<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION NO. 333-11131
811-5338
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X]
PRE-EFFECTIVE AMENDMENT NO.
[_]
POST-EFFECTIVE AMENDMENT NO. 1
[X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[_]
AMENDMENT NO. 18
[X]
THE NEW ENGLAND VARIABLE ACCOUNT
(EXACT NAME OF REGISTRANT)
METROPOLITAN LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
ONE MADISON AVENUE, NEW YORK, NEW YORK 10010
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER: (212) 578-5364
NAME AND ADDRESS OF AGENT FOR SERVICE: COPY TO:
Gary A. Beller, Esq. Stephen E. Roth, Esquire
Metropolitan Life Insurance Company Sutherland, Asbill & Brennan, L.L.P.
One Madison Avenue 1275 Pennsylvania Avenue, N.W.
New York, New York 10010 Washington, D.C. 20004-2404
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on May 1, 1997 pursuant to paragraph (a)(1) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[_] on (date) pursuant to paragraph (a)(2) of Rule 485
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 in accordance with Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant filed a notice on Form 24f-2 on
February 27, 1997.
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<PAGE>
CROSS REFERENCE SHEETS
Between information contained in the Prospectus and Statement of Additional
Information and the Required Items of Form N-4.
<TABLE>
<CAPTION>
FORM N-4 CAPTION IN STATEMENT OF
ITEM NO. CAPTION IN PROSPECTUS ADDITIONAL INFORMATION
- -------- --------------------- -----------------------
<S> <C> <C>
1 Cover Page
2 Glossary of Special Terms used in this
Prospectus
3 Highlights; Expense Table
4 Accumulation Unit Values
5 The Company; The Variable Account;
Investments of the Variable Account-New
England Zenith Fund; Investments of the
Variable Account-Variable Insurance
Products Fund; Administration Charges,
Contingent Deferred Sales Charge and Other
Deductions; Voting Rights
6 Administrative Charges, Contingent Deferred
Sales Charge and Other Deductions
7 The Contracts; Investments of the Variable
Account- Substitution of Investments;
Annuity Payments; The Fixed Account;
Guaranteed Option
8 Annuity Payments; Amount of Variable
Annuity Payments
9 The Contracts
10 The Contracts; Cover Page Net Investment Factor
11 The Contracts-Loan Provision for Certain
Tax-Benefited Retirement Plans
12 Retirement Plans Offering Federal Tax
Benefits; Federal Income Tax
Status-Taxation of the Contracts
13 Inapplicable
14 Table of Contents of Statement of
Additional Information
15 Cover Page
16 Table of Contents
17 History
18 Services Relating to the
Variable
Account and the
Contracts
19 Administration Charges, Contingent Deferred
Sales Charge and Other Deductions
20 Services Relating to the
Variable
Account and the
Contracts
21(b) Calculation of
Performance Data
22 Annuity Payments
23 Financial Statements
</TABLE>
<PAGE>
This filing contains two versions of the prospectus for the Zenith Accumulator
Variable Annuity contract. The first version is a complete prospectus containing
information updated through May 1, 1997. In Puerto Rico, this version is used
with the supplement dated May 1, 1997, included herewith, that addresses Puerto
Rico tax issues. The second version of the prospectus is in the form of a
supplement dated May 1, 1997 designed to supplement the May 1, 1996 prospectus,
as supplemented August 30, 1996. The second version is intended to be
distributed to existing contract owners who have received the May 1, 1996
prospectus. The May 1, 1996 prospectus is incorporated herein by reference to
the Rule 497 filing made under File No. 33-17377. The August 30, 1996 supplement
is incorporated herein by reference to the Rule 497 filing made under File No.
333-11131.
<PAGE>
ZENITH ACCUMULATOR
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY
METROPOLITAN LIFE INSURANCE COMPANY
SUPPLEMENT DATED MAY 1, 1997
TO PROSPECTUS DATED MAY 1, 1997
The Puerto Rico Internal Revenue Code of 1994, as amended (the "PR Code")
provides the following tax treatment for the Zenith Accumulator Individual
Variable Annuity Contracts ("the Contracts") to be issued to Contract Owners in
the Commonwealth of Puerto Rico. The contracts will not be offered in Puerto
Rico as individual retirement annuities ("IRAs").
1. GENERAL TAX TREATMENT OF ANNUITIES
For Puerto Rico tax purposes, amounts received as an annuity under an annuity
contract are defined as amounts (determined based on a computation with
reference to life expectancy and mortality tables) received in periodical
installments and payable over a period longer than one year from the annuity
starting date.
Annuity payments generally have two elements: a part that constitutes a return
of the annuity's cost (return of capital) and a part that constitutes income.
From each annuity payment received, taxpayers must include in their gross
income for income tax purposes the lower of (a) the annuity payments received
during the taxable year, or (b) 3% of the aggregate premiums or consideration
paid for the annuity divided by 12 and multiplied by the number of months in
respect to which the installment is paid. The excess over the 3% is excluded
from gross income until the aggregate premiums or consideration is recovered.
Once the annuity's cost has been fully recovered, all of the annuity payment
constitutes taxable income. There is no penalty tax on early distributions from
annuity contracts.
If a payment is received in a lump sum, the annuity's cost is recovered tax
free and the remainder constitutes taxable income.
2. A VARIABLE ANNUITY CONTRACT UNDER NONQUALIFIED PLANS
A variable annuity contract may be purchased by an employer for an employee
under a nonqualified stock bonus, pension, profit sharing or annuity plan. The
employer may purchase the variable annuity contract and transfer it to a trust
created under the terms of the nonqualified plan or can make contributions to
the nonqualified trust in order to provide [a] variable annuity contract[s] for
his employees.
The purchase payments paid or the employer's contributions made to a trust
under a plan during a taxable year of the employer which ends within or with a
taxable year of the trust, shall be included in the gross income of the
employee, if his beneficial interest in the employer's contributions is
nonforfeitable at the time the contribution is made. An employee's beneficial
interest in the contributions is nonforfeitable if there is no contingency under
the plan which may cause the employee to lose his rights in the contribution.
When the contributions are included in the employee's gross income, they are
considered part of the consideration paid by him for the annuity. Thus, the
amounts so contributed by the employer shall constitute consideration paid by
the employee which is taken into account for purposes of determining the taxable
amount of each annuity payment received.
S-1
<PAGE>
The contributions paid by the employer to or under the nonqualified plan for
providing retirement benefits to the employees under an annuity or insurance
contract are deductible in the taxable year when paid if the employee's rights
to or derived from such employer's contribution are nonforfeitable at the time
the contribution is made.
If an amount is paid on behalf of the employee during the taxable year but the
rights of the employee therein are forfeitable at the time the amount is paid,
no employer deduction is allowable for such amount for any taxable year.
A nonqualified plan may not be subject to certain rules which apply to a
qualified plan such as rules regarding participation, vesting and funding. Thus,
nonqualified annuity plans may be used by an employer to provide additional
benefits to key employees.
Since a nonqualified trust is not tax-exempt, the trust itself will be taxable
on the income of the trust assets.
3. A VARIABLE ANNUITY CONTRACT UNDER A QUALIFIED PLAN
A variable annuity contract may be purchased by an employer for an employee
under a qualified pension, profit-sharing, stock bonus, annuity, or a cash or
deferred arrangement ("CODA") plan established pursuant to Section 165 of the
Puerto Rico Income Tax Code of 1954 (the "PRITA") or Section 1165 of the PR
Code. The employer has two alternatives: Purchase the annuity contract and
transfer the same to the trust under the plan or make contributions to a trust
under a qualified plan for the purpose of providing an annuity contract for an
employee.
Qualified plans must comply with the requirements of Section 165(a) of the
PRITA or Section 1165(a) of the PR Code which include, among others, certain
participation requirements.
The trust created under the qualified plan is exempt from tax on its
investment income.
a. Contributions
The employer is entitled, in determining its net taxable income, to claim a
current income tax deduction for contributions made to the trust created under
the terms of a qualified plan. However, statutory limitations on the
deductibility of contributions made to the trust under a qualified plan limit
the amount of funds that may be contributed each year.
b. Distributions
The amount paid by the employer towards the purchase of the variable annuity
contract or contributed to the trust for providing variable annuity contracts
for the employees is not required to be included in the income of the employee.
However, any amount received or made available to the employee under the
qualified plan is includible in the gross income of the employee in the taxable
year in which received or made available.
In such case, the amount paid or contributed by the employer shall not
constitute consideration paid by the employee for the variable annuity contract
for purposes of determining the amount of annuity payments required to be
included in the employee's gross income. Thus, amounts actually distributed or
made available to any employee under the qualified plan shall be included in
their entirety in the employee's gross income.
Lump-sum proceeds from a qualified plan distributed on account of the
employee's separation from service may receive long term capital gain treatment
and will be taxed at a maximum rate of 20%.
The PR Code does not impose a penalty tax in cases of early (premature)
distributions from a qualified plan.
S-2
<PAGE>
c. Rollover
Deferral of the recognition of income continues upon the receipt of a
distribution by a participant from a qualified plan, if the total distribution
is contributed to another qualified retirement plan or individual retirement
account ("IRA") for the employee's benefit no later than sixty (60) days after
the distribution.
4. A VARIABLE ANNUITY CONTRACT UNDER A KEOGH PLAN
A variable annuity contract may be purchased for purposes of funding a self
employed retirement plan under Section 165(f) of the PRITA or Section 1165(f) of
the PR Code. This plan is commonly known as a Keogh plan or an HR 10 plan.
This plan permits self-employed individuals and owner-employees to adopt
pension plans, profit sharing plans or annuity plans for themselves and their
employees. A self-employed individual is any individual who carries on a trade
or business as a sole proprietor, an independent contractor or anyone who is in
business for himself or herself.
An owner-employee is any individual who owns all of an unincorporated business
or, in the case of a corporation of individuals or a special partnership under
Supplement P of the PRITA or Subchapter K of the PR Code, is a shareholder or a
partner owning more than 10% of the interest in capital or profits.
Similar to a qualified plan, the variable annuity contract may be purchased
and be transferred to a trust, or contributions may be made to the trust for the
purpose of providing an annuity contract for the trust beneficiaries.
a. Contributions
A tax deduction may be claimed for contributions made to the plan. As in other
qualified plans, contributions to the plan are subject to certain statutory
limits. The limit on the deduction depends on the type of plan selected.
Such contributions and the income generated from them are not taxable to the
owner-employee, his employees or to the self-employed individual until the funds
are distributed or made available to them.
The investment income generated from the contributions made to the plan which
are held in a qualified trust is tax exempt to the trust.
b. Distributions
Distributions made under a qualified self-employed retirement plan will be
subject to the rules described under 3(b) and (c) above.
S-3
<PAGE>
ZENITH ACCUMULATOR
Individual Variable Annuity Contracts
Issued By
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Designated Office:
New England 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 available only 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 Metropolitan Life Insurance Company ("MetLife" or the "Company").
Assets of the Variable Account are invested in shares of certain Series of the
New England Zenith Fund and certain portfolios of the Variable Insurance
Products Fund (collectively, the "Eligible Funds"). See "Investments of the
Variable Account." The owner of a Contract chooses the Eligible Funds in which
the purchase payments are invested and may change the choice of Eligible Funds
at any time. Any one or a combination of the following Eligible Funds may be
selected, within limits:
Loomis Sayles Small Cap Loomis Sayles Avanti Salomon Brothers
Series Growth Series Strategic Bond
Morgan Stanley International Davis Venture Value Opportunities Series
Magnum Equity Series Series Back Bay Advisors Bond
Overseas Portfolio Westpeak Growth and Income Series
Alger Equity Growth Series Income Series Salomon Brothers U.S.
Capital Growth Series Equity-Income Government Series
Portfolio Back Bay Advisors Money
Loomis Sayles Balanced Market Series
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, 1997, 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-48 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 or telephoning 1-800-356-5015.
New England Securities, an indirect 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.
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.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
<PAGE>
TABLE OF CONTENTS
OF
THE PROSPECTUS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS . . . . . . . . . . A-4
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-6
EXPENSE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
ACCUMULATION UNIT VALUES . . . . . . . . . . . . . . . . . . . . . . . A-14
HOW THE CONTRACT WORKS . . . . . . . . . . . . . . . . . . . . . . . . A-16
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . A-17
INVESTMENTS OF THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . A-17
New England Zenith Fund . . . . . . . . . . . . . . . . . . . . . . . A-17
Variable Insurance Products Fund . . . . . . . . . . . . . . . . . . A-19
Investment Advice . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
Substitution of Investments . . . . . . . . . . . . . . . . . . . . . A-20
GUARANTEED OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
THE CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
Allocation of Purchase Payments . . . . . . . . . . . . . . . . . . . A-21
Contract Value and Accumulation Unit Value . . . . . . . . . . . . . A-21
Payment on Death Prior to Annuitization . . . . . . . . . . . . . . . A-22
Transfer Privilege . . . . . . . . . . . . . . . . . . . . . . . . . A-24
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . A-24
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
Systematic Withdrawals . . . . . . . . . . . . . . . . . . . . . . . A-25
Loan Provision for Certain Tax Benefited Retirement Plans . . . . . . A-26
Disability Benefit Rider . . . . . . . . . . . . . . . . . . . . . . A-28
Suspension of Payments . . . . . . . . . . . . . . . . . . . . . . . A-28
Ownership Rights . . . . . . . . . . . . . . . . . . . . . . . . . . A-28
Requests and Elections . . . . . . . . . . . . . . . . . . . . . . . A-29
Ten Day Right to Review . . . . . . . . . . . . . . . . . . . . . . . A-29
ADMINISTRATION CHARGES, CONTINGENT DEFERRED SALES CHARGE AND OTHER
DEDUCTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
Administration Charges . . . . . . . . . . . . . . . . . . . . . . . A-30
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . A-30
Contingent Deferred Sales Charge . . . . . . . . . . . . . . . . . . A-30
Premium Tax Charges . . . . . . . . . . . . . . . . . . . . . . . . . A-32
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . A-32
Charges Under Contracts Purchased by Exchanging a Fund I or Preference
Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-32
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . A-33
Election of Annuity . . . . . . . . . . . . . . . . . . . . . . . . . A-33
Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . A-33
AMOUNT OF VARIABLE ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . A-35
Minimum Annuity Payments . . . . . . . . . . . . . . . . . . . . . . A-35
Proof of Age, Sex and Survival . . . . . . . . . . . . . . . . . . . A-36
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS . . . . . . . . . . . . A-36
FEDERAL INCOME TAX STATUS . . . . . . . . . . . . . . . . . . . . . . A-36
Tax Status of the Company and the Variable Account . . . . . . . . . A-37
Taxation of the Contracts . . . . . . . . . . . . . . . . . . . . . . A-37
Special Rules for Annuities Purchased for Annuitants Under Retirement
Plans Qualifying for Tax Benefited Treatment . . . . . . . . . . . . A-37
Special Rules for Annuities Used by Individuals or with Plans and
Trusts Not Qualifying Under the Code for Tax Benefited Treatment . . A-40
Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
DISTRIBUTION OF CONTRACTS . . . . . . . . . . . . . . . . . . . . . . A-42
THE FIXED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . A-42
General Description of the Fixed Account . . . . . . . . . . . . . . A-43
Contract Value and Fixed Account Transactions . . . . . . . . . . . A-43
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . A-44
INVESTMENT EXPERIENCE INFORMATION . . . . . . . . . . . . . . . . . . A-44
APPENDIX A: CONSUMER TIPS . . . . . . . . . . . . . . . . . . . . . . A-46
APPENDIX B: PREMIUM TAX . . . . . . . . . . . . . . . . . . . . . . . A-47
</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. On an annualized basis, the charge equals
.40% of daily net assets.
ADMINISTRATION CONTRACT CHARGE. A $30 charge deducted annually from the
Contract Value.
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.
DESIGNATED OFFICE. The Company's Designated Office for receipt of purchase
payments, loan repayments, requests and elections, and communications regarding
death of the Annuitant is New England Life Insurance Company, located at 501
Boylston Street, Boston, Massachusetts 02116, (617) 578-2000.
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
A-4
<PAGE>
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."
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.
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 accounts.
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.
A-5
<PAGE>
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 Fixed Account), and
- -------------------------------------------------------------------------
the way in which the Fixed Account affects the Contract 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 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
A-6
<PAGE>
("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 payments 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 at its Designated
Office 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.")
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
A-7
<PAGE>
(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.)
- -----------------------------------------------------------------------------
A-8
<PAGE>
EXPENSE TABLE
VARIABLE ACCOUNT
<TABLE>
<CAPTION>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES(1)
Sales Charge Imposed on Purchases (as a percentage
of purchase payments) . . . . . . . . . . . . . . 0%
Maximum Contingent Deferred Sales Charge(2) (as a 8% of first $50,000
percentage of total purchase payments) . . . . . 6.5% of excess
Transfer Fee(3) . . . . . . . . . . . . . . . . . $ 0
ANNUAL CONTRACT FEE
Administration Contract Charge (per Contract)(4) . $30
SEPARATE ACCOUNT ANNUAL EXPENSES(5)
(as percentage of average net assets) . . . . . . . . .
Mortality and Expense Risk Charge . . . . . . . . .95%
Administration Asset Charge . . . . . . . . . . . .40%
Total Separate Account Annual Expenses . . . 1.35%
</TABLE>
NEW ENGLAND ZENITH FUND
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1996
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER CURRENT EXPENSE CAP OR EXPENSE
DEFERRAL) (6)
<TABLE>
<CAPTION>
LOOMIS LOOMIS
SAYLES MORGAN STANLEY SAYLES DAVIS WESTPEAK
SMALL INTERNATIONAL ALGER EQUITY CAPITAL AVANTI VENTURE GROWTH
CAP MAGNUM EQUITY GROWTH GROWTH GROWTH VALUE AND INCOME
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------ -------------- ------------ ------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee . . . 1.00% .90% .74% .63% .70% .75% .70%
Other Expenses . . . 0% .40% .16% .06% .15% .15% .15%
---- ---- --- --- --- --- ---
Total Series
Operating
Expenses . . . . 1.00% 1.30% .90% .69% .85% .90% .85%
</TABLE>
<TABLE>
<CAPTION>
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
LOOMIS STRATEGIC ADVISORS BROTHERS ADVISORS
SAYLES BOND BOND U.S. MONEY
BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
SERIES SERIES SERIES SERIES SERIES
-------- ------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Management Fee . . . .70% .65% .40% .55% .35%
Other Expenses . . . .15% .20% .12% .15% .15%
--- --- --- --- ---
Total Series
Operating
Expenses . . . . .85% .85% .52% .70% .50%
</TABLE>
A-9
<PAGE>
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.(8)) For purchase payments
allocated to each of the Series indicated
You would pay the following direct and indirect
expenses on a $1,000 purchase payment assuming 1) 5%
annual return on the underlying 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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap . . . . . . . $84.83 $129.77 $176.44 $289.74
Morgan Stanley International Magnum
Equity . . . . . . . . . . . . . . . 87.64 138.23 190.59 318.52
Alger Equity Growth . . . . . . . . . 83.89 126.93 171.68 279.94
Capital Growth . . . . . . . . . . . . 81.91 120.93 161.58 258.99
Loomis Sayles Avanti Growth . . . . . 83.42 125.50 169.28 275.00
Davis Venture Value . . . . . . . . . 83.89 126.93 171.68 279.94
Westpeak Growth and Income . . . . . . 83.42 125.50 169.28 275.00
Loomis Sayles Balanced . . . . . . . . 83.42 125.50 169.28 275.00
Salomon Brothers Strategic Bond
Opportunities. . . . . . . . . . . . 83.42 125.50 169.28 275.00
Back Bay Advisors Bond Income . . . . 80.31 116.05 153.34 241.69
Salomon Brothers U.S. Government . . . 82.00 121.22 162.07 260.00
Back Bay Advisors Money Market . . . . 80.12 115.47 152.36 239.63
</TABLE>
You would pay the following direct and indirect
expenses on a $1,000 purchase payment assuming 1) 5%
annual return on the underlying 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(9):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap . . . . . . . $24.90 $76.54 $130.73 $278.28
Morgan Stanley International Magnum
Equity . . . . . . . . . . . . . . . 27.89 85.48 145.56 307.40
Alger Equity Growth . . . . . . . . . 23.90 73.54 125.74 268.36
Capital Growth . . . . . . . . . . . . 21.79 67.21 115.16 247.17
Loomis Sayles Avanti Growth . . . . . 23.40 72.03 123.23 263.36
Davis Venture Value . . . . . . . . . 23.90 73.54 125.74 268.36
Westpeak Growth and Income . . . . . . 23.40 72.03 123.23 263.36
Loomis Sayles Balanced . . . . . . . . 23.40 72.03 123.23 263.36
Salomon Brothers Strategic Bond
Opportunities. . . . . . . . . . . . 23.40 72.03 123.23 263.36
Back Bay Advisors Bond Income . . . . 20.09 62.05 106.52 229.66
Salomon Brothers U.S. Government . . . 21.89 67.51 115.67 248.19
Back Bay Advisors Money Market . . . . 19.89 61.44 105.50 227.58
</TABLE>
A-10
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1996
(AS A PERCENTAGE OF AVERAGE NET ASSETS PRIOR TO EXPENSE REDUCTIONS)(10)
<TABLE>
<CAPTION>
EQUITY-
OVERSEAS INCOME
PORTFOLIO PORTFOLIO
--------- -----------
<S> <C> <C>
Management Fee . . . . . . . . . . . . . . . . . . . .76% .51%
Other Expenses . . . . . . . . . . . . . . . . . . . .17% .07%
--- ---
Total Portfolio Operating Expenses . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .93% .58%
</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.(11)) For purchase payments
allocated to each of the Portfolios indicated
You would pay the following direct and indirect
expenses on a $1,000 purchase payment assuming 1) 5%
annual return on the underlying 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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Overseas Portfolio . . . . . . . . . . $84.17 $127.78 $173.11 $282.89
Equity-Income Portfolio . . . . . . . 80.87 117.77 156.26 247.84
</TABLE>
You would pay the following direct and indirect
expenses on a $1,000 purchase payment assuming 1) 5%
annual return on the underlying 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(12):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Overseas Portfolio . . . . . . . . . . $24.20 $74.44 $127.24 $271.35
Equity-Income Portfolio . . . . . . . . 20.69 63.87 109.58 235.88
</TABLE>
A-11
<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 .11%, based on an average Contract Value of approximately $27,300
over the period from January 1, 1996 to December 31, 1996.
(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, Total Series
Operating Expenses are based on the amount of such expenses applied against
assets at December 31, 1996, after giving effect to a voluntary expense cap
or expense deferral in effect for 1997. For the Loomis Sayles Small Cap
Series, Total Series Operating Expenses take into account a voluntary cap
on expenses by TNE Advisers, Inc. ("TNE Advisers"), the Series' investment
adviser, 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, 1996 would have been 1.29%.
Total Series Operating Expenses for the Loomis Sayles Avanti Growth,
Westpeak Growth and Income, Back Bay Advisors Bond Income and Back Bay
Advisors Money Market Series are after giving effect to a voluntary expense
cap. For each of these Series, TNE Advisers 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 Loomis Sayles Avanti Growth and Westpeak
Growth and Income Series for the year ending December 31, 1996 would have
been .92% and .91%, respectively. For the six other Series shown, the Total
Series Operating Expenses are after giving effect to a voluntary expense
deferral. 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: 1.30% of
average daily net assets for the Morgan Stanley International Magnum Equity
Series; .90% of average daily net assets for the Alger Equity Growth and
Davis Venture Value Series; .85% of average daily net assets for the Loomis
Sayles Balanced and Salomon Brothers Strategic Bond Opportunities Series;
and .70% of average daily net assets for the Salomon Brothers U.S.
Government Series. Absent the expense deferral, Total Series Operating
Expenses for these Series for the year ended December 31, 1996 would have
been: 1.66% for the Morgan Stanley International Magnum Equity Series; .96%
for Davis Venture Value Series; .99% for Loomis Sayles Balanced Series;
1.19% for Salomon Brothers Strategic Bond Opportunities Series; and 1.37%
for Salomon Brothers U.S. Government Series. The expense cap and deferral
arrangements are voluntary and may be terminated at any time. (See the
attached prospectus of New England Zenith Fund for more complete
information.)
(7) In these examples, the average Administration Contract Charge of .11% has
been used. (See (4), above.)
(8) 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.")
A-12
<PAGE>
(9) 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, 1996. They
do not reflect certain expense reductions due to directed brokerage
arrangements and custodian interest credits. Had these reductions been
included, Total Portfolio Operating Expenses would have been .92% for the
Overseas Portfolio and .56% for the Equity-Income Portfolio. (See the
attached prospectus of the Variable Insurance Products Fund for more
complete information.) Affiliates of Fidelity Management and Research
Company may compensate NELICO or an affiliate for administrative,
distribution or other services relating to the Overseas and Equity-Income
Portfolios. Such compensation is based on assets of the Portfolios
attributable to the Contracts, which are administered by NELICO, and to
variable life insurance products issued by NELICO.
(10) In these examples, the average Administration Contract Charge of .11% has
been used. (See (4), above.)
(11) 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 (without the deduction of any
premium tax charges) 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-13
<PAGE>
ACCUMULATION UNIT VALUES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
THE NEW ENGLAND VARIABLE ACCOUNT
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MORGAN
STANLEY
LOOMIS INTERNATIONAL
SAYLES MAGNUM
SMALL CAP EQUITY OVERSEAS
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
--------- ------------- ----------
5/2/94* 1/1/95 1/1/96 10/31/94* 1/1/95 1/1/96 10/1/93* 1/1/94
TO TO TO TO TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/94 12/31/95 12/31/96 12/31/93 12/31/94
--------- ---------- ---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit
Value at beginning of
period. . . . . . . . 1.000 0.959 1.219 1.000 1.024 1.073 1.458 1.532
2. Accumulation Unit
Value at end of
period . . . . . . . 0.959 1.219 1.572 1.024 1.073 1.129 1.532 1.538
3. Number of Accumulation
Units outstanding at
end of period . . . . 2,988,971 13,533,326 26,307,748 2,916,120 11,062,106 16,322,862 10,878,551 43,034,544
<CAPTION>
ALGER
EQUITY CAPITAL
GROWTH GROWTH
SUB- SUB-
ACCOUNT ACCOUNT
--------- --------
1/1/95 1/1/96 10/31/94* 1/1/95 1/1/96 9/16/88* 1/1/89 1/1/90
TO TO TO TO TO TO TO TO
12/31/95 12/31/96 12/31/94 12/31/95 12/31/96 12/31/88 12/31/89 12/31/90
---------- ---------- --------- ---------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit
Value at beginning of
period. . . . . . . . 1.538 1.664 1.000 0.956 1.402 4.645 4.612 5.950
2. Accumulation Unit
Value at end of
period . . . . . . . 1.664 1.859 0.956 1.402 1.566 4.612 5.950 5.666
3. Number of Accumulation
Units outstanding at
end of period . . . . 41,273,183 44,846,316 1,857,319 24,163,685 40,025,594 439,393 5,337,778 12,591,788
<CAPTION>
1/1/91
TO
12/31/91
------------
<S> <C>
1. Accumulation Unit
Value at beginning of
period. . . . . . . . 5.666
2. Accumulation Unit
Value at end of
period . . . . . . . 8.608
3. Number of Accumulation
Units outstanding at
end of period . . . . 21,719,884
</TABLE>
<TABLE>
<CAPTION>
LOOMIS
SAYLES
AVANTI
GROWTH
SUB-
ACCOUNT
---------
1/1/92 1/1/93 1/1/94 1/1/95 1/1/96 10/1/93* 1/1/94 1/1/95
TO TO TO TO TO TO TO TO
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/93 12/31/94 12/31/95
---------- ---------- ---------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit
Value at beginning of
period. . . . . . . . 8.608 7.978 9.050 8.298 11.300 1.125 1.137 1.119
2. Accumulation Unit
Value at
end of period . . . . 7.978 9.050 8.298 11.300 13.496 1.137 1.119 1.439
3. Number of Accumulation
Units outstanding at
end of period . . . . 33,645,983 40,091,665 43,592,961 41,663,900 41,363,155 4,515,611 15,572,344 19,773,057
<CAPTION>
DAVIS WESTPEAK
VENTURE GROWTH
VALUE AND INCOME
SUB- SUB-
ACCOUNT ACCOUNT
--------- ----------
1/1/96 10/31/94* 1/1/95 1/1/96 10/1/93* 1/1/94 1/1/95 1/1/96
TO TO TO TO TO TO TO TO
12/31/96 12/31/94 12/31/95 12/31/96 12/31/93 12/31/94 12/31/95 12/31/96
---------- --------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit
Value at beginning of
period. . . . . . . . 1.439 1.000 0.963 1.323 1.105 1.132 1.103 1.486
2. Accumulation Unit
Value at
end of period . . . . 1.669 0.963 1.323 1.643 1.132 1.103 1.486 1.731
3. Number of Accumulation
Units outstanding at
end of period . . . . 24,345,379 3,499,719 19,608,688 34,997,024 3,359,317 16,092,325 21,168,965 26,104,465
</TABLE>
- ---------
* Date these sub-accounts were first available.
A-14
<PAGE>
<TABLE>
<CAPTION>
SALOMON
BROTHERS
LOOMIS STRATEGIC
EQUITY- SAYLES BOND
INCOME BALANCED OPPORTUNITIES
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
--------- -------------
10/1/93* 1/1/94 1/1/95 1/1/96 10/31/94 1/1/95 1/1/96 10/31/94*
TO TO TO TO TO TO TO TO
12/31/93 12/31/94 12/31/95 12/31/96 12/31/94 12/31/95 12/31/96 12/31/94
--------- ---------- ---------- ---------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit Value at
beginning of period . . . . 1.980 1.992 2.104 2.804 1.000 0.997 1.227 1.000
2. Accumulation Unit Value at
end of period . . . . . . . 1.992 2.104 2.804 3.162 0.997 1.227 1.415 0.984
3. Number of Accumulation Units
outstanding at end of
period . . . . . . . . . . 5,649,743 25,852,849 38,010,655 44,037,798 1,736,189 10,987,597 20,107,324 1,124,133
<CAPTION>
BACK BAY
ADVISORS
BOND
INCOME
SUB-
ACCOUNT
--------
1/1/95 1/1/96 10/5/88* 1/1/89 1/1/90 1/1/91 1/1/92
TO TO TO TO TO TO TO
12/31/95 12/31/96 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92
--------- ---------- -------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit Value at
beginning of period . . . . 0.984 1.159 1.631 1.634 1.810 1.930 2.247
2. Accumulation Unit Value at
end of period . . . . . . . 1.159 1.307 1.634 1.810 1.930 2.247 2.398
3. Number of Accumulation Units
outstanding at end of
period . . . . . . . . . . 6,132,563 15,034,554 299,002 4,287,540 10,139,527 17,797,335 28,871,719
</TABLE>
<TABLE>
<CAPTION>
SALOMON BACK BAY
BROTHERS ADVISORS
U.S. MONEY
GOVERNMENT MARKET
SUB- SUB-
ACCOUNT ACCOUNT
---------- --------
1/1/93 1/1/94 1/1/95 1/1/96 10/31/94* 1/1/95 1/1/96 9/29/88*
TO TO TO TO TO TO TO TO
12/31/93 12/31/94 12/31/95 12/31/96 12/31/94 12/31/95 12/31/96 12/31/88
---------- ---------- ---------- ---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit
Value at beginning
of period . . . . . . . . . . 2.398 2.664 2.540 3.037 1.000 1.004 1.139 1.384
2. Accumulation Unit
Value at end of
period . . . . . . . . . . . . 2.664 2.540 3.037 3.134 1.004 1.139 1.161 1.408
3. Number of Accumulation Units
outstanding at
end of period . . . . . . . . 41,939,487 41,657,182 42,231,987 41,138,874 910,020 4,495,184 5,785,148 915,605
<CAPTION>
1/1/89 1/1/90 1/1/91 1/1/92 1/1/93 1/1/94 1/1/95
TO TO TO TO TO TO TO
12/31/89 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> <C>
1. Accumulation Unit
Value at beginning
of period . . . . . . . . . . 1.408 1.518 1.620 1.697 1.738 1.766 1.811
2. Accumulation Unit
Value at end of
period . . . . . . . . . . . . 1.518 1.620 1.697 1.738 1.766 1.811 1.889
3. Number of Accumulation Units
outstanding at
end of period . . . . . . . . 7,661,069 21,629,006 26,322,938 26,759,532 25,016,975 30,220,356 33,015,018
<CAPTION>
1/1/96
TO
12/31/96
------------
<S> <C>
1. Accumulation Unit
Value at beginning
of period . . . . . . . . . . 1.889
2. Accumulation Unit
Value at end of
period . . . . . . . . . . . . 1.959
3. Number of Accumulation Units
outstanding at
end of period . . . . . . . . 33,412,517
</TABLE>
- ---------
* Date these sub-accounts were first available.
Information on units and unit values is useful because they affect the
calculation of Contract Values. The value of a Contract is determined by
multiplying the number of Accumulation Units in each sub-account credited to the
Contract by the Accumulation Unit Value of the sub-account. The Accumulation
Unit Value of a sub-account depends in part on the net investment experience of
the Eligible Fund in which it invests. See "Contract Value and Accumulation Unit
Value" for more information.
- --------------------------------------------------------------------------------
A-15
<PAGE>
HOW THE CONTRACT WORKS
PURCHASE PAYMENT
. You can make a one-time investment or establish an ongoing investment
program.
CHARGES FROM PAYMENT
. Premium tax charge may apply.
. Premium for disability benefit rider, if elected.
ADDITIONAL PAYMENTS
. Any time, (subject to Company limits).
. Minimum $25.
LOANS
. Are available to participants of certain tax qualified pension plans (see
page A-26).
SURRENDERS
. Up to 10% of Contract Value can be surrendered each year without incurring
surrender charges, subject to any applicable tax law restrictions.
. Surrenders will be taxable.
. Prior to age 59 1/2 a 10% penalty tax may apply.
DEATH PROCEEDS
. Guaranteed not to be less than your total contribution to your Contract net
of any prior surrenders and outstanding loans.
. Death proceeds pass to the beneficiary without probate.
CONTRACT VALUE
. Payments are allocated to your choice, within limits, of Eligible Funds
and/or the Fixed Account.
. The Contract Value reflects purchase payments, investment experience,
interest payments, partial surrenders, loans and Contract charges.
. The Contract Value invested in the Eligible Fund is not guaranteed.
. Earnings are accumulated free of any current income taxes (see page A-37).
. You may change the allocation of future payments, within limits, at any
time.
. Prior to annuitization, you may transfer Contract Value among accounts,
within limits, up to twelve times per Contract Year without charge (special
limits apply to transfers of Contract Value to and from the Fixed Account).
. Allocations of payments and transfers of Contract Value must comply with the
rule that Contract Value may be allocated among no more than ten accounts,
including the Fixed Account, at any time.
RETIREMENT BENEFITS
. Lifetime income options.
. Fixed and/or variable payout options.
. Premium tax charge may apply.
DAILY DEDUCTION FROM ASSETS
. Mortality and expense risk charge of 0.95% on an annual basis is deducted
from the Contract Value daily.
. Administration Asset Charge of 0.40% on annual basis is deducted from the
Contract Value daily.
. Investment advisory fees are deducted from the Eligible Fund Values daily.
