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As filed with the Securities and Exchange Commission on
February 7, 1997
Registration No. 333-13609
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Pre-Effective Amendment No. 1
to the
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(1) Offering Price(2)
Deferred Group $300,000,000 $90,909(3)
and Individual
Annuity
Contracts
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.
(3)$100 paid with initial registration.
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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 Certificate
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. The text that follows and the Glossary of Special Terms at page
provide definitions of the defined terms used in this Summary and throughout
the Prospectus.
(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], 1997.
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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. An Initial Premium of $500,000
or more requires Keyport's approval. No premium 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
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 payment will be made 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 General Account assets of Keyport. Keyport owns its General 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 ___)
Initial Premium and Subsequent Premium payments may be allocated to two
types of Sub-Accounts; an Interest Sub-Account, and an Index Sub-Account(s)
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 End-of-Term
Adjustments on an Index Sub-Account. A Certificate Owner may establish only
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.
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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 a
maximum ("Cap"). As long as the Floor is zero or greater, there will never be
any 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.
If there is no Floor or the Floor is less than zero, and the S&P Index at the
first Sub-Account Anniversary is equal to or higher than it was at the
beginning of the Term, an Index Decrease will never be applied to the Indexed
Value during that Term. 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 selected Term. If there are subsequent Index
Increases, those increases are first offset by the amount of the Index
Decrease applied on each Sub-Account Anniversary. If on a subsequent
Sub-Account Anniversary the 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.
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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. 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
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 AT THE
FIRST SUB-ACCOUNT ANNIVERSARY IS LESS THAN IT WAS AT THE BEGINNING OF THE
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
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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.
A partial surrender made during a Term will result in the loss of that
portion of previously calculated, but not credited, 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.
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
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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
"Transfer of Values", 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 Procedures", page ___).
Annuity Period
On the Income Date, Keyport will pay 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
surrenders (see "Death Provisions", 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.
For surrenders more than ninety (90) days after the date of death and for
surrenders following the death of a Joint Certificate Owner, the Surrender
Value of the Interest and Index Sub-Account(s), will be payable instead.
Premium Taxes
Keyport deducts the amount of any premium taxes levied by any State or
governmental entity when the premium tax is actually paid, 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
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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 with values 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 CONTRACTS 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.........................................
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...............
8
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TABLE OF CONTENTS (continued)
Page
THE COMPANY............................................................
A. Business..........................................................
B. Selected Financial Data . . . . . . . . . . . . . . . . . .
C. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................
1. Summary of Unaudited Financial Statements
for the Nine Months Ended September 30, 1996.................
2. Overview......................................................
3. Results of Operations - 1995 Compared to 1994.................
4. Results of Operations - 1994 Compared to 1993.................
5. Guaranty Fund Assessments.....................................
6. 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 (FORMULA FOR INDEX INCREASES AND/OR DECREASES, AND
ILLUSTRATION OF INDEX INCREASES AND INDEX DECREASES)...................
APPENDIX B (CALCULATION OF THE 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").
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,
10
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the Certificate Owner's 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 may 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.
The Income Date is the Annuitant's 90th birthday unless state law requires an
earlier date.
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 Anniversary
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.
Indexed Value The value of an Index Sub-Account, equal to all allocations,
transfers from the Interest Sub-Account to establish the Index Sub-Account,
or renewals of that Index Sub-Account, plus all Index Increases credited to
the Index Sub-Account, or less Index Decreases if the Floor
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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 or a trustee
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.
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
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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 advisor 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 advisor 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 a maximum of $500,000 for the Initial Premium.
Payments of $500,000 or more require Keyport approval. 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.
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In the event Keyport determines that an application or Enrollment Form is not
properly completed, Keyport will attempt to contact the 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 replacing an
affiliated company's 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 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.
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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 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. Thus, the Declared Rate has a guaranteed component and
may include interest in excess of the guaranteed component.
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
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 from any Index Sub-Account less Surrender Values
transferred or surrendered from this Sub-Account. Interest, both guaranteed and
excess, is credited to this net amount.
Guaranteed interest is credited daily at a rate which when compounded will
equal a 3% annual rate.
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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-Accounts
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 describes 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 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 only 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 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), except that following an Index Decrease, if the S&P Index
on any subsequent Sub-Account Anniversary in a Term, exceeds the S&P Index at
the beginning of the Term, Index Decreases will no longer be applied.
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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, (i) the Participation Rate by (ii) 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, (i) the Participation Rate by (ii) 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, (i) the Participation Rate by (ii) 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.
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, (i) the Participation Rate by (ii) 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
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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, (i) the Participation Rate by (ii) 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, (i) the Participation Rate by (ii) 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.
THIS SECTION APPLIES IN ALL INSTANCES
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 of the formula
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, and there will be an Index Decrease if there is no Floor or the
Floor is less than zero.
In the event the S&P Index increases on a Sub-Account Anniversary during a Term,
the effect of this formula is to provide that, in the absence of any Index
Decreases or any partial or
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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 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 applied 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
equals: the Surrender Value at the end of
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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 one hundred percent (100%) of the Surrender Value transferred to
the Index Sub-Account if opened by a transfer.
Currently the index is the Standard & 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 beyond the maximum date allowed following the death of a Certificate
Owner, Joint
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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 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 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 the Surrender Value 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
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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 each subsequent Index Sub-Account Anniversary after
the first 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 is lower on the first Sub-Account Anniversary
than it was at the beginning 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's Account at any time prior to the Income Date while the Certificate is In
Force, subject to the conditions described below. Partial surrenders may be
requested 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. However, the values available for surrender may differ depending on the
timing of the surrender. For example, in the Interest Sub-Account, the
Accumulated Value is available during the first five (5) days of every month.
At all other times, the Surrender Value is available. The available value in an
Index Sub-Account during the first forty-five (45) days of a new Term is the
greater of the Indexed Value and Surrender Value. After forty-five (45) days,
only the Surrender Value is available.
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.
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Notwithstanding the foregoing, Partial Surrenders are not allowed from the Index
Sub-Account(s) if the Certificate is issued under a Corporate or Keogh Qualified
Plan that is established pursuant to the provisions of Section 301 of the
Internal Revenue Code.
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, as applicable, the Accumulated Value or
Surrender Value of the Interest Sub-Account and the Indexed Value or Surrender
Value of the Index Sub-Account(s), 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 values 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
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Keyport offers Dollar Cost Averaging Programs in which Certificate Owners may
participate 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 allow 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 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 for
which the periodic transfers are to be made (e.g., 15 months) and the Index
Sub-Account Term(s) to which the transfers are to be made.
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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 no later than five (5) business days prior to the
designated date. Each subsequent transfer will occur following the designated
date, e.g., if the frequency is monthly and the designated date is the 10th of a
month and the notice is received on April 2, the first transfer will occur on
April 10 and on the 10th 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 either program may be
shortened by such Partial Surrenders.
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 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 Program will be notified, in
advance, of any changes.
7. Transfer of Values
The Certificate Owner may transfer account values between the 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;
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(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 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
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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.
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 decedent's date of 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. The following provisions
apply if, before the Income Date while the Certificate is In Force, (a) the
Annuitant dies, (b) the
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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 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
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).
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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 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.
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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 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 percentage of their assets that may be
committed to any particular type of investment. In general, these laws permit
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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 Sub-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 contracts, 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 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
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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 CERTIFICATE
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 CERTIFICATE
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 CERTIFICATE
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.
TAX CONSIDERATIONS
A. 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
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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 advisor 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 contracts. 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.
B. 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.
C. TAXATION OF ANNUITIES IN GENERAL
1. 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.
2. Surrender, 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
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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 contracts.
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 contracts and Certificates as one. 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.
3. 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.
4. 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
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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.
5. 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").
6. 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, 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.
D. 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.
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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.
1. 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 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.
2. 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
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<PAGE>
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.
3. 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 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 & 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.
38
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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.
39
<PAGE>
B. SELECTED FINANCIAL DATA
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.
Selected Consolidated Financial Data
(in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended As of or for the Year Ended December 31
--------------------------- ----------------------------------------
9/30/96 9/30/95 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Income
Statement
Data:
Revenues $ 614,205 $ 580,727 $ 783,170 $ 706,628 $ 699,228 $ 722,391 $ 715,508
Expenses 519,640 499,538 675,229 611,352 612,523 690,994 654,738
----------- ----------- ----------- ----------- ----------- ---------- ---------
Income Before
Income Taxes $ 94,565 $ 81,189 $ 107,941 $ 95,276 $ 86,705 $ 31,397 $ 60,770
----------- ----------- ----------- ----------- ----------- ---------- ---------
----------- ----------- ----------- ----------- ----------- ---------- ---------
Net Income $ 61,920 $ 52,292 $ 69,610 $ 63,225 $ 57,995 $ 22,587 $ 42,080
----------- ----------- ----------- ----------- ----------- ---------- ---------
----------- ----------- ----------- ----------- ----------- ---------- ---------
Balance Sheet
Data:
Total Cash and
Investments $12,439,019 $10,922,125 $ 9,274,793 $ 8,912,526 $ 8,787,912 $8,018,522
Total Assets 14,075,252 12,279,194 10,873,604 10,227,327 9,707,115 8,839,110
Stockholder's
Equity 923,525 902,331 682,485 684,270 556,416 532,317
</TABLE>
C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1. Summary of Unaudited Financial Statements for the Nine Months Ended
September 30, 1996
Income before federal income taxes of $94.6 million for the nine months ended
September 30, 1996 increased 16.5% compared to $81.2 million for the same
period in 1995. The higher
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<PAGE>
pretax income in the first nine months of 1996 was primarily attributable to
higher investment spread and fee income and to net realized investment gains
in 1996 compared to net realized investment losses in 1995.
On August 9, 1996, Keyport entered into a 100% coinsurance agreement for a
$965.3 million block of single premium deferred annuities issued by Fidelity
& Guaranty Life Insurance Company (F&G Life). Under this agreement (the F&G
Life transaction), the investment risk of the annuity policies was
transferred to the Company. However, the policies will continue to be
administered by F&G Life, and F&G Life remains contractually liable for the
performance of all policy obligations. The F&G Life transaction resulted in
a $934.0 million increase in investments and a $31.3 million increase in the
value of insurance in force.
Sales of Keyport's new equity index fixed annuity were $474.9 million for the
nine months ended September 30, 1996, compared to $27.5 million for the nine
months ended September 30, 1995. These policies provide for interest based
on changes in the S&P 500 Composite Stock Price Index. Keyport's hedging
strategy for this product uses S&P 500 options and S&P 500 futures contracts
to hedge against the S&P 500 Index exposure. As of September 30, 1996,
Keyport had positions in S&P 500 futures with an aggregate face amount of
$2.4 million and positions in S&P 500 call options with an aggregate face
amount of $52.2 million. The carrying value of the S&P 500 options and
futures were $62.9 million.
2. Overview
Keyport offers a diversified line of fixed, variable, and indexed annuity
products designed to serve the growing retirement savings market. These
annuity products are sold through a wide ranging network of banks, agents,
and broker-dealers. Substantially all of Keyport's operating earnings relate
to the net investment income derived from the investments which support
Keyport's fixed annuity and closed block of single premium whole life
insurance. Net investment income and interest credited to policyholders are
Keyport's largest revenue and expense items, respectively. The amount by
which net investment income exceeds interest credited to policyholders is the
"investment spread". The "investment spread percentage" is the excess of the
weighted average investment yield over the weighted average interest credited
rate. Net investment income is determined primarily by interest rates, the
maturities of Keyport's portfolio, market conditions, and the overall
investment policy of Keyport. Interest credited to policyholders is
determined primarily by the interest rate environment, market conditions, and
competitive conditions. Keyport's profitability is substantially dependent
upon its ability to manage effectively its investment spread. Keyport seeks
to manage investment spread through, among other things, its setting of
renewal rates and by investment portfolio actions, including utilizing
interest rate swaps and caps designed to address the interest rate
sensitivity of asset cash flows in relation to liability cash flows. See
"Liquidity and Capital Resources."
As reflected in the table below, in 1995, net investment income and interest
credited increased compared to 1994, but the investment spread percentage
decreased. In 1994, net investment
41
<PAGE>
income increased and interest credited decreased compared to 1993, and the
net investment spread percentage increased.
Year Ended December 31
($ 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.
3. Results of Operations - 1995 Compared to 1994
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
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<PAGE>
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 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
43
<PAGE>
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.
4. 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 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
44
<PAGE>
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 in investment spread of
approximately $42.2 million and an increase in the investment spread
percentage in 1994 to 2.14% 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 54.8%. 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.
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.
5. 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.
6. Financial Condition
45
<PAGE>
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.
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
46
<PAGE>
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 investment gains increased
stockholder's equity by $150.2 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.
47
<PAGE>
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.
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
the S&P Index options and futures was $7.8 million and was included in other
invested assets.
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<PAGE>
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 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 $74.5 million of mortgage loans.
49
<PAGE>
The following table sets forth the composition, carrying value, and fair value
of Keyport's investment portfolio as of December 31, 1995.
Carrying Value Fair Value
-------------- ----------
Amount
------
($ 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
Portfolio: $10,922,126 100.0% $10,927,318 100.0%
----------- ------ ----------- ------
----------- ------ ----------- ------
(1) Includes private placement bonds with a carrying value (estimated fair
value) of approximately $2.7 billion (24.7% 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.
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).
50
<PAGE>
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.
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
51
<PAGE>
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
Certificate".)
52
<PAGE>
COMPANY MANAGEMENT
The following are the principal officers and directors of Keyport:
Position with Keyport Other Business, Vocation or
Name, Age Year of Election Employment for Past 5 Years
- --------- --------------------- ---------------------------
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, 60 Director, 4/11/96 President and Chairman of
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.
53
<PAGE>
Position with Keyport Other Business, Vocation or
Name, Age Year of Election Employment for Past 5 Years
- --------- --------------------- ---------------------------
Stephen B. Bonner, 50 Senior Vice President, The McGraw Hill
President, Income Companies, 12/92-3/96; Vice
Markets, 9/96 President, The Prudential
Insurance Co. of America,
9/88-12/92
Paul H. LeFevre, Jr., Senior Vice President Director and Senior Vice
53 and Chief Financial President and Chief Financial
Officer, 4/5/90 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
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
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>
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
John Rosensteel
President and
Chief Executive
Officer 1995 381,150 187,000 0 15,000 31,535
Paul LeFevre Jr.
Sr. Vice
President, Chief
Financial Officer 1995 262,000 112,000 736,250 7,500 19,860
Francis E. Reinhart
Sr. Vice President,
Chief Administrative
Officer 1995 223,000 87,000 296,460 6,000 16,105
John Arant
Sr. Vice President,
Chief Sales
Officer 1995 232,000 90,500 0 7,500 16,827
Stewart Morrison
Vice President,
Chief Investment
Officer 1995 174,000 54,000 0 4,000 10,293
</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
55
<PAGE>
The consolidated financial statements of Keyport Life Insurance Company 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 upon
the report of KPMG Peat Marwick LLP, independent certified public
accountants, and upon authority of said firm as experts in accounting and
auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1995 financial
statements refers to a change in accounting to adopt the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," effective January 1, 1994.
LEGAL MATTERS
Legal matters with respect to the organization of Keyport, its authority to
issue annuity Certificates, and the validity of the 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.
FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements include all
adjustments, consisting of normal recurring accruals, that Keyport's
management considers necessary for a fair presentation of Keyport's financial
position and results of operations as of and for the interim periods
presented. Keyport believes the disclosures in these consolidated financial
statements are adequate to present fairly the information contained herein.
The results of operations for the nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
56
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
(in thousands)
Unaudited
September 30, December 31,
1996 1995
------------ ------------
ASSETS
Cash and investments:
Fixed maturities available for sale,
at fair value (amortized cost:
1996 - $10,602,664; 1995 - $9,227,834) $10,710,754 $ 9,535,948
Equity securities, at fair value (cost:
1996 - $19,092; 1995 - $17,521) 36,112 25,214
Mortgage loans 68,477 74,505
Policy loans 521,276 498,326
Other invested assets 106,898 10,748
Cash and cash equivalents 995,502 777,384
----------- -----------
Total cash and investments 12,439,019 10,922,125
Accrued investment income 157,573 132,856
Deferred policy acquisition costs 295,514 179,672
Value of insurance in force 90,656 43,939
Intangible assets 19,468 20,314
Federal income taxes recoverable 14,201 9,205
Other assets 25,603 11,859
Separate account assets 1,033,218 959,224
----------- -----------
Total assets $14,075,252 $12,279,194
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy liabilities $11,559,719 $10,084,392
Current federal income taxes 5,566 7,666
Deferred federal income taxes 28,374 32,823
Payable for investments purchased and loaned 540,207 317,715
Other liabilities 42,883 45,161
Separate account liabilities 974,978 889,106
----------- -----------
Total liabilities 13,151,727 11,376,863
Stockholder's equity:
Common stock, $1.25 par value; authorized 8,000
shares; issued and outstanding 2,412 shares 3,015 3,015
Additional paid-in capital 505,933 505,933
Net unrealized investment gains 45,046 85,772
Retained earnings 369,531 307,611
----------- -----------
Total stockholder's equity 923,525 902,331
----------- -----------
Total liabilities and
stockholder's equity $14,075,252 $12,279,194
----------- -----------
----------- -----------
57
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
(in thousands)
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------- --------- --------- ---------
Investment income $ 206,197 $ 189,906 $ 589,096 $ 563,226
Interest credited to
policyholders (152,015) (143,572) (433,122) (413,758)
--------- --------- --------- ---------
Investment spread 54,182 46,334 155,974 149,468
--------- --------- --------- ---------
Net realized investment gains
(losses) 755 1,430 319 (4,942)
--------- --------- --------- ---------
Fee income:
Management fees 610 544 1,843 1,352
Surrender charges 3,423 3,356 10,929 11,353
Separate account fees 4,982 3,317 12,018 9,738
--------- --------- --------- ---------
Total fee income 9,015 7,217 24,790 22,443
--------- --------- --------- ---------
Expenses:
Policy benefits (741) (1,123) (2,728) (2,919)
Operating expenses (10,480) (10,023) (32,529) (33,841)
Amortization of deferred
policy acquisition costs (15,467) (12,025) (44,440) (38,186)
Amortization of value of
insurance in force (2,407) (3,133) (5,975) (9,986)
Amortization of intangible
assets (282) (282) (846) (848)
--------- --------- --------- ---------
Total expenses (29,377) (26,586) (86,518) (85,780)
--------- --------- --------- ---------
Income before federal income taxes 34,575 28,395 94,565 81,189
Federal income tax expense (12,286) (10,144) (32,645) (28,897)
--------- --------- --------- ---------
Net income $ 22,289 $ 18,251 $ 61,920 $ 52,292
--------- --------- --------- ---------
--------- --------- --------- ---------
58
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Unaudited
Nine Months Ended
September 30
1996 1995
---------- ----------
Cash flows from operating activities:
Net income $ 61,920 $ 52,292
Adjustments to reconcile net income to net cash
provided by operating activities:
Interest credited to policyholders 433,122 413,758
Net realized investment (gains) losses (319) 4,942
Amortization of value of insurance in force
and intangible assets 6,821 10,834
Net amortization on investments 2,769 6,651
Change in deferred policy acquisition costs (16,427) (29,359)
Change in current and deferred
federal income taxes 15,385 (4,737)
Net change in other assets and liabilities (45,476) (61,648)
---------- ----------
Net cash provided by operating
activities 457,795 392,733
---------- ----------
Cash flow from investing activities:
Investments purchased - held to maturity - (227,966)
Investments purchased - available for sale (3,116,451) (1,808,248)
Investments sold - held to maturity - 14,930
Investments sold - available for sale 760,455 340,978
Investments matured - held to maturity - 205,673
Investments matured - available for sale 927,439 672,353
Increase in policy loans (22,950) (14,334)
Decrease in mortgage loans 6,028 14,036
Acquisition of value of insurance in force (31,335) -
---------- ----------
Net cash used in investing activities (1,476,814) (802,578)
---------- ----------
Cash flows from financing activities:
Withdrawals from policyholder accounts (807,478) (680,636)
Deposits to policyholder accounts 1,849,683 935,045
Securities lending 194,932 544,010
Net cash provided by financing activities 1,237,137 798,419
Change in cash and cash equivalents 218,118 388,574
Cash and cash equivalents at beginning of period 777,384 684,618
---------- ----------
Cash and cash equivalents at end of period $ 995,502 $ 1,073,192
---------- ----------
---------- ----------
59
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Unaudited
Net
Unrealized
Additional Investment
Common Paid-In Gains Retained
Stock Capital (Losses) Earnings Total
------ ---------- ---------- -------- -------
Balance,
December 31, 1995 $3,015 $505,933 $85,772 $307,611 902,331
------ ---------- ---------- -------- -------
Net income 61,920 61,920
Change in net unrealized
investment gains (losses) (40,726) (40,726)
------ ---------- ---------- -------- -------
Balance,
September 30, 1996 $3,015 $505,933 45,046 369,531 923,525
------ ---------- ---------- -------- -------
------ ---------- ---------- -------- -------
60
<PAGE>
Independent Auditors' Report
The Board of Directors
Keyport Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Keyport Life
Insurance Company and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Keyport Life
Insurance Company and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in note 2(b) to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, effective January 1, 1994.
February 16, 1996 /s/KPMG Peat Marwick LLP
------------------------
61
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
Assets December 31,
------ 1995 1994
---- ----
<S> <C> <C>
Cash and investments:
Fixed maturities available for sale (amortized
cost: 1995 - $9,227,834; 1994 - $6,795,065) $ 9,535,948 $ 6,509,815
Fixed maturities held to maturity (fair value:
1995 - 0; 1994 - $1,442,665) - 1,448,680
Equity securities (cost: 1995-$17,521; 1994-$13,627) 25,214 12,941
Mortgage loans 74,505 129,452
Policy loans 498,326 477,293
Other invested assets 10,748 11,994
Cash and cash equivalents 777,384 684,618
Total cash and investments 10,922,125 9,274,793
Accrued investment income 132,856 111,936
Deferred policy acquisition costs 179,672 439,232
Value of insurance in force 43,939 139,221
Deferred federal income taxes - 42,361
Intangible assets 20,314 21,444
Federal income taxes recoverable 9,205 4,911
Other assets 11,859 10,772
Separate account assets 959,224 828,934
Total assets $12,279,194 $10,873,604
Liabilities and Stockholder's Equity
Policy liabilities:
Policyholder account balances $10,073,806 $ 9,333,755
Other policyholders' funds 10,586 10,289
Total policy liabilities 10,084,392 9,344,044
Current federal income taxes 7,666 -
Deferred federal income taxes 32,823 -
Payable for investments purchased and loaned 317,715 -
Guaranty association fees 21,940 24,688
Other liabilities 23,221 57,978
Separate account liabilities 889,106 764,409
Total liabilities 11,376,863 10,191,119
Stockholder's equity:
Common stock, $1.25 par value; authorized 8,000
shares; issued and outstanding 2,412 shares 3,015 3,015
Additional paid-in capital 505,933 505,933
Net unrealized investment gains (losses) 85,772 (64,464)
Retained earnings 307,611 238,001
Total stockholder's equity 902,331 682,485
Total liabilities and stockholder's equity $12,279,194 $10,873,604
</TABLE>
See accompanying notes to consolidated financial statements.
62
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Income Statements
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net investment income $757,361 $689,575 $669,667
Insurance revenues 29,767 25,273 18,158
Net realized investment gains (losses) (3,958) (8,220) 11,403
Total revenues 783,170 706,628 699,228
Benefits and expenses:
Interest credited to policyholders 557,156 481,926 504,205
Policy benefits 4,448 4,838 3,113
Operating expenses 42,475 47,095 36,983
Guaranty association expenses 2,000 7,200 3,714
Amortization of deferred policy acquisition costs 58,541 52,174 41,003
Amortization of value of insurance in force 9,479 16,989 22,375
Amortization of intangible assets 1,130 1,130 1,130
Total benefits and expenses 675,229 611,352 612,523
Income before federal income taxes 107,941 95,276 86,705
Federal income tax expense 38,331 32,051 28,710
Net income $ 69,610 $ 63,225 $ 57,995
</TABLE>
See accompanying notes to consolidated financial statements.
63
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Statements of Stockholder's Equity
(in thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Additional Investment
Common Paid-In Gains Retained
Stock Capital (Losses) Earnings Total
----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $1,508 $430,933 $ 5,687 $118,288 $556,416
Net income 57,995 57,995
Capital contribution by parent 75,000 75,000
Change in net unrealized
investment gains (losses) (5,141) (5,141)
Balance, December 31, 1993 1,508 505,933 546 176,283 684,270
Net income 63,225 63,225
Common stock dividend 1,507 (1,507) -
(1,206 shares)
Change in net unrealized
investment gains (losses) (65,010) (65,010)
Balance, December 31, 1994 3,015 505,933 (64,464) 238,001 682,485
Net income 69,610 69,610
Change in net unrealized
investment gains (losses) 150,236 150,236
Balance, December 31, 1995 $3,015 $ 505,933 $ 85,772 $307,611 $902,331
</TABLE>
See accompanying notes to consolidated financial statements.
64
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 69,610 $ 63,225 $ 57,995
Adjustments to reconcile net income to net cash
provided by operating activities:
Interest credited to policyholders 557,156 478,797 501,073
Net realized investment losses (gains) 3,958 8,220 (11,403)
Amortization of value of insurance in force
and intangible assets 10,609 18,120 23,505
Net amortization (accretion) on investments 9,688 12,215 (3,132)
Change in deferred policy acquisition costs (24,630) (38,852) (50,531)
Change in current and deferred federal
income taxes 1,953 7,731 10,988
Change in guaranty association fees (2,748) 140 (3,669)
Net change in other assets and liabilities (61,058) (13,729) (102)
Total adjustments 494,928 472,642 466,729
Net cash provided by operating
activities 564,538 535,867 524,724
Cash flows from investing activities:
Investments purchased - held to maturity - (277,626) (2,674,315)
Investments purchased - available for sale (2,851,013) (2,624,493) -
Investments sold - held to maturity 14,930 10,637 97,816
Investments sold - available for sale 605,197 950,885 387,305
Investments matured - held to maturity 317,773 576,021 1,195,083
Investments matured - available for sale 906,522 854,441 758,279
Increase in policy loans (21,033) (35,143) (38,661)
Decrease in mortgage loans 54,947 26,520 3,416
Acquisition of subsidiary, net of cash acquired - (961) (24,831)
Net cash used in investing activities (972,677) (519,719) (295,908)
Cash flows from financing activities:
Withdrawals from policyholder accounts (933,785) (1,034,464) (1,295,617)
Deposits to policyholder accounts 1,116,975 1,202,076 856,339
Capital contribution by parent - - 75,000
Securities lending 317,715 - -
Net cash provided by (used in)
financing activities 500,905 167,612 (364,278)
Change in cash and cash equivalents 92,766 183,760 (135,462)
Cash and cash equivalents at beginning of year 684,618 500,858 636,320
Cash and cash equivalents at end of year $ 777,384 $ 684,618 $ 500,858
</TABLE>
See accompanying notes to consolidated financial statements.
65
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(in thousands)
(1) Organization
Keyport Life Insurance Company offers a diversified line of fixed and
variable annuity products designed to serve the growing retirement savings
market. These annuity products primarily consist of single premium deferred
and variable annuities that are sold through a wide ranging network of banks,
agents, and securities dealers.
