<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1999
REGISTRATION NO. 333-11131
811-5338
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 4 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 21 [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)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 30, 1999 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
Title of Securities Being Registered: Individual Variable Annuity Contracts.
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<PAGE>
ZENITH ACCUMULATOR
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY
METROPOLITAN LIFE INSURANCE COMPANY
SUPPLEMENT DATED APRIL 30, 1999
TO PROSPECTUS DATED APRIL 30, 1999
The Puerto Rico Internal Revenue Code of 1994, as amended (the "PR Code")
provides the following tax treatment for Zenith Accumulator Individual
Variable Annuity Contracts ("the Contracts") 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. The amounts
contributed by the employer constitute consideration paid by the employee
which is taken into account for purposes of determining the taxable amount of
each annuity payment received.
S-1
VA-153-98
<PAGE>
The contributions paid by the employer to or under the nonqualified plan for
providing retirement benefits to the employees under an annuity or insurance
contract are deductible in the taxable year when paid if the employee's rights
to or derived from such employer's contribution are nonforfeitable at the time
the contribution is made.
If an amount is paid on behalf of the employee during the taxable year but
the rights of the employee therein are forfeitable at the time the amount is
paid, no employer deduction is allowable for such amount for any taxable year.
A nonqualified plan may not be subject to certain rules which apply to a
qualified plan such as rules regarding participation, vesting and funding.
Thus, nonqualified annuity plans may be used by an employer to provide
additional benefits to key employees.
Since a nonqualified trust is not tax-exempt, the trust itself will be
taxable on the income of the trust assets.
3. A VARIABLE ANNUITY CONTRACT UNDER A QUALIFIED PLAN
A variable annuity contract may be purchased by an employer for an employee
under a qualified pension, profit-sharing, stock bonus, annuity, or a cash or
deferred arrangement ("CODA") plan established pursuant to Section 1165 of the
PR Code. The employer has two alternatives: (1) purchase the annuity contract
and transfer the same to the trust under the plan, or (2) 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. In the case of a corporation of individuals or a special partnership
under Subchapter K of the PR Code, an owner-employee 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
The New England Variable Account of
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 describes individual variable annuity contracts (the
"Contracts") for individuals and some qualified and non-qualified retirement
plans. You may allocate purchase payments to one or more sub-accounts
investing in these Eligible Funds of New England Zenith Fund and the Variable
Insurance Products Fund.
Loomis Sayles Small Cap Goldman Sachs Midcap Value Salomon Brothers
Series Series Strategic Bond
Morgan Stanley Davis Venture Value Series Opportunities
International Magnum Westpeak Growth and Income Series
Equity Series Series Back Bay Advisors
VIP Overseas Portfolio VIP Equity-Income Bond Income Series
Alger Equity Growth Series Portfolio Salomon Brothers
Capital Growth Series Loomis Sayles Balanced U.S. Government
Series Series
Back Bay Advisors
Money Market Series
In most states you may also allocate purchase payments to a Fixed Account.
Limits apply to transfers to and from the Fixed Account.
We currently are not offering any new Contracts. However, holders of
existing Contracts may continue to make purchase payments.
Please read this prospectus carefully and keep it for reference. This
prospectus contains information that you should know before investing.
You can obtain a Statement of Additional Information ("SAI") about the
Contracts, dated April 30, 1999. The SAI is filed with the Securities and
Exchange Commission and is incorporated by reference in this prospectus. The
SAI Table of Contents is on page A-56 of the prospectus. For a free copy of
the SAI, write or call New England Securities Corporation, 399 Boylston St.,
Boston, Massachusetts 02116, 1-800-356-5015.
The Securities and Exchange Commission has not approved these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
April 30, 1999
THE PROSPECTUS FOR THE ELIGIBLE FUNDS IS ATTACHED. PLEASE READ AND KEEP IT
FOR REFERENCE.
THE CONTRACTS HAVE RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS
ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
TABLE OF CONTENTS
OF
THE PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS......................... A-4
HIGHLIGHTS................................................................ A-5
EXPENSE TABLE............................................................. A-7
ACCUMULATION UNIT VALUES.................................................. A-12
HOW THE CONTRACT WORKS.................................................... A-15
THE COMPANY............................................................... A-16
THE VARIABLE ACCOUNT...................................................... A-16
INVESTMENTS OF THE VARIABLE ACCOUNT....................................... A-16
New England Zenith Fund.................................................. A-17
Variable Insurance Products Fund......................................... A-18
Investment Advice........................................................ A-18
Substitution of Investments.............................................. A-19
GUARANTEED OPTION......................................................... A-20
THE CONTRACTS............................................................. A-20
Purchase Payments........................................................ A-20
Allocation of Purchase Payments.......................................... A-20
Contract Value and Accumulation Unit Value............................... A-21
Payment on Death Prior to Annuitization.................................. A-21
Transfer Privilege....................................................... A-24
Dollar Cost Averaging.................................................... A-24
Surrenders............................................................... A-24
Systematic Withdrawals................................................... A-25
Loan Provision for Certain Tax Benefited Retirement Plans................ A-25
Disability Benefit Rider................................................. A-28
Suspension of Payments................................................... A-28
Ownership Rights......................................................... A-28
Requests and Elections................................................... A-29
Ten Day Right to Review.................................................. A-29
ADMINISTRATION CHARGES, CONTINGENT DEFERRED SALES CHARGE AND OTHER
DEDUCTIONS............................................................... A-29
Administration Charges................................................... A-30
Mortality and Expense Risk Charge........................................ A-30
Contingent Deferred Sales Charge......................................... A-30
Premium Tax Charges...................................................... A-32
Other Expenses........................................................... A-32
Charges Under Contracts Purchased by Exchanging a Fund I or Preference
Contract................................................................ A-32
ANNUITY PAYMENTS.......................................................... A-33
Election of Annuity...................................................... A-33
Annuity Options.......................................................... A-33
AMOUNT OF VARIABLE ANNUITY PAYMENTS....................................... A-35
Minimum Annuity Payments................................................. A-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-37
Special Rules for Annuities Purchased for Annuitants Under Retirement
Plans Qualifying for Tax Benefited Treatment............................ A-37
Special Rules for Annuities Used by Individuals or with Plans and Trusts
Not Qualifying Under the Code for Tax Benefited Treatment............... A-41
Tax Withholding.......................................................... A-42
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VOTING RIGHTS.............................................................. A-42
DISTRIBUTION OF CONTRACTS.................................................. A-43
THE FIXED ACCOUNT.......................................................... A-43
General Description of the Fixed Account.................................. A-44
Contract Value and Fixed Account Transactions............................. A-44
YEAR 2000 COMPLIANCE ISSUES................................................ A-45
FINANCIAL STATEMENTS....................................................... A-45
INVESTMENT PERFORMANCE INFORMATION......................................... A-45
APPENDIX A: CONSUMER TIPS.................................................. A-48
APPENDIX B: PREMIUM TAX.................................................... A-49
APPENDIX C: AVERAGE ANNUAL TOTAL RETURN.................................... A-50
</TABLE>
A-3
<PAGE>
GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS
We have tried to make this prospectus as understandable for you as possible.
However, in explaining how the Contract works, we use certain terms that have
special meanings. These terms are defined below:
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
ACCUMULATION UNIT. Used to calculate the Contract Value before
annuitization.
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. Used to calculate the dollar amount of annuity payments.
BENEFICIARY. The person designated to receive any benefits under a Contract
if a Contract Owner (or Annuitant, if the Contract is not owned by an
individual) dies before the Maturity Date.
CONTRACT YEAR. A twelve month period beginning with the date shown on your
Contract and with each Contract anniversary thereafter.
DEATH PROCEEDS (PRIOR TO ANNUITIZATION). The amount we pay prior to
annuitization, on receipt of due proof of death of a Contract Owner (or of the
annuitant if the Contract is not owned by an individual) and election of
payment.
DESIGNATED OFFICE. Our Designated Office for receipt of purchase payments,
loan repayments, requests and elections, and communications regarding death of
the Contract Owner (or Annuitant) is New England Life Insurance Company,
located at 501 Boylston Street, Boston, Massachusetts 02116, (800) 435-4117.
FIXED ACCOUNT. A part of the Company's general account to which you can
allocate net purchase payments under most Contracts. The Fixed Account
provides guarantees of principal and interest.
MATURITY DATE. The date on which annuity payments begin, as stated in the
application or as later deferred.
NET PURCHASE PAYMENT. A purchase payment, in which the premium tax and any
premium for the disability benefit rider, if applicable has been deducted
before allocation to the accounts.
PAYEE. Any person or entity entitled to receive payment under the Contract.
The term includes (i) an Annuitant, (ii) a Beneficiary or contingent
Beneficiary who becomes entitled to death proceeds, and (iii) on surrender or
partial surrender of the Contract, the Contract Owner.
VARIABLE ACCOUNT. A separate investment account of the Company. The Variable
Account is divided into sub-accounts; each invests in shares of one Eligible
Fund.
VARIABLE ANNUITY. An annuity providing for income payments varying in amount
to reflect the investment experience of a separate investment account.
A-4
<PAGE>
HIGHLIGHTS
TAX DEFERRED VARIABLE ANNUITIES:
Earnings under variable annuities are usually not taxed until paid out. This
treatment is intended to encourage you to save for retirement.
THE CONTRACTS:
The Zenith Accumulator provides for variable annuity payments that begin at
the Maturity Date, or earlier if you choose to surrender and annuitize.
Variable annuity payments fluctuate with the investment results of the
Eligible Fund(s). (See "Annuity Payments.")
PURCHASE PAYMENTS:
Currently, the initial minimum purchase payment is $5,000 and the minimum
subsequent purchase payment is usually $25. The subsequent purchase payment
may be higher in certain cases. We may limit the purchase payments you can
make.
OWNERSHIP:
A Purchaser may be an individual, employer, trust, custodian or any entity
specified in an eligible employee benefit plan. If the Contract is issued
under Section 408(b) or, generally, under Section 403(b), the Contract Owner
must be the Annuitant. Subject to state approval, certain retirement plans
qualified under the Internal Revenue Code ("the Code") may purchase the
Contract. Tax-deferred arrangements, including qualified plans, purchasing the
Contract--which also provides tax deferral on Contract Value--should carefully
consider the costs and benefits of the Contracts, including annuity income
benefits.
For contract transactions, we rely on instructions from Contract Owners,
whether a trustee or custodian of an eligible retirement plan or an individual
owner.
INVESTMENT OPTIONS:
You may allocate net purchase payments to the sub-accounts or to the Fixed
Account (if available under your Contract). You can allocate your contract
value to a maximum of ten Accounts (including the Fixed Account) at any time.
You can change your net purchase payment allocation. We believe that under
current tax law you can transfer Contract Value between Accounts without
federal income tax.
Currently we allow 12 transfers free of charge per Contract Year prior to
annuitization. Additional transfers are $10 each. After variable annuity
payments begin, you may make one transfer per year without our consent. The
minimum transfer amount is currently $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:
We apply the following charges to your Contract:
. premium tax charge, in some states
. mortality and expense risk charge equal to an annual rate of .95% of the
Variable Account's daily net assets
. administration asset charge equal to an annual rate of .40% of the
Variable Account's daily net assets
A-5
<PAGE>
. annual contract administration charge of $30
. a contingent deferred sales charge equal to a maximum of 6.5% of Contract
Value, on certain full and partial surrenders and certain annuitization
transactions.
Certain waivers or reductions may apply. (See "Administration Charges,
Contingent Deferred Sales Charge and Other Deductions.")
The Eligible funds are subject to management fees and operating expenses.
We do not deduct a sales charge from purchase payments.
TEN DAY RIGHT TO REVIEW:
After you receive the Contract, you have ten days (more in some states) to
return it to us or our agent for cancellation. We will return all purchase
payments made (or, in certain states, Contract Value plus any premium taxes
deducted from purchase payments.)
PAYMENT ON DEATH:
If a Contract Owner (or the Annuitant, if the Contract is not owned by an
individual) dies before annuitization, the Beneficiary receives a death
benefit. Death Proceeds equal the greater of purchase payments adjusted for
any partial surrenders and the current Contract Value. Each is reduced by any
outstanding loan plus accrued interest. (See "Payment on Death Prior to
Annuitization.")
SURRENDERS:
Before annuitization you can send us a written request to surrender all or
part of your Contract Value. After a partial surrender, the remaining Contract
Value must be at least $500. (Special rules apply if the Contract has a loan.)
Federal tax laws penalize and may prohibit certain premature distributions
from the Contract. (See "Federal Income Tax Status.")
A Contingent Deferred Sales Charge will apply to certain full and partial
surrenders and certain annuitization transactions. On full surrender, a pro
rata portion of the annual administration contract charge will also be
deducted.
In any Contract Year, you may surrender an amount without our deducting
Contingent Deferred Sales Charge (the "free withdrawal amount"). The free
withdrawal amount is 10% of Contract Value on the date of the Surrender. (See
"Surrenders" and "Contingent Deferred Sales Charge.")
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A-6
<PAGE>
EXPENSE TABLE
The purpose of the table and the examples below is to explain the various
costs and expenses you will bear, directly or indirectly, as a Contract Owner.
These are deducted from purchase payments, the Variable Account, or the
Eligible Funds. In the examples following the table, we assume that you
allocated your entire purchase payment to one sub-account, with no transfers.
VARIABLE ACCOUNT
<TABLE>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES(1)
Sales Charge Imposed on Purchases (as a percentage
of Contract Value)................................. 0%
Maximum Contingent Deferred Sales Charge(2) (as a
percentage of Contract Value)...................... 6.5%
Transfer Fee (per Contract Year)(3)................. $0 on the first twelve
$10 each thereafter
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, 1998
(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 WESTPEAK
SMALL INTERNATIONAL ALGER EQUITY CAPITAL MIDCAP VENTURE GROWTH STOCK
CAP MAGNUM EQUITY GROWTH GROWTH VALUE VALUE AND INCOME INDEX
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES(7)
------ -------------- ------------ ------- ------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... 1.00% .90% .75% .63% .75% .75% .70% .25%
Other Expenses.......... 0% .40% .08% .03% .15% .08% .08% .12%
---- ---- --- --- --- --- --- ---
Total Series Operating
Expenses............. 1.00% 1.30% .83% .66% .90% .83% .78% .37%
</TABLE>
<TABLE>
<CAPTION>
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
LOOMIS BACK BAY STRATEGIC ADVISORS BROTHERS ADVISORS
SAYLES ADVISORS BOND BOND U.S. MONEY
BALANCED MANAGED OPPORTUNITIES INCOME GOVERNMENT MARKET
SERIES SERIES(7) SERIES SERIES SERIES SERIES
-------- --------- ------------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Management Fee.......... .70% .50% .65% .40% .55% .35%
Other Expenses.......... 12% .08% .20% .08% .15% .10%
--- --- --- --- --- ---
Total Series Operating
Expenses............. .82% .58% .85% .48% .70% .45%
</TABLE>
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A-7
<PAGE>
EXAMPLE (NOTE: The examples below are hypothetical. Although we base them on
the expenses shown in the expense table above, the examples are not
representations of past or future performance or expenses. Actual performance
and/or expenses may be more or less than shown.(8)) For purchase payments
allocated to each of the Series indicated
You would pay the following direct and
indirect expenses on a $1,000 purchase
payment assuming 1) 5% annual return on the
underlying Series and 2) that a contingent
deferred sales charge would apply at the end
of each time period because you either
surrender your Contract or elect to
annuitize under a non-life contingency
option:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap................... $84.53 $128.87 $174.94 $286.67
Morgan Stanley International Equity....... 87.35 137.34 189.12 315.54
Alger Equity Growth....................... 82.93 124.03 166.81 269.88
Capital Growth............................ 81.34 119.16 158.61 252.77
Goldman Sachs Midcap Value................ 83.59 126.03 170.17 276.83
Davis Venture Value....................... 82.93 124.03 166.81 269.88
Westpeak Growth and Income................ 82.46 122.60 164.41 264.88
Westpeak Stock Index...................... 78.59 110.81 144.45 222.85
Loomis Sayles Balanced.................... 82.84 123.75 166.33 268.88
Back Bay Advisors Managed................. 80.57 116.87 154.72 244.61
Salomon Brothers Strategic Bond Opportuni-
ties..................................... 83.12 124.60 167.77 271.86
Back Bay Advisors Bond Income............. 79.63 113.98 149.85 234.31
Salomon Brothers U.S. Government.......... 81.71 120.31 160.55 256.82
Back Bay Advisors Money Market............ 79.35 113.12 148.38 231.20
You would pay the following direct and
indirect expenses on a $1,000 purchase
payment assuming 1) 5% annual return on the
underlying Series and 2) that no contingent
deferred sales charge would apply at the end
of each time period because you either do
not surrender your Contract or you elect to
annuitize under a variable life contingency
option(9):
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap................... $24.58 $75.59 $129.16 $275.17
Morgan Stanley International Equity....... 27.58 84.54 144.02 304.38
Alger Equity Growth....................... 22.88 70.48 120.64 258.18
Capital Growth............................ 21.18 65.34 112.05 240.87
Goldman Sachs Midcap Value................ 23.58 72.59 124.16 265.21
Davis Venture Value....................... 22.88 70.48 120.64 258.18
Westpeak Growth and Income................ 22.38 68.97 118.12 253.12
Westpeak Stock Index...................... 18.26 56.52 97.21 210.60
Loomis Sayles Balanced.................... 22.78 70.18 120.14 257.17
Back Bay Advisors Managed................. 20.37 62.92 107.97 232.62
Salomon Brothers Strategic Bond Opportuni-
ties..................................... 23.08 71.08 121.65 260.19
Back Bay Advisors Bond Income............. 19.37 59.87 102.86 222.20
Salomon Brothers U.S. Government.......... 21.58 66.55 114.08 244.97
Back Bay Advisors Money Market............ 19.07 58.96 101.32 219.05
</TABLE>
A-8
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1998
(AS A PERCENTAGE OF AVERAGE NET ASSETS PRIOR TO EXPENSE REDUCTIONS)(10)
<TABLE>
<CAPTION>
VIP
VIP EQUITY-
OVERSEAS INCOME
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
Management Fee.............................................. .74% .49%
Other Expenses.............................................. .17% .09%
--- ---
Total Portfolio Operating Expenses........................ .91% .58%
</TABLE>
EXAMPLE (NOTE: The examples below are hypothetical. Although we base them on
the expenses shown in the expense table above, the examples are not
representations of past or future performance or expenses. Actual performance
and/or expenses may be more or less than shown.(11)) For purchase payments
allocated to each of the Portfolios indicated
You would pay the following direct and 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>
VIP Overseas Portfolio..................... $83.69 $126.31 $170.65 $277.81
VIP Equity-Income Portfolio................ 80.57 116.87 154.72 244.61
You would pay the following direct and
indirect expenses on a $1,000 purchase
payment assuming 1) 5% annual return on the
underlying Portfolio and 2) that no
contingent deferred sales charge would apply
at the end of each time period because you
either do not surrender your Contract or you
elect to annuitize under a variable life
contingency option(12):
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
VIP Overseas Portfolio..................... $23.68 $72.89 $124.66 $266.21
VIP Equity-Income Portfolio................ 20.37 62.92 107.97 232.62
</TABLE>
A-9
<PAGE>
- --------
NOTES:
(1) Premium tax charges are not shown. They range from 0% (in most states)
to 3.5% of Contract Value (or if applicable purchase payments).
(2) We calculate the applicable Contingent Deferred Sales Charge as a
percentage of Contract Value. The maximum possible charge, as a
percentage of Contract Value, occurs in the first Contract Year and
reduces after each Contract Year to 0% by the eleventh Contract Year.
(3) We reserve the right to impose a charge of $10 on each transfer in
excess of four per year.
(4) We do not impose this charge after annuitization.
(5) We do not impose these charges 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, after giving effect to the applicable voluntary
expense cap or expense deferral.
Expense Cap. For the Loomis Sayles Small Cap Series, Total Series
Operating Expenses take into account a voluntary cap on expenses by New
England Investment Management, Inc. ("NEIM", formerly known as TNE
Advisors, Inc.), the Series' investment adviser, which will bear all
expenses that exceed 1.00% of average daily net assets. In the absence of
this cap Total Series Operating Expenses for the Loomis Sayles Small Cap
Series for the year ended December 31, 1998 would have been 1.10%. Total
Series Operating Expenses for the 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, NEIM bears those expenses
(other than the management fee) that exceed 0.15% of average daily net
assets.
Expense Deferral. For the seven other Series shown, the Total Series
Operating Expenses are after giving effect to a voluntary expense
deferral. As of May 1, 1998 the Goldman Sachs Midcap Value is subject to
the voluntary expense deferral described below, with an annual expense
limit of .90% of net assets. Under the deferral, expenses which exceed a
certain limit are paid by NEIM in the year in which they are incurred and
transferred to the Series in a future year (no more than two fiscal years
later) 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, 1998 would have been: 1.40% for the
Morgan Stanley International Magnum Equity Series; and .77% for Salomon
Brothers U.S. Government Series. The expense cap and deferral arrangements
are voluntary and may be terminated at any time. (See the attached
prospectus of the New England Zenith Fund for more complete information.)
(7) The Westpeak Stock Index Series and the Back Bay Advisors Managed Series
are not Eligible Funds for Contracts purchased after May 1, 1995.
(8) In these examples, the average Administration Contract Charge of .08%
has been used. (See (4), above.)
(9) The same would apply if you elect to annuitize under a fixed life
contingency option unless your Contract has been in effect less than
five years, in which case the expenses shown in the first three columns
of the preceding example would apply. (See "Contingent Deferred Sales
Charge.")
(10) Total Portfolio Operating Expenses for the Variable Insurance Products
Portfolios are based on the amount of such expenses incurred during the
most recent fiscal year applied against assets at December 31, 1998.
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
A-10
<PAGE>
.89% for the VIP Overseas Portfolio and .57% for the VIP Equity-Income
Portfolio. (See the attached prospectus of the Variable Insurance Products
Fund for more complete information.) Affiliates of Fidelity Management &
Research Company may compensate NELICO and/or certain affiliates for
administrative, distribution or other services relating to the VIP
Overseas and VIP 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.
(11) In these examples, the average Administration Contract Charge of .08%
has been used. (See (4), above.)
(12) The same would apply if you elect to annuitize under a fixed life
contingency option unless your Contract has been in effect less than
five years, in which case the expenses shown in the first three columns
of the preceding example would apply. (See "Contingent Deferred Sales
Charge.")
- -------------------------------------------------------------------------------
A-11
<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
SUB- SUB-
ACCOUNT ACCOUNT
--------- -------------
5/2/94* 1/1/95 1/1/96 1/1/97 1/1/98 10/31/94* 1/1/95 1/1/96 1/1/97 1/1/98
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
--------- ---------- ---------- ---------- ---------- ------------- ---------- ---------- ---------- ----------
<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 1.936 1.000 1.024 1.073 1.129 1.100
2. Accumulation
Unit Value at
end of
period....... 0.959 1.219 1.572 1.936 1.878 1.024 1.073 1.129 1.100 1.164
3. Number of
Accumulation
Units
outstanding
at end of
period....... 2,988,971 13,533,326 26,307,748 39,442,109 40,318,239 2,916,120 11,062,106 16,322,862 17,243,803 16,325,447
<CAPTION>
OVERSEAS
SUB-
ACCOUNT
----------
10/1/93* 1/1/94 1/1/95 1/1/96 1/1/97 1/1/98
TO TO TO TO TO TO
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.458 1.532 1.538 1.664 1.859 2.046
2. Accumulation
Unit Value at
end of
period....... 1.532 1.538 1.664 1.859 2.046 2.276
3. Number of
Accumulation
Units
outstanding
at end of
period....... 10,878,551 43,034,544 41,273,183 44,846,316 45,289,247 40,546,153
</TABLE>
<TABLE>
<CAPTION>
ALGER
EQUITY CAPITAL
GROWTH GROWTH
SUB- SUB-
ACCOUNT ACCOUNT
--------- --------
10/31/94* 1/1/95 1/1/96 1/1/97 1/1/98 9/16/88* 1/1/89 1/1/90 1/1/91 1/1/92
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92
--------- ---------- ---------- ---------- ---------- -------- --------- ---------- ---------- ----------
<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 1.941 4.645 4.612 5.950 5.666 8.608
2. Accumulation
Unit Value at
end of
period....... 0.956 1.402 1.566 1.941 2.829 4.612 5.950 5.666 8.608 7.978
3. Number of
Accumulation
Units
outstanding
at end of
period....... 1,857,319 24,163,685 40,025,594 44,518,891 49,255,773 439,393 5,337,778 12,591,788 21,719,884 33,645,983
<CAPTION>
1/1/93 1/1/94 1/1/95 1/1/96 1/1/97 1/1/98
TO TO TO TO TO TO
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 7.978 9.050 8.298 11.300 13.496 16.442
2. Accumulation
Unit Value at
end of
period....... 9.050 8.298 11.300 13.496 16.442 21.752
3. Number of
Accumulation
Units
outstanding
at end of
period....... 40,091,665 43,592,961 41,663,900 41,363,155 40,200,592 38,236,116
</TABLE>
<TABLE>
<CAPTION>
GOLDMAN
SACHS DAVIS
MIDCAP VENTURE
VALUE VALUE
SUB- SUB-
ACCOUNT ACCOUNT
--------- ---------
10/1/93* 1/1/94 1/1/95 1/1/96 1/1/97 1/1/98 10/31/94* 1/1/95 1/1/96 1/1/97
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 12/31/98 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....... 1.125 1.137 1.119 1.439 1.669 1.932 1.000 0.963 1.323 1.643
2. Accumulation
Unit Value at
end of
period....... 1.137 1.119 1.439 1.669 1.932 1.802 0.963 1.323 1.643 2.163
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 21,347,155 3,499,719 19,608,688 34,997,024 53,977,107
<CAPTION>
WESTPEAK
GROWTH
AND INCOME
SUB-
ACCOUNT
----------
1/1/98 10/1/93* 1/1/94 1/1/95 1/1/96 1/1/97 1/1/98
TO TO TO TO TO TO TO
12/31/98 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 2.163 1.105 1.132 1.103 1.486 1.731 2.279
2. Accumulation
Unit Value at
end of
period....... 2.442 1.132 1.103 1.486 1.731 2.279 2.799
3. Number of
Accumulation
Units
outstanding
at end of
period....... 58,765,470 3,359,317 16,092,325 21,168,965 26,104,465 30,306,103 35,514,558
</TABLE>
- -----
* Date these sub-accounts were first available.
A-12
<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 1/1/98 10/31/94 1/1/95 1/1/96* 1/1/97
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 12/31/98 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....... 1.980 1.992 2.104 2.804 3.162 3.996 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 4.401 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 42,926,506 1,736,189 10,987,597 20,107,324 28,677,041
<CAPTION>
1/1/98 TO
12/31/98
----------
<S> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.622
2. Accumulation
Unit Value at
end of
period....... 1.747
3. Number of
Accumulation
Units
outstanding
at end of
period....... 30,824,135
</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 1/1/98 10/5/88* 1/1/89 1/1/90 1/1/91 1/1/92
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92
------------- --------- ---------- ---------- ---------- -------- --------- ---------- ---------- ----------
<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 1.433 1.631 1.634 1.810 1.930 2.247
2. Accumulation
Unit Value at
end of
period....... 0.984 1.159 1.307 1.433 1.442 1.634 1.810 1.930 2.247 2.398
3. Number of
Accumulation
Units
outstanding
at end of
period....... 1,124,133 6,132,563 15,034,554 23,074,669 24,945,159 299,002 4,287,540 10,139,527 17,797,335 28,871,719
<CAPTION>
1/1/93 1/1/94 1/1/95 1/1/96 1/1/97
TO TO TO TO TO 1/1/98 TO
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 2.398 2.664 2.540 3.037 3.134 3.429
2. Accumulation
Unit Value at
end of
period....... 2.664 2.540 3.037 3.134 3.429 3.689
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 38,630,894
</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 1/1/98 9/29/88* 1/1/89 1/1/90 1/1/91 1/1/92
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92
---------- --------- --------- --------- ---------- -------- --------- ---------- ---------- ----------
<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 1.242 1.384 1.408 1.518 1.620 1.697
2. Accumulation
Unit Value at
end of
period....... 1.004 1.139 1.161 1.242 1.319 1.408 1.518 1.620 1.697 1.738
3. Number of
Accumulation
Units
outstanding
at end of
period....... 910,020 4,495,184 5,785,148 8,616,135 12,796,204 915,605 7,661,069 21,629,006 26,322,938 26,759,532
<CAPTION>
1/1/93 1/1/94 1/1/95 1/1/96 1/197 1/1/98
TO TO TO TO TO TO
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 1.738 1.766 1.811 1.889 1.959 2.036
2. Accumulation
Unit Value at
end of
period....... 1.766 1.811 1.889 1.959 2.036 2.114
3. Number of
Accumulation
Units
outstanding
at end of
period....... 25,016,975 30,220,356 33,015,018 33,412,517 26,785,902 33,716,959
</TABLE>
- ------
* Date these sub-accounts were first available.
A-13
<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 48,490,618
<CAPTION>
WESTPEAK
STOCK
INDEX
SUB-
ACCOUNT**
---------
1/1/98 1/1/92* 1/1/93 1/1/94 1/1/95 1/1/96 1/197 1/1/98
TO TO TO TO TO TO TO TO
12/31/98 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
---------- --------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation
Unit Value at
beginning of
period....... 3.103 1.592 1.644 1.780 1.775 2.398 2.898 3.788
2. Accumulation
Unit Value at
end of
period....... 3.664 1.540 1.780 1.775 2.398 2,898 3.788 4.781
3. Number of
Accumulation
Units
outstanding
at end of
period....... 42,358,784 2,583,607 11,017,884 14,282,355 15,539,608 15,623,253 15,874,978 15,292,906
</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-14
<PAGE>
HOW THE CONTRACT WORKS
PURCHASE PAYMENT CONTRACT VALUE DAILY DEDUCTION FROM
VARIABLE ACCOUNT
. You can make a . We allocate . We deduct a
one-time payments 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
program. and/or the Fixed from the Contract
Account. Value daily.
. The Contract Value . We deduct an
reflects purchase Administration
payments, Asset Charge of
investment 0.40% on an annual
experience, basis from the
interest payments, Contract Value
partial daily.
surrenders, loans
and Contract
charges.
CHARGES FROM PAYMENT ----
. Premium tax charge
may apply.
. The Contract Value . Investment
invested in the advisory fees are
---- Eligible Funds is deducted from the
not guaranteed. Eligible Fund
. Premium for assets daily.
disability benefit
rider, if elected.
. Earnings are
accumulated free
of any current
income taxes (see
page A-37).
ANNUAL CONTRACT FEE
. You may change the ---- . We deduct a $30
ADDITIONAL PAYMENTS allocation of Administration
future payments, Contract Charge
. Any time, (subject within limits, at from the Contract
to Company any time. Value on each
limits). anniversary while
---- Contract is in-
force, other than
under an annuity
payment option. We
deduct a pro rata
portion on full
surrender and at
annuitization.
. Prior to
annuitization, you
. Minimum $25. may transfer
Contract Value
among accounts,
within limits, up
to twelve times
per Contract Year
without charge
(special limits
apply to transfers
of Contract Value
to and from the
Fixed Account).
LOANS
. Are available to
participants of
certain tax
qualified pension
plans (see page A-
25).
----
SURRENDER CHARGE
. Allocations of
payments and ---- . Consists of
transfers of Contingent
Contract Value Deferred Sales
must comply with Charge (see page
the rule that A-30).
Contract Value may
be allocated among
no more than ten
accounts,
including the
Fixed Account, at
any time.
SURRENDERS
. You can surrender
up to 10% of
Contract Value
each year without
incurring
surrender charges,
subject to any
applicable tax law
restrictions.
PREMIUM TAX CHARGE
. Where applicable,
is deducted from
purchase payments
(currently in
South Dakota) or
from Contract
Value when annuity
payments commence.
----
. Surrenders are
taxable to the
extent of gain.
RETIREMENT BENEFITS
. Lifetime income
options.
. Prior to age 59
1/2 a 10% penalty
tax may apply.
. Fixed and/or
variable payout
options.
ADDITIONAL BENEFITS
. You pay no taxes
on your investment
as long as it
remains in the
Contract.
. Premium tax charge
may apply.
DEATH PROCEEDS
. You can surrender
. Guaranteed not to your Contract at
be less than your any time for its
total contribution Contract Value,
to your Contract less any
net of any prior applicable
surrenders and Contingent
outstanding loans. Deferred Sales
Charge (subject to
. Death proceeds any applicable tax
pass to the law restrictions).
beneficiary . If the Contract
without probate. contains the
disability benefit
rider and the
Annuitant becomes
totally disabled,
we provide monthly
benefits.
A-15
<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.
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NEW ENGLAND ZENITH FUND: Currently, there are twelve Series of the New England
Zenith Fund that are Eligible Funds under the Contracts offered by this
prospectus. Two additional Series, the Back Bay Advisors Managed Series and
the Westpeak Stock Index Series, described below, are Eligible Funds only for
Contracts issued before May 1, 1995.
LOOMIS SAYLES SMALL CAP SERIES
The Loomis Sayles Small Cap Series investment objective is long-term capital
growth from investments in common stocks or their equivalent.