ANNUAL CONTRACT FEE
. $30 Administration Contract Charge is deducted from the Contract Value on
each anniversary while Contract is in-force, other than under an annuity
payment option. A pro rata portion is deducted on full surrender and at
annuitization.
SURRENDER CHARGE
. Consists of Contingent Deferred Sales Charge (see page A-30).
PREMIUM TAX CHARGE
. Where applicable, is deducted from purchase payments (currently in Kentucky
and South Dakota) or from Contract Value when annuity payments commence
(currently in North Carolina).
ADDITIONAL BENEFITS
. You pay no taxes on your investment as long as it remains in the Contract.
. Contract may be surrendered at any time for its Contract Value, less any
applicable Contingent Deferred Sales Charge (subject to any applicable tax
law restrictions).
. If the Contract contains the disability benefit rider and the Annuitant
becomes totally disabled, monthly benefits will be provided.
A-16
<PAGE>
THE COMPANY
The Company is a mutual life insurance company whose principal office is at
One Madison Avenue, New York, N.Y. 10010. The Company was organized in 1866
under the laws of the State of New York and has engaged in the life insurance
business under its present name since 1868. It operates as a life insurance
company in all 50 states, the District of Columbia, Puerto Rico and all
provinces of Canada. The Company has over $298 billion in assets under
management.
New England Life Insurance Company ("NELICO"), a subsidiary of the Company,
provides administrative services for the Contracts and the Variable Account
pursuant to an administrative services agreement with the Company. These
administrative services include maintenance of Contract Owner records and
accounting, valuation, regulatory and reporting services. NELICO, located at 501
Boylston Street, Boston, Massachusetts 02116, is the Company's Designated Office
for receipt of Purchase Payments, loan repayments, requests and elections, and
communications regarding death of the Annuitant, as further described below.
THE VARIABLE ACCOUNT
The Variable Account was established as a separate investment account 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.
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 have market
A-17
<PAGE>
capitalization of less than $1 billion, have better than average growth rates at
below average price/earnings ratios, and have strong balance sheets and cash
flow.
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES
The Morgan Stanley International Magnum Equity Series seeks long-term capital
appreciation through investment in equity securities of non-U.S. issuers, in
accordance with the EAFE Country weightings determined by the Series'
subadviser. Under normal circumstances, at least 65% of the Series' total assets
will be invested in equity securities of issuers in at least three different
countries outside the U.S.
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.
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.
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).
DAVIS VENTURE VALUE SERIES
The Davis Venture Value Series seeks growth of capital. The Series will
primarily invest in domestic common stocks that its subadviser believes have
capital growth potential due to factors such as undervalued assets or earnings
potential, product development and demand, favorable operating ratios, resources
for expansion, management abilities, reasonableness of market price, and
favorable overall business prospects. The Series will generally invest
predominantly in equity securities of companies with market capitalizations of
at least $250 million.
WESTPEAK GROWTH AND INCOME SERIES
The Westpeak Growth and Income 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 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.
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
A-18
<PAGE>
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."
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.
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 invests primarily in debt obligations (including mortgage
backed securities) issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities, or derivative securities (such as
collateralized mortgage obligations) backed by such securities.
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. Money market funds are neither
insured nor guaranteed by the U.S. Government and there can be no assurance that
the Series will maintain a stable net asset value of $100 per share.
VARIABLE INSURANCE PRODUCTS FUND: Currently, there are two Portfolios of the
Variable Insurance Products Fund that are Eligible Funds under the Contracts
offered by this prospectus.
OVERSEAS PORTFOLIO
The Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. Foreign investments involve greater risks
than U.S. investments, including political and economic risks and the risks of
currency fluctuation.
EQUITY-INCOME PORTFOLIO
The Equity-Income Portfolio seeks reasonable income by investing primarily in
income-producing equity 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., an indirect 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 Bond Income Series and Back
Bay Advisors Money Market Series receive investment subadvisory services from
Back Bay Advisors, L.P., an affiliate of the Company. The Westpeak Growth and
Income Series receives investment subadvisory services from Westpeak Investment
Advisors, L.P., an affiliate of the Company. The Loomis Sayles Small Cap Series,
Loomis Sayles Avanti Growth Series and Loomis Sayles Balanced Series receive
investment subadvisory services from Loomis Sayles & Company, L.P., an affiliate
of the Company. The Morgan Stanley International Magnum Equity Series receives
investment subadvisory services from Morgan Stanley Asset Management Inc. The
Alger Equity Growth Series receives investment subadvisory services from Fred
Alger Management, Inc. The Davis Venture Value Series receives investment
subadvisory services from Davis Selected Advisers, L.P. The Salomon Brothers
Strategic Bond Opportunities Series and Salomon Brothers
A-19
<PAGE>
U.S. Government Series 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 or telephoning 1-800-356-5015.
The Overseas Portfolio and the Equity-Income 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 attached 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 or telephoning 1-800-356-5015.
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
A-20
<PAGE>
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 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 Designated 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 Designated 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 variable annuity contract issued by New England Variable Annuity
Fund I (a "Fund I contract") or New England Retirement Investment Account (a
"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
A-21
<PAGE>
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 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 the date when the Company receives at the
Designated Office: (1) due proof of death; or (2) 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
A-22
<PAGE>
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 permitted annuity 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
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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 Section 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 provision 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 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 by the Company's
Designated Office. See "Requests and Elections" for information regarding
transfers made by written request and by telephone.
For special rules regarding transfers involving the Fixed Account, see "The
Fixed Account." Transfers out of the Fixed Account are limited as to timing,
------------------------------------------------------------
frequency and amount.
- ---------------------
DOLLAR COST AVERAGING
The Company offers an automated transfer privilege referred to here as dollar
cost averaging. Under this feature you may request that a certain amount of your
Contract Value be transferred on the 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
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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.) Requests related to your use of the dollar cost averaging
program should be sent to the Designated Office.
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 Designated
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
also 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 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
Designated 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
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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 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 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
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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 Company intends, by the end of 1997, to postpone a full or
partial surrender attributable to a defaulted loan until the earliest permitted
distribution date under the law governing the applicable retirement program. 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. 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
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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 accounts in proportion to the Contract Value then in each
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 and loans made in South Carolina,
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 advisor regarding the currently applicable tax and ERISA rules before taking
any action with respect to loans.
The Company will provide further information regarding loans upon request.
DISABILITY BENEFIT RIDER
A disability benefit rider may be purchased, provided that the Annuitant
satisfies any applicable underwriting standards. This feature is available only
if you are under age 60 when your Contract is issued and if you plan to make
regular annual contributions to the Contract. If the Annuitant becomes totally
disabled, the rider provides that the Company will make monthly purchase
payments under the Contract, subject to the terms and conditions of the rider.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the payment of any
amounts due under the Contract or transfers of Contract Values between
sub-accounts when permitted under applicable Federal laws, rules and
regulations. Current Federal law permits such suspension or postponement if: (a)
the New York Stock Exchange is closed (other than for customary weekend and
holiday closings); (b) trading on the Exchange is restricted; (c) an emergency
exists such that it is not reasonably practicable to dispose of securities held
in the Variable Account or to determine the value of its assets; or (d) the
Securities and Exchange Commission by order so permits for the protection of
securities holders. Conditions described in (b) and (c) will be decided by or in
accordance with rules of the Securities and Exchange Commission.
OWNERSHIP RIGHTS
During the Annuitant's lifetime, all rights under the Contract are vested
solely in the Contract Owner unless otherwise provided. Such rights include the
right to change the Beneficiary, to change the payment option, to assign the
Contract (subject to the restrictions referred to below), and to exercise all
other rights, benefits, options and privileges conferred by the Contract or
allowed by the Company. Transfer of ownership of the Contract under an ERISA
"Pension Plan" to a non-spousal beneficiary may require spousal consent.
Qualified Plans and certain TSA Plans with sufficient employer involvement are
deemed to be "Pension Plans" under ERISA and may, therefore, be subject to rules
under the Retirement Equity Act of 1984. These rules require
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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 advisor.
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
Designated Office. 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's Designated Office at 1-800-435-4117 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 (or any servicer acting
on its behalf) 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 (or any servicer acting on its
behalf) 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 (or any servicer acting on its
behalf) 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 Designated 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 at its
Designated Office 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
The Company deducts various charges from Contract Value for the services
provided, expenses incurred and risks assumed in connection with the Contracts.
For example, the Company incurs costs and expenses in
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connection with issuing Contracts, maintaining Contract Owner records and
providing accounting, valuation, regulatory and reporting services. The Company
also incurs costs and expenses associated with the marketing, sale and
distribution of the Contracts. In addition, the Company assumes mortality and
expense risks under the Contracts. In particular, 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. Also, 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 Contract Owner (or, if
applicable, the Annuitant) dies prior to annuitization. (See "Payment on Death
Prior to Annuitization.") The amount and manner of deduction of Contract charges
is described below.
ADMINISTRATION CHARGES
The Company deducts 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.
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.
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.
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a Mortality and Expense Risk Charge from the Variable
Account. This 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.
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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 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.")
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In the case of a partial surrender, the Contingent Deferred Sales Charge is
deducted from the Contract Value remaining after the Contract Owner has received
the amount requested and is a percentage of the total amount withdrawn. For
example, if you requested a partial surrender of $100 (after previously
surrendering 10% of the Contract Value free of charge in that Contract Year) and
the applicable Contingent Deferred Sales Charge was 5%, the total amount of
Contract Value withdrawn in that transaction would be $105.26. After giving
effect to a partial surrender, including deduction of the Contingent Deferred
Sales Charge, the remaining Contract Value must be at least $500 (unless the
Company consents to a lesser amount) or, if the Contract is subject to an
outstanding loan, the remaining unloaned Contract Value must be at least 10% of
the total Contract Value after the partial surrender or $500, whichever is
greater (unless the Company consents to a lesser amount). If the requested
partial surrender would not satisfy this requirement, at the Contract Owner's
option either the amount of the partial surrender will be reduced or the
transaction will be treated as a full surrender and the Contingent Deferred
Sales Charge deducted from the proceeds. The Contingent Deferred Sales Charge is
deducted from the sub-accounts in the same proportion as the Contract Value that
you requested to be surrendered.
The Contingent Deferred Sales Charge will be waived in connection with an
exchange by a Contract Owner of one Zenith Accumulator Contract for another
Zenith Accumulator Contract.
PREMIUM TAX CHARGES
Various states impose a premium tax on annuity purchase payments received by
insurance companies. The Company may deduct these taxes from purchase payments
and currently does so for Contracts subject to the insurance tax law of 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. See Appendix B for a list of premium tax rates paid by the Company.
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 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%.
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A Contract issued in exchange for a Preference contract will have no
Contingent Deferred Sales Charge. Although Preference contracts were originally
issued subject to a contingent deferred sales charge, there are no longer any
Preference contracts subject to such a charge. 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 charges, administrative charges and investment advisory fees.
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.")
Requests to defer the Maturity Date, change payment options or make other
elections relating to annuity payments should be sent to the Designated Office.
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. Requests relating to annuity payment options
should be sent to the Designated Office. 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.
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The total amount of the Contract Value or Death Proceeds which may be applied
to provide annuity payments will be reduced by any applicable charges and by the
amount of any outstanding loan plus accrued interest. (See "Loan Provision for
Certain Tax Benefited Retirement Plans.")
The Contract provides for the variable 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.
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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.
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.
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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.);
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 advisor 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 advisor.
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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.
(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 advisor 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
Statutory limitations on contributions to retirement plans that qualify for
federal tax benefits may limit the amount of money that may be contributed to
the Contract in any Contract Year. Any purchase payments attributable to such
contributions may be tax deductible to the employer and are not currently
taxable to the Annuitants for
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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 a spousal IRA is $2,000. 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 $160,000 for 1997)
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.
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. With respect to a Section 457 Plan for a nonprofit organization
other than a governmental entity, (i) 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 and (ii)
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. The
plans may permit participants to specify the form of investment for their
deferred compensation account. Depending on the terms of the particular plan,
the employer may be entitled to draw on deferred amounts for purposes unrelated
to its Section 457 Plan obligations.
(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.
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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 Qualified Plan or a Governmental Plan, these
distributions must begin by the later of the date determined by the preceding
sentence or 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 restrictions with respect to 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.
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,
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<PAGE>
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.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control for the investments of a
segregated asset account may cause the investor [i.e., the Contract Owner],
-----
rather than the insurance company, to be treated as the owner of the assets in
the account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct their
investments to particular Sub-Accounts without being treated as owners of the
underlying assets."
The ownership rights under the Contract are similar to, but also different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, a Contract Owner has additional flexibility in allocating premium
payments and account values. These differences could result in a Contract Owner
being treated as the owner of a pro rata portion of the assets of the Variable
Account. In addition, the Company does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. The Company therefore reserves the right to modify
the Contract as necessary to attempt to prevent a Contract Owner from being
considered the owner of a pro rata share of the assets of the Variable Account.
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 annuitization, 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
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<PAGE>
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 or Annuitant 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. For these purposes, the investment in the Contract is not
affected by the Contract Owner's (or Annuitant's) death. That is, the investment
in the Contract remains the amount of any purchase payments paid which were not
excluded from gross income.
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 advisor 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.
POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of non-qualified annuities that
did not have "substantial life contingencies" by taxing income as it is credited
to the annuity. Although as of the date of this prospectus Congress is not
actively considering any legislation regarding the taxation of annuities, there
is always the possibility that the tax treatment of annuities could change by
legislation or other means (such as IRS regulations, revenue rulings, judicial
decisions, etc.). Moreover, it is also possible that any change could be
retroactive (that is, effective prior to the date of the change).
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.
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<PAGE>
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 (or any
unregistered separate account for which voting privileges are not extended) of
the Company or its affiliates will be voted in the same proportion as the
aggregate of (i) the shares for which voting instructions are received and (ii)
the shares that are voted in proportion to such voting instructions.
The SEC requires the Eligible Funds' Board 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 Company and is entitled to vote
at the Company's Annual Meeting of Policyholders.
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. 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.
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<PAGE>
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.
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 accounts, including the 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.
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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.) 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 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 year-to-date, one, three, 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, 1996 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
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.
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The Variable Account may update the performance history of one or more of its
sub-accounts on a quarterly basis by illustrating the one, three, 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 year-to-date, one year, three year, five
year, 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 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.
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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 --A recording of daily unit values is available by
service: calling 1-800-333-2501.
--Fund transfers and changes of future purchase payment
allocations can be made by calling 1-800-435-4117.
Written --All communications and inquiries regarding address
Communications: 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
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<PAGE>
APPENDIX B
PREMIUM TAX
Premium tax rates are subject to change. At present the Company pays premium
taxes in the following jurisdictions at the rates shown
<TABLE>
<CAPTION>
CONTRACTS USED WITH TAX
JURISDICTION QUALIFIED RETIREMENT PLANS ALL OTHER CONTRACTS
- ------------ -------------------------- -------------------
<S> <C> <C>
Alabama . . . . . . . 1.00% 1.00%
California . . . . . . 0.50% 2.35%
District of Columbia . 2.00% 2.00%
Kansas . . . . . . . . -- 2.00%
Kentucky . . . . . . . 2.00% 2.00%
Maine . . . . . . . . -- 2.00%
Mississippi . . . . . -- 2.00%
Nevada . . . . . . . . -- 3.50%
North Carolina . . . . -- 1.75%
Puerto Rico . . . . . 1.00% 1.00%
South Dakota . . . . . -- 1.25%
West Virginia . . . . 1.00% 1.00%
Wyoming . . . . . . . -- 1.00%
</TABLE>
See "Premium Tax Charges" in the prospectus for more information about how
premium taxes affect the Contracts.
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TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C>
HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-3
SERVICES RELATING TO THE VARIABLE ACCOUNT AND THE CONTRACTS . . . . . II-3
PERFORMANCE COMPARISONS . . . . . . . . . . . . . . . . . . . . . . . II-3
CALCULATION OF PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . II-4
NET INVESTMENT FACTOR . . . . . . . . . . . . . . . . . . . . . . . . II-20
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . II-20
HYPOTHETICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS . . . . . . . . II-22
HISTORICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS . . . . . . . . . II-25
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-28
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-28
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-29
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . F-1
</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-48
<PAGE>
ZENITH ACCUMULATOR
Individual Variable Annuity Contracts
Issued By
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Designated Office:
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
SUPPLEMENT DATED MAY 1, 1997
TO PROSPECTUS DATED MAY 1, 1996, AS SUPPLEMENTED AUGUST 30, 1996
This supplement updates information in and should be read in conjunction with
the prospectus dated May 1, 1996, as supplemented August 30, 1996, describing
individual flexible and single purchase payment variable annuity contracts (the
"Contracts") funded by The New England Variable Account (the "Variable
Account"). Certain additional information about the Contracts is contained in a
Statement of Additional Information dated May 1, 1997, 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. A copy of the May 1, 1996
prospectus and August 30, 1996 supplement, as well as the Statement of
Additional Information, may be obtained free of charge by writing to New England
Securities Corporation at 399 Boylston Street, Boston, Massachusetts 02116 or
telephoning 1-800-356-5015. This supplement is intended solely for owners of
Contracts issued prior to May 1, 1997, who have received the May 1, 1996
prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS SUPPLEMENT 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 SUPPLEMENT SHOULD BE RETAINED FOR FUTURE REFERENCE.
<PAGE>
ELIGIBLE FUNDS
The name of the Draycott International Equity Series is now the Morgan Stanley
International Magnum Equity Series.
The Series' investment objective is long-term capital appreciation through
investment in equity securities of non-U.S. issuers, in accordance with the EAFE
country weightings determined by the Series' subadviser. Under normal
circumstances, at least 65% of the Series' total assets will be invested in
equity securities of issuers in at least three different countries outside the
United States.
More complete information on the Series 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 Corporation, 399 Boylston Street, Boston, Massachusetts 02116, or
telephoning 1-800-365-5015.
EXPENSE TABLE
The Variable Account expenses set forth in the May 1, 1996 prospectus have not
changed. Set forth below are the operating expenses for New England Zenith Fund
and Variable Insurance Products Fund for the year ended December 31, 1996.
Examples of expenses under a hypothetical Contract reflecting 1996 operating
expenses are also provided.
EXPENSE TABLE
NEW ENGLAND ZENITH FUND
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1996
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER CURRENT EXPENSE CAP OR EXPENSE
DEFERRAL)(6)
<TABLE>
<CAPTION>
LOOMIS LOOMIS
SAYLES MORGAN STANLEY SAYLES DAVIS WESTPEAK
SMALL INTERNATIONAL ALGER EQUITY CAPITAL AVANTI VENTURE GROWTH
CAP MAGNUM EQUITY GROWTH GROWTH GROWTH VALUE AND INCOME
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------ -------------- ------------ ------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee . . . 1.00% .90% .74% .63% .70% .75% .70%
Other Expenses . . . 0% .40% .16% .06% .15% .15% .15%
---- ---- --- --- --- --- ---
Total Series
Operating
Expenses . . . . 1.00% 1.30% .90% .69% .85% .90% .85%
</TABLE>
<TABLE>
<CAPTION>
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
WESTPEAK LOOMIS BACK BAY STRATEGIC ADVISORS BROTHERS ADVISORS
STOCK SAYLES ADVISORS BOND BOND U.S. MONEY
INDEX BALANCED MANAGED OPPORTUNITIES INCOME GOVERNMENT MARKET
SERIES(7) SERIES SERIES(7) SERIES SERIES SERIES SERIES
--------- -------- --------- ------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee . . . .25% .70% .50% .65% .40% .55% .35%
Other Expenses . . . .15% .15% .12% .20% .12% .15% .15%
--- --- --- --- --- --- ---
Total Series
Operating
Expenses . . . . .40% .85% .62% .85% .52% .70% .50%
</TABLE>
A-2
<PAGE>
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.(8)) For purchase payments
allocated to each of the Series indicated
You would pay the following direct and indirect
expenses on a $1,000 purchase payment assuming 1) 5%
annual return on the underlying 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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap . . . . . . . $84.83 $129.77 $176.44 $289.74
Morgan Stanley International Magnum
Equity . . . . . . . . . . . . . . . 87.64 138.23 190.59 318.52
Alger Equity Growth . . . . . . . . . 83.89 126.93 171.68 279.94
Capital Growth . . . . . . . . . . . . 81.91 120.93 161.58 258.99
Loomis Sayles Avanti Growth . . . . . 83.42 125.50 169.28 275.00
Davis Venture Value . . . . . . . . . 83.89 126.93 171.68 279.94
Westpeak Growth and Income . . . . . . 83.42 125.50 169.28 275.00
Westpeak Stock Index . . . . . . . . . 79.17 112.59 147.47 229.27
Loomis Sayles Balanced . . . . . . . . 83.42 125.50 169.28 275.00
Back Bay Advisors Managed . . . . . . 81.25 118.93 158.19 251.91
Salomon Brothers Strategic Bond
Opportunities. . . . . . . . . . . . 83.42 125.50 169.28 275.00
Back Bay Advisors Bond Income . . . . 80.31 116.05 153.34 241.69
Salomon Brothers U.S. Government . . . 82.00 121.22 162.07 260.00
Back Bay Advisors Money Market . . . . 80.12 115.47 152.36 239.63
</TABLE>
You would pay the following direct and indirect
expenses on a $1,000 purchase payment assuming 1) 5%
annual return on the underlying 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(9):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap . . . . . . . $24.90 $76.54 $130.73 $278.28
Morgan Stanley International Magnum
Equity . . . . . . . . . . . . . . . 27.89 85.48 145.56 307.40
Alger Equity Growth . . . . . . . . . 23.90 73.54 125.74 268.36
Capital Growth . . . . . . . . . . . . 21.79 67.21 115.16 247.17
Loomis Sayles Avanti Growth . . . . . 23.40 72.03 123.23 263.36
Davis Venture Value . . . . . . . . . 23.90 73.54 125.74 268.36
Westpeak Growth and Income . . . . . . 23.40 72.03 123.23 263.36
Westpeak Stock Index . . . . . . . . . 18.88 58.40 100.37 217.10
Loomis Sayles Balanced . . . . . . . . 23.40 72.03 123.23 263.36
Back Bay Advisors Managed . . . . . . 21.09 65.09 111.61 240.00
Salomon Brothers Strategic Bond
Opportunities. . . . . . . . . . . . 23.40 72.03 123.23 263.36
Back Bay Advisors Bond Income . . . . 20.09 62.05 106.52 229.66
Salomon Brothers U.S. Government . . . 21.89 67.51 115.67 248.19
Back Bay Advisors Money Market . . . . 19.89 61.44 105.50 227.58
</TABLE>
A-3
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1996
(AS A PERCENTAGE OF AVERAGE NET ASSETS PRIOR TO EXPENSE REDUCTIONS)(10)
<TABLE>
<CAPTION>
EQUITY-
OVERSEAS INCOME
PORTFOLIO PORTFOLIO
--------- -----------
<S> <C> <C>
Management Fee . . . . . . . . . . . . . . . . . . . .76% .51%
Other Expenses . . . . . . . . . . . . . . . . . . . .17% .07%
--- ---
Total Portfolio Operating Expenses. . . . . . . . . .93% .58%
</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.(11)) For purchase payments
allocated to each of the Portfolios indicated
You would pay the following direct and indirect
expenses on a $1,000 purchase payment assuming 1) 5%
annual return on the underlying 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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Overseas Portfolio . . . . . . . . . . $84.17 $127.78 $173.11 $282.89
Equity-Income Portfolio . . . . . . . 80.87 117.77 156.26 247.84
</TABLE>
You would pay the following direct and indirect
expenses on a $1,000 purchase payment assuming 1) 5%
annual return on the underlying 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(12):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Overseas Portfolio . . . . . . . . . . $24.20 $74.44 $127.24 $271.35
Equity-Income Portfolio . . . . . . . . 20.69 63.87 109.58 235.88
</TABLE>
A-4
<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 .11%, based on an average Contract Value of approximately $27,300
over the period from January 1, 1996 to December 31, 1996.
(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, Total Series
Operating Expenses are based on the amount of such expenses applied against
assets at December 31, 1996, after giving effect to a voluntary expense cap
or expense deferral in effect for 1997. For the Loomis Sayles Small Cap
Series, Total Series Operating Expenses take into account a voluntary cap
on expenses by TNE Advisers, Inc. ("TNE Advisers"), the Series' investment
adviser, 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, 1996 would have been 1.29%.
Total Series Operating Expenses for the Loomis Sayles Avanti Growth,
Westpeak Growth and Income, Westpeak Stock Index, Back Bay Advisors
Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money Market
Series are after giving effect to a voluntary expense cap. For each of
these Series, TNE Advisers 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 Loomis Sayles Avanti Growth, Westpeak Growth and Income
and Westpeak Stock Index Series for the year ending December 31, 1996 would
have been .92%, .91% and 50%, respectively. For the six other Series shown,
the Total Series Operating Expenses are after giving effect to a voluntary
expense deferral. 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: 1.30% of average daily net assets for the Morgan Stanley International
Magnum Equity Series; .90% of average daily net assets for the Alger Equity
Growth and Davis Venture Value Series; .85% of average daily net assets for
the Loomis Sayles Balanced and Salomon Brothers Strategic Bond
Opportunities Series; and .70% of average daily net assets for the Salomon
Brothers U.S. Government Series. Absent the expense deferral, Total Series
Operating Expenses for these Series for the year ended December 31, 1996
would have been: 1.66% for the Morgan Stanley International Magnum Equity
Series; .96% for Davis Venture Value Series; .99% for Loomis Sayles
Balanced Series; 1.19% for Salomon Brothers Strategic Bond Opportunities
Series; and 1.37% for Salomon Brothers U.S. Government Series. The expense
cap and deferral arrangements are voluntary and may be terminated at any
time. (See the attached prospectus of 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) In these examples, the average Administration Contract Charge of .11% has
been used. (See (4), above.)
A-5
<PAGE>
(9) The same would apply if you elect to annuitize under a fixed life
contingency option unless your Contract has been in effect less than five
years, in which case the expenses shown in the first three columns of the
preceding example would apply. (See "Contingent Deferred Sales Charge.")
(10) 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, 1996. They
do not reflect certain expense reductions due to directed brokerage
arrangements and custodian interest credits. Had these reductions been
included, Total Portfolio Operating Expenses would have been .92% for the
Overseas Portfolio and .56% for the Equity-Income Portfolio. (See the
attached prospectus of the Variable Insurance Products Fund for more
complete information.) Affiliates of Fidelity Management and Research
Company may compensate NELICO or an affiliate for administrative,
distribution or other services relating to the Overseas and Equity-Income
Portfolios. Such compensation is based on assets of the Portfolios
attributable to the Contracts, which are administered by NELICO, and to
variable life insurance products issued by NELICO.
(11) In these examples, the average Administration Contract Charge of .11% has
been used. (See (4), above.)
(12) The same would apply if you elect to annuitize under a fixed life
contingency option unless your Contract has been in effect less than five
years, in which case the expenses shown in the first three columns of the
preceding example would apply. (See "Contingent Deferred Sales Charge.")
The preceding table lists the charges and expenses incurred with respect to
purchase payments invested under the Contracts. The items listed include charges
deducted from purchase payments, charges assessed against Variable Account
assets, and charges deducted from the assets of each of the Eligible Funds. The
examples assume that the entire purchase payment (without the deduction of any
premium tax charges) 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.
- -----------------------------------------------------------------------------
ACCUMULATION UNIT VALUES
Financial statements for the Variable Account and Metropolitan Life Insurance
Company are included in the Statement of Additional Information, a copy of which
can be obtained by writing to New England Securities Corporation at 399 Boylston
Street, Boston, Massachusetts 02116 or telephoning 1-800-356-5015. Set forth
below are accumulation unit values for Sub-accounts of the Variable Account.
A-6
<PAGE>
ACCUMULATION UNIT VALUES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
THE NEW ENGLAND VARIABLE ACCOUNT
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MORGAN
STANLEY
LOOMIS INTERNATIONAL
SAYLES MAGNUM
SMALL CAP EQUITY OVERSEAS
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
--------- ------------- ----------
5/2/94* 1/1/95 1/1/96 10/31/94* 1/1/95 1/1/96 10/1/93* 1/1/94
TO TO TO TO TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/94 12/31/95 12/31/96 12/31/93 12/31/94
--------- ---------- ---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit
Value at beginning of
period. . . . . . . . 1.000 0.959 1.219 1.000 1.024 1.073 1.458 1.532
2. Accumulation Unit
Value at end
of period . . . . . . 0.959 1.219 1.572 1.024 1.073 1.129 1.532 1.538
3. Number of Accumulation
Units outstanding at
end of period . . . . 2,988,971 13,533,326 26,307,748 2,916,120 11,062,106 16,322,862 10,878,551 43,034,544
<CAPTION>
ALGER
EQUITY CAPITAL
GROWTH GROWTH
SUB- SUB-
ACCOUNT ACCOUNT
--------- --------
1/1/95 1/1/96 10/31/94* 1/1/95 1/1/96 9/16/88* 1/1/89 1/1/90
TO TO TO TO TO TO TO TO
12/31/95 12/31/96 12/31/94 12/31/95 12/31/96 12/31/88 12/31/89 12/31/90
---------- ---------- --------- ---------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit
Value at beginning of
period. . . . . . . . 1.538 1.664 1.000 0.956 1.402 4.645 4.612 5.950
2. Accumulation Unit
Value at end
of period . . . . . . 1.664 1.859 0.956 1.402 1.566 4.612 5.950 5.666
3. Number of Accumulation
Units outstanding at
end of period . . . . 41,273,183 44,846,316 1,857,319 24,163,685 40,025,594 439,393 5,337,778 12,591,788
<CAPTION>
1/1/91
TO
12/31/91
------------
<S> <C>
1. Accumulation Unit
Value at beginning of
period. . . . . . . . 5.666
2. Accumulation Unit
Value at end
of period . . . . . . 8.608
3. Number of Accumulation
Units outstanding at
end of period . . . . 21,719,884
</TABLE>
<TABLE>
<CAPTION>
LOOMIS
SAYLES
AVANTI
GROWTH
SUB-
ACCOUNT
---------
1/1/92 1/1/93 1/1/94 1/1/95 1/1/96 10/1/93* 1/1/94 1/1/95
TO TO TO TO TO TO TO TO
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/93 12/31/94 12/31/95
---------- ---------- ---------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit
Value at beginning of
period. . . . . . . . 8.608 7.978 9.050 8.298 11.300 1.125 1.137 1.119
2. Accumulation Unit
Value at end
of period . . . . . . 7.978 9.050 8.298 11.300 13.496 1.137 1.119 1.439
3. Number of Accumulation
Units outstanding at
end of period . . . . 33,645,983 40,091,665 43,592,961 41,663,900 41,363,155 4,515,611 15,572,344 19,773,057
<CAPTION>
DAVIS WESTPEAK
VENTURE GROWTH
VALUE AND INCOME
SUB- SUB-
ACCOUNT ACCOUNT
--------- ----------
1/1/96 10/31/94* 1/1/95 1/1/96 10/1/93* 1/1/94 1/1/95 1/1/96
TO TO TO TO TO TO TO TO
12/31/96 12/31/94 12/31/95 12/31/96 12/31/93 12/31/94 12/31/95 12/31/96
----------- --------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit
Value at beginning of
period. . . . . . . . 1.439 1.000 0.963 1.323 1.105 1.132 1.103 1.486
2. Accumulation Unit
Value at end
of period . . . . . . 1.669 0.963 1.323 1.643 1.132 1.103 1.486 1.731
3. Number of Accumulation
Units outstanding at
end of period . . . . 24,345,379 3,499,719 19,608,688 34,997,024 3,359,317 16,092,325 21,168,965 26,104,465
</TABLE>
- ---------
* Date these sub-accounts were first available.
A-7
<PAGE>
<TABLE>
<CAPTION>
SALOMON
BROTHERS
LOOMIS STRATEGIC
EQUITY- SAYLES BOND
INCOME BALANCED OPPORTUNITIES
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
--------- --------- -------------
10/1/93* 1/1/94 1/1/95 1/1/96 10/31/94 1/1/95 1/1/96 10/31/94*
TO TO TO TO TO TO TO TO
12/31/93 12/31/94 12/31/95 12/31/96 12/31/94 12/31/95 12/31/96 12/31/94
--------- ---------- ---------- ---------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit Value at
beginning of period . . . . 1.980 1.992 2.104 2.804 1.000 0.997 1.227 1.000
2. Accumulation Unit Value at
end of period . . . . . . . 1.992 2.104 2.804 3.162 0.997 1.227 1.415 0.984
3. Number of Accumulation Units
outstanding at end of
period . . . . . . . . . . 5,649,743 25,852,849 38,010,655 44,037,798 1,736,189 10,987,597 20,107,324 1,124,133
<CAPTION>
BACK BAY
ADVISORS
BOND
INCOME
SUB-
ACCOUNT
--------
1/1/95 1/1/96 10/5/88* 1/1/89 1/1/90 1/1/91 1/1/92
TO TO TO TO TO TO TO
12/31/95 12/31/96 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92
--------- ---------- -------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit Value at
beginning of period . . . . 0.984 1.159 1.631 1.634 1.810 1.930 2.247
2. Accumulation Unit Value at
end of period . . . . . . . 1.159 1.307 1.634 1.810 1.930 2.247 2.398
3. Number of Accumulation Units
outstanding at end of
period . . . . . . . . . . 6,132,563 15,034,554 299,002 4,287,540 10,139,527 17,797,335 28,871,719
</TABLE>
<TABLE>
<CAPTION>
SALOMON BACK BAY
BROTHERS ADVISORS
U.S. MONEY
GOVERNMENT MARKET
SUB- SUB-
ACCOUNT ACCOUNT
---------- --------
1/1/93 1/1/94 1/1/95 1/1/96 10/31/94* 1/1/95 1/1/96 9/29/88*
TO TO TO TO TO TO TO TO
12/31/93 12/31/94 12/31/95 12/31/96 12/31/94 12/31/95 12/31/96 12/31/88
---------- ---------- ---------- ---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit
Value at beginning
of period . . . . . . . . . . 2.398 2.664 2.540 3.037 1.000 1.004 1.139 1.384
2. Accumulation Unit
Value at end of
period . . . . . . . . . . . . 2.664 2.540 3.037 3.134 1.004 1.139 1.161 1.408
3. Number of Accumulation Units
outstanding at end of
period . . . . . . . . . . . . 41,939,487 41,657,182 42,231,987 41,138,874 910,020 4,495,184 5,785,148 915,605
<CAPTION>
1/1/89 1/1/90 1/1/91 1/1/92 1/1/93 1/1/94 1/1/95
TO TO TO TO TO TO TO
12/31/89 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> <C>
1. Accumulation Unit
Value at beginning
of period . . . . . . . . . . 1.408 1.518 1.620 1.697 1.738 1.766 1.811
2. Accumulation Unit
Value at end of
period . . . . . . . . . . . . 1.518 1.620 1.697 1.738 1.766 1.811 1.889
3. Number of Accumulation Units
outstanding at end of
period . . . . . . . . . . . . 7,661,069 21,629,006 26,322,938 26,759,532 25,016,975 30,220,356 33,015,018
<CAPTION>
1/1/96
TO
12/31/96
------------
<S> <C>
1.
Accumulation Unit
Value at beginning
of period . . . . . . . . . . 1.889
2.
Accumulation Unit
Value at end of
period . . . . . . . . . . . . 1.959
3. Number of Accumulation Units
outstanding at end of
period . . . . . . . . . . . . 33,412,517
</TABLE>
- ---------
* Date these sub-accounts were first available.
