<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
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. 2 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 19 [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 LLP
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)
[X] immediately upon filing pursuant to paragraph (b) of Rule 485
[_] on (date) 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
Title of Securities Being Registered: Individual Variable Annuity Contracts.
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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
-------- --------------------- -----------------------
<C> <S> <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, 1998. The second version of the
prospectus is in the form of a supplement dated May 1, 1998 designed to
supplement the May 1, 1996 prospectus, as supplemented August 30, 1996, the
August 30, 1996 prospectus and the May 1, 1997 prospectus. The second version
is intended to be distributed to existing contract owners who have received
the May 1, 1996, August 30, 1996 or May 1, 1997 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 and August 30, 1996
prospectus are incorporated herein by reference to the Rule 497 filings made
under File No. 333-11131. The May 1, 1997 prospectus is incorporated herein by
reference to the Rule 485(b) filing made under File No. 333-11131. In Puerto
Rico, both versions of the prospectus are used with the supplement dated May
1, 1998, included herewith, that addresses Puerto Rico tax issues.
<PAGE>
ZENITH ACCUMULATOR
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY
METROPOLITAN LIFE INSURANCE COMPANY
SUPPLEMENT DATED MAY 1, 1998
TO PROSPECTUS DATED MAY 1, 1998
AND SUPPLEMENT DATED MAY 1, 1998 (CURRENT CONTRACT HOLDER SUPPLEMENT)
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.
VA-153-98
S-1
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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 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 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 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 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 Goldman Sachs Midcap Value Salomon Brothers
Series Series Strategic Bond
Morgan Stanley Davis Venture Value Series Opportunities Series
International Magnum Westpeak Growth and Income Back Bay Advisors
Equity Series Series Bond Income Series
Overseas Portfolio Equity-Income Portfolio Salomon Brothers
Alger Equity Growth Series Loomis Sayles Balanced U.S. Government
Capital Growth Series Series Series
Back Bay Advisors
Money Market 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, 1998, 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-50 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, 1998.
<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-18
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-21
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-25
Surrenders............................................................... A-25
Systematic Withdrawals................................................... A-26
Loan Provision for Certain Tax Benefited Retirement Plans................ A-26
Disability Benefit Rider................................................. A-28
Suspension of Payments................................................... A-29
Ownership Rights......................................................... A-29
Requests and Elections................................................... A-29
Ten Day Right to Review.................................................. A-30
ADMINISTRATION CHARGES, CONTINGENT DEFERRED SALES CHARGE AND OTHER
DEDUCTIONS............................................................... A-30
Administration Charges................................................... A-30
Mortality and Expense Risk Charge........................................ A-31
Contingent Deferred Sales Charge......................................... A-31
Premium Tax Charges...................................................... A-32
Other Expenses........................................................... A-33
Charges Under Contracts Purchased by Exchanging a Fund I or Preference
Contract................................................................ A-33
ANNUITY PAYMENTS.......................................................... A-33
Election of Annuity...................................................... A-33
Annuity Options.......................................................... A-34
AMOUNT OF VARIABLE ANNUITY PAYMENTS....................................... A-35
Minimum Annuity Payments................................................. A-36
Proof of Age, Sex and Survival........................................... A-36
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS............................ A-36
FEDERAL INCOME TAX STATUS................................................. A-37
Tax Status of the Company and the Variable Account....................... A-37
Taxation of the Contracts................................................ A-38
Special Rules for Annuities Purchased for Annuitants Under Retirement
Plans Qualifying for Tax Benefited Treatment............................ A-38
Special Rules for Annuities Used by Individuals or with Plans and Trusts
Not Qualifying Under the Code for Tax Benefited Treatment............... A-41
Tax Withholding.......................................................... A-42
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
VOTING RIGHTS.............................................................. A-43
DISTRIBUTION OF CONTRACTS.................................................. A-43
THE FIXED ACCOUNT.......................................................... A-44
General Description of the Fixed Account.................................. A-44
Contract Value and Fixed Account Transactions............................. A-44
FINANCIAL STATEMENTS....................................................... A-45
INVESTMENT EXPERIENCE INFORMATION.......................................... A-45
APPENDIX A: CONSUMER TIPS.................................................. A-48
APPENDIX B: PREMIUM TAX.................................................... A-49
</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.
COMMUTATION RIGHT. The payee's right, under certain variable annuity payment
options, to withdraw the commuted value of remaining annuity income payments.
The commuted value is calculated based on the assumed interest rate under the
Contract. (See "Annuity Payments--Annuity Options.")
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, (800) 435-4117.
A-4
<PAGE>
ELIGIBLE FUNDS. The mutual fund portfolios in which the Variable Account
invests. Eligible Funds currently available consist of twelve Series of the
New England Zenith Fund and two Portfolios of the Variable Insurance Products
Fund. Purchase payments applied to the Variable Account may be invested in
shares of one or more of these Series and Portfolios, as described in
"Investments of the Variable Account."
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") or Roth IRAs under Section 408A of the Code ("Roth
IRAs") is $50. For flexible payment Contracts issued in connection with IRAs
and Roth IRAs (Roth IRAs will only be available if you have an existing IRA
Contract), 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 New
England Cash Management Trust 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. The Company
reserves the right to limit purchase payments made in any Contract year or in
total under a single purchase payment contract. (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, Roth IRAs,
simplified employee pension plans and salary reduction simplified employee
pension
A-6
<PAGE>
plans under Section 408(k) of the Code ("SEPs" and "SARSEPs"), eligible
deferred compensation plans under Section 457 of the Code ("Section 457
Plans"), and governmental plans within the meaning of Section 414(d) of the
Code ("Governmental Plans"). See "Retirement Plans Offering Federal Tax
Benefits." The Contracts are only available on a limited basis to plans
qualified under Section 401(k) of the Code and are no longer being offered to
TSA Plans subject to ERISA. The Company intends to make Roth IRAs available
under this Contract only if you have an existing IRA. 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 (see Appendix B). 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 (the "free
withdrawal amount"). (See "Administration Charges, Contingent Deferred Sales
Charge and Other Deductions" for more information.)
- -------------------------------------------------------------------------------
A-8
<PAGE>
EXPENSE TABLE
VARIABLE ACCOUNT
<TABLE>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES(1)
Sales Charge Imposed on Purchases (as a percentage of
purchase payments).................................... 0%
Maximum Contingent Deferred Sales Charge(2) (as a 8% of first $50,000
percentage of total purchase payments)................ 6.5% of excess
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, 1997
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER CURRENT EXPENSE CAP OR EXPENSE
DEFERRAL)(6)
<TABLE>
<CAPTION>
LOOMIS GOLDMAN
SAYLES MORGAN STANLEY SACHS DAVIS WESTPEAK
SMALL INTERNATIONAL ALGER EQUITY CAPITAL MIDCAP VENTURE GROWTH
CAP MAGNUM EQUITY GROWTH GROWTH VALUE VALUE AND INCOME
SERIES SERIES SERIES SERIES SERIES* SERIES SERIES
------ -------------- ------------ ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... 1.00% .90% .75% .63% .75% .75% .70%
Other Expenses.......... 0% .40% .12% .04% .15% .15% .12%
---- ---- --- --- --- --- ---
Total Series Operating
Expenses............. 1.00% 1.30% .87% .67% .90% .90% .82%
</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% .10%
--- --- --- --- ---
Total Series Operating
Expenses................ .85% .85% .52% .70% .45%
</TABLE>
- --------
* Anticipated annual operating expenses for the Goldman Sachs Midcap Value
Series are based on the management fee approved by shareholders of the
Series that became effective on May 1, 1998, and other expenses actually
incurred for the Series for 1997.
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.(7)) 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................... $84.67 $129.28 $175.64 $288.10
Morgan Stanley International Magnum Equi-
ty....................................... 87.48 137.76 189.81 316.93
Alger Equity Growth....................... 83.45 125.59 169.43 275.30
Capital Growth............................ 81.56 119.87 159.81 255.27
Goldman Sachs Midcap Value................ 83.73 126.44 170.87 278.28
Davis Venture Value....................... 83.73 126.44 170.87 278.28
Westpeak Growth and Income................ 82.98 124.16 167.04 270.34
Loomis Sayles Balanced.................... 83.26 125.01 168.48 273.33
Salomon Brothers Strategic Bond Opportuni-
ties..................................... 83.26 125.01 168.48 273.33
Back Bay Advisors Bond Income............. 80.15 115.57 152.52 239.96
Salomon Brothers U.S. Government.......... 81.84 120.73 161.26 258.30
Back Bay Advisors Money Market............ 79.48 113.55 149.09 232.72
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(8):
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap................... $24.73 $ 76.03 $129.89 $276.62
Morgan Stanley International Magnum Equi-
ty....................................... 27.72 84.98 144.74 305.79
Alger Equity Growth....................... 23.43 72.13 123.39 263.67
Capital Growth............................ 21.42 66.09 113.30 243.40
Goldman Sachs Midcap Value................ 23.73 73.03 124.89 266.68
Davis Venture Value....................... 23.73 73.03 124.89 266.68
Westpeak Growth and Income................ 22.93 70.62 120.88 258.65
Loomis Sayles Balanced.................... 23.23 71.52 122.39 261.67
Salomon Brothers Strategic Bond Opportuni-
ties..................................... 23.23 71.52 122.39 261.67
Back Bay Advisors Bond Income............. 19.92 61.54 105.66 227.91
Salomon Brothers U.S. Government.......... 21.72 67.00 114.82 246.47
Back Bay Advisors Money Market............ 19.21 59.41 102.07 220.59
</TABLE>
A-10
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997
(AS A PERCENTAGE OF AVERAGE NET ASSETS PRIOR TO EXPENSE REDUCTIONS)(9)
<TABLE>
<CAPTION>
EQUITY-
OVERSEAS INCOME
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
Management Fee.............................................. .75% .50%
Other Expenses.............................................. .17% .08%
--- ---
Total Portfolio Operating Expenses........................ .92% .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.(10)) For purchase
payments allocated to each of the Portfolios indicated
You would pay the following direct and indi-
rect expenses on a $1,000 purchase payment
assuming 1) 5% annual return on the under-
lying Portfolio and 2) that a contingent de-
ferred sales charge would apply at the end
of each time period because you either sur-
render 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......................... $83.92 $127.01 $171.83 $280.25
Equity-Income Portfolio.................... 80.71 117.29 155.44 246.11
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(11):
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Overseas Portfolio......................... $23.93 $73.63 $125.90 $268.67
Equity-Income Portfolio.................... 20.52 63.36 108.72 234.13
</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 for those Contracts subject
to the insurance tax law of South Dakota. (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 .09%, based on an average Contract Value of approximately
$32,278 over the period from January 1, 1997 to December 31, 1997.
(5) These charges are not imposed on the Fixed Account or 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, 1997, after giving effect to the
applicable voluntary expense cap or expense deferral. 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, 1997 would have been 1.14%. Total Series Operating
Expenses for the Goldman Sachs Midcap Value, (formerly 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 bears
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
Goldman Sachs Midcap Value Series (formerly Loomis Sayles Avanti Growth)
for the year ending December 31, 1997 would have been .86%. For the six
other Series shown, the Total Series Operating Expenses are after giving
effect to a voluntary expense deferral. Effective May 1, 1998 the
Goldman Sachs Midcap Value is subject to the voluntary expense deferral
described below for the six other Series shown, with an annual expense
limit of .90% of net assets. 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, 1997 would have been: 1.59%
for the Morgan Stanley International Magnum Equity Series; .86% for
Loomis Sayles Balanced Series; .87% for Salomon Brothers Strategic Bond
Opportunities Series; and .98% for Salomon Brothers U.S. Government
Series. Total Series Operating Expenses for Davis Venture Value Series
would have been 0.85%, however, pursuant to the expense deferral
arrangement, 0.05% was carried over from a previous year in which
operating expenses exceeded the limit. The expense cap and deferral
arrangements are voluntary and may be terminated at any time. (See the
attached prospectus of the New England Zenith Fund for more complete
information.)
A-12
<PAGE>
(7) In these examples, the average Administration Contract Charge of .09%
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.")
(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, 1997.
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 .90% for
the Overseas Portfolio and .57% 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 and/or certain affiliates 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 and its
affiliates.
(10) In these examples, the average Administration Contract Charge of .09%
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 1/1/97 10/31/94* 1/1/95 1/1/96 1/1/97 10/1/93* 1/1/94
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97 12/31/94 12/31/95 12/31/96 12/31/97 12/31/93 12/31/94
--------- ---------- ---------- ---------- ------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.000 0.959 1.219 1.572 1.000 1.024 1.073 1.129 1.458 1.532
2. Accumulation
Unit Value at
end of
period....... 0.959 1.219 1.572 1.936 1.024 1.073 1.129 1.100 1.532 1.538
3. Number of
Accumulation
Units
outstanding
at end of
period....... 2,988,971 13,533,326 26,307,748 39,442,109 2,916,120 11,062,106 16,322,862 17,243,803 10,878,551 43,034,544
<CAPTION>
1/1/95 1/1/96 1/1/97
TO TO TO
12/31/95 12/31/96 12/31/97
---------- ---------- ----------
<S> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.538 1.664 1.859
2. Accumulation
Unit Value at
end of
period....... 1.664 1.859 2.046
3. Number of
Accumulation
Units
outstanding
at end of
period....... 41,273,183 44,846,316 45,289,247
</TABLE>
<TABLE>
<CAPTION>
ALGER
EQUITY CAPITAL
GROWTH GROWTH
SUB- SUB-
ACCOUNT ACCOUNT
--------- --------
10/31/94* 1/1/95 1/1/96 1/1/97 9/16/88* 1/1/89 1/1/90 1/1/91 1/1/92 1/1/93
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93
--------- ---------- ---------- ---------- -------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.000 0.956 1.402 1.566 4.645 4.612 5.950 5.666 8.608 7.978
2. Accumulation
Unit Value at
end of
period....... 0.956 1.402 1.566 1.941 4.612 5.950 5.666 8.608 7.978 9.050
3. Number of
Accumulation
Units
outstanding
at end of
period....... 1,857,319 24,163,685 40,025,594 44,518,891 439,393 5,337,778 12,591,788 21,719,884 33,645,983 40,091,665
<CAPTION>
1/1/94 1/1/95 1/1/96 1/1/97
TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 9.050 8.298 11.300 13.496
2. Accumulation
Unit Value at
end of
period....... 8.298 11.300 13.496 16.442
3. Number of
Accumulation
Units
outstanding
at end of
period....... 43,592,961 41,663,900 41,363,155 40,200,592
</TABLE>
<TABLE>
<CAPTION>
GOLDMAN
SACHS DAVIS WESTPEAK
MIDCAP VENTURE GROWTH
VALUE VALUE AND INCOME
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
--------- --------- ----------
10/1/93* 1/1/94 1/1/95 1/1/96 1/1/97 10/31/94* 1/1/95 1/1/96 1/1/97 10/1/93*
TO TO TO TO TO TO TO TO TO TO
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/94 12/31/95 12/31/96 12/31/97 12/31/93
--------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.125 1.137 1.119 1.439 1.669 1.000 0.963 1.323 1.643 1.105
2. Accumulation
Unit Value at
end of
period....... 1.137 1.119 1.439 1.669 1.932 0.963 1.323 1.643 2.163 1.132
3. Number of
Accumulation
Units
outstanding
at end of
period....... 4,515,611 15,572,344 19,773,057 24,345,379 24,035,279 3,499,719 19,608,688 34,997,024 53,977,107 3,359,317
<CAPTION>
1/1/94 1/1/95 1/1/96 1/1/97
TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.132 1.103 1.486 1.731
2. Accumulation
Unit Value at
end of
period....... 1.103 1.486 1.731 2.279
3. Number of
Accumulation
Units
outstanding
at end of
period....... 16,092,325 21,168,965 26,104,465 30,306,103
</TABLE>
- -----
* Date these sub-accounts were first available.
A-14
<PAGE>
<TABLE>
<CAPTION>
LOOMIS
EQUITY- SAYLES
INCOME BALANCED
SUB- SUB-
ACCOUNT ACCOUNT
--------- ---------
10/1/93* 1/1/94 1/1/95 1/1/96 1/1/97 10/31/94 1/1/95 1/1/96* 1/1/97
TO TO TO TO TO TO TO TO TO
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/94 12/31/95 12/31/96 12/31/97
--------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation Unit
Value at beginning
of period.......... 1.980 1.992 2.104 2.804 3.162 1.000 0.997 1.227 1.415
2. Accumulation Unit
Value at end of
period............. 1.992 2.104 2.804 3.162 3.996 0.997 1.227 1.415 1.622
3. Number of
Accumulation Units
outstanding at end
of period.......... 5,649,743 25,852,849 38,010,655 44,037,798 45,104,192 1,736,189 10,987,597 20,107,324 28,677,041
</TABLE>
<TABLE>
<CAPTION>
SALOMON
BROTHERS BACK BAY
STRATEGIC ADVISORS
BOND BOND
OPPORTUNITIES INCOME
SUB- SUB-
ACCOUNT ACCOUNT
------------- --------
10/31/94* 1/1/95* 1/1/96 1/1/97 10/5/88* 1/1/89 1/1/90 1/1/91 1/1/92 1/1/93
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93
------------- --------- ---------- ---------- -------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.000 0.984 1.159 1.307 1.631 1.634 1.810 1.930 2.247 2.398
2. Accumulation
Unit Value at
end of
period....... 0.984 1.159 1.307 1.433 1.634 1.810 1.930 2.247 2.398 2.664
3. Number of
Accumulation
Units
outstanding
at end of
period....... 1,124,133 6,132,563 15,034,554 23,074,669 299,002 4,287,540 10,139,527 17,797,335 28,871,719 41,939,487
<CAPTION>
1/1/94 1/1/95 1/1/96 1/1/97
TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 2.664 2.540 3.037 3.134
2. Accumulation
Unit Value at
end of
period....... 2.540 3.037 3.134 3.429
3. Number of
Accumulation
Units
outstanding
at end of
period....... 41,657,182 42,231,987 41,138,874 37,260,367
</TABLE>
<TABLE>
<CAPTION>
SALOMON BACK BAY
BROTHERS ADVISORS
U.S. MONEY
GOVERNMENT MARKET
SUB- SUB-
ACCOUNT ACCOUNT
---------- --------
10/31/94* 1/1/95 1/1/96 1/1/97 9/29/88* 1/1/89 1/1/90 1/1/91 1/1/92 1/1/93
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93
---------- --------- --------- --------- -------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.000 1.004 1.139 1.161 1.384 1.408 1.518 1.620 1.697 1.738
2. Accumulation
Unit Value at
end of
period....... 1.004 1.139 1.161 1.242 1.408 1.518 1.620 1.697 1.738 1.766
3. Number of
Accumulation
Units
outstanding
at end of
period....... 910,020 4,495,184 5,785,148 8,616,135 915,605 7,661,069 21,629,006 26,322,938 26,759,532 25,016,975
<CAPTION>
1/1/94 1/1/95 1/1/96 1/197
TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.766 1.811 1.889 1.959
2. Accumulation
Unit Value at
end of
period....... 1.811 1.889 1.959 2.036
3. Number of
Accumulation
Units
outstanding
at end of
period....... 30,220,356 33,015,018 33,412,517 26,785,902
</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 CONTRACT VALUE DAILY DEDUCTION FROM
VARIABLE ACCOUNT
. You can make a . Payments are
one-time allocated to your . Mortality and
investment or choice, within expense risk
establish an limits, of charge of 0.95% on
ongoing investment Eligible Funds an annual basis is
program. and/or the Fixed deducted from the
Account. Contract Value
- ----------------------- daily.
. The Contract Value
- ----------------------- reflects purchase . Administration
CHARGES FROM PAYMENT payments, investment Asset Charge of
experience, interest 0.40% on annual
. Premium tax charge payments, partial basis is deducted
may apply. surrenders, loans from the Contract
and Contract charges. Value daily.
. Premium for
disability benefit . The Contract Value . Investment advisory
rider, if elected. invested in the fees are deducted
- ----------------------- Eligible Funds is from the Eligible
not guaranteed. Fund assets daily.
- ----------------------- ------------------------
ADDITIONAL PAYMENTS . Earnings are
accumulated free -------------------------
. Any time, (subject of any current ANNUAL CONTRACT FEE
to Company limits). income taxes (see
page A-38). . $30 Administration
. Minimum $25. Contract Charge is
- ----------------------- . You may change the deducted from the
allocation of Contract Value on
- ----------------------- future payments, each anniversary
LOANS within limits, at while Contract is
any time. in-force, other than
. Are available to under an annuity
participants of . Prior to payment option. A pro
certain tax annuitization, you rata portion is
qualified pension may transfer deducted on full
plans (see page A- Contract Value surrender and at
26). among accounts, annuitization.
- ----------------------- within limits, up -------------------------
to twelve times per
- ----------------------- Contract Year -------------------------
SURRENDERS without charge SURRENDER CHARGE
. Up to 10% of (special limits
Contract Value can apply to transfers . Consists of
be surrendered of Contract Value Contingent
each year without to and from the Deferred Sales
incurring Fixed Account). Charge (see page
surrender charges, A-31).
subject to any . Allocations of -------------------------
applicable tax law payments and
restrictions. transfers of -------------------------
Contract Value PREMIUM TAX CHARGE
. Surrenders will be must comply with
taxable. the rule that . Where applicable,
Contract Value may is deducted from
. Prior to age 59 be allocated among purchase payments
1/2 a 10% penalty no more than ten (currently in
tax may apply. accounts, including South Dakota) or
- ----------------------- the Fixed Account, from Contract
at any time. Value when annuity
- ----------------------- ------------------------ payments commence.
DEATH PROCEEDS RETIREMENT BENEFITS -------------------------
. Lifetime income
. Guaranteed not to options. -------------------------
be less than your ADDITIONAL BENEFITS
total contribution . Fixed and/or
to your Contract variable payout . You pay no taxes
net of any prior options. on your investment
surrenders and as long as it
outstanding loans. . Premium tax charge remains in the
may apply. Contract.
. Death proceeds ------------------------
pass to the . Contract may be
beneficiary surrendered at any
without probate. 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 $330 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 state insurance 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."
The investment objectives and policies of certain Eligible Funds are similar
to the investment objectives and policies of other funds that may be managed
by the same subadviser. The investment results of the Eligible Funds, however,
may be higher or lower than the results of such other funds. There can be no
assurance, and no representation is made, that the investment results of any
of the Eligible Funds will be comparable to the investment results of any
other fund, even if the other fund has the same subadviser.
A-17
<PAGE>
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.
Normally, the Series will invest at least 65% of its assets in companies with
market capitalization in the range of the market capitalization of those
companies which make up the Russell 2000 Index at the time of investment.
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES (FORMERLY DRAYCOTT
INTERNATIONAL 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 weightings of countries included in the Morgan
Stanley Capital International EAFE Index, 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.
GOLDMAN SACHS MIDCAP VALUE SERIES (FORMERLY LOOMIS SAYLES AVANTI GROWTH
SERIES)
The Goldman Sachs Midcap Value Series seeks long-term capital appreciation.
The Series invests, under normal circumstances, substantially all of its
assets in equity securities and at least 65% of its total assets in equity
securities of companies with public stock market capitalizations within the
range of the market capitalization of companies constituting the Russell
Midcap Index at the time of investment.
DAVIS VENTURE VALUE SERIES (FORMERLY 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 (FORMERLY WESTPEAK VALUE GROWTH 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).
A-18
<PAGE>
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 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.
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
A-19
<PAGE>
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 and Loomis Sayles Balanced Series receive
investment subadvisory services from Loomis Sayles & Company, L.P., an
affiliate of the Company. The Goldman Sachs Midcap Value Series receives
investment subadvisory services from Goldman Sachs Asset Management. 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. Davis Selected
Advisers may also delegate any of its responsibilities to Davis Selected-NY, a
wholly-owned subsidiary. The Salomon Brothers Strategic Bond Opportunities
Series and Salomon Brothers U.S. Government Series receive investment
subadvisory services from Salomon Brothers Asset Management Inc. The Salomon
Brothers Strategic Bond Opportunities Series also receives certain investment
subadvisory services from Salomon Brothers Asset Management Limited, a London
based affiliate of 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.
A-20
<PAGE>
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") or Roth IRAs under Section 408A of the Code ("Roth
IRAs") is $50. For flexible payment Contracts issued in connection with IRAs
and Roth IRAs (Roth IRAs will only be available if you have an existing IRA
Contract), 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 New
England Cash Management Trust account, a service known as the Master Service
Account arrangement ("MSA"). For all other flexible payment Contracts, the
minimum initial purchase payment is $5,000, although the Company requires a
minimum initial payment of $100 if monthly payments are to be made through
MSA. The Company may consent to lower initial purchase payments in certain
situations. Additional purchase payments must be at least $25, although the
Company currently requires minimum additional purchase payments to be at least
$50 if they are made through a group billing arrangement (also known as a
"list-bill" arrangement) and $100 per month if they are made through MSA. The
Company reserves the right to limit the amount of purchase payments under a
Contract in any Contract Year to three times the anticipated annual
contribution that you specify in your Contract application. The Company
currently limits anticipated annual contributions to $100,000, so that the
maximum amount you may contribute in any Contract Year is $300,000, or three
times your specified anticipated annual contribution, if less. Except with the
consent of the Company, the minimum purchase payment for a single payment
Contract is $2,000 for Contracts issued in connection with IRAs and $5,000 for
all other Contracts, and the maximum purchase payment for a single payment
contract is $1,000,000. Payments in addition to the required minimum purchase
payment may also be made on a single payment Contract, subject to the minimums
set 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
A-21
<PAGE>
Unit Value of each sub-account was set at $1.00 on or about the date on which
shares of the corresponding Eligible Fund first became available to investors.
The Accumulation Unit Value is determined as of the close of regular trading
on the New York Stock Exchange on each day during which the Exchange is open
for trading by multiplying the last-determined Accumulation Unit Value by the
net investment factor determined as of the close of regular trading on the
Exchange on that day. To determine the net investment factor for any sub-
account, the Company takes into account the change in net asset value per
share of the Eligible Fund held in the sub-account as of the close of regular
trading on the Exchange on that day from the net asset value most recently
determined, the amount of dividends or other distributions made by that
Eligible Fund since the previous determination of net asset value per share,
and daily deductions for the Mortality and Expense Risk Charge and
Administration Asset Charge, equal, on an annual basis, to 1.35% of the
average daily net asset value of the sub-account. The formula for determining
the net investment factor is described under the caption "Net Investment
Factor" in the Statement of Additional Information.
The net investment factor may be greater or less than one, depending in part
upon the investment performance of the Eligible Fund which is the underlying
investment of the sub-account, and you bear this investment risk. The net
investment results are also affected by the deductions from sub-account assets
for the Mortality and Expense Risk Charge and Administration Asset Charge.
Under a Contract with the Fixed Account option, the total Contract Value
includes the amount of Contract Value held in the Fixed Account. Under a
Contract that permits Contract loans, the Contract Value also includes the
amount of Contract Value transferred to the Company's general account (but
outside of the Fixed Account) as a result of a loan and any interest credited
on that amount. Interest earned on the amount held in the general account as a
result of a loan will be credited to the Contract's sub-accounts annually in
accordance with the allocation instructions in effect for purchase payments
under your Contract on the date of the crediting. (See "Loan Provision for
Certain Tax Benefited Retirement Plans.")
PAYMENT ON DEATH PRIOR TO ANNUITIZATION
If the Annuitant dies after annuitization, the amount payable, if any, will
be as specified in the annuity payment option selected. Prior to
annuitization, the Contract's Death Proceeds are payable to the Beneficiary if
the Company receives due 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.
A-22
<PAGE>
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. Special options apply under a non-tax qualified plan for spouses.
See "Special Options for Spouses." There are comparable rules for
distributions on the death of the Annuitant under tax qualified plans;
however, if the Beneficiary under a tax qualified Contract is the Annuitant's
spouse, the Code generally allows distributions to begin by the year in which
the Annuitant would have reached age 70 1/2 (which may be more or less than
five years after the Annuitant's death). See "Taxation of the Contracts--
Special Rules for Annuities Purchased for Annuitants Under Retirement Plans
Qualifying for Tax Benefited Treatment--Distributions from the Contract."
If a Contract Owner (or, if applicable, the Annuitant) dies on or after
annuitization, the remaining interest in the Contract must be distributed at
least as quickly as under the method of distribution in effect on the date of
death.
--BENEFICIARY CONTINUATION
In keeping with the Code's general requirement that Death Proceeds must be
distributed within five years after the death of the Contract Owner (or, if
applicable, the Annuitant), the Beneficiary Continuation provision permits a
Beneficiary to hold his or her share of the Death Proceeds (as determined
after the Death Proceeds have been reduced by the amount of any outstanding
loan plus accrued interest) in the Contract and to continue the Contract for a
period ending five years after the date of death, provided that the
Beneficiary's share of the Death Proceeds meets the Company's published
minimum (currently $5,000 for non-tax qualified Contracts and $2,000 for tax
qualified Contracts). THE CONTRACT CANNOT BE CONTINUED FOR ANY BENEFICIARY
WHOSE SHARE OF THE DEATH PROCEEDS DOES NOT MEET THE MINIMUM.
The Beneficiary has 90 days after the date the Company receives due proof of
death to make an election with respect to his or her share of the Death
Proceeds. The Beneficiary may elect either: (1) payment in a single sum; (2)
application to a 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.
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--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.
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.
A surviving spouse who elects Beneficiary Continuation, as opposed to
Spousal Continuation, under a Contract that is qualified for tax-benefited
treatment under the Code must begin to receive distributions from the Contract
by the earlier of: (1) five years from the date of death; and (2) the year in
which the Contract Owner (or, if applicable, the Annuitant) would have reached
age 70 1/2.
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
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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 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
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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. The Company currently
waives the Contingent Deferred Sales Charge on distributions that are intended
to satisfy required minimum distributions, calculated as if this Contract were
the participant's only retirement plan asset. This waiver only applies if the
required minimum distribution exceeds the free withdrawal amount and no
previous surrenders were made during the Contract Year. You are advised to
consult a qualified tax advisor as to the consequences of a distribution. (See
"Federal Income Tax Status--Taxation of the Contracts.")
SYSTEMATIC WITHDRAWALS
The Systematic Withdrawal feature available under the Contracts allows the
Contract Owner to have a portion of the Contract Value withdrawn automatically
at regularly scheduled intervals prior to annuitization. The application for
the Systematic Withdrawal feature specifies the applicable terms and
conditions of the program. Systematic Withdrawals are processed on the same
day each month, depending on your election. If the New York Stock Exchange is
closed on the day when the withdrawal is to be made, the withdrawal will be
processed on the next business day. The Contingent Deferred Sales Charge will
apply to amounts received under the Systematic Withdrawal program in the same
manner as it applies to other partial surrenders and surrenders of Contract
Value. (See "Contingent Deferred Sales Charge.") Of course, continuing to make
purchase payments under the Contract while you are making Systematic
Withdrawals means that you could incur any applicable Contingent Deferred
Sales Charge on the withdrawals at the same time that you are making the new
purchase payments. The Federal tax laws may include systematic withdrawals in
the Contract Owner's gross income in the year in which the withdrawal amount
is received 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.
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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 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
minimum loan amount is currently $500. 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 maximum
amount for a qualified loan is limited such that the amount of the loan, when
added to the outstanding loan balance of all other loans, whenever made, from
all other plans of the same employer, does not exceed $50,000 reduced by the
excess of the highest outstanding balance of loans under such plans during the
one-year period, ending on the day before the date on which the loan is made;
over the outstanding balance of loans under such plans on the date the loan is
made; or if less the greater of: (1) $10,000; or (2) 50% of the current value
of your nonforfeitable, accrued benefits under the plan. 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.) For
TSA Plans that are not subject to ERISA, the current actual distribution will
be limited to pre-1989 money unless you are age 59 1/2 or otherwise comply
with the legal requirements for permitted distributions under the TSA
Contract. If these limitations do not apply (i.e. you are under the age of 59
1/2 or no pre-1989 money is in your Contract) the Company will report the
amount of the unpaid installment repayment or default as a deemed distribution
for tax purposes, but will postpone an actual distribution from the Contract
until
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the earliest distribution date permitted under the law. An installment
repayment of less than the amount billed will not be accepted. A full or
partial surrender of the Contract to repay all or part of the loan may result
in serious adverse tax consequences for the plan participant (including
penalty taxes) and may adversely affect the qualification of the plan or
Contract. The trustee of a Qualified Plan or a TSA Plan subject to ERISA will
be responsible for reporting to the IRS and advising the participant of any
tax consequences resulting from the reduction in the Contract Value caused by
the surrender and for determining whether the surrender adversely affects the
qualification of the plan. In the case of a TSA Plan not subject to ERISA, the
Company will report the default 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). However, a deemed distribution under
Section 72(p) would not be treated as an actual distribution for purposes of
Code Section 401, the rollover and income averaging provisions of Section 402
and the distribution restrictions of Section 403(b).
Partial surrenders will be restricted by the existence of a loan and, after
any partial surrender, the remaining unloaned Contract Value must be at least
10% of the total Contract Value after the partial surrender or $500, whichever
is greater (unless the Company consents to a lesser amount). If a partial
surrender by the Company to enforce the loan repayment schedule would reduce
the unloaned Contract Value below this amount, the Company reserves the right
to surrender the entire Contract and apply the Contract Value to the
Contingent Deferred Sales Charge, the $30 Administration Contract Charge and
the amount owed to the Company under the loan. If at any time an excess
Contract loan exists (that is, the Contract loan balance exceeds the Contract
Value), the Company has the right to terminate the Contract.
Unless you request otherwise, Contract loans will reduce the amount of the
Contract Value in the 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
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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 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
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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 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. The amount of a charge may
not necessarily correspond to the costs associated with providing the services
or benefits indicated by the designation of the charge or associated with the
particular Contract. For example, the Contingent Deferred Sales Charge may not
fully cover all of the sales and distribution expenses actually incurred by
the Company, and proceeds from other charges, including the mortality and
expense risk charge, may be used in part to cover such expenses.
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. The charge is not imposed after annuitization. In those
instances in which two Contracts are issued to permit the funding of a spousal
IRA, the Administration Contract Charge will be imposed only on the Contract
to which the larger purchase payments have been allocated in the Contract
application.
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The Administration Asset Charge is equal to an annual rate of .40% of net
assets and is computed and deducted on a daily basis from each sub-account. As
a percentage of net assets, this charge will not increase over the life of a
Contract, but the total dollar amount of the charge will vary depending on the
level of net assets. The Administration Asset Charge will continue to be
assessed after annuitization if annuity payments are made on a variable basis.
Prior to annuitization, the Company currently 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.
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
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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 Contracts issued on
individuals age 50 or above to employer-sponsored pension plans through which
contracts were purchased prior to May 1, 1994, 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.
The Company currently waives the Contingent Deferred Sales Charge on
distributions that are intended to satisfy minimum distributions, as required
by tax law, calculated as if this Contract were the participant's only
retirement plan asset. This waiver only applies if the required minimum
distribution exceeds the free withdrawal amount and no previous surrenders
were made during the Contract Year. (See "Federal Income Tax Status--Taxation
of the Contracts.")
In the case of a partial surrender, the Contingent Deferred Sales Charge is
deducted from the Contract Value remaining after the Contract Owner has
received the amount requested and is a percentage of the total amount
withdrawn. For example, if you requested a partial surrender of $100 (after
previously surrendering 10% of the Contract Value free of charge in that
Contract Year) and the applicable Contingent Deferred Sales Charge was 5%, the
total amount of Contract Value withdrawn in that transaction would be $105.26.
After giving effect to a partial surrender, including deduction of the
Contingent Deferred Sales Charge, the remaining Contract Value must be at
least $500 (unless the Company consents to a lesser amount) or, if the
Contract is subject to an outstanding loan, the remaining unloaned Contract
Value must be at least 10% of the total Contract Value after the partial
surrender or $500, whichever is greater (unless the Company consents to a
lesser amount). If the requested partial surrender would not satisfy this
requirement, at the Contract Owner's option either the amount of the partial
surrender will be reduced or the transaction will be treated as a full
surrender and the Contingent Deferred Sales Charge deducted from the proceeds.
The Contingent Deferred Sales Charge is deducted from the sub-accounts in the
same proportion as the Contract Value that you requested to be surrendered.
The Contingent Deferred Sales Charge will be waived in connection with an
exchange by a Contract Owner of one Zenith Accumulator Contract for another
Zenith Accumulator Contract.
PREMIUM TAX CHARGES
Various states impose a premium tax on annuity purchase payments received by
insurance companies. The Company may deduct these taxes from purchase payments
and currently does so for Contracts subject to the insurance tax law of 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. Deductions for state
premium tax charges currently range from 1/2% to 2.25% of the Contract Value
or purchase payment for
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Contracts used with retirement plans qualifying for tax benefited treatment
under the Code and from 1.00% to 3.50% of the Contract Value or purchase
payment for all other Contracts. 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%.
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
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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.
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.*
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. THIS OPTION CANNOT BE SELECTED FOR DEATH PROCEEDS.
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.
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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).*** THIS OPTION CANNOT BE
SELECTED FOR DEATH PROCEEDS.
- --------
* Your Contract lists a fourth and fifth option . . . however, due to tax law
considerations, these options are not available on a fixed or variable
basis.
** 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. 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, second and sixth variable payment option may
withdraw the commuted value of the period certain portions of the payments.
The commuted value of such payments is calculated based on the assumed
interest rate under the Contract. The life income portion of the payment
option cannot be commuted, and variable annuity payments based on that portion
will resume at the expiration of the period certain if the Annuitant is alive
at that time. (See "Amount of Variable Annuity Payments.") In addition, after
the death of the Payee under the first, 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.
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
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period of anticipated income payments will be shorter. With respect to
Contracts issued in New York or Oregon for use in situations not involving an
employer-sponsored plan, purchase rates used to calculate the basic payment
level will also reflect the sex of the Payee. Under such Contracts, a given
Contract Value will produce a higher basic payment level for a male Payee than
for a female Payee, reflecting the greater life expectancy of the female
Payee. If the Contract Owner has selected an annuity payment option that
provides for a refund at death of the Payee or that guarantees that payments
will be made for the balance of a period of a certain number of years after
the death of the Payee, the Contract Value will purchase lower monthly
benefits.
The dollar amount of the initial variable annuity payment will be at the
basic payment level. The assumed interest rate under the Contract will affect
both this basic payment level and the amount by which subsequent payments
increase or decrease. Each payment after the first will vary with the
difference between the net investment performance of the sub-accounts selected
and the assumed interest rate under the Contract. If the actual net investment
rate exceeds the assumed interest rate, the dollar amount of the annuity
payments will increase. Conversely, if the actual rate is less than the
assumed interest rate, the dollar amount of the annuity payments will
decrease. If actual investment performance is equal to the assumed interest
rate, the monthly payments will remain level.
Unless otherwise provided, the assumed interest rate will be at an annual
rate of 3.5%. You may select as an alternative an annual assumed interest rate
of 0% or, if allowed by applicable law or regulation, 5%. A higher assumed
interest rate will produce a higher first payment, a more slowly rising series
of subsequent payments when the actual net investment performance exceeds the
assumed interest rate, and a more rapid drop in subsequent payments when the
actual net investment performance is less than the assumed interest rate.
You may, even after variable annuity payments have commenced, direct that
all or a portion of your investment in one sub-account be transferred to
another sub-account of the Variable Account in the manner provided under
"Transfer Privilege."
MINIMUM ANNUITY PAYMENTS
Annuity payments will be made monthly. But if any payment would be less than
$20, the Company may change the frequency so that payments are at least $20
each.
PROOF OF AGE, SEX AND SURVIVAL
The Company may require proof of age, sex (if applicable) and survival of
any person upon the continuation of whose life annuity payments depend.
The foregoing descriptions are qualified in their entirety by reference to
the Statement of Additional Information and to the Contract, which contains
detailed information about the various forms of annuity payment options
available, and other matters also of importance.
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS
The Federal tax laws provide for a variety of retirement plans offering tax
benefits. These plans, which may be funded through the purchase of the
individual variable annuity contracts offered in this prospectus, include:
1. Plans qualified under Section 401(a), 401(k), or 403(a) of the Code
("Qualified Plans") (At this time, the Contracts are only available on a
limited basis to plans qualified under Section 401(k). Contracts are not
being offered to 401(k) plans unless such plans already own Contracts on
participants.);
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.);
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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. Roth Individual Retirement Accounts under Section 408A of the Code
("Roth IRAs"). (The Company intends to make Roth IRAs available under this
Contract only if you have an existing IRA.)
5. 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
6. 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, IRAs
purchased under Section 408(b) of the Code and Roth IRAs under Section 408A 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.
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.
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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 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.
