<PAGE>
AMERICAN GROWTH SERIES
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
SUPPLEMENT DATED SEPTEMBER 29, 1995
TO PROSPECTUS DATED MAY 1, 1995
For Contracts issued in Texas, the guaranteed minimum Death Proceeds will be
------------------
recalculated on the sixth Contract Anniversary, and every sixth year
anniversary thereafter until the Contract Owner's (or, if applicable, the
Annuitant's) 76th birthday to determine whether a higher (but never a lower)
guarantee will apply. (For a jointly owned Contract, this recalculation will
be made every six years until the 71st birthday of the older Contract Owner.)
For more information about the guaranteed minimum Death Proceeds, see "Payment
------------------
on Death Prior to Annuitization."
AG-1391-95
<PAGE>
AMERICAN GROWTH SERIES
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
(617) 578-2000
This prospectus offers individual flexible and single purchase payment
variable annuity contracts (the "Contracts") that are currently intended for
use with certain retirement plans that qualify for tax benefited treatment
under the Internal Revenue Code (the "Code"), for individual use, and for use
with plans and trusts not qualifying under the Code for tax benefited
treatment. All purchase payments made under the Contracts may be allocated to
New England Variable Annuity Separate Account (the "Variable Account"), a
separate investment account of New England Variable Life Insurance Company
("NEVLICO" or the "Company"). Assets of the Variable Account are invested in
shares of certain Series of the New England Zenith Fund (collectively, the
"Eligible Funds"). See "Investments of the Variable Account." The owner of a
Contract chooses the Eligible Funds in which the purchase payments are
invested and may change the Eligible Fund or Funds selected from time to time.
Any one or a combination of the following Eligible Funds may be selected,
within limits:
Back Bay Advisors Bond Income Series Draycott International Equity Series
Back Bay Advisors Money Market Alger Equity Growth Series
Series
Loomis Sayles Avanti Growth Series Venture Value Series
Westpeak Value Growth Series Salomon Brothers U.S. Government
Series
Loomis Sayles Small Cap Series Salomon Brothers Strategic Bond
Opportunities Series
Loomis Sayles Balanced Series
A Fixed Account option is also available in approved states. (See "The Fixed
Account" for more information.) Special limits apply to transfers of Contract
---------------------------------------------
Value to and from the Fixed Account.
- ------------------------------------
This prospectus sets forth concisely the information about the Contracts
that a prospective investor ought to know before investing. The prospectus
should be read carefully and retained for future reference.
Certain additional information about the Contracts is contained in a
Statement of Additional Information dated May 1, 1995, as it may be
supplemented from time to time, which has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Table of
Contents of the Statement of Additional Information appears on page A-49 of
this prospectus. The Statement of Additional Information is available without
charge and may be obtained by writing to New England Securities Corporation
("New England Securities"), 399 Boylston St., Boston, Massachusetts 02116.
New England Securities serves as principal underwriter for the Variable
Account. New England Securities is a subsidiary of New England Mutual Life
Insurance Company ("The New England"), the parent company of NEVLICO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is May 1, 1995.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR
THE NEW ENGLAND ZENITH FUND AND SHOULD BE RETAINED FOR FUTURE REFERENCE.
AN INVESTMENT IN THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND IS NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY, AND INVOLVES RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
A-1
<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-8
HOW THE CONTRACT WORKS.................................................... A-13
THE COMPANY............................................................... A-14
THE VARIABLE ACCOUNT...................................................... A-14
INVESTMENTS OF THE VARIABLE ACCOUNT....................................... A-14
Investment Advice..................................................... A-16
Substitution of Investments........................................... A-16
GUARANTEED OPTION......................................................... A-16
THE CONTRACTS............................................................. A-16
Purchase Payments..................................................... A-17
Allocation of Purchase Payments....................................... A-17
Contract Value and Accumulation Unit Value............................ A-18
Payment on Death Prior to Annuitization............................... A-18
Transfer Privilege.................................................... A-20
Dollar Cost Averaging................................................. A-21
Surrenders............................................................ A-21
Systematic Withdrawals................................................ A-22
Suspension of Payments................................................ A-23
Ownership Rights...................................................... A-23
Requests and Elections................................................ A-23
Ten Day Right to Review............................................... A-23
ADMINISTRATION CHARGES, CONTINGENT DEFERRED SALES CHARGE AND OTHER DEDUC-
TIONS.................................................................... A-24
Administration Charges................................................ A-24
Mortality and Expense Risk Charge..................................... A-24
Contingent Deferred Sales Charge...................................... A-25
Premium Tax Charge.................................................... A-27
Other Expenses........................................................ A-27
Charges Under Contracts Purchased by Exchanging a Fund I, Preference
or Zenith Accumulator Contract....................................... A-28
ANNUITY PAYMENTS.......................................................... A-29
Election of Annuity................................................... A-29
Annuity Options....................................................... A-29
AMOUNT OF VARIABLE ANNUITY PAYMENTS....................................... A-30
FEDERAL INCOME TAX STATUS................................................. A-31
Introduction.......................................................... A-31
Taxation of NEVLICO................................................... A-32
Tax Status of the Contract............................................ A-32
Taxation of Annuities................................................. A-33
Qualified Contracts................................................... A-34
Withholding........................................................... A-36
Possible Changes in Taxation.......................................... A-36
Other Tax Consequences................................................ A-36
General............................................................... A-36
VOTING RIGHTS............................................................. A-36
DISTRIBUTION OF CONTRACTS................................................. A-37
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FIXED ACCOUNT.......................................................... A-37
General Description of the Fixed Account............................... A-37
Contract Value and Fixed Account Transactions.......................... A-38
FINANCIAL STATEMENTS....................................................... A-38
INVESTMENT EXPERIENCE INFORMATION.......................................... A-39
AVERAGE ANNUAL TOTAL RETURN................................................ A-39
APPENDIX A: Consumer Tips.................................................. A-47
APPENDIX B: Contingent Deferred Sales Charge............................... A-48
</TABLE>
A-3
<PAGE>
GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS
ACCOUNT--A sub-account of the Variable Account or the Fixed Account.
ACCUMULATION UNIT--An accounting device used to calculate the Contract Value
prior to annuitization.
ACCUMULATION UNIT VALUE--The value of an Accumulation Unit, determined as of
the close of regular trading on the New York Stock Exchange on each day the
Exchange is open. The Accumulation Unit Value of a sub-account reflects the
net investment experience of the underlying Eligible Fund and daily deductions
for the Mortality and Expense Risk Charge and Administration Asset Charge.
ADMINISTRATION ASSET CHARGE--A charge deducted daily from the assets of each
sub-account of the Variable Account to cover the Company's cost of providing
certain administrative services relating to the Contracts and the Variable
Account. On an annualized basis, the charge equals .10% of daily net assets.
ADMINISTRATION CONTRACT CHARGE--A charge deducted annually from the Contract
Value in the Variable Account to cover the Company's cost of providing certain
administrative services relating to the Contracts and the Variable Account.
The charge is the lesser of: 2% of the total Contract Value and $30.
ANNUITANT--The person on whose life the Contract is issued.
ANNUITIZATION--Application of proceeds under the Contract to an annuity
option on the Maturity Date or upon an earlier surrender of the Contract.
ANNUITY UNIT--An accounting device used to calculate the dollar amount of
annuity payments.
BENEFICIARY--The person designated to receive Death Proceeds under a
Contract if a Contract Owner (or Annuitant, if the Contract Owner is not a
natural person) dies before annuitization of the Contract.
CONTINGENT ANNUITANT--If designated in the application, the person who
becomes the Annuitant under the Contract if the Annuitant dies prior to
annuitization. A Contingent Annuitant must be designated for individually
owned Contracts where the Contract Owner and Annuitant are not the same. The
Contingent Annuitant must be a Contract Owner. The Contingent Annuitant cannot
be changed after the death of the Annuitant.
CONTINGENT DEFERRED SALES CHARGE--A charge deducted upon certain full and
partial surrenders and application of Contract proceeds to certain annuity
payment options, or, in certain circumstances, upon withdrawal of amounts that
were applied to a payment option. In addition, in states where the maximum
maturity age permitted by law is less than 95, a Contingent Deferred Sales
Charge may apply at the Maturity Date.
CONTRACT DATE--The date shown as the Contract Date in the Contract.
CONTRACT OWNER--The person so designated in the application or as
subsequently changed.
CONTRACT VALUE--On or before annuitization, the value obtained by
multiplying the number of Accumulation Units credited to the Contract by the
appropriate current Accumulation Unit Value. Under Contracts with the Fixed
Account option, the Contract Value also includes the amount of Contract Value
allocated to the Fixed Account.
CONTRACT YEAR--A twelve month period commencing with the Contract Date and
with each Contract anniversary thereafter.