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES (FORMERLY DRAYCOTT
INTERNATIONAL EQUITY SERIES)
The Morgan Stanley International Magnum Equity Series investment objective
is long-term capital appreciation through investment primarily in
international equity securities. In addition to the risks associated with
equity securities generally, foreign securities present additional risks.
ALGER EQUITY GROWTH SERIES
The Alger Equity Growth Series investment objective is long-term capital
appreciation.
CAPITAL GROWTH SERIES
The Capital Growth Series investment objective is the 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.
GOLDMAN SACHS MIDCAP VALUE SERIES (FORMERLY LOOMIS SAYLES AVANTI GROWTH
SERIES)
The Goldman Sachs Midcap Value Series investment objective is long-term
capital appreciation.
DAVIS VENTURE VALUE SERIES (FORMERLY VENTURE VALUE SERIES)
The Davis Venture Value Series investment objective is growth of capital.
WESTPEAK GROWTH AND INCOME SERIES (FORMERLY WESTPEAK VALUE GROWTH SERIES)
The Westpeak Growth and Income Series investment objective is long-term
total return through investment in equity securities.
WESTPEAK STOCK INDEX SERIES
The Westpeak Stock Index Series investment objective is investment results
that correspond to the composite price and yield performance of United States
publicly traded common stocks.
LOOMIS SAYLES BALANCED SERIES
The Loomis Sayles Balanced Series investment objective is reasonable long-
term investment return from a combination of long-term capital appreciation
and moderate current income.
BACK BAY ADVISORS MANAGED SERIES
The Back Bay Advisors Managed Series investment objective is a favorable
total return through investment in a diversified portfolio.
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SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
The Salomon Brothers Strategic Bond Opportunities Series investment
objective is a high level of total return consistent with preservation of
capital.
BACK BAY ADVISORS BOND INCOME SERIES
The Back Bay Advisors Bond Income Series investment objective is a high
level of current income consistent with protection of capital.
SALOMON BROTHERS U.S. GOVERNMENT SERIES
The Salomon Brothers U.S. Government Series investment objective is a high
level of current income consistent with preservation of capital and
maintenance of liquidity.
BACK BAY ADVISORS MONEY MARKET SERIES
The Back Bay Advisors Money Market Series investment objective is the
highest possible level of current income consistent with preservation of
capital. An investment in the Money Market Series is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Although the Money Market Series seeks to maintain a net asset value of $100
per share, it is possible to lose money by investing in the Money Market
Series.
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.
VIP OVERSEAS PORTFOLIO
The VIP Overseas Portfolio seeks long-term growth of capital. Foreign
markets, particularly emerging markets, can be more volatile than the U.S.
market due to increased risks of adverse issuer, political, regulatory, market
or economic developments and can perform differently than the U.S. market.
VIP EQUITY-INCOME PORTFOLIO
The VIP Equity-Income Portfolio seeks reasonable income. The fund will also
consider the potential for capital appreciation. The fund seeks a yield which
exceeds the composite yield on the securities comprising the S&P 500.
INVESTMENT ADVICE
The Capital Growth Series receives investment advice from Capital Growth
Management Limited Partnership ("CGM"), an affiliate of NELICO. NEIM (formerly
TNE Advisers), which is an indirect, wholly-owned subsidiary of NELICO, is the
investment adviser for the remaining series of the Zenith Fund. The chart
below shows the sub-adviser for each series of the Zenith Fund. NEIM, CGM and
each of the sub-advisers are registered with the SEC as investment advisers
under the Investment Advisers Act of 1940.
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<PAGE>
<TABLE>
<CAPTION>
SERIES SUB-ADVISER
- ------ -----------
<S> <C>
Loomis Sayles Small Cap Series Loomis, Sayles & Company, L.P.*
Morgan Stanley International Magnum Morgan Stanley Dean Witter Investment
Equity Series Management Inc.
Alger Equity Growth Series Fred Alger Management, Inc.
Goldman Sachs Midcap Value Series Goldman Sachs Asset Management
Davis Venture Value Series Davis Selected Advisers, L.P.**
Westpeak Growth and Income Series Westpeak Investment Advisors, L.P.*
Westpeak Stock Index Series Westpeak Investment Advisors, L.P.*
Loomis Sayles Balanced Series Loomis, Sayles & Company, L.P.*
Back Bay Advisors Managed Series Back Bay Advisors, L.P.*
Salomon Brothers Strategic Bond
Opportunities Series Salomon Brothers Asset Management Inc***
Back Bay Advisors Bond Income Series Back Bay Advisors, L.P.*
Salomon Brothers U.S. Government
Series Salomon Brothers Asset Management Inc
Back Bay Advisors Money Market Series Back Bay Advisors, L.P.*
</TABLE>
- --------
* An affiliate of NELICO
** Davis Selected may also delegate any of its responsibilities to Davis
Selected Advisers-NY, Inc., a wholly-owned subsidiary of Davis Selected.
*** In connection with Salomon Brothers Asset Management's service as sub-
adviser to the Strategic Bond Opportunities Series, Salomon Brothers'
London-based affiliate, Salomon Brothers Asset Management Limited,
provides certain sub-advisory services to Salomon Brothers Asset
Management.
In the case of the Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series, Back Bay Advisors Managed Series, Westpeak Stock Index
Series, Westpeak Growth and Income Series, Goldman Sachs Midcap Value Series
and Loomis Sayles Small Cap Series, New England Investment Management
(formerly TNE Advisers, Inc.) became the adviser on May 1, 1995. The Morgan
Stanley International Magnum Equity Series' sub-adviser was Draycott Partners,
Ltd. until May 1, 1997, when Morgan Stanley Dean Witter Investment Management
(formerly Morgan Stanley Asset Management) became the sub-adviser.
The Goldman Sachs Midcap Value Series' sub-adviser was Loomis Sayles until
May 1, 1998, when Goldman Sachs Asset Management became the sub-adviser.
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 VIP Overseas Portfolio and the VIP Equity-Income Portfolio receive
investment advice from Fidelity Management & Research Company. More complete
information on the VIP Equity-Income and VIP 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.
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GUARANTEED OPTION
Net purchase payments may also be allocated to the Fixed Account option in
states that have approved the Fixed Account option. The Fixed Account is a
part of the Company's general account and provides guarantees of principal and
interest. (See "The Fixed Account" for more information.)
THE CONTRACTS
The Contracts provide that purchase payments will be invested by the Company
in the Eligible Fund(s) you select and that, after annuitization, the Company
will make variable annuity payments on a monthly basis, unless you elect
otherwise. You assume the risk of investment gain or loss in that the value of
your Contract before annuitization and, in the case of a variable payment
option, the annuity payments after annuitization will vary with the investment
performance of those Eligible Funds in which your Contract is invested.
PURCHASE PAYMENTS
Under current rules, the minimum initial purchase payment for flexible
payment Contracts issued in connection with tax-benefited retirement plans
other than individual retirement accounts under Section 408(a) of the Code or
individual retirement annuities under Section 408(b) of the Code (both
referred to as "IRAs") 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
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any time. The number of Accumulation Units of each sub-account to be credited
to the Contract is determined by dividing the net purchase payment by the
Accumulation Unit Value for the selected sub-accounts next determined
following receipt of the purchase payment at the Company's Designated Office
(or, in the case of the initial purchase payment, next determined following
approval of the Contract application). In the case of an initial purchase
payment to be made by exchanging a variable annuity contract issued by New
England Variable Annuity Fund I (a "Fund I contract") or New England
Retirement Investment Account (a "Preference contract"), the payment will be
applied using the Accumulation Unit Value next determined following approval
of the Contract application and receipt of the proceeds of the Fund I or
Preference contract.
CONTRACT VALUE AND ACCUMULATION UNIT VALUE
The value of a Contract is determined by multiplying the number of
Accumulation Units credited to the Contract by the appropriate Accumulation
Unit Values. As described below, the Accumulation Unit Value of each sub-
account depends on the net investment experience of its corresponding Eligible
Fund and reflects fees and expenses borne by the Eligible Fund as well as
charges assessed against sub-account assets. The Accumulation Unit Value of
each sub-account was set at $1.00 on or about the date on which shares of the
corresponding Eligible Fund first became available to investors. The
Accumulation Unit Value is determined as of the close of regular trading on
the New York Stock Exchange on each day during which the Exchange is open for
trading by multiplying the last-determined Accumulation Unit Value by the net
investment factor determined as of the close of regular trading on the
Exchange on that day. To determine the net investment factor for any sub-
account, the Company takes into account the change in net asset value per
share of the Eligible Fund held in the sub-account as of the close of regular
trading on the Exchange on that day from the net asset value most recently
determined, the amount of dividends or other distributions made by that
Eligible Fund since the previous determination of net asset value per share,
and daily deductions for the Mortality and Expense Risk Charge and
Administration Asset Charge, equal, on an annual basis, to 1.35% of the
average daily net asset value of the sub-account. The formula for determining
the net investment factor is described under the caption "Net Investment
Factor" in the Statement of Additional Information.
The net investment factor may be greater or less than one, depending in part
upon the investment performance of the Eligible Fund which is the underlying
investment of the sub-account, and you bear this 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.
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<PAGE>
Death Proceeds will be reduced by the amount of any outstanding loan plus
accrued interest. (See "Loan Provision for Certain Tax Benefited Retirement
Plans.")
Options for Death Proceeds. The Death Proceeds, reduced by the amount of any
outstanding loan plus accrued interest, will be paid in a lump sum or will be
applied to provide one or more of the fixed or variable methods of payment
available. (See "Annuity Options.") The Contract Owner may elect the form of
payment during his or her lifetime (or during the Annuitant's lifetime, if the
Contract is not owned in an individual capacity). Such an election,
particularly in the case of Contracts issued in connection with retirement
plans qualifying for tax benefited treatment, is subject to any applicable
requirements of Federal tax law. If the Contract Owner has not made such an
election, payment will be in a single sum, unless the Beneficiary elects an
annuity payment option within 90 days after receipt by the Company of due
proof of the Annuitant's death or elects to apply the amount payable under the
Contract to purchase a new Contract. Whether and when such an election is made
could affect when the Death Proceeds are deemed to be received under the tax
laws.
The Company also intends to make Beneficiary Continuation and Spousal
Continuation provisions available under the Contracts, subject to any
necessary state approvals. Under these provisions, an eligible Beneficiary
would also have the option of continuing the Contract, as further described
below. IF EITHER BENEFICIARY OR SPOUSAL CONTINUATION APPLIES TO A CONTRACT,
AND AN ELIGIBLE BENEFICIARY DOES NOT MAKE AN ELECTION OF CONTINUATION OF THE
CONTRACT OR OF PAYMENT EITHER IN ONE SUM OR UNDER AN ANNUITY PAYMENT OPTION
WITHIN 90 DAYS AFTER THE COMPANY RECEIVES DUE PROOF OF DEATH, THE CONTRACT
WILL BE CONTINUED UNDER THE APPLICABLE CONTINUATION PROVISION.
For non-tax qualified plans, the Code requires that if any 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 a 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
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DUE PROOF OF DEATH, THE CONTRACT WILL BE CONTINUED UNDER THE BENEFICIARY
CONTINUATION PROVISION FOR A PERIOD ENDING FIVE YEARS AFTER THE DATE OF DEATH.
IF BENEFICIARY CONTINUATION IS NOT AVAILABLE BECAUSE THE BENEFICIARY'S SHARE
OF THE DEATH PROCEEDS DOES NOT MEET THE COMPANY'S PUBLISHED MINIMUM, HOWEVER,
THE DEATH PROCEEDS WILL BE PAID IN A SINGLE SUM UNLESS THE BENEFICIARY ELECTS
AN ANNUITY PAYMENT OPTION WITHIN 90 DAYS AFTER THE COMPANY RECEIVES DUE PROOF
OF DEATH.
If the Contract is continued under the Beneficiary Continuation provision,
the Death Proceeds (reduced by the amount of any outstanding loan plus accrued
interest) become the Contract Value on the date the continuation is effected,
and will be allocated among the accounts in the same proportion as they had
been prior to the continuation. In addition, the Beneficiary will have the
right to make transfers and fully or partially surrender his or her Contract
Value, and no contingent deferred sales charge will apply. The Beneficiary
cannot, however, make additional purchase payments, take loans or exercise the
dollar cost averaging feature. Five years from the date of death of the
Contract Owner (or, if applicable, the Annuitant), the Company will pay the
Beneficiary's Contract Value to the Beneficiary. If the Beneficiary dies
during that five year period, the Beneficiary's death benefit will be the
Beneficiary's Contract Value on the date when the Company receives due proof
of the Beneficiary's death.
--SPECIAL OPTIONS FOR SPOUSES
Under the Spousal Continuation provision, the Contract may be continued
after the death of a 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.
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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. Currently, after variable annuity payments have
commenced, you may make one transfer per year without the consent of the
Company, and the Fixed Account is not available under variable payment
options. All transfers are subject to the requirement that the amount of
Contract Value transferred be at least $25 (or, if less, the amount of
Contract Value held in the sub-account from which the transfer is made) and
that, after the transfer is effected, Contract Value be allocated among not
more than ten accounts, including the Fixed Account. Transfers will be
accomplished at the relative net asset values per share of the particular
Eligible Funds next determined after the request is received by the Company's
Designated Office. See "Requests and Elections" for information regarding
transfers made by written request and by telephone.
For special rules regarding transfers involving the Fixed Account, see "The
Fixed Account." Transfers out of the Fixed Account are limited as to timing,
frequency and amount.
DOLLAR COST AVERAGING
The Company offers an automated transfer privilege referred to here as
dollar cost averaging. Under this feature you may request that a certain
amount of your Contract Value be transferred on the same day each month, prior
to annuitization, from any one account of your choice (excluding the Fixed
Account) to one or more of the other accounts (excluding the Fixed Account)
subject to the limitation that Contract Value may not be allocated to 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
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which annuity payments are to begin. (See "Federal Income Tax Status.") No
surrender is permitted in connection with a Contract issued pursuant to the
Optional Retirement Program of the University of Texas System prior to the
plan participant's death, retirement, or termination of employment in all
Texas public institutions of higher education.
On receipt of an election to surrender, the Company will cancel the number
of Accumulation Units necessary to equal the dollar amount of the surrender
request. On a full surrender, any applicable Administration Contract Charge
will be deducted from this amount. Any applicable Contingent Deferred Sales
Charge also will be deducted from this amount on a full or partial surrender.
Also, any applicable Contingent Deferred Sales Charge will be imposed upon the
application of proceeds to an annuity payment option unless you elect (a) a
variable life income option (payment options 2, 3 or 6 as described under
"Annuity Options") or (b) for Contracts that have been in force at least five
years, a fixed life income payment option (comparable to payment options 2, 3
or 6 as described under "Annuity Options" but on a fixed basis). (See
"Administration Charges, Contingent Deferred Sales Charge and Other
Deductions" and "Annuity Options."') A partial surrender will reduce the
Contract Value in the sub-accounts in proportion to the amount of Contract
Value in each sub-account, unless you request otherwise. Surrenders and
related charges will be based on Accumulation Unit Values next determined
after the election is received at the Company's Designated Office or, if
surrender proceeds are to be applied to an annuity payment option, at such
later date as may be specified in the request for surrender. After a partial
surrender, the remaining Contract Value must be at least $500 (unless the
Company consents to a lesser amount) or, if the Contract is subject to an
outstanding loan, the remaining unloaned Contract Value must be at least 10%
of the total Contract Value after the partial surrender or $500, whichever is
greater (unless the Company consents to a lesser amount). If the requested
partial surrender would not satisfy this requirement, at the Contract Owner's
option either the amount of the partial surrender will be reduced or the
transaction will be treated as a full surrender and any applicable Contingent
Deferred Sales Charge will be deducted from the proceeds.
Any surrender may result in adverse tax consequences. 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
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to plans qualified under Section 401(k) of the Code and are no longer being
offered to TSA Plans subject to ERISA. See "Retirement Plans Offering Federal
Tax Benefits.")
The Department of Labor has issued regulations (the "ERISA regulations")
governing plan participant loans under retirement plans subject to ERISA.
Generally, the ERISA regulations will apply to retirement plans that qualify
under Sections 401(a) and 401(k) of the Code and employer-sponsored TSA Plans
(generally those to which employers make contributions not attributable to
salary reduction agreements). YOU AND YOUR EMPLOYER ARE RESPONSIBLE FOR
DETERMINING WHETHER YOUR PLAN IS SUBJECT TO AND COMPLIES WITH THE ERISA
REGULATIONS ON PARTICIPANT PLAN LOANS.
It is the responsibility of the trustee of a Qualified Plan or fiduciary of
a TSA Plan subject to ERISA to ensure that the proceeds of a Contract loan are
made available to a participant under a separate plan loan agreement, the
terms of which comply with all the plan qualification requirements including
the requirements of the ERISA regulations on plan loans. Therefore, the plan
loan agreement may differ from the Contract loan provisions and, if you are a
participant in a Qualified Plan or a TSA Plan subject to ERISA, you should
consult with the fiduciary administering the plan loan program to determine
your rights and obligations with respect to plan loans.
The ERISA regulations contain requirements for plan loans relating to their
maximum amount, availability, and other matters. Among the rules are the
requirements that the loan bear a reasonable rate of interest, be adequately
secured, provide a reasonable repayment schedule, and be made available on a
basis that does not discriminate in favor of employees who are officers or
shareholders or who are highly compensated. These regulations may change from
time to time. Failure to comply with these requirements may result in
penalties under the Code and under ERISA.
One of the current requirements of the ERISA regulations is that the plan
must charge a "commercially reasonable" rate of interest for plan loans. The
Contract loan interest rate may not be considered "commercially reasonable"
within the meaning of the ERISA regulations, and it is the responsibility of
the plan fiduciary to charge the participant any additional interest under the
plan loan agreement which may be necessary to make the overall rate charged
comply with the regulation. The ERISA regulations also currently require that
a loan be adequately secured, but provide that not more than 50% of the
participant's vested account balance under the plan may be used as security
for the loan. A Contract loan is secured by the portion of the Contract Value
which is held in the Company's general account as a result of the loan. The
plan fiduciary must ensure that the Contract Value held as security under the
Contract, plus any additional portion of the participant's vested account
balance which is used as security under the plan loan agreement, does not
exceed 50% of the participant's total vested account balance under the plan.
The amount of any loan may not exceed the maximum loan amount as determined
under the Company's maximum loan formula. The effect of a loan on your
Contract is that a portion of the Contract Value equal to the 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
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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 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
1997, 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
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be allocated, unless you request otherwise, according to the allocation
instructions in effect for purchase payments under your Contract, pursuant to
the terms of the applicable Contract loan endorsement.)
The amount of the death proceeds, the amount payable upon surrender of the
Contract and the amount applied on the Maturity Date to provide annuity
payments will be reduced by the amount of any outstanding Contract loan plus
accrued interest. In these circumstances, the amount of the outstanding
contract loan plus accrued interest generally will be taxed as a taxable
distribution.
The tax and ERISA rules relating to participant loans under tax benefited
retirement plans are complex and in some cases unclear, and they may vary
depending on the individual circumstances of each loan. The Company strongly
recommends that you, your employer and your plan fiduciary consult a qualified
tax advisor regarding the currently applicable tax and ERISA rules before
taking any action with respect to loans.
The Company will provide further information regarding loans upon request.
DISABILITY BENEFIT RIDER
A disability benefit rider may be purchased, provided that the Annuitant
satisfies any applicable underwriting standards. This feature is available
only if you are under age 60 when your Contract is issued and if you plan to
make regular annual contributions to the Contract. If the Annuitant becomes
totally disabled, the rider provides that the Company will make monthly
purchase payments under the Contract, subject to the terms and conditions of
the rider.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the payment of any
amounts due under the Contract or transfers of Contract Values between sub-
accounts when permitted under applicable Federal laws, rules and regulations.
Current Federal law permits such suspension or postponement if: (a) the New
York Stock Exchange is closed (other than for customary weekend and holiday
closings); (b) trading on the Exchange is restricted; (c) an emergency exists
such that it is not reasonably practicable to dispose of securities held in
the Variable Account or to determine the value of its assets; or (d) the
Securities and Exchange Commission by order so permits for the protection of
securities holders. Conditions described in (b) and (c) will be decided by or
in accordance with rules of the Securities and Exchange Commission.
OWNERSHIP RIGHTS
During the Annuitant's lifetime, all rights under the Contract are vested
solely in the Contract Owner unless otherwise provided. Such rights include
the right to change the Beneficiary, to change the payment option, to assign
the Contract (subject to the restrictions referred to below), and to exercise
all other rights, benefits, options and privileges conferred by the Contract
or allowed by the Company. Transfer of ownership of the Contract under an
ERISA "Pension Plan" to a non-spousal beneficiary may require spousal consent.
Qualified Plans and certain TSA Plans with sufficient employer involvement
are deemed to be "Pension Plans" under ERISA and may, therefore, be subject to
rules under the Retirement Equity Act of 1984. These rules require 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
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be sold, assigned or pledged as collateral for a loan or for any other purpose
except under certain limited circumstances. A Contract Owner contemplating a
sale, assignment or pledge of the Contract should carefully review its
provisions and consult a qualified tax advisor.
If Contracts offered by this prospectus are used in connection with deferred
compensation plans or retirement plans not qualifying for favorable Federal
tax treatment, such plans may also restrict the exercise of rights by the
Contract Owner. A Contract Owner should review the provisions of any such
plan.
REQUESTS AND ELECTIONS
Requests for transfers or reallocation of future purchase payments may be
made by telephone or written request (which may be telecopied) to the Company
at its Designated Office. Written requests for such transfers or changes of
allocation must be in a form acceptable to the Company. To request a transfer
or change of allocation by telephone, please contact your registered
representative, or contact the Company's Designated Office at 1-800-435-4117
between the hours of 9:00 a.m. and 4:00 p.m., Eastern Time. Requests for
transfer or reallocation by telephone will be automatically permitted. The
Company (or any servicer acting on its behalf) will use reasonable procedures
such as requiring certain identifying information from the caller, tape
recording the telephone instructions, and providing written confirmation of
the transaction, in order to confirm that instructions communicated by
telephone are genuine. Any telephone instructions reasonably believed by the
Company (or any servicer acting on its behalf) to be genuine will be your
responsibility, including losses arising from any errors in the communication
of instructions. As a result of this policy, you will bear the risk of loss.
If the Company (or any servicer acting on its behalf) does not employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, it may be liable for any losses due to unauthorized or fraudulent
transactions. All other requests and elections under a Contract must be in
writing signed by the proper party, must include any necessary documentation
and must be received at the Company's Designated Office to be effective. If
acceptable to the Company, requests or elections relating to Beneficiaries and
ownership will take effect as of the date signed unless the Company has
already acted in reliance on the prior status. The Company is not responsible
for the validity of any written request or election.
TEN DAY RIGHT TO REVIEW
Within 10 days (or more where required by applicable state insurance law) of
your receipt of an issued Contract you may return it to the Company at its
Designated Office for cancellation. Upon cancellation of the Contract, the
Company will refund all your purchase payments. If required by the insurance
law or regulations of the state in which your Contract is issued, however, the
Company will return to you an amount equal to the sum of (1) any difference
between the purchase payments made and the amounts allocated to the Variable
Account and (2) the Contract Value.
ADMINISTRATION CHARGES, CONTINGENT
DEFERRED SALES CHARGE AND OTHER DEDUCTIONS
The Company deducts various charges from Contract Value for the services
provided, expenses incurred and risks assumed in connection with the
Contracts. For example, the Company incurs costs and expenses in 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
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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.
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
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Contracts were purchased prior to May 1, 1994. (See "Election of Annuity" for
more information.) A Contingent Deferred Sales Charge will be imposed in the
event of certain partial and full surrenders and applications of proceeds to
certain payment options prior to the Maturity Date. Up to 10% of the Contract
Value on the date of surrender may be surrendered without charge in any one
Contract Year. If there is more than one partial surrender in a Contract Year,
the amount that may be surrendered without charge is 10% of the Contract Value
on the date of the first partial surrender during such year. No charge will be
imposed for payments made upon death or application of proceeds to variable
life income payment options (payment options 2, 3 or 6 as described under
"Annuity Options" below) prior to the Maturity Date. If the Contract has been
in force for five years, no charge will be applied upon the election of a
fixed life income payment option (comparable to payment options 2, 3 or 6 as
described under "Annuity Options" below but on a fixed basis). The Contingent
Deferred Sales Charge will be applied upon the election of other forms of
payment prior to the Maturity Date. Any such election will be treated as a
full surrender for purposes of calculating the applicable Contingent Deferred
Sales Charge. The Contingent Deferred Sales Charge applied will equal the
following amounts if the transaction occurs in the years indicated:
PERCENTAGE OF CONTRACT VALUE WITHDRAWN
(AFTER FREE WITHDRAWAL OF 10% OF THE CONTRACT VALUE)
<TABLE>
<CAPTION>
CONTRACT YEAR
---------------------------------------------------------------
1 2 3 4 5 6 7 8 9 10 11 AND AFTER
--- --- --- --- --- --- --- --- --- --- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.0% 1.0% 0%
</TABLE>
In cases where the Company has consented to issue a Contract with less than
10 years to the Maturity Date, the Contingent Deferred Sales Charge will be
calculated as though the year of the Maturity Date is the tenth Contract Year
(and the preceding Contract Year is the ninth year, and so forth) resulting in
a lower percentage charge for each Contract Year shown in the table above.
In no event will the total Contingent Deferred Sales Charge exceed 8% of the
first $50,000 of purchase payments made under the Contract and 6.5% of the
amount of purchase payments in excess of $50,000. (For 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 fifth
Contract Year when the Contract Value had grown to $19,850.
Using the Contingent Deferred Sales Charge schedule in the chart
above, the Contingent Deferred Sales Charge would be: 4.5% X (90% of
$19,850), or $804. 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
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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 2.00% 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. The Company may in the
future deduct premium taxes under Contracts subject to the insurance tax laws
of other states, or the applicable premium tax rates may change. See Appendix
B for a list of premium tax rates paid by the Company.
Surrender of a Contract may result in a credit against the premium tax
liability of the Company in certain States. In such event, the surrender
proceeds will be increased by the amount of such tax credit.
Premium tax rates are subject to being changed by law, administrative
interpretations or court decisions. Premium tax amounts will depend on, among
other things, the state of residence of the Annuitant and the insurance tax
law of the state.
OTHER EXPENSES
A deduction for an investment advisory fee is made from, and certain other
expenses are paid out of, the assets of each Eligible Fund. (See "Expense
Table.") The prospectuses and Statements of Additional Information of the
Eligible Funds describe these deductions and expenses.
CHARGES UNDER CONTRACTS PURCHASED BY EXCHANGING A FUND I OR PREFERENCE
CONTRACT
If a Contract is purchased by exchanging a variable annuity contract issued
by New England Variable Annuity Fund I (a "Fund I contract") or New England
Retirement Investment Account (a "Preference contract"), the sales charges
will be calculated as described below. There will be no Contingent Deferred
Sales Charge on the transfer of assets from a Fund I or Preference contract to
a Zenith Accumulator Contract.
A Contract issued in exchange for a Fund I contract will have no Contingent
Deferred Sales Charge. No further purchase payments will be permitted to be
made under a Contract purchased by exchanging a Fund I contract. If you
purchase a Contract by exchanging a Fund I contract and you also hold or
acquire another Zenith Accumulator Contract, the $30 Administration Contract
Charge will only be imposed on one of the Contracts. Total asset-based charges
(including the investment advisory fee) under Fund I contracts currently equal
approximately 1.35%.
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A Contract issued in exchange for a Preference contract will have no
Contingent Deferred Sales Charge. Although Preference contracts were
originally issued subject to a contingent deferred sales charge, there are no
longer any Preference contracts subject to such a charge. Preference contracts
have asset-based charges of 1.25% for mortality and expense risks, but do not
have an asset-based administration charge. Preference contracts impose a $30
annual administration charge.
If you are contemplating an exchange of a Fund I or Preference contract for
a Zenith Accumulator Contract, you should compare the charges deducted under
your existing contract and under the Zenith Accumulator Contract for mortality
and expense risk charges, administrative charges and investment advisory fees.
ANNUITY PAYMENTS
ELECTION OF ANNUITY
When applying for a Contract, you select the Maturity Date and an annuity
payment option. The Maturity Date selected must be at least 10 years after
issue of the Contract. Under current rules, the Company may consent to issue a
Contract with a Maturity Date less than 10 years after issue, provided that
the Contract Owner is an employer-sponsored pension plan through which
Contracts were purchased prior to May 1, 1994. Such Contracts are only
available, however, to Annuitants who are age 50 or over at the time of issue.
In addition, the applications for such Contracts must satisfy the Company's
suitability guidelines and, in the case of Annuitants between the ages of 50
and 58 1/2 at the time of issue, the Maturity Date must be no earlier than the
date at which the Annuitant would reach age 59 1/2. Once a Maturity Date is
selected, you cannot change it to an earlier date. However, you may surrender
the Contract at any time before the Maturity Date and apply the surrender
proceeds to an annuity payment option. At any time before the Maturity Date,
you may elect to defer the Maturity Date, but you must obtain Company consent
to defer if on the later Maturity Date the age of the Annuitant at his or her
nearest birthday would be more than seventy-five. You may change the annuity
payment option at any time prior to the Maturity Date. You may elect to have
annuity payments under a Contract made on a variable basis or on a fixed
basis, or you may designate a portion to be paid on a variable basis and a
portion on a fixed basis. If you select payments on a fixed basis, the amount
of Contract Value applied to the fixed payment option (net of any applicable
charges described under "Administration Charges, Contingent Deferred Sales
Charge and Other Deductions") will be transferred to the general account of
the Company, and the annuity payments will be fixed in amount and duration by
the annuity payment option selected, the age of the Payee and, for Contracts
issued in New York or Oregon for use in situations not involving an employer-
sponsored plan, by the sex of the Payee. (See "Amount of Variable Annuity
Payments.")
Requests to defer the Maturity Date, change payment options or make other
elections relating to annuity payments should be sent to the Designated
Office. Contracts acquired by retirement plans qualifying for tax benefited
treatment may be subject to various requirements concerning the time by which
benefit payments must commence, the period over which such payments may be
made, the annuity payment options that may be selected, and the minimum annual
amounts of such payments. Penalty taxes or other adverse tax consequences may
occur upon failure to meet such requirements.
ANNUITY OPTIONS
Prior to annuitization, you may elect, subject to any applicable
restrictions of Federal tax law, to have payments made under any of the
annuity payment options provided in the Contract. Any such election depends
upon written notice to (and, for variable annuity payment options to begin
during the first Contract Year, consent of) the Company. Requests relating to
annuity payment options should be sent to the Designated Office. In the event
of your death, without having made an election of an annuity payment option,
the beneficiary can elect any of the available options listed below, subject
to applicable Federal tax law restrictions. Payments will begin on the
Maturity Date, as stated in your application or as subsequently deferred, or,
in the case of a full surrender as otherwise specified. Pursuant to your
election, the Company shall apply all or any part designated by you of the
value of your
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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.
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.
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* 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
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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 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."
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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.);
3. Individual retirement accounts adopted by or on behalf of individuals
pursuant to Section 408(a) of the Code and individual retirement annuities
purchased pursuant to Section 408(b) of the Code (both of which may be
referred to as "IRAs"), including simplified employee pension plans, which
are specialized IRAs that meet the requirements of Section 408(k) of the
Code ("SEPs" and "SARSEPs"). SARSEPs are only allowed if owned prior to
January 1, 1999;
4. Roth Individual Retirement Accounts under Section 408A of the Code
("Roth IRAs"). (In some states Roth IRAs are 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.
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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.
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 distributions or 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
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comply with applicable law. An Owner's rights under this Contract may be
limited by the terms of the retirement plan with which it is used. 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) and Medicare
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 1999, the deductions are phased out and eventually eliminated, on a pro
rata basis, for adjusted gross income between $31,000 and $41,000 for an
individual, between $51,000 and $61,000 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 1999) 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
In some states Roth IRAs are available under this Contract, subject to the
following limitations.
Eligible individuals can 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
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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. After December 31, 1999 permissible hardship
withdrawals from TSA and 401(k) plans will no longer be treated as an
"eligible rollover distribution." 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
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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 but other exceptions may
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 any 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 a period not extending beyond 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 generally commence by April 1 of the calendar year
following the year in which the Annuitant attains age 70 1/2. In the case of a
Qualified Plan or a Governmental Plan, 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
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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. An
exception to these rules provides that if the beneficiary is other than the
Annuitant's spouse, distribution must be completed within 15 years of death,
regardless of the beneficiary's life expectancy.
(B) SPECIAL RULES FOR ANNUITIES USED BY INDIVIDUALS OR WITH PLANS AND TRUSTS
NOT QUALIFYING UNDER THE CODE FOR TAX BENEFITED TREATMENT
For a Contract held by an individual, any increase in the accumulated value
of the Contract is not taxable until amounts are received, either in the form
of annuity payments as contemplated by the Contract or in a full or partial
lump sum settlement of the Company's obligations to the Contract Owner.