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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
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,
for 1998, the deductions are phased out and eventually eliminated, on a pro
rata basis, for adjusted gross income between $30,000 and $40,000 for an
individual, between $50,000 and $60,000 for the covered spouse of a married
couple filing jointly, between $150,000 and $160,000 for the non-covered
spouse of 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 1998) 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.
ROTH IRAS
The Company intends to make a Roth IRA available under this Contract,
subject to the following limitations.
Effective January 1, 1998, section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA
may be subject to tax and other special rules may apply. The maximum purchase
payment which may be contributed each year to a Roth IRA is the lesser of
$2,000 or 100 percent of includible compensation. A spousal Roth IRA is
available if the taxpayer and spouse file a joint return. The maximum purchase
payment that a taxpayer may make to a spousal Roth IRA is $2,000. Except in
the case of a rollover or a transfer, no more than $2,000 can be contributed
in aggregate to all IRAs and Roth IRAs of either spouse during any tax year.
The Roth IRA contribution may be limited to less than $2,000 depending on the
taxpayer's adjusted gross income ("AGI"). The maximum contribution begins to
phase out if the taxpayer is single and the taxpayer's AGI is more than
$95,000 or if the taxpayer is married and files a joint tax return and the
taxpayer's AGI is more than $150,000. The taxpayer may not contribute to a
Roth IRA if the taxpayer's AGI is over $110,000 (if the taxpayer is single),
$160,000 (if the taxpayer is married and files a joint tax return), or $10,000
(if the taxpayer is married and files separate tax returns). You should
consult a tax adviser before combining any converted amounts with any other
Roth IRA contributions, including any other conversion amounts from other tax
years. To use the Contract in connection with a Roth IRA, you must have an
existing Contract that was issued in connection with an IRA.
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 $8,000. 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, a non-governmental employer may be entitled to draw on
deferred amounts for purposes unrelated to its Section 457 Plan obligations.
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QUALIFIED PLANS
Code section 401(a) permits employers to establish various types of
retirement plans for employees and permits self-employed individuals to
establish retirement plans for themselves and their employees. These
retirement plans may permit the purchase of the Contracts to accumulate
retirement savings under the plans. Adverse tax consequences to the plan, to
the participant or to both may result if this Contract is assigned or
transferred to any individual as a means to provide benefit payments.
(ii) Distributions from the Contract
MANDATORY WITHHOLDING ON CERTAIN DISTRIBUTIONS
Distributions called "eligible rollover distributions" from Qualified Plans
and from many TSA Plans are subject to mandatory withholding by the plan or
payor at the rate of 20%. An eligible rollover distribution is the taxable
portion of any distribution from a Qualified Plan or a TSA Plan, except for
certain distributions such as distributions required by the Code or in a
specified annuity form. Withholding can be avoided by arranging a direct
transfer of the eligible rollover distribution to a Qualified Plan, TSA or
IRA.
QUALIFIED PLANS, TSA PLANS, IRAS, ROTH 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.
Distributions from a Roth IRA generally are not taxed, except that, once
aggregate distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject
to certain exceptions) or (2) during the five taxable years starting with the
year in which the first contribution is made to the Roth IRA.
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. Except under a Roth IRA, 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.
Except under a Roth IRA, annuity payments, periodic payments or annual
distributions must commence by the later of April 1 of the calendar year
following the year in which the Annuitant attains age 70 1/2 or the year of
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retirement. In the case of a Qualified Plan or a Governmental Plan, if the
Annuitant is not a "five-percent owner" as defined in the Code, 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. The Company currently
waives the Contingent Deferred Sales Charge on distributions that are intended
to satisfy required minimum distributions, calculated as if this Contract were
the participant's only retirement plan asset. This waiver only applies if the
required minimum distribution exceeds the free withdrawal amount and no
previous surrenders were made during the Contract Year. Rules regarding
required minimum distributions apply to IRAs (including SEP and SARSEPs),
Qualified Plans, TSA Plans and Governmental Plans.
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 generally apply in
the case of Section 457 Plans as apply in the case of Qualified Plans, TSA
Plans, IRAs, SEPs, SARSEPs and Governmental Plans. These rules are discussed
above in the immediately preceding section of this prospectus.
(B) SPECIAL RULES FOR ANNUITIES USED BY INDIVIDUALS OR WITH PLANS AND TRUSTS
NOT QUALIFYING UNDER THE CODE FOR TAX BENEFITED TREATMENT
For a Contract held by an individual, any increase in the accumulated value
of the Contract is not taxable until amounts are received, either in the form
of annuity payments as contemplated by the Contract or in a full or partial
lump sum settlement of the Company's obligations to the Contract Owner.
Under Section 72(u) of the Code, however, Contracts held by other than a
natural person (i.e. those held by a corporation or certain trusts) generally
will not be treated as an annuity contract for Federal income tax purposes.
This means a Contract Owner who is not a natural person will have to include
in income any increase during the taxable year in the accumulated value over
the investment in the Contract.
Section 817(h) of the Code requires the investments of the Variable Account
to be "adequately diversified" in accordance with Treasury Regulations.
Failure to do so means the variable annuity contracts described herein will
cease to qualify as annuities for Federal income tax purposes. Regulations
specifying the diversification requirements have been issued by the Department
of the Treasury, and the Company believes it complies fully with these
requirements.
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
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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
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.
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POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always
the possibility that the tax treatment of the Contracts could change by
legislation or other means. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely modify the federal
taxation of the Contracts. It is also possible that any change could be
retroactive (that is, effective prior to the date of the change). A tax
adviser should be consulted with respect to legislative developments and their
effect on the Contract.
VOTING RIGHTS
The Company is the legal owner of the Eligible Fund shares held in the
Variable Account and has the right to vote those shares at meetings of the
Eligible Fund shareholders. However, to the extent required by Federal
securities law, the Company will give you, as Contract Owner, the right to
instruct the Company how to vote the shares that are attributable to your
Contract.
Prior to annuitization, the number of votes as to which you have a right of
instruction is determined by applying your percentage interest in a sub-
account to the total number of votes attributable to the sub-account. After
annuitization, the number of votes attributable to your Contract is determined
by applying the percentage interest reflected by the reserve for your Contract
to the total number of votes attributable to the sub-account. After
annuitization the votes attributable to your Contract decrease as reserves
underlying the Contract decrease.
Contract Owners who are entitled to give voting instructions and the number
of shares as to which they have a right of instruction will be determined as
of the record date for the meeting. All Eligible Fund shares held in any sub-
account of the Variable Account, or any other registered (or to the extent
voting privileges are granted by the issuing insurance company, unregistered)
separate accounts of the Company or any affiliate for which no timely
instructions are received will be voted for, against, or withheld from voting
on any proposition in the same proportion as the shares held in that sub-
account for all policies or contracts for which voting instructions are
received.
All Eligible Fund shares held by the general investment account (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
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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.
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.
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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 4.5% (whichever is the minimum guaranteed Fixed Account interest
rate for your Contract); or (3) if the total Contract Value in the Fixed
Account equals or exceeds a maximum amount established by the Company.
If any portion of a Contract loan was attributable to Contract Value in the
Fixed Account, then an equal portion of each loan repayment must be allocated
to the Fixed Account. (For example, if 50% of the loan was attributable to
your Fixed Account Contract Value, then 50% of each loan repayment will be
allocated to the Fixed Account.) 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.
Like all financial services providers, NELICO utilizes systems that may be
affected by Year 2000 transition issues, and it relies on a number of third
parties, including banks, custodians, and investment managers, that also may
be affected. NELICO and its affiliates have developed, and are in the process
of implementing, a Year 2000 transition plan, and are confirming that their
service providers are also so engaged. The resources that are being devoted to
this effort are substantial. It is difficult to predict with precision whether
the amount of resources ultimately devoted, or the outcome of these efforts,
will have any negative impact on NELICO. However, as of the date of this
prospectus, it is not anticipated that Owners will experience negative effects
on their investment, or on the services provided in connection therewith, as a
result of Year 2000 transition implementation. NELICO currently anticipates
that its systems will be Year 2000 compliant on or about December 31, 1998,
with systems testing and compliance verification to follow. There can,
however, be no assurance that the other service providers have anticipated
every step necessary to avoid any adverse effect on the Variable Account
attributable to Year 2000 transition.
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
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inception and for the year-to-date, one, three, five, and ten year periods
ending with the date of the illustration. Such performance information will be
accompanied by SEC standard performance information for each sub-account,
based on the actual investment experience of the sub-account since its
inception and for the one, five, and ten year periods ending with the date of
the information shown. 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,
1997 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.
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.
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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.
In addition, the Company may illustrate how variable annuity income payments
under the Contract and commuted values of annuity income options change with
investment performance over periods of time; such illustrations may be
hypothetical (based on assumed uniform annual rates of return) or historical
(based on historical annual returns of the sub-accounts). See "Hypothetical
Illustrations of Annuity Income Payouts" and "Historical Illustrations of
Annuity Income Payouts" in the Statement of Additional Information for a
description of these illustrations.
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.
The Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
A-47
<PAGE>
APPENDIX A
CONSUMER TIPS
DOLLAR COST AVERAGING
Dollar cost averaging allows a person to take advantage of the historical
long-term stock market results, assuming that they continue, although it does
not guarantee a profit or protect against a loss. If an investor follows a
program of dollar cost averaging on a long-term basis and the stock fund
selected performs at least as well as the S&P 500 has historically, it is
likely although not guaranteed that the price at which shares are surrendered,
for whatever reason, will be higher than the average cost per share.
An investor using dollar cost averaging invests the same amount of money in
the same professionally managed fund at regular intervals over a long period
of time. Dollar cost averaging keeps an investor from investing too much when
the price of shares is high and too little when the price is low. When the
price of shares is low, the money invested buys more shares. When it is high,
the money invested buys fewer shares. If the investor has the ability and
desire to maintain this program over a long period of time (for example, 20
years), and the stock fund chosen follows the historical upward market trends,
the price at which the shares are sold should be higher than their average
cost. The price could be lower, however, if the fund chosen does not follow
these historical trends.
Investors contemplating the use of dollar cost averaging should consider
their ability to continue the on-going purchases so that they can take
advantage of periods of low price levels.
DIVERSIFICATION
Diversifying investment choices can enhance returns, by providing a wider
opportunity for safe returns, and reduce risks, by spreading the chance of
loss. Holding a single investment requires of that investment a safe return
because a loss may risk the entire investment. By diversifying, on the other
hand, an investor can more safely take a chance that some investments will
under-perform and that others will over-perform. Thus an investor can
potentially earn a better-than-average rate of return on a diversified
portfolio than on a single safe investment. This is because, although portions
of a diversified investment may be totally lost, other portions may perform at
above-average rates that more than compensate for the loss.
MISCELLANEOUS
Toll-free telephone --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 Communications: --All communications and inquiries regarding
address changes, premium payments, billing, fund
transfers, surrenders, loans, maturities and any
other processing matters relating to your
Contract should be directed to:
New England Annuities
P.O. Box 642
Back Bay Annex
Boston, Mass 02116
A-48
<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>
California....................... 0.50% 2.35%
District of Columbia............. 2.25% 2.25%
Kentucky......................... 2.00% 2.00%
Maine............................ -- 2.00%
Nevada........................... -- 3.50%
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.
A-49
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<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>
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-50
<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, 1998
TO PROSPECTUSES DATED MAY 1, 1997, MAY 1, 1996, AS SUPPLEMENTED AUGUST 30,
1996, AND AUGUST 30, 1996
This supplement updates certain information in (1) the prospectus dated May
1, 1997, (2) the prospectus dated May 1, 1996, as supplemented August 30,
1996, and (3) the prospectus dated 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"). You should read and retain this supplement. Certain additional
information about the Contracts is contained in a Statement of Additional
Information dated May 1, 1998, 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, 1998 prospectus, 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.
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>
EXPENSE TABLE
The Variable Account expenses set forth in the May 1, 1997 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,
1997. Examples of expenses under a hypothetical Contract reflecting 1997
operating expenses are also provided.
EXPENSE TABLE
NEW ENGLAND ZENITH FUND
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 (AS A PERCENTAGE OF
AVERAGE NET ASSETS AFTER CURRENT EXPENSE CAP OR EXPENSE DEFERRAL)(1)
<TABLE>
<CAPTION>
LOOMIS
SAYLES MORGAN STANLEY GOLDMAN DAVIS WESTPEAK
SMALL INTERNATIONAL ALGER EQUITY CAPITAL SACHS VENTURE GROWTH
CAP MAGNUM EQUITY GROWTH GROWTH MIDCAP VALUE AND INCOME
SERIES SERIES SERIES SERIES VALUE SERIES SERIES
------ -------------- ------------ ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... 1.00% .90% .75% .63% .75% .75% .70%
Other Expenses.......... 0% .40% .12% .04% .15% .15% .12%
---- ---- --- --- --- --- ---
Total Series Operating
Expenses............. 1.00% 1.30% .87% .67% .90% .90% .82%
</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(2) SERIES SERIES(2) 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% .11% .20% .12% .15% .10%
--- --- --- --- --- --- ---
Total Series Operating
Expenses............. .40% .85% .61% .85% .52% .70% .45%
</TABLE>
- --------
* Anticipated annual operating expenses for the Goldman Sachs Midcap Value
Series are based on the management fee approved by shareholders of the
Series that became effective on May 1, 1998 and other expenses actually
incurred for the Series for 1997.
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.(3)) 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................... $84.67 $129.28 $175.64 $288.10
Morgan Stanley International Magnum
Equity................................... 87.48 137.76 189.81 316.93
Alger Equity Growth....................... 83.45 125.59 169.43 275.30
Capital Growth............................ 81.56 119.87 159.81 255.27
Goldman Sachs Midcap Value................ 83.73 126.44 170.87 278.28
Davis Venture Value....................... 83.73 126.44 170.87 278.28
Westpeak Growth and Income................ 82.98 124.16 167.04 270.34
Westpeak Stock Index...................... 79.01 112.10 146.65 227.51
Loomis Sayles Balanced.................... 83.26 125.01 168.48 273.33
Back Bay Advisors Managed................. 81.00 118.15 156.90 249.17
Salomon Brothers Strategic Bond
Opportunities............................ 83.26 125.01 168.48 273.33
Back Bay Advisors Bond Income............. 80.15 115.57 152.52 239.96
Salomon Brothers U.S. Government.......... 81.84 120.73 161.26 258.30
Back Bay Advisors Money Market............ 79.48 113.55 149.09 232.72
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(4):
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap................... $24.73 $ 76.03 $129.89 $276.62
Morgan Stanley International Magnum
Equity................................... 27.72 84.98 144.74 305.79
Alger Equity Growth....................... 23.43 72.13 123.39 263.67
Capital Growth............................ 21.42 66.09 113.30 243.40
Goldman Sachs Midcap Value................ 23.73 73.03 124.89 266.68
Davis Venture Value....................... 23.73 73.03 124.89 266.68
Westpeak Growth and Income................ 22.93 70.62 120.88 258.65
Westpeak Stock Index...................... 18.71 57.88 99.51 215.32
Loomis Sayles Balanced.................... 23.23 71.52 122.39 261.67
Back Bay Advisors Managed................. 20.82 64.23 110.25 237.23
Salomon Brothers Strategic Bond
Opportunities............................ 23.23 71.52 122.39 261.67
Back Bay Advisors Bond Income............. 19.92 61.54 105.66 227.91
Salomon Brothers U.S. Government.......... 21.72 67.00 114.82 246.47
Back Bay Advisors Money Market............ 19.21 59.41 102.07 220.59
</TABLE>
A-3
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 (AS A PERCENTAGE OF
AVERAGE NET ASSETS PRIOR TO EXPENSE REDUCTIONS)(5)
<TABLE>
<CAPTION>
EQUITY-
OVERSEAS INCOME
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
Management Fee.............................................. .75% .50%
Other Expenses.............................................. .17% .08%
--- ---
Total Portfolio Operating Expenses........................ .92% .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.(6)) 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......................... $83.92 $127.01 $171.83 $280.25
Equity-Income Portfolio.................... 80.71 117.29 155.44 246.11
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(7):
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Overseas Portfolio......................... $23.93 $ 73.63 $125.90 $268.67
Equity-Income Portfolio.................... 20.52 63.36 108.72 234.13
</TABLE>
A-4
<PAGE>
- --------
NOTES:
(1) 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, 1997, after giving effect to the applicable
voluntary expense cap or expense deferral. 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, 1997 would have been 1.14%.
Total Series Operating Expenses for the Goldman Sachs Midcap Value
(formerly 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 bears
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 Goldman
Sachs Midcap Value (formerly Loomis Sayles Avanti Growth), and Westpeak
Stock Index Series for the year ending December 31, 1997 would have been
.86% and .43%, respectively. Effective May 1, 1998 the Goldman Sachs
Midcap Value is subject to the voluntary expense deferral described below
for the six other Series shown, with an annual expense limit of .90% of
net assets. 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, 1997 would have
been: 1.59% for the Morgan Stanley International Magnum Equity Series;
.86% for Loomis Sayles Balanced Series; .87% for Salomon Brothers
Strategic Bond Opportunities Series; and .98% for Salomon Brothers U.S.
Government Series. Total Series Operating Expenses for Davis Venture Value
Series would have been .85%, however, pursuant to the expense deferral
arrangement, .05% was carried over from a previous year in which operating
expenses exceeded the limit. The expense cap and deferral arrangements are
voluntary and may be terminated at any time. (See the attached prospectus
of the New England Zenith Fund for more complete information.)
(2) The Back Bay Advisors Managed Series and Westpeak Stock Index Series are
not Eligible Funds for Contracts purchased after May 1, 1995.
(3) In these examples, the average Administration Contract Charge of .09% has
been used. This charge is not imposed after annuitization of the Contract.
As a percentage of the average Contract Value in the Variable Account,
this fee is based on an average Contract Value of approximately $32,278
over the period from January 1, 1997 to December 31, 1997.
(4) 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.")
(5) 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, 1997. 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 .90% for the
Overseas Portfolio and .57% 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 and/or certain affiliates 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.
(6) In these examples, the average Administration Contract Charge of .09% has
been used. (See (3), above.)
A-5
<PAGE>
(7) 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 INTER-
SAYLES NATIONAL
SMALL MAGNUM OVER-
CAP EQUITY SEAS
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
--------- --------- ----------
5/2/94* 1/1/95 1/1/96 1/1/97 10/31/94* 1/1/95 1/1/96 1/1/97 10/1/93* 1/1/94
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97 12/31/94 12/31/95 12/31/96 12/31/97 12/31/93 12/31/94
--------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.000 0.959 1.219 1.572 1.000 1.024 1.073 1.129 1.458 1.532
2. Accumulation
Unit Value at
end of
period....... 0.959 1.219 1.572 1.936 1.024 1.073 1.129 1.100 1.532 1.538
3. Number of
Accumulation
Units
outstanding
at end of
period....... 2,988,971 13,533,326 26,307,748 39,442,109 2,916,120 11,062,106 16,322,862 17,243,803 10,878,551 43,034,544
<CAPTION>
ALGER
EQUITY CAPITAL
GROWTH GROWTH
SUB- SUB-
ACCOUNT ACCOUNT
--------- --------
1/1/95 1/1/96 1/1/97 10/31/94* 1/1/95 1/1/96 1/7/97 9/16/88* 1/1/89 1/1/90 1/1/91
TO TO TO TO TO TO TO TO TO TO TO
12/31/95 12/31/96 12/21/97 12/31/94 12/31/95 12/31/96 12/31/97 12/31/88 12/31/89 12/31/90 12/31/91
---------- ---------- ---------- --------- ---------- --------- ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period...... 1.538 1.664 1.859 1.000 0.956 1.402 1.566 4.645 4.612 5.950 5.666
2. Accumulation
Unit Value at
end of
period...... 1.664 1.859 2.046 0.956 1.402 1.566 1.941 4.612 5.950 5.666 8.608
3. Number of
Accumulation
Units
outstanding
at end of
period...... 41,273,183 44,846,316 45,289,247 1,857,319 24,163,685 40,025,594 44,518,891 439,393 5,337,778 12,591,788 21,719,884
</TABLE>
<TABLE>
<CAPTION>
GOLDMAN
SACHS
MIDCAP
VALUE
SUB-
ACCOUNT
---------
1/1/92 1/1/93 1/1/94 1/1/95 1/1/96 1/1/97 10/1/93* 1/1/94 1/1/95 1/1/96
TO TO TO TO TO TO TO TO TO TO
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/93 12/31/94 12/31/95 12/31/96
---------- ---------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <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 13.496 1.125 1.137 1.119 1.439
2. Accumulation
Unit Value at
end of
period....... 7.978 9.050 8.298 11.300 13.496 16.442 1.137 1.119 1.439 1.669
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 40,200,592 4,515,611 15,572,344 19,773,057 24,345,379
<CAPTION>
WESTPEAK
DAVIS GROWTH
VENTURE AND
VALUE INCOME
SUB- SUB-
ACCOUNT ACCOUNT
--------- ---------
1/1/97 10/31/94* 1/1/95 1/1/96 1/1/97 10/1/93* 1/1/94 1/1/95 1/1/96 1/1/97
TO TO TO TO TO TO TO TO TO TO
12/31/97 12/31/94 12/31/95 12/31/96 12/31/97 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
---------- --------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.669 1.000 0.963 1.323 1.643 1.105 1.132 1.103 1.486 1.731
2. Accumulation
Unit Value at
end of
period....... 1.932 0.963 1.323 1.643 2.163 1.132 1.103 1.486 1.731 2.279
3. Number of
Accumulation
Units
outstanding
at end of
period....... 24,035,279 3,499,719 19,608,688 34,997,024 53,977,107 3,359,317 16,092,325 21,168,965 26,104,465 30,306,103
</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 1/1/97 10/31/94 1/1/95 1/1/96 1/1/97 10/31/94*
TO TO TO TO TO TO TO TO TO TO
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/94 12/31/95 12/31/96 12/31/97 12/31/94
--------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.980 1.992 2.104 2.804 3.162 1.000 0.997 1.227 1.415 1.000
2. Accumulation
Unit Value at
end of
period....... 1.992 2.104 2.804 3.162 3.996 0.997 1.227 1.415 1.622 0.984
3. Number of
Accumulation
Units
outstanding
at end of
period....... 5,649,743 25,852,849 38,010,655 44,037,798 45,104,192 1,736,189 10,987,597 20,107,324 28,677,041 1,124,133
<CAPTION>
BACK BAY
ADVISORS
BOND
INCOME
SUB-
ACCOUNT
--------
1/1/95 1/1/96 1/1/97 10/5/88* 1/1/89 1/1/90 1/1/91 1/1/92
TO TO TO TO TO TO TO TO
12/31/95 12/31/96 12/31/97 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92
--------- ---------- ---------- -------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 0.984 1.159 1.307 1.631 1.634 1.810 1.930 2.247
2. Accumulation
Unit Value at
end of
period....... 1.159 1.307 1.433 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 23,074,669 299,002 4,287,540 10,139,527 17,797,335 28,871,719
</TABLE>
<TABLE>
<CAPTION>
SALOMON
BROTHERS BACK BAY
U.S. ADVISORS
GOVERN- MONEY
MENT MARKET
SUB- SUB-
ACCOUNT ACCOUNT
--------- --------
1/1/93 1/1/94 1/1/95 1/1/96 1/1/97 10/31/94* 1/1/95 1/1/96 1/1/97 9/29/88*
TO TO TO TO TO TO TO TO TO TO
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/94 12/31/95 12/31/96 12/31/97 12/31/88
---------- ---------- ---------- ---------- ---------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 2.398 2.664 2.540 3.037 3.134 1.000 1.004 1.139 1.161 1.384
2. Accumulation
Unit Value at
end of
period....... 2.664 2.540 3.037 3.134 3.429 1.004 1.139 1.161 1.242 1.408
3. Number of
Accumulation
Units
outstanding
at end of
period....... 41,939,487 41,657,182 42,231,987 41,138,874 37,260,367 910,020 4,495,184 5,785,148 8,616,135 915,605
<CAPTION>
1/1/89 1/1/90 1/1/91 1/1/92 1/1/93 1/1/94 1/1/95 1/1/96 1/1/97
TO TO 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 12/31/96 12/31/97
--------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <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 1.889 1.959
2. Accumulation
Unit Value at
end of
period....... 1.518 1.620 1.697 1.738 1.766 1.811 1.889 1.959 2.036
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 33,412,517 26,785,902
</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 1/1/95 1/1/96 1/1/97
TO TO TO TO TO TO TO TO TO TO
12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
--------- --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <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 1.691 2.190 2.485
2. Accumulation
Unit Value at
end of
period....... 1.063 1.250 1.272 1.508 1.588 1.733 1.691 2.190 2.485 3.103
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 56,145,463 52,130,165 46,490,618
<CAPTION>
WESTPEAK
STOCK
INDEX
SUB-
ACCOUNT**
---------
1/1/92* 1/1/93 1/1/94 1/1/95 1/1/96 1/1/97
TO TO TO TO TO TO
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.592 1.644 1.780 1.775 2.398 2.898
2. Accumulation
Unit Value at
end of
period....... 1.540 1.780 1.775 2.398 2.898 3.788
3. Number of
Accumulation
Units
outstanding
at end of
period....... 2,583,607 11,017,884 14,282,355 15,539,608 15,623,253 15,874,978
</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>
ELIGIBLE FUNDS
The investment objectives of the Eligible Funds' portfolios currently
available are set-forth below. More complete information on each Series is
contained in the attached New England Zenith Fund prospectus, which you should
read carefully before investing, as well as 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.
The investment objectives and policies of certain Eligible Funds are similar
to the investment objectives and policies of other funds that may be managed
by the same subadviser. The investment results of the Eligible Funds, however,
may be higher or lower than the results of such other funds. There can be no
assurance, and no representation is made, that the investment results of any
of the Eligible Funds will be comparable to the investment results of any
other fund, even if the other fund has the same subadviser.
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.
Normally, the Series will invest at least 65% of its assets in companies with
market capitalization in the range of the market capitalization of those
companies which make up the Russell 2000 Index at the time of investment.
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES (FORMERLY DRAYCOTT
INTERNATIONAL 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 weightings of countries included in the Morgan
Stanley Capital International EAFE Index, 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.
GOLDMAN SACHS MIDCAP VALUE SERIES (FORMERLY LOOMIS SAYLES AVANTI GROWTH)
The Goldman Sachs Midcap Value Series seeks long-term capital appreciation.
The Series invests, under normal circumstances, substantially all of its
assets in equity securities and at least 65% of its total assets in equity
securities of companies with public stock market capitalizations within the
range of the market capitalization of companies constituting the Russell
Midcap Index at the time of investment.
A-10
<PAGE>
DAVIS VENTURE VALUE SERIES (FORMERLY 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 (FORMERLY WESTPEAK VALUE GROWTH 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).
WESTPEAK STOCK INDEX SERIES
The Westpeak Stock Index Series seeks to provide investment results that
correspond to the composite price and yield performance of United States
publicly traded common stocks. The Series currently seeks to achieve its
objective by attempting to duplicate the composite price and yield performance
of the Standard & Poor's 500 Composite Stock Price Index.
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.
BACK BAY ADVISORS MANAGED SERIES
The Back Bay Advisors Managed Series seeks to provide a favorable total
investment return through investment in a diversified portfolio of common
stocks and fixed income securities.
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
The Salomon Brothers Strategic Bond Opportunities Series seeks a high level
of total return consistent with preservation of capital. Assets will be
allocated among U.S. Government obligations, mortgage backed securities,
domestic and foreign corporate debt and sovereign debt securities rated
investment grade (BBB or higher by S&P or Baa or higher by Moody's) (or
unrated but deemed to be of equivalent quality in the subadviser's judgment)
and domestic and foreign corporate debt and sovereign debt securities rated
below investment grade. Depending on market conditions, the Series may invest
without limit in below investment grade fixed-income securities. Securities of
below investment grade quality are considered high yield, high risk securities
and are commonly known as "junk bonds."
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.
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.
A-11
<PAGE>
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 and Loomis Sayles Balanced Series receive investment
subadvisory services from Loomis Sayles & Company, L.P., an affiliate of the
Company. The Goldman Sachs Midcap Value Series receives investment subadvisory
services from Goldman Sachs Asset Management. 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. Davis Selected Advisers may also delegate any of its
responsibilities to Davis Selected-NY, a wholly-owned subsidiary. The Salomon
Brothers Strategic Bond Opportunities Series and Salomon Brothers U.S.
Government Series receive investment subadvisory services from Salomon
Brothers Asset Management Inc. The Salomon Brothers Strategic Bond
Opportunities Series also receives certain investment subadvisory services
from Salomon Brothers Asset Management Limited, a London based affiliate of
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.
LOAN PROVISION
The minimum Contract loan amount is currently $500. In addition, the maximum
amount for a qualified loan is limited such that the amount of the loan, when
added to the outstanding loan balance of all other loans, whenever made, from
all other plans of the same employer, does not exceed $50,000 reduced by the
excess of the highest outstanding balance of loans under such plans during the
one-year period, ending on the day before the date on which the loan is made;
over the outstanding balance of loans under such plans on the date the loan is
made; or if less the greater of: (1) $10,000; or (2) 50% of the current value
of your nonforfeitable, accrued benefit under the plan.
For TSA Plans that are not subject to ERISA, the current actual distribution
will be limited to pre-1989 money unless you are age 59 1/2 or otherwise
comply with the legal requirements for permitted distributions under the
A-12
<PAGE>
TSA Contract. If these limitations do not apply (i.e., you are under the age
of 59 1/2 or no pre-1989 money is in your Contract) the Company will report
the amount of the unpaid installment repayment or default as a deemed
distribution for tax purposes, but will postpone an actual distribution from
the Contract until the earliest distribution date permitted under the law.
ADMINISTRATION CHARGES, CONTINGENT DEFERRED SALES CHARGE AND OTHER DEDUCTIONS
The amount of a charge may not necessarily correspond to the costs
associated with providing the services or benefits indicated by the
designation of the charge or associated with the particular Contract. For
example, the Contingent Deferred Sales Charge may not fully cover all of the
sales and distribution expenses actually incurred by the Company, and proceeds
from other charges, including the mortality and expense risk charge, may be
used in part to cover such expenses.
The annual $30 Administration Contract Charge is not imposed after
annuitization begins.
The Company currently waives the Contingent Deferred Sales Charge on
distributions that are intended to satisfy minimum distributions as required
by tax law, calculated as if this Contract were the participant's only
retirement plan asset. This waiver only applies if the required minimum
distribution exceeds the free withdrawal amount (up to 10% of Contract Value
in any one Contract Year) and no previous surrenders were made during the
Contract Year. (See "Federal Income Tax Status--Taxation of the Contracts").
For Contracts issued on individuals age 50 or above to employer-sponsored
pension plans through which contracts were purchased prior to May 1, 1994, a
different Contingent Deferred Sales Charge scale may apply. (The applicable
scale is indicated on the schedule page of the Contract.)
PREMIUM TAX CHARGES
Deductions for state premium tax charges currently range from 1/2% to 2.25%
of the Contract Value or purchase payment for Contracts used with retirement
plans qualifying for tax benefited treatment under the Code and from 1.00% to
3.50% of the Contract Value or purchase payment for all other Contracts.
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>
California....................... 0.50% 2.35%
District of Columbia............. 2.25% 2.25%
Kentucky......................... 2.00% 2.00%
Maine............................ -- 2.00%
Nevada........................... -- 3.50%
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.
ANNUITY PAYMENTS--ANNUITY OPTIONS
The Payee under the first, second and sixth variable payment option may
withdraw the commuted value of the period certain portion of the payments. The
commuted value of such payments is calculated based on the
A-13
<PAGE>
assumed interest rate under the Contract. The life income portion of the
payment option cannot be commuted, and variable annuity payments based on that
portion will resume at the expiration of the period certain if the Annuitant
is alive at that time. (See "Amount of Variable Annuity Payments.") In
addition, after the death of the Payee under the first, 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.
The first and sixth payment options cannot be selected for death proceeds.
Your Contract lists a fourth and fifth option . . . however, due to tax law
considerations, these options are not available on a fixed or variable basis.
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.
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 the 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
A-14
<PAGE>
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 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
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,
for 1998, the deductions are phased out and eventually eliminated, on a pro
rata basis, for adjusted gross income between $30,000 and $40,000 for an
individual, between $50,000 and $60,000 for the covered spouse of a married
couple filing jointly, between $150,000 and $160,000 for the non-covered
spouse of 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 1998) 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.
ROTH IRAS
The Company intends to make a Roth IRA available under this Contract,
subject to the following limitations.
A-15
<PAGE>
Effective January 1, 1998, section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA
may be subject to tax and other special rules may apply. The maximum purchase
payment which may be contributed each year to a Roth IRA is the lesser of
$2,000 or 100 percent of includible compensation. A spousal Roth IRA is
available if the taxpayer and spouse file a joint return. The maximum purchase
payment that a taxpayer may make to a spousal Roth IRA is $2,000. Except in
the case of a rollover or a transfer, no more than $2,000 can be contributed
in aggregate to all IRAs and Roth IRAs of either spouse during any tax year.
The Roth IRA contribution may be limited to less than $2,000 depending on the
taxpayer's adjusted gross income ("AGI"). The maximum contribution begins to
phase out if the taxpayer is single and the taxpayer's AGI is more than
$95,000 or if the taxpayer is married and files a joint tax return and the
taxpayer's AGI is more than $150,000. The taxpayer may not contribute to a
Roth IRA if the taxpayer's AGI is over $110,000 (if the taxpayer is single),
$160,000 (if the taxpayer is married and files a joint tax return), or $10,000
(if the taxpayer is married and files separate tax returns). You should
consult a tax adviser before combining any converted amounts with any other
Roth IRA contributions, including any other conversion amounts from other tax
years. To use the Contract in connection with a Roth IRA, you must have an
existing Contract that was issued in connection with an IRA.
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 $8,000. 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, a non-governmental employer may be entitled to draw on
deferred amounts for purposes unrelated to its Section 457 Plan obligations.
QUALIFIED PLANS
Code section 401(a) permits employers to establish various types of
retirement plans for employees and permits self-employed individuals to
establish retirement plans for themselves and their employees. These
retirement plans may permit the purchase of the Contracts to accumulate
retirement savings under the plans. Adverse tax consequences to the plan, to
the participant or to both may result if this Contract is assigned or
transferred to any individual as a means to provide benefit payments.
(ii) Distributions from the Contract
MANDATORY WITHHOLDING ON CERTAIN DISTRIBUTIONS
Distributions called "eligible rollover distributions" from Qualified Plans
and from many TSA Plans are subject to mandatory withholding by the plan or
payor at the rate of 20%. An eligible rollover distribution is the taxable
portion of any distribution from a Qualified Plan or a TSA Plan, except for
certain distributions such as distributions required by the Code or in a
specified annuity form. Withholding can be avoided by arranging a direct
transfer of the eligible rollover distribution to a Qualified Plan, TSA or
IRA.
QUALIFIED PLANS, TSA PLANS, IRAS, ROTH 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
A-16
<PAGE>
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.
Distributions from a Roth IRA generally are not taxed, except that, once
aggregate distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject
to certain exceptions) or (2) during the five taxable years starting with the
year in which the first contribution is made to the Roth IRA.
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. Except under a Roth IRA, 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.
Except under a Roth IRA, annuity payments, periodic payments or annual
distributions must commence by the later of April 1 of the calendar year
following the year in which the Annuitant attains age 70 1/2 or the year of
retirement. In the case of a Qualified Plan or a Governmental Plan, if the
Annuitant is not a "five-percent owner" as defined in the Code, 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. The Company currently
waives the Contingent Deferred Sales Charge on distributions that are intended
to satisfy required minimum distributions, calculated as if this Contract were
the participant's only retirement plan asset. This waiver only applies if the
required minimum distribution exceeds the free withdrawal amount and no
previous surrenders were made during the Contract Year. Rules regarding
required minimum distributions apply to IRAs (including SEP and SARSEPs),
Qualified Plans, TSA Plans and Governmental Plans. Roth IRAs under Section
408A do not require distributions at any time prior to the Contract Owner's
death.
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).
A-17
<PAGE>
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 generally apply in
the case of Section 457 Plans as apply in the case of Qualified Plans, TSA
Plans, IRAs, SEPs, SARSEPs and Governmental Plans. These rules are discussed
above in the immediately preceding section of this prospectus.
(B) SPECIAL RULES FOR ANNUITIES USED BY INDIVIDUALS OR WITH PLANS AND TRUSTS
NOT QUALIFYING UNDER THE CODE FOR TAX BENEFITED TREATMENT
For a Contract held by an individual, any increase in the accumulated value
of the Contract is not taxable until amounts are received, either in the form
of annuity payments as contemplated by the Contract or in a full or partial
lump sum settlement of the Company's obligations to the Contract Owner.
Under Section 72(u) of the Code, however, Contracts held by other than a
natural person (i.e. those held by a corporation or certain trusts) generally
will not be treated as an annuity contract for Federal income tax purposes.
This means a Contract Owner who is not a natural person will have to include
in income any increase during the taxable year in the accumulated value over
the investment in the Contract.
Section 817(h) of the Code requires the investments of the Variable Account
to be "adequately diversified" in accordance with Treasury Regulations.
Failure to do so means the variable annuity contracts described herein will
cease to qualify as annuities for Federal income tax purposes. Regulations
specifying the diversification requirements have been issued by the Department
of the Treasury, and the Company believes it complies fully with these
requirements.
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.
A-18
<PAGE>
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
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
Although the likelihood of legislative change is uncertain, there is always
the possibility that the tax treatment of the Contracts could change by
legislation or other means. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely modify the federal
taxation of the Contracts. It is also possible that any change could be
retroactive (that is, effective prior to the date of the change). A tax
adviser should be consulted with respect to legislative developments and their
effect on the Contract.
CONTRACT VALUE AND FIXED ACCOUNT TRANSACTIONS
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
4.5% (whichever is the minimum guaranteed Fixed Account interest rate for your
Contract) or (3) if the total Contract Value in the Fixed Account equals or
exceeds a maximum amount established by the Company.
MISCELLANEOUS
The Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to
A-19
<PAGE>
IMSA subscribe to a set of ethical standards covering the various aspects of
sales and service for individually sold life insurance and annuities.
Like all financial services providers, NELICO utilizes systems that may be
affected by Year 2000 transition issues, and it relies on a number of third
parties including banks, custodians, and investment managers, that also may be
affected. NELICO and its affiliates have developed, and are in the process of
implementing, a Year 2000 transition plan, and are confirming that their
service providers are also so engaged. The resources that are being devoted to
this effort are substantial. It is difficult to predict with precision whether
the amount of resources ultimately devoted, or the outcome of these efforts,
will have any negative impact on NELICO. However, as of the date of this
prospectus, it is not anticipated that Owners will experience negative effects
on their investment, or on the services provided in connection therewith, as a
result of Year 2000 transition implementation. NELICO currently anticipates
that its system will be Year 2000 compliant on or about December 31, 1998,
with systems testing and compliance verification to follow. There can,
however, be no assurance that the other service providers have anticipated
every step necessary to avoid any adverse effect on the Variable Account
attributable to Year 2000 transition.
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. Such performance information will be accompanied
by SEC standard performance information for each sub-account, based on the
actual investment experience of the sub-account since its inception and for
the one, five and ten year periods ending with the date of the information
shown.
A-20
<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, 1998
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated May 1, 1998 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-23
Annuity Payments.......................................................... II-23
Hypothetical Illustrations of Annuity Income Payouts...................... II-25
Historical Illustrations of Annuity Income Payouts........................ II-28
Experts................................................................... II-31
Legal Matters............................................................. II-31
Appendix A................................................................ II-32
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, and became a separate account of the Company when New England Mutual
Life Insurance Company 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 New England Mutual Life Insurance Company before it
merged into the Company, and became a subsidiary of the Company as a result of
the merger. For services rendered, the Company paid NELICO $4,461,228.08, for
the period August 30, 1996 to December 31, 1996, and $13,017,919.74 for the
one-year period ended December 31, 1997.
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. For the years ended December 31, 1995, 1996 and 1997 the
Company paid commissions in the amount of $5,203,001.05, $5,927,575.34 and
$5,719,756.22, respectively.
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 sub-accounts, and 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 Goldman
Sachs Midcap Value (formerly the 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, 1997 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, 1997 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, 1997. 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.
Sub-account average total return, which is calculated in accordance with the
SEC standardized formula, uses the inception date of the sub-account through
which the Eligible Fund shown is available. Fund total return adjusted for
Contract charges uses the inception date of the Eligible Fund shown, and
therefore may reflect periods prior to the availablity of the corresponding
sub-account under the Contract. THIS INFORMATION DOES NOT INDICATE OR
REPRESENT FUTURE PERFORMANCE.