DEATH PROCEEDS (prior to annuitization)--The amount payable by the Company
upon receipt of due proof of the death of the Contract Owner (or of the death
of the first Contract Owner to die under a jointly owned Contract) and
election of payment prior to annuitization. For a Contract that is not owned
by an individual, the Death Proceeds are payable upon receipt of due proof of
the death of the Annuitant (and election of payment) prior to annuitization.
The Death Proceeds are guaranteed to be no less than the purchase payments
made, adjusted for any previous surrenders. However, after the first seven
Contract Years, a higher (but never a lower) guarantee may apply, depending on
your Contract Value. In certain states, the Death Proceeds will be reduced by
the applicable premium tax charge.
ELIGIBLE FUNDS--A term that currently includes 11 Series of the New England
Zenith Fund. Purchase payments allocated to the Variable Account may be
invested in shares of one or more of these Series, as described on pages A-14
to A-16.
A-4
<PAGE>
FIXED ACCOUNT--A part of the Company's general account to which net purchase
payments may be allocated under certain Contracts. The Fixed Account provides
guarantees of principal and interest. Special limits apply to transfers of
Contract Value to and from the Fixed Account. See page A-37.
MORTALITY AND EXPENSE RISK CHARGE--A charge deducted daily from the assets
of each sub-account of the Variable Account to compensate the Company for
assuming certain mortality and expense risks under the Contracts. On an
annualized basis, the charge equals 1.25% of daily net assets.
MATURITY DATE--The date on which annuity payments are to commence, unless
the Contract Owner applies the Contract Value to an annuity payment option at
an earlier date. The Maturity Date will be the date when the older of the
Contract Owner(s) and the Annuitant at his or her nearest birthday would be
age 95 (or the maximum age permitted by state law, if less).
PAYEE--Any person or entity entitled to receive payment in one sum or under
a payment option. The term includes (i) an Annuitant, (ii) a Beneficiary or
contingent Beneficiary who becomes entitled to payments upon death of the
Contract Owner (or Annuitant, if the Contract is not owned in an individual
capacity), and (iii) in the event of surrender or partial surrender of the
Contract, the Contract Owner.
PREMIUM TAX CHARGE--A charge to recover premium taxes which the Company pays
to certain states.
PURCHASE PAYMENTS--Amounts paid to the Company for investment in the
Contract.
SYSTEMATIC WITHDRAWALS--A method of distributing your Contract Value which
involves a series of partial surrenders.
TEN DAY RIGHT TO REVIEW--Within 10 days (or more if required by law) of your
receipt of an issued Contract you may return it to the Company or its agent
for cancellation. Upon cancellation of the Contract, the Company will return
to you the Contract Value (or, if required by state law, all purchase payments
made).
VARIABLE ACCOUNT--A separate investment account of the Company designated as
the New England Variable Annuity Separate Account. The Variable Account is
divided into sub-accounts, each of which invests in shares of one of the
Eligible Funds.
VARIABLE ANNUITY--An annuity providing for payments varying in amount in
accordance with the investment experience of the assets of a separate
investment account.
HIGHLIGHTS
This prospectus describes Contracts under which purchase payments are
allocated to the Variable Account. If the Fixed Account is available under
your Contract, you may allocate all or part of your purchase payments or
transfer all or part of your Contract Value to that account. For a description
of the Fixed Account, the rules regarding transactions which involve the Fixed
Account (such as special restrictions on transfers of Contract Value to and
from the Fixed Account), and the way in which the Fixed Account affects the
Contract Value, see "The Fixed Account". You should review "The Fixed Account"
carefully before allocating purchase payments or Contract Value to that
account.
TAX DEFERRED VARIABLE ANNUITIES:
The deferral of taxes on earnings under variable annuities is designed to
encourage long-term personal savings and supplemental retirement plans.
THE CONTRACT:
The American Growth Series is a variable annuity issued by NEVLICO. The
variable annuity provides for variable payments to commence at the Maturity
Date. The Contract Owner may, however, surrender the Contract and apply the
proceeds to an annuity payment option at an earlier date. The payments
generally are made on a monthly basis and will vary in amount according to the
payment option selected and the investment results of the underlying Eligible
Fund(s). (See "Annuity Payments".)
A-5
<PAGE>
PURCHASE PAYMENTS:
Under current rules, the minimum initial purchase payment is $2,000 for
Contracts used in connection with retirement plans qualifying for tax
benefited treatment under the Code and $5,000 for all other Contracts. The
maximum purchase payment permitted is $1,000,000, unless the Company consents
to a higher amount. Any subsequent purchase payments must be at least $250.
The Company reserves the right to limit purchase payments made in any Contract
Year or in total under a Contract. No purchase payment may be made (1) within
seven years prior to the Contract's Maturity Date (except under Contracts
issued in Pennsylvania or New York), or (2) after a Contract Owner (or after
the Annuitant, if the Contract is not owned in an individual capacity) reaches
age 86. (See "Purchase Payments".) Contracts can be purchased through
insurance agents of The New England who are registered representatives of New
England Securities. They may also be purchased through registered
representatives of broker-dealers that have selling agreements with New
England Securities.
OWNERSHIP:
The Contracts may be purchased and owned by an individual, an employer, a
trust, a corporation, a partnership, a custodian or any entity specified in an
eligible employee benefit plan. The Contracts are available to the following
retirement plans which offer Federal tax benefits: individual retirement
accounts under Section 408(a) of the Code, individual retirement annuities
under Section 408(b) of the Code (both referred to as "IRAs"), and simplified
employee pension plans under Section 408(k) of the Code ("SEPs"). The
Contracts are not currently available to other plans that qualify for tax
benefits under the Code.
A Contract may have joint owners. If the Annuitant is not the Contract Owner
and the Contract Owner is an individual, then the Contract Owner must be the
Contingent Annuitant. Under a jointly owned Contract, if the Annuitant is not
one of the Contract Owners, then one Contract Owner must be the Contingent
Annuitant. Where a Contract is used to fund an IRA, the Contract Owner must be
the Annuitant, and no Contingent Annuitant will be allowed.
The Company relies on instructions from trustees and custodians, as Contract
Owners, who may exercise certain rights under the Contracts on behalf of plan
participants. In any event, references to "you" in this prospectus refer to
the Contract Owner(s) or to plan participants who may be entitled to instruct
their trustee or custodian with regard to the exercise of these rights. (See
"Ownership Rights".)
INVESTMENT OPTIONS:
You may allocate purchase payments to the Series of the New England Zenith
Fund that are Eligible Funds under the Contracts, or to the Fixed Account (if
available under your Contract). Your Contract Value may be distributed among
no more than 10 accounts (including the Fixed Account) at any time.
You may change your allocation of future purchase payments. You may also
transfer Contract Value between Eligible Funds without taxation. The Company
reserves the right to limit the number and amount of transfers and charge a
transfer fee. Currently the Company allows 12 transfers free of charge per
Contract Year prior to annuitization. Additional transfers are subject to a
$10 charge per transfer. However, special limits apply in situations which the
Company determines involve "market-timing". (See "Transfer Privilege" for more
information.) After variable annuity payments begin, the Company currently
allows one transfer per year in total. 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.) Currently, the Company's
rules for transfers prior to annuitization generally require that the amount
transferred from any sub-account must be at least $100 (net of any transfer
fee), and the amount transferred to any sub-account must be at least $100. The
maximum amount which can be transferred is $500,000 per transaction.
CHARGES:
No sales charges are deducted from purchase payments before they are
invested in the Contract. The Company currently imposes a premium tax charge
under Contracts on the lives of Annuitants residing in states imposing premium
taxes. Generally, the Company deducts any applicable premium tax charge from
the Contract Value on the date when annuity payments begin. In Pennsylvania,
South Dakota and Kentucky the Company deducts the premium tax charge at the
earliest of: a full or partial surrender, annuitization or payment of the
Death Proceeds (including application of the Death Proceeds
A-6
<PAGE>
to the Beneficiary Continuation provision) due to the death of a Contract
Owner (or Annuitant under a Contract not owned in an individual capacity).
(See "Premium Tax Charge.") For assuming mortality and expense risks under the
Contract, the Company deducts an amount equal to an annual rate of 1.25% of
the daily net assets of the Variable Account, of which .70% represents a
mortality risk charge and .55% represents an expense risk charge. (See
"Mortality and Expense Risk Charge".) The Company deducts an amount equal to
an annual rate of .10% of the daily net assets of the Variable Account for
administrative expenses and also imposes an annual administration charge
against your Contract Value in the Variable Account, equal to the lesser of 2%
of the total Contract Value (including any Contract Value in the Fixed
Account) and $30. (The annual administration charge will be waived for any
Contract Year in which the Contract Value reaches certain amounts established
by the Company. In addition, the charge will not apply if the entire Contract
Value is allocated to the Fixed Account. See "Administration Charges".)