A-8
<PAGE>
<TABLE>
<CAPTION>
BACK BAY
ADVISORS
MANAGED
SUB-
ACCOUNT**
---------
9/21/88* 1/1/89 1/1/90 1/1/91 1/1/92 1/1/93 1/1/94
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
--------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit Value at
beginning of period . . . . . . . . . . 1.042 1.063 1.250 1.272 1.508 1.588 1.733
2. Accumulation Unit Value at end of period 1.063 1.250 1.272 1.508 1.588 1.733 1.691
3. Number of Accumulation Units outstanding
at end of period . . . . . . . . . . . . 731,349 9,179,207 18,099,540 26,478,398 41,588,546 60,696,659 61,961,278
<CAPTION>
WESTPEAK
STOCK
INDEX
SUB-
ACCOUNT**
---------
1/1/95 1/1/96 1/1/92* 1/1/93 1/1/94 1/1/95 1/1/96
TO TO TO TO TO TO TO
12/31/95 12/31/96 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
---------- ---------- --------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit Value at 1.691 2.190 1.592 1.644 1.780 1.775 2.398
beginning of period . . . . . . . . . .
2. Accumulation Unit Value at end of period 2.190 2.485 1.540 1.780 1.775 2.398 2.898
3. Number of Accumulation Units outstanding 56,145,463 52,130,165 2,583,607 11,017,884 14,282,355 15,539,608 15,623,253
at end of period . . . . . . . . . . . .
</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-9
<PAGE>
FEDERAL INCOME TAX STATUS
Certain of the rules under the Federal income tax laws described in the May 1,
1996 prospectus for the Contracts have been revised. In particular, with respect
to Qualified Plans, TSA Plans, 457 Plans and Governmental Plans, distributions
generally must commence by April 1 of the later of the calendar year following
the year in which the Annuitant attains age 70 1/2 or the calendar year
following the year in which the Annuitant retires. With respect to IRAs, SEPs
and SARSEPs, or if the plan participant is a "5 percent owner," as defined in
the Internal Revenue Code, distributions must commence by April 1 of the
calendar year following the year in which the Annuitant reaches age 70 1/2.
Also, the imposition of penalty taxes on aggregate annual distributions in
excess of $150,000 has been suspended for years 1997, 1998 and 1999. Finally, by
1999, 457 Plans for governmental organizations must provide for contributions to
be held in trust for the exclusive benefit of participants.
Because the rules that apply to the Contracts under the Federal income tax
laws are complex and are subject to change from time to time, you should consult
your tax advisor periodically with respect to the status of your Contract under
those laws.
A-10
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
ZENITH ACCUMULATOR
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
(PART B)
MAY 1, 1997
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated May 1, 1997 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>
History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-3
Services Relating to the Variable Account and the Contracts . . . . . II-3
Performance Comparisons . . . . . . . . . . . . . . . . . . . . . . . II-3
Calculation of Performance Data . . . . . . . . . . . . . . . . . . . II-4
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . II-20
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . II-20
Hypothetical Illustrations of Annuity Income Payouts . . . . . . . . II-22
Historical Illustrations of Annuity Income Payouts . . . . . . . . . II-25
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-28
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-28
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-29
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
II-2
<PAGE>
HISTORY
The New England Variable Account (the "Variable Account") is a separate
account of Metropolitan Life Insurance Company (the "Company"). The Variable
Account was originally a separate account of New England Mutual Life Insurance
Company ("The New England"), and became a separate account of the Company when
The New England merged with and into the Company on August 30, 1996.
SERVICES RELATING TO THE VARIABLE ACCOUNT AND THE CONTRACTS
Auditors. Deloitte & Touche LLP, located at 125 Summer Street, Boston,
Massachusetts 02110, conducts an annual audit of the Variable Account's
financial statements.
Administrative Services Agreement. Pursuant to an administrative services
agreement between New England Life Insurance Company ("NELICO") and the Company,
NELICO serves as the Designated Office for servicing the Contracts and performs
certain other administrative services for the Company relating to the Variable
Account and the Contracts. NELICO is compensated for these services based on the
expenses it incurs in providing them. NELICO was a wholly-owned subsidiary of
The New England before it merged into the Company, and became a subsidiary of
the Company as a result of the merger.
Principal Underwriter. New England Securities Corporation ("New England
Securities"), an indirect subsidiary of the Company, serves as principal
underwriter for the Variable Account pursuant to a distribution agreement with
the Company. The Contracts are offered continuously and are sold by NELICO'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 of Additional Information.
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 Growth and Income 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, Morgan
Stanley International Magnum Equity, Alger Equity Growth, Davis Venture Value,
Salomon Brothers Strategic Bond Opportunities and Salomon Brothers U.S.
Government) 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, 1996 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, 1996 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, 1996. 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.
AVERAGE ANNUAL TOTAL RETURN
For purchase payment allocated to the Loomis Sayles Small Cap Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 19.1%
Since Inception . . . . . . . . . . . . . . . . . . . 13.5%
</TABLE>
For purchase payment allocated to the Morgan Stanley International Magnum
Equity Series:*
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . -3.3%
Since Inception . . . . . . . . . . . . . . . . . . . .3%
</TABLE>
For purchase payment allocated to the Overseas Portfolio:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 2.8%
5 Years . . . . . . . . . . . . . . . . . . . . . . . 4.0%
Since Inception . . . . . . . . . . . . . . . . . . . 3.6%
</TABLE>
- ---------
* The Morgan Stanley International Magnum Equity Series' subadviser was Draycott
Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset Management Inc.
became the subadviser.
II-4
<PAGE>
For purchase payment allocated to the Alger Equity Growth Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 2.8%
Since Inception . . . . . . . . . . . . . . . . . . . 17.7%
</TABLE>
For purchase payment allocated to the Capital Growth Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 10.2%
5 Years . . . . . . . . . . . . . . . . . . . . . . . 5.5%
10 Years . . . . . . . . . . . . . . . . . . . . . . . 13.0%
Since Inception . . . . . . . . . . . . . . . . . . . 20.6%
</TABLE>
For purchase payment allocated to the Loomis Sayles Avanti Growth Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 6.9%
Since Inception . . . . . . . . . . . . . . . . . . . 10.9%
</TABLE>
For purchase payment allocated to the Davis Venture Value Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 14.6%
Since Inception . . . . . . . . . . . . . . . . . . . 20.2%
</TABLE>
For purchase payment allocated to the Westpeak Growth and Income Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 7.4%
Since Inception . . . . . . . . . . . . . . . . . . . 12.0%
</TABLE>
For purchase payment allocated to the Equity-Income Portfolio:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 3.8%
5 Years . . . . . . . . . . . . . . . . . . . . . . . 13.2%
10 Years . . . . . . . . . . . . . . . . . . . . . . . 9.9%
Since Inception . . . . . . . . . . . . . . . . . . . 9.6%
</TABLE>
For purchase payment allocated to the Loomis Sayles Balanced Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 6.3%
Since Inception . . . . . . . . . . . . . . . . . . . 11.9%
</TABLE>
For purchase payment allocated to the Salomon Brothers Strategic Bond
Opportunities Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 3.9%
Since Inception . . . . . . . . . . . . . . . . . . . 7.7%
</TABLE>
For purchase payment allocated to the Back Bay Advisors Bond Income Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . -5.2%
5 Years . . . . . . . . . . . . . . . . . . . . . . . 3.3%
10 Years . . . . . . . . . . . . . . . . . . . . . . 5.0%
Since Inception . . . . . . . . . . . . . . . . . . . 6.9%
</TABLE>
II-5
<PAGE>
For purchase payment allocated to the Salomon Brothers U.S. Government Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . -6.4%
Since Inception . . . . . . . . . . . . . . . . . . . 1.8%
</TABLE>
For purchase payment allocated to the Back Bay Advisors Money Market Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . -4.7%
5 Years . . . . . . . . . . . . . . . . . . . . . . . -.9%
10 Years . . . . . . . . . . . . . . . . . . . . . . 1.8%
Since Inception . . . . . . . . . . . . . . . . . . . 2.8%
</TABLE>
Information is available illustrating the impact of fund performance on
annuity payouts. For examples, see "Historical Illustrations of Annuity Income
Payments" and "Hypothetical Illustrations of Annuity Income Payments" in this
Statement of Additional Information.
The following chart illustrates how the average annual total return was
determined for the five year period ending December 31, 1996 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 illustration assumes no premium tax charge is deducted.
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, 1991 . . 116.1755 8.607664 $1,000.00
December 31, 1992 . . 112.4157 7.978068 896.86 $ 848.43 -15.16%
December 31, 1993 . . 109.1004 9.049554 987.31 938.44 -3.13%
December 31, 1994 . . 105.4850 8.297578 875.27 835.88 -5.80%
December 31, 1995 . . 102.8299 11.300017 1,161.98 1,114.92 2.76%
December 31, 1996 . . 100.6073 13.496435 1,357.84 1,308.96 5.53%
</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 Growth and
Income 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 (FOR SUB-ACCOUNTS INVESTING IN CAPITAL GROWTH,
BACK BAY ADVISORS BOND INCOME AND BACK BAY ADVISORS MONEY MARKET)
(EQUITY-INCOME: NOVEMBER 1, 1986 AND OVERSEAS: FEBRUARY 1, 1987)
(WESTPEAK GROWTH AND INCOME AND LOOMIS SAYLES 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)
--------------------------------------------------------------------------------------------------
MORGAN
LOOMIS STANLEY LOOMIS WESTPEAK
SAYLES INTERNATIONAL ALGER SAYLES DAVIS GROWTH
SMALL MAGNUM EQUITY CAPITAL AVANTI VENTURE AND
CAP EQUITY(2) OVERSEAS GROWTH GROWTH GROWTH VALUE INCOME
---------- ------------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . $ 10,470.12
1984 . . . . . 10,237.14
1985 . . . . . 16,941.91
1986 . . . . . 32,599.29
1987 . . . . . $ 9,345.49 49,087.62
1988 . . . . . 9,936.28 44,141.97
1989 . . . . . 12,343.46 56,919.65
1990 . . . . . 11,945.10 54,170.04
1991 . . . . . 12,695.83 82,262.43
1992 . . . . . 11,156.05 76,212.70
1993 . . . . . 15,078.13 86,417.09 $11,370.39 $11,321.11
1994 . . . . . $ 9,590.97 $10,237.83 15,104.86 $ 9,695.00 79,208.42 11,157.06 $ 9,628.96 11,004.57
1995 . . . . . 12,156.37 10,698.65 16,311.44 14,193.96 107,838.80 14,313.48 13,201.25 14,780.39
1996 . . . . . 15,637.59 11,227.90 18,185.02 15,815.91 128,763.66 16,574.48 16,356.09 17,185.98
<CAPTION>
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
LOOMIS STRATEGIC ADVISORS BROTHERS ADVISORS
EQUITY- SAYLES BOND BOND U.S. MONEY
INCOME BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- ---------- ------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . $10,339.37 $10,258.59
1984 . . . . . 11,453.64 11,175.34
1985 . . . . . 13,388.01 11,905.86
1986 . . . . . $ 9,888.64 15,137.25 12,514.94
1987 . . . . . 9,615.25 15,242.29 13,122.50
1988 . . . . . 11,611.24 16,265.40 13,889.20
1989 . . . . . 13,412.67 17,990.50 14,941.00
1990 . . . . . 11,176.22 19,151.95 15,916.76
1991 . . . . . 14,462.11 22,256.25 16,648.66
1992 . . . . . 16,645.30 23,722.98 17,018.47
1993 . . . . . 19,396.57 26,326.49 17,259.12
1994 . . . . . 20,460.15 $ 9,968.28 $ 9,838.87 25,071.19 $10,038.07 17,674.12
1995 . . . . . 27,238.96 12,242.06 11,557.83 29,948.07 11,360.92 18,401.19
1996 . . . . . 30,677.47 14,087.95 13,008.06 30,873.63 11,548.68 19,053.28
</TABLE>
<TABLE>
<CAPTION>
SURRENDER VALUE(1)
--------------------------------------------------------------------------------------------------
MORGAN
LOOMIS STANLEY LOOMIS WESTPEAK
SAYLES INTERNATIONAL ALGER SAYLES DAVIS GROWTH
SMALL MAGNUM EQUITY CAPITAL AVANTI VENTURE AND
CAP EQUITY(2) OVERSEAS GROWTH GROWTH GROWTH VALUE INCOME
---------- ------------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . $ 9,847.62
1984 . . . . . 9,674.33
1985 . . . . . 16,131.91
1986 . . . . . 31,789.29
1987 . . . . . $ 8,771.28 48,277.62
1988 . . . . . 9,372.22 43,331.97
1989 . . . . . 11,704.96 56,109.65
1990 . . . . . 11,380.07 53,360.04
1991 . . . . . 12,154.15 81,452.43
1992 . . . . . 10,726.94 75,516.79
1993 . . . . . 14,575.67 86,407.09 $10,685.22 $10,638.82
1994 . . . . . $ 9,012.40 $ 9,633.91 14,669.53 $ 9,122.84 79,198.42 10,534.58 $ 9,060.66 10,390.32
1995 . . . . . 11,482.43 10,115.92 15,990.34 13,422.49 107,828.80 13,584.96 12,483.38 14,028.76
1996 . . . . . 14,846.03 10,667.11 17,993.85 15,028.03 128,753.66 15,808.63 15,551.09 16,392.61
<CAPTION>
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
LOOMIS STRATEGIC ADVISORS BROTHERS ADVISORS
EQUITY- SAYLES BOND BOND U.S MONEY
INCOME BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- ---------- ------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . $ 9,724.51 $ 9,648.46
1984 . . . . . 10,825.14 10,561.87
1985 . . . . . 12,715.30 11,306.52
1986 . . . . . $ 9,305.15 14,446.07 11,941.77
1987 . . . . . 9,091.03 14,614.97 12,581.04
1988 . . . . . 11,031.48 15,669.85 13,379.19
1989 . . . . . 12,804.10 17,413.80 14,460.36
1990 . . . . . 10,718.58 18,624.85 15,477.01
1991 . . . . . 13,936.47 21,845.84 16,338.98
1992 . . . . . 16,115.97 23,499.47 16,855.30
1993 . . . . . 18,867.86 26,316.49 17,249.12
1994 . . . . . 20,086.86 $ 9,380.13 $ 9,258.29 25,061.19 $ 9,445.85 17,664.12
1995 . . . . . 26,988.81 11,575.99 10,928.71 29,938.07 10,742.43 18,391.19
1996 . . . . . 30,672.47 13,385.59 12,359.16 30,863.63 10,972.02 19,043.28
</TABLE>
II-7
<PAGE>
ANNUAL PERCENTAGE CHANGE IN CONTRACT VALUE(1)
<TABLE>
<CAPTION>
LOOMIS MORGAN STANLEY LOOMIS
SAYLES INTERNATIONAL ALGER SAYLES DAVIS
SMALL MAGNUM EQUITY CAPITAL AVANTI VENTURE
CAP EQUITY(2) OVERSEAS GROWTH GROWTH GROWTH VALUE
------ -------------- -------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . 4.70%
1984 . . . . . . . -2.23
1985 . . . . . . . 65.49
1986 . . . . . . . 92.42
1987 . . . . . . . -6.55% 50.58
1988 . . . . . . . 6.32 -10.08
1989 . . . . . . . 24.23 28.95
1990 . . . . . . . -3.23 -4.83
1991 . . . . . . . 6.28 51.86
1992 . . . . . . . -12.13 -7.35
1993 . . . . . . . 35.16 13.39 13.70%
1994 . . . . . . . -4.09% 2.38% 0.18 -3.05% -8.34 -1.88 -3.71%
1995 . . . . . . . 26.75 4.50 7.99 46.40 36.15 28.29 37.10
1996 . . . . . . . 28.64 4.95 11.49 11.43 19.40 15.80 23.90
Cumulative Return . . 56.38 12.28 81.85 58.16 1,187.64 65.74 63.56
Annual Effective Rate
of Return . . . . . 18.24 5.50 6.22 23.59 21.13 14.77 25.52
</TABLE>
<TABLE>
<CAPTION>
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
WESTPEAK LOOMIS STRATEGIC ADVISORS BROTHERS ADVISORS
GROWTH EQUITY- SAYLES BOND BOND U.S. MONEY
AND INCOME INCOME BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- ------- -------- ------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . 3.39% 2.59%
1984 . . . . . . . 10.78 8.94
1985 . . . . . . . 16.89 6.54
1986 . . . . . . . -1.11% 13.07 5.12
1987 . . . . . . . -2.76 0.69 4.85
1988 . . . . . . . 20.76 6.71 5.84
1989 . . . . . . . 15.51 10.61 7.57
1990 . . . . . . . -16.67 6.46 6.53
1991 . . . . . . . 29.40 16.21 4.60
1992 . . . . . . . 15.10 6.59 2.22
1993 . . . . . . . 13.21% 16.53 10.97 1.41
1994 . . . . . . . -2.80 5.48 -0.32% -1.61% -4.77 0.38% 2.40
1995 . . . . . . . 34.31 33.13 22.81 17.47 19.45 13.18 4.11
1996 . . . . . . . 16.28 12.62 15.08 12.55 3.09 1.65 3.54
Cumulative Return . . 71.86 206.77 40.88 30.08 208.74 15.49 90.53
Annual Effective Rate
of Return . . . . . 15.91 11.66 17.16 12.92 8.82 6.88 4.95
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
INTERMEDIATE
GOVERNMENT/
DOW JONES S&P 500 CORPORATE CONSUMER
INDUSTRIAL STOCK BOND PRICE
AVERAGE(3) INDEX(4) INDEX(5) INDEX(6)
---------- -------- ------------ ----------
<S> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . . . . 5.11% 1.79% 4.51% 1.07%
1984 . . . . . . . . . . . . 1.35 6.27 14.37 3.95
1985 . . . . . . . . . . . . 33.62 31.73 18.06 3.77
1986 . . . . . . . . . . . . 27.25 18.66 13.13 1.13
1987 . . . . . . . . . . . . 5.55 5.25 3.66 4.41
1988 . . . . . . . . . . . . 16.21 16.61 6.67 4.42
1989 . . . . . . . . . . . . 32.24 31.69 12.77 4.65
1990 . . . . . . . . . . . . -.54 -3.10 9.16 6.11
1991 . . . . . . . . . . . . 24.25 30.47 14.62 3.06
1992 . . . . . . . . . . . . 7.40 7.62 7.17 2.90
1993 . . . . . . . . . . . . 16.97 10.08 8.79 2.75
1994 . . . . . . . . . . . . 5.02 1.32 -1.93 2.67
1995 . . . . . . . . . . . . 36.94 37.58 15.33 2.54
1996 . . . . . . . . . . . . 28.91 22.96 4.05 3.32
Cumulative Return . . . . . . 745.61 601.48 241.73 58.21
Annual Effective Rate of
Return . . . . . . . . . . . 17.36 15.73 9.65 3.50
</TABLE>
II-8
<PAGE>
ANNUAL PERCENTAGE CHANGE IN SURRENDER VALUE(1)
<TABLE>
<CAPTION>
LOOMIS MORGAN LOOMIS
SAYLES STANLEY ALGER SAYLES DAVIS
SMALL INTERNATIONAL EQUITY CAPITAL AVANTI VENTURE
CAP MAGNUM EQUITY(2) OVERSEAS GROWTH GROWTH GROWTH VALUE
------ ---------------- -------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . -1.52%
1984 . . . . . . . -1.76
1985 . . . . . . . 66.75
1986 . . . . . . . 97.06
1987 . . . . . . . -12.29% 51.87
1988 . . . . . . . 6.85 -10.24
1989 . . . . . . . 24.89 29.49
1990 . . . . . . . -2.78 -4.90
1991 . . . . . . . 6.80 52.65
1992 . . . . . . . -11.74 -7.29
1993 . . . . . . . 35.88 14.42 6.85%
1994 . . . . . . . -9.88% -3.66% 0.64 -6.20% -8.34 -1.41 -9.39%
1995 . . . . . . . 27.41 5.00 9.00 23.41 36.15 28.96 37.78
1996 . . . . . . . 29.29 5.45 12.53 15.63 19.41 16.37 24.57
Cumulative Return . . 48.46 6.67 79.94 33.86 1,187.54 58.09 55.51
Annual Effective Rate
of Return . . . . . 15.96 3.03 6.11 14.42 21.13 13.30 22.63
</TABLE>
<TABLE>
<CAPTION>
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
WESTPEAK LOOMIS STRATEGIC ADVISORS BROTHERS ADVISORS
GROWTH EQUITY- SAYLES BOND BOND U.S. MONEY
AND INCOME INCOME BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- ------- -------- ------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . -2.75% -3.52%
1984 . . . . . . . 11.32 9.47
1985 . . . . . . . 17.46 7.05
1986 . . . . . . . -6.95% 13.61 5.62
1987 . . . . . . . -2.30 1.17 5.35
1988 . . . . . . . 21.34 7.22 6.34
1989 . . . . . . . 16.07 11.13 8.08
1990 . . . . . . . -16.29 6.95 7.03
1991 . . . . . . . 30.02 17.29 5.57
1992 . . . . . . . 15.64 7.57 3.16
1993 . . . . . . . 6.39% 17.08 11.99 2.34
1994 . . . . . . . -2.34 6.46 -6.20% -7.42% -4.77 -5.54% 2.41
1995 . . . . . . . 35.02 34.36 23.41 18.04 19.46 13.73 4.12
1996 . . . . . . . 16.85 13.65 15.63 13.09 3.09 2.14 3.55
Cumulative Return . . 63.93 206.72 33.86 23.59 208.64 9.72 90.43
Annual Effective Rate
of Return . . . . . 14.42 11.66 14.42 10.28 8.82 4.38 4.95
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT/
DOW JONES S&P 500 CORPORATE CONSUMER
INDUSTRIAL STOCK BOND PRICE
AVERAGE(3) INDEX(4) INDEX(5) INDEX(6)
---------- -------- ------------ ----------
<S> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . . . . 5.11% 1.79% 4.51% 1.07%
1984 . . . . . . . . . . . . 1.35 6.27 14.37 3.95
1985 . . . . . . . . . . . . 33.62 31.73 18.06 3.77
1986 . . . . . . . . . . . . 27.25 18.66 13.13 1.13
1987 . . . . . . . . . . . . 5.55 5.25 3.66 4.41
1988 . . . . . . . . . . . . 16.21 16.61 6.67 4.42
1989 . . . . . . . . . . . . 32.24 31.69 12.77 4.65
1990 . . . . . . . . . . . . -.54 -3.10 9.16 6.11
1991 . . . . . . . . . . . . 24.25 30.47 14.62 3.06
1992 . . . . . . . . . . . . 7.40 7.62 7.17 2.90
1993 . . . . . . . . . . . . 16.97 10.08 8.79 2.75
1994 . . . . . . . . . . . . 5.02 1.32 -1.93 2.67
1995 . . . . . . . . . . . . 36.94 37.58 15.35 2.54
1996 . . . . . . . . . . . . 28.91 22.96 4.05 3.32
Cumulative Return . . . . . . 745.61 601.48 241.73 58.21
Annual Effective Rate of
Return . . . . . . . . . . . 17.36 15.73 9.65 3.50
</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 Growth and Income 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 Morgan Stanley International Magnum Equity Series' subadviser was
Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset
Management Inc. became the subadviser.
(3) 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.
(4) 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.
(5) 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.
(6) 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 for the Capital Growth, Back Bay Advisors Bond Income and Back
Bay Advisors Money Market Series; 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 Growth and Income Series; May 2, 1994
for the Loomis Sayles Small Cap Series; and November 1, 1994 for the other six
Zenith Fund 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, 1996. 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, 1996 (CAPITAL GROWTH, BOND INCOME AND MONEY
MARKET 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, 1996 FOR LOOMIS SAYLES SMALL CAP SERIES)
(NOVEMBER 1, 1994--DECEMBER 31, 1996 FOR ALL OTHER ZENITH FUND SERIES)
<TABLE>
<CAPTION>
CONTRACT VALUE
---------------------------------------------------------------------------
MORGAN
LOOMIS STANLEY LOOMIS
SAYLES INTERNATIONAL ALGER SAYLES
CUMULATIVE SMALL MAGNUM EQUITY CAPITAL AVANTI
PAYMENTS(1) CAP EQUITY(2) OVERSEAS GROWTH GROWTH GROWTH
----------- ---------- ------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . . . . . $ 400 $ 409.40
1984 . . . . . . . . . . . . . 1,600 1,648.95
1985 . . . . . . . . . . . . . 2,800 4,277.11
1986 . . . . . . . . . . . . . 4,000 9,765.58
1987 . . . . . . . . . . . . . 5,200 $ 1,007.13 15,890.14
1988 . . . . . . . . . . . . . 6,400 2,306.86 15,451.37
1989 . . . . . . . . . . . . . 7,600 4,229.80 21,215.12
1990 . . . . . . . . . . . . . 8,800 5,222.71 21,316.48
1991 . . . . . . . . . . . . . 10,000 6,778.08 33,833.21
1992 . . . . . . . . . . . . . 11,200 7,031.68 32,549.81
1993 . . . . . . . . . . . . . 12,400 10,872.84 38,177.72 $ 848.90
1994 . . . . . . . . . . . . . 13,600 $ 782.65 $ 204.56 12,048.05 $ 200.89 36,110.66 2,021.49
1995 . . . . . . . . . . . . . 14,800 2,337.57 1,436.32 14,272.33 1,543.68 50,536.57 3,907.29
1996 . . . . . . . . . . . . . 16,000 4,363.73 2,706.36 17,185.14 3,072.43 61,680.44 5,786.10
Annual Effective Rate of
Return . . . . . . . . . . . . 24.06% 3.60% 7.20% 15.58% 18.57% 15.05%
<CAPTION>
WESTPEAK SALOMON BACK BAY SALOMON
DAVIS GROWTH LOOMIS BROTHERS ADVISORS BROTHERS
VENTURE AND EQUITY- SAYLES STRATEGIC BOND BOND U.S.
VALUE INCOME INCOME BALANCED OPPORTUNITIES INCOME GOVERNMENT
--------- ---------- ----------- ---------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . . . . . $ 405.13
1984 . . . . . . . . . . . . . 1,720.27
1985 . . . . . . . . . . . . . 3,304.19
1986 . . . . . . . . . . . . . $ 195.78 4,982.85
1987 . . . . . . . . . . . . . 1,215.08 6,208.12
1988 . . . . . . . . . . . . . 2,714.98 7,835.43
1989 . . . . . . . . . . . . . 4,346.48 9,915.71
1990 . . . . . . . . . . . . . 4,721.63 11,807.13
1991 . . . . . . . . . . . . . 7,427.49 15,037.48
1992 . . . . . . . . . . . . . 9,840.29 17,272.18
1993 . . . . . . . . . . . . . $ 848.38 12,731.03 20,405.31
1994 . . . . . . . . . . . . . $ 197.97 2,002.46 14,650.43 $ 200.89 $ 196.89 20,609.31 $ 200.97
1995 . . . . . . . . . . . . . 1,632.30 4,059.83 20,892.48 1,543.68 1,507.66 25,924.91 1,476.06
1996 . . . . . . . . . . . . . 3,373.37 6,026.98 24,811.34 3,072.43 2,953.92 27,970.49 2,704.81
Annual Effective Rate of
Return . . . . . . . . . . . . 24.97% 17.37% 13.37% 15.58% 11.77% 7.98% 3.55%
<CAPTION>
BACK BAY
ADVISORS
MONEY
MARKET
------------
<S> <C>
As of December 31:
1983 . . . . . . . . . . . . . $ 406.44
1984 . . . . . . . . . . . . . 1,673.57
1985 . . . . . . . . . . . . . 2,999.59
1986 . . . . . . . . . . . . . 4,362.45
1987 . . . . . . . . . . . . . 5,788.99
1988 . . . . . . . . . . . . . 7,350.98
1989 . . . . . . . . . . . . . 9,142.45
1990 . . . . . . . . . . . . . 10,970.63
1991 . . . . . . . . . . . . . 12,694.15
1992 . . . . . . . . . . . . . 14,182.75
1993 . . . . . . . . . . . . . 15.588.48
1994 . . . . . . . . . . . . . 17,179.87
1995 . . . . . . . . . . . . . 19,112.88
1996 . . . . . . . . . . . . . 21,015.28
Annual Effective Rate of
Return . . . . . . . . . . . . 3.97%
</TABLE>
- ---------
(1) Cumulative payments as of December 31, 1996 would be $12,200 for
Equity-Income, $11,900 for Overseas, $4,400 for Loomis Sayles Avanti Growth and
Westpeak Growth and Income, $3,200 for Loomis Sayles Small Cap, and $2,600 for
each of the other Zenith Fund series.
(2) The Morgan Stanley International Magnum Equity Series' subadviser was
Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset Management
Inc. became the subadviser.
II-11
<PAGE>
<TABLE>
<CAPTION>
SURRENDER VALUE
---------------------------------------------------------------------------------
MORGAN
LOOMIS STANLEY LOOMIS
SAYLES INTERNATIONAL ALGER SAYLES DAVIS
CUMULATIVE SMALL MAGNUM EQUITY CAPITAL AVANTI VENTURE
PAYMENTS(1) CAP EQUITY(2) OVERSEAS GROWTH GROWTH GROWTH VALUE
----------- --------- ------------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . $ 400 $ 375.45
1984 . . . . . . . . . 1,600 1,549.91
1985 . . . . . . . . . 2,800 4,055.39
1986 . . . . . . . . . 4,000 9,435.58
1987 . . . . . . . . . 5,200 $ 920.71 15,464.14
1988 . . . . . . . . . 6,400 2,154.79 14,929.37
1989 . . . . . . . . . 7,600 3,992.93 20,597.12
1990 . . . . . . . . . 8,800 4,960.18 20,730.94
1991 . . . . . . . . . 10,000 6,476.07 33,214.21
1992 . . . . . . . . . 11,200 6,751.04 32,246.86
1993 . . . . . . . . . 12,400 10,502.85 38,167.72 $ 779.24
1994 . . . . . . . . . 13,600 $ 719.36 $ 187.60 11,695.26 $ 184.14 36,100.66 1,892.33 $ 181.39
1995 . . . . . . . . . 14,800 2,193.84 1,353.76 13,987.92 1,455.32 50,526.57 3,693.88 1,539.15
1996 . . . . . . . . . 16,000 4,130.23 2,567.39 17,002.98 2,915.35 61,670.44 5,505.72 3,201.39
Annual Effective Rate
of Return . . . . . . . 19.57% -1.12% 7.00% 10.53% 18.57% 12.25% 19.65%
<CAPTION>
WESTPEAK SALOMON BACK BAY BACK BAY
GROWTH LOOMIS BROTHERS ADVISORS SALOMON ADVISORS
AND EQUITY- SAYLES BOND BOND BROTHERS MONEY
INCOME INCOME BALANCED OPPORTUNITIES INCOME US GOVT MARKET
--------- ---------- --------- ------------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . $ 371.43 $ 372.66
1984 . . . . . . . . . 1,617.37 1,573.20
1985 . . . . . . . . . 3,130.63 2,841.11
1986 . . . . . . . . . $ 179.32 4,748.62 4,156.14
1987 . . . . . . . . . 1,144.47 5,946.69 5,544.54
1988 . . . . . . . . . 2,575.59 7,543.35 7,076.34
1989 . . . . . . . . . 4,145.89 9,593.36 8,844.46
1990 . . . . . . . . . 4,525.41 11,478.34 10,664.43
1991 . . . . . . . . . 7,155.10 14,756.80 12,455.65
1992 . . . . . . . . . 9,525.32 17,106.73 14,045.10
1993 . . . . . . . . . $ 778.75 12,382.29 20,395.31 15,578.48
1994 . . . . . . . . . 1,874.32 14,381.73 $ 184.14 $ 180.37 20,599.31 $ 184.22 17,169.67
1995 . . . . . . . . . 3,838.86 20,699.45 1,455.32 1,421.25 25,914.91 1,391.35 19,102.88
1996 . . . . . . . . . 5,735.76 24,806.34 2,915.35 2,802.70 27,960.49 2,565.93 21,005.28
Annual Effective Rate
of Return . . . . . . . 14.55% 13.36% 10.53% 6.82% 7.98% -1.16% 3.97%
</TABLE>
- ---------
(1) Cumulative payments as of December 31, 1996 would be $12,200 for
Equity-Income, $11,900 for Overseas, $4,400 for Loomis Sayles Avanti Growth
and Westpeak Growth and Income, $3,200 for Loomis Sayles Small Cap, and $2,600
for each of the other Zenith Fund series.
(2) The Morgan Stanley International Magnum Equity Series' subadviser was
Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset Management
Inc. became the subadviser.
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 and the year-to-date period 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.
LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ --------
<S> <C> <C>
May 1, 1994 . . . . . . . . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . . . . . . 0.959097 -4.1%
December 31, 1995 . . . . . . . . . . . . . . . . . . 1.219226 27.1%
December 31, 1996 . . . . . . . . . . . . . . . . . . 1.571807 28.9%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
2 years, 8 months ended December 31, 1996 . . . . . . . 57.2% 18.5%
1 year ended December 31, 1996 . . . . . . . . . . . . 28.9% 28.9%
</TABLE>
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT**
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ --------
<S> <C> <C>
October 31, 1994 . . . . . . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . . . . . . 1.023745 2.4%
December 31, 1995 . . . . . . . . . . . . . . . . . . 1.073005 4.8%
December 31, 1996 . . . . . . . . . . . . . . . . . . 1.129151 5.2%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
2 years, 2 months ended December 31, 1996 . . . . . . . 12.9% 5.8%
1 year ended December 31, 1996 . . . . . . . . . . . . 5.2% 5.2%
</TABLE>
- ---------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
** The Morgan Stanley International Magnum Equity Series' subadviser was
Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset
Management Inc. became the subadviser.