The consolidated financial statements include Keyport Life Insurance Company
and its wholly owned subsidiaries, Independence Life and Annuity Company
("Independence Life"), Keyport Advisory Services Corporation, and Keyport
Financial Services Corporation (collectively, the "Company"). The Company is
a wholly owned subsidiary of Stein Roe Services Incorporated ("Stein Roe").
Stein Roe is a wholly owned subsidiary of Liberty Financial Companies,
Incorporated ("Liberty Financial") which is a majority-owned indirect subsidiary
of Liberty Mutual Insurance Company ("Liberty Mutual").
(2) Summary of Significant Accounting Policies
(a) Basis of Reporting and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) which vary in
certain respects from reporting practices prescribed or permitted by state
insurance regulatory authorities. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could subsequently differ from
such estimates. All significant intercompany transactions and balances have
been eliminated.
(b) Investments
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 , "Accounting for Certain Investments in Debt
and Equity Securities" ("SFAS 115"). SFAS 115 segregates fixed maturity
investments into three classifications: "held to maturity", "trading" and
"available for sale." Securities may be designated as held to maturity only
if there is the positive intent and ability to hold these securities to
maturity. Held to maturity securities are carried at amortized cost. Securities
purchased for short-term resale are classified as trading and are carried at
fair value. Unrealized gains and losses on trading account securities are
recognized in income. Fixed maturity investments are classified as available for
sale if they might be sold in response to changes in market interest rates,
changes in the security's prepayment risk, general liquidity needs, or other
factors. Available for sale securities are carried at fair value and unrealized
gains and losses (net of related adjustments to deferred policy acquisition
costs, value of insurance in force and deferred income taxes) are recorded
directly to stockholder's equity. Equity
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securities are classified as available for sale and are carried at fair value.
Unrealized gains and losses on equity securities are credited or charged
directly to stockholder's equity net of applicable deferred income taxes.
Accordingly, as of January 1, 1994, the Company reclassified certain fixed
maturity investments from the held to maturity to the available for sale
category to conform to the classification criteria prescribed in SFAS 115.
This had the effect of recording a net unrealized gain of $41,614 directly
to stockholder's equity.
As of December 31, 1995, pursuant to a Guide to Implementation of SFAS 115
issued by the Financial Accounting Standards Board in November 1995, the
Company made a one-time reclassification from fixed maturities held to
maturity to fixed maturities available for sale. This had the effect of
recording a net unrealized gain of $13,867 directly to stockholder's equity.
The Company enters into dollar roll transactions to enhance the yield of its
mortgage backed portfolio. Dollar roll transactions represent a one month
reverse repurchase agreement involving mortgage backed securities, frequently
those issued by a U.S. Government Agency. Dollar roll transactions under
which substantially the same securities are received at the end of the
repurchase period are accounted for as financing arrangements. Accordingly,
both the collateral and repurchase liability are reflected on the balance sheet
and the transaction fee is recorded over the period of the agreement. As of
December 31, 1995, the Company was engaged in one dollar roll agreement
classified as a financing arrangement involving a FNMA mortgage backed security
with market value of $87,198. The Company did not enter into dollar roll
agreements during 1994.
The Company from time to time engages in securities lending under which it
lends certain U.S. Government and corporate bonds to approved counterparties
to enhance the yield of its bond portfolio. The carrying values of the loaned
securities are unaffected by the transaction, and the lending fee is recorded
during the period the securities are loaned. The Company records the
collateral received for the security lending transaction as an asset and its
obligation to return the collateral at the end of the transaction as a
liability. As of December 31, 1995, the Company had recorded an asset, and a
corresponding liability of $230,517 for cash pledged as collateral. The
Company did not enter into any securities lending transactions in 1994.
Fixed maturities and mortgage loans with premiums and discounts are amortized
using the interest method. Unamortized premiums and discounts on mortgage
backed securities are amortized using the interest method over the estimated
remaining term of the securities, adjusted for anticipated prepayments.
Policy loans are carried at the unpaid principal balance plus accrued
interest. Cash and cash equivalents are carried at cost, which approximates
market.
Realized investment gains and losses are calculated on a first-in, first-out
basis. For each investment security where a decline in value is determined to
be other than temporary, the Company's policy is to write down the investment
security to fair value with the charge to realized investment losses. Sales
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of securities supporting the Company's single premium deferred annuities and
single premium whole life products result in adjustments to the amortization
of the deferred policy acquisition costs and the value of insurance in force.
The increase or decrease in amortization relating to such adjustments is
included in realized investment gains and losses to reflect the acceleration or
delay in the incidence of the estimated gross profits.
(c) Derivative Financial Instruments
Effective December 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" ("SFAS 119"). SFAS 119
requires specific disclosures about derivative financial instruments such as
forward, swap and option contracts and requires distinguishing between
financial instruments held or issued for trading purposes and financial
instruments held or issued for purposes other than trading.
As part of the Company's overall risk management policy, the Company uses
interest rate swaps and interest rate caps. Interest rate swaps are used to
reduce the risk in a rising interest rate environment by providing additional
investment income to cover higher competitive credited rates to policy-
holders to reduce the invested asset duration, and to better match the
interest rates earned on invested assets with those interest rates credited
to policyholders. Interest rate swaps are considered synthetic alterations
since the objective of the swaps is to change the characteristics of the
underlying invested assets to reduce the impact of rising interest rates. Since
interest rate swaps are designated as synthetic alterations of securities
available for sale, interest rate swaps are carried at fair value for those
securities, and the unrealized gain or loss is included in stockholder's equity.
The net differential to be paid or received on interest rate swaps is
recorded monthly in investment income as interest rates change. From time to
time, swap positions may be terminated. If the terminated swap was accounted
for as a hedge, realized gains or losses are amortized over the remaining
life of the swap. Conversely, if the terminated swap was not accounted for as
a hedge, or the assets and liabilities that were altered no longer exist, the
swap position is marked to market, and realized gains or losses are immediately
recognized in income. The Company is exposed to potential credit loss in the
event of nonperformance by the counterparty to the interest rate swap agreements
with respect to only the net differential payments.
Interest rate caps are used to minimize exposure to rising interest rates.
The Company receives payments when the indexed rate exceeds the stated strike
rate. The cost of interest rate caps is amortized on a straight-line basis
over the period to maturity. Since interest rate caps are designed as
synthetic alterations of securities available for sale, interest rate caps
are carried at fair value and the unrealized gain or loss is included in
stockholder's equity.
The Company also utilizes derivative financial instruments to replicate
positions in a trading portfolio of pass-through mortgage backed securities.
As a result, these derivative financial instruments are classified as trading
instruments and are recorded at fair value. Realized and unrealized changes
in fair value are recognized in realized investment gains and losses.
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Interest income arising from these trading instruments is included in net
investment income.
(d) Recognition of Insurance Revenues and Policy Benefits
Revenues from single premium whole life policies and single premium deferred
annuities include mortality charges, surrender charges, policy fees and
contract fees and are recognized when assessed. Policyholder account balances
consist of deposits received plus credited interest, less accumulated policy-
holder charges, assessments, and withdrawals. Policy benefits that are
charged to expenses include benefit claims incurred in the period in excess
of related policy account balances. Interest crediting rates ranged from 3.60%
to 8.35%, 3.75% to 8.50%, and 3.75% to 8.90% at December 31, 1995, 1994, and
1993, respectively.
(e) Deferred Policy Acquisition Costs and Value of Insurance in Force
Policy acquisition costs are the costs of acquiring new business which vary
with, and are primarily related to, the production of new business. These
costs are deferred to the extent they are deemed recoverable from future
gross profits. Such costs include commissions, costs of policy issuance and
underwriting, and variable agency expenses. Costs deferred are amortized in
relation to the present value of estimated gross profits from mortality,
investment and expense margins. Amortization of such cost is adjusted to
reflect the effect of differences between original assumptions and actual
experience.
Value of insurance in force represents the actuarially-determined present
value of projected future profits from policies in force at the date of their
acquisition. This amount is amortized in proportion to the projected
emergence of profits over periods not exceeding fifteen years for annuities
and twenty-five years for life insurance.
Deferred policy acquisition costs and value of insurance in force are
adjusted to reflect the amounts associated with realized and unrealized
investment gains and losses pertaining to single premium deferred annuities
and single premium whole life products.
(f) Intangible Assets
Intangible assets consist primarily of goodwill. Goodwill is the excess of
the purchase price over the fair value of the net assets acquired by Liberty
Mutual and is amortized on a straight-line basis over twenty-five years.
(g) Separate Account
Separate account assets, which are carried at fair value, consist principally
of investments in mutual funds and are included as a separate caption in the
consolidated balance sheets. Investment income and changes in asset values
are fully allocated to variable annuity and variable life policyholders and,
therefore, do not affect the operating results of the Company. The Company
provides administrative services and bears the mortality risk related to
these contracts. Fees earned by the Company related to these contracts were
$14,646, $13,694 and $8,489, for the years ended December 31, 1995, 1994 and
1993, respectively. As of December 31, 1995 and 1994, the Company also
classified $72,533 and $64,962, respectively, of its investments in certain
mutual funds sponsored by the Company and its affiliates as separate account
assets.
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(h) Federal Income Taxes
Beginning in 1994, the Company is included in Liberty Mutual's consolidated
tax return. The Company calculates its consolidated income tax liability as
if it filed its own consolidated federal income tax return.
(i) Cash and Cash Equivalents
Cash and cash equivalents include short-term investments which have an
original maturity of three months or less from the time of purchase.
(j) Reclassifications
Certain reclassifications have been made to the prior year consolidated
financial statement amounts to conform to the current year presentation.
(3) Acquisition
On October 1, 1993, the Company acquired the common stock of Crown America
Life Insurance Company (Crown America), a Michigan insurance company, for
$27,877. The acquisition was accounted for as a purchase and, accordingly,
operating results are included in the accompanying consolidated financial
statements from date of acquisition. In connection with the acquisition, the
Company acquired assets with a fair value of $185,735 and assumed liabilities
of $157,858.
On February 22, 1994, the acquisition was completed with the contingent
purchase price payment of $1,479, which increased the value of insurance in
force.
On December 29, 1993, Crown America was redomesticated to the state of Rhode
Island and, on January 10, 1994, the name was changed to Keyport America Life
Insurance Company. On July 19, 1995, the name was changed to Independence
Life and Annuity Company.
(4) Investments
(a) Fixed Maturities
Fair values of publicly-traded securities are determined using values
reported by an independent pricing service. Fair values of conventional
mortgage backed securities not actively traded in a liquid market are
obtained through broker-dealer quotations. Fair values of private placement
bonds are determined by obtaining market indications from various
broker-dealers. The amortized cost and fair values of investments in fixed
maturities at December 31, 1995 and 1994 were as follows:
December 31,1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. Treasury securities $ 360,157 $ 9,020 $ (209) $ 368,968
Mortgage backed securities of
U.S. government
corporations and agencies 1,585,538 58,795 (5,250) 1,639,083
Obligations of states and
political subdivisions 26,688 1,324 - 28,012
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Debt securities issued by
foreign governments 57,446 4,258 - 61,704
Corporate securities 3,479,584 224,332 (7,309) 3,696,607
Other mortgage backed securities 1,951,480 66,530 (71,754) 1,946,256
Asset backed securities 1,543,891 29,823 (1,446) 1,572,268
Senior secured loans 223,050 - - 223,050
Total fixed maturities
available for sale $9,227,834 $394,082 $(85,968) $9,535,948
December 31, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Mortgaged backed securities of
U.S. Government
corporations and agencies $ 206,569 $ 8,683 $ (18) $ 215,234
Obligations of states and
political subdivisions 21,452 277 (28) 21,701
Corporate Securities 843,669 14,564 (17,005) 841,228
Other mortgage backed securities 79,164 44 (3,385) 75,823
Asset backed securities 297,826 88 (9,235) 288,679
Total fixed maturities
held to maturity $1,448,680 $23,656 $ (29,671) $1,442,665
Available for sale:
U.S. Treasury securities $ 271,700 $ 2 $ (8,390) $ 263,312
Mortgaged backed securities of
U.S. Government
corporations and agencies 1,238,925 1,244 (76,651) 1,163,518
Obligations of states and
political subdivisions 37,718 433 - 38,151
Debt securities issued by
foreign governments 82,608 1,049 (4,079) 79,578
Corporate securities 2,607,712 17,951 (116,077) 2,509,586
Other mortgage backed securities 1,186,515 14,577 (70,250) 1,130,842
Asset backed securities 1,123,803 654 (45,713) 1,078,744
Senior secured loans 246,084 - - 246,084
Total fixed maturities
available for sale $6,795,065 $35,910 $(321,160) $6,509,815
At December 31, 1995 and 1994, bonds with an amortized cost of $7,710 and
$7,657, respectively, were on deposit with regulatory authorities.
(b) Contractual Maturities
The amortized cost and fair value of fixed maturities for the various
categories at December 31, 1995, by contractual maturity, are set forth
below. Expected maturities may differ from contractual maturities as
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borrowers have the right to call or prepay certain obligations with or
without call or prepayment penalties.
December 31, 1995
Amortized Fair
Cost Value
Available for sale:
Due in one year or less $ 254,299 $ 256,055
Due after one year through five years 1,503,507 1,564,132
Due after five years through ten years 1,838,679 1,953,542
Due after ten years 550,440 604,612
4,146,925 4,378,341
Mortgage and asset
backed securities 5,080,909 5,157,607
Total fixed maturities
available for sale $9,227,834 $9,535,948
(c) Net Unrealized Investment Gains (Losses)
Net unrealized investment gains (losses) as of December 31, 1995 and 1994
were as follows:
December 31
1995 1994
Fixed maturities available for sale:
Gross unrealized gains $ 394,082 $ 35,910
Gross unrealized losses (85,968) (321,160)
308,114 (285,250)
Adjustments for:
Deferred acquisition costs (151,351) 135,059
Value of insurance in force (32,459) 53,344
Total fixed maturities 124,304 (96,847)
Equity securities and investments in separate account:
Gross unrealized gains 16,927 1,932
Gross unrealized losses (1,980) (4,261)
Total equity securities 14,947 (2,329)
Interest rate caps (7,294) -
131,957 (99,176)
Deferred federal income taxes (46,185) 34,712
Net unrealized investment gains (losses) $ 85,772 $ (64,464)
(d) Net Investment Income
Net investment income is summarized as follows:
Year Ended December 31,
1995 1994 1993
Fixed maturities $683,429 $635,947 $619,847
Equity securities 4,807 2,132 2,368
Mortgage loans 12,444 15,416 17,252
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Policy loans 28,485 26,295 22,766
Cash and cash equivalents 41,643 20,727 18,551
Gross investment income 770,808 700,517 680,784
Investment expenses (13,447) (10,942) (11,117)
Net investment income $757,361 $689,575 $669,667
As of December 31, 1994, the carrying value of fixed maturity investments
that were non-income producing for the preceding twelve months was $4,967.
There were no non-income producing fixed maturity investments as of December
31, 1995.
(e) Net Realized Investment Gains (Losses)
Net realized investment gains (losses) are summarized as follows:
Year Ended December 31,
1995 1994 1993
Fixed maturities - held to maturity
Gross gains $ 1,306 $ 3,493 $ 31,594
Gross losses (64) (755) (3,070)
Other than temporary declines - (7,904) -
Provisions for possible investment losses - - (16,609)
Fixed maturities - available for sale
Gross gains 8,156 26,043 7,097
Gross losses (15,982) (26,831) (6,311)
Other than temporary declines - (3,610) -
Provisions for possible investment losses - - 7,487
Equity securities 1,279 (845) 11,228
Interest rate swaps (860) (28) (16,193)
Interest rate caps - - (6,082)
Other (13) (809) 1,412
Gross realized investment gains (losses) (6,178) (11,246) 10,553
Amortization adjustments:
Deferred policy acquisition costs 2,220 2,675 785
Value of insurance in force - 351 65
Net realized gains (losses) $ (3,958) $ (8,220) $11,403
Proceeds from sales of fixed maturities were as follows:
Year Ended December 31,
1995 1994 1993
Fixed maturities - available for sale $565,366 $927,779 $313,568
Fixed maturities - held to maturity 14,930 10,637 97,816
Total proceeds $580,296 $938,416 $411,384
The sale of fixed maturities held to maturity during 1995 and 1994 relate to
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certain securities, with an amortized cost of $14,994 and $10,630, respectively,
which were sold specifically due to a significant deterioration in the issuer's
creditworthiness.
(f) Concentration of Investments
Investments in a single entity (all of which are fully collateralized and
guaranteed by an agency or agencies of the U.S. Government) in excess of ten
percent of total stockholder's equity as of December 31, 1995 and 1994 were
as follows:
Carrying Value at
December 31,
1995 1994
Mortgage backed securities
FNMA Pool #303075 $134,884 $125,212
Morgan Stanley CMO (33-5) 108,051 101,832
FNMA Pool #303074 105,832 98,470
Investments in fixed maturities are diversified among more than one hundred
industries. Significant concentrations of credit risk are classified as
follows:
Carrying Value at
December 31,
1995 1994
Financial services $547,872 $539,537
Telecommunications 324,029 276,559
Banks 323,579 247,514
Electrical services 271,822 437,339
Oil and gas 261,161 274,026
Paper products 205,889 146,472
Retail 197,064 247,874
Transportation equipment 168,588 146,593
Credit institutions - 173,565
Food and beverage - 151,758
(g) Quality Ratings
The carrying values of publicly traded and privately placed fixed maturities
at December 31, 1995 represented by each quality ratings category were as
follows:
Carrying Value at December 31, 1995
Publicly Privately
Traded Placed Total
Investment grade:
U.S. government $ 368,969 - $ 368,969
Class 1 4,996,275 $1,480,089 6,476,364
Class 2 982,096 896,673 1,878,769
Total Investment grade 6,347,340 2,376,762 8,724,102
Below investment grade:
Class 3 317,131 147,517 464,648
Class 4 201,718 123,032 324,750
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Class 5 - 22,448 22,448
Total below investment grade 518,849 292,997 811,846
Total fixed maturities $6,866,189 $2,669,759 $9,535,948
The Company held no securities rated Class 6 at December 31, 1995.
Securities that are rated class 1 or 2 by the Securities Valuation Office of
the National Association of Insurance Commissioners (NAIC), or, if not so rated,
securities that are rated "BBB-" or above by S&P, or "Baa3" or above by Moody's
(using the lower of the S&P or Moody's rating) are considered "investment grade"
securities. Securities included in the U.S. government category in the preceding
table are those as defined by the NAIC.
The distribution of fixed maturities quality ratings were as follows:
December 31,
1995 1994
Class 1 (including U.S. government) 71.8% 72.3%
Class 2 19.7% 19.9%
Class 3 4.9% 5.6%
Class 4 3.4% 2.0%
Class 5 0.2% 0.2%
(h) Derivative Financial Instruments
The Company's primary objective in acquiring certain derivative financial
instruments is the management of interest rate risk. Interest rate risk results
from a mismatch in the timing and amount of invested asset and policyholder
liability cash flows. The Company seeks to manage this risk through various
asset/liability management strategies such as the setting of renewal rates and
by investment portfolio actions designed to address the interest rate
sensitivity of asset cash flows in relation to liability cash flows. Portfolio
actions used to manage interest rate risk include managing the effective
duration of portfolio securities and utilizing interest rate swaps and caps.
Interest rate swaps
The Company uses a combination of three distinct classes of interest rate swaps
to reduce interest rate risk. The following table summarizes the categories of
swaps used, their notional amounts, their weighted average interest rates as of
the reporting period date, and their effects on the consolidated balance sheets
and statements of income. The majority of swaps mature beginning in 1999
through 2001. The fair values of the interest rate swaps are primarily obtained
from dealer quotes. These values represent the estimated amounts the Company
would receive or pay to terminate the contracts, taking into account current
interest rates and, when appropriate, the current creditworthiness of the
counterparties.
December 31,
1995 1994
Interest rate swaps:
(1) Pay fixed, receive variable rate - notional amount $1,975,000 $775,000
Average pay rate 6.79% 7.19%
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Average receive rate 5.88% 7.61%
Amount included in net investment income $ (2,751) $ (1,213)
Fair value $ (64,124) $ 27,587
Carrying value - unrealized gain (loss) included in
fixed maturities available for sale $ (64,124) $ 27,587
Deferred loss - included in fixed maturities
available for sale $ (3,662) -
(2) Pay variable, receive variable rate - notional amount - $300,000
Average pay rate - 5.85%
Average receive rate - 6.42%
Amount included in net investment income $ (1,251) $ 6,781
Fair value - $(14,550)
Carrying value - unrealized gain (loss) included in
fixed maturities available for sale - $(14,550)
Deferred loss - included in fixed maturities
available for sale $ (6,952) -
(3) Spread lock swap - notional amount - $150,000
Seven year swap spread - 0.34%
Amount included in net investment income $ 746 -
Fair value - $ 731
Carrying value - unrealized gain (loss) included in
fixed maturities available for sale - $ 731
1) The Company had thirty-six interest rate swap contracts with a notional
amount $1,975,000 and twenty contracts with a notional amount of $775,000 as of
December 31, 1995 and 1994, respectively, on which it pays a fixed rate of
interest and receives variable rates based on the two, five, and ten year
"constant maturity" treasury or swap rate. The variable rates are reset to
current market levels at six month intervals. The objective of holding this
class of derivatives is to reduce invested asset duration and better match the
interest rates earned on medium to long-term (greater than two year maturity)
fixed rate assets with the interest rates credited to policyholders. The Company
has medium to long-term invested assets of approximately $8,624,000 and
$5,600,000 in 1995 and 1994, respectively. For the majority of new and existing
single premium deferred annuities, credited rates are reset annually. In
addition, rates credited on annuity policies are closely correlated with longer
term interest rates, e.g., five or ten year market interest rates. This
derivative class allows the Company to swap the fixed interest rates received on
the medium to long-term fixed rate invested assets for a variable rate which is
better correlated with rates credited to policyholders. This reduces the
Company's risk in rising interest rate environments by providing investment
income to cover higher competitive credited rates.
2) In 1994, the Company had six interest rate swaps contracts with a notional
amount of $300,000 on which it paid a variable rate of interest based on the six
month LIBOR and received a variable rate based on the ten year swap rate minus
1.50%. The objective of holding this class of derivatives is to better match
the interest rates earned on short term and floating rate assets with the
interest credited to policyholders. The Company had approximately $850,000 of
invested assets where the Company received interest income based on interest
rates closely correlated with
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short-term LIBOR. This derivative class allowed the Company to swap variable
interest income received on short term and floating rate assets for a variable
rate which was better correlated with rates credited to policyholders.
During 1995, certain swaps were sold as part of the Company's overall tax
planning strategy. The Company unwound one pay fixed and six pay variable
interest rate swap contracts with a notional amount of $350,000. In 1992 the
Company unwound 3 contracts with a notional amount of $300,000. The resulting
loss of $10,691 in 1995 and the gain of $16,230 in 1992 were deferred and
amortized over the original remaining terms of the contracts, in accordance with
hedge accounting. The following table summarizes the deferred gain (loss)
amounts included in the consolidated balance sheet and the expected recognition
of income by year:
December 31,
1995 1994
Amounts expected to be includes in net
invested income:
Within one year $ (1,861) $ 4,720
Within one to five years (7,862) 891
Total $ (9,723) $ 5,611
During 1993, the Company unwound interest rate swap contracts with a notional
amount of $200,000. The swaps were unwound when the associated liabilities no
longer existed, resulting in a loss of $16,193, which was recognized
immediately.
3) In 1993, the Company entered into a $150,000 notional "spread lock" that
terminated in 1995. The Company received/(paid) the present value of the
seven year swap if corporate spreads widened/(compressed) above/(below) the
seven year swap spread of 26 basis points based on the 7.5% U.S. Treasury note
maturing November 15, 2001. As the result of the termination, the Company
recognized income of $746 during 1995. The objective of this derivative was to
reduce the exposure of the Company's fixed maturity investments to widening
corporate spreads. The value of the Company's corporate bond portfolio decreased
as corporate spreads widened. The Company's spread lock swap increased in value
as spreads widened and thus reduced the Company's risk.
Interest rate caps
The Company had seven interest rate caps with a $450,000 notional amount and
six interest rate caps with a $400,000 notional amount as of December 31, 1995
and 1994, respectively. These contracts are indexed to either the three month
LIBOR, or to the two or five year constant maturity swap (CMS) rates. Under
these contracts, the Company has paid a premium for the right to receive
payments when the index rises above a predetermined level, i.e., the strike
rate. The objective of holding these derivatives is to reduce the Company's
risk in rising interest rate environments by providing additional investment
income to cover higher competitive interest credited rates on policy
liabilities.
The following table summarizes the interest rate caps, their notional amounts,
their weighted average strike and index rates as of the reporting
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period date, and their effects on the consolidated balance sheets and income
statements. The majority of caps mature in 1997 and 1999. The fair values of the
interest rate caps are obtained from dealer quotes. These values represent the
estimated amounts the Company would receive or pay to terminate the contracts,
taking into account current interest rates and, when appropriate, the current
credit-worthiness of the counterparties.
December 31,
1995 1994
Interest rate caps:
Index: three month LIBOR - notional amount $ 200,000 $200,000
Weighted average strike rate 8.50% 8.50%
Weighted average current index 5.63% 6.44%
Amortization expense included in net investment income $ (648) $ (649)
Fair value $ 46 $ 2,698
Carrying value $ 1,254 $ 1,903
Unrealized gain (loss) included in fixed maturities AFS $ (1,208) $ 795
Index: two year CMS - notional amount $ 150,000 $100,000
Weighted average strike rate 7.60% 7.25%
Weighted average current index 5.28% 7.91%
Amortization expense included in net investment income $ (1,305) $ (144)
Fair Value $ 1,001 $ 4,930
Carrying value $ 5,269 $ 5,001
Unrealized gain (loss) included in fixed maturities AFS $ (4,268) $ (71)
Index: five year CMS - notional amount $ 100,000 $100,000
Weighted average strike rate 8.26% 7.93%
Weighted average current index 5.66% 7.83%
Amortization expense included in net investment income $ (564) $ (38)
Fair value $ 414 $ 2,806
Carrying value $ 2,232 $ 2,800
Unrealized gain (loss) included in fixed maturities AFS $ (1,818) $ 6
During 1993, the Company sold interest rate caps with notional amounts of
$300,000, resulting in realized losses of $4,082. In 1993, due to an other than
temporary decline in value, the Company reduced the carrying value of the
remaining interest rate caps by $2,000 resulting in a realized loss.
Trading Instruments
During 1995, a $50,000 notional current coupon mortgage swap matured. The
Company paid a total return of a seven year swap to receive the total return of
a current coupon, thirty year FNMA pass-through mortgage backed security plus
.40%. The swap reset to market levels at two month intervals. The objective of
the strategy was to replicate a position in FNMA pass-throughs with an enhanced
return.
The following table summarizes the current coupon mortgage swap and the effects
on the consolidated balance sheets and income statements. The swap matured in
1995. The fair value represents the estimated amount the Company had paid to
terminate the contracts in 1994, taking into account current interest rates and,
when appropriate, the current creditworthiness of the counterparties.
