than directing Keyport
by Written Request to transfer the amount as a direct rollover to another TSA or
IRA.
(B) 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.
(C) 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 Certificate to provide benefits under the plans.
THE COMPANY
A. BUSINESS
Keyport was incorporated in Rhode Island in 1957 as a stock life insurance
company. Its Executive and Administrative Office are located at 125 High Street,
Boston, Massachusetts 02110 and its
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Home Office is at 235 Promenade Street, Providence, Rhode Island 02903.
Keyport is a wholly-owned subsidiary of Liberty Financial Companies, Inc., which
is a publicly traded holding company and a majority-owned subsidiary of LFC
Holdings, Inc., which in turn is an indirect, wholly-owned subsidiary of Liberty
Mutual Insurance Company ("Liberty"), a multi-line insurance and financial
services institution. Liberty acquired all of the capital stock of Keyport from
the Travelers Insurance Company on December 13, 1988.
Keyport writes individual life insurance and individual and group annuity
Certificates on a nonparticipating basis. Keyport is licensed to do business in
all states, except New York, and is also licensed in the District of Columbia
and the Virgin Islands.
Keyport has been rated A+ (Superior) by A. M. Best and Company ("Best"),
independent analysts of the insurance industry. Keyport has been rated A+ each
year since 1976, the first year Keyport was subject to Best's alphabetic rating
system.
Standard and Poor's ("S&P") has rated Keyport AA- for excellent financial
security; Moody's has rated Keyport A1 for good financial strength; and Duff &
Phelps has rated Keyport AA- for very high claims paying ability. Best's A+
rating is in the highest rating category, which also includes A++.
S&P and Duff & Phelps have one rating category above AA, and Moody's has two
rating categories above A. Moody's "1" modifier signifies that Keyport is at
the higher end of the A category, while S&P and Duff & Phelps "-" modifier
signifies that Keyport is at the lower end of the AA category.
These ratings merely reflect the opinion of the rating company as to the
relative financial strength of Keyport and Keyport's ability to meet its
contractual obligations to its policyholders.
B. SELECTED FINANCIAL DATA [UNAUDITED INTERIM DATA TO BE INCLUDED BY
AMENDMENT]
The following selected consolidated financial data for Keyport should be read in
conjunction with the consolidated financial statements and notes thereto
included in this Prospectus.
39
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
AS OF OR FOR THE YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME
STATEMENT
DATA:
REVENUES $ 783,170 $ 706,628 $ 699,228 $ 722,391 $ 715,508
EXPENSES 675,229 611,352 612,523 690,994 654,738
------- ------- ------- ------- -------
INCOME
BEFORE
INCOME
TAXES $ 107,941 $ 95,276 $ 86,705 $ 31,397 $ 60,770
------- ------ ------ ------ ------
------- ------ ------ ------ ------
NET INCOME $ 69,610 $ 63,225 $ 57,995 $ 22,587 $ 42,080
------- ------- ------- ------- -------
------- ------ ------ ------ -------
BALANCE
SHEET
DATA:
TOTAL
INVEST-
MENTS $10,922,125 $ 9,274,793 $ 8,912,526 $ 8,787,912 $8,018,522
TOTAL
ASSETS 12,279,194 10,873,604 10,227,327 9,707,115 8,839,110
STOCK-
HOLDER'S
EQUITY 902,331 682,485 684,270 556,416 532,317
</TABLE>
C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1. Overview
Keyport offers a diversified line of fixed, variable, and indexed annuity
products designed to serve the growing retirement savings market. These annuity
products are sold through a wide ranging network of banks, agents, and broker-
dealers. Substantially all of Keyport's operating earnings relate to the net
investment income derived from the investments which support Keyport's fixed
annuity and closed block of single premium whole life insurance.
Net investment income and interest credited to policyholders are Keyport's
largest revenue and expense items, respectively. The amount by which net
investment income exceeds interest credited to policyholders is the "investment
spread". The "investment spread percentage" is the excess of the weighted
average investment yield over the weighted average interest credited rate. Net
investment income is determined primarily by interest rates, the maturities of
Keyport's portfolio, market conditions, and the overall investment
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policy of Keyport. Interest credited to policyholders is determined primarily
by the interest rate environment, market conditions, and competitive conditions.
Keyport's profitability is substantially dependent upon its ability to manage
effectively its investment spread. Keyport seeks to manage investment spread
through, among other things, its setting of renewal rates and by investment
portfolio actions, including utilizing interest rate swaps and caps designed to
address the interest rate sensitivity of asset cash flows in relation to
liability cash flows. See "Liquidity and Capital Resources."
As reflected in the table below, in 1995, net investment income and interest
credited increased compared to 1994, but the investment spread percentage
decreased. In 1994, net investment income increased and interest credited
decreased compared to 1993, and the net investment spread percentage increased.
YEAR ENDED DECEMBER 31
($ IN MILLIONS)
1995 1994 1993
Net Investment Income $ 757.4 $ 689.6 $ 669.7
Interest Credited to
Policyholders 557.2 481.9 504.2
------ ------- -------
Investment Spread $ 200.2 $ 207.7 $ 165.5
------ ------- -------
------ ------- -------
Investment Spread Percentage 1.91% 2.16% 1.81%
------ ------- -------
------ ------- -------
The investment spread percentage in 1995 decreased compared to 1994, principally
as a result of an increase in the weighted average interest credited rate during
the period. This increase resulted primarily from the impact of higher renewal
rates set during the latter half of 1994 and early 1995 attributable to the
rising interest rate environment beginning in early 1994. Although interest
rates decreased significantly during 1995, the full impact of this rate decrease
was not realized on interest credited since rates on policyholder liabilities
are renewed annually throughout the year. Both net investment income and
interest credited increased in 1995, primarily due to higher average investment
and policyholder liability balances, respectively.
The investment spread percentage in 1994 increased compared to 1993, primarily
as a result of a decrease in the weighted average interest credited rate during
the period. Although interest rates, particularly short-term interest rates,
continually increased throughout 1994, the full impact on interest credited was
not realized because renewal rates are set annually throughout the year. Net
investment income increased during 1994 primarily due to higher average
investment balances.
Results of Operations -- 1995 Compared to 1994
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<PAGE>
NET INCOME. Net income was $69.6 million in 1995, compared to $63.2 million in
1994. The higher net income in 1995 primarily reflected lower operating
expenses, decreased guaranty fund expense, and reduced amortization of value of
insurance in force, offset in part by lower investment spread.
REVENUES. Net investment income is derived from the investments which support
Keyport's fixed annuity business and its closed block of single premium whole
life insurance. Net investment income was $757.4 million during 1995, compared
to $689.6 million in 1994, an increase of $67.8 million, or 9.8%. This increase
in net investment income was primarily due to a higher level of portfolio assets
during the period. The impact of this higher level of assets on net investment
income was approximately $62.2 million. The overall portfolio yield also
increased during 1995. The impact of this higher yield was approximately $5.6
million. In 1995, the overall yield on investments (the ratio of net investment
income to average monthly total investments) was 7.75%, compared to 7.68% in
1994.
