<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
individual use, for use with certain retirement plans that qualify for tax
benefited treatment under the Internal Revenue Code (the "Code"), and for use
with plans and trusts not qualifying under the Code for tax benefited
treatment. The Contracts are no longer being offered for use with Section
403(b) plans subject to ERISA and are only available on a limited basis to
Section 401(k) plans. See "Retirement Plans Offering Federal Tax Benefits" for
more information. All purchase payments made under the Contracts may be
allocated to The New England Variable Account (the "Variable Account"), a
separate investment account of New England Mutual Life Insurance Company ("The
New England" or the "Company"). The New England and Metropolitan Life
Insurance Company ("MetLife") have entered into an agreement to merge, with
MetLife to be the survivor of the merger. See "The Company" for more
information.
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 Fund(s) in
which the purchase payments are invested and may change the Eligible Fund(s)
selected at any time. Any one or a combination of the following Eligible Funds
may be selected:
Capital Growth Series Loomis Sayles Balanced Alger Equity Growth
Series Series
Draycott International Loomis Sayles Small Cap
Back Bay Advisors Bond Equity Series Series
Income Series Salomon Brothers U.S. Equity-Income Portfolio
Government Series Overseas Portfolio
Back Bay Advisors Money
Market Series Salomon Brothers
Strategic Bond
Loomis Sayles Avanti Opportunities Series
Growth Series Venture Value Series
Westpeak Value Growth
Series
A Fixed Account option is also available in states that have approved this
option. (See "The Fixed Account" for more information.) Special limits apply
to transfers of Contract Value to and from the Fixed Account.
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 May 1, 1996, 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-43 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 May 1, 1996.
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. THIS PROSPECTUS 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.
A-1
<PAGE>
TABLE OF CONTENTS
OF
THE PROSPECTUS
<TABLE>
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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-22
Dollar Cost Averaging................................................. A-22
Surrenders............................................................ A-22
Systematic Withdrawals................................................ A-23
Loan Provision for Certain Tax Benefited Retirement Plans............. A-23
Disability Benefit Rider.............................................. A-25
Suspension of Payments................................................ A-25
Ownership Rights...................................................... A-25
Requests and Elections................................................ A-26
Ten Day Right to Review............................................... A-26
ADMINISTRATION CHARGES, CONTINGENT DEFERRED SALES CHARGE AND OTHER
DEDUCTIONS............................................................... A-26
Administration Charges................................................ A-26
Mortality and Expense Risk Charge..................................... A-27
Contingent Deferred Sales Charge...................................... A-27
Premium Tax Charges................................................... A-29
Other Expenses........................................................ A-29
Charges Under Contracts Purchased by Exchanging a Fund I or Preference
Contract............................................................. A-29
ANNUITY PAYMENTS.......................................................... A-30
Election of Annuity................................................... A-30
Annuity Options....................................................... A-30
AMOUNT OF VARIABLE ANNUITY PAYMENTS....................................... A-32
Minimum Annuity Payments.............................................. A-32
Proof of Age, Sex and Survival........................................ A-32
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS............................ A-32
FEDERAL INCOME TAX STATUS................................................. A-33
Tax Status of the Company and the Variable Account.................... A-33
Taxation of the Contracts............................................. A-33
Special Rules for Annuities Purchased for Annuitants Under Retirement
Plans Qualifying for Tax Benefited Treatment......................... A-34
Special Rules for Annuities Used by Individuals or with Plans and
Trusts Not Qualifying Under
the Code for Tax Benefited Treatment................................. A-36
Tax Withholding....................................................... A-37
</TABLE>
A-2
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<TABLE>
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VOTING RIGHTS.............................................................. A-37
DISTRIBUTION OF CONTRACTS.................................................. A-37
THE FIXED ACCOUNT.......................................................... A-38
General Description of the Fixed Account............................... A-38
Contract Value and Fixed Account Transactions.......................... A-38
FINANCIAL STATEMENTS....................................................... A-39
INVESTMENT EXPERIENCE INFORMATION.......................................... A-39
APPENDIX A: Consumer Tips.................................................. A-42
</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 applications 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 annuitization, 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 annuitization)--The amount payable by the Company,
prior to annuitization, upon receipt of due proof of death of the Contract
Owner and election of payment. 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--The mutual fund portfolios in which the Variable Account
invests. Eligible Funds currently available consist of twelve 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 in
"Investments of the Variable Account." Two additional Series of the New
England Zenith Fund are Eligible Funds for Contracts issued before May 1,
1995. See "Investments of the Variable Account--New England Zenith Fund."
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
------------------------------------
Contract Value to and from the Fixed Account. See "Contract Value and Fixed
- --------------------------------------------
Account Transactions."
MATURITY DATE--The date on which annuity payments are to commence, as stated
in the application or as subsequently deferred.
A-4
<PAGE>
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.
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
an annuity 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:
Taxation of earnings under variable annuities is generally deferred until
amounts are withdrawn or distributions are made. 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 that 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. Annuity payments generally are made on a monthly basis and
will vary in amount according to the annuity payment option selected and the
investment results of the underlying Eligible Fund(s). (See "Annuity
Payments.")
PURCHASE PAYMENTS:
Under current rules, the minimum initial purchase payment for flexible
payment Contracts issued in connection with tax-benefited retirement plans
other than individual retirement accounts under Section 408(a) of the Code or
individual retirement annuities under Section 408(b) of the Code (both
referred to as "IRAs") is $50. For flexible payment Contracts issued in
connection with IRAs, the Company currently requires a minimum initial
purchase payment of $2,000, although the Company requires a minimum initial
payment of $100 if monthly payments are to be withdrawn from your bank
checking account or TNE Cash Management Account, a service known as the Master
Service Account arrangement ("MSA"). For all other flexible payment Contracts,
the minimum initial purchase payment is $5,000, although the Company requires
a minimum initial payment of $100 if monthly payments are to be made through
MSA. The Company may consent to lower initial purchase payments in certain
situations. Additional purchase payments must be at least $25, although the
Company currently requires minimum additional purchase payments to be at least
$50 if they are made through a group billing
A-5
<PAGE>
arrangement (also known as a "list-bill" arrangement) and $100 per month if
they are made through MSA. The Company reserves the right to limit the amount
of purchase payments in any Contract Year. Except with the consent of the
Company, the minimum purchase payment for a single payment Contract is $2,000
for Contracts issued in connection with IRAs and $5,000 for all other
Contracts, and the maximum purchase payment for a single payment Contract is
$1,000,000. (See "Purchase Payments.")
OWNERSHIP:
The Contracts may be purchased and owned by the Annuitant, the employer, a
trust, a custodian or any entity specified in an eligible 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 Contracts are currently intended for use with the following
retirement plans which offer Federal tax benefits: plans qualified under
Section 401(a) or 403(a) of the Code ("Qualified Plans"), certain annuity
plans under Section 403(b) of the Code ("TSA Plans"), IRAs, simplified
employee pension plans and salary reduction simplified employee pension plans
under Section 408(k) of the Code ("SEPs" and "SARSEPs"), eligible deferred
compensation plans under Section 457 of the Code ("Section 457 Plans"), and
governmental plans within the meaning of Section 414(d) of the Code
("Governmental Plans"). See "Retirement Plans Offering Federal Tax Benefits."
The Contracts are only available on a limited basis to plans qualified under
Section 401(k) of the Code and are no longer being offered to TSA Plans
subject to ERISA. See "Retirement Plans Offering Federal Tax Benefits."
The Company relies on instructions from trustees and custodians who, as
Contract Owners, 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. (See
"Ownership 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 Fund(s) in which you invest future purchase
payments. It is the Company's position that, under current tax law, you may
also transfer Contract Value between Eligible Funds without incurring federal
income tax consequences. (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).
Special limits apply to transfers of Contract Value to and from the Fixed
Account. See "The Fixed Account" for a description of transfers involving that
account.
CHARGES:
No sales charges are deducted from purchase payments before they are
invested in the Contract. 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 Tax Charges.") 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. 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 annuity 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). (See "Ten
Day Right to Review.")
A-6
<PAGE>
PAYMENT ON DEATH PRIOR TO ANNUITIZATION:
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).
(See "Payment on Death Prior to Annuitization.")
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 "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 annuity 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.)
THE MERGER OF THE COMPANY INTO METLIFE:
The Company and MetLife have entered into an agreement to merge, with
MetLife to be the survivor of the merger. Upon consummation of the merger, the
Variable Account will become a separate account of MetLife. The Contracts
issued by the Variable Account will thereafter be deemed to be variable
annuity contracts issued by MetLife, and the insurance obligations under the
Contracts will be backed by the assets of MetLife. (See "The Company" 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) 8% of first $50,000
(as a percentage of total purchase payments).......... 6.5% of excess
Transfer Fee(3)........................................ $ 0
ANNUAL CONTRACT FEE
Administration Contract Charge (per Contract)(4)....... $30
SEPARATE ACCOUNT ANNUAL EXPENSES(5)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Mortality and Expense Risk Charge...................... .95%
Administration Asset Charge............................ .40%
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Total Separate Account Annual Expenses............. 1.35%
</TABLE>
NEW ENGLAND ZENITH FUND
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1995
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER CURRENT EXPENSE CAP)(6)
<TABLE>
<CAPTION>
BACK BAY BACK BAY LOOMIS LOOMIS
ADVISORS ADVISORS WESTPEAK SAYLES SAYLES BACK BAY WESTPEAK
CAPITAL BOND MONEY VALUE AVANTI SMALL ADVISORS STOCK
GROWTH INCOME MARKET GROWTH GROWTH CAP MANAGED INDEX
SERIES SERIES SERIES SERIES SERIES SERIES SERIES(7) SERIES(7)
------- -------- -------- -------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .64% .40% .35% .70% .70% 1.00% .50% .25%
Other Expenses.......... .06% .15% .15% .15% .15% 0% .14% .15%
---- ---- ---- ---- ---- ----- ---- ----
Total Series Operating
Expenses............. .70% .55% .50% .85% .85% 1.00% .64% .40%
</TABLE>
A-7
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OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1995
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER CURRENT EXPENSE DEFERRAL)(8)
<TABLE>
<CAPTION>
SALOMON
SALOMON BROTHERS
LOOMIS BROTHERS STRATEGIC ALGER
SAYLES DRAYCOTT U.S. BOND VENTURE EQUITY
BALANCED INTERNATIONAL GOVERNMENT OPPORTUNITIES VALUE GROWTH
SERIES EQUITY SERIES SERIES SERIES SERIES SERIES
-------- ------------- ---------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Management Fee.......... .70% .90% .55% .65% .75% .75%
Other Expenses.......... .15% .40% .15% .20% .15% .15%
---- ----- ---- ---- ---- ----
Total Series Operating
Expenses............. .85% 1.30% .70% .85% .90% .90%
</TABLE>
EXAMPLE (NOTE: The examples shown below are entirely hypothetical. Although
they are based on the expenses shown in the expense table above, the examples
are not representations of past or future performance or expenses. Actual
performance and/or expenses may be more or less than shown.(9)) For purchase
payments allocated to each of the Series indicated
<TABLE>
<S> <C> <C> <C> <C>
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 a contingent deferred sales charge
would apply at the end of each time period
because you either surrender your Contract or
elect to annuitize under a non-life
contingency option: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Capital Growth ............................. $82.23 $121.89 $163.20 $262.36
Back Bay Advisors Bond Income .............. 80.81 117.58 155.94 247.16
Back Bay Advisors Money Market ............. 80.34 116.14 153.50 242.03
Back Bay Advisors Managed .................. 81.66 120.17 160.30 256.31
Westpeak Stock Index ....................... 79.40 113.26 148.61 231.70
Westpeak Value Growth ...................... 83.64 126.17 170.41 277.31
Loomis Sayles Avanti Growth ................ 83.64 126.17 170.41 277.31
Loomis Sayles Small Cap .................... 85.05 130.43 177.55 292.03
Loomis Sayles Balanced ..................... 83.64 126.17 170.41 277.31
Draycott International Equity .............. 87.87 138.88 191.68 320.73
Salomon Brothers U.S. Government ........... 82.23 121.89 163.20 262.36
Salomon Brothers Strategic Bond
Opportunities ............................. 83.64 126.17 170.41 277.31
Venture Value .............................. 84.11 127.59 172.79 282.24
Alger Equity Growth ........................ 84.11 127.59 172.79 282.24
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 no contingent deferred sales charge
would apply at the end of each time period
because you either do not surrender your
Contract or you elect to annuitize under a
variable life contingency option(10): 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Capital Growth ............................. $22.13 $68.22 $116.86 $250.57
Back Bay Advisors Bond Income .............. 20.62 63.67 109.25 235.20
Back Bay Advisors Money Market ............. 20.12 62.15 106.69 230.01
Back Bay Advisors Managed .................. 21.53 66.40 113.82 244.45
Westpeak Stock Index ....................... 19.12 59.11 101.57 219.56
Westpeak Value Growth ...................... 23.63 72.74 124.41 265.70
Loomis Sayles Avanti Growth ................ 23.63 72.74 124.41 265.70
Loomis Sayles Small Cap .................... 25.13 77.24 131.90 280.59
Loomis Sayles Balanced ..................... 23.63 72.74 124.41 265.70
Draycott International Equity .............. 28.13 86.17 146.71 309.63
Salomon Brothers U.S. Government ........... 22.13 68.22 116.86 250.57
Salomon Brothers Strategic Bond
Opportunities ............................. 23.63 72.74 124.41 265.70
Venture Value .............................. 24.13 74.24 126.91 270.69
Alger Equity Growth ........................ 24.13 74.24 126.91 270.69
</TABLE>
A-8
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VARIABLE INSURANCE PRODUCTS FUND
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1995
(AS A PERCENTAGE OF AVERAGE NET ASSETS)(11)
<TABLE>
<CAPTION>
EQUITY-
INCOME OVERSEAS
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
Management Fee.............................................. .51% .76%
Other Expenses.............................................. .10% .15%
---- ----
Total Portfolio Operating Expenses........................ .61% .91%
</TABLE>
EXAMPLE (NOTE: The examples shown below are entirely hypothetical. Although
they are based on the expenses shown in the expense table above, the examples
are not representations of past or future performance or expenses. Actual
performance and/or expenses may be more or less than shown.(12)) For purchase
payments allocated to each of the Portfolios indicated
<TABLE>
<S> <C> <C> <C> <C>
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 a contingent
deferred sales charge would apply at the end
of each time period because you either
surrender your Contract or elect to annuitize
under a non-life contingency option: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Equity-Income............................... $81.38 $119.30 $158.85 $ 253.27
Overseas.................................... 84.20 127.87 173.27 283.23
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 no contingent deferred
sales charge would apply at the end of each
time period because you either do not
surrender your Contract or you elect to
annuitize under a variable life contingency
option(13): 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Equity-Income............................... $21.23 $ 65.49 $112.30 $ 241.38
Overseas.................................... 24.23 74.54 127.41 271.69
</TABLE>
A-9
<PAGE>
- --------
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 two states and at
annuitization in one state. (See "Premium Tax Charges.")
(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 to 0% by the eleventh 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 .13%, based on an average Contract Value of approximately
$22,521 over the period from January 1, 1995 to December 31, 1995.
(5) These charges are not imposed after annuitization if annuity payments are
made on a fixed basis.
(6) For each of these Series other than the Capital Growth Series, the Total
Series Operating Expenses are based on the amount of such expenses
applied against assets at December 31, 1995, after giving effect to a
voluntary expense cap in effect for 1996. For each of the Back Bay
Advisors Bond Income, Back Bay Advisors Money Market, Back Bay Advisors
Managed, Westpeak Stock Index, Westpeak Value Growth and Loomis Sayles
Avanti Growth Series, TNE Advisers, Inc. ("TNE Advisers"), the Series'
investment adviser, will bear those expenses (other than the management
fee) that exceed 0.15% of average daily net assets. Without this cap or
any other expense reimbursement arrangement, Total Series Operating
Expenses for the Back Bay Advisors Money Market, Westpeak Stock Index,
Westpeak Value Growth and Loomis Sayles Avanti Growth Series for the year
ending December 31, 1995 would have been .51%, .54%, 1.06% and 1.06%,
respectively. For the Loomis Sayles Small Cap Series, Total Series
Operating Expenses take into account a voluntary cap on expenses by TNE
Advisers, 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 for the year ended December 31, 1995 would have been 1.91%.
The expense cap arrangements for these Series are voluntary and may be
terminated at any time. (See attached prospectus of the New England
Zenith Fund for more complete information.)
(7) The Back Bay Advisors Managed Series and Westpeak Stock Index Series are
not Eligible Funds for Contracts purchased after May 1, 1995.
(8) Total Series Operating Expenses for each of these Series are based on the
amount of such expenses applied against assets at December 31, 1995,
after giving effect to a voluntary expense deferral in effect for 1996.
Under the deferral, expenses which exceed a certain limit are paid by TNE
Advisers 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 limit on expenses for each of these Series is: .70% of average
daily net assets for the Salomon Brothers U.S. Government Series; .85% of
average daily net assets for the Salomon Brothers Strategic Bond
Opportunities and Loomis Sayles Balanced Series; .90% of average daily
net assets for the Venture Value and Alger Equity Growth Series; and
1.30% of average daily net assets for the Draycott International Equity
Series. Absent the voluntary expense deferral, Total Series Operating
Expenses for these Series for the year ended December 31, 1995 would have
been: 1.85% for the Loomis Sayles Balanced Series, 3.12% for the Draycott
International Equity Series, 2.90% for Salomon Brothers U.S. Government
Series, 2.44% for Salomon Brothers Strategic Bond Opportunities Series,
1.51% for Venture Value Series and 2.45% for Alger Equity Growth 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.)
(9) In these examples, the average Administration Contract Charge of .13% has
been used. (See (4), above.)
A-10
<PAGE>
(10) 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.")
(11) Total Portfolio Operating Expenses 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, 1995. (See
prospectus of Variable Insurance Products Fund for more complete
information.)
(12) In these examples, the average Administration Contract Charge of .13% has
been used. (See (4), above.)
(13) 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 examples assume that the entire purchase payment was allocated
initially to a single sub-account without any subsequent transfers. 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-11
<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 1/1/94 1/1/95 10/5/88* 1/1/89
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 12/31/94 12/31/95 12/31/88 12/31/89
-------- --------- ---------- ---------- ---------- ---------- ---------- ---------- -------- ---------
<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 9.050 8.298 1.630 1.634
2. Accumulation
Unit Value at
end of
period....... 4.612 5.950 5.666 8.608 7.978 9.050 8.298 11.300 1.634 1.810
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 43,592,961 41,663,900 299,002 4,287,540
<CAPTION>
1/1/90 1/1/91 1/1/92 1/1/93 1/1/94 1/1/95
TO TO TO TO TO TO
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.810 1.930 2.247 2.398 2.664 2.540
2. Accumulation
Unit Value at
end of
period....... 1.930 2.247 2.398 2.664 2.540 3.037
3. Number of
Accumulation
Units
outstanding
at end of
period....... 10,139,527 17,797,335 28,871,719 41,939,487 41,657,182 42,231,987
</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 1/1/94 1/1/95 9/21/88* 1/1/89
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 12/31/94 12/31/95 12/31/88 12/31/89
-------- --------- ---------- ---------- ---------- ---------- ---------- ---------- --------- ---------
<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 1.766 1.811 1.042 1.063
2. Accumulation
Unit Value at
end of
period....... 1.408 1.518 1.620 1.697 1.738 1.766 1.811 1.889 1.063 1.250
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 30,220,356 33,015,018 731,349 9,179,207
<CAPTION>
1/1/90 1/1/91 1/1/92 1/1/93 1/1/94 1/1/95
TO TO TO TO TO TO
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.250 1.272 1.508 1.588 1.733 1.691
2. Accumulation
Unit Value at
end of
period....... 1.272 1.508 1.588 1.733 1.691 2.190
3. Number of
Accumulation
Units
outstanding
at end
of period.... 18,099,540 26,478,398 41,588,546 60,696,659 61,961,278 56,145,463
</TABLE>
- -----
* Date these sub-accounts were first available.
** These sub-accounts are only available through Contracts purchased prior to
May 1, 1995.
--------------
A-12
<PAGE>
<TABLE>
<CAPTION>
ZENITH
ZENITH ZENITH LOOMIS
WESTPEAK WESTPEAK SAYLES
STOCK VALUE AVANTI
INDEX GROWTH GROWTH
SUB- SUB- SUB-
ACCOUNT** ACCOUNT ACCOUNT
--------- --------- ---------
8/1/92* 1/1/93 1/1/94 1/1/95 10/1/93* 1/1/94 1/1/95 10/1/93* 1/1/94 1/1/95
TO TO TO TO TO TO TO TO TO TO
12/31/92 12/31/93 12/31/94 12/31/95 12/31/93 12/31/94 12/31/95 12/31/93 12/31/94 12/31/95
--------- ---------- ---------- ---------- --------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.592 1.644 1.780 1.775 1.105 1.132 1.103 1.125 1.137 1.119
2. Accumulation
Unit Value at
end of
period....... 1.644 1.780 1.775 2.398 1.132 1.103 1.486 1.137 1.119 1.439
3. Number of
Accumulation
Units
outstanding
at end of
period....... 2,583,607 11,017,884 14,282,355 15,539,608 3,359,317 16,092,325 21,168,965 4,515,611 15,572,344 19,773,057
<CAPTION>
EQUITY-
INCOME OVERSEAS
SUB- SUB-
ACCOUNT ACCOUNT
--------- ----------
10/1/93* 1/1/94 1/1/95 10/1/93* 1/1/94 1/1/95
TO TO TO TO TO TO
12/31/93 12/31/94 12/31/95 12/31/93 12/31/94 12/31/95
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.980 1.992 2.104 1.458 1.532 1.538
2. Accumulation
Unit Value at
end of
period....... 1.992 2.104 2.804 1.532 1.538 1.664
3. Number of
Accumulation
Units
outstanding
at end of
period....... 5,649,743 25,852,849 38,010,655 10,878,551 43,034,544 41,273,183
</TABLE>
- ----
* Date these sub-accounts were first available.
** These sub-accounts are only available through Contracts purchased prior to
May 1, 1995.
-----------
<TABLE>
<CAPTION>
ZENITH ZENITH ZENITH ZENITH
LOOMIS LOOMIS DRAYCOTT ALGER ZENITH
SAYLES SAYLES INTERNATIONAL EQUITY VENTURE
SMALL CAP BALANCED EQUITY GROWTH VALUE
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
--------- --------- ------------- --------- ---------
5/2/94* 1/1/95 10/31/94* 1/1/95 10/31/94* 1/1/95 10/31/94* 1/1/95 10/31/94* 1/1/95
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/95 12/31/94 12/31/95 12/31/94 12/31/95 12/31/94 12/31/95 12/31/94 12/31/95
--------- ---------- --------- ---------- ------------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.000 0.959 1.000 0.997 1.000 1.024 1.000 0.956 1.000 0.963
2. Accumulation
Unit Value at
end of
period....... 0.959 1.219 0.997 1.227 1.024 1.073 0.956 1.402 0.963 1.323
3. Number of
Accumulation
Units
outstanding
at end of
period....... 2,988,971 13,533,326 1,736,189 10,987,597 2,916,120 11,062,106 1,857,319 24,163,685 3,499,719 19,608,688
<CAPTION>
ZENITH
ZENITH SALOMON
SALOMON BROTHERS
BROTHERS STRATEGIC
U.S. BOND
GOVERNMENT OPPORTUNITIES
SUB- SUB-
ACCOUNT ACCOUNT
---------- -------------
10/31/94* 10/31/94*
TO 1/1/95 TO TO 1/1/95 TO
12/31/94 12/31/95 12/31/94 12/31/95
---------- --------- ------------- ---------
<S> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.000 1.004 1.000 0.984
2. Accumulation
Unit Value at
end of
period....... 1.004 1.139 0.984 1.159
3. Number of
Accumulation
Units
outstanding
at end of
period....... 910,020 4,495,184 1,124,133 6,132,563
</TABLE>
- ----
*Date these sub-accounts were first available.