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December 31,
1995 1994
Current coupon mortgage swap:
Notional amount - $ 50,000
Pay rate at reporting date - 8.05%
Receive rate at reporting date - 8.90%
Amount included in net investment income - $ 455
Amount included in net realized investment gains (losses) $ (860) $ (28)
Fair value - $ 153
(5) Fair Value of Financial Instruments
Estimated fair values of the Company's investments in fixed maturities, equity
securities and derivative financial instruments are set forth in Note 4.
Estimated fair values, methods and assumptions of the Company's other financial
instruments are set forth below.
(a) Mortgage loans
For purposes of estimating fair value, mortgage loans are segregated into
commercial real estate loans and residential mortgages. The fair value of
commercial real estate loans is calculated by discounting scheduled cash flows
through the stated maturity using estimated market rates. The estimated market
rate is based on the five year prime mortgage rate. The fair value of
residential mortgages is estimated by discounting contractual cash flows
adjusted for expected prepayments using an estimated discount rate. The discount
rate is an estimated market rate adjusted to reflect differences in servicing
costs, and the expected prepayments are estimated based upon Company experience.
Mortgage loans are summarized as follows:
December 31, 1995
Average Estimated Estimated
Carrying Historical Discount Fair
Value Yield Rate Value
Commercial real estate loans $ 39,500 9.4% 7.5% $ 40,351
Residential mortgages 35,005 13.6% 7.5% 39,346
December 31, 1994
Average Estimated Estimated
Carrying Historical Discount Fair
Value Yield Rate Value
Commercial real estate loans $ 87,000 9.4% 8.3% $ 89,795
Residential mortgages 42,452 13.7% 8.3% 49,003
The weighted average maturities (which may be different from the stated
maturities) for the cash flows used in deriving the estimated fair values for
commercial real estate loans and residential mortgages are 0.3 years and 2.3
years, respectively, at December 31, 1995, and 1.3 years and 2.7 years,
respectively, at December 31, 1994.
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(b) Policy Loans
The carrying value of policy loans approximates fair value at December 31, 1995
and 1994.
(c) Policy Liabilities
The fair value of deposit liabilities with no stated maturity is equal to the
amount payable on demand. The Company considers its policy liabilities to be
similar to deposit liabilities.
The carrying value and estimated fair value of the policy liabilities at
December 31, 1995 were $10,084,392 and $9,650,113, respectively. The carrying
value and estimated fair value of the policy liabilities at December 31, 1994
were $9,344,044 and $8,961,971, respectively.
(6) Employee Benefit Plans
Keyport employees and certain employees of Liberty Financial are eligible to
participate in the Liberty Financial Companies, Inc. Pension Plan (the "Plan").
Under the Plan, all employees are vested after five years of service. Benefits
are based on years of service, the employee's average pay for the highest five
consecutive years during the last ten years of employment, and the employee's
estimated social security retirement benefit. The Company's funding policy is to
contribute the minimum required employer contribution under the Employee
Retirement Income Security Act of 1974. The Company may, from time to time,
increase its employer contributions beyond the minimum amount, but within IRS
guidelines.
Changes in prior service costs are amortized over the expected future service
periods of active participants expected to receive benefits under the Plan as of
the date such costs are first recognized. Cumulative net actuarial gains and
losses in excess of a corridor amount are amortized over the expected future
service periods of active participants expected to receive benefits under the
Plan.
The following table sets forth the Plan's funded status and amounts recognized
in the Company's consolidated balance sheets. Substantially all of the Plans'
assets are invested in mutual funds sponsored by an affiliated company.
December 31,
1995 1994
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $6,082 and $4,197 $ 6,915 $ 5,025
Projected benefit obligation for service to date $ 9,185 $ 6,523
Plan assets at fair value (5,703) (4,459)
Projected benefit obligation in excess of Plan assets 3,482 2,064
Unrecognized net actuarial loss (1,740) (227)
Prior service cost not yet recognized in net periodic
pension cost (206) (660)
Accrued pension cost $ 1,536 $ 1,177
Year Ended December 31,
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1995 1994 1993
Pension cost includes the following components:
Service cost benefits earned during the period $ 541 $ 532 $ 392
Interest cost on projected benefit obligation 603 534 423
Actual return on Plan assets (999) 63 (185)
Net amortization and deferred amounts 600 (338) (88)
Net periodic pension cost $ 745 $ 791 $ 542
The assumptions used to develop the actuarial present value of the projected
benefit obligation, and the expected long-term rate of return on Plan assets are
as follows:
Years Ended December 31,
1995 1994 1993
Discount rate 7.25% 8.25% 7.25%
Expected long-term rate of return on assets 8.50% 8.50% 8.50%
Rate of increase in compensation levels 5.25% 5.25% 5.25%
The Company also provides a savings and investment plan with a matching savings
program containing several investment options for which substantially all
employees are eligible. In addition, the Company has a non-qualified deferred
compensation plan for certain employees.
(7) Deferred Policy Acquisition Costs and Value of Insurance In Force
The amounts of policy acquisition costs deferred and amortized are summarized
below:
Year Ended December 31,
1995 1994 1993
Balance, beginning of year $ 439,232 $ 262,646 $ 211,330
Additions:
Policy acquisition costs deferred during period:
Commissions 70,484 82,626 81,515
Other expenses 12,687 8,400 10,019
Total deferrals 83,171 91,026 91,534
Adjustments for unrealized investment losses - 135,059 -
Adjustments for realized investment losses 2,220 2,675 785
Total additions 85,391 228,760 92,319
Deductions:
Amortization expense (58,541) (52,174) (41,003)
Adjustments for unrealized investment gains (286,410) - -
Total deductions (344,951) (52,174) (41,003)
Balance, end of year $ 179,672 $ 439,232 $ 262,646
The value of insurance in force is summarized below:
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Year Ended December 31,
1995 1994 1993
Balance, beginning of year $ 139,221 $ 101,036 $ 115,824
Additions:
Value of insurance purchased - 1,479 7,522
Interest accrued on unamortized balance 4,578 4,994 6,124
Adjustments for unrealized investment losses - 53,344 -
Adjustments for realized investment losses - 351 65
Total additions 4,578 60,168 13,711
Deductions:
Amortization expense (14,057) (21,983) (28,499)
Adjustments for unrealized investment gains (85,803) - -
Total deductions (99,860) (21,983) (28,499)
Balance, end of year $ 43,939 $ 139,221 $ 101,036
Interest is accrued on the unamortized value of insurance in force balance at
the contract rate of 5.58%, 5.49% and 6.01% for the years ended December 31,
1995, 1994 and 1993, respectively.
Estimated net amortization expense of the value of insurance in force as of
December 31, 1995, is as follows: 1996 - $7,747; 1997 - $8,169; 1998 - $7,218;
1999 - $6,648; 2000 - $6,199; and thereafter - $40,417.
(8) Federal Income Taxes
The provision for federal income taxes, computed under the asset and liability
method, is summarized as follows:
Year Ended December 31,
1995 1994 1993
Current $37,746 $18,118 $24,878
Deferred 585 13,933 3,832
Federal income tax expense $38,331 $32,051 $28,710
A reconciliation of federal income tax expense as recorded in the accompanying
consolidated statements of operations with expected federal income tax expense
computed at the applicable federal tax rate of 35% is as follows:
Year Ended December 31,
1995 1994 1993
Expected income tax expense $37,779 $33,347 $30,347
Increase (decrease) in income taxes resulting from:
Nontaxable investment income (1,737) (2,099) (2,189)
Amortization of goodwill 396 396 396
Other, net 1,893 407 156
Actual federal income tax expense $38,331 $32,051 $28,710
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In August 1993, the Omnibus Budget Reconciliation Act of 1993 was enacted. This
law increased the Company's top marginal tax rate to 35% from 34% retroactive to
January 1, 1993. The effect of this change in tax rates on the Company's
consolidated financial statements was not material.
The components of deferred federal income taxes are as follows:
December 31,
1995 1994
Deferred tax assets:
Policy liabilities $ (140,971) $ (127,558)
Excess of tax over book bases - investments - (69,039)
Guaranty association fees (7,679) (8,642)
Net operating loss carryforward (3,041) (3,573)
Deferred gain on interest rate swap agreements (312) (1,964)
Other (1,039) (3,914)
Total deferred tax assets (153,042) (214,690)
Deferred tax liabilities:
Excess book over tax basis - investments 130,530 -
Deferred policy acquisition costs 44,468 137,909
Value of insurance inforce and intangibles 7,152 34,420
Deferred loss on interest rate swap agreements 3,715 -
Total deferred tax liabilities 185,865 172,329
Net deferred federal income tax liability (asset) $ 32,823 $ (42,361)
The Company believes that is more likely than not that the Company will realize
the benefits of the total deferred tax assets and, accordingly, believes that a
valuation allowance with respect to the realization of the total deferred tax
assets is not necessary. While there are no assurances that this benefit will be
realized, the Company expects that the net deductible amounts will be
recoverable through the reversal of taxable temporary differences, taxes paid in
the carryback period, tax planning strategies, and future expectations of
taxable income.
As of December 31, 1995 and 1994, the Company had approximately $8,688 and
$10,208 respectively, of net operating loss carryforwards relating to
Independence Life's operations prior to the acquisition by the Company. These
operating loss carryforwards are limited to use against future taxable profits
of Independence Life and expire through 2006.
Income taxes paid were $44,694, $28,811, and $17,722 for the years ended
December 31, 1995, 1994 and 1993, respectively.
(9) Statutory Information and Dividend Restrictions
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ from GAAP. In
converting to GAAP, adjustments to the Company's statutory amounts include: the
deferral and amortization of the costs of acquiring new policies, such as
commissions and other issue costs; the deferral of federal income taxes; the
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recognition as revenues of premiums for investment-type products for statutory
purposes but as deposits to policyholders' accounts under GAAP. In addition,
different assumptions are used in calculating policyholder liabilities,
different methods are used for calculating valuation allowances for statutory
and GAAP purposes, and the Company's realized gains and losses on fixed income
investments due to interest rate changes are not deferred for GAAP. Statutory
surplus and statutory net income are presented below:
Year Ended December 31,
1995 1994 1993
Statutory surplus $ 535,179 $ 546,440 $ 517,181
Statutory net income 25,689 24,871 65,315
The maximum amount of dividends which can be paid by the Company without prior
approval of the Insurance Commissioner of the State of Rhode Island is subject
to restrictions related to statutory surplus and statutory net gains from
operations. As of December 31, 1995, such restriction would limit dividends to
approximately $34,604. The Company has not paid dividends since the acquisition
by Liberty Mutual.
(10) Transactions with Affiliated Companies
As of December 31, 1995 and 1994, the Company had $39,500 and $87,000,
respectively, of commercial real estate loans of affiliated investment
partnerships. These mortgages are unconditionally guaranteed by Liberty Mutual.
The Company reimbursed Liberty Financial and certain affiliates for expenses
incurred on its behalf for the years ended December 31, 1995, 1994 and 1993.
These reimbursements included corporate general and administrative expenses,
corporate overhead, such as executive and legal support, and investment
management services. The total amounts reimbursed were $7,626, $7,345 and
$7,444 for the years ended December 31, 1995, 1994 and 1993, respectively.
During 1993 the Company received a $75,000 capital contribution from Liberty
Financial.
(11) Commitments and Contingencies
The Company leases data processing equipment, furniture and certain office
facilities from others under operating leases expiring in various years through
2001. Rental expense amounted to $3,221, $3,011 and $3,042 for the years ended
December 31, 1995, 1994 and 1993, respectively. For each of the next five years,
and in the aggregate, as of December 31, 1995, the following are the minimum
future rental payments under noncancelable operating leases having remaining
terms in excess of one year:
1996 $ 3,211
1997 2,641
1998 2,491
1999 2,347
2000 2,310
Thereafter 2,308
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Total minimum future rental payments $15,308
Under existing guaranty fund laws in all states, insurers licensed to do
business in those states can be assessed for certain obligations of insolvent
insurance companies to policyholders and claimants. The actual amount of such
assessments will depend upon the final outcome of rehabilitation proceedings and
will be paid over several years. In 1995, 1994 and 1993, the Company was
assessed $8,143, $7,674 and $7,314, respectively. During 1995, 1994 and 1993,
the Company recorded $2,000, $7,200, and $3,714, respectively, of provisions for
state guaranty fund association expenses.
Based on information recently provided by the industry association with respect
to aggregate assessments related to known insolvencies, the range of future
assessments with respect to known insolvencies is estimated by the Company to be
between $16,500 and $25,500, taking into account the industry association
information as well as the Company's own estimate of its potential share of such
aggregate assessments. At December 31, 1995 and 1994, the reserve for such
assessments was $21,940 and $24,688, respectively.
The Company is contingently liable for certain structured settlements written by
a subsidiary of Liberty Mutual and assigned to Keyport Life. The Company
guarantees to the policyholder payment in the event of nonperformance. The loss
contingency related to the structured settlements is approximately $160,000. In
the opinion of management, the likelihood of loss is remote.
The Company is involved, from time to time, in litigation incidental to its
business. In the opinion of management, the resolution of such litigation is not
expected to have a material adverse effect on the Company's financial condition.
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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
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 six 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.
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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
End Value Cumulative
of of Change in Value Value Value of Value of Indexed
Year INDEX INDEX of B* of C Part 1 Part 2 Value
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
* 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.
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
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End Value Cumulative
of of Change in Value Value Value of Value of Indexed
Year INDEX INDEX of B* of C Part 1 Part 2 Value
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
* 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.
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
End Value Cumulative
of of Change in Value Value Value of Value of Indexed
Year INDEX INDEX of B* of C Part 1 Part 2 Value
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
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* 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.
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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
End Value Cumulative
of of Change in Value Value Value of Value of Indexed
Year INDEX INDEX of B* of C Part 1 Part 2 Value
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
* 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.
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
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End Value Cumulative
of of Change in Value Value Value of Value of Indexed
Year INDEX INDEX of B* of C Part 1 Part 2 Value
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
* 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.
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
End Value Cumulative
of of Change in Value Value Value of Value of Indexed
Year INDEX INDEX of B* of C Part 1 Part 2 Value
0 500 $100,000.00
1 650 30% < 1,000 650 4,800.00 N/A $104,800.00
2 485 -3% 650.00 650 0.00 4,800.00 $109,600.00
3 475 -5% 650.00 650 0.00 4,800.00 $114,400.00
4 450 -10% 650.00 650 0.00 4,800.00 $119,200.00
5 430 -14% 650.00 650 0.00 4,800.00 $124,000.00
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* 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.
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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.
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APPENDIX C
SCHEDULE OF STATE PREMIUM TAXES
Non-Tax Qualified Tax-Qualified
Contracts/Certificates Contracts/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
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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 las
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.
95
<PAGE>
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.
96
<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 Underwriter's 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 (Group)
(iii) Corporate/Keogh 401(a) Plan (Individual)
(iv) Individual Retirement Annuity (IRA) (Group)
(v) Individual Retirement Annuity (IRA)
(Individual)
(vi) 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 -- Incorporated by Reference to Registration
Statement on Form S-1, filed on or about August 2, 1996
(File No. 333-1783)
<PAGE>
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;
(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
<PAGE>
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 February 6, 1997.
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* February 6, 1997
---------------------------
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).
<PAGE>
EXHIBIT INDEX
PAGE
1 Underwriter's Agreement
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 (Group)
(iii) Corporate/Keogh 401(a) Plan (Individual)
(iv) Individual Retirement Annuity (IRA) (Group)
(v) Individual Retirement Annuity (IRA) (Individual)
(vi) Qualified Plan Endorsement
5 Opinion regarding Legality
23(a) Consent of Counsel
23(b) Consent of Certified Public Accountants
27 Financial Data Schedule
<PAGE>
EXHIBIT 1
<PAGE>
UNDERWRITER'S AGREEMENT
IT IS HEREBY AGREED by and between KEYPORT LIFE INSURANCE COMPANY
("INSURANCE COMPANY"), a Rhode Island corporation, and KEYPORT FINANCIAL
SERVICES CORP. ("UNDERWRITER"), a Massachusetts corporation, as follows:
I
INSURANCE COMPANY proposes to issue and sell annuity contracts registered
under the Securities Act of 1933 as identified in Schedule A hereto, which may
be amended from time to time ("Contracts") to the public through UNDERWRITER.
The UNDERWRITER agrees to provide sales service subject to the terms and
conditions hereof. Contracts to be sold are more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.
II
INSURANCE COMPANY appoints UNDERWRITER, during the term of this Agreement,
to be the UNDERWRITER and distributor of Contracts, subject to the registration
requirements of the Securities Act of 1933 and the provisions of the Securities
Exchange Act of 1934 applicable to UNDERWRITER. UNDERWRITER will sell and cause
to be sold Contracts under such terms as are agreed to by INSURANCE COMPANY and
UNDERWRITER and will make direct sales in its own right to purchasers permitted
to buy such Contracts as specified in the Prospectus, as well as arrange for the
sale of Contracts through other qualified broker-dealers in its capacity as
UNDERWRITER of such Contracts.
III
UNDERWRITER shall be compensated for its distribution services with respect
to Contracts as set forth in the attached Compensation Schedule. INSURANCE
COMPANY has the right to charge back any such compensation under the conditions
stated in such Schedule. Any Compensation Schedule may be changed by INSURANCE
COMPANY as of a specified date, provided such date is at least 30 days after the
date notice of the change is received by UNDERWRITER. Any such change will
apply only to purchase payments received by INSURANCE COMPANY on or after the
effective date of the change.
IV
UNDERWRITER shall maintain or cause to be maintained all such required
books and records which shall: (a) be maintained in conformity with all
applicable requirements of the Securities Exchange Act of 1934, any other
applicable federal or state laws, and the National Association of Securities
Dealers, Inc. ("NASD"), and, to the extent of such requirements, shall remain
property of UNDERWRITER; and (b) be subject to inspection at all times by duly
authorized officers, auditors or representatives of the INSURANCE COMPANY,
Securities and Exchange Commission, NASD and applicable state regulatory
agencies.
V
INSURANCE COMPANY shall furnish UNDERWRITER with copies of all
Prospectuses, sales literature and other documents which UNDERWRITER reasonably
requests for use in connection with the distribution of the Contracts.
<PAGE>
VI
UNDERWRITER is not authorized to give any information or to make any
representations concerning INSURANCE COMPANY or the Contracts other than those
contained in the current Registration Statement or Prospectus filed with the
Securities and Exchange Commission or such sales literature as is authorized by
INSURANCE COMPANY.
VII
The parties to this Agreement agree to work together to make certain that
the necessary records, as enumerated in Section IV, above, are maintained and to
render the necessary assistance to one another for the accurate and timely
preparation of such records.
VIII
This Agreement shall be effective January 29, 1996. This Agreement shall
remain in effect unless terminated as hereinafter provided. This Agreement
shall be automatically terminated in the event of its assignment by UNDERWRITER.
This Agreement may be terminated at any time by either party hereto upon
not less than 60 days written notice to the other party.
IX
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been given on the date
of service if served personally on the party to whom notice is to be given, or
on the date of mailing if sent by certified mail, postage prepaid and properly
addressed.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf on January 31, 1997, by their respective officers
thereunto duly authorized.
KEYPORT LIFE INSURANCE COMPANY
("INSURANCE COMPANY")
BY: /s/ Paul H. LeFevre, Jr. ATTEST: /s/ Elizabeth B. Love
-------------------------- ---------------------
Senior Vice President
KEYPORT FINANCIAL SERVICES CORP.
("UNDERWRITER")
BY: /s/ John W. Rosensteel ATTEST: /s/ Elizabeth B. Love
------------------------- ---------------------
President
2
<PAGE>
SCHEDULE A
Form No.: MVA(1)
Form No.: MVA(1)/CERT
Form No.: MVA(1)/IND
Form No.: DIA(1)
Form No.: DIA(1)/CERT
Form No.: DIA(1)/IND
3
<PAGE>
EXHIBIT 4(a)
<PAGE>
In this Group Contract, Keyport Life Insurance Company is referred to as "We,"
"Us," "Our," or the "Company."
This Group Contract, as issued to the Group Contract Owner by Us with any riders
or endorsements, alone makes up the agreement under which benefits are paid. The
Group Contract may be inspected at the office of the Group Contract Owner. In
consideration of any application for a Certificate and the payment of any
purchase payments, We agree, subject to the terms and conditions of the Group
Contract, to provide the benefits described in a Certificate to the Certificate
Owner.
If a Certificate is In Force on the Income Date, We will begin making Annuity
Payments to the Annuitant. We will make such payments according to the terms of
the Certificate and Group Contract.
Right to Cancel - A Certificate Owner may return the Certificate to Us (Keyport
Life Insurance Company, 125 High Street, Boston, MA 02110) or to the agent from
whom it was purchased for cancellation. The Certificate Owner must mail or
deliver it within 45 days from the Issue Date or 20 days after it is received,
whichever is later. The Certificate will then be treated as if We had never
issued it and We will promptly refund the Initial Premium, and any Subsequent
Premium less the amount of any partial surrenders.
Read This Contract Carefully
GROUP DEFERRED ANNUITY CONTRACT
FLEXIBLE PREMIUM PAYMENT
NON-PARTICIPATING
VALUES GREATER THAN GUARANTEED VALUES ARE DEPENDENT UPON INCREASES AND
DECREASES IN THE INDEX, THE LENGTH OF TIME A CERTIFICATE IS HELD AND THE
DECLARED RATE WHICH IS ESTABLISHED EVERY MONTH AND GUARANTEED FOR THAT MONTH
DIA(1)
Page 1
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
125 High Street, Boston, MA 02110
Contract Specifications
Group Contract Owner: Keyport Insurance Trust
Group Contract Number: 9999999
Issue Date: 1/30/1995
Issue State: Rhode Island
Minimum Initial Premium: $5,000
Minimum Subsequent Premium: $1,000
Index
[The Standard & Poor's 500 Composite Stock Price Index. "Standard & Poor's 500"
is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use
by Keyport Life Insurance Company. This annuity is not sponsored, endorsed,
sold or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of purchasing the annuity.]
Premium Allocation
Currently, Certificate Owners can select among an Interest Sub-Account and
Index Sub-Accounts with Terms of [1-10] years. The minimum initial premium is
[$5,000] and Index Sub-Accounts require a minimum premium, transfer or renewal
of Indexed Value of [$1,000].
Partial Withdrawals
Minimum withdrawal amount: currently [$250].
Minimum Index Sub-Account balance after a partial withdrawal: currently
[$1,000].
Minimum Interest Sub-Account balance after a partial withdrawal: currently [$0]
Minimum Combined Surrender Value of all Sub-Accounts after partial withdrawal:
currently [$4,000]
DIA(1)
Page 2
<PAGE>
Table of Contents
Page
Right to Examine Certificate..................................................1
Contract Specifications.......................................................2
Definitions...................................................................3
General Provisions............................................................5
The Sub-Accounts..............................................................9
The Interest Sub-Account......................................................9
The Index Sub-Account........................................................10
Transfers....................................................................14
Withdrawals and Surrender....................................................15
Death Provisions.............................................................15
Annuity Provisions...........................................................17
Endorsements (if any) are before page........................................22
Definitions
Sub-Account: An Index Sub-Account or Interest Sub-Account.
Sub-Account Anniversary, Sub-Account Year: A continuous twelve-month period
commencing on the date that an Index Sub-Account is opened by allocation or
transfer, and each anniversary thereof including the end of the Term.
Annuitant: The natural person on 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.
Annuity Payments: The series of payments made to the Annuitant, starting on the
Income Date, under the Annuity Option selected.
Annuity Period: The period after the Income Date during which Annuity Payments
are made.
Beneficiary: The person(s) or entity(ies) who controls the Certificate if any
Certificate Owner dies before the Income Date.
Cap: The maximum percentage by which an Index Sub-Account will be increased for
a Term. The cap may be "none" which means that there is no Cap.
Certificate: The document issued to a Certificate Owner to evidence a
Certificate Owner's participation under the Group Contract. The Certificate
summarizes the benefits and provisions of the Group Contract. All owners must
exercise ownership rights and privileges together, including the signing of
Written Requests.
DIA(1)
Page 3
<PAGE>
Definitions (Continued)
Certificate Anniversary, Certificate Year: A continuous twelve-month period
commencing on the Issue date and each anniversary thereof.
Certificate Owner: The person who owns a Certificate under the Group Contract.
Any Joint Certificate Owners and the Certificate Owner own the Certificate
equally with rights of survivorship.
Declared Rate: The annual effective interest rate that will be credited when
daily interest credits have compounded for a full year. The Declared Rate will
be set on the first of every month and guaranteed for that month. It will never
be less than 3%.
Fixed Annuity: An annuity with a series of payments made during the Annuity
Period which are guaranteed as to dollar amount by Us.
Floor: The minimum percentage by which an Index Sub-Account will be increased
for a Term. The Floor may be "none" or it may be less than 0% in which case the
Floor is the maximum percentage by which an Indexed Value can decrease over a
Term.
Group Contract Owner: The person or entity to which the Group Contract is
issued.
Guaranteed Interest Rate Factors: The Participation Rate, Cap, and Floor, which
are set and guaranteed by Us at the beginning of each Term of an Indexed
Sub-Account and used to calculate Index Increases under a formula set forth in
the Certificate.
Income Date: The date on which Annuity Payments begin. The Income Date is shown
on the Certificate Specifications' page.
Index: The Index (set forth in the Certificate Specifications' page) that is
used to calculate Index Increases. If the publication of the Index is
discontinued, or the calculation of the Index is changed substantially, We will
substitute a suitable index and notify the Certificate Owner.
Index Sub-Account: A Sub-Account for which We calculate values depending on
increases or decreases in the Index.
Interest Sub-Account: A Sub-Account to which We credit the Declared Rate.
In Force: The status of a Certificate before the Income Date so long as it has
not been totally surrendered and there has not been a death of a Certificate
Owner or Joint Certificate Owner that will cause the Certificate to end within
five years of the date of death.
Issue date: The date a Certificate is issued to a Certificate Owner. The Issue
date is shown on the Certificate Specifications' page.
DIA(1)
Page 4
<PAGE>
Office: Our executive office shown on the Certificate Specifications' page.
Participation Rate: The percentage used to calculate the Index change for an
Index Sub-Account for a Term. The Participation Rate determines what percentage
of the Term's change in the Index will be used in calculating the increase or
decrease in the Sub-accounts Indexed Value.
Person: A human being, trust, corporation, or any other legally recognized
entity.
Term: The number of complete years for which an increase or decrease in Indexed
Value is calculated.
We, Us, Our: Keyport Life Insurance Company.
Written Request: A request in writing, in a form satisfactory to Us, and
received by Us at Our Office.
General Provisions
Initial Premium
The Initial Premium is due on the Issue Date of the Certificate . It must be
paid in United States currency and deposited to a bank account of Ours in order
for the Certificate to be valid. The Initial Premium is allocated to the
Sub-Account(s) based on the Certificate Owner s instructions.
Subsequent Premiums
Subsequent premiums, subject to the minimum and maximum stated on page 2, may
be paid at any time during the first Certificate Year. Thereafter, it may be
paid anytime the Certificate is In Force unless the current Certificate Year is
within 10 years of the Income Date. Any Subsequent Premium must be paid in
United States currency and deposited to a bank account of Ours. We will then
apply the premium to the Sub-Account the Certificate Owner requested. Any
Subsequent Premium for an Index Sub-Account will be allocated to a new Index
Sub-Account of a Term requested by the Certificate Owner, subject to the
limitations described in this Certificate . If no instruction is received, We
will add the premium to the Interest Sub-Account. The Company reserves the
right to not allow Subsequent Premium to the Certificate.