Insurance revenues are the separate account fees earned on variable Certificate
policyholder account balances and surrender charges on policyholder withdrawals
of fixed and variable annuities. Such revenues were $29.8 million in 1995,
compared to $25.3 million in 1994, an increase of $4.5 million, or 17.8%. This
increase was primarily due to higher surrender charges of $2.6 million. Total
fixed annuity surrenders, as a percentage of average policyholder liabilities,
were approximately 9.4% in 1995, compared to 12.3% in 1994.
Net realized investment losses were $4.0 million in 1995, compared to $8.2
million in 1994. The realized losses in 1995 were primarily attributable to
sales of fixed maturities during the year which were sold on the basis of
relative value and credit quality and were realized primarily for tax purposes
since these losses may be carried back to prior years against previously
recognized capital gains. The realized losses in 1994 were primarily due to
write-downs of investments whose declines in value were determined to be other
than temporary.
EXPENSES. Interest credited to policyholders is the expense Keyport incurs on
its fixed annuity and whole life insurance policyholder liabilities. Interest
credited was $557.2 million in 1995, compared to $481.9 million in 1994, an
increase of $75.3 million, or 15.6%. This increase was due to growth in
policyholder liabilities and to an increase in the weighted average crediting
rate on the policyholder liabilities. The increase in policyholder liabilities
had the effect of increasing interest credited by $47.9 million, while the
impact of the higher average crediting rate was approximately $27.4 million.
The weighted average crediting rate on policyholder liabilities was 5.84% in
1995, compared to 5.54% in 1994. This increase in interest credited of $75.3
million, combined with the increase in net investment income of $67.8 million
discussed above, resulted in a decrease in investment
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<PAGE>
spread in 1995 of approximately $7.5 million and a decrease in the investment
spread percentage in 1995 to 1.91% from 2.16% in 1994.
Policy benefits represent death benefits incurred in excess of policyholder
account balances. Policy benefits were $4.4 million in 1995, compared to $4.8
million in 1994, a decrease of $0.4 million, or 8.3%. This decrease was due to
favorable mortality experience in 1995.
Operating expenses were $42.5 million in 1995, compared to $47.1 million in
1994, a decrease of $4.6 million, or 9.8%. These expenses primarily represent
compensation, other general and administrative expenses, and taxes, licenses,
and fees. The decrease in 1995 was primarily due to lower state income taxes
and licensing fees.
Guaranty fund expense was $2.0 million in 1995, compared to $7.2 million in
1994, a decrease of $5.2 million. This decrease relates to a smaller provision
for possible future guaranty fund assessments in 1995. See "Guaranty Fund
Assessments."
Amortization of deferred policy acquisition costs was $58.5 million in 1995,
compared to $52.2 million in 1994, an increase of $6.3 million. This increase
in amortization was primarily attributable to changes in estimates relating to
reductions in the amortization periods and lower projected surrender charges
primarily on fixed annuities. In addition, this increase was attributable to
the growth in business in force during 1995 and 1994. Amortization of value of
insurance in force was $9.5 million in 1995, compared to $17.0 million in 1994.
Value of insurance in force is amortized in relation to the estimated gross
profits to be realized over the life of the underlying policies and is adjusted
to reflect actual experience. The decrease in amortization in 1995 of $7.5
million was primarily related to the actual experience of the closed block of
whole life insurance and to changes in estimates on persistency and higher than
expected future profits.
Results of Operations -- 1994 Compared to 1993
NET INCOME. Net income was $63.2 million in 1994, compared to $58.0 million in
1993. The higher net income in 1994 primarily reflected the higher levels of
investment spread (offset in part by increased amortization of deferred policy
acquisition costs) and decreased amortization of value of insurance in force,
offset in part by increased operating expenses and guaranty fund expense, and
realized investment losses in 1994 compared to realized investment gains in
1993.
REVENUES. Net investment income was $689.6 million during 1994, compared to
$669.7 million in 1993, an increase of $19.9 million, or 3.0%. This increase in
net investment income was primarily due to a higher level of portfolio assets
during the period. The impact of this higher level of assets on net investment
income was
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<PAGE>
approximately $33.8 million. This favorable impact was offset in part by a
decline in Keyport's overall portfolio yield during 1994. The impact of this
lower yield was approximately $13.9 million. In 1994, the overall yield on
investments was 7.68%, compared to 7.85% in 1993.
Insurance revenues were $25.3 million for 1994, compared to $18.2 million in
1993, an increase of $7.1 million, or 39.0%. This increase was primarily due to
increased separate account fees earned on higher levels of variable annuity and
variable life policyholder account balances. Surrender charge income on
withdrawals totaled $8.5 million in 1994, compared to $7.3 million in 1993.
Net realized investment losses were $8.2 million in 1994, compared to realized
investment gains of $11.4 million in 1993. The realized losses in 1994 were
primarily due to write-downs of investments whose declines in value were
determined to be other than temporary. The realized gains in 1993 were
primarily attributable to the higher level of calls on portfolio bonds and, to a
lesser extent, sales of fixed maturities classified as "held to maturity" which
were sold because of deteriorating credit quality. Realized investment gains
include gross gains and losses and, for periods prior to 1994, provisions for
possible investment losses. The provision was $9.1 million for 1993.
EXPENSES. Interest credited to policyholders was $481.9 million in 1994 and
$504.2 million in 1993, a decrease of $22.3 million, or 4.4%. This decrease was
primarily due to a reduction in the weighted average crediting rate on
policyholder liabilities to 5.54% in 1994 from 6.04% in 1993. This reduction
had a favorable impact of $42.7 million. Total interest credited also reflected
growth in policyholder liabilities which had the effect of increasing interest
credited by $20.4 million during the period. The decrease in interest credited
and the increase in net investment income discussed above resulted in an
increase Operating expenses were $47.1 million in 1994, compared to $37.0
million in 1993, in investment spread of approximately $42.2 million and an
increase in the investment spread percentage in 1994 to 2.16% from 1.81% in
1993.
Policy benefits were $4.8 million in 1994, compared to $3.1 million in 1993,
an increase of $1.7 million, or 49.0%. This increase was due to unfavorable
mortality experience in 1994. Operating expenses were $47.1 million in 1994,
compared to $37.0 million in 1993, an increase of $10.1 million, or 27.3%.
These expenses increased primarily due to higher personnel costs, higher
levels of professional fees, and investments in information technology.
Guaranty fund expense was $7.2 million in 1994, compared to $3.7 million in
1993, an increase of $3.5 million. This increase relates to a larger
provision for possible future guaranty fund assessments in 1994.
44
<PAGE>
Amortization of deferred policy acquisition costs were $52.2 million in 1994,
compared to $41.0 million in 1993, an increase of $11.2 million. This increase
in amortization is related to the higher levels of investment spread in 1994 and
the growth of business in force during 1994 and 1993. As a result of the
acceleration of profits associated with existing Certificates, amortization was
adjusted to reflect actual investment experience.