A Contingent Deferred Sales Charge will be imposed on certain full and
partial surrenders and applications of proceeds to certain payment options,
or, in certain circumstances, on withdrawal of amounts that were applied to a
payment option. (See "Contingent Deferred Sales Charge.") In addition, a
Contingent Deferred Sales Charge may apply at the Maturity Date under
Contracts issued in Pennsylvania or New York, if at that time a purchase
payment has been invested less than seven years. The Contingent Deferred Sales
Charge is a maximum of 7% of each purchase payment made. In no event will the
amount of the Contingent Deferred Sales Charge exceed the equivalent of 8% of
the first $50,000 of purchase payments and 6.5% of purchase payments in excess
of $50,000.
TEN DAY RIGHT TO REVIEW:
Within 10 days (or more where required by state insurance law) after you
receive the Contract you may return it to the Company or the Company's agent
for cancellation. The Company will return to you the Contract Value (or, if
required by state law or regulation, all purchase payments made). (See "Ten
Day Right to Review" on page A-23.)
PAYMENT ON DEATH:
The Contract provides for a payment to the Beneficiary if the Contract Owner
dies (or, if a Contract Owner under a jointly owned Contract dies) prior to
annuitization. (In the case of a Contract not owned in an individual capacity,
the Death Proceeds will be paid if the Annuitant dies prior to annuitization.)
The Death Proceeds are guaranteed not to be less than purchase payments made
under the Contract, adjusted for any previous surrenders and, in certain
states, reduced by a premium tax charge. However, on the seventh Contract
Anniversary, and at seven year intervals thereafter until the Contract Owner's
76th birthday, the guaranteed minimum Death Proceeds payable are recalculated
to determine whether a higher (but never a lower) guarantee will apply. (Under
a jointly owned Contract, the recalculation of the minimum Death Proceeds will
be made at seven year intervals prior to the 71st birthday of the older
Contract Owner.) The Death Proceeds payable will be the greater of the
guaranteed minimum Death Proceeds amount applicable to the Contract and the
current Contract Value. (See "Payment on Death Prior to Annuitization".)
SURRENDERS:
Generally, you may surrender the Contract for all or a portion of the
Contract Value by written request at any time prior to annuitization so long
as, after a partial surrender, the remaining Contract Value is at least
$1,000. Under the Company's current rules, a partial surrender must be at
least $100. (See "Surrenders".) The Federal tax laws impose penalties upon,
and in some cases prohibit, certain premature distributions from the Contracts
before or after the date on which the annuity payments are to begin. (See
"Federal Income Tax Status.") A Contingent Deferred Sales Charge will be
imposed in connection with certain Contract surrenders and applications of
proceeds to certain payment options, or, in certain circumstances, upon
subsequent withdrawal of amounts applied to a payment option. Upon a full
surrender, a pro rata portion of the annual $30 administration charge and, in
certain states, a premium tax charge will also be deducted. In any Contract
Year, an amount equal to the greater of (1) 10% of the Contract Value at the
beginning of the Contract Year and (2) the excess of the Contract Value over
purchase payments subject to the Contingent Deferred Sales Charge on the date
of the surrender may be surrendered without sales charge. (See "Contingent
Deferred Sales Charge" for more information.)
- -------------------------------------------------------------------------------
A-7
<PAGE>
EXPENSE TABLE
<TABLE>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES(1)
Sales Charge Imposed on Purchase Payments (as a percentage
of purchase payments)...................................... 0%
Maximum Contingent Deferred Sales Charge(2) (as a percentage
of each purchase payment).................................. 7%
Transfer Fee(3)............................................. $ 0
(first 12 per
Contract Year)
ANNUAL CONTRACT FEE
Administration Contract Charge (per Contract)(4)............ $30
SEPARATE ACCOUNT ANNUAL EXPENSES(5)
(as percentage of average net assets)
Mortality Risk Charge....................................... .70%
Expense Risk Charge......................................... .55%
Administration Asset Charge................................. .10%
-----
Total Separate Account Annual Expenses.................. 1.35%
</TABLE>
A-8
<PAGE>
NEW ENGLAND ZENITH FUND
ANNUAL OPERATING EXPENSES(6) (AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER
EXPENSE CAP OR EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
BACK BAY BACK BAY LOOMIS LOOMIS
ADVISORS ADVISORS WESTPEAK SAYLES SAYLES LOOMIS DRAYCOTT
BOND MONEY VALUE AVANTI SMALL SAYLES INTERNATIONAL
INCOME MARKET GROWTH GROWTH CAP BALANCED EQUITY
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- -------- -------- ------ ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .40% .35% .70% .70% 1.00% .70% .90%
Other Expenses.......... .14% .15% .15% .15% -- .15% .40%
---- ---- ---- ---- ----- ---- -----
Total Operating Ex-
penses............... .54% .50% .85% .85% 1.00% .85% 1.30%
</TABLE>
<TABLE>
<CAPTION>
SALOMON SALOMON
BROTHERS BROTHERS
ALGER EQUITY VENTURE U.S. STRATEGIC BOND
GROWTH VALUE GOVERNMENT OPPORTUNITIES
SERIES SERIES SERIES SERIES
------------ ------- ---------- --------------
<S> <C> <C> <C> <C>
Management Fee................... .70% .75% .55% .65%
Other Expenses................... .15% .15% .15% .20%
---- ---- ---- ----
Total Operating Expenses....... .85% .90% .70% .85%
</TABLE>
EXAMPLE (NOTE: The examples shown below are entirely hypothetical. Although
they are based on the expenses shown in the expense tables above, the examples
are not representations of past or future performance or expenses. Actual
performance and/or expenses may be more or less than shown.(7)) For purchase
payments allocated to each of the Series indicated:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000 purchase
payment assuming
1) 5% annual return on the underlying New England Zenith
Fund Series and 2) that you surrender your Contract or that
you elect to annuitize under a period certain option for a
specified period of less than 15 years, at the end of each
time period:
Back Bay Advisors Bond Income.............................. $85.74 $113.15
Back Bay Advisors Money Market............................. 85.37 112.00
Westpeak Value Growth...................................... 88.63 122.04
Loomis Sayles Avanti Growth................................ 88.63 122.04
Loomis Sayles Small Cap.................................... 90.02 126.31
Loomis Sayles Balanced..................................... 88.63 122.04
Draycott International Equity.............................. 92.80 134.79
Alger Equity Growth........................................ 88.63 122.04
Venture Value.............................................. 89.09 123.46
Salomon Brothers U.S. Government........................... 87.24 117.74
Salomon Brothers Strategic Bond Opportunities.............. 88.63 122.04
</TABLE>
A-9
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000 purchase
payment assuming
1) 5% annual return on the underlying New England Zenith
Fund Series and 2) that you do not surrender your Contract
or that you elect to annuitize under a life contingency
option, or under a period certain option for a minimum
specified period of 15 years, at the end of each time
period(8):
Back Bay Advisors Bond Income............................ $20.73 $64.00
Back Bay Advisors Money Market........................... 20.33 62.79
Westpeak Value Growth.................................... 23.84 73.36
Loomis Sayles Avanti Growth.............................. 23.84 73.36
Loomis Sayles Small Cap.................................. 25.34 77.86
Loomis Sayles Balanced................................... 23.84 73.36
Draycott International Equity............................ 28.33 86.79
Alger Equity Growth...................................... 23.84 73.36
Venture Value............................................ 24.34 74.86
Salomon Brothers U.S. Government......................... 22.34 69.84
Salomon Brothers Strategic Bond Opportunities............ 23.84 73.36
</TABLE>
A-10
<PAGE>
- --------
NOTES:
(1) Premium tax charges are not shown. They range from 0% (in most states) to
3.5% of Contract Value. The amount of the premium tax charge, if any, is
generally deducted from the Contract Value on the date selected by the
Contract Owner for the commencement of annuity benefits, and in three
states is deducted at the earliest of: a full or partial surrender,
annuitization, or payment of the Death Proceeds due to the death of the
Contract Owner (or Annuitant if the Contract is not owned in an individual
capacity). (See "Premium Tax Charge.")
(2) The Contingent Deferred Sales Charge applies to each purchase payment made
and declines annually over the first seven year period the purchase
payment is invested in the Contract until it reaches 0% for that purchase
payment. Amounts subject to the Contingent Deferred Sales Charge will be
determined by assuming that purchase payments are withdrawn (whether for a
surrender or annuitization) on a "first in-first out" basis. An amount
equal to the greater of (1) 10% of the Contract Value at the beginning of
the Contract Year and (2) the excess of the Contract Value over purchase
payments that are subject to the Contingent Deferred Sales Charge at the
time of surrender may be surrendered without sales charge in any one
Contract Year.
(3) The Company currently charges $10 for each transfer in excess of 12 during
a Contract Year, and reserves the right to impose a transfer fee on all
transfers. The Company also reserves the right to increase the amount of
the fee.
(4) This charge is not imposed after annuitization. As a percentage of the
estimated average Contract Value in the Variable Account, this fee equals
0.15%, based on an estimated average Contract Value of approximately
$19,500.