Under Section 72(u) of the Code, however, Contracts held by other than a
natural person (i.e. those held by a corporation or certain trusts) generally
will not be treated as an annuity contract for Federal income tax purposes.
This means a Contract Owner who is not a natural person will have to include
in income any increase during the taxable year in the accumulated value over
the investment in the Contract.
Section 817(h) of the Code requires the investments of the Variable Account
to be "adequately diversified" in accordance with Treasury Regulations.
Failure to do so means the variable annuity contracts described herein will
cease to qualify as annuities for Federal income tax purposes. Regulations
specifying the diversification requirements have been issued by the Department
of the Treasury, and the Company believes it complies fully with these
requirements.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published
rulings that a variable contract owner will be considered the owner of
separate account assets if the contract owner possesses incidents of ownership
in those assets, such as the ability to exercise investment control over the
assets. The Treasury Department has also announced, in connection with the
issuance of regulations concerning diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control
for the investments of a segregated asset account may cause the investor
[i.e., the Contract Owner], rather than the insurance company, to be treated
as the owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular Sub-Accounts
without being treated as owners of the underlying assets."
The ownership rights under the Contract are similar to, but also different
in certain respects from, those described by the IRS in rulings in which it
was determined that contract owners were not owners of separate account
assets. For example, a Contract Owner has additional flexibility in allocating
premium payments and account values. These differences could result in a
Contract Owner being treated as the owner of a pro rata portion of the assets
of the Variable Account. In addition, the Company does not know what standards
will be set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. The Company therefore reserves the
right to modify the Contract as necessary to attempt to prevent a Contract
Owner from being considered the owner of a pro rata share of the assets of the
Variable Account.
Any amount received in a surrender of all or part of the Contract Value
(including an amount received as a systematic withdrawal) prior to
annuitization will be included in gross income to the extent of any increases
in the value of the Contract resulting from earnings or gains on the
underlying mutual fund shares.
The Code also imposes a ten percent penalty tax on amounts received under a
Contract, before or after annuitization, which are includible in gross income.
The penalty tax will not apply to any amount received under
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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 a 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. 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
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issuing insurance company, unregistered) separate accounts of the Company or
any affiliate for which no timely instructions are received will be voted for,
against, or withheld from voting on any proposition in the same proportion as
the shares held in that sub-account for all policies or contracts for which
voting instructions are received.
All Eligible Fund shares held by the general investment account (or any
unregistered separate account for which voting privileges are not extended) of
the Company or its affiliates will be voted in the same proportion as the
aggregate of (i) the shares for which voting instructions are received and
(ii) the shares that are voted in proportion to such voting instructions.
The SEC requires the Eligible Funds' Board of Trustees to monitor events to
identify conflicts that may arise from the sale of shares to variable life and
variable annuity separate accounts of affiliated and, if applicable,
unaffiliated insurance companies. Conflicts could arise as a result of changes
in state insurance law or Federal income tax law, changes in investment
management of any portfolio of the Eligible Funds, or differences between
voting instructions given by variable life and variable annuity contract
owners, for example. If there is a material conflict, the Boards of Trustees
will have an obligation to determine what action should be taken, including
the removal of the affected sub-account(s) from the Eligible Fund(s), if
necessary. If the Company believes any Eligible Fund action is insufficient,
the Company will consider taking other action to protect Contract Owners.
There could, however, be unavoidable delays or interruptions of operations of
the Variable Account that the Company may be unable to remedy.
Each Contract Owner is a policyholder of the Company and is entitled to vote
at the Company's Annual Meeting of Policyholders.
DISTRIBUTION OF CONTRACTS
New England Securities, the principal underwriter of the Contracts, is a
broker-dealer registered under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc. Commissions of
3% of purchase payments will be paid by the Company to the New England
Securities registered representative involved in the sale of a Contract if the
Maturity Date selected at issue is ten or more years after issue of the
Contract. Lower commissions will be paid if the Maturity Date selected at
issue is less than ten years after issue. A maximum override of .75% of
purchase payments made after the first Contract Year will be paid by the
Company to the general agent involved in the transaction.
New England Securities may enter into selling agreements with other broker-
dealers registered under the Securities Exchange Act of 1934 whose
representatives are authorized by applicable law to sell variable annuity
contracts. Commissions paid to such broker-dealers will not exceed 3% of
purchase payments. Commissions will be paid through the registered broker-
dealer, which may also be reimbursed for all or part of the expenses incurred
by the broker-dealer in connection with the sale of the Contracts.
THE FIXED ACCOUNT
A Fixed Account option is included under Contracts issued in those states
where it has been approved by the state insurance department. You may allocate
net purchase payments and may transfer Contract Value in the Variable Account
to the Fixed Account, which is part of the Company's general account. The
Fixed Account offers diversification to a Variable Account contract, allowing
the Contract Owner to protect principal and earn, at least, a guaranteed rate
of interest.
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
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Account nor any interests therein are generally subject to the provisions of
these Acts, and the Company has been advised that the staff of the Securities
and Exchange Commission does not review disclosures relating to the general
account. Disclosures regarding the Fixed Account may, however, be subject to
certain generally applicable provisions of the Federal securities laws
relating to the accuracy and completeness of statements made in prospectuses.
GENERAL DESCRIPTION OF THE FIXED ACCOUNT
The Company's general account consists of all assets owned by the Company
other than those in the Variable Account and the Company's other separate
accounts. The Company has sole discretion over the investment of assets in the
general account, including those in the Fixed Account. Contract Owners do not
share in the actual investment experience of the assets in the Fixed Account.
Instead, the Company guarantees that Contract Values in the Fixed Account will
be credited with interest at an effective annual net rate of at least 4.5% or
3%, depending on the date when your Contract was issued. The Company is not
obligated to credit interest at a rate higher than the minimum guaranteed rate
applicable to your Contract, although in its sole discretion it may do so. The
Company declares the current interest rate for the Fixed Account periodically.
Contract Values in the Fixed Account will be credited with interest daily.
The Company has the right to modify its method of crediting interest. Under
its current method, any net purchase payment or portion of Contract Value
allocated to the Fixed Account will earn interest at the declared annual rate
in effect on the date of the allocation. On each Contract Anniversary, the
Company will determine a portion, from 0% to 100%, of your Contract Value in
the Fixed Account which will earn interest at the Company's declared annual
rate in effect on the Contract Anniversary. The effective interest rate
credited at any time to your Contract Value in the Fixed Account will be a
weighted average of all the Fixed Account rates for your Contract. (See
"Contract Value and Fixed Account Transactions" below for a description of the
interest rate which will be applied to Contract loan repayments allocated to
the Fixed Account.)
CONTRACT VALUE AND FIXED ACCOUNT TRANSACTIONS
A Contract's total Contract Value will include its Contract Value in the
Variable Account, its Contract Value in the Fixed Account and, for Contracts
under which Contract loans are available, any of its Contract Value held in
the Company's general account (but outside the Fixed Account) as a result of a
Contract loan.
The annual $30 Administration Contract Charge will be deducted
proportionately from the Contract Value in the Fixed Account and in the
Variable Account. Unless you request otherwise, a partial surrender or
Contract loan will reduce the Contract Value in the sub-accounts of the
Variable Account and the Fixed Account proportionately. Except as described
below, amounts in the Fixed Account are subject to the same rights and
limitations as are amounts in the Variable Account with respect to transfers,
surrenders, partial surrenders and Contract loans. The following special rules
apply to transfers and Contract loan repayments involving the Fixed Account.
You may transfer amounts from the Fixed Account to the Variable Account once
each year within 30 days after the Contract anniversary. The amount of
Contract Value which may be transferred from the Fixed Account is limited to
the greater of 25% of the Contract Value in the Fixed Account and $1,000,
except with the consent of the Company. Also, after the transfer is effected,
Contract Value may not be allocated among more than ten of the accounts,
including the Fixed Account. The Company intends to restrict transfers of
Contract Value into the Fixed Account in the following circumstances: (1) for
the remainder of a Contract Year if an amount is transferred out of the Fixed
Account in that same Contract Year; (2) if the interest rate which would be
credited to the transferred amount would be equivalent to an annual effective
rate of 3% or 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
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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.
YEAR 2000 COMPLIANCE ISSUES
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 being devoted, or the outcome of these efforts, will
have any negative impact. If NELICO or its service providers, or the Eligible
Funds are not successful in the Year 2000 transition, computer systems could
fail or erroneous results or delays could occur when processing information
after December 31, 1999. However, as of the date of this prospectus, it is not
anticipated that you will experience negative effects on your investment, or
on the Contract services provided, as a result of Year 2000 transition
implementation. Currently NELICO has converted its systems to be Year 2000
compliant. NELICO is conducting systems testing and compliance verification
which is expected to be complete in mid-1999. 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 PERFORMANCE 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. See "Calculation of Performance Data" in the Statement of Additional
Information and Appendix C of this prospectus.
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 Appendix C of this prospectus
for 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,
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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.
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
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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.
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APPENDIX A
CONSUMER TIPS
DOLLAR COST AVERAGING
Dollar cost averaging allows a person to take advantage of the historical
long-term stock market results, assuming that they continue, although it does
not guarantee a profit or protect against a loss. If an investor follows a
program of dollar cost averaging on a long-term basis and the stock fund
selected performs at least as well as the S&P 500 has historically, it is
likely although not guaranteed that the price at which shares are surrendered,
for whatever reason, will be higher than the average cost per share.
An investor using dollar cost averaging invests the same amount of money in
the same professionally managed fund at regular intervals over a long period
of time. Dollar cost averaging keeps an investor from investing too much when
the price of shares is high and too little when the price is low. When the
price of shares is low, the money invested buys more shares. When it is high,
the money invested buys fewer shares. If the investor has the ability and
desire to maintain this program over a long period of time (for example, 20
years), and the stock fund chosen follows the historical upward market trends,
the price at which the shares are sold should be higher than their average
cost. The price could be lower, however, if the fund chosen does not follow
these historical trends.
Investors contemplating the use of dollar cost averaging should consider
their ability to continue the on-going purchases so that they can take
advantage of periods of low price levels.
DIVERSIFICATION
Diversifying investment choices can enhance returns, by providing a wider
opportunity for safe returns, and reduce risks, by spreading the chance of
loss. Holding a single investment requires of that investment a safe return
because a loss may risk the entire investment. By diversifying, on the other
hand, an investor can more safely take a chance that some investments will
under-perform and that others will over-perform. Thus an investor can
potentially earn a better-than-average rate of return on a diversified
portfolio than on a single safe investment. This is because, although portions
of a diversified investment may be totally lost, other portions may perform at
above-average rates that more than compensate for the loss.
MISCELLANEOUS
Toll-free telephone --A recording of daily unit values is available by
service: calling 1-800-333-2501.
--Fund transfers and changes of future purchase
payment allocations can be made by calling 1-800-
435-4117.
Written 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
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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%
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.
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APPENDIX C
AVERAGE ANNUAL TOTAL RETURN
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 VIP Equity-Income Portfolio commenced
operations on October 9, 1986, and the VIP Overseas Portfolio commenced
operations on January 28, 1987. The Westpeak Stock Index and Back Bay Advisors
Managed Series commenced operations on May 1, 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, 1998 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, 1998 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, 1998. 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, 1998
-------------------------------
<S> <C>
1 Year............................................................. -11.09%
Since Inception of the Sub-Account................................. 11.07%
</TABLE>
A-50
<PAGE>
For purchase payment allocated to the Morgan Stanley International Magnum
Equity Series:*
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. -2.72%
Since Inception of the Sub-Account................................. -.28%
For purchase payment allocated to the VIP Overseas Portfolio:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 2.39%
5 Years............................................................ 4.61%
Since Inception of the Sub-Account................................. 5.33%
For purchase payment allocated to the Alger Equity Growth Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 35.09%
Since Inception of the Sub-Account................................. 25.17%
For purchase payment allocated to the Capital Growth Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 22.32%
5 Years............................................................ 15.68%
10 Years........................................................... 14.89%
Since Inception of the Sub-Account................................. 14.27%
For purchase payment allocated to the Goldman Sachs Midcap Value Series:**
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. -14.60%
5 Years............................................................ 6.31%
Since Inception of the Sub-Account................................. 6.06%
For purchase payment allocated to the Davis Venture Value Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 3.95%
Since Inception of the Sub-Account................................. 20.62%
For purchase payment allocated to the Westpeak Growth and Income Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 13.31%
5 Years............................................................ 16.48%
Since Inception of the Sub-Account................................. 16.03%
</TABLE>
- --------
* The Morgan Stanley International Magnum Equity Series' subadviser was
Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Dean Witter
Investment Management Inc. became the subadviser.
** 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.
A-51
<PAGE>
For purchase payment allocated to the Westpeak Stock Index Series:***
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year.............................................................. 16.57%
5 Years............................................................. 18.55%
Since Inception of the Sub-Account.................................. 14.46%
For purchase payment allocated to the VIP Equity-Income Portfolio:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year.............................................................. 1.35%
5 Years............................................................. 13.97%
Since Inception of the Sub-Account.................................. 13.21%
For purchase payment allocated to the Loomis Sayles Balanced Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year.............................................................. -1.00%
Since Inception of the Sub-Account.................................. 10.73%
For purchase payment allocated to the Back Bay Advisors Managed Series:***
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year.............................................................. 8.84%
5 Years............................................................. 12.73%
10 Years............................................................ 11.00%
Since Inception of the Sub-Account.................................. 10.82%
For purchase payment allocated to the Salomon Brothers Strategic Bond
Opportunities Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year.............................................................. -7.61%
Since Inception of the Sub-Account.................................. 5.52%
For purchase payment allocated to the Back Bay Advisors Bond Income Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year.............................................................. -1.07%
5 Years............................................................. 3.08%
10 Years............................................................ 6.20%
Since Inception of the Sub-Account.................................. 6.00%
For purchase payment allocated to the Salomon Brothers U.S. Government
Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year.............................................................. -2.41%
Since Inception of the Sub-Account.................................. 3.06%
</TABLE>
- --------
*** These sub-accounts are only available through Contracts purchased prior to
May 1, 1995.
A-52
<PAGE>
For purchase payment allocated to the Back Bay Advisors Money Market Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year.............................................................. -4.59%
5 Years............................................................. -.04%
10 Years............................................................ 1.40%
Since Inception of the Sub-Account.................................. 1.49%
</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, 1998
-------------------------------
<S> <C>
1 Year............................................................. -11.09%
Since Inception of the Fund........................................ 11.07%
For purchase payment allocated to the Morgan Stanley International Magnum
Equity Series:*
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. -2.72%
Since Inception of the Fund........................................ -.28%
For purchase payment allocated to the VIP Overseas Portfolio:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 2.39%
5 Years............................................................ 4.61%
10 Years........................................................... 6.21%
Since Inception of the Fund........................................ 4.46%
For purchase payment allocated to the Alger Equity Growth Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 35.08%
Since Inception of the Fund........................................ 25.17%
For purchase payment allocated to the Capital Growth Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 22.32%
5 Years............................................................ 15.68%
10 Years........................................................... 14.89%
Since Inception of the Fund........................................ 21.36%
</TABLE>
- --------
* The Morgan Stanley International Magnum Equity Series' subadviser was
Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Dean Witter
Investment Management Inc. became the subadviser.
A-53
<PAGE>
For purchase payment allocated to the Goldman Sachs Midcap Value Series:**
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. -14.60%
5 Years............................................................ 6.31%
Since Inception of the Fund........................................ 7.89%
For purchase payment allocated to the Davis Venture Value Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 3.95%
Since Inception of the Fund........................................ 20.62%
For purchase payment allocated to the Westpeak Growth and Income Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 13.31%
5 Years............................................................ 16.48%
Since Inception of the Fund........................................ 16.88%
For purchase payments allocated to the Westpeak Stock Index Series:***
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 16.57%
5 Years............................................................ 18.55%
10 Years........................................................... 15.04%
Since Inception of the Fund........................................ 12.14%
For purchase payment allocated to the VIP Equity-Income Portfolio:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 1.35%
5 Years............................................................ 13.97%
10 Years........................................................... 10.75%
Since Inception of the Fund........................................ 11.87%
For purchase payment allocated to the Loomis Sayles Balanced Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. -1.00%
Since Inception of the Fund........................................ 10.73%
For purchase payments allocated to the Back Bay Advisors Managed Series:***
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year............................................................. 8.84%
5 Years............................................................ 12.73%
10 Years........................................................... 11.00%
Since Inception of the Fund........................................ 9.47%
</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.
*** These sub-accounts are only available through Contracts purchased prior to
May 1, 1995.
A-54
<PAGE>
For purchase payment allocated to the Salomon Brothers Strategic Bond
Opportunities Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year.............................................................. -7.61%
Since Inception of the Fund......................................... 5.52%
For purchase payment allocated to the Back Bay Advisors Bond Income Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year.............................................................. -1.07%
5 Years............................................................. 3.08%
10 Years............................................................ 6.20%
Since Inception of the Fund......................................... 6.99%
For purchase payment allocated to the Salomon Brothers U.S. Government
Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year.............................................................. -2.41%
Since Inception of the Fund......................................... 3.06%
For purchase payment allocated to the Back Bay Advisors Money Market Series:
<CAPTION>
PERIOD ENDING DECEMBER 31, 1998
-------------------------------
<S> <C>
1 Year.............................................................. -4.59%
5 Years............................................................. -.04%
10 Years............................................................ 1.40%
Since Inception of the Fund......................................... 2.62%
</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 the
Statement of Additional Information.
A-55
<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-56
<PAGE>
RECEIPT
This is to acknowledge receipt of a Zenith Accumulator Prospectus dated April
30, 1999.
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 02116-3700
_____________________________________ _____________________________________
(Date) (Client's Signature)
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
ZENITH ACCUMULATOR
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
(PART B)
APRIL 30, 1999
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated April 30, 1999 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.
VA-140SAI-98
II-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
History................................................................... II-3
Services Relating to the Variable Account and the Contracts............... II-3
Performance Comparisons................................................... II-3
Calculation of Performance Data........................................... II-4
Net Investment Factor..................................................... II-20
Annuity Payments.......................................................... II-20
Hypothetical Illustrations of Annuity Income Payouts...................... II-22
Historical Illustrations of Annuity Income Payouts........................ II-25
Experts................................................................... II-28
Legal Matters............................................................. II-28
Appendix A................................................................ II-29
Financial Statements...................................................... F-1
</TABLE>
II-2
<PAGE>
HISTORY
The New England Variable Account (the "Variable Account") is a separate
account of Metropolitan Life Insurance Company (the "Company"). The Variable
Account was originally a separate account of New England Mutual Life Insurance
Company, 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, $13,017,919.74 for the one-
year period ended December 31, 1997 and $12,580,160.06 for the one-year period
ended December 31, 1998.
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, 1996, 1997 and 1998 the
Company paid commissions in the amount of $5,927,575.34, $5,719,756.22 and
$5,427,972.77, 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 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 VIP Equity-Income Portfolio commenced
operations on October 9, 1986, and the VIP Overseas Portfolio commenced
operations on January 28, 1987. The Westpeak Stock Index and Back Bay Managed
Series commenced operations on May 1, 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 the 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, 1998 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, 1998 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, 1998. 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.
The following chart illustrates how the average annual total return was
determined for the five year period ending December 31, 1998 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, 1993............ 110.5027 9.049554 1,000.00 -- --
December 31, 1994............ 106.8866 8.297578 886.90 839.01 -16.10%
December 31, 1995............ 104.2317 11.300017 1,177.82 1,119.52 5.81%
December 31, 1996............ 102.0092 13.496435 1,376.76 1,314.81 9.55%
December 31, 1997............ 100.1847 16.441932 1,647.23 1,580.52 12.12%
December 31, 1998............ 98.8057 21.752481 2,149.27 2,071.90 15.68%
</TABLE>
II-4
<PAGE>
The following charts illustrate what would have been the growth and value of
a $10,000 purchase payment for a Contract if it had been invested in each of
the Eligible Funds on the first day of the first month after those Eligible
Funds became available: September 1, 1983 in the case of the Back Bay Advisors
Money Market, Back Bay Advisors Bond Income and Capital Growth Series;
November 1, 1986 in the case of the VIP Equity-Income Portfolio; February 1,
1987 in the case of the VIP Overseas Portfolio; May 1, 1987 in the case of the
Westpeak Stock Index Series and the Back Bay Advisors Managed Series; 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.
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-5
<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)
(VIP EQUITY-INCOME: NOVEMBER 1, 1986 AND VIP OVERSEAS: FEBRUARY 1, 1987)
(WESTPEAK STOCK INDEX AND BACK BAY ADVISORS MANAGED SERIES: MAY 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 VIP
SMALL MAGNUM VIP 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
1998............ 18,619.12 11,508.95 22,194.68 28,501.23 207,454.79 17,837.09 24,249.51 27,709.41 42,634.76
<CAPTION>
SURRENDER VALUE(1)
------------------------------------------------------------------------------------------------------
MORGAN
LOOMIS STANLEY GOLDMAN WESTPEAK
SAYLES INTERNATIONAL ALGER SACHS DAVIS GROWTH VIP
SMALL MAGNUM VIP 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
1998............ 17,847.54 11,037.84 22,167.18 27,696.23 207,444.79 17,174.95 23,444.51 26,889.41 42,629.76
<CAPTION>
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
WESTPEAK LOOMIS BACK BAY STRATEGIC ADVISORS BROTHERS ADVISORS
STOCK SAYLES MANAGED BOND BOND U.S. MONEY
INDEX(4) BALANCED SERIES(4) OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- ---------- ---------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983............ $10,339.37 $10,258.59
1984............ 11,453.64 11,175.34
1985............ 13,388.01 11,905.86
1986............ 15,137.25 12,514.94
1987............ $ 8,700.98 $ 9,844.68 15,242.29 13,122.50
1988............ 9,954.81 10,602.14 16,265.40 13,889.20
1989............ 12,748.34 12,423.1 17,990.50 14,941.00
1990............ 12,025.47 12,617.64 19,151.95 15,916.76
1991............ 15,441.83 14,926.64 22,256.25 16,648.66
1992............ 16,313.91 15,680.56 23,722.98 17,018.47
1993............ 17,628.00 17,086.43 26,326.49 17,259.12
1994............ 17,555.45 $ 9,968.28 16,639.55 $ 9,838.87 25,071.19 $10,038.07 17,674.12
1995............ 23,679.19 12,242.06 21,514.34 11,557.83 29,948.07 11,360.92 18,401.19
1996............ 28,573.33 14,087.95 24,379.98 13,008.06 30,873.63 11,548.68 19,053.28
1997............ 37,314.92 16,117.12 30,407.16 14,224.45 33,745.25 12,328.54 19,770.95
1998............ 47,066.35 17,317.95 35,864.34 14,289.07 36,272.33 13,058.43 20,502.34
<CAPTION>
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
WESTPEAK LOOMIS BACK BAY STRATEGIC ADVISORS BROTHERS ADVISORS
STOCK SAYLES MANAGED BOND BOND U.S. MONEY
INDEX(4) BALANCED SERIES(4) OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- ---------- ---------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983............ $ 9,724.51 $ 9,648.46
1984............ 10,825.14 10,561.87
1985............ 12,715.30 11,306.52
1986............ 14,446.07 11,941.77
1987............ $ 8,171.98 $ 9,248.76 14,614.97 12,581.04
1988............ 9,397.25 10,009.63 15,669.85 13,379.19
1989............ 12,097.30 11,788.16 17,413.80 14,460.36
1990............ 11,464.32 12,029.85 18,624.85 15,477.01
1991............ 14,796.43 14,302.11 21,845.84 16,338.98
1992............ 15,706.61 15,096.06 23,499.47 16,855.30
1993............ 17,052.72 16,528.21 26,316.49 17,249.12
1994............ 17,061.45 $ 9,380.13 16,170.28 $ 9,258.29 25,061.19 $ 9,445.85 17,664.12
1995............ 23,232.96 11,575.99 21,107.08 10,928.71 29,938.07 10,742.43 18,391.19
1996............ 28,296.17 13,385.59 24,140.56 12,359.16 30,863.63 10,972.02 19,043.28
1997............ 37,294.92 15,386.85 30,387.16 13,579.35 33,735.25 11,768.76 19,760.95
1998............ 47,046.35 16,611.57 35,844.34 13,705.37 36,262.33 12,524.57 20,492.34
</TABLE>
II-6
<PAGE>
ANNUAL PERCENTAGE CHANGE IN CONTRACT VALUE(1)
<TABLE>
<CAPTION>
MORGAN
LOOMIS STANLEY GOLDMAN
SAYLES INTERNATIONAL ALGER SACHS DAVIS
SMALL MAGNUM VIP 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
1998................... -3.15 5.55 11.08 45.62 32.28 -6.86 12.73
Cumulative Return....... 86.19 15.09 121.95 185.01 1,974.55 78.37 142.50
Annual Effective Rate of
Return................. 14.25 3.43 6.92 28.60 21.87 10.75 23.70
</TABLE>
<TABLE>
<CAPTION>
SALOMON
BACK BAY BROTHERS BACK BAY SALOMON BACK BAY
WESTPEAK VIP WESTPEAK LOOMIS ADVISORS STRATEGIC ADVISORS BROTHERS ADVISORS
GROWTH EQUITY- STOCK SAYLES MANAGED BOND BOND U.S. MONEY
AND INCOME INCOME INDEX(4) BALANCED SERIES(4) OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- ------- -------- -------- --------- ------------- -------- ---------- --------
<S> <C> <C> <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 -12.99% -1.55% 0.69 4.85
1988................... 20.76 14.41 7.69 6.71 5.84
1989................... 15.51 28.06 17.18 10.61 7.57
1990................... -16.67 -5.67 1.57 6.46 6.53
1991................... 29.40 28.41 18.30 16.21 4.60
1992................... 15.10 5.65 5.05 6.59 2.22
1993................... 13.21% 16.53 8.06 8.97 10.97 1.41
1994................... -2.80 5.48 -0.41 -0.32% -2.62 -1.61% -4.77 0.38% 2.40
1995................... 34.31 33.13 34.88 22.81 29.30 17.47 19.45 13.18 4.11
1996................... 16.28 12.62 20.67 15.08 13.32 12.55 3.09 1.65 3.54
1997................... 31.47 26.29 30.59 14.40 24.72 9.35 9.30 6.75 3.77
1998................... 22.64 10.05 26.13 7.45 17.95 .45 7.49 5.92 3.70
Cumulative Return....... 177.09 326.35 370.66 73.18 258.64 42.89 262.72 30.58 105.02
Annual Effective Rate of
Return................. 19.60 12.66 14.20 14.10 11.57 8.95 8.77 6.62 4.79
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
INTERMEDIATE
GOVERNMENT/
DOW JONES S&P 500 CORPORATE CONSUMER
INDUSTRIAL STOCK BOND PRICE
AVERAGE(5) INDEX(6) INDEX(7) INDEX(8)
---------- -------- ------------ --------
<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
1998............................... 18.14 28.52 8.44 1.61
Cumulative Return................... 1,149.92 1,102.45 299.72 63.57
Annual Effective Rate of Return..... 17.90 17.60 9.46 3.26
</TABLE>
II-7
<PAGE>
ANNUAL PERCENTAGE CHANGE IN SURRENDER VALUE(1)
<TABLE>
<CAPTION>
MORGAN
LOOMIS STANLEY GOLDMAN
SAYLES INTERNATIONAL ALGER SACHS DAVIS
SMALL MAGNUM VIP 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
1998................... -3.04 6.05 11.09 47.57 32.28 -6.43 13.22
Cumulative Return....... 78.45 10.38 121.67 176.96 1,974.45 71.75 134.45
Annual Effective Rate of
Return................. 13.22 2.40 6.91 27.71 21.87 10.01 22.70
</TABLE>
<TABLE>
<CAPTION>
SALOMON
BACK BAY BROTHERS BACK BAY SALOMON BACK BAY
WESTPEAK VIP WESTPEAK LOOMIS ADVISORS STRATEGIC ADVISORS BROTHERS ADVISORS
GROWTH EQUITY- STOCK SAYLES MANAGED BOND BOND U.S. MONEY
AND INCOME INCOME INDEX(4) BALANCED SERIES(4) OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- ------- -------- -------- --------- ------------- -------- ---------- --------
<S> <C> <C> <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 -18.28 -7.51 1.17 5.35
1988................... 21.34 14.99 8.23 7.22 6.34
1989................... 16.07 28.73 17.77 11.13 8.08
1990................... -16.29 -5.23 2.05 6.95 7.03
1991................... 30.02 29.07 18.89 17.29 5.57
1992................... 15.64 6.15 5.55 7.57 3.16
1993................... 6.39% 17.08 8.57 9.49 11.99 2.34
1994................... -2.34 6.46 0.05 -6.20% -2.17 -7.42% -4.77 -5.54% 2.41
1995................... 35.02 34.36 36.17 23.41 30.53 18.04 19.46 13.73 4.12
1996................... 16.85 13.65 21.79 15.63 14.37 13.09 3.09 2.14 3.55
1997................... 32.83 26.29 31.80 14.95 25.88 9.87 9.30 7.26 3.77
1998................... 23.49 10.05 26.15 7.96 17.96 .93 7.49 6.42 3.70
Cumulative Return....... 168.89 326.30 370.46 66.12 258.44 37.05 262.62 25.25 104.92
Annual Effective Rate of
Return................. 19.06 12.66 14.19 12.96 11.56 7.86 8.77 5.55 4.79
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
INTERMEDIATE
GOVERNMENT/
DOW JONES S&P 500 CORPORATE CONSUMER
INDUSTRIAL STOCK BOND PRICE
AVERAGE(5) INDEX(6) INDEX(7) INDEX(8)
---------- -------- ------------ --------
<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
1998............................... 18.14 28.52 8.44 1.61
Cumulative Return................... 1,149.92 1,102.45 299.72 63.57
Annual Effective Rate of Return..... 17.90 17.60 9.46 3.26
</TABLE>
II-8
<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 VIP Equity-Income Portfolio is from
November 1, 1986 through December 31, 1986; the 1987 figure for the VIP
Overseas Portfolio is from February 1, 1987 through December 31, 1987.
The 1987 figures for the Westpeak Stock Index and Back Bay Advisors
Managed Series are from May 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 Dean
Witter Investment 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 Westpeak Stock Index and Back Bay Advisors Managed Series are only
available through Contracts purchased prior to May 1, 1995.
(5) 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.
(6) 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.
(7) 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.
(8) 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-9
<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 VIP
Equity-Income Portfolio; February 1, 1987 for the VIP Overseas Portfolio; May
1, 1987 for the Westpeak Stock Index Series and Back Bay Advisors Managed
Series; 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, 1998. 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, 1998 (CAPITAL GROWTH, BOND INCOME AND MONEY
MARKET SERIES)
(NOVEMBER 1, 1986--DECEMBER 31, 1998 FOR VIP EQUITY-INCOME PORTFOLIO AND
FEBRUARY 1, 1987--DECEMBER 31, 1998 FOR VIP OVERSEAS PORTFOLIO)
(MAY 1, 1987--DECEMBER 31, 1998 FOR THE WESTPEAK STOCK INDEX AND BACK BAY
ADVISORS MANAGED SERIES)
(MAY 2, 1994--DECEMBER 31, 1998 FOR LOOMIS SAYLES SMALL CAP SERIES)
(NOVEMBER 1, 1994--DECEMBER 31, 1998 FOR ALL OTHER ZENITH FUND SERIES)
<TABLE>
<CAPTION>
CONTRACT VALUE
------------------------------------------------------------------------------------------------------------
MORGAN
LOOMIS STANLEY GOLDMAN WESTPEAK
SAYLES INTERNATIONAL ALGER SACHS DAVIS GROWTH VIP
CUMULATIVE SMALL MAGNUM VIP EQUITY CAPITAL MIDCAP VENTURE AND EQUITY-
PAYMENTS(1) CAP EQUITY(2) OVERSEAS GROWTH GROWTH VALUE(3) VALUE INCOME INCOME
----------- --------- ------------- ---------- --------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ $ 400 $ 409.40
1984............ 1,600 1,648.95
1985............ 2,800 4,277.11
1986............ 4,000 9,765.58 $ 195.78
1987............ 5,200 $ 1,007.13 15,890.14 1,215.08
1988............ 6,400 2,306.86 15,451.37 2,714.98
1989............ 7,600 4,229.80 21,215.12 4,346.48
1990............ 8,800 5,222.71 21,316.48 4,721.63
1991............ 10,000 6,778.08 33,833.21 7,427.49
1992............ 11,200 7,031.68 32,549.81 9,840.29
1993............ 12,400 10,872.84 38,177.72 $ 848.90 $ 848.38 12,731.03
1994............ 13,600 $ 782.65 $ 204.56 12,048.05 $ 199.08 36,110.66 2,021.49 $ 197.97 2,002.46 14,650.43
1995............ 14,800 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............ 16,000 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............ 17,200 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
1998............ 18,400 7,671.86 5,140.59 23,575.58 8,979.85 102,421.14 8,532.56 7,808.14 12,712.04 37,233.40
Annual Effective
Rate of Return... 13.48% 1.31 8.05 28.89 20.05 7.92 21.73 22.06 14.44
</TABLE>
<TABLE>
<CAPTION>
CONTRACT VALUE
--------------------------------------------------------------------------------
SALOMON BACK BAY SALOMON BACK BAY
WESTPEAK LOOMIS BACK BAY BROTHERS ADVISORS BROTHERS ADVISORS
STOCK SAYLES ADVISORS STRATEGIC BOND BOND U.S. MONEY
INDEX(4) BALANCED MANAGED(4) OPPORTUNITIES INCOME GOVERNMENT MARKET
---------- --------- ---------- -------------- ---------- ---------- ----------
<S> <C> <C> <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............ $ 692.54 $ 770.01 6,208.12 5,788.99
1988............ 2,035.10 2,043.71 7,835.43 7,350.98
1989............ 3,919.94 3,667.24 9,915.71 9,142.45
1990............ 4,866.74 4,943.00 11,807.13 10,970.63
1991............ 7,578.85 7,152.27 15,037.48 12,694.15
1992............ 9,255.04 8,757.01 17,272.18 14,182.75
1993............ 11,234.80 10,767.63 20,405.31 15,588.48
1994............ 12,385.13 $ 200.89 11,675.61 $ 196.89 20,609.31 $ 200.97 17,179.87
1995............ 18,094.48 1,543.68 16,460.59 1,507.66 25,924.91 1,476.06 19,112.88
1996............ 23,166.00 3,072.43 19,948.81 2,953.92 27,970.49 2,704.81 21,015.28
1997............ 31,612.17 4,784.73 26,213.90 4,468.88 31,839.31 4,116.70 23,035.65
1998............ 41,250.07 6,376.35 32,236.96 5,665.15 35,471.79 5,577.70 25,117.66
Annual Effective
Rate of Return... 17.34 11.66 13.51 5.93 8.07 5.19 3.92
</TABLE>
- ----
(1) Cumulative payments as of December 31, 1998 would be $14,600 for VIP
Equity-Income, $14,300 for VIP Overseas, $14,000 for Westpeak Stock Index
Series and Back Bay Advisors Managed Series, $6,800 for Goldman Sachs
Midcap Value and Westpeak Growth and Income, $5,600 for Loomis Sayles
Small Cap, and $18,400 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 Dean
Witter Investment 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 Westpeak Stock Index Series and the Back Bay Advisors Managed Series
are only available through Contracts purchased prior to May 1, 1995.