Amortization of value of insurance in force was $17.0 million in 1994, compared
to $22.4 million in 1993, a decrease of $5.4 million, or 24.1%. This decrease
was attributable primarily to the scheduled amortization of specific blocks of
business which were no longer subject to surrender charges beginning in the
fourth quarter of 1992.
GUARANTY FUND ASSESSMENTS
Under insurance guaranty fund laws existing in each state, insurers can be
assessed for certain obligations of insolvent insurance companies. The amounts
actually assessed to Keyport by guaranty fund associations under such laws for
the years ended December 31, 1995, 1994, and 1993, were approximately $8.1
million, $7.7 million, and $7.3 million, respectively. Assessments are
typically not made for several years after an institution fails and, therefore,
Keyport cannot precisely determine the amount or timing of such assessments and
whether the Company's existing reserve will be sufficient to cover the actual
assessments. In 1995, 1994, and 1993, Keyport recorded guaranty fund expense of
approximately $2.0 million, $7.2 million, and $3.7 million, respectively. At
December 31, 1995, Keyport's reserve for such assessments was $21.9 million.
FINANCIAL CONDITION
CASH AND INVESTMENTS. Cash and investments grew to $10.9 billion as of December
31, 1995, compared to $9.3 billion as of December 31, 1994, or an increase of
17.8%. This growth reflects policyholder deposits received during 1995 and the
excess of net investment income over policy acquisition costs and operating
expenses. This growth also reflects the change in net unrealized investment
gains. The portfolio of fixed maturity investments had a weighted average
quality rating of A+ by S&P.
The percentage of Keyport's portfolio invested in below investment grade
securities increased slightly during 1995. As of December 31, 1995, the
carrying value of Keyport's total investments in below investment grade
securities consisted of investments in 106 issuers totaling $811.8 million, or
7.4% of the investment portfolio, compared to 84 issuers totaling $618.7
million, or 6.7%, as of December 31, 1994. As of December 31, 1995, the yield
on Keyport's below investment grade portfolio was 9.6%, compared to 7.3% for the
investment grade portfolio.
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<PAGE>
Keyport analyzes its investment portfolio at least quarterly in order to
determine if its ability to realize the carrying value on any investment has
been impaired. If impairment in value is determined to be other than temporary,
the cost basis of the impaired security is written down to fair value and
becomes the security's new cost basis. The amount of the writedown is recorded
as a realized investment loss. During 1995, there were no adjustments to
Keyport's investment portfolio in connection with an impairment in value that
was other than temporary.
Cash and cash equivalents increased to approximately $777.4 million as of
December 31, 1995, from $684.6 million as of December 31, 1994. Substantially
all of this increase related to securities being held as collateral in
connection with securities lending and dollar roll transactions. Keyport
records the collateral received from its securities lending and dollar roll
transactions as an asset and its obligation to return the collateral, when the
transaction is closed, as a liability. As of December 31, 1995, Keyport had an
asset, and a corresponding liability, of $317.7 million for cash pledged as
collateral. Keyport did not engage in any such transactions during 1994.
DEFERRED POLICY ACQUISITION COSTS. Deferred policy acquisition costs decreased
to $179.7 million as of December 31, 1995, from $439.2 million as of December
31, 1994. Deferral of current period costs (primarily commissions) incurred to
generate annuity sales totaled $83.2 million, while amortization of these costs
totaled $58.5 million. The adjustment to deferred policy acquisition costs
related to the valuation of fixed maturity securities designated as available
for sale under SFAS No. 115 reduced deferred policy acquisition costs by $286.4
million during 1995.
LIABILITIES. Policyholder liabilities increased by $740.3 million, or 7.9%,
during 1995 and totaled $10.1 billion as of December 31, 1995. This growth
primarily reflects the policyholder deposits received during the period and
interest credited to policyholder liabilities.
Keyport incorporates a number of features in its annuity products designed to
reduce the early withdrawal or surrender of the policies and to partially
compensate for acquisition costs incurred if policies are surrendered early.
Surrender charge periods on annuity policies currently range from five to seven
years. Substantially all policies issued during 1995 had a surrender charge
period of five years or more. The initial surrender charge on annuity policies
ranges from 5% to 7% of the premium and decreases over the surrender charge
period. As of December 31, 1995, approximately 89.7% of Keyport's SPDA
policyholder liabilities are subject to surrender charges.
STOCKHOLDER'S EQUITY. As of December 31, 1995, stockholder's equity was $902.3
million, compared to $682.5 million as of December 31, 1994, an increase of
$219.8 million. Net unrealized
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<PAGE>
investment gains increased stockholder's equity by $151.6 million. This amount
includes $13.9 million attributable to an election made on December 31, 1995,
pursuant to a Guide to Implementation of SFAS 115 issued by the Financial
Accounting Standards Board. Keyport elected to reclassify all previously
classified "held to maturity" securities as "available for sale". This
election was made to allow Keyport to more effectively manage its
asset/liability management process. Net income during the period was $69.6
million.
LIQUIDITY AND CAPITAL RESOURCES. Liquidity needs and financial resources
pertain to the management of the General Account assets and policyholder
liabilities. Keyport uses cash for the payment of annuity and life insurance
benefits, operating expenses, policy acquisition costs, and the purchase of
investments. Keyport generates cash from net investment income, annuity
premiums and deposits, and from maturities of fixed investments.
Cash received by Keyport for annuity premiums, from the maturity of investments,
and from net investment income has historically been sufficient to meet
Keyport's requirements. Keyport monitors cash and cash equivalents in an effort
to maintain sufficient liquidity and has strategies in place to maintain
sufficient liquidity in changing interest rate environments. Consistent with
the nature of its obligations, Keyport has invested a substantial amount of its
General Account assets in readily marketable securities. As of December 31,
1995, 70.0% of Keyport's total investments, including short-term investments,
are considered readily marketable.
Keyport manages its portfolio, in part, based on the effective duration of its
portfolio investments and the anticipated effective duration of its policyholder
liabilities. As of December 31, 1995, the duration of Keyport's fixed income
portfolio (representing 93.2% of Keyport's total General Account investments,
and calculated including cash and short term investments) was 2.6 years.
Keyport's investment management strategy takes into account the anticipated cash
flow requirements of its policy liabilities. Liability cash outflows are
affected by policy maturities, surrender experience, and interest crediting
rates. Simulation models are used to estimate policy cash flows under a wide
range of future interest rate scenarios. Based on analyses of these scenarios,
investment strategies are designed to meet policy obligations, maintain the
desired investment spread between assets and liabilities, and limit the
potential adverse impact of changing market interest rates.
A key element of Keyport's business activities is its asset/liability management
process. This process integrates investment management and liability management
to reduce the risk presented by changing market interest rates.
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<PAGE>
Interest rate risk occurs when interest rate changes cause asset cash flows
(General Account investment income, principal payments, and calls) to react
differently than liability cash flows (policyholder benefits). Keyport seeks to
manage this risk through, among other things, its setting of renewal rates and
by investment portfolio actions designed to address the interest rate
sensitivity of asset cash flows in relation to liability cash flows. Portfolio
actions used to manage interest rate risk include targeting the effective
duration of the investment portfolio and utilizing interest rate swaps and caps
to hedge asset and liability cash flow sensitivities. Interest rate swaps and
caps involve, to varying degrees, elements of credit risk and market risk which
are not reflected in the Company's Consolidated Financial Statements (see Note 4
of Notes to the Consolidated Financial Statements). The Company periodically
monitors credit risk and the financial stability of its counterparties according
to prudent investment guidelines and established procedures.