II-13
<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 . . . . . . . . . . . . . . . . . . 0.996890 6.7%
December 31, 1989 . . . . . . . . . . . . . . . . . . 1.242056 24.6%
December 31, 1990 . . . . . . . . . . . . . . . . . . 1.204901 -3.0%
December 31, 1991 . . . . . . . . . . . . . . . . . . 1.283814 6.5%
December 31, 1992 . . . . . . . . . . . . . . . . . . 1.130753 -11.9%
December 31, 1993 . . . . . . . . . . . . . . . . . . 1.532303 35.5%
December 31, 1994 . . . . . . . . . . . . . . . . . . 1.537887 0.4%
December 31, 1995. . . . . . . . . . . . . . . . . . . 1.664159 8.2%
December 31, 1996 . . . . . . . . . . . . . . . . . . 1.858653 11.7%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
9 years, 11 months ended December 31, 1996 . . . . . . 85.9% 6.4%
5 years ended December 31, 1996 . . . . . . . . . . . . 44.8% 7.7%
1 year ended December 31, 1996 . . . . . . . . . . . . 11.7% 11.7%
</TABLE>
ALGER EQUITY GROWTH SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ --------
<S> <C> <C>
October 31, 1994 . . . . . . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . . . . . . 0.955891 -4.4%
December 31, 1995 . . . . . . . . . . . . . . . . . . 1.402375 46.7%
December 31, 1996 . . . . . . . . . . . . . . . . . . 1.565675 11.6%
</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, 2 months ended December 31, 1996 . . . . . . . 56.6% 23.0%
1 year ended December 31, 1996 . . . . . . . . . . . . 11.6% 11.6%
</TABLE>
- ---------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-14
<PAGE>
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 . . . . . . . . . . . . . . . . . . 1.086144 8.6%
December 31, 1984 . . . . . . . . . . . . . . . . . . 1.065136 -1.9%
December 31, 1985 . . . . . . . . . . . . . . . . . . 1.766488 65.8%
December 31, 1986 . . . . . . . . . . . . . . . . . . 3.402150 92.6%
December 31, 1987 . . . . . . . . . . . . . . . . . . 5.125504 50.7%
December 31, 1988 . . . . . . . . . . . . . . . . . . 4.612285 -10.0%
December 31, 1989 . . . . . . . . . . . . . . . . . . 5.950283 29.0%
December 31, 1990 . . . . . . . . . . . . . . . . . . 5.665855 -4.8%
December 31, 1991 . . . . . . . . . . . . . . . . . . 8.607664 51.9%
December 31, 1992 . . . . . . . . . . . . . . . . . . 7.978068 -7.3%
December 31, 1993 . . . . . . . . . . . . . . . . . . 9.049554 13.4%
December 31, 1994 . . . . . . . . . . . . . . . . . . 8.297578 -8.3%
December 31, 1995 . . . . . . . . . . . . . . . . . . 11.300017 36.2%
December 31, 1996 . . . . . . . . . . . . . . . . . . 13.496435 19.4%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
13 years, 4 months ended December 31, 1996 . . . . . . 1,249.6% 21.5%
10 years ended December 31, 1996 . . . . . . . . . . . 296.7% 14.8%
5 years ended December 31, 1996 . . . . . . . . . . . . 56.8% 9.4%
1 year ended December 31, 1996 . . . . . . . . . . . . 19.4% 19.4%
</TABLE>
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 . . . . . . . . . . . . . . . . . . 1.118794 -1.6%
December 31, 1995 . . . . . . . . . . . . . . . . . . 1.438865 28.6%
December 31, 1996 . . . . . . . . . . . . . . . . . . 1.669358 16.0%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
3 years, 8 months ended December 31, 1996 . . . . . . . 66.9% 15.0%
1 year ended December 31, 1996 . . . . . . . . . . . . 16.0% 16.0%
</TABLE>
- ---------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-15
<PAGE>
DAVIS VENTURE VALUE SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ --------
<S> <C> <C>
October 31, 1994 . . . . . . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . . . . . . 0.962860 -3.7%
December 31, 1995 . . . . . . . . . . . . . . . . . . 1.323183 37.4%
December 31, 1996 . . . . . . . . . . . . . . . . . . 1.642613 24.1%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
2 years, 2 months ended December 31, 1996 . . . . . . . 64.3% 25.7%
1 year ended December 31, 1996 . . . . . . . . . . . . 24.1% 24.1%
</TABLE>
WESTPEAK GROWTH AND INCOME 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 . . . . . . . . . . . . . . . . . . 1.103489 -2.5%
December 31, 1995 . . . . . . . . . . . . . . . . . . 1.485762 34.6%
December 31, 1996 . . . . . . . . . . . . . . . . . . 1.730922 16.5%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
3 years, 8 months ended December 31, 1996 . . . . . . . 73.1% 16.1%
1 year ended December 31, 1996 . . . . . . . . . . . . 16.5% 16.5%
</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 . . . . . . . . . . . . . . . . . . 1.179618 21.1%
December 31, 1989 . . . . . . . . . . . . . . . . . . 1.365709 15.8%
December 31, 1990 . . . . . . . . . . . . . . . . . . 1.141297 -16.4%
December 31, 1991 . . . . . . . . . . . . . . . . . . 1.480005 29.7%
December 31, 1992 . . . . . . . . . . . . . . . . . . 1.706687 15.3%
December 31, 1993 . . . . . . . . . . . . . . . . . . 1.991856 16.7%
December 31, 1994 . . . . . . . . . . . . . . . . . . 2.104085 5.6%
December 31, 1995 . . . . . . . . . . . . . . . . . . 2.804492 33.3%
December 31, 1996 . . . . . . . . . . . . . . . . . . 3.161755 12.7%
</TABLE>
- ---------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-16
<PAGE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
10 years, 2 months ended December 31, 1996 . . . . . . 216.2% 11.9%
10 years ended December 31, 1996 . . . . . . . . . . . 216.5% 12.2%
5 years ended December 31, 1996 . . . . . . . . . . . . 113.6% 16.4%
1 year ended December 31, 1996 . . . . . . . . . . . . 12.7% 12.7%
</TABLE>
LOOMIS SAYLES BALANCED SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ --------
<S> <C> <C>
October 31, 1994 . . . . . . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . . . . . . 0.996791 -0.3%
December 31, 1995 . . . . . . . . . . . . . . . . . . 1.227281 23.1%
December 31, 1996 . . . . . . . . . . . . . . . . . . 1.415482 15.3%
</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, 2 months ended December 31, 1996 . . . . . . . 41.5% 17.4%
1 year ended December 31, 1996 . . . . . . . . . . . . 15.3% 15.3%
</TABLE>
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 . . . . . . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . . . . . . 0.983850 -1.6%
December 31, 1995 . . . . . . . . . . . . . . . . . . 1.158823 17.8%
December 31, 1996 . . . . . . . . . . . . . . . . . . 1.307292 12.8%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
2 years, 2 months ended December 31, 1996 . . . . . . . 30.7% 13.1%
1 year ended December 31, 1996 . . . . . . . . . . . . 12.8% 12.8%
</TABLE>
- ---------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-17
<PAGE>
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 . . . . . . . . . . . . . . . . . . 1.027196 2.7%
December 31, 1984 . . . . . . . . . . . . . . . . . . 1.141109 11.1%
December 31, 1985 . . . . . . . . . . . . . . . . . . 1.337005 17.2%
December 31, 1986 . . . . . . . . . . . . . . . . . . 1.514752 13.3%
December 31, 1987 . . . . . . . . . . . . . . . . . . 1.528314 0.9%
December 31, 1988 . . . . . . . . . . . . . . . . . . 1.633970 6.9%
December 31, 1989 . . . . . . . . . . . . . . . . . . 1.810362 10.8%
December 31, 1990 . . . . . . . . . . . . . . . . . . 1.930406 6.6%
December 31, 1991 . . . . . . . . . . . . . . . . . . 2.246568 16.4%
December 31, 1992 . . . . . . . . . . . . . . . . . . 2.397657 6.7%
December 31, 1993 . . . . . . . . . . . . . . . . . . 2.663825 11.1%
December 31, 1994 . . . . . . . . . . . . . . . . . . 2.539801 -4.7%
December 31, 1995 . . . . . . . . . . . . . . . . . . 3.037039 19.6%
December 31, 1996 . . . . . . . . . . . . . . . . . . 3.134109 3.2%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
13 years, 4 months ended December 31, 1996 . . . . . . 213.4% 8.9%
10 years ended December 31, 1996 . . . . . . . . . . . 106.9% 7.5%
5 years ended December 31, 1996 . . . . . . . . . . . . 39.5% 6.9%
1 year ended December 31, 1996 . . . . . . . . . . . . 3.2% 3.2%
</TABLE>
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 . . . . . . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . . . . . . 1.003770 0.4%
December 31, 1995 . . . . . . . . . . . . . . . . . . 1.139109 13.5%
December 31, 1996 . . . . . . . . . . . . . . . . . . 1.160957 1.9%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
2 years, 2 months ended December 31, 1996 . . . . . . . 16.1% 7.1%
1 year ended December 31, 1996 . . . . . . . . . . . . 1.9% 1.9%
</TABLE>
- ---------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-18
<PAGE>
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 . . . . . . . . . . . . . . . . . . 1.027165 2.7%
December 31, 1984 . . . . . . . . . . . . . . . . . . 1.122053 9.2%
December 31, 1985 . . . . . . . . . . . . . . . . . . 1.198477 6.8%
December 31, 1986 . . . . . . . . . . . . . . . . . . 1.262853 5.4%
December 31, 1987 . . . . . . . . . . . . . . . . . . 1.327245 5.1%
December 31, 1988 . . . . . . . . . . . . . . . . . . 1.407892 6.1%
December 31, 1989 . . . . . . . . . . . . . . . . . . 1.517621 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 . . . . . . . . . . . . . . . . . . 1.811432 2.6%
December 31, 1995 . . . . . . . . . . . . . . . . . . 1.889065 4.3%
December 31, 1996 . . . . . . . . . . . . . . . . . . 1.959126 3.7%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
13 years, 4 months ended December 31, 1996 . . . . . . 95.9% 5.2%
10 years ended December 31, 1996 . . . . . . . . . . . 55.1% 4.5%
5 years ended December 31, 1996 . . . . . . . . . . . . 15.4% 2.9%
1 year ended December 31, 1996 . . . . . . . . . . . . 3.7% 3.7%
</TABLE>
- ---------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-19
<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
II-20
<PAGE>
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
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.
An illustration 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-23 and II-24 are 0%, 0.47%, 0.49%, 0.64% and 0.80%.
II-21
<PAGE>
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 sub-accounts 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 Eligible Funds'
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 Eligible Funds 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."
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-22
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT
VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/97
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% 5.73% 7.69%
- ------- -------- ---- ----- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1997 65 581.00 581.00 581.00 581.00 581.00
2 1998 66 549.54 581.00 582.51 593.50 604.49
3 1999 67 519.78 581.00 584.02 606.27 628.94
4 2000 68 491.63 581.00 585.54 619.32 654.37
5 2001 69 465.00 581.00 587.06 632.64 680.83
10 2006 74 352.01 581.00 594.73 703.70 830.06
15 2011 79 266.47 581.00 602.50 782.73 1,012.01
20 2016 84 201.72 581.00 610.37 870.64 1,233.84
</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-23
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(50% VARIABLE--50% FIXED PAYOUT)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT
VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/97
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 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% 5.73% 7.69%
- ------- -------- ---- ----- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1997 65 621.00 621.00 621.00 621.00 621.00
2 1998 66 605.27 621.00 621.75 627.25 632.75
3 1999 67 590.39 621.00 622.51 633.64 644.97
4 2000 68 576.31 621.00 623.27 640.16 657.68
5 2001 69 563.00 621.00 624.03 646.82 670.91
10 2006 74 506.50 621.00 627.87 682.35 745.53
15 2011 79 463.74 621.00 631.75 721.87 836.50
20 2016 84 431.36 621.00 635.68 765.82 947.42
</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-24
<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 sub-accounts 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 Eligible Funds'
management fees and operating expenses. Actual fees and expenses of the Eligible
Funds 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, Back
Bay Advisors Bond Income and Back Bay Advisors Money Market Series, and that the
Annuitant's age had increased by the time the other Eligible Funds 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 Eligible Funds. Upon request, and when you
are considering an annuity income option, the Company will furnish a comparable
illustration based on your individual circumstances.
II-25
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT
VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/97
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>
MORGAN
STANLEY LOOMIS WESTPEAK
LOOMIS INTERNATIONAL ALGER SAYLES DAVIS GROWTH
PAYMENT CALENDAR SAYLES MAGNUM FIDELITY EQUITY CAPITAL AVANTI VENTURE AND
YEAR YEAR AGE SMALL CAP EQUITY OVERSEAS GROWTH GROWTH GROWTH VALUE INCOME
- ------- -------- --- --------- ------------- -------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1983 65 $ 581.00
2 1984 66 601.36
3 1985 67 569.73
4 1986 68 912.93
5 1987 69 $642.00 1,698.78
6 1988 70 581.39 2,472.75
7 1989 71 599.19 2,149.71
8 1990 72 721.30 2,679.54
9 1991 73 676.06 2,465.18
10 1992 74 695.98 3,618.49
11 1993 75 592.22 3,240.10 $ 747.00 $ 747.00
12 1994 76 $ 765.00 $765.00 775.38 $ 765.00 3,550.97 829.98 $ 765.00 826.38
13 1995 77 733.73 778.70 751.89 737.42 3,145.80 789.05 732.39 778.25
14 1996 78 901.19 788.57 786.11 1,045.27 4,139.22 980.46 972.43 1,012.42
15 1997 79 1,122.40 801.70 848.22 1,127.42 4,776.14 1,098.95 1,166.26 1,139.48
</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, 1996 after giving effect to expense caps or deferrals in
effect for 1997: 1.00% Loomis Sayles Small Cap, 1.30% Morgan Stanley
International Magnum Equity, 0.90% Alger Equity Growth, 0.85% Loomis Sayles
Avanti Growth, 0.90% Davis Venture Value, 0.85% Westpeak Growth and Income,
0.40% Westpeak Stock Index, 0.85% Loomis Sayles Balanced, 0.62% Back Bay
Managed, 0.85% Salomon Strategic Bond Opportunities, 0.52% Back Bay Bond Income,
0.70% Salomon US Government and 0.50% Back Bay Money Market Series. The
following expenses are for the year ended December 31, 1996 and are unaffected
by expense caps or deferrals: 0.93% Fidelity Overseas, 0.69% Capital Growth,
0.58% Fidelity Equity-Income.)
- ---------
* 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-26
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT
VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/97
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME
PAYMENTS: Monthly
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;
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
FIDELITY WESTPEAK LOOMIS STRATEGIC BACK BAY SALOMON BACK BAY
PAYMENT CALENDAR EQUITY- STOCK SAYLES BACK BAY BOND BOND U.S. MONEY
YEAR YEAR AGE INCOME INDEX BALANCED MANAGED OPPORTUNITIES INCOME GOVERNMENT MARKET
- ------- -------- --- --------- --------- --------- --------- ------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1983 65 $ 581.00 $581.00
2 1984 66 593.85 589.21
3 1985 67 637.34 621.82
4 1986 68 $ 626.00 721.50 641.71
5 1987 69 615.48 $ 642.00 $ 642.00 789.77 653.31
6 1988 70 580.03 545.85 617.60 769.90 663.40
7 1989 71 678.42 605.30 644.48 795.21 679.85
8 1990 72 758.88 750.98 731.61 851.26 708.06
9 1991 73 612.74 686.15 719.75 877.02 730.20
10 1992 74 767.71 853.12 824.49 986.14 739.29
11 1993 75 855.28 872.44 838.49 1,016.77 731.38
12 1994 76 964.44 912.49 $ 765.00 884.40 $765.00 1,091.45 $765.00 717.90
13 1995 77 984.32 879.55 758.20 833.68 748.36 1,005.44 763.51 711.52
14 1996 78 1,267.62 1,147.99 901.95 1,043.17 851.64 1,161.63 837.15 716.92
15 1997 79 1,380.64 1,339.89 1,004.99 1,143.60 928.18 1,158.11 824.28 718.30
</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, 1996 after giving effect to expense caps or deferrals in
effect for 1997: 1.00% Loomis Sayles Small Cap, 1.30% Morgan Stanley
International Magnum Equity, 0.90% Alger Equity Growth, 0.85% Loomis Sayles
Avanti Growth, 0.90% Davis Venture Value, 0.85% Westpeak Growth and Income,
0.40% Westpeak Stock Index, 0.85% Loomis Sayles Balanced, 0.62% Back Bay
Managed, 0.85% Salomon Strategic Bond Opportunities, 0.52% Back Bay Bond Income,
0.70% Salomon US Government and 0.50% Back Bay Money Market Series. The
following expenses are for the year ended December 31, 1996 and are unaffected
by expense caps or deferrals: 0.93% Fidelity Overseas, 0.69% Capital Growth,
0.58% Fidelity Equity-Income.)
- ---------
* 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>
EXPERTS
The financial statements of The New England Variable Account of Metropolitan
Life Insurance Company ("MetLife") as of and for the year ended December 31,
1996, and the consolidated financial statements of Metropolitan Life Insurance
Company as of December 31, 1996 and 1995, and for the three years in the period
ended December 31, 1996, included in this Statement of Additional Information,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein (whose reports express unqualified opinions and,
with respect to MetLife, includes an explanatory paragraph referring to the
changes in the basis of accounting), and have been so included in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The statements of operations and changes in net assets of The New England
Variable Account for the period ended December 31, 1995 have been incorporated
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 Christopher P. Nicholas, Associate General
Counsel of the Company. Sutherland, Asbill & Brennan L.L.P., Washington, D.C.,
have acted as special counsel on certain matters relating to the Federal
securities laws.
II-28
<PAGE>
APPENDIX A
ABC and affiliates Fortune Public Broadcasting
Atlanta Constitution Fox Newtwork and Service
Atlanta Journal affiliates Quinn, Jane Bryant
Austin American Fund Action (syndicated column)
Statesman Hartford Courant Registered Representative
Baltimore Sun Houston Chronicle Research Magazine
Barron's INC Resource
Bond Buyer Indianapolis Star Reuters
Boston Business Journal Institutional Investor Rukeyser's Business
Boston Globe Investment Dealers Digest (syndicated column)
Boston Herald Investment Vision Sacramento Bee
Broker World Investor's Daily San Francisco Chronicle
Business Radio Network Journal of Commerce San Francisco Examiner
Business Week Kansas City Star San Jose Mercury
CBS and affiliates LA Times Seattle Post-Intelligencer
CFO Leckey, Andrew (syndicated Seattle Times
Changing Times column) Smart Money
Chicago Sun Times Life Association News St. Louis Post Dispatch
Chicago Tribune Miami Herald St. Petersburg Times
Christian Science Milwaukee Sentinel Standard & Poor's Outlook
Monitor Money Standard & Poor's Stock
Christian Science Money Maker Guide
Monitor News Service Money Management Letter Stanger's Investment
Cincinnati Enquirer Morningstar Advisor
Cincinnati Post National Public Radio Stockbroker's Register
CNBC National Underwriter Strategic Insight
CNN NBC and affiliates Tampa Tribune
Columbus Dispatch New England Business Time
Dallas Morning News New England Cable News Tobias, Andrew (syndicated
Dallas Times-Herald New Orleans Times-Picayune column)
Denver Post New York Daily News UPI
Des Moines Register New York Times US News and World Report
Detroit Free Press Newark Star Ledger USA Today
Donoghues Money Fund Newsday Value Line
Report Newsweek Wall St. Journal
Dorfman, Dan Nightly Business Report Wall Street Letter
(syndicated column) Orange County Register Wall Street Week
Dow Jones News Service Orlando Sentinel Washington Post
Economist Pension World WBZ
FACS of the Week Pensions and Investments WBZ-TV
Financial News Network Personal Investor WCVB-TV
Financial Planning Philadelphia Inquirer WEEI
Financial Services Week Porter, Sylvia (syndicated WHDH
Financial World column) Worcester Telegram
Forbes Portland Oregonian Worth Magazine
Fort Worth WRKO
Star-Telegram
II-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of The New England Variable Account of Metropolitan 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, Growth and Income Sub-Account (formerly
Value Growth Sub-Account), Small Cap Sub-Account, U.S. Government Sub-Account,
Balanced Sub-Account, Equity Growth Sub-Account, International Equity
Sub-Account, Venture Value Sub-Account, Strategic Bond Opportunities
Sub-Account, Equity-Income Sub-Account and Overseas Sub-Account) of Metropolitan
Life Insurance Company (See Note 1) as of December 31, 1996, and the related
statements of operations and changes in net assets for the year ended December
31, 1996. 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. The financial statements of The New England
Variable Account of Metropolitan Life Insurance Company for the year ended
December 31, 1995 were audited by other auditors whose report dated February 10,
1996, expressed an unqualified opinion on those statements.
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 Metropolitan Life
Insurance Company as of December 31, 1996, and the results of their operations
and changes in their net assets for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 18, 1997
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Policy Owners and Board of Directors of The New England Variable Account
of New England Mutual Life Insurance Company:
We have audited the statements of operations and changes in net assets 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, International Equity Sub-Account, Venture Value Sub-Account,
Strategic Bond Opportunities Sub-Account, Equity-Income Sub-Account and Overseas
Sub-Account for the year ended December 31, 1995, and also comprised of
Strategic Equity Opportunities Sub-Account for the period January 1, 1995
through June 8, 1995 (liquidation date), of New England Mutual Life Insurance
Company. 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 statements of operations and changes in
net assets are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statements of
operations and changes in net assets. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the statements of operations and
changes in net assets. We believe that our audits of the statements of
operations and changes in net assets provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and changes in net assets of
the respective aforementioned sub-accounts comprising The New England Variable
Account of New England Life Insurance Company for each of the aforementioned
periods ending December 31, 1995, or as indicated, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 10, 1996
F-2
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
------------- ------------ ----------------
<S> <C> <C> <C>
ASSETS
INVESTMENTS IN SUB-ACCOUNTS, AT
VALUE (NOTE 2)
NEW ENGLAND ZENITH FUND:
Capital Growth Series . . . . 1,308,737,821 $459,410,193 $ 558,922,661
Back Bay Advisors Bond Income
Series. . . . . . . . . . . . 1,222,047,064 130,776,087 129,084,831
Back Bay Advisors Money Market
Series. . . . . . . . . . . . 652,934,880 65,293,488 65,293,488
Westpeak Stock Index Series . 378,899,611 32,421,826 45,323,972
Back Bay Advisors Managed
Series. . . . . . . . . . . . 761,396,159 106,725,346 129,711,450
Loomis Sayles Avanti Growth
Series. . . . . . . . . . . . 257,675,199 34,546,301 40,692,067
Westpeak Growth and Income
Series. . . . . . . . . . . . 298,130,262 38,663,873 45,247,230
Loomis Sayles Small Cap
Series . . . . . . . . . . . 286,986,769 36,524,013 41,406,451
Salomon Brothers U.S.
Government Series . . . . . . 621,419,963 6,761,657 6,729,978
Loomis Sayles Balanced
Series . . . . . . . . . . . 2,103,243,650 25,316,334 28,498,951
Alger Equity Growth Series . . 4,027,369,181 55,284,822 62,746,412
Draycott International Equity
Series. . . . . . . . . . . . 1,634,801,272 17,451,182 18,456,906
Davis Venture Value Series . . 3,577,489,006 47,062,920 57,561,798
Salomon Brothers Strategic Bond
Opportunities Series . . . . 1,693,736,438 19,252,558 19,681,217
VARIABLE INSURANCE PRODUCTS
FUND:
Equity-Income Portfolio . . . 6,628,600,407 112,772,126 139,399,467
Overseas Portfolio . . . . . . 4,429,479,117 73,216,510 83,451,387
Total investments in sub-accounts, at value . . . . . . . . 1,472,208,266
Dividends receivable . . . . . . . . . . . . . . . . . . . . 249,928
--------------
Total assets . . . . . . . . . . . . . . . . . . . . . . 1,472,458,194
LIABILITIES
Due to Metropolitan Life Insurance Company . . . . . . . . . 1,795,891
--------------
Total liabilities . . . . . . . . . . . . . . . . . . . $ 1,795,891
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $1,470,662,303
==============
CONTRACT OWNER'S EQUITY
Owners of annuity contracts . . . . . . . . . . . . . . . . $1,466,520,296
Annuity reserves . . . . . . . . . . . . . . . . . . . . . . 4,142,007
--------------
Total for variable annuity contracts . . . . . . . . . . $1,470,662,303
==============
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
----------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . $31,999,855 $ 9,112,591 $3,139,887 $ 1,104,152 $12,337,781
EXPENSES:
Mortality and expense risk charge . . . . . . . . . . . . 4,859,907 1,205,743 602,488 396,508 1,198,409
Administrative charge . . . . . . . . . . . . . . . . . . 2,677,508 624,409 307,765 204,120 623,890
----------- ----------- ---------- ----------- -----------
Total expenses . . . . . . . . . . . . . . . . . . . . 7,537,415 1,830,152 910,253 600,628 1,822,299
----------- ----------- ---------- ----------- -----------
Net investment income (loss) . . . . . . . . . . . . . . 24,462,440 7,282,439 2,229,634 503,524 10,515,482
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation (depreciation) on investments:
Beginning of period . . . . . . . . . . . . . . . . . . 45,558,436 2,104,546 -- 7,142,155 22,213,497
End of period . . . . . . . . . . . . . . . . . . . . . 99,512,468 (1,691,255) -- 12,902,146 22,986,104
----------- ----------- ---------- ----------- -----------
Net change in unrealized appreciation (depreciation) . . 53,954,032 (3,795,801) -- 5,759,991 772,607
Realized gain on investments . . . . . . . . . . . . . . 12,365,009 343,759 -- 1,525,569 4,450,425
Net realized and unrealized gain (loss) on investments . 66,319,041 (3,452,042) -- 7,285,560 5,223,032
----------- ----------- ---------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $90,781,481 $ 3,830,397 $2,229,634 $ 7,789,084 $15,738,514
=========== =========== ========== =========== ===========
<CAPTION>
AVANTI GROWTH SMALL U.S.
GROWTH AND INCOME CAP GOVERNMENT
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . $2,301,646 $4,082,957 $2,793,777 $ 338,892
EXPENSES:
Mortality and expense risk charge . . . . . . . . . . . . 332,954 359,469 263,840 59,474
Administrative charge . . . . . . . . . . . . . . . . . . 172,884 182,994 133,281 28,496
---------- ---------- ---------- ---------
Total expenses . . . . . . . . . . . . . . . . . . . . 505,838 542,463 397,121 87,970
---------- ---------- ---------- ---------
Net investment income (loss) . . . . . . . . . . . . . . 1,795,808 3,540,494 2,396,656 250,922
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation (depreciation) on investments:
Beginning of period . . . . . . . . . . . . . . . . . . 4,321,917 5,157,858 1,612,398 124,160
End of period . . . . . . . . . . . . . . . . . . . . . 6,145,766 6,583,356 4,882,438 (31,679)
---------- ---------- ---------- ---------
Net change in unrealized appreciation (depreciation) . . 1,823,849 1,425,498 3,270,040 (155,839)
Realized gain on investments . . . . . . . . . . . . . . 1,326,250 1,011,305 1,317,987 48,400
Net realized and unrealized gain (loss) on investments . 3,150,099 2,436,803 4,588,027 (107,439)
---------- ---------- ---------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $4,945,907 $5,977,297 $6,984,683 $ 143,483
========== ========== ========== =========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
STRATEGIC
EQUITY INTERNATIONAL VENTURE BOND EQUITY-
BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
---------- ----------- ------------- ----------- ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME:
Dividends . . . . . . $ 829,712 $ 108,507 $ 283,014 $ 1,361,224 $1,235,274 $ 5,031,305 $ 1,738,857 $ 77,799,431
EXPENSES:
Mortality and expense
risk charge . . . . 195,209 484,256 154,128 389,994 119,831 1,190,303 733,944 12,546,457
Administrative
charge . . . . . . . 95,720 244,251 78,029 193,853 56,968 614,753 390,905 6,629,826
---------- ---------- ---------- ----------- ---------- ----------- ----------- ------------
Total expenses . . 290,929 728,507 232,157 583,847 176,799 1,805,056 1,124,849 19,176,283
---------- ---------- ---------- ----------- ---------- ----------- ----------- ------------
Net investment income
(loss) . . . . . . . 538,783 (620,000) 50,857 777,377 1,058,475 3,226,249 614,008 58,623,148
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
period . . . . . . 835,377 2,819,660 540,103 3,190,020 170,662 18,248,552 4,472,393 118,511,734
End of period . . . 3,182,617 7,461,590 1,005,725 10,498,878 428,659 26,627,341 10,234,877 210,729,031
---------- ---------- ---------- ----------- ---------- ----------- ----------- ------------
Net change in
unrealized
appreciation
(depreciation) . . . 2,347,240 4,641,930 465,622 7,308,858 257,997 8,378,789 5,762,484 92,217,297
Realized gain (loss)
on investments . . . 310,945 1,521,066 260,731 1,324,964 192,688 3,362,763 2,100,157 31,462,018
Net realized and
unrealized gain on
investments. . . . . 2,658,185 6,162,996 726,353 8,633,822 450,685 11,741,552 7,862,641 123,679,315
---------- ---------- ---------- ----------- ---------- ----------- ----------- ------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS . . . . . $3,196,968 $5,542,996 $ 777,210 $ 9,411,199 $1,509,160 $14,967,801 $ 8,476,649 $182,302,463
========== ========== ========== =========== ========== =========== =========== ============
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . $ 61,393,666 $ 7,809,464 $3,193,371 $ 1,097,015 $ 5,402,954
EXPENSES:
Mortality and expense risk charge . . . . . . . . . . 4,145,909 1,120,784 548,042 312,433 1,107,776
Administrative charge . . . . . . . . . . . . . . . . 2,351,488 595,815 289,446 164,795 594,621
------------ ------------ ---------- ----------- -----------
Total expenses . . . . . . . . . . . . . . . . . . . 6,497,397 1,716,599 837,488 477,228 1,702,397
------------ ------------ ---------- ----------- -----------
Net investment income (loss) . . . . . . . . . . . . . 54,896,269 6,092,865 2,355,883 619,787 3,700,557
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation on investments:
Beginning of period . . . . . . . . . . . . . . . . (13,792,491) (12,611,187) -- (1,015,569) (464,277)
End of period . . . . . . . . . . . . . . . . . . . 45,558,436 2,104,546 -- 7,142,155 22,213,497
------------ ------------ ---------- ----------- -----------
Net change in unrealized appreciation (depreciation) . 59,350,927 14,715,733 -- 8,157,724 22,677,774
Realized gain (loss) on investments . . . . . . . . . 10,882,593 (306,084) -- 676,562 2,922,683
Net realized and unrealized gain on investments . . . 70,233,520 14,409,649 -- 8,834,286 25,600,457
------------ ------------ ---------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . $125,129,789 $ 20,502,514 $2,355,883 $ 9,454,073 $29,301,014
============ ============ ========== =========== ===========
<CAPTION>
AVANTI GROWTH SMALL U.S.
GROWTH AND INCOME CAP GOVERNMENT
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . $ 876,570 $1,559,445 $ 731,826 $181,533
EXPENSES:
Mortality and expense risk charge . . . . . . . . . . 224,195 237,064 93,901 25,698
Administrative charge . . . . . . . . . . . . . . . . 119,082 122,857 46,446 11,641
---------- ---------- ---------- --------
Total expenses . . . . . . . . . . . . . . . . . . . 343,277 359,921 140,347 37,339
---------- ---------- ---------- --------
Net investment income (loss) . . . . . . . . . . . . . 533,293 1,199,524 591,479 144,194
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation on investments:
Beginning of period . . . . . . . . . . . . . . . . 284,338 (102,566) 21,060 (6,498)
End of period . . . . . . . . . . . . . . . . . . . 4,321,917 5,157,858 1,612,398 124,160
---------- ---------- ---------- --------
Net change in unrealized appreciation (depreciation) . 4,037,579 5,260,424 1,591,338 130,658
Realized gain (loss) on investments . . . . . . . . . 811,989 581,379 248,107 37,281
Net realized and unrealized gain on investments . . . 4,849,568 5,841,803 1,839,445 167,939
---------- ---------- ---------- --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . $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
F-6
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
STRATEGIC*
EQUITY EQUITY INTERNATIONAL VENTURE
BALANCED GROWTH OPPORTUNITIES EQUITY VALUE
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . $ 483,666 $ 963,904 $ (34) $126,154 $ 567,519
EXPENSES:
Mortality and expense risk charge . . . . . . . . . . 73,201 167,537 8,848 79,455 144,621
Administrative charge . . . . . . . . . . . . . . . . 33,754 79,088 4,577 39,333 70,765
---------- ---------- -------- -------- ----------
Total expenses . . . . . . . . . . . . . . . . . . . 106,955 246,625 13,425 118,788 215,386
---------- ---------- -------- -------- ----------
Net investment income (loss) . . . . . . . . . . . . . 376,711 717,279 (13,459) 7,366 352,133
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation on investments:
Beginning of period . . . . . . . . . . . . . . . . 3,932 20,167 (1,169) 51,678 (826)
End of period . . . . . . . . . . . . . . . . . . . 835,377 2,819,660 -- 540,103 3,190,020
---------- ---------- -------- -------- ----------
Net change in unrealized appreciation (depreciation) . 831,445 2,799,493 1,169 488,425 3,190,846
Realized gain (loss) on investments . . . . . . . . . 209,127 844,654 48,522 85,869 497,297
Net realized and unrealized gain on investments . . . 1,040,572 3,644,147 49,691 574,294 3,688,143
---------- ---------- -------- -------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . $1,417,283 $4,361,426 $ 36,232 $581,660 $4,040,276
========== ========== ======== ======== ==========
<CAPTION>
STRATEGIC
BOND EQUITY-
OPPORTUNITIES INCOME OVERSEAS
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT TOTAL
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . $453,174 $ 4,924,430 $ 513,466 $ 90,278,123
EXPENSES:
Mortality and expense risk charge . . . . . . . . . . 42,222 793,678 636,341 9,761,705
Administrative charge . . . . . . . . . . . . . . . . 20,316 411,212 353,958 5,309,194
-------- ----------- ----------- ------------
Total expenses . . . . . . . . . . . . . . . . . . . 62,538 1,204,890 990,299 15,070,899
-------- ----------- ----------- ------------
Net investment income (loss) . . . . . . . . . . . . . 390,636 3,719,540 (476,833) 75,207,224
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation on investments:
Beginning of period . . . . . . . . . . . . . . . . (24,404) 452,793 (1,159,395) (28,344,414)
End of period . . . . . . . . . . . . . . . . . . . 170,662 18,248,552 4,472,393 118,511,734
-------- ----------- ----------- ------------
Net change in unrealized appreciation (depreciation) . 195,066 17,795,759 5,631,788 146,856,148
Realized gain (loss) on investments . . . . . . . . . 143,946 1,497,805 2,755 19,184,485
Net realized and unrealized gain on investments . . . 339,012 19,293,564 5,634,543 166,040,633
-------- ----------- ----------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . $729,648 $23,013,104 $ 5,157,710 $241,247,857
======== =========== =========== ============
</TABLE>
*From January 1, 1995 through June 8, 1995 (liquidation date).
See Notes to Financial Statements
F-7
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income . . . . . . . . . . . . . $ 24,462,440 $ 7,282,439 $ 2,229,634 $ 503,524 $ 10,515,482
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . 66,319,041 (3,452,042) -- 7,285,560 5,223,032
------------ ------------ ------------ ----------- ------------
Increase in net assets derived from investment
activities. . . . . . . . . . . . . . . . . . 90,781,481 3,830,397 2,229,634 7,789,084 15,738,514
FROM CONTRACT-RELATED TRANSACTIONS:
Net premiums transferred from Depositor . . . . 47,336,231 11,677,458 34,222,659 1,670,783 4,562,605
Net transfers (to) from other sub-accounts . . (18,117,765) (4,899,751) (22,911,631) 869,176 (3,513,923)
Net premiums transferred to Depositor
Surrenders . . . . . . . . . . . . . . . . . . (28,837,335) (8,641,055) (9,500,843) (1,956,188) (8,730,471)
Annuity benefits . . . . . . . . . . . . . . . (3,710,248) (1,293,526) (948,004) (373,468) (1,466,713)
------------ ------------ ------------ ----------- ------------
Increase (decrease) in net assets derived from
contract-related transactions . . . . . . . . (3,329,117) (3,156,874) 862,181 210,303 (9,148,502)
------------ ------------ ------------ ----------- ------------
Net increase (decrease) in net assets . . . . . 87,452,364 673,523 3,091,815 7,999,387 6,590,012
NET ASSETS, AT BEGINNING OF THE PERIOD . . . . . 470,802,773 128,260,193 62,367,516 37,271,004 122,969,400
------------ ------------ ------------ ----------- ------------
NET ASSETS, AT END OF THE PERIOD . . . . . . . . $558,255,137 $128,933,716 $ 65,459,331 $45,270,391 $129,559,412
============ ============ ============ =========== ============
<CAPTION>
AVANTI GROWTH SMALL U.S.