(5) These charges are not imposed after annuitization if annuity payments are
made on a fixed basis.
(6) Total Operating Expenses for the Back Bay Advisors Bond Income, Back Bay
Advisors Money Market, Westpeak Value Growth, and Loomis Sayles Avanti
Growth Series are based on the amount of such expenses incurred during the
most recent fiscal year applied against assets at December 31, 1994, after
giving effect to a voluntary expense cap. For each of these Series, TNE
Advisers, Inc. ("TNE Advisers"), the Series' investment adviser, will bear
those expenses (other than the management fee) that exceed 0.15% of
average daily net assets. Without this cap or any other expense
reimbursement arrangement, Total Operating Expenses for the Back Bay
Advisors Money Market, Westpeak Value Growth and Loomis Sayles Avanti
Growth Series for the year ended December 31, 1994 would have been 0.52%,
1.36% and 1.25%, respectively. For the Loomis Sayles Small Cap Series,
which commenced operations on May 2, 1994, Total Operating Expenses take
into account a voluntary cap on expenses by TNE Advisers, which will bear
all expenses that exceed 1.00% of average daily net assets. Absent this
cap or any other expense reimbursement arrangement, Total Operating
Expenses for the Loomis Sayles Small Cap Series are estimated to be 1.70%
of average daily net assets for its first year of operations. For the six
other Series shown, the total operating expenses are after giving effect
to a voluntary expense deferral. Under the deferral, expenses other than
the management fee which exceed a certain limit are paid by TNE Advisers
in the year they are incurred and transferred to the Series in a future
year when actual expenses of the Series are below the limit. The limit on
expenses other than the management fee for each of these Series is: .15%
of average daily net assets for the Salomon Brothers U.S. Government,
Loomis Sayles Balanced, Venture Value and Alger Equity Growth Series; .20%
of average daily net assets for the Salomon Brothers Strategic Bond
Opportunities Series; and .40% of average daily net assets for the
Draycott International Equity Series. It is estimated that, absent the
voluntary expense deferral, Total Operating Expenses for the Loomis Sayles
Balanced, Draycott International Equity, Alger Equity Growth, Venture
Value, Salomon Brothers U.S. Government and Salomon Brothers Strategic
Bond Opportunities Series during their first year of operations would be
0.89%, 1.52%, 0.87%, 1.01%, 0.91%, and 1.42%, respectively. The expense
cap and deferral arrangements are voluntary and may be terminated at any
time. See attached prospectus for New England Zenith Fund for more
complete information.
(7) In these examples, the average Administration Contract Charge of 0.15% has
been used. (See (4), above.)
(8) If you subsequently withdraw the commuted value of amounts placed under
any of these options, the Company will deduct from the amount you receive
a portion of the Contingent Deferred Sales Charge amount that would have
been deducted when you originally applied the Contract proceeds to the
option. The applicable portion of the Contingent Deferred Sales Charge
will be based on the ratio of (1) the number of whole months remaining at
the time of withdrawal until the date when the Contingent Deferred Sales
Charge would expire, to (2) the number of whole months
A-11
<PAGE>
that were remaining, when the proceeds were applied to the option, until
the date when the Contingent Deferred Sales Charge would expire.
- -------------------------------------------------------------------------------
The preceding table lists the charges and expenses incurred with respect to
purchase payments invested under the Contracts. The items listed include
charges deducted from purchase payments, charges assessed against Variable
Account assets, and charges deducted from the assets of each of the Eligible
Funds. The examples assume that the entire purchase payment was allocated
initially to a single sub-account without any subsequent transfers. The
purpose of the table is to assist you in understanding the various costs and
expenses you will bear, directly and indirectly, as a Contract Owner.
A-12
<PAGE>
HOW THE CONTRACT WORKS
PURCHASE PAYMENT CONTRACT VALUE DAILY DEDUCTION FROM
. You can make a . Payments are . Mortality and
one-time allocated to your expense risk
investment or choice, within charge of 1.25% on
establish an limits, of an annualized
ongoing Eligible Funds basis is deducted
investment and/or the Fixed from the Contract
program, Account Value daily
subject to the
Company's . The Contract Value . Administration
minimum and reflects purchase Asset Charge of
maximum payments, 0.10% on an
purchase investment annualized basis
payment experience, is deducted from
guidelines interest credited the Contract Value
on Fixed Account daily
ADDITIONAL PAYMENTS allocations,
partial . Investment
. Generally may surrenders, and advisory fees are
be made at any Contract charges deducted from the
time, (subject Eligible Fund
to Company . The Contract Value assets daily
limits), but invested in the
no purchase Eligible Funds is ANNUAL CONTRACT FEE
payments not guaranteed
allowed (1) . $30 Administration
during the . Earnings are Contract Charge is
seven years accumulated free deducted from the
immediately of any current Contract Value in
preceding the income taxes (see the Variable
Maturity Date page A-33) Account on each
(except under anniversary while
Contracts . You may change the the Contract is
issued in allocation of in-force, other
Pennsylvania future payments, than under a
or New York), within limits, at Payment Option.
or (2) after a any time (May be waived for
Contract Owner certain large
(or the . Prior to Contracts.) A pro
Annuitant, if annuitization, you rata portion is
not owned in may transfer deducted on full
an individual Contract Value surrender and at
capacity) among accounts. the Maturity Date.
reaches age Currently the
86. Company allows 12 SURRENDER CHARGE
transfers free of . Consists of
. Minimum $250 charge per Contingent
Contract Year. Deferred Sales
SURRENDERS (Special limits Charge based on
exist in purchase payments
. Up to the situations that made (see pages A-
greater of: involve "market 25 to A-27)
10% of the timing".)
Contract Value PREMIUM TAX CHARGE
at the . Allocations of . Where applicable,
beginning of payments and is deducted from
the Contract transfers of the Contract Value
Year, and the Contract Value are when annuity
excess of the limited in that benefits commence
Contract Value Contract Value may (and, in certain
over purchase not be allocated states, at the
payments that among more than earliest of: full
are subject to ten accounts or partial
the Contingent (including the surrender,
Deferred Sales Fixed Account) at annuitization or
Charge on the any time. payment of the
date of Death Proceeds due
surrender can RETIREMENT BENEFITS to the death of a
be withdrawn Contract Owner or,
each year . Lifetime income if applicable, of
without options the Annuitant.)
incurring a
Contingent . Fixed and/or ADDITIONAL BENEFITS
Deferred Sales variable payout . You pay no taxes
Charge options on your investment
as long as it
. Surrenders may . Retirement remains in the
be taxable benefits may be Contract
taxable
. Prior to age . Contract may be
59 1/2 a 10% surrendered at any
penalty tax time for its
may apply Contract Value,
less any
DEATH PROCEEDS applicable
Contingent
. Guaranteed not Deferred Sales
to be less Charge
than your
total purchase . If available in
payment your state,
adjusted for Contingent
any prior Deferred Sales
surrenders Charge may be
(and, where waived upon
applicable, evidence of
net of premium terminal illness,
tax charges) confinement to a
nursing home, or
. Death proceeds permanent and
pass to the total disability.
beneficiary
without
probate
. Death proceeds
may be taxable
A-13
<PAGE>
THE COMPANY
NEVLICO was organized as a stock life insurance company in Delaware in 1980
and is authorized to operate in all states, the District of Columbia and
Puerto Rico. NEVLICO's Home Office is in Wilmington, Delaware and its
Administrative Office is at 501 Boylston Street, Boston, Massachusetts 02116.
NEVLICO is a wholly-owned subsidiary of The New England, which was organized
in Massachusetts in 1835. The New England is the oldest chartered mutual life
insurance company in the United States. On December 31, 1994, The New England
had over $15 billion of assets and approximately $90 billion of life insurance
in force. As of December 31, 1994, The New England and its affiliates had over
$66 billion in assets under management.
THE VARIABLE ACCOUNT
The Variable Account was established by the Company as a separate investment
account under Delaware law on July 1, 1994, and is registered as a unit
investment trust under the Investment Company Act of 1940. The Variable
Account meets the definition of a "separate account" under Federal securities
laws.
Applicable law provides that the assets in the Variable Account equal to the
reserves and other contract liabilities of the Variable Account shall not be
chargeable with liabilities arising out of any other business the Company may
conduct. The Company believes this means that the assets of the Variable
Account equal to its reserves and other contract liabilities are not available
to meet the claims of the Company's general creditors and may only be used to
support the Contract Values under the Contracts. The income and realized and
unrealized capital gains or losses of the Variable Account are, in accordance
with the Contracts, 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 to the sub-accounts of the Variable Account
that 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 in which each of your selected sub-accounts
invests. 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, according to 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 your Contract Value 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 Eligible Funds from time to time as
investments for the Variable Account.