SUB-ACCOUNT AVERAGE ANNUAL TOTAL RETURN
For purchase payment allocated to the Loomis Sayles Small Cap Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year.............................................................. 13.7%
Since Inception of the Sub-Account.................................. 15.6%
For purchase payment allocated to the Morgan Stanley International Magnum
Equity Series:*
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year.............................................................. -10.7%
Since Inception of the Sub-Account.................................. -1.4%
</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 Overseas Portfolio:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 1.3%
Since Inception of the Sub-Account................................... 4.6%
For purchase payment allocated to the Alger Equity Growth Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 14.4%
Since Inception of the Sub-Account................................... 19.2%
For purchase payment allocated to the Capital Growth Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 12.4%
5 Years.............................................................. 12.1%
Since Inception of the Sub-Account................................... 12.5%
For purchase payment allocated to the Goldman Sachs Midcap Value Series**:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 6.7%
Since Inception of the Sub-Account................................... 9.8%
For purchase payment allocated to the Davis Venture Value Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 21.8%
Since Inception of the Sub-Account................................... 23.6%
For purchase payment allocated to the Westpeak Growth and Income Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 21.7%
Since Inception of the Sub-Account................................... 14.8%
For purchase payment allocated to the Equity-Income Portfolio:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 16.7%
Since Inception of the Sub-Account................................... 14.3%
For purchase payment allocated to the Loomis Sayles Balanced Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 5.6%
Since Inception of the Sub-Account................................... 12.2%
For purchase payment allocated to the Salomon Brothers Strategic Bond
Opportunities Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... .8%
Since Inception of the Sub-Account................................... 7.7%
</TABLE>
- --------
** The Goldman Sachs Midcap Value Series' subadviser was Loomis, Sayles &
Company, L.P. until May 1, 1998, when Goldman Sachs Asset Management became
the subadviser.
II-5
<PAGE>
For purchase payment allocated to the Back Bay Advisors Bond Income Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... .7%
5 Years.............................................................. 3.9%
Since Inception of the Sub-Account................................... 5.9%
For purchase payment allocated to the Salomon Brothers U.S. Government
Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... -1.6%
Since Inception of the Sub-Account................................... 2.8%
For purchase payment allocated to the Back Bay Advisors Money Market Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... -4.5%
5 Years.............................................................. -.5%
Since Inception of the Sub-Account................................... 1.4%
</TABLE>
FUND TOTAL RETURN ADJUSTED FOR CONTRACT CHARGES
For purchase payment allocated to the Loomis Sayles Small Cap Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year.............................................................. 13.7%
Since Inception of the Fund......................................... 15.6%
For purchase payment allocated to the Morgan Stanley International Magnum
Equity Series:*
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year.............................................................. -10.7%
Since Inception of the Fund......................................... -1.4%
For purchase payment allocated to the Overseas Portfolio:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year.............................................................. 1.3%
5 Years............................................................. 9.5%
10 Years............................................................ 5.7%
Since Inception of the Fund......................................... 4.0%
For purchase payment allocated to the Alger Equity Growth Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year.............................................................. 14.4%
Since Inception of the Fund......................................... 19.2%
</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-6
<PAGE>
For purchase payment allocated to the Capital Growth Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 12.4%
5 Years.............................................................. 12.1%
10 Years............................................................. 10.0%
Since Inception of the Fund.......................................... 20.7%
For purchase payment allocated to the Goldman Sachs Midcap Value Series:**
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 6.7%
Since Inception of the Fund.......................................... 11.6%
For purchase payment allocated to the Davis Venture Value Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 21.8%
Since Inception of the Fund.......................................... 23.6%
For purchase payment allocated to the Westpeak Growth and Income Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 21.7%
Since Inception of the Fund.......................................... 15.8%
For purchase payment allocated to the Equity-Income Portfolio:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 16.7%
5 Years.............................................................. 15.3%
10 Years............................................................. 13.1%
Since Inception of the Fund.......................................... 10.9%
For purchase payment allocated to the Loomis Sayles Balanced Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... 5.6%
Since Inception of the Fund.......................................... 12.2%
For purchase payment allocated to the Salomon Brothers Strategic Bond
Opportunities Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... .8%
Since Inception of the Fund.......................................... 7.7%
For purchase payment allocated to the Back Bay Advisors Bond Income Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... .7%
5 Years.............................................................. 3.9%
10 Years............................................................. 6.1%
Since Inception of the Fund.......................................... 7.0%
</TABLE>
- --------
** The Goldman Sachs Midcap Value Series' subadviser was Loomis, Sayles &
Company, L.P. until May 1, 1998, when Goldman Sachs Asset Management became
the subadviser.
II-7
<PAGE>
For purchase payment allocated to the Salomon Brothers U.S. Government
Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... -1.6%
Since Inception of the Fund.......................................... 2.8%
For purchase payment allocated to the Back Bay Advisors Money Market Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................... -4.5%
5 Years.............................................................. -.5%
10 Years............................................................. 1.7%
Since Inception of the Fund.......................................... 2.7%
</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, 1997 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 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, 1992........... 125.3436 7.978068 $1,000.00
December 31, 1993........... 122.0281 9.049554 1,104.30 $1,044.67 4.47%
December 31, 1994........... 118.4129 8.297578 982.54 933.90 -3.36%
December 31, 1995........... 115.7582 11.300017 1,308.07 1,249.21 7.70%
December 31, 1996........... 113.5352 13.496435 1,532.32 1,470.26 10.12%
December 31, 1997........... 111.7107 16.441932 1,836.74 1,770.62 12.10%
</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 Goldman Sachs Midcap Value 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.
II-8
<PAGE>
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-9
<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 GOLDMAN SACHS MIDCAP VALUE(3): 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 GOLDMAN WESTPEAK
SAYLES INTERNATIONAL ALGER SACHS DAVIS GROWTH
SMALL MAGNUM EQUITY CAPITAL MIDCAP VENTURE AND EQUITY-
CAP EQUITY(2) OVERSEAS GROWTH GROWTH VALUE(3) VALUE INCOME INCOME
---------- ------------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <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 $ 9,888.64
1987............ $ 9,345.49 49,087.62 9,615.25
1988............ 9,936.28 44,141.97 11,611.24
1989............ 12,343.46 56,919.65 13,412.67
1990............ 11,945.10 54,170.04 11,176.22
1991............ 12,695.83 82,262.43 14,462.11
1992............ 11,156.05 76,212.70 16,645.30
1993............ 15,078.13 86,417.09 $11,370.39 $11,321.11 19,396.57
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 20,460.15
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 27,238.96
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 30,677.47
1997............ 19,225.09 10,904.04 19,981.29 19,572.63 156,835.46 19,149.94 21,511.40 22,593.88 38,742.01
<CAPTION>
SURRENDER VALUE(1)
------------------------------------------------------------------------------------------------------
MORGAN
LOOMIS STANLEY GOLDMAN WESTPEAK
SAYLES INTERNATIONAL ALGER SACHS DAVIS GROWTH
SMALL MAGNUM EQUITY CAPITAL MIDCAP VENTURE AND EQUITY-
CAP EQUITY(2) OVERSEAS GROWTH GROWTH VALUE(3) VALUE INCOME INCOME
---------- ------------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <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 $ 9,305.15
1987............ $ 8,771.28 48,277.62 9,091.03
1988............ 9,372.22 43,331.97 11,031.48
1989............ 11,704.96 56,109.65 12,804.10
1990............ 11,380.07 53,360.04 10,718.58
1991............ 12,154.15 81,452.43 13,936.47
1992............ 10,726.94 75,516.79 16,115.97
1993............ 14,575.67 86,407.09 $10,685.22 $10,638.82 18,867.86
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 20,086.86
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 26,988.81
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 30,672.47
1997............ 18,407.59 10,408.36 19,953.79 18,767.63 156,825.48 18,354.37 20,706.40 21,773.88 38,737.01
<CAPTION>
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
LOOMIS STRATEGIC ADVISORS BROTHERS ADVISORS
SAYLES BOND BOND U.S. MONEY
BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- ------------- ---------- ---------- ----------
<S> <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............ 15,137.25 12,514.94
1987............ 15,242.29 13,122.50
1988............ 16,265.40 13,889.20
1989............ 17,990.50 14,941.00
1990............ 19,151.95 15,916.76
1991............ 22,256.25 16,648.66
1992............ 23,722.98 17,018.47
1993............ 26,326.49 17,259.12
1994............ $ 9,968.28 $ 9,838.87 25,071.19 $10,038.07 17,674.12
1995............ 12,242.06 11,557.83 29,948.07 11,360.92 18,401.19
1996............ 14,087.95 13,008.06 30,873.63 11,548.68 19,053.28
1997............ 16,117.12 14,224.45 33,745.25 12,328.54 19,770.95
<CAPTION>
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
LOOMIS STRATEGIC ADVISORS BROTHERS ADVISORS
SAYLES BOND BOND U.S. MONEY
BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- ------------- ---------- ---------- ----------
<S> <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............ 14,446.07 11,941.77
1987............ 14,614.97 12,581.04
1988............ 15,669.85 13,379.19
1989............ 17,413.80 14,460.36
1990............ 18,624.85 15,477.01
1991............ 21,845.84 16,338.98
1992............ 23,499.47 16,855.30
1993............ 26,316.49 17,249.12
1994............ $ 9,380.13 $ 9,258.29 25,061.19 $ 9,445.85 17,664.12
1995............ 11,575.99 10,928.71 29,938.07 10,742.43 18,391.19
1996............ 13,385.59 12,359.16 30,863.63 10,972.02 19,043.28
1997............ 15,386.85 13,579.35 33,735.25 11,768.76 19,760.95
</TABLE>
II-10
<PAGE>
ANNUAL PERCENTAGE CHANGE IN CONTRACT VALUE(1)
<TABLE>
<CAPTION>
MORGAN
LOOMIS STANLEY GOLDMAN
SAYLES INTERNATIONAL ALGER SACHS DAVIS
SMALL MAGNUM EQUITY CAPITAL MIDCAP VENTURE
CAP EQUITY(2) OVERSEAS GROWTH GROWTH VALUE(3) 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
1997................... 22.94 -2.88 9.88 23.75 21.80 15.54 31.52
Cumulative Return....... 92.25 9.04 99.81 95.73 1,468.35 91.50 115.11
Annual Effective Rate of
Return................. 19.52 2.77 6.55 23.64 21.18 14.93 27.39
<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
1997................... 31.47 26.29 14.40 9.35 9.30 6.75 3.77
Cumulative Return....... 125.94 287.42 61.17 42.24 237.45 23.29 97.71
Annual Effective Rate of
Return................. 19.08 12.90 16.28 11.78 8.86 6.84 4.87
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
INTERMEDIATE
GOVERNMENT/
DOW JONES S&P 500 CORPORATE CONSUMER
INDUSTRIAL STOCK BOND PRICE
AVERAGE(4) INDEX(5) INDEX(6) INDEX(7)
---------- -------- ------------ --------
<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
1997............................... 24.91 33.36 7.87 1.83
Cumulative Return................... 1,166.71 1,026.38 283.07 65.47
Annual Effective Rate of Return..... 18.44 17.52 9.37 3.41
</TABLE>
II-11
<PAGE>
ANNUAL PERCENTAGE CHANGE IN SURRENDER VALUE(1)
<TABLE>
<CAPTION>
MORGAN
LOOMIS STANLEY GOLDMAN
SAYLES INTERNATIONAL ALGER SACHS DAVIS
SMALL MAGNUM EQUITY CAPITAL MIDCAP VENTURE
CAP EQUITY(2) OVERSEAS GROWTH GROWTH VALUE(3) 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 -8.77% -8.34 -1.41 -9.39%
1995................... 27.41 5.00 9.00 47.13 36.15 28.96 37.78
1996................... 29.29 5.45 12.53 11.96 19.41 16.37 24.57
1997................... 23.99 -2.43 10.89 24.88 21.80 16.10 33.15
Cumulative Return....... 84.08 4.08 99.54 87.68 1,468.25 83.54 107.06
Annual Effective Rate of
Return................. 18.11 1.27 6.54 22.01 21.17 13.89 25.86
<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
1997................... 32.83 26.29 14.95 9.87 9.30 7.26 3.77
Cumulative Return....... 117.74 287.37 53.87 35.79 237.35 17.69 97.61
Annual Effective Rate of
Return................. 18.14 12.90 14.59 10.15 8.85 5.28 4.87
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
INTERMEDIATE
GOVERNMENT/
DOW JONES S&P 500 CORPORATE CONSUMER
INDUSTRIAL STOCK BOND PRICE
AVERAGE(4) INDEX(5) INDEX(6) INDEX(7)
---------- -------- ------------ --------
<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
1997............................... 24.91 33.36 7.87 1.83
Cumulative Return................... 1,166.71 1,026.38 283.07 65.47
Annual Effective Rate of Return..... 18.44 17.52 9.37 3.41
</TABLE>
II-12
<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 Goldman Sachs Midcap Value 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 Goldman Sachs Midcap Value Series' subadviser was Loomis, Sayles &
Company, L.P. until May 1, 1998, when Goldman Sachs Asset Management
became the subadviser.
(4) 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.
(5) 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.
(6) 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.
(7) 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-13
<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 Goldman Sachs Midcap Value 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, 1997. 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, 1997 (CAPITAL GROWTH, BOND INCOME AND MONEY
MARKET SERIES)
(NOVEMBER 1, 1986--DECEMBER 31, 1997 FOR EQUITY-INCOME PORTFOLIO AND FEBRUARY
1, 1987--DECEMBER 31, 1997 FOR OVERSEAS PORTFOLIO)
(MAY 2, 1994--DECEMBER 31, 1997 FOR LOOMIS SAYLES SMALL CAP SERIES)
(NOVEMBER 1, 1994--DECEMBER 31, 1997 FOR ALL OTHER ZENITH FUND SERIES)
<TABLE>
<CAPTION>
CUMULATIVE
PAYMENTS(1)
-----------
<S> <C>
As of December
31:
1983............ $ 400
1984............ 1,600
1985............ 2,800
1986............ 4,000
1987............ 5,200
1988............ 6,400
1989............ 7,600
1990............ 8,800
1991............ 10,000
1992............ 11,200
1993............ 12,400
1994............ 13,600
1995............ 14,800
1996............ 16,000
1997............ 17,200
Annual Effective
Rate of Return...
<CAPTION>
CONTRACT VALUE
---------------------------------------------------------------------------------------------------------
MORGAN
LOOMIS STANLEY GOLDMAN WESTPEAK
SAYLES INTERNATIONAL ALGER SACHS DAVIS GROWTH
SMALL MAGNUM EQUITY CAPITAL MIDCAP VENTURE AND EQUITY-
CAP EQUITY(2) OVERSEAS GROWTH GROWTH VALUE(3) VALUE INCOME INCOME
---------- ------------- ----------- ---------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ $ 409.40
1984............ 1,648.95
1985............ 4,277.11
1986............ 9,765.58 $ 195.78
1987............ $ 1,007.13 15,890.14 1,215.08
1988............ 2,306.86 15,451.37 2,714.98
1989............ 4,229.80 21,215.12 4,346.48
1990............ 5,222.71 21,316.48 4,721.63
1991............ 6,778.08 33,833.21 7,427.49
1992............ 7,031.68 32,549.81 9,840.29
1993............ 10,872.84 38,177.72 $ 848.90 $ 848.38 12,731.03
1994............ $ 782.65 $ 204.56 12,048.05 $ 199.08 36,110.66 2,021.49 $ 197.97 2,002.46 14,650.43
1995............ 2,337.57 1,436.32 14,272.33 1,671.74 50,536.57 3,907.29 1,632.30 4,059.83 20,892.48
1996............ 4,363.73 2,706.36 17,185.14 3,119.42 61,680.44 5,786.10 3,373.37 6,026.98 24,811.34
1997............ 6,686.43 3,767.74 20,101.70 5,139.40 76,386.05 7,957.27 5,782.92 9,279.81 32,682.67
Annual Effective
Rate of Return... 23.38% -.52% 7.58% 19.45% 18.88% 15.07% 27.53% 21.87% 15.10%
<CAPTION>
-------------------------------------------------------------
SALOMON BACK BAY SALOMON BACK BAY
LOOMIS BROTHERS ADVISORS BROTHERS ADVISORS
SAYLES STRATEGIC BOND BOND U.S. MONEY
BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
As of December
31:
1983............ $ 405.13 $ 406.44
1984............ 1,720.27 1,673.57
1985............ 3,304.19 2,999.59
1986............ 4,982.85 4,362.45
1987............ 6,208.12 5,788.99
1988............ 7,835.43 7,350.98
1989............ 9,915.71 9,142.45
1990............ 11,807.13 10,970.63
1991............ 15,037.48 12,694.15
1992............ 17,272.18 14,182.75
1993............ 20,405.31 15,588.48
1994............ $ 200.89 $ 196.89 20,609.31 $ 200.97 17,179.87
1995............ 1,543.68 1,507.66 25,924.91 1,476.06 19,112.88
1996............ 3,072.43 2,953.92 27,970.49 2,704.81 21,015.28
1997............ 4,784.73 4,468.88 31,839.31 4,116.70 23,035.65
Annual Effective
Rate of Return... 14.68% 10.22% 8.14% 4.99% 3.95%
</TABLE>
- ----
(1) Cumulative payments as of December 31, 1997 would be $13,400 for Equity-
Income, $13,100 for Overseas, $5,600 for Goldman Sachs Midcap Value and
Westpeak Growth and Income, $4,400 for Loomis Sayles Small Cap, and
$3,800 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.
(3) The Goldman Sachs Midcap Value Series' subadviser was Loomis, Sayles &
Company, L.P. until May 1, 1998 when Goldman Sachs Asset Management
became the subadviser.
II-14
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE
PAYMENTS(1)
-----------
<S> <C>
As of December
31:
1983............ $ 400
1984............ 1,600
1985............ 2,800
1986............ 4,000
1987............ 5,200
1988............ 6,400
1989............ 7,600
1990............ 8,800
1991............ 10,000
1992............ 11,200
1993............ 12,400
1994............ 13,600
1995............ 14,800
1996............ 16,000
1997............ 17,200
Annual Effective
Rate of Return...
<CAPTION>
SURRENDER VALUE
--------------------------------------------------------------------------------------------------------
MORGAN
LOOMIS STANLEY GOLDMAN WESTPEAK
SAYLES INTERNATIONAL ALGER SACHS DAVIS GROWTH
SMALL MAGNUM EQUITY CAPITAL MIDCAP VENTURE AND EQUITY-
CAP EQUITY(2) OVERSEAS GROWTH GROWTH VALUE(3) VALUE INCOME INCOME
---------- ------------- ----------- ---------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ $ 375.45
1984............ 1,549.91
1985............ 4,055.39
1986............ 9,435.58 $ 179.32
1987............ $ 920.71 15,464.14 1,144.47
1988............ 2,154.79 14,929.37 2,575.59
1989............ 3,992.93 20,597.12 4,145.89
1990............ 4,960.18 20,730.94 4,525.41
1991............ 6,476.07 33,214.21 7,155.10
1992............ 6,751.04 32,246.86 9,525.32
1993............ 10,502.85 38,167.72 $ 779.24 $ 778.75 12,382.29
1994............ $ 719.36 $ 187.60 11,695.26 $ 182.44 36,100.66 1,892.33 $ 181.39 1,874.32 14,381.73
1995............ 2,193.84 1,353.76 13,987.92 1,576.47 50,526.57 3,693.88 1,539.15 3,838.86 20,699.45
1996............ 4,130.23 2,567.39 17,002.98 2,950.51 61,670.44 5,505.72 3,201.39 5,735.76 24,806.34
1997............ 6,363.04 3,593.19 20,074.20 4,903.13 76,376.05 7,615.01 5,517.69 8,883.98 32,677.67
Annual Effective
Rate of Return... 20.49% -3.41% 7.55% 16.30% 18.88% 13.15% 24.29% 19.93% 15.09%
<CAPTION>
--------------------------------------------------------------
SALOMON BACK BAY SALOMON BACK BAY
LOOMIS BROTHERS ADVISORS BROTHERS ADVISORS
SAYLES STRATEGIC BOND BOND U.S. MONEY
BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- -------------- ----------- ----------- -----------
<S> <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............ 4,748.62 4,156.14
1987............ 5,946.69 5,544.54
1988............ 7,543.35 7,076.34
1989............ 9,593.36 8,844.46
1990............ 11,478.34 10,664.43
1991............ 14,756.80 12,455.65
1992............ 17,106.73 14,045.10
1993............ 20,395.31 15,578.48
1994............ $ 184.14 $ 180.37 20,599.31 $ 184.22 17,169.67
1995............ 1,455.32 1,421.25 25,914.91 1,391.35 19,102.88
1996............ 2,915.35 2,802.70 27,960.49 2,565.93 21,005.28
1997............ 4,564.41 4,262.78 31,829.31 3,926.45 23,025.65
Annual Effective
Rate of Return... 11.60% 7.19% 8.13% 2.03% 3.95%
</TABLE>
- ----
(1) Cumulative payments as of December 31, 1997 would be $13,400 for Equity-
Income, $13,100 for Overseas, $5,600 for Goldman Sachs Midcap Value and
Westpeak Growth and Income, $4,400 for Loomis Sayles Small Cap, and $3,800
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.
(3) The Goldman Sachs Midcap Value Series' subadviser was Loomis, Sayles &
Company, L.P. until May 1, 1998, when Goldman Sachs Asset Management
became the subadviser.
II-15
<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%
December 31, 1997.......................................... 1.936137 23.2%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
3 years, 8 months ended December 31, 1997.................... 93.6% 19.7%
1 year ended December 31, 1997............................... 23.2% 23.2%
</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%
December 31, 1997.......................................... 1.099535 -2.6%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
3 years, 2 months ended December 31, 1997.................... 10.0% 3.0%
1 year ended December 31, 1997............................... -2.6% -2.6%
</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-16
<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%
December 31, 1997.......................................... 2.045625 10.1%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
10 years, 11 months ended December 31, 1997.................. 104.6% 6.8%
10 years ended December 31, 1997............................. 118.9% 8.1%
5 years ended December 31, 1997.............................. 80.9% 12.6%
1 year ended December 31, 1997............................... 10.1% 10.1%
</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%
December 31, 1997.......................................... 1.940577 23.9%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
3 years, 2 months ended December 31, 1997.................... 94.1% 23.3%
1 year ended December 31, 1997............................... 23.9% 23.9%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-17
<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%
December 31, 1997.......................................... 16.441932 21.8%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
14 years, 4 months ended December 31, 1997................... 1,544.2% 21.5%
10 years ended December 31, 1997............................. 220.8% 12.4%
5 years ended December 31, 1997.............................. 106.1% 15.6%
1 year ended December 31, 1997............................... 21.8% 21.8%
</TABLE>
GOLDMAN SACHS MIDCAP VALUE** 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%
December 31, 1997.......................................... 1.932280 15.7%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
4 years, 8 months ended December 31, 1997.................... 93.2% 15.1%
1 year ended December 31, 1997............................... 15.7% 15.7%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge or the annual $30 Administration Contract Charge.
** The Goldman Sachs Midcap Value Series' subadviser was Loomis, Sayles &
Company, L.P. until May 1, 1998, when Goldman Sachs Asset Management became
the subadviser.
II-18
<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%
December 31, 1997.......................................... 2.163463 31.7%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
3 years, 2 months ended December 31, 1997.................... 116.3% 27.6%
1 year ended December 31, 1997............................... 31.7% 31.7%
</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%
December 31, 1997.......................................... 2.279329 31.7%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
4 years, 8 months ended December 31, 1997.................... 127.9% 19.3%
1 year ended December 31, 1997............................... 31.7% 31.7%
</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%
December 31, 1997.......................................... 3.996188 26.4%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-19
<PAGE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
11 years, 2 months ended December 31, 1997................... 299.6% 13.1%
10 years ended December 31, 1997............................. 310.1% 15.2%
5 years ended December 31, 1997.............................. 134.1% 18.5%
1 year ended December 31, 1997............................... 26.4% 26.4%
</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%
December 31, 1997......................................... 1.622453 14.6%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
3 years, 2 months ended December 31, 1997.................... 62.2% 16.5%
1 year ended December 31, 1997............................... 14.6% 14.6%
</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%
December 31, 1997.......................................... 1.432601 9.6%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
3 years, 2 months ended December 31, 1997.................... 43.3% 12.0%
1 year ended December 31, 1997............................... 9.6% 9.6%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-20
<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%
December 31, 1997........................................... 3.428788 9.4%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
14 years, 4 months ended December 31, 1997................... 242.9% 9.0%
10 years ended December 31, 1997............................. 124.4% 8.4%
5 years ended December 31, 1997.............................. 43.0% 7.4%
1 year ended December 31, 1997............................... 9.4% 9.4%
</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%
December 31, 1997........................................... 1.242399 7.0%
</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, 2 months ended December 31, 1997.................... 24.2% 7.1%
1 year ended December 31, 1997............................... 7.0% 7.0%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-21
<PAGE>
BACK BAY ADVISORS MONEY MARKEY 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%
December 31, 1997........................................... 2.036045 3.9%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
14 years, 4 months ended December 31, 1997................... 103.6% 5.1%
10 years ended December 31, 1997............................. 53.4% 4.4%
5 years ended December 31, 1997.............................. 17.1% 3.2%
1 year ended December 31, 1997............................... 3.9% 3.9%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-22
<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-23
<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.
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%, 5.71%, 6%, 8% and 10% shown in the tables at pages
II-23 and II-24 are 0%, 0.46 %, 0.49%, 0.64% and 0.80%.
II-24
<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%, 5.71%, 6%, 8% or 10%. The
values would be different from those shown if the returns averaged 0%, 5.71%,
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 .77% 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 .77%, 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 .77% 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 2.12%.
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-25
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<C> <C> <S> <C>
ANNUITANT: GROSS AMOUNT OF CONTRACT
John Doe VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 4/1/98
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: $562.00
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: 3.5%
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% 5.71% 6% 8% 10%
PAYMENT CALENDAR ----- ----------------- -------- -------- ----------
YEAR YEAR AGE NET** -2.10% 3.50% 3.78% 5.74% 7.70%
- ------- -------- --- ----- ----------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1998 65 581.00 581.00 581.00 581.00 581.00
2 1999 66 549.59 581.00 582.56 593.56 604.55
3 2000 67 519.87 581.00 584.13 606.39 629.05
4 2001 68 491.76 581.00 585.71 619.49 654.55
5 2002 69 465.18 581.00 587.26 632.88 681.08
10 2007 74 352.31 581.00 595.23 704.29 830.76
15 2012 79 266.82 581.00 603.29 783.76 1,013.34
20 2017 84 202.08 581.00 611.46 872.19 1,236.04
</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-26
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(50% VARIABLE--50% FIXED PAYOUT)
<TABLE>
<C> <C> <S> <C>
ANNUITANT: GROSS AMOUNT OF CONTRACT
John Doe VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 4/1/98
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: $562.00
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: 3.5%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE, BUT WILL NEVER
BE LESS THAN: $281.00. THE MONTHLY GUARANTEED PAYMENT OF $281.00 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% 5.71% 6% 8% 10%
PAYMENT CALENDAR ----- --------- --------- --------- --------- ---------
YEAR YEAR AGE NET** -2.10% 3.50% 3.78% 5.74% 7.70%
- ------- -------- --- ----- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1998 65 $571.50 $571.50 $571.50 $571.50 $571.50
2 1999 66 555.79 571.50 572.28 577.78 583.27
3 2000 67 540.94 571.50 573.07 584.19 595.53
4 2001 68 526.88 571.50 573.85 590.75 608.28
5 2002 69 513.59 571.50 574.64 597.44 621.54
10 2007 74 457.15 571.50 578.62 633.15 696.38
15 2012 79 414.41 571.50 582.64 672.88 787.67
20 2017 84 382.04 571.50 586.73 717.10 899.02
</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-27
<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 payment 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-28
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<C> <C> <S> <C>
ANNUITANT: GROSS AMOUNT OF CONTRACT
John Doe VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 4/1/98
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: $562.00; FOR AGE 69: $617.00; FOR AGE 75:
$720.00; AND FOR AGE 76: $739.00.
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%
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 GOLDMAN WESTPEAK
LOOMIS STANLEY ALGER SACHS DAVIS GROWTH
PAYMENT CALENDAR SAYLES INTERNATIONAL FIDELITY EQUITY CAPITAL MIDCAP VENTURE AND
YEAR YEAR AGE SMALL CAP MAGNUM OVERSEAS GROWTH GROWTH VALUE** 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
16 1998 80 1,335.81 754.27 901.98 1,350.12 5,621.74 1,229.02 1,484.12 1,449.76
</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, 1997 after giving effect to current
expense caps or deferrals: 1.00% Loomis Sayles Small Cap, 1.30% Morgan Stanley
International Magnum, 0.87% Alger Equity Growth, 0.85% Goldman Sachs Midcap
Value, 0.90% Davis Venture Value, 0.82% Westpeak Growth and Income, 0.40%
Westpeak Stock Index, 0.85% Loomis Sayles Balanced, 0.61% Back Bay Managed,
0.85% Salomon Strategic Bond Opportunities, 0.52% Back Bay Bond Income, 0.70%
Salomon US Government, 0.45% Back Bay Money Market. Effective May 1, 1998 the
Goldman Sachs Midcap Value Series is subject to a voluntary expense deferral
arrangement with an annual expense limit of .90% of net assets. The following
expenses are for the year ended December 31, 1997 and are unaffected by
expense caps or deferrals: 0.92% Fidelity Overseas, 0.67% 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.
** Rates of return and Contract values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average
daily net assets. Beginning May 1, 1998, the Series' advisory fee is .75%.
II-29
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<C> <C> <S> <C>
ANNUITANT: GROSS AMOUNT OF CONTRACT
John Doe VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 4/1/98
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: $562.00; FOR AGE 68: $602.00; FOR AGE
69: $617.00; FOR AGE 76: $739.00.
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%
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
16 1998 80 1,686.00 1,692.29 1,112.99 1,379.69 982.75 1,224.15 852.27 721.25
</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, 1997, after giving effect to current
expense caps or deferrals: 1.00% Loomis Sayles Small Cap, 1.30% Morgan Stanley
International Magnum, 0.87% Alger Equity Growth, 0.85% Goldman Sachs Midcap
Value, 0.90% Davis Venture Value, 0.82% Westpeak Growth and Income, 0.40%
Westpeak Stock Index, 0.85% Loomis Sayles Balanced, 0.61% Back Bay Managed,
0.85% Salomon Strategic Bond Opportunities, 0.52% Back Bay Bond Income, 0.70%
Salomon US Government, 0.45% Back Bay Money Market. Effective May 1, 1998 the
Goldman Sachs Midcap Value Series is subject to a voluntary expense deferral
arrangement with an annual expense limit of .90% of net assets. The following
expenses are for the year ended December 31, 1997 and are unaffected by
expense caps or deferrals: 0.92% Fidelity Overseas, 0.67% 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.
** Rates of return and Contract values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998 the Series' advisory fee is .75%.
II-30
<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, December 31, 1997, and the consolidated financial statements of
Metropolitan Life Insurance Company as of December 31, 1997 and 1996, and for
the three years in the period ended December 31, 1997, 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.
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-31
<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
Baltimore Sun Houston Chronicle Representative
Barron's INC Research Magazine
Bond Buyer Indianapolis Star Resource
Boston Business Journal Institutional Investor Reuters
Boston Globe Investment Dealers Rukeyser's Business
Boston Herald Digest (syndicated column)
Broker World Investment Vision Sacramento Bee
Business Radio Network Investor's Daily San Francisco Chronicle
Business Week Journal of Commerce San Francisco Examiner
CBS and affiliates Kansas City Star San Jose Mercury
CFO LA Times Seattle Post-
Changing Times Leckey, Andrew Intelligencer
Chicago Sun Times (syndicated column) Seattle Times
Chicago Tribune Life Association News Smart Money
Christian Science Miami Herald St. Louis Post Dispatch
Monitor Milwaukee Sentinel St. Petersburg Times
Christian Science Money Standard & Poor's
Monitor News Service Money Maker Outlook
Cincinnati Enquirer Money Management Letter Standard & Poor's Stock
Cincinnati Post Morningstar Guide
CNBC National Public Radio Stanger's Investment
CNN National Underwriter Advisor
Columbus Dispatch NBC and affiliates Stockbroker's Register
Dallas Morning News New England Business Strategic Insight
Dallas Times-Herald New England Cable News Tampa Tribune
Denver Post New Orleans Times- Time
Des Moines Register Picayune Tobias, Andrew
Detroit Free Press New York Daily News (syndicated column)
Donoghues Money Fund New York Times UPI
Report Newark Star Ledger US News and World Report
Dorfman, Dan (syndicated Newsday USA Today
column) Newsweek Value Line
Dow Jones News Service Nightly Business Report Wall St. Journal
Economist Orange County Register Wall Street Letter
FACS of the Week Orlando Sentinel Wall Street Week
Financial News Network Pension World Washington Post
Financial Planning Pensions and Investments WBZ
Financial Services Week Personal Investor WBZ-TV
Financial World Philadelphia Inquirer WCVB-TV
Forbes Porter, Sylvia WEEI
Fort Worth Star-Telegram (syndicated column) WHDH
Portland Oregonian Worcester Telegram
Worth Magazine
WRKO
II-32
<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 as of December 31, 1997, and the related
statements of operations and changes in net assets for the twelve months ended
December 31, 1997 and 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.
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, 1997, and the results
of their operations and changes in their net assets for the twelve months
ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
April 17, 1998
F-1
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
ASSETS
Investments in sub-accounts, at value
(Note 2)
<CAPTION>
SHARES COST MARKET VALUE
------------- ------------ --------------
<S> <C> <C> <C>
NEW ENGLAND ZENITH FUND:
Capital Growth Series............... 1,662,289.240 $613,617,128 $ 664,234,159
Back Bay Advisors Bond Income Se-
ries............................... 1,188,537.310 127,504,140 128,968,183
Back Bay Advisors Money Market Se-
ries............................... 549,784.380 54,978,438 54,978,438
Westpeak Stock Index Series......... 388,253.970 36,205,782 60,474,438
Back Bay Advisors Managed Series.... 768,449.690 113,086,443 145,890,173
Loomis Sayles Avanti Growth Series.. 273,599.560 38,400,858 46,673,349
Westpeak Growth and Income Series... 385,324.000 55,292,004 69,346,759
Loomis Sayles Small Cap Series...... 481,362.360 68,942,911 76,498,106
Salomon Brothers U. S. Government
Series ............................ 963,298.370 10,792,858 10,721,511
Loomis Sayles Balanced Series ...... 3,159,421.550 41,231,278 46,949,004
Alger Equity Growth Series.......... 4,912,543.890 72,239,584 86,559,023
Morgan Stanley International Magnum
Equity Series...................... 1,750,019.850 19,055,775 19,005,216
Davis Venture Value Series.......... 5,625,578.990 87,353,660 117,012,043
Salomon Brothers Strategic Bond Op-
portunities Series................. 2,765,031.770 32,423,183 33,208,032
VARIABLE INSURANCE PRODUCTS FUND:
Equity-Income Portfolio............. 7,451,499.500 132,014,093 180,922,408
Overseas Portfolio.................. 4,841,789.170 84,048,286 92,962,352
Total investments in sub-accounts, at value..................... 1,834,403,194
Dividends receivable............................................ 254,587
--------------
Total assets................................................. 1,834,657,781
LIABILITIES
Due to Metropolitan Life Insurance Company...................... 2,160,488
--------------
NET ASSETS...................................................... $1,832,497,293
==============
CONTRACT OWNERS' EQUITY
Owners of annuity contracts..................................... $1,824,884,488
Annuity reserves (Note 2)....................................... 7,612,805
--------------
TOTAL FOR VARIABLE ANNUITY CONTRACTS......................... $1,832,497,293
==============
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY AVANTI
CAPITAL BOND MARKET STOCK GROWTH GROWTH SMALL U.S.
GROWTH INCOME SUB- INDEX MANAGED SUB- AND INCOME CAP GOVERNMENT
SUB-ACCOUNT SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME:
Dividends........ $161,763,220 $ 9,529,570 $3,197,674 $ 1,024,357 $17,220,110 $3,704,356 $ 7,559,616 $ 8,757,892 $607,713
EXPENSES:
Mortality and ex-
pense risk
charge.......... 6,246,897 1,213,469 591,219 530,104 1,350,189 434,335 560,538 562,574 75,785
Administrative
charge.......... 3,213,419 602,791 294,841 257,635 664,749 216,662 272,633 277,826 36,256
------------ ----------- ---------- ----------- ----------- ---------- ----------- ----------- --------
Total expenses.. 9,460,316 1,816,260 886,060 787,739 2,014,938 650,997 833,171 840,400 112,041
------------ ----------- ---------- ----------- ----------- ---------- ----------- ----------- --------
Net investment in-
come............. 152,302,904 7,713,310 2,311,614 236,618 15,205,172 3,053,359 6,726,445 7,917,492 495,672
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON INVEST-
MENTS:
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
year............ 99,512,468 (1,691,255) -- 12,902,146 22,986,104 6,145,766 6,583,356 4,882,438 (31,679)
End of year...... 50,617,028 1,464,043 -- 24,268,656 32,803,730 8,272,492 14,054,755 7,555,195 (71,347)
------------ ----------- ---------- ----------- ----------- ---------- ----------- ----------- --------
Net change in
unrealized
appreciation
(depreciation)... (48,895,440) 3,155,298 -- 11,366,510 9,817,626 2,126,726 7,471,399 2,672,757 (39,668)
Net realized gain
on investments... 16,549,232 383,618 -- 2,485,570 5,316,574 1,279,438 999,139 1,013,818 73,118
Net realized and
unrealized gain
(loss) on invest-
ments............ (32,346,208) 3,538,916 -- 13,852,080 15,134,200 3,406,164 8,470,538 3,686,575 33,450
------------ ----------- ---------- ----------- ----------- ---------- ----------- ----------- --------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS.. $119,956,696 $11,252,226 $2,311,614 $14,088,698 $30,339,372 $6,459,523 $15,196,983 $11,604,067 $529,122
============ =========== ========== =========== =========== ========== =========== =========== ========
</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, 1997
<TABLE>
<CAPTION>
STRATEGIC
BALANCED EQUITY INTERNATIONAL VENTURE BOND EQUITY-
SUB- GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS
ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
---------- ----------- ------------- ----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME:
Dividends.......... $2,574,941 $ 8,406,357 $ 489,126 $ 3,612,662 $2,297,507 $14,268,491 $ 7,264,725 $252,278,317
EXPENSES:
Mortality and ex-
pense risk charge. 357,339 741,935 178,093 860,855 258,490 1,571,862 905,411 16,439,095
Administrative
charge............ 175,322 372,290 88,722 417,577 120,433 780,309 459,082 8,250,547
---------- ----------- ----------- ----------- ---------- ----------- ----------- ------------
Total expenses.... 532,661 1,114,225 266,815 1,278,432 378,923 2,352,171 1,364,493 24,689,642
---------- ----------- ----------- ----------- ---------- ----------- ----------- ------------
Net investment in-
come............... 2,042,280 7,292,132 222,311 2,334,230 1,918,584 11,916,320 5,900,232 227,588,675
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year.. 3,182,617 7,461,590 1,005,725 10,498,878 428,659 26,627,341 10,234,877 210,729,031
End of year........ 5,717,727 14,319,440 (50,559) 29,658,383 784,849 48,908,315 8,914,066 247,216,773
---------- ----------- ----------- ----------- ---------- ----------- ----------- ------------
Net change in
unrealized
appreciation
(depreciation)..... 2,535,110 6,857,850 (1,056,284) 19,159,505 356,190 22,280,974 (1,320,811) 36,487,742
Net realized gain on
investments........ 426,199 1,269,426 142,078 1,085,706 187,949 2,721,225 4,146,302 38,079,392
Net realized and
unrealized gain
(loss) on
investments........ 2,961,309 8,127,276 (914,206) 20,245,211 544,139 25,002,199 2,825,491 74,567,134
---------- ----------- ----------- ----------- ---------- ----------- ----------- ------------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS.... $5,003,589 $15,419,408 $ (691,895) $22,579,441 $2,462,723 $36,918,519 $ 8,725,723 $302,155,809
========== =========== =========== =========== ========== =========== =========== ============
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--- --- --- --- --- --- --- ---
</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>
MONEY AVANTI GROWTH SMALL U.S.
