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Zenith Accumulator
Individual Variable Annuity Contracts
Offered by New England Mutual Life Insurance Company 501
Boylston Street, Boston, Massachusetts 02116-3700
Prospectuses
October 31, 1994
<PAGE>
ZENITH ACCUMULATOR
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
(617) 578-2000
This prospectus offers individual flexible and single purchase payment
variable annuity contracts (the "Contracts") that are currently intended for
use with certain retirement plans that qualify for tax benefited treatment
under the Internal Revenue Code (the "Code"), for individual use, and for use
with plans and trusts not qualifying under the Code for tax benefited
treatment. All purchase payments made under the Contracts may be allocated to
New England Variable Account (the "Variable Account"), a separate investment
account of New England Mutual Life Insurance Company ("The New England" or the
"Company"). Assets of the Variable Account are invested in shares of certain
Series of the New England Zenith Fund and certain portfolios of the Variable
Insurance Products Fund (collectively, the "Eligible Funds"). See "Investments
of the Variable Account." The owner of a Contract chooses the Eligible Funds
in which the purchase payments are invested and may change the Eligible Fund
or Funds selected at any time. Any one or a combination of the following
Eligible Funds may be selected:
Capital Growth Back Bay Loomis Sayles Loomis Sayles
Series Advisors Managed Balanced Series Small Cap
Series Series
Back Bay Loomis Sayles Draycott Equity-Income
Advisors Bond Avanti Growth International Equity Portfolio
Income Series Series Series
Westpeak Value Salomon Brothers U.S. Overseas
Westpeak Stock Growth Series Government Series Portfolio
Index Series
Salomon Brothers
Back Bay Strategic Bond
Advisors Money Opportunities Series
Market Series
Venture Value Series
Alger Equity Growth
Series
CS First Boston
Strategic Equity
Opportunities Series
A Fixed Account option is also available in approved states. (See "The Fixed
Account" for more information.) Special limits apply to transfers of Contract
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Value to and from the Fixed Account.
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This prospectus sets forth concisely the information about the Contracts
that a prospective investor ought to know before investing. The prospectus
should be read carefully and retained for future reference.
Certain additional information about the Contracts is contained in a
Statement of Additional Information dated October 31, 1994, as it may be
supplemented from time to time, which has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Table of
Contents of the Statement of Additional Information appears on page A-57 of
this prospectus. The Statement of Additional Information is available without
charge and may be obtained by writing to New England Securities Corporation
("New England Securities"), 399 Boylston St., Boston, Massachusetts 02116.
New England Securities, a subsidiary of the Company, serves as principal
underwriter for the Variable Account.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 31, 1994.
THIS PROSPECTUS IS NOT VALID UNLESS IT IS ACCOMPANIED OR PRECEDED BY CURRENT
PROSPECTUSES FOR THE NEW ENGLAND ZENITH FUND AND THE VARIABLE INSURANCE
PRODUCTS FUND AND SHOULD BE RETAINED FOR FUTURE REFERENCE.
AN INVESTMENT IN THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND IS NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY, AND INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
<PAGE>
TABLE OF CONTENTS
OF
THE PROSPECTUS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS......................... A-4
HIGHLIGHTS................................................................ A-5
EXPENSE TABLE............................................................. A-7
HOW THE CONTRACT WORKS.................................................... A-14
THE COMPANY............................................................... A-15
THE VARIABLE ACCOUNT...................................................... A-15
INVESTMENTS OF THE VARIABLE ACCOUNT....................................... A-15
New England Zenith Fund............................................... A-15
Variable Insurance Products Fund...................................... A-17
Investment Advice..................................................... A-17
Substitution of Investments........................................... A-18
GUARANTEED OPTION......................................................... A-18
THE CONTRACTS............................................................. A-18
Purchase Payments..................................................... A-18
Allocation of Purchase Payments....................................... A-19
Contract Value and Accumulation Unit Value............................ A-19
Payment on Death Prior to Annuitization .............................. A-19
Transfer Privilege.................................................... A-20
Dollar Cost Averaging................................................. A-20
Surrenders............................................................ A-20
Systematic Withdrawals................................................ A-21
Loan Provision for Certain Tax Benefited Retirement Plans............. A-21
Disability Benefit Rider.............................................. A-23
Suspension of Payments................................................ A-23
Ownership Rights...................................................... A-23
Requests and Elections................................................ A-24
Ten Day Right to Review............................................... A-24
ADMINISTRATION CHARGES, CONTINGENT DEFERRED SALES CHARGE AND OTHER
DEDUCTIONS............................................................... A-24
Administration Charges................................................ A-24
Mortality and Expense Risk Charge..................................... A-25
Contingent Deferred Sales Charge...................................... A-25
Premium Tax Charges................................................... A-26
Other Expenses........................................................ A-27
Charges Under Contracts Purchased by Exchanging a Fund I or Preference
Contract............................................................. A-27
ANNUITY PAYMENTS.......................................................... A-27
Election of Annuity................................................... A-27
Annuity Options....................................................... A-28
AMOUNT OF VARIABLE ANNUITY PAYMENTS....................................... A-29
Minimum Annuity Payments.............................................. A-30
Proof of Age, Sex and Survival........................................ A-30
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS............................ A-30
FEDERAL INCOME TAX STATUS................................................. A-31
Tax Status of the Insurance Company and the Variable Account.......... A-31
Taxation of the Contracts............................................. A-31
Special Rules for Annuities Purchased for Annuitants Under Retirement
Plans Qualifying for Tax Benefited Treatment......................... A-31
Special Rules for Annuities Used by Individuals or with Plans and
Trusts Not Qualifying Under the Code for Tax Benefited Treatment..... A-33
Tax Withholding....................................................... A-34
</TABLE>
A-2
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<TABLE>
<CAPTION>
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<S> <C>
VOTING RIGHTS.............................................................. A-34
DISTRIBUTION OF CONTRACTS.................................................. A-35
THE FIXED ACCOUNT.......................................................... A-35
General Description of the Fixed Account............................... A-35
Contract Value and Fixed Account Transactions.......................... A-36
FINANCIAL STATEMENTS....................................................... A-36
INVESTMENT EXPERIENCE INFORMATION.......................................... A-37
AVERAGE ANNUAL TOTAL RETURN................................................ A-37
INVESTMENT ADVISER PERFORMANCE DATA FOR THE CLONED SERIES.................. A-44
APPENDIX A: Consumer Tips.................................................. A-53
</TABLE>
A-3
<PAGE>
GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS
ACCOUNT--A sub-account of the Variable Account or the Fixed Account.
ACCUMULATION UNIT--An accounting device used to calculate the Contract Value
prior to the Maturity Date.
ACCUMULATION UNIT VALUE--The value of an Accumulation Unit, determined as of
the close of regular trading on the New York Stock Exchange on each day the
Exchange is open. The Accumulation Unit Value of a sub-account reflects the
net investment experience of the underlying Eligible Fund and daily deductions
for the Mortality and Expense Risk Charge and Administration Asset Charge.
ADMINISTRATION ASSET CHARGE--A charge deducted daily from the assets of each
sub-account of the Variable Account to cover the Company's cost of providing
certain administrative services relating to the Contracts and the Variable
Account. On an annualized basis, the charge equals .40% of daily net assets.
ADMINISTRATION CONTRACT CHARGE--A $30 charge deducted annually from the
Contract Value to cover the Company's cost of providing certain administrative
services relating to the Contracts and the Variable Account.
ANNUITANT--The person on whose life the Contract is issued.
ANNUITIZATION--Application of proceeds under the Contract to an annuity
option on the Maturity Date or upon an earlier surrender of the Contract.
ANNUITY UNIT--An accounting device used to calculate the dollar amount of
annuity payments.
BENEFICIARY--The person designated to receive any benefits under a Contract
if the Annuitant dies before the Maturity Date.
CONTINGENT DEFERRED SALES CHARGE--A charge deducted upon certain full and
partial surrenders and application of Contract proceeds to certain annuity
payment options prior to the Maturity Date.
CONTRACT DATE--The date shown as the Contract Date in the Contract.
CONTRACT OWNER--The person so designated in the application or as
subsequently changed.
CONTRACT VALUE--On or before the Maturity Date, the value obtained by
multiplying the number of Accumulation Units credited to the Contract by the
appropriate current Accumulation Unit Value. Under Contracts that permit
Contract loans, the Contract Value also includes the amount of Contract Value
transferred to the Company's general account as a result of a loan and any
interest credited on that amount. Under Contracts with the Fixed Account
option, the Contract Value also includes the amount of Contract Value
allocated to the Fixed Account.
CONTRACT YEAR--A twelve month period commencing with the Contract Date and
with each Contract anniversary thereafter.
DEATH PROCEEDS (prior to Maturity Date)--The amount payable upon death of
the Annuitant prior to the Maturity Date. The Death Proceeds are guaranteed to
be no less than the purchase payments made, adjusted for any previous
surrenders. The Death Proceeds will be reduced by the amount of any
outstanding Contract loan plus accrued interest.
ELIGIBLE FUNDS--A term that currently includes 15 Series of the New England
Zenith Fund and two portfolios of the Variable Insurance Products Fund.
Purchase payments applied to the Variable Account may be invested in shares of
one or more of these Series and portfolios, as described on pages A-1 and A-
15.
FIXED ACCOUNT--A part of the Company's general account to which net purchase
payments may be allocated under certain Contracts. The Fixed Account provides
guarantees of principal and interest. Special limits apply to transfers of
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Contract Value to and from the Fixed Account. See page 37.
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MORTALITY AND EXPENSE RISK CHARGE--A charge deducted daily from the assets
of each sub-account of the Variable Account to compensate the Company for
assuming certain mortality and expense risks under the Contracts. On an
annualized basis, the charge equals .95% of daily net assets.
MATURITY DATE--The date on which annuity payments are to commence, as stated
in the application or as subsequently deferred.
A-4
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NET PURCHASE PAYMENT--A purchase payment, less any premium tax and any
premium for the disability benefit rider, if applicable, deducted before
allocation to the sub-accounts or the Fixed Account.
PAYEE--Any person or entity entitled to receive payment in one sum or under
a payment option. The term includes (i) an Annuitant, (ii) a Beneficiary or
contingent Beneficiary who becomes entitled to payments upon death of the
Annuitant, and (iii) in the event of surrender or partial surrender of the
Contract, the Contract Owner.
PREMIUM TAX--A tax charged by a state on purchase payments.
PURCHASE PAYMENTS--Amounts paid to the Company for investment in the
Contract.
SYSTEMATIC WITHDRAWALS--A method of distributing your Contract Value which
involves a series of partial surrenders.
TEN DAY RIGHT TO REVIEW--Within 10 days of your receipt of an issued
Contract you may return it to the Company or its agent for cancellation. Upon
cancellation of the Contract, the Company will refund all your purchase
payments (or, if required by state law, the Contract Value plus any premium
taxes deducted from the purchase payments).
VARIABLE ACCOUNT--A separate investment account of the Company designated as
The New England Variable Account. The Variable Account is divided into sub-
accounts, each of which invests in shares of one of the Eligible Funds.
VARIABLE ANNUITY--An annuity providing for payments varying in amount in
accordance with the investment experience of the assets of a separate
investment account.
HIGHLIGHTS
This prospectus describes Contracts under which net purchase payments are
allocated to the Variable Account. If the Fixed Account is available under
your Contract, you may allocate net purchase payments or transfer all or part
of your Contract Value to that account. For a description of the Fixed
Account, the rules regarding transactions which involve the Fixed Account
(such as special restrictions on transfers of Contract Value to and from the
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Fixed Account), and the way in which the Fixed Account affects the Contract
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Value, see "The Fixed Account". You should review "The Fixed Account"
carefully before allocating purchase payments or Contract Value to that
account.
TAX DEFERRED VARIABLE ANNUITIES:
The deferral of taxes on earnings under variable annuities is designed to
encourage long-term personal savings and supplemental retirement plans.
THE CONTRACT:
The Zenith Accumulator is a variable annuity issued by The New England. The
variable annuity provides for variable payments to commence at the Maturity
Date. The Contract Owner may, however, surrender the Contract and apply the
proceeds to an annuity payment option at an earlier date. The payments
generally are made on a monthly basis and will vary in amount according to the
payment option selected and the investment results of the underlying Eligible
Fund. (See "Annuity Payments".)
PURCHASE PAYMENTS:
Except with the consent of the Company, the minimum initial and subsequent
purchase payment for a monthly payment Contract is $25. If the Contract Owner
elects on the application to treat the Contract as a single payment Contract,
the minimum single payment required is $5,000, except with the consent of the
Company. Additional payments may be made under such a Contract, subject to the
$25 minimum. The Company reserves the right to limit the amount of purchase
payments in any Contract Year. (See "Purchase Payments".) Contracts can be
purchased through insurance agents of The New England who are also registered
representatives of New England Securities.
A-5
<PAGE>
OWNERSHIP:
The Contracts may be purchased and owned by the Annuitant, the employer, a
trust, a custodian or any entity specified in an employee benefit plan, except
that where a Contract is issued under Section 408(b) or, generally, under
Section 403(b) of the Code, the Contract Owner must be the Annuitant. The
Company relies on instructions from trustees and custodians, as Contract
Owners, who may exercise certain rights under the Contracts on behalf of plan
participants. In any event, references to "you" in this prospectus refer to
the Contract Owner or to plan participants who may be entitled to instruct
their trustee or custodian with regard to the exercise of these rights.
INVESTMENT OPTIONS:
You may allocate net purchase payments to the Eligible Funds or to the Fixed
Account (if available under your Contract). Your Contract Value may be
distributed among no more than 10 accounts (including the Fixed Account) at
any time.
You may change the Eligible Funds in which you invest future purchase
payments. You may also transfer Contract Value between Eligible Funds without
taxation. (See "Requests and Elections" and "Transfer Privilege.") Currently
the Company allows 12 transfers free of charge per Contract Year prior to
annuitization. Additional transfers are subject to a charge of $10 per
transfer. After variable annuity payments begin, you may make one transfer per
year without the consent of the Company. The amount of Contract Value
transferred must be a minimum of $25 (or, if less, the amount of Contract
Value held in the sub-account from which the transfer is made). (See "The
Fixed Account" for a description of transfers involving that account.) Special
limits apply to transfers of Contract Value to and from the Fixed Account.
CHARGES:
There are no deductions from purchase payments for sales charges. In certain
states, applicable state premium taxes are deducted from purchase payments.
Where state law requires, the Company deducts premium taxes from Contract
Value at the date annuity benefits commence. (See "Premium Taxes.") As
compensation for its assumption of mortality and expense risks, the Company
deducts an amount equal to an annual rate of .95% of the daily net assets of
the Variable Account, of which .60% represents a mortality risk charge and
.35% represents an expense risk charge. The Company deducts an amount equal to
an annual rate of .40% of the daily net assets of the Variable Account for
administrative expenses and also imposes an annual administrative charge of
$30 against each Contract.
A Contingent Deferred Sales Charge will be imposed on certain full and
partial surrenders and applications of proceeds to certain payment options
prior to the Maturity Date. (See "Administration Charges, Contingent Deferred
Sales Charge and Other Deductions.") In no event will the total Contingent
Deferred Sales Charge exceed 8% of the first $50,000 of purchase payments made
under the Contract and 6.5% of the amount of purchase payments in excess of
$50,000.
TEN DAY RIGHT TO REVIEW:
Within 10 days (or more where required by applicable state insurance law) of
your receipt of a Contract you may return it to the Company or the Company's
agent for cancellation. The Company will refund all purchase payments made
under the Contract (or, if required by state law or regulation, the Contract
Value plus any premium taxes deducted from the purchase payments).
PAYMENT ON DEATH:
The Contract provides a payment to the Beneficiary if the Annuitant dies
prior to annuitization. The amount provided to the Beneficiary is guaranteed
not to be less than the purchase payments made under the Contract (adjusted
for previous surrenders and reduced by any outstanding Contract loan balance).
SURRENDERS:
Surrenders of the Contract for all or a portion of the Contract Value are
generally permitted upon written request at any time prior to annuitization so
long as, after a partial surrender, the remaining Contract Value is at least
$500. (See
A-6
<PAGE>
"Surrenders". Special rules apply if the Contract is subject to a loan.) The
Federal tax laws impose penalties upon, and in some cases prohibit, certain
premature distributions from the Contracts before or after the date on which
the annuity payments are to begin. (See "Federal Income Tax Status.") A
Contingent Deferred Sales Charge will be imposed in connection with certain
Contract surrenders and applications of proceeds to certain payment options
prior to the Maturity Date. Up to 10% of the Contract Value may be surrendered
without sales charge in any one Contract Year. (See "Administration Charges,
Contingent Deferred Sales Charge and Other Deductions" for more information.)
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EXPENSE TABLE
VARIABLE ACCOUNT
<TABLE>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES(1)
Sales Charge Imposed on Purchases (as a percentage of
purchase payments).................................... 0%
Maximum Contingent Deferred Sales Charge(2) (as a 8% of first $50,000
percentage of total purchase payments)................ 6.5% of excess
Exchange Fee(3)........................................ $ 0
ANNUAL CONTRACT FEE
Administration Contract Charge (per Contract)(4)....... $30
SEPARATE ACCOUNT ANNUAL EXPENSES(5)
(as percentage of average net assets)
Mortality Risk Charge.................................. .60%
Expense Risk Charge.................................... .35%
Administration Asset Charge............................ .40%
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Total Separate Account Annual Expenses............. 1.35%
</TABLE>
A-7
<PAGE>
NEW ENGLAND ZENITH FUND
ANNUAL OPERATING EXPENSES(6)
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE CAP)
<TABLE>
<CAPTION>
BACK BAY BACK BAY LOOMIS LOOMIS
ADVISORS ADVISORS BACK BAY WESTPEAK WESTPEAK SAYLES SAYLES
CAPITAL BOND MONEY ADVISORS STOCK VALUE AVANTI SMALL
GROWTH INCOME MARKET MANAGED INDEX GROWTH GROWTH CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------- -------- -------- -------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .66% .40% .35% .50% .25% .59% .63% .77%
Other Expenses.......... .05% .14% .15% .14% .15% .26% .22% .23%
---- ---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses............. .71% .54% .50% .64% .40% .85% .85% 1.00%
</TABLE>
ESTIMATED ANNUAL OPERATING EXPENSES(7)
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
SALOMON CS FIRST
SALOMON BROTHERS BOSTON
LOOMIS BROTHERS STRATEGIC ALGER STRATEGIC
SAYLES DRAYCOTT U.S. BOND VENTURE EQUITY EQUITY
BALANCED INTERNATIONAL GOVERNMENT OPPORTUNITIES VALUE GROWTH OPPORTUNITIES
SERIES EQUITY SERIES SERIES SERIES SERIES SERIES SERIES
-------- ------------- ---------- ------------- ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .70% .90% .55% .65% .75% .70% .80%
Other Expenses.......... .15% .40% .15% .20% .15% .15% .25%
Total Series Operating
Expenses............. .85% 1.30% .70% .85% .90% .85% 1.05%
</TABLE>
EXAMPLE (NOTE: The examples shown below are entirely hypothetical. They are
not representations of past or future performance or expenses. Actual
performance and/or expenses may be more or less than shown.(8)) For purchase
payments allocated to each of the Series indicated
<TABLE>
<CAPTION>
You would pay the following direct and
indirect expenses on a $1,000 purchase
payment assuming 1) 5% annual return on the
underlying New England Zenith Fund Series and
2) that you surrender your Contract or that
you elect to annuitize under a non-life
contingency option at the end of each time 1 YEAR 3 YEARS 5 YEARS 10 YEARS
period: ------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Growth.............................. $82.39 $122.36 $164.01 $264.05
Back Bay Advisors Bond Income............... 80.03 115.19 151.89 238.62
Back Bay Advisors Money Market.............. 79.56 113.75 149.45 233.45
Back Bay Advisors Managed................... 80.97 118.06 156.75 248.87
Westpeak Stock Index........................ 79.17 112.59 147.48 229.29
Westpeak Value Growth....................... 83.99 127.21 172.16 280.95
Loomis Sayles Avanti Growth................. 83.99 127.21 172.16 280.95
Loomis Sayles Small Cap..................... 85.40 131.47 179.30 295.59
Loomis Sayles Balanced...................... 83.99 127.21 172.16 280.95
Draycott International Equity............... 88.21 139.92 193.40 324.19
Salomon Brothers U.S. Government............ 82.58 122.94 164.97 266.05
Salomon Brothers Strategic Bond Opportuni-
ties....................................... 83.99 127.21 172.16 280.95
Venture Value............................... 84.46 128.63 174.55 285.85
Alger Equity Growth......................... 83.99 127.21 172.16 280.95
CS First Boston Strategic Equity Opportuni-
ties....................................... 85.87 132.88 181.67 300.43
</TABLE>
A-8
<PAGE>
<TABLE>
<CAPTION>
You would pay the following direct and indirect
expenses on a $1,000 purchase payment assuming
1) 5% annual return on the underlying New
England Zenith Fund Series and 2) that you do
not surrender your Contract or that you elect
to annuitize under a variable life contingency 1 YEAR 3 YEARS 5 YEARS 10 YEARS
option at the end of each time period(9): ------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Growth............................... $22.30 $68.72 $117.70 $252.28
Back Bay Advisors Bond Income................ 19.79 61.14 105.00 226.56
Back Bay Advisors Money Market............... 19.29 59.62 102.44 221.33
Back Bay Advisors Managed.................... 20.79 64.18 110.10 236.93
Westpeak Stock Index......................... 18.88 58.40 100.38 217.12
Westpeak Value Growth........................ 24.00 73.84 126.25 269.38
Loomis Sayles Avanti Growth.................. 24.00 73.84 126.25 269.38
Loomis Sayles Small Cap...................... 25.50 78.34 133.73 284.20
Loomis Sayles Balanced....................... 24.00 73.84 126.25 269.38
Draycott International Equity................ 28.49 87.27 148.51 313.13
Salomon Brothers U.S. Government............. 22.50 69.33 118.71 254.31
Salomon Brothers Strategic Bond
Opportunities............................... 24.00 73.84 126.25 269.38
Venture Value................................ 24.50 75.34 128.75 274.34
Alger Equity Growth.......................... 24.00 73.84 126.25 269.38
CS First Boston Strategic Equity
Opportunities............................... 26.00 79.83 136.21 289.09
</TABLE>
A-9
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND
ANNUAL OPERATING EXPENSES(10)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
EQUITY-
INCOME OVERSEAS
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
Management Fee.............................................. .53% .77%
Other Expenses.............................................. .09% .26%
---- -----
Total Portfolio Operating Expenses........................ .62% 1.03%
</TABLE>
EXAMPLE (NOTE: The examples shown below are entirely hypothetical. They are
not representations of past or future performance or expenses. Actual
performance and/or expenses may be more or less than shown.(11)) For purchase
payments allocated to each of the Portfolios indicated
<TABLE>
<CAPTION>
You would pay the following direct and indirect
expenses on a $1,000 purchase payment assuming
1) 5% annual return on the underlying Variable
Insurance Products Fund Portfolio and 2) that
you surrender your Contract or that you elect
to annuitize under a non-life contingency 1 YEAR 3 YEARS 5 YEARS 10 YEARS
option at the end of each time period: ------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity-Income Portfolio...................... $81.81 $120.65 $161.11 $258.01
Overseas Portfolio........................... 85.68 132.31 180.72 298.50
<CAPTION>
You would pay the following direct and indirect
expenses on a $1,000 purchase payment assuming
1) 5% annual return on the underlying Variable
Insurance Products Fund Portfolio and 2) that
you do not surrender your Contract or that you
elect to annuitize under a variable life
contingency option at the end of each time 1 YEAR 3 YEARS 5 YEARS 10 YEARS
period(12): ------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity-Income Portfolio...................... $21.69 $ 66.91 $114.67 $246.17
Overseas Portfolio........................... 25.80 79.23 135.22 287.14
</TABLE>
A-10
<PAGE>
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NOTES:
(1) Premium tax charges are not shown. The amount of premium tax, if any, is
deducted from purchase payments or, in any state which so requires, from
the Contract Value on the date of annuitization. Currently, the Company
deducts premium tax from purchase payments in three states and at
annuitization in one state. (See "Premium Taxes.")
(2) Although the Maximum Contingent Deferred Sales Charge is expressed here
as a percentage of purchase payments, ordinarily any applicable
Contingent Deferred Sales Charge will be calculated as a percentage of
Contract Value. No Contingent Deferred Sales Charge will apply after a
Contract reaches its Maturity Date and, prior to the Maturity Date, up to
10% of the Contract Value may be surrendered in any one Contract Year
without charge. The maximum possible charge, as a percentage of Contract
Value, occurs in the first Contract Year. As a percentage of Contract
Value, the applicable Contingent Deferred Sales Charge reduces after each
Contract Year. In no event will the total Contingent Deferred Sales
Charge exceed 8% of the first $50,000 of purchase payments made under the
Contract and 6.5% of the amount of purchase payments in excess of
$50,000. (See "Contingent Deferred Sales Charge.")
(3) The Company currently charges $10 for each transfer in excess of twelve
per Contract Year, and reserves the right to impose a charge of $10 on
each transfer in excess of four per year.
(4) This charge is not imposed after annuitization of the Contract. As a
percentage of the average Contract Value in the Variable Account, this
fee equals 0.17%, based on an average Contract Value of $17,706 over the
period from June 30, 1993 to June 30, 1994.
(5) These charges are not imposed after annuitization if annuity payments are
made on a fixed basis.
(6) The Total Series Operating Expenses shown for these Series are based on
the amount of such expenses incurred during the most recent fiscal year
applied against assets at December 31, 1993, after giving effect to a
voluntary expense cap by The New England, beginning November 1, 1994. For
each of the Capital Growth, Back Bay Advisors Bond Income, Back Bay
Advisors Money Market, Back Bay Advisors Managed, and Westpeak Stock
Index Series, The New England will bear those expenses (other than the
management fee) that exceed 0.15% of average daily net assets. Absent
these voluntary caps or any other expense reimbursement arrangement,
Total Series Operating Expenses for the Back Bay Advisors Money Market
and Westpeak Stock Index Series for the year ended December 31, 1993
would have been 0.54% and 1.00%, respectively. The Total Series Operating
Expenses for the Westpeak Value Growth and Loomis Sayles Avanti Growth
Series take into account a voluntary cap on expenses by The New England,
which will bear all expenses that exceed 0.85% of average daily net
assets. Without this cap or any other expense reimbursement arrangement,
Total Series Operating Expenses for the Westpeak Value Growth and Loomis
Sayles Avanti Growth Series for the eight-month period ending December
31, 1993 would have been 1.85% and 1.67%, respectively. The Loomis Sayles
Small Cap Series was established after December 31, 1993. The Total
Series Operating Expenses shown for this Series take into account a
voluntary cap on expenses by The New England, which will bear all
expenses that exceed 1.00% of average daily net assets. In the absence of
this cap or any other expense reimbursement arrangement, Total Series
Operating Expenses for the Loomis Sayles Small Cap Series are estimated
to be 1.70% of average daily net assets for its first year of operations.
The expense cap arrangements for these Series are voluntary and may be
terminated at any time. (See attached prospectus of New England Zenith
Fund for more complete information.)
(7) The Total Series Operating Expenses shown for each of these Series is
after giving effect to a voluntary expense deferral. Under the deferral,
a Series' expenses other than the management fee which exceed a certain
limit are paid by the investment adviser for these Series in the year in
which they are incurred and transferred to the Series in a future year
when actual expenses of the Series are below the limit. The amounts shown
as "Other Expenses" for these Series are the applicable limits under the
expense deferral arrangements. It is estimated that, absent the voluntary
expense deferral, Total Series Operating Expenses for these Series for
their first year of operations would be: 0.89% for the Loomis Sayles
Balanced Series, 1.52% for the Draycott International Equity Series,
0.91% for Salomon Brothers U.S. Government Series, 1.42% for Salomon
Brothers Strategic Bond Opportunities Series, 1.01% for Venture Value
Series, 0.87% for Alger Equity Growth Series, and 1.47% for CS First
Boston Strategic Equity Opportunities Series. The expense deferral
arrangements are voluntary and may be terminated at any time. (See
attached prospectus of New England Zenith Fund for more complete
information.)
(8) In these examples, the figures assume that no premium tax has been
deducted from purchase payments (See (1), above). The effect of the
Administration Contract Charge has been reflected by dividing the
estimated total amount of annual contract fees by the total average net
assets of the sub-accounts invested in the Zenith Fund. The average
Administration Contract Charge of 0.17% is used in these examples. (See
(4), above.)
A-11
<PAGE>
(9) The same would apply if you elect to annuitize under a fixed life
contingency option unless your Contract has been in effect less than five
years, in which case the expenses shown in the first three columns of the
preceding example would apply. (See "Contingent Deferred Sales Charge".)
(10) The operating expenses shown for the Variable Insurance Products
Portfolios are based on the amount of such expenses incurred during the
most recent fiscal year applied against assets at December 31, 1993. (See
prospectus of Variable Insurance Products Fund for more complete
information.)
(11) In these examples, the figures assume that no premium tax charge has been
deducted. (See (1), above). The effect of the Administration Contract
Charge has been reflected by dividing the estimated total amount of
annual contract fees by the total average net assets of the sub-accounts
invested in the Variable Insurance Products Fund. The average
Administration Contract Charge of 0.17% is used in these examples. (See
(4), above.)
(12) The same would apply if you elect to annuitize under a fixed life
contingency option unless your Contract has been in effect less than five
years, in which case the expenses shown in the first three columns of the
preceding example would apply. (See "Contingent Deferred Sales Charge".)
The preceding table lists the charges and expenses incurred with respect to
purchase payments invested under the Contracts. The items listed include
charges deducted from purchase payments, charges assessed against Variable
Account assets, and charges deducted from the assets of each of the Eligible
Funds. The purpose of the table is to assist you in understanding the various
costs and expenses you will bear, directly and indirectly, as a Contract
Owner.
- -------------------------------------------------------------------------------
A-12
<PAGE>
ACCUMULATION UNIT VALUES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
THE NEW ENGLAND VARIABLE ACCOUNT
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ZENITH
BACK BAY
ZENITH ADVISORS
CAPITAL BOND
GROWTH INCOME
SUB- SUB-
ACCOUNT ACCOUNT
-------- --------
9/16/88* 1/1/89 1/1/90 1/1/91 1/1/92 1/1/93 10/5/88* 1/1/89 1/1/90 1/1/91
TO TO TO TO TO TO TO TO TO TO
12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/88 12/31/89 12/31/90 12/31/91
-------- --------- ---------- ---------- ---------- ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... $4.645 $4.612 $5.950 $5.666 $8.608 $7.978 $1.630 $1.634 $1.810 $1.930
2. Accumulation
Unit Value at
end of
period....... $4.612 $5.950 $5.666 $8.608 $7.978 $9.050 $1.634 $1.810 $1.930 $2.247
3. Number of
Accumulation
Units
outstanding
at end of
period....... 439,393 5,337,778 12,591,788 21,719,884 33,645,983 40,091,665 299,002 4,287,540 10,139,527 17,797,335
<CAPTION>
1/1/92 1/1/93
TO TO
12/31/92 12/31/93
---------- ----------
<S> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... $2.247 $2.398
2. Accumulation
Unit Value at
end of
period....... $2.398 $2.664
3. Number of
Accumulation
Units
outstanding
at end of
period....... 28,871,719 41,939,487
</TABLE>
- -------
* Date these sub-accounts were first available.
------------------
<TABLE>
<CAPTION>
ZENITH
BACK BAY ZENITH
ADVISORS BACK BAY
MONEY ADVISORS
MARKET MANAGED
SUB- SUB-
ACCOUNT ACCOUNT
-------- --------
9/29/88* 1/1/89 1/1/90 1/1/91 1/1/92 1/1/93 9/21/88* 1/1/89 1/1/90 1/1/91
TO TO TO TO TO TO TO TO TO TO
12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/88 12/31/89 12/31/90 12/31/91
-------- --------- ---------- ---------- ---------- ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... $1.384 $1.408 $1.518 $1.620 $1.697 $1.738 $1.042 $1.063 $1.250 $1.272
2. Accumulation
Unit Value at
end of
period....... $1.408 $1.518 $1.620 $1.697 $1.738 $1.766 $1.063 $1.250 $1.272 $1.508
3. Number of
Accumulation
Units
outstanding
at end of
period....... 915,605 7,661,069 21,629,006 26,322,938 26,759,532 25,016,975 731,349 9,179,207 18,099,540 26,478,398
<CAPTION>
1/1/92 1/1/93
TO TO
12/31/92 12/31/93
---------- ----------
<S> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... $1.508 $1.588
2. Accumulation
Unit Value at
end of
period....... $1.588 $1.733
3. Number of
Accumulation
Units
outstanding
at end of
period....... 41,588,546 60,696,659
</TABLE>
- -------
* Date these sub-accounts were first available.
------------------
<TABLE>
<CAPTION>
ZENITH
ZENITH ZENITH LOOMIS
WESTPEAK WESTPEAK SAYLES
STOCK VALUE AVANTI EQUITY-
INDEX GROWTH GROWTH INCOME OVERSEAS
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
--------- --------- --------- --------- ----------
8/1/92* 1/1/93 10/1/93* 10/1/93* 10/1/93* 10/1/93*
TO TO TO TO TO TO
12/31/92 12/31/93 12/31/93 12/31/93 12/31/93 12/31/93
--------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit
Value at beginning of
period............... $1.592 $1.644 $1.105 $1.125 $1.980 $1.458
2. Accumulation Unit
Value at end of
period............... $1.644 $1.780 $1.132 $1.137 $1.992 $1.532
3. Number of
Accumulation Units
outstanding at end of
period............... 2,583,607 11,017,884 3,359,317 4,515,611 5,649,743 10,878,551
</TABLE>
- -------
* Date these sub-accounts were first available.
Information on units and unit values is useful because they affect the
calculation of Contract Values. The value of a Contract is determined by
multiplying the number of Accumulation Units in each sub-account credited to
the Contract by the Accumulation Unit Value of the sub-account. The
Accumulation Unit Value of a sub-account depends in part on the net investment
experience of the Eligible Fund Series in which it invests. See "Contract
Value and Accumulation Unit Value" for more information. No Accumulation Unit
Values are provided for the remaining Sub-Accounts of the Variable Account
because they did not invest in Eligible Funds prior to the period ended
December 31, 1993.
- -------------------------------------------------------------------------------
A-13
<PAGE>
HOW THE CONTRACT WORKS
PURCHASE PAYMENT DAILY DEDUCTION FROM
ASSETS
. You can make a CONTRACT VALUE
one-time . Mortality and
investment or . Payments are expense risk
establish an allocated to your charge of 0.95% on
ongoing investment choice, within an annual basis is
program limits, of deducted from the
Eligible Fund Contract Value
+ investments and/or daily
+ the Fixed Account
+++ . Administration
+ Asset Charge of
0.40% on annual
CHARGES FROM PAYMENT . The Contract Value basis is deducted
reflects purchase from the Contract
. State Premium payments, invest- + Value daily
Tax, if ment experience, ++++++
applicable interest payments, + . Investment
partial advisory fees are
. Premium for + surrenders, loans deducted from the
disability ++++++ and Contract Eligible Fund
benefit rider, + charges Values daily
if elected
. The Contract Value
invested in the ANNUAL CONTRACT FEE
Eligible Fund is
+ not guaranteed
+ . $30 Administration
+++ . Earnings are Contract Charge is
+ accumulated free deducted from the
of any current Contract Value on
ADDITIONAL PAYMENTS income taxes (see each anniversary
pages A-29) + while Contract is
. Anytime ++++++ in-force, other
(subject to . You may change the + than under a
Company + allocation of Payment Option
limits) +++++++ future payments,
+ within limits, at SURRENDER CHARGE
. Minimum $25 any time
. Consists of
LOANS . Prior to Contingent
annuitization, you + Deferred Sales
. Are available to may transfer funds ++++++ Charge (see page
participants among investment + A-23)
of certain tax options, within
qualified limits, up to LIVING BENEFITS
pension plans twelve times per
(see page A-19) Contract Year
without charge . You pay no taxes
on your investment
. Allocations of as long as it
SURRENDERS payments and remains in the
transfers of Contract
. Up to 10% of Contract Value
Contract Value must comply with . Contract may be
can be the rule that surrendered at any
surrendered Contract Value may time for its
each year be allocated among Contract Value,
without no more than 10 less any
incurring Accounts, applicable
surrender including the Contingent
charges, Fixed Account, at Deferred Sales
subject to any + any time. Charge (subject to
applicable tax +++++++ any applicable tax
law restrictions + + law restrictions)
+
. Surrenders + . If the Contract
will be +++ contains the
taxable + disability benefit
RETIREMENT BENEFITS rider and the
. Prior to age Annuitant becomes
59 1/2 a 10% . Lifetime income totally disabled,
penalty tax options monthly benefits
may apply will be provided
. Fixed and/or
variable payout
DEATH PROCEEDS options
. Guaranteed not
to be less
than your
total
contribution
to your
Contract net
of any prior
surrenders and
outstanding
loans
. Death proceeds
pass to the
beneficiary
without
probate
A-14
<PAGE>
THE COMPANY
New England Mutual Life Insurance Company, the first chartered mutual life
insurance company in the United States, was organized in 1835 under the laws
of the Commonwealth of Massachusetts. The Company currently has assets of over
$16 billion. It offers life insurance, annuity, accident and health insurance
products and is licensed to do business in all states, the District of
Columbia and Puerto Rico. The Company's home office is at 501 Boylston Street,
Boston, Massachusetts (the "Home Office").
The Company, along with its subsidiaries and affiliates, is known as The New
England. As of December 31, 1993 The New England and its affiliates currently
had more than $65 billion in assets under management.
THE VARIABLE ACCOUNT
The Variable Account was established by the Company as a separate investment
account pursuant to the provisions of Massachusetts law on July 15, 1987, and
is registered as a unit investment trust under the Investment Company Act of
1940. The Variable Account meets the definition of a "separate account" under
Federal securities laws.
Applicable law provides that the assets in the Variable Account equal to the
reserves and other contract liabilities of the Variable Account shall not be
chargeable with liabilities arising out of any other business the Company may
conduct. The Company believes this means that the assets of the Variable
Account equal to its reserves and other contract liabilities are not available
to meet the claims of the Company's general creditors and may only be used to
support the Contract Values under the Contracts. The income and realized and
unrealized capital gains or losses of the Variable Account are credited to or
charged against the Variable Account without regard to other income, gains or
losses of the Company. All obligations arising under the Contracts are,
however, general corporate obligations of the Company.
Purchase payments are allocated within the Variable Account to one or more
of the sub-accounts as you elect. The value of Accumulation Units credited to
your Contract and the amount of the variable annuity payments depend on the
investment experience of the Eligible Fund that you select. The Company does
not guarantee the investment performance of the Variable Account. Thus, you
bear the full investment risk for all amounts contributed to the Variable
Account.
INVESTMENTS OF THE VARIABLE ACCOUNT
Purchase payments applied to the Variable Account will be invested in one or
more of the Eligible Funds listed below, at net asset value without deduction
of any sales charge, in accordance with the selection you make in your
application. You may change your selection of Eligible Funds for future
purchase payments at any time without charge. (See "Requests and Elections.")
You also may transfer previously invested amounts among the Eligible Funds,
subject to certain conditions. (See "Transfer Privilege.")
NEW ENGLAND ZENITH FUND:
BACK BAY ADVISORS MONEY MARKET SERIES
The Back Bay Advisors Money Market Series (formerly known as the Money
Market Series) seeks the highest possible level of current income consistent
with preservation of capital. The Back Bay Advisors Money Market Series
invests in a variety of high quality money market instruments.
BACK BAY ADVISORS BOND INCOME SERIES
The Back Bay Advisors Bond Income Series (formerly known as the Bond Income
Series) seeks to provide a high level of current income consistent with
protection of capital and moderate investment risk through investment
primarily in U.S. Government and corporate bonds.