Credit risk also arises from the possibility that a default by the issuer would
affect adversely a fixed maturity investment's anticipated return by the issuer.
Keyport seeks to manage this risk by careful credit analysis and ongoing credit
monitoring.
Strict investment guidelines limit the total exposure of debt and derivative
instruments in any single issuer as a percentage of Keyport's stockholder's
equity and total invested assets. In addition, the portfolio is monitored to
maintain diversification across industry and security type. Keyport also
monitors its investment portfolio monthly to identify securities that may
exhibit a deterioration in credit quality.
Keyport invests in certain below investment grade securities to enhance overall
portfolio yield. Investments in below investment grade securities have greater
risks than investments in investment grade securities. Keyport actively manages
its below investment grade portfolio to optimize its risk return profile.
In 1995, Keyport introduced a new fixed annuity policy linked to an equity
index. These policies guarantee a return equal to the highest price return of
the S&P Index for any anniversary date during the term of the policy multiplied
by a participation rate. Policies are issued with terms of one or five years.
Keyport's KeyIndex hedging strategy uses S&P Index financial options and S&P
Index financial futures Certificates to hedge against this S&P Index exposure.
Sales of the indexed product in 1995 were approximately $85.0 million. Keyport
anticipates significantly higher sales in 1996 as Keyport launches an aggressive
marketing campaign. As of December 31, 1995, Keyport had positions in S&P Index
futures with an aggregate face amount of approximately $2.4 million and
positions in S&P Index call options with an aggregate face amount of
approximately $69.3 million. The carrying value of
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<PAGE>
the S&P Index options and futures was $7.8 million and was included in other
invested assets.
To the extent that unanticipated surrenders cause Keyport to sell a material
number of securities prior to their maturity for liquidity purposes, such
surrenders could have a material adverse effect on Keyport. However, Keyport
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments, or securities in
its short duration portfolio, thereby precluding the sale of fixed maturity
investments in a potentially unfavorable market. Although the Company believes
that Keyport will have adequate liquidity to meet anticipated surrender levels,
a material increase in actual surrenders could have a material adverse effect on
Keyport's operations and liquidity.
Regulatory authorities restrict dividend payments from Keyport to Liberty
Financial in excess of the lesser of (i) ten percent (10%) of statutory surplus
as of the preceding December 31 or (ii) the net gain from operations for the
preceding fiscal year. Keyport considers these requirements in managing its
cash flows and liquidity needs. As of December 31, 1995, Keyport could not
declare dividends in excess of $34.6 million without the approval of the
Commissioner of Insurance of the State of Rhode Island. Keyport has not paid
any dividends since its acquisition in 1988.
D. REINSURANCE
Portions of Keyport's life insurance risks are reinsured with other companies.
The maximum net insurance retention on any one life is $150,000.
E. RESERVES
Keyport is obligated to record actuarial reserves to meet obligations on
outstanding life insurance and annuity Certificates. The reserves for such
Certificates are based on mortality and morbidity tables in general use in the
United States and are computed in amounts that, with additions from premiums to
be received and with interest on such reserves compounded annually at certain
assumed rates, will be sufficient to meet Keyport's policy obligations at their
maturities if death occurs in accordance with the mortality tables employed. In
the accompanying Consolidated Financial Statements, these life insurance
reserves are adjusted in accordance with generally accepted accounting
principles.
F. INVESTMENTS
Keyport manages interest rate risk and monitors investment activities to conform
with its investment policies. Stein Roe & Farnham Incorporated, an affiliated
company, manages a substantial portion of Keyport's General Account portfolio
(approximately $8.9
49
<PAGE>
billion of a total of approximately $10.9 billion as of December 31, 1995)
within Keyport's overall investment policies. A portion of Keyport's General
Account assets ($1.2 billion as of December 31, 1995) is managed by separate
unaffiliated investment advisers who specialize in certain types of investments.
As of December 31, 1995, Keyport's General Account also included approximately
$498.3 million of policyholder loans and approximately $74.5 million of mortgage
loans.
The following table sets forth the composition, carrying value, and fair value
of Keyport's investment portfolio as of December 31, 1995.
CARRYING VALUE FAIR VALUE
AMOUNT
($ in % OF % OF
thousands) PORTFOLIO AMOUNT PORTFOLIO
---------- --------- ----------- ---------
Fixed Maturities (1):
Investment Grade Bonds $ 6,688,036 61.2% $ 6,688,036 61.2%
U.S. Government and
Agency Securities 2,036,064 18.7% 2,036,064 18.7%
Below Investment Grade
Bonds 811,848 7.4% 811,848 7.4%
----------- ----- ----------- -----
Total Fixed Maturities: 9,535,948 87.3% 9,535,948 87.3%
Mortgage Loans 74,505 0.7% 79,697 0.7%
Cash and Cash
Equivalents 777,384 7.1% 777,384 7.1%
Equity Securities 25,215 0.2% 25,215 0.2%
Policy Loans 498,326 4.6% 498,326 4.6%
Other 10,748 0.1% 10,748 0.1%
----------- ----- ----------- -----
TOTAL INVESTMENT $10,922,126 100.0% $10,927,318 100.0%
PORTFOLIO: ----------- ------- ----------- ------
----------- ------- ----------- ------
(1) Includes private placement bonds with a carrying value (estimated fair
value) of approximately $2.7 billion (24.4% of the portfolio). Fair values of
private placement bonds are typically determined by obtaining market indications
from various broker-dealers. Keyport attempts to validate these valuations by
selectively monitoring trades in the secondary private placement market that
involve these holdings.
Consistent with the nature of the obligations involved in Keyport's operations,
the majority of the General Account assets are invested in fixed-income
obligations, such as government and corporate debt securities and mortgage-
backed securities. The investment program is intended to provide a rate of
return which will persist during the expected durations of the liabilities,
regardless of future interest rate movements.
50
<PAGE>
At December 31, 1995 and 1994, Keyport's investments in bonds, which are carried
at amortized cost, were $9.5 billion and $8.2 billion, respectively. At
December 31, 1995, approximately $2 billion, or 18.7%, was invested in United
States Government and government agency securities. During the 1995 period,
Keyport maintained an average bond quality rating of at least A+
(Moody's/Standard & Poor's).
During periods considered appropriate, Keyport purchases higher-yielding
securities which are below investment grade to enhance the average yield on its
investment portfolio. The risk of potential loss due to default is generally
considered to be greater for high yield securities because these securities are
generally issued by highly leveraged companies or are often subordinated to
other debt of the issuer. Keyport believes that, in the aggregate, the
additional yields received compensate for the risk of default on certain high
yield securities. At December 31, 1995, Keyport had below investment grade
bonds of $811 million, representing approximately 7.4% of total cash and
investments.