**These sub-accounts are only available through Contracts purchased prior to
May 1, 1995.
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 in which it invests. See "Contract Value and
Accumulation Unit Value" for more information.
- -------------------------------------------------------------------------------
A-13
<PAGE>
HOW THE CONTRACT WORKS
PURCHASE PAYMENT DAILY DEDUCTION FROM
CONTRACT VALUE ASSETS
. You can make a
one-time . Payments are . Mortality and
investment or allocated to your expense risk
establish an choice, within charge of 0.95% on
ongoing investment limits, of an annual basis is
program Eligible Funds deducted from the
and/or the Fixed Contract Value
CHARGES FROM PAYMENT Account daily
. The Contract Value . Administration
. Premium tax reflects purchase Asset Charge of
charge may payments, 0.40% on annual
apply investment basis is deducted
experience, from the Contract
. Premium for interest payments, Value daily
disability partial
benefit rider, surrenders, loans . Investment
if elected and Contract advisory fees are
charges deducted from the
ADDITIONAL PAYMENTS Eligible Fund
. The Contract Value Values daily
. Anytime invested in the
(subject to Eligible Fund is ANNUAL CONTRACT FEE
Company not guaranteed
limits) . $30 Administration
Contract Charge is
. Minimum $25 . Earnings are deducted from the
accumulated free Contract Value on
of any current each anniversary
LOANS income taxes (see while Contract is
page A-33) in-force, other
. Are available than under an
to . You may change the annuity payment
participants allocation of option. A pro rata
of certain tax future payments, portion is
qualified within limits, at deducted on full
pension plans any time surrender and at
(see page A- annuitization.
23)
. Prior to
annuitization, you SURRENDER CHARGE
SURRENDERS may transfer
Contract Value . Consists of
. Up to 10% of among accounts, Contingent
Contract Value within limits, up Deferred Sales
can be to twelve times Charge (see page
surrendered per Contract Year A-27)
each year without charge
without (special limits
incurring apply to transfers PREMIUM TAX CHARGE
surrender of Contract Value
charges, to and from the . Where applicable,
subject to any Fixed Account) is deducted from
applicable tax purchase payments
law . Allocations of (currently in
restrictions payments and Kentucky and South
transfers of Dakota) or from
. Surrenders Contract Value Contract Value
will be must comply with when annuity
taxable the rule that payments commence
Contract Value may (currently in
. Prior to age be allocated among North Carolina)
59 1/2 a 10% no more than ten
penalty tax accounts, LIVING BENEFITS
may apply including the
Fixed Account, at . You pay no taxes
DEATH PROCEEDS any time. on your investment
as long as it
. Guaranteed not remains in the
to be less RETIREMENT BENEFITS Contract
than your
total . Lifetime income . Contract may be
contribution options surrendered at any
to your time for its
Contract net . Fixed and/or Contract Value,
of any prior variable payout less any
surrenders and applicable
outstanding options . Premium tax charge Contingent
loans may apply Deferred Sales
Charge (subject to
. Death proceeds any applicable tax
pass to the law restrictions)
beneficiary
without . If the Contract
probate contains the
disability benefit
rider and the
Annuitant becomes
totally disabled,
monthly benefits
will be provided
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, 1995, The New England and its affiliates had more
than $86 billion in assets under management.
The New England and Metropolitan Life Insurance Company ("MetLife") have
entered into an agreement to merge, with MetLife to be the survivor of the
merger. The merger is conditioned upon, among other things, approval by the
policyholders of The New England and MetLife and receipt of certain regulatory
approvals. Upon consummation of the merger, the Variable Account will become a
separate account of MetLife. The Contracts issued by the Variable Account will
thereafter be deemed to be variable annuity contracts issued by MetLife, and
the insurance obligations under the Contracts will be backed by the assets of
MetLife.
THE VARIABLE ACCOUNT
The Variable Account was established by The New England 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(s) 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.") Your Contract Value
may be distributed among no more than 10 accounts (including the Fixed
Account) at any time. The Company reserves the right to add or remove Eligible
Funds from time to time as investments for the Variable Account. See
"Substitution of Investments."
NEW ENGLAND ZENITH FUND: Currently, there are twelve Series of the New England
Zenith Fund that are Eligible Funds under the Contracts offered by this
prospectus. Two additional Series, the Back Bay Advisors Managed Series and
the Westpeak Stock Index Series, described below, are Eligible Funds only for
Contracts issued before May 1, 1995.
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. The Series invests
in a variety of high quality money market instruments.
A-15
<PAGE>
BACK BAY ADVISORS BOND INCOME SERIES
The Back Bay Advisors 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.
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).
LOOMIS SAYLES AVANTI GROWTH SERIES
The Loomis Sayles 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 seeks 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 seeks 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 seeks a high level
of total return consistent with preservation of capital. Assets will be
allocated among U.S. Government obligations, mortgage backed securities,
domestic and foreign corporate debt and sovereign 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 foreign corporate debt and sovereign 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."
VENTURE VALUE SERIES
The Venture Value Series seeks growth of capital. The Series will primarily
invest in domestic common stocks that the Series' subadviser believes have
capital growth potential due to factors such as undervalued assets or earnings
potential,
A-16
<PAGE>
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 seeks 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.
LOOMIS SAYLES SMALL CAP SERIES
The Loomis Sayles Small Cap Series seeks long-term capital growth from
investments in common stocks or their equivalent. The Series invests primarily
in stocks of small capitalization companies with good earnings growth
potential that its subadviser believes are undervalued by the market.
Typically, such companies range in size from $100 million to $500 million in
market capitalization, have better than average growth rates at below average
price/earnings ratios, and have strong balance sheets and cash flow.
BACK BAY ADVISORS MANAGED SERIES
The Back Bay Advisors Managed Series is an Eligible Fund only for Contracts
issued before May 1, 1995. The Series seeks to provide a favorable total
investment return through investment in a diversified portfolio of common
stocks and fixed income securities. These investments will be made in
proportions that the Series' subadviser 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 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.
WESTPEAK STOCK INDEX SERIES
The Westpeak Stock Index Series is an Eligible Fund only for Contracts
issued before May 1, 1995. The 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.
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 Capital Growth Series receives investment advice from Capital Growth
Management Limited Partnership ("CGM"), an affiliate 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 Back Bay Advisors Money Market Series and Back Bay
Advisors Bond Income Series receive investment subadvisory services from Back
Bay Advisors, L.P., an indirect subsidiary of the Company. The Westpeak Value
Growth Series receives investment subadvisory services from Westpeak
Investment Advisors, L.P., an indirect subsidiary of the Company. The Loomis
Sayles Avanti Growth Series, Loomis Sayles Small Cap Series and Loomis Sayles
Balanced Series receive investment subadvisory services from Loomis Sayles &
Company, L.P., an indirect subsidiary of the company. The Draycott
International Equity Series receives investment subadvisory services from
Draycott Partners, Ltd. The Alger Equity Growth Series receives investment
subadvisory services from Fred Alger Management, Inc. The Venture Value Series
receives investment subadvisory services from Davis Selected Advisers, L.P.
The Salomon Brothers U.S. Government Series and Salomon Brothers Strategic
Bond Opportunities Series
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receive investment subadvisory services from 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, 02116.
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 Portfolios 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, 02109.
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
states that have approved the Fixed Account option. 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(s) you select and that, after annuitization, the Company
will make variable annuity payments on a monthly basis, unless you elect
otherwise. 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
Under current rules, the minimum initial purchase payment for flexible
payment Contracts issued in connection with tax-benefited retirement plans
other than individual retirement accounts under Section 408(a) of the Code or
individual retirement annuities under Section 408(b) of the Code (both
referred to as "IRAs") is $50. For flexible payment Contracts issued in
connection with IRAs, the Company currently requires a minimum initial
purchase payment of $2,000, although the Company requires a minimum initial
payment of $100 if monthly payments are to be withdrawn from your bank
checking account or TNE Cash Management Account, a service known as the Master
Service Account arrangement ("MSA"). For all other flexible payment Contracts,
the minimum initial purchase payment is $5,000, although the Company requires
a minimum initial payment of $100 if monthly payments are to be made through
MSA. The Company may consent to lower initial purchase payments in certain
situations. Additional purchase payments must be at least $25, although the
Company currently requires minimum additional purchase payments to be at least
$50 if they are made through a group billing arrangement (also known as a
"list-bill" arrangement) and $100 per month if they are made through MSA. The
Company reserves the right to limit the amount of purchase payments under a
Contract in any Contract Year to three times the anticipated annual
contribution that you specify in your Contract application. The Company
currently limits anticipated annual contributions to $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 $2,000 for Contracts issued in connection with IRAs and $5,000 for
all other Contracts, and the maximum purchase payment for a single payment
contract is $1,000,000. Payments in addition to the required minimum purchase
payment may also be made on a single payment Contract, subject to the minimums
set
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forth above. 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 (including the
initial purchase payment) 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.
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 and reflects fees and expenses borne by the Eligible Fund as well as
charges assessed against sub-account assets. 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 first became available to investors. 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 payment option selected. Prior to
annuitization, the Contract's Death Proceeds are payable to the Beneficiary if
the Company receives due
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proof of death of: (1) the Contract Owner; or (2) the Annuitant, in the case
of a Contract that is not owned in an individual capacity.
The Contract's Death Proceeds at any time are the greater of: (1) the sum of
all purchase payments adjusted for any partial surrenders; or (2) the current
Contract Value. For this purpose, the current Contract Value is the value next
determined after the later of: (1) the date when the Company receives due
proof of death; and (2) the date when the Company receives an election of
continuation of the Contract (if available) or of payment either in one sum or
under an annuity payment option. Death Proceeds will be reduced by the amount
of any outstanding loan plus accrued interest. (See "Loan Provision for
Certain Tax Benefited Retirement Plans.")
OPTIONS FOR DEATH PROCEEDS
The Death Proceeds, reduced by the amount of any outstanding loan plus
accrued interest, will be paid in a lump sum or will be applied to provide one
or more of the fixed or variable methods of payment available. (See "Annuity
Options.") The Contract Owner may elect the form of payment during his or her
lifetime (or during the Annuitant's lifetime, if the Contract is not owned in
an individual capacity). Such an election, particularly in the case of
Contracts issued in connection with retirement plans qualifying for tax
benefited treatment, is 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 Company also intends to make Beneficiary Continuation and Spousal
Continuation provisions available under the Contracts, subject to any
necessary state approvals. Under these provisions, an eligible Beneficiary
would also have the option of continuing the Contract, as further described
below. IF EITHER BENEFICIARY OR SPOUSAL CONTINUATION APPLIES TO A CONTRACT,
AND AN ELIGIBLE BENEFICIARY DOES NOT MAKE AN ELECTION OF CONTINUATION OF THE
CONTRACT OR OF PAYMENT EITHER IN ONE SUM OR UNDER AN ANNUITY PAYMENT OPTION
WITHIN 90 DAYS AFTER THE COMPANY RECEIVES DUE PROOF OF DEATH, THE CONTRACT
WILL BE CONTINUED UNDER THE APPLICABLE CONTINUATION PROVISION.
For non-tax qualified plans, the Code requires that if the Contract Owner
(or, if applicable, the Annuitant) dies prior to annuitization, the Death
Proceeds must be either: (1) distributed within five years after the date of
death; or (2) applied to a payment option payable over the life (or over a
period not exceeding the life expectancy) of the Beneficiary, provided further
that payments under the payment option must begin within one year of the date
of death. There are comparable rules for distributions on the death of the
Annuitant under tax qualified plans; however, if the Beneficiary under a tax
qualified Contract is the Annuitant's spouse, the Code generally allows
distributions to begin by the year in which the Annuitant would have reached
age 70 1/2 (which may be more or less than five years after the Annuitant's
death). See "Taxation of the Contracts--Special Rules for Annuities Purchased
for Annuitants Under Retirement Plans Qualifying for Tax Benefited Treatment--
Distributions from the Contract."
If a Contract Owner (or, if applicable, the Annuitant) dies on or after
annuitization, the remaining interest in the Contract must be distributed at
least as quickly as under the method of distribution in effect on the date of
death.
--BENEFICIARY CONTINUATION
In keeping with the Code's general requirement that Death Proceeds must be
distributed within five years after the death of the Contract Owner (or, if
applicable, the Annuitant), the Beneficiary Continuation provision permits a
Beneficiary to hold his or her share of the Death Proceeds (as determined
after the Death Proceeds have been reduced by the amount of any outstanding
loan plus accrued interest), in the Contract and to continue the Contract for
a period ending five years after the date of death, provided that the
Beneficiary's share of the Death Proceeds meets the Company's published
minimum (currently $5,000 for non-tax qualified Contracts and $2,000 for tax
qualified Contracts). THE CONTRACT CANNOT BE CONTINUED FOR ANY BENEFICIARY
WHOSE SHARE OF THE DEATH PROCEEDS DOES NOT MEET THE MINIMUM.
The Beneficiary has 90 days after the date the Company receives due proof of
death to make an election with respect to his or her share of the Death
Proceeds. The Beneficiary may elect either: (1) payment in a single sum; (2)
application to a
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permitted payment option with payments to begin within one year of the date of
death; or (3) Beneficiary Continuation, provided that the Beneficiary's share
of the Death Proceeds meets the Company's published minimum. IF THE
BENEFICIARY DOES NOT MAKE AN ELECTION WITHIN 90 DAYS AFTER THE COMPANY
RECEIVES DUE PROOF OF DEATH, THE CONTRACT WILL BE CONTINUED UNDER THE
BENEFICIARY CONTINUATION PROVISION FOR A PERIOD ENDING FIVE YEARS AFTER THE
DATE OF DEATH. IF BENEFICIARY CONTINUATION IS NOT AVAILABLE BECAUSE THE
BENEFICIARY'S SHARE OF THE DEATH PROCEEDS DOES NOT MEET THE COMPANY'S
PUBLISHED MINIMUM, HOWEVER, THE DEATH PROCEEDS WILL BE PAID IN A SINGLE SUM
UNLESS THE BENEFICIARY ELECTS AN ANNUITY PAYMENT OPTION WITHIN 90 DAYS AFTER
THE COMPANY RECEIVES DUE PROOF OF DEATH.
If the Contract is continued under the Beneficiary Continuation provision,
the Death Proceeds (reduced by the amount of any outstanding loan plus accrued
interest) become the Contract Value on the date the continuation is effected,
and will be allocated among the accounts in the same proportion as they had
been prior to the continuation. In addition, the Beneficiary will have the
right to make transfers and fully or partially surrender his or her Contract
Value, and no contingent deferred sales charge will apply. The Beneficiary
cannot, however, make additional purchase payments, take loans or exercise the
dollar cost averaging feature. Five years from the date of death of the
Contract Owner (or, if applicable, the Annuitant), the Company will pay the
Beneficiary's Contract Value to the Beneficiary. If the Beneficiary dies
during that five year period, the Beneficiary's death benefit will be the
Beneficiary's Contract Value on the date when the Company receives due proof
of the Beneficiary's death.
--SPECIAL OPTIONS FOR SPOUSES
Under the Spousal Continuation provision, the Contract may be continued
after the death of the Contract Owner (or the Annuitant, in the case of a
Contract that is not owned in an individual capacity) if the Contract
identifies the deceased spouse as the Contract Owner (or, if applicable, the
Annuitant) and the surviving spouse as the primary Beneficiary. In that case,
the surviving spouse can elect one of the following three options within 90
days after the Company receives due proof of death of the Contract Owner (or,
if applicable, the Annuitant). The surviving spouse may elect: (1) to receive
the Death Proceeds (reduced by the amount of any outstanding loan plus accrued
interest) either in one sum or under a permitted payment option; (2) to
continue the Contract under the Beneficiary Continuation provision; or (3) to
continue the Contract under the Spousal Continuation provision with the
surviving spouse as the Contract Owner (or, if applicable, the Annuitant). IF
THE SURVIVING SPOUSE DOES NOT MAKE AN ELECTION WITHIN 90 DAYS AFTER THE
COMPANY RECEIVES DUE PROOF OF DEATH, THE CONTRACT WILL AUTOMATICALLY BE
CONTINUED UNDER THE SPOUSAL CONTINUATION PROVISION, WITH THE RESULT THAT THE
SURVIVING SPOUSE WILL FOREGO THE RIGHT TO RECEIVE THE DEATH PROCEEDS AT THAT
TIME.
A surviving spouse who elects Beneficiary Continuation under a Contract that
is qualified for tax-benefited treatment under the Code must begin to receive
distributions from the Contract by the earlier of: (1) five years from the
date of death; and (2) the year in which the Contract Owner (or, if
applicable, the Annuitant) would have reached age 70 1/2.
Under the Spousal Continuation provision, all terms and conditions of the
Contract that applied prior to the death will continue to apply, regardless of
whether or not the Contract is qualified for tax benefited treatment under the
Code, except that:
a. The surviving spouse will not be permitted to make additional purchase
payments or take loans under Contracts issued in connection with a
retirement plan qualifying for tax benefited treatment under Sections 401
or 403 of the Internal Revenue Code; and
b. The Maturity Date will be reset to a later date, if necessary, based
on the age of the surviving spouse. The Maturity Date cannot be reset to an
earlier date. In the event the Maturity Date is reset, the new Maturity
Date will be the date when the surviving spouse reaches the maximum
maturity age under applicable state law. In most states, the maximum
maturity age is 95, but the maximum maturity age is 85 in New York and
Pennsylvania.
The Spousal Continuation provison will not be available if, at the time of
the Contract Owner's death, the surviving spouse is older than the maximum
maturity age under applicable state law. In addition, the Spousal Continuation
provision will not be available if, at the original Maturity Date, the
surviving spouse would be older than the maximum maturity age under applicable
state law.
If a Contract is subject to a loan at the time the Contract Owner (or, if
applicable, the Annuitant) dies, and the Contract is continued under the
Spousal Continuation provision, the amount of the outstanding loan plus
accrued interest will be
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treated as a taxable distribution from the Contract to the deceased Contract
Owner, and the Contract Value will be reduced accordingly.
TRANSFER PRIVILEGE
It is the position of the Company that you may transfer your Contract Value
among accounts without incurring adverse federal income tax consequences. It
is not clear, however, whether the Internal Revenue Service will limit the
number of transfers between sub-accounts and/or the Fixed Account in an
attempt to limit the Contract Owner's incidents of ownership in the assets
used to support the Contract. See "Taxation of the Contracts--Special Rules
for Annuities Used by Individuals or with Plans and Trusts Not Qualifying
Under the Code for Tax Benefited Treatment." 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, and the
Fixed Account is not available under variable payment options. 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 Funds 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,
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frequency and amount.
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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 same day each month, prior
to annuitization, from any one account of your choice (excluding the Fixed
Account) to one or more of the other accounts (excluding the Fixed Account)
subject to the limitation that Contract Value may not be allocated to more
than 10 accounts, including the Fixed Account, at any time. Currently, 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 not 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. (See Appendix A for more information
about Dollar Cost Averaging.)
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 an annuity payment option. If
you wish to apply the proceeds to a payment option, you must so indicate 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 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 an annuity payment option unless you elect (a) a
variable life income option (payment options 2, 3 or 6 as
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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 Contract
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 an annuity 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 the same
day each 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 Contracts are
only available on a limited basis to plans qualified under Section 401(k) of
the Code and are no longer being offered to TSA Plans subject to ERISA. See
"Retirement Plans Offering Federal Tax Benefits.")
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 AND COMPLIES WITH 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. 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
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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. Under current practice, if a Contract loan installment repayment is not
made, the Company (unless restricted by law) may 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.
The Internal Revenue Service issued proposed regulations in December of
1995, which, if finalized in their present form, would require that if the
repayment terms of a loan are not satisfied after the loan has been made due
to a failure to make a loan repayment as scheduled, including any applicable
grace period, the balance of the loan would be deemed to be distributed. If
the loan is treated as a distribution under Code Section 72(p), the proposed
regulations state that the amount so distributed is to be treated as a taxable
distribution subject to the normal rules of Code Section 72, if the
participant's interest in the plan includes after-tax contributions (or other
tax basis). A deemed distribution would also be a distribution for purposes of
the 10 percent tax in Code Section 72(t) and the excise tax on excess
distributions under Section 4980A.
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However, a deemed distribution under Section 72(p) would not be treated as an
actual distribution for purposes of Code Section 401, the rollover and income
averaging provisions of Section 402 and the distribution restrictions of
Section 403(b).
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. In these circumstances, the amount of the outstanding
Contract loan plus accrued interest generally will be taxed as a taxable
distribution.
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.
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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 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. A Contract Owner should review the provisions of any such
plan.
REQUESTS AND ELECTIONS
Requests for transfers or reallocation of future purchase payments may be
made by telephone or 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. 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. In addition, the Company charges a transfer fee
for certain transfers of Contract Value between accounts, as described below.
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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.
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.")
Prior to annuitization, the Company also imposes a transfer fee of $10 for
each transfer of Contract Value in excess of 12 per Contract Year. The Company
reserves the right to impose a transfer fee of $10 on each transfer in excess
of 4 per Contract Year and to limit the number of transfers.
The Company does not expect the Administration Charges and transfer fee to
exceed the actual costs (including overhead costs) of administering the
Contracts. The Company periodically will monitor the Administration Charges
and transfer fee 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 the assets in each sub-account, attributable to the Contracts. 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.
Under current rules, the Company may consent to issue a Contract with a
Maturity Date less than 10 years after issue, provided that the Contract Owner
is an employer-sponsored pension plan through which Contracts were purchased
prior to May 1, 1994. (See "Election of Annuity" for more information.) 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
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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 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
--------------------------------------------------------------
1 2 3 4 5 6 7 8 9 10 11 AND AFTER
- - - - - - - - - -- ------------
<S> <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 cases where the Company has consented to issue a Contract with less than
10 years to the Maturity Date, the Contingent Deferred Sales Charge will be
calculated as though the year of the Maturity Date is the tenth Contract Year
(and the preceding Contract Year is the ninth year, and so forth) resulting in
a lower percentage charge for each Contract Year shown in the table above.
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 historical
performance results see the tables starting on page II-4 of the Statement of
Additional Information.
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.
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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
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.
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 these 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 1.35%.
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.
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<PAGE>
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. Under current rules, the Company may consent to issue a
Contract with a Maturity Date less than 10 years after issue, provided that
the Contract Owner is an employer-sponsored pension plan through which
Contracts were purchased prior to May 1, 1994. Such Contracts are only
available, however, to Annuitants who are age 50 or over at the time of issue.
In addition, the applications for such Contracts must satisfy the Company's
suitability guidelines and, in the case of Annuitants between the ages of 50
and 58 1/2 at the time of issue, the Maturity Date must be no earlier than the
date at which the Annuitant would reach age 59 1/2. 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 annuity
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 you 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
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 annuity 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 annuity 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 annuity 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 annuity 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 Proceeds under any one of the annuity
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.")
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The Contract provides for the variable annuity 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 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).**
- --------
* 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 VARIABLE ANNUITY
PAYMENT IF THE PAYEE DIES (OR PAYEES DIE) BEFORE THE DUE DATE OF THE SECOND
PAYMENT OR TO RECEIVE ONLY TWO VARIABLE ANNUITY PAYMENTS IF THE PAYEE DIES
(OR PAYEES DIE) BEFORE THE DUE DATE OF THE THIRD PAYMENT, AND SO ON.