BACK BAY ADVISORS MONEY MARKET SERIES
The Back Bay Advisors Money Market Series seeks the highest possible level
of current income consistent with preservation of capital. The Back Bay
Advisors Money Market Series invests in a variety of high quality money market
instruments.
BACK BAY ADVISORS BOND INCOME SERIES
The Back Bay Advisors Bond Income Series' investment objective is to provide
a high level of current income consistent with protection of capital and
moderate investment risk through investment primarily in U.S. Government and
corporate bonds.
A-14
<PAGE>
WESTPEAK VALUE GROWTH SERIES
The Westpeak Value Growth Series seeks long-term total return (capital
appreciation and dividend income) through investment primarily in equity
securities. Emphasis will be given to both undervalued securities ("value"
style) and securities of companies with growth potential ("growth" style).
LOOMIS SAYLES AVANTI GROWTH SERIES
The Loomis Sayles Avanti Growth Series seeks long-term growth of capital.
The Series normally will invest primarily in equity securities of companies
with medium and large capitalization (capitalization of $1 billion to $5
billion and over $5 billion, respectively), but will also invest a portion of
its assets in equity securities of companies with relatively small market
capitalization (under $1 billion).
LOOMIS SAYLES SMALL CAP SERIES
The Loomis Sayles Small Cap Series seeks long-term capital growth from
investments in common stocks or their equivalent. The Series will normally
invest at least 65% of its total assets in companies with market
capitalization of less than $500 million.
LOOMIS SAYLES BALANCED SERIES
The Loomis Sayles Balanced Series seeks a reasonable long-term investment
return from a combination of long-term capital appreciation and moderate
current income. The Series is "flexibly managed" in that sometimes it invests
more heavily in equity securities and at other times it invests more heavily
in fixed-income securities. Under normal conditions, the Series will invest at
least 25% of its assets in bonds and at least 50% of its assets in common
stocks.
DRAYCOTT INTERNATIONAL EQUITY SERIES
The Draycott International Equity Series seeks total return from long-term
growth of capital and dividend income. The Series will invest primarily in
common stocks of issuers either headquartered outside the U.S. or deriving a
substantial part of their revenues from countries outside of the U.S.
ALGER EQUITY GROWTH SERIES
The Alger Equity Growth Series' investment objective is long-term capital
appreciation. The Series seeks to achieve its investment objective by
investing primarily in a diversified, actively managed portfolio of equity
securities, with the majority of issuers having a total market capitalization
of $1 billion or greater.
VENTURE VALUE SERIES
The Venture Value Series' investment objective is growth of capital. The
Series will primarily invest in domestic common stocks (and securities
convertible into common stock) that have capital growth potential due to
factors such as undervalued assets or earnings potential, product development
and demand, favorable operating ratios, resources for expansion, management
abilities, reasonableness of market price, and favorable overall business
prospects. The Series will generally invest predominantly in equity securities
of companies with market capitalizations of at least $250 million.
SALOMON BROTHERS U.S. GOVERNMENT SERIES
The Salomon Brothers U.S. Government Series seeks a high level of current
income consistent with preservation of capital and maintenance of liquidity.
The Series will invest primarily in debt obligations and mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and, to the extent allowed by state insurance law,
derivative securities such as collateralized mortgage obligations backed by
such securities.
A-15
<PAGE>
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
The Salomon Brothers Strategic Bond Opportunities Series seeks a high level
of total return consistent with preservation of capital. Assets will be
allocated primarily among U.S. Government obligations, mortgage backed
securities, domestic corporate debt and international debt securities rated
investment grade (BBB or higher by S&P or Baa or higher by Moody's) (or
unrated but deemed to be of equivalent quality in the subadviser's judgement)
and domestic corporate debt and international debt securities rated below
investment grade. Depending on market conditions, the Series may invest
without limit in below investment grade fixed-income securities. Securities of
below investment grade quality are considered high yield, high risk securities
and are commonly known as "junk bonds."
INVESTMENT ADVICE
TNE Advisers, Inc., a subsidiary of The New England, serves as investment
adviser for the Eligible Funds. Each of these Eligible Funds also has a
subadviser. The Back Bay Advisors Money Market Series and Back Bay Advisors
Bond Income Series receive investment subadvisory services from Back Bay
Advisors, L.P., an indirect subsidiary of The New England. The Westpeak Value
Growth Series receives investment subadvisory services from Westpeak
Investment Advisors, L.P., an indirect subsidiary of The New England. The
Loomis Sayles Avanti Growth Series, Loomis Sayles Small Cap Series and Loomis
Sayles Balanced Series receive investment subadvisory services from Loomis
Sayles & Company, L.P., an indirect subsidiary of The New England. The
Draycott International Equity Series receives investment subadvisory services
from Draycott Partners, Ltd., an indirect subsidiary of The New England. The
Alger Equity Growth Series receives investment subadvisory services from Fred
Alger Management, Inc. The Venture Value Series receives investment
subadvisory services from Selected/Venture Advisers, L.P. The Salomon Brothers
U.S. Government Series and Salomon Brothers Strategic Bond Opportunities
Series receive investment subadvisory services from Salomon Brothers Asset
Management. More complete information on each Series of the New England Zenith
Fund (the "Zenith Fund") is contained in the attached Zenith Fund prospectus,
which you should read carefully before investing, as well as in the 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.
SUBSTITUTION OF INVESTMENTS
If investment in the Eligible Funds or a particular Series is no longer
possible or in the judgment of the Company becomes inappropriate for the
purposes of the Contract, the Company may substitute another Eligible Fund or
Funds without your consent. Substitution may be made with respect to both
existing investments and the investment of future purchase payments. However,
no such substitution will be made without any necessary approval of the
Securities and Exchange Commission.
GUARANTEED OPTION
Purchase payments may also be allocated to the Fixed Account option in
approved states. The Fixed Account is a part of the Company's general account
and provides guarantees of principal and interest. (See "The Fixed Account"
for more information.)
THE CONTRACTS
The Contracts provide that your purchase payments will be invested by the
Company in the Eligible Fund or Funds you select and that, after the Maturity
Date, the Company will make variable annuity payments on a monthly basis
unless you select a fixed annuity option. You assume the risk of investment
gain or loss because 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 the Eligible Funds
in which your Contract is invested.
A-16
<PAGE>
PURCHASE PAYMENTS
The minimum initial purchase payment currently required is $2,000 for
Contracts used in connection with retirement plans qualifying for tax
benefited treatment under the Code and $5,000 for all other Contracts. Any
subsequent purchase payments must be at least $250. The Company reserves the
right to limit purchase payments made under a Contract. The Company currently
reserves the right not to accept any purchase payment that, when combined with
the Contract Value under all Contracts owned by a single Contract Owner, would
exceed $1,000,000. Under its current rules, in no event will the Company
accept a purchase payment that, when combined with the Contract Value under
all Contracts owned by a single Contract Owner, would exceed $2,000,000. If a
Contract Owner selects a single purchase payment Contract in the application,
the Company reserves the right not to accept any additional purchase payments.
If a Contract Owner selects a flexible purchase payment Contract in the
application, the Company reserves the right to limit purchase payments in any
Contract Year to three times the amount shown in the application.
No purchase payments may be made (1) within seven years prior to the
- ----------------------------------------------------------------------
Contract's Maturity Date (except under contracts issued in Pennsylvania or New
- ------------------------------------------------------------------------------
York), or (2) after a Contract Owner (or the Annuitant, if the Contract is not
- ------------------------------------------------------------------------------
owned in an individual capacity) reaches age 86.
- ------------------------------------------------
The Company will determine whether to approve applications for new
Contracts, and will apply initial purchase payments under new Contracts, not
later than two business days after a completed application is received at the
Company's Administrative Office. If an application is not complete upon
receipt, the Company will apply the initial purchase payment not later than
two business days after it is completed. If an incomplete application is not
completed within five 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 agrees to have the Company retain the
purchase payment until the application is completed. The Company reserves the
right to reject any application.
Exchange Offer. An owner of a Fund I, Preference or Zenith Accumulator
--------------
Variable Annuity contract (the "old contracts") issued by New England Mutual
Life Insurance Company ("The New England") may exchange an old contract for an
American Growth Series Contract (a "new contract"), provided that the owner's
age does not exceed the Company's maximum age at issue, and the Contract value
of the old contract (along with any purchase payments submitted with the
exchange application) is at least equal to the minimum initial purchase
payment for a new contract. The contract value of the old contract as of the
date the exchange is effected will be credited as the initial purchase payment
to the new contract for purposes of certain administrative rules and Contract
benefits. No charges will be deducted at the time of exchange. See "Charges
Under Fund I, Preference and Zenith Accumulator Contracts" for a comparison of
the charges under the old contracts and the new contracts.