Keyport continually evaluates the creditworthiness of each issuer whose
securities are held in the portfolio. It is Keyport's policy to write-down the
value of specific investments which are determined to be permanently impaired.
Specific write-downs included in realized gains and losses during the 1995
period were $1.3 million.
As discussed above, Keyport may also invest its assets in various instruments,
including equity options, futures, forwards, and other instruments based on the
S&P Index to hedge its obligations with respect to Index Accounts. Keyport may
also buy and sell interest rate swaps and caps, Treasury bond futures, and
similar instruments to hedge its exposure to changes in interest rates.
G. COMPETITION
Keyport competes with a large number of life insurance companies, some of which
are larger, more highly capitalized, and have higher ratings. No single company
dominates the industry. In addition, Keyport's products compete with
alternative investment vehicles available through financial institutions,
brokerage firms, and investment managers. Keyport relies heavily on
distribution of its annuities through the bank channel. The overall growth of
annuity sales through banks has caused several other insurance companies to
emphasize this distribution channel, including a number of companies which are
larger and have greater access to capital. Keyport believes it can continue to
compete successfully in this market by offering innovative products and superior
services.
51
<PAGE>
H. EMPLOYEES
As of December 31, 1995, Keyport employed 342 direct salary employees.
I. STATE AND FEDERAL REGULATION
The insurance business of Keyport is subject to comprehensive and detailed
regulation and supervision throughout the United States.
The laws of the various states establish supervisory agencies with broad
administrative powers with respect to licenses to transact business, trade
practices, licensing agents, approving policy forms, establishing reserve
requirements, fixing maximum interest rates on life insurance policy loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements, and regulating the type and amounts of
investments permitted. Each insurance company is required to file detailed
annual reports with supervisory agencies in each of the jurisdictions in which
it does business, and its operations and accounts are subject to examination by
such agencies at regular intervals.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. The amount of any future assessments of Keyport under
these laws cannot be reasonably estimated. Most of these laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's own financial strength.
In addition, several states, including Rhode Island, regulate affiliated groups
of insurers, such as Keyport and its affiliates.
Although the Federal government generally does not directly regulate the
business of insurance, Federal initiatives often have an impact on the business
in a variety of ways. Current and proposed Federal measures which may
significantly affect the insurance business include employee benefit regulation,
controls on medical care costs, removal of barriers preventing banks from
engaging in the insurance business, tax law changes affecting the taxation of
insurance companies, the tax treatment of insurance products and the relative
desirability of various personal investment vehicles, and the use of gender in
determining insurance and pension rates and benefits.
KFSC, a subsidiary of Keyport, is regulated as a broker-dealer under the
Exchange Act and is a member of the NASD. (See "Distribution of Certificates".)
52
<PAGE>
COMPANY MANAGEMENT
The following are the principal officers and directors of Keyport:
<TABLE>
<CAPTION>
POSITION WITH KEYPORT OTHER BUSINESS, VOCATION OR
YEAR OF ELECTION EMPLOYMENT FOR PAST 5 YEARS
--------------------- ---------------------------
NAME, AGE
- ---------
<S> <C> <C>
Kenneth R. Leibler, 47 Chairman of the Chief Executive Officer,
Board, 12/31/94 1/1/95; President, 8/90, and
formerly Chief Operations
Officer of Liberty Financial
Companies Inc.
F. Remington Ballou, 67 Director, 3/7/62 President of A. Ballou & Co.,
Inc., East Providence, RI
Frederick Lippitt, 80 Director, 3/7/62, and Formerly Director of
Assistant Secretary, Administration of State of
4/9/69 Rhode Island, Providence,
RI; formerly
Attorney/Partner of Edwards
& Angell, Providence, RI
Robert C. Nyman, Director, 4/11/96 President and Chairman of
60 Nyman Manufacturing Company,
East Providence, RI
John W. Rosensteel, 55 President, Chief Chairman of the Board and
Executive Officer, Director of KFSC, 11/12/92;
and Director, Chairman of the Board and
12/30/92 Director of KASC, 1/8/93;
President, Chief Executive
Officer, and Chairman of the
Board of Independence Life
and Annuity Co., 10/1/93
John E. Arant, III, 51 Senior Vice President Vice President, Chief Sales
and Chief Sales Officer of KFSC, 5/20/94;
Officer, 5/16/94 Director, 3/1/95, Senior
Vice President and Chief
Sales Officer, 5/20/94 of
Independence Life and
Annuity Company; Director
and Senior Vice President
and Chief Sales Officer,
KASC, 3/10/95; Formerly Vice
President of Aetna
Investment Management
Company and Senior Vice
President of Aetna Capital
Management Company
Bernard R. Beckerlegge, Senior Vice President Senior Vice President and
50 and General Counsel, General Counsel of
9/1/95 Independence Life and
Annuity Company, 10/9/95;
formerly General Counsel for
B.T. Variable Insurance Co.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH KEYPORT OTHER BUSINESS, VOCATION OR
YEAR OF ELECTION EMPLOYMENT FOR PAST 5 YEARS
--------------------- ---------------------------
NAME, AGE
- ---------
<S> <C> <C>
Paul H. LeFevre, Jr., Senior Vice President Director and Senior Vice
53 and Chief Financial President and Chief
Officer, 4/5/90 Financial Officer of KASC,
1/8/93; Senior Vice
President and Chief
Financial Officer of
Independence Life and
Annuity Company, 10/1/93
Francis E. Reinhart, 55 Senior Vice President Director, 3/15/95 and Vice
and Chief President, Administration,
Administrative 10/24/85, of KFSC; Senior
Officer, 4/5/90 Vice President and Chief
Administrative Officer of
KASC, 1/8/93; Senior Vice
President and Chief
Administrative Officer of
Independence Life and
Annuity Company, 10/1/93
Bruce J. Crozier, 50 Vice President and Vice President and Chief
Chief Actuary, Actuary of Independence Life
11/9/90 and Annuity Company, 10/1/93
and Annuity Company, 10/1/93
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH KEYPORT OTHER BUSINESS, VOCATION OR
YEAR OF ELECTION EMPLOYMENT FOR PAST 5 YEARS
--------------------- ---------------------------
NAME, AGE
- ---------
<S> <C> <C>
Stewart R. Morrison, 39 Vice President and Vice President, Investments,
Chief Investment of KASC, 1/8/93; Vice
Officer, 5/16/94 President and Chief
Investment Officer of
Independence Life and
Annuity Company, 10/1/93
</TABLE>
EXECUTIVE COMPENSATION
The compensation of Keyport's Chief Executive Officer and four most highly
compensated executive officers (receiving compensation in excess of $100,000)
other than the Chief Executive Officer is summarized in the table[s] below.