CAPITAL GROWTH SERIES
The Capital Growth Series seeks long-term growth of capital through
investment primarily in equity securities of companies whose earnings are
expected to grow at a faster rate than the United States economy. Most of the
Capital Growth Series' investments are normally in common stocks.
A-15
<PAGE>
BACK BAY ADVISORS MANAGED SERIES
The Back Bay Advisors Managed Series (formerly known as the Managed Series)
seeks to provide a favorable total investment return through investment in a
diversified portfolio. The Back Bay Advisors Managed Series' portfolio is
expected to include (i) common stocks, (ii) notes and bonds and (iii) money
market instruments.
WESTPEAK STOCK INDEX SERIES
The Westpeak Stock Index Series (formerly known as the Stock Index Series)
seeks to provide results that correspond to the composite price and yield
performance of United States publicly traded common stocks. The Series
currently seeks to achieve its objective by attempting to duplicate the
composite price and yield performance of the Standard & Poor's 500 Composite
Stock Price Index.
WESTPEAK VALUE GROWTH SERIES
The Westpeak Value Growth Series (formerly known as the Value Growth Series)
seeks long-term total return (capital appreciation and dividend income)
through investment primarily in equity securities. Emphasis will be given to
both undervalued securities ("value" style) and securities of companies with
growth potential ("growth" style).
LOOMIS SAYLES AVANTI GROWTH SERIES
The Loomis Sayles Avanti Growth Series (formerly known as the Avanti Growth
Series) seeks long-term growth of capital. The Series normally will invest
primarily in equity securities of companies with medium and large
capitalization (capitalization of $1 billion to $5 billion and over $5
billion, respectively), but will also invest a portion of its assets in equity
securities of companies with relatively small market capitalization (under $1
billion).
LOOMIS SAYLES BALANCED SERIES
The Loomis Sayles Balanced Series' investment objective is reasonable long-
term investment return from a combination of long-term capital appreciation
and moderate current income. The Series is "flexibly managed" in that
sometimes it invests more heavily in equity securities and at other times it
invests more heavily in fixed-income securities, depending on its subadviser's
view of the economic and investment outlook.
DRAYCOTT INTERNATIONAL EQUITY SERIES
The Draycott International Equity Series seeks total return from long-term
growth of capital and dividend income, primarily through investment in
international equity securities.
SALOMON BROTHERS U.S. GOVERNMENT SERIES
The Salomon Brothers U.S. Government Series' investment objective is to
provide a high level of current income consistent with preservation of capital
and maintenance of liquidity. The Series seeks to achieve its objective by
primarily investing in debt obligations (including mortgage backed securities)
issued or guaranteed by the U.S. Government or agencies, or derivative
securities (such as collateralized mortgage obligations) backed by such
securities.
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
The Salomon Brothers Strategic Bond Opportunities Series' investment
objective is to seek a high level of total return consistent with preservation
of capital. Assets will be allocated among U.S. Government obligations,
mortgage backed securities, domestic corporate debt and international debt
securities rated investment grade (BBB or higher by S&P or Baa or higher by
Moody's) (or unrated but deemed to be of equivalent quality in the
subadviser's judgment) and domestic corporate debt and international debt
securities rated below investment grade. Depending on market conditions, the
Series may invest without limit in below investment grade fixed-income
securities. Securities of below investment grade quality are considered high
yield, high risk securities and are commonly known as "junk bonds."
A-16
<PAGE>
VENTURE VALUE SERIES
The Venture Value Series' investment objective is growth of capital. The
Series will primarily invest in domestic common stocks (and securities
convertible into common stock) that the Series' subadviser believes have
capital growth potential due to factors such as undervalued assets or earnings
potential, product development and demand, favorable operating ratios,
resources for expansion, management abilities, reasonableness of market price,
and favorable overall business prospects. The Series will generally invest
predominantly in equity securities of companies with market capitalizations of
at least $250 million.
ALGER EQUITY GROWTH SERIES
The Alger Equity Growth Series' investment objective is to seek long-term
capital appreciation. The Series' assets will be invested primarily in a
diversified, actively managed portfolio of equity securities, primarily of
companies having a total market capitalization of $1 billion or greater.
CS FIRST BOSTON STRATEGIC EQUITY OPPORTUNITIES SERIES
The CS First Boston Strategic Equity Opportunities Series' investment
objective is capital appreciation. Ordinarily, the Series will invest in U.S.
and foreign stocks. The Series seeks to achieve its objective by investing in
unrecognized and misperceived stocks with improving fundamentals. The
portfolio manager and his team of analysts identify these securities through a
research-intensive process. The Series will invest at least 65% of its total
assets in a diversified portfolio of equity securities; up to 35% of the
Series' assets may be invested in fixed-income securities, including bonds,
convertible bonds and notes and securities rated below investment grade (also
known as "junk bonds") (BB or lower by S&P and Ba or lower by Moody's).
LOOMIS SAYLES SMALL CAP SERIES
The Loomis Sayles Small Cap Series (formerly known as the Small Cap Series)
seeks long-term capital growth from investments in common stocks or their
equivalent. The Series will normally invest at least 65% of its total assets
in companies with market capitalization of less than $500 million.
VARIABLE INSURANCE PRODUCTS FUND:
EQUITY-INCOME PORTFOLIO
The Equity-Income Portfolio seeks reasonable income by investing primarily
in income-producing equity securities.
OVERSEAS PORTFOLIO
The Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities.
INVESTMENT ADVICE
The Back Bay Advisors Money Market Series, Back Bay Advisors Bond Income
Series and Back Bay Advisors Managed Series receive investment advice from
Back Bay Advisors, L.P., an indirect subsidiary of the Company. The Capital
Growth Series receives investment advice from Capital Growth Management
Limited Partnership ("CGM"), an affiliate of the Company. The Westpeak Value
Growth Series and Westpeak Stock Index Series receive investment advice from
Westpeak Investment Advisors, L.P., an indirect subsidiary of the Company. The
Loomis Sayles Avanti Growth Series and Loomis Sayles Small Cap Series receive
investment advice from Loomis Sayles & Company, L.P., an indirect subsidiary
of the Company. TNE Advisers, Inc., a subsidiary of the Company, serves as
investment adviser for the remaining Series of the New England Zenith Fund.
Each of these Series also has a subadviser. The Loomis Sayles Balanced Series
receives investment subadvisory services from Loomis Sayles & Company, L.P.
The Draycott International Equity Series receives investment subadvisory
services from Draycott Partners, Ltd., an indirect subsidiary of the Company.
The Alger Equity Growth Series receives investment subadvisory services from
Fred Alger Management, Inc. The Venture Value Series receives investment
subadvisory services from Selected/Venture Advisers, L.P. The CS First Boston
Strategic Equity Opportunities Series receives investment subadvisory services
from CS First Boston Investment Management Corporation. The Salomon Brothers
U.S. Government Series and Salomon Brothers Strategic Bond Opportunities
Series receive
A-17
<PAGE>
investment subadvisory services form Salomon Brothers Asset Management Inc.
More complete information on each Series of the New England Zenith Fund is
contained in the attached New England Zenith Fund prospectus, which you should
read carefully before investing, as well as in the New England Zenith Fund's
Statement of Additional Information, which may be obtained free of charge by
writing to New England Securities, 399 Boylston St., Boston, Massachusetts.
The Equity-Income Portfolio and the Overseas Portfolio receive investment
advice from Fidelity Management & Research Company. More complete information
on the Equity-Income and Overseas Portfolio of the Variable Insurance Products
Fund is contained in the prospectus of that Fund, which you should read
carefully before investing, as well as in the Variable Insurance Products
Fund's Statement of Additional Information, which may be obtained free of
charge by writing to Fidelity Distributors Corporation, 82 Devonshire Street,
Boston, Massachusetts.
SUBSTITUTION OF INVESTMENTS
If investment in the Eligible Funds or a particular Series or Portfolio is
no longer possible or in the judgment of the Company becomes inappropriate for
the purposes of the Contract, the Company may substitute another Eligible Fund
or Funds without your consent. Substitution may be made with respect to both
existing investments and the investment of future purchase payments. However,
no such substitution will be made without any necessary approval of the
Securities and Exchange Commission.
GUARANTEED OPTION
Net purchase payments may also be allocated to the Fixed Account option in
approved states. The Fixed Account is a part of the Company's general account
and provides guarantees of principal and interest. (See "The Fixed Account"
for more information.)
THE CONTRACTS
The Contracts provide that purchase payments will be invested by the Company
in the Eligible Fund or Funds you select and that, after annuitization, the
Company will make variable annuity payments on a monthly basis. You assume the
risk of investment gain or loss in that the value of your Contract before
annuitization and, in the case of a variable payment option, the annuity
payments after annuitization will vary with the investment performance of
those Eligible Funds in which your Contract is invested.
PURCHASE PAYMENTS
Except with the consent of the Company, the initial and subsequent purchase
payments on a flexible payment Contract must be at least $25, based on a
minimum total of $300 annually. While subsequent purchase payments may be made
at any time, the Company reserves the right to limit the amount of money you
may contribute in any Contract Year to three times the anticipated annual
contribution that you specify in your Contract application. The Company's
current limit on anticipated annual contributions is $100,000, so that the
maximum amount you may contribute in any Contract Year is $300,000, or three
times your specified anticipated annual contribution, if less. Except with the
consent of the Company, the minimum purchase payment for a single payment
Contract is $5,000, and the maximum purchase payment permitted to purchase a
single payment contract is $1,000,000. Payments in addition to the required
$5,000 purchase payment may also be made on a single payment Contract, subject
to the $25 minimum. The Company reserves the right to limit purchase payments
made in any Contract Year or in total under a single payment Contract.
The Company will determine whether to approve applications for new
Contracts, and will apply initial purchase payments under new Contracts not
later than 2 business days after a completed application is received at the
Company's Home Office. If an application is not complete upon receipt, the
Company will apply the initial purchase payment not later than 2 business days
after it is completed. If an incomplete application is not completed within 5
days after the Company receives it, however, the Company will inform the
applicant of the reasons for the delay and will refund any purchase payment
unless the applicant consents to allow the Company to retain the purchase
payment until the application is made complete. The Company reserves the right
to reject any application.
A-18
<PAGE>
ALLOCATION OF PURCHASE PAYMENTS
Net purchase payments are converted into Accumulation Units of the sub-
accounts you select (subject to the limitation that Contract Value may be
allocated among no more than 10 accounts, including the Fixed Account, at any
time). The number of Accumulation Units of each sub-account to be credited to
the Contract is determined by dividing the net purchase payment by the
Accumulation Unit Value for the selected sub-accounts next determined
following receipt of the purchase payment at the Company's Home Office (or, in
the case of the initial purchase payment, next determined following approval
of the Contract application. In the case of an initial purchase payment to be
made by exchanging a Fund I or Preference contract, the payment will be
applied using the Accumulation Unit Value next determined following approval
of the Contract application and receipt of the proceeds of the Fund I or
Preference contract.)
CONTRACT VALUE AND ACCUMULATION UNIT VALUE
The value of a Contract is determined by multiplying the number of
Accumulation Units credited to the Contract by the appropriate Accumulation
Unit Values. As described below, the Accumulation Unit Value of each sub-
account depends on the net investment experience of its corresponding Eligible
Fund. The Accumulation Unit Value of each sub-account was set at $1.00 on or
about the date on which shares of the corresponding Eligible Fund were first
publicly available. The Accumulation Unit Value is determined as of the close
of regular trading on the New York Stock Exchange on each day during which the
Exchange is open for trading by multiplying the last-determined Accumulation
Unit Value by the net investment factor determined as of the close of regular
trading on the Exchange on that day. To determine the net investment factor
for any sub-account, the Company takes into account the change in net asset
value per share of the Eligible Fund held in the sub-account as of the close
of regular trading on the Exchange on that day from the net asset value most
recently determined, the amount of dividends or other distributions made by
that Eligible Fund since the previous determination of net asset value per
share, and daily deductions for the Mortality and Expense Risk Charge and
Administration Asset Charge, equal, on an annual basis, to 1.35% of the
average daily net asset value of the sub-account. The formula for determining
the net investment factor is described under the caption "Net Investment
Factor" in the Statement of Additional Information.
The net investment factor may be greater or less than one, depending in part
upon the investment performance of the Eligible Fund which is the underlying
investment of the sub-account, and you bear this investment risk. The net
investment results are also affected by the deductions from sub-account assets
for the Mortality and Expense Risk Charge and Administration Asset Charge.
Under a Contract with the Fixed Account option, the total Contract Value
includes the amount of Contract Value held in the Fixed Account. Under a
Contract that permits Contract loans, the Contract Value also includes the
amount of Contract Value transferred to the Company's general account (but
outside of the Fixed Account) as a result of a loan and any interest credited
on that amount. Interest earned on the amount held in the general account as a
result of a loan will be credited to the Contract's sub-accounts annually in
accordance with the allocation instructions in effect for purchase payments
under your Contract on the date of the crediting. (See "Loan Provision for
Certain Tax Benefited Retirement Plans".)
PAYMENT ON DEATH PRIOR TO ANNUITIZATION
If the Annuitant dies after annuitization, the amount payable, if any, will
be as specified in the annuity option selected. If the Annuitant dies prior to
annuitization, the Company will pay to the Beneficiary, upon receipt of due
proof of the Annuitant's death, the Contract's Death Proceeds, equal to the
greater of (a) the sum of all purchase payments, adjusted for surrenders, and
(b) the Contract Value next determined after the later of the date on which
proof of the Annuitant's death is received at the Home Office or the date on
which election of payment in one sum or under a Payment Option is received at
the Home Office. (See restrictions on payment options imposed by Section 72(s)
of the Code, discussed below.)
Death Proceeds will be reduced by the amount of any outstanding loan plus
accrued interest. (See "Loan Provision for Certain Tax Benefited Retirement
Plans".)
The Death Proceeds will be paid in cash or will be applied to provide one or
more of the fixed or variable methods of payment available (see "Annuity
Options"), depending upon the election made by the Contract Owner during the
Annuitant's lifetime. Such an election, particularly in the case of Contracts
issued in connection with retirement plans qualifying for tax
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<PAGE>
benefited treatment, would be subject to any applicable requirements of
Federal tax law. If the Contract Owner has not made such an election, payment
will be in a single sum, unless the Beneficiary elects an annuity payment
option within 90 days after receipt by the Company of due proof of the
Annuitant's death or elects to apply the amount payable under the Contract to
purchase a new Contract. Whether and when such an election is made could
affect when the Death Proceeds are deemed to be received under the tax laws.
The Contract provides that, where the Contract Owner is an individual, the
Annuitant must be the Contract Owner, and where the Contract Owner is not an
individual, the Annuitant is treated as the Contract Owner for purposes of the
Death of Owner provision. The Contract also provides, in accordance with
Section 72(s) of the Code, that, on the death of the Contract Owner before the
Maturity Date, all of the Death Proceeds must be distributed within five years
after the death of the Contract Owner, or applied to a payment option payable
over the life (or over a period not extending beyond the life expectancy) of
the Beneficiary, and the payment option payments must start within one year of
the death of the Contract Owner. If the Contract Owner dies on or after the
Maturity Date, the remaining interest in the Contract must be distributed at
least as quickly as under the method of distribution in effect on the death of
the Contract Owner. There are comparable rules for distributions on the death
of the Annuitant under tax benefited retirement plans. (See "Taxation of the
Contracts--Special Rules for Annuities Purchased for Annuitants Under
Retirement Plans Qualifying for Tax Benefited Treatment--Distributions from
the Contract.")
TRANSFER PRIVILEGE
You may transfer your Contract Value among accounts without current
taxation. The Company currently allows 12 free transfers per Contract Year
prior to annuitization. Additional transfers are subject to a $10 charge per
transfer. The Company reserves the right to impose a charge of $10 on each
transfer in excess of four per year and to limit the number of transfers.
After variable annuity payments have commenced, you may make one transfer per
year without the consent of the Company. All transfers are subject to the
requirement that the amount of Contract Value transferred be at least $25 (or,
if less, the amount of Contract Value held in the sub-account from which the
transfer is made) and that, after the transfer is effected, Contract Value be
allocated among not more than ten accounts, including the Fixed Account.
Transfers will be accomplished at the relative net asset values per share of
the particular Eligible Fund next determined after the request is received.
See "Requests and Elections" for information regarding transfers made by
written request and by telephone.
For special rules regarding transfers involving the Fixed Account, see "The
Fixed Account". Transfers out of the Fixed Account are limited as to timing,
-----------------------------------------------------------
frequency and amount.
- --------------------
DOLLAR COST AVERAGING
The Company offers an automated transfer privilege referred to here as
dollar cost averaging. Under this feature you may request that a certain
amount of your Contract Value be transferred on the first business day of each
month, prior to the Maturity Date, from the Money Market sub-account to one or
more of the other accounts, subject to the limitation that Contract Value may
not be allocated to more than 10 of the accounts, including the Fixed Account,
at any time. A minimum of $100 must be transferred to each account that you
select under this feature. Transfers made under the dollar cost averaging
program will be counted against the twelve transfers per year which may be
made free of charge. You may cancel your use of the dollar cost averaging
program at any time prior to the monthly transfer date.
SURRENDERS
Prior to annuitization, you may surrender the Contract for all or part of
the Contract Value (reduced by the amount of any outstanding loan plus accrued
interest.) (See "Loan Provision for Certain Tax Benefited Retirement Plans.")
This right is subject to any restrictions on surrender under applicable laws
relating to employee benefit plans or under the terms of the plans themselves.
The election to surrender must be in a form conforming to the Company's
administrative procedures and must be received at the Company's Home Office
prior to the earlier of the Maturity Date or the Annuitant's death. You may
receive the proceeds in cash or apply them to a payment option. If you wish to
apply the proceeds to a payment option, you must indicate that in your
surrender request; otherwise you will receive the proceeds in a lump sum and
may be taxed on them as a full distribution. Payment of surrender proceeds
normally will be made within 7 days, subject to the Company's right to suspend
payments under certain circumstances. (See "Suspension of Payments.") The
Federal tax laws impose penalties upon, and in some cases prohibit, certain
premature distributions from the Contracts before or after the date on
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<PAGE>
which annuity payments are to begin. (See "Federal Income Tax Status.") No
surrender is permitted in connection with a Contract issued pursuant to the
Optional Retirement Program of the University of Texas System prior to the
plan participant's death, retirement, or termination of employment in all
Texas public institutions of higher education.
On receipt of an election to surrender, the Company will cancel the number
of Accumulation Units necessary to equal the dollar amount of the surrender
request. On a full surrender, any applicable Administration Contract Charge
will be deducted from this amount. Any applicable Contingent Deferred Sales
Charge will be deducted from this amount on a full or partial surrender. Also,
any applicable Contingent Deferred Sales Charge will be imposed upon the
application of proceeds to a payment option unless you elect (a) a variable
life income option (payment options 2, 3 or 6 as described under "Annuity
Options") or (b) for Contracts that have been in force at least five years, a
fixed life income payment option (comparable to payment options 2, 3 or 6 as
described under "Annuity Options" but on a fixed basis). (See "Administration
Charges, Contingent Deferred Sales Charge and Other Deductions" and "Annuity
Options".) A partial surrender will reduce the Contract Value in the sub-
accounts in proportion to the amount of the Contract's value in each sub-
account, unless you request otherwise. Surrenders and related charges will be
based on Accumulation Unit Values next determined after the election is
received at the Company's Home Office or, if surrender proceeds are to be
applied to a payment option, at such later date as may be specified in the
request for surrender. After a partial surrender, the remaining Contract Value
must be at least $500 (unless the Company consents to a lesser amount) or, if
the Contract is subject to an outstanding loan, the remaining unloaned
Contract Value must be at least 10% of the total Contract Value after the
partial surrender or $500, whichever is greater (unless the Company consents
to a lesser amount). If the requested partial surrender would not satisfy this
requirement, at the Contract Owner's option either the amount of the partial
surrender will be reduced or the transaction will be treated as a full
surrender and any applicable Contingent Deferred Sales Charge will be deducted
from the proceeds.
Any surrender may result in adverse tax consequences. You are advised to
consult a qualified tax advisor as to the consequences of such a distribution.
(See "Federal Income Tax Status.")
SYSTEMATIC WITHDRAWALS
The Systematic Withdrawal feature available under the Contracts allows the
Contract Owner to have a portion of the Contract Value withdrawn automatically
at regularly scheduled intervals prior to annuitization. The application for
the Systematic Withdrawal feature specifies the applicable terms and
conditions of the program. Systematic Withdrawals are processed on either the
first or the fifteenth day of the month, depending on your election. If the
New York Stock Exchange is closed on the day when the withdrawal is to be
made, the withdrawal will be processed on the next business day. The
Contingent Deferred Sales Charge will apply to amounts received under the
Systematic Withdrawal program in the same manner as it applies to other
partial surrenders and surrenders of Contract Value. (See "Contingent Deferred
Sales Charge".) Of course, continuing to make purchase payments under the
Contract while you are making Systematic Withdrawals means that you could
incur any applicable Contingent Deferred Sales Charge on the withdrawals at
the same time that you are making the new purchase payments. The Federal tax
laws may include systematic withdrawals in the Contract Owner's gross income
in the year in which the withdrawal occurs and will impose a penalty of 10% on
certain systematic withdrawals which are premature distributions.
LOAN PROVISION FOR CERTAIN TAX BENEFITED RETIREMENT PLANS
Contract loans are available to participants under TSA Plans that are not
subject to ERISA, to trustees of Qualified Plans and to fiduciaries of TSA
Plans subject to ERISA in those states where the insurance department has
approved the currently applicable Contract loan provision.
The Department of Labor has issued regulations (the "ERISA regulations")
governing plan participant loans under retirement plans subject to ERISA.
Generally, the ERISA regulations will apply to retirement plans that qualify
under Sections 401(a) and 401(k) of the Code and employer-sponsored TSA Plans
(generally those to which employers make contributions not attributable to
salary reduction agreements). You and your employer are responsible for
determining whether your plan is subject to the ERISA regulations on
participant plan loans.
It is the responsibility of the trustee of a Qualified Plan or fiduciary of
a TSA Plan subject to ERISA to ensure that the proceeds of a Contract loan are
made available to a participant under a separate plan loan agreement, the
terms of which comply with all the plan qualification requirements including
the requirements of the ERISA regulations on plan loans.
A-21
<PAGE>
Therefore, the plan loan agreement may differ from the Contract loan
provisions and, if you are a participant in a Qualified Plan or a TSA Plan
subject to ERISA, you should consult with the fiduciary administering the plan
loan program to determine your rights and obligations with respect to plan
loans.
The ERISA regulations contain requirements for plan loans relating to their
maximum amount, availability, and other matters. Among the rules are the
requirements that the loan bear a reasonable rate of interest, be adequately
secured, provide a reasonable repayment schedule, and be made available on a
basis that does not discriminate in favor of employees who are officers or
shareholders or who are highly compensated. These regulations may change from
time to time. Failure to comply with these requirements may result in tax
penalties under the Code and under ERISA.
One of the current requirements of the ERISA regulations is that the plan
must charge a "commercially reasonable" rate of interest for plan loans. The
Contract loan interest rate may not be considered "commercially reasonable"
within the meaning of the ERISA regulations, and it is the responsibility of
the plan fiduciary to charge the participant any additional interest under the
plan loan agreement which may be necessary to make the overall rate charged
comply with the regulation. The ERISA regulations also currently require that
a loan be adequately secured, but provide that not more than 50% of the
participant's vested account balance under the plan may be used as security
for the loan. A Contract loan is secured by the portion of the Contract Value
which is held in the Company's general account as a result of the loan. The
plan fiduciary must ensure that the Contract Value held as security under the
Contract, plus any additional portion of the participant's vested account
balance which is used as security under the plan loan agreement, does not
exceed 50% of the participant's total vested account balance under the plan.
The amount of any loan may not exceed the maximum loan amount as determined
under the Company's maximum loan formula. The effect of a loan on your
Contract is that a portion of the Contract Value equal to the amount of the
loan will be transferred to the Company's general account and will earn
interest (which is credited to the Contract) at the effective rate of 4 1/2%
per year. This earned interest will be credited to the Contract's sub-accounts
(and, if available under your Contract, to the Fixed Account) annually in
accordance with the allocation instructions in effect for purchase payments
under your Contract on the date of the crediting. Interest charged on the loan
will be 6 1/2% per year. Depending on the Company's interpretation of
applicable law and on the Company's administrative procedures, the interest
rates charged and earned on loaned amounts may be changed (for example, to
provide for a variable interest rate) with respect to new loans made. The
Company may also establish a minimum loan amount. Because the amount moved to
the general account as a result of the loan does not participate in the
Variable Account's investment experience, a Contract loan can have a permanent
effect on the Contract Value and death proceeds.
The Company will not permit more than one loan at a time on any Contract
except where state regulators require otherwise. In addition, the Code
provides that the total amount of loans under all your retirement plans may
not at any one time exceed $50,000 less the highest outstanding loan balance
in the preceding 12 months, subject, however, to a smaller maximum if
applicable, of the greater of (1) $10,000, or (2) 50% of the value of your
nonforfeitable, accrued benefits. Loans must be repaid within 5 years except
for certain loans used for the purchase of a principal residence, which must
be repaid within 20 years. Repayment of the principal amount and interest on
the loan will be required in equal monthly installments by means of repayment
procedures established by the Company. Contract loans are subject to
applicable retirement program laws and their taxation is determined under the
Code. If a Contract loan installment repayment is not made, the Company
intends (unless restricted by law) to make a full or partial surrender of the
Contract in the amount of the unpaid installment repayment on the Contract
loan or, if there is a default on the Contract loan, in an amount equal to the
outstanding loan balance (plus any applicable Contingent Deferred Sales Charge
and $30 Administration Contract Charge in each case). (A default on the loan
is defined in the loan application and includes among other things, nonpayment
of three consecutive or a total of five installment repayments, or surrender
of the Contract.) An installment repayment of less than the amount billed will
not be accepted. A full or partial surrender of the Contract to repay all or
part of the loan may result in serious adverse tax consequences for the plan
participant (including penalty taxes) and may adversely affect the
qualification of the plan or Contract. The trustee of a Qualified Plan or a
TSA Plan subject to ERISA will be responsible for reporting to the IRS and
advising the participant of any tax consequences resulting from the reduction
in the Contract Value caused by the surrender and for determining whether the
surrender adversely affects the qualification of the plan. In the case of a
TSA Plan not subject to ERISA, the Company will report the surrender to the
IRS as a taxable distribution under the Contract.
A-22
<PAGE>
Partial surrenders will be restricted by the existence of a loan and, after
any partial surrender, the remaining unloaned Contract Value must be at least
10% of the total Contract Value after the partial surrender or $500, whichever
is greater (unless the Company consents to a lesser amount). If a partial
surrender by the Company to enforce the loan repayment schedule would reduce
the unloaned Contract Value below this amount, the Company reserves the right
to surrender the entire Contract and apply the Contract Value to the
Contingent Deferred Sales Charge, the $30 Administration Contract Charge and
the amount owed to the Company under the loan. If at any time an excess
Contract loan exists (that is, the Contract loan balance exceeds the Contract
Value), the Company has the right to terminate the Contract.
Unless you request otherwise, Contract loans will reduce the amount of the
Contract Value in the sub-accounts (and, if available under your Contract, in
the Fixed Account) in proportion to the Contract Value then in each sub-
account (and in the Fixed Account). If any portion of the Contract loan was
attributable to Contract Value in the Fixed Account, then an equal portion of
each loan repayment will have to be allocated to the Fixed Account. (For
example, if 50% of the loan was attributable to your Fixed Account Contract
Value, then 50% of each loan repayment will be allocated to the Fixed
Account). Unless you request otherwise, a repayment will be allocated to the
sub-accounts in the same proportions to which the loan was attributable to the
sub-accounts. (Under certain loans made prior to the date of this prospectus,
repayments will be allocated, unless you request otherwise, according to the
allocation instructions in effect for purchase payments under your Contract,
pursuant to the terms of the applicable Contract loan endorsement.)
The amount of the death proceeds, the amount payable upon surrender of the
Contract and the amount applied on the Maturity Date to provide annuity
payments will be reduced by the amount of any outstanding Contract loan plus
accrued interest.
The tax and ERISA rules relating to participant loans under tax benefited
retirement plans are complex and in some cases unclear, and they may vary
depending on the individual circumstances of each loan. The Company strongly
recommends that you, your employer and your plan fiduciary consult a qualified
tax adviser regarding the currently applicable tax and ERISA rules before
taking any action with respect to loans.
The Company will provide further information regarding loans upon request.
DISABILITY BENEFIT RIDER
A disability benefit rider may be purchased, provided that the Annuitant
satisfies any applicable underwriting standards. This feature is available
only if you are under age 60 when your contract is issued and if you plan to
make regular annual contributions to the Contract. If the Annuitant becomes
totally disabled, the rider provides that the Company will make monthly
purchase payments under the Contract, subject to the terms and conditions of
the rider.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the payment of any
amounts due under the Contract or transfers of Contract Values between sub-
accounts when permitted under applicable Federal laws, rules and regulations.
Current Federal law permits such suspension or postponement if (a) the New
York Stock Exchange is closed (other than for customary weekend and holiday
closings); (b) trading on the Exchange is restricted; (c) an emergency exists
such that it is not reasonably practicable to dispose of securities held in
the Variable Account or to determine the value of its assets; or (d) the
Securities and Exchange Commission by order so permits for the protection of
securities holders. Conditions described in (b) and (c) will be decided by or
in accordance with rules of the Securities and Exchange Commission.
OWNERSHIP RIGHTS
During the Annuitant's lifetime, all rights under the Contract are vested
solely in the Contract Owner unless otherwise provided. Such rights include
the right to change the Beneficiary, to change the payment option, to assign
the Contract (subject to the restrictions referred to below), and to exercise
all other rights, benefits, options and privileges conferred by the Contract
or allowed by the Company. Transfer of ownership of the Contract under an
ERISA "Pension Plan" to a non-spousal beneficiary may require spousal consent.
Qualified Plans and certain TSA Plans with sufficient employer involvement
are deemed to be "Pension Plans" under ERISA and are, therefore, subject to
rules under the Retirement Equity Act of 1984. These rules require that
benefits from annuity contracts purchased by a Pension Plan and distributed to
or owned by a participant be provided in accordance with
A-23
<PAGE>
certain spousal consent, present value and other requirements which are not
enumerated in the Contract. Thus, the tax consequences of the purchase of the
Contracts by Pension Plans should be considered carefully.
Those Contracts offered by the prospectus which are designed to qualify for
the favorable tax treatment described below under "Federal Income Tax Status"
contain restrictions on transfer or assignment, reflecting requirements of the
Code which must be satisfied in order to assure continued eligibility for such
tax treatment. In accordance with such requirements, ownership of such a
Contract may not be changed and the Contract may not be sold, assigned or
pledged as collateral for a loan or for any other purpose except under certain
limited circumstances. A Contract Owner contemplating a sale, assignment or
pledge of the Contract should carefully review its provisions and consult a
qualified tax adviser.
If Contracts offered by this prospectus are used in connection with deferred
compensation plans or retirement plans not qualifying for favorable Federal
tax treatment, such plans may also restrict the exercise of rights by the
Contract Owner.
REQUESTS AND ELECTIONS
Requests for transfers or reallocation of future purchase payments may be
made by written request (which may be telecopied) to the Company at its Home
Office or by telephoning the Company. Written requests for such transfers or
changes of allocation must be in a form acceptable to the Company. To request
a transfer or change of allocation by telephone, please contact your
registered representative, or contact the Company at 1-800-777-5897 between
the hours of 9:00 a.m. and 4:00 p.m., Eastern Time. For Contracts issued in
New York, requests for transfers must be in writing. Requests for transfer or
reallocation by telephone will be automatically permitted. The Company will
use reasonable procedures such as requiring certain identifying information
from the caller, tape recording the telephone instructions, and providing
written confirmation of the transaction, in order to confirm that instructions
communicated by telephone are genuine. Any telephone instructions reasonably
believed by the Company to be genuine will be your responsibility, including
losses arising from any errors in the communication of instructions. As a
result of this policy, you will bear the risk of loss. If the Company does not
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, it may be liable for any losses due to unauthorized or
fraudulent transactions. All other requests and elections under a Contract
must be in writing signed by the proper party, must include any necessary
documentation and must be received at the Company's Home Office to be
effective. If acceptable to the Company, requests or elections relating to
Beneficiaries and ownership will take effect as of the date signed unless the
Company has already acted in reliance on the prior status. The Company is not
responsible for the validity of any written request or election.
TEN DAY RIGHT TO REVIEW
Within 10 days (or more where required by applicable state insurance law) of
your receipt of an issued Contract you may return it to the Company or its
agent for cancellation. Upon cancellation of the Contract, the Company will
refund all your purchase payments. If required by the insurance law or
regulations of the state in which your Contract is issued, however, the
Company will return to you an amount equal to the sum of (1) any difference
between the purchase payments made and the amounts allocated to the Variable
Account and (2) the Contract Value.
ADMINISTRATION CHARGES, CONTINGENT
DEFERRED SALES CHARGE AND OTHER DEDUCTIONS
ADMINISTRATION CHARGES
The Company is responsible for administering the Contracts and the Variable
Account. The Company's administrative services include issuing Contracts,
maintaining Contract Owner records and accounting, valuation, regulatory and
reporting services. To cover the cost of these services, the Company receives
two Administration Charges equal, on an annual basis, to $30 per Contract plus
.40% of the daily net assets of each sub-account. The Administration Charges
will be deducted from each sub-account in the ratio of your interest therein
to your total Contract Value.
The annual $30 Administration Contract Charge is deducted from the Contract
Value on each Contract anniversary for the prior Contract Year and will be
deducted on a pro rata basis at annuitization or at the time of a full
surrender if the annuitization or surrender occurs on a date other than a
Contract anniversary. In those instances in which two Contracts are issued to
permit the funding of a spousal IRA, the Administration Contract Charge will
be imposed only on the Contract to which the larger purchase payments have
been allocated in the Contract application.
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The Administration Asset Charge is equal to an annual rate of .40% of net
assets and is computed and deducted on a daily basis from each sub-account. As
a percentage of net assets, this charge will not increase over the life of a
Contract, but the total dollar amount of the charge will vary depending on the
level of net assets. The Administration Asset Charge will continue to be
assessed after annuitization if annuity payments are made on a variable basis.
There is not necessarily a relationship between the amount of this charge
imposed on a given Contract and the amount of expenses that may be
attributable to that Contract. (See "Annuity Payments.")
The Administration Charges have been established at a level designed to
cover the actual costs (including overhead costs) of administering the
Contracts and are not intended to produce a profit. The Company periodically
will monitor the Administration Charges to determine whether they exceed the
actual cost of providing administrative services for the Contracts.
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a Mortality and Expense Risk Charge from the Variable
Account as compensation for assuming the mortality and expense risks under the
Contract. By assuming the expense risk under the Contract, the Company
guarantees that the dollar amount of the Administration Contract Charge and
the amount of the Administration Asset Charge as a percentage of Contract
Value will not increase over the life of a Contract, regardless of the actual
expenses. By assuming the mortality risk, the Company guarantees that,
although annuity payments will vary according to the performance of the
investments you select, annuity payments will not be affected by the mortality
experience (death rate) of persons receiving such payments or of the general
population. The Company assumes this mortality risk by virtue of annuity rates
in the Contract that cannot be changed. The Company also assumes the risk of
making a minimum death benefit payment if the Annuitant dies prior to
annuitization. (See "Payment on Death Prior to Annuitization.")
The Mortality and Expense Risk Charge is computed and deducted on a daily
basis from each sub-account. The charge is at an annual rate of .95% of the
daily net assets of each such sub-account, of which .60% represents a
mortality risk charge and .35% represents an expense risk charge. The
Mortality and Expense Risk Charge as a percentage of Contract Value will not
increase over the life of a Contract. The Mortality and Expense Risk Charge
will continue to be assessed after annuitization if annuity payments are made
on a variable basis. (See "Annuity Payments.")
CONTINGENT DEFERRED SALES CHARGE
The Company does not make any deductions for sales expenses from purchase
payments at the time of purchase. The Contingent Deferred Sales Charge, when
applicable, is intended to assist the Company in covering its expenses
relating to the sale of the Contracts, including commissions, preparation of
sales literature and other promotional activity. The Contingent Deferred Sales
Charge may not cover the full amount of the sales expenses over the lives of
the Contracts. To the extent such expenses are not covered by the Contingent
Deferred Sales Charge, they will be recovered from the Company's general
account, including any income derived from the Mortality and Expense Risk
Charge.
No Contingent Deferred Sales Charge will apply after a Contract reaches its
Maturity Date. You select a Maturity Date when applying for your Contract. The
Maturity Date selected must be at least 10 years after issue of the Contract.
A Contingent Deferred Sales Charge will be imposed in the event of certain
partial and full surrenders and applications of proceeds to certain payment
options prior to the Maturity Date. Up to 10% of the Contract Value on the
date of surrender may be surrendered without charge in any one Contract Year.
If there is more than one partial surrender in a Contract Year, the amount
that may be surrendered without charge is 10% of the Contract Value on the
date of the first partial surrender during such year. No charge will be
imposed for payments made upon death or application of proceeds to variable
life income payment options (payment options 2, 3 or 6 as described under
"Annuity Options" below) prior to the Maturity Date. If the Contract has been
in force for five years, no charge will be applied upon the election of a
fixed life income payment option (comparable to payment options 2, 3 or 6 as
described under "Annuity Options" below but on a fixed basis). The Contingent
Deferred Sales Charge will be applied upon the election of other forms of
payment prior to the Maturity Date. Any such election will be treated as a
full surrender for purposes of calculating the applicable Contingent
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Deferred Sales Charge. The Contingent Deferred Sales Charge applied will equal
the following amounts if the transaction occurs in the years indicated:
PERCENTAGE OF CONTRACT VALUE WITHDRAWN
(AFTER FREE WITHDRAWAL OF 10% OF THE CONTRACT VALUE)
<TABLE>
<CAPTION>
CONTRACT YEAR
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1 2 3 4 5 6 7 8 9 10 11 AND AFTER
- - - - - - - - - -- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.0% 1.0% 0%
</TABLE>
In no event will the total Contingent Deferred Sales Charge exceed 8% of the
first $50,000 of purchase payments made under the Contract and 6.5% of the
amount of purchase payments in excess of $50,000. (For persons who purchased a
Contract prior to May 1, 1994 and who were age 50 or above at issue, a
different Contingent Deferred Sales Charge scale may apply. The applicable
scale is indicated on the schedule page of the Contract.)
The following example illustrates the circumstances under which the maximum
sales load would apply. It is hypothetical only and is not intended to suggest
that these performance results would necessarily be achieved. For actual
performance results see the tables on page A-38.
EXAMPLE: Assume that you purchased a Contract with a $10,000 single purchase
payment and that you surrendered the Contract during the second
Contract Year when the Contract Value had grown to $15,000.
Using the Contingent Deferred Sales Charge schedule in the chart
above, the Contingent Deferred Sales Charge would be: 6% X (90% of
$15,000), or $810. However, because this is larger than the maximum
allowable charge (8% of the $10,000 purchase payment), your actual
Contingent Deferred Sales Charge would be only $800.
In the event that tax law requires you to take distributions of Contract
Value prior to the Maturity Date, they may be subject to the Contingent
Deferred Sales Charge to the extent they exceed 10% of the Contract Value in a
Contract Year, as described above. (See "Federal Income Tax Status--Taxation
of the Contracts.")
In the case of a partial surrender, the Contingent Deferred Sales Charge is
deducted from the Contract Value remaining after the Contract Owner has
received the amount requested and is a percentage of the total amount
withdrawn. For example, if you requested a partial surrender of $100 (after
previously surrendering 10% of the Contract Value free of charge in that
Contract Year) and the applicable Contingent Deferred Sales Charge was 5%, the
total amount of Contract Value withdrawn in that transaction would be $105.26.