GROWTH AND INCOME CAP GOVERNMENT
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income . . . . . . . . . . . . . $ 1,795,808 $ 3,540,494 $ 2,396,656 $ 250,922
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . 3,150,099 2,436,803 4,588,027 (107,439)
----------- ----------- ----------- ----------
Increase in net assets derived from investment
activities. . . . . . . . . . . . . . . . . . 4,945,907 5,977,297 6,984,683 143,483
FROM CONTRACT-RELATED TRANSACTIONS:
Net premiums transferred from Depositor . . . . 6,302,457 6,822,870 8,775,631 1,820,592
Net transfers (to) from other sub-accounts . . 2,463,232 2,577,617 10,285,086 (149,842)
Net premiums transferred to Depositor
Surrenders . . . . . . . . . . . . . . . . . . (1,538,955) (1,432,839) (1,219,696) (183,343)
Annuity benefits . . . . . . . . . . . . . . . 17,753 (212,197) 24,816 (35,087)
----------- ----------- ----------- ----------
Increase (decrease) in net assets derived from
contract-related transactions . . . . . . . . 7,244,487 7,755,451 17,865,837 1,452,320
----------- ----------- ----------- ----------
Net increase (decrease) in net assets . . . . . 12,190,394 13,732,748 24,850,520 1,595,803
NET ASSETS, AT BEGINNING OF THE PERIOD . . . . . 28,450,760 31,452,044 16,500,183 5,120,505
----------- ----------- ----------- ----------
NET ASSETS, AT END OF THE PERIOD . . . . . . . . $40,641,154 $45,184,792 $41,350,703 $6,716,308
=========== =========== =========== ==========
</TABLE>
See Notes to Financial Statements
F-8
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
EQUITY INTERNATIONAL VENTURE
BALANCED GROWTH EQUITY VALUE
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income . . . . . . . . . . . . . . . . . . . . . $ 538,783 $ (620,000) $ 50,857 $ 777,377
Net realized and unrealized gain (loss) on investments . . . . 2,658,185 6,162,996 726,353 8,633,822
----------- ----------- ----------- -----------
Increase in net assets derived from investment activities . . 3,196,968 5,542,996 777,210 9,411,199
FROM CONTRACT-RELATED TRANSACTIONS:
Net premiums transferred from Depositor . . . . . . . . . . . . 10,013,329 18,130,543 4,022,067 13,755,448
Net transfers (to) from other sub-accounts . . . . . . . . . . 2,999,684 7,892,262 2,909,321 10,535,441
Net premiums transferred to Depositor
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . (1,068,120) (2,440,300) (1,078,027) (2,067,055)
Annuity benefits . . . . . . . . . . . . . . . . . . . . . . . (165,175) (344,976) (69,120) (94,350)
----------- ----------- ----------- -----------
Increase (decrease) in net assets derived from contract-related
transactions . . . . . . . . . . . . . . . . . . . . . . . . . 11,779,718 23,237,529 5,784,241 22,129,484
----------- ----------- ----------- -----------
Net increase (decrease) in net assets . . . . . . . . . . . . . 14,976,686 28,780,525 6,561,451 31,540,683
NET ASSETS, AT BEGINNING OF THE PERIOD . . . . . . . . . . . . . 13,484,869 33,886,547 11,869,695 25,945,883
----------- ----------- ----------- -----------
NET ASSETS, AT END OF THE PERIOD . . . . . . . . . . . . . . . . $28,461,555 $62,667,072 $18,431,146 $57,486,566
=========== =========== =========== ===========
<CAPTION>
STRATEGIC
BOND EQUITY-
OPPORTUNITIES INCOME OVERSEAS
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
------------- ------------- ------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income . . . . . . . . . . . . . . . . . . . . . $ 1,058,475 $ 3,226,249 $ 614,008
Net realized and unrealized gain (loss) on investments . . . . 450,685 11,741,552 7,862,641
----------- ------------ -----------
Increase in net assets derived from investment activities . . 1,509,160 14,967,801 8,476,649
FROM CONTRACT-RELATED TRANSACTIONS:
Net premiums transferred from Depositor . . . . . . . . . . . . 6,207,842 21,165,185 9,339,879
Net transfers (to) from other sub-accounts . . . . . . . . . . 5,505,494 2,766,414 789,185
Net premiums transferred to Depositor
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . (638,840) (5,636,063) (3,733,623)
Annuity benefits . . . . . . . . . . . . . . . . . . . . . . . (35,658) (627,188) (203,490)
----------- ------------ -----------
Increase (decrease) in net assets derived from contract-related
transactions . . . . . . . . . . . . . . . . . . . . . . . . . 11,038,838 17,668,348 6,191,951
----------- ------------ -----------
Net increase (decrease) in net assets . . . . . . . . . . . . . 12,547,998 32,636,149 14,668,600
NET ASSETS, AT BEGINNING OF THE PERIOD . . . . . . . . . . . . . 7,106,555 106,600,578 68,685,140
----------- ------------ -----------
NET ASSETS, AT END OF THE PERIOD . . . . . . . . . . . . . . . . $19,654,553 $139,236,727 $83,353,740
=========== ============ ===========
<CAPTION>
TOTAL
--------------
<S> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income . . . . . . . . . . . . . . . . . . . . . $ 58,623,148
Net realized and unrealized gain (loss) on investments . . . . 123,679,315
--------------
Increase in net assets derived from investment activities . . 182,302,463
FROM CONTRACT-RELATED TRANSACTIONS:
Net premiums transferred from Depositor . . . . . . . . . . . . 205,825,579
Net transfers (to) from other sub-accounts . . . . . . . . . .
Net premiums transferred to Depositor
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . (78,702,753)
Annuity benefits . . . . . . . . . . . . . . . . . . . . . . . (9,536,631)
--------------
Increase (decrease) in net assets derived from contract-related
transactions . . . . . . . . . . . . . . . . . . . . . . . . . 117,586,195
--------------
Net increase (decrease) in net assets . . . . . . . . . . . . . 299,888,658
NET ASSETS, AT BEGINNING OF THE PERIOD . . . . . . . . . . . . . 1,170,773,645
--------------
NET ASSETS, AT END OF THE PERIOD . . . . . . . . . . . . . . . . $1,470,662,303
==============
</TABLE>
See Notes to Financial Statements
F-9
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31,1995
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income . . . . . . . . . . . . . $ 54,896,269 $ 6,092,865 $ 2,355,883 $ 619,787 $ 3,700,557
Net realized and unrealized gain on
investments . . . . . . . . . . . . . . . . . 70,233,520 14,409,649 -- 8,834,286 25,600,457
------------ ------------ ------------ ----------- ------------
Increase in net assets derived from
investment activities . . . . . . . . . . . . 125,129,789 20,502,514 2,355,883 9,454,073 29,301,014
FROM CONTRACT-RELATED TRANSACTIONS:
Net premiums transferred from Depositor . . . . 42,486,003 14,019,688 28,469,210 3,173,681 7,685,082
Net transfers (to) from other sub-accounts . . (27,655,356) (2,304,605) (15,090,128) 996,126 (7,629,638)
Net premiums transferred to Depositor
Surrenders . . . . . . . . . . . . . . . . . . (27,943,021) (8,693,504) (7,342,847) (1,540,134) (8,273,166)
Annuity benefits . . . . . . . . . . . . . . . (2,930,635) (1,064,852) (766,722) (170,677) (2,900,142)
------------ ------------ ------------ ----------- ------------
Increase (decrease) in net assets derived
from contract-related transactions . . . . . . (16,043,009) 1,956,727 5,269,513 2,458,996 (11,117,864)
------------ ------------ ------------ ----------- ------------
Net increase (decrease) in net assets . . . . . 109,086,780 22,459,241 7,625,396 11,913,069 18,183,150
NET ASSETS, AT BEGINNING OF THE PERIOD . . . . . 361,715,993 105,800,952 54,742,120 25,357,935 104,786,250
------------ ------------ ------------ ----------- ------------
NET ASSETS, AT END OF THE PERIOD . . . . . . . . $470,802,773 $128,260,193 $ 62,367,516 $37,271,004 $122,969,400
============ ============ ============ =========== ============
<CAPTION>
AVANTI GROWTH SMALL U.S.
GROWTH AND INCOME CAP GOVERNMENT
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income . . . . . . . . . . . . . $ 533,293 $ 1,199,524 $ 591,479 $ 144,194
Net realized and unrealized gain on
investments . . . . . . . . . . . . . . . . . 4,849,568 5,841,803 1,839,445 167,939
----------- ----------- ----------- ----------
Increase in net assets derived from
investment activities . . . . . . . . . . . . 5,382,861 7,041,327 2,430,924 312,133
FROM CONTRACT-RELATED TRANSACTIONS:
Net premiums transferred from Depositor . . . . 5,370,355 5,402,352 4,957,159 2,992,966
Net transfers (to) from other sub-accounts . . 1,445,231 2,431,924 6,481,877 995,071
Net premiums transferred to Depositor
Surrenders . . . . . . . . . . . . . . . . . . (1,036,652) (979,455) (221,411) (78,421)
Annuity benefits . . . . . . . . . . . . . . . (133,280) (201,808) (15,080) (14,694)
----------- ----------- ----------- ----------
Increase (decrease) in net assets derived
from contract-related transactions . . . . . . 5,645,654 6,653,013 11,202,545 3,894,922
----------- ----------- ----------- ----------
Net increase (decrease) in net assets . . . . . 11,028,515 13,694,340 13,633,469 4,207,055
NET ASSETS, AT BEGINNING OF THE PERIOD . . . . . 17,422,245 17,757,704 2,866,714 913,450
----------- ----------- ----------- ----------
NET ASSETS, AT END OF THE PERIOD . . . . . . . . $28,450,760 $31,452,044 $16,500,183 $5,120,505
=========== =========== =========== ==========
</TABLE>
*From January 1, 1995 through June 8, 1995 (liquidation date).
See Notes to Financial Statements
F-10
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
STRATEGIC*
EQUITY EQUITY INTERNATIONAL VENTURE
BALANCED GROWTH OPPORTUNITIES EQUITY VALUE
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income . . . . . . . . . . . . $ 376,711 $ 717,279 $ (13,459) $ 7,366 $ 352,133
Net realized and unrealized gain on
investments . . . . . . . . . . . . . . . . . 1,040,572 3,644,147 49,691 574,294 3,688,143
----------- ----------- ----------- ----------- -----------
Increase in net assets derived from
investment activities . . . . . . . . . . . 1,417,283 4,361,426 36,232 581,660 4,040,276
FROM CONTRACT-RELATED TRANSACTIONS:
Net premiums transferred from Depositor . . . 7,247,051 11,437,079 396,904 4,200,572 7,906,925
Net transfers (to) from other sub-accounts . . 3,520,100 16,787,152 (2,257,051) 4,320,379 11,022,083
Net premiums transferred to Depositor
Surrenders . . . . . . . . . . . . . . . . . (417,868) (422,550) (20,417) (262,457) (375,358)
Annuity benefits . . . . . . . . . . . . . . (12,315) (51,955) (1,972) 44,178 (17,782)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets derived
from contract-related transactions . . . . . 10,336,968 27,749,726 (1,882,536) 8,302,672 18,535,868
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets . . . . 11,754,251 32,111,152 (1,846,304) 8,884,332 22,576,144
NET ASSETS, AT BEGINNING OF THE PERIOD . . . . 1,730,618 1,775,395 1,846,304 2,985,363 3,369,739
----------- ----------- ----------- ----------- -----------
NET ASSETS, AT END OF THE PERIOD . . . . . . . $13,484,869 $33,886,547 -- $11,869,695 $25,945,883
=========== =========== =========== =========== ===========
<CAPTION>
STRATEGIC
BOND EQUITY-
OPPORTUNITIES INCOME OVERSEAS
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT TOTAL
------------- ------------- ------------ -----------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income . . . . . . . . . . . . $ 390,636 $ 3,719,540 $ (476,833) $ 75,207,224
Net realized and unrealized gain on
investments . . . . . . . . . . . . . . . . . 339,012 19,293,564 5,634,543 166,040,633
---------- ------------ ----------- --------------
Increase in net assets derived from
investment activities . . . . . . . . . . . 729,648 23,013,104 5,157,710 241,247,857
FROM CONTRACT-RELATED TRANSACTIONS:
Net premiums transferred from Depositor . . . 3,112,591 20,254,001 9,572,080 178,683,699
Net transfers (to) from other sub-accounts . . 2,262,193 13,063,570 (8,388,928)
Net premiums transferred to Depositor
Surrenders . . . . . . . . . . . . . . . . . (104,653) (3,678,451) (3,414,558) (64,804,923)
Annuity benefits . . . . . . . . . . . . . . 798 (448,238) (423,431) (9,108,607)
---------- ------------ ----------- --------------
Increase (decrease) in net assets derived
from contract-related transactions . . . . . 5,270,929 29,190,882 (2,654,837) 104,770,169
---------- ------------ ----------- --------------
Net increase (decrease) in net assets . . . . 6,000,577 52,203,986 2,502,873 346,018,026
NET ASSETS, AT BEGINNING OF THE PERIOD . . . . 1,105,978 54,396,592 66,182,267 824,755,619
---------- ------------ ----------- --------------
NET ASSETS, AT END OF THE PERIOD . . . . . . . $7,106,555 $106,600,578 $68,685,140 $1,170,773,645
========== ============ =========== ==============
</TABLE>
*From January 1, 1995 through June 8, 1995 (liquidation date).
See Notes to Financial Statements
F-11
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
New England Variable Account (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 operations of the Account
are part of Metropolitan Life Insurance Company (the "Company"). Prior to August
30, 1996, the Account was a part of New England Mutual Life Insurance Company.
Effective August 30, 1996, New England Mutual Life Insurance Company merged into
Metropolitan Life Insurance Company. The Account has sixteen investment
sub-accounts as of December 31, 1996, each of which invests in one series of the
New England Zenith Fund ("Zenith Fund") or one portfolio of the Variable
Insurance Products Fund. 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."
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consistently
followed by the Account.
A. Security Valuation--The Eligible Fund 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.
B. 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. Net
investment income and net realized and unrealized gains and losses on
investments are allocated to the contracts on each valuation date based upon the
contract's pro rata share of each sub-account. Realized gains and losses from
sales of investments are computed on the basis of average cost.
C. 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 earnings associated with and credited to the contracts.
D. 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.
E. 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.
F-12
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
3. PURCHASES AND SALES OF INVESTMENT SECURITIES
The following table shows the aggregate cost of shares purchased and proceeds
from sales of Eligible Funds for the year ended December 31, 1996:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ---- ------------ -------------
<S> <C> <C>
Capital Growth . . . . . . . . . . . . . . . $109,445,039 $88,152,406
Back Bay Advisers Bond Income . . . . . . . . 33,203,127 29,064,402
Back Bay Advisers Money Market . . . . . . . 102,903,931 99,765,984
Westpeak Stock Index . . . . . . . . . . . . 6,886,572 6,159,994
Back Bay Advisers Managed . . . . . . . . . . 22,388,776 21,004,442
Loomis Sayles Avanti Growth . . . . . . . . . 16,399,019 7,337,827
Westpeak Growth and Income . . . . . . . . . 16,997,274 5,672,545
Loomis Sayles Small Cap . . . . . . . . . . . 30,411,952 10,111,018
Salomon Brothers U.S. Government . . . . . . 3,969,564 2,257,987
Loomis Sayles Balanced . . . . . . . . . . . 16,131,868 3,790,239
Alger Equity Growth . . . . . . . . . . . . . 39,404,629 16,741,884
Draycott International Equity . . . . . . . . 10,429,755 4,581,526
Davis Venture Value . . . . . . . . . . . . . 32,480,901 9,526,345
Salomon Brothers Strategic
Bond Opportunities . . . . . . . . . . . . . 15,723,717 3,607,029
Fidelity Equity-Income . . . . . . . . . . . 42,828,429 21,886,628
Fidelity Overseas . . . . . . . . . . . . . . 32,803,040 25,973,441
</TABLE>
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.
4. CHARGES DEDUCTED BY THE COMPANY:
A. Administrative charge--a fixed administrative charge of $30.00 per contract
year is deducted from the contract value on each contract anniversary.
B. 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. The mortality risk is the risk that guaranteed annuity payments
or minimum death benefit payments made by the Company exceed amounts deducted
from the net assets of the Account. The expense risk is the risk that
administrative costs incurred by the company exceed amounts deducted from the
net assets of the account.
C. Contingent deferred sales charge--In the event of a partial or full
surrender, a contingent deferred sales charge may be imposed. Charges for
investment Advisery fees and other expenses are deducted from the assets of the
Eligible Funds.
F-13
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
5. INVESTMENT ADVISERS
The investment adviser and sub-adviser for each of the Eligible Funds are
listed in the chart below. TNE Advisers, Inc. which is an indirect subsidiary of
the Company, and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
- ------------------------ ---------------------- ---------------------------
<S> <C> <C>
Capital Growth Capital Growth Capital Growth
Management, L.P. Management, L.P.*
Back Bay Advisers Bond TNE Advisers, Inc. Back Bay Advisers, L.P.*
Income
Back Bay Advisers Money TNE Advisers, Inc. Back Bay Advisers, L.P.*
Market
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisers,
L.P.*
Back Bay Advisers TNE Advisers, Inc. Back Bay Advisers, L.P.*
Managed
Loomis Sayles Avanti TNE Advisers, Inc. Loomis Sayles & Company,
Growth L.P.*
Westpeak Growth and TNE Advisers, Inc. Westpeak Investment Advisers,
Income L.P.*
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis Sayles & Company,
L.P.*
Salomon Brothers U.S. TNE Advisers, Inc. Salomon Brothers Asset
Government Management, Inc.
Loomis Sayles Balanced TNE Advisers, Inc. Loomis Sayles & Company,
L.P.*
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
Draycott International TNE Advisers, Inc. Draycott Partners, Ltd.
Equity
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, Inc.
Salomon Brothers TNE Advisers, Inc. Salomon Brothers Asset
Strategic Bond Management, Inc.
Opportunities
Fidelity Equity-Income Fidelity Management & --
Research Co.
Fidelity Overseas Fidelity Management & --
Research Co.
</TABLE>
- ---------
* An Affiliate of the Company
On January 22, 1997, the Board of Trustees of New England Zenith Fund approved
a new subadvisery agreement relating to the Draycott International Equity
Series, between TNE Advisers, Inc. and Morgan Stanley Asset Management Inc.
("MSAM"). This new agreement is expected to become effective May 1, 1997
(subject to shareholder approval, if necessary). Under this new agreement MSAM
would become subadviser of the series, succeeding Draycott Partners, LTD. and
would be responsible for the day to day management of the series. The new name
of the series will be Morgan Stanley International Magnum Equity Series. On
March 4, 1997 the Board of Trustees of New England Zenith Fund (i) confirmed
their approval of the subadvisery agreement with MSAM, in light of information
about a proposed merger (which is expected to occur in mid-1997) of Dean Witter,
Discover & Co. and MSAM's parent company, Morgan Stanley Group Inc., and (ii)
approved a second new subadvisery agreement with MSAM, to be effective upon the
merger, subject to shareholder approval.
6. REGISTRATION EXPENSES
The company has assumed the cost of registering the Account and its contracts
for distribution under applicable federal and state laws.
F-14
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
7. VARIABLE ANNUITY CONTRACT UNIT ACTIVITY:
A summary of units outstanding for variable annuity contracts at December 31,
1996:
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------------- ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Units Outstanding 1/1/96 . 41,663,899.5543 42,231,987.3839 33,015,018.4546 15,539,607.9674 56,145,463.0607
Units Purchased . . . . . 4,026,379.1773 3,930,622.6568 17,898,711.2760 1,003,295.9682 2,006,534.3496
Units Redeemed . . . . . . (4,327,123.4489) (5,023,735.6606) (17,501,212.3459) (919,651.1175) (6,021,832.2464)
Units Outstanding
12/31/96 . . . . . . . . 41,363,155.2827 41,138,874.3801 33,412,517.3847 15,623,252.8181 52,130,165.1639
=============== =============== ================ =============== ===============
Unit Value 12/31/96 . . . 13.496435 3.134109 1.959126 2.897629 2.485306
=============== =============== ================ =============== ===============
<CAPTION>
AVANTI GROWTH AND SMALL
GROWTH INCOME CAP
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
---------------- ---------------- ------------------
<S> <C> <C> <C>
Units Outstanding 1/1/96 . 19,773,056.9064 21,168,965.4245 13,533,325.6559
Units Purchased . . . . . 5,673,837.1535 6,069,452.3619 13,772,447.8905
Units Redeemed . . . . . . (1,101,514.8274) (1,133,953.0847) (998,025.5610)
Units Outstanding
12/31/96 . . . . . . . . 24,345,379.2325 26,104,464.7017 26,307,747.9854
=============== =============== ===============
Unit Value 12/31/96 . . . 1.669358 1.730922 1.571807
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
U.S. EQUITY INTERNATIONAL VENTURE
GOVERNMENT BALANCED GROWTH EQUITY VALUE
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
--------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Units Outstanding 1/1/96 . 4,495,184.3595 10,987,596.8369 24,163,684.8342 11,062,106.4600 19,608,688.2487
Units Purchased . . . . . 1,617,997.5137 10,105,999.2849 17,810,377.8316 6,341,690.6952 16,978,220.9574
Units Redeemed . . . . . . (328,034.2563) (986,272.1837) (1,948,468.2790) (1,080,935.4885) (1,589,885.0776)
Units Outstanding
12/31/96 . . . . . . . . 5,785,147.6169 20,107,323.9381 40,025,594.3868 16,322,861.6667 34,997,024.1285
============== =============== =============== =============== ===============
Unit Value 12/31/96 . . . 1.160957 1.415482 1.565675 1.129151 1.642613
============== =============== =============== =============== ===============
<CAPTION>
STRATEGIC
BOND EQUITY
OPPORTUNITIES INCOME OVERSEAS
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
---------------- ---------------- ------------------
<S> <C> <C> <C>
Units Outstanding 1/1/96 . 6,132,562.9853 38,010,655.2162 41,273,183.2760
Units Purchased . . . . . 9,508,099.0139 8,194,527.7628 5,929,818.9183
Units Redeemed . . . . . . (606,107.6135) (2,167,385.3566) (2,356,686.0912)
Units Outstanding
12/31/96 . . . . . . . . 15,034,554.3857 44,037,797.6224 44,846,316.1031
=============== =============== ===============
Unit Value 12/31/96 . . . 1.307292 3.161755 1.858653
=============== =============== ===============
</TABLE>
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
Metropolitan Life Insurance Company
We have audited the accompanying consolidated balance sheets of Metropolitan
Life Insurance Company (the "Company") as of December 31, 1996 and 1995 and
the related consolidated statements of earnings, equity and cash flows for
each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1996 and 1995 and the consolidated results of its operations and
its consolidated cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 13 to the consolidated financial statements, the
Company has retroactively adopted applicable generally accepted accounting
principles relating to mutual life insurance companies and has changed, as of
December 31, 1994, the method of accounting for fixed maturity investments.
DELOITTE & TOUCHE LLP
New York, New York
April 4, 1997
MLIC-1
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1996 1995
----- -------- --------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed Maturities: 2,12
Available for Sale, at Estimated Fair Value......... $ 75,039 $ 76,412
Held to Maturity, at Amortized Cost................. 11,322 11,340
Equity Securities..................................... 2,12 2,816 1,749
Mortgage Loans on Real Estate......................... 2,12 18,964 17,216
Policy Loans.......................................... 12 5,842 5,714
Real Estate........................................... 2 7,744 8,761
Real Estate Joint Ventures............................ 4 851 753
Other Limited Partnership Interests................... 4 992 797
Leases and Leveraged Leases........................... 2 1,883 1,503
Short-Term Investments................................ 12 741 1,769
Other Invested Assets................................. 2,692 2,651
-------- --------
Total Investments................................... 128,886 128,665
Cash and Cash Equivalents.............................. 12 2,325 1,930
Deferred Policy Acquisition Costs...................... 7,227 6,508
Accrued Investment Income.............................. 1,611 1,961
Premiums and Other Receivables......................... 2,916 2,533
Deferred Income Taxes Receivable....................... 37 --
Other Assets........................................... 2,094 2,157
Separate Account Assets................................ 43,775 39,384
-------- --------
Total Assets........................................ $188,871 $183,138
======== ========
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits................................. 5 $ 69,223 $ 68,256
Policyholder Account Balances.......................... 5,12 47,674 48,133
Other Policyholder Funds............................... 12 4,179 4,006
Policyholder Dividends Payable......................... 1,817 1,825
Short- and Long-Term Debt.............................. 9,12 5,365 5,580
Income Taxes Payable: 6
Current............................................... 599 827
Deferred.............................................. -- 230
Other Liabilities...................................... 4,632 3,666
Separate Account Liabilities........................... 43,399 38,861
-------- --------
Total Liabilities................................... 176,888 171,384
-------- --------
Commitments and Contingencies (Notes 2, 4 and 10)
EQUITY
Retained Earnings...................................... 10,937 10,084
Net Unrealized Investment Gains........................ 3 1,028 1,646
Foreign Currency Translation Adjustments............... 18 24
-------- --------
Total Equity........................................ 13 11,983 11,754
-------- --------
Total Liabilities and Equity........................ $188,871 $183,138
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
The New York State Insurance Department (the "Department") recognizes only
statutory accounting practices for determining and reporting the financial
condition and results of operations of an insurance company for determining
solvency under the New York Insurance Law. No consideration is given by the
Department to financial statements prepared in accordance with generally
accepted accounting principles in making such determination.
MLIC-2
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1996 1995 1994
----- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Premiums....................................... 5 $11,462 $11,178 $10,078
Universal Life and Investment-Type Product Pol-
icy Fee Income................................ 1,173 1,105 883
Net Investment Income.......................... 3 8,848 8,711 8,283
Investment Gains, Net.......................... 3 603 199 4
Commissions, Fees and Other Income............. 1,152 741 636
------- ------- -------
Total Revenues................................ 23,238 21,934 19,884
------- ------- -------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits.......................... 5 12,525 11,976 11,179
Interest Credited to Policyholder Account Bal-
ances......................................... 2,868 3,143 3,040
Policyholder Dividends......................... 1,728 1,786 1,752
Other Operating Costs and Expenses............. 4,711 4,285 3,500
------- ------- -------
Total Benefits and Other Deductions........... 21,832 21,190 19,471
------- ------- -------
Earnings from Continuing Operations before In-
come Taxes.................................... 1,406 744 413
Income Taxes................................... 6 482 407 380
------- ------- -------
Earnings from Continuing Operations............ 924 337 33
------- ------- -------
Discontinued Operations:
(Loss) Earnings from Discontinued Operations
(Net of Income Tax (Benefit) Expense of $(18)
in 1996, $32 in 1995 and $54 in 1994)........ (52) (54) 81
(Loss) Gain on Disposal of Discontinued Opera-
tions (Net of Income Tax (Benefit) Expense of
$(11) in 1996 and $106 in 1995).............. (19) 416 --
------- ------- -------
(Loss) Earnings from Discontinued Operations... (71) 362 81
------- ------- -------
Net Earnings................................... 13 $ 853 $ 699 $ 114
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
MLIC-3
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 ,1995 AND 1994 (IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1996 1995 1994
----- ------- ------- ------
<S> <C> <C> <C> <C>
Retained Earnings, Beginning of Year........... $10,084 $ 9,385 $9,271
Net Earnings................................... 853 699 114
------- ------- ------
Retained Earnings, End of Year................. 10,937 10,084 9,385
------- ------- ------
Net Unrealized Investment Gains (Losses),
Beginning of Year.............................. 1,646 (955) 259
Cumulative Effect of Accounting Change......... 1 -- -- (1,247)
Change in Unrealized Investment (Losses) Gains. (618) 2,601 33
------- ------- ------
Net Unrealized Investment Gains (Losses), End
of Year........................................ 1,028 1,646 (955)
------- ------- ------
Foreign Currency Translation Adjustments,
Beginning of Year.............................. 24 (2) (17)
Change in Foreign Currency Translation
Adjustments.................................... (6) 26 15
------- ------- ------
Foreign Currency Translation Adjustments, End
of Year........................................ 18 24 (2)
------- ------- ------
Total Equity, End of Year...................... 13 $11,983 $11,754 $8,428
======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
MLIC-4
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net Cash Provided by Operating Activities......... $ 3,688 $ 4,823 $ 3,980
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Fixed Maturities................................ 76,117 64,372 47,658
Equity Securities............................... 2,069 694 795
Mortgage Loans on Real Estate................... 2,380 3,182 2,684
Real Estate..................................... 1,948 1,193 688
Real Estate Joint Ventures...................... 410 387 471
Other Limited Partnership Interests............. 178 42 24
Purchases of:
Fixed Maturities................................ (76,225) (66,693) (51,073)
Equity Securities............................... (2,742) (781) (812)
Mortgage Loans on Real Estate................... (4,225) (2,491) (1,465)
Real Estate..................................... (859) (904) (773)
Real Estate Joint Ventures...................... (130) (285) (51)
Other Limited Partnership Interests............. (307) (87) (164)
Net Change in Short-Term Investments............. 1,028 (634) 198
Net Change in Policy Loans....................... (128) (112) (393)
Other, Net....................................... (438) (568) (107)
-------- -------- --------
Net Cash Used by Investing Activities............. (924) (2,685) (2,320)
-------- -------- --------
Cash Flows from Financing Activities:
Policyholder Account Balances
Deposits........................................ 17,167 16,017 15,580
Withdrawals..................................... (19,321) (19,142) (16,876)
Additions to Long-Term Debt...................... -- 692 148
Repayments of Long-Term Debt..................... (284) (389) (334)
Net Increase (Decrease) in Short-Term Debt....... 69 (78) 143
-------- -------- --------
Net Cash Used by Financing Activities............. (2,369) (2,900) (1,339)
-------- -------- --------
Change in Cash and Cash Equivalents............... 395 (762) 321
Cash and Cash Equivalents, Beginning of Year...... 1,930 2,692 2,371
-------- -------- --------
Cash and Cash Equivalents, End of Year............ $ 2,325 $ 1,930 $ 2,692
======== ======== ========
Supplemental Cash Flow Information:
Interest Paid.................................... $ 310 $ 280 $ 257
======== ======== ========
Income Taxes Paid................................ $ 497 $ 283 $ 161
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
MLIC-5
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Net Earnings......................................... $ 853 $ 699 $ 114
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Change in Deferred Policy Acquisition Costs, Net... (391) (376) (538)
Change in Accrued Investment Income................ 350 (191) (70)
Change in Premiums and Other Receivables........... (106) (29) (458)
Undistributed (Income) Loss of Real Estate Joint
Ventures and Other Limited Partnerships........... 100 (95) 150
Gains from Sale of Investments and Businesses, Net. (573) (721) (4)
Depreciation and Amortization Expenses............. (18) 30 (25)
Interest Credited to Policyholder Account Balances. 2,868 3,143 3,040
Universal Life and Investment-Type Product Policy
Fee Income........................................ (1,173) (1,105) (883)
Change in Future Policy Benefits................... 2,149 2,332 2,089
Change in Other Policyholder Funds................. 181 (66) 65
Change in Policyholder Dividends Payable........... (8) 11 (55)
Change in Income Taxes Payable..................... (134) 327 503
Other, Net......................................... (410) 864 52
------- ------- ------
Net Cash Provided by Operating Activities............ $ 3,688 $ 4,823 $3,980
======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
MLIC-6
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Metropolitan Life Insurance Company ("MetLife") and its subsidiaries
(collectively, the "Company") principally provide life insurance and annuity
products and pension, pension-related and investment-related services to
individuals, corporations and other institutions. The Company also provides
nonmedical health, disability and property and casualty insurance and offers
investment management, investment advisory, and commercial finance services.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"). The New
York State Insurance Department (the "Department") recognizes only statutory
accounting practices for determining and reporting the financial condition and
results of operations of an insurance company for determining solvency under
the New York Insurance Law. No consideration is given by the Department to
financial statements prepared in accordance with GAAP in making such
determination.
The accompanying consolidated financial statements include the accounts of
MetLife and its subsidiaries, partnerships and joint venture interests in
which MetLife has control. Other equity investments in affiliated companies,
partnerships and joint ventures are generally reported on the equity basis.
Significant intercompany transactions and balances have been eliminated in
consolidation.
Minority interest related to subsidiaries, partnership and joint venture
interests that are consolidated amounted to $149 million and $137 million at
December 31, 1996 and 1995, respectively, and is included in other
liabilities. Minority interest in earnings of $30 million, $22 million and $5
million in 1996, 1995 and 1994, respectively, is included in other operating
costs and expenses.
In August 1996, MetLife completed a merger with New England Mutual Life
Insurance Company ("The New England") whereby The New England was merged
directly into MetLife. The merger was accounted for as a pooling of interest
and, accordingly, the accompanying consolidated financial statements include
the accounts and operations of The New England for all periods.
Prior to 1996, MetLife, as a mutual life insurance company, prepared its
financial statements in conformity with accounting practices prescribed or
permitted by the Department (statutory financial statements), which accounting
practices were considered to be GAAP for a mutual life insurance company. In
1996, MetLife adopted Interpretation No. 40, Applicability of Generally
Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises
(the "Interpretation"), and Statement of Financial Accounting Standards
("SFAS") No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long Duration
Participating Policies (the "Standard"), of the Financial Accounting Standards
Board ("FASB"). The Interpretation and the Standard required mutual life
insurance companies to adopt all standards promulgated by the FASB in their
general purpose financial statements. The financial statements of MetLife for
1995 and 1994 have been retroactively restated to reflect the adoption of all
applicable authoritative GAAP pronouncements. The effect of such adoption,
except for SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," has been reflected in equity at January 1, 1994 (see Note
13).
As of December 31, 1994, the Company adopted SFAS No. 115, which expanded
the use of fair value accounting for those securities that a company does not
have positive intent and ability to hold to maturity. Implementation of SFAS
No. 115 decreased consolidated equity at December 31, 1994, by $1,247 million,
net of deferred income taxes, amounts attributable to participating pension
contractholders and adjustments of deferred policy acquisition costs and
future policy benefits. In 1995, the FASB issued implementation guidance for
SFAS No. 115 and permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 31, 1995, the Company transferred
$3,058 million of securities classified as held to maturity to the available
for sale portfolio. As a result, consolidated equity at December 31, 1995,
increased by
MLIC-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$135 million, excluding the effects of deferred income taxes, amounts
attributable to participating pension contractholders and adjustments of
deferred policy acquisition costs and future policy benefits.
VALUATION OF INVESTMENTS
Fixed maturity securities for which the Company has the positive intent and
ability to hold to maturity are stated principally at amortized cost and
include bonds and redeemable preferred stock. All other fixed maturity
securities are classified as available for sale and are reported at estimated
fair value. Equity securities are stated principally at estimated fair value
and include common stocks and nonredeemable preferred stocks. Unrealized
investment gains and losses on fixed maturity securities available for sale
and equity securities are reported as a separate component of equity. Such
amounts are net of related deferred income taxes, amounts attributable to
participating pension contractholders and adjustments of deferred policy
acquisition costs and future policy benefits relating to unrealized gains on
available for sale securities. Costs of fixed maturity and equity securities
are adjusted for impairments in value deemed to be other than temporary. All
security transactions are recorded on a trade date basis.