Comparable fixed payment options are also available for all of the options
described above except Option 4. In addition, other annuity 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 an
annuity 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 annuity payment 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 annuity
payment option, including an option not involving a life contingency and under
which the Company bears no mortality risk.
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AMOUNT OF VARIABLE ANNUITY PAYMENTS
At the Maturity Date (or any other application of proceeds to a payment
option), the Contract Value (reduced by any applicable charges and by any
outstanding loan plus accrued interest) is applied toward the purchase of
monthly annuity payments. The amount of monthly variable 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 Fixed Account is not available under variable payment
options.)
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 an annuity 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 dollar amount of the annuity
payments will increase. Conversely, if the actual rate is less than the
assumed interest rate, the dollar amount of the 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 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 of the Variable 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 annuity payment options
available, and other matters also 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") (At this time, the Contracts are only available on a
limited basis to plans qualified under Section 401(k). Contracts are not
being offered to 401(k) plans unless such plans already own Contracts on
participants.);
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2. Annuity purchase plans adopted by public school systems and certain
tax-exempt organizations pursuant to Section 403(b) of the Code ("TSA
Plans") which are funded solely by salary reduction contributions and which
are not otherwise subject to ERISA (The Contracts are no longer being
offered through TSA Plans that are subject to ERISA.);
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 and
salary reduction simplified employee pension plans, which are specialized
IRAs that meet the requirements of Section 408(k) of the Code ("SEPs" and
"SARSEPs");
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 not being offered to plans qualified under Section 401(k) of the Code
unless such plans already own Contracts on participants, and are no longer
being offered through TSA Plans that are subject to ERISA. The Company will
not provide all the administrative support appropriate for 401(k) plans or TSA
Plans subject to ERISA. Accordingly, the Contract should NOT be purchased for
use with such plans.
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.
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 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.
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(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. Some retirement plans are subject to distribution and
other requirements that are not incorporated into our Contract administration
procedures. Owners, participants and beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. 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, SEPS, SARSEPS AND GOVERNMENTAL PLANS
Statutory limitations on contributions to Qualified Plans, SEPs, SARSEPs 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.
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.
However, these payments may be subject to FICA (Social Security) taxes.
IRAS, SEPS, SARSEPS
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. An IRA is also the vehicle
that receives contributions to SEPs and SARSEPs. Maximum contributions
(including elective deferrals) to SEPs and SARSEPs are currently limited to
the lesser of 15% of compensation (generally up to $150,000 for 1996) or
$30,000. For more information concerning the contributions to IRAs, SEPs and
SARSEPs, 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.
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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, SEPS, SARSEPS AND GOVERNMENTAL PLANS
Payments made from the Contracts held under a Qualified Plan, TSA Plan, IRA,
SEP, SARSEP 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 (iv) when distribution is made pursuant to a qualified
domestic relations order. In the case of IRAs, SEPs and SARSEPs, 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.
Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under the Contracts or under the terms of
the Qualified Plans in respect of which the Contracts are issued.
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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,
SEPs, SARSEPs 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 income 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
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
(including an amount received as a systematic withdrawal) 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 Prior to Annuitization.") Generally, such
amounts are includible in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full
surrender as described above, or (2) if distributed under an Annuity Option,
they are taxed in the same manner as Annuity payments, as described above.
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A transfer of ownership of a Contract, the designation of an Annuitant,
Payee or other Beneficiary who is not also an Owner, the selection of certain
Maturity Dates, or the exchange of a Contract may result in certain tax
consequences that are not discussed herein. Anyone contemplating any such
designation, transfer, assignment, selection, or exchange should contact a
competent tax adviser with respect to the potential tax effects of such a
transaction.
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 they 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 (for 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 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
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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
be credited with 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 be credited with interest daily.
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.
A-38
<PAGE>
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. See
"Loan Provision for Certain Tax Benefited Retirement Plans." 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.
INVESTMENT EXPERIENCE INFORMATION
The Company may advertise performance by illustrating hypothetical average
annual total returns for each sub-account of the Variable Account, based on
the actual investment experience of the Eligible Funds since their inception
and for the one, five, and ten year periods ending with the date of the
illustration. 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 illustrated. Average annual total return calculations reflect
changes in the net asset values of the Eligible Funds plus the reinvestment of
dividends from net investment income and of distributions from net realized
gains, if any. The calculations also reflect the deduction of the Mortality
and Expense Risk Charge and the Administration Asset Charge. They also reflect
annual deductions for the $30 Administration Contract Charge, and the
deduction of any Contingent Deferred Sales Charge applicable at the end of the
period illustrated. The calculations do not reflect the effect of any premium
tax charge, which applies in certain states, and which would reduce the
results shown. The average annual total return is the annual compounded rate
of return which would produce the surrender value at the end of the period
illustrated. See "Calculation of Performance Data" in the Statement of
Additional Information for average annual total returns as of December 31,
1995 and more information about how they are calculated.
The Company may also illustrate how the average annual total return for a
five year period was determined by illustrating the average annual total
return for each year in the five year period ending with the date of the
illustration. Such illustrations are based on the same assumptions and reflect
the same expenses and deductions described in the preceding paragraph. See
"Calculation of Performance Data" in the Statement of Additional Information
for an example of this type of illustration and more information about how
average annual total returns are calculated.
The Company may illustrate what would have been the growth and value of a
single $10,000 purchase payment for the Contract if it had been invested in
each of the Eligible Funds on the first day of the first month after those
Eligible Funds commenced operations. These illustrations show Contract Value
and surrender value, calculated in the same manner as when they are used to
arrive at average annual total return, as of the end of each year, ending with
the date of the illustration. The surrender values reflect the deduction of
any applicable Contingent Deferred Sales Charge, but do not reflect the
deduction of any premium tax charge. These illustrations may also show annual
percentage changes in Contract Value and surrender value, cumulative returns,
and annual effective rates of return. The difference between the Contract
Value or
A-39
<PAGE>
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 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 is calculated in
the same manner as average annual total return. See "Calculation of
Performance Data" in the Statement of Additional Information for examples of
these illustrations and more information about how they are calculated.
The Variable Account may update the performance history of one or more of
its sub-accounts on a quarterly basis by illustrating the one, five, and ten
year values (or since inception, if less) of a single $10,000 purchase payment
invested at the beginning of such periods using the same method of calculation
described in the preceding paragraph, but using the periods 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 Company may illustrate what would have been the change in value of a
$100 monthly purchase payment plan if the monthly payments had been invested
in each of the Eligible Funds on the first day of each month starting with the
first day of the first month after those Eligible Funds commenced operations.
These illustrations show cumulative payments, Contract Value and surrender
value as of the end of each year, ending with the date of the illustration.
Surrender values reflect the deduction of any applicable Contingent Deferred
Sales Charge. The illustrations also show annual effective rates of return,
which represent the compounded annual rates that the hypothetical purchase
payments would have had to earn in order to produce the Contract Value and
surrender value as of the date of the illustration. See "Calculation of
Performance Data" in the Statement of Additional Information for examples of
these illustrations and more information about how they are calculated.
The Variable Account may 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 in the preceding paragraph
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 deduction of any Contingent
Deferred Sales Charge, premium tax charge, or the annual $30 Administration
Contract Charge, all of which have the effect of reducing historical
performance. 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 one, five, and ten 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, as well as other unmanaged indices of stock and bond performance and
the Consumer Price Index, as described in the Statement of Additional
Information in the Notes to the 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 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
A-40
<PAGE>
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.
A-41
<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 a 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
Toll-free telephone service: --A recording of daily unit values is available
by calling 1-800-333-2501.
--Fund transfers and changes of future purchase
payment allocations can be made by calling
1-800-777-5897.
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:
New England Annuities
P.O. Box 642
Back Bay Annex
Boston, Mass 02116
A-42
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE COMPANY............................................................... II-3
SERVICES TO THE VARIABLE ACCOUNT.......................................... II-3
PERFORMANCE COMPARISONS................................................... II-3
CALCULATION OF PERFORMANCE DATA........................................... II-4
NET INVESTMENT FACTOR..................................................... II-21
ANNUITY PAYMENTS.......................................................... II-21
HYPOTHETICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS...................... II-22
HISTORICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS........................ II-26
EXPERTS................................................................... II-29
LEGAL MATTERS............................................................. II-29
FINANCIAL STATEMENTS...................................................... II-30
APPENDIX A................................................................ II-59
</TABLE>
If you would like to obtain a copy of the Statement of Additional
Information, please complete the request form 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-43
<PAGE>
NEW ENGLAND VARIABLE ACCOUNT
ZENITH ACCUMULATOR
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
(PART B)
MAY 1, 1996
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated May 1, 1996 and
should be read in conjunction therewith. A copy of the Prospectus may be
obtained by writing to New England Securities Corporation ("New England
Securities") 399 Boylston Street, Boston, Massachusetts 02116.
II-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The Company............................................................... II-3
Services Relating to the Variable Account ................................ II-3
Performance Comparisons................................................... II-3
Calculation of Performance Data........................................... II-4
Net Investment Factor..................................................... II-21
Annuity Payments.......................................................... II-21
Hypothetical Illustrations of Annuity Income Payouts...................... II-22
Historical Illustrations of Annuity Income Payouts........................ II-26
Experts................................................................... II-29
Legal Matters............................................................. II-29
Financial Statements...................................................... II-30
Appendix A................................................................ II-59
</TABLE>
II-2
<PAGE>
THE COMPANY
The New England Variable Account (the "Variable Account") is a separate
investment account of New England Mutual Life Insurance Company ("The New
England" or the "Company"). The New England and Metropolitan Life Insurance
Company ("MetLife") have entered into an agreement to merge, with MetLife to
be the survivor of the merger. See "The Company" in the prospectus for more
information.
SERVICES RELATING TO THE VARIABLE ACCOUNT
The New England keeps the books and records of the Variable Account.
Auditors. Coopers & Lybrand, LLP, located at One International Place,
Boston, Massachusetts 02109, conducts an annual audit of the Variable
Account's financial statements.
Principal Underwriter. New England Securities Corporation ("New England
Securities"), a subsidiary of the Company, serves as principal underwriter for
the Variable Account pursuant to a distribution agreement between the Company
and New England Securities. The Contracts are offered continuously and are
sold by the Company's life insurance agents and insurance brokers who are
registered representatives of New England Securities. Contracts also may be
sold by registered representatives of broker-dealers that have selling
agreements with New England Securities. The Company pays commissions, none of
which are retained by New England Securities, to the registered
representatives involved in selling Contracts.
PERFORMANCE COMPARISONS
Articles and releases, developed by the Company, the Eligible Funds (as
defined in the Prospectus) and other parties, about the Account or the
Eligible Funds regarding performance, rankings, statistics and analyses of the
Account's, the individual Eligible Funds' and fund groups' asset levels and
sales volumes, statistics and analyses of industry sales volumes and asset
levels, and other characteristics may appear in publications, including, but
not limited to, those publications listed in Appendix A to this Statement. In
particular, some or all of these publications may publish their own rankings
or performance reviews including the Account or the Eligible Funds. References
to or reprints of such articles may be used in the Company's promotional
literature. Such literature may refer to personnel of the advisers, who have
portfolio management responsibility, and their investment style. The
references may allude to or include excerpts from articles appearing in the
media.
The advertising and sales literature of the Contract and the Account may
refer to historical, current and prospective economic trends and may include
historical and current performance and total returns of investment
alternatives.
In addition, sales literature may be published concerning topics of general
investor interest for the benefit of registered representatives and
prospective Contractholders. These materials may include, but are not limited
to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
II-3
<PAGE>
CALCULATION OF PERFORMANCE DATA
The tables below illustrate 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. The tables do 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 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
commenced operations on May 2, 1994. The other Zenith Fund Series (Loomis
Sayles Balanced, Draycott International Equity, Salomon Brothers U.S.
Government, Salomon Brothers Strategic Bond Opportunities, Venture Value, and
Alger Equity Growth) commenced operations on October 31, 1994.
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, 1995 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 on December 31, 1995 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, 1995. In other words, the average annual total return is the rate which,
when added to 1, raised to a power reflecting the number of years in the
period shown, and multiplied by the initial $1,000 investment, yields the
surrender value at the end of the period. The average annual total returns
assume that no premium tax charge has been deducted.
- --------
* In the illustrations that follow, the calculations are based on the
Accumulation Unit Values for the next business day following December 31,
1995, which was a Sunday.
AVERAGE ANNUAL TOTAL RETURN
For purchase payment allocated to the Capital Growth Series
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 27.45%
5 Years.......................................................... 11.79%
10 Years......................................................... 19.37%
Since Inception.................................................. 20.72%
For purchase payment allocated to the Back Bay Advisors Bond Income Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 10.53%
5 Years.......................................................... 6.09%
10 Years......................................................... 6.17%
Since Inception.................................................. 7.36%
For purchase payment allocated to the Back Bay Advisors Money Market Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... -4.20%
5 Years.......................................................... -.59%
10 Years......................................................... 1.98%
Since Inception.................................................. 2.84%
</TABLE>
II-4
<PAGE>
<TABLE>
For purchase payment allocated to the Westpeak Value Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 25.12%
Since Inception.................................................. 11.00%
For purchase payment allocated to the Loomis Sayles Avanti Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 20.47%
Since Inception.................................................. 9.69%
For purchase payment allocated to the Equity-Income Portfolio
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 24.01%
5 Years.......................................................... 16.73%
Since Inception.................................................. 9.33%
For purchase payment allocated to the Overseas Portfolio
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... .78%
5 Years.......................................................... 3.15%
Since Inception.................................................. 2.89%
For purchase payment allocated to the Loomis Sayles Small Cap Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 18.41%
Since Inception.................................................. 5.91%
For purchase payment allocated to the Loomis Sayles Balanced Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 14.24%
Since Inception.................................................. 11.15%
For purchase payment allocated to the Draycott International Equity Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... -2.83%
Since Inception.................................................. -1.30%
For purchase payment allocated to the Salomon Brothers U.S. Government Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 4.53%
Since Inception.................................................. 3.65%
For purchase payment allocated to the Salomon Brothers Strategic Bond
Opportunities Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 9.02%
Since Inception.................................................. 5.47%
For purchase payment allocated to the Venture Value Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 27.55%
Since Inception.................................................. 18.96%
For purchase payment allocated to the Alger Equity Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 38.07%
Since Inception.................................................. 24.86%
</TABLE>
II-5
<PAGE>
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, 1995 for the sub-
account investing in 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, 1990............ 176.4959 5.665855 $1000.00
December 31, 1991............ 173.0106 8.607664 1489.22 $1408.80 40.88%
December 31, 1992............ 169.2503 7.978068 1350.29 1283.45 13.29%
December 31, 1993............ 165.9352 9.049554 1501.64 1434.07 12.77%
December 31, 1994............ 162.2928 8.236304 1336.69 1282.56 6.42%
December 31, 1995............ 159.6482 11.343893 1811.03 1745.84 11.79%
</TABLE>
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;
November 1, 1986 in the case of the Equity-Income Portfolio; February 1, 1987
in the case of the Overseas Portfolio; May 1, 1993 in the case of the Westpeak
Value Growth and Loomis Sayles Avanti Growth Series; May 2, 1994 in the case
of the Loomis Sayles Small Cap Series; and November 1, 1994 for the other
Zenith Fund Series. The figures shown do not reflect the deduction of any
premium tax charge. During the period when the Contingent Deferred Sales
Charge applies, 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
the applicable Contingent Deferred Sales Charge. 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.
II-6
<PAGE>
$10,000 SINGLE PURCHASE PAYMENT CONTRACT
ISSUED SEPTEMBER 1, 1983
(EQUITY-INCOME: NOVEMBER 1, 1986 AND OVERSEAS: FEBRUARY 1, 1987)
(VALUE GROWTH AND AVANTI GROWTH: MAY 1, 1993)
(LOOMIS SAYLES SMALL CAP: MAY 2, 1994)
(OTHER ZENITH FUND SERIES: NOVEMBER 1, 1994)
INVESTMENT RESULTS
<TABLE>
<CAPTION>
CONTRACT VALUE(1)
-----------------------------------------------------------------------------------------------------------------
SALOMON
BACK BAY BACK BAY LOOMIS LOOMIS SALOMON BROTHERS
ADVISORS ADVISORS SAYLES WESTPEAK SAYLES LOOMIS DRAYCOTT BROTHERS STRATEGIC
CAPITAL BOND MONEY AVANTI VALUE SMALL SAYLES INTERNATIONAL U.S. BOND
GROWTH INCOME MARKET GROWTH GROWTH CAP BALANCED EQUITY GOVERNMENT OPPORTUNITIES
---------- ---------- ---------- ---------- ---------- --------- --------- ------------- ---------- -------------
<S> <C> <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
1987............ 49,085.06 15,242.32 13,122.58
1988............ 44,124.36 16,250.76 13,896.84
1989............ 57,258.18 17,982.33 14,945.51
1990............ 54,167.35 19,151.99 15,916.87
1991............ 82,257.93 22,256.32 16,648.79
1992............ 76,208.53 23,723.05 17,018.60
1993............ 86,412.36 26,326.57 17,259.26 $11,306.07 $11,357.58
1994............ 78,619.20 25,012.44 17,679.32 10,972.12 11,004.10 $9,512.13 $9,956.78 $10,196.29 $10,026.51 $9,817.20
1995............ 108,251.60 29,943.73 18,403.95 14,265.95 14,848.16 12,155.60 12,291.47 10,746.82 11,348.95 11,577.43
<CAPTION>
CONTRACT VALUE(1)
-------------------------------------------
ALGER
VENTURE EQUITY EQUITY-
VALUE GROWTH INCOME OVERSEAS
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
As of December
31:
1983............
1984............
1985............
1986............ $ 9,812.08
1987............ 9,540.79 $ 9,346.53
1988............ 11,446.14 10,073.52
1989............ 13,468.76 12,284.55
1990............ 11,089.00 11,946.44
1991............ 14,349.01 12,697.26
1992............ 16,515.02 11,157.37
1993............ 19,244.53 15,079.90
1994............ $9,657.56 $9,561.73 20,270.09 15,027.29
1995............ 13,279.91 14,212.45 27,147.11 16,425.77
</TABLE>
<TABLE>
<CAPTION>
SURRENDER VALUE(1)
-----------------------------------------------------------------------------------------------------------------
SALOMON
BACK BAY BACK BAY LOOMIS LOOMIS SALOMON BROTHERS
ADVISORS ADVISORS SAYLES WESTPEAK SAYLES LOOMIS DRAYCOTT BROTHERS STRATEGIC
CAPITAL BOND MONEY AVANTI VALUE SMALL SAYLES INTERNATIONAL U.S. BOND
GROWTH INCOME MARKET GROWTH GROWTH CAP BALANCED EQUITY GOVERNMENT OPPORTUNITIES
---------- ---------- ---------- ---------- ---------- --------- --------- ------------- ---------- -------------
<S> <C> <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
1987............ 48,275.06 14,615.41 12,581.52
1988............ 43,314.36 15,656.09 13,386.91
1989............ 56,448.18 17,406.21 14,465.04
1990............ 53,357.35 18,625.16 15,477.39
1991............ 81,447.93 21,845.89 16,339.29
1992............ 75,512.75 23,499.64 16,855.52
1993............ 86,402.36 26,316.57 17,249.26 $10,625.83 $10,674.33
1994............ 78,609.20 25,002.44 17,669.32 10,360.71 10,390.96 $8,936.84 $9,369.60 $9,595.10 $9,435.25 $9,238.19
1995............ 108,241.60 29,933.73 18,393.95 13,540.78 14,094.16 11,480.28 11,623.00 10,161.77 10,731.37 10,947.52
<CAPTION>
SURRENDER VALUE(1)
------------------------------------------
ALGER
VENTURE EQUITY EQUITY-
VALUE GROWTH INCOME OVERSEAS
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
As of December
31:
1983............
1984............
1985............
1986............ $ 9,233.37
1987............ 9,020.86 $ 8,773.87
1988............ 10,874.80 9,503.54
1989............ 12,857.89 11,650.33
1990............ 10,635.10 11,382.59
1991............ 13,827.62 12,156.63
1992............ 15,989.95 10,729.19
1993............ 18,720.06 14,578.25
1994............ $9,087.88 $8,997.66 19,900.32 14,594.80
1995............ 12,558.07 13,440.24 26,897.83 16,103.10
</TABLE>
II-7
<PAGE>
ANNUAL PERCENTAGE CHANGE IN CONTRACT VALUE(1)
<TABLE>
<CAPTION>
BACK BAY BACK BAY LOOMIS
ADVISORS ADVISORS SAYLES WESTPEAK
CAPITAL BOND MONEY AVANTI VALUE
GROWTH INCOME MARKET GROWTH GROWTH
------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
As of December 31:
1983.............................. 4.45% 3.23% 2.68%
1984.............................. -1.99 10.95 8.84
1985.............................. 65.49 16.89 6.54
1986.............................. 92.42 13.07 5.12
1987.............................. 50.58 0.69 4.85
1988.............................. -10.11 6.62 5.90
1989.............................. 29.77 10.66 7.55
1990.............................. -5.40 6.50 6.50
1991.............................. 51.86 16.21 4.60
1992.............................. -7.35 6.59 2.22
1993.............................. 13.39 10.97 1.41 13.06% 13.58%
1994.............................. -9.02 -4.99 2.43 -2.95 -3.11
1995.............................. 37.69 19.72 4.10 30.02 34.93
Cumulative Return.................. 982.52 199.44 84.04 42.66 48.48
Annual Effective Rate of Return.... 21.29 9.29 5.07 14.24 15.97
</TABLE>
<TABLE>
<CAPTION>
SALOMON
LOOMIS SALOMON BROTHERS
SAYLES LOOMIS DRAYCOTT BROTHERS STRATEGIC ALGER
SMALL SAYLES INTERNATIONAL U.S. BOND VENTURE EQUITY
CAP BALANCED EQUITY GOVERNMENT OPPORTUNITIES VALUE GROWTH
------ -------- ------------- ---------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1994................... -4.88% -0.43% 1.96% 0.27% -1.83% -3.42% -4.38%
1995................... 27.79 23.45 5.40 13.19 17.93 37.51 48.64
Cumulative Return....... 21.56 22.91 7.47 13.49 15.77 32.80 42.12
Annual Effective Rate of
Return................. 12.43 19.39 6.38 11.48 13.40 27.59 35.24
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
INTERMEDIATE
GOVERNMENT/
DOW JONES S&P 500 CORPORATE CONSUMER
EQUITY- INDUSTRIAL STOCK BOND PRICE
INCOME OVERSEAS AVERAGE(2) INDEX(3) INDEX(4) INDEX(5)
------- -------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
As of December 31:
1983................... 5.89% 1.71% 4.50% 1.07%
1984................... 1.30 6.22 14.38 3.95
1985................... 33.55 31.64 18.05 3.80
1986................... -1.88% 27.10 18.62 13.12 1.10
1987................... -2.76 -6.53% 5.48 5.21 3.67 4.43
1988................... 19.97 7.78 16.14 16.50 6.78 4.42
1989................... 17.67 21.95 32.19 31.59 12.76 4.65
1990................... -17.67 -2.75 -1.00 -3.12 9.17 6.11
1991................... 29.40 6.28 24.19 30.34 14.63 3.06
1992................... 15.10 -12.13 7.39 7.61 7.17 2.90
1993................... 16.53 35.16 16.97 10.06 8.79 2.75
1994................... 5.33 -0.35 5.06 1.31 -1.95 2.78
1995................... 33.93 9.31 36.83 37.45 15.31 2.54
Cumulative Return....... 171.47 64.26 557.53 471.03 230.41 53.19
Annual Effective Rate of
Return................. 11.51 5.72 16.50 15.17 10.18 3.52
</TABLE>
II-8
<PAGE>
ANNUAL PERCENTAGE CHANGE IN SURRENDER VALUE(1)
<TABLE>
<CAPTION>
BACK BAY BACK BAY LOOMIS
ADVISORS ADVISORS SAYLES WESTPEAK
CAPITAL BOND MONEY AVANTI VALUE
GROWTH INCOME MARKET GROWTH GROWTH
------- --------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
As of December 31:
1983............................ -1.76% -2.90 % -3.43%
1984............................ -1.52 11.50 9.37
1985............................ 66.73 17.46 7.05
1986............................ 97.06 13.61 5.62
1987............................ 51.87 1.17 5.35
1988............................ -10.28 7.12 6.40
1989............................ 30.32 11.18 8.05
1990............................ -5.48 7.00 7.00
1991............................ 52.65 17.29 5.57
1992............................ -7.29 7.57 3.16
1993............................ 14.42 11.99 2.34 6.26% 6.74%
1994............................ -9.02 -4.99 2.44 -2.50 -2.65
1995............................ 37.70 19.72 4.10 30.69 35.64
Cumulative Return................ 982.42 199.34 83.94 35.41 40.94
Annual Effective Rate of Return.. 21.29 9.29 5.06 12.03 13.72
</TABLE>
<TABLE>
<CAPTION>
SALOMON
LOOMIS SALOMON BROTHERS
SAYLES LOOMIS DRAYCOTT BROTHERS STRATEGIC ALGER
SMALL SAYLES INTERNATIONAL U.S. BOND VENTURE EQUITY
CAP BALANCED EQUITY GOVERNMENT OPPORTUNITIES VALUE GROWTH
------ -------- ------------- ---------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1994................... -10.63% -6.30% -4.05% -5.65% -7.62% -9.12% -10.02%
1995................... 28.46 24.05 5.91 13.74 18.50 38.18 49.37
Cumulative Return....... 14.80 16.23 1.62 7.31 9.48 25.58 34.40
Annual Effective Rate of
Return................. 8.64 13.79 1.39 6.25 8.08 21.61 28.91
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
INTERMEDIATE
GOVERNMENT/
DOW JONES S&P 500 CORPORATE CONSUMER
EQUITY- INDUSTRIAL STOCK BOND PRICE
INCOME OVERSEAS AVERAGE(2) INDEX(3) INDEX(4) INDEX(5)
------- -------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
As of December 31:
1983................... 5.89% 1.71% 4.50% 1.07%
1984................... 1.30 6.22 14.38 3.95
1985................... 33.55 31.64 18.05 3.80
1986................... -7.67% 27.10 18.62 13.12 1.10
1987................... -2.30 -12.26% 5.48 5.21 3.67 4.43
1988................... 20.55 8.32 16.14 16.50 6.78 4.42
1989................... 18.24 22.59 32.19 31.59 12.76 4.65
1990................... -17.29 -2.30 -1.00 -3.12 9.17 6.11
1991................... 30.02 6.80 24.19 30.34 14.63 3.06
1992................... 15.64 -11.74 7.39 7.61 7.17 2.90
1993................... 17.07 35.87 16.97 10.06 8.79 2.75
1994................... 6.30 0.11 5.06 1.31 -1.95 2.78
1995................... 35.16 10.33 36.83 37.45 15.31 2.54
Cumulative Return....... 168.98 61.03 557.53 471.03 230.41 53.19
Annual Effective Rate of
Return................. 11.39 5.49 16.50 15.17 10.18 3.52
</TABLE>
II-9
<PAGE>
- ----------
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. 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. The 1993 figures for the
Loomis Sayles Avanti Growth and Westpeak Value Growth Series are from May
1, 1993 through December 31, 1993. The 1994 figure for the Loomis Sayles
Small Cap Series is from May 2, 1994 through December 31, 1994. The 1994
figures for the other Zenith Fund Series are from November 1, 1994 through
December 31, 1994.