CAPITAL BOND MARKET STOCK GROWTH AND INCOME CAP GOVERNMENT
GROWTH INCOME SUB- INDEX MANAGED SUB- SUB- SUB- SUB-
SUB-ACCOUNT SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
----------- ----------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME:
Dividends........ $31,999,855 $ 9,112,591 $3,139,887 $ 1,104,152 $12,337,781 $2,301,646 $4,082,957 $2,793,777 $ 338,892
EXPENSES:
Mortality and
expense risk
charge.......... 4,859,907 1,205,743 602,488 396,508 1,198,409 332,954 359,469 263,840 59,474
Administrative
charge.......... 2,677,508 624,409 307,765 204,120 623,890 172,884 182,994 133,281 28,496
----------- ----------- ---------- ----------- ----------- ---------- ---------- ---------- ---------
Total expenses.. 7,537,415 1,830,152 910,253 600,628 1,822,299 505,838 542,463 397,121 87,970
----------- ----------- ---------- ----------- ----------- ---------- ---------- ---------- ---------
Net investment
income (loss).... 24,462,440 7,282,439 2,229,634 503,524 10,515,482 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
year............ 45,558,436 2,104,546 -- 7,142,155 22,213,497 4,321,917 5,157,858 1,612,398 124,160
End of year...... 99,512,468 (1,691,255) -- 12,902,146 22,986,104 6,145,766 6,583,356 4,882,438 (31,679)
----------- ----------- ---------- ----------- ----------- ---------- ---------- ---------- ---------
Net change in
unrealized
appreciation
(depreciation)... 53,954,032 (3,795,801) -- 5,759,991 772,607 1,823,849 1,425,498 3,270,040 (155,839)
Net realized gain
on investments... 12,365,009 343,759 -- 1,525,569 4,450,425 1,326,250 1,011,305 1,317,987 48,400
Net realized and
unrealized gain
(loss) on
investments...... 66,319,041 (3,452,042) -- 7,285,560 5,223,032 3,150,099 2,436,803 4,588,027 (107,439)
----------- ----------- ---------- ----------- ----------- ---------- ---------- ---------- ---------
NET INCREASE IN
NET ASSETS
RESULTING FROM
OPERATIONS....... $90,781,481 $ 3,830,397 $2,229,634 $ 7,789,084 $15,738,514 $4,945,907 $5,977,297 $6,984,683 $ 143,483
=========== =========== ========== =========== =========== ========== ========== ========== =========
</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, 1996
<TABLE>
<CAPTION>
EQUITY STRATEGIC
BALANCED GROWTH INTERNATIONAL VENTURE BOND EQUITY-
SUB- SUB- EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS
ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-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 ex-
pense 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 year... 835,377 2,819,660 540,103 3,190,020 170,662 18,248,552 4,472,393 118,511,734
End of year......... 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 apprecia-
tion (depreciation). 2,347,240 4,641,930 465,622 7,308,858 257,997 8,378,789 5,762,484 92,217,297
Net realized gain 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
(loss) on invest-
ments............... 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-6
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK AVANTI GROWTH SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH AND INCOME CAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
Net investment
income........... $152,302,904 $ 7,713,310 $ 2,311,614 $ 236,618 $ 15,205,172 $ 3,053,359 $ 6,726,445 $ 7,917,492
Net realized and
unrealized gain
(loss) on
investments...... (32,346,208) 3,538,916 -- 13,852,080 15,134,200 3,406,164 8,470,538 3,686,575
------------ ------------ ------------ ----------- ------------ ----------- ----------- -----------
Increase
(decrease) in net
assets derived
from investment
activities....... 119,956,696 11,252,226 2,311,614 14,088,698 30,339,372 6,459,523 15,196,983 11,604,067
FROM CONTRACT-
RELATED
TRANSACTIONS:
Net premiums
transferred from
Metropolitan Life
Insurance
Company.......... 46,257,229 8,122,820 26,202,879 1,596,374 4,382,922 4,762,144 8,083,274 12,260,075
Net transfers (to)
from other sub-
accounts......... (11,155,639) (7,699,535) (26,940,036) 3,556,922 (5,331,048) (2,056,660) 4,010,673 13,987,149
Net transfers to
Metropolitan Life
Insurance Company
Surrenders...... (45,954,925) (10,678,232) (10,908,433) (3,938,868) (12,262,286) (3,040,666) (2,840,124) (2,651,643)
Annuity
benefits....... (3,916,643) (1,098,100) (958,554) (172,634) (952,879) (150,287) (369,616) (144,703)
------------ ------------ ------------ ----------- ------------ ----------- ----------- -----------
Increase
(decrease) in net
assets derived
from contract-
related
transactions..... (14,769,978) (11,353,047) (12,604,144) 1,041,794 (14,163,291) (485,469) 8,884,207 23,450,878
------------ ------------ ------------ ----------- ------------ ----------- ----------- -----------
Net increase
(decrease) in net
assets............ 105,186,718 (100,821) (10,292,530) 15,130,492 16,176,081 5,974,054 24,081,190 35,054,945
NET ASSETS, AT
BEGINNING OF THE
YEAR.............. 558,255,137 128,933,716 65,459,331 45,270,391 129,559,412 40,641,154 45,184,792 41,350,703
------------ ------------ ------------ ----------- ------------ ----------- ----------- -----------
NET ASSETS, AT END
OF THE YEAR....... $663,441,855 $128,832,895 $ 55,166,801 $60,400,883 $145,735,493 $46,615,208 $69,265,982 $76,405,648
============ ============ ============ =========== ============ =========== =========== ===========
<CAPTION>
U.S.
GOVERNMENT
SUB-ACCOUNT
------------
<S> <C>
FROM INVESTMENT
ACTIVITIES:
Net investment
income........... $ 495,672
Net realized and
unrealized gain
(loss) on
investments...... 33,450
------------
Increase
(decrease) in net
assets derived
from investment
activities....... 529,122
FROM CONTRACT-
RELATED
TRANSACTIONS:
Net premiums
transferred from
Metropolitan Life
Insurance
Company.......... 1,636,443
Net transfers (to)
from other sub-
accounts......... 2,710,896
Net transfers to
Metropolitan Life
Insurance Company
Surrenders...... (807,465)
Annuity
benefits....... (77,123)
------------
Increase
(decrease) in net
assets derived
from contract-
related
transactions..... 3,462,751
------------
Net increase
(decrease) in net
assets............ 3,991,873
NET ASSETS, AT
BEGINNING OF THE
YEAR.............. 6,716,308
------------
NET ASSETS, AT END
OF THE YEAR....... $10,708,181
============
</TABLE>
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, 1997
<TABLE>
<CAPTION>
STRATEGIC
EQUITY INTERNATIONAL VENTURE BOND EQUITY-
BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
Net investment
income........... $ 2,042,280 $ 7,292,132 $ 222,311 $ 2,334,230 $ 1,918,584 $ 11,916,320 $ 5,900,232
Net realized and
unrealized gain
(loss) on
investments...... 2,961,309 8,127,276 (914,206) 20,245,211 544,139 25,002,199 2,825,491
----------- ----------- ----------- ------------ ----------- ------------ -----------
Increase
(decrease) in net
assets derived
from investment
activities....... 5,003,589 15,419,408 (691,895) 22,579,441 2,462,723 36,918,519 8,725,723
FROM CONTRACT-
RELATED
TRANSACTIONS:
Net premiums
transferred from
Metropolitan Life
Insurance
Company.......... 10,177,262 11,337,797 2,837,941 20,349,676 7,395,953 16,562,140 8,859,341
Net transfers (to)
from other sub-
accounts......... 5,283,098 1,159,125 (395,960) 21,589,697 5,504,230 (2,177,097) (2,045,815)
Net transfers to
Metropolitan Life
Insurance Company
Surrenders...... (1,672,676) (3,601,726) (1,020,990) (4,625,595) (1,644,665) (8,919,993) (5,776,847)
Annuity
benefits....... (344,852) (529,258) (177,635) (513,124) (203,636) (925,776) (265,135)
----------- ----------- ----------- ------------ ----------- ------------ -----------
Increase (decrease)
in net assets
derived from
contract-related
transactions...... 13,442,832 8,365,938 1,243,356 36,800,654 11,051,882 4,539,274 771,544
----------- ----------- ----------- ------------ ----------- ------------ -----------
Net increase
(decrease) in net
assets............ 18,446,421 23,785,346 551,461 59,380,095 13,514,605 41,457,793 9,497,267
NET ASSETS, AT
BEGINNING OF THE
YEAR.............. 28,461,555 62,667,072 18,431,146 57,486,566 19,654,553 139,236,727 83,353,740
----------- ----------- ----------- ------------ ----------- ------------ -----------
NET ASSETS, AT END
OF THE YEAR....... $46,907,976 $86,452,418 $18,982,607 $116,866,661 $33,169,158 $180,694,520 $92,851,007
=========== =========== =========== ============ =========== ============ ===========
<CAPTION>
TOTAL
---------------
<S> <C>
FROM INVESTMENT
ACTIVITIES:
Net investment
income........... $ 227,588,675
Net realized and
unrealized gain
(loss) on
investments...... 74,567,134
---------------
Increase
(decrease) in net
assets derived
from investment
activities....... 302,155,809
FROM CONTRACT-
RELATED
TRANSACTIONS:
Net premiums
transferred from
Metropolitan Life
Insurance
Company.......... 190,824,270
Net transfers (to)
from other sub-
accounts......... --
Net transfers to
Metropolitan Life
Insurance Company
Surrenders...... (120,345,134)
Annuity
benefits....... (10,799,955)
---------------
Increase (decrease)
in net assets
derived from
contract-related
transactions...... 59,679,181
---------------
Net increase
(decrease) in net
assets............ 361,834,900
NET ASSETS, AT
BEGINNING OF THE
YEAR.............. 1,470,662,303
---------------
NET ASSETS, AT END
OF THE YEAR....... $1,832,497,293
===============
</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>
CAPITAL BOND MONEY STOCK AVANTI GROWTH SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH AND INCOME CAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
Net investment
income........... $ 24,462,440 $ 7,282,439 $ 2,229,634 $ 503,524 $ 10,515,482 $ 1,795,808 $ 3,540,494 $ 2,396,656
Net realized and
unrealized gain
(loss) on
investments...... 66,319,041 (3,452,042) -- 7,285,560 5,223,032 3,150,099 2,436,803 4,588,027
------------ ------------ ----------- ----------- ------------ ----------- ----------- -----------
Increase in net
assets derived
from investment
activities....... 90,781,481 3,830,397 2,229,634 7,789,084 15,738,514 4,945,907 5,977,297 6,984,683
FROM CONTRACT-
RELATED
TRANSACTIONS:
Net premiums
transferred from
Metropolitan Life
Insurance
Company.......... 47,336,231 11,677,458 34,222,659 1,670,783 4,562,605 6,302,457 6,822,870 8,775,631
Net transfers (to)
from other sub-
accounts......... (18,117,765) (4,899,751) (22,911,631) 869,176 (3,513,923) 2,463,232 2,577,617 10,285,086
Net transfers to
Metropolitan Life
Insurance Company
Surrenders...... (28,837,335) (8,641,055) (9,500,843) (1,956,188) (8,730,471) (1,538,955) (1,432,839) (1,219,696)
Annuity
benefits....... (3,710,248) (1,293,526) (948,004) (373,468) (1,466,713) 17,753 (212,197) 24,816
------------ ------------ ----------- ----------- ------------ ----------- ----------- -----------
Increase (decrease)
in net assets
derived from
contact-related
transactions...... (3,329,117) (3,156,874) 862,181 210,303 (9,148,502) 7,244,487 7,755,451 17,865,837
------------ ------------ ----------- ----------- ------------ ----------- ----------- -----------
Net increase in net
assets............ 87,452,364 673,523 3,091,815 7,999,387 6,590,012 12,190,394 13,732,748 24,850,520
NET ASSETS, AT
BEGINNING OF THE
YEAR.............. 470,802,773 128,260,193 62,367,516 37,271,004 122,969,400 28,450,760 31,452,044 16,500,183
------------ ------------ ----------- ----------- ------------ ----------- ----------- -----------
NET ASSETS, AT END
OF THE YEAR....... $558,255,137 $128,933,716 $65,459,331 $45,270,391 $129,559,412 $40,641,154 $45,184,792 $41,350,703
============ ============ =========== =========== ============ =========== =========== ===========
<CAPTION>
U.S.
GOVERNMENT
SUB-
ACCOUNT
-----------
<S> <C>
FROM INVESTMENT
ACTIVITIES:
Net investment
income........... $ 250,922
Net realized and
unrealized gain
(loss) on
investments...... (107,439)
-----------
Increase in net
assets derived
from investment
activities....... 143,483
FROM CONTRACT-
RELATED
TRANSACTIONS:
Net premiums
transferred from
Metropolitan Life
Insurance
Company.......... 1,820,592
Net transfers (to)
from other sub-
accounts......... (149,842)
Net transfers to
Metropolitan Life
Insurance Company
Surrenders...... (183,343)
Annuity
benefits....... (35,087)
-----------
Increase (decrease)
in net assets
derived from
contact-related
transactions...... 1,452,320
-----------
Net increase in net
assets............ 1,595,803
NET ASSETS, AT
BEGINNING OF THE
YEAR.............. 5,120,505
-----------
NET ASSETS, AT END
OF THE YEAR....... $6,716,308
===========
</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, 1996
<TABLE>
<CAPTION>
STRATEGIC
EQUITY INTERNATIONAL VENTURE BOND EQUITY-
BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
----------- ----------- ------------- ----------- ------------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
Net investment
income........... $ 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...... 2,658,185 6,162,996 726,353 8,633,822 450,685 11,741,552 7,862,641 123,679,315
----------- ----------- ----------- ----------- ----------- ------------ ----------- --------------
Increase in net
assets derived
from investment
activities....... 3,196,968 5,542,996 777,210 9,411,199 1,509,160 14,967,801 8,476,649 182,302,463
FROM CONTRACT-
RELATED
TRANSACTIONS:
Net premiums
transferred from
Metropolitan Life
Insurance
Company.......... 10,013,329 18,130,543 4,022,067 13,755,448 6,207,842 21,165,185 9,339,879 205,825,579
Net transfers (to)
from other sub-
accounts......... 2,999,684 7,892,262 2,909,321 10,535,441 5,505,494 2,766,414 789,185 --
Net transfers to
Metropolitan Life
Insurance Company
Surrenders...... (1,068,120) (2,440,300) (1,078,027) (2,067,055) (638,840) (5,636,063) (3,733,623) (78,702,753)
Annuity
benefits....... (165,175) (344,976) (69,120) (94,350) (35,658) (627,188) (203,490) (9,536,631)
----------- ----------- ----------- ----------- ----------- ------------ ----------- --------------
Increase
(decrease) in net
assets derived
from contract-
related
transactions..... 11,779,718 23,237,529 5,784,241 22,129,484 11,038,838 17,668,348 6,191,951 117,586,195
----------- ----------- ----------- ----------- ----------- ------------ ----------- --------------
Net increase in net
assets............ 14,976,686 28,780,525 6,561,451 31,540,683 12,547,998 32,636,149 14,668,600 299,888,658
NET ASSETS, AT
BEGINNING OF THE
YEAR.............. 13,484,869 33,886,547 11,869,695 25,945,883 7,106,555 106,600,578 68,685,140 1,170,773,645
----------- ----------- ----------- ----------- ----------- ------------ ----------- --------------
NET ASSETS, AT END
OF THE YEAR....... $28,461,555 $62,667,072 $18,431,146 $57,486,566 $19,654,553 $139,236,727 $83,353,740 $1,470,662,303
=========== =========== =========== =========== =========== ============ =========== ==============
</TABLE>
See Notes to Financial Statements
F-10
<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, 1997, 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 ("VIP") 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 first in first out.
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. For contracts payable on or after January 1, 1998 annuity
reserves will be computed according to the Annuity 2000 Mortality Tables.
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-11
<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, 1997:
<TABLE>
<CAPTION>
SERIES PURCHASES SALES
------ ------------ ------------
<S> <C> <C>
NEW ENGLAND ZENITH FUND:
Capital Growth..................................... $252,153,594 $114,495,888
Back Bay Advisors Bond Income...................... 29,010,253 32,665,818
Back Bay Advisors Money Market..................... 105,110,764 115,425,814
Westpeak Stock Index............................... 11,510,024 10,211,638
Back Bay Advisors Managed.......................... 27,264,498 26,219,975
Loomis Sayles Avanti Growth........................ 13,097,580 10,522,462
Westpeak Growth and Income......................... 25,917,014 10,288,022
Loomis Sayles Small Cap............................ 46,190,270 14,785,190
Salomon Brothers U.S. Government................... 7,825,922 3,867,839
Loomis Sayles Balanced............................. 23,033,106 7,544,362
Alger Equity Growth................................ 29,522,916 13,837,581
Morgan Stanley International Magnum Equity......... 7,451,680 5,989,165
Davis Venture Value................................ 54,783,806 15,578,772
Salomon Brothers Strategic Bond Opportunities...... 20,455,000 7,472,324
VARIABLE INSURANCE PRODUCTS FUND:
Equity-Income Portfolio............................ 46,701,068 30,180,326
Overseas Portfolio................................. 51,180,013 44,494,539
</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. Mortality and expense risk charges--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-12
<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, wholly
owned 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 Management, L.P.* --
Back Bay Advisors Bond
Income TNE Advisers, Inc.* Back Bay Advisors, L.P.*
Back Bay Advisors Money
Market TNE Advisers, Inc.* Back Bay Advisors, L.P.*
Westpeak Stock Index TNE Advisers, Inc.* Westpeak Investment Advisors, L.P.*
Back Bay Advisors
Managed TNE Advisers, Inc.* Back Bay Advisors, L.P.*
Loomis Sayles Avanti
Growth TNE Advisers, Inc.* Loomis Sayles & Company, L.P.*
Westpeak Growth and
Income TNE Advisers, Inc.* Westpeak Investment Advisors, L.P.*
Loomis Sayles Small Cap TNE Advisers, Inc.* Loomis Sayles & Company, L.P.*
Salomon Brothers U.S.
Government TNE Advisers, Inc.* Salomon Brothers Asset Management Inc
Loomis Sayles Balanced TNE Advisers, Inc.* Loomis Sayles & Company, L.P.*
Alger Equity Growth TNE Advisers, Inc.* Fred Alger Management, Inc.
Morgan Stanley
International Magnum
Equity TNE Advisers, Inc.* Morgan Stanley Asset Management Inc.
Davis Venture Value TNE Advisers, Inc.* Davis Selected Advisers, Inc.(a)
Salomon Brothers
Strategic Bond
Opportunities TNE Advisers, Inc.* Salomon Brothers Asset Management Inc(b)
VIP Equity-Income
Portfolio Fidelity Management & Research Co. --
VIP Overseas Portfolio Fidelity Management & Research Co. --
</TABLE>
- -------
* An Affiliate of the Company
(a). Davis Selected Advisers, L.P. may also delegate any of its
responsibilities to Davis Selected Advisers-NY, Inc. a wholly-owned
subsidiary of Davis Selected Advisers, L.P.
(b). In connection with Salomon Brothers Asset Management Inc's service as
subadviser to the Strategic Bond Opportunities Series, Salomon Brothers
Asset Management Inc's London based affiliate, Solomon Brothers Asset
Management Limited provides certain subadvisory services to Salomon Brothers
Asset Management Inc.
Effective May 1, 1997 the Draycott International Equity Series was renamed
the Morgan Stanley International Magnum Equity Series and a new Sub-Advisory
agreement between TNE Advisers, Inc. and Morgan Stanley Asset Management Inc.
went into effect replacing the prior agreement between TNE Advisers, Inc. and
Draycott Partners Ltd.
On January 28, 1998 the Zenith Fund's Board of Trustees approved new
advisory and subadvisory agreements (the "New Agreements") relating to the
Loomis Sayles Avanti Growth Series between TNE Advisers, Inc. and the Zenith
Fund on behalf of the Series, and between TNE Advisers, Inc. and Goldman Sachs
Asset Management ("Goldman Sachs"), respectively. The New Agreements, which
are subject to shareholder approval, are expected to become effective on or
about May 1, 1998. Under the New Agreements, Goldman Sachs would become the
subadvisor of the Series, succeeding Loomis Sayles & Company, L.P., and would
become responsible for the day-to-day management of the Series' investment
operations under the oversight of TNE Advisers, Inc. Accordingly, the name of
the Series would be changed to the "Goldman Sachs Midcap Value Series" at the
time the New Agreements take effect. Goldman Sachs is a separate operating
division of Goldman, Sachs & Co., a privately-owned global financial services
company.
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-13
<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,
1997:
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK AVANTI
GROWTH INCOME MARKET INDEX MANAGED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- --------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Units Outstand-
ing 1/1/97...... 41,363,155.2827 41,138,874.3801 33,412,517.3847 15,623,252.8181 52,130,165.1639 24,345,379.2325
Units Purchased. 3,011,234.0642 2,506,348.9124 13,125,959.5560 1,557,288.8586 1,377,767.9020 2,654,579.8044
Units Redeemed.. (4,023,787.3008) (6,071,335.6677) (19,443,397.5085) (1,234,402.1448) (6,546,944.0518) (2,875,500.8862)
--------------- --------------- ---------------- --------------- --------------- ---------------
Units Outstand-
ing 12/31/97.... 40,350,602.0461 37,573,887.6248 27,095,079.4322 15,946,139.5319 46,960,989.0141 24,124,458.1507
=============== =============== ================ =============== =============== ===============
Unit Value
12/31/97........ $16.441932 $3.428788 $2.036045 $3.787806 $3.103331 $1.932280
=============== =============== ================ =============== =============== ===============
<CAPTION>
STRATEGIC
U. S. EQUITY INTERNATIONAL VENTURE BOND
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- --------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Units Outstand-
ing 1/1/97...... 5,785,147.6169 20,107,323.9381 40,025,594.3868 16,322,861.6667 34,997,024.1285 15,034,554.3857
Units Purchased. 3,576,303.8733 10,173,106.2337 6,867,349.0080 2,498,312.8451 21,780,480.0785 9,477,505.6384
Units Redeemed.. (742,496.5451) (1,368,667.5522) (2,343,091.4709) (1,556,961.0069) (2,759,172.9468) (1,358,957.3809)
--------------- --------------- ---------------- --------------- --------------- ---------------
Units Outstand-
ing 12/31/97.... 8,618,954.9451 28,911,762.6196 44,549,851.9239 17,264,213.5049 54,018,331.2602 23,153,102.6432
=============== =============== ================ =============== =============== ===============
Unit Value
12/31/97........ $1.242399 $1.622453 $1.940577 $1.099535 $2.163463 $1.432601
=============== =============== ================ =============== =============== ===============
<CAPTION>
GROWTH SMALL
AND INCOME CAP
SUB-ACCOUNT SUB-ACCOUNT
---------------- ----------------
<S> <C> <C>
Units Outstand-
ing 1/1/97...... 26,104,464.7017 26,307,747.9854
Units Purchased. 5,891,744.3014 14,835,072.0478
Units Redeemed.. (1,607,448.9772) (1,679,885.3314)
---------------- ----------------
Units Outstand-
ing 12/31/97.... 30,388,760.0259 39,462,934.7018
================ ================
Unit Value
12/31/97........ $2.279329 $1.936137
================ ================
<CAPTION>
EQUITY
INCOME OVERSEAS
SUB-ACCOUNT SUB-ACCOUNT
---------------- ----------------
<S> <C> <C>
Units Outstand-
ing 1/1/97...... 44,037,797.6224 44,846,316.1031
Units Purchased. 4,629,575.2709 4,339,169.0147
Units Redeemed.. (3,450,651.3585) (3,795,441.9777)
---------------- ----------------
Units Outstand-
ing 12/31/97.... 45,216,721.5348 45,390,043.1401
================ ================
Unit Value
12/31/97........ $3.996188 $2.045625
================ ================
</TABLE>
F-14
<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, 1997 and 1996 and
the related consolidated statements of earnings, equity and cash flows for
each of the three years in the period ended December 31, 1997. 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, 1997 and 1996 and the consolidated results of its operations and
its consolidated cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the company
has changed the method of accounting for investment income on certain
structured securities.
Deloitte & Touche LLP
New York, New York
February 12, 1998, except for Note 17,
as to which the date is March 12, 1998
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1997 1996
----- -------- --------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed Maturities:.................................... 2,15
Available for Sale, at Estimated Fair Value........ $ 92,630 $ 75,039
Held to Maturity, at Amortized Cost................ -- 11,322
Equity Securities.................................... 2,15 4,250 2,816
Mortgage Loans on Real Estate........................ 2,15 20,247 18,964
Policy Loans......................................... 15 5,846 5,842
Real Estate.......................................... 2 6,111 7,498
Real Estate Joint Ventures........................... 4 680 851
Other Limited Partnership Interests.................. 4 855 1,004
Leases and Leveraged Leases.......................... 2 2,123 1,763
Short-Term Investments............................... 15 705 741
Other Invested Assets................................ 2,338 2,692
-------- --------
Total Investments.................................. 135,785 128,532
Cash and Cash Equivalents.............................. 15 2,871 2,325
Deferred Policy Acquisition Costs...................... 6,436 7,227
Accrued Investment Income.............................. 1,860 1,611
Premiums and Other Receivables......................... 5 3,280 2,916
Deferred Income Taxes Recoverable...................... 6 -- 37
Other Assets........................................... 3,055 2,340
Separate Account Assets................................ 48,620 43,763
-------- --------
Total Assets........................................... $201,907 $188,751
======== ========
LIABILITIES AND EQUITY
Liabilities
Future Policy Benefits................................. 5 $ 72,125 $ 69,115
Policyholder Account Balances.......................... 15 48,533 47,674
Other Policyholder Funds............................... 4,681 4,758
Policyholder Dividends Payable......................... 1,373 1,348
Short- and Long-Term Debt.............................. 9,15 7,203 5,257
Income Taxes Payable:.................................. 6
Current.............................................. 480 599
Deferred............................................. 472 --
Other Liabilities...................................... 4,695 4,618
Separate Account Liabilities........................... 48,338 43,399
-------- --------
Total Liabilities...................................... 187,900 176,768
-------- --------
Commitments and Contingencies (Notes 2 and 10)
Equity
Retained Earnings...................................... 12,140 10,937
Net Unrealized Investment Gains........................ 3 1,898 1,028
Foreign Currency Translation Adjustments............... (31) 18
-------- --------
Total Equity........................................... 16 14,007 11,983
-------- --------
Total Liabilities and Equity........................... $201,907 $188,751
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, AND 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Premiums...................................... 5 $11,299 $11,462 $11,178
Universal Life and Investment-Type Product
Policy Fee Income............................ 1,458 1,243 1,177
Net Investment Income......................... 3 9,475 8,993 8,837
Investment Gains (Losses), Net................ 3 798 231 (157)
Commissions, Fees and Other Income............ 1,344 1,256 834
------- ------- -------
Total Revenues............................ 24,374 23,185 21,869
------- ------- -------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits......................... 5 12,328 12,399 11,915
Interest Credited to Policyholder Account Bal-
ances........................................ 2,874 2,868 3,143
Policyholder Dividends........................ 1,720 1,728 1,786
Other Operating Costs and Expenses............ 11 5,759 4,784 4,281
------- ------- -------
Total Benefits and Other Deductions....... 22,681 21,779 21,125
------- ------- -------
Earnings from Continuing Operations Before In-
come Taxes................................... 1,693 1,406 744
Income Taxes.................................. 6 476 482 407
------- ------- -------
Earnings from Continuing Operations........... 1,217 924 337
------- ------- -------
Discontinued Operations: 13
Loss from Discontinued Operations (Net of
Income Tax (Benefit) Expense of $(8) in
1997, $(18) in 1996 and $32 in 1995)....... (14) (52) (54)
(Loss) Gain on Disposal of Discontinued Op-
erations (Net of Income Tax (Benefit) Ex-
pense of $(11) in 1996 and $106 in 1995)... -- (19) 416
------- ------- -------
(Loss) Earnings from Discontinued Operations.. (14) (71) 362
------- ------- -------
Net Earnings.................................. 16 $ 1,203 $ 853 $ 699
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- ------- ------- -------
<S> <C> <C> <C> <C>
Retained Earnings, Beginning of Year.......... $10,937 $10,084 $ 9,385
Net Earnings.................................. 1,203 853 699
------- ------- -------
Retained Earnings, End of Year................ 12,140 10,937 10,084
------- ------- -------
Net Unrealized Investment Gains (Losses), Be-
ginning of Year.............................. 1,028 1,646 (955)
Change in Unrealized Investment Gains (Loss-
es).......................................... 3 870 (618) 2,601
------- ------- -------
Net Unrealized Investment Gains, End of Year.. 1,898 1,028 1,646
------- ------- -------
Foreign Currency Translation Adjustments, Be-
ginning of Year.............................. 18 24 (2)
Change in Foreign Currency Translation Adjust-
ments........................................ (49) (6) 26
------- ------- -------
Foreign Currency Translation Adjustments, End
of Year...................................... (31) 18 24
------- ------- -------
Total Equity, End of Year..................... 16 $14,007 $11,983 $11,754
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net Earnings $ 1,203 $ 853 $ 699
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
<CAPTION>
Change in Deferred Policy Acquisition Costs, Net. (159) (391) (376)
<S> <C> <C> <C>
Change in Accrued Investment Income.............. (215) 350 (191)
Change in Premiums and Other Receivables......... (819) (106) (29)
Change in Undistributed Income of Real Estate
Joint Ventures and Other
Limited Partnership Interests................... 163 (45) (221)
Gains from Sales of Investments and Businesses,
Net............................................. (1,029) (428) (595)
Depreciation and Amortization Expenses........... 516 (18) 30
Interest Credited to Policyholder Account Bal-
ances........................................... 2,874 2,868 3,143
Universal Life and Investment-Type Product Policy
Fee Income...................................... (1,458) (1,243) (1,177)
Change in Future Policy Benefits................. 1,641 2,149 2,332
Change in Other Policyholder Funds............... 88 181 (66)
Change in Income Taxes Payable................... (99) (134) 327
Other, Net....................................... 512 (348) 947
-------- -------- --------
Net Cash Provided by Operating Activities.......... 3,218 3,688 4,823
-------- -------- --------
Cash Flows from Investing Activities
Sales, Maturities and Repayments of:
Fixed Maturities................................ 75,346 76,117 64,372
Equity Securities............................... 1,821 2,069 694
Mortgage Loans on Real Estate................... 2,381 2,380 3,182
Real Estate..................................... 1,875 1,948 1,193
Real Estate Joint Ventures...................... 205 410 387
Other Limited Partnership Interests............. 166 178 42
Leases and Leveraged Leases..................... 192 102 123
Purchases of:
Fixed Maturities................................ (76,603) (76,225) (66,693)
Equity Securities............................... (2,121) (2,742) (781)
Mortgage Loans on Real Estate................... (4,119) (4,225) (2,491)
Real Estate..................................... (387) (859) (904)
Real Estate Joint Ventures...................... (72) (130) (285)
Other Limited Partnership Interests............. (338) (307) (87)
Assets to be Leased............................. (738) (585) (383)
Net Change in Short-Term Investments.............. 37 1,028 (634)
Net Change in Policy Loans........................ 17 (128) (112)
Other, Net........................................ 442 45 (308)
-------- -------- --------
Net Cash Used by Investing Activities.............. (1,896) (924) (2,685)
-------- -------- --------
Cash Flows from Financing Activities
Policyholder Account Balances:
Deposits....................................... 16,061 17,167 16,017
Withdrawals.................................... (18,831) (19,321) (19,142)
Additions to Long-Term Debt....................... 828 -- 692
Repayments of Long-Term Debt...................... (99) (284) (389)
Net Increase (Decrease) in Short-Term Debt........ 1,265 69 (78)
-------- -------- --------
Net Cash Used by Financing Activities.............. (776) (2,369) (2,900)
-------- -------- --------
Change in Cash and Cash Equivalents................ 546 395 (762)
Cash and Cash Equivalents, Beginning of Year....... 2,325 1,930 2,692
-------- -------- --------
Cash and Cash Equivalents, End of Year............. $ 2,871 $ 2,325 $ 1,930
======== ======== ========
Supplemental Cash Flow Information
Interest Paid.................................... $ 422 $ 310 $ 280
======== ======== ========
Income Taxes Paid................................ $ 589 $ 497 $ 283
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNLESS OTHERWISE INDICATED, ALL AMOUNTS ARE IN MILLIONS OF DOLLARS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Metropolitan Life Insurance Company ("MetLife") and its subsidiaries
(collectively, the "company") provide life insurance and annuity products and
pension, pension-related and investment-related products and 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 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 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. Minority
interest relating to certain consolidated entities amounted to $277 and $149
at December 31, 1997 and 1996, respectively, and is included in other
liabilities. Significant intercompany transactions and balances have been
eliminated in consolidation.
Prior years' amounts have been reclassified to conform to the 1997
presentation.
On December 31, 1995, the company reclassified (under one-time accounting
implementation guidance) to available for sale certain held to maturity
securities. On July 1, 1997, the company reclassified to available for sale
all securities classified as held to maturity on that date as management
concluded that all securities are now available for sale. As a result,
consolidated equity at July 1, 1997 and December 31, 1995 increased by $198
and $135, respectively, excluding the effects of deferred income taxes,
amounts attributable to participating pension contracts, and adjustments of
deferred policy acquisition costs and future policy benefit loss recognition.
During 1997 management changed to the retrospective interest method of
accounting for investment income on structured note securities in accordance
with authoritative guidance issued in late 1996. As a result, net investment
income increased by $175. The cumulative effect of this accounting change on
prior years' income is not material.
VALUATION OF INVESTMENTS
SECURITIES--As mentioned above, during 1997 management reclassified all of
the company's fixed maturity securities to available for sale. Accordingly, as
of December 31, 1997, all of the company's investment securities are carried
at estimated fair value. Prior to this reclassification, certain fixed
maturity securities (principally bonds and redeemable preferred stock) were
carried at amortized cost. Unrealized investment gains and losses on
investment securities are recorded directly as a separate component of equity
net of related deferred income taxes, amounts attributable to participating
pension contracts and adjustments of deferred policy acquisition costs and
future policy benefit loss recognition. Costs of securities are adjusted for
impairments in value considered other than temporary. Such adjustments are
recorded as realized investment losses.
All security transactions are recorded on a trade date basis.
MORTGAGE LOANS in good standing are carried at amortized cost. A provision
is made for a realized investment loss (and a corresponding allowance is
established) when it becomes probable that the company will be unable to
collect all amounts due under the terms of the loan agreement. The provision
generally is equal to the excess of the carrying value of the mortgage loan
over its estimated fair value. Estimated fair value is based on either the
present value of
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
Mortgage loans considered to be uncollectible are charged against the
allowance and subsequent recoveries are credited to the allowance. Interest
income earned on loans where the collateral value is used to measure
impairment is recorded on a cash basis. Interest income earned 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.
POLICY LOANS are stated at unpaid principal balances.
INVESTMENT REAL ESTATE is generally stated at depreciated cost. Real estate
acquired in satisfaction of debt is recorded at estimated fair value at the
date of foreclosure. If events or changes in circumstances indicate that the
carrying amount of the investment exceeds its expected future cash flows, a
realized investment loss is recorded for the impairment. 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 the allowance relating to real estate to
be disposed of and impairments of real estate are reported as realized
investment gains or losses.
Depreciation of real estate is computed evenly over the estimated useful
lives of the properties (20 to 40 years).
LEASES AND LEVERAGED LEASES--The company is 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 and the
estimated residual value of the leased equipment less the 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. 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 evenly over its estimated economic life.
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 purchase 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.
SHORT-TERM INVESTMENTS are stated at amortized cost, which approximates fair
value.
INVESTMENT RESULTS
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenues. Valuation
allowances are deducted from asset categories to which they apply and
provisions for losses for investments are included in investment gains and
losses. Investment gains and losses are reduced by amounts attributable to
participating pension contracts and adjustments of deferred policy acquisition
costs and future policy benefit loss recognition.
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.
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 evenly or using sum of the years digits method over the lesser of
estimated useful lives of the assets or, where
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
appropriate, the term of the lease. Estimated lives range from 20 to 40 years
for real estate and 5 to 15 years for all other property and equipment.
Amortization of leasehold improvements is provided evenly over the lesser of
the term of the lease or the estimated useful life of the improvements.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business that vary with and are primarily related
to the production of new business are deferred. Such costs, which consist
principally of commissions, agency and policy issue expenses, are amortized
over 40 years for participating traditional life and 30 years for universal
life and investment-type products. Amortization is recorded based on 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 future experience). Changes to amounts previously
amortized are reflected in earnings in the period related estimates 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 made at
the date of policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in earnings when
they 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 estimated 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.
OTHER INTANGIBLE ASSETS
The value of insurance acquired and the excess of purchase price over the
fair value of net assets acquired are included in other assets. The value of
insurance acquired is amortized over the expected policy or contract duration
in relation to the present value of estimated gross profits from such policies
and contracts. The excess of purchase price over the fair value of net assets
acquired is amortized evenly over 10 years.
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life
insurance policies are equal to the aggregate of (a) net level premium
reserves for death and endowment policy benefits (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), (b) the liability for terminal dividends, and (c) premium
deficiency reserves, which are established 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 are equal to
accumulated contractholder fund balances during the accumulation period and
the present value of expected future payments after annuitization. Interest
rates used in establishing such liabilities range from 6.0 percent to 8.25
percent.
Policyholder account balances for universal life and investment-type
contracts are equal to the policy account values, which consist of 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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. Revisions of estimates are
reflected in net earnings in the year such refinements are made.
RECOGNITION OF INCOME AND EXPENSE
Premiums from traditional life and annuity policies with life contingencies
are recognized as income when due. Benefits and expenses are matched with such
income resulting in the recognition of profits over the life of the contract.
This match is accomplished through the provision for future policy benefits
and the deferral and subsequent amortization of policy acquisition costs.
Premiums due over a significantly shorter period than the total period over
which benefits are provided are recorded as income when due with any excess
profit deferred and recognized as 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 term.
Premiums from universal life and investment-type contracts are credited to
policyholder account balances. Revenues from such contracts consist of amounts
assessed against policyholder account balances for mortality, policy
administration and surrender charges. Amounts that are charged to expense
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.
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.
INCOME TAXES
MetLife and its eligible life insurance and nonlife insurance subsidiaries
file a consolidated U.S. federal income tax return and separate income tax
returns as required. The future tax consequences of temporary differences
between financial reporting and tax bases of assets and liabilities are
measured as of the balance sheet dates and are recorded as deferred income 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.
Investments held in the Separate Accounts (stated at estimated fair 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.
DISCONTINUED OPERATIONS
Certain operations have been discontinued and, accordingly, are segregated
in the consolidated statements of earnings.
<PAGE>
NOTES TO 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.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 125 Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
and SFAS No. 127 Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125 provide accounting and reporting standards relating to
transfers of security interests, repurchase agreements, dollar rolls,
securities lending and similar transactions which will be effective in 1998.
The company believes that the application of these standards will not have a
material impact on the company's results of operations, financial position or
liquidity.
SFAS No. 130 Reporting Comprehensive Income establishes standards for
reporting and presentation of comprehensive income and its components and will
be effective in 1998. Comprehensive income, which includes all changes to
equity except those resulting from investments by owners or distributions to
owners, was $2,024, $229 and $3,326 in 1997, 1996 and 1995, respectively.
Consolidated statements of comprehensive income have not been presented, as
the company has not determined the individual amounts to be displayed in such
statements.
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, were as
follows:
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- --------- -----------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Available for Sale Securities:
Fixed Maturities:
Bonds:
U. S. Treasury securities and
obligations of U. S. government
corporations and agencies............ $ 10,619 $ 1,511 $ 2 $ 12,128
States and political subdivisions..... 486 22 -- 508
Foreign governments................... 3,420 371 52 3,739
Corporate............................. 41,191 2,343 290 43,244
Mortgage-backed securities............ 22,191 572 21 22,742
Other................................. 9,463 428 134 9,757
-------- --------- ------ --------
Total bonds......................... 87,370 5,247 499 92,118
Redeemable preferred stocks............. 494 19 1 512
-------- --------- ------ --------
Total fixed maturities.............. $ 87,864 $ 5,266 $ 500 $ 92,630
======== ========= ====== ========
Equity Securities:
Common stocks........................... $ 2,444 $ 1,716 $ 105 $ 4,055
Nonredeemable preferred stocks.......... 201 5 11 195
-------- --------- ------ --------
Total equity securities............. $ 2,645 $ 1,721 $ 116 $ 4,250
======== ========= ====== ========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- --------- ------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Available for Sale Securities:
Fixed Maturities:
Bonds:
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>
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Held to Maturity Securities:
Fixed Maturities:
Bonds:
U.S. Treasury securities and obliga-
tions of U.S. government corpora-
tions 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
======= ======== ======== =======
</TABLE>
The amortized cost and estimated fair value of bonds, by contractual
maturity, were as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
DECEMBER 31, 1997
Due in one year or less.............................. $ 1,916 $ 1,927
Due after one year through five years................ 15,830 16,260
Due after five years through 10 years................ 23,023 24,067
Due after 10 years................................... 24,410 27,122
------- -------
Subtotal........................................... 65,179 69,376
Mortgage-backed securities........................... 22,191 22,742
------- -------
Total.............................................. $87,370 $92,118
======= =======
</TABLE>
Bonds not due at a single maturity date have been included in the above table
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MORTGAGE LOANS
Mortgage loans are collateralized by properties principally located
throughout the United States and Canada. At December 31, 1997, approximately
15 percent, 7 percent and 6 percent of the properties were located in
California, Illinois and Florida, 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>
1997 1996
---- ----
<S> <C> <C>
DECEMBER 31
Office buildings................................................ 32% 30%
Retail.......................................................... 16% 19%
Residential..................................................... 15% 16%
Agricultural.................................................... 18% 18%
Other........................................................... 19% 17%
---- ----
Total......................................................... 100% 100%
==== ====
</TABLE>
Many of the company's real estate joint ventures have mortgage loans with
the company. The carrying values of such mortgages were $753 and $869 at
December 31, 1997 and 1996, respectively.