The Contract
The Group Contract, including the application, if any, and any attached rider or
endorsement constitute the entire contract between the Group Contract Owner and
Us. All statements made by the Group Contract Owner, any Certificate Owner or
any Annuitant will be deemed representations and not warranties. No such
statement will be used in any contest unless it is contained in the application
signed by the Group Contract Owner or in a Certificate Enrollment Form signed by
the Certificate Owner, a copy of which has been furnished to the Certificate
Owner, the Beneficiary or the Group Contract Owner.
DIA(1)
Page 5
<PAGE>
Only Our President or Secretary may agree to change any of the terms of the
Group Contract or a Certificate. Any changes must be in writing. Any change to
the terms of a Certificate must be with a Certificate Owner's consent, unless
provided otherwise by the Group Contract and the Certificate.
To assure that the Group Contract and the Certificate will maintain their status
as an annuity under the Internal Revenue Code, We reserve the right to change
the Group Contract and any Certificate issued thereunder to comply with future
changes in the Internal Revenue Code, any regulations or rulings issued
thereunder, and any requirements otherwise imposed by the Internal Revenue
Service. The Group Contract Owner and the affected Certificate Owner will be
sent a copy of any such amendment.
Certificate Owner
A Certificate Owner has all rights and may receive all benefits under a
Certificate. A Certificate Owner is the person designated as such on the Issue
date, unless changed. A Certificate Owner may exercise all rights of a
Certificate while it is In Force, subject to the rights of (a) any assignee
under an assignment filed with Us, and (b) any irrevocably named Beneficiary.
Joint Certificate Owner
A Certificate can be owned by Joint Certificate Owners. Upon the death of any
Certificate Owner or Joint Certificate Owner, the surviving owner(s) will be the
primary Beneficiary(ies). Any other beneficiary designation will be treated as a
Contingent Beneficiary unless otherwise indicated in a Written Request filed
with Us.
Annuitant
The Annuitant is the person on whose life Annuity Payments are based. The
Annuitant is the person designated by a Certificate Owner at the Issue date,
unless changed prior to the Income Date. Any change of Annuitant is subject to
Our underwriting rules then in effect. The Annuitant may not be changed in a
Certificate which is owned by a non-natural person. A Certificate Owner may name
a Contingent Annuitant. The Contingent Annuitant becomes the Annuitant if the
Annuitant dies while a Certificate is In Force. If the Annuitant dies and no
Contingent Annuitant has been named, We will allow a Certificate Owner sixty
days to designate someone other than a Certificate Owner as Annuitant. A
Certificate Owner will be the Contingent Annuitant unless a Certificate Owner
names someone else. If the Certificate is owned by a non-natural person, the
death of the Annuitant will be treated as the death of the Certificate Owner and
a new Annuitant may not be designated.
Beneficiary
The Beneficiary is the person who controls the Certificate if any Certificate
Owner dies prior to the Income Date. If the Certificate is owned by Joint
Certificate Owners, upon the death of any Certificate Owner or Joint Certificate
Owner, the surviving owner(s) will become the primary Beneficiary. Any other
beneficiary designation will be treated as a Contingent Beneficiary unless
otherwise indicated in a Written Request filed with Us. If a Certificate Owner
names more than one Person as primary Beneficiary or as Contingent Beneficiary,
and do not state otherwise on the application or in a Written Request to Us, any
non-survivors will
DIA(1)
Page 6
<PAGE>
not receive a benefit. The survivors will receive equal shares. Subject to
the rights of any irrevocable Beneficiary(ies), a Certificate Owner may
change primary or contingent Beneficiary(ies). A change must be made by
Written Request and will be effective as of the date the Written Request is
signed. We will not be liable for any payment We make or action We take
before We receive the Written Request.
Group Contract Owner
The Group Contract Owner has title to the Group Contract. The Group Contract and
any amount accumulated under any Certificate are not subject to the claims of
the Group Contract Owner or any of its creditors. The Group Contract Owner may
transfer ownership of this Group Contract. Any transfer of ownership terminates
the interest of any existing Group Contract Owner. It does not change the rights
of any Certificate Owner.
Change of Certificate Owner, Beneficiary or Contingent Annuitant
While a Certificate is In Force, a Certificate Owner may by Written Request
change the primary Certificate Owner, Joint Certificate Owner, primary
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. The change will be effective, following Our
receipt of the Written Request, as of the date the Written Request is signed.
The change will not affect any payments We make or actions We take prior to the
time We receive the Written Request.
Assignment of the Certificate
A Certificate Owner may assign a Certificate at any time while it is In Force.
The assignment must be in writing and a copy must be filed at Our Office. A
Certificate Owner's rights and those of any revocably named Person will be
subject to the assignment. An assignment will not affect any payments We make or
actions We take before We receive the assignment. We are not responsible for the
validity of any assignment.
Misstatement of Age or Sex
If the age or sex of the Annuitant or any payee has been misstated, We will
compute the amount payable based on the correct age and sex. If Annuity Payments
have begun, any underpayment(s) that have been made will be paid in full with
the next Annuity Payment. Any overpayment, unless repaid to Us in one sum, will
be deducted from future Annuity Payments otherwise due until We are repaid in
full.
Non-Participating
A Certificate does not participate in Our divisible surplus.
Evidence of Death, Age, Sex or Survival
If a Certificate provision relates to the death of a natural Person, we will
require proof of death before We will act under that provision. Proof of death
shall be: (a) a certified death certificate; or (b) a certified decree of a
court of competent jurisdiction as to the finding of death; or (c) a written
statement by a medical doctor who attended the deceased; or (d) any other
document constituting due proof of death under applicable state law.
DIA(1)
Page 7
<PAGE>
If Our action under a Certificate provision is based on the age, sex, or
survival of any Person, We may require evidence of the particular fact before
We act under that provision.
Protection of Proceeds
No Beneficiary or payee may commute or assign any payments under a Certificate
before they are due. To the extent permitted by law, no payments shall be
subject to the debts of any Beneficiary or payee or to any judicial process for
payment of those debts.
Reports
We will send the Certificate Owner a report shortly after the end of each
Certificate Year that shows the following values for each Index Sub-Account that
was open at any time during the Certificate Year: the Surrender Value and
Indexed Value at the beginning of that year and the Indexed Value (as of the
most recent Sub-Account Anniversary); the amount of any surrenders or transfers
during that year; and the Index Increase, Surrender Value and Indexed Value at
the end of that year. For the Interest Sub-Account We will show the Surrender
Value and Accumulated Value at the beginning of the year, the amount of any
surrenders and transfers during the year, interest credits during the year, and
any premium payments allocated to this Sub-Account during the year, and the
Surrender Value and Accumulated Value at the end of the year. Also, at the end
of the term of each Index Sub-Account, We will give a report that shows the
length of the new term and the new term s Participation Rate and Floor and Cap.
We will send any other reports that may be required by law. Also, upon Written
Request, We will provide the Certificate Owner in a timely manner with factual
information about this Certificate's benefits and provisions.
Taxes
Any taxes paid to any governmental entity relating to a Certificate will be
deducted from the Initial Premium and any subsequent premium or the values of
the Sub-Account(s). We may, in Our sole discretion, delay the deduction until a
later date, including the Income Date. By not deducting tax payments at the time
of Our payment, We do not waive any right We may have to deduct amounts at a
later date. We will, in Our sole discretion, determine when taxes relate to a
Certificate. We will deduct from any payment under a Certificate any withholding
taxes required by applicable law.
Regulatory Requirements
All values payable under a Certificate will not be less than the minimum
benefits required by the laws and regulations of the states in which the
Certificate is delivered.
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The Sub-Accounts
The Initial and any Subsequent Premium may be allocated to an Interest and/or
Index Sub-Account(s). We will make the allocation based on a Certificate Owner's
allocation instructions (as stated on the Certificate Specifications' page). If
no instruction is received, all premium will be allocated to the Interest
Sub-Account.
An Index Sub-Account Term begins on the date as of which premium is allocated or
an amount is transferred to an Index Sub-Account and ends when the number of
years in the Term elected has elapsed. The last day of the Term is the
expiration date for that Term. Subsequent Terms begin on the first day following
the expiration date of a previous Term.
We will notify a Certificate Owner in writing at least 30 days prior to the
expiration date of any Term. A new Term of the same duration will commence
automatically after the end of a Term unless We receive a Certificate Owner's
Written Request prior to the start of the new Term of a Certificate Owner's
election of a different Term from among those being offered by Us at that time,
or instructions to transfer the expiring Index Sub-Account Value to the Interest
Sub-Account. A new Term cannot be longer than the number of years remaining
until the Income Date or maximum years allowed following the death of a
Certificate Owner or Annuitant if there is a non-natural Certificate Owner.
To the extent permitted by law, We reserve the right at any time to offer Terms
that differ from those available when a Certificate Owner's Certificate was
issued. We also reserve the right, at any time, to stop accepting premium
allocations, transfers or subsequent Term renewals to a particular Term. Since
the specific Terms available may change periodically, please contact Us to
determine the Terms currently being offered.
The Interest Sub-Account
Through the Interest Sub-Account, We offer a Declared Rate that is set on the
first of every calendar month and is guaranteed for the month. The Declared
Rate is an annual effective interest rate that will be credited when daily
interest credits have compounded for a full year. It will never be less than 3%
per year.
The Interest Sub-Account has an Accumulated Value and a Surrender Value.
Accumulated Value
The Accumulated Value at any time is guaranteed to equal:
(a) the portion of the Initial Premium allocated to this Sub-Account; plus
(b) the portion of any Subsequent Premium(s) allocated to this Sub-Account;
plus
(c) any amounts transferred to this Sub-Account; less
(d) any partial surrender amounts from this Sub-Account; less
(e) any amounts transferred from this Sub-Account; plus
(f) interest on the net amount determined by the above items (a) through (e) at
the Declared Rate.
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Surrender Value
The Surrender Value at any time is equal to:
(a) 90% of the portion of the Initial Premium allocated to this Sub-Account;
plus
(b) 90% of the portion of any Subsequent Premium(s) allocated to this
Sub-Account; plus
(c) any Surrender Values transferred to this Sub-Account; plus
(d) any excess interest as defined below; less
(e) any partial surrender amounts taken from this Sub-Account; less
(f) any amounts transferred from this Sub-Account, plus
(g) interest on the net amount determined by the above items (a) through (f) at
the rate of 3% per year.We will credit interest daily. Three percent
represents the effective annual interest rate that will be credited when
daily Interest credits have compounded for a full Certificate year.
Excess interest is the excess, if any, of interest credited to the Accumulated
Value over interest credited to the Surrender Value since the last date of
excess interest credits. Excess interest is added on the first of each calendar
month plus on any date of a transfer or surrender from this Sub-Account.
After the Calculation of excess interest, 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.
The Death Benefit
The Death Benefit is the Accumulated Value as of the day before the claim is
paid if the surrender occurs within 90 days of death. Thereafter, the Death
Benefit is the Surrender Value as of the day before the claim is paid.
The Index Sub-Account
Through the Index Sub-Account, We offer participation in increases, or
decreases, in a specified Index. The participation is determined based on a
formula utilizing specified Guaranteed Interest Rate Factors (the Participation
Rate, Cap, and Floor) that are available for specified periods of time (Terms)
selected by a Certificate Owner. The rate at which the value of an Index
Sub-Account grows depends on changes in the Index on which it is based, as well
as its Cap, Floor, and Participation Rate. The Participation Rate, Cap, and
Floor may differ among Terms. However, the applicable Participation Rate, Cap,
and Floor do not change during a Term.
Allocations of Initial and Subsequent Premium and transfers of Sub-Account
values to the Index Sub-Accounts may have different applicable Participation
Rates, Caps, and Floors depending on the timing of such allocations or
transfers. We reserve the right to offer a different Participation Rate, Cap,
and Floor to allocations than to transfers.
Index Sub-Accounts have an Indexed Value and a Surrender Value.
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Indexed Value
The Indexed Value at any time is guaranteed to equal:
(a) the Initial Indexed Value; plus
(b) all Index Increases; less
(c) all Index Decreases; plus
(d) any End-Of-Term Adjustments; less
(e) any partial surrender amounts.
If the Sub-Account is started by a premium payment, the Initial Indexed Value is
equal to the premium allocated to the Sub-Account. If the Sub-Account is
started by a transfer, then the Initial Indexed Value is the amount transferred.
The Index Increase and/or Index Decrease is determined on the Sub-Account
Anniversary using the INDEX Value, the Participation Rate, Floor and Cap.
Index Increases and Index Decreases
We will calculate the Index Increase or Index Decreases on each Sub-Account
Anniversary. On the first Sub-Account Anniversary in a Term, the formula used
is:
A x ((C-D)/D) x (E/F) x G
This calculation provides the proportionate credit for any change in the 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
any Index Increase, or Index Decrease, to be credited on the Sub-Account
Anniversary , is the sum total of two parts.
Part 1 represents the proportionate credit for any increase in the INDEX Value
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 any change in the INDEX Value
occurring on a prior Sub-Account Anniversary(ies). The formula for Part 2 is:
A x ((B-D)/D) x (1/F) x G
A is the Participation Rate for the Term
B is the highest INDEX Value on all Sub-Account Anniversaries but excluding
the INDEX Value on the date the Sub-Account is opened and the current
Sub-Account Anniversary. The value of B can never be less than the Minimum
INDEX Value nor greater than the Maximum INDEX Value. The
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Minimum INDEX and the Maximum INDEX Value are defined below.
C is the INDEX Value on the current Sub-Account Anniversary, not less than B
or greater than the Maximum INDEX Value for the Term.
D is the 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 [or Index
Decreases]) on any Sub-Account Anniversary in the Term, including the
current Sub-Account Anniversary
The Minimum INDEX Value and the Maximum INDEX Value are defined as follows:
Minimum INDEX Value = [(Floor/Participation Rate for Term)+1] x Beginning of
Term INDEX Value
and
Maximum INDEX Value = [(Cap/Participation Rate for Term)+1] x Beginning of Term
INDEX Value
End-of-Term Adjustment in the Indexed Value
At the end of the Term (after the Index Increase or Index Decrease), if the
Surrender Value exceeds the Indexed Value, the Indexed Value will be increased
to equal the Surrender Value.
INDEX, Participation Rate, Floor and Cap, Term
The INDEX shown on the Certificate Specifications' page is used to calculate
Index Increases. If the INDEX is discontinued or its calculation is changed
substantially, We will substitute a suitable index and notify the Certificate
Owner. The INDEX Value for a particular day is the value calculated at the end
of that day. If there is no INDEX Value calculated that day, then the value
calculated for the first preceding day shall apply.
We will declare for each new Term of a Sub-Account the Participation Rate, the
Floor and the Cap on a basis which does not discriminate unfairly within any
class of Certificates.
Before the end of each Term of each Sub-Account, We will declare the length(s)
available for the next Term on a basis which does not discriminate unfairly
within a class of Certificates. The Certificate Owner may choose a Term by
Written Request but may not choose a Term that goes beyond the Income Date or in
the case of a "designated beneficiary", a Term that goes beyond the date allowed
by the Death Provision section. If the Certificate Owner does not choose, the
new Term ("Default Term") will be the same length as the prior Term although the
Participation Rate, Cap and Floor may be different as described above. If the
Default Term would go beyond the Income Date or the date allowed by the Death
Provision section, the Sub-Account values will be transferred to the Interest
Sub-Account.
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<PAGE>
Surrender Value
The Surrender Value at any time is equal to:
(a) the Initial Surrender Value; plus
(b) any Sub-Account Anniversary Adjustments (see below): less
(c) any partial surrender amounts; plus
(d) interest on the net amount determined by above items (a) through (c) at
the rate of 3% per year.
We will credit interest daily. 3% represents the effective annual interest rate
that will be credited when daily interest credits have compounded for a full
year.
If the Sub-Account is started by a premium payment, the Initial Surrender Value
is equal to 90% of the premium allocated to this Sub-Account.
If the Sub-Account is started by an transfer, the Initial Surrender Value is the
Surrender Value transferred.
Sub-Account Anniversary Adjustment in Surrender Value
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 the 10 year period less any prior increases
made pursuant to this provision; and
(b) is the difference between the Indexed Value and the Surrender Value.
The Death Benefit
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 on the date of the payment.
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<PAGE>
If death occurs in the last Year of a Term and the surrender occurs after the
end of the Term, the Death Benefit is the greater of the Indexed Value at the
end of the Term, less any partial surrenders, and the Surrender Value on the
date of the payment.
In all other situations, the Death Benefit is the greater of (a) minus (b) and
the Surrender Value on the date of the payment, where:
(a) is the Indexed Value at the start of the Sub-Account year in which
death occurs, with the applicable Index Increase (described on page 13)
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.
If death occurs in the last year of a Term and the surrender occurs after the
end of the Term, the Indexed Value at the end of such Term will be substituted
for (a).
Transfers
Transfers can be made at any time from the Interest Sub-Account to a new
Index Sub-Account. Transfers can also be made from an Index Sub-Account to
the Interest Sub-Account at certain times. We will make a transfer when We
receive a Written Request to do so from the Certificate Owner that meets the
restrictions set forth below.
Transfers from the Interest Sub-Account to an Index Sub-Account
The Certificate Owner may transfer all or part of the Interest Sub-Account to a
new Index Sub-Account at any time. The amount requested from the Accumulated
Value will be transferred to a new Index Sub-Account and will be the Initial
Indexed Value of the new Sub-Account . The Initial Surrender Value of the new
Index Sub-Account will be equal to the ratio of the Accumulated Value
transferred to the total Accumulated Value of the Interest Sub-Account prior to
the transfer times the Surrender Value of the Interest Sub-Account prior to the
transfer.
The remaining Accumulated Value and Surrender Value of the Interest Sub-Account
will be the values prior to the transfer less the amount transferred.
The minimum amount of any transfer from the Interest Sub-Account to a new Index
Sub-Account must be $1,000.
Transfers from an Index Sub-Account to the Interest Sub-Account
The Certificate Owner may transfer the entire Indexed Value of an Index
Sub-Account to the Interest Sub-Account at the end of the Term of an Index
Sub-Account. The Indexed Value of the Index Sub-Account will be transferred to
the Accumulated Value of the Interest Sub-Account. The Surrender Value of the
Index Sub-Account will be transferred to the Surrender Value of the Interest
Sub-Account.
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Withdrawals and Surrender
A Certificate Owner may make a surrender or withdrawal (partial
surrender) of either the Indexed Value or Surrender Value from the Index
Sub-Account(s) and either the Accumulation Value or Surrender Value from the
Interest Sub-Account. The timing of the surrender or withdrawal determines
which values are available.
The Indexed Value is available only during three time periods. First, as a
surrender payable if a 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 or at the required
distribution date. Third, as an amount applied on the Income Date to determine
the amount of annuity payments. At all other times, the Surrender Value is
available while the Certificate is In Force.
The Accumulated Value is available only during three time periods. First, as a
surrender payable if all or part of the 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 annuity payments. At all other times, the Surrender Value is
available while the Certificate is In Force.
Death Provisions
Death of Primary Certificate Owner, Joint Certificate Owner, or Certain
Non-Certificate Owner Annuitant
This section applies if, before the Income Date while the Certificate is In
Force, the Primary 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 owner such as a trust. The "designated
beneficiary" will control the Certificate after such a death. This "designated
beneficiary" will be the first person among the following who is alive on the
date of death: Primary Certificate Owner; Joint Certificate Owner; primary
beneficiary; contingent beneficiary; and if no one is alive, the Primary
Certificate Owner s estate.
If the decedent s surviving spouse (if any) is the sole "designated
beneficiary", the surviving spouse will automatically become the new Primary
Certificate Owner as of the date of death. If the Annuitant is the decedent,
the new Annuitant will be any living contingent annuitant, otherwise the
surviving spouse. The surviving spouse can continue the Certificate until the
Income Date. If the surviving spouse surrenders the Certificate , see the
"Death Benefit" section below for the conditions under which the Death Benefit
value will be paid rather than the Surrender Value. If the surviving spouse
continues the Certificate and another death occurs before the Income Date, the
Certificate can continue for up to five years from the date of this second
death. All of this "Death Provisions" section, except for this paragraph, will
apply to that second death. The exception in the prior sentence means that the
first four sentences of this paragraph can apply only once; they cannot apply a
second time if the surviving spouse continues the Certificate , remarries, and
then dies.
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In all other cases, the Certificate can continue for up to five years from the
date of death. During this period, the "designated beneficiary" may exercise
all ownership rights, including the right to make partial surrenders or the
right to totally surrender the Certificate for its Surrender Value. If the
"designated beneficiary" surrenders the Certificate , see the "Death Benefit"
section below for the conditions under which the Death Benefit value will be
paid rather than the Surrender Value. If this Certificate is continued until
the end of the five-year period, We will automatically end it then by paying the
Indexed Value for any Index Sub-Account and the Accumulated Value for the
Interest Sub-Account to the "designated beneficiary". If the "designated
beneficiary" is not alive then, We will pay any person(s) named by the
"designated beneficiary" in a Written Request; otherwise the "designated
beneficiary's" estate.
Death Benefit
This section applies only if the "covered person" dies and the Certificate is
surrendered within 90 days of the date of death. The Primary Certificate Owner
shall be the "covered person" or, if there is a non-natural owner such as a
trust, the Annuitant shall be the "covered person". If the "covered person"
dies, the "designated beneficiary" may surrender this Certificate within 90
days of the date of death for the Death Benefit. For a surrender after 90 days
and for a surrender at any time after the death of a non-covered person, the
Surrender Value is payable. The total Death Benefit is the sum of the Death
Benefit of each Sub-Account in the Certificate.
Payment of Benefits
The prior two sections allow the "designated beneficiary" to surrender the
Certificate. If the Certificate Owner wants that person to receive annuity
payments rather than a lump sum, the Certificate Owner may choose by Written
Request an annuity payment option that meets the following three conditions.
First, the first payment to a non-spouse "designated beneficiary" must be made
no later than one year after the date of death. Second, payments must be made
over the life of the non-spouse "designated beneficiary" or over a period not
exceeding that person s life expectancy. Third, any payment option that
provides for payments to continue after the death of the "designated
beneficiary" will not allow the successor payee to extend the period of time
over which the remaining payments are to be made. If the Certificate Owner does
not direct Us to make annuity payments, the "designated beneficiary" can choose
between a lump sum and an annuity payment option meeting the above three
conditions.
Death of Certain Non-Certificate Owner Annuitant
This section applies 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 Primary Certificate Owner.
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Annuity Provisions
Annuity Benefits
If this Certificate is In Force and the Annuitant is alive on the Income Date,
payments to the Annuitant will begin under the payment option chosen. The
Certificate Owner may choose or change a payment option by making a Written
Request at least 30 days before the Income Date. Unless the Certificate Owner
chooses otherwise, Option 3 with 10 years guaranteed will become automatically
effective. The amount of the payments will be determined by applying the total
Income Value (defined as the sum of the Indexed Value for the Index
Sub-Accounts and the Accumulated Value for the Interest Sub-Account, less any
applicable premium taxes or other taxes) on the Income Date in accordance with
the "Payment Options" section.
Income Date
The Income Date for the Annuitant is the date shown on the Certificate
Specifications' page. If the Annuitant's death results in someone becoming the
new Annuitant, the Income Date will be based on the new Annuitant's date of
birth only if the new Annuitant is younger than the decedent.
Payment Options
The Certificate Owner may choose any of the four payment options described
below. The Certificate Owner may also arrange other payment options with Us.
The payee is the person who will receive the sum payable under a payment
option. If the amount available to apply under any option is less than $5,000
($2,000 if the issue state shown on page 2 is Massachusetts), We reserve the
right to pay such amount in one sum to the payee in lieu of the payment
otherwise provided for.
Payments will be made monthly unless quarterly, semi-annual, or annual payments
are chosen by Written Request. However, if any payment provided for would be or
becomes less than $100, We have the right to reduce the frequency of payments to
an interval that will result in each payment being at least $100.
The payment amount under each option will be equal to the greater of the amount
shown in the applicable table or the amount currently offered by Us at the time
of the first payment. Under Options 2, 3 and 4 and any other life income
option, the payment amount will be based on the age of the payee(s). The
current amount may also be based on the sex of the payee(s) (except if this is
prohibited by law or if the issue state shown on page 2 is Massachusetts or
Montana).
A payee may not surrender or otherwise end a payment option after it begins.
Payments will end upon the payees death unless the option provides for payments
continuing to a successor payee.
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<PAGE>
Option 1: Income For a Fixed Number of Years
We will pay an annuity for a chosen number of years, not fewer than 5 nor more
than 30. If the payee dies before the last payment is made, We will continue to
make the remaining payments to the successor payee. Upon Written Request of the
successor payee, We will make a lump sum payment of the present value of the
remaining payments, commuted at a rate of 3% per year or at such greater rate as
was used to compute the payments.
Option 2: Life Income
We will pay an annuity for as long as the payee lives.
Option 3: Life Income with 5 or 10 Years Guaranteed
We will pay an annuity for as long as the payee lives. Payments are guaranteed
for at least the number of years chosen even if the payee dies before then. If
the payee dies before the last payment is made, We will continue to make the
remaining guaranteed payments to the successor payee. Upon Written Request of
the successor payee, We will make a lump sum payment of the present value of the
remaining guaranteed payments, commuted at a rate of 3% per year or at such
greater rate as was used to compute the payments.
Option 4: Joint and Last Survivor Income
We will pay an annuity for as long as the payee lives. Upon the payee s death,
We will continue payments to the successor payee for as long as the successor
payee lives.
Misstatement of Age or Sex
If We learn on or after the Income Date that the age or sex of the Annuitant or
any other payee is incorrect, We will compute the amount payable based on the
correct age and sex (however, if the issue state shown on page 2 is
Massachusetts or Montana, We will only correct an age). If income payments have
begun, any underpayment that may have been made will be paid in full with the
next annuity payment. Any overpayments, unless repaid to Us in one sum, will be
deducted from future annuity payments otherwise due until We are repaid in full.
Basis of Calculation
The minimum annuity payments are based on the 1983 Individual Annuity Valuation
Tables, weighted 40% male and 60% female, with interest at 3% per year. We will
similarly calculate the amount for a payment frequency other than monthly and
the amount for any age not shown in a table. Upon request, We will tell the
Certificate Owner any such amount.