Mortgage loans in good standing are carried at outstanding principal
balances less unaccreted discounts. Mortgage loans are considered impaired
when, based on current information and events, it is probable that the Company
will be unable to collect all amounts due according to the contract terms of
the loan agreement. When the Company determines that a loan is impaired, an
allowance for loss is established for the difference between the carrying
value of the mortgage loan and the estimated fair value. Estimated fair value
is based on either the present value of expected future cash flows discounted
at the loan's effective interest rate, the loan's observable market price or
the fair value of the collateral. The provision for losses is reported as a
realized investment loss. Mortgage loans deemed to be uncollectible are
charged against the allowance for losses and subsequent recoveries, if any,
are credited to the allowance for losses.
Investment real estate, including real estate acquired in satisfaction of
debt, is generally stated at depreciated cost (or amortized cost for capital
leases). At the date of foreclosure, real estate acquired in satisfaction of
debt is recorded at estimated fair value. Cost is adjusted for impairment
whenever events or changes in circumstances indicate that the carrying amount
of the investment may not be recoverable. In performing the review for
recoverability, management estimates future cash flows expected from real
estate investments including proceeds on disposition. If the sum of such
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the real estate, an impairment loss is recognized.
Measurement of impairment losses is based on the estimated fair market value
of the real estate, which is generally computed using the present value of
expected future cash flows discounted at a rate commensurate with underlying
risks. Real estate investments that management intends to sell in the near
term are reported at the lower of cost or estimated fair market value less
allowances for the estimated cost of sales. Changes in allowances relating to
real estate to be disposed of and impairments of real estate are reported as
realized investment gains or losses.
Depreciation, including charges relating to capital leases, of real estate
is computed using the straight-line method over the estimated useful lives of
the properties, which generally range from 20 to 40 years or the terms of the
lease, if shorter. Accumulated depreciation and amortization on real estate
was $2,109 million and $2,187 million at December 31, 1996 and 1995,
respectively. Depreciation and amortization expense totaled $348 million, $427
million and $356 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
Policy loans are stated at unpaid principal balances. Short-term investments
are stated at amortized cost, which approximates fair value.
The Company acts as the lessor of equipment in both direct financing and
operating lease transactions. At lease commencement, the Company records the
aggregate future minimum lease payments due, the estimated residual value of
the leased equipment and unearned lease income for direct financing leases.
The unearned lease income represents the excess of aggregate future minimum
lease receipts plus the estimated residual value over the cost of the leased
equipment or its net capitalized value. Lease income is recognized over the
term of the lease in a manner which reflects a level yield on the net
investment in the lease. Certain origination fees and costs are deferred and
recognized over the term of the lease using the interest method. For operating
lease transactions, the cost of equipment or its net realizable value is
depreciated on a straight-line basis over its estimated economic life and
lease income is recorded as earned.
MLIC-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company participates in leasing transactions in which it supplies only a
portion of the purchase price, but generally has the entire equity interest in
the equipment and rentals receivable (leveraged leases). These interests,
however, are subordinated to the interests of the lenders supplying the
nonequity portion of the repurchase price. The financing is generally in the
form of long-term debt that provides for no recourse against the Company and
is collateralized by the property. The investment in leveraged leases is
recorded net of the nonrecourse debt. Revenue, including related tax benefits,
is recorded over the term of the lease at a level rate of return. Management
regularly reviews residual values and writes down residuals to expected values
as needed.
INVESTMENT RESULTS
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenues. Valuation
allowances are netted against asset categories to which they apply and
provisions for losses for investments are included in investment gains and
losses.
PROPERTY AND EQUIPMENT
Property and equipment and leasehold improvements are included in other
assets, and are stated at cost, less accumulated depreciation and
amortization. Depreciation, including charges relating to capitalized leases,
is provided using the straight-line or sum of the years digits methods over
the estimated useful lives of the assets, which generally range from 20 to 40
years for real estate and five to 15 years or the term of the lease, if
shorter, for all other property and equipment. Amortization of leasehold
improvements is provided using the straight-line method over the lesser of the
term of the lease or the estimated useful life of the improvements.
RECOGNITION OF INCOME AND EXPENSES
Premiums from traditional life and annuity policies with life contingencies
are generally recognized as income when due. Benefits and expenses are matched
with such income so as to result in the recognition of profits over the life
of the contract. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium, or limited number of premium payments
due over a significantly shorter period of time than the total period over
which benefits are provided ("limited payment contracts"), premiums are
recorded as income when due with any excess profit deferred and recognized in
income in a constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from nonmedical health contracts are recognized as income on a pro
rata basis over the contract terms.
Premiums from universal life and investment-type contracts are reported as
deposits to policyholder account balances. Revenues from these contracts
consist of amounts assessed during the period against policyholder account
balances for mortality, policy administration and surrender charges. Policy
benefits and claims that are charged to expenses include benefit claims
incurred in the period in excess of related policyholder account balances and
interest credited to policyholder account balances.
Property and liability premiums are generally recognized as revenue on a pro
rata basis over the policy term. Unearned premiums are included in other
liabilities and are computed principally by the monthly pro rata method.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, agency and
policy issue expenses, all of which vary with and are primarily related to the
production of new business, have been deferred. Deferred policy acquisition
costs are subject to recoverability testing at the time of policy issue and
loss recognition testing at the end of each accounting period.
Deferred policy acquisition costs are amortized over 40 years for
participating traditional life and 30 years for universal life and investment-
type products as a constant percentage of estimated gross margins or profits
arising principally from surrender charges and interest, mortality and expense
margins based on historical and anticipated
MLIC-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
future experience, updated regularly. The effects of revisions to experience
on previous amortization of deferred policy acquisition costs are reflected in
earnings in the period estimated gross margins or profits are revised.
For nonparticipating traditional life and annuity policies with life
contingencies, deferred policy acquisition costs are amortized in proportion
to anticipated premiums. Assumptions as to anticipated premiums are estimated
at the date of policy issue and are consistently applied during the life of
the contracts. Deviations from estimated experience are reflected in earnings
in the period such deviations occur. For these contracts, the amortization
periods generally are for the estimated life of the policy.
For nonmedical health insurance contracts, deferred policy acquisition costs
are amortized over the life of the contracts (generally 10 years) in
proportion to anticipated premium revenue at the time of issue.
For property and liability insurance, deferred policy acquisition costs are
amortized over the terms of policies or reinsurance treaties.
VALUE OF INSURANCE BUSINESS ACQUIRED AND GOODWILL
The cost of insurance acquired of $358 million and $381 million at December
31, 1996 and 1995, respectively, and the excess of purchase price over the
fair value of net assets acquired of $17 million and $22 million at December
31, 1996 and 1995, respectively, are included in other assets. The cost of
insurance acquired is being amortized over the expected policy or contract
duration in relation to the present value of estimated gross profits from such
policies and contracts. Accumulated amortization of cost of insurance acquired
was $48 million and $18 million at December 31, 1996 and 1995, respectively,
and related amortization expense was $30 million, $27 million and $2 million
for the years ended December 31, 1996, 1995 and 1994, respectively. The excess
of purchase price over the fair value of assets acquired is being amortized
generally over a 10 year period using the straight-line method. Accumulated
amortization of cost in excess of net assets acquired was $48 million and $43
million at December 31, 1996 and 1995, respectively, and related amortization
expense was $5 million, $5 million and $6 million for the years ended December
31, 1996, 1995 and 1994, respectively.
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life
insurance policies are equal to the aggregate of net level premium reserves
for death and endowment policy benefits, the liability for terminal dividends
and premium deficiency reserves. The net level premium reserve is calculated
based on the nonforfeiture interest rate, ranging from 2.5 percent to 7.0
percent, and mortality rates guaranteed in calculating the cash surrender
values described in such contracts. Premium deficiency reserves are
established, if necessary, when the liabilities for future policy benefits
plus the present value of expected future gross premiums are insufficient to
provide for expected future policy benefits and expenses after deferred policy
acquisition costs are written off.
Future policy benefit liabilities for traditional annuities during the
accumulation period are equal to accumulated contractholder fund balances and,
after annuitization, are equal to the present value of expected future
payments. Interest rates used in establishing future policy benefit
liabilities range from 2.5 percent to 7.0 percent for life insurance policies
and 6.0 percent to 8.25 percent for annuity contracts.
Policyholder account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross premium payments plus credited interest
less expense and mortality charges and withdrawals.
Benefit liabilities for nonmedical health insurance are calculated using the
net level premium method and assumptions as to future morbidity, withdrawals
and interest, which provide a margin for adverse deviation. Benefit
liabilities for disabled lives are estimated using the present value of
benefits method and experience assumptions as to claim terminations, expenses
and interest.
For property and liability insurance, the liability for unpaid reported
losses is based on a case by case or overall estimate using the Company's past
experience. A provision is also made for losses incurred but not reported on
the basis of estimates and past experience.
MLIC-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAXES
MetLife and its eligible life insurance and nonlife insurance subsidiaries
file a consolidated federal income tax return. The future tax consequences of
temporary differences between financial reporting and tax basis of assets and
liabilities are measured as of the balance sheet dates and are recorded as
deferred tax assets or liabilities.
SEPARATE ACCOUNT OPERATIONS
Separate Accounts are established in conformity with insurance laws and are
generally not chargeable with liabilities that arise from any other business
of the Company. Separate Account assets are subject to general account claims
only to the extent the value of such assets exceeds the Separate Account
liabilities. Separate Account assets and liabilities also include assets and
liabilities relating to unit-linked products sold in the United Kingdom.
Investments held in the Separate Accounts (stated at estimated fair market
value) and liabilities of the Separate Accounts (including participants'
corresponding equity in the Separate Accounts) are reported separately as
assets and liabilities. Deposits to Separate Accounts are reported as
increases in Separate Account liabilities and are not reported in revenues.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues.
POLICYHOLDER DIVIDENDS
The amount of policyholder dividends to be paid is determined annually by
the Board of Directors. The aggregate amount of policyholder dividends is
related to actual interest, mortality, morbidity and expense experience for
the year and management's judgment as to the appropriate level of statutory
surplus to be retained by the Company.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
CONSOLIDATED STATEMENTS OF CASH FLOWS--NON CASH TRANSACTIONS
For the years ended December 31, 1996, 1995 and 1994, respectively, real
estate of $189 million, $429 million and $273 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned real
estate acquired in satisfaction of debt of $456 million and $649 million,
respectively. During 1995 and 1994, respectively, the company assumed
liabilities of $1,573 million and $88 million and received assets of $1,573
million and $86 million through assumption of certain businesses from other
insurance companies.
DISCONTINUED OPERATIONS
In January 1995, the Company contributed its group medical benefits
businesses to a corporate joint venture, The MetraHealth Companies, Inc.
("MetraHealth"). In October 1995, the Company sold its investment in
MetraHealth to United HealthCare Corporation. For its interest in MetraHealth,
the Company received $485 million face amount of United HealthCare Corporation
convertible preferred stock and $326 million in cash (including additional
consideration of $50 million in 1996). The sale resulted in an aftertax loss
of $36 million in 1996 and an aftertax gain of $372 million in 1995. Operating
losses in 1996 related principally to the finalization of the transfer of
group medical contracts to MetraHealth. The Company also has the right to
receive from United HealthCare Corporation up to approximately $169 million in
cash based on the 1997 consolidated financial results of United HealthCare
Corporation.
During 1995, the company also sold its real estate brokerage, mortgage
banking and mortgage administration operations for an aggregate consideration
of $251 million (including additional cash consideration of $25 million in
1996), resulting in aftertax gains of $17 million in 1996 and $44 million in
1995.
These operations are accounted for as discontinued operations and,
accordingly, are segregated in the accompanying consolidated statements of
earnings.
MLIC-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations and subsidiaries are translated
at the exchange rate in effect at year end. Revenues and benefits and other
expenses are translated at the average rate prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are charged or credited directly to equity.
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, the
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.
2. INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
The cost or amortized cost, gross unrealized gain and loss and estimated
fair value of fixed maturity and equity securities, by category, are shown
below.
HELD TO MATURITY SECURITIES--DECEMBER 31, 1996 (in millions)
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ------------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- --------- ------ ----------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U. S. Treasury securities and
obligations of U. S. government
corporations and agencies.......... $ 48 $ 3 $ 51
States and political subdivisions... 58 1 59
Foreign governments................. 260 5 265
Corporate........................... 7,520 236 $ 64 7,692
Mortgage-backed securities.......... 689 1 16 674
Other............................... 2,746 85 24 2,807
------- -------- --------- -------
Total bonds........................ 11,321 331 104 11,548
Redeemable preferred stocks.......... 1 -- -- 1
------- -------- --------- -------
Total Fixed Maturities............. $11,322 $ 331 $ 104 $11,549
======= ======== ========= =======
HELD TO MATURITY SECURITIES--DECEMBER 31, 1995 (in millions)
Fixed Maturities:
Bonds:
U. S. Treasury securities and
obligations of U. S. government
corporations and agencies.......... $ 63 $ 3 $ 66
States and political subdivisions... 57 -- 57
Foreign governments................. 194 10 204
Corporate........................... 8,039 398 $ 33 8,404
Mortgage-backed securities.......... 860 5 31 834
Other............................... 2,126 128 5 2,249
------- -------- --------- -------
Total bonds........................ 11,339 544 69 11,814
Redeemable preferred stocks.......... 1 -- -- 1
------- -------- --------- -------
Total Fixed Maturities............. $11,340 $544 $ 69 $11,815
======= ======== ========= =======
</TABLE>
MLIC-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AVAILABLE FOR SALE SECURITIES--DECEMBER 31, 1996 (in millions)
<TABLE>
<CAPTION>
GROSS
UNREALIZED
-----------
ESTIMATED
AMORTIZED FAIR
COST GAIN LOSS VALUE
--------- ------ ---- ---------
Fixed Maturities:
Bonds:
<S> <C> <C> <C> <C>
U. S. Treasury securities and obligations of
U. S. government corporations and agencies.. $12,949 $ 901 $128 $13,722
States and political subdivisions............ 536 13 1 548
Foreign governments.......................... 2,597 266 6 2,857
Corporate.................................... 32,520 1,102 294 33,328
Mortgage-backed securities................... 21,200 407 91 21,516
Other........................................ 2,511 90 30 2,571
------- ------ ---- -------
Total bonds.................................. 72,313 2,779 550 74,542
Redeemable preferred stocks................... 500 -- 3 497
------- ------ ---- -------
Total Fixed Maturities....................... $72,813 $2,779 $553 $75,039
======= ====== ==== =======
Equity Securities:
Common stocks................................. $ 1,882 $ 648 $ 55 $ 2,475
Nonredeemable preferred stocks................ 371 51 81 341
------- ------ ---- -------
Total Equity Securities...................... $ 2,253 $ 699 $136 $ 2,816
======= ====== ==== =======
</TABLE>
AVAILABLE FOR SALE SECURITIES--DECEMBER 31, 1995 (in millions)
<TABLE>
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U. S. Treasury securities and obligations
of U. S. government corporations and agencies.... $15,963 $2,194 $ 4 $18,153
States and political subdivisions................. 54 1 -- 55
Foreign governments............................... 1,851 195 -- 2,046
Corporate......................................... 29,742 1,905 124 31,523
Mortgage-backed securities........................ 21,255 707 28 21,934
Other............................................. 1,788 235 7 2,016
------- ------ ---- -------
Total bonds....................................... 70,653 5,237 163 75,727
Redeemable preferred stocks......................... 593 95 3 685
------- ------ ---- -------
Total Fixed Maturities.............................. $71,246 $5,332 $166 $76,412
======= ====== ==== =======
Equity Securities:
Common stocks...................................... $ 1,372 $ 389 $134 $ 1,627
Nonredeemable preferred stocks..................... 167 2 47 122
------- ------ ---- -------
Total Equity Securities........................... $ 1,539 $ 391 $181 $ 1,749
======= ====== ==== =======
</TABLE>
MLIC-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and estimated fair value of bonds classified as held to
maturity, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
DECEMBER 31, 1996 (in millions)
Due in one year or less........................ $ 389 $ 391
Due after one year through five years.......... 3,317 3,413
Due after five years through 10 years.......... 5,444 5,562
Due after 10 years............................. 1,482 1,508
------- -------
Subtotal...................................... 10,632 10,874
Mortgage-backed securities..................... 689 674
------- -------
Total........................................ $11,321 $11,548
======= =======
</TABLE>
The amortized cost and estimated fair value of bonds classified as available
for sale, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
DECEMBER 31, 1996 (in millions)
Due in one year or less........................ $ 1,842 $ 1,844
Due after one year through five years.......... 13,659 13,957
Due after five years through 10 years.......... 15,729 16,228
Due after 10 years............................. 19,883 20,997
------- -------
Subtotal...................................... 51,113 53,026
Mortgage-backed securities..................... 21,200 21,516
------- -------
Total........................................ $72,313 $74,542
======= =======
</TABLE>
Bonds not due at a single maturity date have been included in the above tables
in the year of final maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without prepayment penalties.
MORTGAGE LOANS
Mortgage loans are collateralized by properties principally located
throughout the United States and Canada. At December 31, 1996, approximately
16 percent and 7 percent of the properties were located in California and
Illinois, respectively. Generally, the Company (as the lender) requires that a
minimum of one-fourth of the purchase price of the underlying real estate be
paid by the borrower.
The mortgage loan investments were categorized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
DECEMBER 31
Office buildings..................................................... 30% 32%
Retail............................................................... 19% 18%
Residential.......................................................... 16% 17%
Agricultural......................................................... 18% 16%
Other................................................................ 17% 17%
--- ---
Total.............................................................. 100% 100%
=== ===
</TABLE>
Many of the Company's real estate joint ventures have loans with the
Company. The carrying values of such mortgages were $869 million and $1,164
million at December 31, 1996 and 1995, respectively.
MLIC-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Mortgage loan valuation allowances and changes thereto are shown below.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
DECEMBER 31 (in millions)
Balance, beginning of year.................................... $466 $483 $569
Additions charged to income................................... 144 107 89
Deductions for writedowns and dispositions.................... (166) (124) (175)
---- ---- ----
Balance, end of year.......................................... $444 $466 $483
==== ==== ====
</TABLE>
Impaired mortgage loans and related valuation allowances are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
DECEMBER 31 (in millions)
Impaired mortgage loans with valuation allowances............... $1,677 $2,028
Impaired mortgage loans with no valuation allowances............ 165 389
------ ------
Recorded investment in impaired mortgage loans.................. 1,842 2,417
Valuation allowances............................................ (427) (449)
------ ------
Net impaired mortgage loans..................................... $1,415 $1,968
====== ======
</TABLE>
During the years ended December 31, 1996 and 1995, the Company's average
recorded investment in impaired mortgage loans was $2,113 million and $2,365
million, respectively. Interest income recognized on these impaired mortgage
loans totaled $122 million and $169 million for the years ended December 31,
1996 and 1995, respectively. Interest income earned on loans where the
collateral value is used to measure impairment is recorded on a cash basis.
Interest income on loans, where the present value method is used to measure
impairment, is accrued on the net carrying value amount of the loan at the
interest rate used to discount the cash flows.
REAL ESTATE
Real Estate valuation allowances and changes thereto are shown below.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Balance, beginning of year.................................... $743 $622 $674
Additions charged to income................................... 127 358 82
Deductions for writedowns and dispositions.................... (341) (237) (134)
---- ---- ----
Balance, end of year.......................................... $529 $743 $622
==== ==== ====
</TABLE>
The above table does not include valuation reserves of $118 million, $167
million and $95 million at December 31, 1996, 1995 and 1994, respectively,
relating to investments in real estate joint ventures.
Prior to 1996, the Company established valuation allowances for impaired
real estate investments. During 1996, $150 million of valuation allowances
relating to real estate held for investment were applied as writedowns to
specific properties. The balance in the real estate valuation allowance at
December 31, 1996, relates to properties that management has committed to a
plan of sale. The carrying value, net of valuation allowances, of properties
committed to a plan of sale was $1,844 million at December 31, 1996. Net
investment income relating to such properties was $60 million for the year
ended December 31, 1996.
MLIC-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LEASES AND LEVERAGED LEASES
The Company's investment in direct financing leases and leveraged leases is
summarized below.
<TABLE>
<CAPTION>
DIRECT FINANCING LEVERAGED
LEASES LEASES TOTAL
------------------ ------------ --------------
1996 1995 1996 1995 1996 1995
-------- -------- ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31 (in millions)
Investment.................... $ 1,247 $ 1,054 $ 507 $298 $1,754 $1,352
Estimated Residual Values..... 238 231 543 445 781 676
-------- -------- ------ ---- ------ ------
Total........................ 1,485 1,285 1,050 743 2,535 2,028
Unearned Income............... (336) (295) (316) (230) (652) (525)
-------- -------- ------ ---- ------ ------
Net Investment................ $ 1,149 $ 990 $ 734 $513 $1,883 $1,503
======== ======== ====== ==== ====== ======
</TABLE>
The investment amounts set forth above are due primarily in monthly
installments. The payment periods generally range from three to eight years,
but in certain circumstances are as long as 20 years. Average yields range
from 7 percent to 12 percent. These receivables are generally collateralized
by the related property.
Scheduled aggregate receipts for the investment and estimated residual values
in direct financing leases are:
<TABLE>
<CAPTION>
DIRECT
FINANCING RESIDUALS TOTAL
--------- --------- ------
<S> <C> <C> <C>
YEAR ENDING DECEMBER 31 (in millions)
1997.............................................. $ 236 $ 20 $ 256
1998.............................................. 209 9 218
1999.............................................. 189 25 214
2000.............................................. 167 26 193
2001.............................................. 128 23 151
Thereafter.......................................... 318 135 453
------ ---- ------
Total............................................... $1,247 $238 $1,485
====== ==== ======
</TABLE>
Historical collection experience indicates that a portion of the above
amounts will be paid prior to contractual maturity. Accordingly, the future
receipts, as shown above, should not be regarded as a forecast of future cash
flow.
FINANCIAL INSTRUMENTS
The Company has a securities lending program whereby large blocks of
securities are loaned to third parties, primarily major brokerage firms.
Company policy requires a minimum of 102 percent of the fair value of the
loaned securities to be separately maintained as collateral for the loans. The
collateral is recorded in memorandum records and is not reflected in the
accompanying consolidated balance sheets. To further minimize the credit risks
related to this lending program, the Company regularly monitors the financial
condition of counterparties to these agreements.
The Company engages in a variety of derivative transactions. Certain
derivatives, such as forwards, futures, options and swaps, which do not
themselves generate interest or dividend income, are acquired or sold in order
to hedge or reduce risks applicable to assets held, or expected to be
purchased or sold, and liabilities incurred or expected to be incurred. The
Company may also sell covered call options for income generation purposes from
time to time. The Company does not engage in trading of these derivatives.
Derivative financial instruments involve varying degrees of market risk
resulting from changes in the volatility of interest rates, foreign currency
exchange rates or market values of the underlying financial instruments. The
Company's risk of loss is typically limited to the fair value of these
instruments and not by the notional or contractual amounts which reflect the
extent of involvement but not necessarily the amounts subject to risk. Credit
risk arises from
MLIC-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the possible inability of counterparties to meet the terms of the contracts.
Credit risk due to counterparty nonperformance associated with these
instruments is the unrealized gain, if any, reflected by the fair value of
such instruments.
During the three year period ended December 31, 1996, the Company employed
several ongoing derivatives strategies. The Company entered into a number of
anticipatory hedges using securities forwards, futures and interest rate swaps
to limit the interest rate exposure of investments expected to be acquired or
sold within one year. The Company also executed swaps and foreign currency
forwards to hedge, including on an anticipatory basis, the foreign currency
risk of foreign currency denominated investments. The Company also used
interest rate swaps and forwards to reduce risks from changes in interest
rates and exposures arising from mismatches between assets and liabilities. In
addition, the Company has used interest rate caps to reduce the market and
interest rate risks relating to certain assets and liabilities.
Income and expenses related to derivatives used to hedge or manage risks are
recorded on the accrual basis as an adjustment to the yield of the related
securities over the periods covered by the derivative contracts. Gains and
losses relating to early terminations of interest rate swaps used to hedge or
manage interest rate risk are deferred and amortized over the remaining period
originally covered by the swap. Gains and losses relating to derivatives used
to hedge the risks associated with anticipated transactions are deferred and
utilized to adjust the basis of the transaction once it has closed. If it is
determined that the transaction will not close, such gains and losses are
included in realized investment gains and losses.
ASSETS ON DEPOSIT
As of December 31, 1996 and 1995, the Company had assets on deposit with
regulatory agencies of $4,062 million and $3,917 million, respectively.
3. INVESTMENT INCOME AND INVESTMENT GAINS
The sources of investment income are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Fixed maturities........................................ $6,042 $6,006 $5,682
Equity securities....................................... 60 45 53
Mortgage loans on real estate........................... 1,523 1,501 1,573
Policy loans............................................ 399 394 359
Real estate............................................. 1,647 1,833 1,870
Real estate joint ventures.............................. 21 41 (99)
Other limited partnership interests..................... 70 23 40
Leases and leveraged leases............................. 135 113 92
Cash, cash equivalents and short-term investments....... 214 231 146
Other investment income................................. 281 326 337
------ ------ ------
Gross investment income................................. 10,392 10,513 10,053
Investment expenses..................................... (1,544) (1,802) (1,770)
------ ------ ------
Investment income, net.................................. $8,848 $8,711 $8,283
====== ====== ======
</TABLE>
MLIC-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Investment gains (losses), including changes in valuation allowances, are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Fixed maturities...................................... $ 234 $ 621 $ (97)
Equity securities..................................... 78 (5) 141
Mortgage loans on real estate......................... (86) (51) (41)
Real estate........................................... 165 (375) (20)
Real estate joint ventures............................ 206 (16) 18
Other limited partnership interests................... 82 117 28
Other................................................. (76) (92) (25)
------ ------ -------
Investment gains, net................................. $ 603 $ 199 $ 4
====== ====== =======
Proceeds from the sales of bonds classified as available for sale during
1996, 1995 and 1994 were $74,580 million, $58,537 million and $43,903 million,
respectively. During 1996, 1995 and 1994, respectively, gross gains of $1,069
million, $1,013 million and $642 million and gross losses of $842 million, $402
million and $719 million were realized on those sales. Proceeds from the sale
of bonds classified as held to maturity during 1996, 1995 and 1994 were $1,281
million, $1,806 million and $1,797 million, respectively. During 1996, 1995 and
1994, respectively, gross gains of $10 million, $17 million and $9 million and
gross losses of $1 million, $4 million and $13 million were realized on those
sales. Sales of held to maturity bonds were principally due to prepayments and
callable features on privately placed bonds.
The net unrealized investment gains (losses), which are included in the
consolidated balance sheets as a component of equity, and the changes for the
corresponding years are summarized as follows:
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
DECEMBER 31 (in millions)
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed maturities.................................... $2,226 $5,166 $(2,328)
Equity securities................................... 563 210 41
Other............................................... 474 380 378
------ ------ -------
3,263 5,756 (1,909)
Amounts of unrealized investment gains (losses) at-
tributable to:
Participating pension contracts..................... (9) (350) (92)
Loss recognition.................................... (1,219) (2,064) (1)
Deferred policy acquisition cost allowances......... (420) (748) 499
Deferred income tax (expense) benefit............... (587) (948) 548
------ ------ -------
Balance, end of year.................................. $1,028 $1,646 $ (955)
====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Balance, beginning of year:............................ $1,646 $ (955) $ 259
Change in unrealized investment gains (losses)........ (2,493) 7,665 50
Unrealized loss at date of adoption of SFAS No. 115... -- -- (2,449)
Change in unrealized investment gains (losses)
attributable to:
Participating pension contracts...................... 341 (258) (86)
Loss recognition..................................... 845 (2,063) 21
Deferred policy acquisition cost allowances.......... 328 (1,247) 550
Deferred income tax (expense) benefit................ 361 (1,496) 700
------ ------ ------
Balance, end of year................................... $1,028 $1,646 $ (955)
====== ====== ======
</TABLE>
MLIC-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. REAL ESTATE JOINT VENTURES AND OTHER LIMITED PARTNERSHIP INTERESTS
Summarized combined financial information of real estate joint ventures and
other limited partnership interests accounted for under the equity method, in
which the Company has an investment of $10 million or greater and an equity
interest of 10 percent or greater, is as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
DECEMBER 31 (in millions)
Assets:
Investments in real estate, at depreciated cost.................. $1,030 $1,409
Investments in securities, generally at estimated fair value..... 621 534
Cash and cash equivalents........................................ 37 33
Other............................................................ 1,030 1,005
------ ------
Total assets...................................................... $2,718 $2,981
====== ======
Liabilities:
Borrowed funds--third party...................................... $ 243 $ 264
Borrowed funds--MetLife.......................................... 69 133
Other............................................................ 915 933
------ ------
Total liabilities................................................. 1,227 1,330
------ ------
Partners' Capital................................................. $1,491 $1,651
====== ======
MetLife equity in partners' capital included above................ $ 786 $1,103
====== ======
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Operations:
Revenues of real estate joint ventures...................... $275 $364 $357
Revenues of other limited partnerships interests............ 297 417 287
Interest expense--third party............................... (11) (26) (24)
Interest expense--MetLife................................... (19) (31) (27)
Other expenses.............................................. (411) (501) (499)
---- ---- ----
Net earnings................................................. $131 $223 $ 94
==== ==== ====
MetLife earnings from real estate joint ventures and other
limited partnership interests
included above.............................................. $ 34 $ 28 $ 9
==== ==== ====
</TABLE>
5. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
In the normal course of business, the Company assumes and cedes insurance
with other insurance companies. The accompanying consolidated statements of
earnings are presented net of reinsurance ceded.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Direct premiums...................................... $12,569 $11,944 $11,309
Reinsurance assumed.................................. 508 812 227
Reinsurance ceded.................................... (1,615) (1,578) (1,458)
------- ------- -------
Net premiums earned.................................. $11,462 $11,178 $10,078
======= ======= =======
</TABLE>
Policyholder benefits in the accompanying consolidated statements of
earnings are presented net of reinsurance recoveries of $1,667 million, $1,523
million and $1,328 million for the years ended December 31, 1996, 1995 and
1994, respectively. Premiums and other receivables in the accompanying
consolidated balance sheets include reinsurance recoverables of $700 million
and $458 million at December 31, 1996 and 1995, respectively.
MLIC-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A contingent liability exists with respect to reinsurance ceded should the
reinsurers be unable to meet their obligations.
The Company acquired, in part through reinsurance effective in January 1995,
group life, dental, disability, accidental death and dismemberment, vision and
long-term care insurance businesses for $403 million, $53 million of which was
paid in 1994. In January 1995, the Company received assets with a fair market
value equal to the $1,565 million of liabilities assumed under the reinsurance
agreements. The reinsured contracts converted to Company contracts at policy
anniversary dates.
Activity in the liability for unpaid losses and loss adjustment expenses
relating to property and casualty and group accident and nonmedical health
policies and contracts is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Balance at January 1.................................... $3,296 $2,670 $2,553
Less reinsurance recoverables.......................... 214 104 88
------ ------ ------
Net balance at January 1................................ 3,082 2,566 2,465
------ ------ ------
Incurred related to:
Current year........................................... 2,951 3,420 2,831
Prior years............................................ (114) (68) (75)
------ ------ ------
Total incurred.......................................... 2,837 3,352 2,756
------ ------ ------
Paid related to:
Current year........................................... 1,998 2,053 1,887
Prior years............................................ 791 783 768
------ ------ ------
Total paid.............................................. 2,789 2,836 2,655
------ ------ ------
Net balance at December 31.............................. 3,130 3,082 2,566
Plus reinsurance recoverables.......................... 215 214 104
------ ------ ------
Balance at December 31.................................. $3,345 $3,296 $2,670
====== ====== ======
</TABLE>
The Company has exposure to catastrophes, which are an inherent risk of the
property and casualty insurance business and could contribute to material
fluctuations in the Company's results of operations. The Company uses excess
of loss and quota share reinsurance arrangements to reduce its catastrophe
losses and provide diversification of risk.
6. INCOME TAXES
Income tax expense for U.S. operations has been calculated in accordance
with the provisions of the Internal Revenue Code, as amended (the "Code").
Under the Code, the amount of Federal income tax expense incurred by mutual
life insurance companies includes an equity tax calculated by a prescribed
formula that incorporates a differential earnings rate between stock and
mutual life insurance companies.
MetLife and its eligible subsidiaries file a consolidated U. S. income tax
return and separate income tax returns as required. The Company uses the
liability method of accounting for income taxes. Income tax provisions are
based on income reported for financial statement purposes. Deferred income
taxes arise from the recognition of temporary differences between income
determined for financial reporting purposes and taxable income.
MLIC-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAX EXPENSE (BENEFIT) OF CONTINUING OPERATIONS
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1996 (in millions)
Federal.................................................. $346 $ 66 $412
State and local.......................................... 25 6 31
Foreign.................................................. 27 12 39
---- ---- ----
Total.................................................. $398 $ 84 $482
==== ==== ====
1995 (in millions)
Federal.................................................. $241 $ 65 $306
State and local.......................................... 52 3 55
Foreign.................................................. 22 24 46
---- ---- ----
Total.................................................. $315 $ 92 $407
==== ==== ====
1994 (in millions)
Federal.................................................. $443 $(95) $348
State and local.......................................... 15 (5) 10
Foreign.................................................. 17 5 22
---- ---- ----
Total.................................................. $475 $(95) $380
==== ==== ====
</TABLE>
Reconciliations of the differences between income taxes of continuing
operations computed at the federal statutory tax rates and consolidated
provisions for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Income before taxes........................................ $1,406 $744 $413
Income tax rate............................................ 35% 35% 35%
------ ---- ----
Expected income tax expense at federal statutory income tax
rate....................................................... 492 260 145
Tax effect of:
Tax exempt investment income.............................. (18) (9) (9)
Differential earnings amount.............................. 38 67 206
State and local income taxes.............................. 23 37 5
Foreign operations........................................ (7) 25 3
Tax credits............................................... (15) (15) --
Prior year taxes.......................................... (46) (3) 3
Other, net................................................ 15 45 27
------ ---- ----
Income tax expense......................................... $ 482 $407 $380
====== ==== ====
</TABLE>
The deferred tax asset or liability recorded on the consolidated balance
sheets represents the future tax effects of the temporary differences between
the tax basis of assets and liabilities and their amounts for financial
reporting. Significant components of deferred tax assets relate to
policyholder liabilities and unrealized investment losses. The major items
associated with deferred tax liabilities relate to policy acquisition costs,
the excess of tax over financial statement depreciation, and unrealized
investment gains.
As of December 31, 1996, the net deferred tax asset includes a benefit of
$18 million resulting from foreign net operating loss carryforwards from
several foreign affiliates. This benefit is offset by a valuation allowance of
$18 million. The valuation allowance reflects management's assessment, based
on available information, that it is more likely than not that the deferred
tax asset for foreign net operating loss carryforwards will not be realized.
The benefit will be recognized when management believes that it is more likely
than not that the deferred tax asset is realizable.
As of December 31, 1996, the deferred tax asset includes a benefit of $12
million resulting from U.S. tax basis net operating loss carryforwards of $34
million. Subject to statutory limitations, these carryforwards are available
to offset taxable income through the year 2011.