After giving effect to a partial surrender, including deduction of the
Contingent Deferred Sales Charge, the remaining Contract Value must be at
least $500 (unless the Company consents to a lesser amount) or, if the
Contract is subject to an outstanding loan, the remaining unloaned Contract
Value must be at least 10% of the total Contract Value after the partial
surrender or $500, whichever is greater (unless the Company consents to a
lesser amount). If the requested partial surrender would not satisfy this
requirement, at the Contract Owner's option either the amount of the partial
surrender will be reduced or the transaction will be treated as a full
surrender and the Contingent Deferred Sales Charge deducted from the proceeds.
The Contingent Deferred Sales Charge is deducted from the sub-accounts in the
same proportion as the Contract Value that you requested to be surrendered.
The Contingent Deferred Sales Charge will be waived in connection with an
exchange by a Contract Owner of one Zenith Accumulator Contract for another
Zenith Accumulator Contract.
PREMIUM TAX CHARGES
Various states impose a premium tax on annuity purchase payments received by
insurance companies. The Company may deduct these taxes from purchase payments
and currently does so for Contracts subject to the insurance tax law of
Pennsylvania, Kentucky and South Dakota. Certain states may require the
Company to pay the premium tax at annuitization rather than when purchase
payments are received. In those states the Company may deduct the premium tax,
calculated as a percentage of Contract Value, on the date when annuity
payments are to begin. Currently, the Company follows this procedure for
Contracts subject to the insurance tax law of North Carolina. The maximum
premium tax currently deducted by the Company is 2%. The Company may in the
future deduct premium taxes under Contracts subject to the insurance tax laws
of other states, or the applicable premium tax rates may change.
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Surrender of a Contract may result in a credit against the premium tax
liability of the Company in certain States. In such event, the surrender
proceeds will be increased by the amount of such tax credit.
Premium tax rates are subject to being changed by law, administrative
interpretations or court decisions. Premium tax amounts will depend on, among
other things, the state of residence of the Annuitant and the insurance tax
law of the state.
OTHER EXPENSES
A deduction for an investment advisory fee is made from, and certain other
expenses are paid out of, the assets of each Eligible Fund. (See "Expense
Table".) The prospectuses and Statements of Additional Information of the
Eligible Funds describe all deductions and expenses.
CHARGES UNDER CONTRACTS PURCHASED BY EXCHANGING A FUND I OR PREFERENCE
CONTRACT
If a Contract is purchased by exchanging a variable annuity contract issued
by New England Variable Annuity Fund I (a "Fund I contract") or a variable
annuity contract issued by New England Retirement Investment Account (a
"Preference contract"), the sales charges will be calculated as described
below. There will be no Contingent Deferred Sales Charge on the transfer of
assets from a Fund I or Preference contract to a Zenith Accumulator Contract.
A Contract issued in exchange for a Fund I contract will have no Contingent
Deferred Sales Charge. No further purchase payments will be permitted to be
made under a Contract purchased by exchanging a Fund I contract. If you
purchase a Contract by exchanging a Fund I contract and you also hold or
acquire another Zenith Accumulator Contract, the $30 Administration Contract
Charge will only be imposed on one of the Contracts. Total asset-based charges
(including the investment advisory fee) under Fund I contracts currently equal
approximately 1.25%. However, beginning December 1, 1994, The New England
intends to have Fund I bear certain operating expense which have previously
been borne by The New England.
A Contract issued in exchange for a Preference contract will be subject to a
Contingent Deferred Sales Charge calculated as if you had purchased the
Contract on the date you purchased the Preference contract. Your Contract will
have the same Maturity Date as the Preference contract you exchanged, unless
you request a later date. Because the Contingent Deferred Sales Charge for a
Contract is determined differently than the contingent deferred sales charge
for a Preference contract, you may be subject to a higher Contingent Deferred
Sales Charge under a Contract than under a Preference contract. The contingent
deferred sales charge for a Preference contract is 5% of the lesser of (a) the
total purchase payments made within six years prior to the date of surrender
(less any purchase payments that already incurred the charge) and (b) the
amount of contract value surrendered (no charge will apply in any year when
surrenders total less than 10% of purchase payments). Beginning in the seventh
contract year, there is no contingent deferred sales charge under a Preference
contract. Preference contracts have asset-based charges of 1.25% for mortality
and expense risks, but do not have an asset-based administration charge.
Preference contracts impose a $30 annual administration charge.
If you are contemplating an exchange of a Fund I or Preference contract for
a Zenith Accumulator Contract, you should compare the charges deducted under
your existing contract and under the Zenith Accumulator Contract for mortality
and expense risk, administrative charges, investment advisory fees and, in the
case of a Preference contract exchange, the contingent deferred sales charges.
ANNUITY PAYMENTS
ELECTION OF ANNUITY
When applying for a Contract, you select the Maturity Date and an annuity
payment option. The Maturity Date selected must be at least 10 years after
issue of the Contract. Once a Maturity Date is selected, you cannot change it
to an earlier date. However, you may surrender the Contract at any time before
the Maturity Date and apply the surrender proceeds to an annuity payment
option. At any time before the Maturity Date, you may elect to defer the
Maturity Date, but you must obtain Company consent to defer if on the later
Maturity Date the age of the Annuitant at his or her nearest birthday would be
more than seventy-five. You may change the payment option at any time prior to
the Maturity Date. You may elect to have annuity payments under a Contract
made on a variable basis or on a fixed basis, or may designate a portion to be
paid on a variable basis and a portion on a fixed basis. If you select
payments on a fixed basis, the amount of Contract Value applied to the fixed
payment option (net of any applicable charges described under "Administration
Charges, Contingent Deferred Sales
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Charge and Other Deductions") will be transferred to the general account of
the Company, and the annuity payments will be fixed in amount and duration by
the payment option selected, the age of the Payee and, for Contracts issued in
New York or Oregon for use in situations not involving an employer-sponsored
plan, by the sex of the Payee. (See "Amount of Variable Annuity Payments".)
Contracts acquired by retirement plans qualifying for tax benefited
treatment may be subject to various requirements concerning the time by which
benefit payments must commence, the period over which such payments may be
made, the payment options that may be selected, and the minimum annual amounts
of such payments. Penalty taxes or other adverse tax consequences may occur
upon failure to meet such requirements.
ANNUITY OPTIONS
Prior to annuitization, you may elect, subject to any applicable
restrictions of Federal tax law, to have payments made under any of the
annuity payment options provided in the Contract. Any such election depends
upon written notice to (and, for variable payment options to begin during the
first Contract Year, consent of) the Company. In the event of your death,
without having made an election of an annuity payment option, the beneficiary
can elect any of the available options listed below, subject to applicable
Federal tax law restrictions. Payments will begin on the Maturity Date, as
stated in your application or as subsequently deferred, or, in the case of a
full surrender as otherwise specified. Pursuant to your election, the Company
shall apply all or any part designated by you of the value of your Contract,
less any applicable Contingent Deferred Sales Charge and Administration
Contract Charge, to any one of the payment options described below.
Prior to annuitization (but only if the Annuitant is living), you may elect
to apply all or any part of the death benefit under any one of the payment
options listed below or in any other manner agreeable to the Company.
The total amount of the Contract Value or Death Proceeds which may be
applied to provide annuity payments will be reduced by the amount of any
outstanding loan plus accrued interest. (See "Loan Provision for Certain Tax
Benefited Retirement Plans.")
The Contract provides for the variable payment options listed below. Due to
tax law restrictions, however, only options 1, 2, 3 and 6 are available on a
variable payment basis.
First Option: Variable Income for a Specified Number of Years.* The
Company will make variable monthly payments for the number of years
elected, which may not be more than 30 except with the consent of the
Company.
Second Option: Variable Life Income. The Company will make variable
monthly payments which will continue: while the Payee is living**; while
the Payee is living but for at least ten years; or while the Payee is
living but for at least twenty years. (The latter two alternatives are
referred to as Variable Life Income with Period Certain Option.)
Third Option: Variable Life Income, Installment Refund. The Company will
make variable monthly payments during the life of the Payee but for a
period at least as long as the nearest whole number of months calculated by
dividing the amount applied to this Option by the amount of the first
monthly payment.
Fourth Option Investment.* The Company will hold the proceeds applied to
this Option as a fixed number of Accumulation Units during the life of the
Payee or some other agreed-upon period and, at the death of the Payee or
the end of the specified period, the value of the Accumulation Units will
be paid in one sum.
Fifth Option: Specified Amount of Income.* The Company will make monthly
payments in the amount elected. Payments will continue until the balance is
fully paid out or until the death of the Payee, at which time any balance
will be paid in one sum.
Sixth Option: Variable Life Income for Two Lives. The Company will make
variable monthly payments which will continue: while either of two Payees
is living (Joint and Survivor Variable Life Income)**, while either of two
Payees
- ----------
* Application of proceeds under this option upon surrender will result in the
imposition of any applicable charge described under "Contingent Deferred
Sales Charge".
** IT IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE
PAYEE DIES (OR PAYEES DIE) BEFORE THE DUE DATE OF THE SECOND PAYMENT OR TO
RECEIVE ONLY TWO ANNUITY PAYMENTS IF THE PAYEE DIES (OR PAYEES DIE) BEFORE
THE DUE DATE OF THE THIRD PAYMENT, AND SO ON.
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is living but for at least 10 years (Joint and Survivor Variable Life
Income, 10 Years Certain); while two Payees are living, and, after the
death of one while the other is still living, two-thirds to the survivor
(Joint and 2/3 to Survivor Variable Life Income).**
Comparable fixed payment options are also available for all of the options
described above except Option 4. In addition, other payment options (including
other periods certain) may be available from time to time, and you should
consult the Company as to their availability. If you do not elect a payment
option by the Maturity Date, variable payments under the Contract will be made
while the Payee is living but for at least ten years. (This is the Second
Option: Variable Life Income with Period Certain.) If installments under an
option are less than $20, the Company can change the payment intervals to 3, 6
or 12 months in order to increase each payment to at least $20.
The Payee under the first, fourth, or fifth variable payment option may
withdraw the commuted value of the payments certain. The commuted value of
such payments is calculated based on the assumed interest rate under the
Contract. (See "Amount of Variable Annuity Payments.") After the death of the
Payee under the second or third variable payment option or the surviving Payee
under the sixth variable payment option, a Payee named to receive any unpaid
payments certain may withdraw the commuted value of the payments certain. If
the fifth option is elected as a fixed payment option, the Payee can be given
the right to withdraw all or part of the amounts remaining under the payment
option.
The availability of certain annuity payment options may be restricted on
account of Company policy and Federal tax law, which among other things, may
restrict payment to the life expectancy of the payee.
The Company continues to assess the Mortality and Expense Risk Charge after
the Maturity Date if annuity payments are made under any variable payment
option, including an option not involving a life contingency and under which
the Company bears no mortality risk.
AMOUNT OF VARIABLE ANNUITY PAYMENTS
At the Maturity Date (or any other application of proceeds to a payment
option), the Contract Value is applied toward the purchase of monthly variable
annuity payments. The amount of these payments will be determined on the basis
of (i) annuity purchase rates not lower than the rates set forth in the Life
Income Tables contained in the Contract that reflect the Payee's age, (ii) the
assumed interest rate selected, (iii) the type of payment option selected, and
(iv) the investment performance of the Eligible Funds selected.
The annuity purchase rates are used to calculate the basic payment level
purchased by the Contract Value. These rates vary according to the age of the
Payee. The higher the Payee's age at annuitization, the greater the basic
payment level under options involving life contingencies, because the Payee's
life expectancy and thus the period of anticipated income payments will be
shorter. With respect to Contracts issued in New York or Oregon for use in
situations not involving an employer-sponsored plan, purchase rates used to
calculate the basic payment level will also reflect the sex of the Payee.
Under such Contracts, a given Contract Value will produce a higher basic
payment level for a male Payee than for a female Payee, reflecting the greater
life expectancy of the female Payee. If the Contract Owner has selected a
payment option that provides for a refund at death of the Payee or that
guarantees that payments will be made for the balance of a period of a certain
number of years after the death of the Payee, the Contract Value will purchase
lower monthly benefits.
The dollar amount of the initial variable annuity payment will be at the
basic payment level. The assumed interest rate under the Contract will affect
both this basic payment level and the amount by which subsequent payments
increase or decrease. Each payment after the first will vary with the
difference between the net investment performance of the sub-accounts selected
and the assumed interest rate under the Contract. If the actual net investment
rate exceeds the assumed interest rate, the payments will increase.
Conversely, if the actual rate is less than the assumed interest rate, annuity
payments will decrease. If actual investment performance is equal to the
assumed interest rate, the monthly payments will remain level.
Unless otherwise provided, the assumed interest rate will be at an annual
rate of 3.5%. You may select as an alternative an annual assumed interest rate
of 0% or, if allowed by applicable law or regulation, 5%. A higher assumed
interest rate will produce a higher first payment, a more slowly rising series
of subsequent payments when the actual net investment
- ----------
** IT IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE
PAYEE DIES (OR PAYEES DIE) BEFORE THE DUE DATE OF THE SECOND PAYMENT OR TO
RECEIVE ONLY TWO ANNUITY PAYMENTS IF THE PAYEE DIES (OR PAYEES DIE) BEFORE
THE DUE DATE OF THE THIRD PAYMENT, AND SO ON.
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performance exceeds the assumed interest rate, and a more rapid drop in
subsequent payments when the actual net investment performance is less than
the assumed interest rate.
You may, even after variable annuity payments have commenced, direct that
all or a portion of your investment in one sub-account be transferred to
another sub-account in the manner provided under "Transfer Privilege".
MINIMUM ANNUITY PAYMENTS
Annuity payments will be made monthly. But if any payment would be less than
$20, the Company may change the frequency so that payments are at least $20
each.
PROOF OF AGE, SEX AND SURVIVAL
The Company may require proof of age, sex (if applicable) and survival of
any person upon the continuation of whose life annuity payments depend.
The foregoing descriptions are qualified in their entirety by reference to
the Statement of Additional Information and to the Contract, which contains
detailed information about the various forms of options available, and other
matters of importance.
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS
The Federal tax laws provide for a variety of retirement plans offering tax
benefits. These plans, which may be funded through the purchase of the
individual variable annuity contracts offered in this prospectus, include:
1. Plans qualified under Section 401(a), 401(k), or 403(a) of the Code
("Qualified Plans");
2. Annuity purchase plans adopted by public school systems and certain
tax-exempt organizations pursuant to Section 403(b) of the Code ("TSA
Plans");
3. Individual retirement accounts adopted by or on behalf of individuals
pursuant to Section 408(a) of the Code and individual retirement annuities
purchased pursuant to Section 408(b) of the Code (both of which may be
referred to as "IRAs"), including simplified employee pension plans, which
are specialized IRAs that meet the requirements of Section 408(k) of the
Code ("Simplified Employee Pension Plans");
4. Eligible deferred compensation plans (within the meaning of Section
457 of the Code) for employees of state and local governments and tax-
exempt organizations ("Section 457 Plans"); and
5. Governmental plans (within the meaning of Section 414(d) of the Code)
for governmental employees, including Federal employees ("Governmental
Plans").
An investor should consult a qualified tax or other adviser as to the
suitability of a Contract as a funding vehicle for retirement plans qualifying
for tax benefited treatment, as to the rules underlying such plans and as to
the state and Federal tax aspects of such plans. At this time the Contracts
are only available on a limited basis to plans qualified under Section 401(k)
of the Code.
A summary of the Federal tax laws regarding contributions to, and
distributions from, the above tax benefited retirement plans may be found
below under the heading "Special Rules for Annuities Purchased for Annuitants
Under Retirement Plans Qualifying for Tax Benefited Treatment." It should be
understood that should a tax benefited retirement plan lose its qualification
for tax-exempt status, employees will lose some of the tax benefits described
herein.
In the case of certain TSA Plans under Section 403(b)(1) of the Code and
IRAs purchased under Section 408(b) of the Code, the individual variable
annuity contracts offered in this prospectus comprise the retirement "plan"
itself. These Contracts will be endorsed, if necessary, to comply with Federal
and state legislation governing such plans, and such endorsements may alter
certain Contract provisions described in this prospectus. Refer to the
Contracts and any endorsements for more complete information.
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FEDERAL INCOME TAX STATUS
The following discussion is intended as a general description of the Federal
income tax aspects of the Contracts. It is not intended as tax advice. For
more complete information, you should consult a qualified tax adviser.
TAX STATUS OF THE INSURANCE COMPANY AND THE VARIABLE ACCOUNT
The Company is taxed as a life insurance company under the Code. The
Variable Account and its operations are part of the Company's total operations
and are not taxed separately. Under current law no taxes are payable by the
Company on the investment income and capital gains of the Variable Account.
Such income and gains will be retained in the Variable Account and will not be
taxable until received by the Annuitant or the Beneficiary in the form of
annuity payments or other distributions.
The Contracts provide that the Company may make a charge against the assets
of the Variable Account as a reserve for taxes which may relate to the
operations of the Variable Account.
TAXATION OF THE CONTRACTS
The variable annuity contracts described in this prospectus are considered
annuity contracts the taxation of which is governed by the provisions of
Section 72 of the Code. As a general proposition, Section 72 provides that
Contract Owners are not subject to current taxation on increases in the value
of the Contracts resulting from earnings or gains on the underlying mutual
fund shares until they are received by the Annuitant or Beneficiary in the
form of annuity payments. (Exceptions to this rule are discussed below under
"Special Rules for Annuities Used by Individuals or with Plans and Trusts Not
Qualifying Under the Code for Tax Benefited Treatment.")
Under the general rule of Section 72, to the extent there is an "investment"
in the Contract, a portion of each annuity payment is excluded from gross
income as a return of such investment. The balance of each annuity payment is
includible in gross income and taxable as ordinary income. In general,
earnings on all contributions to the Contract and contributions made to a
Contract which are deductible by the contributor will not constitute an
"investment" in the Contract under Section 72.
(A) SPECIAL RULES FOR ANNUITIES PURCHASED FOR ANNUITANTS UNDER RETIREMENT
PLANS QUALIFYING FOR TAX BENEFITED TREATMENT
Set forth below is a summary of the Federal tax laws applicable to
contributions to, and distributions from, retirement plans that qualify for
Federal tax benefits. Such plans are defined above under the heading
"Retirement Plans Offering Federal Tax Benefits." You should understand that
the following summary does not include everything you need to know regarding
such tax laws.
The Code provisions and the rules and regulations thereunder regarding
retirement trusts and plans, the documents which must be prepared and executed
and the requirements which must be met to obtain favorable tax treatment for
them are very complex. A person contemplating the purchase of a Contract for
use with a retirement plan qualifying for tax benefited treatment under the
Code should consult a qualified tax adviser as to all applicable Federal and
state tax aspects of the Contracts and, if applicable, as to the suitability
of the Contracts as investments under ERISA.
(I) PLAN CONTRIBUTION LIMITATIONS
QUALIFIED PLANS, SIMPLIFIED EMPLOYEE PENSION PLANS AND GOVERNMENTAL PLANS
Statutory limitations on contributions to Qualified Plans, Simplified
Employee Pension Plans and Governmental Plans may limit the amount of money
that may be contributed to the Contract in any Contract Year. Any purchase
payments attributable to such contributions are tax deductible to the employer
and are not currently taxable to the Annuitants for whom the Contracts are
purchased. The contributions to the Contract and any increase in Contract
Value attributable to such contributions are not subject to taxation until
payments from the Contract are made to the Annuitant or his/her Beneficiaries.
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TSA PLANS
Purchase payments attributable to TSA Plans are not includible within the
Annuitant's income to the extent such purchase payments do not exceed certain
statutory limitations, including the "exclusion allowance." The exclusion
allowance is a calculation which takes into consideration the Annuitant's
includible compensation, number of years of service, and prior years of
contributions. For more information, the Annuitant should obtain a copy of IRS
Publication 571 on TSA Programs for Employees of Public Schools and Certain
Tax Exempt Organizations which will better assist the Annuitant in calculating
the exclusion allowance and other limitations to which he or she may be
subject for any given tax year. Any purchase payments attributable to
permissible contributions under Code Section 403(b) (and earnings thereon) are
not taxable to the Annuitant until amounts are distributed from the Contract.
IRA'S
The maximum tax deductible purchase payment which may be contributed each
year to an IRA is the lesser of $2,000 or 100 percent of includible
compensation if the taxpayer is not covered under an employer plan. A spousal
IRA is available if the taxpayer and spouse file a joint return and the spouse
earns no compensation (or elects to be treated as earning no compensation) and
is not yet age 70 1/2. The maximum tax deductible purchase payment which a
taxpayer may make to his or her own IRA and a spousal IRA, combined, is the
lesser of $2,250 or 100 percent of compensation of the working spouse. If
covered under an employer plan, taxpayers are permitted to make deductible
purchase payments; however, the deductions are phased out and eventually
eliminated, on a pro rata basis, for adjusted gross income between $25,000 and
$35,000 for an individual, between $40,000 and $50,000 for a married couple
filing jointly and between $0 and $10,000 for a married person filing
separately. A taxpayer may also make nondeductible purchase payments. However,
the total of deductible and nondeductible purchase payments may not exceed the
limits described above for deductible payments. For more information
concerning the contributions to IRAs, you should obtain a copy of IRS
Publication 590 on Individual Retirement Accounts. In addition to the above,
an individual may make a "rollover" contribution into an IRA with the proceeds
of certain distributions (as defined in the Code) from a Qualified Plan.
SECTION 457 PLANS
Generally, under a Section 457 Plan, an employee or executive may defer
income under a written agreement in an amount equal to the lesser of 33 1/3%
of includible compensation or $7,500. The amounts so deferred (including
earnings thereon) by an employee or executive electing to contribute to a
Section 457 Plan are includible in gross income only in the tax year in which
such amounts are paid or made available to that employee or executive or
his/her Beneficiary. Once contributed to the plan, any Contracts purchased
with employee contributions remain the sole property of the employer and may
be subject to the general creditors of the employer. The employer retains all
ownership rights to the Contract including voting and redemption rights which
may accrue to the Contract(s) issued under the plan.
(II) DISTRIBUTIONS FROM THE CONTRACT
MANDATORY WITHHOLDING ON CERTAIN DISTRIBUTIONS
After January 1, 1993, many distributions called "eligible rollover
distributions" from Qualified Plans and from many TSA Plans will be subject to
automatic withholding by the plan or payor at the rate of 20%. Withholding can
be avoided by arranging a direct transfer of the eligible rollover
distribution to a Qualified Plan, TSA or IRA.
QUALIFIED PLANS, TSA PLANS, IRAS, SIMPLIFIED EMPLOYEE PENSION PLANS AND
GOVERNMENTAL PLANS
Payments made from the Contracts held under a Qualified Plan, TSA Plan, IRA,
Simplified Employee Pension Plan or Governmental Plan are taxable under
Section 72 of the Code as ordinary income, in the year of receipt. Any amount
received in surrender of all or part of the Contract Value prior to
annuitization will, subject to restrictions and penalties discussed below,
also be included in income in the year of receipt. If there is any
"investment" in the Contract, a portion of each amount received is excluded
from gross income as a return of such investment. Distributions or withdrawals
prior to age 59 1/2 may be subject to a penalty tax of 10% of the amount
includible in income. This penalty tax does not apply: (i) to distributions of
excess contributions or deferrals; (ii) to distributions made on account of
the Annuitant's death, retirement, disability or early retirement at or after
age 55; (iii) when distribution from the Contract is in the form of an annuity
over the life or life expectancy of the Annuitant (or joint lives or life
expectancies of the Annuitant and his or her Beneficiary); or
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(iv) when distribution is made pursuant to a qualified domestic relations
order. In the case of IRAs, the exceptions for distributions on account of
early retirement at or after age 55 or made pursuant to a qualified domestic
relations order do not apply. A tax-free rollover may be made once each year
among individual retirement arrangements subject to the conditions and
limitations described in the Code.
If the Annuitant dies before distributions begin, distributions must be
completed within five years after death, unless payments begin within one year
after death and are made over the life (or life expectancy) of the
Beneficiary. If the Annuitant's spouse is the Beneficiary, distributions need
not begin until the Annuitant would have reached age 70 1/2. If the Annuitant
dies after annuity payments have begun, payments must continue to be made at
least as rapidly as payments made before death.
With respect to TSA Plans, elective contributions to the Contract made after
December 31, 1988 and any increases in Contract Value after that date may not
be distributed prior to attaining age 59 1/2, termination of employment, death
or disability. Contributions (but not earnings) made after December 31, 1988
may also be distributed by reason of financial hardship. These restrictions on
withdrawal will not apply to the Contract Value as of December 31, 1988. These
restrictions are not expected to change the circumstances under which
transfers to other investments which qualify for tax free treatment under
Section 403(b) of the Code may be made.
Annuity payments, periodic payments or annual distributions must commence by
April 1 of the calendar year following the year in which the Annuitant attains
age 70 1/2. In the case of a Governmental Plan, these distributions must begin
by the later of the date determined by the preceding sentence or April 1 of
the calendar year following the year in which the Annuitant retires. Each
annual distribution must equal or exceed a "minimum distribution amount" which
is determined by minimum distribution rules under the plan. A penalty tax of
up to 50% of the amount which should be distributed may be imposed by the IRS
for failure to distribute the required minimum distribution amount. Other tax
penalties may apply to aggregate annual distributions in excess of $150,000.
SECTION 457 PLANS
When a distribution under a Contract held under a Section 457 Plan is made
to the Annuitant, such amounts are taxed as ordinary income in the year in
which received. The plan must not permit distributions prior to the
Annuitant's separation from service (except in the case of unforeseen
emergency).
Generally, annuity payments, periodic payments or annual distributions must
commence by April 1 of the calendar year following the year in which the
Annuitant attains age 70 1/2 and meet other distribution requirements. Minimum
distributions under a Section 457 Plan may be further deferred if the
Annuitant remains employed with the sponsoring employer. Each annual
distribution must equal or exceed a "minimum distribution amount" which is
determined by distribution rules under the plan. If the Annuitant dies before
distributions begin, the same special distribution rules apply in the case of
Section 457 Plans as apply in the case of Qualified Plans, TSA Plans, IRAs,
Simplified Employee Pension Plans and Governmental Plans. These rules are
discussed above in the immediately preceding section of this prospectus.
(B) SPECIAL RULES FOR ANNUITIES USED BY INDIVIDUALS OR WITH PLANS AND TRUSTS
NOT QUALIFYING UNDER THE CODE FOR TAX BENEFITED TREATMENT
For a Contract held by an individual, any increase in the accumulated value
of the Contract is not taxable until amounts are received, either in the form
of annuity payments as contemplated by the Contract or in a full or partial
lump sum settlement of the Company's obligations to the Contract Owner.
Under Section 72(u) of the Code, however, Contracts held by other than a
natural person (i.e. those held by a corporation or certain trusts) generally
will not be treated as an annuity contract for Federal tax purposes. This
means a Contract Owner who is not a natural person will have to include in
income any increase during the taxable year in the accumulated value over the
investment in the Contract.
Section 817(h) of the Code requires the investments of the Variable Account
to be "adequately diversified" in accordance with Treasury Regulations.
Failure to do so means the variable annuity contracts described herein will
cease to qualify as annuities for Federal income tax purposes. Regulations
specifying the diversification requirements have been issued by the Department
of the Treasury, and the Company believes it complies fully with these
requirements. The Company believes that the Contracts meet other existing
requirements relating to the degree of Contract Owner control over
A-33
<PAGE>
investments, including purchase payment allocation and transfer privileges.
However, neither the IRS nor the Secretary of the Treasury has issued any
rulings or regulations on this subject. Such rulings or regulations, if
adopted, could include additional requirements that are not reflected in the
Contracts. For example, the rulings or regulations could require the Company
to impose limitations on a Contract Owner's right to transfer between the
Eligible Funds. Moreover, any such rulings or regulations could also apply to
tax benefited retirement plans. The Company believes any such additional
requirements would apply only after the effective date of such rulings or
regulations.
Any amount received in a surrender of all or part of the Contract Value
prior to annuitization will be included in gross income to the extent of any
increases in the value of the Contract resulting from earnings or gains on the
underlying mutual fund shares.
The Code also imposes a ten percent penalty tax on amounts received under a
Contract, before or after the annuity starting date, which are includible in
gross income. The penalty tax will not apply to any amount received under the
Contract (1) after the Contract Owner has attained age 59 1/2, (2) after the
death of the Contract Owner, (3) after the Contract Owner has become totally
and permanently disabled, (4) as one of a series of substantially equal
periodic payments made for the life (or life expectancy) of the Contract Owner
or the joint lives (or life expectancies) of the Contract Owner and a
Beneficiary, (5) if the Contract is purchased under certain types of
retirement plans or arrangements, (6) allocable to investments in the Contract
before August 14, 1982, or (7) if the Contract is an immediate annuity
contract.
In the calculation of any increase in value for contracts entered into after
October 4, 1988, all annuity contracts issued by the Company or its affiliates
to the same Contract Owner within a calendar year will be treated as one
contract.
If the Contract Owner dies, the tax law requires certain distributions from
the Contract. (See "Payment on Death".)
TAX WITHHOLDING
The Code and the laws of certain states require tax withholding on
distributions made under annuity contracts, unless the recipient has made an
election not to have any amount withheld. The Company provides recipients with
an opportunity to instruct it as to whether taxes are to be withheld.
VOTING RIGHTS
The Company is the legal owner of the Eligible Fund shares held in the
Variable Account and has the right to vote those shares at meetings of the
Eligible Fund shareholders. However, to the extent required by Federal
securities law, the Company will give you, as Contract Owner, the right to
instruct the Company how to vote the shares that are attributable to your
Contract.
Prior to annuitization, the number of votes as to which you have a right of
instruction is determined by applying your percentage interest in a sub-
account to the total number of votes attributable to the sub-account. After
annuitization, the number of votes attributable to your Contract is determined
by applying the percentage interest reflected by the reserve for your Contract
to the total number of votes attributable to the sub-account. After
annuitization the votes attributable to your Contract decrease as reserves
underlying the Contract decrease.
Contract Owners who are entitled to give voting instructions and the number
of shares as to which you have a right of instruction will be determined as of
the record date for the meeting. All Eligible Fund shares held in any sub-
account of the Variable Account or any other registered (or to the extent
voting privileges are granted by the issuing insurance company, unregistered)
separate accounts of the Company or any affiliate for which no timely
instructions are received will be voted for, against, or withheld from voting
on any proposition in the same proportion as the shares held in that sub-
account for all policies or contracts for which voting instructions are
received.
All Eligible Fund shares held by the general investment account (or any
unregistered separate account for which voting privileges are not extended) of
the Company or its affiliates will be voted in the same proportion as the
aggregate of (i) the shares for which voting instructions are received and
(ii) the shares that are voted in proportion to such voting instructions.
The SEC requires the Eligible Fund Boards of Trustees to monitor events to
identify conflicts that may arise from the sale of shares to variable life and
variable annuity separate accounts of affiliated and, if applicable,
unaffiliated insurance companies. Conflicts could arise as a result of changes
in state insurance law or Federal income tax law, changes in
A-34
<PAGE>
investment management of any portfolio of the Eligible Funds, or differences
between voting instructions given by variable life and variable annuity
contract owners, for example. If there is a material conflict, the Boards of
Trustees will have an obligation to determine what action should be taken,
including the removal of the affected sub-account(s) from the Eligible
Fund(s), if necessary. If the Company believes any Eligible Fund action is
insufficient, the Company will consider taking other action to protect
Contract Owners. There could, however, be unavoidable delays or interruptions
of operations of the Variable Account that the Company may be unable to
remedy.
Each Contract Owner is a policyholder of The New England and is entitled to
vote at the Company's Annual Meeting of Policyholders held annually on the
third Wednesday of March.
DISTRIBUTION OF CONTRACTS
New England Securities, the principal underwriter of the Contracts, is a
broker-dealer registered under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc. Commissions of
3% of purchase payments will be paid by the Company to the New England
Securities registered representative involved in the sale of a Contract if the
Maturity Date selected at issue is ten or more years after issue of the
Contract. Lower commissions will be paid if the Maturity Date selected at
issue is less than ten years after issue. No commission is paid in connection
with the initial issuance of a Contract as a result of an exchange from New
England Variable Annuity Fund I or New England Retirement Investment Account.
A maximum override of .75% of purchase payments made after the first Contract
Year will be paid by the Company to the general agent involved in the
transaction.
New England Securities may enter into selling agreements with other broker-
dealers registered under the Securities Exchange Act of 1934 whose
representatives are authorized by applicable law to sell variable annuity
contracts. Commissions paid to such broker-dealers will not exceed 3% of
purchase payments. Commissions will be paid through the registered broker-
dealer, which may also be reimbursed for all or part of the expenses incurred
by the broker-dealer in connection with the sale of the Contracts.
THE FIXED ACCOUNT
A Fixed Account option is included under Contracts issued in those states
where it has been approved by the state insurance department. You may allocate
net purchase payments and may transfer Contract Value in the Variable Account
to the Fixed Account, which is part of the Company's general account. The
Fixed Account offers diversification to a Variable Account contract, allowing
the Contract Owner to protect principal and earn, at least, a guaranteed rate
of interest.
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933, and neither
the Fixed Account nor the general account has been registered as an investment
company under the Investment Company Act of 1940. Therefore, neither the
general account, the Fixed Account nor any interests therein are generally
subject to the provisions of these Acts, and the Company has been advised that
the staff of the Securities and Exchange Commission does not review
disclosures relating to the general account. Disclosures regarding the Fixed
Account may, however, be subject to certain generally applicable provisions of
the Federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
GENERAL DESCRIPTION OF THE FIXED ACCOUNT
The Company's general account consists of all assets owned by the Company
other than those in the Variable Account and the Company's other separate
accounts. The Company has sole discretion over the investment of assets in the
general account, including those in the Fixed Account. Contract Owners do not
share in the actual investment experience of the assets in the Fixed Account.
Instead, the Company guarantees that Contract Values in the Fixed Account will
earn interest at an effective annual net rate of at least 4.5% or 3%,
depending on the date when your Contract was issued. The Company is not
obligated to credit interest at a rate higher than the minimum guaranteed rate
applicable to your Contract, although in its sole discretion it may do so. The
Company declares the current interest rate for the Fixed Account periodically.
Contract Values in the Fixed Account will earn interest daily.
A-35
<PAGE>
The Company has the right to modify its method of crediting interest. Under
its current method, any net purchase payment or portion of Contract Value
allocated to the Fixed Account will earn interest at the declared annual rate
in effect on the date of the allocation. On each Contract Anniversary, the
Company will determine a portion, from 0% to 100%, of your Contract Value in
the Fixed Account which will earn interest at the Company's declared annual
rate in effect on the Contract Anniversary. The effective interest rate
credited at any time to your Contract Value in the Fixed Account will be a
weighted average of all the Fixed Account rates for your Contract. (See
"Contract Value and Fixed Account Transactions" below for a description of the
interest rate which will be applied to Contract loan repayments allocated to
the Fixed Account.)
CONTRACT VALUE AND FIXED ACCOUNT TRANSACTIONS
A Contract's total Contract Value will include its Contract Value in the
Variable Account, its Contract Value in the Fixed Account and, for Contracts
under which Contract loans are available, any of its Contract Value held in
the Company's general account (but outside the Fixed Account) as a result of a
Contract loan.
The annual $30 Administration Contract Charge will be deducted
proportionately from the Contract Value in the Fixed Account and in the
Variable Account. Unless you request otherwise, a partial surrender or
Contract loan will reduce the Contract Value in the sub-accounts of the
Variable Account and the Fixed Account proportionately. Except as described
below, amounts in the Fixed Account are subject to the same rights and
limitations as are amounts in the Variable Account with respect to transfers,
surrenders, partial surrenders and Contract loans. The following special rules
apply to transfers and Contract loan repayments involving the Fixed Account.
You may transfer amounts from the Fixed Account to the Variable Account once
----------------------------------------------------------------------------
each year within 30 days after the Contract anniversary. The amount of
- ----------------------------------------------------------------------
Contract Value which may be transferred from the Fixed Account is limited to
- ----------------------------------------------------------------------------
the greater of 25% of the Contract Value in the Fixed Account and $1,000,
- -------------------------------------------------------------------------
except with the consent of the Company. Also, after the transfer is effected,
- --------------------------------------
Contract Value may not be allocated among more than ten of the Sub-accounts
and/or Fixed Account. The Company intends to restrict transfers of Contract
Value into the Fixed Account in the following circumstances: (1) for the
remainder of a Contract Year if an amount is transferred out of the Fixed
Account in that same Contract Year; (2) if the interest rate which would be
credited to the transferred amount would be equivalent to an annual effective
rate of 3%; or (3) if the total Contract Value in the Fixed Account equals or
exceeds a maximum amount established by the Company.
If any portion of a Contract loan was attributable to Contract Value in the
Fixed Account, then an equal portion of each loan repayment must be allocated
to the Fixed Account. (For example, if 50% of the loan was attributable to
your Fixed Account Contract Value, then 50% of each loan repayment will be
allocated to the Fixed Account.) Similarly, unless you request otherwise, the
balance of the loan repayment will be allocated to the sub-accounts in the
same proportions in which the loan was attributable to the sub-accounts. The
rate of interest for each loan repayment applied to the Fixed Account will be
the lesser of: (1) the effective interest rate for your Contract on the date
the loan repayment is applied to the Fixed Account; and (2) the current Fixed
Account interest rate set by the Company in advance for that date.
The Company reserves the right to delay transfers, surrenders, partial
surrenders and Contract loans from the Fixed Account for up to six months.
FINANCIAL STATEMENTS
The financial statements of the Variable Account and of the Company may be
found in the Statement of Additional Information.
A-36
<PAGE>
INVESTMENT EXPERIENCE INFORMATION
The table below illustrates hypothetical average annual total returns for
each sub-account for the periods shown, based on the actual investment
experience of the Eligible Funds during those periods. It does not represent
what may happen in the future.
The Variable Account was not established until July, 1987. The Contracts
were not available until September, 1988. The Capital Growth, Back Bay
Advisors Bond Income and Back Bay Advisors Money Market Series commenced
operations on August 26, 1983. The Back Bay Advisors Managed and Westpeak
Stock Index Series commenced operations on May 1, 1987. The Westpeak Value
Growth and Loomis Sayles Avanti Growth Series commenced operations on April
30, 1993. The Equity-Income Portfolio commenced operations on October 9, 1986,
and the Overseas Portfolio commenced operations on January 28, 1987. The
Loomis Sayles Small Cap Series did not commence operations until May 1, 1994.
The other seven Series (Loomis Sayles Balanced, Draycott International Equity,
Salomon Brothers U.S. Government, Salomon Brothers Strategic Bond
Opportunities, Venture Value, Alger Equity Growth and CS First Boston
Strategic Equity Opportunities Series) did not commence operations prior to
the date of this prospectus.
Calculations of average annual total return are based on the assumption that
a single investment of $1,000 was made at the beginning of each period shown.
The figures do not reflect the effect of any premium tax charges, which apply
in certain states, and which would reduce the results shown.
The average annual total return is related to surrender value and is
calculated as follows. The amount of the assumed $1,000 purchase payment for a
Contract issued at the beginning of the period is divided by the Accumulation
Unit Value of each sub-account at the beginning of the period shown to arrive
at the number of Accumulation Units purchased. The number of Accumulation
Units is reduced on each Contract anniversary to reflect deduction of the
annual $30 Administration Contract Charge from the Contract Value. Each such
$30 deduction reduces the number of units held under the Contract by an amount
equal to $30 divided by the Accumulation Unit Value on the date of the
deduction. The total number of units held under the Contract at the beginning
of the last Contract Year covered by the period shown is multiplied by the
Accumulation Unit Value on December 31, 1993 to arrive at the Contract Value
on that date. This Contract Value is then reduced by the applicable Contingent
Deferred Sales Charge and by the portion of the $30 Administration Contract
Charge which would be deducted upon surrender to arrive at the surrender
value. The average annual total return is the annual compounded rate of return
which would produce the surrender value on December 31, 1993.