Table I
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
STOCK SECURITIES
OPTIONS UNDERLYING ***ALL OTHER
NAME & POSITION YEAR SALARY BONUS EXERCISED OPTIONS COMPENSATION
- --------------- ---- ------ ----- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
John Rosensteel 1995 381,150 187,000 0 15,000 31,535
President and
Chief Financial
Officer
Paul LeFevre Jr. 1995 262,000 112,000 736,250 7,500 19,860
Sr. Vice
President,
Chief Financial
Officer
</TABLE>
55
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Francis E. Reinhart 1995 223,000 87,000 296,460 6,000 16,105
Sr. Vice President,
Chief Administrative
Officer
John Arant 1995 232,000 90,500 0 7,500 16,827
Sr. Vice President,
Chief Sales Officer
**Includes
relocation
"Other"
Stewart Morrison 1995 174,000 54,000 0 4,000 10,293
Vice President,
Chief Investment
Officer
</TABLE>
*** ALL OTHER COMPENSATION INCLUDES:
1995 401(k) Employer Match
1995 Supplemental Savings Match, Conditional Match and Interest Accrued
1995 Life Insurance Premiums Paid
1995 Moving Expense Reimbursements
COMPENSATION OF DIRECTORS
Directors of Keyport who are also employees receive no compensation in addition
to their compensation as employees of Keyport. The three outside directors
(Lippitt, Ballou, and Nyman) receive $2,000 per quarter, plus $500 for each
meeting of the Board of Directors and $200 for each Audit Committee meeting that
they attend. Three meetings of the Board of Directors and two meetings of the
Audit Committee are scheduled annually.
LEGAL PROCEEDINGS
Keyport is engaged in various kinds of routine litigation which, in its
judgment, is not of material importance in relation to the total capital and
surplus of Keyport. There are no legal proceedings to which KFSC is a party.
EXPERTS
The audited financial statements of Keyport as of December 31, 1995 and 1994,
and for each of the years in the three-year period ended December 31, 1995 have
been included herein in reliance on the report of _____________________,
independent certified public accountants, and upon authority of that firm as
experts in accounting and auditing.
LEGAL MATTERS
Legal matters with respect to the organization of Keyport, its authority to
issue annuity Certificates, and the validity of the
56
<PAGE>
Certificates, as well as matters relating to the Federal securities laws, have
been passed upon by Bernard R. Beckerlegge, General Counsel. In addition,
certain matters relating to the Federal securities laws have been passed upon by
Katten Muchin & Zavis as Special Counsel for Keyport.
57
<PAGE>
APPENDIX A
FORMULA FOR INDEX INCREASES AND/OR DECREASES, AND ILLUSTRATION OF INDEX
INCREASES AND INDEX DECREASES
The Certificate provides that the Index Increase or Index Decrease is to be
calculated on each Sub-Account Anniversary. On the first Sub-Account
Anniversary in a Term, the formula for the Index Increase or Decrease, if
any, is:
A X ((C-D)/D X (E/F) X G
This calculation provides the proportionate credit for any change in the S&P
Index from its value at the beginning of the Term to its value on the first Sub-
Account Anniversary.
For every Sub-Account Anniversary after the first in a Term, the calculation
of the Index Increases or Index Decreases, if any, is the sum of two parts:
Part 1 represents the proportionate credit for an increase (if any) in the S&P
Index from its prior highest Sub-Account Anniversary value to its value on the
current Sub-Account Anniversary. The formula for Part 1 is:
A X ((C-B)/D) X (E/F) X G
Part 2 represents the proportionate credit for an increase(s) or decrease(s) (if
any) in the S&P Index occurring on a prior Sub-Account Anniversary(ies). The
formula for Part 2 is:
A X ((B-D)/D) X (1/F) X G
where:
A is the Participation Rate for the Term
B is the highest S&P Index Value on all Sub-Account Anniversaries, excluding
the S&P Index value at the beginning of the Term and on the current Sub-
Account Anniversary. The value of B can never be less than the Minimum S&P
Index Value nor greater than the Maximum S&P Index value. The Minimum S&P
Index Value and the Maximum S&P Index Value are defined below.
C is the value of the S&P Index on the current Sub-Account Anniversary, not
less than B or greater than the Maximum S&P Index Value for the Term.
D is the S&P Index value at the beginning of the Term
E is the number of completed Sub-Account Years in the Term
F is the total number of Sub-Account Years in the Term
G is the smaller of the Indexed Value at the beginning of the term and the
Indexed Value (prior to the crediting of any Index Increases and/or
Decreases) on any Sub-Account Anniversary in the Term, including the
current Sub-Account Anniversary
58
<PAGE>
The Minimum S&P Index Value and the Maximum S&P Index Value are defined as
follows:
Minimum S&P Index Value = [(Floor / Participation Rate for Term) + 1] X
Beginning of Term S&P Index Value]
Maximum S&P Index value = [(Cap / Participation Rate for Term) + 1] X Beginning
of Term S&P Index Value]
Using the assumptions below, we have prepared the following five illustrations
using different assumptions as to changes in the S&P Index value during the
course of the Term. THESE ASSUMPTIONS AND ILLUSTRATIONS ARE NOT AND ARE NOT
INTENDED AS PREDICTIONS OF CHANGES IN THE S&P INDEX DURING THE COURSE OF ANY
TERM. THE S&P INDEX MAY RISE OR FALL DURING THE COURSE OF A TERM, AND AT THE
END OF A TERM THE S&P INDEX VALUE MAY BE HIGHER OF LOWER THAN AT THE BEGINNING
OF THE TERM. KEYPORT MAKES NO PREDICTIONS, REPRESENTATIONS, OR GUARANTEES AS TO
FUTURE CHANGES IN THE S&P INDEX. THESE VALUES ARE BASED ON THE ASSUMPTION THAT
NO PARTIAL SURRENDERS ARE MADE.
ILLUSTRATION NO. 1
- ------------------
ASSUMPTIONS:
- ------------
Term Length (Years) = 5
Beginning Indexed Value = $100,000
Beginning S&P Index Value = 500
Participation Rate = 80%
Cap = 80%
Maximum S&P Index Value = [(80%/80%) + 1] x 500 = 1,000
Floor = 0%
Minimum S&P Index Value = [(0%/80%) + 1] x 500 = 500
<TABLE>
<CAPTION>
Value
End of of Change Value Value Value of Value of Indexed
Year INDEX in INDEX of B* of C Part 1 Part 2 Value
------ ----- -------- ------ ----- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
0 500 $100,000.00
1 600 20% 500 600 $ 3,200 $ $103,200.00
2 690 38% 600 690 $ 5,760 $ 3,200 $112,160.00
3 775 55% 690 775 $ 8,160 $ 6,080 $126,400.00
4 900 80% 775 900 $16,000 $ 8,800 $151,200.00
5 1035 107% 900 1,000 $16,000 $12,880 $180,000.00
</TABLE>
* Although B has a value on the first anniversary, it is part of the
formula for the calculation of Index Increases on the first Anniversary,
but is used as a comparison value in the calculation of C.