II-10
<PAGE>
<TABLE>
<CAPTION>
SURRENDER VALUE
------------------------------------------------------------------------------------------------------------
MORGAN
LOOMIS STANLEY GOLDMAN WESTPEAK
SAYLES INTERNATIONAL ALGER SACHS DAVIS GROWTH
CUMULATIVE SMALL MAGNUM VIP EQUITY CAPITAL MIDCAP VENTURE AND
PAYMENTS(1) CAP EQUITY(2) OVERSEAS GROWTH GROWTH VALUE(3) VALUE INCOME
----------- ---------- ------------- ----------- ---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983............ $ 400 $ 375.45
1984............ 1,600 1,549.91
1985............. 2,800 4,055.39
1986............ 4,000 9,435.58
1987............ 5,200 $ 920.71 15,464.14
1988............ 6,400 2,154.79 14,929.37
1989............ 7,600 3,992.93 20,597.12
1990............ 8,800 4,960.18 20,730.94
1991............ 10,000 6,476.07 33,214.21
1992............ 11,200 6,751.04 32,246.86
1993............ 12,400 10,502.85 38,167.72 $ 779.24 $ 778.75
1994............ 13,600 $ 719.36 $ 187.60 11,695.26 $ 182.44 36,100.66 1,892.33 $ 181.39 1,874.32
1995............ 14,800 2,193.84 1,353.76 13,987.92 1,576.47 50,526.57 3,693.88 1,539.15 3,838.86
1996............ 16,000 4,130.23 2,567.39 17,002.98 2,950.51 61,670.44 5,505.72 3,201.39 5,735.76
1997............ 17,200 6,363.04 3,593.19 20,074.20 4,903.13 76,376.05 7,615.01 5,517.69 8,883.98
1998............ 18,400 7,341.15 4,927.40 23,548.08 8,611.17 102,411.14 8,205.39 7,486.91 12,234.41
Annual Effective
Rate of Return... 11.56% -.69% 8.03% 26.73% 20.05% 6.55% 19.62% 20.68%
</TABLE>
<TABLE>
<CAPTION>
SURRENDER VALUE
------------------------------------------------------------------------------------------------
BACK BAY SALOMON BACK BAY SALOMON BACK BAY BACK BAY
VIP WESTPEAK LOOMIS ADVISORS BROTHERS ADVISORS BROTHERS ADVISORS
EQUITY- STOCK SAYLES MANAGED STRATEGIC BOND BOND U.S. MONEY
INCOME INDEX(4) BALANCED SERIES(4) OPPORTUNITIES INCOME GOVERNMENT MARKET
----------- ----------- ---------- ----------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983............ $ 371.43 $ 372.66
1984............ 1,617.37 1,573.20
1985............ 3,130.63 2,841.11
1986............ $ 179.32 4,748.62 4,156.14
1987............ 1,144.47 $ 632.03 $ 704.96 5,946.69 5,544.54
1988............ 2,575.59 1,905.21 1,913.35 7,543.35 7,076.34
1989............ 4,145.89 3,705.90 3,465.71 9,593.36 8,844.46
1990............ 4,525.41 4,627.74 4,700.56 11,478.34 10,664.43
1991............ 7,155.10 7,251.91 6,842.60 14,756.80 12,455.65
1992............ 9,525.32 8,901.86 8,421.76 17,106.73 14,045.10
1993............ 12,382.29 10,860.90 10,408.45 20,395.31 15,578.48
1994............ 14,381.73 12,030.73 $ 184.14 11,340.37 $ 180.37 20,599.31 $ 184.22 17,169.67
1995............ 20,699.45 17,748.78 1,455.32 16,144.30 1,421.25 25,914.91 1,391.35 19,102.88
1996............ 24,806.34 22,937.51 2,915.35 19,749.27 2,802.70 27,960.49 2,565.93 21,005.28
1997............ 32,677.67 31,592.17 4,564.41 26,193.90 4,262.78 31,829.31 3,926.45 23,025.65
1998............ 37,228.90 41,230.07 6,113.11 32,216.96 5,430.72 35,461.79 5,346.90 25,107.66
Annual Effective
Rate of Return... 14.44% 17.33% 9.61% 13.50% 3.91% 8.06% 3.17% 3.92%
</TABLE>
- ----
(1) Cumulative payments as of December 31, 1998 would be $14,600 for VIP
Equity-Income, $14,300 for VIP Overseas, $14,000 for Westpeak Stock Index
Series and Back Bay Advisors Managed Series, $6,800 for Goldman Sachs
Midcap Value and Westpeak Growth and Income, $5,600 for Loomis Sayles
Small Cap, and $18,400 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 Dean Witter
Investment 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 Westpeak Stock Index and Back Bay Advisors Managed Series are only
available through Contracts purchased prior to May 1, 1995.
II-11
<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%
December 31, 1998.......................................... 1.877786 -3.0%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
4 years, 8 months ended December 31, 1998.................... 87.8% 14.4%
1 year ended December 31, 1998............................... -3.0% -3.0%
</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%
December 31, 1998.......................................... 1.163698 5.8%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
4 years, 2 months ended December 31, 1998.................... 16.4% 3.7%
1 year ended December 31, 1998............................... 5.8% 5.8%
</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-12
<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%
December 31, 1998.......................................... 2.275536 11.2%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
11 years, 11 months ended December 31, 1998.................. 127.6% 7.1%
10 years ended December 31, 1998............................. 128.3% 8.6%
5 years ended December 31, 1998.............................. 48.5% 8.2%
1 year ended December 31, 1998............................... 11.2% 11.2%
</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%
December 31, 1998.......................................... 2.829403 45.8%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
4 years, 2 months ended December 31, 1998.................... 182.9% 28.3%
1 year ended December 31, 1998............................... 45.8% 45.8%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-13
<PAGE>
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%
December 31, 1998.......................................... 21.752481 32.3%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
15 years, 4 months ended December 31, 1998................... 2,075.2% 22.2%
10 years ended December 31, 1998............................. 371.6% 16.8%
5 years ended December 31, 1998.............................. 140.4% 19.2%
1 year ended December 31, 1998............................... 32.3% 32.3%
</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%
December 31, 1998.......................................... 1.802285 -6.7%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
5 years, 8 months ended December 31, 1998.................... 80.2% 10.9%
5 years ended December 31, 1998.............................. 58.5% 9.7%
1 year ended December 31, 1998............................... -6.7% -6.7%
</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-14
<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%
December 31, 1998.......................................... 2.442138 12.9%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
4 years, 2 months ended December 31, 1998.................... 144.2% 23.9%
1 year ended December 31, 1998............................... 12.9% 12.9%
</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%
December 31, 1998.......................................... 2.798615 22.8%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
5 years, 8 months ended December 31, 1998.................... 179.9% 19.9%
5 years ended December 31, 1998.............................. 147.2% 19.8%
1 year ended December 31, 1998............................... 22.8% 22.8%
</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%
December 31, 1998.......................................... 4.401039 10.1%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-15
<PAGE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
------------ ---------
<S> <C> <C>
12 years, 2 months ended December 31, 1998.............. 340.1% 12.9%
10 years ended December 31, 1998........................ 273.1% 14.1%
5 years ended December 31, 1998......................... 121.0% 17.2%
1 year ended December 31, 1998.......................... 10.1% 10.1%
</TABLE>
WESTPEAK STOCK INDEX SUB-ACCOUNT**
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ---------
<S> <C> <C>
May 1, 1987............................................. 1.000000
December 31, 1987....................................... .865890 -13.4%
December 31, 1988....................................... .993885 14.8%
December 31, 1989....................................... 1.276255 28.4%
December 31, 1990....................................... 1.206894 -5.4%
December 31, 1991....................................... 1.553102 28.7%
December 31, 1992....................................... 1.644023 5.9%
December 31, 1993....................................... 1.779677 8.3%
December 31, 1994....................................... 1.775473 -.2%
December 31, 1995....................................... 2.398452 35.1%
December 31, 1996....................................... 2.897629 20.8%
December 31, 1997....................................... 3.787806 30.3%
December 31, 1998....................................... 4.781003 26.2%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
------------ ---------
<S> <C> <C>
11 years, 8 months ended December 31, 1998.............. 378.1% 14.3%
10 years ended December 31, 1998........................ 381.0% 17.0%
5 years ended December 31, 1998......................... 168.6% 21.9%
1 year ended December 31, 1998.......................... 26.2% 26.2%
</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%
December 31, 1998....................................... 1.746518 7.6%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge or the annual $30 Administration Contract Charge.
** These sub-accounts are only available through Contracts purchased prior to
May 1, 1995.
II-16
<PAGE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
------------ ---------
<S> <C> <C>
4 years, 2 months ended December 31, 1998............... 74.7% 14.3%
1 year ended December 31, 1998.......................... 7.6% 7.6%
</TABLE>
BACK BAY ADVISORS MANAGED SUB-ACCOUNT**
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ---------
<S> <C> <C>
May 1, 1987............................................. 1.000000
December 31, 1987....................................... .984530 -1.5%
December 31, 1988....................................... 1.063444 8.0%
December 31, 1989....................................... 1.249451 17.5%
December 31, 1990....................................... 1.272224 1.8%
December 31, 1991....................................... 1.508379 18.6%
December 31, 1992....................................... 1.587827 5.3%
December 31, 1993....................................... 1.733382 9.2%
December 31, 1994....................................... 1.691157 -2.4%
December 31, 1995....................................... 2.190193 29.5%
December 31, 1996....................................... 2.485306 13.5%
December 31, 1997....................................... 3.103331 24.9%
December 31, 1998....................................... 3.663526 18.1%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
------------ ---------
<S> <C> <C>
11 years, 8 months ended December 31, 1998.............. 266.4% 11.8%
10 years ended December 31, 1998........................ 244.5% 13.2%
5 years ended December 31, 1998......................... 111.4% 16.1%
1 year ended December 31, 1998.......................... 18.1% 18.1%
</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%
December 31, 1998....................................... 1.442191 .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, 2 months ended December 31, 1998............... 44.2% 9.2%
1 year ended December 31, 1998.......................... .7% .7%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge or the annual $30 Administration Contract Charge.
** These sub-accounts are only available through Contracts purchased prior to
May 1, 1995.
II-17
<PAGE>
BACK BAY ADVISORS BOND INCOME SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
- ---- ------------ ------
<S> <C> <C>
August 26, 1983............................................. 1.000000
December 31, 1983........................................... 1.027196 2.7%
December 31, 1984........................................... 1.141109 11.1%
December 31, 1985........................................... 1.337005 17.2%
December 31, 1986........................................... 1.514752 13.3%
December 31, 1987........................................... 1.528314 0.9%
December 31, 1988........................................... 1.633970 6.9%
December 31, 1989........................................... 1.810362 10.8%
December 31, 1990........................................... 1.930406 6.6%
December 31, 1991........................................... 2.246568 16.4%
December 31, 1992........................................... 2.397657 6.7%
December 31, 1993........................................... 2.663825 11.1%
December 31, 1994........................................... 2.539801 -4.7%
December 31, 1995........................................... 3.037039 19.6%
December 31, 1996........................................... 3.134109 3.2%
December 31, 1997........................................... 3.428788 9.4%
December 31, 1998........................................... 3.688741 7.6%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
15 years, 4 months ended December 31, 1998................... 268.9% 8.9%
10 years ended December 31, 1998............................. 125.8% 8.5%
5 years ended December 31, 1998.............................. 38.5% 6.7%
1 year ended December 31, 1998............................... 7.6% 7.6%
</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%
December 31, 1998........................................... 1.318989 6.2%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
4 years, 2 months ended December 31, 1998.................... 31.9% 6.9%
1 year ended December 31, 1998............................... 6.2% 6.2%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-18
<PAGE>
BACK BAY ADVISORS MONEY 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%
December 31, 1998........................................... 2.114493 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>
15 years, 4 months ended December 31, 1998................... 111.4% 5.0%
10 years ended December 31, 1998............................. 50.2% 4.2%
5 years ended December 31, 1998.............................. 19.7% 3.7%
1 year ended December 31, 1998............................... 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-19
<PAGE>
NET INVESTMENT FACTOR
The net investment factor ("Net Investment Factor") for each sub-account is
determined on each day on which the New York Stock Exchange is open for
trading as follows:
(1) The net asset value per share of the Eligible Fund held in the sub-
account determined as of the close of regular trading on the New York Stock
Exchange on a particular day;
(2) Plus the per share amount of any dividend or capital gains
distribution made by the Eligible Fund since the close of regular trading
on the New York Stock Exchange on the preceding trading day;
(3) Is divided by the net asset value per share of the Eligible Fund as
of the close of regular trading on the New York Stock Exchange on the
preceding trading day; and
(4) Finally, the daily charges for the Administration Asset Charge and
Mortality and Expense Risk Charge that have accumulated since the close of
regular trading on the New York Stock Exchange on the preceding trading day
are subtracted. (See "Administration Charges, Contingent Deferred Sales
Charge and Other Deductions" in the prospectus.) On an annual basis, the
total deduction for such charges equals 1.35% of the daily net asset value
of the Variable Account.
ANNUITY PAYMENTS
At annuitization, the Contract Value is applied toward the purchase of
monthly variable annuity payments. The amount of these payments will be
determined on the basis of (i) annuity purchase rates not lower than the rates
set forth in the Life Income Tables contained in the Contract that reflect the
age of the Payee at annuitization, (ii) the assumed interest rate selected,
(iii) the type of payment option selected, and (iv) the investment performance
of the Eligible Fund selected.
When a variable payment option is selected, the Contract proceeds will be
applied at annuity purchase rates, which vary depending on the particular
option selected and the age of the Payee, to calculate the basic payment level
purchased by the Contract Value. With respect to Contracts issued in New York
or Oregon for use in situations not involving an employer-sponsored plan,
annuity purchase rates used to calculate the basic payment level will also
reflect the sex of the Payee when the payment option involves a life
contingency. The impact of the choice of option and the sex and age of the
Payee on the level of annuity payments is described in the prospectus under
"Amount of Variable Annuity Payments."
The amount of the basic payment level is determined by applying the
applicable annuity purchase rate to the amount applied from each sub-account
to provide the annuity. This basic payment level is converted into annuity
units, the number of which remains constant. Each monthly annuity payment is
in an amount equal to that number of annuity units multiplied by the
applicable annuity unit value for that payment (described below). The
applicable annuity unit value for each sub-account will change from day to day
depending upon the investment performance of the sub-account, which in turn
depends upon the investment performance of the Eligible Fund in which the sub-
account invests.
The selection of an assumed interest rate ("Assumed Interest Rate") will
affect both the basic payment level and the amount by which subsequent
payments increase or decrease. The basic payment level is calculated on the
assumption that the Net Investment Factors applicable to the Contract will be
equivalent on an annual basis to a net investment return at the Assumed
Interest Rate. If this assumption is met following the date any payment is
determined, then the amount of the next payment will be exactly equal to the
amount of the preceding payment. If the actual Net Investment Factors are
equivalent to a net investment return greater than the Assumed Interest Rate,
the next payment will be larger than the preceding one; if the actual Net
Investment Factors are equivalent to a net investment return smaller than the
Assumed Interest Rate, then
II-20
<PAGE>
the next payment will be smaller than the preceding payment. The definition of
the Assumed Interest Rate, and the effect of the level of the Assumed Interest
Rate on the amount of monthly payments is explained in the prospectus under
"Amount of Variable Annuity Payments."
The number of annuity units credited under a variable payment option is
determined as follows:
(1) The proceeds under a deferred Contract, or the net purchase payment
under an immediate Contract (at such time as immediate Contracts may be
made available), are applied at the Company's annuity purchase rates for
the selected Assumed Interest Rate to determine the basic payment level.
(The amount of Contract Value or Death Proceeds applied will be reduced by
any applicable Contingent Deferred Sales Charge, Administration Contract
Charge and the amount of any outstanding loan plus accrued interest.)
(2) The number of annuity units is determined by dividing the amount of
the basic payment level by the applicable annuity unit value(s) next
determined following the date of application of proceeds (in the case of a
deferred Contract) or net purchase payment (in the case of an immediate
Contract.)
The dollar amount of the initial payment will be at the basic payment level.
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 (2.08)%, 3.50%, 3.80%, 5.75% and 7.71% shown in the
tables at pages II-23 and II-24 are (0.17)%, 0.29%, 0.31%, 0.47% and 0.62%.
II-21
<PAGE>
HYPOTHETICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS
The following tables have been prepared to show how variable annuity income
payments under the Contract change with investment performance over an
extended period of time. The tables illustrate how monthly annuity income
payments would vary over time if the return on assets in the selected
portfolios were a uniform gross annual rate of 0%, 5.70%, 6%, 8% or 10%. The
values would be different from those shown if the returns averaged 0%, 5.70%,
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 0.75% of the average daily net assets of the Eligible Funds
(based on an average of all the Eligible Funds). Actual fees and expenses of
the Eligible Funds associated with your Contract may be more or less than
0.75%, 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 0.75% 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 2.10%.
Two tables follow. The first table assumes that 100% of the Contract Value
is allocated to a variable annuity income option, the second assumes that 50%
of the Contract Value is placed under a fixed annuity income option, using the
fixed crediting rate the Company offered on the fixed annuity income option at
the date of the illustration. Both illustrations assume that the final value
of the accumulation account is $100,000 and is applied at age 65 to purchase a
life annuity for a guaranteed period of 10 years certain and life thereafter.
When part of the Contract Value has been allocated to the fixed annuity
income option, the guaranteed minimum annuity income payment resulting from
this allocation is also shown. The illustrated variable annuity income
payments are determined through the use of standard mortality tables and an
assumed interest rate of 3.5% per year. Thus, actual performance greater than
3.5% per year will result in increasing annuity income payments and actual
performance less than 3.5% per year will result in decreasing annuity income
payments. The Company offers alternative Assumed Interest Rates from which you
may select. Fixed annuity income payments remain constant. Initial monthly
annuity income payments under a fixed annuity income payout are generally
higher than initial payments under a variable income payout option.
These tables show the monthly income payments for several hypothetical
constant assumed interest rates. Of course, actual investment performance will
not be constant and may be volatile. Actual monthly income amounts would
differ from those shown if the actual rate of return averaged the rate shown
over a period of years, but also fluctuated above or below those averages for
individual contract years. Upon request, and when you are considering an
annuity income option, the Company will furnish a comparable illustration
based on your individual circumstances.
II-22
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<C> <C> <S> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT
VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/99
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: $639.32
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% 5.70% 6% 8% 10%
PAYMENT CALENDAR ----- ----------------- -------- -------- ----------
YEAR YEAR AGE NET** -2.08% 3.50% 3.80% 5.75% 7.71%
- ------- -------- --- ----- ----------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1999 65 $581.00 $ 581.00 $581.00 $581.00 $ 581.00
2 2000 66 549.68 581.00 582.66 593.66 604.65
3 2001 67 520.05 581.00 584.33 606.59 629.27
4 2002 68 492.01 581.00 586.00 619.80 654.88
5 2003 69 465.49 581.00 587.68 633.31 681.54
10 2008 74 352.84 581.00 596.14 705.36 832.02
15 2013 79 267.45 581.00 604.72 785.61 1,015.73
20 2018 84 202.73 581.00 613.42 875.00 1,240.01
</TABLE>
IT IS EMPHASIZED THAT THE ASSUMED RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE.
ACTUAL PERFORMANCE RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY
THE CONTRACT OWNER AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED.
THE AMOUNT OF THE INCOME PAYMENT WOULD BE DIFFERENT FROM THAT SHOWN IF THE
ACTUAL PERFORMANCE AVERAGED THE ASSUMED RATES OF RETURN SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. SINCE IT IS HIGHLY LIKELY THAT PERFORMANCE WILL
FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME (BASED ON THE VARIABLE ACCOUNT)
WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS
THAT THIS HYPOTHETICAL PERFORMANCE CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
- --------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period, payments
will be continued for the balance of the Certain Period. The cumulative
amount of income payments received under the annuity depends on how long the
Annuitant lives after the Certain Period. An annuity pools the mortality
experience of Annuitants. Annuitants who die earlier, in effect, subsidize
the payments for those who live longer.
** The illustrated Net Assumed Rates of Return reflect the deduction of
average fund expenses and the 1.35% Mortality and Expense Risk and
Administration Asset Charges from the Gross Rates of Return.
II-23
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(50% VARIABLE--50% FIXED PAYOUT)
<TABLE>
<C> <C> <S> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT
VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/99
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: $639.32
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: $319.66. THE MONTHLY GUARANTEED PAYMENT OF $319.66 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% 5.70% 6% 8% 10%
PAYMENT CALENDAR ----- --------- --------- --------- --------- ---------
YEAR YEAR AGE NET** -2.08% 3.50% 3.80% 5.75% 7.71%
- ------- -------- --- ----- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1999 65 $610.16 $610.16 $610.16 $610.16 $610.16
2 2000 66 594.50 610.16 610.99 616.49 621.99
3 2001 67 579.68 610.16 611.83 622.95 634.29
4 2002 68 565.67 610.16 612.66 629.56 647.10
5 2003 69 552.41 610.16 613.50 636.31 660.43
10 2008 74 496.08 610.16 617.73 672.34 735.67
15 2013 79 453.39 610.16 622.02 712.47 827.53
20 2018 84 421.02 610.16 626.37 757.16 939.66
</TABLE>
IT IS EMPHASIZED THAT THE ASSUMED RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE.
ACTUAL PERFORMANCE RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY
THE CONTRACT OWNER AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED.
THE AMOUNT OF THE INCOME PAYMENT WOULD BE DIFFERENT FROM THAT SHOWN IF THE
ACTUAL PERFORMANCE AVERAGED THE ASSUMED RATES OF RETURN SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. SINCE IT IS HIGHLY LIKELY THAT PERFORMANCE WILL
FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME (BASED ON THE VARIABLE ACCOUNT)
WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS
THAT THIS HYPOTHETICAL PERFORMANCE CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
- --------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period, payments
will be continued for the balance of the Certain Period. The cumulative
amount of income payments received under the annuity depends on how long the
Annuitant lives after the Certain Period. An annuity pools the mortality
experience of Annuitants. Annuitants who die earlier, in effect, subsidize
the payments for those who live longer.
** The illustrated Net Assumed Rates of Return apply only to the variable
portion of the monthly payment and reflect the deduction of average fund
expenses and the 1.35% Mortality and Expense Risk and Administration Asset
Charges from the Gross Rate of Return.
II-24
<PAGE>
HISTORICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS
The following tables have been prepared to show how variable annuity income
payments under the Contract change with investment performance over an
extended period of time. In comparison with hypothetical illustrations based
on a uniform annual rate of return, the table uses historical annual returns
to illustrate that monthly annuity income payments vary over time based on
fluctuations in annual returns.
The tables reflect the daily charge to the sub-accounts for assuming
mortality and expense risks, which is equivalent to an annual charge of .95%
and the daily administrative charge which is equivalent to an annual charge of
.40%. The amounts shown in the tables also take into account the actual
Eligible Funds' management fees and operating expenses. Actual fees and
expenses of the Eligible Funds associated with your Contract may be more or
less than the historical fees, will vary from year to year, and will depend on
how you allocate your Contract Value. See the section in your current
prospectus entitled "Expense Table" for more complete details. The monthly
annuity income payments illustrated are on a pre-tax basis. The federal income
tax treatment of annuity income considerations is generally described in the
section of your current prospectus entitled "Federal Income Tax Status."
The following tables assume that 100% of the Contract Value is allocated to
a variable annuity income option, that the final value of the accumulation
account is $100,000 and is applied at age 65 to purchase a life annuity for a
guaranteed period of 10 years certain and life thereafter. The table assumes
that the Annuitant was age 65 in 1983, the year of inception for the Capital
Growth, Back Bay Advisors Bond Income and Back Bay Advisors Money Market
Series, and that the Annuitant's age had increased by the time the other
Eligible Funds became available. The historical variable annuity income
payments are based on an assumed interest rate of 3.5% per year. Thus, actual
performance greater than 3.5% per year resulted in an increased annuity income
payment and actual performance less than 3.5% per year resulted in a decreased
annuity income payment. The Company offers alternative Assumed Interest Rates
(AIR) from which you may select: 0% and 5%. An AIR of 0% will result in a
lower initial payment than a 3.5% or 5% AIR. Similarly, an AIR of 5% will
result in a higher initial payment than a 0% or 3.5% AIR. The illustrations
are based on the current annuity purchase rates used by the Company. The rates
may differ at the time you annuitize.
The table illustrates the amount of the first monthly payment for each year
shown. During each year, the monthly payments would vary to reflect
fluctuations in the actual rate of return on the Eligible Funds. Upon request,
and when you are considering an annuity income option, the Company will
furnish a comparable illustration based on your individual circumstances.
II-25
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<C> <C> <S> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT
VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/99
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: $639.32; FOR AGE 69: $688.37; FOR AGE 75:
$779.75; AND FOR AGE 76: $796.56.
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 VIP 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
17 1999 81 1,251.74 771.29 969.42 1,901.94 7,185.99 1,107.57 1,618.63 1,719.86
</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, 1998 after giving effect to current
expense caps or deferrals: 1.00% Loomis Sayles Small Cap, 1.30% Morgan Stanley
International Magnum, .83% Alger Equity Growth, .90% Goldman Sachs Midcap
Value, .83% Davis Venture Value, .78% Westpeak Growth and Income, .37%
Westpeak Stock Index, .82% Loomis Sayles Balanced, .58% Back Bay Managed, .85%
Salomon Strategic Bond Opportunities, .48% Back Bay Bond Income, .70% Salomon
US Government, .45% Back Bay Money Market. As of 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, 1998 and are unaffected by expense caps or
deferrals: .91% Fidelity VIP Overseas, .66% Capital Growth, .58% VIP 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 through April 30, 1998. Beginning May 1, 1998, the
Series' advisory fee is .75% and is reflected through December 31, 1998.
II-26
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<C> <C> <S> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT
VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/99
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: $639.32; FOR AGE 68: $675.18; FOR AGE
69: $688.37; FOR AGE 76: $796.56.
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 VIP 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
17 1999 81 1,794.02 2,063.79 1,157.58 1,573.66 955.87 1,272.43 874.22 723.71
</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, 1998, after giving effect to current
expense caps or deferrals: 1.00% Loomis Sayles Small Cap, 1.30% Morgan Stanley
International Magnum, .83% Alger Equity Growth, .90% Goldman Sachs Midcap
Value, .83% Davis Venture Value, .78% Westpeak Growth and Income, .37%
Westpeak Stock Index, .82% Loomis Sayles Balanced, .58% Back Bay Managed, .85%
Salomon Strategic Bond Opportunities, .48% Back Bay Bond Income, .70% Salomon
US Government, .45% Back Bay Money Market. As of 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, 1998 and are unaffected by expense caps or
deferrals: .91% Fidelity VIP Overseas, .66% Capital Growth, .58% Fidelity VIP
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 through April 30, 1998. Beginning May 1, 1998 the Series'
advisory fee is .75% and is reflected through December 31, 1998.
II-27
<PAGE>
EXPERTS
The financial statements of The New England Variable Account of Metropolitan
Life Insurance Company ("MetLife") and the consolidated financial statements
of MetLife 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 LLP,
Washington, D.C., has provided advice on certain matters relating to the
Federal securities laws.
II-28
<PAGE>
APPENDIX A
ABC and affiliates Fortune Public Broadcasting
Atlanta Constitution Fox Newtwork and Service
Atlanta Journal affiliates Quinn, Jane Bryant
Austin American Fund Action (syndicated column)
Statesman Hartford Courant Registered
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-29
<PAGE>
REPORT OF INDEPENDENT AUDITORS'
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 and the
related statement of operations 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, Midcap Value Sub-
Account (formerly 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
Magnum Equity Sub-Account (formerly 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 and for the year ended December 31, 1998, and the related statements of
changes in net assets for each of the two years in the period then ended for
all sub-accounts. 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 and the results of operations of
the respective aforementioned sub-accounts comprising The New England Variable
Account of Metropolitan Life Insurance Company as of and for the year ended
December 31, 1998, and the changes in their net assets for each of the two
years in the period then ended, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
April 26, 1999
F-1
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
------------- ------------ --------------
<S> <C> <C> <C>
ASSETS
Investments in sub-accounts, at value
(Note 2)
NEW ENGLAND ZENITH FUND:
Capital Growth Series.............. 1,779,148.670 $687,634,389 $ 832,694,952
Back Bay Advisors Bond Income
Series............................ 1,298,244.620 140,353,603 142,664,101
Back Bay Advisors Money Market
Series............................ 710,733.052 71,073,305 71,073,305
Westpeak Stock Index Series........ 372,803.240 37,804,878 73,199,916
Back Bay Advisors Managed Series... 747,796.940 115,529,950 155,362,292
Goldman Sachs Midcap Value Series.. 313,560.030 43,212,858 38,517,714
Westpeak Growth and Income Series.. 477,634.580 75,954,139 99,505,613
Loomis Sayles Small Cap Series..... 493,687.990 72,376,069 75,795,917
Salomon Brothers U. S. Government
Series............................ 1,473,160.770 17,001,244 16,897,154
Loomis Sayles Balanced Series...... 3,474,990.440 47,328,043 53,897,102
Alger Equity Growth Series......... 5,556,618.910 88,994,048 139,526,701
Morgan Stanley International Magnum
Equity Series..................... 1,668,377.040 18,514,535 19,019,498
Davis Venture Value Series......... 6,206,442.520 104,192,999 143,679,144
Salomon Brothers Strategic Bond
Opportunities Series.............. 3,151,097.130 37,304,113 36,017,040
VARIABLE INSURANCE PRODUCTS FUND:
Equity-Income Portfolio............ 7,440,516.280 136,426,904 189,137,924
Overseas Portfolio................. 4,606,916.810 82,965,675 92,368,682
--------------
</TABLE>
<TABLE>
<S> <C>
Total investments in sub-accounts, at value..................... 2,179,357,055
Dividends receivable............................................ 341,777
--------------
Total assets................................................ 2,179,698,832
LIABILITIES
Due to Metropolitan Life Insurance Company...................... 2,465,777
--------------
NET ASSETS...................................................... $2,177,233,055
==============
CONTRACT OWNERS' EQUITY
Owners of annuity contracts..................................... $2,166,240,014
Annuity reserves (Note 2)....................................... 10,993,041
--------------
TOTAL FOR VARIABLE ANNUITY CONTRACTS........................ $2,177,233,055
==============
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK MIDCAP GROWTH SMALL U.S.