AVERAGE ANNUAL TOTAL RETURN
For purchase payment allocated to the Capital Growth Series
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1993
-------------------------------
<S> <C>
1 Year........................................................... 4.47%
5 Years.......................................................... 11.32%
Since Inception.................................................. 22.56%
For purchase payment allocated to the Back Bay Advisors Bond Income Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1993
-------------------------------
<S> <C>
1 Year........................................................... 2.26%
5 Years.......................................................... 6.89%
Since Inception.................................................. 7.75%
For purchase payment allocated to the Back Bay Advisors Money Market Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1993
-------------------------------
<S> <C>
1 Year........................................................... -6.73%
5 Years.......................................................... 1.11%
Since Inception.................................................. 3.15%
</TABLE>
A-37
<PAGE>
<TABLE>
For purchase payment allocated to the Back Bay Advisors Managed Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1993
-------------------------------
<S> <C>
1 Year........................................................... -.43%
5 Years.......................................................... 7.02%
Since Inception.................................................. 5.40%
For purchase payment allocated to the Westpeak Stock Index Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1993
-------------------------------
<S> <C>
1 Year........................................................... -.43%
5 Years.......................................................... 9.37%
Since Inception.................................................. 5.89%
For purchase payment allocated to the Westpeak Value Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1993
-------------------------------
<S> <C>
Since Inception.................................................. 7.09%
For purchase payment allocated to the Loomis Sayles Avanti Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1993
-------------------------------
<S> <C>
Since Inception.................................................. 7.80%
For purchase payment allocated to the Equity-Income Portfolio
<CAPTION>
PERIOD ENDING DECEMBER 31, 1993
-------------------------------
<S> <C>
1 Year........................................................... 7.57%
5 Years.......................................................... 7.64%
Since Inception.................................................. 7.00%
For purchase payment allocated to the Overseas Portfolio
<CAPTION>
PERIOD ENDING DECEMBER 31, 1993
-------------------------------
<S> <C>
1 Year........................................................... 25.36%
5 Years.......................................................... 5.17%
Since Inception.................................................. 2.90%
</TABLE>
Information is available illustrating the impact of fund performance on
annuity payouts.
The following chart illustrates how the average annual total return was
determined for the five year period ending December 31, 1993 for the Capital
Growth Series based on the assumptions used in the above table. The units
column below shows the number of accumulation units hypothetically purchased
by the $1000 investment in the Capital Growth Series in the first year
(assuming that no premium tax is deducted). The units are reduced on each
Contract anniversary to reflect the deduction of the $30 Administration
Contract Charge.
The unit values of the sub-accounts reflect the change in the net asset
value of the underlying Eligible Funds plus the reinvestment of dividends from
net investment income and of distributions from net realized gains, if any.
The unit values also reflect the deduction of the Mortality and Expense Risk
Charge as well as the Administration Asset Charge.
<TABLE>
<CAPTION>
AVERAGE
UNIT CONTRACT SURRENDER ANNUAL TOTAL
DATE UNITS VALUE VALUE VALUE RETURN
- ---- -------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
December 31, 1988............. 216.8875 4.610685 1,000.00 941.50
December 31, 1989............. 211.8457 5.950283 1,260.54 1,192.47 19.25%
December 31, 1990............. 206.5508 5.665855 1,170.29 1,112.36 5.47%
December 31, 1991............. 203.0655 8.607664 1,747.92 1,669.26 18.62%
December 31, 1992............. 199.3052 7.978068 1,590.07 1,525.67 11.14%
December 31, 1993............. 195.9901 9.049554 1,773.62 1,709.77 11.32%
</TABLE>
A-38
<PAGE>
The following charts illustrate what would have been the growth and value of
a $10,000 purchase payment for a Contract if it had been invested in each of
the Eligible Funds on the first day of the first month after those Eligible
Funds became available: September 1, 1983 in the case of the Back Bay Advisors
Money Market, Back Bay Advisors Bond Income and Capital Growth Series; May 1,
1987 in the case of the Back Bay Advisors Managed and Westpeak Stock Index
Series; November 1, 1986 in the case of the Equity-Income Portfolio, February
1, 1987 in the case of the Overseas Portfolio, and May 1, 1993 in the case of
the Value Growth and Avanti Growth Series. The figures shown do not reflect
the deduction of any premium tax charge. During the period when Surrender
Charges apply, the percentage return on surrender value from year to year
(after the 1st year) will be greater than the percentage return on Contract
Value for the same years. This is because the percentage return on surrender
value reflects not only investment experience but also the annual reduction in
applicable surrender Charges. In the first chart, the Contract Value and
surrender value on each date shown are calculated in the manner described in
the preceding illustrations of average annual total return, assuming that no
premium tax charge is deducted.
In the second and third charts, the difference between the Contract Value or
surrender value at the beginning and at the end of each year is divided by the
beginning Contract Value or surrender value to arrive at the annual percentage
change. The cumulative return information set forth in these charts is
determined by taking the difference between the $10,000 investment and the
ending Contract Value or surrender value and dividing it by $10,000. The
annual effective rate of return in this illustration is calculated in the same
manner as the average annual total return described in the preceding
illustration, assuming that no premium tax charge is deducted.
A-39
<PAGE>
$10,000 SINGLE PURCHASE PAYMENT CONTRACT
ISSUED SEPTEMBER 1, 1983 (MANAGED AND STOCK INDEX SERIES ISSUED MAY 1, 1987)
(EQUITY-INCOME: NOVEMBER 1, 1986 AND OVERSEAS: FEBRUARY 1, 1987)
(VALUE GROWTH AND AVANTI GROWTH: MAY 1, 1993)
INVESTMENT RESULTS
<TABLE>
<CAPTION>
CONTRACT VALUE(1)
--------------------------------------------------------------------------------------------------
BACK BAY BACK BAY LOOMIS
ADVISORS ADVISORS BACK BAY WESTPEAK SAYLES WESTPEAK
CAPITAL BOND MONEY ADVISORS STOCK AVANTI VALUE EQUITY-
GROWTH INCOME MARKET MANAGED INDEX GROWTH GROWTH INCOME OVERSEAS
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ $10,444.58 $10,322.81 $10,267.54
1984............ 10,236.94 11,453.60 11,175.37
1985............ 16,941.07 13,388.02 11,905.91
1986............ 32,597.59 15,137.28 12,515.01 $ 9,812.08
1987............ 49,085.06 15,242.32 13,122.58 $ 9,844.68 $ 8,700.99 9,540.79 $ 9,346.53
1988............ 44,124.36 16,250.76 13,896.84 10,562.46 9,870.02 11,446.14 10,073.52
1989............ 57,258.18 17,982.33 14,945.51 12,528.52 12,967.00 13,468.76 12,284.55
1990............ 54,167.35 19,151.99 15,916.87 12,617.63 12,025.49 11,089.00 11,946.44
1991............ 82,257.93 22,256.32 16,648.79 14,926.62 15,441.86 14,349.01 12,697.26
1992............ 76,208.53 23,723.05 17,018.60 15,680.54 16,313.95 16,515.02 11,157.37
1993............ 86,412.36 26,326.57 17,259.26 17,086.56 17,628.18 $11,306.07 $11,357.58 19,244.53 15,079.90
<CAPTION>
SURRENDER VALUE(1)
--------------------------------------------------------------------------------------------------
BACK BAY BACK BAY LOOMIS
ADVISORS ADVISORS BACK BAY WESTPEAK SAYLES WESTPEAK
CAPITAL BOND MONEY ADVISORS STOCK AVANTI VALUE EQUITY-
GROWTH INCOME MARKET MANAGED INDEX GROWTH GROWTH INCOME OVERSEAS
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ $ 9,824.16 $ 9,709.52 $ 9,657.47
1984............ 9,674.68 10,825.65 10.562.44
1985............ 16,131.07 12,715.81 11,307.06
1986............ 31,787.59 14,446.55 11,942.28 $ 9,233.37
1987............ 48,275.06 14,615.41 12,581.52 $ 9,249.94 $ 8,173.15 9,020.86 $ 8,773.87
1988............ 43,314.36 15,656.09 13,386.91 9,973.17 9,318.12 10,874.80 9,503.54
1989............ 56,448.18 17,406.21 14,465.04 11,889.35 12,306.12 12,857.89 11,650.33
1990............ 53,357.35 18,625.16 15,477.39 12,030.73 11,465.24 10,635.10 11,382.59
1991............ 81,447.93 21,845.89 16,339.29 14,302.90 14,797.27 13,827.62 12,156.63
1992............ 75,512.75 23,499.64 16,855.52 15,096.76 15,707.37 15,989.95 10,729.19
1993............ 86,402.36 26,316.57 17,249.26 16,528.96 17,053.52 $10,625.83 $10,674.33 18,720.06 14,578.25
</TABLE>
A-40
<PAGE>
ANNUAL PERCENTAGE CHANGE IN CONTRACT VALUE(1)
<TABLE>
<CAPTION>
BACK BAY BACK BAY LOOMIS
ADVISORS ADVISORS BACK BAY WESTPEAK SAYLES WESTPEAK DOW JONES S&P 500
CAPITAL BOND MONEY ADVISORS STOCK AVANTI VALUE EQUITY- INDUSTRIAL STOCK
GROWTH INCOME MARKET MANAGED INDEX GROWTH GROWTH INCOME OVERSEAS AVERAGE(2) INDEX(3)
------- --------- --------- --------- -------- ------- -------- ------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ 4.45% 3.23 % 2.68% 5.89% 1.71%
1984............ -1.99 10.95 8.84 1.30 6.22
1985............ 65.49 16.89 6.54 33.55 31.64
1986............ 92.42 13.07 5.12 -1.88% 27.10 18.62
1987............ 50.58 0.69 4.85 -1.55% -12.99% -2.76 -6.53% 5.48 5.21
1988............ -10.11 6.62 5.90 7.29 13.44 19.97 7.78 16.14 16.50
1989............ 29.77 10.66 7.55 18.61 31.38 17.67 21.95 32.19 31.59
1990............ -5.40 6.50 6.50 0.71 -7.26 -17.67 -2.75 -1.00 -3.12
1991............ 51.86 16.21 4.60 18.30 28.41 29.40 6.28 24.19 30.34
1992............ -7.35 6.59 2.22 5.05 5.65 15.10 -12.13 7.39 7.61
1993............ 13.39 10.97 1.41 8.97 8.06 13.06% 13.58% 16.53 35.16 16.97 10.06
Cumulative Re-
turn............ 764.12 163.27 72.59 70.87 76.28 13.06 13.58 92.45 50.80 252.41 309.42
Annual Effective
Rate of Return.. 23.19 9.81 5.42 8.36 8.87 20.16 20.98 9.56 6.12 12.75 14.61
<CAPTION>
LEHMAN
INTERMEDIATE
GOVERNMENT/
CORPORATE CONSUMER
BOND PRICE
INDEX(4) INDEX(5)
------------ --------
<S> <C> <C>
As of December
31:
1983............ 4.50% 1.07%
1984............ 14.38 3.95
1985............ 18.05 3.80
1986............ 13.12 1.10
1987............ 3.67 4.43
1988............ 6.78 4.42
1989............ 12.76 4.65
1990............ 9.17 6.11
1991............ 14.63 3.06
1992............ 7.17 2.90
1993............ 8.79 2.75
Cumulative Re-
turn............ 190.48 45.79
Annual Effective
Rate of Return.. 10.87 3.72
</TABLE>
ANNUAL PERCENTAGE CHANGE IN SURRENDER VALUE(1)
<TABLE>
<CAPTION>
BACK BAY BACK BAY LOOMIS
ADVISORS ADVISORS BACK BAY WESTPEAK SAYLES WESTPEAK DOW JONES S&P 500
CAPITAL BOND MONEY ADVISORS STOCK AVANTI VALUE EQUITY- INDUSTRIAL STOCK
GROWTH INCOME MARKET MANAGED INDEX GROWTH GROWTH INCOME OVERSEAS AVERAGE(2) INDEX(3)
------- --------- --------- --------- -------- ------- -------- ------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ -1.76% -2.90 % -3.43% 5.89% 1.71%
1984............ -1.52 11.50 9.37 1.30 6.22
1985............ 66.73 17.46 7.05 33.55 31.64
1986............ 97.06 13.61 5.62 -7.67% 27.10 18.62
1987............ 51.87 1.17 5.35 -7.50% -18.27% -2.30 -12.26% 5.48 5.21
1988............ -10.28 7.12 6.40 7.82 14.01 20.55 8.32 16.14 16.50
1989............ 30.32 11.18 8.05 19.21 32.07 18.24 22.59 32.19 31.59
1990............ -5.48 7.00 7.00 1.19 -6.83 -17.29 -2.30 -1.00 -3.12
1991............ 52.65 17.29 5.57 18.89 29.06 30.02 6.80 24.19 30.34
1992............ -7.29 7.57 3.16 5.55 6.15 15.64 -11.74 7.39 7.61
1993............ 14.42 11.99 2.34 9.49 8.57 6.26% 6.74% 17.07 35.87 16.97 10.06
Cumulative Re-
turn............ 764.02 163.17 72.49 65.29 70.54 6.26 6.74 87.20 45.78 252.41 309.42
Annual Effective
Rate of Return.. 23.19 9.81 5.41 7.82 8.33 9.51 10.25 9.14 5.60 12.75 14.61
<CAPTION>
LEHMAN
INTERMEDIATE
GOVERNMENT/
CORPORATE CONSUMER
BOND PRICE
INDEX(4) INDEX(5)
------------ --------
<S> <C> <C>
As of December
31:
1983............ 4.50% 1.07%
1984............ 14.38 3.95
1985............ 18.05 3.80
1986............ 13.12 1.10
1987............ 3.67 4.43
1988............ 6.78 4.42
1989............ 12.76 4.65
1990............ 9.17 6.11
1991............ 14.63 3.06
1992............ 7.17 2.90
1993............ 8.79 2.75
Cumulative Re-
turn............ 190.48 45.79
Annual Effective
Rate of Return.. 10.87 3.72
</TABLE>
---------
NOTES:
(1) The Contract Value, surrender value and annual percentage change
figures assume reinvestment of dividends and capital gain
distributions. The Contract Value figures are net of all
deductions and expenses except premium tax. Each surrender value
shown equals the Contract Value less any applicable Contingent
Deferred Sales Charge and a pro rata portion of the annual $30
Administration Contract Charge. (See "Administration Charges,
Contingent Deferred Sales and Other Deductions.") 1983 figures
for the Capital Growth, Back Bay Advisors Bond Income and Back
Bay Advisors Money Market Series are from September 1 through
December 31, 1983. 1987 figures for the Back Bay Advisors
Managed and Westpeak Stock Index Series are from May 1, 1987
through December 31, 1987. The 1986 figure for the Equity-Income
Portfolio is from November 1, 1986 through December 31, 1986;
the 1987 figure for the Overseas Portfolio is from February 1,
1987 through December 31, 1987; and the 1993 figures for the
Loomis Sayles Avanti Growth and Westpeak Value Growth Series are
from May 1, 1993 through December 31, 1993.
(2) The Dow Jones Industrial Average is an unmanaged index of 30
large industrial stocks traded on the New York Stock Exchange.
The annual percentage change figures have been adjusted to
reflect reinvestment of dividends. 1983 figures are from
September 1 through December 31, 1983.
A-41
<PAGE>
(3) The S&P 500 Stock Index is an unmanaged weighted index of the
stock performance of 500 industrial, transportation, utility and
financial companies. The annual percentage change figures have
been adjusted to reflect reinvestment of dividends. 1983 figures
are from September 1 through December 31, 1983.
(4) The Lehman Intermediate Government/Corporate Bond Index is a
subset of the Lehman Government/Corporate Bond Index covering
all issues with maturities between 1 and 10 years which is
comprised of taxable, publicly issued, non-convertible debt
obligations issued or guaranteed by the U.S. Government or its
agencies and another Lehman Index that is comprised of taxable,
fixed rate publicly issued, investment grade non-convertible
corporate debt obligations. 1983 figures are from September 1
through December 31, 1983.
(5) The Consumer Price Index is a measure of the purchasing power of
consumers' dollars based on a comparison of the costs of goods
and services today with the costs of the same goods and services
at an earlier date. 1983 figures are from September 1 through
December 31, 1983.
A-42
<PAGE>
The chart below illustrates what would have been the growth and value of a
$100 monthly investment in each of the Eligible Funds if monthly purchase
payments for a Contract had been made on the first day of each month starting
with September 1, 1983 (May 1, 1987 in the case of the Back Bay Advisors
Managed and Westpeak Stock Index Series; and November 1, 1986 for the Equity-
Income Portfolio; February 1, 1987 for the Overseas Portfolio; and May 1, 1993
for the Loomis Sayles Avanti Growth and Westpeak Value Growth Series.) The
figures shown do not reflect the deduction of any premium tax charge. Each
purchase payment is divided by the Accumulation Unit Value of each sub-account
on the date of the investment to calculate the number of Accumulation Units
purchased. The total number of units under the Contract is reduced on each
Contract anniversary as a result of the $30 Administration Contract Charge, as
described in the illustrations of average annual total return. The Contract
Value and the surrender value are calculated according to the methods
described in the preceding examples. The annual effective rate of return in
this illustration represents the compounded annual rate that the hypothetical
purchase payments shown would have had to earn in order to produce the
Contract Value and surrender value illustrated on December 31, 1993. See the
Statement of Additional Information for a description of the method of
calculating the annual effective rate of return in this illustration.
INVESTMENT RESULTS
SEPTEMBER 1, 1983--DECEMBER 31, 1993
(MAY 1, 1987--DECEMBER 31, 1993 FOR MANAGED AND STOCK INDEX SERIES)
(NOVEMBER 1, 1986 FOR EQUITY-INCOME PORTFOLIO AND FEBRUARY 1, 1987 FOR
OVERSEAS PORTFOLIO)
<TABLE>
<CAPTION>
CONTRACT VALUE
---------------------------------------------------------------------------------------------
BACK BAY BACK BAY LOOMIS
ADVISORS ADVISORS BACK BAY WESTPEAK SAYLES WESTPEAK
CUMULATIVE CAPITAL BOND MONEY ADVISORS STOCK AVANTI VALUE EQUITY-
PAYMENTS* GROWTH INCOME MARKET MANAGED INDEX GROWTH GROWTH INCOME OVERSEAS
---------- ---------- ---------- ---------- ---------- ---------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ $ 400 $ 408.55 $ 404.51 $ 406.73
1984............ 1,600 1,652.90 1,720.39 1,673.10
1985............ 2,800 4,286.49 3,304.00 2,998.89
1986............ 4,000 9,785.53 4,981.88 4,361.45 $ 195.01
1987............ 5,200 15,914.69 6,207.06 5,787.75 $ 770.08 $ 691.21 1,212.40 $ 1,004.85
1988............ 6,400 15,465.64 7,827.20 7,353.43 2,035.56 2,013.81 2,691.26 2,337.75
1989............ 7,600 21,368.41 9,909.41 9,143.25 3,697.08 3,981.59 4,391.26 4,204.39
1990............ 8,800 21,339.67 11,804.98 10,968.40 4,940.34 4,859.15 4,714.30 5,221.07
1991............ 10,000 33,870.55 15,034.52 12,691.67 7,148.95 7,570.11 7,417.83 6,776.73
1992............ 11,200 32,583.40 17,270.47 14,180.13 8,753.97 9,244.28 9,828.50 7,031.48
1993............ 12,400 38,213.23 20,402.48 15.585.77 10,763.50 11,222.49 $847.63 $848.54 12,716.94 10,871.79
Annual Effective
Rate of Return... 20.57% 9.30% 4.33% 8.77% 10.00% 16.54% 16.87% 10.72% 7.68%
<CAPTION>
SURRENDER VALUE
---------------------------------------------------------------------------------------------
BACK BAY BACK BAY LOOMIS
ADVISORS ADVISORS BACK BAY WESTPEAK SAYLES WESTPEAK
CAPITAL BOND MONEY ADVISORS STOCK AVANTI VALUE EQUITY-
GROWTH INCOME MARKET MANAGED INDEX GROWTH GROWTH INCOME OVERSEAS
---------- ---------- ---------- ---------- ---------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ $ 375.23 $ 371.43 $ 373.52
1984............ 1,554.18 1,618.03 1,573.30
1985............ 4,064.80 3,130.95 2,840.94
1986............ 9,455.53 4,748.14 4,155.63 $ 178.90
1987............ 15,488.69 5,946.08 5,543.75 $ 706.20 $ 631.94 1,142.20 $ 920.18
1988............ 14,943.64 7,535.78 7,079.07 1,906.72 1,886.14 2,553.29 2,185.50
1989............ 20,750.41 9,587.58 8,845.55 3,495.07 3,765.49 4,188.87 3,970.13
1990............ 20,753.77 11,476.52 10,662.52 4,698.92 4,621.39 4,518.57 4,959.86
1991............ 33,251.06 14,754.08 12,453.40 6,840.22 7,244.33 7,145.96 6,475.88
1992............ 32,280.23 17,105.13 14,042.59 8,419.55 8,892.21 9,514.06 6,751.84
1993............ 38,203.23 20,392.48 15,575.77 10,405.08 10,849.61 $779.21 $780.07 12,368.71 10,502.69
Annual Effective
Rate of Return... 20.57% 9.29% 4.32% 7.77% 9.00% -6.80% -6.53% 9.96% 6.70%
</TABLE>
- -----
* Cumulative payments as of December 31, 1993 would be $8,000 for Managed
and Stock Index, $800 for Avanti Growth and Value Growth, $8,600 for Equity-
Income, and $8,300 for Overseas.
A-43
<PAGE>
The Variable Account may update the performance history of one or more of
its sub-accounts on a quarterly basis by illustrating the five year growth of
a $10,000 single payment using the same method of calculation described on
page A-39, but using the five year period ending with the date of the
quarterly illustration. Such illustrations will show the Contract Value at the
end of the period and the cumulative return and annual effective rate of
return for the period. The illustration may also include the cumulative return
and annual effective rate of return of an appropriate securities index and the
Consumer Price Index for the same period.
The Variable Account will make available illustrations showing historical
Contract Values and the annual effective rate of return, based upon
hypothetical purchase payment amounts and frequencies, which can be selected
by the client. The method of calculation described on page A-43 will be used,
but the illustration will reflect the effect of any premium tax charge
applicable in the state where the illustration is delivered. The beginning
date of the illustration can be selected by the client. Contract Values will
be shown as of the end of each calendar year in the period and as of the end
of the most recent calendar quarter.
Historical investment performance may also be illustrated by showing the
percentage change in the Accumulation Unit Value and annual effective rate of
return of a sub-account without reflecting the impact of any Contingent
Deferred Sales Charge or the annual $30 Administration Contract Charge. The
percentage change in unit value and annual effective rate of return of each
sub-account may be shown from inception of the Eligible Fund to the date of
the report and for the 1 and 5 year periods ending with the date of the
report. The percentage change in unit value and annual effective rate of
return also may be compared with the percentage change and annual effective
rate for the Dow Jones Industrial Average and S&P 500 Stock Index, unmanaged
indices of stock performance described in Notes (2) and (3) to the preceding
illustration of Annual Percentage Change in Contract Value and Annual
Percentage Change in Surrender Value for a $10,000 Single Purchase Payment
Contract. The percentage change is calculated by dividing the difference in
unit or index values at the beginning and end of the period by the beginning
unit or index value. See the Statement of Additional Information for a
description of the method for calculating the annual effective rate of return
in this illustration.
From time to time the Company may advertise (in sales literature or
advertising material) performance rankings of the sub-accounts of the Variable
Account assigned by independent services, such as Variable Annuity Research
and Data Services ("VARDS"). VARDS monitors and ranks the performance of
variable annuity accounts on an industry-wide basis in each of the major
categories of investment objectives. The performance analysis prepared by
VARDS ranks accounts on the basis of total return calculated using
Accumulation Unit Values. Thus, the effect of the Contingent Deferred Sales
Charge and $30 Administration Contract Charge assessed under the Contracts is
not taken into consideration.
From time to time, articles discussing the Variable Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited to, Lipper Analytical Services, Inc. and
Morningstar) may publish their own rankings or performance reviews of variable
contract separate accounts, including the Variable Account. References to,
reprints or portions of reprints of such articles or rankings may be used by
the Company as sales literature or advertising material and may include
rankings that indicate the names of other variable contract separate accounts
and their investment experience.
INVESTMENT ADVISER PERFORMANCE DATA FOR THE CLONED SERIES
The tables below provide performance information calculated on a standard
and non-standard basis for sub-accounts investing in seven of the Eligible
Funds ("Cloned Series") that are newly-established and are modelled on
existing funds or portfolios ("Model Funds"). The figures shown do not reflect
the deduction of any premium tax charge. The Cloned Series are the Loomis
Sayles Small Cap Series, Loomis Sayles Balanced Series, Draycott International
Equity Series, Salomon Brothers U.S. Government Series, Salomon Brothers
Strategic Bond Opportunities Series, Venture Value Series and Alger Equity
Growth Series. Each Cloned Series will be managed in a manner substantially
similar to its corresponding Model Fund, and will have the same portfolio
managers as its corresponding Model Fund. More detailed information about the
Model Funds is provided below and in the attached prospectus for the New
England Zenith Fund. The information below reflects the level of annualized
expenses borne by each Model Fund during the period shown, which in virtually
all cases was at a higher level than the level of annualized expenses that are
projected to be borne by the corresponding Cloned Series for its initial
fiscal period, after giving effect to the voluntary expense cap or deferral
arrangement applicable to that Series. See "Investment Experience Information"
for an explanation of the performance calculations in the tables below and the
methods used for calculating them. THIS PERFORMANCE INFORMATION IS BASED ON A
FUND COMPARABLE TO EACH CLONED SERIES AND NOT ON THE CLONED SERIES ITSELF.
A-44
<PAGE>
LOOMIS SAYLES BALANCED SERIES. This Series is modelled on New England
Balanced Fund, which began pursuing its current investment objective on March
1, 1990, and is managed by Loomis Sayles & Company, L.P., the sub-adviser for
the Series.
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS OF NEW ENGLAND BALANCED FUND
<TABLE>
<CAPTION>
PERIOD ENDING JUNE 30, 1994
---------------------------
<S> <C>
1 Year............................................................ -6.10%
Since March 1, 1990 (current investment objective)................ 4.86%
</TABLE>
---------------------
$10,000 SINGLE PURCHASE PAYMENT CONTRACT ISSUED MARCH 1, 1990
<TABLE>
<CAPTION>
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1990...................................... $10,307.58 $ 9,695.17
1991...................................... 10,801.46 10,208.72
1992...................................... 12,138.85 11,528.48
1993...................................... 13,842.05 13,209.61
1994...................................... 14,126.68 13,544.95
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PERCENT ANNUAL PERCENT
CHANGE IN CHANGE IN
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1990...................................... 3.08% -3.05%
1991...................................... 4.79% 5.30%
1992...................................... 12.38% 12.83%
1993...................................... 14.03% 14.58%
1994...................................... 2.06% 2.54%
Cumulative Return......................... 41.27% 35.45%
Annual Effective Rate of Return........... 8.30% 7.25%
</TABLE>
---------------------
$100 MONTHLY PURCHASE PAYMENT CONTRACT - PAYMENTS STARTING MARCH 1, 1990
<TABLE>
<CAPTION>
CUMULATIVE CONTRACT SURRENDER
AS OF DECEMBER 31, PAYMENTS VALUE VALUE
------------------ ---------- --------- ---------
<S> <C> <C> <C>
1990.................................... $ 400 $ 409.80 $ 376.41
1991.................................... 1,600 1,732.59 1,629.57
1992.................................... 2,800 3,189.76 3,022.36
1993.................................... 4,000 4,899.07 4,669.07
1994.................................... 5,200 6,160.65 5,901.55
Annual Effective Rate of Return......... 7.77% 5.78%
</TABLE>
- -------------------------------------------------------------------------------
DRAYCOTT INTERNATIONAL EQUITY SERIES. This Series is modelled on New England
International Equity Fund and a separate account of the Company, both of which
are managed by Draycott Partners, Ltd., the sub-adviser for the Series. The
information shown below is based solely on the historical performance of New
England International Equity Fund, which commenced operations on May 21, 1992,
and whose performance the Company believes is representative of
A-45
<PAGE>
the historical performance realized by the two Model Funds for this Series.
The attached prospectus of the New England Zenith Fund provides information
concerning the composite returns of both Model Funds, taken together.
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS OF NEW ENGLAND INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
PERIOD ENDING JUNE 30, 1994
---------------------------
<S> <C>
1 Year............................................................. 8.37%
Since May 21, 1992 (Inception)..................................... 7.66%
</TABLE>
---------------------
$10,000 SINGLE PURCHASE PAYMENT CONTRACT ISSUED JUNE 1, 1992
<TABLE>
<CAPTION>
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1992...................................... $ 9,697.55 $ 9,127.89
1993...................................... 10,861.93 10,273.02
1994...................................... 12,737.86 12,104.96
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PERCENT ANNUAL PERCENT
CHANGE IN CHANGE IN
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1992...................................... -3.02% -8.72%
1993...................................... 12.01% 12.55%
1994...................................... 17.27% 17.83%
Cumulative Return......................... 27.38% 21.05%
Annual Effective Rate of Return........... 12.34% 9.62%
</TABLE>
---------------------
$100 MONTHLY PURCHASE PAYMENT CONTRACT - PAYMENTS STARTING JUNE 1, 1992
<TABLE>
<CAPTION>
CUMULATIVE CONTRACT SURRENDER
AS OF JUNE 30, PAYMENTS VALUE VALUE
-------------- ---------- --------- ---------
<S> <C> <C> <C>
1992.................................... $ 100 $ 101.75 $ 95.80
1993.................................... 1,300 1,326.87 1,255.22
1994.................................... 2,500 2,460.08 2,338.30
Annual Effective Rate of Return......... -1.48% -6.05%
</TABLE>
- -------------------------------------------------------------------------------
ALGER EQUITY GROWTH SERIES. This Series is modelled on three funds managed
by Fred Alger Management, Inc., the sub-adviser for the Series. The
information shown below is based solely on the historical performance of one
of these funds, the Alger American Growth Portfolio, a series of the Alger
American Fund, which commenced operations on January 9, 1989, and whose
performance the Company believes is representative of the historical
performance realized by all three Model Funds for this Series. The attached
prospectus of the New England Zenith Fund provides information concerning the
composite returns for all three Model Funds, taken together.
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS OF ALGER AMERICAN GROWTH PORTFOLIO
<TABLE>
<CAPTION>
PERIOD ENDING JUNE 30, 1994
---------------------------
<S> <C>
1 Year............................................................ -4.33%
5 Years........................................................... 10.48%
Since January 9, 1989 (Inception)................................. 11.71%
</TABLE>
---------------------
A-46
<PAGE>
$10,000 SINGLE PURCHASE PAYMENT CONTRACT ISSUED FEBRUARY 1, 1989
<TABLE>
<CAPTION>
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1989...................................... $10,713.74 $10,077.57
1990...................................... 12,995.40 12,184.19
1991...................................... 14,049.38 13,344.43
1992...................................... 15,322.07 14,623.03
1993...................................... 19,370.68 18,576.57
1994...................................... 20,145.02 19,410.16
<CAPTION>
ANNUAL PERCENT ANNUAL PERCENT
CHANGE IN CHANGE IN
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1989...................................... 7.14% 0.78%
1990...................................... 21.30% 21.90%
1991...................................... 8.11% 8.63%
1992...................................... 9.06% 9.58%
1993...................................... 26.42% 27.04%
1994...................................... 4.00% 4.49%
Cumulative Return......................... 101.45% 94.10%
Annual Effective Rate of Return........... 17.21% 16.22%
</TABLE>
---------------------
$100 MONTHLY PURCHASE PAYMENT CONTRACT - PAYMENTS STARTING FEBRUARY 1, 1989
<TABLE>
<CAPTION>
CUMULATIVE CONTRACT SURRENDER
AS OF JUNE 30, PAYMENTS VALUE VALUE
-------------- ---------- -------- ---------
<S> <C> <C> <C>
1989..................................... $ 500 $ 524.67 $ 482.21
1990..................................... 1,700 1,959.68 1,842.03
1991..................................... 2,900 3,428.13 3,246.56
1992..................................... 4,100 4,886.14 4,654.32
1993..................................... 5,300 7,487.95 7,172.70
1994..................................... 6,500 8,907.10 8,574.40
Annual Effective Rate of Return.......... 11.55% 10.14%
</TABLE>
- -------------------------------------------------------------------------------
VENTURE VALUE SERIES. This Series is modelled on two Model Funds managed by
Selected/Venture Advisers, L.P., the sub-adviser for the Series. The
information shown below is based solely on the historical performance of one
of these funds, the New York Venture Fund, which commenced operations on
February 17, 1969, and whose performance the Company believes is
representative of the historical performance realized by both Model Funds for
this Series. The attached prospectus of the New England Zenith Fund provides
information concerning the composite returns for both Model Funds, taken
together.
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS OF NEW YORK VENTURE FUND
<TABLE>
<CAPTION>
PERIOD ENDING JUNE 30, 1994
---------------------------
<S> <C>
1 Year............................................................ -5.32%
5 Years........................................................... 9.52%
10 Years.......................................................... 15.13%
Since February 17, 1969 (Inception)............................... 9.84%
</TABLE>
---------------------
A-47
<PAGE>
$10,000 SINGLE PURCHASE PAYMENT CONTRACT ISSUED MARCH 1, 1969
<TABLE>
<CAPTION>
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1969...................................... $ 10,921.68 $ 10,273.35
1970...................................... 7,533.23 7,116.97
1971...................................... 11,196.00 10,632.29
1972...................................... 12,605.40 12,028.60
1973...................................... 9,610.82 9,211.99
1974...................................... 8,299.22 7,990.81
1975...................................... 10,362.62 10,026.51
1976...................................... 10,841.50 10,539.05
1977...................................... 11,716.65 11,495.93
1978...................................... 13,637.63 13,504.98
1979...................................... 15,767.04 15,757.04
1980...................................... 20,418.99 20,408.99
1981...................................... 27,508.48 27,498.48
1982...................................... 23,316.67 23,306.67
1983...................................... 40,822.13 40,812.13
1984...................................... 37,485.85 37,475.85
1985...................................... 50,301.40 50,291.40
1986...................................... 67,157.61 67,147.61
1987...................................... 79,061.42 79,051.42
1988...................................... 77,158.85 77,148.85
1989...................................... 95,296.92 95,286.92
1990...................................... 109,669.67 109,659.67
1991...................................... 117,293.46 117,283.46
1992...................................... 135,084.17 135,074.17
1993...................................... 168,647.75 168,637.75
1994...................................... 173,817.13 173,807.13
</TABLE>
A-48
<PAGE>
<TABLE>
<CAPTION>
ANNUAL PERCENT ANNUAL PERCENT
CHANGE IN CHANGE IN
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1969...................................... 9.22% 2.73%
1970...................................... -31.03 -30.72
1971...................................... 48.62 49.39
1972...................................... 12.59 13.13
1973...................................... -23.76 -23.42
1974...................................... -13.65 -13.26
1975...................................... 24.86 25.48
1976...................................... 4.62 5.11
1977...................................... 8.07 9.08
1978...................................... 16.40 17.48
1979...................................... 15.61 16.68
1980...................................... 29.50 29.52
1981...................................... 34.72 34.74
1982...................................... -15.24 -15.24
1983...................................... 75.08 75.11
1984...................................... -8.17 -8.17
1985...................................... 34.19 34.20
1986...................................... 33.51 33.52
1987...................................... 17.73 17.73
1988...................................... -2.41 -2.41
1989...................................... 23.51 23.51
1990...................................... 15.08 15.08
1991...................................... 6.95 6.95
1992...................................... 15.17 15.17
1993...................................... 24.85 24.85
1994...................................... 3.07 3.07
Cumulative Return......................... 1,638.17 1,638.07
Annual Effective Rate of Return........... 11.92 11.92
</TABLE>
---------------------
A-49
<PAGE>
$100 MONTHLY PURCHASE PAYMENT CONTRACT
PAYMENTS STARTING MARCH 1, 1969
<TABLE>
<CAPTION>
CUMULATIVE CONTRACT SURRENDER
AS OF JUNE 30, PAYMENTS VALUE VALUE
- -------------- ---------- ---------- ----------
<S> <C> <C> <C>
1969......................................... $ 400 $ 401.25 $ 368.37
1970......................................... 1,600 1,079.38 1,011.64
1971......................................... 2,800 3,034.68 2,874.96
1972......................................... 4,000 4,705.00 4,483.73
1973......................................... 5,200 4,529.77 4,336.72
1974......................................... 6,400 4,888.32 4,702.70
1975......................................... 7,600 7,571.09 7,322.92
1976......................................... 8,800 9,216.22 8,957.65
1977......................................... 10,000 11,245.98 11,033.73
1978......................................... 11,200 14,486.94 14,346.65
1979......................................... 12,400 18,055.70 18,045.70
1980......................................... 13,600 24,737.48 24,727.48
1981......................................... 14,800 34,637.16 34,627.16
1982......................................... 16,000 30,446.43 30,436.43
1983......................................... 17,200 54,902.88 54,892.88
1984......................................... 18,400 51,551.35 51,541.35
1985......................................... 19,600 70,626.32 70,616.32
1986......................................... 20,800 95,740.68 95,730.68
1987......................................... 22,000 114,056.80 114,046.80
1988......................................... 23,200 112,598.08 112,588.08
1989......................................... 24,400 140,476.38 140,466.38
1990......................................... 25,600 162,955.55 162,945.55
1991......................................... 26,800 175,617.97 175,607.97
1992......................................... 28,000 203,516.76 203,506.76
1993......................................... 29,200 255,416.57 255,406.57
1994......................................... 30,400 264,434.61 264,424.61
Annual Effective Rate of Return.............. 14.46% 14.46%
</TABLE>
- -------------------------------------------------------------------------------
SALOMON BROTHERS U.S. GOVERNMENT SERIES. This Series is modelled on two
accounts (the "Salomon U.S. Government Accounts") managed by Salomon Brothers
Asset Management Inc., the sub-adviser for the Series. Salomon Brothers Asset
Management Inc. has managed each of the accounts since December 6, 1991. The
information below is based solely on the performance of one of the Salomon
U.S. Government Accounts which the Company believes is representative of the
historical performance realized by both Salomon U.S. Government Accounts. The
attached prospectus of the New England Zenith Fund provides information
concerning the composite returns for both Salomon U.S. Government Accounts ,
taken together.
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS OF A SALOMON U.S. GOVERNMENT ACCOUNT
<TABLE>
<CAPTION>
PERIOD ENDING JUNE 30, 1994
---------------------------
<S> <C>
1 Year............................................................ -9.45%
Since December 6, 1991 (current sub-adviser)...................... -0.91%
</TABLE>
---------------------
A-50
<PAGE>
$10,000 SINGLE PURCHASE PAYMENT CONTRACT ISSUED JANUARY 1, 1992
<TABLE>
<CAPTION>
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1992...................................... $10,184.79 $ 9,574.86
1993...................................... 10,980.99 10,373.83
1994...................................... 10,810.90 10,261.51
<CAPTION>
ANNUAL PERCENT ANNUAL PERCENT
CHANGE IN CHANGE IN
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1992...................................... 1.85% -4.25%
1993...................................... 7.82 8.34
1994...................................... -1.55 -1.08
Cumulative Return......................... 8.11 2.62
Annual Effective Rate of Return........... 3.17 1.04
</TABLE>
---------------------
$100 MONTHLY PURCHASE PAYMENT CONTRACT - PAYMENTS STARTING JANUARY 1, 1992
<TABLE>
<CAPTION>
CUMULATIVE CONTRACT SURRENDER
AS OF JUNE 30, PAYMENTS VALUE VALUE
-------------- ---------- --------- ---------
<S> <C> <C> <C>
1992.................................... $ 600 $ 617.40 $ 576.16
1993.................................... 1,800 1,883.43 1,767.54
1994.................................... 3,000 3,010.04 2,846.79
Annual Effective Rate of Return......... 0.26% -4.01%
</TABLE>
- -------------------------------------------------------------------------------
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES. This Series is
modelled on an account (the "Salomon Strategic Account") that commenced
operations on February 19, 1993, and is managed by Salomon Brothers Asset
Management Inc., the sub-adviser for the Series.