59
<PAGE>
ILLUSTRATION NO. 2
- ------------------
ASSUMPTIONS:
- ------------
Term Length (Years) = 5
Beginning Indexed Value = $100,000
Beginning S&P Index Value = 500
Participation Rate = 80%
Cap = 80%
Maximum S&P Index Value = 1,000
Floor = -5%
Minimum S&P Index Value = 468.75
<TABLE>
<CAPTION>
Value Change
End of of in Value Value Value of Value of Indexed
Year INDEX INDEX of B* of C Part 1 Part 2 Value
----- ------ ------ ------ ------ --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
0 500 $100,000.00
1 450 -10% 468.75 468.75 -1,000.00 N/A $99,000.00
2 425 -15% 468.75 468.75 0.00 -990.00 $98,010.00
3 450 -10% 468.75 468.75 0.00 -980.10 $97,029.90
4 430 -14% 468.75 468.75 0.00 -970.30 $96,059.60
5 400 -20% 468.75 468.75 0.00 -960.60 $95,099.00
</TABLE>
* Although B has a value on the first anniversary, it is part of the
formula for the calculation of Index Increases on the first Anniversary,
but is used as a comparison value in the calculation of C.
60
<PAGE>
ILLUSTRATION NO. 3
- -------------------
ASSUMPTIONS:
- -------------
Term Length (Years) = 5
Beginning Indexed Value = $100,000
Beginning S&P Index Value = 500
Participation Rate = 80%
Cap = 80%
Maximum S&P Index Value = 1,000
Floor = -10%
Minimum S&P Index Value = 437.50
<TABLE>
<CAPTION>
Value Change
End of of in Value Value Value of Value of Indexed
Year INDEX INDEX of B* of C Part 1 Part 2 Value
----- ----- ------ ------ ----- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 500 $100,000.00
1 450 -10% 437.50 450 -1,600.00 N/A $98,400.00
2 485 -3% 450.00 485 2,204.16 -1,574.40 $99,029.76
3 500 0% 485.00 500 1,416.96 -472.32 $99,974.40
4 520 4% 500.00 520 2,519.04 0.00 $102,493.44
5 550 10% 520.00 550 4,723.20 629.76 $107,846.40
</TABLE>
* Although B has a value on the first anniversary, it is part of the
formula for the calculation of Index Increases on the first Anniversary,
but is used as a comparison value in the calculation of C.
61
<PAGE>
ILLUSTRATION NO. 4
- ------------------
ASSUMPTIONS:
- ------------
Term Length (Years) = 5
Beginning Indexed Value = $100,000
Beginning S&P Index Value = 500
Participation Rate = 80%
Cap = 80%
Maximum S&P Index Value = 1,000
Floor = none
Minimum S&P Index Value = unlimited
<TABLE>
<CAPTION>
Value Change
End of of in Value of Value Value of Value of Indexed
Year INDEX INDEX B* of C Part 1 Part 2 Value
------ ------ ------ -------- ------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
0 500 $100,000.00
1 450 -10% < 1,000 450 -1,600.00 N/A $98,400.00
2 425 -15% 450 450 0.00 -1,574.40 $96,825.60
3 450 -10% 450 450 0.00 -1,549.21 $95,276.39
4 475 -5% 450 475 3,048.84 -1,524.42 $96,800.81
5 400 -20% 475 475 0.00 -762.21 $96,038.60
</TABLE>
* Although B has a value on the first anniversary, it is part of the
formula for the calculation of Index Increases on the first Anniversary,
but is used as a comparison value in the calculation of C.
62
<PAGE>
ILLUSTRATION NO. 5
- ------------------
ASSUMPTIONS:
- ------------
Term Length (Years) = 5
Beginning Indexed Value = $100,000
Beginning S&P Index Value = 500
Participation Rate = 80%
Cap = 80%
Maximum S&P Index Value = 1,000
Floor = -5%
Minimum S&P Index Value = 468.75
<TABLE>
<CAPTION>
Value Change
End of of in Value of Value Value of Value of Indexed
Year INDEX INDEX B* of C Part 1 Part 2 Value
------ ----- ------ -------- ----- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
0 500 $100,000.00
1 450 -10% 468.75 468.75 -1,600.00 N/A $99,000.00
2 425 -15% 468.75 468.75 0.00 -990.00 $98,010.00
3 450 -10% 468.75 468.75 0.00 -980.10 $97,029.90
4 475 -5% 475.00 475.00 776.24 -970.30 $96,835.84
5 400 -20% 475.00 475.00 0.00 -774.69 $96,061.15
</TABLE>
* Although B has a value on the first anniversary, it is part of the formula
for the calculation of Index Increases on the first Anniversary, but is
used as a comparison value in the calculation of C.
63
<PAGE>
ILLUSTRATION NO. 6
- ------------------
ASSUMPTIONS:
- ------------
Term Length (Years) = 5
Beginning Indexed Value = $100,000
Beginning S&P Index Value = 500
Participation Rate = 80%
Cap = 80%
Maximum S&P Index Value = 1,000
Floor = none
Minimum S&P Index Value = unlimited
<TABLE>
<CAPTION>
Value Change
End of of in Value of Value Value of Value of Indexed
Year INDEX INDEX B* of C Part 1 Part 2 Value
------ ----- ------ --------------- ----- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
0 500 $100,000.00
1 650 30% LESS THAN 1,000 650 4,800.00 N/A $104,800.00
2 485 -3% 650.0 650 0.00 4,800.00 $109,600.00
3 475 -5% 650.0 650 0.00 4,800.00 $114,400.00
4 450 -10% 650.0 650 0.00 4,800.00 $119,200.00
5 430 -14% 650.0 650 0.00 4,800.00 $124,000.00
</TABLE>
* Although B has a value on the first anniversary, it is part of the formula
for the calculation of Index Increases on the first Anniversary, but is
used as a comparison value in the calculation of C.
64
<PAGE>
APPENDIX B
CALCULATION OF THE DEATH BENEFIT
In calculating the Death Benefit of an Index Account, the Certificate provides
for the recalculation of the applicable Index Adjustment. Set forth below is the
formula for calculating the Death Benefit of an Index Sub-Account and the
factors specified in the Certificate for recalculating the applicable Index
Increase or Index Decrease.
If the Floor is greater than 0%, the Death Benefit is the greater of the Indexed
Value as of the date of death less any subsequent partial surrenders, and the
Surrender Value.
In all other situations, the Death Benefit is the greater of (a) minus (b) and
the Surrender Value.
(a) is the Indexed Value at the start of the Sub-Account year in which
death occurs, with the applicable Index Increase or Index Decrease
(see "Appendix A") recalculated as follows: "E" is equal to "F" and
"(B-D)" is multiplied by the sum of 1.0 plus the number of Sub-Account
years from the start of such year to the end of the Term; and
(b) is the sum of any partial surrenders since the start of such year.
In either case, if death occurs in the last year of a Term and the surrender
occurs after the end of the Term, the death benefit is equal to the greater
of the Indexed Value at the end of such Term, less any subsequent partial
surrenders, and the Surrender Value.