(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.
(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, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of changes, over time, in the prices
of goods and services. 1983 figures are from September 1 through December
31, 1983.
II-10
<PAGE>
The chart below illustrates what would have been the change in 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; November 1, 1986 for the Equity-Income Portfolio;
February 1, 1987 for the Overseas Portfolio; May 1, 1993 for the Loomis Sayles
Avanti Growth and Westpeak Value Growth Series; May 2, 1994 for the Loomis
Sayles Small Cap Series; and November 1, 1994 for the Loomis Sayles Balanced,
Draycott International Equity, Salomon Brothers U.S. Government, Salomon
Brothers Strategic Bond Opportunities, Venture Value, and Alger Equity Growth
Series.) The figures shown do not reflect the deduction of any premium tax
charge, and only surrender values, not Contract Values, reflect the deduction
of any applicable Contingent Deferred Sales 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, 1995. In other words, the annual
effective rate of return is the rate which, when added to 1 and raised to a
power equal to the number of months for which the payment is invested divided
by twelve, and multiplied by the payment amount, for all monthly payments,
would yield the Contract Value or surrender value on the ending date of the
illustration.
INVESTMENT RESULTS
SEPTEMBER 1, 1983--DECEMBER 31, 1995 (CAPITAL GROWTH, BOND INCOME AND MONEY
MARKET SERIES)
(MAY 1, 1987--DECEMBER 31, 1995 FOR MANAGED AND STOCK INDEX SERIES)
(NOVEMBER 1, 1986--DECEMBER 31, 1995 FOR EQUITY-INCOME PORTFOLIO AND FEBRUARY
1, 1987--DECEMBER 31, 1995 FOR OVERSEAS PORTFOLIO)
(MAY 2, 1994--DECEMBER 31, 1995 FOR LOOMIS SAYLES SMALL CAP SERIES)
(NOVEMBER 1, 1994--DECEMBER 31, 1995 FOR ALL OTHER ZENITH FUND SERIES)
<TABLE>
<CAPTION>
CUMULATIVE
PAYMENTS*
----------
<S> <C>
As of December
31:
1983............ $ 400
1984............ 1,600
1985............ 2,800
1986............ 4,000
1987............ 5,200
1988............ 6,400
1989............ 7,600
1990............ 8,800
1991............ 10,000
1992............ 11,200
1993............ 12,400
1994............ 13,600
1995............ 14,800
Annual Effective
Rate of Return...
<CAPTION>
CONTRACT VALUE
---------------------------------------------------------------------------------------------------------
BACK BAY BACK BAY LOOMIS SALOMON
ADVISORS ADVISORS SAYLES WESTPEAK LOOMIS LOOMIS DRAYCOTT BROTHERS
CAPITAL BOND MONEY AVANTI VALUE SAYLES SAYLES INTERNATIONAL U.S.
GROWTH INCOME MARKET GROWTH GROWTH SMALL CAP BALANCED EQUITY GOVERNMENT
----------- ----------- ----------- ---------- ---------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ $ 408.55 $ 404.51 $ 406.73
1984............ 1,652.90 1,720.39 1,673.10
1985............ 4,286.49 3,304.00 2,998.89
1986............ 9,785.53 4,981.88 4,361.45
1987............ 15,914.69 6,207.06 5,787.75
1988............ 15,465.64 7,827.20 7,353.43
1989............ 21,368.41 9,909.41 9,143.25
1990............ 21,339.67 11,804.98 10,968.40
1991............ 33,870.55 15,034.52 12,691.67
1992............ 32,583.40 17,270.47 14,180.13
1993............ 38,213.23 20,402.48 15.585.77 $ 847.63 $ 848.54
1994............ 35,878.20 20,560.58 17,181.74 2,000.60 1,997.99 $ 776.30 $ 200.66 $ 203.73 $ 200.74
1995............ 50,780.60 25,920.26 19,112.51 3,920.45 4,068.94 2,339.76 1,549.93 1,444.82 1,474.16
Annual Effective
Rate of Return... 18.54% 8.68% 4.03% 15.40% 18.37% 19.16% 17.46% 5.16% 8.60%
<CAPTION>
CONTRACT VALUE
------------------------------------------------------------
SALOMON
BROTHERS BOND ALGER
STRATEGIC VENTURE EQUITY EQUITY-
OPPORTUNITIES VALUE GROWTH INCOME OVERSEAS
------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
As of December
31:
1983............
1984............
1985............
1986............ $ 195.01
1987............ 1,212.40 $ 1,004.85
1988............ 2,691.26 2,337.75
1989............ 4,391.26 4,204.39
1990............ 4,714.30 5,221.07
1991............ 7,417.83 6,776.73
1992............ 9,828.50 7,031.48
1993............ 12,716.94 10,871.79
1994............ $ 196.45 $ 198.56 $ 196.35 14,615.73 11,984.99
1995............ 1,510.09 1,641.50 1,676.26 20,969.03 14,372.45
Annual Effective
Rate of Return... 12.68% 28.32% 32.46% 13.58% 6.47%
</TABLE>
- -----
* Cumulative payments as of December 31, 1995 would be $3,200 for Loomis
Sayles Avanti Growth and Westpeak Value Growth, $2,000 for Loomis Sayles
Small Cap, $1,400 for each of the other Zenith Fund series, $11,000 for
Equity-Income, and $10,700 for Overseas.
II-11
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE
PAYMENTS*
----------
<S> <C>
As of December
31:
1983............ $ 400
1984............ 1,600
1985............ 2,800
1986............ 4,000
1987............ 5,200
1988............ 6,400
1989............ 7,600
1990............ 8,800
1991............ 10,000
1992............ 11,200
1993............ 12,400
1994............ 13,600
1995............ 14,800
Annual Effective
Rate of Return...
<CAPTION>
SURRENDER VALUE
---------------------------------------------------------------------------------------------------------
BACK BAY BACK BAY LOOMIS
ADVISORS ADVISORS SAYLES WESTPEAK LOOMIS LOOMIS DRAYCOTT SALOMON
CAPITAL BOND MONEY AVANTI VALUE SAYLES SAYLES INTERNATIONAL BROTHERS US
GROWTH INCOME MARKET GROWTH GROWTH SMALL CAP BALANCED EQUITY GOVT
----------- ----------- ----------- ---------- ---------- ---------- ---------- ------------- -----------
<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
1987............ 15,488.69 5,946.08 5,543.75
1988............ 14,943.64 7,535.78 7,079.07
1989............ 20,750.41 9,587.58 8,845.55
1990............ 20,753.77 11,476.52 10,662.52
1991............ 33,251.06 14,754.08 12,453.40
1992............ 32,280.23 17,105.13 14,042.59
1993............ 38,203.23 20,392.48 15,575.77 $ 779.21 $ 780.07
1994............ 35,868.20 20,550.58 17,171.74 1,873.64 1,871.18 $ 712.06 $ 184.22 $ 187.11 $ 184.29
1995............ 50,770.60 25,910.26 19,102.51 3,707.38 3,848.52 2,194.49 1,461.50 1,362.07 1,389.83
Annual Effective
Rate of Return... 18.54% 8.68% 4.03% 11.04% 13.94% 11.03% 7.08% -4.32% -1.16%
<CAPTION>
SURRENDER VALUE
------------------------------------------------------------
SALOMON ALGER
BROTHERS BOND VENTURE EQUITY EQUITY-
OPPORTUNITIES VALUE GROWTH INCOME OVERSEAS
------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
As of December
31:
1983............
1984............
1985............
1986............ $ 178.90
1987............ 1,142.20 $ 920.18
1988............ 2,553.29 2,185.50
1989............ 4,188.87 3,970.13
1990............ 4,518.57 4,959.86
1991............ 7,145.96 6,475.88
1992............ 9,514.06 6,751.84
1993............ 12,368.71 10,502.69
1994............ $ 180.25 $ 182.24 $ 180.15 14,347.74 11,634.64
1995............ 1,423.81 1,548.13 1,581.01 20,775.35 14,086.74
Annual Effective
Rate of Return... 2.73% 17.19% 21.08% 13.39% 6.03%
</TABLE>
- -----
* Cumulative payments as of December 31, 1995 would be $3,200 for Loomis
Sayles Avanti Growth and Westpeak Value Growth, $2,000 for Loomis Sayles
Small Cap, $1,400 for each of the other Zenith Fund series, $11,000 for
Equity-Income, and $10,700 for Overseas.
II-12
<PAGE>
As discussed in the prospectus in the third to the last paragraph of the
section entitled "Investment Experience Information", the Variable Account may
illustrate historical investment performance by showing the percentage change
in unit value and the annual effective rate of return of each sub-account of
the Variable Account for every calendar year since inception of the
corresponding Eligible Funds to the date of the illustration and for the 10, 5
and 1 year periods ending with the date of the illustration. Examples of such
illustrations follow. Such illustrations do not reflect the impact of any
Contingent Deferred Sales Charge or the annual $30 Administration Contract
Charge. The method of calculating the percentage change in unit value is
described in the prospectus under "Investment Experience Information." The
annual effective rate of return in these illustrations is calculated by
dividing the unit value at the end of the period by the unit value at the
beginning of the period, raising this quantity to the power of 1/n (where n is
the number of years in the period), and then subtracting 1.
Set forth on the following pages are illustrations of the percentage change
in unit value information and annual effective rate of return information
discussed above that may appear in the Variable Account's Annual and Semi-
Annual Reports and in other illustrations of historical investment
performance. Such illustrations do not reflect the impact of any Contingent
Deferred Sales Charge or the annual $30 Administration Contract Charge.
ZENITH BACK BAY ADVISORS BOND INCOME SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ---------
<S> <C> <C>
August 26, 1983......................................... 1.000000 --
December 31, 1983....................................... 1.025551 2.6%
December 31, 1984....................................... 1.141109 11.3%
December 31, 1985....................................... 1.337005 17.2%
December 31, 1986....................................... 1.514752 13.3%
December 31, 1987....................................... 1.528314 0.9%
December 31, 1988....................................... 1.632495 6.8%
December 31, 1989....................................... 1.809536 10.8%
December 31, 1990....................................... 1.930406 6.7%
December 31, 1991....................................... 2.246568 16.4%
December 31, 1992....................................... 2.397657 6.7%
December 31, 1993....................................... 2.663825 11.1%
December 31, 1994....................................... 2.533842 -4.9%
December 31, 1995....................................... 3.036590 19.8%
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
------------ ---------
<S> <C> <C>
12 years, 4 months ended December 31, 1995.............. 203.7% 9.4%
10 years ended December 31, 1995........................ 127.1% 8.5%
5 years ended December 31, 1995......................... 57.3% 9.5%
1 year ended December 31, 1995.......................... 19.8% 19.8%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge or the annual $30 Administration Contract Charge.
II-13
<PAGE>
ZENITH CAPITAL GROWTH SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ---------
<S> <C> <C>
August 26, 1983......................................... 1.000000 --
December 31, 1983....................................... 1.083495 8.3%
December 31, 1984....................................... 1.065136 -1.7%
December 31, 1985....................................... 1.766488 65.8%
December 31, 1986....................................... 3.402150 92.6%
December 31, 1987....................................... 5.125504 50.7%
December 31, 1988....................................... 4.610685 -10.0%
December 31, 1989....................................... 5.985984 29.8%
December 31, 1990....................................... 5.665855 -5.3%
December 31, 1991....................................... 8.607664 51.9%
December 31, 1992....................................... 7.978068 -7.3%
December 31, 1993....................................... 9.049554 13.4%
December 31, 1994....................................... 8.236304 -9.0%
December 31, 1995....................................... 11.343893 37.7%
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
------------ ---------
<S> <C> <C>
12 years, 4 months ended December 31, 1995.............. 1,034.4% 21.7%
10 years ended December 31, 1995........................ 542.2% 20.4%
5 years ended December 31, 1995......................... 100.2% 14.9%
1 year ended December 31, 1995.......................... 37.7% 37.7%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge or the annual $30 Administration Contract Charge.
II-14
<PAGE>
ZENITH BACK BAY ADVISORS MONEY MARKET SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
August 26, 1983............................................ 1.000000 --
December 31, 1983.......................................... 1.028062 2.8%
December 31, 1984.......................................... 1.122053 9.1%
December 31, 1985.......................................... 1.198477 6.8%
December 31, 1986.......................................... 1.262853 5.4%
December 31, 1987.......................................... 1.327245 5.1%
December 31, 1988.......................................... 1.408658 6.1%
December 31, 1989.......................................... 1.518070 7.8%
December 31, 1990.......................................... 1.619846 6.7%
December 31, 1991.......................................... 1.697425 4.8%
December 31, 1992.......................................... 1.738206 2.4%
December 31, 1993.......................................... 1.765866 1.6%
December 31, 1994.......................................... 1.811950 2.6%
December 31, 1995.......................................... 1.889333 4.3%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
12 years, 4 months ended December 31, 1995................... 88.9% 5.3%
10 years ended December 31, 1995............................. 57.6% 4.7%
5 years ended December 31, 1995.............................. 16.6% 3.1%
1 year ended December 31, 1995............................... 4.3% 4.3%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge or the annual $30 Administration Contract Charge.
II-15
<PAGE>
ZENITH LOOMIS SAYLES AVANTI GROWTH SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
April 30, 1993............................................. 1.000000 --
December 31, 1993.......................................... 1.137039 13.7%
December 31, 1994.......................................... 1.106525 -2.7%
December 31, 1995.......................................... 1.442289 30.3%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
2 years, 8 months ended December 31, 1995.................... 44.2% 14.7%
1 year ended December 31, 1995............................... 30.3% 30.3%
</TABLE>
ZENITH WESTPEAK VALUE GROWTH SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
April 30, 1993............................................. 1.000000 --
December 31, 1993.......................................... 1.132111 13.2%
December 31, 1994.......................................... 1.099884 -2.8%
December 31, 1995.......................................... 1.487750 35.3%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
2 years, 8 months ended December 31, 1995.................... 48.8% 16.0%
1 year ended December 31, 1995............................... 35.3% 35.3%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge or the annual $30 Administration Contract Charge.
II-16
<PAGE>
ZENITH LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
May 2, 1994................................................ 1 --
December 31, 1994.......................................... 0.951213 -4.9%
December 31, 1995.......................................... 1.219149 28.2%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 8 months ended December 31, 1995..................... 21.9% 12.6%
1 year ended December 31, 1995............................... 28.2% 28.2%
</TABLE>
ZENITH LOOMIS SAYLES BALANCED SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994........................................... 1 --
December 31, 1994.......................................... 0.995641 -0.4%
December 31, 1995.......................................... 1.232234 23.8%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995..................... 23.2% 19.6%
1 year ended December 31, 1995............................... 23.8% 23.8%
</TABLE>
ZENITH DRAYCOTT INTERNATIONAL EQUITY SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994........................................... 1 --
December 31, 1994.......................................... 1.019591 2.0%
December 31, 1995.......................................... 1.077837 5.7%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995..................... 7.8% 6.6%
1 year ended December 31, 1995............................... 5.7% 5.7%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge or the annual $30 Administration Contract Charge.
II-17
<PAGE>
ZENITH SALOMON BROTHERS U.S. GOVERNMENT SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994........................................... 1 --
December 31, 1994.......................................... 1.002614 0.3%
December 31, 1995.......................................... 1.137909 13.5%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995..................... 13.8% 11.7%
1 year ended December 31, 1995............................... 13.5% 13.5%
</TABLE>
ZENITH SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994........................................... 1 --
December 31, 1994.......................................... 0.981684 -1.8%
December 31, 1995.......................................... 1.160788 18.2%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995..................... 16.1% 13.6%
1 year ended December 31, 1995............................... 18.2% 18.2%
</TABLE>
ZENITH VENTURE VALUE SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994........................................... 1 --
December 31, 1994.......................................... 0.965720 -3.4%
December 31, 1995.......................................... 1.331068 37.8%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995..................... 33.1% 27.8%
1 year ended December 31, 1995............................... 37.8% 37.8%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge or the annual $30 Administration Contract Charge.
II-18
<PAGE>
ZENITH ALGER EQUITY GROWTH SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994........................................... 1 --
December 31, 1994.......................................... 0.942751 -5.7%
December 31, 1995.......................................... 1.404202 48.9%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995..................... 40.4% 33.8%
1 year ended December 31, 1995............................... 48.9% 48.9%
</TABLE>
EQUITY-INCOME SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 9, 1986............................................ 1.000000 --
December 31, 1986.......................................... 0.998929 -0.1%
December 31, 1987.......................................... 0.974348 -2.5%
December 31, 1988.......................................... 1.171943 20.3%
December 31, 1989.......................................... 1.382175 17.9%
December 31, 1990.......................................... 1.141297 -17.4%
December 31, 1991.......................................... 1.480005 29.7%
December 31, 1992.......................................... 1.706687 15.3%
December 31, 1993.......................................... 1.991856 16.7%
December 31, 1994.......................................... 2.101033 5.5%
December 31, 1995.......................................... 2.817175 34.1%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
9 years, 2 months ended December 31, 1995.................... 181.7% 11.9%
5 years ended December 31, 1995.............................. 146.8% 19.8%
1 year ended December 31, 1995............................... 34.1% 34.1%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge or the annual $30 Administration Contract Charge.
II-19
<PAGE>
OVERSEAS SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
January 28, 1987........................................... 1.000000 --
December 31, 1987.......................................... 0.934480 -6.6%
December 31, 1988.......................................... 1.010547 8.1%
December 31, 1989.......................................... 1.235990 22.3%
December 31, 1990.......................................... 1.204901 -2.5%
December 31, 1991.......................................... 1.283814 6.5%
December 31, 1992.......................................... 1.130753 -11.9%
December 31, 1993.......................................... 1.532303 35.5%
December 31, 1994.......................................... 1.529809 -0.2%
December 31, 1995.......................................... 1.675625 9.5%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
7 years, 11 months ended December 31, 1995................... 67.6% 6.0%
5 years ended December 31, 1995.............................. 39.1% 6.8%
1 year ended December 31, 1995............................... 9.5% 9.5%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge or the annual $30 Administration Contract Charge.
II-20
<PAGE>
NET INVESTMENT FACTOR
The net investment factor ("Net Investment Factor") for each sub-account is
determined on each day on which the New York Stock Exchange is open for
trading as follows:
(1) The net asset value per share of the Eligible Fund held in the sub-
account determined as of the close of regular trading on the New York Stock
Exchange on a particular day;
(2) Plus the per share amount of any dividend or capital gains
distribution made by the Eligible Fund since the close of regular trading
on the New York Stock Exchange on the preceding trading day;
(3) Is divided by the net asset value per share of the Eligible Fund as
of the close of regular trading on the New York Stock Exchange on the
preceding trading day; and
(4) Finally, the daily charges for the Administration Asset Charge and
Mortality and Expense Risk Charge that have accumulated since the close of
regular trading on the New York Stock Exchange on the preceding trading day
are subtracted. (See "Administration Charges, Contingent Deferred Sales
Charge and Other Deductions" in the prospectus.) On an annual basis, the
total deduction for such charges equals 1.35% of the daily net asset value
of the Variable Account.
ANNUITY PAYMENTS
At annuitization, 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
age of the Payee at annuitization, (ii) the assumed interest rate selected,
(iii) the type of payment option selected, and (iv) the investment performance
of the Eligible Fund selected.
When a variable payment option is selected, the Contract proceeds will be
applied at annuity purchase rates, which vary depending on the particular
option selected and the age of the Payee, to calculate the basic payment level
purchased by the Contract Value. With respect to Contracts issued in New York
or Oregon for use in situations not involving an employer-sponsored plan,
annuity purchase rates used to calculate the basic payment level will also
reflect the sex of the Payee when the payment option involves a life
contingency. The impact of the choice of option and the sex and age of the
Payee on the level of annuity payments is described in the prospectus under
"Amount of Variable Annuity Payments".