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS OF THE SALOMON STRATEGIC ACCOUNT
<TABLE>
<CAPTION>
PERIOD ENDING JUNE 30, 1994
---------------------------
<S> <C>
1 Year............................................................ -9.66%
Since February 19, 1993 (Inception)............................... -5.35%
</TABLE>
---------------------
$10,000 SINGLE PURCHASE PAYMENT CONTRACT ISSUED MARCH 1, 1993
<TABLE>
<CAPTION>
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1993...................................... $10,353.59 $9,738.49
1994...................................... 10,168.87 9,610.29
<CAPTION>
ANNUAL PERCENT ANNUAL PERCENT
CHANGE IN CHANGE IN
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1993...................................... 3.54% -2.62%
1994...................................... -1.78 -1.32
Cumulative Return......................... 1.69 -3.90
Annual Effective Rate of Return........... 1.27 -2.94
</TABLE>
---------------------
A-51
<PAGE>
$100 MONTHLY PURCHASE PAYMENT CONTRACT - PAYMENTS STARTING MARCH 1, 1993
<TABLE>
<CAPTION>
CUMULATIVE CONTRACT SURRENDER
AS OF JUNE 30, PAYMENTS VALUE VALUE
-------------- ---------- --------- ---------
<S> <C> <C> <C>
1993.................................... $ 400 $ 411.58 $ 378.09
1994.................................... 1,600 1,543.89 1,451.06
Annual Effective Rate of Return......... -4.94% -13.06%
</TABLE>
- --------------------------------------------------------------------------------
SMALL CAP SERIES. This Series is modelled on the Loomis Sayles Small Cap
Fund, Inc., which commenced operations on May 13, 1991, and is managed by
Loomis Sayles & Company, L.P., the sub-adviser for the Series.
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS OF LOOMIS SAYLES SMALL CAP FUND, INC.
<TABLE>
<CAPTION>
PERIOD ENDING JUNE 30, 1994
---------------------------
<S> <C>
1 Year............................................................ -9.23%
Since May 13, 1991 (Inception).................................... 12.60%
</TABLE>
---------------------
$10,000 SINGLE PURCHASE PAYMENT CONTRACT ISSUED JUNE 1, 1991
<TABLE>
<CAPTION>
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1991...................................... $ 9,688.69 $ 9,119.54
1992...................................... 11,909.47 11,263.99
1993...................................... 15,094.63 14,345.07
1994...................................... 15,360.30 14,666.70
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PERCENT ANNUAL PERCENT
CHANGE IN CHANGE IN
AS OF JUNE 30: CONTRACT VALUE SURRENDER VALUE
-------------- -------------- ---------------
<S> <C> <C>
1991...................................... -3.11% -8.80%
1992...................................... 22.92% 23.51%
1993...................................... 26.74% 27.35%
1994...................................... 1.76% 2.24%
Cumulative Return......................... 53.60% 46.67%
Annual Effective Rate of Return........... 14.94% 13.23%
</TABLE>
---------------------
$100 MONTHLY PURCHASE PAYMENT CONTRACT - PAYMENTS STARTING JUNE 1, 1991
<TABLE>
<CAPTION>
CUMULATIVE CONTRACT SURRENDER
AS OF JUNE 30, PAYMENTS VALUE VALUE
-------------- ---------- --------- ---------
<S> <C> <C> <C>
1991.................................... $ 100 $ 96.89 $ 88.87
1992.................................... 1,300 1,289.34 1,217.35
1993.................................... 2,500 2,971.27 2,821.82
1994.................................... 3,700 4,124.47 3,936.48
Annual Effective Rate of Return......... 6.98% 3.95%
</TABLE>
A-52
<PAGE>
APPENDIX A
CONSUMER TIPS
DOLLAR COST AVERAGING
Dollar cost averaging allows a person to take advantage of the historical
long-term stock market results, assuming that they continue, although it does
not guarantee a profit or protect against a loss. If an investor follows a
program of dollar cost averaging on a long-term basis and the stock fund
selected performs at least as well as the S&P 500 has historically, it is
likely although not guaranteed that the price at which shares are surrendered,
for whatever reason, will be higher than the average cost per share.
An investor using dollar cost averaging invests the same amount of money in
the same professionally managed fund at regular intervals over a long period
of time. Dollar cost averaging keeps an investor from investing too much when
the price of shares is high and too little when the price is low. When the
price of shares is low, the money invested buys more shares. When it is high,
the money invested buys fewer shares. If the investor has the ability and
desire to maintain this program over a long period of time (for example, 20
years), and the stock fund chosen follows the historical upward market trends,
the price at which the shares are sold should be higher than their average
cost. The price could be lower, however, if the fund chosen does not follow
these historical trends.
Investors contemplating the use of dollar cost averaging should consider
their ability to continue the on-going purchases so that they can take
advantage of periods of low price levels.
DIVERSIFICATION
Diversifying investment choices can enhance returns, by providing a wider
opportunity for safe returns, and reduce risks, by spreading the chance of
loss. Holding of single investment requires of that investment a safe return
because a loss may risk the entire investment. By diversifying, on the other
hand, an investor can more safely take a chance that some investments will
under-perform and that others will over-perform. Thus an investor can
potentially earn a better-than-average rate of return on a diversified
portfolio than on a single safe investment. This is because, although portions
of a diversified investment may be totally lost, other portions may perform at
above-average rates that more than compensate for the loss.
MISCELLANEOUS
<TABLE>
<C> <S>
Toll-free telephone --A recording of daily unit values is available by
service: calling 1-800-333-2501.
--Fund transfers and changes of future purchase
payment allocations can be made by calling 1-800-
777-5897 (Not available for fund transfers under
Contracts issued in New York.)
Written Communications: --All communications and inquiries regarding address
changes, premium payments, billing, fund transfers,
surrenders, loans, maturities and any other
processing matters relating to your Contract should
be directed to:
Annuity Services
P.O. Box 642
Back Bay Annex
Boston, Mass 02116
</TABLE>
A-53
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SERVICES TO THE VARIABLE ACCOUNT........................................... 3
PERFORMANCE COMPARISONS.................................................... 3
CALCULATION OF PERFORMANCE DATA............................................ 4
NET INVESTMENT FACTOR...................................................... 9
ANNUITY PAYMENTS........................................................... 10
HYPOTHETICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS....................... 13
HISTORICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS......................... 17
EXPERTS.................................................................... 19
LEGAL MATTERS.............................................................. 19
FINANCIAL STATEMENTS....................................................... 20
</TABLE>
If you would like to obtain a copy of the Statement of Additional
Information, please complete the request for below and mail to:
New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
...............................................................................
Please send a copy of the Statement of Additional
Information of The New England Variable Account to:
------------------------------------------------------
Name
------------------------------------------------------
Street
------------------------------------------------------
City State Zip
A-54
<PAGE>
NEW ENGLAND ZENITH FUND
501 Boylston Street
Boston, Massachusetts 02116
(617) 267-6600
PROSPECTUS--OCTOBER 31, 1994
New England Zenith Fund (the "Fund") offers fifteen investment portfolios:
the Back Bay Advisors Money Market Series, the Back Bay Advisors Bond Income
Series, the Capital Growth Series, the Westpeak Value Growth Series, the
Loomis Sayles Avanti Growth Series, the Westpeak Stock Index Series, the Back
Bay Advisors Managed Series, the Loomis Sayles Small Cap Series, the Loomis
Sayles Balanced Series, the Draycott International Equity Series, the Salomon
Brothers U.S. Government Series, the Salomon Brothers Strategic Bond
Opportunities Series, the Venture Value Series, the Alger Equity Growth Series
and the CS First Boston Strategic Equity Opportunities Series (the "Series")
with the following investment objectives:
BACK BAY ADVISORS MONEY MARKET SERIES--the highest possible level of current
income consistent with preservation of capital. MONEY MARKET FUNDS ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE
THAT THE SERIES WILL MAINTAIN A STABLE NET ASSET VALUE OF $100 PER SHARE.
BACK BAY ADVISORS BOND INCOME SERIES--a high level of current income
consistent with protection of capital and moderate investment risk.
CAPITAL GROWTH SERIES--long-term growth of capital.
WESTPEAK VALUE GROWTH SERIES--long-term total return through investment in
equity securities.
LOOMIS SAYLES AVANTI GROWTH SERIES--long-term growth of capital.
WESTPEAK STOCK INDEX SERIES--investment results that correspond to the
composite price and yield performance of United States publicly traded common
stocks.
BACK BAY ADVISORS MANAGED SERIES--a favorable total return through
investment in a diversified portfolio. The Series' portfolio is expected to
include a mix of (1) common stocks, (2) notes and bonds and (3) money market
instruments.
LOOMIS SAYLES SMALL CAP SERIES--long-term capital growth from investments in
common stocks or their equivalent.
LOOMIS SAYLES BALANCED SERIES--reasonable long-term investment return from a
combination of long-term capital appreciation and moderate current income.
DRAYCOTT INTERNATIONAL EQUITY SERIES--total return from long-term growth of
capital and dividend income, primarily through investment in international
equity securities.
SALOMON BROTHERS U.S. GOVERNMENT SERIES--a high level of current income
consistent with preservation of capital and maintenance of liquidity.
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES--a high level of total
return consistent with preservation of capital.
VENTURE VALUE SERIES--growth of capital.
ALGER EQUITY GROWTH SERIES--long-term capital appreciation.
CS FIRST BOSTON STRATEGIC EQUITY OPPORTUNITIES SERIES--capital appreciation.
This Prospectus concisely describes the information that prospective
investors ought to know before investing. Please read this Prospectus
carefully and keep it for future reference.
A Statement of Additional Information (the "Statement") dated October 31,
1994, is available free of charge by writing to New England Securities
Corporation ("New England Securities"), 399 Boylston Street, Boston,
Massachusetts 02116. The Statement, which contains more detailed information
about the Fund, has been filed with the Securities and Exchange Commission
(the "SEC") and is incorporated by reference in this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
---------------------
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.
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Highlights....................................................... B-3
The Fund................................................................... B-11
Investment Objectives and Policies......................................... B-11
Investment Risks........................................................... B-18
Performance Information.................................................... B-26
Past Performance of Adviser and Subadvisers................................ B-27
Investment Restrictions.................................................... B-32
Management................................................................. B-36
Sale and Redemption of Shares.............................................. B-42
Net Asset Values and Portfolio Valuation................................... B-42
Dividends and Capital Gain Distributions................................... B-43
Taxes...................................................................... B-43
Organization and Capitalization of the Fund................................ B-43
Transfer Agent............................................................. B-43
Voting Rights.............................................................. B-43
</TABLE>
B-2
<PAGE>
FINANCIAL HIGHLIGHTS
These tables (except for the information relating to the six months ended
June 30, 1994) have been examined by the Fund's independent accountants, whose
reports thereon accompany the financial statements in the Statement of
Additional Information. The tables should be read in conjunction with the
financial statements and the notes thereto. For further performance
information about the Fund, please refer to the Fund's annual report, which is
available free of charge.
BACK BAY ADVISORS MONEY MARKET SERIES
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------------------------------- --------
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994(A)
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Year.. $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income... 10.17 7.94 6.58 6.33 7.25 8.85 7.88 6.03 3.73 2.93 1.60
Net Gains or Losses on
Investments (both
realized and
unrealized)............ 0.00 0.00 0.00 (0.01) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations............. 10.17 7.94 6.58 6.32 7.25 8.85 7.88 6.03 3.73 2.93 1.60
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income...... (10.17) (7.94) (6.58) (6.32) (7.25) (8.85) (7.88) (6.03) (3.73) (2.93) (1.60)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions.. (10.17) (7.94) (6.58) (6.32) (7.25) (8.85) (7.88) (6.03) (3.73) (2.93) (1.60)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Year............... $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return (%)........ 10.6 8.2 6.8 6.6 7.4 9.2 8.2 6.2 3.8 3.0 1.6(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.40 0.39 0.39 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.39(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 10.19 7.96 6.61 6.37 7.26 8.85 7.87 6.01 3.71 2.93 3.26(c)
Net Assets, End of
Period (000)........... $22,824 $24,918 $26,794 $33,047 $38,929 $42,678 $60,071 $58,614 $61,607 $59,044 $67,101
</TABLE>
- --------
(a) Unaudited.
(b) Not annualized.
(c) Computed on an annualized basis.
B-3
<PAGE>
BACK BAY ADVISORS BOND INCOME SERIES
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------------------------------------- --------
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994(B)
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Year.. $103.22 $111.94 $119.34 $123.45 $ 95.47 $ 92.75 $ 97.23 $ 97.61 $103.44 $ 103.47 $ 106.14
------- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Income From Investment
Operations
Net Investment Income... 11.76 11.24 10.21 8.97 8.52 8.58 8.49 8.53 7.96 5.70 3.22
Net Gains or Losses on
Investments (both
realized and
unrealized)............ 0.83 7.76 6.66 (7.14) (0.54) 2.81 (0.65) 8.90 0.51 7.38 (8.18)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total From Investment
Operations............. 12.59 19.00 16.87 1.83 7.98 11.39 7.84 17.43 8.47 13.08 (4.96)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Less Distributions
Distributions From Net
Investment Income...... (3.76) (11.60) (11.09) (18.71) (10.70) (6.91) (7.46) (9.47) (6.87) (6.20) 0.00
Distributions In Excess
of Net Investment
Income................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.05) 0.00
Distributions From Net
Realized Capital Gains. (0.11) 0.00 (1.67) (11.10) 0.00 0.00 0.00 (2.13) (1.57) (4.16) 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total Distributions.. (3.87) (11.60) (12.76) (29.81) (10.70) (6.91) (7.46) (11.60) (8.44) (10.41) 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Net Asset Value, End of
the Period............. $111.94 $119.34 $123.45 $ 95.47 $ 92.75 $ 97.23 $ 97.61 $103.44 $103.47 $ 106.14 $ 101.18
======= ======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Total return (%)........ 12.6 18.7 15.8 1.4 8.4 12.3 8.1 18.0 8.2 12.6 (4.7)(c)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.46 0.47 0.50 0.45 0.47 0.45 0.46 0.45 0.44 0.43 0.44 (d)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 11.24 10.26 8.86 8.65 8.50 8.62 8.57 8.27 7.70 6.47 6.29 (d)
Portfolio Turnover Rate
(%) (a)................ 136 232 303 331 104 69 106 193 71 177 85 (d)
Net Assets, End of
Period (000)........... $11,658 $13,927 $16,379 $17,449 $15,750 $26,156 $40,631 $49,369 $83,057 $131,242 $127,440
</TABLE>
- --------
(a) The portfolio turnover calculations for fiscal 1985 and prior years
exclude transactions in U.S. Government securities maturing more than one
year from the date of acquisition. Portfolio turnover calculations in
subsequent years include such Government securities transactions.
(b) Unaudited.
(c) Not annualized.
(d) Computed on an annualized basis.
As of January 1, 1993, the Bond Income Series discontinued the use of
equalization accounting.
B-4
<PAGE>
CAPITAL GROWTH SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990(A) 1991 1992 1993
---- ---- ---- ---- ---- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $109.12 $107.77 $179.48 $264.48 $231.33 $201.14 $ 260.25 $ 249.04 $ 347.36 $ 322.23
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 1.28 0.67 0.52 1.05 10.63 1.59 1.78 3.16 4.04 2.12
Net Gains or Losses on
Investments (both
realized and
unrealized)........... (1.93) 72.16 131.12 109.33 (30.97) 60.11 (10.88) 130.75 (25.10) 46.21
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total From Investment
Operations............ (0.65) 72.83 131.64 110.38 (20.34) 61.70 (9.10) 133.91 (21.06) 48.33
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.21) (1.12) (0.90) (1.10) (9.55) (2.59) (2.11) (3.22) (4.07) (2.18)
Distributions From Net
Realized Capital
Gains................. (0.49) 0.00 (45.74) (142.43) (0.30) 0.00 0.00 (31.93) 0.00 (16.75)
Distributions From
Paid-In Capital....... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.44) 0.00 0.00
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total Distributions. (0.70) (1.12) (46.64) (143.53) (9.85) (2.59) (2.11) (35.59) (4.07) (18.93)
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Net Asset Value, End of
the Period............ $107.77 $179.48 $264.48 $231.33 $201.14 $260.25 $ 249.04 $ 347.36 $ 322.23 $ 351.63
======= ======= ======= ======= ======= ======= ======== ======== ======== ========
Total return (%)....... (0.6) 68.1 95.2 52.7 (8.8) 30.8 (3.5) 54.0 (6.1) 15.0
Ratio of Operating
Expenses to Average
Net Assets (%)........ 0.67 0.76 0.83 0.57 0.75 0.72 0.73 0.70 0.70 0.68
Ratio of Net Investment
Income to Average Net
Assets (%)............ 1.47 0.59 0.22 0.75 6.20 1.21 0.93 1.22 1.53 0.67
Portfolio Turnover Rate
(%) (b)............... 173 335 527 368 813 269 229 174 207 169
Net Assets, End of
Period (000).......... $ 1,431 $ 3,130 $ 6,797 $29,626 $42,538 $90,377 $148,254 $343,965 $472,017 $644,384
<CAPTION>
SIX
MONTHS
ENDED
JUNE 30,
------------
1994(C)
-------
<S> <C>
Net Asset Value,
Beginning of the
Period................ $ 351.63
------------
Income From Investment
Operations
Net Investment Income.. 2.32
Net Gains or Losses on
Investments (both
realized and
unrealized)........... (22.63)
------------
Total From Investment
Operations............ (20.31)
------------
Less Distributions
Distributions From Net
Investment Income..... 0.00
Distributions From Net
Realized Capital
Gains................. 0.00
Distributions From
Paid-In Capital....... 0.00
------------
Total Distributions. 0.00
------------
Net Asset Value, End of
the Period............ $ 331.32
============
Total return (%)....... (5.8)(d)
Ratio of Operating
Expenses to Average
Net Assets (%)........ 0.67 (e)
Ratio of Net Investment
Income to Average Net
Assets (%)............ 1.41 (e)
Portfolio Turnover Rate
(%) (b)............... 131 (e)
Net Assets, End of
Period (000).......... $658,448
</TABLE>
- --------
(a) On March 1, 1990, the Capital Growth Management Division of Loomis Sayles
& Company, Incorporated was reorganized into Capital Growth Management
Limited Partnership, which assumed management of the Series.
(b) The portfolio turnover calculations for fiscal 1985 and prior years
exclude transactions in U.S. Government securities maturing more than one
year from the date of acquisition. Portfolio turnover calculations in
subsequent years include such Government securities transactions.
(c) Unaudited.
(d) Not annualized.
(e) Computed on an annualized basis.
B-5
<PAGE>
WESTPEAK STOCK INDEX SERIES
<TABLE>
<CAPTION>
SIX
MAR. 30(A) MONTHS
TO ENDED
DEC. 31, YEAR ENDED DECEMBER 31, JUNE 30,
---------- ---------------------------------------------------- --------
1987 1988 1989 1990 1991 1992 1993 1994(B)
---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................. $100.00 $ 84.74 $ 94.36 $117.36 $108.49 $137.39 $ 72.00 $ 76.48
------- ------- ------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income... 2.44 3.48 3.55 3.76 3.56 8.35 1.54 0.90
Net Gains or Losses on
Investments (both
realized and
unrealized)............ (15.06) 10.39 24.83 (8.64) 29.29 2.02 5.18 (3.62)
------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations.......... (12.62) 13.87 28.38 (4.88) 32.85 10.37 6.72 (2.72)
------- ------- ------- ------- ------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income...... (2.23) (3.44) (3.74) (3.82) (3.56) (8.35) (1.36) 0.00
Distributions In Excess
of Net Investment
Income................. 0.00 0.00 0.00 0.00 0.00 0.00 (0.18) 0.00
Distributions From Net
Realized Capital Gains. (0.41) (0.81) (1.64) 0.00 (0.39) (67.41) (0.55) 0.00
Distributions In Excess
of Net Realized Capital
Gains.................. 0.00 0.00 0.00 0.00 0.00 0.00 (0.15) 0.00
Distributions From Paid-
In Capital............. 0.00 0.00 0.00 (0.17) 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions.. (2.64) (4.25) (5.38) (3.99) (3.95) (75.76) (2.24) 0.00
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............. $ 84.74 $ 94.36 $117.36 $108.49 $137.39 $ 72.00 $ 76.48 $ 73.76
======= ======= ======= ======= ======= ======= ======= =======
Total return (%)........ (12.2) 16.3 30.2 (4.1) 30.4 7.3 9.7 (3.6)(c)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.31 (b) 0.36 0.34 0.36 0.36 0.35 0.34 0.34 (d)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 3.36 (b) 3.92 3.31 3.36 2.86 2.63 2.52 2.58 (d)
Portfolio Turnover Rate
(%).................... 31 4 52 1 2 17 12 1 (d)
Net Assets, End of
Period (000)........... $ 9,002 $11,073 $15,501 $15,122 $20,496 $10,172 $28,817 $32,129
</TABLE>
- --------
(a) Commencement of operations.
(b) Unaudited.
(c) Not annualized.
(d) Computed on an annualized basis.
B-6
<PAGE>
BACK BAY ADVISORS MANAGED SERIES
<TABLE>
<CAPTION>
SIX
MAY 1(A) MONTHS
TO ENDED
DEC. 31, YEAR ENDED DECEMBER 31, JUNE 30,
-------- ----------------------------------------------------- --------
1987 1988 1989 1990 1991 1992 1993 1994(B)
---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $100.00 $ 96.62 $100.17 $114.65 $112.79 $127.87 $ 130.26 $ 137.18
------- ------- ------- ------- ------- ------- -------- --------
Income From Investment
Operations
Net Investment Income...... 2.80 5.13 4.31 5.47 6.41 5.14 4.35 2.46
Net Gains or Losses on
Investments (both realized
and unrealized)........... (3.45) 4.04 14.77 (1.81) 16.23 3.45 9.58 (8.79)
------- ------- ------- ------- ------- ------- -------- --------
Total From Investment
Operations............. (0.65) 9.17 19.08 3.66 22.64 8.59 13.93 (6.33)
------- ------- ------- ------- ------- ------- -------- --------
Less Distributions
Distributions From Net
Investment Income......... (2.73) (5.24) (4.22) (5.38) (6.41) (5.13) (4.36) 0.00
Distributions From Net
Realized Capital Gains.... 0.00 (0.38) (0.38) 0.00 (1.15) (1.07) (2.65) 0.00
Distributions From Paid-In
Capital................... 0.00 0.00 0.00 (0.14) 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- -------- --------
Total Distributions..... (2.73) (5.62) (4.60) (5.52) (7.56) (6.20) (7.01) 0.00
------- ------- ------- ------- ------- ------- -------- --------
Net Asset Value, End of the
Period.................... $ 96.62 $100.17 $114.65 $112.79 $127.87 $130.26 $ 137.18 $ 130.85
======= ======= ======= ======= ======= ======= ======== ========
Total return (%)........... (0.7) 9.5 19.1 3.2 20.2 6.7 10.7 (4.6)(c)
Ratio of Operating Expenses
to Average Net Assets (%). 0.66 (b) 0.64 0.57 0.57 0.55 0.54 0.53 0.54 (d)
Ratio of Net Investment
Income to Average Net
Assets (%)................ 4.96 (b) 5.88 5.29 5.58 5.45 5.32 3.65 3.78 (d)
Portfolio Turnover Rate
(%)....................... 1 1 1 1 36 36 22 97 (d)
Net Assets, End of Period
(000)..................... $ 7,694 $10,806 $23,622 $36,563 $49,995 $77,575 $121,339 $120,883
</TABLE>
- --------
(a) Commencement of operations.
(b) Unaudited.
(c) Not annualized.
(d) Computed on an annualized basis.
B-7
<PAGE>
LOOMIS SAYLES AVANTI GROWTH SERIES
<TABLE>
<CAPTION>
APRIL 30(A) SIX MONTHS
TO ENDED
DEC. 31, 1993 JUNE 30, 1994(E)
------------- ----------------
<S> <C> <C>
Net Asset Value, Beginning of the
Period............................. $100.00 $113.67
------- -------
Income From Investment Operations
Net Investment Income............... 0.18 0.26
Net Gains or Losses on Investments
(both realized and unrealized)..... 14.56 (9.58)
------- -------
Total From Investment Operations.... 14.74 (9.32)
------- -------
Less Distributions
Distributions From Net Investment
Income............................. (0.18) 0.00
Distributions From Net Realized
Capital Gains...................... (0.67) 0.00
Distributions From Paid-In Capital.. (0.22) 0.00
------- -------
Total Distributions.............. (1.07) 0.00
------- -------
Net Asset Value, End of the Period.. $113.67 $104.35
======= =======
Total return (%).................... 14.7 (b) (8.2)(b)
Ratio of Operating Expenses to
Average Net Assets (%)............. 0.85 (c) 0.84 (c)
Ratio of Net Investment Income to
Average Net Assets (%)............. 0.46 (c) 0.60 (c)
Portfolio Turnover Rate (%)......... 21 (c) 53 (c)
Net Assets, End of Period (000)..... $11,972 $19,795
The Ratio of Expenses to Average Net
Assets without giving effect to the
voluntary expense limitation
described in Footnote (d) would
have been (%)...................... 0.89 (c)(d) 0.84 (c)(d)
</TABLE>
--------
(a) Commencement of operations.
(b) Not annualized.
(c) Computed on an annualized basis.
(d) During the periods presented, the Series' adviser voluntarily
agreed to reduce its fees and, if necessary, to assume expenses of
the Series in order to limit the Series' expenses to an annual
rate of 0.85% of the Series' average daily net assets.
(e) Unaudited.
B-8
<PAGE>
WESTPEAK VALUE GROWTH SERIES
<TABLE>
<CAPTION>
APRIL 30(A) SIX MONTHS
TO ENDED
DEC. 31, 1993 JUNE 30, 1994(E)
------------- ----------------
<S> <C> <C>
Net Asset Value, Beginning of the
Period............................. $100.00 $112.32
------- -------
Income From Investment Operations
Net Investment Income............... 0.92 0.82
Net Gains or Losses on Investments
(both realized and unrealized)..... 13.33 (7.41)
------- -------
Total From Investment Operations.... 14.25 (6.59)
------- -------
Less Distributions
Distributions From Net Investment
Income............................. (0.92) 0.00
Distributions From Net Realized
Capital Gains...................... (1.00) 0.00
Distributions In Excess of Net
Realized Capital Gains............. (0.01) 0.00
------- -------
Total Distributions.............. (1.93) 0.00
------- -------
Net Asset Value, End of the Period.. $112.32 $105.73
======= =======
Total return (%).................... 14.2 (b) (5.9)(b)
Ratio of Operating Expenses to
Average Net Assets (%)............. 0.85 (c) 0.84 (c)
Ratio of Net Investment Income to
Average Net Assets (%)............. 2.16 (c) 1.97 (c)
Portfolio Turnover Rate (%)......... 49 (c) 151 (c)
Net Assets, End of Period (000)..... $ 9,082 $17,260
The Ratio of Expenses to Average Net
Assets without giving effect to the
voluntary expense limitation
described in Footnote (d) would
have been (%)...................... 0.94 (c)(d) 0.84 (c)(d)
</TABLE>
--------
(a) Commencement of operations.
(b) Not annualized.
(c) Computed on an annualized basis.
(d) During the periods presented, the Series' adviser voluntarily
agreed to reduce its fees and, if necessary, to assume expenses of
the Series in order to limit the Series' expenses to an annual
rate of 0.85% of the Series' average daily net assets.
(e) Unaudited.
B-9
<PAGE>
LOOMIS SAYLES SMALL CAP SERIES
<TABLE>
<CAPTION>
MAY 1(A)
TO
JUNE 30, 1994(B)
----------------
<S> <C>
Net Asset Value, Beginning of the Period.............. $100.00
-------
Income From Investment Operations..................... 0.15
Net Investment Income
Net Gains or Losses on Investments (both realized and
unrealized).......................................... (3.87)
-------
Total From Investment Operations...................... (3.72)
-------
Less Distributions
Distributions From Net Investment Income.............. 0.00
Distributions In Excess of Net Investment Income...... 0.00
Distributions From Net Realized Capital Gains......... 0.00
Distributions From Paid-In Capital.................... 0.00
-------
Total Distributions................................ 0.00
-------
Net Asset Value, End of the Period.................... $ 96.28
=======
Total return (%)...................................... (3.7)(c)
Ratio of Operating Expenses to Average Net Assets (%). 1.00 (d)
Ratio of Net Investment Income to Average Net Assets
(%).................................................. 0.91 (d)
Portfolio Turnover Rate (%) (a)....................... 18 (d)
Net Assets, End of Period (000)....................... $ 1,926
The Ratio of Expenses to Average Net Assets without
giving effect to the voluntary expense limitation
described in Footnote (e) would have been (%)........ 1.16 (d)(e)
</TABLE>
--------
(a) Commencement of operations.
(b) Unaudited.
(c) Not annualized.
(d) Computed on an annualized basis.
(e) During the period presented, the Series' adviser voluntarily
agreed to reduce its fees and, if necessary, to assume expenses of
the Series in order to limit the Series' expenses to an annual
rate of 1.00% of the Series' average daily net assets.
B-10
<PAGE>
THE FUND
The Fund is a diversified, open-end management investment company organized
in 1987 as a Massachusetts business trust under the laws of Massachusetts. The
Fund is a series type company with fifteen investment portfolios: the Back Bay
Advisors Money Market Series, the Back Bay Advisors Bond Income Series, the
Capital Growth Series, the Westpeak Value Growth Series, the Loomis Sayles
Avanti Growth Series, the Westpeak Stock Index Series, the Back Bay Advisors
Managed Series, the Loomis Sayles Small Cap Series, the Loomis Sayles Balanced
Series, the Draycott International Equity Series, the Salomon Brothers U.S.
Government Series, the Salomon Brothers Strategic Bond Opportunities Series,
the Venture Value Series, the Alger Equity Growth Series and the CS First
Boston Strategic Equity Opportunities Series.
Shares in the Fund are not offered directly to the general public and,
currently, are available only to separate accounts established by New England
Variable Life Insurance Company ("NEVLICO"), New England Mutual Life Insurance
Company ("The New England") or subsidiaries of The New England as an
investment vehicle for variable life insurance or variable annuity products,
although not all Series may be available to all separate accounts. In the
future, however, such shares may be offered to separate accounts of insurance
companies unaffiliated with NEVLICO or The New England.
INVESTMENT OBJECTIVES AND POLICIES
BACK BAY ADVISORS MONEY MARKET SERIES
The Back Bay Advisors Money Market Series seeks the highest possible level
of current income consistent with preservation of capital through investment
in a managed portfolio of high quality money market instruments including:
. obligations backed by the full faith and credit of the United States
Government, such as bills, notes and bonds issued by the U.S.
Treasury or by such government agencies as the Farmers' Home
Administration or the Small Business Administration;
. other obligations issued or guaranteed by the United States
Government or its agencies, authorities or instrumentalities, such
as obligations of the Tennessee Valley Authority, Federal Land Banks
and the Federal National Mortgage Association (together with full
faith and credit obligations, "U.S. Government Securities");
. obligations of banks or savings and loan associations (such as
bankers' acceptances and certificates of deposit, including
Eurodollar obligations of foreign branches of U.S. banks and dollar
denominated obligations of U.S. and United Kingdom branches of
foreign banks) whose net assets exceed $100,000,000;
. commercial paper and other corporate debt obligations rated in the
highest rating category by Standard & Poor's Corporation ("Standard
& Poor's" or "S&P") or Moody's Investors Service, Inc. ("Moody's")
or, if unrated, of comparable quality as determined by Back Bay
Advisors, L.P. ("Back Bay Advisors"), the Series' investment
adviser, under guidelines approved by the Fund's Trustees; and
. repurchase agreements relating to any of the above.
The Back Bay Advisors Money Market Series may invest up to 100% of its
assets in certificates of deposit, bankers' acceptances and other bank
obligations.
All the Back Bay Advisors Money Market Series' money market instruments
mature in less than 397 days and its dollar-weighted average portfolio
maturity is 90 days or less. The Series calculates the maturity of repurchase
agreements by reference to the repurchase date, not by reference to the
maturity of the underlying security.
By investing only in high quality, short-term securities, the Back Bay
Advisors Money Market Series seeks to minimize credit risk and market risk.
Credit risk is the risk that the obligor will default in the payment of
principal and/or interest. In a repurchase agreement transaction, credit risk
relates to the performance by the other party of its obligation to repurchase
the underlying security from the Fund. If the other party defaults on that
obligation, the Fund may face various delays and risks of loss. Market risk is
the risk that the market value of the securities will change as a result of
changes in market rates of interest. The Fund expects that those changes will
be minimal and that the Back Bay Advisors Money Market Series will be able to
maintain the net asset value of its shares at a constant of $100, although
this cannot be assured.
B-11
<PAGE>
The Eurodollar obligations of foreign branches of U.S. banks and U.S. and
United Kingdom branches of foreign banks in which the Back Bay Advisors Money
Market Series may invest may be subject to certain risks which do not apply to
obligations of domestic branches of U.S. banks. These risks may relate to
foreign economic, political and legal developments and to the fact that
foreign banks and foreign branches of U.S. banks may be subject to different
regulatory requirements.
BACK BAY ADVISORS BOND INCOME SERIES
The investment objective of the Back Bay Advisors Bond Income Series is to
provide a high level of current income consistent with protection of capital
and moderate investment risk through investment primarily in U.S. Government
and corporate bonds. In general, fixed-income securities, such as the bonds in
which the Series may invest, are subject to credit risk (the risk that the
obligor will default in the payment of principal and/or interest) and to
market risk (the risk that the market value of the securities will change as a
result of changes in market rates of interest).
At least 80% of the Series' assets will consist of securities rated AAA, AA,
A or BBB by S&P or Aaa, Aa, A or Baa by Moody's or unrated but determined by
Back Bay Advisors to be of comparable quality to securities in those rating
categories. The Series may not invest more than 10% of its total net assets in
obligations of foreign issuers. Investments in foreign securities will subject
the Series to special considerations related to political, economic and legal
conditions outside of the U.S. These considerations include the possibility of
unfavorable currency exchange rates, exchange control regulations (including
currency blockage), expropriation, nationalization, withholding taxes on
income and difficulties in enforcing judgments. Foreign securities may be less
liquid and more volatile than comparable U.S. securities. Some foreign issuers
are subject to less comprehensive accounting and disclosure requirements than
similar U.S. issuers. Transactions in foreign securities include currency
conversion costs. Brokerage and custodial costs for foreign securities may be
higher than for U.S. securities. The Series will invest in these securities
only when Back Bay Advisors believes the associated risks are minimal.
Up to 20% of the Series' assets may be invested in securities rated BB or Ba
or lower (or in unrated securities that Back Bay Advisors determines to be of
comparable quality). During the fiscal year ended December 31, 1993, 6.0% of
the average month-end net assets of the Back Bay Advisors Bond Income Series
was invested in fixed-income securities rated in the rating category (BB or
Ba) just below investment grade and no assets were invested in fixed-income
securities rated below this level. Securities rated BB or lower by S&P or Ba
or lower by Moody's (or unrated but determined to be of comparable quality by
Back Bay Advisors) are considered high yield, high risk securities and are
commonly known as "junk bonds." The Series will acquire no security rated
below BB or Ba (or unrated but determined to be of comparable quality by Back
Bay Advisors). If a security held by the Series is downgraded below BB or Ba,
Back Bay Advisors will determine at that time whether the Series will continue
to hold the security, taking into account the current conditions.
The average maturity of the Back Bay Advisors Bond Income Series' portfolio
will usually be between five and fifteen years.
CAPITAL GROWTH SERIES
The Capital Growth Series, which is advised by Capital Growth Management
Limited Partnership ("CGM"), seeks long-term growth of capital through
investment primarily in equity securities of companies whose earnings are
expected to grow at a faster rate than the United States economy. Most of the
Series' investments are normally in common stocks, although the Series may
invest in any type of equity securities. Equity securities are common stocks
and securities convertible into common stocks. The Series does not consider
current income as a significant factor in selecting its investments. Equity
securities are volatile investments, subject to price declines as well as
advances, and involve greater risks than some other investment media.
WESTPEAK VALUE GROWTH SERIES
The Westpeak Value Growth Series seeks long-term total return (capital
appreciation and dividend income) through investment in equity securities.
Emphasis will be given to both undervalued securities ("value" style) and
securities of companies with growth potential ("growth" style). The Westpeak
Value Growth Series will ordinarily invest substantially all its assets in
equity securities.
B-12
<PAGE>
The assets of the Westpeak Value Growth Series that are not invested in
equity securities will be held in cash or invested in repurchase agreements,
short-term U.S. Government securities or commercial paper or other corporate
money market securities rated A-2 or higher by Moody's or P-2 or higher by
Standard & Poor's (or unrated but considered to be of comparable quality by
the Series' investment adviser, Westpeak Investment Advisors, L.P.
["Westpeak"]).
The Westpeak Value Growth Series may engage in transactions in futures
contracts solely for the purpose of maintaining full exposure of the portfolio
to the movements of broad equity markets at times when the Series holds a cash
position pending investment in stocks or in anticipation of redemptions. See
"Futures and Other Hedging Transactions" under "Investment Risks" below and
"Futures" in the Statement of Additional Information.
LOOMIS SAYLES AVANTI GROWTH SERIES
The Loomis Sayles Avanti Growth Series seeks long-term growth of capital.
The Series ordinarily invests substantially all of its assets in equity
securities. Investments are selected based on their growth potential; current
income is not a consideration. The Series normally will invest primarily in
equity securities of companies with medium and large capitalization
(capitalization of $1 billion to $5 billion and over $5 billion,
respectively), but will also invest a portion of its assets in equity
securities of companies with relatively small market capitalization (under $1
billion). The Series may invest a limited portion of its assets in securities
of foreign issuers.
Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the Series' adviser,
selects investments based upon fundamental research and analysis of individual
companies and industries. The adviser selects investments for the Series based
on qualitative and quantitative criteria including, among others, industry
dominance and competitive position, consistent earnings growth, a history of
high profitability, the adviser's expectation of continued high profitability
and overall financial strength, although not every investment will have all of
these characteristics.
The Series may invest in convertible securities, including corporate bonds,
notes or preferred stocks that can be converted into common stocks or other
equity securities.
WESTPEAK STOCK INDEX SERIES
The Westpeak Stock Index Series seeks to provide investment results that
correspond to the composite price and yield performance of United States
publicly traded common stocks. The Westpeak Stock Index Series seeks to
achieve this investment objective by attempting to duplicate the composite
price and yield performance of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index").
The S&P 500 Index fluctuates with changes in the market value of the stocks
included in the Index. An investment in the Westpeak Stock Index Series
involves risks similar to the risks of investing directly in the stocks
included in the S&P 500 Index.
The Westpeak Stock Index Series seeks to duplicate the composite price and
yield performance of the S&P 500 Index at lower cost without investing in all
of the 500 stocks included in the Index by selecting stocks having a
combination of characteristics similar to the omitted stocks and, in order to
minimize "tracking error," adjusting the proportions of the stocks included in
the Series' portfolio relative to each stock's weighting in the S&P 500 Index.
("Tracking error" is a statistical measure of the difference between the
investment results of the Series, before taking into account the Series'
expenses, and the investment results of the S&P 500 Index.)
Westpeak, the Series' adviser, currently expects that, depending on its
size, the Westpeak Stock Index Series will ordinarily invest in approximately
300 of the 500 stocks included in the S&P 500 Index. From time to time and
over any period of time, this number may be significantly higher or lower,
depending on the size of the Series and on Westpeak's judgment as to the
appropriate number of stocks in which to invest in order to approximate the
composite price and yield performance of the Index. In the future, however,
the Westpeak Stock Index Series may, without shareholder approval, select a
stock index other than the S&P 500 Index as the standard of comparison for the
Westpeak Stock Index Series' common stock investments, or discontinue the
practice of using a stock index as the standard of comparison for the common
stock portion of the Westpeak Stock Index Series' portfolio. The Series may
also engage in futures transactions to reduce tracking error. See "Futures and
Other Hedging Transactions" under "Investment Risks" below and "Futures" in
the Statement of Additional Information.