GROWTH INCOME MARKET INDEX MANAGED VALUE AND INCOME CAP GOVERNMENT
SUB-ACCOUNT 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> <C>
INCOME:
Dividends....... $108,664,026 $10,133,445 $3,194,130 $ 1,081,203 $13,556,075 $ 9,132,072 $ 6,914,723 $ 1,287,989 $710,411
------------ ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------
EXPENSES:
Mortality and
expense risk
charge......... 7,189,755 1,293,358 582,175 633,770 1,448,514 417,824 813,871 716,357 121,247
Administrative
charge......... 3,652,858 633,384 285,388 306,281 707,739 210,487 396,577 360,128 56,684
------------ ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------
Total expenses.. 10,842,613 1,926,742 867,563 940,051 2,156,253 628,311 1,210,448 1,076,485 177,931
------------ ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------
Net investment
income......... 97,821,413 8,206,703 2,326,567 141,152 11,399,822 8,503,761 5,704,275 211,504 532,480
------------ ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Net unrealized
appreciation
(depreciation)
on investments:
Beginning 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)
End of year..... 145,060,563 2,310,498 -- 35,395,038 39,832,342 (4,695,144) 23,551,474 3,419,848 (104,090)
------------ ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------
Net change in
unrealized
appreciation
(depreciation). 94,443,535 846,455 -- 11,126,382 7,028,612 (12,967,636) 9,496,719 (4,135,347) (32,743)
Net realized
gain on
investments.... 14,033,586 805,397 -- 4,157,191 6,458,244 1,359,163 1,767,629 1,371,664 237,963
------------ ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------
Net realized and
unrealized gain
(loss) on
investments.... 108,477,121 1,651,852 -- 15,283,573 13,486,856 (11,608,473) 11,264,348 (2,763,683) 205,220
------------ ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------
NET INCREASE
(DECREASE) IN
NET ASSETS
RESULTING FROM
OPERATIONS...... $206,298,534 $ 9,858,555 $2,326,567 $15,424,725 $24,886,678 $(3,104,712) $16,968,623 $(2,552,179) $737,700
============ =========== ========== =========== =========== =========== =========== =========== ========
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
STRATEGIC
EQUITY INTERNATIONAL VENTURE BOND EQUITY-
BALANCED GROWTH MAGNUM 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>
INCOME:
Dividends......... $2,335,037 $ 4,950,058 $428,705 $ 3,915,164 $ 2,431,937 $11,582,218 $7,162,133 $187,479,326
---------- ----------- -------- ----------- ----------- ----------- ---------- ------------
EXPENSES:
Mortality and
expense risk
charge........... 491,134 1,033,199 191,971 1,259,681 343,601 1,785,074 918,928 19,240,459
Administrative
charge........... 243,529 515,894 95,926 623,955 162,311 886,849 465,780 9,603,770
---------- ----------- -------- ----------- ----------- ----------- ---------- ------------
Total expenses.... 734,663 1,549,093 287,897 1,883,636 505,912 2,671,923 1,384,708 28,844,229
---------- ----------- -------- ----------- ----------- ----------- ---------- ------------
Net investment
income........... 1,600,374 3,400,965 140,808 2,031,528 1,926,025 8,910,295 5,777,425 158,635,097
---------- ----------- -------- ----------- ----------- ----------- ---------- ------------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year. 5,717,727 14,319,440 (50,559) 29,658,383 784,849 48,908,315 8,914,066 247,216,773
End of year....... 6,569,059 50,532,653 504,963 39,486,146 (1,287,072) 52,711,019 9,403,008 402,690,305
---------- ----------- -------- ----------- ----------- ----------- ---------- ------------
Net change in
unrealized
appreciation
(depreciation)... 851,332 36,213,213 555,522 9,827,763 (2,071,921) 3,802,704 488,942 155,473,532
Net realized gain
on investments... 1,192,816 2,106,231 222,668 3,579,605 292,210 4,835,689 3,466,911 45,886,967
---------- ----------- -------- ----------- ----------- ----------- ---------- ------------
Net realized and
unrealized gain
(loss) on
investments...... 2,044,148 38,319,444 778,190 13,407,368 (1,779,711) 8,638,393 3,955,853 201,360,499
---------- ----------- -------- ----------- ----------- ----------- ---------- ------------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $3,644,522 $41,720,409 $918,998 $15,438,896 $ 146,314 $17,548,688 $9,733,278 $359,995,596
========== =========== ======== =========== =========== =========== ========== ============
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK MIDCAP GROWTH AND
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME SMALL 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......... $ 97,821,413 $ 8,206,703 $ 2,326,567 $ 141,152 $ 11,399,822 $ 8,503,761 $ 5,704,275 $ 211,504
Net realized and
unrealized gain
(loss) on
investments.... 108,477,121 1,651,852 -- 15,283,573 13,486,856 (11,608,473) 11,264,348 (2,763,683)
------------ ------------ ------------ ----------- ------------ ------------ ----------- -----------
Increase
(decrease) in
net assets
derived from
investment
activities..... 206,298,534 9,858,555 2,326,567 15,424,725 24,886,678 (3,104,712) 16,968,623 (2,552,179)
FROM CONTRACT-
RELATED
TRANSACTIONS:
Net premiums
transferred
from
Metropolitan
Life Insurance
Company........ 40,049,726 9,884,251 21,340,577 1,452,914 3,314,419 3,200,779 10,189,551 9,221,354
Net transfers
(to) from other
sub-accounts... (16,399,017) 7,345,385 10,492,616 1,106,109 (4,093,865) (5,037,997) 10,591,095 (1,407,877)
Net transfers to
Metropolitan
Life Insurance
Company
Surrenders...... (55,755,674) (12,177,589) (15,124,947) (4,948,891) (13,125,043) (2,832,814) (7,306,989) (5,507,926)
Annuity
benefits....... (5,896,454) (1,217,314) (2,867,828) (319,600) (1,533,523) (366,760) (316,533) (449,424)
------------ ------------ ------------ ----------- ------------ ------------ ----------- -----------
Increase
(decrease) in
net assets
derived from
contact-related
transactions... (38,001,419) 3,834,733 13,840,418 (2,709,468) (15,438,012) (5,036,792) 13,157,124 1,856,127
------------ ------------ ------------ ----------- ------------ ------------ ----------- -----------
NET INCREASE
(DECREASE) IN
NET ASSETS...... 168,297,115 13,693,288 16,166,985 12,715,257 9,448,666 (8,141,504) 30,125,747 (696,052)
NET ASSETS, AT
BEGINNING 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
------------ ------------ ------------ ----------- ------------ ------------ ----------- -----------
NET ASSETS, AT
END OF THE YEAR. $831,738,970 $142,526,183 $ 71,333,786 $73,116,140 $155,184,159 $ 38,473,704 $99,391,729 $75,709,596
============ ============ ============ =========== ============ ============ =========== ===========
<CAPTION>
U.S.
GOVERNMENT
SUB-ACCOUNT
------------
<S> <C>
FROM INVESTMENT
ACTIVITIES:
Net investment
income......... $ 532,480
Net realized and
unrealized gain
(loss) on
investments.... 205,220
------------
Increase
(decrease) in
net assets
derived from
investment
activities..... 737,700
FROM CONTRACT-
RELATED
TRANSACTIONS:
Net premiums
transferred
from
Metropolitan
Life Insurance
Company........ 1,780,311
Net transfers
(to) from other
sub-accounts... 4,991,367
Net transfers to
Metropolitan
Life Insurance
Company
Surrenders...... (1,299,860)
Annuity
benefits....... (39,667)
------------
Increase
(decrease) in
net assets
derived from
contact-related
transactions... 5,432,151
------------
NET INCREASE
(DECREASE) IN
NET ASSETS...... 6,169,851
NET ASSETS, AT
BEGINNING OF THE
YEAR............ 10,708,181
------------
NET ASSETS, AT
END OF THE YEAR. $16,878,032
============
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
THE NEW ENGLAND VARIABLE ACCOUNT
OF
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
STRATEGIC
EQUITY INTERNATIONAL VENTURE BOND
BALANCED GROWTH MAGNUM EQUITY VALUE OPPORTUNITIES EQUITY-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......... $ 1,600,374 $ 3,400,965 $ 140,808 $ 2,031,528 $ 1,926,025 $ 8,910,295 $ 5,777,425
Net realized and
unrealized gain
(loss) on
investments.... 2,044,148 38,319,444 778,190 13,407,368 (1,779,711) 8,638,393 3,955,853
----------- ------------ ----------- ------------ ----------- ------------ -----------
Increase
(decrease) in
net assets
derived from
investment
activities..... 3,644,522 41,720,409 918,998 15,438,896 146,314 17,548,688 9,733,278
FROM CONTRACT-
RELATED
TRANSACTIONS:
Net premiums
transferred
from
Metropolitan
Life Insurance
Company........ 7,354,133 11,871,287 1,872,270 18,560,719 6,181,058 13,382,867 6,400,225
Net transfers
(to) from other
sub-accounts... 409,136 8,530,395 (1,287,125) 2,835,730 (476,855) (8,394,490) (9,204,607)
Net transfers to
Metropolitan
Life Insurance
Company
Surrenders...... (3,955,175) (8,522,044) (1,383,343) (9,477,930) (2,850,826) (13,042,340) (6,886,447)
Annuity
benefits....... (523,862) (687,556) (105,037) (708,014) (193,496) (1,264,955) (628,414)
----------- ------------ ----------- ------------ ----------- ------------ -----------
Increase
(decrease) in
net assets
derived from
contact-related
transactions... 3,284,232 11,192,082 (903,235) 11,210,505 2,659,881 (9,318,918) (10,319,243)
----------- ------------ ----------- ------------ ----------- ------------ -----------
NET INCREASE
(DECREASE) IN
NET ASSETS...... 6,928,754 52,912,491 15,763 26,649,401 2,806,195 8,229,770 (585,965)
NET ASSETS, AT
BEGINNING OF THE
YEAR............ 46,907,976 86,452,418 18,982,607 116,866,661 33,169,158 180,694,520 92,851,007
----------- ------------ ----------- ------------ ----------- ------------ -----------
NET ASSETS, AT
END OF THE YEAR. $53,836,730 $139,364,909 $18,998,370 $143,516,062 $35,975,353 $188,924,290 $92,265,042
=========== ============ =========== ============ =========== ============ ===========
<CAPTION>
TOTAL
---------------
<S> <C>
FROM INVESTMENT
ACTIVITIES:
Net investment
income......... $ 158,635,097
Net realized and
unrealized gain
(loss) on
investments.... 201,360,499
---------------
Increase
(decrease) in
net assets
derived from
investment
activities..... 359,995,596
FROM CONTRACT-
RELATED
TRANSACTIONS:
Net premiums
transferred
from
Metropolitan
Life Insurance
Company........ 166,056,441
Net transfers
(to) from other
sub-accounts... --
Net transfers to
Metropolitan
Life Insurance
Company
Surrenders...... (164,197,838)
Annuity
benefits....... (17,118,437)
---------------
Increase
(decrease) in
net assets
derived from
contact-related
transactions... (15,259,834)
---------------
NET INCREASE
(DECREASE) IN
NET ASSETS...... 344,735,762
NET ASSETS, AT
BEGINNING OF THE
YEAR............ 1,832,497,293
---------------
NET ASSETS, AT
END OF THE YEAR. $2,177,233,055
===============
</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 MIDCAP GROWTH
GROWTH BOND INCOME MONEY MARKET STOCK INDEX MANAGED VALUE AND INCOME SMALL 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
contact-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
contact-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 MAGNUM 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......... $ 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.... 2,961,309 8,127,276 (914,206) 20,245,211 544,139 25,002,199 2,825,491 74,567,134
----------- ----------- ----------- ------------ ----------- ------------ ----------- --------------
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 8,725,723 302,155,809
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 8,859,341 190,824,270
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) (120,345,134)
Annuity
benefits....... (344,852) (529,258) (177,635) (513,124) (203,636) (925,776) (265,135) (10,799,955)
----------- ----------- ----------- ------------ ----------- ------------ ----------- --------------
Increase
(decrease) in
net assets
derived from
contact-related
transactions... 13,442,832 8,365,938 1,243,356 36,800,654 11,051,882 4,539,274 771,544 59,679,181
----------- ----------- ----------- ------------ ----------- ------------ ----------- --------------
NET INCREASE
(DECREASE) IN
NET ASSETS...... 18,446,421 23,785,346 551,461 59,380,095 13,514,605 41,457,793 9,497,267 361,834,990
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 1,470,662,303
----------- ----------- ----------- ------------ ----------- ------------ ----------- --------------
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 $1,832,497,293
=========== =========== =========== ============ =========== ============ =========== ==============
</TABLE>
See Notes to Financial Statements
F-8
<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, 1998, 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-9
<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, 1998:
<TABLE>
<CAPTION>
SERIES PURCHASES SALES
------ ------------ ------------
<S> <C> <C>
NEW ENGLAND ZENITH FUND:
Capital Growth..................................... $204,987,284 $145,003,609
Back Bay Advisors Bond Income...................... 47,056,488 35,012,422
Back Bay Advisors Money Market..................... 120,066,292 103,971,425
Westpeak Stock Index............................... 11,878,174 14,436,269
Back Bay Advisors Managed.......................... 24,992,025 29,006,762
Goldman Sachs Midcap Value......................... 16,349,391 12,896,554
Westpeak Growth and Income......................... 38,175,982 19,281,476
Loomis Sayles Small Cap............................ 25,023,982 22,962,488
Salomon Brothers U.S. Government................... 13,162,083 7,191,660
Loomis Sayles Balanced............................. 17,243,181 12,339,232
Alger Equity Growth................................ 36,921,611 22,273,378
Morgan Stanley International Magnum Equity......... 5,441,048 6,204,956
Davis Venture Value................................ 46,626,701 33,366,967
Salomon Brothers Strategic Bond Opportunities ..... 16,177,128 11,588,408
VARIABLE INSURANCE PRODUCTS FUND:
Equity-Income Portfolio............................ 36,758,908 37,181,786
Overseas Portfolio................................. 33,858,295 38,407,817
</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 and administrative asset charges--a charge for
mortality/expense risk assumed by the Company and for administrative expenses,
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-10
<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 TNE Advisers, Inc.*(c) Back Bay Advisors, L.P.*
Income.................
Back Bay Advisors Money TNE Advisers, Inc.*(c) Back Bay Advisors, L.P.*
Market.................
Westpeak Stock Index.... TNE Advisers, Inc.*(c) Westpeak Investment
Advisors, L.P.*
Back Bay Advisors TNE Advisers, Inc.*(c) Back Bay Advisors, L.P.*
Managed................
Goldman Sachs Midcap TNE Advisers, Inc.*(c) Goldman Sachs Asset
Value.................. Management, Inc
Westpeak Growth and TNE Advisers, Inc.*(c) Westpeak Investment
Income................. Advisors, L.P.*
Loomis Sayles Small Cap. TNE Advisers, Inc.*(c) Loomis Sayles & Company,
L.P.*
Salomon Brothers U.S. TNE Advisers, Inc.*(c) Salomon Brothers Asset
Government............. Management, Inc
Loomis Sayles Balanced.. TNE Advisers, Inc.*(c) Loomis Sayles & Company,
L.P.*
Alger Equity Growth..... TNE Advisers, Inc.*(c) Fred Alger Management, Inc.
Morgan Stanley TNE Advisers, Inc.*(c) Morgan Stanley Dean Witter
International Magnum Investment Management, Inc.
Equity ................
Davis Venture Value..... TNE Advisers, Inc.*(c) Davis Selected Advisers,
Inc. (a)
Salomon Brothers TNE Advisers, Inc.*(c) Salomon Brothers Asset
Strategic Bond Management, Inc (b)
Opportunities..........
VIP Equity-Income Fidelity Management & Research Co. --
Portfolio .............
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, Salomon Brothers Asset
Management Limited provides certain subadvisory services to Salomon
Brothers Asset Management Inc.
(c) Effective March 26, 1999, TNE Advisers, Inc. changed its name to New
England Investment 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 Dean Witter Investment
Management, Inc. (formerly Morgan Stanley Asset Management Inc.) went into
effect replacing the prior agreement between TNE Advisers, Inc. and Draycott
Partners, Ltd.
Effective May 1, 1998 Goldman Sachs Asset Management, ("Goldman Sachs"),
became the subadvisor of the Loomis Sayles Avanti Growth Series, succeeding
Loomis Sayles & Company, L.P., and the name of the Series was changed to the
"Goldman Sachs Midcap Value Series". 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-11
<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,
1998:
<TABLE>
<CAPTION>
CAPITAL GROWTH BOND INCOME MONEY MARKET STOCK INDEX MANAGED MIDCAP VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Units
Outstanding
1/1/98......... 40,350,602.0461 37,573,887.6248 27,095,079.4322 15,946,139.5319 46,960,989.0141 24,124,458.1507
Units Purchased. 2,103,362.8915 4,858,567.8091 15,442,600.3986 609,389.7887 980,273.3209 1,665,839.4758
Units Redeemed.. (4,217,454.3529) (3,794,290.5424) (8,802,034.4539) (1,262,474.7042) (5,582,027.2702) (4,443,116.6867)
--------------- --------------- --------------- --------------- --------------- ---------------
Units
Outstanding
12/31/98....... 38,236,510.5847 38,638,164.8915 33,735,645.3769 15,293,054.6164 42,359,235.0648 21,347,180.9398
=============== =============== =============== =============== =============== ===============
Unit Value
12/31/98....... $ 21.752481 $ 3.688741 $ 2.114493 $ 4.781003 $ 3.663526 $ 1.802285
=============== =============== =============== =============== =============== ===============
<CAPTION>
INTERNATIONAL STRATEGIC BOND
U.S. GOVERNMENT BALANCED EQUITY GROWTH MAGNUM EQUITY VENTURE VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Units
Outstanding
1/1/98......... 8,618,954.9451 28,911,762.6196 44,549,851.9239 17,264,213.5049 54,018,331.2602 23,153,102.6432
Units Purchased. 5,281,429.2907 4,647,940.1084 8,900,827.7755 1,581,458.3896 9,530,614.5641 4,289,356.7969
Units Redeemed.. (1,104,195.6398) (2,734,523.7147) (4,194,738.0750) (2,519,812.4361) (4,782,380.6261) (2,497,529.8157)
--------------- --------------- --------------- --------------- --------------- ---------------
Units
Outstanding
12/31/98....... 12,796,188.5960 30,825,179.0133 49,255,941.6244 16,325,859.4584 58,766,565.1982 24,944,929.6244
=============== =============== =============== =============== =============== ===============
Unit Value
12/31/98....... $ 1.318989 $ 1.746518 $ 2.829403 $ 1.163698 $ 2.442138 $ 1.442191
=============== =============== =============== =============== =============== ===============
<CAPTION>
GROWTH
AND INCOME SMALL CAP
SUB-ACCOUNT SUB-ACCOUNT
---------------- ----------------
<S> <C> <C>
Units
Outstanding
1/1/98......... 30,388,760.0259 39,462,934.7018
Units Purchased. 8,223,298.7225 4,908,205.6128
Units Redeemed.. (3,097,445.6273) (4,052,597.0940)
---------------- ----------------
Units
Outstanding
12/31/98....... 35,514,613.1211 40,318,543.2206
================ ================
Unit Value
12/31/98....... $ 2.798615 $ 1.877786
================ ================
<CAPTION>
EQUITY INCOME OVERSEAS
SUB-ACCOUNT SUB-ACCOUNT
---------------- ----------------
<S> <C> <C>
Units
Outstanding
1/1/98......... 45,216,721.5348 45,390,043.1401
Units Purchased. 3,188,818.1576 2,892,289.7854
Units Redeemed.. (5,478,337.7294) (7,735,823.4438)
---------------- ----------------
Units
Outstanding
12/31/98....... 42,927,201.9630 40,546,509.4817
================ ================
Unit Value
12/31/98....... $ 4.401039 $ 2.275536
================ ================
</TABLE>
F-12
<PAGE>
Metropolitan Life Insurance Company
Consolidated Financial Statements
as of December 31, 1998 and 1997 and for the
Years Ended December 31, 1998, 1997 and 1996
and
Independent Auditors' Report
<PAGE>
Independent Auditors' Report
The Board of Directors and Policyholders of
Metropolitan Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Metropolitan
Life Insurance Company and subsidiaries (the "Company") as of December 31,
1998 and 1997, and the related consolidated statements of income, equity and
cash flows for each of the three years in the period ended December 31, 1998.
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 Metropolitan
Life Insurance Company and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1997 the
Company changed the method of accounting for investment income on certain
structured securities.
DELOITTE & TOUCHE LLP
New York, New York
February 4, 1999
2
<PAGE>
Metropolitan Life Insurance Company
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
(In millions)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
REVENUES
Premiums............................................... $11,503 $11,278 $11,345
Universal life and investment-type product policy fees. 1,360 1,418 1,243
Net investment income.................................. 10,228 9,491 8,978
Other revenues......................................... 1,965 1,491 1,246
Net realized investment gains.......................... 2,021 787 231
------- ------- -------
27,077 24,465 23,043
------- ------- -------
EXPENSES
Policyholder benefits and claims....................... 12,488 12,234 12,286
Interest credited to policyholder account balances..... 2,731 2,884 2,868
Policyholder dividends................................. 1,653 1,742 1,728
Other expenses......................................... 8,118 5,934 4,755
------- ------- -------
24,990 22,794 21,637
------- ------- -------
Income before provision for income taxes, discontinued
operations and extraordinary item..................... 2,087 1,671 1,406
Provision for income taxes............................. 740 468 482
------- ------- -------
Income before discontinued operations and extraordinary
item.................................................. 1,347 1,203 924
Loss from discontinued operations...................... -- -- 71
------- ------- -------
Income before extraordinary item....................... 1,347 1,203 853
Extraordinary item--demutualization expense............ 4 -- --
------- ------- -------
Net income............................................. $ 1,343 $ 1,203 $ 853
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Metropolitan Life Insurance Company
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997 (In millions)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value......... $100,767 $ 92,630
Equity securities, at fair value........................... 2,340 4,250
Mortgage loans on real estate.............................. 16,827 20,193
Real estate and real estate joint ventures................. 6,287 7,080
Policy loans............................................... 5,600 5,846
Other limited partnership interests........................ 964 855
Short-term investments..................................... 1,369 679
Other invested assets...................................... 1,567 4,456
-------- --------
135,721 135,989
Cash and cash equivalents.................................... 3,301 2,911
Accrued investment income.................................... 1,994 1,860
Premiums and other receivables............................... 5,972 3,319
Deferred policy acquisition costs............................ 6,560 6,436
Other........................................................ 3,448 3,641
Separate account assets...................................... 58,350 48,620
-------- --------
$215,346 $202,776
======== ========
LIABILITIES AND EQUITY
Liabilities:
Future policy benefits....................................... $ 72,701 $ 73,848
Policyholder account balances................................ 46,494 48,543
Other policyholder funds..................................... 4,061 3,998
Policyholder dividends payable............................... 947 969
Short-term debt.............................................. 3,585 4,587
Long-term debt............................................... 2,903 2,884
Income taxes payable, current and deferred................... 948 952
Other........................................................ 10,772 4,650
Separate account liabilities................................. 58,068 48,338
-------- --------
200,479 188,769
-------- --------
Commitments and contingencies (Note 9)
Equity:
Retained earnings............................................ 13,483 12,140
Accumulated other comprehensive income....................... 1,384 1,867
-------- --------
14,867 14,007
-------- --------
$215,346 $202,776
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Metropolitan Life Insurance Company
CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
For the Years Ended December 31, 1998, 1997 and 1996
(In millions)
<TABLE>
<CAPTION>
Accumulated Other Comprehensive Income
----------------------------------------------
Net Foreign Minimum
Unrealized Currency Pension
Comprehensive Retained Investment Translation Liability
Total Income Earnings Gains Adjustment Adjustment
------- ------------- -------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... $11,754 $10,084 $ 1,646 $ 24 $ --
Comprehensive income:
Net income............. 853 $ 853 853
------
Other comprehensive
loss:
Unrealized investment
losses, net of
related offsets,
reclassification
adjustments and
income taxes........ (618) (618)
Foreign currency
translation
adjustments......... (6) (6)
------
Other comprehensive
loss.................. (624) (624)
------
Comprehensive income. $ 229
------- ====== ------- ------------- ------------ ------------
Balance at December 31,
1996................... 11,983 10,937 1,028 18 --
Comprehensive income:
Net income............. 1,203 $1,203 1,203
------
Other comprehensive
income:
Unrealized investment
gains, net of
related offsets,
reclassification
adjustments and
income taxes........ 870 870
Foreign currency
translation
adjustments......... (49) (49)
------
Other comprehensive
income................ 821 821
------
Comprehensive income. $2,024
------- ====== ------- ------------- ------------ ------------
Balance at December 31,
1997................... 14,007 12,140 1,898 (31) --
Comprehensive income:
Net income............. 1,343 $1,343 1,343
Other comprehensive
loss:
Unrealized investment
losses, net of
related offsets,
reclassification
adjustments and
income taxes........ (358) (358)
Foreign currency
translation
adjustments......... (113) (113)
Minimum pension
liability
adjustment.......... (12) (12)
------
Other comprehensive
loss.................. (483) (483)
-------
------
Comprehensive income. $ 860
------- ------- ------------- ------------ ------------
======
Balance at December 31,
1998................... $14,867 $13,483 $ 1,540 $ (144) $ (12)
======= ======= ============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Metropolitan Life Insurance Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
(In millions)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income....................................... $ 1,343 $ 1,203 $ 853
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expenses....... 56 (36) (18)
Gains from sales of investments and
businesses, net............................. (2,629) (1,018) (428)
Change in undistributed income of real estate
joint ventures and other limited partnership
interests................................... (91) 157 (45)
Interest credited to policyholder account
balances.................................... 2,731 2,884 2,868
Universal life and investment-type product
policy fees................................. (1,360) (1,418) (1,243)
Change in accrued investment income.......... (181) (215) 350
Change in premiums and other receivables..... (2,681) (792) (125)
Change in deferred policy acquisition costs,
net......................................... (188) (159) (391)
Change in insurance related liabilities...... 1,493 2,364 2,349
Change in income taxes payable............... 211 (99) (134)
Change in other liabilities.................. 2,390 (206) 902
Other, net................................... (253) 207 (1,250)
-------- -------- --------
Net cash provided by operating activities........ 841 2,872 3,688
-------- -------- --------
Cash flows from investing activities
Sales, maturities and repayments of:
Fixed maturities............................. 57,857 75,346 76,117
Equity securities............................ 3,085 1,821 2,069
Mortgage loans on real estate................ 2,296 2,784 2,380
Real estate and real estate joint ventures... 1,122 2,046 2,358
Other limited partnership interests.......... 146 166 178
Purchases of:
Fixed maturities............................. (67,543) (76,603) (76,225)
Equity securities............................ (854) (2,121) (2,742)
Mortgage loans on real estate................ (2,610) (4,119) (4,225)
Real estate and real estate joint ventures... (423) (624) (989)
Other limited partnership interests.......... (723) (338) (307)
Net change in short-term investments........... (761) 63 1,028
Net change in policy loans..................... 133 17 (128)
Proceeds from sales of businesses.............. 7,372 274 --
Net change in investment collateral............ 3,769 -- --
Other, net..................................... (183) (378) (438)
-------- -------- --------
Net cash provided by (used in) investing
activities...................................... 2,683 (1,666) (924)
-------- -------- --------
Cash flows from financing activities
Policyholder account balances:
Deposits..................................... $ 19,361 $ 16,061 $ 17,167
Withdrawals.................................. (21,706) (18,831) (19,321)
Short-term debt, net........................... (1,001) 1,265 69
Long-term debt issued.......................... 693 989 --
Long-term debt repaid.......................... (481) (104) (284)
-------- -------- --------
Net cash used in financing activities............ (3,134) (620) (2,369)
-------- -------- --------
Change in cash and cash equivalents.............. 390 586 395
Cash and cash equivalents, beginning of year..... 2,911 2,325 1,930
-------- -------- --------
Cash and cash equivalents, end of year........... $ 3,301 $ 2,911 $ 2,325
======== ======== ========
Supplemental disclosures of cash flow
information:
Interest....................................... $ 367 $ 422 $ 310
======== ======== ========
Income taxes................................... $ 579 $ 589 $ 497
======== ======== ========
</TABLE>
Cash paid during the year for:
See accompanying notes to consolidated financial statements.
6
<PAGE>
Metropolitan Life Insurance Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts are in millions unless otherwise stated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Metropolitan Life Insurance Company ("MetLife") and its subsidiaries (the
"Company") is a leading provider of insurance and financial services to a
broad section of institutional and individual customers. The Company offers
life insurance, annuities and mutual funds to individuals and group insurance
and retirement and savings products and services to corporations and other
institutions.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"). The New
York State Insurance Department (the "Department") recognizes only statutory
accounting practices for determining and reporting the financial condition and
results of operations of an insurance company for determining solvency under
the New York Insurance Law. No consideration is given by the Department to
financial statements prepared in accordance with GAAP in making such
determination.
The preparation of financial statements 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. The most significant estimates include those used
in determining deferred policy acquisition costs, investment allowances and
the liability for future policyholder benefits. Actual results could differ
from those estimates.
During 1997, management changed to the retrospective interest method of
accounting for investment income on structured notes 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 was not material.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
MetLife and its subsidiaries, partnerships and joint ventures in which MetLife
has a controlling interest. All material intercompany accounts and
transactions have been eliminated.
The Company accounts for its investments in real estate joint ventures and
other limited partnership interests in which it does not have a controlling
interest, but more than a minimal interest, under the equity method of
accounting.
Minority interest relating to consolidated entities included in other
liabilities was $274 and $277 at December 31, 1998 and 1997, respectively.
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the 1998 presentation.
Investments
The Company's fixed maturity and equity securities are classified as
available-for-sale and are reported at their estimated fair value. Unrealized
investment gains and losses on securities are recorded as a separate component
of other comprehensive income, net of policyholder related amounts and
deferred income taxes. The cost of fixed maturity and equity securities is
adjusted for impairments in value deemed to be other than temporary. These
adjustments are recorded as realized losses on investments. Realized gains and
losses on sales of securities are determined on a specific identification
basis. All security transactions are recorded on a trade date basis.
Mortgage loans on real estate are stated at amortized cost, net of valuation
allowances. Valuation allowances are established for the excess carrying value
of the mortgage loan over its estimated fair value when it is probable that,
based upon current information and events, the Company will be unable to
collect all amounts due under the
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
contractual terms of the loan agreement. Valuation allowances are based upon
the present value of expected future cash flows discounted at the loan's
original effective interest rate or the collateral value if the loan is
collateral dependent. Interest income earned on impaired loans is accrued on
the net carrying value amount of the loan based on the loan's effective
interest rate.
Real estate, including related improvements, is stated at cost less
accumulated depreciation. Depreciation is provided on a straight-line basis
over the estimated useful life of the asset (typically 20 to 40 years). Cost
is adjusted for impairment whenever events or changes in circumstances
indicate the carrying amount of the asset may not be recoverable. Impaired
real estate is written down to estimated fair value with the impairment loss
being included in realized losses on investments. Impairment losses are based
upon the estimated fair value of real estate, which is generally computed
using the present value of expected future cash flows from the real estate
discounted at a rate commensurate with the underlying risks. Real estate
acquired in satisfaction of debt is recorded at estimated fair value at the
date of foreclosure. Valuation allowances on real estate held-for-sale are
computed using the lower of depreciated cost or estimated fair value, net of
disposition costs.
Policy loans are stated at unpaid principal balances.
Short-term investments are stated at amortized cost, which approximates fair
value.
Derivative Instruments
The Company uses derivative instruments to manage market risk through one of
four principal risk management strategies: the hedging of invested assets,
liabilities, portfolios of assets or liabilities and anticipated transactions.
The Company's derivative strategy employs a variety of instruments including
financial futures, financial forwards, interest rate and foreign currency
swaps, floors, foreign exchange contracts, caps and options.
The Company's derivative program is monitored by senior management. The
Company's risk of loss is typically limited to the fair value of its
derivative instruments and not to the notional or contractual amounts of these
derivatives. Risk arises from changes in the fair value of the underlying
instruments and, with respect to over-the-counter transactions, from the
possible inability of counterparties to meet the terms of the contracts. The
Company has strict policies regarding the financial stability and credit
standing of its major counterparties.
The Company's derivative instruments are designated as hedges and are highly
correlated to the underlying risk at contract inception. The Company monitors
the effectiveness of its hedges throughout the contract term using an offset
ratio of 80 to 125 percent as its minimum acceptable threshold for hedge
effectiveness. Derivative instruments that lose their effectiveness are marked
to market through net investment income.
Gains or losses on financial futures contracts entered into in anticipation
of investment transactions are deferred and, at the time of the ultimate
investment purchase or disposition, recorded as an adjustment to the basis of
the purchased assets or to the proceeds on disposition. Gains or losses on
financial futures used in asset risk management are deferred and amortized
into net investment income over the remaining term of the investment. Gains or
losses on financial futures used in portfolio risk management are deferred and
amortized into net investment income or policyholder benefits over the
remaining life of the hedged sector of the underlying portfolio.
Financial forward contracts that are entered into to purchase securities are
marked to fair value through other comprehensive income, similar to the
accounting for the investment security. Such contracts are accounted for at
settlement by recording the purchase of the specified securities at fair
value. Gains or losses resulting from the termination of forward contracts are
recognized immediately as a component of net investment income.
Interest rate and certain foreign currency swaps involve the periodic
exchange of payments without the exchange of underlying principal or notional
amounts. Net receipts or payments are accrued and recognized over the term of
the swap agreement as an adjustment to net investment income or other expense.