The American Growth Series Contract provides an enhanced death benefit, more
options than offered by the Zenith Accumulator contract under the systematic
withdrawal feature, and access to an assortment of investment options that
differs from those currently available under the old contracts. For more
information, see "Payment at Death Prior to Annuitization", "Systematic
Withdrawals", "Investments of the Variable Account" and "Charges Under
Contracts Purchased by Exchanging a Fund I, Preference or Zenith Accumulator
Contract." In addition, the American Growth Series Contract offers a Fixed
Account option, which is not available under the Fund I or Preference
contracts. For more information, see "The Fixed Account." In specified
circumstances of Contract Owner illness or disability, the Company will waive
the contingent deferred sales charge on an American Growth Series contract.
For more information, see "Waiver of the Contingent Deferred Sales Charge"
under "Contingent Deferred Sales Charge." This benefit may not be available in
all states.
The American Growth Series Contract is issued by NEVLICO, whereas the old
contracts were issued by The New England. Although The New England is the
parent of NEVLICO, it does not guarantee the obligations of NEVLICO.
ALLOCATION OF PURCHASE PAYMENTS
Purchase payments are converted into Accumulation Units of the sub-accounts
you select (subject to the limitation that the Contract Value may be allocated
among no more than ten accounts, including the Fixed Account, at any time).
The
A-17
<PAGE>
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 Administrative
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 another variable annuity contract
issued by the Company, 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 other variable annuity 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 subaccount 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 were first publicly available. The Accumulation
Unit Value is determined as of the close of regular trading on the New York
Stock Exchange on each day the Exchange is open for trading by multiplying the
most recent Accumulation Unit Value by the net investment factor for that day.
The net investment factor for any sub-account reflects the change in net asset
value per share of the corresponding Eligible Fund as of the close of regular
trading on the Exchange 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 net investment factor may be greater or less than one.
The formula for determining the net investment factor is described under the
caption "Net Investment Factor" in the Statement of Additional Information.
Under a Contract with the Fixed Account option, the total Contract Value
includes the amount of Contract Value held in the Fixed Account. (See "The
Fixed Account".)
PAYMENT ON DEATH PRIOR TO ANNUITIZATION
The Contract's Death Proceeds are payable to the Beneficiary if the Company
receives due proof of the death, prior to annuitization, of: (1) the Contract
Owner, (2) the first Contract Owner to die, in the case of a Contract with
joint owners, or (3) the Annuitant, in the case of a Contract that is not
owned in an individual capacity. (In situation (2) above, if there is no named
Beneficiary, the Death Proceeds will be paid to the surviving Contract Owner.)
The Contract's Death Proceeds at any time are the greater of the current
Contract Value and the applicable guaranteed minimum Death Proceeds amount.
For this purpose, the current Contract Value is the value next determined
after the later of the date when due proof of death is received at the
Administrative Office and the date when an election of payment in one sum or
under a payment option is received at the Administrative Office. In certain
states, the Death Proceeds payable will be reduced by the applicable premium
tax charge.
At the inception of the Contract, the guaranteed minimum Death Proceeds
------------------
amount is equal to your initial purchase payment. Thereafter, until the
seventh Contract Anniversary, any subsequent purchase payment will immediately
increase your guaranteed minimum Death Proceeds amount by the amount of the
purchase payment. Any partial surrender will immediately decrease your
guaranteed minimum Death Proceeds by the percentage of the Contract Value
being withdrawn.
On the seventh Contract Anniversary, and every seventh year anniversary
thereafter until the Contract Owner's (or, if applicable, the Annuitant's)
76th birthday, the guaranteed minimum Death Proceeds payable under the
------------------
Contract are recalculated to determine whether a higher (but never a lower)
guarantee will apply. (For a jointly owned Contract, this recalculation is
made every seven years until the 71st birthday of the older Contract Owner.)
The purpose of the recalculation is to give you the benefit of any positive
investment experience under your Contract. Your Contract's previous investment
A-18
<PAGE>
experience can cause the guaranteed minimum Death Proceeds amount to increase
- -----------------------------------------------------------------------------
on the recalculation date, but cannot cause it to decrease. The guaranteed
- --------------------------------------------------------------------------
minimum determined on a recalculation date is the larger of:
- ------------------------------------------------------------
(a) the guaranteed minimum Death Proceeds amount that applied to your
Contract just before the recalculation; and
(b) the Contract Value on the date of the recalculation.
The new guaranteed minimum Death Proceeds amount applies to your Contract
------------------
until the next recalculation date, or until you make a purchase payment or
surrender. In that case, the same adjustment will be made to the guaranteed
minimum Death Proceeds amount as is made during the first seven years.
Example: Assume that a Contract is issued with a $10,000 purchase payment on
5/1/95. No further purchase payments are made and, during the first
seven Contract Years, no partial surrenders are made. During the
first seven Contract Years, the guaranteed minimum Death Proceeds
amount is $10,000. Assume that on the Contract Anniversary on
5/1/02, the Contract Value is $25,000. The minimum guaranteed Death
Proceeds amount is reset on that date to $25,000.
Assume that the Contract Value increases to $27,000 by 1/1/03, and
that you request a partial surrender of 20% of your Contract Value,
or $5,400, on that date. The guaranteed minimum Death Proceeds amount
immediately following the partial surrender is $20,000 [$25,000 -
.20($25,000)].
Assume that on 6/15/03 the Contract Value has decreased to $18,000.
The guaranteed minimum Death Proceeds amount remains at $20,000 and
the Death Proceeds payable on 6/15/03 are $20,000.
Under Exchanged Contracts. The initial guaranteed effective minimum Death
--------------------------
Proceeds amount under a Contract issued in exchange for the Fund I, Preference
or Zenith Accumulator variable annuity contracts issued by The New England
will be the greater of the minimum death benefit that applied to the exchanged
contract on the effective date of the exchange and the amount paid into the
American Growth Series Contract at issue. (See "Purchase Payments--Exchange
Offer".) The guaranteed minimum will be recalculated on each seven-year
anniversary of the effective date of the exchange.
Options for Death Proceeds. The Death Proceeds 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"). (Certain annuity options under the
Contract are not available for the Death Proceeds.) 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, the Beneficiary may elect payment in a single sum, or
certain payment options that begin within one year of the date of death, or
may apply the Death Proceeds to the Beneficiary Continuation provision,
described below. However, if the Beneficiary does not make an election within
90 days after receipt by the Company of due proof of the Contract Owner's (or
Annuitant's where applicable) death, the Death Proceeds will be held within
the Contract under the Beneficiary Continuation provision.
The Contracts which are not used with a tax-qualified plan provide, as
required by the Code, that all of the Death Proceeds must be distributed
within five years after the death of the Contract Owner (or, if applicable, of
the Annuitant), or applied to a payment option payable over the life (or over
a period not extending beyond the life expectancy) of the Beneficiary, and the
payment option payments must start within one year of the date of death. If
the 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.
As described in the preceding paragraph, the Code permits payment of the
Death Proceeds to be deferred for a maximum period of five years from the date
of death of the Contract Owner (or, if applicable, of the Annuitant) if the
Owner (or Annuitant) dies before annuitization of the Contract. Under the
Beneficiary Continuation provision, unless the Beneficiary or Beneficiaries
elect payment of the Death Proceeds in a single sum within 90 days after the
Company receives due proof of death, or apply the Death Proceeds to a
permitted payment option within one year of the date of death, the Death
Proceeds
A-19
<PAGE>
will be held in the Contract and the Contract will be continued for the
maximum five year period, for each Beneficiary whose 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). For any
Beneficiary whose share of the Death Proceeds does not meet the published
minimum, the proceeds will be paid in a single sum if no election has been
made within the 90 day period described above. The Contract may not be
continued for any Beneficiary whose share of the Death Proceeds does not meet
the minimum. If the Contract is continued under the Beneficiary Continuation
provision, the Death Proceeds (reduced by any applicable premium tax charge)
become the Contract Value on the date the continuation is effected, and will
be allocated among the accounts in the same proportion as the Contract Value
on that date. If the Contract is continued, each Beneficiary will have the
right to make transfers and fully or partially surrender his or her portion of
the Contract Value, but may not make further purchase payments or exercise the
dollar cost averaging feature. No guaranteed minimum Death Proceeds amount or
---------------------
Contingent Deferred Sales Charge will apply once the Contract is continued by
the Beneficiary or Beneficiaries. Each Beneficiary's death benefit will equal
his or her share of the Contract Value on the date when due proof of his or
her death is received at the Administrative Office. At the end of the period
for which the Contract is continued (five years from the date of death of the
Contract Owner or, if applicable, of the Annuitant), the Company will pay the
Contract Value to the Beneficiaries.