B-13
<PAGE>
BACK BAY ADVISORS MANAGED SERIES
The investment objective of the Back Bay Advisors Managed Series is to
provide a favorable total investment return through investment in a
diversified portfolio. The Series' portfolio is expected to include (1) common
stocks, (2) notes and bonds and (3) money market instruments. These
investments will be made in proportions that Back Bay Advisors, adviser to the
Back Bay Advisors Managed Series, deems appropriate for an investor who wishes
to invest in a portfolio containing a diversified mix of assets.
It is expected that more often than not the investment portfolio of the Back
Bay Advisors Managed Series will contain a higher proportion of common stocks
than of notes and bonds, and a higher proportion of notes and bonds than of
money market instruments. However, Back Bay Advisors will make variations in
the proportions of each investment category in accordance with its assessment
of the outlook for the economy and the financial markets and its judgment
about the relative attractiveness of each asset type in light of economic
conditions. It is expected that under normal market conditions the Back Bay
Advisors Managed Series' portfolio will have some of its assets invested in
each of the three categories listed above. The Series may also engage in
futures transactions to manage its portfolio exposure to the risks of
investment in common stocks or notes and bonds. The Series will engage in
futures transactions only to the extent allowed by state law and regulations.
See "Futures and Other Hedging Transactions" under "Investment Risks" below
and "Futures" in the Statement of Additional Information.
The investment practices of the Back Bay Advisors Managed Series with
respect to the common stock portion of its portfolio will be substantially
similar to the investment practices of the Westpeak Stock Index Series, and
the risks associated with the common stock portion of the Back Bay Advisors
Managed Series' portfolio are similar to those associated with the Westpeak
Stock Index Series. See "Westpeak Stock Index Series" above. These investment
practices include seeking to duplicate the composite price and yield
performance of the S&P 500 Index. In the future, however, the Back Bay
Advisors Managed Series may, without shareholder approval, select a stock
index other than the S&P 500 Index as the standard of comparison for the Back
Bay Advisors Managed Series' common stock investments, or discontinue the
practice of using a stock index as the standard of comparison for the common
stock portion of the Back Bay Advisors Managed Series' portfolio. The Series
may invest a limited portion of its assets in securities of foreign issuers.
The bond portion of the Back Bay Advisors Managed Series' portfolio will be
invested in bonds of the types in which the Back Bay Advisors Bond Income
Series is permitted to invest. See "Back Bay Advisors Bond Income Series"
above for a description of these types of investments and some possible risks
associated with them.
The money market portion of the Back Bay Advisors Managed Series' portfolio
will be invested in money market instruments and related repurchase agreements
of the types in which the Back Bay Advisors Money Market Series is permitted
to invest. See "Back Bay Advisors Money Market Series" above for a description
of these types of investments and of the possible risks associated with them.
LOOMIS SAYLES SMALL CAP SERIES
The Loomis Sayles Small Cap Series' investment objective is long-term
capital growth from investments in common stocks or their equivalent.
The Series seeks to achieve its objective by giving emphasis to both
undervalued securities and securities of companies with significant growth
potential. The Series will normally invest at least 65% of its total assets in
companies with market capitalization of less than $500 million and may invest
up to 35% of its assets in larger companies. Current income is not a
consideration in selecting the Series' investments. The Series may invest a
limited portion of its assets in securities of foreign issuers.
LOOMIS SAYLES BALANCED SERIES
The Loomis Sayles Balanced Series' investment objective is reasonable long-
term investment return from a combination of long-term capital appreciation
and moderate current income.
The Series is "flexibly managed" in that sometimes it invests more heavily
in equity securities and at other times it invests more heavily in fixed-
income securities, depending on its subadviser's view of the economic and
investment outlook. Most of the Series' investments are normally in dividend-
paying common stocks of recognized investment quality that are expected to
achieve growth in earnings and dividends over the long term. Fixed-income
securities include notes, bonds,
B-14
<PAGE>
non-convertible preferred stock and money market instruments. The Series may
invest in adjustable rate mortgage securities, asset-backed securities, STRIPS
and inverse floaters, subject to a limit of 5% of the Series' assets for each
of these instruments. The Series invests at least 25% of its assets in fixed-
income senior securities and, under normal market conditions, more than 50% of
its assets in equity securities. The Series also may invest in foreign
securities.
DRAYCOTT INTERNATIONAL EQUITY SERIES
The Draycott International Equity Series seeks total return from long-term
growth of capital and dividend income, primarily through investment in
international equity securities.
The Draycott International Equity Series seeks to achieve its objective by
investing primarily in common stocks, although the Series may invest in any
type of equity securities. Normally the Series will invest at least 65% of its
total assets in equity securities of issuers headquartered outside the United
States, and substantially all of its assets (other than cash and short-term
investments) in such equity securities or equity securities of issuers
(including closed-end investment companies) that derive a substantial part of
their revenues or profits from countries outside the United States. Under
normal conditions, the Series' portfolio will contain equity securities of
issuers from at least three countries outside the United States.
The Series' subadviser, Draycott Partners, Ltd. ("Draycott"), will make
investment decisions on behalf of the Series by, first, selecting countries
where it anticipates sustainable growth that will exceed current market
expectations. Within the selected countries, the subadviser will identify
economic sectors that appear to present the most potential for risk-adjusted
growth and, finally, within the chosen economic sectors, the subadviser will
select securities that are expected to offer the best value.
SALOMON BROTHERS U.S. GOVERNMENT SERIES
The Salomon Brothers U.S. Government Series' investment objective is to
provide a high level of current income consistent with preservation of capital
and maintenance of liquidity.
The Series seeks to achieve its objective by investing primarily in debt
obligations (including mortgage backed securities) issued or guaranteed by the
U.S. Government or its agencies, authorities or instrumentalities or
derivative securities (such as collateralized mortgage obligations) backed by
such securities.
At least 80% of the total assets of the Salomon Brothers U.S. Government
Series will be invested in:
(1) mortgage backed securities guaranteed by the Government National
Mortgage Association that are supported by the full faith and credit of the
U.S. Government. Such securities entitle the holder to receive all interest
and principal payments due, whether or not payments are actually made on
the underlying mortgages;
(2) U.S. Treasury obligations;
(3) debt obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government which are backed by their own
credit but are not necessarily backed by the full faith and credit of the
U.S. Government;
(4) mortgage backed securities guaranteed by agencies or
instrumentalities of the U.S. Government which are supported by their own
credit but not the full faith and credit of the U.S. Government, such as
the Federal Home Loan Mortgage Corporation and the Federal National
Mortgage Association; and
(5) collateralized mortgage obligations issued by private issuers for
which the underlying mortgage backed securities serving as collateral are
backed (i) by the credit of the U.S. Government agency or instrumentality
which issues or guarantees the mortgage backed securities, or (ii) by the
full faith and credit of the U.S. Government.
Under normal market conditions, at least 65% of the Series' total assets
will be invested in securities issued or guaranteed by the U.S. Government or
an agency, authority or instrumentality thereof. For purposes of this policy,
securities that are not issued or guaranteed by the U.S. Government or an
agency, authority or instrumentality will not count toward the 65%, even if
they are backed by mortgages (or other collateral) that are so guaranteed.
The Series may purchase or write options on securities, options on
securities indices and options on futures contracts and buy or sell futures on
financial instruments and securities indices.
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Up to 20% of the total assets of the Series may be invested in marketable
debt securities of domestic issuers and of foreign issuers (payable in U.S.
dollars) rated at the time of purchase Baa or higher by Moody's or BBB or
higher by S&P, or, if unrated, deemed to be of equivalent quality in the
Series' subadviser's judgment, convertible securities (including those issued
in the Euromarket), securities carrying warrants to purchase equity securities
and privately placed debt securities.
The Series may lend securities it owns so long as such loans do not
represent more than 20% of the Series' total assets.
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
The Salomon Brothers Strategic Bond Opportunities Series' investment
objective is to seek a high level of total return consistent with preservation
of capital.
Based upon the Series' subadviser's assessment of the relative risks and
opportunities available in various market segments, assets will be allocated
among U.S. Government obligations, mortgage backed securities, domestic and
sovereign corporate debt and international debt securities rated investment
grade (BBB or higher by S&P or Baa or higher by Moody's) (or unrated but
deemed to be of equivalent quality in the subadviser's judgment) and domestic
and sovereign corporate debt and international debt securities rated below
investment grade.
Depending on market conditions, the Series may invest without limit in below
investment grade fixed-income securities. Securities of below investment grade
quality are considered high yield, high risk securities and are commonly know
as "junk bonds." See "Investment Risks--Lower Rated Fixed-Income Securities"
below.
In addition, the Series may invest in securities issued or guaranteed as to
principal or interest by the U.S. Government or its agencies or
instrumentalities, including mortgage backed securities, preferred stocks,
convertible securities (including those issued in the Euromarket), securities
carrying warrants to purchase equity securities, privately placed debt
securities, stripped mortgage securities, zero coupon securities and inverse
floaters.
The Series may invest up to 100% of its assets in foreign securities. There
is no limit on the value of the portfolio's assets that may be invested in any
one country or in assets denominated in any one country's currency.
The Series may also invest in debt obligations issued or guaranteed by a
foreign sovereign government or one of its agencies or political subdivisions
and debt obligations issued or guaranteed by supranational organizations.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank"), the European Coal and Steel Community, the
Asian Development Bank and the Inter-American Development Bank. Such
supranational issued instruments may be denominated in multi-national currency
units.
The Series currently intends to invest substantially all of its assets in
fixed-income securities. In order to maintain liquidity, the Series may invest
up to 20% of its assets in high-quality short-term money market instruments.
The Series may purchase and sell (or write) exchange-listed and over-the-
counter put and call options on securities, financial futures contracts and
fixed income indices and other financial instruments, enter into financial
futures contracts, enter into interest rate transactions, and enter into
currency transactions. Interest rate transactions may take the form of swaps,
structured notes, caps, floors and collars, and currency transactions may take
the form of currency forward contracts, currency futures contracts, currency
swaps and options on currencies or currency futures contracts. See "Futures
and Other Hedging Transactions" under "Investment Risks" below and "Futures"
in the Statement of Additional Information.
The Series may lend securities it owns so long as such loans do not
represent more than 20% of the Series' total assets.
VENTURE VALUE SERIES
The Venture Value Series' investment objective is growth of capital.
The Series will primarily invest in domestic common stocks (and securities
convertible into common stock) that the Series' subadviser believes have
capital growth potential due to factors such as undervalued assets or earnings
potential, product development and demand, favorable operating ratios,
resources for expansion, management abilities,
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reasonableness of market price, and favorable overall business prospects. The
Series will generally invest predominantly in equity securities of companies
with market capitalizations of at least $250 million. It may also invest in
issues with smaller capitalizations.
The Series may invest in foreign securities, and may hedge currency
fluctuation risks related thereto. The Series may invest in U.S. registered
investment companies that primarily invest in foreign securities, provided
that no such investment may cause more than 10% of the Series' total assets to
be invested in such companies. The Series may invest in restricted securities
which may include Rule 144A securities.
The Series may write covered call options on its portfolio securities, but
currently intends to invest in such options only to the extent that less than
5% of its net assets would be subject to the options.
The Series may lend securities it owns so long as such loans do not exceed
5% of the Series' net assets.
ALGER EQUITY GROWTH SERIES
The Alger Equity Growth Series' investment objective is to seek long-term
capital appreciation. The Series' assets will be invested primarily in a
diversified, actively managed portfolio of equity securities, primarily of
companies having a total market capitalization of $1 billion or greater. These
companies may still be in the developmental stage, may be older companies that
appear to be entering a new stage of growth progress, or may be companies
providing products or services with a high unit volume growth rate.
The Series seeks to achieve its objective by investing in equity securities,
such as common or preferred stocks or securities convertible into or
exchangeable for equity securities, including warrants and rights. Except
during temporary defensive periods, the Series invests at least 85% of its net
assets in equity securities and at least 65% of its total assets in equity
securities of companies that, at the time of purchase of the securities, have
total market capitalization of $1 billion or greater; the Series may invest up
to 35% of its total assets in equity securities of companies that, at the time
of purchase, have total market capitalization of less than $1 billion. The
Series anticipates that it will invest primarily in companies whose securities
are traded on domestic stock exchanges or in the over-the-counter market.
The Series may invest in bank and thrift obligations, obligations issued or
guaranteed by the U.S. Government or by its agencies or instrumentalities,
foreign bank obligations and obligations of foreign branches of domestic
banks, and variable rate master demand notes.
The Series may also hold up to 15% of its net assets in money market
instruments and repurchase agreements, purchase restricted securities
(including Rule 144A securities) and enter into "short sales against the box."
The Series may lend securities it owns so long as such loans do not exceed
33 1/3% of the Series' total assets.
CS FIRST BOSTON STRATEGIC EQUITY OPPORTUNITIES SERIES
The CS First Boston Strategic Equity Opportunities Series' investment
objective is capital appreciation. Ordinarily, the Series will invest in U.S.
and foreign stocks. The Series seeks to achieve its objective by investing in
unrecognized and misperceived stocks with improving fundamentals. The
portfolio manager and his team of analysts identify these securities through a
research-intensive process.
The Series will invest at least 65% of its total assets in a diversified
portfolio of equity securities; up to 35% of the Series' assets may be
invested in fixed-income securities, including bonds, convertible bonds and
notes and securities rated below investment grade (BB or lower by S&P and Ba
or lower by Moody's) (also known as "junk bonds"). The Series may invest in
Rule 144A securities. The Series may invest in bank debt and trade claims and,
for hedging purposes, may invest in options, futures and forward contracts.
The Series may lend securities it owns.
ADDITIONAL INFORMATION
Equity securities are securities that represent an ownership interest (or
the right to acquire such an interest) in a company, and include common and
preferred stocks and securities exercisable for or convertible into common or
preferred stocks (such as warrants, convertible debt securities and
convertible preferred stock).
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The Capital Growth Series, Westpeak Value Growth Series, Loomis Sayles
Avanti Growth Series, Westpeak Stock Index Series, Loomis Sayles Small Cap
Series, Draycott International Equity Series, Venture Value Series, Alger
Equity Growth Series and CS First Boston Strategic Equity Opportunities Series
seek to attain their objectives by normally investing their assets primarily
in equity securities. When the particular Series' adviser or subadviser deems
it appropriate, however, any of these Series may, for temporary defensive
purposes, hold all or a substantial portion of its assets in cash or fixed-
income investments, including U.S. Government obligations, investment grade
(and comparable unrated) corporate bonds or notes, money market instruments,
bankers acceptances and repurchase agreements. In addition, the Draycott
International Equity Series and the CS First Boston Strategic Equity
Opportunities Series may invest temporarily in foreign government, agency or
corporate debt obligations. No estimate can be made as to when or for how long
a Series will employ these defensive strategies.
INVESTMENT RISKS
. EQUITY SECURITIES (CAPITAL GROWTH, WESTPEAK VALUE GROWTH, LOOMIS SAYLES
AVANTI GROWTH, WESTPEAK STOCK INDEX, BACK BAY ADVISORS MANAGED, LOOMIS
SAYLES SMALL CAP, LOOMIS SAYLES BALANCED, DRAYCOTT INTERNATIONAL EQUITY,
VENTURE VALUE, ALGER EQUITY GROWTH AND CS FIRST BOSTON STRATEGIC EQUITY
OPPORTUNITIES SERIES)
Equity securities are more volatile and more risky than some other forms of
investment. Therefore, the value of your investment in a Series may
sometimes decrease instead of increase. Investments in companies with
relatively small capitalization may involve greater risk than is usually
associated with more established companies. These companies often have
sales and earnings growth rates which exceed those of companies with larger
capitalization. Such growth rates may in turn be reflected in more rapid
share price appreciation. However, companies with smaller capitalization
often have limited product lines, markets or financial resources and they
may be dependent upon a relatively small management group. The securities
may have limited marketability and may be subject to more abrupt or erratic
movements in price than securities of companies with larger capitalization
or the market averages in general. The net asset value of a Series that
invests in companies with smaller capitalization, therefore, may fluctuate
more widely than market averages.
. CONVERTIBLE SECURITIES (CAPITAL GROWTH, LOOMIS SAYLES AVANTI GROWTH, LOOMIS
SAYLES BALANCED, DRAYCOTT INTERNATIONAL EQUITY, SALOMON BROTHERS STRATEGIC
BOND OPPORTUNITIES, VENTURE VALUE, ALGER EQUITY GROWTH AND CS FIRST BOSTON
STRATEGIC EQUITY OPPORTUNITIES SERIES)
Convertible securities include debt securities or preferred stock that are
convertible into stock as well as other securities, such as warrants, that
provide an opportunity for equity participation. Because convertible
securities can be converted into equity securities, their values will
normally vary in some proportion with those of the underlying equity
securities. Convertible debt and preferred stock usually provide a higher
yield than the underlying equity securities, however, so that the price
decline of a convertible security may sometimes be less substantial than
that of the underlying equity securities. The value of convertible
securities that pay dividends or interest, like the value of all fixed-
income securities, generally fluctuates inversely with changes in interest
rates. Warrants have no voting rights, pay no dividends and have no rights
with respect to the assets of the corporation issuing them. They do not
represent ownership of the securities for which they are exercisable, but
only the right to buy such securities at a particular price. The Loomis
Sayles Avanti Growth Series will not purchase any convertible debt security
or convertible preferred stock that has not been rated at the time of
acquisition investment grade by one major rating agency or that is not
rated but is determined to be of comparable quality by the Series' adviser.
. FOREIGN SECURITIES (LOOMIS SAYLES SMALL CAP, BACK BAY ADVISORS BOND INCOME,
LOOMIS SAYLES AVANTI GROWTH, BACK BAY ADVISORS MANAGED, LOOMIS SAYLES
BALANCED, DRAYCOTT INTERNATIONAL EQUITY, SALOMON BROTHERS U.S. GOVERNMENT,
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES, VENTURE VALUE, ALGER EQUITY
GROWTH AND CS FIRST BOSTON STRATEGIC EQUITY OPPORTUNITIES SERIES).
Each of these Series may invest in securities of issuers organized or
headquartered outside the United States or primarily traded outside the
United States ("foreign securities"). In the case of the Loomis Sayles
Small Cap, Back Bay Advisors Bond Income, Loomis Sayles Avanti Growth and
Salomon Brothers U.S. Government Series, the Series will
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not purchase a foreign security if, as a result, the Series' holdings of
foreign securities would exceed 20% (10% in the case of the Back Bay
Advisors Bond Income Series) of the Series' total assets.
Although investing in foreign securities may increase a Series'
diversification and reduce portfolio volatility, foreign securities may
present risks not associated with investments in comparable securities of
U.S. issuers. There may be less information publicly available about a
foreign corporate or government issuer than about a U.S. issuer, and
foreign corporate issuers are not generally subject to accounting, auditing
and financial reporting standards and practices comparable to those in the
United States. The securities of some foreign issuers are less liquid and
at times more volatile than securities of comparable U.S. issuers. Foreign
brokerage commissions and securities custody costs are often higher than in
the United States. With respect to certain foreign countries, there is a
possibility of governmental expropriation of assets, confiscatory taxation,
political or financial instability and diplomatic developments that could
affect the value of investments in those countries. A Series' receipt of
interest on foreign government securities may depend on the availability of
tax or other revenues to satisfy the issuer's obligations.
A Series' investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly
developed. Special considerations associated with these investments (in
addition to the considerations regarding foreign investments generally) may
include, among others, greater political uncertainties, an economy's
dependence on revenues from particular commodities or on international aid
or development assistance, currency transfer restrictions, highly limited
numbers of potential buyers for such securities and delays and disruptions
in securities settlement procedures.
Since most foreign securities are denominated in foreign currencies or
trade primarily in securities markets in which settlements are made in
foreign currencies, the value of these investments and the net investment
income available for distribution to shareholders of a Series investing in
these securities may be affected favorably or unfavorably by changes in
currency exchange rates or exchange control regulations. Changes in the
value relative to the U.S. dollar of a foreign currency in which a Series'
holdings are denominated will result in a change in the U.S. dollar value
of the Series' assets and the Series' income available for distribution.
In addition, although part of a Series' income may be received or realized
in foreign currencies, the Series will be required to compute and
distribute its income in U.S. dollars. Therefore, if the value of a
currency relative to the U.S. dollar declines after a Series' income has
been earned in that currency, translated into U.S. dollars and declared as
a dividend, but before payment of the dividend, the Series could be
required to liquidate portfolio securities to pay the dividend. Similarly,
if the value of a currency relative to the U.S. dollar declines between the
time a Series accrues expenses in U.S. dollars and the time such expenses
are paid, the amount of such currency required to be converted into U.S.
dollars will be greater than the equivalent amount in such currency of such
expenses at the time they were incurred.
. FIXED-INCOME SECURITIES (ALL SERIES)
Because interest rates vary, it is impossible to predict the income of a
Series for any particular period. The net asset value will vary as a result
of changes in the value of the bonds and other securities in the Series'
portfolio.
Fixed-income securities are subject to market and credit risk. Market risk
relates to changes in a security's value as a result of changes in interest
rates generally. Generally, rising interest rates correlate with falling
share values. Credit risk relates to the ability of the issuer to make
payments of principal and interest. U.S. Government Securities generally do
not involve the credit risks associated with other types of fixed-income
securities, although, as a result, the yields available from U.S.
Government Securities are generally lower than the yields available from
corporate fixed-income securities.
. LOWER RATED FIXED-INCOME SECURITIES (BACK BAY ADVISORS BOND INCOME, BACK
BAY ADVISORS MANAGED, LOOMIS SAYLES BALANCED, SALOMON BROTHERS STRATEGIC
BOND OPPORTUNITIES AND CS FIRST BOSTON STRATEGIC EQUITY OPPORTUNITIES
SERIES)
Lower rated fixed-income securities (also known as "junk bonds") and
corporate fixed-income securities generally provide higher yields than U.S.
Government and many foreign government securities, but are subject to
greater credit and market risk than higher quality fixed-income securities.
Lower rated fixed-income securities are considered predominantly
speculative with respect to the ability of the issuer to meet principal and
interest payments. Achievement
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of the investment objective of a Series investing in lower rated fixed-
income securities may be more dependent on the investment adviser's own
credit analysis than is the case for higher quality bonds. The market for
lower rated fixed-income securities may be more severely affected than some
other financial markets by economic recession or substantial interest rate
increases, by changing public perceptions of this market or by legislation
that limits the ability of certain categories of financial institutions to
invest in these securities. In addition, the secondary market may be less
liquid for lower rated fixed-income securities. This lack of liquidity at
certain times may affect the valuation of these securities and may make the
valuation and sale of these securities more difficult.
. MORTGAGE-RELATED SECURITIES (BACK BAY ADVISORS BOND INCOME, BACK BAY
ADVISORS MANAGED, LOOMIS SAYLES BALANCED, SALOMON BROTHERS U.S. GOVERNMENT,
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES AND CS FIRST BOSTON STRATEGIC
EQUITY OPPORTUNITIES SERIES)
Mortgage-related securities, such as GNMA or FNMA certificates, differ from
traditional debt securities. Among the major differences are that interest
and principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if a Series purchases
these assets at a premium, a faster-than-expected prepayment rate will
reduce yield to maturity, and a slower-than-expected prepayment rate will
have the opposite effect of increasing yield to maturity. If a Series
purchases mortgage-related securities at a discount, faster-than-expected
prepayments will increase, and slower-than-expected prepayments will
reduce, yield to maturity. Prepayments, and resulting amounts available for
reinvestment by the Series, are likely to be greater during a period of
declining interest rates and, as a result, are likely to be reinvested at
lower interest rates. Accelerated prepayments on securities purchased at a
premium may result in a loss of principal if the premium has not been fully
amortized at the time of prepayment. Although these securities will
decrease in value as a result of increases in interest rates generally,
they are likely to appreciate less than other fixed-income securities when
interest rates decline because of the risk of prepayments.
. COLLATERALIZED MORTGAGE OBLIGATIONS (BACK BAY ADVISORS BOND INCOME, BACK
BAY ADVISORS MANAGED, LOOMIS SAYLES BALANCED, SALOMON BROTHERS U.S.
GOVERNMENT SERIES AND SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
A collateralized mortgage obligation ("CMO") is a security backed by a
portfolio of mortgages or mortgage securities held under an indenture. The
underlying mortgages or mortgage securities are issued or guaranteed by the
U.S. Government or an agency or instrumentality thereof, but the
obligations purchased by a Series will in many cases not be so issued or
guaranteed. The issuer's obligation to make interest and principal payments
is secured by the underlying portfolio of mortgages or mortgage securities.
CMOs are issued with a number of classes or series which have different
maturities and which may represent interests in some or all of the interest
or principal on the underlying collateral or a combination thereof. In the
event of sufficient early prepayments on such mortgages, the class or
series of CMO first to mature generally will be retired prior to its
maturity. The early retirement of a particular class or series of CMO held
by a Series would have the same effect as the prepayment of mortgages
underlying a mortgage pass-through security.
. ""STRIPPED'' MORTGAGE SECURITIES (SALOMON BROTHERS U.S. GOVERNMENT AND
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
"Stripped" mortgage securities are issued by agencies or instrumentalities
of the U.S. Government or private issuers. Stripped mortgage securities are
usually structured with two classes that receive different proportions of
the interest and principal distribution on a pool of mortgage assets. In
some cases, one class will receive all of the interest (the interest-only
or "IO" class), while the other class will receive all of the principal
(the principal-only or "PO" class). Stripped mortgage securities have
greater market volatility than other types of mortgage securities. If the
underlying mortgage assets experience greater than anticipated payments of
principal, the Series may fail to recoup fully its investments in IOs. The
staff of the SEC has indicated that it views stripped mortgage securities
as illiquid. Until further clarification of the matter is provided by the
staff, the Series will treat its investment in stripped mortgage securities
as illiquid. As a result, these investments, together with any other
illiquid investments, will not exceed 15% of the Series' net assets.
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. WHEN-ISSUED SECURITIES (DRAYCOTT INTERNATIONAL EQUITY, SALOMON BROTHERS
U.S. GOVERNMENT, SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES, VENTURE
VALUE, ALGER EQUITY GROWTH AND CS FIRST BOSTON STRATEGIC EQUITY
OPPORTUNITIES SERIES)
If the value of a "when-issued" security being purchased falls between the
time a Series commits to buy it and the payment date, the Series may
sustain a loss. The risk of this loss is in addition to the Series' risk of
loss on the securities actually in its portfolio at the time. In addition,
when the Series buys a security on a when-issued basis, it is subject to
the risk that market rates of interest will increase before the time the
security is delivered, with the result that the yield on the security
delivered to the Series may be lower than the yield available on other,
comparable securities at the time of delivery. The Series will maintain
cash or liquid high grade assets in a segregated account in an amount
sufficient to satisfy its outstanding obligations to buy securities on a
"when-issued" basis.
. REPURCHASE AGREEMENTS (ALL SERIES)
In repurchase agreements, a Series buys securities from a seller, usually a
bank or brokerage firm, with the understanding that the seller will
repurchase the securities at a higher price at a later date. Such
transactions afford an opportunity for a Series to earn a return on
available cash at minimal market risk, although the Series may be subject
to various delays and risks of loss if the seller is unable to meet its
obligation to repurchase.
. OPTIONS (DRAYCOTT INTERNATIONAL EQUITY, SALOMON BROTHERS U.S. GOVERNMENT,
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES, VENTURE VALUE AND CS FIRST
BOSTON STRATEGIC EQUITY OPPORTUNITIES SERIES)
A Series may seek to increase its current return by writing covered call
options and covered put options, with respect to securities it holds or
intends to buy, through the facilities of options exchanges and directly
with market makers in the over-the-counter market. A Series receives a
premium from writing a call or put option, which increases the Series'
current return if the option expires unexercised or is closed out at a net
profit.
At times when a Series has written call options on a substantial portion of
its portfolio, the Series' ability to profit and its risk of loss from
changes in market prices of portfolio securities will be limited.
Appreciation in securities covering the options would likely be partially
or wholly offset by losses on the options. The termination of options
positions under such conditions would generally result in the realization
of short-term capital losses, which would reduce the Series' current
return. Accordingly, a Series may seek to realize capital gains to offset
realized losses by selling securities.
As described in the Statement, over-the-counter options involve certain
special risks (including liquidity and credit risks) not necessarily
present with exchange-listed options. A Series will treat as illiquid any
over-the-counter options and assets maintained as "cover" for over-the-
counter options that the Series has written.
The options markets of foreign countries are small compared to those of the
United States and consequently are characterized in most cases by less
liquidity than are the U.S. markets. In addition, foreign markets may be
subject to less detailed reporting requirements and regulatory controls
than U.S. markets. See "Foreign Securities" above.
. FUTURES AND OTHER HEDGING TRANSACTIONS (WESTPEAK STOCK INDEX, BACK BAY
ADVISORS MANAGED, WESTPEAK VALUE GROWTH, LOOMIS SAYLES BALANCED, DRAYCOTT
INTERNATIONAL EQUITY, SALOMON BROTHERS U.S. GOVERNMENT, SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES, VENTURE VALUE AND CS FIRST BOSTON STRATEGIC
EQUITY OPPORTUNITIES SERIES)
Futures contracts are exchange-traded obligations to buy or sell a
particular security on a specified future date (or to pay or receive
amounts based on the value of a securities index or currency on that date).
The use of futures transactions entails certain special risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related securities or currency
position of a Series could create the possibility that losses on the
futures contracts are greater than gains in the value of the Series'
position. In addition, futures markets could be illiquid in some
circumstances. As a result, in certain markets, a Series might not be able
to close out a transaction without incurring substantial losses. Although a
Series' use of futures transactions for hedging should tend to minimize the
risk of loss due to a decline in the value of the hedged position, at the
same time it will tend to limit any potential gain to a Series that might
result from an increase in value of the
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position. The daily variation margin requirements for futures contracts
create a greater ongoing potential financial risk than would purchases of
options, in which case the exposure is limited to the cost of the initial
premium.
Each of these Series may, at the discretion of its adviser or subadviser,
engage in foreign currency exchange transactions, in connection with the
purchase and sale of portfolio securities, to protect the value of specific
portfolio positions or in anticipation of changes in relative values of
currencies in which current or future Series' portfolio holdings are
denominated or quoted.
For hedging purposes, each of these Series may also buy put or call options
on securities that it holds or intends to buy. In addition to engaging in
options transactions on established exchanges, a Series may purchase over-
the-counter options from brokerage firms and other financial institutions.
Each of these Series may invest in options and futures contracts on various
securities indices to hedge against changes in the value of securities it
holds or expects to acquire. These Series may also invest in options on
index futures.
No Series will invest more than 5% of its net assets (5% of its total
assets, in the case of the CS First Boston Strategic Equity Opportunities
Series) in futures or premiums for options on futures that are traded on a
U.S. commodities exchange. The CS First Boston Strategic Equity
Opportunities Series may trade futures on the London Metals Exchange.
Certain asset segregation requirements apply when a Series becomes
obligated under a hedging instrument. There is no assurance that a Series'
hedging strategies will be effective. These strategies involve costs and
the risk of loss to the Series. See Part II of the Statement for more
information.
. INVESTMENT COMPANY SECURITIES (CAPITAL GROWTH, WESTPEAK VALUE GROWTH,
LOOMIS SAYLES AVANTI GROWTH, WESTPEAK STOCK INDEX, BACK BAY ADVISORS
MANAGED, DRAYCOTT INTERNATIONAL EQUITY, VENTURE VALUE AND CS FIRST BOSTON
STRATEGIC EQUITY OPPORTUNITIES SERIES)
Each of these Series may invest up to 10% of its assets in securities of
investment companies. As a shareholder of an investment company, each
Series may indirectly bear investment management fees and other expenses of
that investment company, which are in addition to the management fees the
Series pays its adviser and other expenses the Series incurs directly. The
Venture Value Series may only invest in securities of investment companies
investing primarily in foreign securities.
. LENDING OF PORTFOLIO SECURITIES (BACK BAY ADVISORS BOND INCOME, BACK BAY
ADVISORS MANAGED, SALOMON BROTHERS U.S. GOVERNMENT, SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES, VENTURE VALUE, ALGER EQUITY GROWTH AND CS
FIRST BOSTON STRATEGIC EQUITY OPPORTUNITIES SERIES)
To the extent that any of the above Series lend that Series' portfolio
securities, such lending must be fully collateralized by cash, letters of
credit or U.S. Government securities at all times, but involves some credit
risk to the Series if the other party should default on its obligations and
the Series is delayed in or prevented from recovering the collateral.
. ""SHORT SALES AGAINST THE BOX" (ALGER EQUITY GROWTH AND CS FIRST BOSTON
STRATEGIC EQUITY OPPORTUNITIES SERIES)
The above Series may sell securities "short against the box." While a short
sale is the sale of a security the Series does not own, it is "against the
box" if at all times when the short position is open the Series owns an
equal amount of the securities sold short (or securities convertible into,
or exchangeable without further consideration for, securities of the same
issue as the securities sold short).
. SWAPS (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
The Series may enter into interest rate, currency and index swaps. The
Series will enter into these transactions primarily to seek to preserve a
return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique
or to protect against any increase in the price of securities a Series
anticipates purchasing at a later date. Interest rate swaps involve the
exchange by a Series with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating rate
B-22
<PAGE>
payments for fixed rate payments with respect to a notional amount of
principal). A currency swap is an agreement to exchange cash flows on a
notional amount based on changes in the relative values of the specified
currencies. The Series will maintain cash and appropriate liquid assets in
a segregated custodial account to cover its current obligations under swap
agreements. Because swap agreements are not exchange-traded, but are
private contracts into which the Series and a swap counterparty enter as
principals, the Series may experience a loss or delay in recovering assets
if the counterparty were to default on its obligations.
. STRUCTURED NOTES (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
The Salomon Brothers Strategic Bond Opportunities Series is permitted to
invest in a broad category of instruments known as "structured notes."
These instruments are debt obligations issued by industrial corporations,
financial institutions or governmental or international agencies.
Traditional debt obligations typically obligate the issuer to repay the
principal plus a specified rate of interest. Structured notes, by contrast,
obligate the issuer to pay amounts of principal or interest that are
determined by reference to changes in some external factor or factors. For
example, the issuer's obligations could be determined by reference to
changes in the value of a commodity (such as gold or oil), a foreign
currency, an index of securities (such as the S&P 500 Index) or an interest
rate (such as the U.S. Treasury Bill rate). In some cases, the obligations
of the issuer are determined by reference to changes over time in the
difference (or "spread") between two or more external factors (such as the
U.S. prime lending rate and the London Inter-Bank Offering Rate). In some
cases, the issuer's obligations may fluctuate inversely with changes in an
external factor or factors (for example, if the U.S. prime lending rate
goes up, the issuer's interest payment obligations are reduced). In some
cases, the obligations of the issuer may be determined by some multiple of
the change in an external factor or factors (for example, three times the
change in the U.S. Treasury bill rate). In some cases, the issuer's
obligations remain fixed (as with a traditional debt instrument) so long as
an external factor or factors do not change by more than the specified
amount (for example, if the U.S. Treasury bill rate does not exceed some
specified maximum); but if the external factor or factors change by more
than the specified amount, the issuer's obligations may be sharply reduced.
Structured notes can serve many different purposes in the management of the
Series. For example, they can be used to increase the Series' exposure to
changes in the value of assets that the Series would not ordinarily
purchase directly (such as gold or oil). They can also be used to hedge the
risks associated with other investments the Series holds. For example, if a
structured note has an interest rate that fluctuates inversely with general
changes in market interest rates, the value of the structured note would
generally move in the opposite direction to the value of traditional debt
obligations, thus moderating the effect of interest rate changes in the
value of the Series' portfolio as a whole.
Structured notes involve special risks. As with any debt obligation,
structured notes involve the risk that the issuer will become insolvent or
otherwise default on its payment obligations. The risk is in addition to
the risk that the issuer's obligations (and thus the value of the Series'
investment) will be reduced because of adverse changes in the external
factor or factors to which the obligations are linked. The value of
structured notes will in many cases be more volatile (that is, will change
more rapidly or severely) than the value of traditional debt instruments.
Volatility will be especially high if the issuer's obligations are
determined by reference to some multiple of the change in the external
factor or factors. Many structured notes have limited or no liquidity, so
that the Series would be unable to dispose of the investment prior to
maturity. (The Series is not permitted to invest more than 15% of its net
assets in illiquid investments.) As with all investments, successful use of
structured notes depends in significant part on the accuracy of the
subadviser's analysis of the issuer's creditworthiness and financial
prospects, and of the subadviser's forecast as to changes in relevant
economic and financial market conditions and factors. In instances where
the issuer of a structured note is a foreign entity, the usual risks
associated with investments in foreign securities (described above) apply.
. ILLIQUID SECURITIES (ALL SERIES)
Each Series may invest up to 15% of its assets (10% in the case of the Back
Bay Advisors Money Market Series) in "illiquid securities," that is,
securities which are not readily resaleable, including securities whose
disposition is restricted by federal securities laws. The Series may
purchase "Rule 144A securities." These are privately offered securities
that can be resold only to certain qualified institutional buyers. Rule
144A securities are treated as illiquid, unless the Series' adviser or
subadviser has determined, under guidelines established by the Fund's
trustees, that the particular issue of Rule 144A securities is liquid.
B-23
<PAGE>
. ZERO COUPON SECURITIES (BACK BAY ADVISORS BOND INCOME, BACK BAY ADVISORS
MANAGED, LOOMIS SAYLES BALANCED, SALOMON BROTHERS U.S. GOVERNMENT AND
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
Zero coupon securities involve special risk considerations. Zero coupon
securities are debt securities that pay no cash income but are sold at
substantial discounts from their value at maturity. When a zero coupon
security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase
price and its maturity value. The difference is known at the time of
purchase, so that investors holding zero coupon securities until maturity
know at the time of their investment what the return on their investment
will be. Certain zero coupon securities also are sold at substantial
discounts from their maturity value and provide for the commencement of
regular interest payments at a deferred date.
Zero coupon securities tend to be subject to greater price fluctuations in
response to changes in interest rates than are ordinary interest-paying
debt securities with similar maturities. The value of zero coupon
securities appreciates more during periods of declining interest rates and
depreciates more during periods of rising interest rates. Zero coupon
securities may be issued by a wide variety of corporate and governmental
issuers. Although zero coupon securities are generally not traded on a
national securities exchange, many such securities are widely traded by
brokers and dealers and, if so, will not be considered illiquid.
Current federal income tax law requires the holder of a zero coupon
security to accrue income with respect to these securities prior to the
receipt of cash payments. To maintain its qualification as a regulated
investment company and avoid liability for federal income and excise taxes,
the Series may be required to distribute income accrued with respect to
these securities and may have to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS (SALOMON BROTHERS
U.S. GOVERNMENT, SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES AND CS FIRST
BOSTON STRATEGIC EQUITY OPPORTUNITIES SERIES)
The Series may enter into reverse repurchase agreements and dollar roll
agreements with banks and brokers to enhance return.
Reverse repurchase agreements involve sales by the Series of portfolio
assets concurrently with an agreement by the Series to repurchase the same
assets at a later date at a fixed price. During the reverse repurchase
agreement period, the Series continues to receive principal and interest
payments on these securities and also has the opportunity to earn a return
on the collateral furnished by the counterparties to secure its obligation
to redeliver the securities.
Dollar rolls are transactions in which the Series sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified
future date. During the roll period, the Series forgoes principal and
interest paid on both the securities sold and those to be purchased. The
Series is compensated by the difference between the current sales price and
the forward price for the future purchase (often referred to as the "drop")
as well as by the interest earned on the cash proceeds of the initial sale.