Mortgage loan valuation allowances and changes thereto were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1............................... $ 444 $ 466 $ 483
Additions charged to income...................... 61 144 107
Deductions for writedowns and dispositions....... (241) (166) (124)
------ ------ ------
Balance, December 31............................. $ 264 $ 444 $ 466
====== ====== ======
Impaired mortgage loans and related valuation allowances were as follows:
<CAPTION>
1997 1996
------ ------
<S> <C> <C> <C>
DECEMBER 31
Impaired mortgage loans with valuation allow-
ances........................................... $1,231 $1,677
Impaired mortgage loans with no valuation allow-
ances........................................... 306 165
------ ------
Recorded investment in impaired mortgage loans... 1,537 1,842
Valuation allowances............................. (250) (427)
------ ------
Net impaired mortgage loans...................... $1,287 $1,415
====== ======
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Average recorded investment in impaired mortgage
loans........................................... $1,680 $2,113 $2,365
====== ====== ======
</TABLE>
Interest income on impaired mortgage loans recorded on a cash basis totaled
$110 , $122 and $169 for the years ended December 31, 1997, 1996 and 1995,
respectively.
REAL ESTATE
Accumulated depreciation on real estate was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1................................ $2,109 $2,187 $2,757
Depreciation expense.............................. 332 348 427
Deductions for dispositions....................... (475) (426) (997)
------ ------ ------
Balance, December 31.............................. $1,966 $2,109 $2,187
====== ====== ======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Real estate valuation allowances and changes thereto were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1................................... $ 529 $ 743 $ 622
(Credited) charged to income......................... (52) 127 358
Deductions for writedowns and dispositions........... (436) (341) (237)
----- ----- -----
Balance, December 31................................. $ 41 $ 529 $ 743
===== ===== =====
</TABLE>
The above table does not include valuation allowances of $55, $118 and $167
at December 31, 1997, 1996 and 1995, respectively, relating to investments in
real estate joint ventures.
Prior to 1996, the company established valuation allowances for all impaired
real estate investments including real estate held for investment. During
1996, $150 of allowances relating to real estate held for investment were
applied as writedowns to specific properties. During 1997, allowances of $94
relating to real estate held for sale were applied as writedowns to specific
properties. The balances in the real estate valuation allowances at December
31, 1997 and 1996, relate to properties that management has committed to a
plan of sale. The carrying values, net of valuation allowances, of properties
committed to a plan of sale were $206 and $1,844 at December 31, 1997 and
1996, respectively. Net investment income relating to such properties was $8
and $60 for the years ended December 31, 1997 and 1996, respectively.
At December 31, 1997 and 1996, the company owned real estate acquired in
satisfaction of debt of $218 and $456, respectively.
LEASES AND LEVERAGED LEASES
The company's investment in direct financing leases and leveraged leases was
as follows:
<TABLE>
<CAPTION>
DIRECT
FINANCING LEVERAGED
LEASES LEASES TOTAL
-------------- ------------- --------------
1997 1996 1997 1996 1997 1996
------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31
Investment................ $1,137 $1,247 $ 851 $ 387 $1,988 $1,634
Estimated residual values. 183 238 641 543 824 781
------ ------ ------ ----- ------ ------
Total................... 1,320 1,485 1,492 930 2,812 2,415
Unearned income........... (261) (336) (428) (316) (689) (652)
------ ------ ------ ----- ------ ------
Net investment............ $1,059 $1,149 $1,064 $ 614 $2,123 $1,763
====== ====== ====== ===== ====== ======
</TABLE>
The investment amounts set forth above are generally due 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 were as follows:
<TABLE>
<CAPTION>
DIRECT
FINANCING RESIDUALS TOTAL
--------- --------- ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
1998......................................... $ 229 $ 14 $ 243
1999......................................... 211 19 230
2000......................................... 192 25 217
2001......................................... 147 19 166
2002......................................... 114 22 136
Thereafter................................... 244 84 328
------ ---- ------
Total........................................ $1,137 $183 $1,320
====== ==== ======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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
flows.
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
consolidated balance sheets. To further minimize the credit risks related to
this lending program, the company regularly monitors the financial condition
of the borrowers.
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 also may occasionally sell covered call options. The company does not
engage in trading of 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 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, 1997, the company employed
several ongoing derivatives strategies. The company entered into a number of
anticipatory hedge agreements 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 expense 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, 1997 and 1996, the company had assets on deposit with
regulatory agencies of $4,695 and $4,062, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. NET INVESTMENT INCOME AND INVESTMENT GAINS
The sources of net investment income were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Fixed maturities............................ $ 6,455 $ 6,042 $ 6,006
Equity securities........................... 50 60 45
Mortgage loans on real estate............... 1,684 1,523 1,501
Policy loans................................ 368 399 394
Real estate................................. 1,566 1,647 1,833
Real estate joint ventures.................. 42 21 41
Other limited partnership interests......... 302 215 149
Leases and leveraged leases................. 131 135 113
Cash, cash equivalents and short-term in-
vestments.................................. 169 214 231
Other investment income..................... 235 281 326
------- ------- -------
Gross investment income..................... 11,002 10,537 10,639
Investment expenses......................... (1,527) (1,544) (1,802)
------- ------- -------
Investment income, net...................... $ 9,475 $ 8,993 $ 8,837
======= ======= =======
Investment gains (losses), including changes in valuation allowances, were as
follows:
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Fixed maturities............................ $ 118 $ 234 $ 621
Equity securities........................... 224 78 (5)
Mortgage loans on real estate............... 56 (86) (51)
Real estate................................. 249 165 (375)
Real estate joint ventures.................. 117 61 (142)
Other limited partnership interests......... 103 82 117
Other....................................... 162 (76) (92)
------- ------- -------
Subtotal................................ 1,029 458 73
Investment gains relating to:
Participating pension contracts........... (35) (20) --
Amortization of deferred policy acquisi-
tion costs............................... (70) (4) (78)
Future policy benefit loss recognition.... (126) (203) (152)
------- ------- -------
Net investment gains (losses)............... $ 798 $ 231 $ (157)
======= ======= =======
Sales of bonds were as follows:
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Bonds classified as available for sale
Proceeds.................................. $72,396 $74,580 $58,537
Gross realized gains...................... 691 1,069 1,013
Gross realized losses..................... 584 842 402
Bonds classified as held to maturity
Proceeds.................................. $ 352 $ 1,281 $ 1,806
Gross realized gains...................... 5 10 17
Gross realized losses..................... 1 1 4
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
DECEMBER 31
Balance, comprised of:
Unrealized investment gains on:
Fixed maturities.......................... $4,766 $2,226 $ 5,166
Equity securities......................... 1,605 563 210
Other..................................... 294 474 380
------ ------ -------
6,665 3,263 5,756
------ ------ -------
Amounts allocable to:
Participating pension contracts............. 312 9 350
Loss recognition............................ 2,189 1,219 2,064
Deferred policy acquisition cost............ 1,147 420 748
Deferred income taxes....................... 1,119 587 948
------ ------ -------
4,767 2,235 4,110
------ ------ -------
Total................................... $1,898 $1,028 $ 1,646
====== ====== =======
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1............................ $1,028 $1,646 $ (955)
Unrealized investment gains (losses) during
year......................................... 3,402 (2,493) 7,665
Unrealized investment (gains) losses allocable
to:
Participating pension contracts............. (303) 341 (258)
Loss recognition............................ (970) 845 (2,063)
Deferred policy acquisition costs........... (727) 328 (1,247)
Deferred income taxes......................... (532) 361 (1,496)
------ ------ -------
Balance, December 31.......................... $1,898 $1,028 $ 1,646
====== ====== =======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. JOINT VENTURES AND OTHER LIMITED PARTNERSHIPS
Combined financial information for real estate joint ventures and other
limited partnership interests accounted for under the equity method, in which
the company has an investment of at least $10 and an equity interest of at
least 10 percent, was as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
DECEMBER 31
Assets:
Investments in real estate, at depreciated cost........ $ 938 $1,030
Investments in securities, at estimated fair value..... 717 621
Cash and cash equivalents.............................. 141 37
Other.................................................. 984 1,030
------ ------
Total assets......................................... 2,780 2,718
------ ------
Liabilities:
Borrowed funds--third party............................ 384 243
Borrowed funds--MetLife................................ 136 69
Other.................................................. 678 915
------ ------
Total liabilities.................................... 1,198 1,227
------ ------
Partners' capital........................................ $1,582 $1,491
====== ======
MetLife equity in partners' capital included above....... $ 822 $ 786
====== ======
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Operations:
Revenues of real estate joint ventures......... $ 291 $ 275 $ 364
Revenues of other limited partnership inter-
ests.......................................... 276 297 417
Interest expense--third party.................. (25) (11) (26)
Interest expense--MetLife...................... (16) (19) (31)
Other expenses................................. (396) (411) (501)
----- ----- -----
Net earnings..................................... $ 130 $ 131 $ 223
===== ===== =====
MetLife earnings from real estate joint ventures
and other limited partnership interests included
above........................................... $ 59 $ 34 $ 28
===== ===== =====
</TABLE>
5. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
The company assumes and cedes insurance with other insurance companies. The
consolidated statements of earnings are presented net of reinsurance ceded.
The effect of reinsurance on premiums earned was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Direct premiums............................ $12,749 $12,569 $11,944
Reinsurance assumed........................ 360 508 812
Reinsurance ceded.......................... (1,810) (1,615) (1,578)
------- ------- -------
Net premiums earned........................ $11,299 $11,462 $11,178
======= ======= =======
Reinsurance recoveries netted against
policyholder benefits..................... $ 1,689 $ 1,667 $ 1,523
======= ======= =======
</TABLE>
Premiums and other receivables in the consolidated balance sheets include
reinsurance recoverables of $1,579 and $700 at December 31, 1997 and 1996,
respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance at January 1........................... $3,345 $3,296 $2,670
Reinsurance recoverables..................... (215) (214) (104)
------ ------ ------
Net balance at January 1....................... 3,130 3,082 2,566
------ ------ ------
Incurred related to:
Current year................................. 2,855 2,951 3,420
Prior years.................................. 88 (114) (68)
------ ------ ------
Total incurred............................. 2,943 2,837 3,352
------ ------ ------
Paid related to:
Current year................................. 1,832 1,998 2,053
Prior years.................................. 815 791 783
------ ------ ------
Total paid................................. 2,647 2,789 2,836
------ ------ ------
Net balance at December 31..................... 3,426 3,130 3,082
Plus reinsurance recoverables................ 229 215 214
------ ------ ------
Balance at December 31......................... $3,655 $3,345 $3,296
====== ====== ======
</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.
The income tax expense (benefit) of continuing operations was as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1997
Federal......................................... $432 $(26) $406
State and local................................. 10 9 19
Foreign......................................... 26 25 51
---- ---- ----
Total......................................... $468 $ 8 $476
==== ==== ====
1996
Federal......................................... $346 $ 66 $412
State and local................................. 25 6 31
Foreign......................................... 27 12 39
---- ---- ----
Total......................................... $398 $ 84 $482
==== ==== ====
1995
Federal......................................... $241 $ 65 $306
State and local................................. 52 3 55
Foreign......................................... 22 24 46
---- ---- ----
Total......................................... $315 $ 92 $407
==== ==== ====
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reconciliations of the differences between income taxes of continuing
operations computed at the federal statutory tax rates and consolidated
provisions for income taxes were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Earnings from continuing operations before
income taxes................................... $1,693 $1,406 $744
Income tax rate................................. 35% 35% 35%
------ ------ ----
Expected income tax expense at federal statutory
income tax rate................................ 593 492 260
Tax effect of:
Tax exempt investment income.................. (30) (18) (9)
Goodwill...................................... 9 -- --
Differential earnings amount.................. (40) 38 67
State and local income taxes.................. 15 23 37
Foreign operations............................ 7 (7) 25
Tax credits................................... (15) (15) (15)
Prior year taxes.............................. (2) (46) (3)
Sale of subsidiary............................ (41) -- --
Other, net.................................... (20) 15 45
------ ------ ----
Income taxes.................................... $ 476 $ 482 $407
====== ====== ====
</TABLE>
The deferred income tax assets or liabilities recorded at December 31, 1997
and 1996 represent the net temporary differences between the tax bases of
assets and liabilities and their amounts for financial reporting. The
components of the net deferred income tax asset or liability were as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
DECEMBER 31
Deferred income tax assets:
Policyholder liabilities and receivables........ $3,010 $2,889
Net operating loss carryforwards................ 33 38
Other, net...................................... 938 698
------ ------
Total gross deferred income tax assets........ 3,981 3,625
Less valuation allowance........................ 24 14
------ ------
Deferred income tax assets, net of valuation al-
lowance.......................................... 3,957 3,611
------ ------
Deferred income tax liabilities:
Investments..................................... 1,227 848
Deferred policy acquisition costs............... 1,890 1,940
Net unrealized capital gains.................... 1,119 587
Other, net...................................... 193 199
------ ------
Total deferred income tax liabilities......... 4,429 3,574
------ ------
Net deferred income tax (liability) asset......... $ (472) $ 37
====== ======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The sources of deferred income tax expense (benefit) and their tax effects
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Policyholder liabilities and receivables........... $(109) $ 53 $(105)
Net operating loss carryforwards................... 5 (19) 89
Investments........................................ 382 50 199
Deferred policy acquisition costs.................. (51) 55 49
Change in valuation allowance...................... 10 4 (6)
Other, net......................................... (229) (59) (134)
----- ----- -----
Total............................................ $ 8 $ 84 $ 92
===== ===== =====
The valuation allowance for the tax benefits of net operating loss
carryforwards reflects management's assessment, based on available information,
that it is more likely than not that the deferred income tax asset for 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 income tax asset is realizable. U.S. tax basis net operating loss
carryforwards of $15 are available, subject to statutory limitation, to offset
taxable income through the year 2012.
7. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The company is both the sponsor and administrator of defined benefit pension
plans covering all eligible employees and sales representatives of MetLife and
certain of its subsidiaries. Retirement benefits are based on years of credited
service and final average earnings history.
Components of the net periodic pension (credit) cost for the defined benefit
qualified and nonqualified pension plans were as follows:
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Service cost....................................... $ 73 $ 77 $ 62
Interest cost on projected benefit obligation...... 244 232 222
Actual return on assets............................ (318) (273) (280)
Net amortization and deferrals..................... (5) (12) (13)
----- ----- -----
Net periodic pension (credit) cost................. $ (6) $ 24 $ (9)
===== ===== =====
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31
Actuarial present value of
obligations:
Vested.................... $2,804 $ 251 $2,668 $223
Nonvested................. 33 2 36 2
------ ----- ------ ----
Accumulated benefit obliga-
tion...................... $2,837 $ 253 $2,704 $225
====== ===== ====== ====
Projected benefit obliga-
tion...................... $3,170 $ 353 $2,958 $310
Plan assets (principally
company investment
contracts) at contract
value 3,831 151 3,495 133
------ ----- ------ ----
Plan assets in excess of
(less than) projected
benefit obligation........ 661 (202) 537 (177)
Unrecognized prior service
cost...................... 125 25 139 26
Unrecognized net (gain)
loss from past experience
different from that
assumed................... (130) 21 (27) 60
Unrecognized net asset at
transition................ (140) -- (176) --
------ ----- ------ ----
Prepaid (accrued) pension
cost at December 31....... $ 516 $(156) $ 473 $(91)
====== ===== ====== ====
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation ranged from 7.25 percent to 7.75
percent for 1997 and 7.25 percent to 8.0 percent for 1996. The weighted
average assumed rate of increase in future compensation levels ranged from 4.5
percent to 8.5 percent in 1997 and from 4.0 percent to 8.0 percent in 1996.
The assumed long-term rate of return on assets used in determining the net
periodic pension cost was 8.75 percent in 1997 and ranged from 8.0 percent to
8.5 percent in 1996. 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 1997, 1996 and 1995, the company contributed
$44, $42 and $49, respectively, to the plans.
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 components of the net periodic nonpension postretirement benefit cost
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Service cost......................................... $ 31 $ 41 $ 28
Interest cost on accumulated postretirement benefit
obligation.......................................... 122 127 115
Actual return on plan assets (company insurance
contracts).......................................... (66) (58) (63)
Net amortization and deferrals....................... (5) 2 (9)
---- ---- ----
Net periodic nonpension postretirement benefit cost.. $ 82 $112 $ 71
==== ==== ====
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
1997 1996
------ ------
<S> <C> <C>
DECEMBER 31
Accumulated postretirement benefit obligation:
Retirees............................................. $1,251 $1,228
Fully eligible active employees...................... 115 145
Active employees not eligible to retire.............. 397 400
------ ------
Total............................................... 1,763 1,773
Plan assets (company insurance contracts) at contract
value................................................ 1,004 897
------ ------
Plan assets less than accumulated postretirement
benefit obligation................................... (759) (876)
Unrecognized net gain from past experience different
from that assumed and from changes in assumptions.... (173) (60)
------ ------
Accrued nonpension postretirement benefit cost at
December 31.......................................... $ (932) $ (936)
====== ======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 9.0 percent in
1997, gradually decreasing to 5.25 percent over five years and generally 9.5
percent in 1996 decreasing to 5.25 percent over 12 years. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation ranged from 7.25 percent to 7.75 percent at December 31, 1997 and
7.0 percent to 7.75 percent at December 31, 1996.
If the health care cost trend rate assumptions were increased 1.0 percent,
the accumulated postretirement benefit obligation as of December 31, 1997
would be increased 6.75 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, 1997, would be an increase of 9.7
percent.
8. LEASES
RENTAL INCOME ON REAL ESTATE OWNED AND LEASE EXPENSE
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. Additionally, the company, as lessee,
has entered into various lease and sublease agreements for office space, data
processing and other equipment. Future minimum rental income, gross minimum
rental payments and minimum sublease rental income relating to these lease
agreements were as follows:
<TABLE>
<CAPTION>
GROSS
RENTAL RENTAL SUBLEASE
INCOME PAYMENTS INCOME
------ -------- --------
<S> <C> <C> <C>
DECEMBER 31
1998.......................................... $ 697 $146 $55
1999.......................................... 657 127 52
2000.......................................... 604 103 50
2001.......................................... 560 82 44
2002.......................................... 496 59 36
2003 and thereafter........................... 2,724 103 68
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
SCHEDULED
MATURITY 1997 1996
--------- ------ ------
<S> <C> <C> <C>
DECEMBER 31
Surplus notes:
6.300% 2003 $ 397 $ 396
7.000% 2005 249 248
7.700% 2015 198 197
7.450% 2023 296 296
7.875% 2024 148 148
7.800% 2025 248 248
Floating rate notes, interest rates
based on LIBOR................................. 1999-2007 358 49
Fixed rate notes, interest rates ranging from
5.80%-10.50%................................... 1998-2007 519 135
Zero coupon Eurobonds........................... 1999 79 71
Other........................................... 124 158
------ ------
Total long-term debt............................ 2,616 1,946
Short-term debt................................. 4,587 3,311
------ ------
Total........................................... $7,203 $5,257
====== ======
</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, in whole or in part, at the
election of the company at any time on or after November 1, 2003.
At December 31, 1997, aggregate maturities of the long-term debt based on
required principal payments at maturity for 1998 and the succeeding four years
amounted to $80, $377, $178, $9 and $11, respectively, and $1,979 thereafter.
10. CONTINGENCIES
The company is currently a defendant in numerous state and federal lawsuits
(including individual suits and putative class actions) raising allegations of
improper marketing of individual life insurance. Litigation seeking
compensatory and/or punitive damages relating to the marketing by the company
of individual life insurance (including putative class and individual actions)
continues to be brought by or on behalf of policyholders and others. These
cases, most of which are in the early stages of litigation, seek substantial
damages, including in some cases claims for punitive and treble damages and
attorneys' fees, and raise, among other claims, allegations that individual
life insurance policies were improperly sold in replacement transactions or
with inadequate or inaccurate disclosure as to the period for which premiums
would be payable, or were misleadingly sold as savings or retirement plans.
Putative classes have been certified, conditionally or subject to appeal, in
state court actions covering certain policyholders in California and West
Virginia; class certification has been denied in a state court action in Ohio
thus far. A number of the federal cases alleging improper marketing of
individual life insurance have been consolidated in the United States District
Court for the Western District of Pennsylvania and the United States District
Court in Massachusetts for pretrial proceedings. Additional litigation
relating to the company's marketing of individual life insurance may be
commenced in the future. The company is vigorously defending itself in these
actions.
Regulatory authorities in a small number of states, including both insurance
departments and attorneys general, have ongoing investigations of the
company's sales of individual life insurance, including investigations of
alleged improper replacement transactions and alleged improper sales of
insurance with inaccurate or inadequate disclosures
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
as to the period for which premiums would be payable. In addition, an
investigation by the Office of the United States Attorney for the Middle
District of Florida, which commenced in 1994, into certain of the retirement
and savings plan selling allegations that have been a subject of regulatory
inquiries, has not been closed.
In addition to the foregoing matters, the company is a defendant in a large
number of asbestos lawsuits relating to allegations regarding certain
research, advice and publication activity that occurred decades ago. While the
company believes that it has significant defenses to these claims and has
effected settlements in many of these cases and has prevailed in certain
cases, it is not possible to predict the number of such cases that may be
brought or the aggregate amount of any liability that may ultimately be
incurred by the company.
Various litigation, claims and assessments against the company, in addition
to the aforementioned and those otherwise provided for in the company's
financial statements, have arisen in the course of the company's business,
including in connection with its activities as an insurer, employer, investor
and taxpayer. Further, state insurance regulatory authorities and other state
authorities regularly make inquiries and conduct investigations concerning the
company's compliance with applicable insurance and other laws and regulations.
In certain of the matters referred to above, 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.
11. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Compensation costs............................. $2,072 $1,813 $1,607
Commissions.................................... 766 722 853
Interest and debt issue costs.................. 453 311 285
Amortization of policy acquisition costs....... 771 633 606
Capitalization of policy acquisition costs..... (1,000) (1,028) (1,060)
Rent expense, net of sublease.................. 179 180 184
Restructuring charges.......................... -- 18 88
Minority interest.............................. 51 30 22
Other.......................................... 2,467 2,105 1,696
------ ------ ------
Total.......................................... $5,759 $4,784 $4,281
====== ====== ======
</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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. OTHER INTANGIBLE ASSETS
The value of business acquired and the excess of purchase price over the
fair value of net assets acquired and changes thereto were as follows:
<TABLE>
<CAPTION>
EXCESS OF PURCHASE PRICE
OVER FAIR VALUE OF
VALUE OF BUSINESS ACQUIRED NET ASSETS ACQUIRED
---------------------------- ----------------------------
1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31
Net Balance, January 1.. $ 358 $ 381 $ 6 $ 544 $ 377 $ 413
Acquisitions............ 176 7 396 387 197 221
Dispositions............ -- -- -- -- -- (236)
Amortization............ (36) (30) (21) (47) (30) (21)
-------- -------- -------- -------- -------- --------
Net balance, December
31..................... $ 498 $ 358 $ 381 $ 884 $ 544 $ 377
======== ======== ======== ======== ======== ========
<CAPTION>
1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31
Accumulated amortiza-
tion................... $ 87 $ 51 $ 21 $ 148 $ 101 $ 71
======== ======== ======== ======== ======== ========
</TABLE>
13. 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 face amount of United HealthCare Corporation
convertible preferred stock and $326 in cash (including additional
consideration of $50 in 1996). The sale resulted in an aftertax loss of $36 in
1996 and an aftertax gain of $372 in 1995. Operating losses in 1997 and 1996
related principally to the finalization of the transfer of group medical
contracts to 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 (including additional cash consideration of $25 in 1996), resulting in
aftertax gains of $17 in 1996 and $44 in 1995.
14. CONSOLIDATED CASH FLOWS INFORMATION
During 1997 the company acquired assets of $3,777 and assumed liabilities of
$3,347 through the acquisition of certain insurance and noninsurance
companies. The aggregate purchase prices were allocated to the assets and
liabilities acquired based upon their estimated fair values. During 1997 the
company also reduced assets and liabilities by $4,342 and $4,207,
respectively, through the sale of certain insurance operations, resulting in a
pretax gain of $139. During 1995 the company also reduced assets and
liabilities by $919 and $413, respectively, through the sale of its real
estate brokerage, mortgage banking and mortgage administration operations.
During 1997 the company assumed liabilities of $227 and received assets of
$227 and during 1995 the company assumed liabilities of $1,573 and received
assets of $1,573 through assumption of certain businesses from other insurance
companies.
For the years ended December 31, 1997, 1996 and 1995, respectively, real
estate of $151, $189 and $429 was acquired in satisfaction of debt.
During 1997 and 1995, fixed maturity securities with an amortized cost of
$11,682 and $3,058, respectively, were transferred from held to maturity to
available for sale.
15. 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, 1997 and 1996, 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The estimates presented below were 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>
NOTIONAL CARRYING ESTIMATED
AMOUNT VALUE FAIR VALUE
-------- -------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1997
Assets:
Fixed maturities................................ $92,630 $92,630
Equity securities............................... 4,250 4,250
Mortgage loans on real estate................... 20,247 21,133
Policy loans.................................... 5,846 6,110
Short-term investments.......................... 705 705
Cash and cash equivalents....................... 2,871 2,871
Liabilities:
Policyholder account balances................... 36,433 36,664
Short- and long-term debt....................... 7,203 7,258
Other financial instruments:
Interest rate swaps............................. $1,464 (1) (19)
Interest rate caps.............................. 1,545 16 12
Foreign currency swaps.......................... 254 -- (28)
Foreign currency forwards....................... 150 -- --
Covered call options............................ 88 (31) (31)
Other options................................... 565 -- (2)
Futures contracts............................... 2,262 10 10
Unused lines of credit.......................... 2,310 -- 2
<CAPTION>
NOTIONAL CARRYING ESTIMATED
AMOUNT VALUE FAIR VALUE
-------- -------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1996
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....................... 5,257 5,223
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>
Estimated fair values were determined as follows: publicly traded fixed
maturities (approximately 78 percent of the estimated fair value of total
fixed maturities) from an independent market pricing service; all other bonds
at estimated fair value determined by management (based primarily on interest
rates, maturity, credit quality and average life); equity securities, on
quoted market prices; mortgage loans, based on discounted projected cash flows
using interest rates offered for loans to borrowers with comparable credit
ratings and for the same maturities; policy loans, based on
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
discounted projected cash flows using U.S. Treasury rates to approximate
interest rates and company experience to project patterns of loan accrual and
repayment; cash and cash equivalents and short-term investments, at carrying
amount, which is considered to be a reasonable estimate of fair value.
Included in fixed maturities are loaned securities with estimated fair
values of $6,537 and $7,293 at December 31, 1997 and 1996, respectively.
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, other 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.
16. STATUTORY FINANCIAL INFORMATION
The reconciliation of the 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 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Net change in statutory surplus...................... $ 227 $366 $229
Adjustments for GAAP:
Future policy benefits and policyholder account
balances.......................................... (445) (165) (17)
Deferred policy acquisition costs.................. 159 391 376
Deferred income taxes.............................. 62 (74) (97)
Valuation of investments........................... (387) (84) 106
Statutory asset valuation reserves................. 1,170 599 30
Statutory interest maintenance reserve............. 53 19 284
Surplus notes...................................... -- -- (622)
Other, net......................................... 364 (199) 410
------ ---- ----
Net earnings..................................... $1,203 $853 $699
====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
DECEMBER 31
Statutory surplus..................................... $ 7,378 $ 7,151
Adjustments for GAAP:
Future policy benefits and policyholder account bal-
ances (7,305) (5,742)
Deferred policy acquisition costs................... 6,436 7,227
Deferred income taxes............................... (242) 264
Valuation of investments............................ 3,474 610
Statutory asset valuation reserves.................. 3,854 2,684
Statutory interest maintenance reserve.............. 1,261 1,208
Surplus notes....................................... (1,396) (1,393)
Other, net.......................................... 601 (26)
------- -------
Equity............................................ $14,061 $11,983
======= =======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
17. SUBSEQUENT EVENT
On March 12, 1998 the company reached an agreement, subject to regulatory
approval, to sell substantially all of its Canadian operations to a
nonaffiliated life insurance company at a gain. Financial information for the
Canadian operations was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Total revenue......................................... $ 969 $ 920 $903
Total benefits and other deductions................... 831 802 804
Net earnings.......................................... 87 83 22
<CAPTION>
1997 1996
----- -----
<S> <C> <C> <C>
DECEMBER 31
Total assets.......................................... 5,881 5,826
Total equity.......................................... 957 917
</TABLE>
<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, 1997.
Statement of Operations for the years ended December 31, 1997 and 1996.
Statement of Changes in Net Assets for the years ended December 31, 1997
and 1996.
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, 1997 and 1996.
Consolidated Statements of Earnings for the years ended December 31, 1997,
1996, and 1995.
Consolidated Statements of Equity for the years ended December 31, 1997,
1996 and 1995.
Consolidated Statements of Cash Flow for the years ended December 31, 1997,
1996 and 1995.
Notes to Financial Statements.
(b) Exhibits
(1) (i) Resolutions of 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.
<PAGE>
(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) Form of Selling Agreement with other broker-dealers.
(4) (i) Form of New England Mutual Life Insurance Company Variable Annuity
Contract, Application and Riders.
(ii) Form of New England Mutual Life Insurance Company Contract Loan
Endorsement.
(iii) Forms of New England Mutual Life Insurance Company Endorsements,
Death of Owner Individual Retirement Annuity, and Sample of Benefits for
Disability of Annuitant).
(iv) Forms of Metropolitan Life Insurance Company Endorsements (New
Contract Loan, Spousal/Beneficiary Continuation.
(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 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 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
Registration Statement on Form N-4 (No. 333-11131) filed on August 30,
1996.
(viii) Forms of Endorsements
(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 Registration Statement on Form N-4 (No.
333-11131) filed on August 30, 1996.
III-2
<PAGE>
(ii) By-Laws Amendment is incorporated herein by reference to 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 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.
(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 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 Deloitte & Touche LLP.
(iii) Consent of Sutherland, Asbill and Brennan LLP
(11) None
(12) None
(13) Schedule of computations for performance quotations.
(14) Powers of Attorney are incorporated herein by reference to the Registration
Statement on Form N-4 (No. 333-11131) filed on August 30, 1996, except for
Gerald Clark, Burton A. Dole, Charles M. Leighton and William C. Steere,
Jr. whose powers of attorney were filed in with Post-Effective Amendment
No. 5 to the Registration Statement of Separate Account UL (File No. 33-
47927) on April 30, 1997 and Robert H. Benmoshe whose power of attorney was
filed with the Registration Statement of Metropolitan Life Separate Account
UL (File No. 333-40161) filed November 13, 1997 and Jon F. Danski whose
power of attorney was filed with Pre-Effective Amendment to the
Registration Statement of Metropolitan Life Separate Account UL (File No.
333-40161) filed April 2, 1998.
III-3
<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.
Robert H. Benmosche President and Chief Operating President, Chief
Officer, Metropolitan Life Operating Officer
Insurance Company, and Director
One Madison Avenue,
New York, NY 10010
Gerald Clark............ Senior Executive Vice-President Senior Executive
and Chief Investment Officer, Vice President and
Metropolitan Life Insurance Chief Investment
Company, Officer, Director
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...... Retired Chairman, President and Director
Chief Executive Officer,
Puritan Bennett,
2200 Faraday Avenue,
Carlsbad, CA 92008-7208.
James R. Houghton....... Retired Chairman of the Board, Director
Corning Incorporated,
80 East Market Street, 2nd floor
Corning, NY 14830.
Harry P. Kamen.......... Chairman, and Chief Executive Chairman,
Officer, Metropolitan Life Chief Executive
Insurance Company, Officer and Director
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 M. Leighton..... Retired Chairman, Director
CML Group, Inc.,
524 Main Street,
Acton, MA 01720.
</TABLE>
III-4
<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,
375 Park Avenue
Suite 2901
New York, NY 10163.
Stewart G. Nagler....... Senior Executive Vice Senior Executive
President and Chief Vice President and
Financial Officer Chief Financial
Metropolitan Life Insurance Officer and
Company, Director
One Madison Avenue
New York, NY 10010
John J. Phelan, Jr...... Retired Chairman and Director
Chief Executive Officer,
New York Stock Exchange,
P.O. Box 312,
Mill Neck, NY 11765.
Hugh B. Price........... President and Chief Executive Director
Officer,
National Urban League, Inc.,
12 Wall Street
New York, NY 10005.
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 C. Steere, Jr... Chairman of the Board and Director
Chief Executive Officer
Pfizer, Inc.
235 East 42nd Street
New York, NY 10017
</TABLE>
III-5
<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 and Chief Executive Officer
Robert H. Benmosche..... President and Chief Operating Officer
Gary A. Beller.......... Senior Executive Vice-President and General Counsel
Gerald Clark............ Senior Executive Vice-President and Chief Investment Officer
Stewart G. Nagler....... Senior Executive Vice-President & Chief Financial Officer
C. Robert Henrikson..... Senior Executive Vice-President
Catherine A. Rein....... Senior Executive Vice-President
William J. Toppeta...... Senior Executive Vice-President
Jeffrey J. Hodgman...... Executive Vice-President
Terence I. Lennon....... Executive Vice-President
David A. Levene......... Executive Vice-President
John D. Moynahan, Jr. .. Executive Vice-President
John H. Tweedie......... Executive Vice-President
Judy E. Weiss........... Executive Vice-President and Chief Actuary
Richard M. Blackwell.... Senior Vice-President
Alexander D. Brunini.... Senior Vice-President
Jon F. Danski........... Senior Vice-President
James B. Digney......... Senior Vice-President
William T. Friedewald,
M.D. .................. Senior Vice-President
Ira Friedman............ Senior Vice-President
Anne E. Hayden.......... Senior Vice-President
Sibyl C. Jacobson....... Senior Vice-President
Joseph W. Jordan........ Senior Vice-President
Kernan F. King.......... Senior Vice-President
Nicholas D. Latrenta ... Senior Vice-President
Leland C. Launer, Jr. .. Senior Vice-President
Gary E. Lineberry....... Senior Vice-President
James L. Lipscomb....... Senior Vice-President
William Livesey......... Senior Vice-President
James M. Logan.......... Senior Vice-President
Eugene Marks............ 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
James A. Valentino...... Senior Vice-President
Lisa Weber.............. Senior Vice-President
William J. Wheeler...... Senior Vice-President and Treasurer
Anthony J. Williamson... Senior Vice-President
Louis J. Ragusa......... Vice-President and Secretary
</TABLE>
- ---------
* The principal occupation of each officer, except the following officers during
the last five years has been as an officer of MetLife or an affiliate thereof.
Gary A. Beller has been an officer of MetLife since November, 1994; prior
thereto, he was a Consultant and Executive Vice-President and General Counsel
of the American Express Company. Robert H. Benmosche has been an officer of
MetLife since September, 1995; prior thereto, he was an Executive Vice-
President of Paine Webber. Terence I. Lennon has been an officer of MetLife
since March, 1994; prior thereto, he was Assistant Deputy Superintendent and
Chief Examiner of the New York State Department of Insurance. Richard R.
Tartre has been an officer of Metropolitan Life since January 13, 1997, prior
thereto he was President and CEO of Astra Management Corp. William J. Wheeler
became an officer of Metropolitan Life since October 13, 1997; prior thereto
he was Senior Vice-President, Investment Banking of Donaldson, Lufkin and
Jenrette. Lisa Weber has been an officer of Metropolitan Life since March 16,
1998; prior thereto she was a Director of Diversity Strategy and Development
and an Associate Director of Human Resources of PaineWebber. Jon F. Danski has
been an officer of Metroplitan Life since March 25, 1998; prior thereto he was
Senior Vice-President, Controller and General Auditor at ITT Corporation. The
business address of each officer is 1 Madison Avenue, New York, New York
10010.
III-6
<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:
III-7
<PAGE>
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1997
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1997. 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)
f. MetLife Healthcare Holdings, 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)
C-3
<PAGE>
4. Metropolitan Asset Management Corporation (Delaware)
a. MetLife Capital Holdings, Inc. (Delaware)
i. MetLife Capital Corporation (Delaware)
(1) Searles Cogeneration, Inc. (Delaware)
(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%).
(i) MetLife Capital CFLI Holdings, LLC (DE)
(1) MetLife Capital CFLI Leasing, LLC
(DE)
(6) MetLife Capital Portfolio Investments, Inc. (Nevada)
(a) MetLife Capital Funding Corp. (Delaware)
(7) MetLife Capital Funding Corp. II (Delaware)
(8) MetLife Capital Funding Corp. III (Delaware)
ii. MetLife Capital Financial Corporation (Delaware)
90% of outstanding equity interest in Metlife
Capital Financial Corporation held directly
by Metropolitan Life Insurance Company.
C-4
<PAGE>
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 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.
5. SSRM Holdings, Inc. (Delaware)
a. GFM International Investors Ltd. (United Kingdom).
b. GFM International Investors, Inc. (United Kingdom).
i. GFM Investments Limited (United Kingdom)
c. 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 Investment Services, Inc.
(Massachusetts)
d. SSR Realty Advisors, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Property Management, Inc. (Delaware)
(1) Metric Realty (Delaware). SSR Realty Advisors, Inc.
and Metric Property Management, Inc. each hold 50% of
the common stock of Metric Realty.
(a) 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.
(2) Metric Colorado, Inc. (Colorado). Metric Property
Management, Inc. holds 80% of the common stock of
Metric Colorado, Inc.
iii. Metric Capital Corporation (California)
iv. Metric Assignor, Inc. (California)
v. SSR AV, Inc. (Delaware)
C-5
<PAGE>
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. Security First Group, Inc. (DE)
a. Security First Life Insurance Company (DE)
(i) Security First Life Insurance Company of Arizona (AZ)
b. Security First Insurance Agency, Inc. (MA)
c. Security First Financial Insurance Agency, Inc. (NV)
d. Security First Group of Ohio, Inc. (OH)
e. Security First Financial, Inc. (DE)
f. Security First Investment Management Corporation (DE)
g. Security First Management Corporation (DE)
h. Security First Real Estate, Inc. (DE)
10. Natiloportem 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)
C-6
<PAGE>
3. Morguard Investments Limited (Ontario, Canada)
Shares of Morguard Investments Limited ("Morguard") are held by
Metropolitan Life Holdings Limited (72%) and by employees of Morguard
(28%).
4. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
H. 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)
I. 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.
C-7
<PAGE>
J. Metropolitan Life Seguros de Vida S.A. (Argentina)
K. Metropolitan Life Seguros de Retiro S.A. (Argentina).
L. Met Life Holdings Luxembourg (Luxembourg)
M. Metropolitan Life Holdings, Netherlands BV (Netherlands)
N. MetLife International Holdings, Inc. (Delaware)
O. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
P. Metropolitan Marine Way Investments Limited (Canada)
Q. P.T. MetLife Sejahtera (Indonesia)
R. Seguros Genesis S.A. (Mexico) Metropolitan holds 85.49%, Metropolitan Tower
Corp. holds 7.31% and Metropolitan Asset Management Corporation holds 7.20%
of the common stock of Seguros Genesis S.A.
S. AFORE Genesis Metropolitan S.A. de C.V. (Mexico)
T. Metropolitan Life Seguros E Previdencia Privada S.A. (Brazil)
U. Hyatt Legal Plans, Inc. (Delaware)
V. One Madison Merchandising L.L.C. (Connecticut) Ownership of membership
interests in One Madison Merchandising L.L.C. is as follows: Metropolitan
owns 99% and Metropolitan Tower Corp. owns 1%.