Gains or losses resulting from swap terminations are amortized over the
remaining term of the underlying asset or liability. Gains and losses on swaps
and certain foreign forward exchange contracts entered into in anticipation of
investment transactions are deferred and, at the time of the ultimate
investment purchase or disposition, reflected as an adjustment to the basis of
the purchased
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
assets or to the proceeds of disposition. In the event the asset or liability
underlying a swap is disposed of, the swap position is closed immediately and
any gain or loss is recorded as an adjustment to the proceeds from
disposition.
The Company periodically enters into collars, which consist of purchased put
and written call options, to lock in unrealized gains on equity securities.
Collars are marked to market through other comprehensive income, similar to
the accounting for the underlying equity securities. Purchased interest rate
caps and floors are used to offset the risk of interest rate changes related
to insurance liabilities. Premiums paid on floors, caps and options are split
into two components, time value and intrinsic value. Time value is amortized
over the life of the applicable derivative instrument. The intrinsic value and
any gains or losses relating to these derivative instruments adjust the basis
of the underlying asset or liability and are recognized as a component of net
investment income over the term of the underlying asset or liability being
hedged as an adjustment to the yield.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements, which are included in other
assets, are stated at cost, less accumulated depreciation and amortization.
Depreciation is determined using either the straight-line or sum-of-the-years-
digits method over the estimated useful lives of the assets. Estimated lives
range from 20 to 40 years for real estate and 5 to 15 years for all other
property and equipment. Accumulated depreciation on property and equipment and
accumulated amortization of leasehold improvements was $1,048 at both December
31, 1998 and 1997. Related depreciation and amortization expense was $95, $103
and $78 for the years ended December 31, 1998, 1997 and 1996, respectively.
Deferred Policy Acquisition Costs
The costs of acquiring new insurance 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 the expected life of the contract for participating
traditional life, universal life and investment-type products. Generally,
deferred policy acquisition costs are amortized in proportion to the present
value of estimated gross margins or profits from investment, mortality,
expense margins and surrender charges. Actual gross margins or profits can
vary from management's estimates resulting in increases or decreases in the
rate of amortization. Management periodically updates these estimates and
evaluates the recoverability of deferred policy acquisition costs. When
appropriate, management revises its assumptions of the estimated gross margins
or profits of these contracts, and the cumulative amortization is re-estimated
and adjusted by a cumulative charge or credit to current operations.
Deferred policy acquisition costs for non-participating traditional life,
non-medical health and annuity policies with life contingencies are amortized
in proportion to anticipated premiums. Assumptions as to anticipated premiums
are made at the date of policy issuance and are consistently applied during
the life of the contracts. Deviations from estimated experience are reflected
in operations when they occur. For these contracts, the amortization period is
typically the estimated life of the policy.
Deferred policy acquisition costs for property and liability insurance
contracts, which are primarily comprised of commissions and certain
underwriting expenses, are deferred and amortized on a pro rata basis over the
applicable contract term or reinsurance treaty.
Other Intangible Assets
The excess of cost over the fair value of net assets acquired ("goodwill")
and the value of business acquired are included in other assets. Goodwill is
amortized on a straight-line basis over a period ranging from 10 to 30 years.
The Company continually reviews goodwill to assess recoverability from future
operations using undiscounted cash flows.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Impairments are recognized in operating results if a permanent diminution in
value is deemed to have occurred. The value of business 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.
<TABLE>
<CAPTION>
Value of Business Acquired Goodwill
-------------------------- ----------------
Years Ended December 31 1998 1997 1996 1998 1997 1996
- ----------------------- -------- -------- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Balance at January 1........ $ 498 $ 358 $ 381 $884 $544 $377
Acquisitions.................... 32 176 7 80 387 197
Amortization.................... (55) (36) (30) (59) (47) (30)
-------- -------- -------- ---- ---- ----
Net Balance at December 31...... $ 475 $ 498 $ 358 $905 $884 $544
======== ======== ======== ==== ==== ====
<CAPTION>
December 31 1998 1997 1998 1997
- ----------- -------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulated Amortization........ $ 142 $ 87 $207 $148
======== ======== ==== ====
</TABLE>
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 upon the
nonforfeiture interest rate, ranging from 2% to 7%, 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 5% to 8%. Future policy
benefit liabilities for non-medical 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. Interest rates
used in establishing such liabilities range from 4% to 7%. Future policy
benefit liabilities for disabled lives are estimated using the present value
of benefits method and experience assumptions as to claim terminations,
expenses and interest. Interest rates used in establishing such liabilities
range from 4% to 8%.
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, ranging from 3%
to 17%, less expenses, mortality charges and withdrawals.
The liability for unpaid claims and claim expenses for property and casualty
insurance represents the amount estimated for claims that have been reported
but not settled and claims incurred but not reported. Liabilities for unpaid
claims are estimated based upon the Company's historical experience and other
actuarial assumptions that consider the effects of current developments,
anticipated trends and risk management programs. Revisions of these estimates
are reflected in operations in the year such refinements are made.
Recognition of Insurance Revenue and Related Benefits
Premiums related to traditional life and annuity policies with life
contingencies are recognized as revenues when due. Benefits and expenses are
provided against such revenues to recognize profits over the estimated lives
of the policies. When premiums are due over a significantly shorter period
than the period over which benefits are provided, any excess profit is
deferred and recognized into operations in a constant relationship to
insurance in-force or, for annuities, the amount of expected future policy
benefit payments.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Premiums related to non-medical health contracts are recognized on a pro
rata basis over the applicable contract term.
Premiums related to 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 operations include interest credited and benefit claims incurred in
excess of related policyholder account balances.
Premiums related to property and casualty contracts are recognized as
revenue on a pro rata basis over the applicable contract term. Unearned
premiums are included in other liabilities.
Dividends to Policyholders
Dividends to policyholders are determined annually by the Board of
Directors. The aggregate amount of policyholders' dividends is related to
actual interest, mortality, morbidity and expense experience for the year, as
well as management's judgment as to the appropriate level of statutory surplus
to be retained by the Company.
Participating Business
Participating business represented approximately 21% and 22% of the
Company's life insurance in-force, and 81% and 87% of the number of life
insurance policies in-force, at December 31, 1998 and 1997, respectively.
Participating policies represented approximately 39% and 40%, 41% and 41%, and
40% and 44% of gross and net life insurance premiums for the years ended
December 31, 1998, 1997 and 1996, respectively.
Income Taxes
MetLife and its includable life insurance and non-life insurance
subsidiaries file a consolidated U.S. Federal income tax return 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 based upon a
prescribed formula that incorporates a differential earnings rate between
stock and mutual life insurance companies. 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 and liabilities.
Reinsurance
The Company has reinsured certain of its life insurance and property and
casualty insurance contracts with other insurance companies under various
agreements. Amounts due from reinsurers are estimated based upon assumptions
consistent with those used in establishing the liabilities related to the
underlying reinsured contracts. Policy and contract liabilities are reported
gross of reinsurance credits.
Separate Accounts
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 (stated at estimated fair value) and liabilities of
the separate accounts are reported separately as assets and liabilities.
Deposits to separate accounts, investment income and realized and unrealized
gains and losses on the investments of the separate accounts accrue directly
to contractholders and, accordingly, are not reflected in the Company's
consolidated statements of income and cash flows. Mortality, policy
administration and surrender charges to all separate accounts are included in
revenues.
Foreign Currency Translation
Balance sheet accounts of foreign operations are translated at the exchange
rates in effect at each year-end and income and expense accounts are
translated at the average rates of exchange prevailing during the year. The
local currencies of foreign operations are generally the functional
currencies. Translation adjustments are charged or
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
credited directly to other comprehensive income. Gains and losses from foreign
currency transactions are reported in other expenses and were insignificant
for all years presented.
Extraordinary Item--Demutualization Expense
On November 24, 1998, the Board of Directors authorized management to
develop a plan to convert from a mutual life insurance company to a stock life
insurance company (the "demutualization"). A final plan to convert to a
publicly traded stock company is subject to the approval of the Board of
Directors, the policyholders and the New York Superintendent of Insurance
("Superintendent"). The Department has not yet reviewed or approved any
materials relating to the demutualization.
The accompanying consolidated statements of income reflect an extraordinary
charge of $4 (net of income taxes of $2) for the year ended December 31, 1998
related to costs associated with the demutualization.
Application of Accounting Pronouncements
In October 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-7, Accounting for Insurance
and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7").
SOP 98-7 provides guidance on the method of accounting for insurance and
reinsurance contracts that do not transfer insurance risk, defined in the SOP
as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts
for which the deposit method is appropriate into those that 1) transfer only
significant timing risk, 2) transfer only significant underwriting risk, 3)
transfer neither significant timing or underwriting risk and 4) have an
indeterminate risk. The Company is required to adopt SOP 98-7 as of January 1,
2000. Adoption of SOP 98-7 is not expected to have a material effect on the
Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires,
among other things, that all derivatives be recognized in the consolidated
balance sheets as either assets or liabilities and measured at fair value. The
corresponding derivative gains and losses should be reported based upon the
hedge relationship, if such a relationship exists. Changes in the fair value
of derivatives that are not designated as hedges or that do not meet the hedge
accounting criteria in SFAS 133 are required to be reported in income. The
Company is required to adopt SFAS 133 as of January 1, 2000. The Company is in
the process of quantifying the impact of SFAS 133 on its consolidated
financial statements.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-Up
Activities ("SOP 98-5"). SOP 98-5 broadly defines start-up activities. SOP 98-
5 requires costs of start-up activities and organization costs to be expensed
as incurred. The Company is required to adopt SOP 98-5 as of January 1, 1999.
Adoption of SOP 98-5 is not expected to have a material effect on the
Company's consolidated financial statements.
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-
1 provides guidance for determining when an entity should capitalize or
expense external and internal costs of computer software developed or obtained
for internal use. The Company is required to adopt SOP 98-1 as of January 1,
1999. Adoption of SOP 98-1 is not expected to have a material effect on the
Company's consolidated financial statements.
In December 1997, the AICPA issued SOP 97-3, Accounting for Insurance and
Other Enterprises for Insurance Related Assessments ("SOP 97-3"). SOP 97-3
provides guidance on accounting by insurance and other enterprises for
assessments related to insurance activities including recognition, measurement
and disclosure of guaranty fund and other insurance related assessments. The
Company is required to adopt SOP 97-3 as of January 1, 1999. Adoption of SOP
97-3 is not expected to have a material effect on the Company's consolidated
financial statements.
In 1998, the Company adopted SFAS 131, Disclosures About Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes
standards for reporting financial information and related disclosures about
products and services, geographic areas and major customers relating to
operating segments in annual financial statements. Adoption of SFAS 131 had no
effect on the Company's consolidated financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
In 1998, the Company adopted SFAS 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. Adoption of
SFAS 130 had no effect on the Company's consolidated financial statements.
In 1998, the Company adopted the provisions of SFAS 125 which were deferred
by SFAS No. 127, Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125. The deferred provisions provide accounting and reporting
standards related to repurchase agreements, dollar rolls, securities lending
and similar transactions. Adoption of the provisions had the effect of
increasing assets and liabilities by $3,769 at December 31, 1998 and
increasing revenues and expenses by $266 for the year ended December 31, 1998.
2. INVESTMENTS
The components of net investment income were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities........................... $ 6,563 $ 6,445 $ 6,042
Equity securities.......................... 78 50 60
Mortgage loans on real estate.............. 1,572 1,684 1,523
Real estate and real estate joint ventures. 1,529 1,718 1,668
Policy loans............................... 387 368 399
Other limited partnership interests........ 196 302 215
Cash, cash equivalents and short-term
investments 187 169 214
Other...................................... 841 368 401
-------- ------- --------
11,353 11,104 10,522
Less: Investment expenses.................. 1,125 1,613 1,544
-------- ------- --------
$10,228 $ 9,491 $ 8,978
======== ======= ========
Net realized investment gains, including changes in valuation allowances,
were as follows:
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities........................... $ 573 $ 118 $ 234
Equity securities.......................... 994 224 101
Mortgage loans on real estate.............. 23 56 (86)
Real estate and real estate joint ventures. 424 446 371
Other limited partnership interests........ 13 12 (129)
Sale of subsidiaries....................... 531 139 --
Other...................................... 71 23 (33)
-------- ------- --------
2,629 1,018 458
Amounts allocable to:
Future policy benefit loss recognition... (300) (126) (203)
Deferred policy acquisition costs........ (240) (70) (4)
Participating pension contracts.......... (68) (35) (20)
-------- ------- --------
$ 2,021 $ 787 $ 231
======== ======= ========
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The components of net unrealized investment gains, included in accumulated
other comprehensive income, were as follows:
<TABLE>
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities............................. $ 4,809 $ 4,766 $ 2,226
Equity securities............................ 832 1,605 563
Other invested assets........................ 125 294 474
------- ------- -------
5,766 6,665 3,263
------- ------- -------
Amounts allocable to:
Future policy benefit loss recognition..... (2,248) (2,189) (1,219)
Deferred policy acquisition costs.......... (902) (1,147) (420)
Participating pension contracts............ (212) (312) (9)
Deferred income taxes........................ (864) (1,119) (587)
------- ------- -------
(4,226) (4,767) (2,235)
------- ------- -------
$ 1,540 $ 1,898 $ 1,028
======= ======= =======
The changes in net unrealized investment gains were as follows:
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance at January 1......................... $ 1,898 $ 1,028 $ 1,646
Unrealized investment gains (losses) during
the year.................................... (899) 3,402 (2,493)
Unrealized investment (gains) losses relating
to:
Future policy benefit loss recognition..... (59) (970) 845
Deferred policy acquisition costs.......... 245 (727) 328
Participating pension contracts............ 100 (303) 341
Deferred income taxes........................ 255 (532) 361
------- ------- -------
Balance at December 31....................... $ 1,540 $ 1,898 $ 1,028
======= ======= =======
Net change in unrealized investment gains.... $ (358) $ 870 $ (618)
======= ======= =======
</TABLE>
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fixed Maturities and Equity Securities
Fixed maturities and equity securities at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Gross
Cost or Unrealized Estimated
Amortized ------------ Fair
Cost Gain Loss Value
--------- ------- ---- ---------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies................................. $ 6,640 $ 1,117 $ 10 $ 7,747
States and political subdivisions......... 597 26 -- 623
Foreign governments....................... 3,435 254 88 3,601
Corporate................................. 46,377 2,471 260 48,588
Mortgage and asset-backed securities 26,456 569 46 26,979
Other..................................... 12,438 1,069 293 13,214
------- ------- ---- --------
95,943 5,506 697 100,752
Redeemable preferred stocks............... 15 -- -- 15
------- ------- ---- --------
$95,958 $ 5,506 $697 $100,767
======= ======= ==== ========
Equity Securities:
Common stocks............................. $ 1,286 $ 923 $ 77 $ 2,132
Nonredeemable preferred stocks............ 222 4 18 208
------- ------- ---- --------
$ 1,508 $ 927 $ 95 $ 2,340
======= ======= ==== ========
Fixed maturities and equity securities at December 31, 1997 were as follows:
<CAPTION>
Gross
Cost or Unrealized Estimated
Amortized ------------ Fair
Cost Gain Loss Value
--------- ------- ---- ---------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U.S. Treasury securities and obligations
of U. S. government
corporations and agencies................ $ 8,708 $ 1,010 $ 2 $ 9,716
States and political subdivisions......... 486 22 -- 508
Foreign governments....................... 3,420 371 52 3,739
Corporate................................. 41,012 2,337 291 43,058
Mortgage and asset-backed securities...... 22,370 579 21 22,928
Other..................................... 11,374 929 134 12,169
------- ------- ---- --------
87,370 5,248 500 92,118
Redeemable preferred stocks............... 494 19 1 512
------- ------- ---- --------
$87,864 $ 5,267 $501 $ 92,630
======= ======= ==== ========
Equity Securities:
Common stocks............................. $ 2,444 $ 1,716 $105 $ 4,055
Nonredeemable preferred stocks............ 201 5 11 195
------- ------- ---- --------
$ 2,645 $ 1,721 $116 $ 4,250
======= ======= ==== ========
</TABLE>
The Company held foreign currency derivatives with notional amounts of $716
and $408 to hedge the exchange rate risk associated with foreign bonds at
December 31, 1998 and 1997, respectively. The Company also held options with
fair values of $(11) and $33 to hedge the market value of common stocks at
December 31, 1998 and 1997, respectively.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
At December 31, 1998, fixed maturities held by the Company that were below
investment grade or not rated by an independent rating agency totaled $8,289.
At December 31, 1998, non-income producing fixed maturities were
insignificant.
The amortized cost and estimated fair value of bonds at December 31, 1998,
by contractual maturity date, are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less............................... $ 2,380 $ 2,462
Due after one year through five years................. 17,062 17,527
Due after five years through 10 years................. 23,769 24,714
Due after 10 years.................................... 26,276 29,070
-------- --------
69,487 73,773
Mortgage and asset-backed securities.................. 26,456 26,979
-------- --------
$ 95,943 $100,752
======== ========
</TABLE>
Fixed maturities not due at a single maturity date have been included in the
above table in the year of final maturity. Actual maturities may differ from
contractual maturities due to the exercise of prepayment options.
Sales of fixed maturities and equity securities were as follows:
<TABLE>
<CAPTION>
Years ended December
31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities classified as available-for-
sale:
Proceeds..................................... $43,828 $67,454 $67,239
Gross realized gains......................... $ 928 $ 672 $ 1,067
Gross realized losses........................ $ 355 $ 558 $ 842
Fixed maturities classified as held-to-
maturity:
Proceeds..................................... $ -- $ 352 $ 1,281
Gross realized gains......................... $ -- $ 5 $ 10
Gross realized losses........................ $ -- $ 1 $ 1
Equity securities:
Proceeds..................................... $ 3,085 $ 1,821 $ 2,069
Gross realized gains......................... $ 1,125 $ 293 $ 150
Gross realized losses........................ $ 131 $ 69 $ 49
</TABLE>
During 1997, fixed maturities with an amortized cost of $11,682 were
transferred from held-to-maturity to available-for-sale. Other comprehensive
income at the date of reclassification was increased by $198 excluding the
effects of deferred income taxes and policyholder related amounts.
Excluding investments in U.S. governments and agencies, the Company is not
exposed to any significant concentration of credit risk in its fixed
maturities portfolio.
Securities Lending Program
The Company participates in securities lending programs whereby large blocks
of securities are loaned to third parties, primarily major brokerage firms.
The Company requires a minimum of 102% of the fair value of the loaned
securities to be separately maintained as collateral for the loans. Securities
with a cost or amortized cost of $4,005 and $6,068 and estimated fair value of
$4,552 and $6,653 were on loan under the program at December 31, 1998 and
1997, respectively. The Company is liable for cash collateral of $3,769 at
December 31, 1998. This liability is included in other liabilities. Rebates of
$266 were paid and accrued on the cash collateral for the year ended
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998. The rebates paid and accrued during 1998 are included in
other operating costs and expenses. Security collateral is returnable on short
notice and is not reflected in the consolidated financial statements.
Statutory Deposits
The Company had investment assets on deposit with regulatory agencies of
$466 and $4,695 as of December 31, 1998 and 1997, respectively.
Mortgage Loans on Real Estate
Mortgage loans were categorized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
---------------- ----------------
Amount Percent Amount Percent
------- ------- ------- -------
<S> <C> <C> <C> <C>
Commercial mortgage loans.................... $12,503 74% $14,945 73%
Agriculture mortgage loans................... 4,256 25% 3,753 18%
Residential mortgage loans................... 241 1% 272 1%
Other loans.................................. -- -- 1,512 8%
------- ------ ------- -----
17,000 100% 20,482 100%
====== =====
Less: Valuation allowances................... 173 289
------- -------
$16,827 $20,193
======= =======
Mortgage loans on real estate are collateralized by properties primarily
located throughout the United States. At December 31, 1998, approximately 15%,
9% and 7% of the properties were located in California, New York 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.
Certain of the Company's real estate joint ventures have mortgage loans with
the Company. The carrying values of such mortgages were $606 and $725 at
December 31, 1998 and 1997, respectively.
Changes in mortgage loan valuation allowances were as follows:
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C> <C>
Balance at January 1......................... $ 289 $ 469 $ 491
Additions.................................... 40 61 144
Deductions for writedowns and dispositions... (130) (241) (166)
Deductions for disposition of affiliates..... (26) -- --
------- ------ -------
Balance at December 31....................... $ 173 $ 289 $ 469
======= ====== =======
A portion of the Company's mortgage loans on real estate was impaired and
consisted of the following:
<CAPTION>
December 31,
----------------
1998 1997
------- -------
<S> <C> <C> <C> <C>
Impaired mortgage loans with valuation
allowances.................................. $ 823 $1,231
Impaired mortgage loans without valuation
allowances.................................. 375 306
------- ------
1,198 1,537
Less: Valuation allowances................... 149 250
------- ------
$ 1,049 $1,287
======= ======
</TABLE>
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The average recorded investment in impaired mortgage loans on real estate
was $1,282, $1,680 and $2,113 for the years ended December 31, 1998, 1997 and
1996, respectively. Interest income on impaired mortgages was $109, $110 and
$119 for the years ended December 31, 1998, 1997 and 1996, respectively.
Restructured mortgage loans on real estate were $1,036 and $1,207 at
December 31, 1998 and 1997, respectively. Interest income of $74, $91 and $135
was recognized on restructured loans for the years ended December 31, 1998,
1997 and 1996, respectively. Gross interest income that would have been
recorded in accordance with the original terms of such loans amounted to $87,
$116 and $198 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Mortgage loans on real estate with scheduled payments 60 days (90 days for
agriculture mortgages) or more past due or in foreclosure had an amortized
cost of $65 and $255 as of December 31, 1998 and 1997, respectively.
Real Estate and Real Estate Joint Ventures
Real estate and real estate joint ventures consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- ------
<S> <C> <C>
Real estate and real estate joint ventures held-for-
investment............................................ $ 6,301 $6,731
Impairments............................................ (408) (407)
------- ------
5,893 6,324
------- ------
Real estate and real estate joint ventures held-for-
sale.................................................. 546 915
Impairments............................................ (119) (49)
Valuation allowance.................................... (33) (110)
------- ------
394 756
------- ------
$ 6,287 $7,080
======= ======
</TABLE>
Accumulated depreciation on real estate was $2,065 and $2,030 at December
31, 1998 and 1997, respectively. Related depreciation expense was $282, $338
and $348 for the years ended December 31, 1998, 1997 and 1996, respectively.
Real estate and real estate joint ventures were categorized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
--------------- --------------
Amount Percent Amount Percent
------- ------- ------ -------
<S> <C> <C> <C> <C>
Office..................................... $ 4,265 68% $4,730 67%
Retail..................................... 640 10% 804 11%
Apartments................................. 418 7% 406 6%
Land....................................... 313 5% 346 5%
Agriculture................................ 195 3% 214 3%
Other...................................... 456 7% 580 8%
------- --- ------ ---
$ 6,287 100% $7,080 100%
======= === ====== ===
</TABLE>
The Company's real estate holdings are primarily located throughout the
United States. At December 31, 1998, approximately 23%, 23% and 12% of the
Company's real estate holdings were located in New York, California and Texas,
respectively.
Changes in real estate and real estate joint ventures held-for-sale
valuation allowance were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1.... $ 110 $ 661 $ 924
Additions charged
(credited) to
operations............. (5) (76) 127
Deductions for
writedowns and
dispositions........... (72) (475) (390)
-------- -------- --------
Balance at December 31.. $ 33 $ 110 $ 661
======== ======== ========
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Investment income (expense) relating to impaired real estate and real estate
joint ventures held-for-investment was $105, $28 and $(10) for the years ended
December 31, 1998, 1997 and 1996, respectively. Investment income relating to
real estate and real estate joint ventures held-for-sale was $3, $11 and $70
for the years ended December 31, 1998, 1997 and 1996, respectively. The
carrying value of non-income producing real estate and real estate joint
ventures was insignificant at December 31, 1998 and 1997, respectively.
The Company owned real estate acquired in satisfaction of debt of $154 and
$218 at December 31, 1998 and 1997, respectively.
Direct Financing and Leveraged Leases
Direct financing and leveraged leases, included in other invested assets,
consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
Direct Financing Leveraged
Leases Leases Total
----------------- -------------- --------------
1998 1997 1998 1997 1998 1997
----------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Investment................... $ -- $ 1,137 $1,067 $ 851 $1,067 $1,988
Estimated residual values.... -- 183 607 641 607 824
------- --------- ------ ------ ------ ------
-- 1,320 1,674 1,492 1,674 2,812
Unearned income.............. -- (261) (471) (428) (471) (689)
------- --------- ------ ------ ------ ------
Net investment............... $ -- $ 1,059 $1,203 $1,064 $1,203 $2,123
======= ========= ====== ====== ====== ======
</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% to 12%. These receivables are generally collateralized by the related
property.
3. DERIVATIVE INSTRUMENTS
The table below provides a summary of the carrying value, notional amount
and current market or fair value of derivative financial instruments (other
than equity options) held at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------------------- -------------------------------------
Current Market or Current Market or
Fair Value Fair Value
------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carrying Notional Carrying Notional
Value Amount Assets Liabilities Value Amount Assets Liabilities
-------- -------- ------ ----------- -------- -------- ------ -----------
Financial futures....... $ 3 $ 2,190 $ 8 $ 6 $ 10 $ 2,262 $ 17 $ 7
Foreign exchange
contracts.............. -- 136 -- 2 -- 150 2 --
Interest rate swaps..... (9) 1,621 17 50 (11) 1,464 9 28
Foreign currency swaps.. (1) 580 3 62 -- 258 3 30
Caps.................... -- 8,391 -- -- -- 1,545 13 --
Options (fixed income).. -- -- -- -- 2 275 -- 2
-------- -------- ------ ----------- -------- -------- ------ -----------
Total contractual
commitments............ $ (7) $ 12,918 $ 28 $ 120 $ 1 $ 5,954 $ 44 $ 67
======== ======== ====== =========== ======== ======== ====== ===========
</TABLE>
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following is a reconciliation of the notional amounts by derivative type
and strategy as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
December 31, 1997 Terminations/ December 31, 1998
Notional Amount Additions Maturities Notional Amount
----------------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
BY DERIVATIVE TYPE
Financial futures....... $2,262 $25,073 $(25,145) $ 2,190
Foreign exchange
contracts.............. 150 1,231 (1,245) 136
Interest rate swaps..... 1,464 788 (631) 1,621
Foreign currency swaps.. 258 386 (64) 580
Caps.................... 1,545 8,250 (1,404) 8,391
Options (fixed income).. 275 -- (275) --
------ ------- -------- -------
Total contractual
commitments............ $5,954 $35,728 $(28,764) $12,918
====== ======= ======== =======
BY STRATEGY
Liability hedging....... $1,860 $ 8,419 $ (1,538) $ 8,741
Invested asset hedging.. 817 1,666 (1,619) 864
Portfolio hedging....... 2,787 25,643 (25,600) 2,830
Anticipated transaction
hedging................ 490 -- (7) 483
------ ------- -------- -------
Total contractual
commitments............ $5,954 $35,728 $(28,764) $12,918
====== ======= ======== =======
</TABLE>
The following table presents the notional amounts of derivative financial
instruments by maturity at December 31, 1998:
<TABLE>
<CAPTION>
Remaining Life
---------------------------------------
<S> <C> <C> <C> <C> <C>
After Five
After One Years After
One Year Year Through Through Ten Ten
or Less Five Years Years Years Total
-------- ------------ ----------- ----- -------
Financial futures.............. $2,190 $ -- $ -- $ -- $ 2,190
Foreign exchange contracts..... 136 -- -- -- 136
Interest rate swaps............ 470 774 162 215 1,621
Foreign currency swaps......... 39 182 343 16 580
Caps........................... 1,875 6,496 20 -- 8,391
-------- ------------ ----------- ----- -------
Total contractual commitments.. $4,710 $ 7,452 $ 525 $ 231 $12,918
======== ============ =========== ===== =======
</TABLE>
In addition to the derivative instruments above, the Company uses equity
option contracts as invested asset hedges. There were 92 thousand and 7
million equity option contracts outstanding with carrying values of $(11) and
$27 and market values of $(11) and $33, as of December 31, 1998 and 1997,
respectively. The outstanding contracts have a remaining life of one year or
less as of December 31, 1998.
4. REINSURANCE
The Company assumes and cedes insurance with other insurance companies. The
Company continually evaluates the financial condition of its reinsurers and
monitors concentration of credit risk in an effort to minimize its exposure to
significant losses from reinsurer insolvencies. The Company is contingently
liable with respect to ceded reinsurance should any reinsurer be unable to
meet its obligations under these agreements. The amounts in the consolidated
statements of income are presented net of reinsurance ceded.
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 diversify its risk
portfolio.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Direct premiums............................... $12,763 $12,728 $12,452
Reinsurance assumed........................... 409 360 508
Reinsurance ceded............................. (1,669) (1,810) (1,615)
------- ------- -------
Net premiums.................................. $11,503 $11,278 $11,345
======= ======= =======
Reinsurance recoveries netted against
policyholder benefits........................ $ 1,751 $ 1,648 $ 1,667
======= ======= =======
</TABLE>
Reinsurance recoverables, included in other receivables, were $2,956 and
$1,511 at December 31, 1998 and 1997, respectively. Reinsurance and ceded
commissions payables, included in other liabilities, were $105 and $158 at
December 31, 1998 and 1997, respectively.
The following provides an analysis of the activity in the liability for
benefits relating to property and casualty and group accident and non-medical
health policies and contracts:
<TABLE>
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance at January 1........................... $ 3,655 $ 3,345 $ 3,296
Reinsurance recoverables..................... (229) (215) (214)
------- ------- -------
Net balance at January 1....................... 3,426 3,130 3,082
------- ------- -------
Incurred related to:
Current year................................. 2,726 2,855 2,951
Prior years.................................. (245) 88 (114)
------- ------- -------
2,481 2,943 2,837
------- ------- -------
Paid related to:
Current year................................. (1,967) (1,832) (1,998)
Prior years.................................. (853) (815) (791)
------- ------- -------
(2,820) (2,647) (2,789)
------- ------- -------
Balance at December 31......................... 3,087 3,426 3,130
Add: Reinsurance recoverables................ 233 229 215
------- ------- -------
Balance at December 31......................... $ 3,320 $ 3,655 $ 3,345
======= ======= =======
</TABLE>
5. INCOME TAXES
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
------------------
1998 1997 1996
------ ---- ----
<S> <C> <C> <C>
Current:
Federal............................................. $ 821 $424 $346
State and local..................................... 60 10 25
Foreign............................................. 99 26 27
------ ---- ----
980 460 398
------ ---- ----
Deferred:
Federal............................................. (178) (26) 66
State and local..................................... (8) 9 6
Foreign............................................. (54) 25 12
------ ---- ----
(240) 8 84
------ ---- ----
Provision for income taxes............................ $ 740 $468 $482
====== ==== ====
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Reconciliations of the income tax provision at the U.S. statutory rate to
the provision for income taxes as reported were as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
--------------------
1998 1997 1996
------ ------ ----
<S> <C> <C> <C>
Tax provision at U.S. statutory rate................ $ 730 $ 585 $492
Tax effect of:
Tax exempt investment income...................... (40) (30) (18)
Goodwill.......................................... 5 9 --
Surplus tax....................................... 18 (40) 38
State and local income taxes...................... 31 15 23
Foreign operations................................ 12 7 (7)
Tax credits....................................... (25) (15) (15)
Prior year taxes.................................. 4 (2) (46)
Sale of subsidiaries.............................. (19) (41) --
Other, net........................................ 24 (20) 15
------ ------ ----
Provision for income taxes.......................... $ 740 $ 468 $482
====== ====== ====
Deferred income taxes represent the tax effect of the differences between
the book and tax basis of assets and liabilities. Net deferred income tax
liabilities consisted of the following:
<CAPTION>
December 31,
--------------
1998 1997
------ ------
<S> <C> <C> <C>
Deferred income tax assets:
Policyholder liabilities and receivables.......... $3,239 $3,174
Net operating losses.............................. 22 33
Employee benefits................................. 174 187
Non-deductible liabilities........................ 441 162
Other, net........................................ 158 223
------ ------
4,034 3,779
Less: Valuation allowance......................... 21 24
------ ------
4,013 3,755
------ ------
Deferred income tax liabilities:
Investments....................................... 1,417 1,118
Deferred policy acquisition costs................. 1,774 1,890
Net unrealized investment gains................... 864 1,119
Other, net........................................ 18 100
------ ------
4,073 4,227
------ ------
Net deferred income tax liability................... $ (60) $ (472)
====== ======
</TABLE>
Foreign net operating loss carryforwards generated a deferred income tax
benefit of $21. The Company has recorded a valuation allowance related to
these tax benefits. The valuation allowance reflects management's assessment,
based on available information, that it is more likely than not that the
deferred income tax asset for foreign net operating loss carryforwards will
not be realized. The benefit will be recognized at such time management
believes that it is more likely than not that the portion of the deferred
income tax asset is realizable.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The sources of deferred income tax expense (benefit) and their tax effects
were as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Policyholder liabilities and receivables............... $ (65) $(93) $ 27
Net operating losses................................... 11 5 (19)
Investments............................................ 230 245 (6)
Deferred policy acquisition costs...................... (116) (51) 55
Employee benefits...................................... 13 (40) (4)
Non-deductible liabilities............................. (279) (66) (24)
Change in valuation allowances......................... (3) 10 4
Other, net............................................. (31) (2) 51
----- ---- ----
$(240) $ 8 $ 84
===== ==== ====
</TABLE>
The Company has been audited by the Internal Revenue Service for the years
through and including 1993. The Company is being audited for the years 1994,
1995 and 1996. The Company believes that any adjustments that might be
required for open years will not have a material effect on the Company's
consolidated financial statements.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. EMPLOYEE BENEFIT PLANS
Pension Benefit and Other Benefit 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 upon years of
credited service and final average earnings history.