MLIC-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has defined benefit pension plans covering all eligible
employees and sales representatives of MetLife and certain of its
subsidiaries. The Company is both the sponsor and administrator of these
plans. Retirement benefits are based on years of credited service and final
average earnings history.
Components of the net periodic pension cost for the defined benefit
qualified and nonqualified pension plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Service cost.................................................. $ 77 $ 62 $ 93
Interest cost on projected benefit obligation................. 232 222 216
Actual return on assets....................................... (273) (280) (246)
Net amortization and deferrals................................ (12) (13) (28)
---- ---- ----
Net periodic pension cost..................................... $ 24 $ (9) $ 35
==== ==== ====
</TABLE>
The funded status of the qualified and nonqualified defined benefit pension
plans and a comparison of the accumulated benefit obligation, plan assets and
projected benefit obligation are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31 (in millions)
Actuarial present value of
obligations:
Vested.......................... $2,756 $135 $2,682 $121
Nonvested....................... 38 -- 43 1
------ ---- ------ ----
Accumulated benefit obligation... $2,794 $135 $2,725 $122
====== ==== ====== ====
Projected benefit obligation..... $3,084 $184 $3,047 $166
Plan assets (principally Company
investment contracts) at
contract value.................. 3,495 133 3,236 117
------ ---- ------ ----
Plan assets in excess of (less
than) projected benefit obliga-
tion............................ 411 (51) 189 (49)
Unrecognized prior service cost.. 165 -- 71 (4)
Unrecognized net (loss) gain from
past experience different from
that assumed.................... (5) 38 351 43
Unrecognized net asset at transi-
tion............................ (172) (4) (206) (5)
------ ---- ------ ----
Prepaid (accrued) pension cost at
December 31..................... $ 399 $(17) $ 405 $(15)
====== ==== ====== ====
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation ranged from 7.25 percent to 8.0
percent for 1996 and 7.25 percent to 8.5 percent for 1995. The weighted
average assumed rate of increase in future compensation levels ranged from 4.0
percent to 8.0 percent in 1996 and 1995. The assumed long-term rate of return
on assets used in determining the net periodic pension cost ranged from 8.0
percent to 8.5 percent in 1996 and 8.0 percent to 9.5 percent in 1995. In
addition, several other factors, such as expected retirement dates and
mortality, enter into the determination of the actuarial present value of the
accumulated benefit obligation.
SAVINGS AND INVESTMENT PLANS
The Company sponsors savings and investment plans available for
substantially all employees under which the Company matches a portion of
employee contributions. During 1996, 1995 and 1994, the Company contributed
$42 million, $49 million and $53 million, respectively, to the plans.
MLIC-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OTHER POSTRETIREMENT BENEFITS
The Company also provides certain postretirement health care and life
insurance benefits for retired employees through insurance contracts.
Substantially all of the Company's employees may, in accordance with the plans
applicable to such benefits, become eligible for these benefits if they attain
retirement age, with sufficient service, while working for the Company.
The following table sets forth the postretirement health care and life
insurance plans' combined status reconciled with the amount included in the
Company's consolidated balance sheets.
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
DECEMBER 31 (in millions)
Accumulated postretirement benefit obligation:
Retirees...................................................... $1,170 $1,223
Fully eligible active employees............................... 135 111
Active employees not eligible to retire....................... 378 366
------ ------
Total........................................................ 1,683 1,700
Plan assets (Company insurance contracts) at contract value.... 897 804
------ ------
Plan assets less than accumulated postretirement benefit obli-
gation........................................................ (786) (896)
Unrecognized net (loss) gain from past experience different
from that assumed and from
changes in assumptions........................................ (20) 108
------ ------
Accrued nonpension postretirement benefit cost at December 31.. $ (806) $ (788)
====== ======
</TABLE>
The components of the net periodic nonpension postretirement benefit cost
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Service cost.................................................. $ 41 $28 $ 43
Interest cost on accumulated postretirement benefit obliga-
tion......................................................... 127 115 122
Actual return on plan assets (Company insurance contracts).... (58) (63) (56)
Net amortization and deferrals................................ 2 (9) (1)
---- --- ----
Net periodic nonpension postretirement benefit cost........... $112 $71 $108
==== === ====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 9.5 percent in
1996, gradually decreasing to 5.25 percent over 12 years and 10.0 percent in
1995 decreasing to 5.25 percent over 12 years. The weighted average discount
rate used in determining the accumulated postretirement benefit obligation
ranged from 7.0 percent to 7.75 percent at December 31, 1996 and was 7.25
percent at December 31, 1995.
If the health care cost trend rate assumptions were increased 1.0 percent,
the accumulated postretirement benefit obligation as of December 31, 1996
would be increased 9.0 percent. The effect of this change on the sum of the
service and interest cost components of the net periodic postretirement
benefit cost for the year ended December 31, 1996, would be an increase of
13.0 percent.
8. LEASES
LEASE INCOME ON REAL ESTATE
During 1996, 1995 and 1994, the Company received $1,658 million, $1,523
million and $1,538 million, respectively, in lease income related to its
wholly owned real estate portfolio. In accordance with industry practice,
certain of the Company's lease agreements with retail tenants result in income
that is contingent on the level of the tenants' sales revenues. At December
31, 1996, the minimum future rental income on noncancelable operating leases
for wholly owned investments in real estate is $853 million, $783 million,
$695 million, $607 million and $526 million for 1997 and each of the
succeeding four years, respectively, and $1,609 million thereafter.
MLIC-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LEASE EXPENSE
The Company has entered into various lease agreements for office space, data
processing and other equipment. Future gross minimum rental payments under
noncancelable leases for 1997 and the succeeding four years are $129 million,
$110 million, $91 million, $70 million and $55 million, respectively, and $74
million thereafter. Minimum future sublease rental income on these
noncancelable leases is $30 million, $25 million, $32 million, $23 million and
$17 million for 1997 and the succeeding four years, respectively, and $45
million thereafter.
9. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
DECEMBER 31 (in millions)
6.300% surplus notes scheduled to mature on November 1, 2003..... $ 396 $ 395
7.000% surplus notes scheduled to mature on November 1, 2005..... 248 248
7.700% surplus notes scheduled to mature on November 1, 2015..... 197 197
7.450% surplus notes scheduled to mature on November 1, 2023..... 296 296
7.875% surplus notes scheduled to mature on February 15, 2024.... 148 148
7.800% surplus notes scheduled to mature on November 1, 2025..... 248 247
Mortgage debt, due 1997 through 2015, interest rates ranging from
7.25% to 10.25%.................................................. 96 187
Other............................................................ 425 627
------ ------
Total long-term debt............................................ 2,054 2,345
Short-term debt.................................................. 3,311 3,235
------ ------
Total........................................................... $5,365 $5,580
====== ======
</TABLE>
Payments of interest and principal on the surplus notes may be made only
with the prior approval of the Superintendent of Insurance of the State of New
York ("Superintendent"). Subject to the prior approval of the Superintendent,
the 7.45 percent surplus notes may be redeemed, as a whole or in part, at the
election of the Company at any time on or after November 1, 2003.
At December 31, 1996, aggregate maturities of the long-term debt based on
required principal payments at maturity for 1997 and the succeeding four years
amounted to $72 million, $22 million, $106 million, $38 million and $9
million, respectively, and $1,828 million thereafter.
As of December 31, 1996, the Company had unused lines of credit under
agreements with various banks having a principal amount of $1,821 million.
10. CONTINGENCIES
Litigation seeking compensatory and/or punitive damages relating to the
marketing by the Company of individual life insurance (including putative
class and individual actions) has been instituted by or on behalf of
policyholders and others, and additional litigation relating to the Company's
life insurance marketing may be commenced in the future. In addition, an
investigation into certain life insurance marketing, which was commenced by
the Office of the United States Attorney for the Middle District of Florida,
in conjunction with a grand jury, as early as 1994, has not been terminated.
Numerous litigation, claims and assessments against the Company, in addition
to the aforementioned, have arisen in the course of the Company's business,
operations and activities. In certain of these matters, including actions with
multiple plaintiffs, very large and/or indeterminate amounts, including
punitive and treble damages, are sought.
While it is not feasible to predict or determine the ultimate outcome of all
pending investigations and legal proceedings or to make a meaningful estimate
of the amount or range of loss that could result from an unfavorable outcome
in all such matters, it is the opinion of the Company's management that their
outcome, after consideration of the provisions made in the Company's financial
statements, is not likely to have a material adverse effect on the Company's
financial position.
MLIC-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Compensation costs...................................... $1,813 $1,607 $1,553
Commissions............................................. 722 853 700
Interest and debt issue costs........................... 311 285 264
Amortization of policy acquisition costs................ 637 684 601
Capitalization of policy acquisition costs.............. (1,028) (1,060) (1,062)
Rent expense, net of sublease........................... 180 184 179
Restructuring charges................................... 18 88 --
Other................................................... 2,058 1,644 1,265
------ ------ ------
Total.................................................. $4,711 $4,285 $3,500
====== ====== ======
</TABLE>
During 1996 and 1995, the Company recorded restructuring charges primarily
related to the consolidation of administration and agency sales force leased
office space and costs relating to workforce reductions.
12. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments presented below
have been determined by the Company using market information available as of
December 31, 1996 and 1995, and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value for financial instruments for which there
are no available market value quotations.
The estimates presented below are not necessarily indicative of the amounts
the Company could have realized in a market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
<TABLE>
<CAPTION>
ESTIMATED
NOTIONAL CARRYING FAIR
AMOUNT VALUE VALUE
-------- -------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1996 (in millions)
Assets
Fixed maturities.................................. $86,361 $86,588
Equity securities................................. 2,816 2,816
Mortgage loans on real estate..................... 18,964 19,342
Policy loans...................................... 5,842 5,796
Short-term investments............................ 741 741
Cash and cash equivalents......................... 2,325 2,325
Liabilities
Policyholder account balances..................... 30,470 30,611
Short- and long-term debt......................... 5,365 5,331
Other financial instruments
Interest rate swaps............................... $1,242 -- (14)
Interest rate caps................................ 1,946 20 14
Foreign currency swaps............................ 207 -- (23)
Foreign currency forwards......................... 151 3 3
Covered call options.............................. 25 (2) (2)
Unused lines of credit............................ 1,821 -- 1
</TABLE>
MLIC-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED
NOTIONAL CARRYING FAIR
AMOUNT VALUE VALUE
-------- -------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1995 (in millions)
Assets
Fixed maturities.................................. $87,752 $88,227
Equity securities................................. 1,749 1,749
Mortgage loans on real estate..................... 17,216 18,161
Policy loans...................................... 5,714 5,884
Short-term investments............................ 1,769 1,769
Cash and cash equivalents......................... 1,930 1,930
Liabilities
Policyholder account balances..................... 31,595 31,974
Short- and long-term debt......................... 5,580 5,594
Other financial instruments
Interest rate swaps............................... $2,031 (29) (40)
Interest rate caps................................ 2,711 32 15
Foreign currency swaps............................ 89 -- 4
Foreign currency forwards......................... 121 1 1
Covered call options.............................. 25 (2) (2)
Futures contracts................................. 1,402 (19) --
Unused lines of credit............................ 1,645 -- 1
</TABLE>
For fixed maturities that are publicly traded, estimated fair value was
obtained from an independent market pricing service. Publicly traded fixed
maturities represented approximately 80 percent of the estimated fair value of
the total fixed maturities as of December 31, 1996 and 1995. For all other
bonds, estimated fair value was determined by management, based primarily on
interest rates, maturity, credit quality and average life. Included in fixed
maturities are loaned securities with estimated fair values of $7,293 million
and $8,418 million at December 31, 1996 and 1995, respectively. Estimated fair
values of equity securities were generally based on quoted market prices.
Estimated fair values of mortgage loans were generally based on discounted
projected cash flows using interest rates offered for loans to borrowers with
comparable credit ratings and for the same maturities. Estimated fair values of
policy loans were based on discounted projected cash flows using U.S. Treasury
rates to approximate interest rates and Company experience to project patterns
of loan accrual and repayment. For cash and cash equivalents and short-term
investments, the carrying amount is a reasonable estimate of fair value.
The fair values for policyholder account balances are estimated using
discounted projected cash flows, based on interest rates being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
The estimated fair value of short- and long-term debt was determined using
rates currently available to the Company for debt with similar terms and
remaining maturities.
For interest rate and foreign currency swaps, interest rate caps, foreign
currency forwards, covered call options and futures contracts, estimated fair
value is the amount at which the contracts could be settled based on estimates
obtained from dealers. The estimated fair values of unused lines of credit were
based on fees charged to enter into similar agreements.
MLIC-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. STATUTORY FINANCIAL INFORMATION
The FASB Interpretation and the FASB Standard referred to in Note 1 required
mutual life insurance companies to adopt all standards promulgated by the FASB
in their general purpose financial statements. The effect (except for the
adoption of SFAS No. 115 in 1994) of applying the Interpretation and the
Standard is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
DECEMBER 31, 1993
statutory surplus:
MetLife historical...... $ 6,406
The New England
historical.............. 401
Adjustments to conform
statutory accounting
policies................ (315)
-------
6,492
Adjustments to GAAP:
Future policy benefits
and policyholder account
balances................ (3,975)
Deferred policy
acquisition costs....... 6,142
Deferred income taxes... 1,032
Valuation of
investments............. (2,216)
Statutory asset
valuation reserves...... 1,743
Statutory interest
maintenance reserve..... 962
Surplus notes........... (629)
Other, net.............. (38)
-------
January 1, 1994, equity.. $ 9,513
=======
</TABLE>
The following reconciles net change in statutory surplus and statutory
surplus determined in accordance with accounting practices prescribed or
permitted by insurance regulatory authorities with net earnings and equity on
a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Net change in statutory surplus:
MetLife historical.......................................... $366 $260 $(102)
The New England historical.................................. -- (8) 231
Adjustments to conform statutory accounting policies........ -- (23) (65)
---- ---- -----
366 229 64
Adjustments to GAAP:
Future policy benefits and policyholder account balances.... (165) (17) (464)
Deferred policy acquisition costs........................... 391 376 461
Deferred income taxes....................................... (74) (97) 47
Valuation of investments.................................... (84) 106 (53)
Statutory asset valuation reserves.......................... 599 30 313
Statutory interest maintenance reserve...................... 19 284 (58)
Surplus notes............................................... -- (622) (148)
Other, net.................................................. (199) 410 (48)
---- ---- -----
Net Earnings................................................ $853 $699 $ 114
==== ==== =====
</TABLE>
MLIC-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
December 31 (in millions).....................................
Statutory surplus:
MetLife historical........................................... $ 7,151 $ 6,564
The New England historical................................... -- 624
Adjustments to conform statutory accounting policies......... -- (403)
------- -------
7,151 6,785
Adjustments to GAAP:
Future policy benefits and policyholder account balances.... (5,742) (6,781)
Deferred policy acquisition costs........................... 7,227 6,508
Deferred income taxes....................................... 264 (28)
Valuation of investments.................................... 610 3,070
Statutory asset valuation reserves.......................... 2,684 2,085
Statutory interest maintenance reserve...................... 1,208 1,189
Surplus notes............................................... (1,393) (1,391)
Other, net.................................................. (26) 317
------- -------
Equity....................................................... $11,983 $11,754
======= =======
</TABLE>
MLIC-28
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements of the Registrant are included in Part B of
this Post-Effective Amendment on Form N-4:
Statement of Assets and Liabilities as of December 31, 1996.
Statement of Operations for the years ended December 31, 1996 and 1995.
Statement of Changes in Net Assets for the years ended December 31, 1996
and 1995.
Notes to Financial Statements.
The following financial statements of the Depositor are included in Part B of
this Post-Effective Amendment on Form N-4:
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Earnings for the years ended December 31, 1996,
1995 and 1994.
Consolidated Statements of Equity for the years ended December 31, 1996,
1995 and 1994.
Consolidated Statements of Cash Flow for the years ended December 31, 1996,
1995 and 1994.
Notes to Financial Statements
(b) Exhibits
(1) (i) Resolutions of the Board of Directors of New England Mutual Life
Insurance Company authorizing the Registrant are incorporated herein by
reference to the Registration Statement on Form N-4 (No. 333-11131) filed
on August 30, 1996.
(ii) Resolutions of the Depositor adopting the Registrant as a separate
account are incorporated herein by reference to the Registration Statement
on Form N-4 (No. 333-11131) filed on August 30, 1996.
(2) None
(3) (i) Distribution Agreement is incorporated herein by reference to the
Registration Statement on Form N-4 (No. 333-11131) filed on August 30,
1996.
(ii) Forms of Selling Agreement with other broker-dealers are incorporated
herein by reference to Pre-Effective Amendment No. 1 (July 7, 1988) and
Post-Effective Amendment No. 8 (February 23, 1993) to Registration
Statement on Form N-4 (No. 33-17377).
(4) (i) Form of New England Mutual Life Insurance Company Variable Annuity
Contract, Application and Riders, is incorporated herein by reference to
Post-Effective Amendment No. 1 to the Registration Statement on Form N-4
(No. 33-17377) filed on April 28, 1989.
(ii) Form of New England Mutual Life Insurance Company Contract Loan
Endorsement is incorporated by reference to Post-Effective Amendment No. 3
to the Registration Statement on Form N-4 (No. 33-17377) filed on April 27,
1990.
(iii) Forms of New England Mutual Life Insurance Company Endorsements
(Fixed Account, Individual Retirement Annuity, Tax-Sheltered Annuity and
Death of Owner) are incorporated herein by reference to Post-Effective
Amendment No. 4 to the Registration Statement on Form N-4 (No. 33-17377)
filed on March 1, 1991.
III-1
<PAGE>
(iv) Forms of New England Mutual Life Insurance Company Endorsements (New
Contract Loan, Benefits for Disability of Annuitant) are incorporated
herein by reference to Post-Effective Amendment No. 6 to the Registration
Statement on Form N-4 (No. 33-17377) filed on February 25, 1992.
(v) Form of Metropolitan Life Insurance Company Endorsement to New England
Mutual Life Insurance Company Variable Annuity Contract (See (4)(i) above)
is incorporated herein by reference to the Registration Statement on Form
N-4 (No. 333-11131) filed on August 30, 1996.
(vi) Metropolitan Life Insurance Company Variable Annuity Contract and
Application are incorporated herein by reference to the Registration
Statement on Form N-4 (No. 333-11131) filed on August 30, 1996.
(vii) Forms of Metropolitan Life Insurance Company Endorsements (Fixed
Account, Contract Loans, Tax-Sheltered Annuity, Periodic Reports and
Postponement of Surrender) are incorporated herein by reference to the
Registration Statement on Form N-4 (No. 333-11131) filed on August 30,
1996.
(5) (i) For New England Mutual Life Insurance Company Application, see (4)(i)
above.
(ii) For Metropolitan Life Insurance Company Application, see (4)(vi)
above.
(6) (i) Charter and By-Laws of Metropolitan Life Insurance Company are
incorporated herein by reference to the Registration Statement on Form N-4
(No. 333-11131) filed on August 30, 1996.
(ii) By-Laws Amendment is incorporated herein by reference to the
Registration Statement on Form N-4 (No. 333-11131) filed on August 30,
1996.
(7) None
(8) (i) Administrative Services Agreement is incorporated herein by reference
to the Registration Statement on Form N-4 (No. 333-11131) filed on August
30, 1996.
(ii) Participation Agreement Among Variable Insurance Products Fund,
Fidelity Distributors Corporation and New England Mutual Life Insurance
Company is incorporated by reference to Post-Effective Amendment No. 10 to
Registration Statement on Form N-4 (No. 33-17377) filed on March 2, 1994.
(iii) Amendment No. 1 to Participation Agreement Among Variable Insurance
Products Fund, Fidelity Distributors Corporation and New England Mutual
Life Insurance Company is incorporated by reference to Post-Effective
Amendment No. 15 to Registration Statement on Form N-4 (No. 33-17377) filed
on April 1, 1996.
(iv) Assignment of Participation Agreement from New England Mutual Life
Insurance Company to Metropolitan Life Insurance Company is incorporated
herein by reference to the Registration Statement on Form N-4 (No.
333-11131) filed on August 30, 1996.
(9) Opinion and consent of Christopher P. Nicholas, Esq.
(10) (i) Consent of Coopers & Lybrand, L.L.P.
(ii) Consent of Deloitte & Touche LLP.
(iii) Consent of Sutherland, Asbill & Brennan, L.L.P.
(11) None
(12) None
(13) Schedule of computations for performance quotations is incorporated by
reference to Post-Effective Amendment No. 14 to Registration Statement on
Form N-4 (No. 33-17377) filed on October 28, 1994.
(14) Powers of Attorney. Additional Powers of Attorney are incorporated herein
by reference to the Registration Statement on Form N-4 (No. 333-11131)
filed on August 30, 1996.
(27) Financial Data Schedule
III-2
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES
NAME BUSINESS ADDRESS WITH DEPOSITOR
---- ---------------------- ---------------------
<S> <C> <C>
Curtis H. Barnette . Chairman and Chief Executive Director
Officer,
Bethlehem Steel Corporation,
1170 Eighth Avenue,
Martin Tower 2118,
Bethlehem, PA 18016-7699.
Gerald Clark . . . . Senior Executive Director
Vice-President and
Chief Investment Officer,
Metropolitan Life Insurance
Company,
One Madison Avenue,
New York, NY 10010.
Joan Ganz Cooney . . Chairman, Executive Committee, Director
Children's Television
Workshop,
One Lincoln Plaza,
New York, NY 10023.
Burton A. Dole, Jr. . Chairman of the Board, Director
Nelicor Puritan Bennett,
2200 Faraday Avenue,
Carlsbad, CA 92008-7208.
James R. Houghton . . Retired Chairman of the Board Director
and Chief Executive Officer,
Corning Incorporated,
80 East Market Street, 2nd
floor
Corning, NY 14830.
Harry P. Kamen . . . Chairman, President Chairman, President,
and Chief Executive Officer, Chief Executive
Metropolitan Life Insurance Officer and Director
Company,
One Madison Avenue,
New York, NY 10010.
Helene L. Kaplan . . Of Counsel, Skadden, Arps, Director
Slate,
Meagher and Flom,
919 Third Avenue,
New York, NY 10022.
Charles H. Leighton . Chairman and Chief Executive Director
Officer,
CHL Group, Inc.,
524 Main Street,
Acton, MA 01720.
Richard J. Mahoney . Chairman of the Executive Director
Committee,
Monsanto Company--Mail Zone
N3L,
800 N. Lindbergh Blvd.,
St. Louis, MO 63167.
</TABLE>
III-3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES
NAME BUSINESS ADDRESS WITH DEPOSITOR
---- ---------------------- ---------------------
<S> <C> <C>
Allen E. Murray . . . Retired Chairman of the Board Director
and
Chief Executive Officer,
Mobil Corporation,
P.O. Box 2072,
New York, NY 10163.
John J. Phelan, Jr. . Retired Chairman and Director
Chief Executive Officer,
New York Stock Exchange,
P.O. Box 312,
Mill Neck, NY 11765.
John B. M. Place . . Former Chairman of the Board, Director
Crocker National Corporation,
111 Sutter Street, 4th Fl.,
San Francisco, CA 94104.
Hugh B. Price . . . . President and Chief Executive Director
Officer,
National Urban League, Inc.,
500 East 62nd Street,
New York, NY 10021.
Robert G. Schwartz . Retired Chairman of the Board, Director
President and Chief Executive
Officer,
Metropolitan Life Insurance
Company,
200 Park Avenue, Suite 5700,
New York, NY 10166.
Ruth J.
Simmons, PH.D. . . . President, Director
Smith College,
College Hall 20,
North Hampton, MA 01063.
William S. Sneath . . Retired Chairman of the Board, Director
Union Carbide Corporation,
41 Leeward Lane,
Riverside, CT 06878.
William C.
Steere, Jr. . . . . Chairman of the Board Director
and Chief Executive Officer
Pfizer, Inc.
235 East 42nd Street
New York, NY 10016
</TABLE>
III-4
<PAGE>
Set forth below is a list of certain principal officers of Metropolitan Life.
The principal business address of each officer of Metropolitan Life is One
Madison Avenue, New York, New York 10010.
<TABLE>
<CAPTION>
NAME OF OFFICER POSITION WITH METROPOLITAN LIFE
--------------- -------------------------------
<S> <C>
Harry P. Kamen . . . . Chairman, President and Chief Executive Officer
Gerald Clark . . . . . Senior Executive Vice-President and Chief Investment
Officer
Stewart G. Nagler . . Senior Executive Vice-President & Chief Financial
Officer
Gary A. Beller . . . . Executive Vice-President and General Counsel
Robert H. Benmosche . Executive Vice-President
C. Robert Henrikson . Executive Vice-President
Jeffrey J. Hodgman . . Executive Vice-President
David A. Levene . . . Executive Vice-President
John D.
Moynahan, Jr. . . . . Executive Vice-President
Catherine A. Rein . . Executive Vice-President
William J. Toppeta . . Executive Vice-President
John H. Tweedie . . . Executive Vice-President
Richard M. Blackwell . Senior Vice-President
James B. Digney . . . Senior Vice-President
William T. Friedewald,
M.D.. . . . . . . . . Senior Vice-President
Ira Friedman . . . . . Senior Vice-President
Frederick P. Hauser . Senior Vice-President & Controller
Anne E. Hayden . . . . Senior Vice-President
Sibyl C. Jacobson . . Senior Vice-President
Joseph W. Jordan . . . Senior Vice-President
Nicholas D. Latrenta . Senior Vice-President
Leland C.
Launer, Jr. . . . . . Senior Vice-President
Terence I. Lennon . . Senior Vice-President
James L. Lipscomb . . Senior Vice-President
James M. Logan . . . . Senior Vice-President
Francis P. Lynch . . . Senior Vice-President
Dominick A. Prezzano . Senior Vice-President
Joseph A. Reali . . . Senior Vice-President
Vincent P. Reusing . . Senior Vice-President
Felix Schirripa . . . Senior Vice-President
Robert E.
Sollmann, Jr. . . . . Senior Vice-President
Thomas L. Stapleton . Senior Vice-President & Tax Director
James F. Stenson . . . Senior Vice-President
Stanley J. Talbi . . . Senior Vice-President
Richard R. Tarte . . . Senior Vice-President
Arthur G. Typermass . Senior Vice-President & Treasurer
James A. Valentino . . Senior Vice-President
Judy E. Weiss . . . . Senior Vice-President and Chief Actuary
Richard F. Wiseman . . Senior Vice-President
Harvey M. Young . . . Senior Vice-President
Louis J. Ragusa . . . Vice-President and Secretary
</TABLE>
III-5
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
The registrant is a separate account of Metropolitan Life Insurance Company
under the New York Insurance law. Under said law the assets allocated to the
separate account are the property of Metropolitan Life Insurance Company. No
person has the direct or indirect power to control Metropolitan Life Insurance
Company. As a mutual life insurance company, Metropolitan Life Insurance Company
has no stockholders. Its Board of Directors is elected in accordance with New
York Insurance Law by Metropolitan's policyholders, whose policies or contracts
have been in force for at least one year. Each such policyholder has only one
vote, irrespective of the number of policies or contracts held and the amount
thereof. The following diagram indicates those persons who are controlled by or
under common control with Metropolitan Life Insurance Company:
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1996
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1996. Those entities which are listed at the
left margin (labelled with capital letters) are direct subsidiaries of
Metropolitan. Unless otherwise indicated, each entity which is indented under
another entity is a subsidiary of such indented entity and, therefore, an
indirect subsidiary of Metropolitan. Certain inactive subsidiaries have been
omitted from the Metropolitan Organizational listing. The voting securities
(excluding directors' qualifying shares, if any) of the subsidiaries listed are
100% owned by their respective parent corporations, unless otherwise indicated.
The jurisdiction of domicile of each subsidiary listed is set forth in the
parenthetical following such subsidiary.
A. Metropolitan Tower Corp. (Delaware)
1. Metropolitan Property and Casualty Insurance Company (Rhode Island)
a. Metropolitan Group Property and Casualty Insurance Company (Rhode
Island)
i. Metropolitan Reinsurance Company (U.K.) Limited (Great Britain)
b. Metropolitan Casualty Insurance Company (Rhode Island)
c. Metropolitan General Insurance Company (Rhode Island)
d. First General Insurance Company (Georgia)
e. Metropolitan P&C Insurance Services, Inc. (California)
f. Metropolitan Lloyds, Inc. (Texas)
g. Met P&C Managing General Agency, Inc. (Texas)
2. Metropolitan Insurance and Annuity Company (Delaware)
a. MetLife Europe I, Inc. (Delaware)
b. MetLife Europe II, Inc. (Delaware)
c. MetLife Europe III, Inc. (Delaware)
d. MetLife Europe IV, Inc. (Delaware)
e. MetLife Europe V, Inc. (Delaware)
3. MetLife General Insurance Agency, Inc. (Delaware)
a. MetLife General Insurance Agency of Alabama, Inc. (Alabama)
b. MetLife General Insurance Agency of Kentucky, Inc. (Kentucky)
c. MetLife General Insurance Agency of Mississippi, Inc. (Mississippi)
d. MetLife General Insurance Agency of Texas, Inc. (Texas)
e. MetLife General Insurance Agency of North Carolina, Inc. (North
Carolina)
f. MetLife General Insurance Agency of Massachusetts, Inc. (Massachusetts)
4. Metropolitan Asset Management Corporation (Delaware)
a. MetLife Capital Holdings, Inc. (Delaware)
i. MetLife Capital Corporation (Delaware)
(1) Searles Cogeneration, Inc. (Delaware)
III-6
<PAGE>
(2) MLYC Cogen, Inc. (Delaware)
(3) MCC Yerkes Inc. (Washington)
(4) MetLife Capital, Limited Partnership (Delaware). Partnership
interests in MetLife Capital, Limited Partnership are held by
Metropolitan (90%) and MetLife Capital Corporation (10%).
(5) CLJFinco, Inc. (Delaware)
(a) MetLife Capital Credit L.P. (Delaware). Partnership interests
in MetLife Capital Credit L.P. are held by Metropolitan (90%)
and CLJ Finco, Inc. (10%).
(6) MetLife Capital Portfolio Investments, Inc. (Nevada)
(a) MetLife Capital Funding Corp. (Delaware)
(7) MetLife Capital Funding Corp. II (Delaware)
ii. MetLife Capital Financial Corporation (Delaware)
iii. MetLife Financial Acceptance Corporation (Delaware). MetLife
Capital Holdings, Inc. holds 100% of the voting preferred stock of
MetLife Financial Acceptance Corporation. Metropolitan Property and
Casualty Insurance Company holds 100% of the common stock of MetLife
Financial Acceptance Corporation.
iv. MetLife Capital International Ltd. (Delaware).
b. MetLife Investment Management Corporation (Delaware)
i. MetLife Investments Limited (United Kingdom). 23rd Street
Investments, Inc. holds one share of MetLife Investments Limited.
c. MetLife Investments Asia Limited (Hong Kong). One share of MetLife
Investments Asia Limited is held by W&C Services, Inc., a nominee of
Metropolitan Asset Management Corporation.
d. GFM International Investors Limited (United Kingdom). The common stock
of GFM International Investors Limited ("GFM") is held by Metropolitan
(99.5%) and by the former CEO of GFM (.5%). GFM is a sub-investment
manager for the International Stock Portfolio of Metropolitan Series
Fund, Inc.
i. GFM Investments Limited (United Kingdom)
5. SSRM Holdings, Inc. (Delaware)
a. State Street Research & Management Company (Delaware). Is a
sub-investment manager for the Growth, Income, Diversified and
Aggressive Growth Portfolios of Metropolitan Series Fund, Inc.
i. State Street Research Energy, Inc. (Massachusetts)
ii. State Street Research Investment Services, Inc. (Massachusetts)
iii. SSRM Management Company (Luxembourg).
b. Metric Holdings, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Realty Corp. (Delaware)
(1) Metric Realty Services, Inc. (Delaware). Metric Holdings, Inc.
and Metric Realty Corp. each hold 50% of the common stock of Metric
Realty Services, Inc.
(a) Metric Colorado, Inc. (Colorado). Metric Realty Services, Inc.
holds 80% of the common stock of Metric Colorado, Inc.
(2) Metric AV, Inc.
iii. Metric Realty (Illinois). Metric Realty Corp. and Metric Holdings,
Inc. each hold 50% of the common stock of Metric Realty.
(1) Metric Capital Corporation (California)
III-7
<PAGE>
(2) Metric Assignor, Inc. (California)
(3) Metric Institutional Realty Advisors, Inc. (California)
(4) Metric Institutional Realty Advisors, L.P. (California). Metric
Realty holds a 99% limited partnership interest and Metric
Institutional Realty Advisors, Inc. holds a 1% interest as general
partner in Metric Institutional Realty Advisors, L.P.
(5) Metric Institutional Apartment Fund II, L.P. (California). Metric
Realty holds a 1% interest as general partner and Metropolitan
holds an approximately 14.6% limited partnership interest in Metric
Institutional Apartment Fund II, L.P.
iv. MetLife Realty Group, Inc. (Delaware)
6. MetLife Holdings, Inc. (Delaware)
a. MetLife Funding, Inc. (Delaware)
b. MetLife Credit Corp. (Delaware)
7. Metropolitan Tower Realty Company, Inc. (Delaware)
8. Met Life Real Estate Advisors, Inc. (California)
9. MetLife HealthCare Holdings, Inc. (Delaware)
B. Metropolitan Tower Life Insurance Company (Delaware)
C. MetLife Security Insurance Company of Louisiana (Louisiana)
D. MetLife Texas Holdings, Inc. (Delaware)
1. Texas Life Insurance Company (Texas)
a. Texas Life Agency Services, Inc. (Texas)
b. Texas Life Agency Services of Kansas, Inc. (Kansas)
E. MetLife Securities, Inc. (Delaware)
F. 23rd Street Investments, Inc. (Delaware)
G. Metropolitan Life Holdings Limited (Ontario, Canada)
1. Metropolitan Life Financial Services Limited (Ontario, Canada)
2. Metropolitan Life Financial Management Limited (Ontario, Canada)
a. Metropolitan Life Insurance Company of Canada (Canada)
3. Morguard Investments Limited (Ontario, Canada) Shares of Morguard
Investments Limited ("Morguard") are held by Metropolitan Life Holdings
Limited (80%) and by employees of Morguard (20%).
4. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
5. 3309347 Canada, Inc. (Canada)
H. MetLife (UK) Limited (Great Britain). One share held by Metropolitan Tower
Corp.
1. Albany Life Assurance Company Limited (Great Britain)
a. Albany Pension Managers and Trustees Limited (Great Britain)
2. Albany Home Loans Limited (Great Britain)
3. ACFC Corporate Finance Limited (Great Britain)
4. Metropolitan Unit Trust Managers Limited (Great Britain)
5. Albany International Assurance Limited (Isle of Man)
6. MetLife Group Services Limited (Great Britain)
III-8
<PAGE>
I. Santander Met, S.A. (Spain). Shares of Santander Met, S.A. are held by
Metropolitan (50%) and by an entity (50%) unaffiliated with Metropolitan.
1. Seguros Genesis, S.A. (Spain)
2. Genesis Seguros Generales, Sociedad Anomina de Seguros y Reaseguros (Spain)
J. Kolon-Met Life Insurance Company (Korea). Shares of Kolon-MetLife Insurance
Company are held by Metropolitan (51%) and by an entity (49%) unaffiliated
with Metropolitan.