The amount of the basic payment level is determined by applying the
applicable annuity purchase rate to the amount applied from each sub-account
to provide the annuity. This basic payment level is converted into annuity
units, the number of which remains constant. Each monthly annuity payment is
in an amount equal to that number of annuity units multiplied by the
applicable annuity unit value for that payment (described below). The
applicable annuity unit value for each sub-account will change from day to day
depending upon the investment performance of the sub-account, which in turn
depends upon the investment performance of the Eligible Fund in which the sub-
account invests.
The selection of an assumed interest rate ("Assumed Interest Rate") will
affect both the basic payment level and the amount by which subsequent
payments increase or decrease. The basic payment level is calculated on the
assumption that the Net Investment Factors applicable to the Contract will be
equivalent on an annual basis to a net investment return at the Assumed
Interest Rate. If this assumption is met following the date any payment is
determined, then the amount of the next payment will be exactly equal to the
amount of the preceding payment. If the actual Net Investment Factors are
equivalent to a net investment return greater than the Assumed Interest Rate,
the next payment will be larger than the preceding one; if the actual Net
Investment Factors are equivalent to a net investment return smaller than the
Assumed Interest Rate, then the next payment will be smaller than the
preceding payment. The definition of the Assumed Interest Rate, and the effect
of the level of the Assumed Interest Rate on the amount of monthly payments is
explained in the prospectus under "Amount of Variable Annuity Payments".
The number of annuity units credited under a variable payment option is
determined as follows:
(1) The proceeds under a deferred Contract, or the net purchase payment
under an immediate Contract (at such time as immediate Contracts may be made
available), are applied at the Company's annuity purchase rates for the
selected
II-21
<PAGE>
Assumed Interest Rate to determine the basic payment level. (The amount of
Contract Value or Death Proceeds applied will be reduced by any applicable
Contingent Deferred Sales Charge, Administration Contract Charge and the
amount of any outstanding loan plus accrued interest.)
(2) The number of annuity units is determined by dividing the amount of the
basic payment level by the applicable annuity unit value(s) next determined
following the date of application of proceeds (in the case of a deferred
Contract) or net purchase payment (in the case of an immediate Contract.)
The dollar amount of the initial payment will be at the basic payment level
(if the initial payment is due more than 14 days after the proceeds are
applied, the Company will add interest to that initial payment.) The dollar
amount of each subsequent payment is determined by multiplying the number of
annuity units by the applicable annuity unit value which is determined at
least 14 days before the payment is due.
The value of an annuity unit for each sub-account depends on the Assumed
Interest Rate and on the Net Investment Factors applicable at the time of
valuation. The initial annuity unit values were set at $1.00 effective on or
about the date on which shares of the corresponding Eligible Funds were first
publicly available. The Net Investment Factor and, therefore, changes in the
value of an annuity unit under a variable payment option, reflect the
deduction of the Mortality and Expense Risk Charge and Administration Asset
Charge. (See "Net Investment Factor" above.)
The annuity unit value for each sub-account is equal to the corresponding
annuity unit value for the sub-account previously determined multiplied by the
applicable Net Investment Factor for that sub-account for the New York Stock
Exchange trading day then ended, and further multiplied by the assumed
interest factor ("Assumed Interest Factor") for each day of the valuation
period. The Assumed Interest Factor represents the daily equivalent of the
Contract's annual Assumed Interest Rate. In the calculation of annuity unit
values, the Assumed Interest Factor has the effect of reducing the Net
Investment Factor by an amount equal to the daily equivalent of the Contract's
Assumed Interest Rate. The result of this adjustment is that if the Net
Investment Factor for a valuation period is greater (when expressed as an
annual net investment return) than the Assumed Interest Rate, the annuity unit
value will increase. If the Net Investment Factor for the period is less (when
expressed as an annual net investment return) than the Assumed Interest Rate,
the annuity unit value will decrease. At an Assumed Interest Rate of 3.5%, the
Assumed Interest Factor is .9999058. Assumed Interest Factors for other
Assumed Interest Rates are computed on a consistent basis.
Illustrations of annuity income payments under various hypothetical and
historical rates appear below. The monthly equivalents of the hypothetical
annual net returns of 0%, 5.73%, 6%, 8% and 10% shown in the tables at pages
II-24 and II-25 are 0%, 0.47%, 0.49%, 0.64% and 0.80%.
HYPOTHETICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS
The following tables have been prepared to show how variable annuity income
payments under the Contract change with investment performance over an
extended period of time. The tables illustrate how monthly annuity income
payments would vary over time if the return on assets in the selected
portfolios were a uniform gross annual rate of 0%, 5.73%, 6%, 8% or 10%. The
values would be different from those shown if the returns averaged 0%, 5.73%,
6%, 8% or 10%, but fluctuated over and under those averages throughout the
years.
The tables reflect the daily charge to the Subaccounts for assuming
mortality and expense risks, which is equivalent to an annual charge of .95%
and the daily administrative charge which is equivalent to an annual charge of
0.40%. The amounts shown in the tables also take into account the portfolios'
management fees and operating expenses which are assumed to be at an annual
rate of .78% of the average daily net assets of the Eligible Funds. Actual
fees and expenses of the portfolios associated with your Contract may be more
or less than .78%, will vary from year to year, and will depend on how you
allocate your Contract Value. See the section in your current prospectus
entitled "Expense Table" for more complete details. The monthly annuity income
payments illustrated are on a pre-tax basis. The federal income tax treatment
of annuity income considerations is generally described in the section of your
current prospectus entitled "Federal Income Tax Status".
II-22
<PAGE>
The tables show both the gross rate and the net rate. The difference between
gross and net rates represents the 1.35% for mortality and expense risk and
administrative charges and the assumed .78% for investment management and
operating expenses. Since these charges are deducted daily from assets, the
difference between the gross and net rate is not exactly 2.14%.
Two tables follow. The first table assumes that 100% of the Contract Value
is allocated to a variable annuity income option, the second assumes that 50%
of the Contract Value is placed under a fixed annuity income option, using the
fixed crediting rate the Company offered on the fixed annuity income option at
the date of the illustration. Both illustrations assume that the final value
of the accumulation account is $100,000 and is applied at age 65 to purchase a
life annuity for a guaranteed period of 10 years certain and life thereafter.
When part of the Contract Value has been allocated to the fixed annuity
income option, the guaranteed minimum annuity income payment resulting from
this allocation is also shown. The illustrated variable annuity income
payments are determined through the use of standard mortality tables and an
assumed interest rate of 3.5% per year. Thus, actual performance greater than
3.5% per year will result in increasing annuity income payments and actual
performance less than 3.5% per year will result in decreasing annuity income
payments. The Company offers alternative Assumed Interest Rates from which you
may select. Fixed annuity income payments remain constant. Initial monthly
annuity income payments under a fixed annuity income payout are generally
higher than initial payments under a variable income payout option.
These tables show the monthly income payments for several hypothetical
constant assumed interest rates. Of course, actual investment performance will
not be constant and may be volatile. Actual monthly income amounts would
differ from those shown if the actual rate of return averaged the rate shown
over a period of years, but also fluctuated above or below those averages for
individual contract years. Upon request, and when you are considering an
annuity income option, the Company will furnish a comparable illustration
based on your individual circumstances.
II-23
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/96
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME PAYMENTS: Monthly
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT FOR AGE 65 BASED ON CURRENT RATES, IF
100% FIXED ANNUITY OPTION SELECTED: $661.00
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 100% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT.
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN
CONSTANT: 3.50%
VARIABLE MONTHLY ANNUITY INCOME PAYMENT ON THE DATE OF THE
ILLUSTRATION: $581.00
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE. NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED.
<TABLE>
<CAPTION>
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN
WITH AN ASSUMED RATE OF RETURN OF:
----------------------------------------------
GROSS 0% 5.73% 6% 8% 10%
PAYMENT CALENDAR ----- ----------------- -------- -------- ----------
YEAR YEAR AGE NET** -2.11% 3.50% 3.77% 5.72% 7.68%
- ------- -------- --- ----- ----------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1996 65 581.00 581.00 581.00 581.00 581.00
2 1997 66 549.52 581.00 582.50 593.49 604.48
3 1998 67 519.75 581.00 583.99 606.24 628.90
4 1999 68 491.59 581.00 585.50 619.27 654.32
5 2000 69 464.96 581.00 587.00 632.58 680.76
10 2005 74 351.93 581.00 594.50 703.54 829.87
15 2010 79 266.38 581.00 602.29 782.46 1,011.65
20 2015 84 201.63 581.00 610.08 870.23 1,233.25
</TABLE>
IT IS EMPHASIZED THAT THE ASSUMED RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE.
ACTUAL PERFORMANCE RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY
THE CONTRACT OWNER AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED.
THE AMOUNT OF THE INCOME PAYMENT WOULD BE DIFFERENT FROM THAT SHOWN IF THE
ACTUAL PERFORMANCE AVERAGED THE ASSUMED RATES OF RETURN SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. SINCE IT IS HIGHLY LIKELY THAT PERFORMANCE WILL
FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME (BASED ON THE VARIABLE ACCOUNT)
WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS
THAT THIS HYPOTHETICAL PERFORMANCE CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
- --------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period, payments
will be continued for the balance of the Certain Period. The cumulative
amount of income payments received under the annuity depends on how long the
Annuitant lives after the Certain Period. An annuity pools the mortality
experience of Annuitants. Annuitants who die earlier, in effect, subsidize
the payments for those who live longer.
** The illustrated Net Assumed Rates of Return reflect the deduction of
average fund expenses and the 1.35% Mortality and Expense Risk and
Administration Asset Charges from the Gross Rates of Return.
II-24
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(50% VARIABLE--50% FIXED PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/96
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME PAY- Monthly
MENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT FOR AGE 65 BASED ON CURRENT RATES, IF
100% FIXED ANNUITY OPTION SELECTED: $661.00
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 50% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT AND 50% TO FIXED PAYOUT.
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN
CONSTANT: 3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE, BUT WILL NEVER
BE LESS THAN: $330.50 THE MONTHLY GUARANTEED PAYMENT OF $330.50 IS BEING
PROVIDED BY THE $50,000 APPLIED UNDER THE FIXED ANNUITY OPTION.
<TABLE>
<CAPTION>
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN
WITH AN ASSUMED RATE OF RETURN OF:
-------------------------------------------------
GROSS 0% 5.73% 6% 8% 10%
PAYMENT CALENDAR ----- --------- --------- --------- --------- ---------
YEAR YEAR AGE NET** -2.11% 3.50% 3.77% 5.72% 7.68%
- ------- -------- --- ----- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1995 65 621.00 621.00 621.00 621.00 621.00
2 1996 66 605.26 621.00 621.75 627.24 632.74
3 1997 67 590.37 621.00 622.50 633.62 644.95
4 1998 68 576.29 621.00 623.25 640.13 657.66
5 1999 69 562.98 621.00 624.00 646.79 670.88
10 2004 74 506.47 621.00 627.80 682.27 745.44
15 2009 79 463.69 621.00 631.64 721.73 836.33
20 2014 84 431.31 621.00 635.54 765.61 947.13
</TABLE>
IT IS EMPHASIZED THAT THE ASSUMED RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE.
ACTUAL PERFORMANCE RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY
THE CONTRACT OWNER AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED.
THE AMOUNT OF THE INCOME PAYMENT WOULD BE DIFFERENT FROM THAT SHOWN IF THE
ACTUAL PERFORMANCE AVERAGED THE ASSUMED RATES OF RETURN SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. SINCE IT IS HIGHLY LIKELY THAT PERFORMANCE WILL
FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME (BASED ON THE VARIABLE ACCOUNT)
WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS
THAT THIS HYPOTHETICAL PERFORMANCE CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
- --------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period, payments
will be continued for the balance of the Certain Period. The cumulative
amount of income payments received under the annuity depends on how long the
Annuitant lives after the Certain Period. An annuity pools the mortality
experience of Annuitants. Annuitants who die earlier, in effect, subsidize
the payments for those who live longer.
** The illustrated Net Assumed Rates of Return apply only to the variable
portion of the monthly payment and reflect the deduction of average fund
expenses and the 1.35% Mortality and Expense Risk and Administration Asset
Charges from the Gross Rate of Return.
II-25
<PAGE>
HISTORICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS
The following tables have been prepared to show how variable annuity income
payments under the Contract change with investment performance over an
extended period of time. In comparison with hypothetical illustrations based
on a uniform annual rate of return, the table uses historical annual returns
to illustrate that monthly annuity income payments vary over time based on
fluctuations in annual returns.
The tables reflect the daily charge to the Subaccounts for assuming
mortality and expense risks, which is equivalent to an annual charge of .95%
and the daily administrative charge which is equivalent to an annual charge of
.40%. The amounts shown in the tables also take into account the actual
portfolios' management fees and operating expenses. Actual fees and expenses
of the portfolios associated with your Contract may be more or less than the
historical fees, will vary from year to year, and will depend on how you
allocate your Contract Value. See the section in your current prospectus
entitled "Expense Table" for more complete details. The monthly annuity income
payments illustrated are on a pre-tax basis. The federal income tax treatment
of annuity income considerations is generally described in the section of your
current prospectus entitled "Federal Income Tax Status".
The following tables assume that 100% of the Contract Value is allocated to
a variable annuity income option, that the final value of the accumulation
account is $100,000 and is applied at age 65 to purchase a life annuity for a
guaranteed period of 10 years certain and life thereafter. The table assumes
that the Annuitant was age 65 in 1983, the year of inception for the Capital
Growth, Bond Income and Money Market portfolios, and that the Annuitant's age
had increased by the time the other portfolios became available. The
historical variable annuity income payments are based on an assumed interest
rate of 3.5% per year. Thus, actual performance greater than 3.5% per year
resulted in an increased annuity income payment and actual performance less
than 3.5% per year resulted in a decreased annuity income payment. The Company
offers alternative Assumed Interest Rates (AIR) from which you may select: 0%
and 5%. An AIR of 0% will result in a lower initial payment than a 3.5% or 5%
AIR. Similarly, an AIR of 5% will result in a higher initial premium than a 0%
or 3.5% AIR.
The table illustrates the amount of the first monthly payment for each year
shown. During each year, the monthly payments would vary to reflect
fluctuations in the actual rate of return on the portfolios. Upon request, and
when you are considering an annuity income option, the Company will furnish a
comparable illustration based on your individual circumstances.
II-26
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/96
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME PAYMENTS: Monthly
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED: FOR AGE 65: $661; FOR AGE 68: $699; FOR AGE 69: $713;
AND FOR AGE 75: $806.
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 100% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT.
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN
CONSTANT: 3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE. NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED.
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN WITH 100% OF THE CONTRACT VALUE
INVESTED IN:
<TABLE>
<CAPTION>
LOOMIS
BACK BAY BACK BAY WESTPEAK SAYLES WESTPEAK FIDELITY
PAYMENT CALENDAR CAPITAL BOND MONEY STOCK BACK BAY AVANTI VALUE EQUITY- FIDELITY
YEAR YEAR AGE GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH INCOME OVERSEAS
- ------- -------- --- --------- --------- -------- --------- -------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1983 65 $ 581.00 $ 581.00 $581.00
2 1984 66 601.36 593.85 589.21
3 1985 67 569.73 637.34 621.82
4 1986 68 912.93 721.50 641.71 $ 626.00
5 1987 69 1,698.78 789.77 653.31 $ 642.00 $ 642.00 615.48 $642.00
6 1988 70 2,472.75 769.90 663.40 545.85 617.60 580.03 581.39
7 1989 71 2,149.71 795.21 679.85 605.30 644.48 678.42 599.19
8 1990 72 2,679.54 851.26 708.06 750.98 731.61 758.88 721.30
9 1991 73 2,465.18 877.02 730.20 686.15 719.75 612.74 676.06
10 1992 74 3,618.49 986.14 739.29 853.12 824.49 767.71 695.98
11 1993 75 3,240.10 1,016.77 731.38 872.44 838.49 $747.00 $ 747.00 855.28 592.22
12 1994 76 3,550.97 1,091.45 717.90 912.49 884.40 829.98 826.38 964.44 775.38
13 1995 77 3,145.80 1,005.44 711.52 879.55 833.68 789.05 778.25 984.32 751.89
14 1996 78 4,139.22 1,161.63 716.92 1,147.99 1,043.17 980.46 1,012.42 1,267.62 786.11
</TABLE>
INVESTMENT PERFORMANCE RESULTS CONTAINED IN THIS REPORT REPRESENT PAST
PERFORMANCE AND ARE NOT INDICATIVE OF FUTURE RETURNS. THE PERFORMANCE RESULTS
OF A CONTRACT MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE CONTRACT OWNER
AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED. SINCE IT IS HIGHLY
LIKELY THAT PERFORMANCE WILL FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME
(BASED ON THE VARIABLE ACCOUNT) WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE
MADE BY THE COMPANY OR THE FUNDS THAT THESE HISTORICAL RETURNS CAN BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
THE PAYMENTS IN THIS ILLUSTRATION ARE NET OF ALL CHARGES: MORTALITY AND
EXPENSE RISK CHARGE AND ADMINISTRATION ASSET CHARGE (1.35%), MANAGEMENT FEES
AND OTHER EXPENSES (These may vary from year to year. The following expenses
are for the year ended December 31, 1995 after giving effect to current
expense caps or deferrals: 0.70% Capital Growth, 0.55% Back Bay Bond Income,
0.50% Back Bay Money Market, 0.40% Westpeak Stock Index, 0.64% Back Bay
Managed, 0.85% Loomis Sayles Avanti Growth, 0.85% Westpeak Value Growth 0.61%
Fidelity Equity-Income, 0.91% Fidelity Overseas, 1.00% Loomis Sayles Small
Cap, 0.85% Loomis Sayles Balanced, 1.30% Draycott International Equity, 0.70%
Salomon US Government, 0.85% Salomon Strategic Bond Opportunities, 0.90%
Venture Value, 0.90% Alger Equity Growth.)
- --------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period, payments
will be continued for the balance of the Certain Period. The cumulative
amount of income payments received under the annuity depends on how long the
Annuitant lives after the Certain Period. An annuity pools the mortality
experience of Annuitants. Annuitants who die earlier, in effect, subsidize
the payments for those who live longer.
II-27
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/96
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME PAYMENTS: Monthly
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED: FOR AGE 76: $823
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 100% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT.
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN
CONSTANT: 3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE. NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED.
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN WITH 100% OF THE CONTRACT VALUE
INVESTED IN:
<TABLE>
<CAPTION>
SALOMON
LOOMIS LOOMIS DRAYCOTT SALOMON STRATEGIC ALGER
PAYMENT CALENDAR SAYLES SAYLES INTERNATIONAL U.S. BOND VENTURE EQUITY
YEAR YEAR AGE SMALL CAP BALANCED EQUITY GOVERNMENT OPPORTUNITIES VALUE GROWTH
- ------- -------- --- --------- -------- ------------- ---------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12 1994 76 $765.00 $765.00 $765.00 $765.00 $765.00 $765.00 $ 765.00
13 1995 77 733.73 758.20 778.70 763.51 748.36 732.39 737.42
14 1996 78 901.19 901.95 788.57 837.15 851.64 972.43 1,045.27
</TABLE>
INVESTMENT PERFORMANCE RESULTS CONTAINED IN THIS REPORT REPRESENT PAST
PERFORMANCE AND ARE NOT INDICATIVE OF FUTURE RETURNS. THE PERFORMANCE RESULTS
OF A CONTRACT MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE CONTRACT OWNER
AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED. SINCE IT IS HIGHLY
LIKELY THAT PERFORMANCE WILL FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME
(BASED ON THE VARIABLE ACCOUNT) WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE
MADE BY THE COMPANY OR THE FUNDS THAT THESE HISTORICAL RETURNS CAN BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
THE PAYMENTS IN THIS ILLUSTRATION ARE NET OF ALL CHARGES: MORTALITY AND
EXPENSE RISK CHARGE AND ADMINISTRATION ASSET CHARGE (1.35%), MANAGEMENT FEES
AND OTHER EXPENSES (These may vary from year to year. The following expenses
are for the year ended December 31, 1995, after giving effect to current
expense caps or deferrals: 0.70% Capital Growth, 0.55% Back Bay Bond Income,
0.50% Back Bay Money Market, 0.40% Westpeak Stock Index, 0.64% Back Bay
Managed, 0.85% Loomis Sayles Avanti Growth, 0.85% Westpeak Value Growth, 0.61%
Fidelity Equity-Income, 0.91% Fidelity Overseas, 1.00% Loomis Sayles Small
Cap, 0.85% Loomis Sayles Balanced, 1.30% Draycott International Equity, 0.70%
Salomon US Government, 0.85% Salomon Strategic Bond Opportunities, 0.90%
Venture Value, 0.90% Alger Equity Growth.)
- --------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period, payments
will be continued for the balance of the Certain Period. The cumulative
amount of income payments received under the annuity depends on how long the
Annuitant lives after the Certain Period. An annuity pools the mortality
experience of Annuitants. Annuitants who die earlier, in effect, subsidize
the payments for those who live longer.
II-28
<PAGE>
EXPERTS
The financial statements of The New England Variable Account and of New
England Mutual Life Insurance Company included in this Statement of Additional
Information have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
LEGAL MATTERS
Legal matters in connection with the Contracts described in this
registration statement have been passed on by Marie C. Swift, Counsel of the
Company. Sutherland, Asbill & Brennan, Washington, D.C., have acted as special
counsel on certain matters relating to the Federal securities laws.
II-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of The New England Variable Account of New England
Mutual Life Insurance Company:
We have audited the accompanying statement of assets and liabilities of The
New England Variable Account (comprised of Capital Growth Sub-Account, Bond
Income Sub-Account, Money Market Sub-Account, Stock Index Sub-Account, Managed
Sub-Account, Avanti Growth Sub-Account, Value Growth Sub-Account, Small Cap
Sub-Account, U.S. Government Sub-Account, Balanced Sub-Account, Equity Growth
Sub-Account, Strategic Equity Opportunities Sub-Account, International Equity
Sub-Account, Venture Value Sub-Account, Strategic Bond Opportunities Sub-
Account, Equity-Income Sub-Account and Overseas Sub-Account) of New England
Mutual Life Insurance Company as of December 31, 1995, and the related
statements of operations and changes in net assets for each of the periods
indicated therein. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the respective
aforementioned sub-accounts comprising The New England Variable Account of New
England Mutual Life Insurance Company as of December 31, 1995, and the results
of their operations and changes in their net assets for each of the periods
indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 10, 1996
II-30
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES COST
--------- -----------
<S> <C> <C> <C>
Assets
Investments in sub-accounts, at value
(Note 1)
New England Zenith Fund:
Capital Growth Series................... 1,258,104 425,752,551 $ 471,310,987
Back Bay Advisors Bond Income Series.... 1,181,542 126,293,603 128,398,149
Back Bay Advisors Money Market Series... 621,555 62,155,541 62,155,541
Westpeak Stock Index Series............. 372,783 30,169,678 37,311,834
Back Bay Advisors Managed Series........ 752,838 100,890,586 123,104,083
Loomis Sayles Avanti Growth Series...... 199,949 24,158,859 28,480,776
Westpeak Value Growth Series............ 222,813 26,327,839 31,485,697
Loomis Sayles Small Cap Series.......... 139,060 14,905,092 16,517,490
Salomon Brothers U. S. Government
Series................................. 464,297 5,001,681 5,125,841
Loomis Sayles Balanced Series........... 1,129,635 12,663,761 13,499,138
Alger Equity Growth Series.............. 2,459,802 31,101,011 33,920,671
Draycott International Equity Series.... 1,105,333 11,342,222 11,882,324
Venture Value Series.................... 1,982,704 22,783,400 25,973,420
Strategic Bond Opportunities Series..... 655,654 6,943,183 7,113,844
Variable Insurance Products Fund:
Equity-Income Portfolio................. 5,537,941 88,467,562 106,716,114
Overseas Portfolio...................... 4,032,795 64,286,754 68,759,147
Total investments in sub-accounts, at value.................... 1,171,755,056
Dividends receivable........................................... 272,325
--------------
Total assets................................................ 1,172,027,381
Liabilities
Due New England Mutual Life Insurance Company (Note 3)........ 1,253,736
--------------
Total liabilities........................................... 1,253,736
--------------
Net Assets.................................................. $1,170,773,645
==============
Net Assets consist of:
Net Assets attributable to variable annuity contracts......... $1,168,447,892
Annuity reserves (Note 1)..................................... 2,325,753
==============
Net Assets.................................................. $1,170,773,645
==============
</TABLE>
See Notes to Financial Statements
II-31
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
MONEY STOCK AVANTI VALUE SMALL U.S.