--Special Options for Spouses. Under the Spousal Continuation provision, the
----------------------------
Contract may be continued after the death of a Contract Owner in certain
spousal arrangements. First, if a Contract has spousal joint owners who are
also the only Beneficiaries under the Contract, then upon the death of one
Contract Owner prior to annuitization under the Spousal Continuation
provision, the other may elect to continue the Contract rather than receive
the Death Proceeds. In addition, if only one spouse is the Contract Owner and
the other spouse is the Beneficiary, the surviving Beneficiary can elect to
continue the Contract in the event of the Contract Owner's death. In either of
these situations, the surviving spouse may elect to receive the Death Proceeds
(either in one sum or under a permitted payment option) or apply the Death
Proceeds to continue the Contract under the Beneficiary Continuation
provision, or may elect to forego the Death Proceeds and instead continue the
Contract under the Spousal Continuation provision with the spouse as the
Contract Owner. However, 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. All terms and conditions of the Contract that
applied prior to the death will apply to a Contract continued under the
Spousal Continuation provision, except that the Maturity Date will be reset,
if necessary, based on the age of the surviving spouse. Spousal Continuation
will not be available if the reset Maturity Date would be greater than the
Company's permitted maximum. Except under Contracts issued in New York or
Pennsylvania, if the reset Maturity Date would be less than seven years after
the date of the most recent purchase payment made, no Contingent Deferred
Sales Charge will apply under the Contract.
TRANSFER PRIVILEGE
You may transfer your Contract Value among sub-accounts and/or the Fixed
Account without current taxation. The Company reserves the right to limit
transfers and to charge a transfer fee. Except as described below, the Company
currently allows 12 free transfers per Contract Year prior to annuitization.
Additional transfers are currently subject to a $10 charge per transfer. (A
single transfer charge is allocated among the sub-accounts and/or Fixed
Account from which Contract Value is transferred.) Currently all transfers
prior to annuitization are subject to a maximum of $500,000 per transfer.
Currently the Company's rules for transfers prior to annuitization require
that the amount transferred from any sub-account must be at least $100 (net of
any transfer fee) and the amount transferred to any sub-account must be at
least $100. (If the full amount of Contract Value in a sub-account is less
than $100, net of any transfer fee, the amount may be transferred to a sub-
account in which Contract Value is already invested, or it may be transferred
to any sub-account if it is transferred in combination with Contract Value
from another sub-account so that the total transferred to the new sub-account
is at least $100.) After variable annuity payments begin, the Company
currently allows one transfer per Contract year. In applying the $500,000
limit, NEVLICO will treat as one transfer all transfers requested by a
Contract Owner on the same day for all Contracts he or she owns. If the
$500,000 limitation is exceeded for multiple transfers requested on the same
day that are treated as a single transfer, no amount of the transfer will be
executed by NEVLICO. Transfers will be made at the Accumulation Unit Values
next determined after the request is received. However, Contract Owners should
be aware that because transfer limitations may prevent you from making a
transfer on the date you want to, your future Contract Value may be lower than
it would have been had the transfer been made on the desired date.
A-20
<PAGE>
For transfers that NEVLICO determines to be based on "market-timing" (e.g.,
transfers under different Contracts that are being requested under Powers of
Attorney with a common attorney-in-fact or that are in NEVLICO's determination
based on the recommendation of a common investment adviser or broker/dealer),
the current transfer limitation prior to annuitization is one transfer every
30 days, each transfer subject to a maximum of $500,000. In applying the
limitation of one $500,000 transfer every 30 days, NEVLICO will treat as one
transfer all transfers requested under different Contracts that are being
requested under Powers of Attorney with a common attorney-in-fact or that are,
in NEVLICO's determination, based on the recommendation of a common investment
adviser or broker/dealer. If the $500,000 limitation is exceeded for multiple
transfers requested on the same day that are treated as a single transfer, no
amount of the transfer will be executed by NEVLICO. If a transfer is executed
under one Contract and, within the next 30 days, a transfer request for
another Contract is determined by NEVLICO to be related to the executed
transfer under this paragraph's rules, the transfer request will not be
executed by NEVLICO. (In order for it to be executed, it would need to be
requested again after the 30-day period and it, along with any other transfer
requests that are collectively treated as a single transfer, would need to
total no more than $500,000).
NEVLICO's interest in applying these limitations on the maximum number and
size of transfers is to protect the interests of both Contract Owners who are
not engaging in significant transfer activity and Contract Owners who are
engaging in such activity. NEVLICO has determined that the actions of Contract
Owners engaging in significant transfer activity among sub-accounts may cause
an adverse effect on the performance of the underlying Eligible Funds. The
movement of significant sub-account values from one sub-account to another may
prevent the appropriate Eligible Fund from taking advantage of investment
opportunities because it must maintain a significant cash position in order to
handle redemptions. Such movement may also cause a substantial increase in
Eligible Fund transaction costs which must be indirectly borne by Contract
Owners.
Contract Owners will be notified, in advance, of any change in the transfer
fee or in the limitation on the number or amount of transfers.
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 amount.
------------------------------------------------------------
Your Contract Value may be distributed among no more than ten accounts
(including the Fixed Account) at any time. Transfer requests not complying
with this rule will not be processed.
DOLLAR COST AVERAGING
The Company offers an automated transfer privilege referred to here as
dollar cost averaging. Under this feature you may request that an amount of
your Contract Value be transferred on the same day each month, prior to
annuitization, from any one account of your choice (including the Fixed
Account, subject to the limitations on transfers out of the Fixed Account) to
one or more of the other accounts (including the Fixed Account, subject to the
limitations on transfers into 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 are counted against the 12 free
transfers per year that NEVLICO currently allows. You may cancel your use of
the dollar cost averaging program at any time prior to the monthly transfer
date. (See Appendix A.)
SURRENDERS
Prior to annuitization, you may surrender your Contract for all or part of
the Contract Value. You may receive the proceeds in cash or apply them to a
payment option. The proceeds you receive will be the Contract Value reduced by
the following amounts:
. any applicable Contingent Deferred Sales Charge;
. a pro rata portion of the Administration Contract Charge (on a full
surrender only);
. a premium tax charge (in certain states only).
A-21
<PAGE>
See "Administration Charges, Contingent Deferred Sales Charge and Other
Deductions" for a description of these charges and when they apply.
Federal tax laws, laws relating to employee benefit plans, or the terms of
benefit plans for which the Contracts may be purchased may restrict your right
to surrender the Contract. In addition, Federal tax laws impose penalties on
certain premature distributions from the Contracts. Full and partial
surrenders and systematic withdrawals prior to age 59 1/2 may be subject to a
10% penalty tax. (See "Federal Income Tax Status".) Because a surrender may
result in adverse tax consequences, you should consult a qualified tax advisor
before taking a distribution from the Contract.
To surrender, you must submit a request in proper form to the Company's
Administrative Office. (See "Requests and Elections".) If you are seeking a
waiver of the Contingent Deferred Sales Charge due to terminal illness,
confinement to a nursing home or permanent and total disability, the request
must include satisfactory evidence of one of these conditions. (See
"Administration Charges, Contingent Deferred Sales Charge and Other
Deductions".) If you wish to apply the proceeds to a payment option, you must
---------------------------------------------------------------
indicate that in your surrender request; otherwise you will receive the
- -----------------------------------------------------------------------
proceeds in a lump sum and may be taxed on them as a full distribution. The
- -----------------------------------------------------------------------
surrender request must be received at the Administrative Office before the
earlier of the Maturity Date and a Contract Owner's death (or, for Contracts
not owned in an individual capacity, before the Annuitant's death). Surrender
proceeds will normally be paid within seven days after receipt of a request in
proper form at the Administrative Office, but payment may, by law, be delayed
under certain circumstances. (See "Suspension of Payments".)
The amount of the surrender proceeds will be based on the Accumulation Unit
Values that are next determined after the complete surrender request is
received at the Administrative Office; however, if you choose to apply the
surrender proceeds to a payment option, the surrender proceeds will be based
on Accumulation Unit Values determined on a later date if you so specify in
your request. Company consent is required if the amount of a partial surrender
is less than the Company's published minimum, which is currently $100. After a
partial surrender, the remaining Contract Value must be at least $1,000,
unless the Company consents to a lower amount. Otherwise, at your option,
either the amount of the partial surrender will be reduced or the transaction
will be treated as a full surrender that is subject to the full amount of any
applicable Contingent Deferred Sales Charge. A partial surrender will reduce
your Contract Value in the sub-accounts in proportion to the amount of your
Contract Value in each sub-account, unless you request otherwise.