K. Metropolitan Life Seguros de Vida S.A. (Argentina)
L. Metropolitan Life Seguros de Retiro S.A. (Argentina).
M. Met Life Holdings Luxembourg (Luxembourg)
N. Metropolitan Life Holdings, Netherlands BV (Netherlands)
O. MetLife International Holdings, Inc. (Delaware)
P. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
Q. Metropolitan Realty Management, Inc. (Delaware)
1. Edison Supply and Distribution, Inc. (Delaware)
2. Cross & Brown Company (New York)
a. Cross & Brown Associates of New York, Inc. (New York)
b. Cross & Brown Construction Corp. (New York)
c. CBNJ, Inc. (New Jersey)
d. SubBrown Corp. (New York)
R. MetPark Funding, Inc. (Delaware)
S. 2154 Trading Corporation (New York)
T. Transmountain Land & Livestock Company (Montana)
U. Met West Agribusiness, Inc. (Delaware)
V. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
W. MetLife Trust Company, National Association. (United States)
X. PESCO Plus, L.C. (Florida). Metropolitan holds a 50% interest in PESCO Plus,
L.C. and an unaffiliated party holds a 50% interest.
1. Public Employees Equities Services Company (Florida)
Y. Benefit Services Corporation (Georgia)
Z. G.A. Holding Corporation (MA)
A.A. TNE-Y, Inc. (DE)
III-9
<PAGE>
A.B. CRH Companies, Inc. (MA)
A.C. NELRECO Troy, Inc. (MA)
A.D. TNE Funding Corporation (DE)
A.E. L/C Development Corporation (CA)
A.F. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.G. CRB Co., Inc. (MA) AEW Real Estate Advisors, Inc. holds 49,000 preferred
non-voting shares of CRB Co., Inc. AEW Advisors, Inc. holds 1,000 preferred
non-voting shares of CRB Co., Inc.
A.H. DPA Holding Corp. (MA)
A.I. Lyon/Copley Development Corporation (CA)
A.J. NEL Partnership Investments I, Inc. (MA)
A.K. New England Life Mortgage Funding Corporation (MA)
A.L. Mercadian Capital L.P. (DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian Capital L.P.
A.M. Mercadian Funding L.P. (DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian Funding L.P.
A.N. MetLife New England Holdings, Inc. (DE)
1. New England Life Insurance Company (MA)
a. New England Securities Corporation (MA)
b. Hereford Insurance Agency, Inc. (MA)
c. Hereford Insurance Agency of Alabama, Inc. (AL)
d. Hereford Insurance Agency of Minnesota, Inc. (MN)
e. Newbury Insurance Company, Limited (Bermuda)
f. TNE Information Services, Inc. (MA)
g. Exeter Reassurance Company, Ltd. (MA)
h. Omega Reinsurance Corporation (AZ)
i. New England Pension and Annuity Company (DE)
j. TNE Advisers, Inc. (MA)
k. New England Investment Companies, Inc. (MA)
1. New England Investment Companies, L.P. (DE) New England Investment
Companies, Inc. hold a 0.29% general partnership interest in New
England Investment Companies, L.P. MetLife New England Holdings, Inc.
holds a 54.90% limited partnership interest in New England Investment
Companies, L.P.
a. NEIC Holdings, Inc. (MA)
i. (1) Back Bay Advisors, Inc. (MA)
(2) Back Bay Advisors, L.P. (DE) Back Bay Advisors, Inc. holds a
1% general partner interest and NEIC Holdings, Inc. holds a
99% limited partner interest in Back Bay Advisors, L.P.
III-10
<PAGE>
ii. Reich & Tang Asset Management, Inc. (MA)
(1) Reich & Tang Distributors, L.P. (DE) Reich & Tang Asset
Management Inc. holds a 1% general interest and Reich & Tang
Asset Management, L.P. holds a 99.5% limited partner interest
in Reich Tang Distributors, L.P.
(2) Reich & Tang Asset Management L.P. Reich & Tang Asset
Management, Inc. holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited partner interest in
Reich & Tang Asset Management, L.P.
(3) Reich & Tang Services, L.P. (DE) Reich & Tang Asset
Management, Inc. holds a 1% general partner interest and
Reich & Tang Asset Management, L.P. holds a 99% limited
partner interest in Reich & Tang Services, L.P.
iii. Loomis, Sayles & Company, Inc. (MA)
(1) Loomis Sayles & Company, L.P. (DE) Loomis Sayles & Company,
Inc. holds a 1% general partner interest and Reich & Tang
Asset Management, Inc. holds a 99% limited partner interest
in Loomis Sayles & Company, L.P.
iv. Westpeak Investment Advisors, Inc. (MA)
(1) Westpeak Investment Advisors, L.P. (DE) Westpeak Investment
Advisors, Inc. holds a 1% general partner interest and Reich
& Tang Asset Management, Inc. holds a 99% limited partner
interest in Westpeak Investment Advisors, L.P.
v. VNSM, Inc. (DE)
(1) Vaughan, Nelson Scarborough & McConnell, L.P. (DE) VNSM,
Inc. holds a 1% general partner interest and Reich & Tang
Asset Management Inc. holds Advisors, L.P. a 99% limited
partner interest in Vaughan, Nelson Scarborough & McConnell,
L.P.
vi. MC Management, Inc. (MA)
(1) MC Management, L.P. (DE)
MC Management, Inc. holds a 1% general partner interest and
Reich & Tang Asset Management, Inc. holds a 99% limited
partner interest in MC Management, L.P.
vii. Harris Associates, Inc. (DE)
(1) Harris Associates Securities L.P. (DE)
Harris Associates, Inc. holds a 1% general partner interest
and Harris Associates L.P. holds a 99% limited partner
interest in Harris Associates Securities, L.P.
(2) Harris Associates L.P. (DE)
Harris Associates, Inc. holds a 0.33% general partner
interest and New England Investment Company, L.P. Inc. holds
a 99.67% limited partner interest in Harris Associates L.P.
(a) Harris Partners, Inc. (DE)
(b) Harris Partners L.L.C. (DE)
Harris Partners, Inc. holds a 1% membership interest and
Harris Associates L.P. holds a 99% membership interest in
Harris Partners L.L.C.
(i) Aurora Limited Partnership (DE)
Harris Partners L.L.C. holds a 1% general partner
interest
(ii) Perseus Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general partner
interest
III-11
<PAGE>
(iii) Pleiades Partners L.P. (DE) Harris Partners L.L.C.
holds a 1% general partner interest
(iv) Stellar Partners L.P. (DE) Harris Partners L.L.C.
holds a 1% general partner interest
(v) SPA Partners L.P. (DE) Harris Partners L.L.C. holds a
1% general partner interest
viii. Graystone Partners, Inc. (MA)
(1) Graystone Partners, L.P. (DE) Graystone Partners, Inc. holds
a 1% general partner interest and New England Investment
Company, L.P. holds a 99% limited partner interest in
Graystone Partners, L.P.
ix. NEF Corporation (MA)
(1) New England Funds, L.P. (DE) NEF Corporation holds a 1%
general partner interest and New England Investment Company,
L.P. holds a 99% limited partner interest in New England
Funds, L.P.
(2) New England Funds Management, L.P. (DE) NEF Corporation
holds a 1% general partner interest and New England
Investment Company, L.P. holds a 99% limited partner interest
in New England Funds Management, L.P.
l. Capital Growth Management, L.P. (DE) New England Investment Companies,
L.P. holds a 50% limited partner interest in Capital Growth Management,
L.P.
m. AEW Capital Management L.P. (DE) New England Investment Companies, L.P.
holds a 99% limited partner interest and AEW Capital Management, Inc.
holds a 1% general partner interest in AEW Capital Management, L.P.
1. AEW Investment Group, Inc. (MA)
a. BBC Investment Advisors, Inc. (MA)
b. Copley/Ochard Investors, Inc. (MA)
i. Copley/Ochard Investors, L.P. (DE)
Copley/Ochard Investors, Inc. holds a 1% general partner
interest in Copley/Ochard Investors, L.P.
c. AEW Real Estate Advisors, Inc. (MA)
i. AEW Advisors, Inc. (MA)
(1) Copley Management Partnership (MA)
Copley Advisors, Inc. holds a 1% general partner interest in
Copley Management Partnership.
(2) Coptel Associates L.P. (DE)
Copley Advisors, Inc. holds a 1% general partner interest in
Coptel Associates L.P.
(3) CIIF Associates (MA)
Copley Advisors, Inc. holds a .15% general partner interest
in CIIF Associates.
(4) CIIF Associates II Limited Partnership (DE)
Copley Advisors, Inc. holds a .15% general partner interest
in CIIF Associates II Limited Partnership.
III-12
<PAGE>
(5) CIIF McInnes Associates (MA) AEW Advisors, Inc. holds a .15%
general partnership interest in CIIF McInnes Associates.
(6) CIIF Oxnard Associates (MA) AEW Advisors, Inc. holds a .15%
general partnership in CIIF Oxnard Associates.
(7) CIIF II Crossroads Limited Partnership (DE) AEW Advisors,
Inc. holds a 1% general partnership in CIIF II Crossroads
Limited Partnership.
(8) CIIF II Tech Center Associates L.P. (DE) AEW Advisors, Inc.
holds a 1% general partnership in CIIF II Tech Center
Associates L.P.
(9) CIIF II Tech Center, Inc. (MA) AEW Advisors, Inc. holds a 5%
interest in CIIF II Tech Center Associates, Inc.
ii. Copley Properties Company, Inc. (MA)
(1) New England Life Pension Properties (MA) Copley Properties
Company, Inc. holds a 1% general partner interest in New
England Life Pension Properties.
iii. Copley Properties Company II, Inc. (MA)
(1) New England Life Pension Properties II (MA) Copley
Properties Company II, Inc. holds a 1% general partner
interest in New England Life Pension Properties II.
iv. Copley Properties Company III, Inc. (MA)
(1) New England Life Pension Properties III (MA) Copley
Properties Company III, Inc. holds a 1% general partner
interest in New England Life Pension Properties III.
v. Copley Securities Corporation (MA)
vi. Copley Margarita Associates L.P. (MA) AEW Real Estate Advisors,
Inc. holds a 0.001% general partner interest in Copley Margarita
Associates L.P.
vii. Fourth Copley Corp. (MA)
(1) New England Life Pension Properties IV (MA) Fourth Copley
Corp. holds a 1% general partner interest in New England Life
Pension Properties IV.
viii. Fifth Copley Corp. (MA)
(1) New England Life Pension Properties V (MA) Fifth Copley
Corp. holds a 1% general partner interest in New England Life
Pension Properties V.
ix. Sixth Copley Corp. (MA)
(1) Copley Pension Properties VI (MA) Sixth Copley Corp. holds a
1% general partner interest in Copley Pension Properties VI.
x. Seventh Copley Corp. (MA)
(1) Copley Pension Properties VII (MA) Seventh Copley Corp.
holds a 1% general partner interest in Copley Pension
Properties VII.
III-13
<PAGE>
xi. Eighth Copley Corp. (MA)
xii. First Income Corp. (MA)
(1) Copley Realty Income Partners 1 (MA) First Income Corp.
holds a 1% general partner interest in Copley Realty Income
Partners 1.
xiii. Second Income Corp. (MA)
(1) Copley Realty Income Partners 2 (MA) Second Income Corp.
holds a 1% general partner interest in Copley Realty Income
Partners 2.
xiv. Third Income Corp. (MA)
(1) Copley Realty Income Partners 3 (MA) Third Income Corp.
holds a 1% general partner interest in Copley Realty Income
Partners 3.
xv. Fourth Income Corp. (MA)
(1) Copley Realty Income Partners 4 (MA) Fourth Income Corp.
holds a 1% general partner interest in Copley Realty Income
Partners 4.
xvi. Third Singleton Corp. (MA)
(1) Copley Business Parks Associates L.P. (MA) Third Singleton
Corp. holds a 1% general partner interest in Copley Business
Parks Associates L.P.
xvii. Fourth Singleton Corp. (MA)
xviii. Fifth Singleton Corp. (MA)
(1) Copley Regional Centers Associates L.P. (MA) Fifth Singleton
Corp. holds a 1% general partner interest in Copley Regional
Centers Associates L.P.
xix. Sixth Singleton Corp. (MA)
(1) Copley Commerce Centers Associates L.P. (MA)
Sixth Singleton Corp. holds a 1% general partner interest in
Copley Commerce Centers Associates L.P.
xx. CTR Corp. (MA)
xxi. New England Investment Associates, Inc. (DE)
xxii. BCOP Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 1% general partner
interest in BCOP Associates L.P.
xxiii. AEW Real Estate Advisors Limited Partnership
AEW Real estate Advisors, Inc. holds a 25% general partner
interest in AEW Real Estate Advisors, Limited Partnership.
d. BBC Investment Advisors, Inc. (MA)
AEW Investment Group, Inc. holds a 60% general partner interest in
BBC Investment Advisors, Inc. and Back Bay Advisors, L.P. holds a
40% limited partner interest.
n. AEW Capital Management, Inc. (MA)
(i) Copley Management and Advisors, L.P. (DE)
AEW Capital Management, Inc. holds a 75% limited partner interest and
AEW Investment Group, Inc. holds a 25% general partner interest in
Copley Management and Advisors, L.P.
III-14
<PAGE>
(a) BBC Investment Advisors, L.P. (DE) Copley Management Advisors,
L.P. holds a 59.4% limited partner interest, Back Bay Advisors,
L.P. holds a 39.6% limited partner interest and BBC Investment
Advisors, Inc. holds a 1% general partner interest in BBC
Investment Advisors, L.P.
2. Copley Public Partners Holding, L.P. (DE) AEW Capital Management, L.P.
holds a 75% limited partner interest and AEW Investment Group, Inc. holds a
25% general partner interest.
3. AEW Hotel Investment Corporation. In addition to the entities listed above,
Metropolitan (or where indicated an affiliate) also owns an interest in the
following entities, among others:
(1) CP&S Communications, Inc., a New York corporation, holds federal radio
communications licenses for equipment used in Metropolitan owned
facilities and airplanes. It is not engaged in any business.
(2) Quadreal Corp., a New York corporation, is the fee holder of a parcel
of real property subject to a 999 year prepaid lease. It is wholly owned
by Metropolitan, having been acquired by a wholly owned subsidiary of
Metropolitan in 1973 in connection with a real estate investment and
transferred to Metropolitan in 1988.
(3) Met Life International Real Estate Equity Shares, Inc., a Delaware
corporation, is a real estate investment trust. Metropolitan owns
approximately 18.4% of the outstanding common stock of this company and
has the right to designate 2 of the 5 members of its Board of Directors.
(4) Metropolitan Structures is a general partnership in which Metropolitan
owns a 50% interest. Metropolitan Structures owns 100% of the common
stock of Cicero/Cermak Corporation, an Illinois corporation.
(5) Seguros Genesis, S.A., (Mexico), is a Mexican insurer in which
Metropolitan and two of its subsidiaries collectively own a 24.5%
interest and have the right to designate 2 of the 9 members of the Board
of Directors.
(6) Interbroker, Correduria de Reaseguros, S.A., is a Spanish insurance
brokerage company in which Santander Met, S.A., a subsidiary of
Metropolitan in which Metropolitan owns a 50% interest and has the right
to designate 2 of the 4 members of the Board of Directors.
(7) Metropolitan owns varying interests in certain mutual funds distributed
by its affiliates. These ownership interests are generally expected to
decrease as shares of the funds are purchased by unaffiliated investors.
(8) Metropolitan Lloyds Insurance Company of Texas, an affiliated
association, provides homeowner and related insurance for the Texas
market. It is an association of individuals designated as underwriters,
Metropolitan Lloyds, Inc., a subsidiary of Metropolitan Property and
Casualty Insurance Company ("MET P&C"), serves as the attorney-in-fact
and manages the association.
(9) Mezzanine Investment Limited Partnerships ("MILPs"), Delaware limited
partnerships, are investment vehicles through which investments in
certain entities are held. A wholly owned subsidiary of Metropolitan
serves as the general partner of the limited partnerships and
Metropolitan directly owns a 99% limited partnership interest in each
MILP. The MILPs have various ownership interests in certain companies.
The various MILPs own, directly or indirectly, more than 50% of the
voting stock of the following companies, Coating Technologies
International, Inc.; Dan River, Inc.; Igloo Holdings, Inc. and its
subsidiary, Igloo Products Corp.; Blodgett Holdings, Inc., and its
subsidiaries, GS Blodgett Corporation, GS Blodgett International Ltd.,
GS Blodgett Inc., Pitco Frialator, Inc., Frialator International
Limited, Magikitch'n, Inc., and Cloverleaf Properties, Inc.; and Briggs
Holdings, Inc., and its subsidiary, Briggs Plumbing Products, Inc.
NOTE: THE METROPOLITAN LIFE ORGANIZATION CHART DOES NOT INCLUDE REAL ESTATE
JOINT VENTURES AND PARTNERSHIPS OF WHICH METROPOLITAN LIFE AND/OR ITS
SUBSIDIARIES IS AN INVESTMENT PARTNER. IN ADDITION, CERTAIN INACTIVE
SUBSIDIARIES HAVE ALSO BEEN OMITTED.
III-15
<PAGE>
ITEM 27. NUMBER OF CONTRACTOWNERS
As of March 31, 1997, there were 23,272 owners of tax-qualified Contracts and
12,079 owners of non-qualified Contracts.
ITEM 28. INDEMNIFICATION
Metropolitan Life Insurance Company ("MetLife") maintains a directors' and
officers' liability policy with a maximum coverage of $100 million under which
MetLife and New England Securities Corporation, the Registrant's underwriter
(the "Underwriter"), as well as certain other subsidiaries of MetLife are
covered. A provision in MetLife's by-laws provides for the indemnification
(under certain circumstances) of individuals serving as directors or officers of
certain organizations, including MetLife and the Underwriter.
MetLife has secured a Financial Institutions Bond in the amount of $50,000,000
subject to a $5,000,000 deductible.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of MetLife
pursuant to the foregoing provisions, or otherwise, MetLife has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification may be against public policy as expressed in the Act and may be,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by MetLife of expenses incurred or paid
by a director, officer or controlling person or MetLife in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
MetLife will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) New England Securities Corporation also serves as principal underwriter
for:
New England Zenith Fund
New England Variable Annuity Fund I
New England Retirement Investment Account
New England Variable Life Separate Account
New England Variable Annuity Separate Account
(b) The directors and officers of the Registrant's principal underwriter, New
England Securities Corporation, and their addresses are as follows:
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES WITH PRINCIPAL OFFICES WITH
NAME UNDERWRITER REGISTRANT
- ---- ------------------------------------ -------------
<S> <C> <C>
Thomas W. McConnell* Director, President and CEO None
Frederick K.
Zimmermann** Chairman of Board, Director None
Bradley W. Anderson* Vice President None
Beverly J. DeWitt** Assistant Secretary None
Anne M. Goggin** Vice President, General Counsel, Secretary None
and Clerk
Mark F. Greco* Vice President None
Laura A. Hutner* Vice President None
Mitchell A. Karman** Vice President None
Albert R. Margeson, Senior Vice President None
Jr.*
Robert F. Regan*** Vice President None
Jonathan M. Rozek* Vice President None
Andrea M. Ruesch* Vice President None
Robert E. Schneider** Director None
Michael E. Toland* Vice President, Chief Compliance Officer,
Chief Financial Officer, Treasurer, Assistant
Secretary and Assistant Clerk None
Principal Business
Address: *399 Boylston Street, Boston, MA 02116
**501 Boylston Street, Boston, MA 02117
***500 Boylston Street, Boston, MA 02117
</TABLE>
III-16
<PAGE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NET
NAME OF UNDERWRITING COMPENSATION
PRINCIPAL DISCOUNTS & REDEMPTION OR BROKERAGE OTHER
UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
New England
Securities Corp. 5,927,575 -0- -0- -0-
</TABLE>
Commissions are paid by the Company directly to agents who are registered
representatives of the principal underwriter, or to broker-dealers that have
entered into a selling agreement with the principal underwriter with respect to
sales of the Contracts.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The following companies will maintain possession of the documents required by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder:
(a) Registrant
(b) New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(c) State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(d) New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
Registrant hereby makes the following undertakings:
(1) To file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial statements
contained in the registration statement are never more than 16 months old for
so long as payments under the variable annuity contracts may be accepted;
(2) To include either (a) as part of any application to purchase a contract
offered by the prospectus, a space that an applicant can check to request a
Statement of Additional Information or (b) a postcard or similar written
communication affixed to or included in the prospectus that the applicant can
remove to send for a Statement of Additional Information;
(3) To deliver a Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly upon
written or oral request;
(4) To offer Contracts to participants in the Texas Optional Retirement
program in reliance upon Rule 6c-7 of the Investment Company Act of 1940 and
to comply with paragraphs (a)-(d) of that Rule; and
(5) To comply with and rely upon the Securities and Exchange Commission
No-Action letter to The American Council of Life Insurance, dated November 28,
1988, regarding Sections 22(e), 27(c)(1) and 27(d) of the Investment Company
Act of 1940.
Metropolitan Life Insurance Company represents that the fees and charges
deducted under the Contracts described in this Registration Statement, in the
aggregate, are reasonable in relation to the services rendered, the expenses to
be incurred, and the risks assumed by Metropolitan under the Contracts.
III-17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT, THE NEW ENGLAND VARIABLE ACCOUNT, CERTIFIES
THAT IT MEETS THE REQUIREMENTS OF SECURITIES ACT RULE 485(B) FOR EFFECTIVENESS
OF THIS REGISTRATION STATEMENT AND HAS CAUSED THIS AMENDMENT TO ITS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF, IN THE CITY OF NEW YORK, AND STATE OF NEW
YORK ON THIS 30TH DAY OF APRIL, 1997.
THE NEW ENGLAND VARIABLE ACCOUNT
By: METROPOLITAN LIFE INSURANCE COMPANY
(Depositor)
By: /S/ GARY A. BELLER
------------------------------------------
GARY A. BELLER, ESQ.
EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
III-18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, METROPOLITAN LIFE INSURANCE COMPANY CERTIFIES THAT IT MEETS
THE REQUIREMENTS OF SECURITIES ACT RULE 485(B) FOR EFFECTIVENESS OF THIS
REGISTRATION STATEMENT AND HAS CAUSED THIS AMENDMENT TO ITS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF, IN THE CITY OF NEW YORK, AND THE STATE OF
NEW YORK ON THIS THE 30TH DAY OF APRIL, 1997.
Metropolitan Life Insurance Company
By: /S/ GARY A. BELLER
----------------------------------
GARY A. BELLER, ESQ.
EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman, President, Chief
- -------------------------- Executive Officer and Director
HARRY P. KAMEN
* Senior Executive Vice-President and
- -------------------------- Chief Financial Officer (Principal
STEWART G. NAGLER Financial Officer)
* Senior Executive Vice-President and
- -------------------------- Controller (Principal Accounting
FREDERICK P. HAUSER Officer)
* Director
- --------------------------
CURTIS H. BARNETTE
* Director
- --------------------------
GERALD CLARK
* Director
- --------------------------
JOAN GANZ COONEY
* Director
- --------------------------
BURTON A. DOLE, JR.
* Director
- --------------------------
JAMES R. HOUGHTON
III-19
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
* Director
- --------------------------------
HELENE L. KAPLAN
* Director
- --------------------------------
CHARLES H. LEIGHTON
* Director
- --------------------------------
RICHARD J. MAHONEY
* Director
- --------------------------------
ALLEN E. MURRAY
* Director
- --------------------------------
JOHN J. PHELAN, JR.
* Director
- --------------------------------
JOHN B. M. PLACE
* Director
- --------------------------------
HUGH B. PRICE
* Director
- --------------------------------
ROBERT G. SCHWARTZ
* Director
- --------------------------------
RUTH J. SIMMONS
* Director
- --------------------------------
WILLIAM S. SNEATH
* Director
- --------------------------------
WILLIAM C. STEERE, JR.
*By
/S/ CHRISTOPHER P. NICHOLAS April 30, 1997
-----------------------------
CHRISTOPHER P. NICHOLAS,
ESQ.
ATTORNEY-IN-FACT
III-20
<PAGE>
EXHIBIT INDEX
(1) (i) Resolutions of the Board of Directors of New England Mutual Life
Insurance Company authorizing the Registrant are incorporated herein by
reference to the Registration Statement on Form N-4 (No. 333-11131) filed
on August 30, 1996.
(ii) Resolutions of the Depositor adopting the Registrant as a separate
account are incorporated herein by reference to the Registration Statement
on Form N-4 (No. 333-11131) filed on August 30, 1996.
(2) None
(3) (i) Distribution Agreement is incorporated herein by reference to the
Registration Statement on Form N-4 (No. 333-11131) filed on August 30,
1996.
(ii) Forms of Selling Agreement with other broker-dealers are incorporated
herein by reference to Pre-Effective Amendment No. 1 (July 7, 1988) and
Post-Effective Amendment No. 8 (February 23, 1993) to Registration
Statement on Form N-4 (No. 33-17377).
(4) (i) Form of New England Mutual Life Insurance Company Variable Annuity
Contract, Application and Riders, is incorporated herein by reference to
Post-Effective Amendment No. 1 to the Registration Statement on Form N-4
(No. 33-17377) filed on April 28, 1989.
(ii) Form of New England Mutual Life Insurance Company Contract Loan
Endorsement is incorporated by reference to Post-Effective Amendment No. 3
to the Registration Statement on Form N-4 (No. 33-17377) filed on April 27,
1990.
(iii) Forms of New England Mutual Life Insurance Company Endorsements
(Fixed Account, Individual Retirement Annuity, Tax-Sheltered Annuity and
Death of Owner) are incorporated herein by reference to Post-Effective
Amendment No. 4 to the Registration Statement on Form N-4 (No. 33-17377)
filed on March 1, 1991.
(iv) Forms of New England Mutual Life Insurance Company Endorsements (New
Contract Loan, Benefits for Disability of Annuitant) are incorporated
herein by reference to Post-Effective Amendment No. 6 to the Registration
Statement on Form N-4 (No. 33-17377) filed on February 25, 1992.
(v) Form of Metropolitan Life Insurance Company Endorsement to New England
Mutual Life Insurance Company Variable Annuity Contract (See (4)(i) above)
is incorporated herein by reference to the Registration Statement on Form
N-4 (No. 333-11131) filed on August 30, 1996.
(vi) Metropolitan Life Insurance Company Variable Annuity Contract and
Application are incorporated herein by reference to the Registration
Statement on Form N-4 (No. 333-11131) filed on August 30, 1996.
(vii) Forms of Metropolitan Life Insurance Company Endorsements (Fixed
Account, Contract Loans, Tax-Sheltered Annuity, Periodic Reports and
Postponement of Surrender) are incorporated herein by reference to the
Registration Statement on Form N-4 (No. 333-11131) filed on August 30,
1996.
(5) (i) For New England Mutual Life Insurance Company Application, see (4)(i)
above.
(ii) For Metropolitan Life Insurance Company Application, see (4)(vi)
above.
(6) (i) Charter and By-Laws of Metropolitan Life Insurance Company are
incorporated herein by reference to the Registration Statement on Form N-4
(No. 333-11131) filed on August 30, 1996.
(ii) By-Laws Amendment is incorporated herein by reference to the
Registration Statement on Form N-4 (No. 333-11131) filed on August 30,
1996.
(7) None
(8) (i) Administrative Services Agreement is incorporated herein by reference
to the Registration Statement on Form N-4 (No. 333-11131) filed on August
30, 1996.
<PAGE>
(ii) Participation Agreement Among Variable Insurance Products Fund,
Fidelity Distributors Corporation and New England Mutual Life Insurance
Company is incorporated by reference to Post-Effective Amendment No. 10 to
Registration Statement on Form N-4 (No. 33-17377) filed on March 2, 1994.
(iii) Amendment No. 1 to Participation Agreement Among Variable Insurance
Products Fund, Fidelity Distributors Corporation and New England Mutual
Life Insurance Company is incorporated by reference to Post-Effective
Amendment No. 15 to Registration Statement on Form N-4 (No. 33-17377) filed
on April 1, 1996.
(iv) Assignment of Participation Agreement from New England Mutual Life
Insurance Company to Metropolitan Life Insurance Company is incorporated
herein by reference to the Registration Statement on Form N-4 (No.
333-11131) filed on August 30, 1996.
(9) Opinion and consent of Christopher P. Nicholas.
(10) (i) Consent of Coopers & Lybrand, L.L.P.
(ii) Consent of Deloitte & Touche LLP.
(iii) Consent of Sutherland, Asbill & Brennan, L.L.P.
(11) None
(12) None
(13) Schedule of computations for performance quotations is incorporated by
reference to Post-Effective Amendment No. 14 to Registration Statement on
Form N-4 (No. 33-17377) filed on October 28, 1994.
(14) Powers of Attorney. Additional Powers of Attorney are incorporated herein
by reference to Registration Statement on Form N-4 (No. 333-11131) filed on
August 30, 1996.
(27) Financial Data Schedule
<PAGE>
EXHIBIT 9
Metropolitan Life Insurance Company
One Madison Avenue, New York, New York 10010
[LOGO OF METLIFE
APPEARS HERE]
Christopher P. Nicholas
Associate General Counsel
Law Department
April 29, 1997
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Ladies and Gentlemen:
This opinion is furnished in connection with the filing with the Securities
and Exchange Commission of a post-effective amendment to the Registration
Statement on Form N-4 under the Securities Act of 1933 and the Investment
Company Act of 1940. This amendment is being filed by The New England Variable
Account (the "Account") with respect to individual variable annuity contracts
(the "Contracts") issued by Metropolitan Life Insurance Company ("Metropolitan
Life").
I have made such examination of the law and examined such corporate records
and such other documents as in my judgment are necessary and appropriate to
enable me to render the following opinion that:
1. Metropolitan Life has been duly organized under the laws of the State of
New York and is a validly existing corporation.
2. The Account is validly existing as a separate account pursuant to
Section 4240 of Chapter 28 of the Consolidated Laws of New York.
3. The portion of the assets to be held in the Account equal to the reserves
and other liabilities under the Contracts and under other variable annuity
contracts the purchase payments of which may be allocated to the Account is not
chargeable with liabilities arising out of any other business Metropolitan Life
may conduct.
4. The Contracts, when issued as contemplated by the Registration Statement
and in compliance with applicable local law, will constitute legal, validly
issued and binding obligations of Metropolitan Life in accordance with their
terms.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the caption "Legal
Matters" in the Statement of Additional Information contained in the
Registration Statement on Form N-4 (File No. 333-11131).
Very truly yours,
/s/ Christopher P. Nicholas
Christopher P. Nicholas
Associate General Counsel
cc: Gary A. Beller, Esq.
<PAGE>
Exhibit 99.10(i)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 333-11131 of our report dated February 10,
1996, on our audit of the statements of operation and changes in net assets of
The New England Variable Account of New England Mutual Life Insurance Company
for the periods ended December 31, 1995, which are included in the "Statement of
Additional Information." We also consent to the reference to our Firm under the
caption "Experts" in the "Statement of Additional Information" in this
Registration Statement.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 29, 1997
<PAGE>
Exhibit 10(ii)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 1 to the Registration
Statement No. 333-11131 of New England Variable Account (the "Separate Account")
of Metropolitan Life Insurance Company (the "Company") of our report on the
financial statements of the Separate Account for the year ended December 31,
1996, dated February 18, 1997, and our report on the financial statements of the
Company for the years ended December 31, 1996 and 1995, and for the three years
in the period ended December 31, 1996, dated April 4, 1997, appearing in the
Statement of Additional Information, which is part of such Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Boston, Massachusetts
April 28, 1997
<PAGE>
Exhibit 10(iii)
Sutherland, Asbill & Brennan, L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
Susan S. Krawczyk
April 28, 1997
Board of Directors
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Re: New England Variable Account
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of
Post-Effective Amendment No. 1 to the Registration Statement on Form N-4 for
certain variable annuity contracts issued through New England Variable Account
(File No. 333-11131). By giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: Susan S. Krawczyk
<PAGE>
EXHIBIT 14
POWER OF ATTORNEY
-----------------
Gerald Clark
Director
KNOW ALL MEN BY THESE PRESENTS, that I, a director and officer of Metropolitan
Life Insurance Company, do hereby appoint Gary A. Beller, Louis J. Ragusa,
Richard G. Mandel and Christopher P. Nicholas, and each of them severally, my
true and lawful attorney-in-fact, for me and in my name, place and stead to
execute and file any instrument or document to be filed as part of or in
connection with or in any way related to the Registration Statements and any and
all amendments thereto, filed by said Company under the Securities Act of 1933
and/or the Investment Company Act of 1940, in connection with Metropolitan Life
Separate Account UL, Metropolitan Life Separate Account E, The New England
Variable Account, New England Variable Annuity Fund I or New England Retirement
Investment Account of said Company, and to have full power and authority to do
or cause to be done in my name, place and stead each and every act and thing
necessary or appropriate in order to effectuate the same, as fully to all
intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or any of them, may do or cause to be
done by virtue hereof. Each said attorney-in-fact shall have power to act
hereunder with or without the others.
IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of February,
----
1997.
/s/ Gerald Clark
----------------------
Signature
<PAGE>
POWER OF ATTORNEY
-----------------
Burton A. Dole, Jr.
Director
KNOW ALL MEN BY THESE PRESENTS, that I, a director of Metropolitan Life
Insurance Company, do hereby appoint Richard M. Blackwell, Christine N.
Markussen, Richard G. Mandel and Christopher P. Nicholas, and each of them
severally, my true and lawful attorney-in-fact, for me and in my name, place and
stead to execute and file any instrument or document to be filed as part of or
in connection with or in any way related to the Registration Statements and any
and all amendments thereto, filed by said Company under the Securities Act of
1933 and/or the Investment Company Act of 1940, in connection with Metropolitan
Life Separate Account UL, Metropolitan Life Separate Account E, The New England
Variable Account, New England Variable Annuity Fund I or New England Retirement
Investment Account of said Company, and to have full power and authority to do
or cause to be done in my name, place and stead each and every act and thing
necessary or appropriate in order to effectuate the same, as fully to all
intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or any of them, may do or cause to be
done by virtue hereof. Each said attorney-in-fact shall have power to act
hereunder with or without the others.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of September,
-----
1996.
/s/ Burton A. Dole, Jr.
-------------------------
Signature
<PAGE>
POWER OF ATTORNEY
-----------------
Charles M. Leighton
Director
KNOW ALL MEN BY THESE PRESENTS, that I, a director of Metropolitan Life
Insurance Company, do hereby appoint Richard M. Blackwell, Christine N.
Markussen, Richard G. Mandel and Christopher P. Nicholas, and each of them
severally, my true and lawful attorney-in-fact, for me and in my name, place and
stead to execute and file any instrument or document to be filed as part of or
in connection with or in any way related to the Registration Statements and any
and all amendments thereto, filed by said Company under the Securities Act of
1933 and/or the Investment Company Act of 1940, in connection with Metropolitan
Life Separate Account UL, Metropolitan Life Separate Account E, The New England
Variable Account, New England Variable Annuity Fund I or New England Retirement
Investment Account of said Company, and to have full power and authority to do
or cause to be done in my name, place and stead each and every act and thing
necessary or appropriate in order to effectuate the same, as fully to all
intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or any of them, may do or cause to be
done by virtue hereof. Each said attorney-in-fact shall have power to act
hereunder with or without the others.
IN WITNESS WHEREOF, I have hereunto set my hand this 13th day of
-----
September, 1996.
/s/ Charles M. Leighton
-----------------------
Signature
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