The Series will establish segregated accounts with its custodians in which
they will maintain cash, U.S. Government Securities or other liquid high
grade debt obligations equal in value to their obligations in respect of
reverse repurchase agreements and dollar rolls. Reverse repurchase
agreements and dollar rolls involve the risk that the market value of the
securities retained by the Series may decline below the price of the
securities the Series has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities under a reverse repurchase
agreement or dollar roll files for bankruptcy or becomes insolvent, the
Series' use of the proceeds of the agreement may be restricted pending a
determination by the other party or its trustee or receiver, whether to
enforce the Series' obligation to repurchase the securities. Reverse
repurchase agreements and dollar rolls are not considered borrowings by the
Series for purpose of the Series' fundamental investment restriction with
respect to borrowings.
Note: Except for the investment objective of the Back Bay Advisors Money
Market, Back Bay Advisors Bond Income, Capital Growth, Westpeak Value Growth,
Loomis Sayles Avanti Growth, Westpeak Stock Index, Back Bay Advisors Managed
and Loomis Sayles Small Cap Series, or except as otherwise explicitly stated
in this Prospectus or the Statement, each Series' investment policies may be
changed at any time without shareholder approval.
B-24
<PAGE>
PORTFOLIO TURNOVER
Portfolio turnover is not a limiting factor with respect to investment
decisions for any Series. For example, although the Capital Growth Series'
objective is long-term capital growth, it frequently sells securities to
reflect changes in market, industry or individual company conditions or
outlook, even though it may only have held those securities for a short
period. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
relevant Series. For additional information about such costs see "Taxes" and
"Management" below, and "Portfolio Transactions and Brokerage" in the
Statement. For information about the past portfolio turnover rates of the Back
Bay Advisors Bond Income, Capital Growth, Westpeak Value Growth, Loomis Sayles
Avanti Growth, Westpeak Stock Index, Back Bay Advisors Managed and Loomis
Sayles Small Cap Series, see "Financial Highlights." Although it is not
possible to predict the portfolio turnover rates with certainty, the
subadvisers of the following Series expect that such Series' portfolio
turnover rate will usually not exceed the following annual rates: Loomis
Sayles Small Cap Series, 300%; Loomis Sayles Balanced Series, 75%; Draycott
International Equity Series, 60%; Salomon Brothers U.S. Government Series,
300%; Salomon Brothers Strategic Bond Opportunities Series, 300%; Venture
Value Series, 50%; Alger Equity Growth Series, 100%; and the CS First Boston
Strategic Equity Opportunities Series, 150%. Turnover in excess of 100%
involves higher levels of brokerage commissions and possibly increased
realization of taxable gains, as compared to many mutual funds.
RESOLVING MATERIAL CONFLICTS
Currently, shares in the Fund are available only to separate accounts
established by NEVLICO, The New England or subsidiaries of The New England as
an investment vehicle for variable life insurance or variable annuity
products. In the future, however, such shares may be offered to separate
accounts of insurance companies unaffiliated with NEVLICO or The New England.
A potential for certain conflicts of interest exists between the interests
of variable life insurance contract owners and variable annuity contract
owners. Pursuant to conditions imposed in connection with related regulatory
relief granted by the SEC, the Fund's board of trustees (the "Board of
Trustees") has an obligation to monitor events to identify conflicts that may
arise from the sale of shares to both variable life insurance and variable
annuity separate accounts or to separate accounts of insurance companies not
affiliated with The New England. Such events might include changes in state
insurance law or federal income tax law, changes in investment management of
any portfolio of the Fund, or differences between voting instructions given by
variable life insurance and variable annuity contract owners. Insurance
companies investing in the Fund will be responsible for proposing and
executing any necessary remedial action and the Board of Trustees has an
obligation to determine whether such proposed action adequately remedies any
such conflicts.
B-25
<PAGE>
PERFORMANCE INFORMATION
Information about the performance of the Back Bay Advisors Money Market,
Back Bay Advisors Bond Income, Capital Growth, Westpeak Value Growth, Loomis
Sayles Avanti Growth, Westpeak Stock Index, Back Bay Advisors Managed and
Loomis Sayles Small Cap Series is set forth below and, from time to time, the
Fund may use this information in advertisements. Performance information about
-----------------------------
a Series is based on that Series' past performance and is not intended to
- -------------------------------------------------------------------------
indicate future performance. The Fund serves as the underlying investment
- ---------------------------
vehicle for variable life insurance and variable annuity products and its
shares cannot be purchased directly. Therefore, such performance information
does not reflect any of the charges assessed against the insurance company
separate accounts or the variable life insurance or variable annuity products
for which the Fund serves as an investment vehicle. Where relevant,
performance information about those variable life insurance or variable
annuity products is contained in the prospectus applicable to those products.
Each Series may include its total return in advertisements or other written
material. Total return is measured by comparing the value of a hypothetical
$1,000 investment in the Series at the beginning of the relevant period to the
value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions). Total return
reflects the bearing of certain expenses by The New England and its affiliates
pursuant to an expense agreement between The New England and the Fund (the
"Expense Agreement") which is in effect for the Series until November 1, 1994.
If the Expense Agreement had not been in effect, each Series' total return
would have been lower.
TOTAL RETURN
<TABLE>
<CAPTION>
AVERAGE ANNUAL AVERAGE ANNUAL
6 MONTHS TOTAL RETURN TOTAL RETURN
ENDED FOR THE TEN FOR THE FIVE
PERIOD JUNE 30, YEARS ENDING YEARS ENDING
RETURN 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 6/30/94 6/30/94
------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth
Series -0.6% 68.1% 95.2% 52.7% -8.8% 30.8% -3.5% 54.0% -6.1% 15.0% -5.8% 26.3% 10.4%
Back Bay
Advisors Bond
Income Series 12.6% 18.7% 15.8% 1.4% 8.4% 12.3% 8.1% 18.0% 8.2% 12.6% -4.7% 11.0% 9.1%
Back Bay
Advisors Money
Market Series 10.6% 8.2% 6.8% 6.6% 7.4% 9.2% 8.2% 6.2% 3.8% 3.0% 1.6% 6.6% 5.4%
Back Bay
Advisors
Managed Series -- -- -- -0.7%(2) 9.5% 19.1% 3.2% 20.2% 6.7% 10.7% -4.6% -- 9.0%
Westpeak Stock
Index Series(3) -- -- -- -12.2%(2) 16.3% 30.2% -4.1% 30.4% 7.3% 9.7% -3.6% -- 9.8%
Westpeak Value
Growth
Series(4) -- -- -- -- -- -- -- -- -- 14.2%(4) -5.9% -- --
Loomis Sayles
Avanti Growth
Series(5) -- -- -- -- -- -- -- -- -- 14.7%(5) -8.2% -- --
Loomis Sayles
Small Cap
Series(6) -- -- -- -- -- -- -- -- -- -- -3.7%(6) -- --
S&P 500(7) 6.2% 31.6% 18.6% 5.2% 16.5% 31.6% -3.1% 30.3% 7.6% 10.1% -3.4% 15.1% 10.4%
Lehman
Intermediate
Government/
Corporate Bond
Index(8) 14.4% 18.1% 13.1% 3.7% 6.8% 12.8% 9.2% 14.6% 7.2% 8.8% -2.6% 10.4% 8.2%
Consumer Price
Index(9) 4.0% 3.8% 1.1% 4.4% 4.4% 4.7% 6.1% 3.1% 2.9% 2.8% 1.3% 3.6% 3.5%
Dow Jones
Industrial
Average(10) 1.3% 33.5% 27.1% 5.5% 16.1% 32.2% -1.0% 24.2% 7.4% 17.0% -2.0% 16.5% 11.8%
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
FROM COMMENCE-
PERIOD MENT OF OFFERING
RETURN THROUGH 6/30/94
------ ----------------
<S> <C>
Capital Growth
Series 23.1%(1)
Back Bay
Advisors Bond
Income Series 10.4%(1)
Back Bay
Advisors Money
Market Series 6.9%(1)
Back Bay
Advisors
Managed Series 8.6%(2)
Westpeak Stock
Index Series(3) 9.2%(2)
Westpeak Value
Growth
Series(4) 6.3%(4)
Loomis Sayles
Avanti Growth
Series(5) 4.5%(5)
Loomis Sayles
Small Cap
Series(6) -3.7%(6)
S&P 500(7) 13.5%
Lehman
Intermediate
Government/
Corporate Bond
Index(8) 10.9%
Consumer Price
Index(9) 3.7%
Dow Jones
Industrial
Average(10) 14.8%
</TABLE>
- -------
(1) The Capital Growth Series, Back Bay Advisors Bond Income Series and Back
Bay Advisors Money Market Series commenced operations on August 26, 1983
and their Average Annual Total Return From Commencement of Offering have
been calculated for the period beginning with that date. These returns
would not change if they had been calculated for the period beginning
with September 1, 1983, which is the period for which the Average Annual
Total Returns Since Commencement of Offering have been calculated for the
S&P 500, Lehman Intermediate Government/Corporate Bond Index, Consumer
Price Index and Dow Jones Industrial Average (unless otherwise
indicated).
(2) For the period beginning May 1, 1987 when the Back Bay Advisors Managed
Series and Westpeak Stock Index Series became publicly available .
(3) Operations commenced on March 30, 1987, but the Westpeak Stock Index
Series did not become publicly available until May 1, 1987.
B-26
<PAGE>
(4) For the period beginning April 30, 1993, when the Westpeak Value Growth
Series became publicly available.
(5) For the period beginning April 30, 1993, when the Loomis Sayles Avanti
Growth Series became publicly available.
(6) For the period beginning May 1, 1994, when the Loomis Sayles Small Cap
Series commenced operations, but did not become publicly available.
Average annual total return for the period May 1, 1994 through June 30,
1994 is presented on an unannualized basis.
(7) The S&P 500 Stock Index is an unmanaged weighted index of the stock
performance of 500 industrial, transportation, utility and financial
companies. Investment results shown assume the reinvestment of dividends.
(8) The Lehman Intermediate Government/Corporate Bond Index is a subset of
the Lehman Government/Corporate Bond Index covering all issues with
maturities between 1 and 10 years which is comprised of taxable,
publicly-issued, non-convertible debt obligations issued or guaranteed by
the U.S. Government or its agencies and another Lehman index that is
comprised of taxable, fixed rate publicly issued, investment grade non-
convertible corporate debt obligations.
(9) The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of changes, over time, in the prices
of goods and services in major expenditure of groups.
(10) The Dow Jones Industrial Average is a market value-weighted and unmanaged
index of 30 large industrial stocks traded on the New York Stock
Exchange.
From time to time, articles about a Series regarding performance, rankings
and other Series characteristics may appear in national publications
including, but not limited to, The Wall Street Journal, Forbes, Fortune, CDA
Investment Technologies and Money Magazine. In particular, some or all of
these publications may publish their own rankings or performance reviews of
mutual funds, including the Fund. References to or reprints or portions of
reprints of such articles, which may include rankings that list the names of
other funds and their performance, may be used as Fund or variable contract
sales literature or advertising material.
YIELD
Back Bay Advisors Money Market Series
-------------------------------------
The Back Bay Advisors Money Market Series may advertise its yield and
"effective" (or "compound") yield (and its total return). The yield of the
Back Bay Advisors Money Market Series is the income earned by the Series over
a seven-day period on an annualized basis, i.e. the income earned in the
period is assumed to be earned every seven days over a 52-week period and is
stated as a percentage of the investment. "Effective" (or "compound") yield is
calculated similarly but, when annualized, the income earned by the investment
is assumed to be reinvested in the Series' shares and thus compounded in the
course of a 52-week period. The effective yield will be higher than the yield
because of the compounding effect of this assumed reinvestment.
For the seven-day period ended June 30, 1994, the yield for the Back Bay
Advisors Money Market Series was 3.70%. The effective yield for the same
period was 3.77%.
Back Bay Advisors Bond Income, Loomis Sayles Balanced, Salomon Brothers U.S.
----------------------------------------------------------------------------
Government and Salomon Brothers Strategic Bond Opportunities Series
-------------------------------------------------------------------
Each of these Series may advertise its yield in addition to its total
return. The yield will be computed in accordance with the SEC's standardized
formula by dividing the net investment income per share earned during a recent
30-day period by the net asset value of a Series share (reduced by any earned
income expected to be declared shortly as a dividend) on the last trading day
of the period. Yield calculations will reflect any waiver of fees and/or
bearing of expenses by The New England and its affiliates.
PAST PERFORMANCE OF ADVISER AND SUBADVISERS
INVESTMENT ADVISERS' PERFORMANCE DATA
The performance information outlined below relates to all of the accounts,
including mutual funds, managed by the subadvisers of the Alger Equity Growth
Series, Draycott International Equity Series, Loomis Sayles Balanced Series,
Venture Value Series, Salomon Brothers Strategic Bond Opportunities Series and
Salomon Brothers U.S. Government Series and
B-27
<PAGE>
the adviser of the Loomis Sayles Small Cap Series that have investment
objectives and policies substantially similar to the respective Series that
they manage. THE FOLLOWING INFORMATION HAS NOT BEEN ADJUSTED TO REFLECT ANY OF
THE CHARGES ASSESSED AGAINST THE INSURANCE COMPANY SEPARATE ACCOUNTS FOR WHICH
THE FOLLOWING SERIES MAY SERVE AS AN INVESTMENT VEHICLE. IF THESE CHARGES WERE
INCLUDED, THE RESULTS WOULD BE LOWER. Each subadviser and adviser believes
that the differences between the size of the accounts that it manages and the
expected size of the Series it manages, that has substantially similar
investment objectives and policies as the accounts, do not affect the
relevance of the information shown below to prospective purchasers of
insurance contracts for which the Series may serve as an investment vehicle.
The information below does not represent the performance of the actual Series
listed above. THESE SERIES ARE NEWLY ORGANIZED (EXCEPT LOOMIS SAYLES SMALL CAP
FUND, WHICH COMMENCED INVESTMENT OPERATIONS ON MAY 1, 1994) AND HAVE NO
PERFORMANCE RECORD OF THEIR OWN. THE INFORMATION BELOW SHOULD NOT BE
CONSIDERED A PREDICTION OF THE FUTURE PERFORMANCE OF ANY SERIES. THE
PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE OF A FUND OR ACCOUNT
WHICH HAS SUBSTANTIALLY SIMILAR INVESTMENT OBJECTIVES AND POLICIES.
ALGER ACCOUNTS
David D. Alger, portfolio manager of the Alger Equity Growth Series, also
serves as the portfolio manager of other accounts that have substantially the
same investment objective and investment policies as the Alger Equity Growth
Series (the "Alger Accounts"). The following table sets forth the dollar
weighted annual total return of the Alger Accounts for each of the last seven
calendar years and total return for the period January 1, 1994 through June
30, 1994. Also shown are the number and average period-end net assets of the
Alger Accounts for each period and the dollar weighted average annual total
returns of the Alger Accounts for the one, three and five year periods ended
June 30, 1994. The total return information shown below has been adjusted to
give effect to the higher of the level of the actual expenses of the Accounts
during the periods shown or the anticipated level of expenses that the Series
will bear under the expense deferral arrangement described under "Management."
PERFORMANCE INFORMATION ABOUT THE ALGER ACCOUNTS
<TABLE>
<CAPTION>
VALUE OF ACCOUNTS
NUMBER OF AT PERIOD END
YEARS ENDED DECEMBER 31, TOTAL RETURN ACCOUNTS EXPENSES* (DOLLARS IN MILLIONS)
- ------------------------ ------------ --------- --------- ---------------------
<S> <C> <C> <C> <C>
1987.................... (0.41)% 1 3.00% $ 5.3
1988.................... 6.40 1 3.01 5.1
1989.................... 35.05 1 3.32 5.8
1990.................... 2.25 2 3.04 7.6
1991.................... 42.82 2 2.47 22.7
1992.................... 11.66 2 1.73 53.5
1993.................... 21.51 2 1.50 116.0
6 months Ended June 30,
1994................... (9.77) 3 1.38 163.3
</TABLE>
- --------
* In cases where there is more than one account and the expense levels of the
accounts differ, the expense levels are averaged on a dollar weighted basis.
Expenses for periods of less than one year have been annualized.
AVERAGE ANNUAL TOTAL RETURNS THROUGH JUNE 30, 1994:
<TABLE>
<S> <C>
1 Year................................ 5.06%
3 Year................................ 14.38%
5 Year................................ 15.86%
</TABLE>
DRAYCOTT ACCOUNTS
The team of Nicholas D.P. Carn, Timothy S. Griffen, Gregory D. Eckersley and
Nigel Hankin, portfolio managers of the Draycott International Equity Series,
also serve as portfolio managers of other accounts that have substantially the
same investment objective and investment policies as the Draycott
International Equity Series (the "Draycott Accounts"). The following table
sets forth the dollar weighted total return for the period May 1, 1991
(commencement of the operations of the first Draycott Account) through
December 31, 1991, annual total return for the years ended December 31, 1992
and 1993 and total return for the period January 1, 1994 through June 30,
1994. Also shown are the average annual total returns of the Draycott Accounts
for the one year and three year periods ended June 30, 1994. The information
shown
B-28
<PAGE>
below has been adjusted to give effect to the higher of the level of the
actual expenses of the Accounts during the periods shown or the anticipated
level of expenses that the Series will bear under the expense deferral
arrangement described under "Management."
PERFORMANCE INFORMATION ABOUT THE DRAYCOTT ACCOUNTS
<TABLE>
<CAPTION>
VALUE OF ACCOUNTS
NUMBER OF AT PERIOD END
TOTAL RETURN ACCOUNTS EXPENSES* (DOLLARS IN MILLIONS)
------------ --------- --------- ---------------------
<S> <C> <C> <C> <C>
May 1, 1991 through
December 31, 1991...... (8.48)% 1 1.30% $ 9.2
Years Ended December 31,
1992.................. (7.41) 1 1.30 13.4
1993.................. 31.14 2 1.30 106.7
6 months Ended June 30,
1994................... 9.18 2 1.33 233.3
</TABLE>
- --------
* In cases where there is more than one account and expense levels of the
accounts differ, the expense levels are averaged on a dollar weighted basis.
Expenses for periods of less than one year have been annualized.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED JUNE 30, 1994:
<TABLE>
<S> <C>
1 Year................................. 19.1%
3 Year................................. 7.9%
</TABLE>
LOOMIS SAYLES BALANCED FUND
Douglas D. Ramos and Meri Anne Beck, portfolio managers of the Loomis Sayles
Balanced Series, also serve as portfolio managers of the New England Balanced
Fund, another mutual fund that has substantially the same investment objective
and investment policies as the Loomis Sayles Balanced Series. As of June 30,
1994, the New England Balanced Fund had $201.8 million in net assets. The
following table sets forth the total return of the New England Balanced Fund
Class A shares for the period March 1, 1990, when the Fund began to be
operated as a balanced fund, through December 31, 1990. (Prior to March 1,
1990, the Fund had different portfolio managers and was operated as a growth
and income fund.) The table also sets forth the annual total return of the
Fund's Class A shares for the years ended December 31, 1991, 1992 and 1993,
and the total return for the period January 1, 1994 through June 30, 1994, and
the expense levels of the Class A shares of the Fund for those periods. Also
shown are the average annual total returns for the one and three year periods
and the period from March 1, 1990 through June 30, 1994. All of the expense
levels of the New England Balanced Fund for the periods indicated are higher
than the expense levels anticipated for the Loomis Sayles Balanced Series
under the expense deferral arrangement described under "Management." The
information shown below has been adjusted to give effect to the higher level
of expenses of New England Balanced Fund.
PERFORMANCE INFORMATION ABOUT NEW ENGLAND BALANCED FUND (CLASS A SHARES)
<TABLE>
<CAPTION>
NET ASSET VALUE
AT PERIOD END
YEARS ENDED DECEMBER 31, TOTAL RETURN EXPENSES** (DOLLARS IN MILLIONS)
- ------------------------ ------------ ---------- ---------------------
<S> <C> <C> <C>
1990*............................. (6.8)% 1.58% $ 52.1
1991.............................. 29.2 1.53 67.5
1992.............................. 13.9 1.48 90.5
1993.............................. 14.2 1.41 153.3
6 months Ended June 30, 1994...... (3.5) 1.43 155.4
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS THROUGH JUNE 30, 1994:
<TABLE>
<S> <C>
1 Year................................. 3.7%
3 Year................................. 11.5%
since March 1, 1990*................... 10.0%
</TABLE>
- --------
* The Fund began pursuing its current investment policies on March 1, 1990.
** Expenses for periods of less than one year have been annualized.
B-29
<PAGE>
LOOMIS SAYLES SMALL CAP FUND
Barbara C. Friedman and Jeffrey C. Petherick, portfolio managers of the
Loomis Sayles Small Cap Series, also serve as portfolio managers of the Loomis
Sayles Small Cap Fund, another mutual fund that has the same investment
objective and investment policies as the Loomis Sayles Small Cap Series. The
following table sets forth the total return of the Loomis Sayles Small Cap
Fund for the period May 13, 1991 (commencement of Fund operations) through
December 31, 1991, the annual total return for the years ended December 31,
1992 and 1993 and the total return for the period January 1, 1994 through June
30, 1994. Also shown are the average annual total returns of the Loomis Sayles
Small Cap Fund for the one year, three year and since inception period ended
June 30, 1994. The information shown below reflects expense levels of the
Loomis Sayles Small Cap Fund, all of which were higher than the expense levels
anticipated for the Loomis Sayles Small Cap Series, which will be subject to a
voluntary expense limit of 1.00%, described under "Management."
PERFORMANCE INFORMATION ABOUT THE LOOMIS SAYLES SMALL CAP FUND
<TABLE>
<CAPTION>
NET ASSET VALUE
AT PERIOD END
YEAR ENDED DECEMBER 31, TOTAL RETURN EXPENSES** (DOLLARS IN MILLIONS)
- ----------------------- ------------ ---------- ---------------------
<S> <C> <C> <C>
1991*............................. 30.5% 1.50% $15
1992.............................. 13.1 1.50 39
1993.............................. 24.7 1.35 68
6 months Ended June 30, 1994...... (9.9) 1.35 80
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS THROUGH JUNE 30, 1994:
<TABLE>
<S> <C>
1 Year................................. 3.3%
3 Year................................. 18.9%
Since Inception*....................... 18.0%
</TABLE>
- --------
* The Loomis Sayles Small Cap Fund commenced operations on May 13, 1991.
** Expenses for periods of less than one year have been annualized.
NEW YORK VENTURE ACCOUNTS
Shelby M.C. Davis, the portfolio manager of the Venture Value Series, also
serves as the portfolio manager of other portfolios that have substantially
the same investment objective and investment policies as the Venture Value
Series ("New York Venture Accounts"). The following table sets forth the
dollar weighted annual total return of the New York Venture Accounts for the
years ended July 31, 1985 through 1994. Also shown are the average annual
total returns of the New York Venture Accounts for the one, three, five and
ten year periods ended July 31, 1994. The information shown below has been
adjusted to give effect to the higher of the actual expenses of the New York
Venture Accounts during the periods shown or the anticipated expense levels of
the Venture Value Series.
B-30
<PAGE>
PERFORMANCE INFORMATION ABOUT NEW YORK VENTURE ACCOUNTS
<TABLE>
<CAPTION>
NET ASSET VALUE
NUMBER OF AT PERIOD END
YEAR ENDED JULY 31, TOTAL RETURN ACCOUNTS EXPENSES (DOLLARS IN MILLIONS)
- ------------------- ------------ --------- -------- ---------------------
<S> <C> <C> <C> <C>
1985...................... 37.83% 1 1.05% $ 122.9
1986...................... 32.95 1 0.99 146.8
1987...................... 25.22 1 0.93 232.1
1988...................... (3.30) 1 1.01 167.8
1989...................... 33.44 1 0.97 319.1
1990...................... 8.12 1 0.97 344.9
1991...................... 14.29 1 0.97 421.2
1992...................... 18.62 1 0.91 494.2
1993...................... 20.00 2 0.90 762.0
1994...................... 5.88 2 0.90 1,101.0
</TABLE>
AVERAGE ANNUAL TOTAL RETURN THROUGH JULY 31, 1994:
<TABLE>
<S> <C>
1 Year................................ 5.88%
3 Year................................ 14.65%
5 Year................................ 13.24%
10 Year............................... 18.62%
</TABLE>
SALOMON BROTHERS STRATEGIC AND U.S. GOVERNMENT ACCOUNTS
Steven Guterman, Peter Wilby and David Scott, portfolio managers of the
Salomon Brothers Strategic Bond Opportunities Series, also serve as portfolio
managers of the Salomon Strategic Account, another portfolio that has the same
investment objective and policies as the Salomon Brothers Strategic Bond
Opportunities Series. Mr. Guterman and Roger Lavan, the portfolio managers of
the Salomon Brothers U.S. Government Series, also serve as portfolio managers
of other accounts (the "Salomon U.S. Government Accounts") that have
substantially the same investment objective and investment policy as the
Salomon Brothers U.S. Government Series. The following tables set forth the
dollar weighted total returns, for the period March 1, 1993 (commencement of
operations of the Salomon Strategic Account) through December 31, 1993, the
period January 1, 1994 through June 30, 1994 for the Salomon Strategic Account
and the dollar weighted annual total returns for the years ended December 31,
1992 and 1993 and total return for the period January 1, 1994 through June 30,
1994 for each of the Salomon U.S. Government Accounts. Also shown are the
number of accounts and average period-end assets and the average annual total
returns for the one year ended June 30, 1994 for the Salomon Strategic Account
and the one and two years ended June 30, 1994 for the Salomon U.S. Government
Accounts. The information shown below has been adjusted to give effect to the
higher of the actual expenses of the Salomon Strategic Account and the Salomon
U.S. Government Accounts, respectively, during the periods shown or the
anticipated level of expenses that each of the Salomon Brothers Strategic Bond
Opportunities Series and the Salomon Brothers U.S. Government Series will bear
under the expense deferral arrangement described under "Management."
PERFORMANCE INFORMATION ABOUT THE SALOMON STRATEGIC ACCOUNT
<TABLE>
<CAPTION>
NET ASSET ACCOUNT
NUMBER OF AT PERIOD END
TOTAL RETURN ACCOUNTS EXPENSES (DOLLARS IN MILLIONS)
------------ --------- -------- ---------------------
<S> <C> <C> <C> <C>
March 1, 1993 through
December 31, 1993....... 8.73% 1 1.00% $53.6
6 months Ended June 30,
1994.................... (4.55) 1 0.96 79.2
</TABLE>
AVERAGE ANNUAL TOTAL RETURN FOR ONE YEAR PERIOD ENDED JUNE 30, 1994:
(0.17%)
- --------
B-31
<PAGE>
PERFORMANCE INFORMATION ABOUT THE SALOMON U.S. GOVERNMENT ACCOUNTS
<TABLE>
<CAPTION>
VALUE OF ACCOUNTS
NUMBER OF AT PERIOD END
YEARS ENDED DECEMBER 31, TOTAL RETURN ACCOUNTS EXPENSES* (DOLLARS IN MILLIONS)
- ------------------------ ------------ --------- --------- ---------------------
<S> <C> <C> <C> <C>
1992.................... 6.27% 2 0.72% $266.4
1993.................... 7.63 2 0.93 398.1
6 months Ended June
30,1994................ (1.86) 2 0.98 343.6
</TABLE>
- --------
* In cases where there is more than one account and expenses of the accounts
differ, the expenses are averaged on a dollar weighted basis. Expenses for
periods of less than one year have been annualized.
AVERAGE ANNUAL TOTAL RETURN THROUGH JUNE 30, 1994:
<TABLE>
<S> <C>
1 Year............................... (0.03%)
2 Year............................... 4.64%
</TABLE>
INVESTMENT RESTRICTIONS
The following is a description of restrictions on the investments to be made
by the fifteen Series. Except as specifically listed below, and except for
restrictions marked with an asterisk, these restrictions may not be changed
without the approval of a majority of the outstanding voting securities of the
relevant Series.
INVESTMENT RESTRICTIONS APPLICABLE TO THE BACK BAY ADVISORS MONEY MARKET, BACK
BAY ADVISORS BOND INCOME, CAPITAL GROWTH, WESTPEAK STOCK INDEX AND BACK BAY
ADVISORS MANAGED SERIES
Each of the Series listed above will not:
(1) Purchase any securities (other than U.S. Government Securities) if,
as a result, more than 5% of the Series' total assets (taken at current
value) would be invested in securities of a single issuer; provided,
however, that the Westpeak Stock Index Series and the Back Bay Advisors
Managed Series may each invest more than 5% (but not more than 25%) of its
total assets (taken at current value) in the securities of a single issuer
if securities of any such issuer represent more than 5%, capitalization
weighted, of the stock index that the Series attempts to track.
(2) Purchase any security (other than U.S. Government Securities) if, as
a result, more than 25% of the Series' total assets (taken at current
value) would be invested in any one industry. For purposes of this
restriction, telephone, gas and electric public utilities are each regarded
as separate industries and finance companies whose financing activities are
related primarily to the activities of their parent companies are
classified in the industry of their parents. For the purposes of the Back
Bay Advisors Money Market Series and Back Bay Advisors Managed Series, this
restriction does not apply to bank obligations.
(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities); or make short sales, except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold, and
no Series will deposit or pledge more than 10% of its total assets (taken
at current value) as collateral for such sales. (Any deposit or payment by
the Westpeak Stock Index or Back Bay Advisors Managed Series of initial or
maintenance margin in connection with futures contracts shall not be
considered the purchase of a security on margin for the purposes of this
restriction.)
(4) Acquire more than 10% of the total value of any class of the
outstanding securities of an issuer (taking all preferred stock issues of
an issuer as a single class and debt issues of an issuer as a single class)
or acquire more than 10% of the outstanding voting securities of an issuer.
(5) Borrow money, except as a temporary measure for extraordinary or
emergency purposes (but not for the purpose of investment) up to an amount
not in excess of 10% of its total assets (taken at cost), or 5% of its
total assets (taken at current value), whichever is lower; provided,
however, that the Back Bay Advisors Bond Income Series, the Capital Growth
Series and the Back Bay Advisors Managed Series may loan their portfolio
securities. (See "Loans of Portfolio Securities" above.)
B-32
<PAGE>
(6) Invest more than 5% of its total assets (taken at current value) in
securities of businesses (including predecessors) less than three years
old.
(7) Purchase or retain securities of any issuer if, to the knowledge of
the Fund, officers and trustees of the Fund or officers and directors of
any investment adviser of the Fund who individually own beneficially more
than 1/2 of 1% of the securities of that company, together own beneficially
more than 5%.
(8) Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under the federal securities laws; or purchase any security restricted as
to disposition under the federal securities laws; provided, however, that,
subject to the Fund's limitation on illiquid investments stated below, each
of the Back Bay Advisors Bond Income, Capital Growth and Back Bay Advisors
Managed Series may invest up to 10% of its total assets (taken at current
value) in such restricted securities.
(9) Make investments for the purpose of exercising control or management.
(10) Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase or sale
of portfolio securities with New England Mutual Life Insurance Company
("The New England"), Back Bay Advisors, Capital Growth Management Limited
Partnership ("CGM") or accounts under their management to reduce
acquisition costs, to average prices among such accounts to facilitate such
transactions, is not considered participating in a trading account in
securities.)
(11) Invest in the securities of other investment companies, except in
connection with a merger, consolidation or similar transaction, and except
that the Back Bay Advisors Bond Income Series, the Capital Growth Series,
the Westpeak Stock Index Series and the Back Bay Advisors Managed Series
may invest in securities of other investment companies by purchases in the
open market involving only customary broker's commissions. (Under the
Investment Company Act of 1940 (the "1940 Act") each Series generally may
not (a) invest more than 10% of its total assets (taken at current value)
in the securities of other investment companies, (b) own securities of any
one investment company having a value in excess of 5% of that Series' total
assets (taken at current value), or (c) own more than 3% of the outstanding
voting stock of any one investment company.)
(12) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, commodities or commodity contracts (except that each of the
Westpeak Stock Index Series and the Back Bay Advisors Managed Series may
buy or sell futures contracts on stock indexes and the Back Bay Advisors
Managed Series may buy or sell interest rate futures contracts) or real
estate. This restriction does not prevent any Series from purchasing
securities of companies investing in real estate or of companies which are
not principally engaged in the business of buying or selling such leases,
rights or contracts.
(13) Pledge, mortgage or hypothecate more than 15% of its total assets
(taken at cost).
Restrictions (1) and (2) apply to securities subject to repurchase
agreements but not to the repurchase agreements themselves.
Each of the Series listed above will not purchase any illiquid security if,
as a result, more than 15% (10% in the case of the Back Bay Advisors Money
Market Series) of its net assets (taken at current value) would be invested in
such securities.
INVESTMENT RESTRICTIONS APPLICABLE TO INDIVIDUAL SERIES
In addition to the foregoing investment restrictions, the following
investment restrictions are applicable to individual Series as noted below.
BACK BAY ADVISORS MONEY MARKET SERIES
The Back Bay Advisors Money Market Series will not:
(1) Make loans, except by purchase of debt obligations in which the Back
Bay Advisors Money Market Series may invest consistent with its objective
and investment policies. This restriction does not apply to repurchase
agreements.
B-33
<PAGE>
(2) Write or purchase puts, calls or combinations thereof.
BACK BAY ADVISORS BOND INCOME SERIES
The Back Bay Advisors Bond Income Series will not:
(1) Make loans, except by purchase of bonds, debentures, commercial
paper, corporate notes and similar evidences of indebtedness, which are
part of an issue to the public or to financial institutions, by entering
into repurchase agreements or by lending portfolio securities to the extent
set forth above under "Loans of Portfolio Securities" above.
(2) Write or purchase puts, calls or a combination thereof except that
the Back Bay Advisors Bond Income Series may purchase warrants or other
rights to subscribe to securities of companies issuing such warrants or
rights, or of parents or subsidiaries of such companies, provided that such
warrants or other rights to subscribe are attached to, or a part of, a unit
offering involving other securities.
In order to comply with certain state requirements applicable to restriction
(13) above, as a matter of operating policy subject to change without
shareholder approval, the Back Bay Advisors Bond Income Series will not pledge
more than 2% of its assets.
CAPITAL GROWTH SERIES; WESTPEAK STOCK INDEX SERIES
Neither the Capital Growth Series nor the Westpeak Stock Index Series will:
(1) Make loans, except by purchase of bonds, debentures, commercial
paper, corporate notes, and similar evidences of indebtedness, which are a
part of an issue to the public or to financial institutions, by entering
into repurchase agreements or by lending portfolio securities to the extent
set forth under "Loans of Portfolio Securities" above.
(2) Purchase options or warrants if, as a result, more than 1% of its
total assets (taken at current value) would be invested in such securities.
(3) Write options or warrants.
As a matter of operating policy subject to change without shareholder
approval, the Capital Growth Series will not make loans of its portfolio
securities. In order to comply with certain state requirements applicable to
restriction (13) above, as a matter of operating policy subject to change
without shareholder approval, neither the Capital Growth Series nor the
Westpeak Stock Index Series will pledge more than 2% of its assets.
BACK BAY ADVISORS MANAGED SERIES
The Back Bay Advisors Managed Series will not:
(1) Make loans, except by purchase of bonds, debentures, commercial
paper, corporate notes and similar evidences of indebtedness, which are a
part of an issue to the public or to financial institutions, by entering
into repurchase agreements, or by lending portfolio securities to the
extent set forth under "Loans of Portfolio Securities" above.
(2) Purchase options or warrants if, as a result, more than 1% of its
total assets (taken at current value) would be invested in such securities;
provided, however, that the Back Bay Advisors Managed Series may, without
regard to the foregoing percentage limit, purchase warrants or other rights
to subscribe to securities of companies issuing such warrants or rights, or
of parents or subsidiaries of such companies, provided that such warrants
or other rights to subscribe are attached to, or a part of a unit offering
involving, other securities.
In order to comply with certain state requirements applicable to restriction
(13) above, as a matter of operating policy subject to change without
shareholder approval, the Back Bay Advisors Managed Series will not pledge
more than 2% of its assets.
B-34
<PAGE>
INVESTMENT RESTRICTIONS APPLICABLE TO THE WESTPEAK VALUE GROWTH, LOOMIS SAYLES
AVANTI GROWTH, LOOMIS SAYLES SMALL CAP, LOOMIS SAYLES BALANCED, DRAYCOTT
INTERNATIONAL EQUITY, SALOMON BROTHERS U.S. GOVERNMENT, SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES, VENTURE VALUE, ALGER EQUITY GROWTH AND CS FIRST
BOSTON STRATEGIC EQUITY OPPORTUNITIES SERIES
Each of the Series listed above will not:
*(1) With respect to 75% of the Series' total assets, purchase any
security (other than U.S. Government obligations) if, as a result, more
than 5% of the Series' total assets (taken at current value) would then be
invested in securities of a single issuer and, with respect to the Series'
total assets, purchase any security (other than U.S. Government
obligations) if, as a result, more than 10% of such assets would then be
invested in securities of a single issuer;
(2) Purchase any security (other than U.S. Government Securities) if, as
a result, more than 25% of the Series' total assets (taken at current
value) would be invested in any one industry (in the utilities category,
gas, electric, water and telephone companies will be considered as being in
separate industries, and each foreign country's government (together with
subdivisions thereof) will be considered to be a separate industry);
*(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold, and
the Series will not deposit or pledge more than 10% of its total assets
(taken at current value) as collateral for such sales. (For this purpose,
the deposit or payment by the Series of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin);
*(4) Acquire more than 10% of any class of securities of an issuer
(taking all preferred stock issues of an issuer as a single class and all
debt issues of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer;
(5) Borrow money in excess of 10% of its total assets (taken at cost) or
5% of its total assets (taken at current value), whichever is lower, and
then only as a temporary measure for extraordinary or emergency purposes;
*(6) Pledge more than 15% of its total assets (taken at cost). (For the
purpose of this restriction, collateral arrangements with respect to
options, futures contracts and options on futures contracts and with
respect to initial and variation margin are not deemed to be a pledge of
assets);
*(7) Invest more than 5% of its total assets (taken at current value) in
securities of businesses (including predecessors) less than three years old
(This restriction does not apply to the CS First Boston Strategic Equity
Opportunities Series);
*(8) Purchase or retain securities of any issuer if officers and trustees
of the Fund or officers and directors of any investment adviser of the Fund
who individually own more than 1/2 of 1% of the shares or securities of
that issuer, together own more than 5%;
(9) Make loans, except by entering into repurchase agreements (including
reverse repurchase agreements) or by purchase of bonds, debentures,
commercial paper, corporate notes and similar evidences of indebtedness,
which are a part of an issue to the public or to financial institutions, or
through the lending of the Series' portfolio securities;
(10) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts, except that
the Series may buy and sell futures contracts and related options. (This
restriction does not prevent the Series from purchasing securities of
companies investing in the foregoing);
(11) Act as underwriter, except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws;
*(12) Make investments for the purpose of exercising control or
management;
*(13) Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase or sale
of portfolio securities for a Series with that Series' adviser or
subadviser or accounts
B-35
<PAGE>
under their management to reduce brokerage commissions, to average prices
among them or to facilitate such transactions is not considered a trading
account in securities for purposes of this restriction.);
*(14) Write, purchase or sell options or warrants or, in the case of the
Loomis Sayles Small Cap Series, combinations of both, except that the
Series may (a) acquire warrants or rights to subscribe to securities of
companies issuing such warrants or rights, or of parents or subsidiaries of
such companies, (b) write, purchase and sell put and call options on
securities or securities indices, and (c) enter into currency forward
contracts;
*(15) Purchase any illiquid security if, as a result, more than 15% of
its net assets (taken at current value) would be invested in such
securities;
*(16) Invest in the securities of other investment companies, except by
purchases in the open market involving only customary brokers' commissions.