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Payment Option Tables
OPTION 1: MINIMUM MONTHLY PAYMENT PAYABLE FOR EACH $1,000 APPLIED VALUE
Years Payment Years Payment Years Payment
- ----- ------- ----- ------- ----- -------
5 $17.91 14 $7.26 23 $4.99
6 15.14 15 6.87 24 4.84
7 13.16 16 6.53 25 4.71
8 11.68 17 6.23 26 4.59
9 10.53 18 5.96 27 4.47
10 9.61 19 5.73 28 4.37
11 8.86 20 5.51 29 4.27
12 8.24 21 5.32 30 4.18
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OPTIONS 2 AND 3: MINIMUM MONTHLY PAYMENT PAYABLE FOR EACH $1,000 APPLIED VALUE
Option 3- Option 3- Option 3- Option 3-
Age Option 2 5 Years 10 Years Age Option 2 5 Years 10 Years
- --- -------- -------- -------- --- -------- --------- ---------
30 $3.19 $3.19 $3.19 63 $5.34 $5.31 $5.20
31 3.22 3.22 3.21 64 5.49 5.45 5.33
32 3.24 3.24 3.24 65 5.65 5.61 5.47
33 3.27 3.27 3.27 66 5.82 5.77 5.61
34 3.30 3.30 3.30 67 6.01 5.94 5.75
35 3.34 3.33 3.33 68 6.20 6.13 5.91
36 3.37 3.37 3.36 69 6.41 6.33 6.07
37 3.40 3.40 3.40 70 6.64 6.54 6.23
38 3.44 3.44 3.44 71 6.88 6.76 6.41
39 3.48 3.48 3.47 72 7.14 7.00 6.59
40 3.52 3.52 3.51 73 7.43 7.26 6.77
41 3.56 3.56 3.55 74 7.73 7.53 6.96
42 3.61 3.61 3.60 75 8.06 7.82 7.14
43 3.65 3.65 3.64 76 8.42 8.12 7.34
44 3.70 3.70 3.69 77 8.80 8.45 7.53
45 3.76 3.75 3.74 78 9.21 8.79 7.71
46 3.81 3.81 3.79 79 9.66 9.14 7.90
47 3.87 3.86 3.85 80 10.14 9.52 8.06
48 3.93 3.92 3.90 81 10.65 9.91 8.25
49 3.99 3.98 3.96 82 11.21 10.31 8.41
50 4.05 4.05 4.03 83 11.81 10.72 8.57
51 4.12 4.11 4.09 84 12.46 11.15 8.71
52 4.19 4.19 4.16 85 13.14 11.58 8.84
53 4.27 4.26 4.23 86 13.88 12.01 8.96
54 4.35 4.34 4.31 87 14.67 12.44 9.06
55 4.44 4.42 4.39 88 15.50 12.86 9.15
56 4.53 4.51 4.47 89 16.39 13.28 9.23
57 4.62 4.61 4.56 90 17.32 13.68 9.31
58 4.72 4.71 4.65 91 18.31 14.07 9.37
59 4.83 4.81 4.75 92 19.35 14.45 9.42
60 4.95 4.93 4.86 93 20.45 14.81 9.47
61 5.07 5.05 4.97 94 21.61 15.15 9.50
62 5.20 5.17 5.08 95 22.84 15.48 9.53
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OPTION 4: MINIMUM MONTHLY PAYMENT PAYABLE FOR EACH $1,000 APPLIED VALUE
Combination of Ages
<TABLE>
<CAPTION>
30 35 40 45 50 55 60 65 70 75 80 85 90 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 $2.99 $3.04 $3.07 $3.10 $3.13 $3.15 $3.16 $3.17 $3.18 $3.18 $3.18 $3.19 $3.19 $3.19
40 3.10 3.15 3.20 3.24 3.27 3.29 3.30 3.32 3.32 3.33 3.33 3.33 3.33
45 3.23 3.30 3.35 3.40 3.44 3.47 3.49 3.50 3.51 3.51 3.52 3.52
50 3.39 3.48 3.55 3.61 3.66 3.69 3.72 3.73 3.74 3.75 3.75
55 3.60 3.71 3.81 3.89 3.94 3.99 4.01 4.03 4.04 4.05
60 3.87 4.02 4.14 4.24 4.32 4.36 4.40 4.41 4.42
65 4.23 4.43 4.59 4.72 4.81 4.87 4.91 4.92
70 4.71 4.98 5.21 5.38 5.59 5.56 5.60
75 5.39 5.77 6.08 6.30 6.45 6.53
80 6.35 6.89 7.32 7.62 7.81
85 7.73 8.50 9.10 9.51
90 9.72 10.80 11.63
95 12.49 13.95
16.20
</TABLE>
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<PAGE>
Endorsements
To be inserted only by Us
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Keyport
Life Insurance Company
Providence, Rhode Island
GROUP DEFERRED ANNUITY CONTRACT
FLEXIBLE PREMIUM PAYMENT
NON-PARTICIPATING
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EXHIBIT 4(b)
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This Certificate describes the benefits and provisions of the Group Contract.
The Group Contract , as issued to the Group Contract Owner by Us with any
riders or endorsements, alone makes up the agreement under which benefits are
paid. The Group Contract may be inspected at the office of the Group
Contract Owner. In consideration of any application for this Certificate and
the payment of purchase payments, We agree, subject to the terms and
conditions of the Group Contract, to provide the benefits described in this
Certificate to the Certificate Owner.
If this Certificate is In Force on the Income Date, We will begin making
annuity payments to the Annuitant. We will make such payments subject to the
terms of this Certificate and Group Contract.
Right to Cancel - You may return this Certificate to Us (Keyport Life
Insurance Company, 125 High Street, Boston, MA 02110) or to the agent from
whom it was purchased for cancellation. You must mail or deliver it within
45 days from the Issue Date or 20 days after you receive it, whichever is
later. The Certificate will then be treated as if We had never issued it and
We will promptly refund the Initial Premium, and any Subsequent Premium less
the amount of any partial surrenders.
Read This Certificate Carefully.
Signed for the Company:
Group Deferred Annuity Certificate
Flexible Premium Payment
Nonparticipating - No Dividends
VALUES GREATER THAN GUARANTEED VALUES ARE DEPENDENT UPON INCREASES AND
DECREASES IN THE INDEX, THE LENGTH OF TIME A CERTIFICATE IS HELD AND THE
DECLARED RATE WHICH IS ESTABLISHED EVERY MONTH AND GUARANTEED FOR THAT MONTH
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Keyport Life Insurance Company
125 High Street, Boston, Massachusetts
(800) 367-3653
Certificate Specifications
Group Contract Owner Keyport Insurance Trust
Group Contract Number 1
Primary Certificate Owner: John Doe, male, 12/31/1954
Joint Certificate Owner: None
Annuitant: John Doe, male, 12/31/1954
Contingent Annuitant: None
Certificate Number: 9999999
Initial Premium: $10,000
Issue Date: 1/30/1995
Issue State: Rhode Island
IRS Plan Type: Non-Qualified
Income Date: 1/30/2045
Minimum Subsequent Premium: $1,000
Maximum Subsequent Premium: $100,000
INDEX: [Standard & Poor's 500 Individual Index]
INDEX Value at Start of First Term 500.
Declared Rate on Issue Date 4%
Your Initial Premium has been allocated as follows:
1. Premium 8,000
Index Sub-Account with a Term of [5] year(s), a Participation Rate of
[80%], a Floor of [0%] and a Cap of [none]
2. Premium 2,000
Interest Sub-Account
[There will never be a Cap for the [5] year Term Index Sub-Account]
[The Floor will never be less than 0%]
["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 Life
Insurance Company
This annuity is not sponsored, endorsed, sold or promoted by Standard & Poor's
and Standard & Poor's makes no representation regarding the advisability of
purchasing the annuity.]
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Annuitant: John Doe Certificate Number: 9999999
Table of Minimum Surrender Values*
<TABLE>
<CAPTION>
End of Certificate Year Surrender Value End of Certificate Year Surrender Value
- ----------------------- --------------- ----------------------- ---------------
<S> <C> <C> <C>
Issue Date $ 9,000.00 26 $19,409.32
1 9,270.00 27 19,991.60
2 9,548.10 28 20,591.35
3 9,834.54 29 21,209.09
4 10,129.58 30 21,845.36
5 10,433.47 31 22,500.72
6 10,746.47 32 23,175.74
7 11,068.86 33 23,871.01
8 11,400.93 34 24,587.14
9 11,742.96 35 25,324.76
10 12,095.25 36 26,084.50
11 12,458.10 37 26,867.04
12 12,831.85 38 27,673.05
13 13,216.80 39 28,503.24
14 13,613.31 40 29,358.34
15 14,021.71 41 30,239.09
16 14,442.36 42 31,146.26
17 14,875.63 43 32,080.65
18 15,321.90 44 33,043.07
19 15,781.55 45 34,034.36
20 16,255.00 46 35,055.39
21 16,742.65 47 36,107.05
22 17,244.93 48 37,190.26
23 17,762.28 49 38,305.97
24 18,295.15 50 39,455.15
25 18,844.00
</TABLE>
* Values are based on the definition of Surrender Value shown on pages 15-16
and a hypothetical Initial Premium of $10,000 allocated to an Index
Sub-Account by a 40 year Annuitant on the Issue Date with an Income Date of
age 90. Values assume that no partial surrenders or Sub-Account Anniversary
Adjustments are made after the Issue Date.
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Table of Contents
-----------------
Page
Certificate Specifications.....................................................2
Table of Minimum Surrender.....................................................3
Definitions....................................................................4
Certificate Benefit............................................................6
Surrender Provisions...........................................................6
Death Provisions.............................................................. 7
Annuity Payment Provisions.....................................................9
Index Sub-Account Provisions..................................................13
Interest Sub-Account Provisions...............................................17
Transfers.....................................................................18
General Provisions............................................................19
Definitions
-----------
The following words have special meanings.
Annuitant - The natural person to whom any annuity payments will be made.
Certificate Year, Certificate Anniversary - The first Certificate Year
starts on the Issue Date. Future Certificate Years start on the same month
and day in each subsequent year (known as the Certificate Anniversary).
In Force - The status of this Certificate on or 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 will cause the Certificate to end
within at most 5 years from the date of death.
Income Date - The date annuity payments will start. Unless state law requires
otherwise, the Income Date will be the Annuitant's 90th birthday.
INDEX - The published Index shown on the Certificate Specifications' page
that is used to calculate Index Increases.
INDEX Value - The value of the INDEX. The INDEX Value on the Issue Date is
shown on the Certificate Specifications' page.
Initial Premium - The premium payment that must be submitted with the
application for a Certificate.
Issue Date - The date this Certificate is issued and Your rights and
benefits begin. It is shown on the Certificate Specifications' page.
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Cap - The maximum percentage by which an Indexed Value can increase over a
Term. The Cap may be "none" which means that there is no Cap.
Floor - The minimum percentage by which an Indexed Value can increase over a
Term. [The Floor may be "none" or it may be less than 0%, in which case the
Floor is the maximum percentage by which an Indexed Value can decrease over a
Term].
Office - Either Our Home Office or Our Executive Office. Our Home Office is
in Providence, Rhode Island. Our Executive Office is shown on the
Certificate Specifications' page.
Certificate Owner - The Primary Certificate Owner and any Joint Certificate
Owner collectively.
Participation Rate - A percentage used to calculate the INDEX change for a
Term. The Participation Rate determines what percentage of the Term's change
in the INDEX will be used in calculating the increase [and/or decrease] in
the Sub-Account's Indexed Value. The higher the Participation Rate, the
greater the percentage.
Person - A human being, a trust, a corporation, or any other legally
recognized entity.
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 (known as the Sub-Account
Anniversary) including the end of any applicable Term of an Index Sub-Account.
Term - The number of complete years for which an increase [or decrease] in
Indexed Value is calculated.
We, Us, Our - Keyport Life Insurance Company.
Written Request - A request written on a form satisfactory to Us and received at
Our Office.
You, Your - The Certificate Owner.
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Certificate Benefit Provisions
-------------------------------
This Certificate provides for the payment of four different types of
benefits though not all will become payable. First, total and partial
surrender benefits payable to You. Second, annuity benefits payable to You
if You request that surrender benefits be paid under an annuity option
instead of in a lump sum. Third, annuity benefits payable to the Annuitant if
alive on the Income Date. Fourth, total surrender, partial surrender, and
annuity benefits payable to the "designated beneficiary" after the death of
the Annuitant or an Certificate Owner (see "Death Provisions" on page 7).
This Certificate consists of a series of Sub-Accounts, including an Interest
Sub-Account and multiple Index Sub-Accounts. Premium payments can be
allocated to the various Sub-Accounts by You. Also, subject to some
restrictions, transfers are allowed among the various Sub-Accounts. All
benefits and values under this Certificate are calculated by first
calculating the appropriate value of each Sub-Account and then aggregating
the Sub-Account values to get the total values of the Certificate.
Surrender Provisions
---------------------
Total Surrender
You may surrender this Certificate while it is In Force by making a Written
Request for surrender. Surrendering this Certificate will end it. We will
pay You the Surrender Value. The Surrender Value is the total of the
Surrender Value(s) of each of the Sub-Account(s) in the Certificate. However,
if this Certificate is surrendered during the first 5 days of any month, We
will pay You the Accumulated Value of the Interest Sub-Account. If this
Certificate is surrendered during the first 45 days of an Index Sub-Account's
Term, We will pay You the greater of the Indexed Value or the Surrender
Value of that Sub-Account.
Partial Surrenders
You may partially surrender this Certificate while it is In Force by making a
Written Request. The amount must be for at least $250 and the total Surrender
Value of the Certificate remaining after the surrender must be at least
$4,000. Also, the remaining Surrender Value in each Index Sub-Account must be
at least $1,000.
Your Written Request may specify which Sub-Account(s) Your partial surrender
is to be taken from.
In the event You do not tell Us which Sub-Account(s) to take Your partial
surrender from, We will withdraw it from Sub-Accounts, in the following order:
(a) Interest Sub-Account; then
(b) Any Index Sub-Account(s) where the Indexed Value is available (See
page 12), starting with the Index Sub-Account that was most recently
opened; then
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(c) Any remaining Index Sub-Account(s) where the Indexed Value is not
available, starting with the Sub-Account that was most recently opened.
Payment of Surrender Benefits
For total surrenders, instead of receiving Your total payment in a lump sum,
You may request that it be paid to You under an annuity payment option.
For lump sum payments, We may delay payment for up to 6 months from the date
We receive the Written Request to surrender. This right to delay is required
by most states. We will notify You if there is to be a delay.
Minimum Values
Hypothetical minimum surrender values for the Certificate are illustrated in
the Table on page 3. Values paid at surrender, death and annuitization are
guaranteed not to be less than the minimum values required by any law of the
jurisdiction where this Certificate was issued.
Death Provisions
----------------
Death of Primary Certificate Owner, Joint Certificate Owner, or Certain
Non-Certificate Owner Annuitant
This section applies if, before the Income Date while the Certificate is In
Force, the Primary 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 owner such as a trust. The
"designated beneficiary" will control the Certificate after such a death.
This "designated beneficiary" will be the first person among the following
who is alive on the date of death: Primary Certificate Owner; Joint
Certificate Owner; primary beneficiary; contingent beneficiary; and if no one
is alive, the Primary Certificate Owner's estate.
If the decedent's surviving spouse (if any) is the sole "designated
beneficiary", the surviving spouse will automatically become the new Primary
Certificate Owner as of the date of death. If the Annuitant is the decedent,
the new Annuitant will be any living contingent annuitant, otherwise the
surviving spouse. The surviving spouse can continue the Certificate until
the Income Date. If the surviving spouse surrenders the Certificate, see the
"Death Benefit" section below for the conditions under which the Death
Benefit value will be paid rather than the Surrender Value. If the surviving
spouse continues the Certificate and another death occurs before the Income
Date, the Certificate can continue for up to five years from the date of
this second death. All of this "Death Provisions" section, except for this
paragraph, will apply to that second death. The exception in the prior
sentence means that the first four sentences of this paragraph can apply only
once; they cannot apply a second time if the surviving spouse continues the
Certificate, remarries, and then dies.
In all other cases, the Certificate can continue for up to five years from
the date of death.
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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 for its Surrender Value. If the
"designated beneficiary" surrenders the Certificate, see the "Death Benefit"
section below for the conditions under which the Death Benefit value will be
paid rather than the Surrender Value. If this Certificate is continued until
the end of the five-year period, We will automatically end it then by paying
the Indexed Value for any Index Sub-Account and the Accumulated Value for the
Interest Sub-Account to the "designated beneficiary". If the "designated
beneficiary" is not alive then, We will pay any person(s) named by the
"designated beneficiary" in a Written Request; otherwise the "designated
beneficiary's" estate.
Death Benefit
This section applies only if the "covered person" dies and the Certificate
is surrendered within 90 days of the date of death. The Primary Certificate
Owner shall be the "covered person" or, if there is a non-natural owner such
as a trust, the Annuitant shall be the "covered person". If the "covered
person" dies, the "designated beneficiary" may surrender this Certificate
within 90 days of the date of death for the Death Benefit. For a surrender
after 90 days and for a surrender at any time after the death of a
non-covered person, the Surrender Value is payable. The total Death Benefit
is the sum of the Death Benefit of each Sub-Account in the Certificate.
Payment of Benefits
The prior two sections allow the "designated beneficiary" to surrender the
Certificate. If You want that person to receive annuity payments rather than
a lump sum, You may choose by Written Request an annuity payment option that
meets the following three conditions. First, the first payment to a non
spouse "designated beneficiary" must be made no later than one year after the
date of death. Second, payments must be made over the life of the non spouse
"designated beneficiary" or over a period not exceeding that person's life
expectancy. Third, any payment option that provides for payments to continue
after the death of the "designated beneficiary" will not allow the successor
payee to extend the period of time over which the remaining payments are to
be made. If You do not direct Us to make annuity payments, the "designated
beneficiary" can choose between a lump sum and an annuity payment option
meeting the above three conditions.
Death of Certain Non-Certificate Owner Annuitant
This section applies 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 Primary Certificate Owner.
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Annuity Payment Provisions
Annuity Benefits
If this Certificate is In Force and the Annuitant is alive on the Income
Date, payments to the Annuitant will begin under the payment option chosen.
You may choose or change a payment option by making a Written Request at
least 30 days before the Income Date. Unless You choose otherwise, Option 3
with 10 years guaranteed will become automatically effective. The amount of
the payments will be determined by applying the total Income Value (defined
as the sum of the Indexed Value for the Index Sub-Accounts and the
Accumulated Value for the Interest Sub-Account, less any applicable premium
taxes or other taxes) on the Income Date in accordance with the "Payment
Options" section.
Income Date
The Income Date for the Annuitant is the date shown on the Certificate
Specifications' page. If the Annuitant's death results in someone becoming
the new Annuitant, the Income Date will be based on the new Annuitant's date
of birth only if the new Annuitant is younger than the decedent.
Payment Options
You may choose any of the four payment options described below. You may also
arrange other payment options with Us.
The payee is the person who will receive the sum payable under a payment
option. If the amount available to apply under any option is less than $5,000
($2,000 if the issue state shown on page 3 is Massachusetts), We reserve the
right to pay such amount in one sum to the payee in lieu of the payment
otherwise provided for.
Payments will be made monthly unless quarterly, semi-annual, or annual
payments are chosen by Written Request. However, if any payment provided for
would be or becomes less than $100, We have the right to reduce the frequency
of payments to an interval that will result in each payment being at least
$100.
The payment amount under each option will be equal to the greater of the
amount shown in the applicable table or the amount currently offered by Us at
the time of the first payment. Under Options 2, 3 and 4 and any other life
income option, the payment amount will be based on the age of the payee(s).
The current amount may also be based on the sex of the payee(s) (except if
this is prohibited by law or if the issue state shown on page 2 is
Massachusetts or Montana).
A payee may not surrender or otherwise end a payment option after it begins.
Payments will end upon the payee's death unless the option provides for
payments continuing to a successor payee.
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Option 1: Income For a Fixed Number of Years
We will pay an annuity for a chosen number of years, not fewer than 5 nor
more than 30. If the payee dies before the last payment is made, We will
continue to make the remaining payments to the successor payee. Upon Written
Request of the successor payee, We will make a lump sum payment of the
present value of the remaining payments, commuted at a rate of 3% per year or
at such greater rate as was used to compute the payments.
Option 2: Life Income
We will pay an annuity for as long as the payee lives.
Option 3: Life Income with 5 or 10 Years Guaranteed
We will pay an annuity for as long as the payee lives. Payments are
guaranteed for at least the number of years chosen even if the payee dies
before then. If the payee dies before the last payment is made, We will
continue to make the remaining guaranteed payments to the successor payee.
Upon Written Request of the successor payee, We will make a lump sum payment
of the present value of the remaining guaranteed payments, commuted at a rate
of 3% per year or at such greater rate as was used to compute the payments.
Option 4: Joint and Last Survivor Income
We will pay an annuity for as long as the payee lives. Upon the payee's
death, We will continue payments to the successor payee for as long as the
successor payee lives.
Misstatement of Age or Sex
If We learn on or after the Income Date that the age or sex of the Annuitant
or any other payee is incorrect, We will compute the amount payable based on
the correct age and sex (however, if the issue state shown on page 2 is
Massachusetts or Montana, We will only correct an age). If income payments
have begun, any underpayment that may have been made will be paid in full
with the next annuity payment. Any overpayments, unless repaid to Us in one
sum, will be deducted from future annuity payments otherwise due until We are
repaid in full.
Basis of Calculation
The minimum annuity payments are based on the 1983 Individual Annuity
Valuation Tables, weighted 40% male and 60% female, with interest at 3% per
year. We will similarly calculate the amount for a payment frequency other
than monthly and the amount for any age not shown in a table. Upon request,
We will tell You any such amount.
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Payment Option Tables
OPTION 1: MINIMUM MONTHLY PAYMENT PAYABLE FOR EACH $1,000 APPLIED VALUE
Years Payment Years Payment Years Payment
----- ------- ----- ------- ----- -------
5 $17.91 14 $7.26 23 $4.99
6 15.14 15 6.87 24 4.84
7 13.16 16 6.53 25 4.71
8 11.68 17 6.23 26 4.59
9 10.53 18 5.96 27 4.47
10 9.61 19 5.73 28 4.37
11 8.86 20 5.51 29 4.27
12 8.24 21 5.32 30 4.18
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OPTIONS 2 AND 3: MINIMUM MONTHLY PAYMENT PAYABLE FOR EACH $1,000 APPLIED VALUE
Option 3- Option 3- Option 3- Option 3-
Age Option 2 5 Years 10 Years Age Option 2 5 Years 10 Years
--- -------- -------- -------- --- -------- -------- --------
30 $3.19 $3.19 $3.19 63 $ 5.34 $ 5.31 $5.20
31 3.22 3.22 3.21 64 5.49 5.45 5.33
32 3.24 3.24 3.24 65 5.65 5.61 5.47
33 3.27 3.27 3.27 66 5.82 5.77 5.61
34 3.30 3.30 3.30 67 6.01 5.94 5.75
35 3.34 3.33 3.33 68 6.20 6.13 5.91
36 3.37 3.37 3.36 69 6.41 6.33 6.07
37 3.40 3.40 3.40 70 6.64 6.54 6.23
38 3.44 3.44 3.44 71 6.88 6.76 6.41
39 3.48 3.48 3.47 72 7.14 7.00 6.59
40 3.52 3.52 3.51 73 7.43 7.26 6.77
41 3.56 3.56 3.55 74 7.73 7.53 6.96
42 3.61 3.61 3.60 75 8.06 7.82 7.14
43 3.65 3.65 3.64 76 8.42 8.12 7.34
44 3.70 3.70 3.69 77 8.80 8.45 7.53
45 3.76 3.75 3.74 78 9.21 8.79 7.71
46 3.81 3.81 3.79 79 9.66 9.14 7.90
47 3.87 3.86 3.85 80 10.14 9.52 8.06
48 3.93 3.92 3.90 81 10.65 9.91 8.25
49 3.99 3.98 3.96 82 11.21 10.31 8.41
50 4.05 4.05 4.03 83 11.81 10.72 8.57
51 4.12 4.11 4.09 84 12.46 11.15 8.71
52 4.19 4.19 4.16 85 13.14 11.58 8.84
53 4.27 4.26 4.23 86 13.88 12.01 8.96
54 4.35 4.34 4.31 87 14.67 12.44 9.06
55 4.44 4.42 4.39 88 15.50 12.86 9.15
56 4.53 4.51 4.47 89 16.39 13.28 9.23
57 4.62 4.61 4.56 90 17.32 13.68 9.31
58 4.72 4.71 4.65 91 18.31 14.07 9.37
59 4.83 4.81 4.75 92 19.35 14.45 9.42
60 4.95 4.93 4.86 93 20.45 14.81 9.47
61 5.07 5.05 4.97 94 21.61 15.15 9.50
62 5.20 5.17 5.08 95 22.84 15.48 9.53
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OPTION 4: MINIMUM MONTHLY PAYMENT PAYABLE FOR EACH $1,000 APPLIED VALUE
Combination of Ages
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 35 40 45 50 55 60 65 70 75 80 85 90 95
30 $2.99 $3.04 $3.07 $3.10 $3.13 $3.15 $3.16 $3.17 $3.18 $3.18 $3.18 $3.19 $3.19 $ 3.19
40 3.10 3.15 3.20 3.24 3.27 3.29 3.30 3.32 3.32 3.33 3.33 3.33 3.33
45 3.23 3.30 3.35 3.40 3.44 3.47 3.49 3.50 3.51 3.51 3.52 3.52
50 3.39 3.48 3.55 3.61 3.66 3.69 3.72 3.73 3.74 3.75 3.75
55 3.60 3.71 3.81 3.89 3.94 3.99 4.01 4.03 4.04 4.05
60 3.87 4.02 4.14 4.24 4.32 4.36 4.40 4.41 4.42
65 4.23 4.43 4.59 4.72 4.81 4.87 4.91 4.92
70 4.71 4.98 5.21 5.38 5.59 5.56 5.60
75 5.39 5.77 6.08 6.30 6.45 6.53
80 6.35 6.89 7.32 7.62 7.81
85 7.73 8.50 9.10 9.51
90 9.72 10.80 11.63
95 12.49 13.95
16.20
</TABLE>
Index Sub-Account Provisions
----------------------------
Introduction
Multiple Index Sub-Accounts may be open at any time. Each 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 Sub-Account. All activities
that are described herein relate to activities within the specific
Sub-Account (e.g. a partial surrender is a partial surrender from the
Sub-Account).
The Indexed Value, as defined below, is available only during three time
periods. First, as a surrender payable if a Sub-Account is surrendered
within 45 days after the end of its term (see page 6). Second, as a Death
Benefit that is payable if the Certificate is surrendered within 90 days
after the date of certain deaths or at the required distribution date (see
page 7). Third, as an amount applied on the Income Date to determine the
amount of annuity payments (see page 9). At all other times, the Surrender
Value is available to You while the Certificate is In Force (see page 6).
Indexed Value
The Indexed Value at any time is guaranteed to equal:
(a) the Initial Indexed Value; plus
(b) all Index Increases; [less all Index Decreases;] plus
(c) any End-Of-Term Adjustments; less
(d) any partial surrender amounts.
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If the Sub-Account is started by a premium payment, the Initial Indexed Value
is equal to the premium allocated to the Sub-Account. If the Sub-Account is
started by a transfer, then the Initial Indexed Value is the amount
transferred.
The Index Increase [and/or Index Decrease] is determined on the Sub-Account
Anniversary using the INDEX Value, the Participation Rate, Floor and Cap.
Index Increases [and Index Decreases]
We will calculate the Index Increase [or Index Decreases] on each Sub-Account
Anniversary. On the first Sub-Account Anniversary in a Term, the formula
used is:
A x ((C-D)/D) x (E/F) x G
This calculation provides the proportionate credit for any change in the
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 any Index Increase,[or Index Decrease], to be credited on the Sub-Account
Anniversary, is the sum total of two parts.