C-8
<PAGE>
W. 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. Subrown Corp. (New York)
X. MetPark Funding, Inc. (Delaware)
Y. 2154 Trading Corporation (New York)
Z. Transmountain Land & Livestock Company (Montana)
AA. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
C-9
<PAGE>
A.B. MetLife Trust Company, National Association. (United States)
A.C. 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)
A.D. Benefit Services Corporation (Georgia)
A.E. G.A. Holding Corporation (MA)
A.F. TNE-Y, Inc. (DE)
A.G. CRH., Inc. (MA)
A.H. NELRECO Troy, Inc. (MA)
A.I. TNE Funding Corporation (DE)
A.J. L/C Development Corporation (CA)
A.K. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.L. 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.M. DPA Holding Corp. (MA)
A.N. Lyon/Copley Development Corporation (CA)
A.O. NEL Partnership Investments I, Inc. (MA)
A.P. New England Life Mortgage Funding Corporation (MA)
A.Q. 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.R. 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.S. MetLife New England Holdings, Inc. (DE)
1. New England Life Insurance Company (MA)
a. New England Life Holdings, Inc. (DE)
i. New England Securities Corporation (MA)
1. Hereford Insurance Agency, Inc. (MA)
2. Hereford Insurance Agency of Alabama, Inc. (AL)
3. Hereford Insurance Agency of Minnesota, Inc. (MN)
4. Hereford Insurance Agency of Ohio, Inc. (OH)
5. Hereford Insurance Agency of New Mexico, Inc. (NM)
ii. TNE Advisers, Inc. (MA)
iii. TNE Information Services, Inc. (MA)
b. Exeter Reassurance Company, Ltd. (MA)
c. Omega Reinsurance Corporation (AZ)
d. New England Pension and Annuity Company (DE)
e. Newbury Insurance Company, Limited (Bermuda)
2. New England Investment Companies, Inc. (MA)
a. New England Investment companies, L.P. (DE) New England Investment
Companies, Inc. holds a 1.7% general partnership interest in New
England Investment Companies, L.P. MetLife New England Holdings,
Inc. holds a 3.3% general partnership interest in New England
Investment Companies, L.P.
3. NEIC Operating Partnership, L.P.
New England Investment Companies, L.P. holds a 14.2% general
partnership Interest and New England Investment Companies, Inc.
holds a 0.00002% general Partnership Interest in NEIC operating
Partnership, L.P. Metropolitan holds a 46.3% Limited Partnership
Interest in NEIC Operating Partnership, L.P.
a. NEIC Holdings, Inc. (MA)
i. Back Bay Advisors, Inc. (MA)
(1) 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.
ii. R & T Asset Management, Inc. (MA)
(1) Reich & Tang Distributors, L.P. (DE)
R & T Asset Management Inc.
holds a 1% general interest and
R & T Asset Management, L.P.
holds a 99.5% limited partner
interest in Reich Tang Distributors, L.P.
(2) R & T Asset Management L.P.
R & T Asset Management, Inc.
holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited
partner interest in &
Asset Management, L.P.
(3) Reich & Tang Services, L.P. (DE)
R & T Asset Management, Inc.
holds a 1% general partner interest and
R & T 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
R & T 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 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 a 99%
limited partner interest in Vaughan, Nelson
Scarborough & McConnell, L.P.
a. Breen Trust Company
vi. MC Management, Inc. (MA)
(1) MC Management, L.P. (DE)
MC Management, Inc. holds a 1% general partner
interest and R & T 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 NEIC Operating Partnership,
L.P. 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) 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
NEIC Operating Partnership, 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 NEIC Operating
Partnership, 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
NEIC Operating Partnership, L.P. holds a 99%
limited partner interest in New England Funds
Management, L.P.
x. New England Investment Associates, Inc.
xi. Snyder Capital Management, Inc.
(1) Snyder Capital Management, L.P. NEIC Operating
Partnership holds a 99.5% limited partnership
interest and Snyder Capital Management Inc. holds a
0.5% general partnership interest.
xii. Jurika & Voyles, Inc.
(1) Jurika & Voyles, L.P NEIC Operating Partnership,
L.P. holds a 99% limited partnership interest and
Jurika & Voyles, Inc. holds a 1% general partnership
interest.
b. Capital Growth Management, L.P. (DE)
NEIC Operating Partnership, L.P. holds a 50% limited partner
interest in Capital Growth Management, L.P.
c. AEW Capital Management, Inc. (DE)
i. AEW Securities, L.P. (DE) AEW Capital Management, Inc. holds
a 1% general partnership and AEW Capital Management, L.P.
holds a 99% limited partnership interest in AEW Securities,
L.P.
d. 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. Copley Public Partnership Holding, L.P. (MA)
AEW Investment Group, Inc. holds a 25% general partnership
interest and AEW Capital Management, L.P. holds a 75%
limited partnership interest in Copley Public Partnership
Holding, L.P.
b. AEW Management and Advisors L.P. (MA)
AEW Investment Group, Inc. holds a 25% general partnership
interest and AEW Capital Management, L.P. holds a 75% limited
partnership interest in AEW Management and Advisors L.P.
i. BBC Investment Advisors, Inc. (MA)
AEW Investment Group, Inc. holds 60% of the voting securities
and Back Bay Advisors, L.P. holds 40% of the voting securities
of BBC Investment Advisors, Inc.
1. BBC Investment Advisors, L.P. (MA)
BBC Investment Advisors, Inc. holds a 1% general partnership interest
and AEW Management and Advisors, L.P. holds a 59.4% limited
partnership interest and Back Bay Advisors, L.P. holds a 39.6% limited
partnership interest in BBC Investment Advisors, L.P.
ii. AEW Real Estate Advisors, Inc. (MA)
1. AEW Advisors, Inc. (MA)
2. Copley Properties Company, Inc. (MA)
3. Copley Properties Company II, Inc. (MA)
4. Copley Properties Company III, Inc. (MA)
5. Fourth Copley Corp. (MA)
6. Fifth Copley Corp. (MA)
7. Sixth Copley Corp. (MA)
8. Seventh Copley Corp. (MA).
9. Eighth Copley Corp. (MA).
10. First Income Corp. (MA).
11. Second Income Corp. (MA).
12. Third Income Corp. (MA).
13. Fourth Income Corp. (MA).
14. Third Singleton Corp. (MA).
15. Fourth Singleton Corp. (MA)
16. Fifth Singleton Corp. (MA)
17. Sixth Singleton Corp. (MA).
18. BCOP Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 1% general
partner interest in BCOP Associates L.P.
iii. CREA Western Investors I, Inc. (MA)
1. CREA Western Investors I, L.P. (DE)
CREA Western Investors I, Inc. holds a 24.28% general
partnership interest and Copley Public Partnership Holding,
L.P. holds a 57.62% limited partnership interest in CREA
Western Investors I, L.P.
iv. CREA Investors Santa Fe Springs, Inc. (MA)
2. Copley Public Partnership 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 and
CREA Western Investors I, L.P holds a 57.62% Limited Partnership
interest.
3. AEW Real Estate Advisors, Limited Partnership (MA)
AEW Real Estate Advisors, Inc. holds a 25% general partnership interest
and AEW Capital Management, L.P. holds a 75% limited partnership
interest in AEW Real Estate Advisors, Limited Partnership.
4. AEW Hotel Investment Corporation (MA)
a. AEW Hotel Investment, Limited Partnership (MA)
AEW Hotel Investment Corporation holds a 1% general
partnership interest and AEW Capital Management, L.P. holds a
99% limited partnership interest in AEW Hotel Investment,
Limited Partnership.
5. Aldrich Eastman Global Investment Strategies, LLC (DE)
AEW Capital Management, L.P. holds a 25% membership interest and an
unaffiliated third party holds a 75% membership interest in Aldrich
Eastman Global Investment Strategies, LLC.
C-10
<PAGE>
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.
5) 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% mt ST, owns a 50% interest and has the right to
designate 2 of the 4 members of the Board of Directors.
C-11
<PAGE>
6) 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.
7) 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.
8) 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's ownership
interests in certain companies. The various MILPs own, directly or indirectly,
more than 50% of the voting stock of the following company: Coating
Technologies International, Inc.
NOTE: THE METROPOLITAN LIFE ORGANIZATIONAL 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.
C-12
<PAGE>
ITEM 27. NUMBER OF CONTRACTOWNERS
As of March 31, 1998, there were 24,005 owners of tax-qualified Contracts
and 12,640 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
OFFICES WITH
NAME POSITIONS AND OFFICES WITH PRINCIPAL UNDERWRITER REGISTRANT
---- ------------------------------------------------ -------------
<C> <S> <C>
Thomas W. McConnell* Director, President and CEO None
Frederick K. Zimmermann** Chairman of Board, Director None
Bradley W. Anderson* Vice President None
Anne M. Goggin** Vice President, General Counsel, Secretary and None
Clerk
Mark F. Greco* Vice President & Chief Operating Officer None
Laura A. Hutner* Vice President None
Mitchell A. Karman** Vice President None
John Peruzzi** Assistant Vice President and Controller None
Robert F. Regan*** Vice President None
Jonathan M. Rozek* Vice President None
Larry Thiel* 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>
C-1
<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. 5,719,756 -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.
C-2
<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 THE STATE OF NEW YORK ON THIS 30TH DAY OF APRIL, 1998.
THE NEW ENGLAND VARIABLE ACCOUNT
BY: METROPOLITAN LIFE INSURANCE COMPANY
By: /S/ GARY A. BELLER
_____________________________________
GARY A. BELLER, ESQ.
SENIOR EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
III-8
<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 30TH DAY OF APRIL, 1998.
Metropolitan Life Insurance Company
By: /S/ GARY A. BELLER
_____________________________________
GARY A. BELLER, ESQ.
SENIOR 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 INDICATED, ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE Title Date
--------- ----- ----
<S> <C> <C>
* Chairman, Chief Executive Officer
- ------------------------------- and Director (Principal Executive April 30, 1998
HARRY P. KAMEN Officer)
* President, Chief Operating Officer
- ------------------------------- and Director April 30, 1998
ROBERT H. BENMOSCHE
* Senior Executive Vice-President and
- ------------------------------- Chief Financial Officer (Principal April 30, 1998
STEWART G. NAGLER Financial Officer) and Director
* Senior Vice President and Controller
- ------------------------------- (Principal Accounting Officer) April 30, 1998
JON F. DANSKI
* Director April 30, 1998
- -------------------------------
CURTIS H.BARNETTE
</TABLE>
III-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE Title Date
--------- ----- ----
<S> <C> <C>
* Director April 30, 1998
- -------------------------------
GERALD CLARK
* Director April 30, 1998
- -------------------------------
JOAN GANZ COONEY
* Director April 30, 1998
- -------------------------------
BURTON A. DOLE, JR.
* Director April 30, 1998
- -------------------------------
JAMES R. HOUGHTON
* Director April 30, 1998
- -------------------------------
HELENE L. KAPLAN
* Director April 30, 1998
- -------------------------------
CHARLES M. LEIGHTON
* Director April 30, 1998
- -------------------------------
ALLEN E. MURRAY
* Director April 30, 1998
- -------------------------------
JOHN J. PHELAN, JR.
* Director April 30, 1998
- -------------------------------
HUGH B. PRICE
* Director April 30, 1998
- -------------------------------
ROBERT G. SCHWARTZ
</TABLE>
III-10
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE Title Date
--------- ----- ----
<S> <C> <C>
* Director April 30, 1998
- -------------------------------
RUTH J. SIMMONS
* Director April 30, 1998
- -------------------------------
WILLIAM C. STEERE, JR.
/S/ CHRISTOPHER P. NICHOLAS April 30, 1998
- -------------------------------
CHRISTOPHER P. NICHOLAS, ESQ.
ATTORNEY-IN-FACT
</TABLE>
III-11
<PAGE>
Exhibit Index
-------------
<TABLE>
<S> <C>
(1) (i) Resolutions of the Board of Directors of New England Mutual Life Page No.
Insurance Company authorizing the Registrant are incorporated (on executed
herein by reference to the Registration Statement on Form N-4 copy only)
(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.
(4) (i) Form of New England Mutual Life Insurance Company Variable
Annuity Contract, Application and Riders.
(ii) Forms of New England Mutual Life Insurance Company Contract
Loan Endorsement.
(iii) Forms of New England Mutual Life Insurance Company Endorse-
ments (Death of Owner, Individual Retirement Annuity and Sample of
Benefits for Disability of Annuitant).
(iv) Forms of Metropolitan Life Insurance Company Endorse-
ments (New Contract Loan, Spousal/Beneficiary Continuation).
(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.
</TABLE>
<PAGE>
(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.
(iii) Amendment No. 1 to Participation Agreement Among Variable
Insurance Products Fund, Fidelity Distributors Corporation and
New England Mutual Life Insurance Company is incorporated
herein 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 Deloitte & Touche LLP
(ii) Consent of Sutherland, Asbill & Brennan, L.L.P.
(11) None
(12) None
(13) Schedule of computations for performance.
(14) Powers of Attorney are incorporated herein by reference to the Registration
Statement on Form N-4 (No. 333-11131) filed on August 30, 1996, except for
Gerald Clark, Burton A. Dole, Charles M. Leighton and William C. Steere,
Jr. whose powers of attorney were filed in with Post-Effective Amendment
No. 5 to the Registration Statement of Separate Account UL (File No. 33-
47927) on April 30, 1997 and Robert H. Benmoshe whose power of attorney was
filed with the Registration Statement of Metropolitan Life Separate Account
UL (File No. 333-40161) filed November 13, 1997 and Jon F. Danski whose
power of attorney was filed with Pre-Effective Amendment to the
Registration Statement of Metropolitan Life Separate Account UL (File No.
333-40161) filed April 2, 1998.
<PAGE>
Exhibit 3(ii)
NEW ENGLAND SECURITIES CORPORATION
VARIABLE PRODUCT SALES AGREEMENT
This Agreement is made and entered into as of _____, 199_, by and among New
England Securities Corporation ("NES"), a Massachusetts corporation, New England
Life Insurance Company ("NELICO"), a Massachusetts corporation and ___________
corporation, ("Contractor").
NES, principal underwriter of the Variable Products, hereby authorizes
Contractor to solicit applications for the purchase of such Variable Products,
in consideration of and subject to the following terms and conditions:
1. Definitions. For the purposes of this Agreement the following terms
-----------
are as defined:
1.1 "Variable Products" shall mean the variable life insurance policies
and/or variable annuity contracts issued by NELICO.
1.2 "Insurance Company" shall mean NELICO.
1.3 "Prospectus" shall mean the then-current prospectus for the Insurance
Company separate investment account that issues the Variable Product
together with the prospectus for any underlying mutual fund in which
the separate investment account may invest, and any supplements or
"stickers" to each such prospectus.
1.4 "Registered Representative" shall mean an individual who is duly
registered with the National Association of Securities Dealers, Inc.
("NASD") in compliance with the Securities Exchange Act of 1934, as
amended (the "1934 Act") and who is licensed as a life insurance
agent for the sale of variable life insurance and variable annuity
contracts in the jurisdictions in which applications are to be
solicited.
1.5 "Insurance Subsidiary" shall mean a subsidiary of the Contractor
formed as a domestic corporation that has obtained insurance agent or
broker licenses under applicable state law.
2. Licensing and Registration. Contractor represents that it is a
--------------------------
properly registered securities broker and/or dealer under applicable
federal and state securities laws and regulations. Each party hereto
represents that it is a member in good standing of the NASD, and
agrees to notify immediately the other should it cease to be either a
member in good standing of the NASD, and/or should it cease to be a
member of the NASD. It is further agreed that all rules and/or
regulations of the NASD now in effect or hereafter adopted, which are
binding upon underwriters and dealers in the distribution of variable
life insurance products and variable annuity contracts and such other
regulations applicable to Contractor and NES, shall be deemed to be a
part of this Agreement to the same extent as if set forth herein.
3. Contract Relationship. Throughout the term of this Agreement, the
---------------------
relationship of Contractor to NES shall be that of an independent
contractor. Contractor, and its employees, representatives and agents,
if any, are not and shall not be employees of NES.
1
<PAGE>
To preserve such independent contractor relationship, the parties
agree that Contractor at all times shall:
3.1 Pay all of its own overhead expenses, including but without
limitation, expenses for clerical assistance, rent, postage,
telephone and similar expenses, and federal and state income taxes
and payroll taxes under the Federal Insurance Contribution Act and
any applicable state unemployment, disability or other laws with
respect to its income.
3.2 Maintain such policies of workers compensation insurance as are
customary.
3.3 Not in any way hold itself out to any of its customers or potential
customers as being affiliated with NES.
3.4 Control the mode of conducting its business with complete discretion,
except as otherwise expressly provided in this Agreement.
3.5 Not enter into any agreement for or on behalf of NES, or create any
obligation, express or implied, by or in favor of NES.
3.6 Not accept payment for services for or on behalf of NES.
3.7 Not accept service of process for NES.
3.8 Not be a principal underwriter with respect to the Variable Products
or shares of the New England Zenith Fund.
4. Compensation.
------------
4.1 The Contractor, or if required by state law, the Insurance
Subsidiary, shall receive compensation with respect to sales of
Variable Products in transactions solicited by Registered
Representatives in accordance with the terms and conditions of NES'
then current distribution agreements applicable to sales of such
Variable Products, and in accordance with the terms and conditions
contained in the applicable Insurance Company broker-dealer insurance
marketing agreements, as may be amended from time to time. Such
compensation shall be remitted to Contractor or the Insurance
Subsidiary, as the case may be, through a General Agent of the
Insurance Company who is a Registered Representative of NES or by such
other procedures as NES shall specify. NES or such General Agent may
offset against any compensation payable to Contractor or the Insurance
Subsidiary any indebtedness owing from Contractor or the Insurance
Subsidiary to NES, the Insurance Company, or such General Agent.
4.2 Compensation shall be refunded by Contractor or the Insurance
Subsidiary, as the case may be, to NES, or its agent, in accordance
with the terms and conditions of the applicable Insurance Company
broker-dealer insurance marketing agreement, as amended from time to
time. Such refund may be effected, at NES' option, by deduction by NES
from other moneys to be paid to Contractor or the Insurance
Subsidiary.
5. Covenants of Contractor. Contractor covenants and agrees that,
-----------------------
during the term of this Agreement:
2
<PAGE>
5.1 Contractor is, and at all times during the term of this Agreement
shall be, a securities broker registered and in good standing with
the Securities and Exchange Commission ("SEC") as a broker-dealer
pursuant to Section 15(a) of the 1934 Act, a member in good standing
of the NASD, and a registered broker-dealer under state law to the
extent required in order to provide the services discussed in this
Agreement.
5.2 Contractor shall at all times conduct its business solely in
accordance with the rules and regulations of the SEC, the NASD, any
other appropriate self-regulatory organization and all appropriate
state insurance and securities authorities. Contractor shall assume
full responsibility for the securities activities of, and for
securities law compliance by, any "person associated" (as that term
is defined in Section 3(a)(18) of the 1934 Act) with Contractor,
including, as applicable, compliance with rules and regulations of
the NASD and with federal and state laws and regulations. Contractor
understands that if failure to comply with the rules, regulations,
and requirements of applicable state and federal law results in
disciplinary action against it by the NASD and any other regulatory
authority having jurisdiction, that such failure may result in the
suspension by NES, in the sole discretion of NES, of Contractor's
authority to represent NES or in the termination of this Agreement by
NES.
5.3 Contractor or the Insurance Subsidiary, as the case may be, shall
instruct purchasers to remit all premiums directly to the Insurance
Company or shall forward any premiums received from purchasers
directly to the Insurance Company.
5.4 Contractor agrees that NES will act as Contractor's agent in
providing customer confirmations pursuant to Rule l0b-10 under the
1934 Act.
5.5 Contractor will itself be, or will select persons associated with it
who are, trained and qualified to solicit applications for purchase
of the Variable Products in conformance with applicable state and
federal laws. Any such person shall be a Registered Representative of
Contractor in accordance with the rules of the NASD, be licensed to
offer the Variable Products in accordance with the insurance laws of
any jurisdiction in which such person solicits applications and be
licensed with and appointed by the applicable Insurance Company as an
insurance agent to solicit applications for the Variable Products.
The activities of all Registered Representatives of Contractor
referred to in this paragraph will be under the direct supervision
and control of Contractor. The right of such Registered
Representatives to solicit applications for the purchase of Variable
Products is subject to their continued compliance with the rules and
procedures which may be established by Contractor, NES or the
Insurance Companies, including those set forth in this Agreement.
5.6 Contractor and its Registered Representatives shall solicit
applications for the Variable Products in accordance with applicable
state insurance law requirements and other applicable federal and
state laws and regulations. Neither Contractor nor its Registered
Representatives shall offer the Variable Products for sale in any
state where such products are not qualified for sale under applicable
laws and regulations, where neither Contractor nor its Registered
Representatives is authorized to sell such Variable Products, or
where Contractor is not qualified to act as a broker-dealer.
3
<PAGE>
5.7 Contractor shall be responsible for the training, supervision and
control of all non-registered personnel of any Insurance Subsidiary
and generally shall be responsible for supervising and inspecting
each such Insurance Subsidiary.
5.8 Contractor shall use its best efforts to maximize sales of the
Variable Products contemplated by this Agreement, but shall not be
required to devote its exclusive efforts thereto.
5.9 Contractor shall provide or shall cause its Registered
Representatives to provide a Prospectus whenever required by
applicable law in connection with the sale or delivery of Variable
Products pursuant to the provisions of this Agreement, and shall
fully explain or shall cause its Registered Representatives to
explain to a prospective customer or customers the terms of any
Variable Product offered or sold to such customers.
5.10 Contractor shall not make, nor permit its Registered Representatives
to make, any untrue or misleading statement or representation, and
shall not omit, nor permit its Registered Representatives to omit, to
state any material information or fact, pertaining to any aspect of
an offer or sale of Variable Products to a prospective customer or
customers.
5.11 Contractor shall not use, nor permit its Registered Representatives
to use, any Prospectus, prospecting material, advertising, sales
material, or related materials in connection with offers and sales of
the Variable Products, unless the same have been provided or approved
in advance in writing by NES. Contractor shall comply with such
instructions relating to the sale of Variable Products as may
reasonably be requested by NES.
5.12 Contractor shall at all times use its best efforts to obtain and
maintain in full force and effect policies of professional liability
insurance against errors and omissions in such amounts and on such
terms as are customary in the securities industry for a broker of
Contractor's size and type. Contractor shall allow NES to review such
policies from time to time upon NES' request in writing. Contractor
agrees promptly to notify NES of any change in any such policy.
Contractor understands that Contractor is not covered under any
insurance policy, including but not limited to any errors and
omissions coverage, maintained by NES or any affiliate of NES.
5.13 Contractor agrees to furnish to NES such information as may from time
to time be requested by NES for the purpose of complying with the
applicable provisions of federal or state securities laws and the
by-laws, rules or regulations of the NASD or any other securities
regulatory authority. Contractor also agrees to furnish to NES such
information as may from time to time be requested by NES for the
purpose of updating the financial and other information supplied by
Contractor to NES prior to entering this Agreement. Contractor shall
immediately notify the Compliance Department of NES of any
proceeding, suit or action, whether criminal, civil or
administrative, or the commencement by the NASD or any other
securities regulatory authority or any other state or federal
authority of any investigation, if such proceeding, suit, action or
investigation arises out of or in connection with Contractor's
activities as broker or dealer with respect to Variable Products.
Contractor shall promptly notify NES if it becomes the subject of any
disciplinary or license revocation proceeding, or if it is the
subject of any governmental order, that affects its right or ability
to perform broker-dealer services. Contractor shall also immediately
notify the Compliance Department of NES of any complaint by a
prospect or customer or regulatory authority regarding the Variable
4
<PAGE>
Products or Contractor's activities as broker or dealer. NES and the
Insurance Company reserve the right to resolve any such complaints
involving the Variable Products by a prospect or customer or
regulatory authority. Any response by NES or the Insurance Company to
a complaint will be sent to Contractor for approval not less than
five business days before its being sent to the prospect, customer or
regulatory authority except that if a more prompt response is
required, the proposed response shall be communicated by telephone.
Contractor shall not be liable to NES or the Insurance Company on
account of any settlement of any claim or action effected without the
consent of Contractor.
5.14 Contractor shall advise NES of any claim or demand, including without
limitation, any pending or threatened litigation for which NES or the
Insurance Company would be entitled to indemnity or contribution
pursuant to paragraph 7 of this Agreement.
5.15 All covenants of Contractor contained in this Agreement shall be
deemed to be continuing representations and warranties of Contractor
which shall survive the termination of this Agreement.
6. Covenants of NES. NES covenants and agrees that, during the term of
----------------
this Agreement:
6.1 NES is, and at all times during the term of this Agreement shall be,
a securities broker registered and in good standing with the SEC as a
broker-dealer pursuant to Section 15(a) of the 1934 Act and a member
in good standing of the NASD.
6.2 NES shall at all times conduct its business solely in accordance
with the rules and regulations of the SEC, the NASD, any other
appropriate self-regulatory organization and all appropriate state
securities authorities.
6.3 NES shall advise Contractor of any claim or demand, including without
limitation, any pending or threatened litigation, for which
Contractor would be entitled to indemnity or contribution pursuant to
paragraph 7 of this Agreement.
6.4 All covenants of NES contained in this Agreement shall be deemed to
be continuing representations and warranties of NES which shall
survive the termination of this Agreement.
7. Indemnification. Contractor and NES agree as follows:
---------------
7.1 Contractor agrees to indemnify and hold NES and the Insurance Company
harmless from any and all cost, expense and liability, including
reasonable attorneys' fees, resulting from any claims, demands,
liabilities, losses, damages or expenses (collectively, "Claims")
arising out of or relating to (a) any offers and/or sales by
Contractor of securities other than the Variable Products
contemplated by this Agreement, (b) any business or activity of
Contractor not expressly contemplated by this Agreement, and (c) any
applications for Variable Products, solicitations of applications for
the Variable Products or offers to sell or sales of Variable Products
to the extent such Claims result from acts or omissions by
Contractor, its representatives, agents, sub-agents or any Insurance
Subsidiary. For purposes of this sub-paragraph 7.1, NES shall be
deemed to include its "controlling persons" as defined in Section 15
of the Securities Act of 1933 and Section 20(a) of the 1934 Act.
5
<PAGE>
7.2 NES agrees to indemnify and hold Contractor harmless from any and all
cost, expense and liability, including reasonable attorneys' fees,
resulting from any Claims arising out of or relating to any offer to
sell or sales of Variable Products made pursuant to this Agreement to
the extent such Claims result from acts or omissions by persons other
than the Contractor or persons with respect to whose activities the
Contractor is responsible. For purposes of this sub-paragraph 7.2,
Contractor shall be deemed to include its "controlling persons" as
defined in Section 15 of the Securities Act of 1933 and Section 20(a)
of the 1934 Act.
8. Application Procedures. Contractor shall comply with all procedures
----------------------
established by the Insurance Company and NES for the handling of
applications, initial premiums, and insurance policy proceeds. The
Insurance Company shall have the unqualified right to refuse any
application for a Variable Product.
9. Sales Material. No person is authorized to make any representations
--------------
concerning the Variable Products except those contained in the
currently applicable Prospectus and in sales literature issued and
approved by NES supplemental to such Prospectus. NES shall furnish
without charge additional copies of the current Prospectus and such
sales literature and other releases and information issued by NES in
reasonable quantities upon request. Contractor agrees that it shall in
all respects duly conform with all laws and regulations applicable to
the sale of the Variable Products. In the offer and sale of the
Variable Products, Contractor may not use any prospectus or
advertising, prospecting, or sales material not provided or approved
in writing by NES.
10. Confirmations: Books and Records. NES shall confirm or cause to be
--------------------------------
confirmed to customers of Contractor all policy transactions, as and
to the extent legally required. Contractor shall maintain all books
and records as required by Rules 17a-3 and 17a-4 under the 1934 Act,
except to the extent that NES may agree to maintain any such records
on Contractor's behalf. Records subject to any such agreement shall be
maintained by NES, either directly or through the services of NELICO
or an affiliate of NELICO, as agent for Contractor in compliance with
said rules, and such records shall be and remain the property of
Contractor and be at all times subject to inspection by the SEC in
accordance with Section 17(a) of the 1934 Act. Except for those books
and records maintained by or on behalf of Contractor in accordance
with Rules 17a-3 and 17a-4 under the 1934 Act, all books, documents,
prospectuses, application forms, or other materials or supplies in the
possession of Contractor which pertain to the Variable Products or to
the business of NES shall be the property of NES or the Insurance
Company, as the case may be, which at any and all times shall be open
to inspection by any duly authorized representative of NES or the
Insurance Company and at the termination of this Agreement shall be
returned to NES. All records and information obtained by Contractor
pursuant to this Agreement shall be deemed to be confidential in
nature, and Contractor shall not disclose or use any such records or
information in any manner whatsoever except as expressly authorized in
writing by NES or as required by federal or state regulatory
authorities or court order. Contractor shall submit to all regulatory
and administrative bodies having jurisdiction over the operations of
NES, the Insurance Company, or Contractor any information, reports or
other material obtained pursuant to this Agreement which any such body
may request or require pursuant to applicable laws or regulations.
6
<PAGE>
11. Assignments. No assignment of this Agreement or of commissions
-----------
payable hereunder shall be made by Contractor without the prior
written consent of NES. Any such assignment of commissions is also
subject to the requirement and limitations thereon contained in any
applicable Insurance Company broker dealer insurance marketing
agreements.
12. Miscellaneous. This Agreement supersedes and cancels any prior
-------------
agreement between Contractor and NES with respect to the sale of the
Variable Products. Either party to this Agreement may cancel this
Agreement without cause at any time by written notice to the other.
13. Any notice to NES shall be given if mailed or telegraphed to it at
the address specified below, or at such other address as NES gives
notice of to Contractor:
Compliance Department
New England Securities Corporation
501 Boylston Street, 10th Floor
Boston, MA 02116
Any notice to Contractor shall be duly given if mailed or telegraphed
to it at the address specified below, or at such other address as
Contractor gives notice of to NES:
--------------------------------------------
--------------------------------------------
--------------------------------------------
14. Governing Law. This Agreement shall be governed by the laws of The
-------------
Commonwealth of Massachusetts.
15. No Hire. Contractor and NELICO acknowledge that each will have access
-------
to the names of the other's Registered Representatives as a result of
performing their respective obligations under this Agreement, and that
each may establish close working relationships with such persons.
Therefore, Contractor and NELICO agree that while Registered
Representatives maintain their affiliation with each and for twelve
(12) months after their termination of the affiliation:
(a) Contractor and NELICO will not hire any Registered
Representatives of the other.
(b) Contractor and NELICO acknowledge that their Registered
Representatives hold important contractual and business
relationships with each and agree that each shall not interfere
in any way with the relationships, contractual or otherwise,
between the other and its Registered Representatives. Contractor
and NELICO shall not induce or encourage, or attempt to induce or
encourage, any Registered Representative of the other to
terminate or change his or her relationship with the other.
7
<PAGE>
The parties hereto have executed this Agreement as a sealed instrument as of the
date first above written.
CONTRACTOR: NEW ENGLAND SECURITIES
CORPORATION
By: By:
--------------------------- ---------------------------
Title: Title:
--------------------------- ---------------------------
NEW ENGLAND
LIFE INSURANCE COMPANY
By:
---------------------------
Title:
---------------------------
8
<PAGE>
Exhibit 4(i)
New England Mutual Life Insurance Company
Since 1835
Flexible Purchase Payment Variable Annuity Contract
Annuitant: JOHN ALDEN
Contract Number: SPECIMEN
Payment Option: SECOND OPTION: VARIABLE LIFE INCOME,
10 YEARS CERTAIN
New England Mutual Life Insurance Company Agrees to pay monthly income to the
Annuitant under the Payment Option shown in Section 1 starting on the Maturity
Date if the Annuitant is then living; or to pay the Death Proceeds to the
Beneficiary on receipt of proof that the death of the Annuitant occurred before
the Maturity Date; and to provide the other rights and benefits of the Contract.
These agreements are subject to all of the provisions of the Contract.
Signed on the Date of Issue for the Company at its Home Office, 501 Boylston
Street, Boston, Massachusetts 02117
Robert A. Shafto
President
James A. Gallaher
Secretary
Flexible Purchase Payment Variable Annuity Contract
. Monthly income is payable starting on the Maturity Date.
. The Death Proceeds are payable if the Annuitant dies before the Maturity
Date.
. Purchase payments can be paid to the Company at any time before the Maturity
Date.
. Purchase payments can be increased or decreased from time to time.
. The Contract participates in Dividends.
Please Read Your Contract Carefully
This is a legal contract between you and the Company.
Monthly payments and other values provided by this Contract, when based on the
investment performance of a separate investment account, are variable; they are
not guaranteed as to dollar amount.
Ten Day Right to Return the Contract
When the Contract is issued, you have 10 days after you receive it from the
Company to examine it. Within those 10 days, you can return the Contract to the
Company or its Agent for any reason. If you do, the Contract will be cancelled.
Any purchase payment paid will then be refunded and the Contract will be void
from the beginning.
<PAGE>
Contract Provisions
Section
1 Contract Schedule
2 Contract
3 Purchase Payments
4 The Variable Account
5 Contract Value
6 Dividends
7 Owner and Beneficiary
8 Payment of Benefits
9 Payment Options
10 Variable Life Income Tables
. Riders, if any
. Copy of the Application
. Amendments and Endorsements
Alphabetical Guide
Section
5 Accumulation Units
5 Accumulation Unit Value
8 Amount of Variable Monthly Payments
5 Annual Administration Fee
8 Annuity Unit
8 Annuity Unit Value
7 Assignments
8 Assumed Interest Factor
8 Assumed Interest Rate
7 Beneficiary
8 Benefits, Payment of
4 Change of Eligible Funds
2 Claims of Creditors
5 Contingent Deferred Sales Charges
2 Contract
1, 2 Contract Date
5 Contract Value
8 Death Proceeds
6 Dividends
9 Fixed Payment Options
1, 8 Maturity Date
8 Maturity Proceeds
5 Net Investment Factor
5 Net Purchase Payments
4 New England Zenith Fund
7 Owner
2 Periodic Reports
3 Purchase Payments
1 Schedule, Contract
4 Sub-accounts
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5 Surrender of the Contract
8 Suspension of Payments
4 Transfer Option
5 Valuation Dates
5 Valuation Periods
10 Variable Life Income Tables
9 Variable Payment Options
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1. Contract Schedule
Owner and Beneficiary: As named in the Application or as later changed. See
Owner and Beneficiary Section of the Contract.
Annuitant: JOHN ALDEN
Contract Number: SPECIMEN
Payment Option: SECOND OPTION:
VARIABLE LIFE INCOME, 10 YEARS CERTAIN
Sex; Date of Birth: MALE, NOVEMBER 1, 1952
Contract Date: NOVEMBER 1, 1987
Date of Issue: NOVEMBER 1, 1987
Maturity Date: NOVEMBER 1, 2017
TOTAL PURCHASE PAYMENTS PER YEAR
BASED ON THE PURCHASE PAYMENT MODE AND AMOUNT
SHOWN IN THE APPLICATION: $1,000
MAXIMUM CONTINGENT DEFERRED SALES CHARGE (SEE SECTION 5)
CONTRACT YEAR CHARGE
1 6.5%
2 6.0%
3 5.5%
4 5.0%
5 4.5%
6 4.0%
7 3.5%
8 3.0%
9 2.0%
10 1.0%
THEREAFTER 0%
New England Mutual Life Insurance Company
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2. Contract
The Contract
This Annuity Contract is a legal contract between the Owner of the Contract
(called "you") and New England Mutual Life Insurance Company (called the
"Company"). The Contract, which includes the attached Application, is the entire
contract between you and the Company. All Riders are listed in Section 1. No
change in or waiver of the provisions of the Contract is valid unless the change
or waiver is signed by the President or the Secretary of the Company.
Payments Under the Contract
All Contract amounts are in dollars of the United States of America. Payments by
the Company under the Contract will be made at the Home Office of the Company.
Dates
Contract years, months and anniversaries are all measured from the Contract
Date. The Contract Date is shown in Section 1.
Claims of Creditors
The Contract and payments under it will be exempt from the claims of creditors
to the extent allowed by law.
Periodic Reports
The Company will send you all reports required by applicable laws and
regulations. Such reports will be send annually or more often if required by law
or regulation. Each report will include: the number of Accumulation Units, if
any, standing to the credit of the Contract; the applicable Accumulation Unit
Values; the Contract Value; and any other required information.
Expense and Mortality Experience
Regardless of the Company's expense and mortality experience, the charges
specified in this Contract will not be increased.
3. Purchase Payments
Payment
Purchase payments are your payments to the Company for the Contract. Payments
are to be made at the Home Office of the Company. A receipt for payment signed
by the Secretary of the Company will be furnished on request. The Contract will
not be in force until the first purchase payment is paid. Following payment of
the first purchase payment, the Contract will be in force by its terms; and
failure to make subsequent purchase payments will not cause the Contract to
lapse.
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The premium for any Rider is not a purchase payment for the Contract and is
payable in addition to the purchase payment.
Amount and Frequency
Your purchase payments can be made in any amounts, except that:
. No payment can be less than $25 except with the consent of the Company; and
. The Company reserves the right to limit purchase payments in any contract
year: if the Purchase Payment Amount in Section 1 is shown as an amount per
year, to three times the amount per year shown; or if the Purchase Payment
Amount in Section 1 is shown as a Single Payment.
Your purchase payments can be made at any time before the Maturity Date; and you
can arrange for purchase payments to be scheduled on dates which are the first
day of annual, semi-annual, or quarterly payment periods, or at any other
frequency agreed to by the Company.
4. The Variable Account
The New England Variable Account
The New England Variable Account (called "the Account") is a separate investment
account established by the Company in accordance with Massachusetts law. The
assets of the Account are owned by the Company. The assets of the Account will
be used to provide values and benefits under this Contract and similar
contracts, but the Account is not chargeable with liabilities arising out of any
other business the Company may conduct.
Sub-Accounts
The Account consists of sub-accounts, each of which is invested in shares of one
series of the New England Zenith Fund or its successor. Shares of a series are
purchased for a sub-account at their net asset value.
The Contract's first investment will be made as of the later of:
. The Contract Date; and
. The date the first purchase payment is received by the Company.
Each distribution of income, dividends and capital gains from a series to the
Account will be reinvested for the benefit of the owners of the contracts at net
asset value in shares of the series which made the distribution.
The Contract Value at any time cannot be allocated among more than 10 sub-
accounts, except with the consent of the Company.
The values of a contract depend on the investment performance of the series. You
bear the investment risk for amounts invested for your Contract.
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<PAGE>
Election of Sub-Accounts
You elect the sub-accounts in which the Contract Value is invested. The series
as of the Date of Issue are listed in the then current prospectus for the
Account.
Change in Series
The Company can add or remove series as sub-account investments as permitted by
law. When a change is made, the Company will send you: a revised prospectus for
the Account which will describe all of the series then in the New England Zenith
Fund; and any notice required by law.
When a series is removed, the Company has the right to substitute a different
series in which the sub-account will then invest the value of the removed
series.
Transfer Option
You can transfer all or a portion of the Contract's existing share of a sub-
account into another sub-account. Requests for transfers can be made in writing
or by telephone. The Company is not responsible for the authenticity of transfer
instructions received by telephone. The minimum transfer is $25 or, if less, the
full value of the Contract's share of a sub-account. While the Contract is in
force other than under a Payment Option, transfers of existing shares will be
subject to a limit of 4 in each contract year; each transfer above 4 will be
subject to a charge of not more than $10. While a Variable Payment Option is in
effect, transfers of existing shares will be subject to a limit of 1 in each
contract year, except with the consent of the Company.
Rights Reserved by the Company
The Company reserves the right to take certain actions subject to compliance
with law and, if required, the approval of the owners of the contracts. These
actions are: (a) to create new investment accounts; (b) to combine any two or
more separate investment accounts, including the Account; (c) to invest the
assets of the Account other than in the New England Zenith Fund; (d) to operate
the Account as a management investment company and to charge investment advisory
fees under the Investment Company Act of 1940 or in any other form permitted by
law; and (e) to deregister the Account under the Investment Company Act of 1940
if registration is no longer required.
5. Contract Value
Contract Value
On or before the Maturity Date, the Contract Value is equal to the number of
Accumulation Units standing to the credit of the Contract multiplied by the
applicable Accumulation Unit Value.
The Contract value is not increased by the cash value of any Rider, unless
stated in the Rider.
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Net Purchase Payments
A net purchase payment is equal to:
. The purchase payment paid:
LESS
. Any applicable state premium tax.
Each net purchase payment will be credited in the form of Accumulation Units to
the sub-account you elect.
The number of Accumulation Units credited to a sub-account will be equal to the
net purchase payment credited to that sub-account divided by the Accumulation
Unit Value for that sub-account for the applicable Valuation Period.
Accumulation Unit Value
An Accumulation Unit Value is determined for each sub-account for each Valuation
Period. The Accumulation Unit Value for the first Valuation Period of each sub-
account was set at $1.00. Each Accumulation Unit Value for each later Valuation
Period is equal to:
. The Net Investment Factor for that Valuation Period; TIMES
. The Accumulation Unit Value for the immediately preceding Valuation Period.
The Net Investment Factor depends on the investment performance of the series of
the sub-accounts elected and can be greater or less than one. Therefore, the
Accumulation Unit Value can increase or decrease.