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.
<TABLE>
<CAPTION>
December 31,
------------------------------------
Pension Benefits Other Benefits
------------------ ----------------
1998 1997 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning
of year................................. $ 3,523 $ 3,268 $ 1,763 $ 1,773
Service cost............................. 88 73 31 30
Interest cost............................ 254 244 114 122
Actuarial gain........................... 205 160 (74) (57)
Divestitures, curtailments and
terminations............................ 24 (9) (13) 2
Change in benefits....................... 12 6 -- (2)
Benefits paid............................ (245) (219) (113) (105)
-------- -------- ------- -------
Projected benefit obligation at end of
year.................................... 3,861 3,523 1,708 1,763
-------- -------- ------- -------
Change in plan assets:
Contract value of plan assets at
beginning of year....................... 3,982 3,628 1,004 897
Actual return on plan assets............. 671 566 171 128
Employer contribution.................... 15 7 61 84
Benefits paid............................ (245) (219) (113) (105)
Other payments........................... (100) -- -- --
-------- -------- ------- -------
Contract value of plan assets at end of
year.................................... 4,323 3,982 1,123 1,004
-------- -------- ------- -------
Over (under) funded...................... 462 459 (585) (759)
Unrecognized net asset at transition..... (95) (140) -- --
Unrecognized net actuarial gains......... (81) (109) (322) (171)
Unrecognized prior service cost.......... 144 150 (3) (2)
-------- -------- ------- -------
Prepaid (accrued) benefit cost........... $ 430 $ 360 $ (910) $ (932)
======== ======== ======= =======
Qualified plan prepaid pension cost...... $ 546 $ 516 $ -- $ --
Non-qualified plan accrued pension cost.. (116) (156) -- --
-------- -------- ------- -------
Prepaid benefit cost..................... $ 430 $ 360 $ -- $ --
======== ======== ======= =======
</TABLE>
The aggregate projected benefit obligation and aggregate contract value of
plan assets for the pension plans were as follows:
<TABLE>
<CAPTION>
Qualified Plan Non-Qualified Plan Total
--------------- ------------------ -------------
1998 1997 1998 1997 1998 1997
------- ------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Aggregate projected benefit
obligation................ $ 3,638 $ 3,170 $ 223 $ 353 $3,861 $3,523
Aggregate contract value of
plan assets (principally
Company contracts)........ 4,323 3,831 -- 151 4,323 3,982
------- ------- --------- --------- ------ ------
Over (under) funded........ $ 685 $ 661 $ (223) $ (202) $ 462 $ 459
======= ======= ========= ========= ====== ======
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The assumptions used in determining the aggregate projected benefit
obligation and aggregate contract value for the pension and other benefits
were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------- --------------------
Weighted average assumptions as of
December 31, 1998 1997 1998 1997
- ---------------------------------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Discount rate...................... 7%-7.25% 7.25%-7.75% 7% 7.25%-7.75%
Expected return on plan assets..... 8.5% 8.75% 7.25%-9% 8.75%
Rate of compensation increase...... 4.5%-8.5% 4.5%-8.5% n/a n/a
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was 6.5% per year for pre-
Medicare eligible claims and 6% for Medicare eligible claims in 1998. The
assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 9% in 1997,
gradually decreasing to 5.25% over 5 years.
Assumed health care cost trend rates may have a significant effect on the
amounts reported for health care plans. A one-percentage point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
One One
Percent Percent
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of service and interest cost
components........................................... $ 16 $ 18
Effect on accumulated postretirement benefit
obligation........................................... $124 $183
</TABLE>
The components of periodic benefit costs were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------- ----------------
1998 1997 1996 1998 1997 1996
----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost............................ $ 88 $ 73 $ 77 $ 31 $ 30 $ 41
Interest cost........................... 254 244 232 114 122 127
Expected return on plan assets.......... (330) (318) (273) (79) (66) (58)
Amortization of prior actuarial (gain)
loss................................... (11) (5) (12) (12) (4) 2
Curtailment (credit) cost............... (10) -- -- 4 -- --
----- ----- ----- ---- ---- ----
Net periodic benefit cost (credit)...... $ (9) $ (6) $ 24 $ 58 $ 82 $112
===== ===== ===== ==== ==== ====
</TABLE>
Savings and Investment Plans
The Company sponsors savings and investment plans for substantially all
employees under which the Company matches a portion of employee contributions.
The Company contributed $43, $44 and $42 for the years ended December 31,
1998, 1997 and 1996, respectively.
7. LEASES
In accordance with industry practice, certain of the Company's income from
lease agreements with retail tenants is contingent upon 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 and subrental income, and minimum
gross rental payments relating to these lease agreements were as follows:
<TABLE>
<CAPTION>
Gross
Rental Sublease Rental
Income Income Payments
------ -------- --------
<S> <C> <C> <C>
1999...................................... $1,213 $10 $126
2000...................................... 1,150 11 109
2001...................................... 1,052 11 94
2002...................................... 942 10 72
2003...................................... 787 9 51
Thereafter................................ 2,636 35 242
</TABLE>
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------- ------
<S> <C> <C>
MetLife:
6.300% surplus notes due 2003.................................. $ 397 $ 397
7.000% surplus notes due 2005.................................. 249 249
7.700% surplus notes due 2015.................................. 198 198
7.450% surplus notes due 2023.................................. 296 296
7.875% surplus notes due 2024.................................. 148 148
7.800% surplus notes due 2025.................................. 248 248
Other.......................................................... 207 436
------- ------
1,743 1,972
------- ------
Investment Related:
Exchangeable subordinated debt, interest based on LIBOR plus
factors, due 1999........................................... 212 374
Exchangeable subordinated debt, interest rates ranging from
4.90% to 6.18%, due 2001
and 2002.................................................... 371 --
------- ------
583 374
------- ------
Total MetLife.................................................... 2,326 2,346
------- ------
Nvest:
7.060% senior notes due 2003................................... 110 110
7.290% senior notes due 2007................................... 160 160
------- ------
270 270
------- ------
Other Companies:
Fixed rate notes, interest rates ranging from 6.96% to 8.51%,
maturity dates ranging from 1999 to 2008 179 --
Floating rate notes, interest based on LIBOR plus factors...... -- 146
Other.......................................................... 128 122
------- ------
307 268
------- ------
Total long-term debt............................................. 2,903 2,884
Total short-term debt............................................ 3,585 4,587
------- ------
$ 6,488 $7,471
======= ======
</TABLE>
Short-term debt consisted of commercial paper with a weighted average
interest rate of 5.31% and 5.75% and a weighted average maturity of 44 and 71
days as of December 31, 1998 and 1997, respectively.
The Company maintains an unsecured credit facility of $2,000 under which
bank loans and other short-term debt are drawn. This facility is maintained
for general corporate purposes and to provide additional support to the
Company's commercial paper program. At December 31, 1998 there were no
outstanding borrowings under the facility.
Payments of interest and principal on the surplus notes, subordinated to all
other indebtedness, may be made only with the prior approval of the
Superintendent. Subject to the prior approval of the Superintendent, the 7.45%
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.
The exchangeable subordinated debt is payable in cash or by the delivery of
the underlying common stock collateral owned by the Company. The value
ascribed to the common stock at the date of delivery is the greater of the
market value at the date of the debt issuance or date of delivery. The debt
provides for additional interest if the market value of the common stock
appreciates above certain levels at the date of delivery as compared with the
market value at the date of issuance.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The aggregate maturities of long-term debt are $413 in 1999, $45 in 2000,
$191 in 2001, $221 in 2002, $527 in 2003 and $1,518 thereafter.
Interest expense related to the Company's outstanding indebtedness was $333,
$344 and $311, for the years ended December 31, 1998, 1997 and 1996,
respectively.
9. COMMITMENTS AND CONTINGENCIES
Litigation
The Company and certain of its subsidiaries are currently defendants in
approximately 400 lawsuits, including over 40 putative or certified class
action lawsuits, raising allegations of improper marketing and sales of
individual life insurance or annuities (hereafter "sales practices claims").
Two of these putative class actions are filed in Canada and the remainder are
filed in the United States. These cases are brought by or on behalf of
policyholders and others and allege, among other claims, that individual life
insurance policies were improperly sold in replacement transactions or with
inadequate or inaccurate disclosure concerning the period for which premiums
would be payable, or were misleadingly sold as savings or retirement plans.
The classes proposed in the pending class actions are defined broadly enough,
in the aggregate, to include a substantial number of active and lapsed
policyholders who purchased individual life insurance policies from the
Company during the 1980's and 1990's. In California, Ohio and West Virginia,
courts have certified or deemed certifiable classes on behalf of policyholders
in those states who allegedly did not receive proper notice of replacement. A
Federal Court in Massachusetts has certified a mandatory class involving
certain former policyholders of New England Mutual Life Insurance Company
which merged into the Company in 1996. The United States Court of Appeals
remanded the case to the trial court for further consideration. A number of
the sales practices claims pending in federal courts have been consolidated as
a multidistrict proceeding for pre-trial purposes in the United States
District Court for the Western District of Pennsylvania and, as to former New
England Mutual Life Insurance Company policyholders, in the United States
District Court in Massachusetts. In another case, a New York federal court has
certified or conditionally certified some subclasses of purchasers of the
Company's policies and annuity contracts outside the United States. While most
of these cases are in the early stages of litigation, they seek substantial
damages, including in some cases punitive and treble damages and attorneys'
fees. Additional litigation relating to the Company's marketing and sale of
individual life insurance may be commenced in the future.
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 or annuities, including
investigations of alleged improper replacement transactions and alleged
improper sales of insurance with inaccurate or inadequate disclosures as to
the period for which premiums would be payable. Over the past several years, a
number of investigations by other regulatory authorities have been resolved by
the Company for monetary payments and certain other relief.
The Company is also a defendant in numerous lawsuits seeking compensatory
and punitive damages for personal injuries allegedly caused by exposure to
asbestos or asbestos-containing products. The Company has never engaged in the
business of manufacturing, producing, distributing or selling asbestos or
asbestos-containing products. Rather, these lawsuits, currently numbering in
the thousands, have principally been based upon allegations relating to
certain research, publication and other activities of one or more of the
Company's employees during the period from the 1920's through approximately
the 1950's and alleging that the Company learned or should have learned of
certain health risks posed by asbestos and, among other things, improperly
publicized or failed to disclose those health risks. Legal theories asserted
against the Company have included negligence, intentional tort claims and
conspiracy claims concerning the health risks associated with asbestos. While
the Company believes it has meritorious defenses to these claims, and has not
suffered any adverse judgments in respect thereof, most of the cases have been
resolved by settlements. The Company intends to continue to exercise its best
judgment regarding settlement or defense of such cases. The number of such
cases that may be brought or the aggregate amount of any liability that may
ultimately be incurred by the Company is uncertain. Significant portions of
amounts paid in settlement of such cases have been funded with proceeds from a
previously resolved dispute with its primary, umbrella and first level excess
liability insurance carriers. The Company is presently in litigation with
several of its excess liability insurers regarding amounts payable under the
Company's policies with respect to coverage for these claims.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company believes that the claims and the amount of damages asserted in
the aforementioned sales practices and asbestos personal injury litigations
are without merit, and it intends to continue to defend its interests
vigorously.
During 1998, the Company obtained certain excess reinsurance and insurance
policies providing coverage for risks associated primarily with sales
practices claims and claims for personal injuries caused by exposure to
asbestos or asbestos-containing products. In 1998, the Company recorded a
charge of $1,715, included in other expenses, for related insurance and
reinsurance premiums and for potential liabilities related to certain of these
claims.
Various litigation, claims and assessments against the Company, in addition
to the aforementioned and those otherwise provided for in the Company's
consolidated 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 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, it is the opinion of the Company's
management that their outcomes, after consideration of available insurance and
reinsurance and the provisions made in the Company's consolidated financial
statements, are not likely to have a material adverse effect on the Company's
financial position. However, given the large and/or indeterminable amounts
sought in certain of these matters and the inherent unpredictability of
litigation, it is possible that an adverse outcome in certain matters could,
from time to time, have a material adverse effect on the Company's operating
results in particular quarterly or annual periods.
Year 2000
The Year 2000 issue is the result of the widespread use of computer programs
written using two digits (rather than four) to define the applicable year.
Such programming was a common industry practice designed to avoid the
significant costs associated with additional mainframe capacity necessary to
accommodate a four-digit year field. As a result, any of the Company's
computer systems that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in major
system failures or miscalculations. The Company has conducted a comprehensive
review of its computer systems to identify the systems that could be affected
by the Year 2000 issue and has developed and implemented a plan to resolve the
issue. The Company currently believes that, with modifications to existing
software and converting to new software, the Year 2000 issue will not pose
significant operational problems for the Company's computer systems. However,
if such modifications and conversions are not completed on a timely basis, the
Year 2000 issue may have a material impact on the operations of the Company.
Furthermore, even if the Company completes such modifications and conversions
on a timely basis, there can be no assurance that the failure by vendors or
other third parties to solve the Year 2000 issue will not have a material
impact on the operations of the Company. The Company estimates the total cost
to resolve its Year 2000 problem to be approximately $210 (unaudited) of which
approximately $149 has been incurred through December 31, 1998.
Guaranty Funds
Under insurance guaranty fund laws in each state, the District of Columbia
and Puerto Rico, insurers licensed to do business can be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. Recent regulatory actions against
certain large life insurers encountering financial difficulty have prompted
various state insurance guaranty associations to begin assessing life
insurance companies for the deemed losses. Most of these laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's solvency and further provide annual limits on such assessments. A
large part of the assessments paid by the Company pursuant to these laws may
be used as credits for a portion of the Company's premium taxes. The Company
paid guaranty fund assessments of $35, $23 and $25 in 1998, 1997 and 1996,
respectively, of which $24, $20 and $19 were estimated to be credited against
future premium taxes.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. OTHER EXPENSES
Other expenses were comprised of the following:
<TABLE>
<CAPTION>
Years ended December
31,
------------------------
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Compensation.................................. $ 2,478 $2,072 $ 1,813
Commissions................................... 902 766 722
Interest and debt issue costs................. 379 453 311
Amortization of policy acquisition costs...... 587 771 633
Capitalization of policy acquisition costs.... (1,025) (1,000) (1,028)
Rent, net of sublease......................... 155 179 183
Minority interest............................. 67 56 30
Restructuring charge.......................... 81 -- --
Other......................................... 4,494 2,637 2,091
------- ------ -------
$ 8,118 $5,934 $ 4,755
======= ====== =======
</TABLE>
11. DISCONTINUED OPERATIONS
The 1996 loss from discontinued operations resulted from the finalization of
the transfer of certain group medical contracts in connection with the
Company's disposal of its group medical benefits business during 1995. The
components of discontinued operations for the year ended December 31, 1996
were as follows:
<TABLE>
<S> <C>
Loss from discontinued operations, net of
income tax benefit of $18........................................ $ 52
Loss on disposal of discontinued operations, net of
income tax benefit of $11........................................ 19
----
Loss from discontinued operations................................. $ 71
====
</TABLE>
12. CONSOLIDATED CASH FLOW INFORMATION
During 1998, the Company sold MetLife Capital Holdings, Inc. (a commercial
financing company) and substantially all of its Canadian and Mexican insurance
operations, which resulted in realized investment gains of $531. During 1997,
the Company sold its United Kingdom insurance operations, which resulted in a
realized investment gain of $139. Such sales caused a reduction in assets by
$10,663 and $4,342 and liabilities by $3,691 and $4,207 in 1998 and 1997,
respectively.
In 1997, the Company also 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.
Real estate of $69, $151 and $189 was acquired in satisfaction of debt for
the years ended December 31, 1998, 1997 and 1996, respectively.
13. FAIR VALUE INFORMATION
The estimated fair values of financial instruments have been determined by
using available market information and the valuation methodologies described
below. Considerable judgment is often required in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented herein
may not necessarily be indicative of amounts that could be realized in a
current market exchange. The use of different assumptions or valuation
methodologies may have a material effect on the estimated fair value amounts.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Amounts related to the Company's financial instruments were as follows:
<TABLE>
<CAPTION>
Estimated
Notional Carrying Fair
Amount Value Value
December 31, 1998 -------- -------- ---------
<S> <C> <C> <C>
Assets:
Fixed maturities.................................. $ $100,767 $100,767
Equity securities................................. 2,340 2,340
Mortgage loans on real estate..................... 16,827 17,793
Policy loans...................................... 5,600 6,143
Short-term investments............................ 1,369 1,369
Cash and cash equivalents......................... 3,301 3,301
Mortgage loan commitments......................... 472 -- 14
Liabilities:
Policyholder account balances..................... 37,088 37,304
Short-term debt................................... 3,585 3,585
Long-term debt.................................... 2,903 2,995
<CAPTION>
Estimated
Notional Carrying Fair
Amount Value Value
December 31, 1997 -------- -------- ---------
<S> <C> <C> <C>
Assets:
Fixed maturities.................................. $ $ 92,630 $ 92,630
Equity securities................................. 4,250 4,250
Mortgage loans on real estate..................... 20,193 21,084
Policy loans...................................... 5,846 6,110
Short-term investments............................ 679 679
Cash and cash equivalents......................... 2,911 2,911
Mortgage loan commitments......................... 334 -- 4
Liabilities:
Policyholder account balances..................... 37,034 37,265
Short-term debt................................... 4,587 4,587
Long-term debt.................................... 2,884 2,939
</TABLE>
The methods and assumptions used to estimate the fair values of financial
instruments are summarized as follows:
Fixed Maturities and Equity Securities
The fair value of fixed maturities and equity securities are based upon
quotations published by applicable stock exchanges or received from other
reliable sources. For securities in which the market values were not readily
available, fair values were estimated using quoted market prices of comparable
investments.
Mortgage Loans on Real Estate and Mortgage Loan Commitments
Fair values for mortgage loans on real estate and mortgage loan commitments
are estimated by discounting expected future cash flows using current interest
rates for similar loans with similar credit risk.
Policy Loans
Fair values for policy loans are estimated by discounting expected future
cash flows using U.S. treasury rates to approximate interest rates and the
Company's past experiences to project patterns of loan accrual and repayment
characteristics.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents and Short-term Investments
The carrying values for cash and cash equivalents and short-term investments
approximated fair market values due to the short-term maturities of these
instruments.
Policyholder Account Balances
The fair value of policyholder account balances are estimated by discounting
expected future cash flows, based upon interest rates currently being offered
for similar contracts with maturities consistent with those remaining for the
agreements being valued.
Short-term and Long-term Debt
The fair values of short-term and long-term debt are determined by
discounting expected future cash flows, using risk rates currently available
for debt with similar terms and remaining maturities.
Derivative Instruments
The fair value of derivative instruments, including financial futures,
financial forwards, interest rate and foreign currency swaps, floors, foreign
exchange contracts, caps and options are based upon quotations obtained from
dealers or other reliable sources. See Note 3 for derivative fair value
disclosures.
14. STATUTORY FINANCIAL INFORMATION
The reconciliation of MetLife's statutory surplus and net change in
statutory surplus, determined in accordance with accounting practices
prescribed or permitted by insurance regulatory authorities, with equity and
net income determined in conformity with generally accepted accounting
principles were as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
<S> <C> <C> <C>
Statutory surplus..................................... $ 7,388 $ 7,378
GAAP adjustments for:
Future policy benefits and policyholder account
balances........................................... (6,830) (6,807)
Deferred policy acquisition costs................... 6,560 6,438
Deferred income taxes............................... 295 (242)
Valuation of investments............................ 3,981 3,474
Statutory asset valuation reserves.................. 3,381 3,854
Statutory interest maintenance reserve.............. 1,486 1,261
Surplus notes....................................... (1,595) (1,555)
Other, net.......................................... 201 206
------- -------
Equity................................................ $14,867 $14,007
======= =======
<CAPTION>
Years ended December
31,
-----------------------
1998 1997 1996
------- ------- -----
<S> <C> <C> <C>
Net change in statutory surplus....................... $ 10 $ 227 $ 366
GAAP adjustments for:
Future policy benefits and policyholder account
balances........................................... 127 (38) (165)
Deferred policy acquisition costs................... 224 149 391
Deferred income taxes............................... 234 62 (74)
Valuation of investments............................ 1,158 (387) (84)
Statutory asset valuation reserves.................. (461) 1,136 599
Statutory interest maintenance reserve.............. 312 53 19
Other, net.......................................... (261) 1 (199)
------- ------- -----
Net income............................................ $ 1,343 $ 1,203 $ 853
======= ======= =====
</TABLE>
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
15. SEPARATE ACCOUNTS
Separate accounts reflect two categories of risk assumption: non-guaranteed
separate accounts totaling $39,490 and $32,893 at December 31, 1998 and 1997,
respectively, in which the policyholder assumes the investment risk, and
guaranteed separate accounts totaling $18,578 and $15,445 at December 31, 1998
and 1997, respectively, in which MetLife contractually guarantees either a
minimum return or account value to the policyholder.
Fees charged to the separate accounts by the Company (including mortality
charges, policy administration fees and surrender charges) are reflected in
the Company's revenues as universal life and investment-type product policy
fees and totaled $413, $287 and $216 in 1998, 1997 and 1996, respectively.
Guaranteed separate accounts consisted primarily of Met Managed Guaranteed
Interest Contracts and participating close out contracts. The average interest
rate credited on these contracts was 7% at December 31, 1998. The assets that
support these liabilities were comprised of $16,639 in fixed maturities as of
December 31, 1998. The portfolios are segregated from other investments and
are managed to minimize liquidity and interest rate risk. In order to minimize
the risk of disintermediation associated with early withdrawals, these
investment products carry a graded surrender charge as well as a market value
adjustment.
16. OTHER COMPREHENSIVE INCOME
The following tables set forth the reclassification adjustments required for
the years ended December 31, 1998, 1997 and 1996 to avoid double-counting in
comprehensive income items that are included as part of net income for the
current year that have been reported as a part of other comprehensive income
in the current or prior year:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Holding gains (losses) on investments arising during
the year........................................... $ 1,556 $ 4,479 $(1,494)
Income tax effect of holding gains or losses........ (646) (1,698) 550
Transfer of securities from held-to-maturity to
available-for-sale:
Holding gains on investments...................... -- 198 --
Income tax effect................................. -- (75) --
Reclassification adjustments:
Realized holding gains included in current year
net income....................................... (2,043) (868) (367)
Amortization of premium and discount on
investments...................................... (411) (406) (631)
Realized holding gains (losses) allocated to other
policyholder amounts............................. 608 231 227
Income tax effect................................. 766 394 285
Allocation of holding (gains) losses on investments
relating to other
policyholder amounts............................... (322) (2,231) 1,286
Income tax effect of allocation of holding gains and
losses to other
policyholder amounts............................... 134 846 (474)
------- ------- -------
Net unrealized investment (losses) gains............ (358) 870 (618)
------- ------- -------
Foreign currency translation adjustments arising
during the year.................................... (115) (46) (6)
Reclassification adjustment for sale of investment
in foreign operation............................... 2 (3) --
------- ------- -------
Foreign currency translation adjustment............. (113) (49) (6)
------- ------- -------
Minimum pension liability adjustment................ (12) -- --
------- ------- -------
Other comprehensive (loss) income................... $ (483) $ 821 $ (624)
======= ======= =======
</TABLE>
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
17. RESTRUCTURING
During 1998, the Company restructured headquarters operations and
consolidated certain agencies and other operations. The impacts of these
actions on a segment basis are as follows:
<TABLE>
<CAPTION>
Severance
and Related Facility
Number of Termination Consolidation
Positions Costs Costs Total
--------- ----------- ------------- -----
<S> <C> <C> <C> <C>
Individual............................ 488 $15 $16 $31
Institutional......................... 320 8 2 10
Auto & Home........................... 357 4 -- 4
Corporate and Other................... 1,102 30 6 36
----- --- --- ---
2,267 $57 $24 $81
===== === === ===
</TABLE>
These programs are expected to be completed by the third quarter of 1999. As
of December 31, 1998, $28 of these restructuring costs had been paid and the
unpaid balance was $53.
18. BUSINESS SEGMENT INFORMATION
The Company provides insurance and financial services to customers in the
United States, Canada, Central America, South America, Europe and Asia. The
Company's business is divided into six segments: Individual, Institutional,
Auto & Home, International, Asset Management and Corporate. These segments are
managed separately because they either provide different products and
services, require different strategies or have different technology
requirements.
Individual offers a wide variety of individual insurance and investment
products, including life insurance, annuities and mutual funds. Institutional
offers a broad range of group insurance and retirement and savings products
and services, including group life insurance, non-medical health insurance
such as short and long-term disability, long-term care and dental insurance
and other insurance products and services. Auto & Home provides insurance
coverages including private passenger automobile, homeowners and personnel
excess liability insurance. International provides life insurance, accident
and health insurance, annuities and retirement and savings products to both
individuals and groups, and auto and homeowners coverage to individuals. Asset
Management provides a broad variety of asset management products and services
to individuals and institutions such as mutual funds for savings and
retirement needs, commercial real estate advisory and management services, and
institutional and retail investment management. Through its Corporate segment,
the Company reports items that are not allocated to any of the business
segments.
Set forth in the tables below is certain financial information with respect
to the Company's operating segments for the years ended December 31, 1998,
1997 and 1996. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies, except for the
method of capital allocation. The Company allocates capital to each segment
based upon an internal capital allocation system that allows the Company to
more effectively manage its capital. The Company has divested operations that
did not meet targeted rates of return, including its medical insurance
operations, commercial leasing business, and insurance operations in the
United Kingdom and substantially all of its Canadian operations. The Company
evaluates the performance of each operating segment based upon income or loss
from operations before provision for income taxes and non-recurring items
(e.g. items of unusual or infrequent nature). The Company allocates non-
recurring items to the Corporate segment.
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Auto
At or for the year ended & Asset Consolidation/
December 31, 1998 Individual Institutional Home International Management Corporate Elimination Total
- ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................ $ 4,381 $ 5,101 $1,403 $ 618 $ -- $ -- $ -- $11,503
Universal life and
investment-type product
policy fees 817 475 -- 68 -- -- -- 1,360
Net investment income... 5,501 3,864 81 343 76 808 (445) 10,228
Other revenues.......... 523 574 36 33 814 35 (50) 1,965
Net realized investment
gains.................. 663 552 122 117 -- 683 (116) 2,021
Policyholder benefits
and claims............. 4,659 6,373 869 597 -- (10) -- 12,488
Interest credited to
policyholder account
balances............... 1,443 1,199 -- 89 -- -- -- 2,731
Policyholder dividends.. 1,447 142 -- 64 -- -- -- 1,653
Other expenses.......... 2,609 1,592 546 352 799 2,632 (412) 8,118
Income before provision
for income taxes....... 1,727 1,260 227 77 91 (1,096) (199) 2,087
Income after provision
for income taxes....... 1,091 833 161 56 47 (675) (166) 1,347
Total assets............ 103,974 88,356 2,771 3,432 1,165 20,652 (5,004) 215,346
Deferred policy
acquisition costs...... 6,255 43 57 205 -- -- -- 6,560
Separate account assets. 23,038 35,286 -- 26 -- -- -- 58,350
Policyholder
liabilities............ 71,989 49,045 1,477 2,043 -- 1 (352) 124,203
Separate account
liabilities............ $23,013 $35,029 $ -- $ 26 $ -- $ -- $ -- $58,068
</TABLE>
<TABLE>
<CAPTION>
Auto
At or for the year ended & Asset Consolidation/
December 31, 1997 Individual Institutional Home International Management Corporate Elimination Total
- ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................ $ 4,327 $ 4,689 $1,354 $ 908 $ -- $ -- $ -- $11,278
Universal life and
investment-type product
policy fees............ 855 426 -- 137 -- -- -- 1,418
Net investment income... 4,754 3,754 71 504 87 895 (574) 9,491
Other revenues.......... 338 357 25 54 682 19 16 1,491
Net realized investment
gains.................. 356 45 9 142 -- 326 (91) 787
Policyholder benefits
and claims............. 4,597 5,934 834 869 -- -- -- 12,234
Interest credited to
policyholder account
balances............... 1,428 1,319 -- 137 -- -- -- 2,884
Policyholder dividends.. 1,340 305 -- 97 -- -- -- 1,742
Other expenses.......... 2,384 1,178 520 497 679 1,118 (442) 5,934
Income before provision
for income taxes....... 881 535 105 145 90 122 (207) 1,671
Income after provision
for income taxes....... 603 339 74 126 52 210 (201) 1,203
Total assets............ 95,990 83,481 2,542 7,412 1,147 18,494 (6,290) 202,776
Deferred policy
acquisition costs...... 5,912 40 56 428 -- -- -- 6,436
Separate account assets. 17,368 30,732 -- 520 -- -- -- 48,620
Policyholder
liabilities............ 70,686 49,550 1,509 5,615 -- 1 (3) 127,358
Separate account
liabilities............ $17,345 $30,473 $ -- $ 520 $ -- $ -- $ -- $48,338
</TABLE>
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Auto
At or for the year ended & Asset Consolidation/
December 31, 1996 Individual Institutional Home International Management Corporate Elimination Total
- ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................ $ 4,559 $ 4,676 $1,316 $ 794 $-- $ -- $ -- $11,345
Universal life and
investment-type product
policy fees............ 729 375 -- 139 -- -- -- 1,243
Net investment income... 4,604 3,446 71 523 60 761 (487) 8,978
Other revenues.......... 74 475 26 37 495 89 50 1,246
Net realized investment
gains (losses) ....... 282 28 24 13 -- (112) (4) 231
Policyholder benefits
and claims............. 4,690 6,006 891 700 -- (1) -- 12,286
Interest credited to
policyholder account
balances 1,354 1,358 -- 156 -- -- -- 2,868
Policyholder dividends.. 1,333 284 -- 111 -- -- -- 1,728
Other expenses.......... 2,019 1,008 490 418 498 706 (384) 4,755
Income before provision
for income taxes....... 852 344 56 121 57 33 (57) 1,406
Income after provision
for income taxes....... 511 217 34 86 47 85 (56) 924
Total assets............ 86,042 75,872 2,801 11,714 901 18,900 (6,954) 189,276
Deferred policy
acquisition costs...... 6,495 29 56 647 -- -- -- 7,227
Separate account assets. 12,403 27,715 -- 3,645 -- -- -- 43,763
Policyholder
liabilities............ 67,220 48,253 1,562 6,045 -- 1 (55) 123,026
Separate account
liabilities............ $12,386 $27,368 $ -- $3,645 $-- $ -- $ -- $43,399
</TABLE>
The individual segment includes an equity ownership interest in Nvest
Companies, L.P. ("Nvest") under the equity method of accounting. Nvest has
been included within the asset management segment due to the types of products
and strategies employed by the entity. The individual segment's equity in
earnings of Nvest, which is included in net investment income, was $49, $45
and $43 for the years ended December 31, 1998, 1997 and 1996, respectively.
The investment in Nvest was $252, $216 and $152 at December 31, 1998, 1997 and
1996, respectively.
Net investment income and net realized investment gains are based upon the
actual results of each segment's specifically identifiable asset portfolio.
Other costs and operating costs were allocated to each of the segments based
upon: (i) a review of the nature of such costs, (ii) time studies analyzing
the amount of employee compensation costs incurred by each segment, and (iii)
cost estimates included in the Company's product pricing.
The consolidation/elimination column includes the elimination of all
intersegment amounts and the individual segment's ownership interest in Nvest.
The principal component of the intersegment amounts related to intersegment
loans, which bore interest at rates commensurate with related borrowings.
Revenues derived from any customer did not exceed 10% of consolidated
revenues. Revenues from U.S. operations were $25,643, $22,664 and $21,762 for
the years ended December 31, 1998, 1997 and 1996, respectively, which
represented 96%, 93% and 94%, respectively, of consolidated revenues.
35
<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, 1998.
Statement of Operations for the year ended December 31, 1998.
Statement of Changes in Net Assets for the years ended December 31, 1998 and
1997.
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, 1998 and 1997.
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996.
Consolidated Statements of Equity for the years ended December 31, 1998,
1997 and 1996.
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996.
Notes to Consolidated 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.
(2) None
<PAGE>
(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 is incorporated
herein by reference to Post-Effective Amendment No. 2 to the Registration
Statement on Form N-4 (No. 333-11131) filed on May 1, 1998.
(4) (i) Form of New England Mutual Life Insurance Company Variable Annuity
Contract is incorporated herein by reference to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-4 (No. 333-11131) filed on
May 1, 1998.
(ii) Form of New England Mutual Life Insurance Company Contract Loan
Endorsement is incorporated herein by reference to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-4 (No. 333-11131) filed on
May 1, 1998.