Part 1 represents the proportionate credit for any increase in the INDEX
Value from its prior highest Sub-Account Anniversary value to its value on
the current Sub-Account Anniversary. Theformula for Part 1 is:
A x ((C-B)/D) x (E/F) x G
Part 2 represents the proportionate credit for any change in the INDEX Value
occurring on a prior Sub-Account Anniversary(ies). The formula for Part 2
is:
A x ((B-D)/D) x (1/F) x G
A is the Participation Rate for the Term
B is the highest INDEX Value on all Sub-Account Anniversaries but excluding
the INDEX Value on the date the Sub-Account is started and the current Sub-
Account Anniversary. The value of B can never be less than the Minimum
INDEX Value nor greater than the Maximum INDEX Value. The Minimum INDEX
and the Maximum INDEX Value are defined below.
C is the INDEX Value on the current Sub-Account Anniversary, not less than B
or greater than the Maximum INDEX Value for the Term.
D is the 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 [or Index
Decreases]) on any Sub-Account Anniversary in the Term, including the
current Sub-Account Anniversary
The Minimum INDEX Value and the Maximum INDEX Value are defined as follows:
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Minimum INDEX Value = [(Floor/Participation Rate for Term)+1] x Beginning of
Term INDEX Value
and
Maximum INDEX Value = [(Cap/Participation Rate for Term)+1] x Beginning of Term
INDEX Value
End-of-Term Adjustment in the Indexed Value
At the end of the Term (after the Index Increase [or Index Decrease]), if the
Surrender Value exceeds the Indexed Value, the Indexed Value will be increased
to equal the Surrender Value.
INDEX, Participation Rate, Floor and Cap, Term
The INDEX shown on the Certificate Specifications' page is used to calculate
Index Increases. If the INDEX is discontinued or its calculation is changed
substantially, We will substitute a suitable index and notify You. The INDEX
Value for a particular day is the value calculated at the end of that day.
If there is no INDEX Value calculated that day, then the value calculated for
the first preceding day shall apply.
We will declare for each new Term of a Sub-Account the Participation Rate,
the Floor and the Cap on a basis which does not discriminate unfairly within
any class of Certificates.
Before the end of each Term of each Sub-Account, We will declare the
length(s) available for the next Term on a basis which does not discriminate
unfairly within a class of Certificates. You may choose a Term by Written
Request. You may not choose a Term that goes beyond the Income Date or in
the case of a "designated beneficiary", You may not choose a Term that goes
beyond the date allowed by the Death Provision section. If You do not
choose, the new Term ("Default Term") will be the same length as the prior
Term although the Participation Rate, Cap and Floor may be different as
described above. If the Default Term would go beyond the Income Date or the
date allowed by the Death Provision section, the Sub-Account values will be
transferred to the Interest Sub-Account.
Surrender Value
The Surrender Value at any time is equal to:
(a) the Initial Surrender Value; plus
(b) any Sub-Account Anniversary Adjustments (see below): less
(c) any partial surrender amounts; plus
(d) interest on the net amount determined by above items (a) through (c)
at the rate of 3% per year.
We will credit interest daily. 3% represents the effective annual interest
rate that will be credited when daily interest credits have compounded for a
full year.
If the Sub-Account is started by a premium payment, the Initial Surrender Value
is equal to 90% of the premium allocated to this Sub-Account.
If the Sub-Account is started by an transfer, the Initial Surrender Value is
the Surrender Value transferred.
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<PAGE>
Sub-Account Anniversary Adjustment in Surrender Value
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 [and 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 the 10 year period less any prior
increases made pursuant to this provision; and
(b) is the difference between the Indexed Value and the Surrender Value.
The Death Benefit
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 on the date of the payment.
If death occurs in the last Year of a Term and the surrender occurs after the
end of the Term, the Death Benefit is the greater of the Indexed Value at the
end of the Term, less any partial surrenders, and the Surrender Value on the
date of the payment.
In all other situations, the Death Benefit is the greater of (a) minus (b)
and the Surrender Value on the date of the payment, where:
(a) is the Indexed Value at the start of the Sub-Account year in which
death occurs, with the applicable Index Increase (described on page
14) 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 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.
If death occurs in the last year of a Term and the surrender occurs after the
end of the Term, the Indexed Value at the end of such Term will be
substituted for (a).
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<PAGE>
Interest Sub-Account Provisions
--------------------------------
Introduction
The Accumulated Value is available only during three time periods. First, as
a surrender payable if all or part of the 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 (see page 7). Third, as a value applied on the Income
Date to determine the amount of annuity payments (see page 9). At all other
times, the Surrender Value is available to You while the Certificate is In
Force (see page 6).
Accumulated Value
The Accumulated Value at any time is guaranteed to equal:
(a) the portion of the Initial Premium allocated to this Sub-Account; plus
(b) the portion of any Subsequent Premium(s) allocated to this Sub-Account;
plus
(c) any amounts transferred to this Sub-Account; less
(d) any partial surrender amounts from this Sub-Account; less
(e) any amounts transferred from this Sub-Account; plus
(f) interest on the net amount determined by the above items (a) through (e) at
the declared rate.
Interest is calculated daily, based on the declared interest 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
will be set on the first of each calendar month and will be guaranteed for
the month, and will never be less than 3%.
Surrender Value
The Surrender Value at any time is equal to:
(a) 90% of the portion of the Initial Premium allocated to this Sub-Account;
plus
(b) 90% of the portion of any Subsequent Premium(s) allocated to this Sub-
Account; plus
(c) any Surrender Values transferred to this Sub-Account; plus
(d) any excess interest as defined below; less
(e) any partial surrender amounts taken from this Sub-Account; less
(f) any amounts transferred from this Sub-Account; plus
(g) interest on the net amount determined by the above items (a) through (f)
at the rate of 3% per year. We will credit interest daily. Three percent
represents the effective annual interest rate that will be credited when
daily Interest credits have compounded for a full year.
Excess interest is the excess, if any, of interest credited to the
Accumulated Value over interest credited to the Surrender Value since the
last date of excess interest credits. Excess interest is added on the first
of each calendar month plus on any date of a transfer or surrender from this
Sub-Account.
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<PAGE>
After the Calculation of excess interest, 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.
The Death Benefit
The Death Benefit is the Accumulated Value as of day before the claim is paid
if the surrender occurs within 90 days of death. Thereafter, the Death
Benefit is the Surrender Value as of the day before the claim is paid.
Transfers
---------
Introduction
Transfers can be made at any time from the Interest Sub-Account to a new
Index Sub-Account. Transfers can also be made from an Index Sub-Account to
the Interest Sub-Account at the end of the Term. We will make a transfer when
We receive a Written Request to do so from You that meets the conditions set
forth below.
Transfers from the Interest Sub-Account to an Index Sub-Account
You can transfer all or part of the Interest Sub-Account to a new Index Sub-
Account at any time. The amount You request from the Accumulated Value will
be transferred to a new Index Sub-Account and will be the Initial Indexed
Value of the new Sub-Account. The Initial Surrender Value of the new Index
Sub-Account will be equal to the ratio of the Accumulated Value transferred
to the total Accumulated Value of the Interest Sub-Account prior to the
transfer times the Surrender Value of the Interest Sub-Account prior to the
transfer.
The remaining Accumulated Value and Surrender Value of the Interest
Sub-Account will be the values prior to the transfer less the amount
transferred.
The minimum amount of any transfer from the Interest Sub-Account to a new Index
Sub-Account must be at least $1,000.
Transfers from an Index Sub-Account to the Interest Sub-Account
You can transfer the Indexed Value of an Index Sub-Account to the Interest
Sub-Account at the end of the Term of an Index Sub-Account. The Indexed Value
of the Index Sub-Account will be transferred to the Accumulated Value of the
Interest Sub-Account. The Surrender Value of the Index Sub-Account will be
transferred to the Surrender Value of the Interest Sub-Account.
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<PAGE>
General Provisions
------------------
Initial Premium
The Initial Premium is due on the Issue Date of Your Certificate. It must
be paid in United States currency and deposited to a bank account of Ours in
order for this Certificate to be valid. The Initial Premium is allocated to
the Sub-Account(s) based on Your instructions.
Subsequent Premiums
Subsequent premiums, subject to the minimum and maximum stated on page 2,
may be paid at any time during the first Certificate Year. Thereafter, they
may be paid any time Your Certificate is In Force unless the current
Certificate Year is within 10 years of the Income Date. Any Subsequent
Premium must be paid in United States currency and deposited to a bank
account of Ours. We will then apply the premium to the Sub-Account You
requested. Any Subsequent Premium for an Index Sub-Account will be allocated
to a new Index Sub-Account of a Term requested by You, subject to the
limitations described in this Certificate. If You do not tell Us, We will
add the premium to the Interest Sub-Account. The Company reserves the right
to not allow Subsequent Premiums to this Certificate.
Certificate
This Certificate form, any attached copy of the application, and any
attached endorsements make up the entire Certificate.
Only Our President or Secretary may agree to change any of the terms of this
Certificate . Any changes must be made in writing and with Your consent,
unless provided otherwise by this Certificate.
So that this Certificate will maintain its status as an annuity under the
Internal Revenue Code, We reserve the right to change this Certificate to
comply with future changes in: the Internal Revenue Code; any regulations or
rulings issued under that code; and any requirements otherwise imposed by the
Internal Revenue Service. You will be sent a copy of any such amendment as
well as a copy of the regulatory change requiring the amendment. If the
Issue State shown on page 2 is Massachusetts, New Jersey, Pennsylvania or
Texas, such amendment will be filed for approval with the state s insurance
supervisory official.
Certificate Ownership Provisions
The Primary Certificate Owner and any Joint Certificate Owner are shown on
page 2. They may be changed by You. If You change an owner who is also the
Annuitant, the owner being changed will still be the Annuitant. The Primary
Certificate Owner and any Joint Certificate Owner own the Certificate
equally with right of survivorship.
You may exercise all the rights of this Certificate while it is In Force,
subject to the rights of: (a) any assignee under an assignment filed with Us;
and (b) any irrevocably-named beneficiary.
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<PAGE>
Annuitant Provisions
The Annuitant and any contingent annuitant are shown on page 2. You can
change the contingent annuitant but not the Annuitant. If the Annuitant
dies, the "Death Provisions" sections provide that the contingent annuitant,
the Annuitant's surviving spouse, or the primary owner may become the new
annuitant.
Beneficiary Provisions
Any primary beneficiary and contingent beneficiary may be changed by You
unless irrevocably named.
If You name more than one primary beneficiary and do not state otherwise, any
non-survivors will not receive any benefit, the survivors will receive equal
shares, and if there is only one survivor, that person will receive the
entire benefit. If no primary beneficiary is alive, the contingent
beneficiary will receive the benefit. If You name more than one contingent
beneficiary, the rules stated above for multiple primary beneficiaries will
apply.
Designation or Change of Certificate Owner, Beneficiary, or Contingent Annuitant
While the Certificate is In Force, You may by Written Request designate or
change the Primary Certificate Owner, Joint Certificate Owner, primary
beneficiary, contingent beneficiary, or contingent annuitant. An
irrevocably-named person may be changed only with the written consent of such
person. After We record the request, the designation or change will take
effect as of the date You signed the request. The designation or change will
not affect any payments We make or actions We take before We record the
request.
Assignment
You may assign this Certificate at any time while it is In Force. The
assignment must be in writing and a copy must be received at Our Office.
Your rights and those of any revocably-named person will be subject to the
assignment. An assignment will not affect any payments We make or actions We
take before We record it. We are not responsible for the validity of any
assignment.
Incontestability
We will not contest this Certificate.
Nonparticipation in Surplus
We will not pay any dividends on this Certificate.
Certificate Settlement
All amounts due under this Certificate will be paid from Our Office in United
States currency.
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<PAGE>
Protection of Proceeds
No beneficiary or payee may commute or assign any payments under this
Certificate before they are due. To the extent permitted by law, no
payments shall be subject to the debts of any beneficiary or payee or to any
judicial process for payment of those debts.
Evidence of Death, Age, Sex, or Survival
If a Certificate provision relates to the death of a person, We will require
proof of death before We act under that provision. We will accept a
certified death certificate or a certified decree of a court of competent
jurisdiction as to a finding of death. We will also accept any other
document which is considered due proof of death under applicable state law.
If Our action under a Certificate provision is based on the age, sex, or
survival of any person, We may require evidence of that fact before We act
under that provision. However, if the issue state shown on page 2 is
Massachusetts or Montana, We will not require evidence of the sex of any
person.
Taxes
Any premium taxes or other taxes levied by any governmental authority with
respect to this Certificate will be deducted upon a total surrender or on
the Income Date. We will also deduct from any amount payable under this
Certificate any income taxes a governmental authority requires Us to withhold
with respect to that amount.
Reports
We will send You a report shortly after the end of each Certificate Year
that shows the following values for each Index Sub-Account that was open at
any time during the Certificate Year: the Surrender Value and Indexed Value
at the beginning of that year and the INDEX Value (as of the most recent
Sub-Account Anniversary); the amount of any surrenders or transfers during
that year; and the Index Increase, [Index Decrease,] Surrender Value and
Indexed Value at the end of that year. For the Interest Sub-Account We will
show You the Surrender Value and Accumulated Value at the beginning of the
year, the amount of any surrenders and transfers during the year, interest
credits during the year, and any premium payments allocated to this
Sub-Account during the year, and the Surrender Value and Accumulated Value
at the end of the year. Also, at the end of the term of each Index
Sub-Account, We will give You a report that shows the length of Your new
term and Your new term's Participation Rate and Floor and Cap. We will send
any other reports that may be required by law. Also, upon Written Request,
We will provide You in a timely manner with factual information about this
Certificate's benefits and provisions.
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<PAGE>
Endorsements
------------
To be inserted only by Us.
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<PAGE>
Keyport Life Insurance Company
Flexible Premium Indexed Deferred Annuity Certificate
In this Certificate, Keyport Life Insurance Company is referred to as "We",
"Us", "Our", or the "Company". "You" and "Your" refer to the Certificate
Owner.
The Certificate, as issued to You by Us with any riders or endorsements,
alone makes up the agreement under which benefits are paid. In consideration
of the application for this Certificate and the payment of the Initial
Premium, We agree to provide the benefits described in this Certificate to
the Certificate Owner.
If this Certificate is In Force on the Income Date, We will begin making
income payments to the Annuitant. We will make such payments according to
the terms of the Certificate.
RIGHT TO EXAMINE CONTRACT: your may return this Certificate to Us or the
agent through whom your purchased it within 45 days after your receive it.
If so returned, We will treat the Certificate as though it Were never
issued. Upon receipt We will promptly refund any premiums paid.
READ THIS CERTIFICATE CAREFULLY.
It is a legal Contract between You and Us.
FLEXIBLE PREMIUM GROUP DEFERRED ANNUITY CERTIFICATE
NON-PARTICIPATING - NO DIVIDENDS
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<PAGE>
EXHIBIT 4(c)
<PAGE>
If this Contract is In Force on the Income Date, We will begin making annuity
payments to the Annuitant. We will make such payments subject to the terms of
this Contract.
Right to Cancel - You may return this Contract to Us (Keyport Life Insurance
Company, 125 High Street, Boston, MA 02110) or to the agent from whom it was
purchased for cancellation. You must mail or deliver it within 45 days from the
Issue Date or 20 days after you receive it, whichever is later. The Contract
will then be treated as if We had never issued it and We will promptly refund
the Initial Premium, and any Subsequent Premium less the amount of any partial
surrenders.
This is a legal Contract between You and Us.
Read This Contract Carefully.
Signed for the Company:
Individual Deferred Annuity Contract
Flexible Premium Payment
Nonparticipating - No Dividends
VALUES GREATER THAN GUARANTEED VALUES ARE DEPENDENT UPON INCREASES AND DECREASES
IN THE INDEX, THE LENGTH OF TIME A CONTRACT IS HELD AND THE DECLARED RATE WHICH
IS ESTABLISHED EVERY MONTH AND GUARANTEED FOR THAT MONTH
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<PAGE>
Keyport Life Insurance Company
125 High Street, Boston, Massachusetts
(800) 367-3653
Contract Specifications
Primary Owner: John Doe, male, 12/31/1954
Joint Owner: None
Annuitant: John Doe, male, 12/31/1954
Contingent Annuitant: None
Contract Number: 9999999
Initial Premium: $10,000
Issue Date: 1/30/1995
Issue State: Rhode Island
IRS Plan Type: Non-Qualified
Income Date: 1/30/2045
Minimum Subsequent Premium: $1,000
Maximum Subsequent Premium: $100,000
INDEX: [Standard & Poor's 500 Composite Stock
Price Index]
INDEX Value at Start of First Term 500.
Declared Rate on Issue Date 4%
Your Initial Premium has been allocated as follows:
1. Premium 8,000
Index Sub-Account with a Term of [5] year(s), a Participation Rate of
[80%], a Floor of [0%] and a Cap of [none]
2. Premium 2,000
Interest Sub-Account
[There will never be a Cap for the [5] year Term Index Sub-Account]
[The Floor will never be less than 0%]
["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 Life
Insurance Company
This annuity is not sponsored, endorsed, sold or promoted by Standard & Poor's
and Standard & Poor's makes no representation regarding the advisability of
purchasing the annuity.]
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<PAGE>
Annuitant: John Doe Contract Number: 9999999
Table of Minimum Surrender Values*
<TABLE>
End of Certificate Year Surrender Value End of Certificate Year Surrender Value
- ----------------------- --------------- ----------------------- ---------------
<S> <C> <C> <C>
Issue Date $ 9,000.00 26 $19,409.32
1 9,270.00 27 19,991.60
2 9,548.10 28 20,591.35
3 9,834.54 29 21,209.09
4 10,129.58 30 21,845.36
5 10,433.47 31 22,500.72
6 10,746.47 32 23,175.74
7 11,068.86 33 23,871.01
8 11,400.93 34 24,587.14
9 11,742.96 35 25,324.76
10 12,095.25 36 26,084.50
11 12,458.10 37 26,867.04
12 12,831.85 38 27,673.05
13 13,216.80 39 28,503.24
14 13,613.31 40 29,358.34
15 14,021.71 41 30,239.09
16 14,442.36 42 31,146.26
17 14,875.63 43 32,080.65
18 15,321.90 44 33,043.07
19 15,781.55 45 34,034.36
20 16,255.00 46 35,055.39
21 16,742.65 47 36,107.05
22 17,244.93 48 37,190.26
23 17,762.28 49 38,305.97
24 18,295.15 50 39,455.15
25 18,844.00
</TABLE>
* Values are based on the definition of Surrender Value shown on pages 15-16
and a hypothetical Initial Premium of $10,000 allocated to an Index
Sub-Account by a 40 year old Annuitant on the Issue Date with an Income Date
of age 90. Values assume that no partial surrenders or Sub-Account
Anniversary Adjustments are made after the Issue Date.
DIA(1)/IND 1/97 3
<PAGE>
Table of Contents
Page
----
Contract Specifications......................................................2
Table of Minimum Surrender Values............................................3
Definitions..................................................................4
Contract Benefit Provisions..................................................6
Surrender Provisions.........................................................6
Death Provisions.............................................................7
Annuity Payment Provisions...................................................9
Index Sub-Account Provisions................................................13
Interest Sub-Account Provisions.............................................17
Transfers...................................................................18
General Provisions..........................................................19
Definitions
The following words have special meanings.
Annuitant - The natural person to whom any annuity payments will be made.
Contract Year, Contract Anniversary - The first Contract Year starts on the
Issue Date. Future Contract Years start on the same month and day in each
subsequent year (known as the Contract Anniversary).
In Force - The status of this Contract on or before the Income Date so long
as it is not totally surrendered and there has not been a death of the
Annuitant or any Owner that will cause the Contract to end within at most 5
years from the date of death.
Income Date - The date annuity payments will start. Unless state law requires
otherwise, the Income Date will be the Annuitant's 90th birthday.
INDEX - The published Index shown on the Contract Specifications' page that is
used to calculate Index Increases.
INDEX Value - The value of the INDEX. The INDEX Value on the Issue Date is
shown on the Contract Specifications' page.
Initial Premium - The premium payment that must be submitted with the
application for a Contract.
Issue Date - The date this Contract is issued and Your rights and benefits
begin. It is shown on the Contract Specifications page.
Cap - The maximum percentage by which an Indexed Value can increase over a
Term. The Cap
DIA(1)/IND 1/97 4
<PAGE>
may be "none" which means that there is no Cap.
Floor - The minimum percentage by which an Indexed Value can increase over a
Term. [The Floor may be "none" or it may be less than 0%, in which case the
Floor is the maximum percentage by which an Indexed Value can decrease over a
Term].
Office - Either Our Home Office or Our Executive Office. Our Home Office is
in Providence, Rhode Island. Our Executive Office is shown on the Contract
Specifications page.
Owner - The Primary Owner and any Joint Owner collectively.
Participation Rate - A percentage used to calculate the INDEX change for a
Term. The Participation Rate determines what percentage of the Term's change
in the INDEX will be used in calculating the increase [and/or decrease] in
the Sub-Account's Indexed Value. The higher the Participation Rate, the
greater the percentage.
Person - A human being, a trust, a corporation, or any other legally
recognized entity.
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 (known as the Sub-Account
Anniversary) including the end of any applicable Term of an Index Sub-Account.
Term - The number of complete years for which an increase [or decrease] in
Indexed Value is calculated.
We, Us, Our - Keyport Life Insurance Company.
Written Request - A request written on a form satisfactory to Us and received
at Our Office.
You, Your - The Owner.
DIA(1)/IND 1/97 5
<PAGE>
Contract Benefit Provisions
This Contract provides for the payment of four different types of benefits
though not all will become payable. First, total and partial surrender
benefits payable to You. Second, annuity benefits payable to You if You
request that surrender benefits be paid under an annuity option instead of in
a lump sum. Third, annuity benefits payable to the Annuitant if alive on the
Income Date. Fourth, total surrender, partial surrender, and annuity benefits
payable to the "designated beneficiary" after the death of the Annuitant or
an Owner (see "Death Provisions" on page 7).
This Contract consists of a series of Sub-Accounts, including an Interest
Sub-Account and multiple Index Sub-Accounts. Premium payments can be allocated
to the various Sub-Accounts by You. Also, subject to some restrictions,
transfers are allowed among the various Sub-Accounts. All benefits and
values under this Contract are calculated by first calculating the
appropriate value of each Sub-Account and then aggregating the Sub-Account
values to get the total values of the Contract.
Surrender Provisions
Total Surrender
You may surrender this Contract while it is In Force by making a Written
Request for surrender. Surrendering this Contract will end it. We will pay
You the Surrender Value. The Surrender Value is the total of the Surrender
Value(s) of each of the Sub-Account(s) in the Contract. However, if this
Contract is surrendered during the first 5 days of any month, We will pay You
the Accumulated Value of the Interest Sub-Account. If this Contract is
surrendered during the first 45 days of an Index Sub-Account's Term, We will
pay You the greater of the Indexed Value or the Surrender Value of that
Sub-Account.
Partial Surrenders
You may partially surrender this Contract while it is In Force by making a
Written Request. The amount must be for at least $250 and the total Surrender
Value of the Contract remaining after the surrender must be at least $4,000.
Also, the remaining Surrender Value in each Index Sub-Account must be at
least $1,000.
Your Written Request may specify which Sub-Account(s) Your partial surrender
is to be taken from.
In the event You do not tell Us which Sub-Account(s) to take Your partial
surrender from, We will withdraw it from Sub-Accounts, in the following
order:
(a) Interest Sub-Account; then
(b) Any Index Sub-Account(s) where the Indexed Value is available
(See page 12), starting with the Index Sub-Account that was most
recently opened; then
(c) Any remaining Index Sub-Account(s) where the Indexed Value is not
available, starting with the Sub-Account that was most recently
opened
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<PAGE>
Payment of Surrender Benefits
For total surrenders, instead of receiving Your total payment in a lump sum,
You may request that it be paid to You under an annuity payment option.
For lump sum payments, We may delay payment for up to 6 months from the date
We receive the Written Request to surrender. This right to delay is required
by most states. We will notify You if there is to be a delay.
Minimum Values
Hypothetical minimum surrender values for the Contract are illustrated in the
Table on page 3. Values paid at surrender, death and annuitization are
guaranteed not to be less than the minimum values required by any law of the
jurisdiction where this Contract was issued.
Death Provisions
Death of Primary Owner, Joint Owner, or Certain Non-Owner Annuitant
This section applies if, before the Income Date while the Contract is In
Force, the Primary Owner or any Joint Owner dies (whether or not the decedent
is also the Annuitant) or the Annuitant dies under a Contract with a
non-natural owner such as a trust. The "designated beneficiary" will control
the Contract after such a death. This "designated beneficiary" will be the
first person among the following who is alive on the date of death: Primary
Owner; Joint Owner; primary beneficiary; contingent beneficiary; and if no
one is alive, the Primary Owner's estate.
If the decedent's surviving spouse (if any) is the sole "designated
beneficiary", the surviving spouse will automatically become the new Primary
Owner as of the date of death. If the Annuitant is the decedent, the new
Annuitant will be any living contingent annuitant, otherwise the surviving
spouse. The surviving spouse can continue the Contract until the Income
Date. If the surviving spouse surrenders the Contract, see the "Death
Benefit" section below for the conditions under which the Death Benefit value
will be paid rather than the Surrender Value. If the surviving spouse
continues the Contract and another death occurs before the Income Date, the
Contract can continue for up to five years from the date of this second
death. All of this "Death Provisions" section, except for this paragraph,
will apply to that second death. The exception in the prior sentence means
that the first four sentences of this paragraph can apply only once; they
cannot apply a second time if the surviving spouse continues the Contract,
remarries, and then dies.
In all other cases, the Contract can continue for up to five years from the
date of death. During this period, the "designated beneficiary" may exercise
all ownership rights, including the right to make partial surrenders or the
right to totally surrender the Contract for its Surrender Value. If the
"designated beneficiary" surrenders the Contract, see the "Death Benefit"
section below for the conditions under which the Death Benefit value will be
paid rather than the Surrender Value. If this Contract is continued until
the end of the five-year period, We will automatically end it then by paying
the Indexed Value for any Index Sub-Account and the Accumulated Value for
the Interest Sub-Account to the "designated beneficiary". If the
"designated beneficiary" is not alive then, We will pay any person(s) named
by the "designated beneficiary" in a Written Request;
DIA(1)/IND 1/97 7
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otherwise the "designated beneficiary's" estate.
Death Benefit
This section applies only if the "covered person" dies and the Contract is
surrendered within 90 days of the date of death. The Primary Owner shall be
the "covered person" or, if there is a non-natural owner such as a trust, the
Annuitant shall be the "covered person". If the "covered person" dies, the
"designated beneficiary" may surrender this Contract within 90 days of the
date of death for the Death Benefit. For a surrender after 90 days and for a
surrender at any time after the death of a non-covered person, the Surrender
Value is payable. The total Death Benefit is the sum of the Death Benefit of
each Sub-Account in the Contract.
Payment of Benefits
The prior two sections allow the "designated beneficiary" to surrender the
Contract. If You want that person to receive annuity payments rather than a
lump sum, You may choose by Written Request an annuity payment option that
meets the following three conditions. First, the first payment to a non
spouse "designated beneficiary" must be made no later than one year after the
date of death. Second, payments must be made over the life of the non spouse
"designated beneficiary" or over a period not exceeding that person's life
expectancy. Third, any payment option that provides for payments to continue
after the death of the "designated beneficiary" will not allow the successor
payee to extend the period of time over which the remaining payments are to
be made. If You do not direct Us to make annuity payments, the "designated
beneficiary" can choose between a lump sum and an annuity payment option
meeting the above three conditions.