Net Investment Factor
The Net Investment Factor for each sub-account for each Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result; where:
. (a) is equal to the net asset value per share of the series held in the sub-
account as of the end of that Valuation Period;
PLUS
the per share amount of all dividend and capital gains distributions made by
the series held in the sub-account if the ex-dividend date occurs during that
Valuation Period;
PLUS or MINUS
a per share charge or credit for any reserve for taxes which the Company
determines to apply to the sub-account and to this Contract;
. (b) is equal to the net asset value per share of the series held in the sub-
account for the immediately preceding Valuation Period;
PLUS or MINUS
a per share charge or credit for any reserve for taxes which the Company
determines to apply to the sub-account and to this Contract; and
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<PAGE>
. (c) is equal to .0000369863 times the number of days in that Valuation
Period.
Valuation Periods and Valuation Dates
Values for a date depend on the time of day for which they are to be determined;
they will be determined with respect to each sub-account as of the next
occurring end of a Valuation Period. A Valuation Period for each sub-account is
a period:
. Which starts on a Valuation Date at the time of day specified by the
applicable series for determining the net asset value of its shares; and
. Which ends on the next succeeding Valuation Date at that time of day.
Each day the New York Stock Exchange is open for trading is a Valuation Date.
Annual Fees
The Company will charge an annual Administration Fee of $30. The fee will be
charged on each contract anniversary while the Contract is in force other than
under a Payment Option. If the Contract is surrendered or matures on a date
which is not a contract anniversary, the charge will be the pro rata portion of
the fee for the period beyond the most recent contract anniversary.
The fee will be charged to each sub-account:
. In the same proportion as the Contract is invested in that sub-account; and
. By reducing the number of Accumulation Units standing to the credit of the
Contract in that sub-account.
Surrender of the Contract
You can surrender the Contract at any time prior to the Maturity Date by notice
to the Company in writing. Upon surrender, the Contract will terminate. The
Surrender Proceeds will be equal to the Contract Value as of the Surrender Date
less any Administration Fee and any Contingent Deferred Sales Charge. The
Surrender Date is the date on which the Company receives at its Home Office:
. Written request in proper form for surrender and payment in one sum; or
. Written request in proper form for surrender and payment under one of the
Payment Options; or any later date that may be specified in the request. (See
Payment of Benefits, Section 8.)
You can also make a partial surrender, but the consent of the Company will be
required if the remaining Contract Value would be less than $500. A partial
surrender will reduce the Contract's share of the sub-accounts proportionately,
unless you request otherwise.
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Contingent Deferred Sales Charges
A Contingent Deferred Sales Charge will be deducted in the event of certain
partial surrender, full surrender or maturity transactions.
The Charge is shown in the Contract Schedule. (See Section 1.) The charge is a
percentage of the Contract Value.
No Charge will be deducted in the event of:
. Death of the Annuitant; or
. Surrender or maturity, if the proceeds are applied to a Variable Life Income
Payment Option; or
. Surrender or maturity 5 or more years from the Contract Date, if the proceeds
are applied to a Fixed Life Income Payment Option.
In each contract year, the first 10% of the Contract Value will be exempt from
any Contingent Deferred Sales Charge in surrender and maturity transactions. In
computing the 10% to be exempt, partial surrenders for which no Charge was
deducted because the proceeds were applied to a Variable or Fixed Life Income
Payment Option will not be counted.
In no event will the total Charges exceed 8% of the first $50,000 of purchase
payments made under the Contract plus 6.5% of purchase payments in excess of
$50,000 made under the Contract.
6. Dividends
Dividends
The Contract will share in the divisible surplus of the Company. The share, if
any, to be apportioned to the Contract will be determined each year by the
Company and will be credited to the Contract as a dividend. Dividend dates will
occur on each Contract anniversary before the Maturity date and on the Maturity
Date. Any dividends are expected to be modest in amount and to accrue, if at
all, in later contract years as a result of expense and mortality experience
more favorable than assumed. Each dividend will be applied as a Net purchase
Payment in the form of Accumulation Units unless payment in cash is requested.
7. Owner, Beneficiary and Contingent Annuitant
Owner
The Owner of the Contract is named in the Application (See copy attached).
However, the Owner can be changed from time to time. The new Owner will succeed
to all rights of the Owner, including the right to make a further change of
Owner. At the death of the Owner, his or her estate will be the Owner, unless a
successor Owner has been named. In this Contract you means the Owner, whether
the Owner is an individual, a partnership, a corporation, a fiduciary, or any
other legal entity. The rights of the Owner will terminate at the death of the
Annuitant, except for Payment of Benefits. (See Section 8.)
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Limitations on Rights of Owner
If the Contract is issued under a Plan or Trust which meets the requirements of
Section 401, 403(a) or 403(b) of the Internal Revenue Code as amended, the
Contract cannot be sold, assigned or pledged; except that an Owner other than
the Annuitant can assign the Contract to the Annuitant when required by the
terms of the Plan or Trust.
Beneficiary
The Death Proceeds will be paid to the Beneficiary if the Annuitant dies before
the Maturity Date. The Beneficiary is named in the Application. (See copy
attached.) However, the Beneficiary can be changed from time to time before the
Death of the Annuitant. The Beneficiary has no rights in the Contract until the
death of the Annuitant. An individual must survive the Annuitant to qualify as
Beneficiary. If none survives, the proceeds will be paid to the Owner. The
Beneficiary can also be a corporation, a partnership, a fiduciary, or any other
legal entity.
Change of Owner or Beneficiary
A change of Owner or Beneficiary must be in written form satisfactory to the
Company, and must be dated and signed by the Owner who is making the change. The
change will be subject to all payments made and actions taken by the Company
under the Contract before the signed change form is received by the Company at
its Home Office.
Assignments
An absolute assignment of the Contract by the Owner is a change of Owner and
Beneficiary to the assignee. A collateral assignment of the Contract by the
Owner is not a change of Owner or Beneficiary; but their rights will be subject
to the terms of the assignment. Assignments will be subject to all payments made
and actions taken by the Company before a signed copy of the assignment form is
received by the Company at its Home Office. The Company will not be responsible
for determining whether or not an assignment is valid.
Designation of Owner and Beneficiary
A numbered sequence can be used to name successive Owners or Beneficiaries. Co-
Beneficiaries will receive equal shares unless otherwise stated.
In naming Owners or Beneficiaries, unless otherwise stated:
. "Child" includes an adopted or posthumous child;
. "Provision for issue" means that if a Beneficiary does not survive the
Annuitant, the share of that Beneficiary will be taken by his or her living
issue by right of representation; and
. A family relation such as "wife", "husband", or "child" means the relation to
the Annuitant.
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At the time for payment of benefits the Company can rely on an affidavit of any
Owner or other responsible person to determine family relations or members of a
class.
8. Payment of Benefits
Maturity Date
The Maturity Date is shown in Section 1. Before the Maturity Date you can elect
to defer the Maturity Date. Consent of the Company is required if on the
deferred date the age of the Annuitant at his or her nearest birthday would be
more than 75.
Maturity Proceeds
The Maturity Proceeds will be equal to the Contract Value on the Maturity Date
less any Administration Fee and any Contingent Deferred Sales Charge. If the
annuitant is living on the Maturity Date, the Company will apply the Maturity
Proceeds to the Payment Option shown in Section 1, with the Annuitant as Payee.
Before the Maturity Date you can elect in writing that on the Maturity Date the
Maturity Proceeds will instead be:
. Paid in one sum; or
. Applied to any other Payment Option.
Death Proceeds
If the Annuitant dies before the Maturity Date, the Company will pay a death
benefit to the Beneficiary. The Death Proceeds will equal the greater of:
. The total of the purchase payments adjusted for any partial surrenders; or
. The Contract Value as of the Death Valuation Date.
The Death Valuation Date is the later of:
. The date on which the Company receives at its Home Office proof of death of
the Annuitant; and
. The date on which the Company receives at its Home Office election of payment
in one sum or under a Payment Option; provided that if no election has been
received by the end of the 90th day after the date proof of death was
received, payment in one sum will be deemed to have been elected on the 90th
day.
Suspension of Payments
The Company can suspend payment of any amounts due under the Contract when
permitted under applicable Federal laws, rules and regulations.
Election of Payment Options; Option Date
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The election of a Payment Option and the naming of the Payee must be in written
form satisfactory to the Company. You can make or change or revoke the election
from time to time before the death of the Annuitant or the Maturity Date,
whichever occurs first. The Option Date is the effective date of the Payment
Option, as stated in the election.
Payee
A Payee is any individual, corporation, partnership, fiduciary or any other
legal entity entitled to receive payment in one sum or under a Payment Option.
Election By Payees
Any proceeds payable in one sum at the death of the Annuitant, or upon surrender
or maturity of the Contract, can be applied to any Payment Option at the
election of the Payee. Further, subject to the consent of the Company, any Payee
who is entitled to receive proceeds in one sum at the expiration of a Payment
Option, or at the death of a prior Payee, or upon withdrawal of the proceeds,
can elect to apply the proceeds to a Payment Option.
Rights of Payees
A Payee under the First Variable Payment Option has the right to withdraw the
commuted value of payments certain. A Payee under the Fourth or Fifth Variable
Payment Option has the right to withdraw the value of any remaining Accumulation
Units.
After the death of the Payee under the Second of Third Variable Payment Option
or the surviving Payee under the Sixth Variable Payment Option, a Payee named to
receive any unpaid payments certain can withdraw the commuted value of the
payments certain.
In the election of a Fixed Payment Option the right can be given to the payee to
withdraw all or part of the principal and interest under the Fourth or Fifth
Option. No Payee can assign, anticipate or withdraw the payments under any
Fixed Payment Option, unless the right is reserved in the election of the
Option.
Payments in One Sum.
Amounts payable in one sum will be payable:
. As of the Surrender Date in case of surrender;
. As of the Death Valuation Date in case of the death of the Annuitant prior to
the Maturity Date;
. As of the Maturity Date in case of maturity;
. As of the date the request is received by the Company at its Home Office in
case of request for withdrawal of amounts under Payment Options; or
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. As of the date proof of death of the Payee is received by the Company at its
Home Office in case of an amount to be paid in one sum at the death of the
Payee.
An amount payable in one sum will be paid within 7 days of the date it is
payable, subject to the Suspension of Payments provision.
Limitations
If installments under an Option are less than $20, the Company can change the
interval of payment to 3 or 6 or 12 months in order to increase each payment to
at least $20.
Variable Life Income Options
Variable Life Income Options are based on the age of the Payee on the Payee's
birthday nearest the Option Date and on the Assumed Interest Rate selected. The
Company will require proof of age. The Life Income Payments will be based on the
rates shown in the Variable Life Income Tables (Section 10) or on the Payment
Option rates of the Company on the Option Date, whichever rates are more
favorable to the Payee. The rates shown in the Variable Income Tables are based
on an Assumed Interest Rate of 3 1/2% per year; and on mortality: using a 60/40
male/female weighting; based on the Individual Annuitant Mortality Table for
1983; and with projection on Scale G to the year 2000 and then on Scale B
Modified to the year 2010.
Amount of Variable Monthly Payments
The amount of the first monthly payment under the First, Second, Third and Sixth
Variable Payment Options is equal to:
. The number of thousands of dollars of proceeds applied to the Option;
TIMES
. The monthly payment rate per $1,000 for the Option.
The amount of each later monthly payment is equal to the number of Annuity Units
times the applicable Annuity Unit Values for the most recent Valuation Period
which ended at least 14 days prior to the date the payment is due.
Annuity Units; Annuity Unit Values
The number of Annuity Units credited under the First, Second, Third and Sixth
Variable Payment Options is equal to the amount of the first monthly payment
divided by the applicable Annuity Unit Value as of the Option Date. The number
of Annuity Units remains constant; except that: (a) the number is adjusted to
reflect different Annuity Unit Values upon transfer of an interest of the
Contract in a sub-account to another sub-account; and (b) the number decreases
by one-third at the death of the first Payee under the Joint and 2/3 to Survivor
Variable Life Income Option.
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The Annuity Unit Values depend on the Assumed Interest Rate and on the Net
Investment Factor. An Annuity Unit Value is determined for each sub-account for
each Valuation Period. The Annuity Unit Value for the first Valuation Period for
each sub-account was set at $1.00. Each Annuity Unit Value for each later
Valuation Period is equal to:
. The Annuity Unit Value for the immediately preceding Valuation Period;
TIMES
. The Net Investment Factor for that Valuation Period;
TIMES
. The Assumed Interest Factor for each day in that Valuation Period.
The Net Investment Factor depends on the investment performance of the series
held in the sub-accounts elected. The Net Investment Factor multiplied by the
Assumed Interest Factor can be greater or less than one. Therefore, the Annuity
Unit Values can increase or decrease.
Choice of an Assumed Interest Rate
The amount of each monthly payment under the First, Second, Third and Sixth
Variable Payment Options depends on an Assumed Interest Rate. In the election of
any of these Options, the Assumed Interest Rate chosen can be:
. 0%; or
. 3 1/2%; or
. 5%, if allowed by applicable law or regulation.
If no choice is made, 3 1/2% will be used as the Assumed Interest Rate. The
rates shown in Sections 9 and 10 for the Options are based on the 3 1/2% rate.
The Assumed Interest Factor derived from an Assumed Interest Rate of 3 1/2% is
0.9999058.
Correction of Benefits if Age Incorrect
If the age of the Payee under a Life Income Option has not been correctly
stated, the benefits will be corrected to the amounts which the proceeds would
have provided for the correct age. Any amount by which the payments by the
Company have been too large or too small, with interest at 6% per year
compounded yearly, will be:
. Charged against the next payment or payments if the payments have been too
large; or
. Added to the next payment if the payments have been too small.
Death of Payee
Amounts to be paid after the death of a Payee under a Payment Option will be
paid as due to the surviving or next succeeding Payee. If no Payee survives,
amounts to be paid in one sum, or the commuted value of any unpaid payments
certain, will be paid in one sum to the estate of the last Payee to die. If the
Payee under a Life Income Option dies
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within 30 days after the Option Date, the amount applied to the Option, less any
payments made, will be paid in one sum, unless a Payment Option is elected.
Commutation Rate
The interest rate used to compute the commuted value of any unpaid payments
certain will be the Assumed Interest Rate. Each payment under the First, Second,
Third or Sixth Variable Payment Options will be assumed to be equal to the
number of Annuity Units times the applicable Annuity Unit Value.
9. Payment Options
Fixed Payment Options
You can elect to have all or part of the contract proceeds applied to Fixed
Payment Options to provide payments which do not depend on the investment
performance of the Account. The proceeds to be applied to Fixed Payment Options
will be transferred to the general account of the Company. The Fixed Payment
Option rates will be based on the provisions and rates offered by the Company on
the Date of Issue of this Contract under fixed contracts issued to a similar
class of annuitants.
Variable Payment Options
You can elect to have all or part of any contract proceeds applied to provide
payment under any one of the following Variable Payment Options, subject to
Section 8, Payment of Benefits; except that during the first contract year,
consent of the Company is needed.
First Option: Variable Income for Specified Number of Years
The Company will make variable monthly payments. Payments will begin on the
Option Date and will continue for the number of years elected; the number of
years elected cannot be more than 30.
Guaranteed first monthly payments per $1,000 of proceeds applied to the First
Option are shown below.
<TABLE>
<CAPTION>
Years Payment Years Payment Years Payment
- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $84.65 11 $9.09 21 $5.56
2 43.05 12 8.46 22 5.39
3 29.19 13 7.94 23 5.24
4 22.27 14 7.49 24 5.09
5 18.12 15 7.10 25 4.96
6 15.35 16 6.76 26 4.84
7 13.38 17 6.47 27 4.73
8 11.90 18 6.20 28 4.63
9 10.75 19 5.97 29 4.53
10 9.83 20 5.75 30 4.45
- ----------------------------------------------------
</TABLE>
Second Option: Variable Life Income
- --------------------------------------------------------------------------------
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<PAGE>
The Company will make variable monthly payments. Payments will begin on the
Option Date and will continue:
. During the life of the Payee, with no further payment after the death of the
Payee, called "Variable Life Income, No Refund"; or
. During the life of the Payee, but for at least 10 years, called "Variable
Life Income, 10 Years Certain"; or
. During the life of the Payee, but for at least 20 years, called "Variable
Life Income, 20 Years Certain."
Third Option: Variable Life Income
The Company will make variable monthly payments. Payments will begin on the
Option Date and will continue during the life of the Payee, but for a period at
least as long as the nearest whole number of months equal to the amount applied
to this Option divided by the amount of the first monthly payment called
"Variable Life Income, Installment Refund."
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 for any other period agreed
to by the Company. The number of Accumulation Units will be equal to the amount
of proceeds applied to this Option divided by the Accumulation Unit Value as of
the Option Date. Upon death of the Payee, or at the end of the period agreed
to, the value of the Accumulation Units under the Option will be paid in one
sum.
Fifth Option: Specified Amount of Income
The Company will make monthly payments in the amount elected. Payments may be
quarterly or at any other frequency elected, and payments may be in unequal
amounts, all subject to the consent of the Company. Payments will continue
until the balance is fully paid out. Upon death of the Payee any balance will
be paid in one sum. The Company will hold the proceeds applied to this Option
as a decreasing number of Accumulation Units. The initial number of
Accumulation Units will be equal to the amount of proceeds applied divided by
the Accumulation Unit Value as of the Option Date. As each payment is made, a
number of Accumulation Units with a total value equal to the amount of the
payment will be terminated.
Sixth Option: Variable Life Income for Two Lives
The Company will make variable monthly payments. Payments will begin on the
Option Date and will continue:
. While either of two Payees is living, called "Joint and Survivor Variable
Life Income"; or
- --------------------------------------------------------------------------------
V11
<PAGE>
. While either of two Payees is living, but for at least 10 years, called
"Joint and Survivor Variable Life Income, 10 Years Certain"; or
. While two Payees are living, and after the death of one Payee while the other
Payee is living, two-thirds of the monthly amount that would be payable if
both Payees were living, called "Joint and 2/3 to Survivor Variable Life
Income".
10. Variable Payment Option Tables
Variable Life Income Tables
Guaranteed first monthly payments per $1,000 of proceeds applied to the Variable
Life Income Options are shown below.
- --------------------------------------------------------------------------------
Second and Third Options: Variable Life Income
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Second Option Third Option
----------------- ----------------
10 20
Age of No Years Years Periods Certain
Payee Refund Certain Certain Amount Certain Months
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 $4.54 $4.50 $4.37 $4.39 19 0
56 4.62 4.58 4.43 4.46 18 8
57 4.70 4.65 4.49 4.53 18 5
58 4.79 4.74 4.56 4.60 18 1
59 4.89 4.83 4.62 4.68 17 10
60 4.99 4.92 4.68 4.76 17 6
61 5.10 5.02 4.75 4.85 17 2
62 5.22 5.12 4.82 4.94 16 10
63 5.34 5.23 4.88 5.03 16 7
64 5.47 5.35 4.95 5.13 16 3
65 5.61 5.47 5.02 5.24 15 11
66 5.76 5.60 5.08 5.35 15 7
67 5.92 5.73 5.15 5.47 15 3
68 6.10 5.87 5.21 5.59 14 11
69 6.28 6.02 5.27 5.72 14 7
70 6.48 6.17 5.33 5.86 14 3
71 6.70 6.33 5.38 6.00 13 11
72 6.92 6.49 5.43 6.16 13 6
73 7.17 6.66 5.48 6.32 13 2
74 7.43 6.84 5.52 6.49 12 10
75 7.71 7.02 5.56 6.67 12 6
- ---------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
V11
<PAGE>
- --------------------------------------------------------------------------------
Sixth Option: Variable Life Income for Two Lives
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Age of One Age of Other Payee
Payee 55 60 65 70 75
- ------------------------------------------------------------
Joint and Survivor
<S> <C> <C> <C> <C> <C>
55 $4.04 $4.17 $4.28 $4.37 $4.43
60 4.17 4.36 4.53 4.68 4.79
65 4.28 4.53 4.79 5.02 5.22
70 4.37 4.68 5.02 5.38 5.71
75 4.43 4.79 5.22 5.71 6.22
80 4.47 4.87 5.37 5.98 6.68
<CAPTION>
Joint and Survivor, 10 Years Certain
<S> <C> <C> <C> <C> <C>
55 $3.96 $4.09 $4.20 $4.36 $4.42
60 4.09 4.27 4.44 4.59 4.77
65 4.20 4.44 4.69 4.91 5.09
70 4.36 4.59 4.91 5.22 5.50
75 4.42 4.77 5.09 5.50 5.88
80 4.46 4.85 5.33 5.72 6.21
<CAPTION>
Joint and 2/3 to Survivor
<S> <C> <C> <C> <C> <C>
55 $4.37 $4.56 $4.76 $4.99 $5.23
60 4.56 4.78 5.02 5.30 5.59
65 4.76 5.02 5.33 5.67 6.03
70 4.99 5.30 5.67 6.10 6.57
75 5.23 5.59 6.03 6.57 7.18
80 5.48 5.89 6.41 7.06 7.84
- --------------------------------------------------------------------------
</TABLE>
Payments for other ages will be quoted by the Company on request.
- --------------------------------------------------------------------------------
V11
<PAGE>
- --------------------------------------------------------------------------------
Amendments and Endorsements (To be made only by the Company)
- --------------------------------------------------------------------------------
V11
<PAGE>
- --------------------------------------------------------------------------------
Notice of Annual Meeting and voting Privilege
The Owner of this Contract, by virtue of the Contract, is a Member of New
England Mutual Life Insurance Company and can vote, either in person or by
proxy, at all meetings of Members of the Company. Annual Meetings are held at
the Home Office of the Company on the third Wednesday in March each year at
eleven o'clock A.M.
New England Mutual Life
Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
Flexible Purchase Payment Variable Annuity Contract
. Monthly income is payable starting on the Maturity Date.
. The Death Proceeds are payable if the Annuitant dies before the Maturity
Date.
. Purchase payments can be paid to the Company at any time before the Maturity
Date.
. Purchase payments can be increased or decreased from time to time.
. The Contract participates in Dividends.
- --------------------------------------------------------------------------------
V11
<PAGE>
Exhibit 4ii
P-935-91-VA
Endorsement
As of the date of the Loan Application for this Contract, the following
provision is added to the Contract:
Contract Loans
Contract Loans
After the Right to Return the Contract period and before the Maturity Date, you
can borrow all or part of the Loan Value of the Contract by written request to
the Company. Contract Loans are made on the sole security of the Contract. The
amount you can borrow at any time is equal to the Loan Value less any Contract
Loan Balance at that time. Contract Loans will reduce the Contract's share of
the sub-accounts and of the Fixed Account proportionately, unless you request
otherwise. Assets equal to the amount of the Loan:
. Will be transferred to a Loan Collateral Account and held in the general
investment account of the Company; and
. Will earn interest at the effective rate of 4 1/2% per year.
This interest will be credited to the sub-accounts and to the Fixed Account in
the same proportion as net purchase payments are being allocated to the sub-
accounts and to the Fixed Account: each year on the contract anniversary; and on
the date the Contract Loan is repaid in full.
Contract Loans, whether or not repaid, can have a permanent effect on Contract
Values and Death Proceeds.
Loan Value
The Loan Value of the Contract is the amount of the Surrender Proceeds on the
date the Loan Application is received.
Interest on Loans; Contract Loan Balance
Contract Loans bear interest at the rate of 6 1/2% per year. Interest accrues
daily. The Contract Loan Balance at any time means Contract Loans outstanding
plus loan interest accrued to date. Loan interest is due each year on the
contract anniversary. Loan interest not paid when due will reduce the Contract's
share of the sub-accounts and of the Fixed Account proportionately.
<PAGE>
Repayment of Loans
Contract Loans may be repaid to the Company at any time in whole or part. Loan
repayments will be allocated in the same proportion as the Contract Loan reduced
the Contract's share of the sub-accounts and of the Fixed Account, unless the
Company consents to a different allocation. The rate of interest for each loan
repayment applied to the Fixed Account will be the lesser of: the effective
interest rate used on your Contract on the date the repayment is applied to the
Fixed Account; and the rate set by the Company in advance for that date. A
Contract Loan is a charge against the Contract. Any Contract Loan Balance will
be deducted from the payment of the proceeds of the Contract. If the Contract
Loan Balance at any time exceeds the Contract Value of the Contract, the Company
will mail a notice to you and to any assignee. The notice will be mailed to the
addresses on record with the Company. If the excess amount is not paid to the
Company within 31 days after mailing of the notice, the Contract will be
cancelled.
As of the date of the Loan Application for this Contract, the following
provision is added to the Contract section:
Postponement of Contract Loans From the Fixed Account
The Company can postpone the making of any Contract Loan from the Fixed Account
for six months from the date you apply.
As of the date of the Loan Application for this Contract, the following is
substituted for the Contract Value provision of the Contract Value section:
Contract Value
On or before the Maturity Date, the Contract Value is equal to: the number of
Accumulation Units standing to the credit of the Contract multiplied by the
applicable Accumulation Unit Value; plus the Contract's value in the Fixed
Account; plus any amount held for the Contract in a Loan Collateral Account.
The Contract Value is not increased by the cash value of any Rider, unless
stated in the Rider.
As of the date of the Loan Application for this Contract, the following is
substituted for the Surrender of the Contract provision of the Contract Value
section:
<PAGE>
Surrender of the Contract
You can surrender the Contract at any time prior to the Maturity Date by notice
to the Company in writing. Upon surrender, the Contract will terminate. The
Surrender Proceeds will be equal to: the Contract Value as of the Surrender
Date; less any Administration Fee; less any Contingent Deferred Sales Charge;
and less any Contract Loan Balance. Unless a later date is specified in the
request, the Surrender Date is the date on which the Company receives at its
Home Office:
. Written request in proper form for surrender and payment in one sum; or
. Written request in proper form for surrender and payment under one of the
Payment Options. (See Payment of Benefits, Section 8.)
You can also make a partial surrender, but the consent of the Company will be
required: if the Contract Loan Balance would exceed the Loan Value of the
Contract; or if the remaining Contract Value outside of the Loan Collateral
Account would be less than the greater of: 10% of the remaining Contract Value;
and $500. A partial surrender will reduce the Contract's share of the sub-
accounts and the Fixed Account proportionately, unless you request otherwise.
New England Mutual Life Insurance Company
501 Boylston Street, Boston, Massachusetts
Robert A. Shafto James A. Gallagher
/s/ /s/
President Secretary
<PAGE>
Exhibit 4.iii
P-851-90
Endorsement
As of the Date of Issue of this Contract, this Endorsement is added to the
Contract.
In order to qualify this Contract as an annuity under the federal income tax
laws the ownership rights of the Owner under the Contract are restricted as
follows:
If the Owner holds the contract in an individual capacity, the Owner must
be the Annuitant.
If the Owner does not hold the Contract in an individual capacity, the
Annuitant will be treated as the Owner for the purposes of the Death of
Owner provision.
Death of Owner
Proof of the death of the Owner must be sent to the Company. If the Owner
dies before the Maturity Date, all of the death proceeds must be
distributed within 5 years after the death of the Owner or applied to a
Payment Option. Payments under the Option: must be payable for the life of
the Beneficiary or for a term which is not longer than the life expectancy
of the Beneficiary; and must start within 1 year after the death of the
Owner.
If the Owner dies on or after the Maturity Date and before the entire
interest has been distributed to the Annuitant, then the entire remaining
interest must be distributed at least as quickly as under the method of
distribution being used on the date of death of the Owner.
Qualified Plans
If the Owner is a plan fiduciary under a Plan or Trust which is qualified under
the provisions of the Internal Revenue Code:
1. The Owner must be the Beneficiary; and
2. The entire interest is nonforfeitable and nontransferable except that
the Owner can make a change of Owner or make an absolute assignment to
a plan fiduciary under another qualified Plan or Trust or to the
Annuitant when allowed by the terms of the Plan or Trust.
New England Mutual Life Insurance Company
501 Boylston Street, Boston, Massachusetts
Robert A. Shafto James A. Gallagher
/s/ /s/
President Secretary
<PAGE>
ENDORSEMENT: INDIVIDUAL RETIREMENT ANNUITY
As of the Date of Issue of this Contract, this Endorsement is added to the
Contract. In the event of a conflict between this Endorsement and the
Contract, the provisions of the Endorsement will control.
In order to qualify this Contract as an Individual Retirement Annuity under
Section 408(b) of the Internal Revenue Code, (the "Code"), the following
restrictions apply.
1. The Owner of the Contract is the Annuitant; and the Owner of the Contract
CANNOT be changed. The Contract is for the exclusive benefit of the Owner or
the named Beneficiary.
2. Although this Contract is a Flexible Purchase Payment Contract, total
purchase payments for any taxable year CANNOT exceed $2,000, except in the
case of a rollover as permitted by the Code or a purchase payment in
accordance with a Simplified Employee Pension Program as described in Section
408(k) of the Code. Purchase payments must be in cash.
3. The payment of dividends, if any, will be applied to the purchase of
additional benefits before the end of the calendar year following the
declaration of dividends under this Contract. Any refund of purchase payments
(other than those attributable to excess contributions) will be applied,
before the close of the calendar year following the year of the refund, toward
the payment of future purchase payments or the purchase of additional
benefits.
4. The entire interest of the Owner must be distributed to the Owner not
later than the first day of April following the calendar year in which the
Owner attains age 70 1/2; or it must be applied not later than the first day
of April following the calendar year in which the Owner attains age 70 1/2 to
the First, Second, Third or Sixth Payment Option of the Contract for:
(a) The life of the Owner or the lives of the Owner and named Payee; or
(b) A period which is not longer than the life expectancy of the Owner or
the joint life and last survivor expectancy of the Owner and the named
Payee.
Life expectancy and joint and last survivor expectancy are computed by use
of the return multiples contained in section 1.72-9 of the Income Tax
Regulations. For purposes of this computation, the Owner's life expectancy may
be recalculated no more frequently than annually; however, the life expectancy
of a non-spouse Beneficiary may not be recalculated.
In no event will the payments under the Payment Option selected by the Owner
be less than the minimum distribution amount and/or the incidental benefit
amount required under Section 401(a)(9) of the Code as applied to individual
retirement annuities.
If the spouse of the Owner is not the Beneficiary the method of distribution
selected by the Owner must assure that at least 50% of the present value of
the amount available for distribution is paid within the life expectancy of
the Owner.
5. If the Owner's entire interest is to be distributed in other than a lump
sum, then the amount to be distributed each year (commencing with the required
beginning date and each year thereafter) must be at least an amount equal to
the quotient obtained by dividing the Owner's entire interest by the life
expectancy of the Owner or joint and last survivor expectancy of the Owner and
Beneficiary.
6. If the Owner dies before distribution of his or her interest starts, the
Death Proceeds must be distributed in accordance with one of the following
rules.
(a) The Death Proceeds must be paid within 5 years after the death of the
Owner; or
(b) If the Owner's Interest is payable to a Beneficiary designated by the
Owner and the Owner has not elected (a) above, then the entire interest
will be distributed in substantially equal installments over the life or
life expectancy of the Beneficiary commencing no later than one (1) year
after the date of the Owner's death. The Beneficiary may elect at any time
to receive greater payments. If the Beneficiary is an individual, the
Beneficiary can elect any Payment Option listed in 4 above, with an Option
Date not later than 1 year after the death of the Owner; or
1
<PAGE>
(c) If the Beneficiary is the Owner's surviving spouse, the spouse may
elect within the five year period commencing with the Owner's date of death
to receive equal or substantially equal payments over the life or life
expectancy of the surviving spouse commencing at any date prior to the date
on which the deceased Owner would have attained age 70 1/2. The surviving
spouse may accelerate these payments at any time by increasing the
frequency or amount of such payments. If the Beneficiary is the surviving
spouse of the Owner, the Beneficiary: can elect the Fourth Payment Option
for a period which ends prior to the date on which the Owner would have
attained age 70 1/2: and can elect any Payment Option listed in 4 above,
with an Option Date not later than the date on which the Owner would have
attained age 70 1/2.
(d) If the Beneficiary is the surviving spouse of the Owner, the
Beneficiary can treat the Contract as his or her own individual retirement
arrangement by making a rollover from the Contract.
Payments will be calculated by use of the return multiples specified in
section 1.72-9 of the Income Tax Regulations. (Life expectancy of a surviving
spouse may be recalculated annually.) In the case of any other Beneficiary,
life expectancy will be calculated at the time payment first commences and
payments for any period of 12 consecutive months will be based on such life
expectancy minus the number of whole years passed since distribution first
commenced.
Any amount paid to a child of the Owner will be treated as if it had been
paid to the surviving spouse if the remainder of the interest becomes payable
to the surviving spouse when the child reaches the age of majority.
7. If the Owner dies after distribution of his or her interest has
commenced, the remaining portion of such interest will continue to be
distributed at least as rapidly as under the method of distribution being used
prior to the Owner's death.
8. The entire interest of the Owner is nonforfeitable and nontransferable.
9. The Company will furnish annual calendar year reports concerning the
status of this Contract.
10. In order to continue to qualify this Contract under Section 408(b) of
the Code, the Company can amend this Endorsement to reflect changes in the
provisions of the Code and related regulations by sending an amendment to the
Owner.
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
501 Boylston Street, Boston, Massachusetts
(ART)
President (ART)
Secretary
2
<PAGE>
EXHIBIT 4 (IV)
RIDER: BENEFITS FOR DISABILITY OF ANNUITANT
The COMPANY agrees to provide purchase payment benefits with respect to the
Contract and to waive premiums for this Rider on receipt of proof that total
disability of the Annuitant:
.Started while this Rider was in force; and
.Has continued for at least six months.
RIDER SCHEDULE.
Annuity Contract Number:
Annuitant:
Date of Issue of this Rider:
Rider Premium Rate:
Maximum Purchase Payment Benefits:
First Rider Year:
Each Later Rider Year:
Expiry Date:
DEFINITIONS. "Total disability" means disability of the Annuitant:
.Which results from sickness or accidental bodily injury; and
.Which continuously prevents the Annuitant from working for pay or profit.
During the first 36 months of disability, "working" means engaging in the
occupation which was the regular occupation of the Annuitant when total
disability started; and thereafter means engaging in any occupation for which
the Annuitant is or becomes fit by education, training or experience.
Total disability may be the result of a sickness which began or an injury
which occurred either before or after this Rider was issued.
"Working for pay or profit" includes attending school or college as a full
time student, if that was the main occupation of the Annuitant when the
disability started.
Total disability will be presumed if, as the result of a sickness or an
accidental bodily injury, the Annuitant has a total loss, which begins while
this Rider is in force, of:
.Speech; or sight in both eyes; or hearing in both ears; or
.Use of both hands; or use of both feet; or use of one hand and one foot.
Total disability will be presumed as long as the loss continues, even if the
Annuitant is working for pay or profit.
"Purchase payment benefit" means an amount provided by the Company because
of total disability of the Annuitant and applied to the Contract in the form
of a purchase payment.
"Credits" means the amount of purchase payments applied to the Contract,
except that:
.Money transferred to the Contract from any other plan or policy will not
count as a credit;
. Credits in a rider year will not be more than the Maximum Purchase
Payment Benefits for that rider year; and
. For any period for which purchase payment benefits are provided, credits
will not be more than those benefits.
1
<PAGE>
EXCLUSION. This Rider does not provide benefits for total disability which
results from a sickness or from an injury caused by war or an act of war.
PURCHASE PAYMENT BENEFITS. After total disability has continued for at least
six months, purchase payment benefits will be provided for each rider month of
the benefit period. The benefit period:
.Starts on the first day of the rider month in which total disability
started; and
.Ends at the end of the second full rider month after total disability
ends.
No benefits will be provided for any period more than one year before proof
of total disability is received by the Company at its Home Office. No benefits
will be provided beyond the contract anniversary nearest the 65th birthday of
the Annuitant unless total disability has been continuous for the full five
year period which ends on that contract anniversary.
AMOUNT OF PURCHASE PAYMENT BENEFITS. The amount of the purchase payment
benefit for each month of the benefit period will be computed as follows:
. If total disability starts during the first rider month, the amount will
be equal to the smaller of: (a) the sum of all credits in the first rider
month but before the date total disability started; and (b) one-twelfth
of the Maximum Purchase Payment Benefits for the first rider year.
. If total disability starts after the first rider month but during the
first rider year, the amount will be equal to the smaller of: (a) the
monthly average of credits for all rider months before the rider month in
which total disability started; and (b) one-twelfth of the Maximum
Purchase Payment Benefits for the first rider year.
. If total disability starts after the first rider year, the amount will be
equal to the monthly average of credits for all rider years before the
rider year in which total disability started.
HOW PURCHASE PAYMENT BENEFITS ARE PROVIDED. When a claim for benefits under
this Rider is approved, the Company will provide an initial benefit. The
initial benefit will be equal to one monthly purchase payment benefit times
the number of rider months which have started during the benefit period. The
Company will pay to the Owner in cash:
. The whole initial benefit; or, if less,
. An amount equal to the sum of all purchase payments which were applied to
the Contract during the benefit period.
The Company will apply any balance of the initial benefit to the Contract as
a purchase payment. Thereafter during the benefit period, the Company will
apply one monthly purchase payment benefit to the Contract as a purchase
payment on the first day of each rider month.
WAIVER OF PREMIUMS BENEFIT. After total disability has continued for at
least six months, the Company will waive premiums for this Rider which are due
and payable for the benefit period. The Company will refund to the Owner the
part of any premiums which were paid but are later waived.
PROOF OF DISABILITY. Proof of total disability must be furnished:
. During the life of the Annuitant; and
. During the period of total disability; and
. Not more than one year after: (a) the contract anniversary nearest the
63th birthday of the Annuitant or (b) the surrender or maturity of the
Contract.
Failure to furnish proof of total disability within the time required will
not void or reduce a claim for benefits if it is shown that:
. It was not reasonably possible to furnish proof within that time; and
. Proof was furnished as soon as reasonably possible.
Proof of the continuance of disability may be required by the Company at
reasonable intervals; but after two years of continuous total disability,
proof will not be required more often than once a year.
CONTRACT BENEFITS. The values of the Contract and any dividends will be the
same as they would be if purchase payment benefits were paid to the Company in
cash.
2
<PAGE>
PREMIUMS FOR THIS RIDER. Premiums for this Rider are due when purchase
payments are applied to the Contract. The amount of a premium for the Rider is
equal to the Rider Premium Rate shown above times the amount of the purchase
payment; but any purchase payment which does not count as a credit (see
Definitions) will be excluded from the computation. The computation of the
first premium for the Rider will be based on any purchase payment which is
being applied plus all purchase payments which have been applied during the
first rider year. No premium for the Rider will be due or payable after:
.The contract anniversary which is nearest to the 64th birthday of the
Annuitant;
.The contract anniversary which next precedes the Expiry Date shown above;
or
.The termination of the Rider.
DATE OF ISSUE. The Date of Issue of this Rider is shown above. If this Rider
is issued after the Date of Issue of the Contract, the first rider year will
start on the contract anniversary which is on or which next precedes the Date
of Issue of this Rider.
NOT CONTESTABLE AFTER TWO YEARS. This Rider will not be contestable after it
has been in force during the life of the Annuitant, and without the occurrence
of total disability of the Annuitant, for two years from the Date of Issue of
the Rider.
INCORRECT AGE. The Rider Premium Rate for this Rider is based on the date of
birth of the Annuitant shown in Section 1 of the Contract. If the date of
birth is not correctly shown, the values and benefits will be corrected to the
amounts which the premiums paid would have provided for the correct date of
birth.
CONTRACT. A copy of the application for this Rider is attached to and made a
part of the Rider. This Rider is made a part of the Contract to which it is
attached.
TERMINATION. This Rider will terminate upon the earliest of:
.Surrender or maturity of the Contract;
.Death of the Annuitant;
. The contract anniversary nearest the 65th birthday of the Annuitant
except as to benefits for an existing total disability which has been
continuous for the full five year period which ends on that anniversary.
. Receipt by the Company at its Home Office of written election signed by
the Owner of the Contract to terminate the Rider; or
. The Expiry Date of the Rider.
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
501 Boylston Street, Boston, Massachusetts
(ART) (ART)
President Secretary
3
<PAGE>
- --------------------------------------------------------------------------------
Exhibit
P-935-97L
Endorsement
As of the Endorsement Date, the following provision is added to the Contract:
Contract Loans
CONTRACT LOANS
As provided for under Section 72(p) of the Internal Revenue Code ({Code"), as
amended, and other sections of the Code which may apply, loans may be made from
a qualified employer plan without realizing a taxable distribution, subject to
some limitations. Therefore, after the Right to Return the Contract period and
before the Maturity Date, you can borrow part of the Contract Value of this
Contract by written request to the Company:
c If the Contract is in force under a Plan which meets the requirements of
Section 401(a), Section 401(k) or Section 403(b) of the Code; and
c If the Plan allows loans; and
c If there is no existing Contract Loan Balance on this Contract; and
c Subject to the Limitations on Contract Loans provision below.