CAPITAL BOND MARKET INDEX GROWTH GROWTH CAP GOVERNMENT
GROWTH INCOME SUB- SUB- MANAGED SUB- SUB- SUB- SUB-
SUB-ACCOUNT SUB-ACCOUNT ACCOUNT ACCOUNT SUB-ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends........... $ 61,393,666 $ 7,809,464 $3,193,371 $1,097,015 $ 5,402,954 $ 876,570 $1,559,445 $ 731,826 $181,533
Expenses:
Mortality and
expense risk
charge............. 4,145,909 1,120,784 548,042 312,433 1,107,776 224,195 237,064 93,901 25,698
Administrative
charge............. 2,351,488 595,815 289,446 164,795 594,621 119,082 122,857 46,446 11,641
------------ ----------- ---------- ---------- ----------- ---------- ---------- ---------- --------
Total expenses.. 6,497,397 1,716,599 837,488 477,228 1,702,397 343,277 359,921 140,347 37,339
------------ ----------- ---------- ---------- ----------- ---------- ---------- ---------- --------
Net investment
income (loss)...... 54,896,269 6,092,865 2,355,883 619,787 3,700,557 533,293 1,199,524 591,479 144,194
Net realized and
unrealized gain
(loss) on
investments:
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
period........... (13,792,491) (12,611,187) -- (1,015,569) (464,277) 284,338 (102,566) 21,060 (6,498)
End of period..... 45,558,436 2,104,546 -- 7,142,155 22,213,497 4,321,917 5,157,858 1,612,398 124,160
------------ ----------- ---------- ---------- ----------- ---------- ---------- ---------- --------
Net change in
unrealized
appreciation....... 59,350,927 14,715,733 -- 8,157,724 22,677,774 4,037,579 5,260,424 1,591,338 130,658
Realized gain (loss)
on investments..... 10,882,593 (306,084) -- 676,562 2,922,683 811,989 581,379 248,107 37,281
Net realized and
unrealized gain on
investments........ 70,233,520 14,409,649 -- 8,834,286 25,600,457 4,849,568 5,841,803 1,839,445 167,939
------------ ----------- ---------- ---------- ----------- ---------- ---------- ---------- --------
Net increase in net
assets resulting
from operations.... $125,129,789 $20,502,514 $2,355,883 $9,454,073 $29,301,014 $5,382,861 $7,041,327 $2,430,924 $312,133
============ =========== ========== ========== =========== ========== ========== ========== ========
</TABLE>
- -----
* From January 1, 1995 through June 8, 1995 (liquidation date).
See Notes to Financial Statements
II-32
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
EQUITY STRATEGIC* VENTURE STRATEGIC
BALANCED GROWTH EQUITY INTERNATIONAL VALUE BOND
SUB- SUB- OPPORTUNITIES EQUITY SUB- OPPORTUNITIES EQUITY-INCOME OVERSEAS
ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------- ---------- ------------- ------------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends........... $ 483,666 $ 963,904 $ (34) $126,154 $ 567,519 $453,174 $ 4,924,430 $ 513,466
Expenses:
Mortality and
expense risk
charge............. 73,201 167,537 8,848 79,455 144,621 42,222 793,678 636,341
Administrative
charge............. 33,754 79,088 4,577 39,333 70,765 20,316 411,212 353,958
---------- ---------- -------- -------- ---------- -------- ----------- -----------
Total expenses.. 106,955 246,625 13,425 118,788 215,386 62,538 1,204,890 990,299
---------- ---------- -------- -------- ---------- -------- ----------- -----------
Net investment
income (loss)...... 376,711 717,279 (13,459) 7,366 352,133 390,636 3,719,540 (476,833)
Net realized and
unrealized gain
(loss) on
investments:
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
period........... 3,932 20,167 (1,169) 51,678 (826) (24,404) 452,793 (1,159,395)
End of period..... 835,377 2,819,660 -- 540,103 3,190,020 170,662 18,248,552 4,472,393
---------- ---------- -------- -------- ---------- -------- ----------- -----------
Net change in
unrealized
appreciation....... 831,445 2,799,493 1,169 488,425 3,190,846 195,066 17,795,759 5,631,788
Realized gain (loss)
on investments..... 209,127 844,654 48,522 85,869 497,297 143,946 1,497,805 2,755
Net realized and
unrealized gain on
investments........ 1,040,572 3,644,147 49,691 574,294 3,688,143 339,012 19,293,564 5,634,543
---------- ---------- -------- -------- ---------- -------- ----------- -----------
Net increase in net
assets resulting
from operations.... $1,417,283 $4,361,426 $ 36,232 $581,660 $4,040,276 $729,648 $23,013,104 $ 5,157,710
========== ========== ======== ======== ========== ======== =========== ===========
<CAPTION>
TOTAL
-------------
<S> <C>
Income:
Dividends........... $ 90,278,123
Expenses:
Mortality and
expense risk
charge............. 9,761,705
Administrative
charge............. 5,309,194
-------------
Total expenses.. 15,070,899
-------------
Net investment
income (loss)...... 75,207,224
Net realized and
unrealized gain
(loss) on
investments:
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
period........... (28,344,414)
End of period..... 118,511,734
-------------
Net change in
unrealized
appreciation....... 146,856,148
Realized gain (loss)
on investments..... 19,184,485
Net realized and
unrealized gain on
investments........ 166,040,633
-------------
Net increase in net
assets resulting
from operations.... $241,247,857
=============
</TABLE>
- -----
* From January 1, 1995 through June 8, 1995 (liquidation date).
See Notes to Financial Statements
II-33
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
MONEY
CAPITAL BOND MARKET STOCK AVANTI VALUE SMALL
GROWTH INCOME SUB- INDEX MANAGED GROWTH GROWTH CAP
SUB-ACCOUNT SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
------------ ------------ ---------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends........... $ 16,141,838 $ 7,299,850 $1,919,131 $ 657,808 $ 4,168,736 $ 91,335 $ 307,113 $ 4,382
Expenses:
Mortality and
expense risk
charge............. 3,538,106 1,029,517 462,196 214,713 1,007,073 115,339 111,211 2,275
Administrative
charge............. 2,108,245 559,505 248,161 114,776 549,222 56,525 53,569 1,289
------------ ------------ ---------- ----------- ----------- -------- --------- -------
Total expenses.. 5,646,351 1,589,022 710,357 329,489 1,556,295 171,864 164,780 3,564
------------ ------------ ---------- ----------- ----------- -------- --------- -------
Net investment
income (loss)...... 10,495,487 5,710,828 1,208,774 328,319 2,612,441 (80,529) 142,333 818
Net realized and
unrealized gain
(loss) on
investments:
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
period........... 34,524,589 (3,830,338) -- (909,889) 5,782,072 49,197 6,373
End of period..... (13,792,491) (12,611,187) -- (1,015,569) (464,277) 284,338 (102,566) 21,060
------------ ------------ ---------- ----------- ----------- -------- --------- -------
Net change in
unrealized
appreciation
(depreciation)..... (48,317,080) (8,780,849) -- (105,680) (6,246,349) 235,141 (108,939) 21,060
Realized gain (loss)
on investments..... 4,708,714 (2,313,257) -- (229,664) 948,291 (71,748) (51,427) (7,471)
------------ ------------ ---------- ----------- ----------- -------- --------- -------
Net realized and
unrealized gain
(loss) on
investments........ (43,608,366) (11,094,106) -- (335,344) (5,298,058) 163,393 (160,366) 13,589
------------ ------------ ---------- ----------- ----------- -------- --------- -------
Net increase
(decrease) in net
assets resulting
from operations.... $(33,112,879) $ (5,383,278) $1,208,774 $ (7,025) $(2,685,617) $ 82,864 $ (18,033) $14,407
============ ============ ========== =========== =========== ======== ========= =======
<CAPTION>
U.S.
GOVERNMENT
SUB-ACCOUNT*
------------
<S> <C>
Income:
Dividends........... $ 8,440
Expenses:
Mortality and
expense risk
charge............. 339
Administrative
charge............. 161
------------
Total expenses.. 500
------------
Net investment
income (loss)...... 7,940
Net realized and
unrealized gain
(loss) on
investments:
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
period...........
End of period..... (6,498)
------------
Net change in
unrealized
appreciation
(depreciation)..... (6,498)
Realized gain (loss)
on investments..... 178
------------
Net realized and
unrealized gain
(loss) on
investments........ (6,320)
------------
Net increase
(decrease) in net
assets resulting
from operations.... $ 1,620
============
</TABLE>
- -----
* From October 31, 1994 (commencement of operations) through December 31, 1994
See Notes to Financial Statements
II-34
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
STRATEGIC STRATEGIC
EQUITY EQUITY INTERNATIONAL VENTURE BOND EQUITY-
BALANCED GROWTH OPPORTUNITIES EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS
SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------- ------------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends........... $ 7,335 $ 3,419 $ 7,425 $ 8,419 $ 9,908 $ 12,559 $1,644,035 $ 119,103
Expenses:
Mortality and
expense risk
charge............. 1,143 1,098 1,566 2,323 2,485 671 325,252 463,078
Administrative
charge............. 535 567 789 1,335 1,417 320 157,368 232,869
------- ------- ------- ------- ------- -------- ---------- -----------
Total expenses.. 1,678 1,665 2,355 3,658 3,902 991 482,620 695,947
------- ------- ------- ------- ------- -------- ---------- -----------
Net investment
income (loss)...... 5,657 1,754 5,070 4,761 6,006 11,568 1,161,415 (576,844)
Net realized and
unrealized gain
(loss) on
investments:
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
period........... 65,209 444,859
End of period..... 3,932 20,167 (1,169) 51,678 (826) (24,404) 452,793 (1,159,395)
------- ------- ------- ------- ------- -------- ---------- -----------
Net change in
unrealized
appreciation
(depreciation)..... 3,932 20,167 (1,169) 51,678 (826) (24,404) 387,584 (1,604,254)
Realized gain (loss)
on investments..... 630 (1,364) (2,844) 1,613 (2,314) (130) 41,649 630,288
------- ------- ------- ------- ------- -------- ---------- -----------
Net realized and
unrealized gain
(loss) on
investments........ 4,562 18,803 (4,013) 53,291 (3,140) (24,534) 429,233 (973,966)
------- ------- ------- ------- ------- -------- ---------- -----------
Net increase
(decrease) in net
assets resulting
from operations.... $10,219 $20,557 $ 1,057 $58,052 $ 2,866 $(12,966) $1,590,648 $(1,550,810)
======= ======= ======= ======= ======= ======== ========== ===========
<CAPTION>
TOTAL
-------------
<S> <C>
Income:
Dividends........... $ 32,410,836
Expenses:
Mortality and
expense risk
charge............. 7,278,385
Administrative
charge............. 4,086,653
-------------
Total expenses.. 11,365,038
-------------
Net investment
income (loss)...... 21,045,798
Net realized and
unrealized gain
(loss) on
investments:
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
period........... 36,132,072
End of period..... (28,344,414)
-------------
Net change in
unrealized
appreciation
(depreciation)..... (64,476,486)
Realized gain (loss)
on investments..... 3,651,144
-------------
Net realized and
unrealized gain
(loss) on
investments........ (60,825,342)
-------------
Net increase
(decrease) in net
assets resulting
from operations.... $(39,779,544)
=============
</TABLE>
- -----
* From October 31, 1994 (commencement of operations) through December 31,
1994.
See Notes to Financial Statements
II-35
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK AVANTI VALUE SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH CAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
From Investment
Activities:
Net investment
income (loss)... $ 54,896,269 $ 6,092,865 $ 2,355,883 $ 619,787 $ 3,700,557 $ 533,293 $ 1,199,524 $ 591,479
Net realized and
unrealized gain
on investments.. 70,233,520 14,409,649 -- 8,834,286 25,600,457 4,849,568 5,841,803 1,839,445
------------ ------------ ----------- ----------- ------------ ----------- ----------- -----------
Increase in net
assets derived
from investment
activities...... 125,129,789 20,502,514 2,355,883 9,454,073 29,301,014 5,382,861 7,041,327 2,430,924
From Contract-
Related
Transactions:
Net premiums
transferred from
New England
Mutual Life
Insurance
Company......... 42,486,003 14,019,688 28,469,210 3,173,681 7,685,082 5,370,355 5,402,352 4,957,159
Net transfers
(to) from other
sub-accounts.... (27,655,356) (2,304,605) (15,090,128) 996,126 (7,629,638) 1,445,231 2,431,924 6,481,877
Net premiums
transferred from
New England
Mutual Life
Insurance
Company
Surrenders...... (27,943,021) (8,693,504) (7,342,847) (1,540,134) (8,273,166) (1,036,652) (979,455) (221,411)
Annuity
benefits........ (2,930,635) (1,064,852) (766,722) (170,677) (2,900,142) (133,280) (201,808) (15,080)
------------ ------------ ----------- ----------- ------------ ----------- ----------- -----------
Increase
(decrease) in
net assets
derived from
contact-related
transactions.... (16,043,009) 1,956,727 5,269,513 2,458,996 (11,117,864) 5,645,654 6,653,013 11,202,545
------------ ------------ ----------- ----------- ------------ ----------- ----------- -----------
Net increase
(decrease) in
net assets...... 109,086,780 22,459,241 7,625,396 11,913,069 18,183,150 11,028,515 13,694,340 13,633,469
Net assets, at
beginning of the
period.......... 361,715,993 105,800,952 54,742,120 25,357,935 104,786,250 17,422,245 17,757,704 2,866,714
------------ ------------ ----------- ----------- ------------ ----------- ----------- -----------
Net assets, at
end of the
period.......... $470,802,773 $128,260,193 $62,367,516 $37,271,004 $122,969,400 $28,450,760 $31,452,044 $16,500,183
============ ============ =========== =========== ============ =========== =========== ===========
<CAPTION>
U.S.
GOVERNMENT
SUB-ACCOUNT
------------
<S> <C>
From Investment
Activities:
Net investment
income (loss)... $ 144,194
Net realized and
unrealized gain
on investments.. 167,939
------------
Increase in net
assets derived
from investment
activities...... 312,133
From Contract-
Related
Transactions:
Net premiums
transferred from
New England
Mutual Life
Insurance
Company......... 2,992,966
Net transfers
(to) from other
sub-accounts.... 995,071
Net premiums
transferred from
New England
Mutual Life
Insurance
Company
Surrenders...... (78,421)
Annuity
benefits........ (14,694)
------------
Increase
(decrease) in
net assets
derived from
contact-related
transactions.... 3,894,922
------------
Net increase
(decrease) in
net assets...... 4,207,055
Net assets, at
beginning of the
period.......... 913,450
------------
Net assets, at
end of the
period.......... $5,120,505
============
</TABLE>
- -----
* From January 1, 1995 through June 8, 1995 (liquidation date).
See Notes to Financial Statements
II-36
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
STRATEGIC* STRATEGIC
EQUITY EQUITY INTERNATIONAL VENTURE BOND EQUITY-
BALANCED GROWTH OPPORTUNITIES EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------- ------------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
From Investment
Activities:
Net investment
income (loss)... $ 376,711 $ 717,279 $ (13,459) $ 7,366 $ 352,133 $ 390,636 $ 3,719,540 $ (476,833)
Net realized and
unrealized gain
on investments.. 1,040,572 3,644,147 49,691 574,294 3,688,143 339,012 19,293,564 5,634,543
----------- ----------- ----------- ----------- ----------- ---------- ------------ -----------
Increase in net
assets derived
from investment
activities...... 1,417,283 4,361,426 36,232 581,660 4,040,276 729,648 23,013,104 5,157,710
From Contract-
Related
Transactions:
Net premiums
transferred from
New England
Mutual Life
Insurance
Company......... 7,247,051 11,437,079 396,904 4,200,572 7,906,925 3,112,591 20,254,001 9,572,080
Net transfers
(to) from other
sub-accounts.... 3,520,100 16,787,152 (2,257,051) 4,320,379 11,022,083 2,262,193 13,063,570 (8,388,928)
Net premiums
transferred from
New England
Mutual Life
Insurance
Company
Surrenders...... (417,868) (422,550) (20,417) (262,457) (375,358) (104,653) (3,678,451) (3,414,558)
Annuity
benefits........ (12,315) (51,955) (1,972) 44,178 (17,782) 798 (448,238) (423,431)
----------- ----------- ----------- ----------- ----------- ---------- ------------ -----------
Increase
(decrease) in
net assets
derived from
contact-related
transactions.... 10,336,968 27,749,726 (1,882,536) 8,302,672 18,535,868 5,270,929 29,190,882 (2,654,837)
----------- ----------- ----------- ----------- ----------- ---------- ------------ -----------
Net increase
(decrease) in
net assets...... 11,754,251 32,111,152 (1,846,304) 8,884,332 22,576,144 6,000,577 52,203,986 2,502,873
Net assets, at
beginning of the
period.......... 1,730,618 1,775,395 1,846,304 2,985,363 3,369,739 1,105,978 54,396,592 66,182,267
----------- ----------- ----------- ----------- ----------- ---------- ------------ -----------
Net assets, at
end of the
period.......... $13,484,869 $33,886,547 -- $11,869,695 $25,945,883 $7,106,555 $106,600,578 $68,685,140
=========== =========== =========== =========== =========== ========== ============ ===========
<CAPTION>
TOTAL
---------------
<S> <C>
From Investment
Activities:
Net investment
income (loss)... $ 75,207,224
Net realized and
unrealized gain
on investments.. 166,040,633
---------------
Increase in net
assets derived
from investment
activities...... 241,247,857
From Contract-
Related
Transactions:
Net premiums
transferred from
New England
Mutual Life
Insurance
Company......... 178,683,699
Net transfers
(to) from other
sub-accounts....
Net premiums
transferred from
New England
Mutual Life
Insurance
Company
Surrenders...... (64,804,923)
Annuity
benefits........ (9,108,607)
---------------
Increase
(decrease) in
net assets
derived from
contact-related
transactions.... 104,770,169
---------------
Net increase
(decrease) in
net assets...... 346,018,026
Net assets, at
beginning of the
period.......... 824,755,619
---------------
Net assets, at
end of the
period.......... $1,170,773,645
===============
</TABLE>
- -----
* From January 1, 1995 through June 8, 1995 (liquidation date).
See Notes to Financial Statements
II-37
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK AVANTI VALUE SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH CAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
------------ ------------ ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
From Investment
Activities:
Net investment
income (loss)... $ 10,495,487 $ 5,710,828 $ 1,208,774 $ 328,319 $ 2,612,441 $ (80,529) $ 142,333 $ 818
Net realized and
unrealized gain
(loss) on
investments..... (43,608,366) (11,094,106) -- (335,344) (5,298,058) 163,393 (160,366) 13,589
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
Increase
(decrease) in
net assets
derived from
investment
activities...... (33,112,879) (5,383,278) 1,208,774 (7,025) (2,685,617) 82,864 (18,033) 14,407
From Contract-
Related
Transactions:
Net premiums
transferred from
New England
Mutual Life
Insurance
Company......... 69,901,835 22,590,120 31,205,171 7,404,591 19,869,342 8,659,783 9,491,976 588,965
Net transfers
(to) from other
sub-accounts.... (19,536,473) (16,288,777) (15,566,703) (605,559) (11,636,780) 3,876,549 4,732,520 2,276,007
Net premiums
transferred from
New England
Mutual Life
Insurance
Company
Surrenders...... (16,246,066) (5,302,140) (4,840,426) (843,560) (5,193,700) (317,232) (206,676) (12,849)
Other........... (2,102,112) (1,534,426) (1,441,322) (198,787) (777,491) (14,145) (45,203) 184
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
Increase
(decrease) in
net assets
derived from
contact-related
transactions.... 32,017,184 (535,223) 9,356,720 5,756,685 2,261,371 12,204,955 13,972,617 2,852,307
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
Net increase
(decrease) in
net assets...... (1,095,695) (5,918,501) 10,565,494 5,749,660 (424,246) 12,287,819 13,954,584 2,866,714
Net assets, at
beginning of the
period.......... 362,811,688 111,719,453 44,176,626 19,608,275 105,210,496 5,134,426 3,803,120 --
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
Net assets, at
end of the
period.......... $361,715,993 $105,800,952 $54,742,120 $25,357,935 $104,786,250 $17,422,245 $17,757,704 $2,866,714
============ ============ =========== =========== ============ =========== =========== ==========
<CAPTION>
U.S.
GOVERNMENT
SUB-ACCOUNT*
------------
<S> <C>
From Investment
Activities:
Net investment
income (loss)... $ 7,940
Net realized and
unrealized gain
(loss) on
investments..... (6,320)
------------
Increase
(decrease) in
net assets
derived from
investment
activities...... 1,620
From Contract-
Related
Transactions:
Net premiums
transferred from
New England
Mutual Life
Insurance
Company......... 284,470
Net transfers
(to) from other
sub-accounts.... 627,459
Net premiums
transferred from
New England
Mutual Life
Insurance
Company
Surrenders...... (9)
Other........... (90)
------------
Increase
(decrease) in
net assets
derived from
contact-related
transactions.... 911,830
------------
Net increase
(decrease) in
net assets...... 913,450
Net assets, at
beginning of the
period.......... --
------------
Net assets, at
end of the
period.......... $913,450
============
</TABLE>
- -----
* From October 31, 1994 (commencement of operations) through December 31, 1994
See Notes to Financial Statements
II-38
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
STRATEGIC STRATEGIC
EQUITY EQUITY INTERNATIONAL VENTURE BOND EQUITY-
BALANCED GROWTH OPPORTUNITIES EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS
SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------- ------------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
From Investment
Activities:
Net investment
income (loss)... $ 5,657 $ 1,754 $ 5,070 $ 4,761 $ 6,006 $ 11,568 $ 1,161,415 $ (576,844)
Net realized and
unrealized gain
(loss) on
investments..... 4,562 18,803 (4,013) 53,291 (3,140) (24,534) 429,233 (973,966)
---------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
Increase
(decrease) in
net assets
derived from
investment
activities...... 10,219 20,557 1,057 58,052 2,866 (12,966) 1,590,648 (1,550,810)
From Contract-
Related
Transactions:
Net premiums
transferred from
New England
Mutual Life
Insurance
Company......... 568,323 336,290 134,008 398,655 526,637 210,344 25,300,552 28,794,190
Net transfers
(to) from other
sub-accounts.... 1,143,174 1,420,045 1,735,637 2,539,381 2,860,799 908,976 17,528,153 23,985,592
Net premiums
transferred from
New England
Mutual Life
Insurance
Company
Surrenders...... (3,498) (4,061) (24,429) (6,096) (19,501) (957) (1,123,957) (1,564,984)
Other........... 12,400 2,564 31 (4,629) (1,062) 581 (152,279) (150,958)
---------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
Increase
(decrease) in
net assets
derived from
contact-related
transactions.... 1,720,399 1,754,838 1,845,247 2,927,311 3,366,873 1,118,944 41,552,469 51,063,840
---------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
Net increase
(decrease) in
net assets...... 1,730,618 1,775,395 1,846,304 2,985,363 3,369,739 1,105,978 43,143,117 49,513,030
Net assets, at
beginning of the
period.......... -- -- -- -- -- -- 11,253,475 16,669,237
---------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
Net assets, at
end of the
period.......... $1,730,618 $1,775,395 $1,846,304 $2,985,363 $3,369,739 $1,105,978 $54,396,592 $66,182,267
========== ========== ========== ========== ========== ========== =========== ===========
<CAPTION>
TOTAL
-------------
<S> <C>
From Investment
Activities:
Net investment
income (loss)... $ 21,045,798
Net realized and
unrealized gain
(loss) on
investments..... (60,825,342)
-------------
Increase
(decrease) in
net assets
derived from
investment
activities...... (39,779,544)
From Contract-
Related
Transactions:
Net premiums
transferred from
New England
Mutual Life
Insurance
Company......... 226,265,252
Net transfers
(to) from other
sub-accounts....