Death of Certain Non-Owner Annuitant
This section applies if, before the Income Date while the Contract is In
Force, (a) the Annuitant dies, (b) the Annuitant is not an Owner, and (c) the
Owner is a natural person. The Contract will continue in force after the
Annuitant's death. The new Annuitant will be any living contingent
annuitant, otherwise the Primary Owner.
DIA(1)/IND 1/97 8
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Annuity Payment Provisions
Annuity Benefits
If this Contract is In Force and the Annuitant is alive on the Income Date,
payments to the Annuitant will begin under the payment option chosen. You
may choose or change a payment option by making a Written Request at least 30
days before the Income Date. Unless You choose otherwise, Option 3 with 10
years guaranteed will become automatically effective. The amount of the
payments will be determined by applying the total Income Value (defined as
the sum of the Indexed Value for the Index Sub-Accounts and the Accumulated
Value for the Interest Sub-Account, less any applicable premium taxes or
other taxes) on the Income Date in accordance with the "Payment Options"
section.
Income Date
The Income Date for the Annuitant is the date shown on the Contract
Specifications' page. If the Annuitant's death results in someone becoming
the new Annuitant, the Income Date will be based on the new Annuitant's date
of birth only if the new Annuitant is younger than the decedent.
Payment Options
You may choose any of the four payment options described below. You may also
arrange other payment options with Us.
The payee is the person who will receive the sum payable under a payment
option. If the amount available to apply under any option is less than $5,000
($2,000 if the issue state shown on page 3 is Massachusetts), We reserve the
right to pay such amount in one sum to the payee in lieu of the payment
otherwise provided for.
Payments will be made monthly unless quarterly, semi-annual, or annual
payments are chosen by Written Request. However, if any payment provided for
would be or becomes less than $100, We have the right to reduce the frequency
of payments to an interval that will result in each payment being at least
$100.
The payment amount under each option will be equal to the greater of the
amount shown in the applicable table or the amount currently offered by Us at
the time of the first payment. Under Options 2, 3 and 4 and any other life
income option, the payment amount will be based on the age of the payee(s).
The current amount may also be based on the sex of the payee(s) (except if
this is prohibited by law or if the issue state shown on page 2 is
Massachusetts or Montana).
A payee may not surrender or otherwise end a payment option after it begins.
Payments will end upon the payees death unless the option provides for
payments continuing to a successor payee.
Option 1: Income For a Fixed Number of Years
We will pay an annuity for a chosen number of years, not fewer than 5 nor
more than 30. If the payee dies before the last payment is made, We will
continue to make the remaining payments to
DIA(1)/IND 1/97 9
<PAGE>
the successor payee. Upon Written Request of the successor payee, We will
make a lump sum payment of the present value of the remaining payments,
commuted at a rate of 3% per year or at such greater rate as was used to
compute the payments.
Option 2: Life Income
We will pay an annuity for as long as the payee lives.
Option 3: Life Income with 5 or 10 Years Guaranteed
We will pay an annuity for as long as the payee lives. Payments are
guaranteed for at least the number of years chosen even if the payee dies
before then. If the payee dies before the last payment is made, We will
continue to make the remaining guaranteed payments to the successor payee.
Upon Written Request of the successor payee, We will make a lump sum payment
of the present value of the remaining guaranteed payments, commuted at a rate
of 3% per year or at such greater rate as was used to compute the payments.
Option 4: Joint and Last Survivor Income
We will pay an annuity for as long as the payee lives. Upon the payee's
death, We will continue payments to the successor payee for as long as the
successor payee lives.
Misstatement of Age or Sex
If We learn on or after the Income Date that the age or sex of the Annuitant
or any other payee is incorrect, We will compute the amount payable based on
the correct age and sex (however, if the issue state shown on page 2 is
Massachusetts or Montana, We will only correct an age). If income payments
have begun, any underpayment that may have been made will be paid in full
with the next annuity payment. Any overpayments, unless repaid to Us in one
sum, will be deducted from future annuity payments otherwise due until We are
repaid in full.
Basis of Calculation
The minimum annuity payments are based on the 1983 Individual Annuity
Valuation Tables, weighted 40% male and 60% female, with interest at 3% per
year. We will similarly calculate the amount for a payment frequency other
than monthly and the amount for any age not shown in a table. Upon request,
We will tell You any such amount.
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Payment Option Tables
OPTION 1: MINIMUM MONTHLY PAYMENT PAYABLE FOR EACH $1,000 APPLIED VALUE
Years Payment Years Payment Years Payment
- -----------------------------------------------------------------------
5 $17.91 14 $7.26 23 $4.99
6 15.14 15 6.87 24 4.84
7 13.16 16 6.53 25 4.71
8 11.68 17 6.23 26 4.59
9 10.53 18 5.96 27 4.47
10 9.61 19 5.73 28 4.37
11 8.86 20 5.51 29 4.27
12 8.24 21 5.32 30 4.18
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<PAGE>
OPTIONS 2 AND 3: MINIMUM MONTHLY PAYMENT PAYABLE FOR EACH $1,000 APPLIED
VALUE
<TABLE>
Option 3- Option 3- Option 3- Option 3-
Age Option 2 5 Years 10 Years Age Option 2 5 Years 10 Years
- --- -------- --------- --------- --- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
30 $3.19 $3.19 $3.19 63 $ 5.34 $ 5.31 $5.20
31 3.22 3.22 3.21 64 5.49 5.45 5.33
32 3.24 3.24 3.24 65 5.65 5.61 5.47
33 3.27 3.27 3.27 66 5.82 5.77 5.61
34 3.30 3.30 3.30 67 6.01 5.94 5.75
35 3.34 3.33 3.33 68 6.20 6.13 5.91
36 3.37 3.37 3.36 69 6.41 6.33 6.07
37 3.40 3.40 3.40 70 6.64 6.54 6.23
38 3.44 3.44 3.44 71 6.88 6.76 6.41
39 3.48 3.48 3.47 72 7.14 7.00 6.59
40 3.52 3.52 3.51 73 7.43 7.26 6.77
41 3.56 3.56 3.55 74 7.73 7.53 6.96
42 3.61 3.61 3.60 75 8.06 7.82 7.14
43 3.65 3.65 3.64 76 8.42 8.12 7.34
44 3.70 3.70 3.69 77 8.80 8.45 7.53
45 3.76 3.75 3.74 78 9.21 8.79 7.71
46 3.81 3.81 3.79 79 9.66 9.14 7.90
47 3.87 3.86 3.85 80 10.14 9.52 8.06
48 3.93 3.92 3.90 81 10.65 9.91 8.25
49 3.99 3.98 3.96 82 11.21 10.31 8.41
50 4.05 4.05 4.03 83 11.81 10.72 8.57
51 4.12 4.11 4.09 84 12.46 11.15 8.71
52 4.19 4.19 4.16 85 13.14 11.58 8.84
53 4.27 4.26 4.23 86 13.88 12.01 8.96
54 4.35 4.34 4.31 87 14.67 12.44 9.06
55 4.44 4.42 4.39 88 15.50 12.86 9.15
56 4.53 4.51 4.47 89 16.39 13.28 9.23
57 4.62 4.61 4.56 90 17.32 13.68 9.31
58 4.72 4.71 4.65 91 18.31 14.07 9.37
59 4.83 4.81 4.75 92 19.35 14.45 9.42
60 4.95 4.93 4.86 93 20.45 14.81 9.47
61 5.07 5.05 4.97 94 21.61 15.15 9.50
62 5.20 5.17 5.08 95 22.84 15.48 9.53
</TABLE>
DIA(1)/IND 1/97 12
<PAGE>
OPTION 4: MINIMUM MONTHLY PAYMENT PAYABLE FOR EACH $1,000 APPLIED VALUE
Combination of Ages
<TABLE>
30 35 40 45 50 55 60 65 70 75 80 85 90 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 $2.99 $3.04 $3.07 $3.10 $3.13 $3.15 $3.16 $3.17 $3.18 $3.18 $3.18 $3.19 $3.19 $3.19
40 3.10 3.15 3.20 3.24 3.27 3.29 3.30 3.32 3.32 3.33 3.33 3.33 3.33
45 3.23 3.30 3.35 3.40 3.44 3.47 3.49 3.50 3.51 3.51 3.52 3.52
50 3.39 3.48 3.55 3.61 3.66 3.69 3.72 3.73 3.74 3.75 3.75
55 3.60 3.71 3.81 3.89 3.94 3.99 4.01 4.03 4.04 4.05
60 3.87 4.02 4.14 4.24 4.32 4.36 4.40 4.41 4.42
65 4.23 4.43 4.59 4.72 4.81 4.87 4.91 4.92
70 4.71 4.98 5.21 5.38 5.59 5.56 5.60
75 5.39 5.77 6.08 6.30 6.45 6.53
80 6.35 6.89 7.32 7.62 7.81
85 7.73 8.50 9.10 9.51
90 9.72 10.80 11.63
95 12.49 13.95
16.20
</TABLE>
INDEX SUB-ACCOUNT PROVISIONS
INTRODUCTION
Multiple Index Sub-Accounts may be open at any time. Each 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 Sub-Account. All activities that are
described herein relate to activities within the specific Sub-Account (e.g. a
partial surrender is a partial surrender from the Sub-Account).
The Indexed Value, as defined below, is available only during three time
periods. First, as a surrender payable if a Sub-Account is surrendered within
45 days after the end of its term (see page 6). Second, as a Death Benefit that
is payable if the Contract is surrendered within 90 days after the date of
certain deaths or at the required distribution date (see page 7). Third, as an
amount applied on the Income Date to determine the amount of annuity payments
(see page 9). At all other times, the Surrender Value is available to You while
the Contract is In Force (see page 6).
Indexed Value
The Indexed Value at any time is guaranteed to equal:
(a) the Initial Indexed Value; plus
(b) all Index Increases; [less all Index Decreases;] plus
(c) any End-Of-Term Adjustments; less
(d) any partial surrender amounts.
DIA(1)/IND 1/97 13
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If the Sub-Account is started by a premium payment, the Initial Indexed Value is
equal to the premium allocated to the Sub-Account. If the Sub-Account is
started by a transfer, then the Initial Indexed Value is the amount transferred.
The Index Increase [and/or Index Decrease] is determined on the Sub-Account
Anniversary using the INDEX Value, the Participation Rate, Floor and Cap.
Index Increases [and Index Decreases]
We will calculate the Index Increase [or Index Decreases] on each Sub-Account
Anniversary. On the first Sub-Account Anniversary in a Term, the formula used
is:
A x ((C-D)/D) x (E/F) x G
This calculation provides the proportionate credit for any change in the 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 any Index Increase,[or Index Decrease], to be credited on the Sub-Account
Anniversary , is the sum total of two parts.
Part 1 represents the proportionate credit for any increase in the INDEX Value
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 any change in the INDEX Value
occurring on a prior Sub-Account Anniversary(ies). The formula for Part 2 is:
A x ((B-D)/D) x (1/F) x G
A is the Participation Rate for the Term
B is the highest INDEX Value on all Sub-Account Anniversaries but excluding
the value of the INDEX Value on the date the Sub-Account is started and the
current Sub-Account Anniversary. The value of B can never be less than the
Minimum INDEX Value nor greater than the Maximum INDEX Value. The Minimum
INDEX and the Maximum INDEX Value are defined below.
C is the INDEX Value on the current Sub-Account Anniversary, not less than B
or greater than the Maximum INDEX Value for the Term.
D is the 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 [or Index
Decreases]) on any Sub-Account Anniversary in the Term, including the
current Sub-Account Anniversary
DIA(1)/IND 1/97 14
<PAGE>
The Minimum INDEX Value and the Maximum INDEX Value are defined as follows:
Minimum INDEX Value = [(Floor/Participation Rate for Term)+1] x Beginning of
Term INDEX Value
and
Maximum INDEX Value = [(Cap/Participation Rate for Term)+1] x Beginning of Term
INDEX Value
End-of-Term Adjustment in the Indexed Value
At the end of the Term (after the Index Increase [or Index Decrease]), if the
Surrender Value exceeds the Indexed Value, the Indexed Value will be increased
to equal the Surrender Value.
INDEX, Participation Rate, Floor and Cap, Term
The INDEX shown on the Contract Specifications' page is used to calculate Index
Increases. If the INDEX is discontinued or its calculation is changed
substantially, We will substitute a suitable index and notify You. The INDEX
Value for a particular day is the value calculated at the end of that day. If
there is no INDEX Value calculated that day, then the value calculated for the
first preceding day shall apply.
We will declare for each new Term of a Sub-Account the Participation Rate, the
Floor and the Cap on a basis which does not discriminate unfairly within any
class of Contracts.
Before the end of each Term of each Sub-Account, We will declare the length(s)
available for the next Term on a basis which does not discriminate unfairly
within a class of Contracts. You may choose a Term by Written Request. You may
not choose a Term that goes beyond the Income Date or in the case of a
"designated beneficiary", You may not choose a Term that goes beyond the date
allowed by the Death Provision section. If You do not choose, the new Term
("Default Term") will be the same length as the prior Term although the
Participation Rate, Cap and Floor may be different as described above. If the
Default Term would go beyond the Income Date or the date allowed by the Death
Provision section, the Sub-Account values will be transferred to the Interest
Sub-Account.
Surrender Value
The Surrender Value at any time is equal to:
(a) the Initial Surrender Value; plus
(b) any Sub-Account Anniversary Adjustments (see below): less
(c) any partial surrender amounts; plus
(d) interest on the net amount determined by above items (a) through (c)
at the rate of 3% per year.
We will credit interest daily. 3% represents the effective annual interest rate
that will be credited when daily interest credits have compounded for a full
year.
DIA(1)/IND 1/97 15
<PAGE>
If the Sub-Account is started by a premium payment, the Initial Surrender Value
is equal to 90% of the premium allocated to this Sub-Account.
If the Sub-Account is started by an transfer, the Initial Surrender Value is the
Surrender Value transferred.
Sub-Account Anniversary Adjustment in Surrender Value
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 [and 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 the 10 year period less any prior
increases made pursuant to this provision; and
(b) is the difference between the Indexed Value and the Surrender Value.
The Death Benefit
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 on the date of the payment.
If death occurs in the last Year of a Term and the surrender occurs after the
end of the Term, the Death Benefit is the greater of the Indexed Value at the
end of the Term, less any partial surrenders, and the Surrender Value on the
date of the payment.
In all other situations, the Death Benefit is the greater of (a) minus (b) and
the Surrender Value on the date of the payment, where:
(a) is the Indexed Value at the start of the Sub-Account year in which
death occurs, with the applicable Index Increase (described on page 12)
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.
If death occurs in the last year of a Term and the surrender occurs after the
end of the Term,
DIA(1)/IND 1/97 16
<PAGE>
the Indexed Value at the end of such Term will be substituted for (a).
Interest Sub-Account Provisions
Introduction
The Accumulated Value is available only during three time periods. First, as a
surrender payable if all or part of the Interest Sub-Account is surrendered
within the first 5 days of any calendar month. Second, as a Death Benefit that
is payable if the Contract is surrendered within 90 days after the date of
certain deaths (see page 7). Third, as a value applied on the Income Date to
determine the amount of annuity payments (see page 9). At all other times, the
Surrender Value is available to You while the Contract is In Force (see page 6).
Accumulated Value
The Accumulated Value at any time is guaranteed to equal:
(a) the portion of the Initial Premium allocated to this Sub-Account; plus
(b) the portion of any Subsequent Premium(s) allocated to this Sub-Account;
plus
(c) any amounts transferred to this Sub-Account; less
(d) any partial surrender amounts from this Sub-Account; less
(e) any amounts transferred from this Sub-Account; plus
(f) interest on the net amount determined by the above items (a) through (e)
at the declared rate.
Interest is calculated daily, based on the declared interest 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 will be
set on the first of each calendar month and will be guaranteed for the month,
and will never be less than 3%.
Surrender Value
The Surrender Value at any time is equal to:
(a) 90% of the portion of the Initial Premium allocated to this
Sub-Account; plus
(b) 90% of the portion of any Subsequent Premium(s) allocated to this
Sub-Account; plus
(c) any Surrender Values transferred to this Sub-Account; plus
(d) any excess interest as defined below; less
(e) any partial surrender amounts taken from this Sub-Account; less
(f) any amounts transferred from this Sub-Account; plus
(g) interest on the net amount determined by the above items (a) through (f)
at the rate of 3% per year. We will credit interest daily. Three percent
represents the effective annual interest rate that will be credited when
daily Interest credits have compounded for a full year.
Excess interest is the excess, if any, of interest credited to the Accumulated
Value over interest credited to the Surrender Value since the last date of
excess interest credits. Excess interest is added on the first of each calendar
month plus on any date of a transfer or surrender from this Sub-
DIA(1)/IND 1/97 17
<PAGE>
Account.
After the Calculation of excess interest, on each Contract 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.
The Death Benefit
The Death Benefit is the Accumulated Value as of the day before the claim is
paid if the surrender occurs within 90 days of death. Thereafter, the Death
Benefit is the Surrender Value as of the day before the claim is paid.
Transfers
Introduction
Transfers can be made at any time from the Interest Sub-Account to a new Index
Sub-Account. Transfers can also be made from an Index Sub-Account to the
Interest Sub-Account at the end of the Term. We will make a transfer when We
receive a Written Request to do so from You that meets the conditions set forth
below.
Transfers from the Interest Sub-Account to an Index Sub-Account
You can transfer all or part of the Interest Sub-Account to a new Index
Sub-Account at any time. The amount You request from the Accumulated Value
will be transferred to a new Index Sub-Account and will be the Initial
Indexed Value of the new Sub-Account. The Initial Surrender Value of the new
Index Sub-Account will be equal to the ratio of the Accumulated Value
transferred to the total Accumulated Value of the Interest Sub-Account prior
to the transfer times the Surrender Value of the Interest Sub-Account prior
to the transfer.
The remaining Accumulated Value and Surrender Value of the Interest Sub-Account
will be the values prior to the transfer less the amount transferred.
The minimum amount of any transfer from the Interest Sub-Account to a new Index
Sub-Account must be at least $1,000.
Transfers from an Index Sub-Account to the Interest Sub-Account
You can transfer the Indexed Value of an Index Sub-Account to the Interest
Sub-Account at the end of the Term of an Index Sub-Account. The Indexed Value
of the Index Sub-Account will be transferred to the Accumulated Value of the
Interest Sub-Account. The Surrender Value of the Index Sub-Account will be
transferred to the Surrender Value of the Interest Sub-Account.
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<PAGE>
General Provisions
Initial Premium
The Initial Premium is due on the Issue Date of Your Contract. It must be paid
in United States currency and deposited to a bank account of Ours in order for
this Contract to be valid. The Initial Premium is allocated to the Sub
- -Account(s) based on Your instructions.
Subsequent Premiums
Subsequent premiums, subject to the minimum and maximum stated on page 2, may
be paid at any time during the first Contract Year. Thereafter, they may be
paid any time Your Contract is In Force unless the current Contract Year is
within 10 years of the Income Date. Any Subsequent Premium must be paid in
United States currency and deposited to a bank account of Ours. We will then
apply the premium to the Sub-Account You requested. Any Subsequent Premium for
an Index Sub-Account will be allocated to a new Index Sub-Account of a Term
requested by You, subject to the limitations described in this Contract. If You
do not tell Us, We will add the premium to the Interest Sub-Account. The
Company reserves the right to not allow Subsequent Premiums to this Contract.
Contract
This Contract form, any attached copy of the application, and any attached
endorsements make up the entire Contract.
Only Our President or Secretary may agree to change any of the terms of this
Contract. Any changes must be made in writing and with Your consent, unless
provided otherwise by this Contract.
So that this Contract will maintain its status as an annuity under the Internal
Revenue Code, We reserve the right to change this Contract to comply with future
changes in: the Internal Revenue Code; any regulations or rulings issued under
that code; and any requirements otherwise imposed by the Internal Revenue
Service. You will be sent a copy of any such amendment as well as a copy of the
regulatory change requiring the amendment. If the Issue State shown on page 2
is Massachusetts, New Jersey, Pennsylvania or Texas, such amendment will be
filed for approval with the state s insurance supervisory official.
Ownership Provisions
The Primary Owner and any Joint Owner are shown on page 2. They may be changed
by You. If You change an owner who is also the Annuitant, the owner being
changed will still be the Annuitant. The Primary Owner and any Joint Owner own
the Contract equally with right of survivorship.
You may exercise all the rights of this Contract while it is In Force, subject
to the rights of: (a) any assignee under an assignment filed with Us; and (b)
any irrevocably-named beneficiary.
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<PAGE>
Annuitant Provisions
The Annuitant and any contingent annuitant are shown on page 2. You can change
the contingent annuitant but not the Annuitant. If the Annuitant dies, the
"Death Provisions" sections provide that the contingent annuitant, the
Annuitant s surviving spouse, or the primary owner may become the new annuitant.
Beneficiary Provisions
Any primary beneficiary and contingent beneficiary may be changed by You unless
irrevocably named.
If You name more than one primary beneficiary and do not state otherwise, any
non-survivors will not receive any benefit, the survivors will receive equal
shares, and if there is only one survivor, that person will receive the entire
benefit. If no primary beneficiary is alive, the contingent beneficiary will
receive the benefit. If You name more than one contingent beneficiary, the
rules stated above for multiple primary beneficiaries will apply.
Designation or Change of Owner, Beneficiary, or Contingent Annuitant
While the Contract is In Force, You may by Written Request designate or change
the Primary Owner, Joint Owner, primary beneficiary, contingent beneficiary, or
contingent annuitant. An irrevocably-named person may be changed only with the
written consent of such person. After We record the request, the designation or
change will take effect as of the date You signed the request. The designation
or change will not affect any payments We make or actions We take before We
record the request.
Assignment
You may assign this Contract at any time while it is In Force. The assignment
must be in writing and a copy must be received at Our Office. Your rights and
those of any revocably-named person will be subject to the assignment. An
assignment will not affect any payments We make or actions We take before We
record it. We are not responsible for the validity of any assignment.
Incontestability
We will not contest this Contract.
Nonparticipation in Surplus
We will not pay any dividends on this Contract.
Contract Settlement
All amounts due under this Contract will be paid from Our Office in United
States currency.
DIA(1)/IND 1/97 20
<PAGE>
Protection of Proceeds
No beneficiary or payee may commute or assign any payments under this Contract
before they are due. To the extent permitted by law, no payments shall be
subject to the debts of any beneficiary or payee or to any judicial process for
payment of those debts.
Evidence of Death, Age, Sex, or Survival
If a Contract provision relates to the death of a person, We will require proof
of death before We act under that provision. We will accept a certified death
certificate or a certified decree of a court of competent jurisdiction as to a
finding of death. We will also accept any other document which is considered
due proof of death under applicable state law. If Our action under a Contract
provision is based on the age, sex, or survival of any person, We may require
evidence of that fact before We act under that provision. However, if the issue
state shown on page 2 is Massachusetts or Montana, We will not require evidence
of the sex of any person.
Taxes
Any premium taxes or other taxes levied by any governmental authority with
respect to this Contract will be deducted upon a total surrender or on the
Income Date. We will also deduct from any amount payable under this Contract
any income taxes a governmental authority requires Us to withhold with respect
to that amount.
Reports
We will send You a report shortly after the end of each Contract Year that shows
the following values for each Index Sub-Account that was open at any time during
the Contract Year: the Surrender Value and Indexed Value at the beginning of
that year and the INDEX Value (as of the most recent Sub-Account Anniversary);
the amount of any surrenders or transfers during that year; and the Index
Increase, [Index Decrease,] Surrender Value and Indexed Value at the end of that
year. For the Interest Sub-Account We will show You the Surrender Value and
Accumulated Value at the beginning of the year, the amount of any surrenders and
transfers during the year, interest credits during the year, and any premium
payments allocated to this Sub-Account during the year, and the Surrender Value
and Accumulated Value at the end of the year. Also, at the end of the term of
each Index Sub-Account, We will give You a report that shows the length of Your
new term and Your new term's Participation Rate and Floor and Cap. We will send
any other reports that may be required by law. Also, upon Written Request, We
will provide You in a timely manner with factual information about this
Contract's benefits and provisions.
DIA(1)/IND 1/97 21
<PAGE>
Endorsements
To be inserted only by Us.
DIA(1)/IND 1/97 22
<PAGE>
Keyport Life Insurance Company
Flexible Premium Indexed Deferred Annuity Contract
In this Contract, Keyport Life Insurance Company is referred to as "We", "Us",
"Our", or the "Company". "You" and "Your" refer to the Owner.
The Contract, as issued to your by Us with any riders or endorsements, alone
makes up the agreement under which benefits are paid. In consideration of the
application for this Contract and the payment of the Initial Premium, We agree
to provide the benefits described in this Contract to the Owner.
If this Contract is In Force on the Income Date, We will begin making income
payments to the Annuitant. We will make such payments according to the terms of
the Contract.
RIGHT TO EXAMINE CONTRACT: your may return this Contract to Us or the agent
through whom your purchased it within 45 days after your receive it. If so
returned, We will treat the Contract as though it Were never issued. Upon
receipt We will promptly refund any premiums paid.
READ THIS CONTRACT CAREFULLY.
It is a legal Contract between You and Us.
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED ANNUITY CONTRACT
NON-PARTICIPATING - NO DIVIDENDS
DIA(1)/IND 1/97 23
<PAGE>
EXHIBIT 4(d)
<PAGE>
APPLICATION FOR KEYPORT LIFE INSURANCE COMPANY
GROUP DEFERRED INDEX CONTRACT
Please send application to: Keyport Life Insurance Company
125 High Street
Boston, MA 02110
1. Contract Owner:
(Name)
(Street) (City) (State) (Zip)
(Telephone) (Name of Person to Contact)
2. Nature of Group:
3. Number of Participants in Group:
4. Special Requests:
********************************************************************************
Signed At:
(City, State) (Signature of Contract Owner)
By:
(Date) (Name)
(Title)
********************************************************************************
AGENT'S REPORT
Agent's Name: Agency Phone:
(Print Exact Name on License)
Agency Name:
(Signature of Agent)
Agency Address:
[ ] [ ] [ ] [ ] [ ] - [ ] [ ] [ ] [ ] [ ]
(Home Office Use Only)
AP/DIA-1996 Keyport Contract #
<PAGE>
EXHIBIT 4(e)
<PAGE>
APPLICATION FOR A GROUP REGISTERED DEFERRED INDEX ANNUITY CERTIFICATE
Mail to: Keyport Life Insurance Company, 125 High Street, Boston, MA 02110-2712
1. PRIMARY CERTIFICATE OWNER
First Middle Last
Street Address
City State Zip
Date of Birth
M F Trustee
SS#
TIN#
Exempt
Citizenship vs. Resident Alien Country, Non Resident Alien Country
Phone
2. ANNUITANT (If different from Owner)
First Middle Last
Street Address
City State Zip
Date of Birth
M F
Citizenship vs. Resident Alien Country, Non Resident Alien Country
SS#
Phone Relationship to Primary Owner
3. JOINT CERTIFICATE OWNER (OPTIONAL)
First Middle Last
Street Address
City State Zip
Date of Birth
M F
SS#
Phone Relationship to Primary Owner
4. BENEFICIARY
Primary: Name(s) Relationship to Owner Percentage
Street Address
City State Zip
Contingent: Name(s) Relationship to Owner Percentage
Street Address
City State Zip
5. TYPE OF PLAN
Non-Qualified IRA 401(a) Other
Custodial IRA 403(b) SEP IRA Keogh
Complete if Applicable. This money comes as a:
Trustee Transfer Direct Rollover Rollover
From a:
IRA SEP IRA Keogh 401(a) TSA
If Ira: Regular Amount for (year)$
<PAGE>
Amount for (year) $
Rollover Amount $
Trustee to Trustee Transfer Amount $
6. INITIAL PREMIUM PAYMENT
$
Minimum $5,000 per contract, $1,000 per index sub-account; make check payable
to Keyport Life Insurance Company.