(iii) Forms of New England Mutual Life Insurance Company Endorsements,
(Death of Owner, Individual Retirement Annuity, and Sample of Benefits for
Disability of Annuitant) are incorporated herein by reference to Post-
Effective Amendment No. 2 to the Registration Statement on Form N-4 (No.
333-11131) filed on May 1, 1998.
(iv) Forms of Metropolitan Life Insurance Company Endorsements (New
Contract Loan, Spousal/Beneficiary Continuation) are incorporated herein by
reference to Post-Effective Amendment No. 2 to the Registration Statement
on Form N-4 (No. 333-11131) filed on May 1, 1998.
(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.
(viii) Forms of New England Mutual Life Insurance Company Endorsements
(Contract Loans, Fixed Account, Tax-Sheltered Annuity and Rider Benefits of
Disability of Annuitant and Modification of Variable Life Income Section
and New York Endorsement)) is incorporated herein by reference to Post-
Effective Amendment No. 3 to the Registration Statement on Form N-4
(No. 333-11131) filed on February 26, 1999.
III-2
<PAGE>
(ix) Form of Metropolitan Life Insurance Company Endorsement (Roth
Individual Retirement Annuity) is incorporated herein by reference to Post-
Effective Amendment No. 3 to the Registration Statement on Form N-4 (No.
333-11131) filed on February 26, 1999.
(x) Forms of Endorsements (Fixed Account and Postponement of Fixed Account
Values).
(5) (i) New England Mutual Life Insurance Company Application is incorporated
herein by reference to Post-Effective Amendment No. 3 to the Registration
Statement on Form N-4 (No. 333-11131) filed on February 26, 1999.
(ii) For Metropolitan Life Insurance Company Application see (4)(vi) above.
(6) (i) Charter and By-Laws of Metropolitan Life Insurance Company are
incorporated herein by reference to the Registration Statement on Form N-4
(No. 333-11131) filed on August 30, 1996.
(ii) By-Laws Amendment is incorporated herein by reference to the
Registration Statement on Form N-4 (No. 333-11131) filed on August 30,
1996.
(7) None
(8) (i) Administrative Services Agreement is incorporated herein by reference
to the Registration Statement on Form N-4 (No. 333-11131) filed on
August 30, 1996.
(ii) Participation Agreement Among Variable Insurance Products Fund,
Fidelity Distributors Corporation and New England Mutual Life Insurance
Company is incorporated herein by reference to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-4 (No. 333-11131) filed on
May 1, 1998.
(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 the Registration Statement on Form N-4 (No. 33-17377)
filed on April 1, 1996.
(iv) Assignment of Participation Agreement from New England Mutual Life
Insurance Company to Metropolitan Life Insurance Company is incorporated
herein by reference to the Registration Statement on Form N-4
(No. 333-11131) filed on August 30, 1996.
(9) Opinion and consent of Christopher P. Nicholas, Esq.
(10) (i) Consent of Deloitte & Touche LLP.
(ii) Consent of Sutherland Asbill and Brennan LLP.
(11) None
III-3
<PAGE>
(12) None
(13) Schedule of computations for performance quotations is incorporated herein
by reference to Post-Effective Amendment No. 2 to the Registration
Statement on Form N-4 (No. 333-11131) filed on May 1, 1998.
(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 and Charles M. Leighton whose powers of
attorney were filed with Post-Effective Amendment No. 1 to the Registration
Statement (File No. 333-11131) on April 30, 1997 and Robert H. Benmosche,
Jon F. Danski and Stewart G. Nagler whose powers of attorney were filed
with Post-Effective Amendment No. 23 to the Registration Statement of
Metropolitan Life Separate Account E (File No. 2-90380) filed April 3,
1998.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Principal Occupation Positions and Offices
-------------------- ---------------------
Name and Business Address with Depositor
---- -------------------- --------------
<S> <C> <C>
Curtis H. Barnette Chairman and Chief Director
Executive Officer
Bethlehem Steel Corporation
1170 Eighth Avenue
Martin Tower 2118
Bethlehem, PA 18016-7699
Robert H. Benmosche Chairman of the Board, President Chairman of the Board, President
and Chief Executive Officer and Chief Executive Officer
Metropolitan Life Insurance
Company
One Madison Avenue,
New York, NY 10010
Gerald Clark Vice-Chairman of the Board and Vice-Chairman of the Board and
Chief Investment Officer Chief Investment Officer
Metropolitan Life Insurance
Company
One Madison Avenue
New York, NY 10010
Joan Ganz Cooney Chairman, Executive Committee Director
Children's Television Workshop
One Lincoln Plaza
New York, NY 10023
</TABLE>
III-4
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation Positions and Offices
-------------------- ---------------------
Name and Business Address with Depositor
---- -------------------- --------------
<S> <C> <C>
Burton A. Dole, Jr. Retired Chairman, President and Director
Chief Executive Officer
Puritan Bennett
P.O. Box 208
------------
Pauma Valley, CA 92061
------------------------
James R. Houghton Retired Chairman of the Board Director
Corning Incorporated
80 East Market Street, 2nd Floor
Corning, NY 14830
Harry P. Kamen Retired Chairman and Chief Director
Executive Officer
Metropolitan Life Insurance Company
200 Park Avenue, Suite 5700
New York, NY 10166
Helene L. Kaplan Of Counsel, Skadden, Arps Director
Slate Meagher and Flom
919 Third Avenue
New York, NY 10022
Charles H. Leighton Retired Chairman and Chief Director
Executive Officer
CML Group, Inc.
P.O. Box 247
------------
Bolton, MA 01740
-----
Allen E. Murray Retired Chairman of the Board Director
and Chief Executive Officer
Mobil Corporation
375 Park Avenue, Suite 2901
New York, NY 10152
</TABLE>
III-5
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation Positions and Offices
-------------------- ---------------------
Name and Business Address with Depositor
---- -------------------- --------------
<S> <C> <C>
Stewart G. Nagler Vice-Chairman of the Board and Vice-Chairman of the Board and
Chief Financial Officer Chief Financial Officer
Metropolitan Life Insurance Company
One Madison Avenue
New York, NY 10010
John J. Phelan, Jr. Retired Chairman and Chief Director
Executive Officer
New York Stock Exchange, Inc.
P. O. Box 312
Mill Neck, NY 11765
Hugh B. Price President and Chief Executive Director
Officer
National Urban League, Inc.
120 Wall Street, 7th & 8th Floors
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 Chief Director
Executive Officer
Pfizer, Inc.
235 East 42nd Street
New York, NY 10017
</TABLE>
III-6
<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 Position with Metropolitan Life
---- -------------------------------
<S> <C>
Robert H. Benmosche Chairman of the Board, President and Chief Executive Officer
Gary A. Beller Senior Executive Vice-President and General Counsel
Gerald Clark Vice-Chairman of the Board and Chief Investment Officer
Stewart C. Nagler Vice-Chairman of the Board and Chief Financial Officer
C. Robert Hendrickson Senior Executive Vice-President
William J. Toppeta Senior Executive Vice-President
John H. Tweedie Senior Executive Vice-President
Jeffrey J. Hodgman Executive Vice-President
Terence I. Lennon Executive Vice-President
David A. Levene 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 and Controller
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 D. Livesey Senior Vice-President
James M. Logan Senior Vice-President
Eugene Marks, Jr. Senior Vice-President
William R. Prueter 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
</TABLE>
III-7
<PAGE>
<TABLE>
<CAPTION>
Name Position with Metropolitan Life
---- -------------------------------
<S> <C>
Richard R. Tartre 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 principle occupation of each officer, except the following officers during
the last five years has been as an officer of Metropolitan Life Insurance
Company or an affiliate thereof. Gary A. Beller has been an officer of
Metropolitan Life Insurance Company 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 Metropolitan Life
Insurance Company since September, 1995; prior thereto, he was an Executive
Vice-President of Paine Webber. Terence I. Lennon has been an officer of
Metropolitan Life Insurance Company 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 Metropolitan 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 One
Madison Avenue, New York, New York 10010.
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 outline indicates those persons who are
controlled by or under common control with Metropolitan Life Insurance Company:
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1998
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1998. 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
III-8
<PAGE>
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. Metropolitan Direct Property and Casualty Insurance Company
(Georgia)
e. Metropolitan P&C Insurance Services, Inc. (California)
f. Metropolitan Lloyds, Inc. (Texas)
g. Met P&C Managing General Agency, Inc. (Texas)
2. Metropolitan Insurance and Annuity Company (Delaware)
a. MetLife Europe I, Inc. (Delaware)
b. MetLife Europe II, Inc. (Delaware)
c. MetLife Europe III, Inc. (Delaware)
d. MetLife Europe IV, Inc. (Delaware)
e. MetLife Europe V, Inc. (Delaware)
3. MetLife General Insurance Agency, Inc. (Delaware)
a. MetLife General Insurance Agency of Alabama, Inc. (Alabama)
b. MetLife General Insurance Agency of Kentucky, Inc.
(Kentucky)
c. MetLife General Insurance Agency of Mississippi, Inc.
(Mississippi)
d. MetLife General Insurance Agency of Texas, Inc. (Texas)
e. MetLife General Insurance Agency of North Carolina, Inc.
(North Carolina)
f. MetLife General Insurance Agency of Massachusetts, Inc.
(Massachusetts)
III-9
<PAGE>
4. Metropolitan Asset Management Corporation (Delaware)
(a.) MetLife Capital, Limited Partnership (Delaware) Partnership
interests in MetLife Capital, Limited Partnership are held by
Metropolitan (90%) and Metropolitan Asset Management Corporation
(10%).
(i.) MetLife Capital Credit L.P. (Delaware). Partnership interests
in MetLife Capital Credit L.P. are held by Metropolitan (90%)
and Metropolitan Asset Management Corporation (10%).
(1) MetLife Capital CFLI Holdings, LLC (DE)
(a.) MetLife Capital CFLI Leasing, LLC (DE)
b. 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.
c. MetLife Investments Limited (United Kingdom). 23rd Street
Investments, Inc. holds one share of MetLife Investments Limited.
d. 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 Investments Limited (Delaware)
b. 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)
c. 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.
III-10
<PAGE>
(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)
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)
b. Security First Insurance Agency, Inc. (MA)
c. Security First 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)
i. Security First Financial Agency, Inc. (TX)
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)
III-11
<PAGE>
F. 23rd Street Investments, Inc. (Delaware)
G. 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. MetLife Saengmyoung Insurance Company Ltd. (Korea).
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) Shares of P.T. MetLife Sejahtera are held
by Metropolitan (80%) and by an entity (20%) unaffiliated with Metropolitan.
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. Metropolitan Life Seguros de Vida S.A. (Uruguay). One share of Metropolitan
Life Seguros de Vida S.A. is held by Alejandro Miller Artola, a nominee of
Metropolitan Life Insurance Company.
T. Metropolitan Life Seguros E Previdencia Privada S.A. (Brazil)
U. Hyatt Legal Plans, Inc. (Delaware)
1. Hyatt Legal Plans of Florida, Inc. (Fl)
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%.
III-12
<PAGE>
W. Metropolitan Realty Management, Inc. (Delaware)
1. Edison Supply and Distribution, Inc. (Delaware)
2. Cross & Brown Company (New York)
a. CBNJ, Inc. (New Jersey)
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)
2. Farmers National Marketing Group, LLC (Iowa) Ownership of membership
interests in Farmers National Marketing Group, LLC is as follows: Farmers
National Company (50%) and an entity unaffiliated with Metropolitan (50%).
A.B. MetLife Trust Company, National Association. (United States)
A.C. Benefit Services Corporation (Georgia)
A.D. G.A. Holding Corporation (MA)
A.E. TNE-Y, Inc. (DE)
A.F. CRH., Inc. (MA)
A.G. NELRECO Troy, Inc. (MA)
A.H. TNE Funding Corporation (DE)
A.I. L/C Development Corporation (CA)
A.J. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.K. 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.L. New England Life Mortgage Funding Corporation (MA)
A.M. 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.N. 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.O. Tower Resources Group, Inc. (DE)
A.P. MetLife New England Holdings, Inc. (DE)
1. Fulcrum Financial Advisors, Inc. (MA)
2. New England Life Insurance Company (MA)
a. New England Life Holdings, Inc. (DE)
III-13
<PAGE>
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)
(1) First Connect Insurance Network, Inc. (DE)
(2) Interative Financial Solutions, Inc. (MA)
iv. N.L. Holding Corp. (Del)(NY)
(1) Nathan & Lewis Securities, Inc. (NY)
(2) Nathan & Lewis Associates, Inc. (NY)
(a) Nathan and Lewis Insurance Agency of Massachusetts, Inc. (MA)
(b) Nathan and Lewis Associates of Texas, Inc. (TX)
(3) Nathan & Lewis Associates--Arizona, Inc. (AZ)
(4) Nathan & Lewis of Nevada, Inc. (NV)
(5) Nathan and Lewis Associates Ohio, Incorporated (OH)
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)
3. Nvest Corporation (MA)
a. Nvest, L.P. (DE) Nvest Corporation holds a 1.69% general partnership
interest and MetLife New England Holdings, Inc. 3.19% general
partnership interest in Nvest, L.P.
b. Nvest Companies, L.P. (DE) Nvest Corporation holds a 0.0002% general
partnership interest in Nvest Companies, L.P. Nvest, L.P. holds a 14.64%
general partnership interest in Nvest Companies, L.P. Metropolitan holds
a 46.23% limited partnership interest in Nvest Companies, L.P.
i. Nvest Holdings, Inc. (DE)
(1) Back Bay Advisors, Inc. (MA)
(a) 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.
(2) R & T Asset Management, Inc. (MA)
(a) Reich & Tang Distributors, Inc. (DE)
(b) 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 R &
T Asset Management, L.P.
(c) Reich & Tang Services, Inc. (DE)
III-14
<PAGE>
(3) Loomis, Sayles & Company, Inc. (MA)
(a) 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.
(4) Westpeak Investment Advisors, Inc. (MA)
(a) 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.
(i) Westpeak Investment Advisors Australia Limited Pty.
(5) Vaughan, Nelson Scarborough & McCullough (DE)
(a) Vaughan, Nelson Scarborough & McCullough, 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 & McCullough, L.P.
(i) VNSM Trust Company
(6) MC Management, Inc. (MA)
(a) 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.
(7) Harris Associates, Inc. (DE)
(a) 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.
(b) 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.
(i) Harris Partners, Inc. (DE)
(ii) 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.
(1) Aurora Limited Partnership (DE)
Harris Partners L.L.C. holds a 1% general partner
interest
III-15
<PAGE>
(2) Perseus Partners L.P. (DE) Harris Partners L.L.C. holds a
1% general partner interest
(3) Pleiades Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general partner
interest
(4) Stellar Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general partner
interest
(5) SPA Partners L.P. (DE) Harris Partners L.L.C. holds a 1%
general partner interest
(8) Graystone Partners, Inc. (MA)
(a) 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.
(9) NEF Corporation (MA)
(a) 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.
(b) 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.
(10) New England Funds Service Corporation
(11) AEW Capital Management, Inc. (DE)
(a) 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.
ii. Nvest Associates, Inc.
iii. 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.
iv. 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.
III-16
<PAGE>
v. Capital Growth Management, L.P. (DE)
NEIC Operating Partnership, L.P. holds a 50% limited partner interest in
Capital Growth Management, L.P.
vi. Nvest Partnerships, LLC ( )
vii. 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 II Corporation ( )
(2) AEW Partners III, Inc. ( )
(3) AEW TSF, Inc. ( )
(4) AEW Exchange Management, LLC
(5) AEWPN, LLC ( )
(6) 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. 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.
ii. 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.
iii. CREA Investors Santa Fe Springs, Inc. (MA)
III-17
<PAGE>
(7) 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.
(8) 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.
(9) 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.
(10) 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.
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) Metropolitan owns, via its subsidiary, AFORE Genesis Metropolitan S.A. de
C.V., approximately 61.7% of SIEFORE Genesis S.A. de C.V., a mutual fund.
III-18
<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) Metropolitan directly owns 100% of the non-voting preferred stock of Nathan
and Lewis Associates Ohio, Incorporated, an insurance agency. 100% of the voting
common stock of this company is held by an individual who has agreed to vote
such shares at the direction of N.L. Holding Corp. (DEL), an indirect wholly
owned subsidiary of Metropolitan.
9) 100% of the capital stock of Hereford Insurance Agency of Oklahoma, Inc.
(OK) is owned by an officer. New England Life Insurance Company controls the
issuance of additional stock and has certain rights to purchase such officer's
shares.
10) 100% of the capital stock of Fairfield Insurance Agency of Texas, Inc. (TX)
is owned by an officer. New England Life Insurance Company controls the issuance
of additional stock and has certain rights to purchase such officer's shares.
11) Mezzanine Investment Limited Partnerships ("MILPs"), Delaware limited
partnerships, are investment vehicles through which investments in certain
entities are held. A wholly owned subsidiary of Metropolitan serves as the
general partner of the limited partnerships and Metropolitan directly owns a 99%
limited partnership interest in each MILP. The MILPs have various ownership
interests in certain companies. The various MILPs own, directly or indirectly,
100% 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.
ITEM 27. NUMBER OF CONTRACTHOLDERS
As of March 31, 1999, there were 23,429 owners of tax-qualified Contracts and
12,784 owners of non-qualified contracts.
ITEM 28. INDEMNIFICATION
Metropolitan Life Insurance Company has secured a Financial Institutions Bond in
the amount of $50,000,000 subject to a $5,000,000 deductible. Metropolitan
maintains a directors' and officers' liability policy with a maximum coverage of
$200 million under which Metropolitan and New England Securities Corporation,
the Registrant's underwriter (the "Underwriter") as well as certain other
subsidiaries of Metropolitan are covered. A provision in Metropolitan's by-laws
provides for the indemnification (under certain circumstances) of individuals
serving as directors or officers of Metropolitan.
III-19
<PAGE>
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
Metropolitan pursuant to the foregoing provisions, or otherwise, Metropolitan
Life Insurance Company 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
Metropolitan of expenses incurred or paid by a director, officer or controlling
person or Metropolitan Life Insurance Company 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, Metropolitan 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 Life 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 Positions and Offices
Name Principal Underwriter with Registrant
---- --------------------- ---------------
<S> <C> <C>
Thomas W. McConnell* Director, President and CEO None
Frederick K. Zimmermann** Chairman of Board, Director None
Bradley W. Anderson* Vice President None
Molly M. Diggins** Vice President, General Counsel, None
Secretary and Clerk
Mark A. Greco* Vice President and Chief None
Operating Officer
Laura A. Hutner* Vice President None
Mitchell A. Karman** Vice President None
John Peruzzi* Assistant Vice President and None
Controller
Robert F. Regan*** Vice President None
Jonathan M. Rozek* Vice President None
Andrea M. Ruesch* Vice President None
Larry Thiel* Vice President None
Michael E. Toland** Vice President, Chief Compliance
Officer, Chief Financial
Officer, Treasurer, Assistant
Secretary and Assistant Clerk
H. James Wilson** Director None
Principal Business Address: *399 Boylston Street, Boston, MA 02116
**501 Boylston Street, Boston, MA 02116
***500 Boylston Street, Boston, MA 02116
</TABLE>
III-20
<PAGE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation
Name of Principal Discounts and Redemption or Brokerage Other
Underwriter Commissions Annuitization Commissions Compensation
----------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
New England
Securities $5,427,973 0 0 0
Corporation ----------
</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 and 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
III-21
<PAGE>
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 Life Insurance Company under
the Contracts.
III-22
<PAGE>
SIGNATURES
As required by 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
Amendment to the Registration Statement and has caused this Amendment to the
Registration Statement to be signed on its behalf, in the City of New York, and
the State of New York on the 26th day of April, 1999.
THE NEW ENGLAND VARIABLE ACCOUNT
BY: METROPOLITAN LIFE INSURANCE COMPANY
BY: /s/ GARY A. BELLER, ESQ.
------------------------------
GARY A. BELLER, ESQ.
SENIOR EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
Attest: /s/ Cheryl D. Martino
- ------ ---------------------
Cheryl D. Martino
Assistant Secretary
III-23
<PAGE>
SIGNATURES
As required by 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 Amendment
to the Registration Statement and has caused this Amendment to the Registration
Statement to be signed on its behalf, in the City of New York, and the State of
New York on the 26th day of April 1999.
METROPOLITAN LIFE INSURANCE COMPANY
BY: /s/ GARY A. BELLER, ESQ.
------------------------
GARY A. BELLER, ESQ.
SENIOR EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
Attest: /s/ Cheryl D. Martino
- ------ ---------------------
Cheryl D. Martino
Assistant Secretary
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 of the Board, President and
* Chief Executive Officer April 26, 1999
- -------------------------------------------
ROBERT H. BENMOSCHE
Vice-Chairman of the Board and
* Chief Financial Officer (Principal April 26, 1999
- ------------------------------------------- Financial Officer)
STEWART G. NAGLER
Senior Vice President and Controller
* (Principal Accounting Officer) April 26, 1999
- -------------------------------------------
JON F. DANSKI
* Director April 26, 1999
- -------------------------------------------
CURTIS H. BARNETTE
</TABLE>
III-24
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE Title Date
--------- ----- ----
<S> <C> <C>
Vice Chairman of the Board and Chief
* Investment Officer April 26, 1999
- -------------------------------------------
GERALD CLARK
* Director April 26, 1999
- -------------------------------------------
JOAN GANZ COONEY
* Director April 26, 1999
- -------------------------------------------
BURTON A. DOLE, JR.
* Director April 26, 1999
- -------------------------------------------
JAMES R. HOUGHTON
* Director April 26, 1999
- -------------------------------------------
HARRY P. KAMEN
* Director April 26, 1999
- -------------------------------------------
HELENE L. KAPLAN
* Director April 26, 1999
- -------------------------------------------
CHARLES H. LEIGHTON
* Director April 26, 1999
- -------------------------------------------
ALLEN E. MURRAY
* Director April 26, 1999
- -------------------------------------------
JOHN J. PHELAN, JR.
* Director April 26, 1999
- -------------------------------------------
HUGH B. PRICE
</TABLE>
III-25
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE Title Date
--------- ----- ----
<S> <C> <C>
* Director April 26, 1999
- -------------------------------------------
ROBERT G. SCHWARTZ
* Director April 26, 1999
- -------------------------------------------
RUTH J. SIMMONS, Ph.D.
Director April 26, 1999
- -------------------------------------------
WILLIAM C. STEERE, JR.
April 26, 1999
/s/ CHRISTOPHER P. NICHOLAS
- -------------------------------------------
CHRISTOPHER P. NICHOLAS, ESQ.
ATTORNEY-IN-FACT
</TABLE>
* Executed by Christopher P. Nicholas, Esq. on behalf of those indicated
pursuant to Powers of Attorney filed with the Registration Statement on Form N-4
(No. 333-11131) filed on August 30, 1996 except for Gerald Clark, Burton A. Dole
and Charles M. Leighton whose powers of attorney were filed with Post-Effective
Amendment No. 1 to the Registration Statement (File No. 333-11131) on April 30,
1997 and Robert H. Benmosche, Jon F. Danski and Stewart G. Nagler whose powers
of attorney were filed with Post-Effective Amendment No. 23 to the Registration
Statement of Metropolitan Life Separate Account E (File No. 2-90380) filed April
3, 1998.
III-26
<PAGE>
EXHIBIT INDEX
-------------
(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.
(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 is incorporated
herein by reference to Post-Effective Amendment No. 2 to the Registration
Statement on Form N-4 (No. 333-11131) filed on May 1, 1998.
(4) (i) Form of New England Mutual Life Insurance Company Variable Annuity
Contract is incorporated herein by reference to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-4 (No. 333-11131) filed on
May 1, 1998.
(ii) Form of New England Mutual Life Insurance Company Contract Loan
Endorsement is incorporated herein by reference to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-4 (No. 333-11131) filed on
May 1, 1998.
(iii) Forms of New England Mutual Life Insurance Company Endorsements,
(Death of Owner, Individual Retirement Annuity, and Sample of Benefits for
Disability of Annuitant) are incorporated herein by reference to Post-
Effective Amendment No. 2 to the Registration Statement on Form N-4
(No. 333-11131) filed on May 1, 1998.
(iv) Forms of Metropolitan Life Insurance Company Endorsements (New
Contract Loan, Spousal/Beneficiary Continuation) are incorporated herein by
reference to Post-Effective Amendment No. 2 to the Registration Statement
on Form N-4 (No. 333-11131) filed on May 1, 1998.
(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.
<PAGE>
(viii) Forms of New England Mutual Life Insurance Company Endorsements
(Contract Loans, Fixed Account, Tax-Sheltered Annuity and Rider Benefits of
Disability of Annuitant and Modification of Variable Life Income Section
and New York Endorsement) are incorporated herein by reference to Post-
Effective Amendment No. 3 to the Registration Statement on Form N-4
(No. 333-11131) filed on February 26, 1999.
(ix) Form of Metropolitan Life Insurance Company Endorsement (Roth
Individual Retirement Annuity) is incorporated herein by reference to Post-
Effective Amendment No. 3 to the Registration Statement on Form N-4
(No. 333-11131) filed on February 26, 1999.
(x) Forms of Endorsements (Fixed Account and Postponement of Fixed Account
Values).
(5) (i) New England Mutual Life Insurance Company Application is incorporated
herein by reference to Post-Effective Amendment No. 3 to the Registration
Statement on Form N-4 (No. 333-11131) filed on February 26, 1999.
(ii) For Metropolitan Life Insurance Company Application see (4)(vi) above.
(6) (i) Charter and By-Laws of Metropolitan Life Insurance Company are
incorporated herein by reference to the Registration Statement on Form N-4
(No. 333-11131) filed on August 30, 1996.
(ii) By-Laws Amendment is incorporated herein by reference to the
Registration Statement on Form N-4 (No. 333-11131) filed on August 30,
1996.
(7) None
(8) (i) Administrative Services Agreement is incorporated herein by reference
to the Registration Statement on Form N-4 (No. 333-11131) filed on
August 30, 1996.
(ii) Participation Agreement Among Variable Insurance Products Fund,
Fidelity Distributors Corporation and New England Mutual Life Insurance
Company is incorporated herein by reference to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-4 (No. 333-11131) filed on
May 1, 1998.
(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 the 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.
2
<PAGE>
(9) Opinion and consent of Christopher P. Nicholas, Esq.
(10) (i) Consent of Deloitte & Touche LLP.
(ii) Consent of Sutherland Asbill and Brennan LLP.
(11) None
(12) None
(13) Schedule of computations for performance quotations is incorporated herein
by reference to Post-Effective Amendment No. 2 to the Registration
Statement on Form N-4 (No. 333-11131) filed on May 1, 1998.
(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 and Charles M. Leighton whose powers of
attorney were filed in with Post-Effective Amendment No. 1 to the
Registration Statement (File No. 333-11131) on April 30, 1997 and Robert H.
Benmosche, Jon F. Danski and Stewart G. Nagler whose powers of attorney
were filed with Post-Effective Amendment No. 23 to the Registration
Statement of Metropolitan Life Separate Account E (File No. 2-90380) filed
April 3, 1998.
3
<PAGE>
EXHIBIT 4(X)
P-1099-93
Endorsement
As of the Date of Issue of this Contract the following changes are made:
"THE FIXED ACCOUNT
The Fixed Account is invested within the general account of the Company.
If you elect the Fixed Account, the first date on which money is applied to
the Fixed Account for the Contract is the latest of:
. The Contract Date;
. The date the first purchase payment is received by the Company at its Home
Office; and
. The effective date of the election of the Fixed Account.
Each future net purchase payment allocated to the Fixed Account will be
applied as of the date it is received by the Company at its Home Office. Each
transfer to the Fixed Account will be applied as of the transfer date.
FIXED ACCOUNT INTEREST
The rate of interest for each amount applied to the Fixed Account: will be the
rate set by the Company in advance for the date the amount is applied to the
Fixed account; and will not be less than a rate equivalent to an annual
effective rate of 3%. Each year, on the contract anniversary, the Company
will determine a portion, if any, of the Contract's value in the Fixed Account
which will be reinvested at the rate effective on that date. The effective
interest rate used on your Contract will be the weighted average of all such
rates for your Contract.
Interest will be credited to the Fixed Account on a daily basis.
RESTRICTION OF TRANSFERS TO THE FIXED ACCOUNT
The Company reserves the right to restrict transfers to the Fixed Account for
the Con- tract:
. If the rate of interest that would be used for the transfer is a rate
equivalent to an annual effective rate of 3%; or
. If the Contract's value in the Fixed Account equals or exceeds the
Company's Published maximum for Fixed Account investments; or
. For the remainder of the contract year if an amount is transferred out of
the Fixed Account in that contract year.
<PAGE>
TRANSFERS OUT OF THE FIXED ACCOUNT
You can transfer a limited portion of the Contract's value in the Fixed
Account to the sub-accounts once within 30 days after each contract
anniversary. Requests for transfer can be made in writing or by telephone.
The Company is not responsible for the authenticity of transfer instructions
received by telephone. The transfer will be limited to the greater of $1000
and 25% of the Contract's value in the Fixed Account, except with the consent
of the Company.
If you transfer an amount out of the Fixed Account in any contract year, the
Company reserves the right to restrict transfers to the Fixed Account for the
Contract for the remainder of that contract year.
ELECTION OF THE FIXED ACCOUNT
You can elect to have future net purchase payments applied to the Fixed
Account. You can change the election for future net purchase payments at any
time by notice to the Company In writing. (See the Restriction of Transfers
to the Fixed Account provision.)"
is added to the Contract.
MODIFICATION OF THE VARIABLE ACCOUNT SECTION
"The Contract's first investment in the Account will be made as of the latest
of:
. The Contract Date;
. The date the first purchase payment is received by the Company at its Home
Office; and
. The effective date of the election of a subaccount."
is substituted for the second paragraph of the Sub-Accounts provision.
"The Contract Value at any time cannot be allocated among more than 10 sub-
accounts, except with the consent of the Company; and the Fixed Account will
be counted in the limit of 10.
The values of a contract depend on: the investment performance of the series
in which the sub-accounts are invested, and the interest credited to the Fixed
Account. You bear the investment risk for amounts invested In the sub-
accounts for your Contract."
is substituted for the fourth and fifth paragraphs of the Sub-Accounts
provision.
<PAGE>
"TRANSFER OPTION
You can transfer all or a portion of the Contract's existing share of a sub-
account to another sub-account or to the Fixed Account. (See the
Restriction of Transfers to the Fixed Account provision.) Requests for
transfer 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, and transfers out of the Fixed Account will
be counted in the limit of 4; 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."
is substituted for the Transfer Option provision.
MODIFICATION OF THE CONTRACT VALUE SECTION
"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."
is substituted for the first sentence of the Contract Value provision.
"NET PURCHASE PAYMENTS
A net purchase payment is equal to:
. The purchase payment paid;
LESS
. Any applicable state premium tax.
Each net purchase payment allocated to the Account will be credited in the
form of Accumulation Units to the sub-accounts you elect. The number of
Accumulation Units credited to a sub-account will be equal to the portion of
the net purchase payment credited to that sub-account divided by the
Accumulation Unit Value for that sub-account for the applicable Valuation
Period."
is substituted for the Net Purchase Payments provision.
"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.
<PAGE>
The fee will be charged against the subaccounts and the Fixed Account
proportionately. The portion of the fee charged to each sub-account will
reduce the number of Accumulation Units standing to the credit of the Contract
in that sub-account."
is substituted for the Annual Fees provision.
"A partial surrender will reduce the Contract's share of the sub-accounts and
the Fixed Account proportionately, unless you request otherwise."
is substituted for the last sentence of the Surrender of the Contract provision.
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
501 Boylston Street, Boston, Massachusetts
/s/ Robert A. Shafto James A. Gallagher
President Secretary
<PAGE>
P-1040-91
Endorsement
As of the Date of Issue of this Contract the following provision is added to the
Contract section:
"POSTPONEMENT OF SURRENDERS, PARTIAL SURRENDERS AND TRANSFERS FROM THE
FIXED ACCOUNT
The Company can postpone for six months from the date of request: the
payment of the portion of the Contract's Surrender Proceeds and partial
surrender proceeds which is in the Fixed Account; and transfers from the
Fixed Account. The effective date of the transfer is the date on which
values are transferred from the Fixed Account."
New England Mutual Life Insurance Company
501 Boylston Street, Boston, Massachusetts
/s/ Robert A. Shafto /s/ James A. Gallaher
President Secretary
<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 26, 1999
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
<PAGE>
Exhibit 10(i)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 4 to the
Registration Statement No. 333-11131 of The New England Variable Account
(the "Separate Account") of Metropolitan Life Insurance Company (the
"Company") of our reports dated April 26, 1999 and February 4, 1999
appearing in the Statement of Additional Information (which expressed
unqualified opinions and, with respect to the Company, includes an
explanatory paragraph referring to the change in the basis of accounting),
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 26, 1999
<PAGE>
Exhibit 10 (ii)
[Sutherland Asbill & Brennan LLP]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm in the statement of additional
information included in Post-Effective Amendment No. 4 to the Registration
Statement on Form N-4 for Zenith Accumulator, issued through the New England
Variable Account (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
By: /s/ Kimberly J. Smith
----------------------------
Kimberly J. Smith
Washington, D.C.
April 26, 1999