Net premiums
transferred from
New England
Mutual Life
Insurance
Company
Surrenders...... (35,710,141)
Other........... (6,406,744)
-------------
Increase
(decrease) in
net assets
derived from
contact-related
transactions.... 184,148,367
-------------
Net increase
(decrease) in
net assets...... 144,368,823
Net assets, at
beginning of the
period.......... 680,386,796
-------------
Net assets, at
end of the
period.......... $824,755,619
=============
</TABLE>
- -----
* From October 31, 1994 (commencement of operations) through December 31,
1994.
See Notes to Financial Statements
II-39
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
The New England Variable Account (the "Account") of New England Mutual Life
Insurance Company (the "Company"), was established by the Company's Board of
Directors on July 15, 1987 in accordance with the provisions of Massachusetts
Insurance Law. The Account is registered as a unit investment trust under the
Investment Company Act of 1940 and is a funding vehicle for individual
variable annuity contracts. The portion of the assets of the Account equal to
the reserves and other contract liabilities of the Account may not be charged
with liabilities that may arise out of any other business the Company may
conduct. The Account has sixteen investment sub-accounts as of December 31,
1995, each of which invests in one series of the New England Zenith Fund
("Zenith Fund") or one portfolio of the Variable Insurance Products Fund. A
seventeenth sub-account, the Strategic Equity Opportunities Sub-Account, was
liquidated on June 8, 1995. The Zenith Fund and the Variable Insurance
Products Fund are diversified, open-end management investment companies. The
series of the Zenith Fund and portfolios of the Variable Insurance Products
Fund in which the sub-accounts invest are referred to herein as the "Eligible
Funds."
Security Valuation--The Eligible Funds' shares are valued at the closing net
asset value per share as determined by each fund as of the close of the New
York Stock Exchange (normally 4:00 p.m. Eastern Standard Time) on each day the
Exchange is open for trading.
Security Transactions and Related Investment Income--Security transactions
are accounted for on the trade date (the date the order to buy or sell is
executed) and dividend income is recorded on the ex-dividend date. Realized
gains and losses from sales of investments are computed on the basis of
average cost.
Federal Income Taxes--The operations of the Account are included in the
federal income tax return of the Company, which is taxed as a Life Insurance
Company under the provisions of the Internal Revenue Code (the Code). Under
the current provisions of the Code, the Company does not expect to incur
federal income taxes on the earnings of the Account to the extent the earnings
are credited under the contracts. Based on this, no charge is being made
currently to the Account for federal income taxes. The Company will review
periodically the status of such decision based on changes in the tax law. Such
a charge may be made in future years for any federal income taxes that would
be attributable to the contracts.
Annuity Reserves--Annuity reserves are computed for currently payable
contracts according to the 1983-a Mortality Tables. The assumed interest rate
may be 0%, 3.5%, or 5% as elected by the annuitant and as regulated by laws of
the respective states. Adjustments to annuity reserves are reimbursed to or
from the Company.
Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
II-40
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. The following table shows the aggregate cost of shares purchased and
proceeds from sales of Eligible Funds for the year ended December 31, 1995:
<TABLE>
<CAPTION>
SERIES PURCHASES SALES
------ ------------ -----------
<S> <C> <C>
Capital Growth......................................... $132,371,532 $93,421,666
Back Bay Advisors Bond Income.......................... 36,146,035 28,058,946
Back Bay Advisors Money Market......................... 82,602,312 75,024,065
Westpeak Stock Index................................... 9,362,050 6,270,212
Back Bay Advisors Managed.............................. 19,028,201 26,437,047
Loomis Sayles Avanti Growth............................ 11,982,124 5,792,439
Westpeak Value Growth.................................. 12,409,293 4,543,008
Loomis Sayles Small Cap................................ 15,113,052 3,304,261
Salomon Brothers U.S. Government....................... 5,076,522 1,032,594
Loomis Sayles Balanced................................. 13,359,721 2,624,644
Alger Equity Growth.................................... 34,744,292 6,244,447
CS First Boston Strategic Equity Opportunities*........ 2,239,286 4,137,057
Draycott International Equity.......................... 11,448,249 3,128,461
Venture Value.......................................... 22,653,903 3,741,317
Salomon Brothers Strategic Bond Opportunities.......... 8,026,654 2,358,580
Fidelity Equity-Income................................. 48,807,787 15,818,089
Fidelity Overseas...................................... 32,056,760 35,188,498
</TABLE>
- --------
*From January 1, 1995 through June 8, 1995 (liquidation date).
The Account purchases or redeems shares of the sixteen Eligible Funds based
on the amount of net premiums invested in the account, transfers among the
sub-accounts, policy loans, surrender payments, and annuity payments.
3. Charges deducted by the Company:
Administrative charge--a fixed administrative charge of $30 is deducted from
the contract value on each contract anniversary.
Risk Charge--a charge for mortality/expense risk assumed by the Company
equal to an annual rate of 1.35% of the net assets of the Account is deducted
on a daily basis.
Contingent deferred sales charge--In the event of a partial or full
surrender, a contingent deferred sales charge may be imposed. Charges for
investment advisory fees and other expenses are deducted from the assets of
the Eligible Funds.
II-41
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. The investment adviser and sub-adviser for each of the Eligible Funds are
listed in the chart below. TNE Advisers, Inc., which is a wholly-owned
subsidiary of the Company, and each of the sub-advisers is registered with the
SEC as an investment adviser under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------- -----------
<S> <C> <C>
Capital Growth Capital Growth Management, L.P.* --
Back Bay Advisors Bond
Income TNE Advisers, Inc. Back Bay Advisors, L.P.**
Back Bay Advisors Money
Market TNE Advisers, Inc. Back Bay Advisors, L.P.**
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.**
Back Bay Advisors
Managed TNE Advisers, Inc. Back Bay Advisors, L.P.**
Loomis Sayles Avanti
Growth TNE Advisers, Inc. Loomis Sayles & Company, L.P.**
Westpeak Value Growth TNE Advisers, Inc. Westpeak Investment Advisors, L.P.**
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis Sayles & Company, L.P.**
Salomon Brothers U.S.
Government TNE Advisers, Inc. Salomon Brothers Asset Management, Inc.
Loomis Sayles Balanced TNE Advisers, Inc. Loomis Sayles & Company, L.P.**
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
CS First Boston
Strategic Equity TNE Advisers, Inc. CS First Boston Investment Management
Opportunities*** Corporation
Draycott International
Equity TNE Advisers, Inc. Draycott Partners, Ltd.
Venture Value TNE Advisers, Inc. Davis Selected Advisers, Inc.
Salomon Brothers
Strategic Bond
Opportunities TNE Advisers, Inc. Salomon Brothers Asset Management, Inc.
Fidelity Equity-Income Fidelity Management & Research Co. --
Fidelity Overseas Fidelity Management & Research Co. --
</TABLE>
- --------
* An affiliate of the Company.
** An indirect subsidiary of the Company.
*** Liquidated on June 8, 1995.
II-42
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT OF
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. A summary of units outstanding for variable annuity contracts at December
31, 1995:
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK AVANTI
GROWTH INCOME MARKET INDEX MANAGED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- --------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Units Outstanding
1/1/95............... 43,592,960.7972 41,657,181.7940 30,220,356.4607 14,282,354.7943 61,961,278.3914 15,572,344.3772
Units Purchased....... 4,344,628.4721 5,160,831.7046 15,528,174.4045 2,153,519.0334 4,158,598.3381 5,127,058.5016
Units Redeemed........ (6,273,689.7150) (4,586,026.1147) (12,733,512.4106) (896,265.8603) (9,974,413.6688) (926,345.9724)
Units Outstanding
12/31/95............. 41,663,899.5543 42,231,987.3839 33,015,018.4546 15,539,607.9674 56,145,463.0607 19,773,056.9064
--------------- --------------- ---------------- --------------- --------------- ---------------
Unit Value 12/31/95.. 11.300017 3.037039 1.889065 2.398452 2.190193 1.438865
=============== =============== ================ =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC
VALUE SMALL U.S. EQUITY EQUITY
GROWTH CAP GOVERNMENT BALANCED GROWTH OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
--------------- --------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Units Outstanding
1/1/95................ 16,092,325.4529 2,988,971.4365 910,019.6238 1,736,189.1580 1,857,319.4179 1,941,579.1158
Units Purchased........ 6,012,400.4991 10,781,533.1627 3,678,923.6556 9,655,024.6037 22,693,853.9657 433,001.8751
Units Redeemed......... (935,760.5275) (237,178.9433) (93,758.9199) (403,616.9248) (387,488.5494) (2,374,580.9909)
Units Outstanding
12/31/95.............. 21,168,965.4245 13,533,325.6559 4,495,184.3595 10,987,596.8369 24,163,684.8342 --
--------------- --------------- -------------- --------------- --------------- ---------------
Unit Value 12/31/95... 1.485762 1.219226 1.139109 1.227281 1.402375 0.870989
=============== =============== ============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC
INTERNATIONAL VENTURE BOND EQUITY
EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Units Outstanding
1/1/95................. 2,916,120.2679 3,499,718.5120 1,124,132.6916 25,852,849.2160 43,034,544.4509
Units Purchased......... 8,416,836.1428 16,487,224.7689 5,123,688.5648 13,896,746.7946 6,198,348.6265
Units Redeemed.......... (270,849.9507) (378,255.0322) (115,258.2711) (1,738,940.7944) (7,959,709.8014)
Units Outstanding
12/31/95............... 11,062,106.4600 19,608,688.2487 6,132,562.9853 38,010,655.2162 41,273,183.2760
--------------- --------------- -------------- --------------- ---------------
Unit Value 12/31/95.... 1.073005 1.323183 1.158823 2.804492 1.664159
=============== =============== ============== =============== ===============
</TABLE>
- --------
* From January 1, 1995 through June 8, 1995 (liquidation date).
II-43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Policyholders of New England Mutual Life
Insurance Company:
We have audited the accompanying balance sheets of New England Mutual Life
Insurance Company as of December 31, 1995 and 1994, and the related statements
of operations, surplus, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of New England Mutual Life
Insurance Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with the
accounting practices prescribed or permitted by the Division of Insurance of
The Commonwealth of Massachusetts, which are considered generally accepted
accounting principles for mutual life insurance companies.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 5, 1996
II-44
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
----------- -----------
<S> <C> <C>
Assets
Bonds................................................ $ 6,079,832 $ 6,274,558
Stocks............................................... 121,411 98,730
Unconsolidated subsidiaries.......................... 693,694 484,066
Mortgage loans....................................... 1,629,277 1,997,939
Real estate.......................................... 951,175 1,173,360
Policy loans......................................... 1,350,409 1,341,566
Cash and short-term investments...................... 651,147 264,761
Other invested assets................................ 128,818 151,918
Premiums deferred and uncollected.................... 190,786 217,247
Investment income due and accrued.................... 281,548 252,507
Separate Account assets.............................. 4,091,837 3,388,380
Other assets......................................... 91,203 107,800
----------- -----------
Total Assets....................................... $16,261,137 $15,752,832
=========== ===========
Liabilities
Reserves for life and health insurance and annuities. $ 8,116,567 $ 7,961,229
Policy proceeds and dividends........................ 466,762 417,785
Dividends due to policyholders....................... 209,958 208,206
Premium deposit funds................................ 1,864,970 2,149,863
Other policy liabilities............................. 89,735 135,469
Investment valuation reserves........................ 429,488 361,917
Separate Account liabilities......................... 4,064,094 3,358,062
Other liabilities.................................... 395,570 528,151
----------- -----------
Total Liabilities.................................. 15,637,144 15,120,682
Surplus
Special contingency reserves......................... 50,020 68,401
Surplus notes........................................ 147,615 147,593
Unassigned funds..................................... 426,358 416,156
----------- -----------
Total Surplus...................................... 623,993 632,150
----------- -----------
Total Liabilities and Surplus.................... $16,261,137 $15,752,832
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-45
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Income
Premiums, annuity
considerations and
deposit funds............ $1,679,024 $1,943,013
Considerations for
supplementary contracts
and dividend
accumulations............ 165,777 39,940
Net investment income..... 758,152 720,342
Other income.............. 155,211 141,488
------------ ------------
Total................... 2,758,164 2,844,783
Benefits and Expenses
Benefit payments (other
than dividends)............ 2,186,318 2,055,714
Changes to reserves,
deposit funds and other
policy liabilities....... (151,115) (181,714)
Insurance expenses and
taxes (other than federal
income and capital gains
taxes)................... 404,385 429,225
Net transfers to Separate
Accounts................. (64,297) 230,170
------------ ------------
Total benefits and
expenses before
dividends to
policyholders.......... 2,375,291 2,533,395
------------ ------------
Net gain from operations
before dividends to
policyholders and federal
income taxes............... 382,873 311,388
Dividends to
policyholders............ 211,444 207,636
------------ ------------
Net gain from operations
before federal income
taxes...................... 171,429 103,752
Federal income taxes
(excluding tax on capital
gains)................... 12,873 15,725
------------ ------------
Net gain from operations.... 158,556 88,027
Net realized capital
(loss)................... (98,711) (45,761)
------------ ------------
Net Income.................. $ 59,845 $ 42,266
============ ============
<CAPTION>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF SURPLUS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Surplus--beginning of year.. $ 632,150 $ 400,908
Net Income.................. 59,845 42,266
Surplus notes............... 22 147,593
Other changes to surplus.... (68,024) 41,383
------------ ------------
Surplus--end of year........ $ 623,993 $ 632,150
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-46
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
1995 1994
----------- -----------
<S> <C> <C>
From Operating Activities
Premiums.................. $ 1,727,665 $ 1,920,516
Net investment income..... 765,781 728,010
Benefits.................. (2,220,990) (2,040,816)
Net transfers to Separate
Account.................. 45,275 (226,900)
Expenses and taxes........ (467,797) (445,181)
Policyholder dividends.... (213,599) (220,970)
Net (increase) in policy
loans.................... (8,843) (20,252)
Other income and disburse-
ments, net............... 380,498 (184,806)
----------- -----------
Net Cash Flow from
Operating Activities... 7,990 (490,399)
----------- -----------
From Investing Activities
Proceeds from investments
sold, matured, or repaid. 3,654,321 3,220,146
Cost of investments ac-
quired................... (3,178,367) (3,307,124)
----------- -----------
Net Cash Flow from
Investing Activities... 475,954 (86,978)
----------- -----------
From Financing Activities
Issuance of Surplus Notes. -- 147,593
Issuance of Floating Rate
Notes Payable............ -- 125,000
Issuance of 6% Demand Note
Payable.................. 26,784 --
Repayment of Floating Rate
Notes Payable............ (124,338) --
Net Commercial Paper Ac-
tivity................... (4) (41)
----------- -----------
Net Cash Flow from
Financing Activities... (97,558) 272,552
----------- -----------
Net Cash Flow............... 386,386 (304,825)
Cash and Short-term Invest-
ments
Beginning of year......... 264,761 569,586
----------- -----------
End of year............... $ 651,147 $ 264,761
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-47
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
New England Mutual Life Insurance Company offers a complete line of ordinary
life insurance products, group pension contracts, group life and health
contracts, and, through its affiliates, variable life insurance and annuity
products, mutual funds, and investment management products. Based on sales and
assets, the company's principal market is ordinary and variable life
insurance, which it sells through a network of general agencies located
throughout the United States.
Basis of Presentation
The Company prepares its statutory financial statements, except as to form,
in accordance with accounting practices prescribed or permitted by the
Division of Insurance of The Commonwealth of Massachusetts. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as state laws,
regulations, and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. Permitted and prescribed
statutory accounting practices are currently considered generally accepted
accounting principles (GAAP) for mutual life insurance companies.
The Financial Accounting Standards Board issued Interpretation 40,
Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises, and Statement of Financial Accounting
Standards No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts. The American Institute of Certified Public
Accountants issued Statement of Position 95-1, Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises. Neither of these
groups has a role in establishing regulatory accounting practices. These
pronouncements will require mutual life insurance companies to modify their
financial statements in order for them to continue to be in accordance with
generally accepted accounting principles, effective for the Company's 1996
financial statements. The manner in which policy reserves, new business
acquisition costs, asset valuations and the related tax effects are recorded
will change. Management has not determined the impact of such changes on its
financial statements.
Certain amounts from the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in accordance with permitted and
prescribed statutory accounting practices requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
Invested Assets
Carrying values of bonds and stocks have been determined in accordance with
methods and values adopted by the National Association of Insurance
Commissioners (NAIC). Bonds are carried primarily at amortized cost, preferred
stocks at cost, and common stocks (other than stocks of non-publicly traded
subsidiaries) at fair value based upon NAIC market prices. The Company carries
its investment in New England Investment Companies, L.P., (NEIC) a 56% owned,
publicly traded Delaware limited partnership, at a 14% discount from quoted
market value. The discount is determined by the NAIC Securities Valuation
Office based on volume of trading, the existence of market overhang, and
similar trading characteristics. At December 31, 1995 and 1994, the Company's
investment in NEIC had a fair value of $439,188.8 thousand and $324,843.7
thousand, respectively, and a carrying value of $377,702.3 thousand and
$279,365.6 thousand, respectively.
Mortgage loans on real estate are carried at outstanding principal balance
or amortized cost. The Company establishes investment valuation reserves equal
to the amount by which the admitted value of each mortgage loan that has been
II-48
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
modified, is delinquent 90 days or more, or is in the process of modification,
exceeds the estimated fair value of its underlying collateral. These
investment valuation reserves are adjusted annually based upon current
valuations.
Investment real estate is carried at cost less accumulated depreciation and
encumbrances of $65,883.7 thousand in 1995 and accumulated depreciation and
encumbrances of $91,446.4 thousand in 1994. A loss reserve is established when
the fair value of the real estate is less than the carrying value, and the
loss is considered other than temporary, but not permanent. Losses considered
permanent are realized and any previously established loss reserve is
reversed. Depreciation is computed principally using the straight-line method
over an average life of forty years.
Policy loans are carried at the aggregate of the unpaid balances. Policy
loans are an integral part of insurance products and have no maturity dates.
Consequently it is not practicable to value these instruments. Short-term
investments are carried principally at cost, which approximates fair value,
and include securities with a maturity date at purchase of less than one year.
Investments in real estate joint ventures and unconsolidated subsidiaries,
unless publicly traded, are valued using the equity method. Other long-term
investments are carried principally at cost.
Prepayment assumptions for loan-backed bonds and structured securities were
obtained from investment advisors and are updated on a quarterly basis. These
assumptions are consistent with the current interest rate and economic
environment. The prospective method is used to value loan-backed securities.
Realized gains and losses on the sales of investments are determined on the
specific identification method. Unrealized gains and losses are accounted for
as increases or decreases in surplus.
Risk Management Instruments
Amounts receivable or payable under interest rate swaps used to manage
interest rate exposures from mismatches between assets and liabilities are
recognized as interest income or expense.
Gains and losses on hedges of existing assets or liabilities are deferred
and included in the carrying amounts of those assets or liabilities and are
ultimately recognized in income when resulting premiums or discounts are
amortized or at the time of disposal. Gains and losses related to qualifying
hedges of firm commitments or anticipated transactions also are deferred and
are recognized in income, or as adjustments of carrying amounts, when the
hedged transaction occurs. Gains and losses on early termination of contracts
that qualify for hedge accounting are deferred and are amortized through the
Interest Maintenance Reserve or as an adjustment to the yield of the related
asset or liability.
Life, Health and Annuity Reserves
Reserves for life insurance policies are predominantly developed using the
1958 and 1980 Commissioners' Standard Ordinary Mortality Table on the Net
Level Premium Method or the Commissioners' Reserve Valuation Method with
assumed interest rates ranging from 2.5% to 6%.
Reserves for group annuities covering purchased benefits are based on
accepted actuarial methods principally at interest rates ranging from 2.75% to
11%. Where benefits have not as yet been purchased, the deposits represent the
accumulated fund balances (net of expenses and fixed surrender charges) at
various interest rates. Group pension and other deposits have a fair value of
$1.9 billion at December 31, 1995 and $2.2 billion at December 31, 1994 as
determined by applying discount rates consistent with pricing for Guaranteed
Investment Contracts to the projected cashflows for the deposits.
Approximately $5.1 billion or 69.4% of the $7.3 billion of gross annuity
reserves and deposit liabilities in the General and Separate Accounts are
subject to discretionary withdrawal with adjustment for market value or
surrender charges. Another $1.4 billion or 19.7% are not subject to
withdrawal. The balance is subject to discretionary withdrawal without
adjustment.
II-49
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Recognition of Premium Revenue and Related Expenses
Premium revenue is recognized during the premium paying period. Commissions
and other expenses in connection with acquiring new business are charged to
current operations as incurred.
Policyholder Dividends
The Company determines the amount of dividends to be allocated to
participating policies by means of a formula which establishes its dividend
scale for the following year with respect to each group of policies. A
liability for the dividends to be paid or credited to policyholders during the
following year on the anniversary date of the policies is established at each
year-end.
Separate Account
Separate Account assets and liabilities represent funds administered and
invested by the Company for the benefit of certain pension and annuity
contract-holders. The values of the funds in the Separate Account are not
guaranteed but reflect the actual investment performance of the respective
accounts. The assets are carried at fair value.
Special Contingency Reserves
The Company has established a special purpose surplus fund for the possible
payment of Federal income taxes relating to future disposals of Separate
Account real estate holdings.
Unconsolidated Subsidiaries
The Company records its equity in the earnings of unconsolidated
subsidiaries as unrealized gains or losses, which increases or decreases the
Asset Valuation Reserve, and records dividends that are not considered return
of capital in net investment income.
The Company owns 100% of the outstanding common stock of the following
companies:
Boylston Capital Advisors, Inc. NEL Partnership Investments I, Inc.
COAC Co., Inc. NELRECO Troy, Inc.
CRB Co., Inc. New England Pension and Annuity
CRH Companies, Inc. Company
Exeter Reassurance Company, Ltd. New England Securities Corporation
L/C Development Corporation New England Variable Life Insurance
New England Life Mortgage Funding Company
Corporation Newbury Insurance Company, Limited
TNE Advisers, Inc. TNE Information Services, Inc.
New England Investment Companies, TNE Funding Corporation
Inc. DPA Holding Corp.
G.A. Holdings Companies, Inc. Lyon/Copley Corporation
LC Park Place Corporation
TNE-Y Inc.
Summarized financial data for unconsolidated subsidiaries at December 31,
1995 and 1994 is shown below:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Total assets at year-end............................. $2,215,899 $1,927,666
Total liabilities at year-end........................ 1,534,131 1,450,576
Net income........................................... 41,209 9,082
Dividends paid by subsidiaries to the Company........ 36,098 38,645
</TABLE>
II-50
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company owns 100% of the outstanding voting common stock and 0% of the
outstanding participating common stock of Omega Reinsurance Corporation.