Check is attached Funds will be sent later
7. ALLOCATION
Allocation cannot be less than $1,000 per index sub-account.
Indexed sub-account options
$ /
$ /
$ /
$ /
$ /
Interest sub-account option
(required with DCA)
$
Total premiums for all contract
$
8. DOLLAR COST AVERAGING "DCA" (OPTIONAL)
Duration for all transfers:
until interest account is depleted -or- for months
Allocate $ to year index sub-account
Allocate $ to year index sub-account
Allocate $ to year index sub-account
9. REPLACEMENT
Will the annuity applied for replace any existing annuity or insurance policy?
Yes No
If yes, provide insurance company name and policy number and attach transfer or
exchange form.
l0. SPECIAL REQUESTS
11. CORRECTIONS
COMPANY CORRECTIONS OR ADDITIONS, IF ANY
12. AGREEMENT
It is agreed that: (a) all statements and answers given above are true and
complete to the best of my knowledge and belief; (b) this application shall
become part of the annuity contract(s) issued by the Company; and (c) except in
Kentucky and West Virginia, my acceptance of the contract(s) applied for will
constitute approval by me of any corrections or additions made in item #10
above. However, I must agree in writing to any changes in: amounts; ages; plan
of annuity; and benefits. Receipt of a current annuity prospectus is hereby
acknowledged.
Date City State (REQUIRED)
Signature of Certificate Owner (REQUIRED)
Signature of Certificate Joint Owner
<PAGE>
Signature of Annuitant
FLORIDA Notice to Applicants: Any person who knowingly and with intent to
injure, defraud, or deceive any insurer files a statement of claim or an
application containing any false, incomplete, or misleading information is
guilty of a felony of the third degree.
PENNSYLVANIA Notice to Applicants: Any person who knowingly and with intent to
defraud any insurance company or other person files an application for insurance
or statement of claim containing any materially false information or conceals
for the purpose of misleading, information concerning any fact material thereto
commits a fraudulent insurance act, which is a crime and subjects such person to
criminal and civil penalties.
13. AGENT'S REPORT
Do you have any reason to believe that the annuity applied for may replace an
existing annuity or insurance policy?
Yes No
If yes, list carrier, policy number, whether Section 1035 exchange, and attach
State Replacement Form if applicable
Agent's Legal Name (PRINTED)
Business Address
Agent's Bus. Phone
Agent's Social Security No. (Agent's Lic.# in FL)
Agency Name
Signature of Agent
AP/DIA/CERT - 1996
<PAGE>
EXHIBIT 4(f)
<PAGE>
APPLICATION FOR AN INDIVIDUAL REGISTERED DEFERRED INDEX ANNUITY
Mail to: Keyport Life Insurance Company, 125 High Street, Boston, MA 02110-2712
1. PRIMARY OWNER
First Middle Last
Street Address
City State Zip
Date of Birth
M F Trustee
SS#
TIN#
Exempt
Citizenship vs. Resident Alien Country, Non Resident Alien Country
Phone
2. ANNUITANT (If different from Owner)
First Middle Last
Street Address
City State Zip
Date of Birth
M F
Citizenship vs. Resident Alien Country, Non Resident Alien Country
SS#
Phone Relationship to Primary Owner
3. JOINT OWNER (OPTIONAL)
First Middle Last
Street Address
City State Zip
Date of Birth
M F
SS#
Phone Relationship to Primary Owner
4. BENEFICIARY
Primary: Name(s) Relationship to Owner Percentage
Street Address
City State Zip
Contingent: Name(s) Relationship to Owner Percentage
Street Address
City State Zip
5. TYPE OF PLAN
Non-Qualified IRA 401(a) Other
Custodial IRA 403(b) SEP IRA Keogh
Complete if Applicable. This money comes as a:
Trustee Transfer Direct Rollover Rollover
From a:
IRA SEP IRA Keogh 401(a) TSA
If Ira: Regular Amount for (year)$
<PAGE>
Amount for (year) $
Rollover Amount $
Trustee to Trustee Transfer Amount $
6. INITIAL PREMIUM PAYMENT
$
Minimum $5,000 per contract, $1,000 per index sub-account; make check payable
to Keyport Life Insurance Company.
Check is attached Funds will be sent later
7. ALLOCATION
Allocation cannot be less than $1,000 per index sub-account.
Indexed sub-account options
$ /
$ /
$ /
$ /
$ /
Interest sub-account option
(required with DCA)
$
Total premiums for all contract
$
8. DOLLAR COST AVERAGING "DCA" (OPTIONAL)
Duration for all transfers:
until interest account is depleted -or- for months
Allocate $ to year index sub-account
Allocate $ to year index sub-account
Allocate $ to year index sub-account
9. REPLACEMENT
Will the annuity applied for replace any existing annuity or insurance policy?
Yes No
If yes, provide insurance company name and policy number and attach transfer or
exchange form.
l0. SPECIAL REQUESTS
11. CORRECTIONS
COMPANY CORRECTIONS OR ADDITIONS, IF ANY
12. AGREEMENT
It is agreed that: (a) all statements and answers given above are true and
complete to the best of my knowledge and belief; (b) this application shall
become part of the annuity certificate(s) issued by the Company; and (c) except
in Kentucky and West Virginia, my acceptance of the certificate(s) applied for
will constitute approval by me of any corrections or additions made in item #10
above. However, I must agree in writing to any changes in: amounts; ages; plan
of annuity; and benefits. Receipt of a current annuity prospectus is hereby
acknowledged.
Date City State (REQUIRED)
Signature of Owner (REQUIRED)
Signature of Joint Owner
<PAGE>
Signature of Annuitant
FLORIDA Notice to Applicants: Any person who knowingly and with intent to
injure, defraud, or deceive any insurer files a statement of claim or an
application containing any false, incomplete, or misleading information is
guilty of a felony of the third degree.
PENNSYLVANIA Notice to Applicants: Any person who knowingly and with intent to
defraud any insurance company or other person files an application for insurance
or statement of claim containing any materially false information or conceals
for the purpose of misleading, information concerning any fact material thereto
commits a fraudulent insurance act, which is a crime and subjects such person to
criminal and civil penalties.
13. AGENT'S REPORT
Do you have any reason to believe that the annuity applied for may replace an
existing annuity or insurance policy?
Yes No
If yes, list carrier, policy number, whether Section 1035 exchange, and attach
State Replacement Form if applicable
Agent's Legal Name (PRINTED)
Business Address
Agent's Bus. Phone
Agent's Social Security No. (Agent's Lic.# in FL)
Agency Name
Signature of Agent
AP/DIA/IND - 1996
<PAGE>
EXHIBIT 4(g)(i)
<PAGE>
TAX-SHELTERED
ANNUITY (TSA)
ENDORSEMENT
We have issued this endorsement as part of the Contract to which it is attached
to be effective on the later of the Issue Date or the following date (if any):
Notwithstanding any provision in the Contract to the contrary:
(a) The Contract is intended to be a tax-sheltered annuity (TSA) created
for the exclusive benefit of You and Your Beneficiary and qualified
under Section 403(b) of the Internal Revenue Code ("Code"). Any
premium must be a rollover or transfer contribution from another
another qualified TSA. Your entire interest in the Contract is
nonforfeitable. You and the Annuitant must be the same person. You
may not designate a Contingent Annuitant or a Joint Contract Owner.
You may not transfer ownership of the Contract.
(b) Section 403(b)(11) of the Code provides that distributions from the
Contract can occur only under the following circumstances: (1) the
amount is being distributed after You attain age 59 1/2, separate from
service, die, or become permanently and totally disabled; (2) the
amount is being distributed in the case of hardship but such amount
may not include any income attributable to Your TSA contributions; or
(3) the amount to be distributed, when added to (i) any amounts
previously distributed from the Contract and (ii) any amounts
distributed after December 31, 1988 from the TSA(s) that is a
predecessor of the Contract, does not exceed the value of the
predecessor TSA(s) on December 31, 1988.
(c) You must begin taking distributions no later than April 1 of the
calendar year after You attain age 70 1/2 or, if You are a participant
in a governmental plan, April 1 of the calendar year after you retire
(the required beginning date). You may elect to have the Contract's
value distributed in equal or substantially equal amounts over (1)
Your life or the lives of You and Your designated Beneficiary or (2) a
period certain not extending beyond Your life expectancy or the joint
and last survivor expectancy of You and Your designated Beneficiary.
Periodic payments will be made at intervals of no longer than one year
and will be nonincreasing. Unless You elect otherwise by Written
Request, You must apply the Annuity Value to annuity payments that
begin on or before the required beginning date under an annuity
payment option that complies with minimum distribution regulations
adopted under Section 403(b)(10) of the Code. You may elect that We
pay You the Contract Withdrawal Value on or before the required
beginning date or, if offered by Us, that payments begin on or before
that date under a partial withdrawal option that complies with the
regulations previously referred to.
(d) All distributions made hereunder shall be made in accordance with the
requirements of Section 401(a)(9) of the Code, including the
incidental-death-benefit requirements of Section 401(a)(9)(G) of the
Code, and the regulations thereunder, including the minimum
distribution incidental benefit requirement of Section 1.401(a)(9)-2
of the Proposed Income Tax Regulations.
(e) In the event of Your death, Your entire interest in the Contract must
be distributed in conformity with regulations adopted under Section
403(b)(10) of the Code, which regulations contain rules similar to the
after-death-distribution rules of Section 401(a)(9)(G) of the Code and
to the incidental-death-benefit
<PAGE>
requirements of Section 401(a)(9)(G) of the Code. These
regulations provide that TSAs are subject to the distribution
rules provided in those Sections and in Regulation
1.401(a)(9)-1 and 1.401(a)(9)-2.
If You die after distributions have begun, the remaining portion of
Your interest will continue to be distributed at least as rapidly as
under the method of distribution being used prior to Your death. If
You die before distributions have begun, Your entire interest must be
distributed within five years of the date of death. Distributions are
considered to have begun if payments are made on account of Your
reaching Your required beginning date or, if prior to that date,
annuity payments begin to You under (c) above.
The Contract's provisions relating to the death of the Annuitant are
changed to the extent necessary to conform with the regulations and
statutory rules referred to in this paragraph (e).
(f) Life expectancy and joint and last survivor expectancy
will be calcu lated by use of the return multiples in Tables V and
VI of Regulation 1.72-9. If We offer a partial withdrawal option,
(1) the life expectancy factor used by us will be based on the
joint life expectancy of You and Your designated Beneficiary unless
You make a Written Request that it be based on just Your life
expectancy, (2) neither Your life expectancy nor the life
expectancy of any Beneficiary will be annually recalculated, and
(3) instead, the original life expectancy factor will be reduced by
1.0 in each succeeding year.
(g) Nothwithstanding any provision of the Contract to the contrary that
would otherwise limit a distributee's election, a "distributee" may
elect, at the time and in the manner prescribed by Us, to have any
portion of an "eligible rollover distribution" paid directly to an
"eligible retirement plan" specified by the distributee in a "direct
rollover".
The "distributee" is You. In addition, Your surviving spouse and Your
spouse or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the Code,
are distributees with regard to the interest of the spouse or former
spouse.
An "eligible rollover distribution" is any distribution of all or any
portion of the balance to the credit of the distributee, except that
an eligible rollover distribution does not include: any distribution
that is one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy)
of the distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated Beneficiary, or for a
specified period of ten years or more; any distribution to the extent
such distribution is required under Section 401(a)(9) of the Code; and
the portion of any distribution that is not includible in gross
income.
An "eligible retirement plan" is an individual retirement account
described in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, or a TSA described in
Section 403(b) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is
an individual retirement account or individual retirement annuity.
A "direct rollover" is a payment by Us to the eligible retirement plan
specified by the distributee.
(h) In the event of any conflict between the terms of the Contract
and these TSA provisions or any sections of the Code applicable to
annuities described in Section 403(b) of the Code, those TSA
provisions or sections will govern. Any distribution options in the
Contract that are inconsistent with Section 401(a)(9) or are
inconsistent with other provisions reflecting Section 401(a)(9) as
are prescribed by the Commissioner of Internal Revenue, are
overridden and that Section or provision reflecting that Section
shall govern.
<PAGE>
Signed for the Company:____________________________________________
Secretary
END.TSA(9)/IND
<PAGE>
EXHIBIT 4(g)(ii)
<PAGE>
CORPORATE/KEOGH
401(a) PLAN
ENDORSEMENT
(GROUP)
We have issued this endorsement as part of the Certificate to which it is
attached to be effective on the later of the Certificate Issue Date or the
following date (if any):
Notwithstanding any provisions in the Certificate to the contrary:
(a) The Certificate is issued to a trust or custodial account forming
part of an employer's pension or profit-sharing plan qualified under
Section 401 of the Internal Revenue Code. While the Certificate is
in effect, You must continue to maintain the tax-qualified status of
the plan. The Certificate does not reflect any plan provisions; it
is simply an asset of the plan.
(b) You may not designate a Contingent Annuitant, a Joint Certificate
Owner, or a Beneficiary. You are the Beneficiary.
(c) If You do not designate an Annuitant because the initial payment to
the Certificate represents the unallocated interests of multiple
participants under the plan, then You may apply a partial withdrawal
amount either to a non-transferable Annuity Option payable to a
participant or to a non-transferable Joint and Survivor Annuity
Option payable to a participant and his or her spouse. Other than the
partial withdrawal option described above, You may not make any
partial withdrawals from an Index Sub-Account under the Certificate.
Signed for the Company:____________________________________________
Secretary
END.C/K(9)
<PAGE>
EXHIBIT 4(g)(iii)
<PAGE>
CORPORATE/KEOGH
401(a) PLAN
ENDORSEMENT
(INDIVIDUAL)
We have issued this endorsement as part of the Contract to which it is attached
to be effective on the later of the Issue Date or the following date (if any):
Notwithstanding any provisions in the Contract to the contrary:
(a) The Contract is issued to a trust or custodial account forming part of
an employer's pension or profit-sharing plan qualified under Section
401 of the Internal Revenue Code. While the Contract is in effect,
You must continue to maintain the tax-qualified status of the plan.
The Contract does not reflect any plan provisions; it is simply an
asset of the plan.
(b) You may not designate a Contingent Annuitant, a Joint Contract Owner,
or a Beneficiary. You are the Beneficiary.
(c) If You do not designate an Annuitant because the initial payment to
the Contract represents the unallocated interests of multiple
participants under the plan, then You may apply a partial withdrawal
amount either to a non-transferable Annuity Option payable to a
participant or to a non-transferable Joint and Survivor Annuity Option
payable to a participant and his or her spouse. Other than the partial
withdrawal option described above, You may not make any partial
withdrawals from an Index Sub-Account under the Contract.
Signed for the Company: ______________________________________________________
Secretary
END.C/K(9)/IND
<PAGE>
EXHIBIT 4(g)(iv)
<PAGE>
INDIVIDUAL RETIREMENT
ANNUITY (IRA)
ENDORSEMENT
(GROUP)
We have issued this endorsement as part of the Certificate to which it is
attached to be effective on the later of the Issue Date or the following date
(if any):
Notwithstanding any provision in the Certificate to the contrary:
(a) The Certificate is intended to be an individual retirement annuity
(IRA) plan created for the exclusive benefit of You and Your Beneficiary
and qualified under Section 408 of the Internal Revenue Code ("Code").
Your entire interest in the Certificate is nonforfeitable. You and the
Annuitant must be the same person. You may not designate a Contingent
Annuitant or a Joint Certificate Owner. You may not transfer ownership
of the Certificate nor may You pledge, collaterally assign, or otherwise
use it as security for a loan.
(b) Except in the case of a rollover or transfer contribution as described in
Section 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code, (1) the
payments made to an IRA for any taxable year must be in cash and may not
exceed $2,000 or such higher amount as may be permitted under the Code
(e.g., for a contribution made in accordance with the terms of a Simplified
Employee Pension Plan (SEP) as described in Section 408(k)), and (2) You
may not make payments beginning with the calendar year in which You attain
age 70 1/2. Since the minimum Single Premium is over $2,000, it will
generally have to be paid, at least in part, by a rollover or transfer.
(c) You must begin taking distributions no later than April 1 of
the calendar year after You attain age 70 1/2 (the required
beginning date). You may elect to have the Certificate's value
distributed in equal or substantially equal amounts over (1) Your
life or the lives of You and Your designated Beneficiary or (2) a
period certain not extending beyond Your life expectancy or the
joint and last survivor expectancy of You and Your designated
Beneficiary. Periodic payments will be made at intervals of no
longer than one year and will be nonincreasing. Unless You elect
otherwise by Written Request, You must apply the Annuity Value to
annuity payments that begin on or before the April 1st date under
an annuity payment option that complies with minimum distribution
regulations adopted under Section 408(b)(3) of the Code. You may
elect that We pay You the Certificate Withdrawal Value on or before
the April 1st date or, if offered by Us, that payments begin on or
before that date under a partial withdrawal option that complies
with the regulations previously referred to.
(d) All distributions made hereunder shall be made in accordance with
the requirements of Section 401(a)(9) of the Code, including the
incidental-death-benefit requirements of Section 401(a)(9)(G) of the
Code, and the regulations thereunder, including the minimum
distribution incidental benefit requirement of Section 1.401(a)(9)-2 of
the Proposed Income Tax Regulations.
(e) In the event of Your death, Your entire interest in the Certificate
must be distributed in conformity with regulations adopted under Section
408(b)(3) of the Code, which regulations contain rules similar to the
after-death-distribution rules of Section 401(a)(9)(G) of the Code and
to the incidental-death-benefit requirements of Section 401(a)(9)(G) of
the Code. These regulations provide that IRAs are subject to the
distribution rules provided in those Sections and in Regulation
1.401(a)(9)-1 and 1.401(a)(9)-2.
<PAGE>
If You die after distributions have begun, the remaining portion of Your
interest will continue to be distributed at least as rapidly as under the
method of distribution being used prior to Your death. If You die before
distributions have begun, Your entire interest must be distributed within
five years of the date of death. Distributions are considered to have begun
if payments are made on account of Your reaching Your required beginning
date or, if prior to that date, annuity payments begin to You under (c)
above.
If the designated Beneficiary is Your surviving spouse, the surviving
spouse may treat the Certificate as his or her own IRA. This election will
be deemed to have been made if such surviving spouse fails to elect a
distribution acceptable under Regulation 1.401(a)(9). The Certificate's
provisions relating to the death of the Annuitant are changed to the extent
necessary to conform with the regulations and statutory rules referred to
in this paragraph.
(f) Life expectancy and joint and last survivor expectancy will be calculated
by use of the return multiples in Tables V and VI of Regulation 1.72-9. If
We offer a partial withdrawal option, (1) the life expectancy factor used
by us will be based on the joint life expectancy of You and Your designated
Beneficiary unless You make a Written Request that it be based on just Your
life expectancy, (2) neither Your life expectancy nor the life expectancy
of any Beneficiary will be annually recalculated, and (3) instead, the
original life expectancy factor will be reduced by 1.0 in each succeeding
year.
(g) We will send You annually a report concerning the status of the annuity.
(h) In the event of any conflict between the terms of the Certificate
and these IRA provisions or any sections of the Code applicable to
annuities de scribed in Section 408(b) of the Internal Revenue Code,
those IRA provisions or sections will govern. Any distribution options
in the Certificate that are inconsistent with Section 401(a)(9) or are
inconsistent with other provisions reflecting Section 401(a)(9) as are
prescribed by the Commissioner of Internal Revenue, are overridden and
that Section or provision reflecting that Section shall govern.
Signed for the Company:____________________________________________
Secretary
END.IRA(9)
<PAGE>
EXHIBIT 4(g)(v)
<PAGE>
INDIVIDUAL RETIREMENT
ANNUITY (IRA)
ENDORSEMENT
(INDIVIDUAL)
We have issued this endorsement as part of the Contract to which it is attached
to be effective on the later of the Issue Date or the following date (if any):
Notwithstanding any provision in the Contract to the contrary:
(a) The Contract is intended to be an individual retirement annuity (IRA) plan
created for the exclusive benefit of You and Your Beneficiary and qualified
under Section 408 of the Internal Revenue Code ("Code"). Your entire
interest in the Contract is nonforfeitable. You and the Annuitant must be
the same person. You may not designate a Contingent Annuitant or a Joint
Contract Owner. You may not transfer ownership of the Contract nor may You
pledge, collaterally assign, or otherwise use it as security for a loan.
(b) Except in the case of a rollover or transfer contribution as described in
Section 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code, (1) the
payments made to an IRA for any taxable year must be in cash and may not
exceed $2,000 or such higher amount as may be permitted under the Code
(e.g., for a contribution made in accordance with the terms of a Simplified
Employee Pension Plan (SEP) as described in Section 408(k)), and (2) You
may not make payments beginning with the calendar year in which You attain
age 70 1/2. Since the minimum Single Premium is over $2,000, it will
generally have to be paid, at least in part, by a rollover or transfer.
(c) You must begin taking distributions no later than April 1 of the calendar
year after You attain age 70 1/2 (the required beginning date). You may
elect to have the Contract's value distributed in equal or substantially
equal amounts over (1) Your life or the lives of You and Your designated
Beneficiary or (2) a period certain not extending beyond Your life
expectancy or the joint and last survivor expectancy of You and Your
designated Beneficiary. Periodic payments will be made at intervals of no
longer than one year and will be nonincreasing. Unless You elect otherwise
by Written Request, You must apply the Annuity Value to annuity payments
that begin on or before the April 1st date under an annuity payment option
that complies with minimum distribution regulations adopted under Section
408(b)(3) of the Code. You may elect that We pay You the Contract
Withdrawal Value on or before the April 1st date or, if offered by Us, that
payments begin on or before that date under a partial withdrawal option that
complies with the regulations previously referred to.
(d) All distributions made hereunder shall be made in accordance with the
requirements of Section 401(a)(9) of the Code, including the incidental-
death-benefit requirements of Section 401(a)(9)(G) of the Code, and the
regulations thereunder, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations.
(e) In the event of Your death, Your entire interest in the Contract must be
distributed in conformity with regulations adopted under Section 408(b)(3)
of the Code, which regulations contain rules similar to the after-death-
distribution rules of Section 401(a)(9)(G) of the Code and to the
incidental-death-benefit requirements of Section 401(a)(9)(G) of the Code.
These regulations provide that IRAs are subject to the distribution rules
provided in those Sections and in Regulation 1.401(a)(9)-1 and
1.401(a)(9)-2.
<PAGE>
If You die after distributions have begun, the remaining portion of Your
interest will continue to be distributed at least as rapidly as under the
method of distribution being used prior to Your death. If You die before
distributions have begun, Your entire interest must be distributed within
five years of the date of death. Distributions are considered to have begun
if payments are made on account of Your reaching Your required beginning
date or, if prior to that date, annuity payments begin to You under (c)
above.
If the designated Beneficiary is Your surviving spouse, the surviving
spouse may treat the Contract as his or her own IRA. This election will
be deemed to have been made if such surviving spouse fails to elect a
distribution acceptable under Regulation 1.401(a)(9). The Contract's
provisions relating to the death of the Annuitant are changed to the extent
necessary to conform with the regulations and statutory rules referred to in
this paragraph.
(f) Life expectancy and joint and last survivor expectancy will be calculated
by use of the return multiples in Tables V and VI of Regulation 1.72-9. If
We offer a partial withdrawal option, (1) the life expectancy factor used
by us will be based on the joint life expectancy of You and Your designated
Beneficiary unless You make a Written Request that it be based on just Your
life expectancy, (2) neither Your life expectancy nor the life expectancy
of any Beneficiary will be annually recalculated, and (3) instead, the
original life expectancy factor will be reduced by 1.0 in each succeeding
year.
(g) We will send You annually a report concerning the status of the annuity.
(h) In the event of any conflict between the terms of the Contract and these
IRA provisions or any sections of the Code applicable to annuities described
in Section 408(b) of the Internal Revenue Code, those IRA provisions or
sections will govern. Any distribution options in the Contract that are
inconsistent with Section 401(a)(9) or are inconsistent with other
provisions reflecting Section 401(a)(9) as are prescribed by the
Commissioner of Internal Revenue, are overridden and that Section or
provision reflecting that Section shall govern.
Signed for the Company: ______________________________________________________
Secretary
END.IRA(9)/IND
<PAGE>
EXHIBIT 4(g)(vi)
<PAGE>
QUALIFIED PLAN
ENDORSEMENT
We have issued this endorsement as part of the Group Contract to which it is
attached on the Issue Date.
At least one of the following Certificate endorsements will be offered to
Certificate Owners (only one endorsement will be issued with any one
Certificate):
END.IRA(9) Individual Retirement Annuity (IRA) Endorsement
END.TSA(9) Tax-Sheltered Annuity (TSA) Endorsement
END.C/K(9) Corporate/Keogh 401(a) Plan Endorsement
Signed for the
Company:______________________________________________________________________
Secretary
END.A(152)
<PAGE>
EXHIBIT 5
<PAGE>
February 3, 1997
John W. Rosensteel, President
Keyport Life Insurance Company
125 High Street
Boston, MA 02110
Re: File No. 333-13609
Dear Mr. Rosensteel:
With reference to the Registration Statement on Form S-1 filed by Keyport
Life Insurance Company with the Securities and Exchange Commission governing
Group and Individual Annuity contracts, I have examined such documents and such
law as I have considered necessary and appropriate, and on the basis of such
examination, it is my opinion that:
1. Keyport Life Insurance Company is duly organized and existing under
the laws of the State of Rhode Island and has been duly authorized to
do such business and to issue such contracts by the Insurance
Commissioner of the State of Rhode Island.
2. The Group and Individual Deferred Annuity contracts covered by the
above Registration Statement have been or will be approved and
authorized by the Insurance Commissioner of the State of Rhode Island
and when issued, will be valid, legal and binding obligations of
Keyport Life Insurance Company.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
Sincerely,
/s/Bernard R. Beckerlegge
Bernard R. Beckerlegge
Senior Vice President and
General Counsel
<PAGE>
EXHIBIT 23(a)
<PAGE>
CONSENT OF COUNSEL
I hereby consent to the use of my name in the caption "Legal Matters" in
the prospectus of Keyport Life Insurance Company contained in Form S-1.
Boston, Massachusetts /s/Bernard R. Beckerlegge
-------------------------
Bernard R. Beckerlegge
February 3, 1997
- -----------------
Date
<PAGE>
EXHIBIT 23(b)
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Keyport Life Insurance Company
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Our report dated February 16, 1996, contains an explanatory paragraph that
refers to a change in accounting by the Company to adopt the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equtiy Securities", effective January 1, 1994.
Boston, Massachusetts /s/KPMG Peat Marwick LLP
February 7, 1997
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
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0 0
0 0
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<INCOME-TAX> 38,331 32,645
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