65
<PAGE>
APPENDIX C
SCHEDULE OF STATE PREMIUM TAXES
NON-TAX QUALIFIED TAX-QUALIFIED
CERTIFICATES/CERTIFICATES
CERTIFICATES/CERTIFICATES
STATE RATE OF TAX RATE OF TAX
Alabama 1.00% 1.00%
California 2.35 0.50
District of Columbia 2.00 2.00
Kansas 2.00 0.00
Kentucky 2.00 2.00
Maine 2.00 0.00
Mississippi 2.00 0.00
Nevada 3.50 0.00
North Carolina 1.75 0.00
South Dakota 1.25 0.00
Virgin Islands 5.00 5.00
West Virginia 1.00 1.00
Wyoming 1.00 0.00
66
<PAGE>
APPENDIX D
TELEPHONE INSTRUCTIONS
Telephone Transfers of Values of Certificate Owner Account
1. If there are joint Certificate Owners, both must authorize Keyport to
accept telephone instructions, but either Certificate Owner may give
Keyport telephone instructions.
2. All callers will be required to identify themselves. Keyport reserves
the right to refuse to act upon any telephone instructions in cases
where the caller has not sufficiently identified himself/herself to
Keyport's satisfaction.
3. Neither Keyport nor any person acting on its behalf shall be subject to
any claim, loss, liability, cost or expense if it or such person acted in
good faith upon a telephone instruction, including one that is
unauthorized or fraudulent; however, Keyport will employ reasonable
procedures to confirm that a telephone instruction is genuine and, if
Keyport does not, Keyport may be liable for losses due to an unauthorized
or fraudulent instruction. The Certificate Owner thus bears the risk that
an unauthorized or fraudulent instruction that is executed may cause the
values of a Certificate Owner Account 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 Certificate may allow a Certificate 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 Certificate Owner. Either
Keyport or the authorized person may cease to honor the power by sending
written notice to the Certificate Owner at the Certificate Owner's last
known address. Neither Keyport nor any person acting on its behalf shall
be subject to liability for any act executed in good faith reliance upon a
power of attorney.
6. Telephone authorization shall continue in force until (a) Keyport
receives the Certificate Owner's written revocation, or (b) Keyport
discontinues the privilege.
7. Telephone transfer instructions received by Keyport at 800-367-3653
before the close of trading on the New York Stock Exchange ("NYSE")
(currently 4:00 p.m. Eastern Time) will be initiated that day based on the
unit value prices calculated at the close of that day. Instructions
received after the close of trading on the NYSE will be initiated the
following business day.
8. Once instructions are accepted by Keyport, they may not be canceled.
9. All transfers must be made in accordance with the terms of the
Certificate and current prospectus. If the transfer instructions are not
in good order, Keyport will not execute the transfer and will notify the
caller within 48 hours.
67
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Not Applicable
Item 14. Indemnification of Directors and Officers
The following provisions regarding the Indemnification of Directors
and Officers of the Registrant ("Keyport") are applicable:
By-Laws, Article IX
SECTION 6 -- INDEMNIFICATION OF DIRECTORS AND OFFICERS
Any person who at any time serves or shall serve as a Director or
Officer of the Corporation whether or not in office at the time shall
be indemnified or reimbursed against and for any and all claims and
liabilities to which he may be or become subject by reason of such
service and against and for any and all expenses necessarily incurred
or amounts paid in connection with the defense or reasonable
settlement or any legal or administrative proceedings to which he is
made a party by reason of such service, except in relation to matters
to which he shall be finally adjudged to be liable of negligence or
misconduct in the performance of his official duties. Such a right of
indemnification and reimbursement shall also extend to the personal
representatives of any such person. Such rights shall not be deemed
exclusive of any other rights to which any such Director, officer or
his personal representatives may be entitled, under any other by-law
or any agreement or vote of the stockholders or Directors or
otherwise.
Consistent with such By-Laws, Keyport has obtained insurance from
Liberty Mutual Insurance Company for its directors and officers that
supplements the indemnification provisions of the By-Laws.
Item 15. Recent Sales of Unregistered Securities
Not applicable
Item 16. Exhibits and Financial Statement Schedules
Exhibits
--------
1 Principal Underwriters Agreement*
3(a) Articles of Incorporation -- Incorporated by Reference to
Registration Statement on Form N-4, filed on or about
February 16, 1996 (File No. 333-01043; 811-07543)
<PAGE>
3(b) By-Laws -- Incorporated by Reference to Registration
Statement on Form N-4, filed on or about February 16, 1996
(File No. 333-01043; 811-07543)
4(a) Form of Group Annuity Contract*
4(b) Form of Group Annuity Certificate*
4(c) Form of Individual Annuity Contract*
4(d) Group Annuity Application*
4(e) Group Annuity Certificate Application*
4(f) Individual Annuity Application*
4(g) Endorsements*
(i) Tax-Sheltered Annuity (TSA)
(ii) Corporate/Keogh 401(a) Plan
(iii) Individual Retirement Annuity (IRA)
(iv) Qualified Plan Endorsement
5 Opinion regarding Legality*
21 Subsidiaries of the Registrant--Incorporated by Reference to
Registration Statement on Form S-1, filed on or about March
18, 1996 (File No. 333-1783)
23(a) Consent of Counsel*
23(b) Consent of Certified Public Accountants*
24 Powers of Attorney--Incorporated by Reference to Pre-
Effective Amendment No. 1 to Registration Statement on Form
N-4 filed on or about August 22, 1996 (File No. 333-1043;
811-7543)
27 Financial Data Schedule*
Financial Statements
--------------------
28 Schedule I*
* To be filed by amendment.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial BONA FIDE
offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, State of
Massachusetts on October 4, 1996.
KEYPORT LIFE INSURANCE COMPANY
BY: /s/ John W. Rosensteel*
--------------------------------
John W. Rosensteel
President
* James J. Klopper has signed this document on the indicated date on behalf
of Mr. Rosensteel pursuant to a power of attorney duly executed by him
and included as part of Exhibit 16 in Pre-Effective Amendment No. 1 to
Registration Statement on Form N-4 filed on or about August 22, 1996
(File No. 333-1043; 811-7543).
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and the dates indicated.
Signature Title Date
- --------- ----- ----
(i) Principal Executive Officer
/s/ John W. Rosensteel* Principal Executive Officer
----------------------
John W. Rosensteel
(ii) Principal Financial Officer
/s/ Paul H. LeFevre, Jr.* Senior Vice President and
------------------------ Chief Financial Officer
Paul H. LeFevre, Jr.
(iii) Majority of Board of Directors
/s/ Kenneth R. Leibler* *By: /s/ James J. Klopper
---------------------- --------------------
Kenneth R. Leibler James J. Klopper
Attorney-in-fact
/s/ F. Remington Ballou* October 4, 1996
-----------------------
F. Remington Ballou
/s/ Frederick Lippitt*
---------------------
Frederick Lippitt
/s/ Robert C. Nyman*
-------------------
Robert C. Nyman
/s/ John W. Rosensteel*
----------------------
John W. Rosensteel
* James J. Klopper has signed this document on the indicated date on behalf
of each of the above Directors and Officers of the Registrant pursuant to
powers of attorney duly executed by such persons and included as part of
Exhibit 16 in Pre-Effective Amendment No. 1 to Registration Statement on
Form N-4 filed on or about August 22, 1996 (File No. 333-1043; 811-7543).