The Company reserves the right to amend this endorsement in the event of a
change in the laws or regulations relating to the treatment of loans. The
Company will notify you in writing of any amendment required.
The Contract Loan provision is not intended to satisfy the Employee Retirement
Income Security Act of 1974 (ERISA) relating to Plan Participant Loans. It is
the responsibility of the Plan Trustee of ERISA plans to satisfy those
requirements.
Contract Loans are made on the sole security of the Contract. Contract Loans
will reduce the Contract's share of the sub-accounts and of the Fixed Account
proportionately, unless you request otherwise. Assets equal to the amount of the
Loan:
c Will be transferred to a Loan Collateral Account and held in the general
investment account of the Company; and
c Will earn interest at the effective rate of 4 1/2% per year.
ENDORSEMENT DATE:
This interest will be credited to the sub-accounts and to the Fixed Account in
the same proportion as net purchase payments are being allocated to the sub-
accounts and to the Fixed Account: each year on the contract anniversary; and on
the date the Contract Loan is repaid in full.
Contract Loans, whether or not repaid, can have a permanent effect on Contract
Values and Death Proceeds.
LOAN VALUE
The Loan Value of the Contract is the amount which with loan interest will equal
90% of the Contract Value of the Contract projected with interest at a rate
equivalent to 4 1/2% per year to the next loan interest due date. (See
Limitations on Contract Loans below.)
LIMITATIONS ON CONTRACT LOANS
The minimum loan available is $500.
The amount of the loan, when added to the outstanding loan balance of all other
loans, whenever made, from all other plans of the same employer, must not
exceed:
c $50,000 reduced by the excess of the highest outstanding balance of loans
under such plans during the one year period, ending on the day before the
date on which the loan is made, over the outstanding balance of loans under
such plans on the date the loan is made; or, if less
c The greater of $10,000 or one-half of the current value of the nonforfeitable
accrued benefit under the plan; or, if less
c The Loan Value of the Contract.
The total of the Contract's share of the sub-accounts and the Fixed Account
immediately after a loan is made must be at least $500.
<PAGE>
INTEREST ON LOANS; CONTRACT LOAN BALANCE
Contract Loans bear interest at the rate of 6 1/2% per year. Interest accrues
daily. The Contract Loan Balance at any time means Contract Loans outstanding
plus loan interest accrued to date. Loan interest is due as provided in the
Repayment of Loans provision. Loan interest not paid when due will reduce the
Contract's share of the sub-accounts and of the Fixed Account proportionately.
REPAYMENT OF LOANS
Contract Loans must be repaid to the Company before the Maturity Date and by
April 1 of the year following the later of: attainment of age 70 1/2 and the
year in which the Annuitant retires and:
c Within 20 years if the loan is used to purchase your principal residence;
otherwise, within five years.
The Contract Loan, with interest, must be repaid on a monthly basis and on a
schedule set by the Company. Each repayment will be applied first to reduce the
accrued loan interest and then to reduce the Contract Loan.
If this Contract is in force under a Plan which meets the requirements of
Section 403(b) of the Code and an amount equal to or greater than the full
monthly scheduled payment is not received by the Company at its Administrative
Office no later than 15 days after the scheduled due date of the payment, or in
the event of default as defined below:
c If the Annuitant is at least age 59 1/2, the Company reserves the right to
make a partial surrender of this Contract in an amount equal to the unpaid
scheduled payment plus any Contingent Deferred Sales Charge as a result of
the surrender and to pay the scheduled payment with the proceeds. However, if
a partial surrender for the amount described above is not available (see the
Surrender of the Contract provision), the Company reserves the right to make
a full surrender; and the surrender proceeds will be used to pay the unpaid
scheduled payment or, in the case of default, the Contract Loan Balance; and
the Contract will terminate; and
c If the Annuitant is not yet age 59 1/2, the Company reserves the right to
make a partial surrender of this Contract from the portion of the Contract
Value attributable to pre-1989 purchase payments in an amount equal to the
unpaid scheduled payment plus any Contingent Deferred Sales Charge as a
result of the surrender and to pay the scheduled payment with the proceeds.
If the full scheduled payment cannot be paid using this method, the Company
reserves the right to make a partial surrender of this Contract at the
earliest of the Annuitant's death, disability, separation from service and
attainment of age 59 1/2 and to pay the unpaid scheduled payment with the
proceeds. The amount of the partial surrender will be equal to: the unpaid
scheduled payment; plus any Contingent Deferred Sales Charge as a result of
the surrender and, if allowed by applicable law, the loan interest accrued on
the amount of the scheduled payment from the date the payment was due to the
date the partial surrender is made. However, if a partial surrender is not
available (see the Surrender of the Contract provision) upon the occurrence
of the earliest of these events: the Company reserves the right to make a
full surrender; and the surrender proceeds will be used to pay the unpaid
scheduled payment; and the Contract will terminate. Also, in the case of
default, the Company reserves the right to make a full surrender; and the
surrender proceeds will be used to pay the Contract Loan Balance; and the
Contract will terminate.
<PAGE>
If this Contract is in force under a Plan which meets the requirements of
Section 401(a) or Section 401(k) of the Code and an amount equal to or greater
than the full monthly scheduled payment is not received by the Company at its
Administrative Office no later than 15 days after the scheduled due date of the
payment, or in the event of a default as defined below: the Company reserves the
right to make a partial surrender of this Contract in an amount equal to the
unpaid scheduled payment plus any Contingent Deferred Sales Charge as a result
of the surrender; and the scheduled payment will be paid. However, if a partial
surrender for that amount is not available (see the Surrender of the Contract
provision), the Company reserves the right to make a full surrender; and the
surrender proceeds will be used to pay the scheduled payment or, in case of
default, the Contract Loan Balance; and the Contract will terminate.
Except as noted above, the entire Contract Loan Balance is in default and
becomes due immediately upon the earliest of:
c The death of the Owner if the Contract is not part of an ERISA plan and the
death of the Annuitant if the Contract is part of an ERISA plan;
c The third consecutive monthly scheduled payment remaining unpaid at the end
of the 15 day period described above;
c The fifth monthly scheduled payment remaining unpaid at the end of the 15 day
period described above;
c The insolvency of the Owner or the institution of any proceeding under the
Bankruptcy Code by or against the Owner;
c Surrender of the Contract; and
c Termination of the Contract because the Contract Loan Balance exceeds the
Contract Value.
Loan repayments will be allocated in the same proportion as the Contract Loan
reduced the Contract's share of the sub-accounts and of the Fixed Account,
unless the Company consents to a different allocation. The rate of interest for
each loan repayment applied to the Fixed Account will be the lesser of: the
effective interest rate used on your Contract on the date the repayment is
applied to the Fixed Account; and the rate set by the Company in advance for
that date.
A Contract Loan is a charge against the Contract. Any Contract Loan Balance will
be deducted from the payment of the proceeds of the Contract.
If the Contract Loan Balance at any time exceeds the Contract Value of the
Contract, the Company will mail a notice to you and to any assignee. The notice
will be mailed to the addresses on record with the Company. If the excess amount
is not paid to the Company within 31 days after mailing of the notice, the
Contract will be cancelled.
As of the Endorsement Date, the following provision is added to the Contract
section:
POSTPONEMENT OF CONTRACT LOANS FROM THE FIXED ACCOUNT
The Company can postpone the making of any Contract Loan from the Fixed Account
for six months from the date you apply.
As of the Endorsement Date, the following is substituted for the Contract Value
provision of the Contract Value section:
CONTRACT VALUE
On or before the Maturity Date, the Contract Value is equal to: the number of
Accumulation Units standing to the credit of the Contract multiplied by the
applicable Accumulation Unit Value; plus the Contract's value in the Fixed
Account; plus any amount held for the Contract in a Loan Collateral Account.
The Contract Value is not increased by the cash value of any Rider, unless
stated in the Rider.
As of the Endorsement Date, the following is substituted for the Surrender of
the Contract provision of the Contract Value section:
<PAGE>
SURRENDER OF THE CONTRACT
You can surrender the Contract at any time prior to the Maturity Date by notice
to the Company in writing. Upon surrender, the Contract will terminate. The
Surrender Proceeds will be equal to: the Contract Value as of the Surrender
Date; less any Administration Fee; less any Contingent Deferred Sales Charge;
and less any Contract Loan Balance. However, if this Contract is to be exchanged
to a new contract issued by New England Life Insurance Company, the Contract
Loan Balance must be repaid at the time of exchange.
Unless a later date is specified in the request, the Surrender Date is the date
on which the Company receives at its Administrative Office:
c Written request in proper form for surrender and payment in one sum; or
c Written request in proper form for surrender and payment under one of the
Payment Options. (See the Payment of Benefits Section.)
You can also make a partial surrender, but the consent of the Company will be
required: if the Contract Loan Balance would exceed the Loan Value of the
Contract; or if the remaining Contract Value outside of the Loan Collateral
Account would be less than the greater of: 10% of the remaining Contract Value;
and $500. A partial surrender will reduce the Contract's share of the sub-
accounts and the Fixed Account proportionately, unless you request otherwise.
METROPOLITAN LIFE INSURANCE COMPANY
Administrative Office:
501 Boylston Street, Boston, Massachusetts
ABCD ABCD
President Secretary
<PAGE>
- --------------------------------------------------------------------------------
Endorsement
As of the Endorsement Date, the following provision is added to the Contract:
CONTINUATION
The Company offers two types of Continuation rights: Spousal Continuation; and
Beneficiary Continuation.
The Company must receive written notice of the election of the Spousal
Continuation or the Beneficiary Continuation right or of the election of a
method of payment by the end of the 90th day after it received proof of death.
If the surviving spouse qualifies for Spousal Continuation and has not elected a
method of payment for the Death Proceeds by the end of the 90 day period,
election of Spousal Continuation will be deemed to have been elected on the 90th
day. If a Beneficiary who does not qualify for Spousal Continuation but does
qualify for Beneficiary Continuation, has not elected a method of payment for
the Death Proceeds by the end of the 90 day period: election of Beneficiary
Continuation will be deemed to have been elected on the 90th day; and the
Contract will be continued for that Beneficiary.
SPOUSAL CONTINUATION
The Contract can be continued under Spousal Continuation if the surviving spouse
is less than the maximum maturity age allowed by the Company and if the Owner is
a person and the Owner's spouse is the only named primary Beneficiary on the
Owner's date of death. The Contract Value to be continued under the Spousal
Continuation will be reduced by any Contract Loan Balance.
If the Contract is continued under Spousal Continuation: the Death Proceeds will
not be paid; the surviving spouse will be the Owner and the Annuitant; and no
new loans may be taken. The Maturity Date will then be the contract anniversary
on which the surviving spouse will be the maximum maturity age allowed by the
Company. No Contingent Deferred Sales Charge will apply to the Contract on the
Maturity Date if that Date is changed as a result of the election of Spousal
Continuation.
ENDORSEMENT DATE:
BENEFICIARY CONTINUATION
When Death Proceeds become payable, the Beneficiary can elect: a one sum payment
of the Death Proceeds; the continuance of the Contract with a Maturity Date
equal to the fifth anniversary of the Owner's death (see below); or a Payment
Option. Payments under the Payment Option: must be payable for the life of the
Beneficiary or for a term which is not longer than the life expectancy of the
Beneficiary; and must start within one year after the death of the Owner.
The Contract can be continued under Beneficiary Continuation by a Beneficiary
whose share of the Death Proceeds is at least equal to the Company's published
minimum for this right.
If the Contract is continued under Beneficiary Continuation: the Death Proceeds
will not be paid to any Beneficiary continuing his/her share of the Proceeds;
the Death Proceeds continued in the Contract will be allocated in the same
proportion as the Contract Value was allocated to the sub-accounts and Fixed
Account on the Death Valuation Date; each Beneficiary will have the right to
make transfers and partial and full surrenders of his/her share of the Contract;
the Maturity Date will be the fifth anniversary of the Owner's death and cannot
be changed; no purchase payments can be made; no loans may be taken; no
Contingent Deferred Sales Charge will apply to the Contract; no Annual Fee will
be deducted; and the Death Benefit during the period of continuation for each
Beneficiary will be equal to the Beneficiary's share of the Contract Value on
his/her Death Valuation Date. The Death Valuation Date is the date on which the
Company receives at its Administrative Office proof of death of the Beneficiary.
The Death Benefit payable at the Beneficiary's death will be paid in a one sum
payment.
On the Maturity Date each living Beneficiary will receive his/her share of the
Contract Value in a one sum payment and the Contract will terminate.
<PAGE>
- --------------------------------------------------------------------------------
During the continuation period the Beneficiarycan elect: to receive his/her
share of the Contract in a one sum payment; or to apply his/her share of the
Contract to a Payment Option. Payments under the Payment Option: must be payable
for the life of the Beneficiary or for a term which is not longer than the life
expectancy of the Beneficiary; and must start within one year after the death of
the Owner.
As of the Endorsement Date, the following provision is substituted for the Death
Proceeds provision:
DEATH PROCEEDS
If the Owner is not a person, the Annuitant will be treated as the Owner for the
purposes of the Death Proceeds provision.
If the Owner dies before the Maturity Date, the Company will pay a death benefit
to the Beneficiary, unless the Contract is in force under a Payment Option or is
continued under the Continuation provision. The Death Proceeds will equal the
greater of:
c The total of the purchase payments adjusted for any partial surrenders and
less any Contract Loan Balance; or
c The Contract Value as of the Death Valuation Date less any Contract Loan
Balance.
The Death Valuation Date is the later of:
c The date on which the Company receives at its Administrative Office proof of
death of the Owner; and
c The date on which the Company receives at its Administrative Office election
of continuation of the Contract or of payment in one sum or under a Payment
Option; provided that if no election has been received by the end of the 90th
day after the date proof of death was received, the Company will deem the
following to have been elected on the 90th day: Spousal Continuation, if the
surviving spouse qualifies for this right; or otherwise, Beneficiary
Continuation, if the Beneficiary qualifies for this right; or otherwise,
payment in one sum.
The Death Proceeds will be paid in one sum unless: all or part of the proceeds
is applied to a Payment Option; or the Contract is continued under the
Continuation provision. The obligations of the Company are subject to all
payments made and actions taken by the Company before receipt by the Company at
its Administrative Office of proof of the death.
Upon payment of Death Proceeds, the Contract will terminate.
As of the Endorsement Date, the following provision is added to the Contract:
DEATH OF OWNER ON OR AFTER MATURITY DATE
If the Owner dies on or after the Maturity Date and before the entire interest
has been distributed to the Annuitant, then the entire remaining interest must
be distributed at least as quickly as under the method of distribution being
used on the date of death of the Owner.
As of the Endorsement Date, the following sentence is added to the Owner
provision of the Owner and Beneficiary section:
OWNER
At the death of the Owner, Death Proceeds will be paid unless the Contract is
continued under the Continuation provision.
As of the Endorsement Date, the following is substituted for the first sentence
of the Beneficiary provision of the Owner and Beneficiary section:
BENEFICIARY
The Death Proceeds will be paid to the Beneficiary if the Owner dies before the
Maturity Date, unless the Contract is in force under a Payment Option or is
continued under the Continuation provision.
METROPOLITAN LIFE INSURANCE COMPANY
Administrative Office:
501 Boylston Street, Boston, Massachusetts
ABCD ABCD
President Secretary
<PAGE>
Exhibit 8 (ii)
PARTICIPATION AGREEMENT
-----------------------
Among
VARIABLE INSURANCE PRODUCTS FUND,
---------------------------------
FIDELITY DISTRIBUTORS CORPORATION
---------------------------------
and
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
-----------------------------------------
THIS AGREEMENT, made and entered into this 30th day of April, 1993 by and
among New England Mutual Life Insurance Company (hereinafter the "Company"), a
Massachusetts corporation, on its own behalf and on behalf of each segregated
asset account of the Company set forth on Schedule A hereto as may be amended
from time to time (each such account hereinafter referred to as the "Account"),
a segregated asset account of the Company, and the VARIABLE INSURANCE PRODUCTS
FUND, an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION (hereinafter the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance Companies");
and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated October 15, 1985 (File No. 812-6102), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the
<PAGE>
"1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the
extent necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable life
and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable life and variable
annuity contracts; and
WHEREAS, the Company has registered or will register the Accounts as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of the Accounts to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
2
<PAGE>
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from the Accounts
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 9:30 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Trustees") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt
3
<PAGE>
by such designee shall constitute receipt by the Fund; provided that the Fund
receives notice of such request for redemption on the next following Business
Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable life or variable annuity contracts with the form
number(s) which are listed on Schedule B attached hereto and incorporated herein
by this reference, as such Schedule B may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Portfolios of the Fund;
or (b) the Company gives the Fund and the Underwriter 45 days written notice of
its intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was available as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement; or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
the purpose of Sections 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Funds' shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on
4
<PAGE>
the Portfolio shares in additional shares of that Portfolio. The Company
reserves the right to revoke this election and to receive all such income
dividends and capital gain distributions in cash. The Fund shall notify the
Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 132G of Chapter 175 of the Insurance Code of the Commonwealth of
Massachusetts and has registered or, prior to any issuance or sale of the
Contracts, will register each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the Commonwealth of
Massachusetts and all applicable federal and state securities laws and that the
Fund is and shall remain registered under the 1940 Act. The Fund shall amend
the Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it
5
<PAGE>
will notify the Company immediately upon having a reasonable basis for believing
that it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts, under applicable provisions of
the Code and that it will make every effort to maintain such treatment and that
it will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
Commonwealth of Massachusetts and the Fund and the Underwriter represent that
their respective operations are and shall at all times remain in material
compliance with the laws of the Commonwealth of Massachusetts to the extent
required to perform this Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the Commonwealth of Massachusetts and all
applicable state and federal securities laws, including without limitation the
1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
6
<PAGE>
2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that the Adviser shall perform its obligations for the
Fund in compliance in all material respects with the laws of the Commonwealth of
Massachusetts and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage in an amount not
less than $10,000,000. The aforesaid Bond shall include coverage for larceny
and embezzlement and shall be issued by a reputable bonding company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Underwriter (or the Fund), at its expense, shall print and
provide such Statement free of charge to the Company and to any
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owner of a Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners. If requested by the Company in lieu thereof,
the Fund shall provide a final copy of its report to shareholders (as set in
type at the Fund's expense) and other assistance as is reasonably necessary in
order for the Company to print the reports (such printing to be at the Company's
expense).
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such portfolio for
which instructions have been received from Contract owners:
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C attached hereto and incorporated herein by this reference, which
standards will also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the Securities and Exchange Commission's interpretation of
the requirements of Section 16(a) with respect to periodic elections of trustees
and with whatever rules the Commission may promulgate with respect thereto.
8
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ARTICLE IV. Sales Material and Information
------------------------------
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee object to such use within fifteen Business
Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or its separate
account(s), is named at least fifteen Business Days prior to its use. No such
material shall be used if the Company or its designee object to such use within
fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its
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<PAGE>
shares, contemporaneously with the filing of such document with the Securities
and Exchange Commission or other regulatory authorities. The Fund will make a
good faith effort to notify the Company of any impending changes to its methods
of operation (including, but not limited to, fees and expenses and investment
policies).
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
the Account, contemporaneously with the filing of such document with the
Securities and Exchange Commission or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials. Sales literature or other promotional material does not include
material which does not mention the Fund or any of its affiliated companies.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund. Currently,
no such payments are contemplated.
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<PAGE>
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing the
Fund's prospectus to owners of Contract issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification
---------------
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the
scope of the foregoing, the Fund will at all times comply with Section 817(h) of
the Code and Treasury Regulation 1.817-5 relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. The Fund
will provide the Company with position holdings as soon as reasonably available
after each quarter.
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
11
<PAGE>
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
12
<PAGE>
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance
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<PAGE>
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification By The Company
------------------------------
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration Statement or
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Company
by or on behalf of the Fund for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration Statement,
prospectus or sales literature of the Fund not supplied by the Company, or
14
<PAGE>
persons under its control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of the
Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance upon
information furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or
result from any other material breach of this Agreement by the Company, as
limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in
15
<PAGE>
the defense of such action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Company to such party of the Company's election to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Company will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Underwriter
----------------------------------
8.2 (a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Underwriter or Fund by or on behalf of the Company for use
in the Registration Statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
16
<PAGE>
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration Statement,
prospectus or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the Fund,
Adviser or Underwriter or persons under their control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus, or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission was made
in reliance upon information furnished to the Company by or on behalf of
the Fund; or
(iv) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including a
failure of the Fund, whether unintentional or in good faith or otherwise,
to comply with the diversification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Underwriter in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Account, whichever is applicable.
8.2(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time
17
<PAGE>
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Underwriter of any such claim shall not
relieve the Underwriter from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Underwriter will be entitled to participate, at its own
expense, in the defense thereof. The Underwriter also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Underwriter to such party of the Underwriter's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Underwriter
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3. Indemnification By the Fund
---------------------------
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Trustees or any member
thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including a
failure to comply with the diversification requirements specified in
Article VI of this Agreement); or
18
<PAGE>
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale
19
<PAGE>
of the Contracts, the operation of the Account, or the sale or acquisition of
shares of the Fund.
ARTICLE IX. Applicable Law
--------------
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
-----------
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to
meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such
shares as the underlying investment media of the Contracts issued or to be
issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M of
the Code or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
20
<PAGE>
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such Portfolio
fails to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in good
faith, that the Company and/or its affiliated companies has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material
adverse publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment exercised
in good faith, that the Fund, the Underwriter and/or their affiliated
companies have suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter the written
notice specified in Section 1.6(b) hereof and at the time such notice was
given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
---------------------
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts") and all contracts issued pursuant to applications dated on or before
the effective date of termination. Specifically, without limitation, the owners
of the Existing Contracts shall be permitted to reallocate investments in the
Fund, redeem investments in the Fund and/or invest in the Fund upon the making
of additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.2 shall not apply to any terminations under Article VII and
the
21
<PAGE>
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated
transactions, (ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application (hereinafter referred
to as a "Legally Required Redemption"), and (iii) in case of termination under
Article 7 or Article 10 of this Agreement. Upon request, the Company will
promptly furnish to the Fund and the Underwriter the opinion of counsel for the
Company (which counsel shall be reasonably satisfactory to the Fund and the
Underwriter) to the effect that any redemption pursuant to clause (ii) above is
a Legally Required Redemption. Furthermore, except in cases where permitted
under the terms of the Contracts, the Company shall not prevent Contract Owners
from allocating payments to a Portfolio that was otherwise available under the
Contracts without first giving the Fund or the Underwriter 90 days notice of its
intention to do so.
ARTICLE XI. Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
501 Boylston Street
Boston, MA 02116
Attention: H. James Wilson
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
-------------
12.1 All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Trustees, officers, agents or
22
<PAGE>
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable life
insurance operations of the Company are being conducted in a manner consistent
with the California Variable Life Insurance Regulations and any other applicable
law or regulations.
12.7 The Fund and Underwriter agree that to the extent any advisory or
other fees received by the Fund, the Underwriter or the Adviser are determined
to be unlawful in legal or administrative proceedings under the 1973 NAIC model
variable life insurance regulation in the states of California, Colorado,
Maryland or Michigan, the Underwriter shall indemnify and reimburse the Company
for any out of pocket expenses and actual
23
<PAGE>
damages the Company has incurred as a result of any such proceeding; provided
however that the provisions of Section 8.2(b) of this and 8.2(c) shall apply to
such indemnification and reimbursement obligation. Such indemnification and
reimbursement obligation shall be in addition to any other indemnification and
reimbursement obligations of the Fund and/or the Underwriter under this
Agreement.
12.8. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.9 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.10. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report, as soon as practical and in any event within 90
days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory), as soon as practical
and in any event within 45 days after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/ or policyholders, as soon as practical after
the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial reports of
the Company filed with the Securities and Exchange Commission or any state
insurance regulator, as soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent accountants
in connection with any annual, interim or special audit made by them of the
books of the Company, as soon as practical after the receipt thereof.
24
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
Company:
NEW ENGLAND MUTUAL LIFE
INSURANCE COMPANY
By its authorized officer,
By: /s/ Anne M. Goggin
Title: Second V.P. & Counsel
Date: May 12, 1993
Fund:
VARIABLE INSURANCE
PRODUCTS FUND
By its authorized officer,
By: /s/ J. Gary Burkhead
Title: Senior Vice President
Date: May 21, 1993
Underwriter:
FIDELITY DISTRIBUTORS
CORPORATION
By its authorized officer,
By: /s/
Title: President
Date: 5/20/93
25
<PAGE>
Schedule A
----------
Accounts
--------
Date of Resolution of Company's Board
Name of Account which Established the Account
The New England Variable Account July 15, 1987
26
<PAGE>
Schedule B
----------
Contracts
---------
1. Contract Forms
V-11
27
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder meeting to
facilitate the establishment of tabulation procedures. At this time the
Underwriter will inform the Company of the Record, Mailing and Meeting dates.
This will be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of units
which are attributed to each contractowner/ policyholder (the "Customer") as of
the Record Date. Allowance should be made for account adjustments made after
this date that could affect the status of the Customers' accounts as of the
Record Date.
Note: The number of proxy statements is determined by the activities described
in Step #2. The Company will use its best efforts to call in the number of
Customers to Fidelity, as soon as possible, but no later than two weeks after
the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company either
before or together with the Customers' receipt of a proxy statement. Underwriter
will provide at least one copy of the last Annual Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall produce
and personalize the Voting Instruction Cards. The Legal Department of the
Underwriter or its affiliate ("Fidelity Legal") must approve the Card before it
is printed. Allow approximately 2-4 business days for printing information on
the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
28
<PAGE>
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed and
folded notices and statements will be sent to Company for insertion into
envelopes (envelopes and return envelopes are provided and paid for by the
Insurance Company). Contents of envelope sent to Customers by Company will
include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time is
calculated as calendar days from (but not including) the meeting, counting
backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories of
all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's
29
<PAGE>
internal procedure and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and is the
signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new Card
and return envelope. The mutilated or illegible Card is disregarded and
considered to be not received for purposes of vote tabulation. Any Cards that
have "kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the Cards
as they first arrive into categories depending upon their vote; an estimate of
how the vote is progressing may then be calculated. If the initial estimates and
the actual vote do not coincide, then an internal audit of that vote should
occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated in
terms of a percentage and the number of shares.) Fidelity Legal must review and
approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the vote
in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise necessary
for legal, regulatory, or
30
<PAGE>
accounting purposes, Fidelity Legal will be permitted reasonable access to such
Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
31
<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, 1998
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 10 (i)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 2 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 dated April 17, 1998 on the financial statements of the
Separate Account for the years ended December 31, 1997 and 1996, and of our
report dated February 12, 1998, except for note 17, as to which the date is
March 12, 1998, on the financial statements of the Company for the years
ended December 31, 1997 and 1996, 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
Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 28, 1998
<PAGE>
Exhibit 10
Sutherland, Asbill & Brennan LLP
CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Legal Matters"
in the prospectus included in Post-Effective Amendment No. 2 to the Registration
Statement on Form S-6 for certain variable annuity contracts issued through of
The New England Variable Account of Metropolitan Life Insurance Company (File
No. 333-11131). In 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.
SUTHERLAND, ASBILL & BRENNAN LLP
Washington, D.C.
April 28, 1998
<PAGE>
Exhibit 13
Schedule of Computations for Performance
<TABLE>
Since Inception 02/17/69 to 06/30/94 investment Period
<S> <C> <C> <C>
Cash Values Venture
02/17/69 1,000.00
02/17/70 1,104.25
02/27/71 914.62
02/17/72 1,082.60
02/17/73 1,069.11
02/17/74 797.06
02/17/75 700.45
02/17/76 839.81
02/17/77 829.59
02/17/78 807.63
02/17/79 1,021.78
02/17/80 1,462.78
02/17/81 1,697.92
02/17/82 1,696.83
02/17/83 2,344.12
02/17/84 2,508.07
02/17/85 2,964.49
02/17/86 4,079.72
02/17/87 4,963.42 Alger
02/17/88 4,488.70 Equity Growth Balanced
02/17/89 5,443.00 1/9/89 1,000.00
02/17/90 6,333.31 1/9/90 1,198.29 3/l/90 1,000.00
02/17/91 7,201.37 1/9/91 1,136.97 3/1/91 1,016.91
02/17/92 8,477.76 1/9/92 1,702.90 3/l/92 1,l58.34
02/17/93 9,940.92 1/9/93 1,805.61 3/l/93 1,250.40
02/17/94 11,453.36 1/9/94 2,182.23 3/l/94 1,347.46
06/30/94 10,840.44 6/30/94 1,914.05 6/30/94 1,290.08
ROR 9.85% 12.59% 6.05
Surrender Value
duration 26 6 5
charge 0 0.04 0.045
partial months 4 5 4
06/30/94 10830.44 1833.09 1228.24
** ROR **
Cumulative 983.04% 83.31% 22.82%
Effective 9.84% 11.71% 4.86%
</TABLE>
<PAGE>
<TABLE>
10 Years 06/30/84 to 06/30/94 :Investment Period
Venture
<S> <C> <C> <C>
6/30/84 1,000.00
6/30/85 1,312.75
6/30/86 1,723.49
6/30/87 1,999.75
6/30/88 1,922.44
6/30/89 2,345.20
6/30/90 2,669.70
6/30/91 2,826.03
6/30/92 3,225.39
6/30/93 3,997.52
6/30/94 4,090.74
ROR 15.13%
Surrender Value
duration 11
charge 0
Partial months
06/30/94 4090.74
** ROR **
Cumulative 309.07%
Effective 15.13%
5 Years 06/30/89 to 06/30/94:Investment Period
Cash Values Venture Equity Growth
06/30/89 1,000.00 06/30/89 1,000.00
06/30/90 1,121.16 06/30/90 1,186.34
06/30/91 1,169.41 06/30/91 1,255.53
06/30/92 1,317.08 06/30/92 1,341.65
06/30/93 1,614.63 06/30/93 1,668.77
06/30/94 1,634.40 06/30/94 1,707.71
** ROR ** 10.32% 11.30%
Surrender Value
duration 6 6
charge 0.04 0.04
partial months 0 0
06/30/94 1575.56 1646.23
** ROR **
Cumulative 57.56% 64.62%
Effective 9.52% 10.48%
1 Year 06/30/93 to 06/30/94:Investment Period
Venture Equity Growth Balanced
06/30/93 1,000.00 06/30/93 1,000.00 06/30/93 1,000.00
06/30/94 1,000.83 06/30/94 1,011.31 06/30/94 992.64
** ROR ** 0.08% 1.13% -0.74
Surrender Value
duration 2 2 2
charge 0.06 0.06 0.06
partial months 0 0 0
06/30/94 946.79 956.7 939.04
Cumulative -5.32% -4.33% -6.10
</TABLE>
<PAGE>
<TABLE>
Since Incep 02/17/69 to 06/30/94 :Investment Period
<S> <C> <C> <C>
Cash values Venture
02/17/69 980.00
02/17/70 1,081.56
02/17/71 895.21
02/17/72 1,058.99
02/17/73 1,045.14
02/17/74 778.51
02/17/75 683.45
02/17/76 818.70
02/17/77 807.99
02/17/78 785.82
02117/79 993.37
02/17/80 1,421.27
02/17/81 1,648.89
02/17/82 1,646.97
02/17/83 2,274.36
02/17/84 2,432.54
02/17/85 2,874.31
02/17/86 3,954.70
02/17/87 4,810.40 Alger
02/17/88 4,349.39 Equity Growth Balanced
02/17/89 5,273.14 1/9/89 980.00
02/17/90 6,134.73 1/9/90 1,173.73 3/l/90 980.00
02/17/91 6,974.63 1/9/91 1,113.05 3/l/91 995.97
02/17/92 8,209.89 1/9/92 1,666.44 3/l/92 1,133.87
02/17/93 9,625.87 1/9/93 1,766.31 3/l/93 1,223.35
02/17/94 11,089.43 1/9/94 2,134.08 3/l/94 1,317.66
06/30/94 10,495.98 6/30/94 1,871.82 6/30/94 1,261.55
** ROR ** 9.71% 12.13% 5.51%
Surrender Value
duration 26 6 5
charge 0 0.04 0.045
partial mon 4 5 4
06/30/94 10485.98 1792.38 1200.86
** ROR **
Cumulative 948.60% 79.24% 20.09
Effective 9.70% 11.25% 4.31
</TABLE>
<PAGE>
10 Years 06/30/84 to 02/17/80 :Investment Period
Venture
6/30/84 980.00
6/30/85 1,285.90
6/30/86 1,687.62
6/30/87 1,957.50
6/30/88 1,881.19
6/30/89 2,294.23
6/30/90 2,611.03
6/30/91 2,763.27
6/30/92 3,153.09
6/30/93 3,907.24
6/30/94 3,997.68
ROR ** 14.86%
Surrender Value
duration 11
charge 0
Partial months 0
06/30/94 3997.68
** ROR **
Cumulative 299.77%
Effective 14.86%
5 Years 06 30 89 to 06 30 94: Investment Period
Cash Values Venture Equity Growth
06/30/89 980.00 06/30/89 980.00
06/30/90 1,098.14 06/30/90 1,162.01
06/30/91 1,144.78 06/30/91 1,229.17
06/30/92 1,288.70 06/30/92 1,312.85
06/30/93 1,579.19 06/30/93 1,632.30
06/30/94 1,597.87 06/30/94 1,669.73
** ROR ** 9.83% 10.80%
Surrender Value
duration 6 6
charge 0.04 0.04
Partial months 0 0
06/30/94 1540.35 1609.62
** ROR **
Cumulative 54.04% 60.96%
Effective 9.02% 9.99%
<TABLE>
<CAPTION>
1 Year 6/30/93 to 6/30/94 :Investment Period
Venture Equity Growth Balanced
<S> <C> <C> <C> <C>
06/30/93 980.00 06/30/93 980.00 06/30/93 980.00
06/30/94 980.21 06/30/94 990.49 06/30/94 972.18
** ROR ** -1.98% -0.95% -2.78
Surrender Value
duration 2 2 2
charge 0.06 0.06 0.06
Partial months 0 0 0
06/30/94 927.28 937 919.68
Cumulative -7.27% -6.30% -8.03
</TABLE>
<PAGE>
CALCULATION $ 10,000 Single Payment
No Premium Tax Contract Value Surrender Value
-------------- ---------------
Balanced Balanced
CV
3/1/90 10,000.00
6/30/90 10,307.58 9,695.17
3/1/91 10,439.12 9,875.41
6/30/91 10,801.46 10,208.72
3/1/92 12,168.92 11,566.56
6/30/92 12,138.85 11,528.48
3/1/93 13,421.21 12,817.25
6/30/93 13,842.05 13,209.61
3/1/94 14,754.98 14,157.40
6/30/94 4,126.68 13,544.95
Percent Change Contract Value Surrender Value
-------------- ---------------
Balanced Balanced
6/30/90 3.08% -3.05%
3/1/91 1.28% 1.86%
6/30/91 3.47% 3.38%
3/1/92 12.66% 13.30%
6/30/92 -0.25% -0.33%
3/1/93 10.56% 11.18%
6/30/93 3.14% 3.06%
3/1/94 6.60% 7.18%
6/30/94 -4.26% -4.33%
Cummulative Return: 38.42%
Ave. Annual Return: 7.79%
<PAGE>
CALCULATION $10,000 Single Payment
2% Premium Tax Contract Value Surrender Value
-------------- ---------------
Balanced Balanced
Cv
3/1/90 9,800.00
6/30/90 10,101.43 9,501.08
3/1/91 10,229.74 9,677.33
6/30/91 10,584.81 10,003.77
3/1/92 11,924.24 11,333.99
6/30/92 11,894.78 11,296.48
3/1/93 13,150.74 12,558.96
6/30/93 13,563.11 12,943.22
3/1/94 14,457.04 13,871.53
6/30/94 13,841.42 13,271.25
Percent Change Contract Value Surrender Value
-------------- ---------------
Balanced Balanced
6/30/90 1.01% -4.99%
3/1/91 1.27% 1.86%
6/30/91 3.47% 3.37%
3/1/92 12.65% 13.30%
6/30/92 -0.25% -0.33%
3/1/93 10.56% 11.18%
6/30/93 3.14% 3.06%
3/1/94 6.59% 7.17%
6/30/94 -4.26% -4.33%
Cummulative Return: 35.63%
Ave. Annual Return: 7.28%
<PAGE>
CALCULATION $100 Per Month
No Premium Tax
Cummulative Balanced
Payments Cv
3/1/90 100 100.00
4/1/90 200 199.88
5/1/90 300 295.71
6/1/90 400 417.61
6/30/90 400 409.80
7/1/90 500 509.80
8/1/90 600 597.11
9/1/90 700 649.42
10/1/90 800 718.40
11/1/90 900 784.63
12/1/90 1,000 940.28
1/1/91 1,100 1,057.28
2/1/91 1,200 1,241.39
3/1/91 1,300 1,385.66
4/1/91 1,400 1,488.74
5/1/91 1,500 1,629.21
6/1/91 1,600 1,822.21
6/30/91 1,600 1,732.59
7/1/91 1,700 1,832.59
8/1/91 1,800 1,971.25
9/1/91 1,900 2,087.22
10/1/91 2,000 2,172.24
11/1/91 2,100 2,290.12
12/1/91 2,200 2,333.14
1/1/92 2,300 2,611.69
2/1/92 2,400 2,778.20
3/1/92 2,500 2,898.75
4/1/92 2,600 2,970.69
5/1/92 2,700 3,115.76
6/1/92 2,800 3,247.43
6/30/92 2,800 3,189.76
7/1/92 2,900 3,320.11
8/1/92 3,000 3,491.35
9/1/92 3,100 3,513.40
10/1/92 3,200 3,656.08
11/1/92 3,300 3,768.91
12/1/92 3,400 3,984.50
1/1/93 3,500 4,186.06
2/1/93 3,600 4,390.40
3/1/93 3,700 4,455.85
4/1/93 3,800 4,640.20
5/1/93 3,900 4,694.79
6/1/93 4,000 4,895.71
6/30/93 4,000 4,899.07
7/1/93 4,100 4,982.17
8/1/93 4,200 5,127.41
9/1/93 4,300 5,369.31
10/1/93 4,400 5,503.40
11/1/93 4,500 5,642.30
12/1/93 4,600 5,703.86
1/1/94 4,700 5,925.88
<PAGE>
2/1/94 4,800 6,264.55
3/1/94 4,900 6,124.11
4/1/94 5,000 5,938.65
5/1/94 5,100 6,145.51
6/1/94 5,200 6,269.98
6/30/94 5,200 6,160.65
<PAGE>
CALCULATION $100 Per Month
2% Premium Tax
Cummulative Balanced
Payments CV
3/1/90 100 98.00
4/1/90 200 195.88
5/1/90 300 289.79
6/l/90 400 409.26
6/30/90 400 401.61
7/1/90 500 499.61
8/l/90 600 585.17
9/1/90 700 636.43
10/1/90 800 704.03
11/1/90 900 768.93
12/1/90 1,000 921.48
1/1/91 1,100 1,036.14
2/1/91 1,200 1,216.56
3/1/91 1,300 1,357.34
4/1/91 1,400 1,458.36
5/l/91 1,500 1,596.00
6/l/91 1,600 1,785.11
6/30/91 1,600 1,697.31
7/1/91 1,700 1,795.31
8/1/91 1,800 1,931.19
9/1/91 1,900 2,044.84
10/1/91 2,000 2,128.16
11/1/91 2,100 2,243.87
12/1/91 2,200 2,285.85
1/1/92 2,300 2,558.79
2/1/92 2,400 2,721.95
3/1/92 2,500 2,839.47
4/1/92 2,600 2,909.99
5/1/92 2,700 3,052.14
6/1/92 2,800 3,181.16
6/30/92 2,800 3,124.67
7/1/92 2,900 3,252.40
8/l/92 3,000 3,420.19
9/1/92 3,100 3,441.82
10/1/92 3,200 3,581.63
11/1/92 3,300 3,692.20
12/1/92 3,400 3,903.44
1/1/93 3,500 4,100.94
2/1/93 3,600 4,301.16
3/1/93 3,700 4,364.69
4/1/93 3,800 4,545.32
5/1/93 3,900 4,598.84
6/1/93 4,000 4,795.69
6/30/93 4,000 4,798.99
7/1/93 4,100 4,880.43
8/1/93 4,200 5,022.74
9/1/93 4,300 5,259.75
10/1/93 4,400 5,391.14
11/1/93 4,500 5,527.25
12/1/93 4,600 5,587.60
1/1/94 4,700 5,805.13
2/1/94 4,800 6,136.93
3/1/94 4,900 5,998.78
4/1/94 5,000 5,817.17
5/1/94 5,100 6,019.84
6/l/94 5,200 6,141.81
6/30/94 5,200 6,034.72