Under the 1940 Act, the Series may not (a) invest more than 10% of its
total assets (taken at current value) in such securities, (b) own
securities of any one investment company having a value in excess of 5% of
the total assets of the Series (taken at current value), or (c) own more
than 3% of the outstanding voting stock of any one investment company; or
(17) Issue senior securities. (For the purpose of this restriction none
of the following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (6) above; any borrowing
permitted by restriction (5) above; any collateral arrangements with
respect to options, futures contracts and options on futures contracts and
with respect to initial and variation margin; the purchase or sale of
options, forward contracts, futures contracts or options on futures
contracts; and the issuance of shares of beneficial interest permitted from
time to time by the provisions of the Trust's Declaration of Trust and by
the 1940 Act, the rules thereunder, or any exemption therefrom.)
Restriction (5) does not apply to reverse repurchase agreements.
VARIABLE CONTRACT RELATED INVESTMENT RESTRICTIONS
Separate accounts supporting variable life insurance and variable annuity
contracts are subject to certain diversification requirements imposed by
regulations adopted under the Internal Revenue Code. Because the Fund is
intended as an investment vehicle for variable life insurance and variable
annuity separate accounts, Section 817(h) of the Internal Revenue Code
requires that the Fund's investments, and accordingly the investments of each
Series, be "adequately diversified" in accordance with Treasury Regulations.
Failure to do so means the variable life insurance and variable annuity
contracts would cease to qualify as life insurance and annuities for federal
tax purposes. Regulations specifying the diversification requirements have
been issued by the Department of Treasury. The Fund intends to comply with
these requirements.
MANAGEMENT
The Fund's Board of Trustees supervises the affairs of the Fund as conducted
by the Series' advisers. Pursuant to separate advisory agreements, and subject
in each case to the supervision of the Fund's Board of Trustees, CGM advises
the Capital Growth Series; Back Bay Advisors advises the Back Bay Advisors
Money Market Series, the Back Bay Advisors Bond Income Series and the Back Bay
Advisors Managed Series; Westpeak advises the Westpeak Value Growth Series and
the Westpeak Stock Index Series; and Loomis Sayles advises the Loomis Sayles
Small Cap Series and the Loomis Sayles Avanti Growth Series. TNE Advisers,
Inc. is the investment adviser of the Loomis Sayles Balanced Series, the
Draycott International Equity Series, the Salomon Brothers U.S. Government
Series, the Salomon Brothers Strategic Bond Opportunities Series, the Venture
Value Series, the Alger Equity Growth Series and the CS First Boston Strategic
Equity Opportunities Series and has entered into subadvisory agreements for
these Series with Loomis Sayles, Draycott, Salomon Brothers Asset Management
Inc, Salomon Brothers Asset Management Inc, Selected/Venture Advisers, L.P.,
Fred Alger Management, Inc. and CS First Boston Investment Management
Corporation, respectively. TNE Advisers, Inc. was organized in 1994 and has
not previously served as investment adviser to a mutual fund.
Back Bay Advisors, Westpeak, Loomis Sayles, Draycott and CGM are each
independently-operated subsidiaries (or affiliate in the case of CGM) of New
England Investment Companies, L.P. ("NEIC"). The general partners of each of
Back Bay Advisors, Westpeak and Loomis Sayles are special purpose corporations
which are indirectly wholly-owned subsidiaries of NEIC, whose sole general
partner, New England Investment Companies, Inc., is a wholly-owned subsidiary
of The New England.
B-36
<PAGE>
BACK BAY ADVISORS, 399 Boylston Street, Boston, Massachusetts 02116,
provides discretionary investment management services to mutual funds and
other institutional investors. The New England itself served as adviser to the
Back Bay Advisors Money Market Series and the Back Bay Advisors Bond Income
Series until September 10, 1986, when it transferred these advisory functions
to Back Bay Advisors, incident to a reorganization effected in order to
maintain The New England's investment advisory activities in a separate
corporate entity for administrative and regulatory purposes. Catherine L.
Bunting, Senior Vice President of Back Bay Advisors, has served as the Back
Bay Advisors Bond Income Series' portfolio manager since January 1989. Peter
Palfrey, Vice President of Back Bay Advisors and Vice President of the Fund,
has served as the Back Bay Advisors Managed Series' portfolio manager since
January 1994. Each of the foregoing persons has been employed by Back Bay
Advisors for at least five years except for Mr. Palfrey, who, prior to joining
Back Bay Advisors in 1993, was Investment Vice President with Mutual of New
York.
CGM, One International Place, Boston, MA 02110, is an investment advisory
firm organized in 1989 which manages seven mutual fund portfolios and advisory
accounts for other clients. The sole general partner of CGM is a corporation
owned in equal shares by Robert L. Kemp and G. Kenneth Heebner, who are
officers of the Fund. Mr. Heebner, Senior Portfolio Manager of CGM and Senior
Vice President of the Fund, has served as portfolio manager of the Capital
Growth Series since August of 1983. Until 1990, Mr. Heebner was an officer and
employee of Loomis Sayles, which served as adviser to the Capital Growth
Series through February of that year.
WESTPEAK, 1050 Walnut Street, Boulder, CO 80302, was organized in 1991.
Gerald H. Scriver, President and Chief Executive Officer of Westpeak and
Senior Vice President of the Fund, and Philip J. Cooper, CFA, Senior Vice
President of portfolio management of Westpeak and Vice President of the Fund,
have served as the portfolio managers of the Westpeak Value Growth Series
since its inception in 1993 and as the portfolio managers of the Westpeak
Stock Index Series since August 1, 1993. Both Mr. Scriver and Mr. Cooper have
been with Westpeak since its inception in 1991. Prior to joining Westpeak in
1991, Mr. Scriver was Director of Quantitative Strategies of INVESCO and Mr.
Cooper was Portfolio Manager of United Asset Management Services.
LOOMIS SAYLES, One Financial Center, Boston, MA 02111, was founded in 1926
and is one of the country's oldest and largest investment firms. Richard W.
Hurckes, Vice President of Loomis Sayles and Vice President of the Fund, and
Scott Pape, Vice President of Loomis Sayles and Vice President of the Fund,
have served as the portfolio managers of the Loomis Sayles Avanti Growth
Series since its inception in 1993. Mr. Hurckes has been employed by Loomis
Sayles for more than five years. Prior to the time he joined Loomis Sayles in
1991, Mr. Pape was Equity Portfolio Manager of the Illinois State Board of
Investment.
Barbara C. Friedman and Jeffrey C. Petherick, who are Vice Presidents of
Loomis Sayles and the Fund, have served as portfolio managers of the Loomis
Sayles Small Cap Series since its inception in May, 1994. Ms. Friedman was a
partner and portfolio manager at Harvard Management Company prior to joining
Loomis Sayles in 1990. Mr. Petherick was an analyst at Masco Corporation prior
to joining Loomis Sayles in 1990.
The investment adviser of the Loomis Sayles Balanced, Draycott International
Equity, Salomon Brothers U.S. Government, Salomon Brothers Strategic Bond
Opportunities, Venture Value, Alger Equity Growth and CS First Boston
Strategic Equity Opportunities Series is TNE Advisers, Inc., 501 Boylston
Street, Boston, MA 02116. TNE Advisers, Inc. is a wholly-owned subsidiary of
The New England. TNE Advisers, Inc. oversees, evaluates and monitors the
subadvisers' provision of investment advisory services to the Series and
provides general business management and administration to the Series. TNE
Advisers, Inc. has contracted with New England Funds, L.P. to provide certain
administrative services to support the Series.
Subject to the supervision of TNE Advisers, Inc., each subadviser manages
its Series in accordance with the Series' investment objective and policies,
makes investment decisions for that Series, places orders to purchase and sell
securities for that Series and employs professional advisers and securities
analysts who provide research services to that Series. The Series advised by
TNE Advisers, Inc. pay no direct fees to any of the subadvisers described
below.
Loomis Sayles subadvises the Loomis Sayles Balanced Series; Douglas D. Ramos
and Meri Anne Beck, who are Vice Presidents of the Fund and Loomis Sayles,
serve as its portfolio managers. Both Mr. Ramos and Ms. Beck have been
employed by Loomis Sayles for more than five years.
DRAYCOTT PARTNERS, LTD. ("Draycott"), 8 City Road, London EC2Y 1HE
subadvises the Draycott International Equity Series. Draycott was organized in
1991 to provide investment advice and management services to institutional
investors'
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<PAGE>
accounts and to mutual funds distributed both to institutional and retail
customers. Draycott is a member of the Investment Management Regulatory
Organization Limited ("IMRO"), the United Kingdom regulator of investment
advisers. In addition to the Series, Draycott currently manages three separate
investment accounts of The New England that invest substantially all of their
assets in international equity securities and one mutual fund. Nicholas D.P.
Carn, Chief Investment Officer, President and Chief Executive Officer of
Draycott, Timothy S. Griffen, Senior Portfolio Manager and Pacific Rim
Specialist of Draycott, Gregory D. Eckersley, Portfolio Manager and United
Kingdom Specialist of Draycott, and Nigel Hankin, Portfolio Manager and
European Specialist of Draycott, will serve as the portfolio managers of the
Draycott International Equity Series. Prior to Draycott's organization in
1991, Mr. Carn was Managing Director, International Equities Group, Mr.
Griffen was a Vice President and Portfolio Manager and Mr. Hankin was European
Fund Manager, all at CIGNA International Investment Advisors, Ltd. and Mr.
Eckersley was an Investment Manager at Century Asset Management, London.
Short-term U.S. cash management services for the Draycott International
Equity Series are provided by Back Bay Advisors as subadviser to Draycott. For
these services, Draycott has agreed to compensate Back Bay Advisors at the
annual rate of 0.08% of the value of the Series' average daily net assets.
SALOMON BROTHERS ASSET MANAGEMENT INC ("SBAM"), 7 World Trade Center, New
York, New York 10048, the subadviser to the Salomon Brothers U.S. Government
Series and the Salomon Brothers Strategic Bond Opportunities Series, is an
indirect, wholly-owned subsidiary of Salomon Inc ("SI") and was incorporated
in 1987.
In connection with SBAM's service as subadviser to the Strategic Bond
Opportunities Series, SBAM's London based affiliate, Salomon Brothers Asset
Management Limited ("SBAM Limited"), Victoria Plaza, 111 Buckingham Palace
Road, London SW1W OSB, England, serves as subadviser to SBAM relating to
currency transactions and investments in non-dollar denominated debt
securities for the benefit of the Salomon Brothers Strategic Bond
Opportunities Series. For these services, SBAM has agreed to compensate SBAM
Limited at the rate of one-third of the compensation payable to SBAM by TNE
Advisers, Inc. SBAM Limited is an indirect, wholly-owned subsidiary of Salomon
Inc. SBAM Limited is a member of IMRO and is registered as an investment
adviser in the United States pursuant to the Investment Advisers Act of 1940.
Steven Guterman is primarily responsible for the day-to-day management of
the Salomon Brothers U.S. Government Series and the mortgage-backed securities
and U.S. government securities portion of the Salomon Brothers Strategic Bond
Opportunities Series. Mr. Guterman co-manages the Salomon Brothers U.S.
Government Series with Roger Lavan. Peter J. Wilby is primarily responsible
for the day-to-day management of the High Yield and Emerging Market Debt
Securities portions of the Salomon Brothers Strategic Bond Opportunities
Series. Beth Semmel assists Mr. Wilby in the day-to-day management of the
Strategic Bond Opportunities Series. David Scott is primarily responsible for
the international portion of the Salomon Brothers Strategic Bond Opportunities
Series.
Mr. Guterman joined SBAM in 1990 and Salomon Brothers Inc in 1983. He
initially worked in the mortgage research group where he became a Research
Director and later traded derivative mortgage-backed securities for Salomon
Brothers Inc. Mr. Lavan joined SBAM in 1990. Prior to joining SBAM, Mr. Lavan
spent four years analyzing portfolios for Salomon's Fixed Income Sales Group
and Product Support Divisions. Mr. Wilby, who joined SBAM in 1989, was
previously employed by Prudential Capital Management Group ("Prudential")
where he served as director of Prudential's credit research unit and as a
corporate and sovereign credit analyst with Prudential. Mr. Wilby later
managed high yield bonds and leveraged equities in the mutual funds and
institutional portfolios at Prudential. Ms. Semmel joined SBAM in May of 1993.
Prior to joining SBAM, Ms. Semmel spent four years as a high yield bond
analyst at Morgan Stanley Asset Management. Mr. Scott has been with SBAM since
April, 1994. Previously, he was a portfolio manager for J.P. Morgan Investment
Management in London from 1990-94 where he was responsible for global and non-
dollar portfolios. Before joining J.P. Morgan, Mr. Scott was employed by
Mercury Asset Management where he had responsibility for captive insurance
portfolios.
SELECTED/VENTURE ADVISERS, L.P. ("Selected/Venture"), 124 East Marcy Street,
Santa Fe, New Mexico 87501, subadvises the Venture Value Series. Venture
Advisers, Inc. is the sole general partner of Selected/Venture.
Selected/Venture manages investment and business operations and also acts as
investment adviser for seven mutual funds. As of May 1, 1994, Shelby M.C.
Davis became the controlling shareholder of Venture Advisers, Inc. Shelby M.C.
Davis is the primary portfolio manager for the Venture Value Series. Since
1968, he has been a director of Venture Advisers, Inc. and, as discussed
above, effective May 1, 1994, he assumed control of Selected/Venture. He is
also a director and officer of all investment companies managed by
Selected/Venture.
FRED ALGER MANAGEMENT, INC. ("Alger Management"), 75 Maiden Lane, New York,
New York 10038, subadvises the Alger Equity Growth Series. Alger Management is
a wholly-owned subsidiary of Fred Alger & Company, Incorporated which in turn
is a wholly-owned subsidiary of Alger Associates, Inc., a financial services
holding company. Fred M. Alger
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<PAGE>
III and his brother, David D. Alger, own approximately 53 percent and 17
percent, respectively, of Alger Associates, Inc. and may be deemed to control
that company and its subsidiaries. David D. Alger, Executive Vice President of
Alger Management, is primarily responsible for the day-to-day management of
the Alger Equity Growth Series. He has been employed by Alger Management as
Executive Vice President and Director of Research since 1971 and he serves as
portfolio manager for other mutual funds and investment accounts managed by
Alger Management.
CS FIRST BOSTON INVESTMENT MANAGEMENT CORPORATION ("CS First Boston
Management"), 599 Lexington Avenue, 36th Floor, New York, New York 10022, an
affiliate of CS First Boston Corporation ("CS First Boston"), subadvises the
CS First Boston Strategic Equity Opportunities Series. CS First Boston and CS
First Boston Management are subsidiaries of CS First Boston, Inc.
Andrew R. Midler, who serves as the Portfolio Manager of the Series, joined
CS First Boston in 1994 as Director, Equity Portfolio Management. Before
joining CS First Boston, he was a senior portfolio manager at Odyssey
Partners, a $2.5 billion global fund. Mr. Midler began his investment career
at Fidelity Investments where he was manager of the following funds: Growth &
Income, Equity Income-II and the Fidelity Convertible Fund and before that was
a global auto industry analyst at Fidelity.
FEES AND EXPENSES. For advisory services rendered during the fiscal year
ended December 31, 1993, Back Bay Advisors was paid 0.35% of the Back Bay
Advisors Money Market Series' average net assets, 0.40% of the Back Bay
Advisors Bond Income Series' average net assets and 0.50% of the Back Bay
Advisors Managed Series' average net assets. For advisory services rendered
during the fiscal year ended December 31, 1993, CGM was paid 0.67% of the
Capital Growth Series' average net assets.
For the period January 1, 1993 to July 31, 1993, Back Bay Advisors was paid
0.25% of the Westpeak Stock Index Series' average net assets. On August 1,
1993, advisory functions for the Series were assumed by Westpeak, which is
paid at the annual rate of 0.25% of the Series' average net assets.
The Westpeak Value Growth Series and the Loomis Sayles Avanti Growth Series
pay Westpeak and Loomis Sayles, respectively, advisory fees at the annual rate
of 0.70% of the first $200 million of the relevant Series' average net assets,
0.65% of the next $300 million of such assets and 0.60% of such assets in
excess of $500 million. Westpeak and Loomis Sayles have each voluntarily
agreed, until December 1, 1994, to reduce their respective advisory fees and,
if necessary, to assume expenses to the extent necessary to limit each of the
Westpeak Value Growth and Loomis Sayles Avanti Growth Series' expenses to an
annual rate of 0.85% of the average daily net assets of those Series.
For rendering advisory services to the Loomis Sayles Small Cap Series,
Loomis Sayles is paid a fee at the annual rate of 1.00% of the Series' average
net assets. Although this fee rate is higher than the advisory fee rate of
most mutual funds in general, many other funds with similar investment
objectives have the same or higher fee rates. Loomis Sayles has voluntarily
agreed, until December 1, 1994, to reduce its advisory fees and/or bear other
expenses of the Loomis Sayles Small Cap Series, to the extent necessary to
limit Loomis Sayles Small Cap Series' total operating expenses to an annual
rate of 1.00% of the average daily net assets.
Pursuant to a voluntary expense agreement, effective November 1, 1994,
relating to the Capital Growth, Back Bay Advisors Money Market, Back Bay
Advisors Bond Income, Back Bay Advisors Managed and the Westpeak Stock Index
Series and, beginning December 1, 1994, relating to the Loomis Sayles Small
Cap, Loomis Sayles Avanti Growth and the Westpeak Value Growth Series, The New
England will bear the expenses (other than the advisory fees and any brokerage
costs, interest, taxes or extraordinary expenses) of the Series (except the
Loomis Sayles Small Cap Series) in excess of 0.15% of the respective Series'
average daily net assets. In the case of the Loomis Sayles Small Cap Series,
The New England will bear such expenses of the Series in excess of 1.00% of
the Series' average daily net assets. As a result of the
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<PAGE>
voluntary expense agreement (and assuming the Series incur the same level of
advisory fees as in 1993 and no taxes, interest or extraordinary expenses),
the Series' expense ratios during the continuation of the voluntary expense
agreement will be:
<TABLE>
<CAPTION>
TOTAL EXPENSE RATIO
SERIES UNDER NEW AGREEMENT
------ -------------------
<S> <C>
Capital Growth Series.................................. .71%
Back Bay Advisors Money Market Series.................. .50%
Back Bay Advisors Bond Income Series................... .54%
Back Bay Advisors Managed Series....................... .64%
Westpeak Value Growth Series........................... .85%
Westpeak Stock Index Series............................ .40%
Loomis Sayles Small Cap Series......................... 1.00%
Loomis Sayles Avanti Growth Series..................... .85%
</TABLE>
The New England may terminate this expense agreement at any time.
Prior to November 1, 1994, The New England had agreed to pay the charges and
expenses of preparing, printing and distributing prospectuses and reports to
shareholders, custodial and transfer agent charges and expenses, auditing,
accounting and legal fees and certain other expenses in connection with the
affairs of the Fund and the expenses of shareholders' and trustees' meetings.
TNE Advisers, Inc. is paid a management fee from the Series it manages as
follows:
<TABLE>
<CAPTION>
MANAGEMENT FEE PAID BY SERIES TO
TNE ADVISERS, INC.
SERIES (% OF AVERAGE NET ASSETS)
------ --------------------------------
<S> <C>
Loomis Sayles Balanced................... .70%
Draycott International Equity............ .90%
Salomon Brothers U.S. Government......... .55%
Salomon Brothers Strategic Bond Opportu-
nities.................................. .65%
Venture Value............................ .75%
Alger Equity Growth...................... .70%
CS First Boston Strategic Equity Opportu-
nities.................................. .80%
</TABLE>
TNE Advisers, Inc. pays each subadviser at the following rates for providing
advisory services to the Series: for the Loomis Sayles Balanced Series, TNE
Advisers, Inc. pays Loomis Sayles at the annual rate of 0.50% of the first $25
million of average net assets, 0.40% of the next $75 million of such assets
and 0.30% of such assets in excess of $100 million; for the Draycott
International Equity Series, TNE Advisers, Inc. pays Draycott at the annual
rate of 0.75% of the first $10 million of average net assets, 0.60% of the
next $40 million of such assets and 0.45% of such assets in excess of $50
million; for the Salomon Brothers U.S. Government Series, TNE Advisers, Inc.
pays SBAM at the annual rate of 0.225% of the first $200 million of average
net assets, 0.15% of the next $300 million of such assets and 0.10% of such
assets in excess of $500 million; for the Salomon Brothers Strategic Bond
Opportunities Series, TNE Advisers, Inc. pays SBAM at the annual rate of 0.35%
of the first $50 million of average net assets, 0.30% of the next $150 million
of such assets, 0.25% of the next $300 million of such assets and 0.20% of
such assets in excess of $500 million; for the Venture Value Series, TNE
Advisers, Inc. pays Selected/Venture at the annual rate of 0.45% of the first
$100 million of average net assets, 0.40% on the next $400 million of average
net assets and 0.35% of such assets in excess of $500 million; for the Alger
Equity Growth Series, TNE Advisers, Inc. pays Alger Management at the annual
rate of 0.45% of the first $10 million of average net assets, 0.40% of the
next $90 million of such assets, 0.35% of the next $150 million of such
assets, 0.30% of the next $250 million of such assets and 0.25% of such assets
in excess of $500 million; for the CS First Boston Strategic Equity
Opportunities Series, TNE Advisers, Inc. pays CS First Boston Management at
the annual rate of 0.45% of the first $200 million of average net assets,
0.40% of the next $300 million of such assets, 0.35% of the next $500 million
of such assets and 0.30% of such assets in excess of $1 billion. In addition
to this fee, at the end of the third full year of operations of the CS First
Boston Strategic Equity Opportunities Series, TNE Advisers, Inc. will pay CS
First Boston Management an amount equal to three times a fee (the "Fulcrum
Fee"), which Fulcrum Fee shall be the following percentage of the average
daily net assets of the Series during the first three years of the Series'
operations: if the average annual return of the Series during such three-year
period is greater than or equal to the average annual return of the S&P 500
Index during the same period plus 0.40% but less than the S&P 500 Index plus
0.50%, the Fulcrum Fee shall be 0.01%; if the average annual return of the
Series during the three-year period is greater than or equal to that of the
S&P 500 Index plus 0.50% but less than that
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<PAGE>
of the S&P 500 Index plus 0.60%, the Fulcrum Fee shall be 0.03%; and if the
average annual return of the Series during the three-year period is greater
than or equal to that of the S&P 500 Index plus 0.60%, the Fulcrum Fee shall
be 0.05%. At the end of each full year subsequent to the third full year of
operations of the CS First Boston Strategic Equity Opportunities Series, TNE
Advisers, Inc. will pay CS First Boston Management the Fulcrum Fee as
described in the previous sentence as a percentage of the Series' average
daily net assets over the immediately previous three-year period and based on
the average annual return of the Series relative to the S&P 500 Index during
the same three-year period.
Pursuant to an expense deferral arrangement in effect beginning November 1,
1994, relating to the Loomis Sayles Balanced Series, the Draycott
International Equity Series, the Salomon Brothers U.S. Government Series, the
Salomon Brothers Strategic Bond Opportunities Series, the Venture Value
Series, the Alger Equity Growth Series and the CS First Boston Strategic
Equity Opportunities Series, which TNE Advisers, Inc. may terminate at any
time, TNE Advisers, Inc. has agreed to pay the expenses of the Series'
operations (exclusive of any brokerage costs, interest, taxes or extraordinary
expenses) in excess of stated expense limits, which limits vary from Series to
Series, subject to the obligation of the Series to repay TNE Advisers, Inc.
such expenses in future years, if any, when a Series' expenses fall below the
stated expense limit that pertains to that Series; such deferred expenses may
be charged to a Series in a subsequent year to the extent that the charge does
not cause the total expenses in such subsequent year to exceed the Series'
stated expense limit; provided, however, that no Series is obligated to repay
any expense paid by TNE Advisers, Inc. more than two years after the end of
the fiscal year in which such expense was incurred. For the Loomis Sayles
Balanced Series, TNE Advisers, Inc. has agreed to defer such expenses in
excess of 0.85% of net assets until a subsequent year, if any, when total
expenses are less than 0.85% of net assets; for the Draycott International
Equity Series, TNE Advisers, Inc. has agreed to defer such expenses in excess
of 1.30% of net assets until a subsequent year, if any, when total expenses
are less than 1.30% of net assets; for the Salomon Brothers U.S. Government
Series, TNE Advisers, Inc. has agreed to defer such expenses in excess of
0.70% of net assets until a subsequent year, if any, when total expenses are
less than 0.70% of net assets; for the Salomon Brothers Strategic Bond
Opportunities Series, TNE Advisers, Inc. has agreed to defer such expenses in
excess of 0.85% of net assets until a subsequent year, if any, when total
expenses are less than 0.85% of net assets; for the Venture Value Series, TNE
Advisers, Inc. has agreed to defer such expenses in excess of 0.90% of net
assets until a subsequent year, if any, when total expenses are less than
0.90% of net assets; for the Alger Equity Growth Series, TNE Advisers, Inc.
has agreed to defer such expenses in excess of 0.85% of net assets until a
subsequent year, if any, when total expenses are less than 0.85% of net
assets; for the CS First Boston Strategic Equity Opportunities Series, TNE
Advisers, Inc. has agreed to defer such expenses in excess of 1.05% of net
assets until a subsequent year, if any, when total expenses are less than
1.05% of net assets. These expense limits can be prospectively discontinued by
TNE Advisers, Inc. but any expenses that were deferred while a Series' expense
limit was in place can never be charged to that Series unless that Series'
expenses fall below the limit.
In addition to the management fee paid to TNE Advisers, Inc., the Loomis
Sayles Balanced, Draycott International Equity, Salomon Brothers U.S.
Government, Salomon Brothers Strategic Bond Opportunities, Venture Value,
Alger Equity Growth and CS First Boston Strategic Equity Opportunities Series
pay all expenses not borne by TNE Advisers, Inc., the subadvisers or the
Distributor, including, but not limited to, the charges and expenses of the
respective Series' custodian, independent auditors and legal counsel, all
brokerage commissions and transfer taxes in connection with portfolio
transactions, all taxes and filing fees, the fees and expenses for
registration or qualification of its shares under federal or state securities
laws, all expenses of shareholders' and trustees' meetings and preparing,
printing and mailing prospectuses and reports to shareholders and the
compensation of trustees of the Fund who are not directors, officers or
employees of The New England or its affiliates, other than affiliated
registered investment companies.
The Fund incurred total expenses during the one-year period ended December
31, 1993 as follows: $462,818 for the Back Bay Advisors Bond Income Series,
$67,489 for the Westpeak Stock Index Series, $529,668 for the Back Bay
Advisors Managed Series, $3,804,176 for the Capital Growth Series, $232,679
for the Back Bay Advisors Money Market Series, $31,881 for the Loomis Sayles
Avanti Growth Series and $27,090 for the Westpeak Value Growth Series; these
expenses equaled 0.43% of the Back Bay Advisors Bond Income Series' average
net assets, 0.34% of the Westpeak Stock Index Series' average net assets,
0.53% of the Back Bay Advisors Managed Series' average net assets, 0.68% of
the Capital Growth Series' average net assets, 0.38% of the Back Bay Advisors
Money Market Series' average net assets, 0.85% of the Loomis Sayles Avanti
Growth Series' average net assets and 0.85% of the Westpeak Value Growth
Series average net assets. These expense figures do not include portfolio
brokerage commissions, which are not deducted from the Series' assets in the
same manner as other charges and expenses; rather, brokerage commissions are
part of the purchase price paid for
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<PAGE>
portfolio securities and reduce the proceeds received on the sale of portfolio
securities. For the one-year period ended December 31, 1993, the Capital
Growth Series paid a total of $2,851,000 in brokerage commissions, the
Westpeak Stock Index Series paid a total of $21,000 in brokerage commissions
and the Back Bay Advisors Managed Series paid a total of $17,000 in brokerage
commissions on its common stock portfolio transactions; for the period April
30 through December 31, 1993, the Loomis Sayles Avanti Growth Series paid a
total of $10,000 in brokerage commissions and the Westpeak Value Growth Series
paid a total of $12,000 in brokerage commissions. These brokerage commissions
equaled 0.51% of the Capital Growth Series' average net assets, 0.11% of the
Westpeak Stock Index Series' average net assets, 0.02% of the Back Bay
Advisors Managed Series' average net assets, 0.18% of the Loomis Sayles Avanti
Growth Series' average net assets and 0.25% of the Westpeak Value Growth
Series' average net assets. Portfolio transactions of the Back Bay Advisors
Money Market Series and Back Bay Advisors Bond Income Series, and portfolio
transactions of the Back Bay Advisors Managed Series in bonds, notes and money
market instruments are generally on a net basis without a stated commission.
Each Series' adviser has contracted with New England Securities or New
England Funds, L.P., an affiliate of New England Securities, for New England
Securities or New England Funds, L.P. to provide executive and other personnel
for the administration of Fund affairs. Also, pursuant to the rules of the
SEC, the Fund may pay brokerage commissions to New England Securities on
behalf of the Back Bay Advisors Bond Income Series, the Westpeak Stock Index
Series and the Back Bay Advisors Managed Series, on purchases and sales of
securities for the investment portfolios of the respective Series. In 1993,
the Westpeak Stock Index Series and the Back Bay Advisors Managed Series did
not pay New England Securities any brokerage commissions. Subject to
procedures adopted by the Fund's trustees, Fund brokerage transactions may be
executed by brokers that are affiliated with any adviser or subadviser.
Fund shares are offered through New England Securities, 399 Boylston Street,
Boston, Massachusetts 02116, the principal underwriter for the Fund. New
England Securities is a wholly-owned subsidiary of The New England.
SALE AND REDEMPTION OF SHARES
Shares of each Series are purchased or redeemed depending, among other
things, on the amount of premium payments invested and the surrender and
transfer requests effected on any given day pursuant to the variable life
insurance and variable annuity contracts supported by the Fund. Such
transactions can be made only on those days during which the New York Stock
Exchange is open for trading. Purchases and redemptions of Fund shares are
effected at the net asset value per share determined as of the close of
regular trading on the New York Stock Exchange on the day such purchase order
or redemption request is received.
The Fund may suspend the right of redemption for any Series and may postpone
payment for any period when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by the rules of the SEC, during
periods when trading on the New York Stock Exchange is restricted or during an
emergency which makes it impracticable for a Series to dispose of securities
or fairly to determine the value of its net assets, or during any other period
permitted by the SEC for the protection of investors.
NET ASSET VALUES AND PORTFOLIO VALUATION
Back Bay Advisors, CGM, Westpeak, Loomis Sayles, Draycott, SBAM,
Selected/Venture, Alger Management, and CS First Boston Management, under the
direction of the Board of Trustees, determine the value of each Series'
securities at their fair value as determined in good faith by the respective
Series' adviser or subadviser (or a pricing service selected by the adviser or
subadviser) under the direction of the Fund's Board of Trustees. The net asset
value of each Series' shares is determined as of the close of regular trading
on the New York Stock Exchange each day it is open. Each Series' total net
assets are divided by the number of outstanding shares of that Series to
determine the net asset value per share for that Series.
The Back Bay Advisors Money Market Series' investment portfolio, and any
fixed-income securities with remaining maturities of 60 days or less held by
any other Series, are valued at amortized cost. Other portfolio securities of
each Series (other than the Back Bay Advisors Money Market Series) are valued
at market value where current market quotations are readily available and
otherwise are taken at fair value as determined in good faith by the Board of
Trustees, although the actual calculations may be made by persons acting
pursuant to the direction of the Board.
The Back Bay Advisors Money Market Series seeks to maintain a constant net
asset value per share of $100, although this cannot be assured. The net asset
value per share for the other Series will vary depending on the value of each
Series' investment portfolio.
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<PAGE>
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
BACK BAY ADVISORS MONEY MARKET SERIES
The net investment income of the Back Bay Advisors Money Market Series is
declared daily and paid monthly as a dividend. Although the Back Bay Advisors
Money Market Series does not expect to realize any long-term capital gains, if
such gains are realized they will be distributed once a year.
OTHER SERIES
It is the policy of each Series other than the Back Bay Advisors Money
Market Series to pay annually as dividends substantially all net investment
income and to distribute annually all net realized capital gains, if any,
after offsetting any capital loss carryovers. See "Taxes." Dividends from net
investment income may be paid more or less often if the Board of Trustees
deems it appropriate.
Federal income tax law requires each Series to distribute prior to calendar
year end virtually all of its ordinary income for such year and virtually all
of the capital gain net income realized by the Series in the one-year period
ending October 31 (or December 31, if the Series so elects) of such year and
not previously distributed.
Dividends and distributions of each Series are automatically reinvested in
shares of the respective Series.
TAXES
Each Series is treated as a separate taxable entity for federal income tax
purposes and intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended. So long as a Series distributes all
of its net investment income and net capital gains to its shareholders, the
Series itself does not pay any federal income tax. Dividends from net
investment income of each of the Series and distributions of each Series' net
short-term gains, if any, are ordinary income to its shareholders.
Distributions of any Series' net realized long-term capital gains, if any, are
long-term capital gains to its shareholders. Whether or not taxes must be paid
by the shareholders of a Series on distributions received from that Series
will depend on the tax status of NEVLICO's or The New England's separate
accounts and the tax status of any other shareholders. For the purposes of the
foregoing, each Series' shareholders are the separate accounts investing
directly in the Fund and are not the owners of the variable life insurance or
variable annuity contracts for which the Fund serves as an investment vehicle.
For a description of the tax consequences for such contract owners, see the
relevant prospectus applicable to such contracts.
ORGANIZATION AND CAPITALIZATION OF THE FUND
The Fund was originally organized in 1983 as a Massachusetts corporation and
was reorganized into a Massachusetts business trust on February 27, 1987. The
Fund is registered as a diversified, open-end management company under the
1940 Act and is authorized to issue an unlimited number of shares of each
Series. Shareholders may address inquiries about the Fund to New England
Securities, 399 Boylston Street, Boston, Massachusetts 02116.
As of the date of this prospectus, all of the outstanding voting securities
of the Fund are owned by separate accounts of The New England and/or NEVLICO,
or, in the case of certain series, by those separate accounts and the general
account of The New England. Therefore, The New England and NEVLICO are
presumed to be in control (as that term is defined in the 1940 Act) of the
Fund. However, the staff of the SEC is presently of the view that The New
England and NEVLICO are each required to vote their Fund shares that are held
in a separate account in the same proportion as the voting instructions
received from the variable life insurance or variable annuity contracts issued
by the separate account, and that The New England is required to vote any
shares held in its general account in the same proportion as all other Fund
shares are voted. The New England and NEVLICO currently intend to vote their
shares in a manner consistent with this view.
The Fund does not generally hold annual meetings of shareholders and will
hold shareholders meetings only when required by law. Shareholders may remove
trustees from office by votes cast at a shareholder meeting or by written
consent.
TRANSFER AGENT
The transfer agent and the dividend paying agent for the Fund is The New
England, 501 Boylston Street, Boston, Massachusetts 02116.
VOTING RIGHTS
NEVLICO and The New England will vote shares attributable to the variable
life insurance and variable annuity contracts investing in the Fund in
accordance with instructions received from the owners of those contracts in
the manner set forth in the prospectus applicable to such contracts. Fund
shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held).
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<PAGE>
APPENDIX A
RATINGS OF SECURITIES
Description of Moody's Investors Service, Inc. corporate bond ratings:
Aaa, Aa, A--Bonds which are rated AAA or Aa are judged to be of high quality
by all standards and are generally known as high grade bonds. Bonds rated Aa
are rated lower than Aaa securities because margins of protection may not be
as large as in the latter or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities. Bonds which are
rated A possess many favorable investment attributes and are to be considered
as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered medium grade obligations,
i.e., they are neither higher protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Description of Standard & Poor's Corporation corporate bond ratings:
AAA, AA, A--Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong. Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only in small
degree. Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in high rated
categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to repay principal and pay
interest for bonds in this category than for bonds in higher rated categories.
BB-B-CCC-CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
CI--The rating CI is reserved for income bonds on which no income is being
paid.
D--Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
B-44
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[TO COME]
C-1
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THE NEW ENGLAND
501 BOYLSTON STREET
BOSTON, MA 02116-3700
RECEIPT
This is to acknowledge receipt of a Zenith Accumulator Prospectus dated
October 31, 1994. This Variable Annuity Contract is offered by New England
Mutual Life Insurance Company.
- ------------------------------------- -------------------------------------
(Date) (Client's Signature)
<PAGE>
501 Boylston Street
Boston, Massachusetts 02116-3700
- --------------------------------------------------------------------------------
EQUAL OPPORTUNITY EMPLOYER M/F
(C)1994 New England Mutual Life Insurance Company
SP-2580-94
<PAGE>
Supplement Dated February 10, 1995 to the New England Zenith Fund
Prospectus Dated May 1, 1994, as Supplemented on October 31, 1994
Supplement Dated February 10, 1995 to the New England Zenith Fund
Prospectus Dated October 31, 1994
The Trustees of New England Zenith Fund (the "Trust") have approved new
advisory arrangements between the Trust and TNE Advisers, Inc. with respect to
the Back Bay Advisors Money Market Series, Back Bay Advisors Bond Income Series,
Westpeak Value Growth Series, Loomis Sayles Avanti Growth Series, Westpeak Stock
Index Series, Back Bay Advisors Managed Series and Loomis Sayles Small Cap
Series (the "Series"). TNE Advisors, Inc. proposes to enter into a subadvisory
agreement for each of the aforementioned Series with Back Bay Advisors, L.P.
("Back Bay Advisors"), Back Bay Advisors, Westpeak Investment Advisors, L.P.
("Westpeak"), Loomis Sayles & Company, L.P. ("Loomis Sayles"), Westpeak, Back
Bay Advisors and Loomis Sayles, respectively. The new advisory arrangements and
the new subadvisory agreements will be submitted to shareholders of the Series
at a meeting scheduled to be held on April 10, 1995. If approved, the new
arrangements and the new subadvisory agreements will take effect on or about May
1, 1995.
Under the proposed new advisory arrangements, TNE Advisors, Inc. will be
paid a management fee at the same rate received by the Series' present advisers
who will become the Series' subadvisers under the proposed arrangements.
TNE Advisers, Inc. proposes to pay Back Bay Advisors for providing
subadvisory services to the Back Bay Advisors Money Market Series at the annual
rate of 0.15% of the first $100 million of the Series' average net assets and
0.10% of such assets in excess of $100 million; to the Back Bay Advisors Bond
Income Series at the annual rate of 0.25% of the first $50 million of the
Series' average net assets, 0.20% of the next $200 million of such assets and
0.15% of such assets in excess of $250 million; and to the Back Bay Advisors
Managed Series at the annual rate of 0.25% of the first $50 million of the
Series' average net assets and 0.20% of such assets in excess of $50 million.
TNE Advisers, Inc. proposes to pay Westpeak for providing subadvisory
services to the Westpeak Value Growth Series at the annual rate of 0.50% for the
first $25 million of the Series' average net assets, 0.40% of the next $75
million of such assets, 0.35% of the next $100 million of such assets and 0.30%
of such assets in excess of $200 million, and to the Westpeak Stock Index Series
at the annual rate of 0.10% of the Series' average net assets.
TNE Advisers, Inc. proposes to pay Loomis Sayles for providing subadvisory
services to the Loomis Sayles Avanti Growth Series at the annual rate of 0.50%
of the first $25 million of the Series' average net assets, 0.40% of the next
$75 million of such assets, 0.35% of the next $100 million of such assets and
0.30% of such assets in excess of $200 million, and to the Loomis Sayles Small
Cap Series at the annual rate of 0.55% of the first $25 million of the Series'
average net assets, 0.50% of the next $75 million of such assets, 0.45% of the
next $100 million of such assets and 0.40% of such assets in excess of $200
million.
25-81
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ZENITH ACCUMULATOR
NEW ENGLAND ZENITH FUND
Supplement dated March 29, 1995
to Prospectus dated October 31, 1994
Shares of the CS First Boston Strategic Equity Opportunities Series of New
England Zenith Fund are no longer being offered for sale. Accordingly, that
Series is no longer an Eligible Fund, either for investment of new purchase
payments under Zenith Accumulator Contracts, or for exchanges of amounts
currently allocated to other Eligible Funds.