The Company owns 56% of the outstanding partnership units of New England
Investment Companies, L.P.
Many of the Company's real estate joint ventures have mortgage loans with
the Company. The carrying values of such mortgages were $232,705.9 thousand
and $392,320.0 thousand at December 31, 1995 and 1994, respectively.
2. INVESTMENT RESERVES AND INTEREST MAINTENANCE RESERVE
The Asset Valuation Reserve (AVR) is designed to mitigate the effect of
valuation and credit-related losses on unassigned surplus. The AVR covers all
invested asset classes with risk of loss, including bonds, common stock,
mortgage loans and real estate.
The Interest Maintenance Reserve (IMR) accumulates realized capital gains
and losses on the sale of all types of fixed-income securities that result
from changes in the overall level of interest rates. These gains are amortized
into operating income over the remaining life of each investment sold. The IMR
amounted to $(1,857.7) thousand and $16,499.0 thousand as of December 31, 1995
and 1994, respectively. The negative balance of the IMR at December 31, 1995
was treated as a non-admitted asset. The amortization of the IMR into net
income net of federal income tax for 1995 and 1994 was $(2,674.1) thousand and
$3,662.8 thousand, respectively.
3. INVESTMENTS
The carrying value and estimated fair values of debt securities excluding
Separate Account assets are as follows:
<TABLE>
<CAPTION>
1995
-----------------------------------------
GROSS UNREALIZED ESTIMATED
CARRYING ------------------ FAIR
VALUE GAINS LOSSES VALUE
---------- -------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies........... $ 321,499 $ 11,051 $ (31) $ 332,519
Corporate securities................. 3,997,609 230,817 (32,341) 4,196,085
Mortgage-backed securities........... 1,205,213 26,344 (33,322) 1,198,235
Other debt securities................ 555,511 39,770 (7,377) 587,904
---------- -------- --------- ----------
Totals........................... $6,079,832 $307,982 $ (73,071) $6,314,743
========== ======== ========= ==========
<CAPTION>
1994
-----------------------------------------
GROSS UNREALIZED ESTIMATED
CARRYING ------------------ FAIR
VALUE GAINS LOSSES VALUE
---------- -------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies........... $ 462,454 $ 664 $ (29,775) $ 433,343
Corporate securities................. 3,727,336 22,776 (172,903) 3,576,209
Mortgage-backed securities........... 1,806,810 4,914 (221,908) 1,589,816
Other debt securities................ 277,958 1,608 (17,719) 261,847
---------- -------- --------- ----------
Totals........................... $6,274,558 $ 29,962 $(443,305) $5,861,215
========== ======== ========= ==========
</TABLE>
II-51
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Publicly traded debt securities are valued based upon NAIC market prices.
The estimated fair values of private placement obligations are determined
using an internal matrix based on market interest rates, the credit rating of
the specific security and public prices of similar securities.
The carrying value and estimated fair value of debt securities at December
31, 1995 by contractual maturity, are shown below. Stated maturities may
differ from contractual maturities because some borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING VALUE ESTIMATED FAIR VALUE
-------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less............... $ 188,199 $ 188,759
Due after one year through five years. 914,580 944,466
Due after five years through ten
years................................ 2,079,678 2,184,390
Due after ten years................... 1,692,162 1,798,893
Mortgage-backed securities............ 1,205,213 1,198,235
---------- ----------
Totals............................ $6,079,832 $6,314,743
========== ==========
</TABLE>
Proceeds from sales of investments in debt securities were $2,046,539.2
thousand and $1,489,158.0 thousand in 1995 and 1994, respectively. Gross
realized gains were $39,318.9 thousand and $5,832.2 thousand and gross
realized losses were $33,202.5 thousand and $35,633.3 thousand in 1995 and
1994, respectively. Net realized losses of $(21,030.9) thousand and
$(20,862.0) thousand in 1995 and 1994, respectively, were transferred to the
IMR.
The carrying values and estimated fair values of stocks and mortgage loans
at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Stocks.............................. $ 121,411 $ 121,411 $ 98,730 $ 98,730
Mortgage loans...................... 1,629,277 1,527,422 1,997,939 1,740,571
</TABLE>
The estimated fair value of mortgage loans is determined using an internal
matrix based upon market interest rates and a credit rating system.
There are no significant concentrations of bonds by issuer or by industry.
II-52
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1995 and 1994 the Company's mortgage loans and real
estate were distributed as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
CARRYING VALUE % OF TOTAL CARRYING VALUE % OF TOTAL
-------------- ---------- -------------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Geographic Region
Pacific................... $ 839,372 32.5% $1,139,459 35.9%
South Atlantic............ 495,792 19.2 566,195 17.9
North Central............. 339,710 13.2 374,451 11.8
New England............... 323,721 12.6 380,677 12.0
Middle Atlantic........... 282,717 11.0 343,505 10.8
South Central............. 189,468 7.3 244,522 7.7
Mountain.................. 109,672 4.2 121,698 3.8
Other..................... -- -- 792 0.1
---------- ----- ---------- -----
Total................... $2,580,452 100.0% $3,171,299 100.0%
========== ===== ========== =====
Property Type
Office.................... $1,253,255 48.6% $1,600,891 50.5%
Industrial................ 730,475 28.3 891,248 28.1
Residential............... 350,743 13.6 377,058 11.9
Retail.................... 211,592 8.2 268,560 8.5
Hotel..................... 34,387 1.3 33,542 1.1
---------- ----- ---------- -----
Total................... $2,580,452 100.0% $3,171,299 100.0%
========== ===== ========== =====
</TABLE>
The Company's balance of restructured mortgage loans was $777,993.4 thousand
and $868,148.5 thousand as of December 31, 1995 and 1994, respectively.
Interest income which would have been recorded in accordance with the original
terms of these loans would have amounted to approximately $69,815.2 thousand
and $82,127.7 thousand in 1995 and 1994, respectively. Total income included
in net investment income for these loans was approximately $36,771.6 thousand
and $33,060.7 thousand in 1995 and 1994, respectively.
4. DERIVATIVES
Interest Rate Swaps
The Company enters into derivatives contracts, particularly interest rate
swaps, to hedge interest rate exposures arising from mismatched assets and
liabilities. Under interest rate swaps, the Company agrees to exchange, at
specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated on an agreed-upon notional principal amount.
Because asset durations have historically been shorter than liabilities, the
Company generally agrees to pay a floating rate, to lengthen the duration of
its assets. Because the size of swap positions needed to reduce the impact of
market fluctuations on surplus varies over time, the Company may close out
swap positions or enter into swaps in which it receives the floating rate and
pays the fixed rate to reduce its net position.
At December 31, 1995, $646,800.1 thousand notional principal amount of such
pay-floating swaps and receive-fixed swaps was in effect. The original term to
maturity for these swaps is typically three to five years. The Company's
current credit exposure on swaps is limited to the value of interest rate
swaps that have become favorable to the Company. At December 31, 1995 and
1994, the market value of interest rate swaps in a favorable position was $0
and $484.0 thousand, respectively, while the value of all positions was
$31,506.2 thousand and $111,686.0 thousand unfavorable, respectively.
II-53
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. POSTRETIREMENT BENEFIT AND SAVINGS PLANS
The Company's Home Office Retirement Plan and related Select Employees'
Supplemental Retirement Plan (together the "Plan") covers substantially all of
its employees. Retirement benefits are based primarily on years of service and
the employee's final average salary. The Company's funding policy is to
contribute annually an amount that can be deducted for federal income tax
purposes using a different actuarial cost method and different assumptions
from those used for financial reporting purposes. The net pension cost charged
to income in 1995 and 1994 was $7,554.0 thousand and $7,642.2 thousand,
respectively.
The following information for the Plan includes amounts relating to
unconsolidated non-wholly-owned affiliates. Accordingly, the amounts presented
are greater than the Company's share.
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated plan benefits.... $119,000 $104,000
======== ========
Projected benefit obligation............................ $168,000 $157,000
======== ========
Net assets available for plan benefits.................. $116,000 $ 97,000
======== ========
Unrecognized prior service cost......................... $ 3,954 $ 4,397
======== ========
Unrecognized net (loss) from past experience different
from that assumed...................................... $(47,300) $(60,886)
======== ========
Unamortized transition gains............................ $ 5,185 $ 6,355
======== ========
</TABLE>
The components of net pension cost were:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Service cost............................................. $ 4,797 $ 6,575
Interest cost............................................ 11,012 10,590
Actual return on plan assets............................. (20,891) 2,121
Net amortization and deferral............................ 12,729 (10,002)
Costs allocated to affiliates............................ (93) (1,642)
-------- --------
Net periodic pension cost................................ $ 7,554 $ 7,642
======== ========
</TABLE>
The weighted average discount rate was 8.0% and 7.5% in 1995 and 1994,
respectively. The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit was 5.0% for
1995 and 1994. Plan assets consist of bonds, stocks, real estate and insurance
contracts and have an assumed long-term rate of return of 8.5% for 1995 and
1994.
The Company has defined contribution and contributory pension and savings
plans, covering substantially all of its employees and full-time agents, and
deferred compensation plans, for agents who meet certain service requirements,
for certain senior officers and directors, and general agents. The Company's
contributions to these plans, charged to operations in 1995 and 1994, were
$15,755.4 thousand and $17,324.8 thousand, respectively.
6. OTHER POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees. Substantially
all employees become eligible for these benefits if they have met certain age
and service requirements at retirement. The Company intends to fund the
accumulated postretirement benefit obligation as benefits become due.
II-54
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following sets forth the plan's funded status reconciled with amounts
reported in the Company's balance sheet.
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $31,696 $31,367
Fully eligible active plan participants.................. 7,075 5,839
------- -------
Total...................................................... 38,771 37,206
less: unrecognized transition obligation................. 36,091 41,030
plus: unrecognized net gain.............................. 4,915 9,995
------- -------
Accrued postretirement benefit liability................... $ 7,595 $ 6,171
======= =======
The components of net postretirement benefit cost were:
Estimated eligibility cost............................... $ 872 $ 860
Interest cost............................................ 2,870 2,928
Amortization of transition obligation over 20 years...... 2,123 2,280
Amortization of gain over 17 years....................... (642) (613)
------- -------
Net postretirement benefit cost............................ $ 5,223 $ 5,455
======= =======
</TABLE>
Net postretirement benefit costs for the year ended December 31, 1995
includes the expected cost of such benefits for newly vested employees,
interest cost, gains and losses arising from differences between actuarial
assumptions and actual experience, and amortization of the transition
obligation. The discount rate used to determine the net postretirement benefit
cost was 8.5% and 8.0% in 1995 and 1994, respectively. The Company made
contributions to the plan of $3,799.0 thousand and $3,579.0 thousand in 1995
and 1994, respectively, as claims were incurred.
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.25% and 8.5% for 1995 and 1994, respectively, and the health
care cost trend rate was 8.6% graded to 5.5% over 8 years in 1995 and 9%
graded to 5.5% over 9 years for 1994. The health care cost trend rate
assumption has a minimal impact on the amounts reported, since the Company has
capped its contributions at 200% of 1993 levels.
The estimated accumulated benefit obligation for active nonvested employees
was $14,200.0 thousand and $13,300.0 thousand at December 31, 1995 and 1994,
respectively.
7. FEDERAL INCOME TAXES
Federal income taxes are provided on the basis of amounts estimated to be
payable under the Internal Revenue Code. The Company files a consolidated
federal income tax return with its life insurance subsidiaries and its wholly-
owned non-life insurance subsidiaries.
The Internal Revenue Service has completed its examination of the Company's
income tax returns through 1991 and is currently examining the income tax
returns for 1992 and 1993. The Company is contesting certain issues since
1976. The outcome of these proceedings is not currently determinable but, in
the opinion of management, would not have a materially adverse effect on the
financial statements.
The tax benefit of capital losses was $23,519.0 thousand and $16,507.0
thousand for 1995 and 1994, respectively.
II-55
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. NOTES PAYABLE
Notes payable (included in other liabilities) consist of:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1994
------- --------
(IN THOUSANDS)
<S> <C> <C>
6% Demand Note Payable................................... $26,784 $ --
Floating Rate Notes Payable.............................. -- 124,338
Commercial Paper......................................... 6,693 6,697
------- --------
Total................................................ $33,477 $131,035
======= ========
</TABLE>
The floating rate (one month LIBOR plus .25%) notes were payable solely
from, and were collateralized by, $666,147.0 thousand of senior certificates.
These senior certificates were collateralized mortgage obligations included in
bonds on the Company's balance sheet. Interest and principal were paid monthly
solely from the cash flow of the senior certificates. The notes were fully
paid by August, 1995. The carrying value of the notes payable approximated
their fair values which were estimated based upon current market interest
rates for similar debt.
9. SURPLUS NOTES
In February, 1994, the Company privately placed $150,000 thousand, aggregate
principal amount, of 7 7/8% Surplus Notes (the "Notes"), due February 15,
2024, with semi-annual interest payments. The Notes are expressly subordinate
in right of payment to policy claims and other indebtedness of the Company.
The Notes are not subject to redemption by the Company or through the
operation of a sinking fund prior to maturity. Proceeds of the issuance of the
Notes net of discount and costs of issuance amounted to $145,931.8 thousand.
These proceeds were received in cash and have been reflected in surplus.
Each payment of interest on and principal of the Notes may be made only with
the prior approval of the Massachusetts Commissioner of Insurance (the
"Commissioner"). The Company will not accrue any liability for payment of
interest or principal prior to obtaining the Commissioner's approval for
payment. Accrued interest, approved by the Commissioner, as of December 31,
1995 was $4,462.8 thousand. Total interest expense on the Notes was $11,812.5
thousand in 1995 and $10,551.2 thousand in 1994, respectively.
10. SURPLUS
Other changes to surplus consist of:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net unrealized capital gains or (losses)............... $ 75,281 $(80,819)
Change in valuation bases of policyholders' reserves... (50,804) --
Change in investment reserves.......................... (67,571) 63,524
Special purpose surplus funds.......................... (18,381) 67,651
Other changes in surplus............................... (6,549) (8,973)
-------- --------
Total.............................................. $(68,024) $ 41,383
======== ========
</TABLE>
11. REINSURANCE
The Company's practice on individual products is to retain not more than
$5,000,000 of risk on any person, excluding accidental death benefits. Total
individual life premiums ceded were $150,095.1 thousand and $80,498.0 thousand
at December 31, 1995 and 1994, respectively. The Company also reinsures a
portion of its group life business. The group life premiums ceded were
$11,142.5 thousand and $12,470.0 thousand at December 31, 1995 and 1994,
respectively.
II-56
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The total individual and group life insurance in force ceded was $15.4
billion and $16.0 billion at December 31, 1995 and 1994, respectively.
In 1994, the Company reinsured, under a traditional reinsurance arrangement,
approximately 24% of a block of ordinary whole life insurance policies issued
between 1979 and 1993 and not otherwise reinsured with a wholly-owned
subsidiary which retroceded half that block with an unaffiliated reinsurer. As
part of the transaction, the Company amortizes the ceding allowance it
received in 1994, producing an increase in net income of $4,445.1 thousand in
1995.
As part of joint venture agreements to market group health and individual
disability income products, the Company reinsures with its partners. The
premiums ceded under these agreements were $122,612.5 thousand and $115,121.6
thousand in 1995 and 1994, respectively. Under a separate reinsurance
arrangement, effective January 1, 1993, the Company reinsures with its joint
venture partners 80% of all small group business. The premiums ceded under
this arrangement were $125,252.1 thousand and $108,293.4 thousand in 1995 and
1994, respectively.
Business is ceded to reinsurers on the yearly renewable term, coinsurance,
and modified coinsurance bases. The Company is party to a number of
reinsurance agreements with non affiliated insurers by means of which,
consistent with usual industry practices, some or all of the mortality or
morbidity risk of the Company is transferred to the other companies. The
Company assumes a small amount of retrocessions from reinsurers and a small
amount of reinsurance from an affiliate.
The Company is contingently liable with respect to ceded insurance should
any reinsurer be unable to meet the obligations assumed by it.
In 1995 the Company recognized a $14,100.0 thousand after tax loss on the
recapture of two surplus relief treaties.
12. COMMITMENTS AND CONTINGENCIES
The Company's obligations with respect to $89,850.0 thousand of zero-coupon
Eurobonds due in 1999 issued by an unconsolidated subsidiary in 1985 (and
secured by mortgage loans of the issuer) include obligations to substitute
collateral for any defaulted mortgage loan and to provide sufficient funds to
the issuer to enable redemption as a result of any amendment of United States
tax law which would require the issuer to withhold taxes on interest payments.
The Company's obligations with respect to the bonds are subordinated to
obligations to policyholders. The balance of these Eurobonds, net of
unamortized discount, was $63,310.0 thousand as of December 31, 1995.
The Company is guarantor of the obligations arising out of certain financial
instruments issued by a limited partnership in which the Company has an
investment. The financial instruments guaranteed by the Company include
interest rate swap and option contracts between the partnership and other
counterparties. The Company is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap and option
contracts. As of December 31, 1995 contracts in a loss position amounted to
$36.0 million and contracts in a gain position amounted to $40.3 million.
A 1985 agreement, under which the Company sold tax-exempt mortgage loans,
obligates the Company to repurchase defaulted loans. As of December 31, 1995,
the principal amount of the tax-exempt loans outstanding was $8,246.8
thousand.
In addition, at December 31, 1995, the Company is a guarantor of $272,166.9
thousand of outstanding indebtedness and other obligations, lease obligations
of $60,813.6 thousand and municipal reinvestment contract obligations of
$142,556.0 thousand. The Company's obligations with respect to the outstanding
indebtedness, leases and municipal reinvestment contracts are subordinated to
obligations to policyholders. The Company has standby commitments to provide
permanent mortgage financing of $113,558.6 thousand as of December 31, 1995.
II-57
<PAGE>
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Management does not anticipate any losses in connection with the above that
would have a material effect on its financial position.
The Company and Copley Real Estate Advisors, Inc. ("Copley"), an indirect,
majority-owned subsidiary of the Company, are parties to lawsuits arising out
of investments made by institutional investors in certain real estate separate
accounts of the Company, which are or were advised by Copley.
There are currently two lawsuits pending.
First, on July 30, 1993, the Washington State Investment Board ("WSIB")
filed suit against the Company and Copley in the Superior Court of the State
of Washington for Thurston County. The WSIB's suit alleges that certain public
employee retirement plans whose funds were invested by the WSIB have lost over
$600.0 million of the $800.0 million they invested in the Prentiss/Copley
Investment Group ("PCIG") and certain other real estate ventures advised by
Copley. The suit seeks rescission of the investments and repayment of the
amounts invested, or alternatively, money damages, plus interest, attorneys'
fees and costs, together with disgorgement of fees and profits received by the
Company and Copley. The Company and Copley have filed an answer denying all
liability to WSIB and raising a number of affirmative defenses. Production of
documents is substantially complete. The Company and Copley have completed a
substantial number of depositions of WSIB witnesses, and WSIB has begun its
depositions of Company and Copley witnesses. The suit is scheduled for trial
beginning on September 9, 1996.
Second, on July 30, 1993, the State Teachers Retirement System of Ohio
("Ohio Board") filed suit against the Company and Copley in the United States
District Court for the Southern District of Ohio. The Ohio Board alleges that
it has lost substantially all of the value of its $50.0 million investment in
PCIG and seeks restoration of that amount, plus interest and disgorgement of
profits made by the Company and Copley, as well as attorneys' fees and costs.
Production of documents is substantially complete. No substantive depositions
have been taken by the Ohio Board, nor has the Company taken any substantive
depositions of Ohio Board witnesses. The court has not set a discovery
schedule, nor has a trial date been set.
The ultimate outcome of the WSIB and Ohio Board suits cannot be predicted.
However, while there can be no assurance, the Company believes these suits
should not result in losses that would have a material adverse effect on the
Company's financial condition. The Company and Copley intend to defend the
actions vigorously. In 1995, the Company established a reserve of $10.0
million on its financial statements with respect to the WSIB lawsuit. The
Company has agreed to indemnify Copley against any and all liability and
expense arising out of these suits or out of other claims or actions relating
to the Washington State retirement plans' or the Ohio Board's investments.
In addition to the two lawsuits described above, the Company is involved in
various litigation in the ordinary course of business. In the opinion of
management, this litigation should not result in judgments or settlements
which, in the aggregate, would have a material adverse effect on the Company's
financial condition.
13. SUBSEQUENT EVENT
The Company and Metropolitan Life Insurance Company (MetLife) have entered
into a definitive agreement, effective as of August 16, 1995, pursuant to
which the Company would be merged with and into MetLife. The closing of the
merger is subject to various conditions, including but not limited to the
obtaining of various regulatory approvals and the approvals of the
policyholders of both companies. It is currently anticipated that the merger
will be consummated during the second quarter of 1996.
The carrying value of the Company's assets is based, in part, on the
assumption that they will be held indefinitely as long-term investments. It is
reasonably possible that MetLife could change the investment objectives of the
portfolio subsequent to the merger and dispose of certain assets, particularly
mortgage and real estate holdings. If so, the realizable value of those assets
could be reduced in the near term.
II-58
<PAGE>
APPENDIX A
ABC and affiliates Fortune Public Broadcasting
Atlanta Constitution Fox Network and Service
Atlanta Journal affiliates Quinn, Jane Bryant
Austin American Fund Action (syndicated column)
Statesman Hartford Courant Registered
Baltimore Sun Houston Chronicle Representative
Barron's INC Research Magazine
Bond Buyer Indianapolis Star Resource
Boston Business Journal Institutional Investor Reuters
Boston Globe Investment Dealers Rukeyser's Business
Boston Herald Digest (syndicated column)
Broker World Investment Vision Sacramento Bee
Business Radio Network Investor's Daily San Francisco Chronicle
Business Week Journal of Commerce San Francisco Examiner
CBS and affiliates Kansas City Star San Jose Mercury
CFO LA Times Seattle Post-
Changing Times Leckey, Andrew Intelligencer
Chicago Sun Times (syndicated column) Seattle Times
Chicago Tribune Life Association News Smart Money
Christian Science Miami Herald St. Louis Post Dispatch
Monitor Milwaukee Sentinel St. Petersburg Times
Christian Science Money Standard & Poor's
Monitor News Service Money Maker Outlook
Cincinnati Enquirer Money Management Letter Standard & Poor's Stock
Cincinnati Post Morningstar Guide
CNBC National Public Radio Stanger's Investment
CNN National Underwriter Advisor
Columbus Dispatch NBC and affiliates Stockbroker's Register
Dallas Morning News New England Business Strategic Insight
Dallas Times-Herald New England Cable News Tampa Tribune
Denver Post New Orleans Times- Time
Des Moines Register Picayune Tobias, Andrew
Detroit Free Press New York Daily News (syndicated column)
Donoghues Money Fund New York Times UPI
Report Newark Star Ledger US News and World Report
Dorfman, Dan (syndicated Newsday USA Today
column) Newsweek Value Line
Dow Jones News Service Nightly Business Report Wall St. Journal
Economist Orange County Register Wall Street Letter
FACS of the Week Orlando Sentinel Wall Street Week
Financial News Network Pension World Washington Post
Financial Planning Pensions and Investments WBZ
Financial Services Week Personal Investor WBZ-TV
Financial World Philadelphia Inquirer WCVB-TV
Forbes Porter, Sylvia WEEI
Fort Worth Star-Telegram (syndicated column) WHDH
Portland Oregonian Worcester Telegram
Worth Magazine
WRKO
II-59