SYSTEMATIC WITHDRAWALS
The Systematic Withdrawal feature available in connection with the Contract
allows you to have a portion of the Contract Value withdrawn automatically on
a monthly basis prior to annuitization. You can elect to withdraw each month
either a fixed dollar amount (which you can change periodically) or the
investment gain in the Contract. Currently a withdrawal must be a minimum of
$100; if you choose to have the investment gain withdrawn and it is less than
$100 for a month, no withdrawal will be made that month. The Company reserves
the right to change the required minimum monthly withdrawal amount. 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".) If you make a partial surrender or a purchase payment at the same
time that you are having the investment gain withdrawn under the Systematic
Withdrawal feature, the Systematic Withdrawal will be canceled effective as of
the next monthly withdrawal date; however, at your option, the Company will
resume Systematic Withdrawals on the following monthly withdrawal date (that
is, the second monthly withdrawal date after the purchase payment or partial
surrender). The amount of the Systematic Withdrawals will be adjusted to
reflect the purchase payment or partial surrender. 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;
however, no Contingent Deferred Sales Charge will apply if you are having the
investment gain (rather than a fixed dollar amount) withdrawn. The Federal tax
laws may include systematic withdrawals in the Contract Owner's gross income
in the year in which the withdrawal occurs and will impose a penalty tax of
10% on certain systematic withdrawals which are premature distributions.
Additional terms and conditions for the systematic withdrawal program are set
forth in the application for the program.
A-22
<PAGE>
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 or to the Fixed Account 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.
OWNERSHIP RIGHTS
During the Annuitant's lifetime, all rights under the Contract belong solely
to the Contract Owner unless otherwise provided. These 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.
Those Contracts offered by the prospectus which are designed to qualify for
the favorable tax treatment described below under "Federal Income Tax Status"
contain restrictions on transfer or assignment, reflecting requirements of the
Code which must be satisfied in order to assure continued eligibility for such
tax treatment. In accordance with such requirements, ownership of such a
Contract may not be changed and the Contract may not be sold, assigned or
pledged as collateral for a loan or for any other purpose except under certain
limited circumstances. A Contract Owner contemplating a sale, assignment or
pledge of the Contract should carefully review its provisions and consult a
qualified tax adviser.
If Contracts offered by this prospectus are used in connection with deferred
compensation plans or retirement plans not qualifying for favorable Federal
tax treatment, such plans may also restrict the exercise of rights by the
Contract Owner.
REQUESTS AND ELECTIONS
Requests for sub-account transfers or reallocation of future purchase
payments may be made by written request (which may be telecopied) to the
Company at its Administrative Office or by telephoning The New England.
Written requests for such transfers or changes of allocation must be in a form
acceptable to the Company. Such written requests may be telecopied to 617-578-
5412. To request a transfer or change of allocation by telephone, please
contact your registered representative, or contact The New England at 1-800-
777-5897 between the hours of 9:00 a.m. and 4:00 p.m., Eastern Time. For
Contracts issued in New York, requests for transfers must be in writing.
Requests for transfer (that are within NEVLICO's current limits applicable to
transfers) or reallocation by telephone will be automatically permitted. The
Company and The New England 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 and The New England
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 and The New England do not employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, they 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 Administrative 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)
after you receive your Contract you may return it to the Company or its agent
for cancellation. Upon cancellation of the Contract, the Company will return
to you the Contract Value. If required by the insurance law or regulations of
the state in which your Contract is issued, however, the Company will refund
all purchase payments made.
A-23
<PAGE>
ADMINISTRATION CHARGES, CONTINGENT DEFERRED SALES CHARGE AND OTHER DEDUCTIONS
ADMINISTRATION CHARGES
The Company's administrative services include issuing Contracts, maintaining
Contract Owner records and accounting, valuation, regulatory and reporting
services. To cover the cost of these services, the Company receives
Administration Charges generally equal, on an annual basis, to $30 per
Contract plus .10% of the daily net assets of each sub-account. In addition,
the Company charges a transfer fee for certain transfers of Contract Value
among the sub-accounts and/or the Fixed Account, as described below.
The annual 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 the Maturity Date or at the time of a full
surrender if it is not on a Contract anniversary. If 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 charge is deducted
entirely from the Contract Value in the Variable Account, and not from the
Contract Value in the Fixed Account. The charge is the lesser of: 2% of the
total Contract Value (including any Contract Value in the Fixed Account) and
$30. The charge will be waived for a Contract Year if (1) the Contract Value
at the end of the year was at least $50,000, OR (2) you made at least $1,000
in net deposits (purchase payments minus partial surrenders) during that
Contract Year and the Contract Value at the end of the previous Contract Year
was at least $25,000. (A pro rata charge will always be made on a full
surrender and at the Maturity Date, however, regardless of the amount of your
Contract Value.) The Administration Contract Charge will be deducted from each
sub-account in the ratio of your interest therein to your total Contract Value
in the Variable Account.
The Administration Asset Charge is equal to an annual rate of .10% of net
assets and is 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
Contract Value in the Variable Account. The Administration Asset Charge will
continue to be assessed after annuitization if annuity payments are made on a
variable basis. There is not necessarily a relationship between the amount of
this charge imposed on a given Contract and the amount of expenses that may be
attributable to that Contract. (See "Annuity Payments.")
The Company does not expect the Administration Charges to exceed the actual
costs (including overhead costs) of administering the Contracts. The Company
periodically will monitor the Administration Charges to determine whether they
exceed the actual cost of providing administrative services for the Contracts.
The Company reserves the right to charge a transfer fee for transfers of
Contract Value among sub-accounts and/or the Fixed Account. Currently, the
Company charges a $10 fee for each transfer in excess of 12 in a Contract Year
prior to annuitization. A single transfer charge is allocated among the sub-
accounts and/or Fixed Account from which Contract Value is transferred. The
Company reserves the right to change the amount of the transfer fee and the
rules for when it applies, but will notify Contract Owners in advance of any
such change. (See "Transfer Privilege".)
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a Mortality and Expense Risk Charge from the Variable
Account as compensation for assuming the mortality and expense risks under the
Contract. By assuming the expense risk under the Contract, the Company
guarantees that the dollar amount of the Administration Contract Charge and
the amount of the Administration Asset Charge as a percentage of Contract
Value (but not the amount of the transfer fee) will not increase over the life
of a Contract, regardless of the actual expenses. By assuming the mortality
risk, the Company guarantees that, although annuity payments will vary
according to the performance of the investments you select, annuity payments
will not be affected by the mortality experience (death rate) of persons
receiving such payments or of the general population. The Company assumes this
mortality risk by virtue of annuity rates in the Contract that cannot be
changed. The Company also assumes the risk of making a minimum death benefit
payment if the Contract Owner (or, if applicable, the Annuitant) dies prior to
annuitization. (See "Payment on Death.")
A-24
<PAGE>
The Mortality and Expense Risk Charge is computed and deducted on a daily
basis from each sub-account. The charge is at an annual rate of 1.25% of the
daily net assets of each such sub-account, of which .70% represents a
mortality risk charge and .55% 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 if annuity payments are made on a variable basis
either before or after the Maturity Date. (See "Annuity Payments.")
CONTINGENT DEFERRED SALES CHARGE
No charge for sales expenses is deducted from purchase payments when they
are made. However, a Contingent Deferred Sales Charge may apply on certain
events ("CDSC events"). The Contingent Deferred Sales Charge is intended to
assist in covering sales expenses related to the Contracts, including
commissions, preparation of sales literature and other promotional activity.
The Contingent Deferred Sales Charge may not cover the full amount of sales
expenses, and the excess will be recovered from the Company's general account,
including any income from the Mortality and Expense Risk Charge.
CDSC events are: (a) a full or partial surrender of your Contract (including
surrenders where you apply the proceeds to certain payment options), (b) in
certain circumstances, a withdrawal of the commuted value of amounts that you
applied to a payment option, or (c) under Contracts issued in Pennsylvania or
New York, the Maturity Date if at that date a purchase payment has been
invested for less than seven years.
The Contingent Deferred Sales Charge is taken into account in calculating
the proceeds payable on a full surrender. On a partial surrender, the
Contingent Deferred Sales Charge is deducted from the Contract Value remaining
after deduction of the surrender amount requested and is taken from the
Contract Value in the sub-accounts and the Fixed Account in the same
proportion as the Contract Value surrendered.
The Contingent Deferred Sales Charge equals a percentage of each purchase
payment. Each purchase payment is subject to the charge for seven years (12
month periods) from the date it is received by the Company, as follows:
<TABLE>
<CAPTION>
IF WITHDRAWN DURING YEAR CHARGE
------------------------ ------
<S> <C>
1................................... 7%
2................................... 6%
3................................... 5%
4................................... 4%
5................................... 3%
6................................... 2%
7................................... 1%
Thereafter............................ 0%
</TABLE>
In no event will the amount of the Contingent Deferred Sales Charge exceed
the equivalent of 8% of the first $50,000 of purchase payments and 6.5% of
purchase payments in excess of $50,000.
Whether amounts surrendered, withdrawn or applied to an annuity option are
considered to include purchase payments subject to the Contingent Deferred
Sales Charge depends on the following rules.
In any Contract Year you may surrender a portion of your Contract Value (the
"free withdrawal amount") without incurring the Contingent Deferred Sales
Charge. The free withdrawal amount for each Contract Year is equal to the
greater of (1) 10% of the Contract Value at the beginning of the Contract Year
and (2) the excess of the Contract Value over purchase payments subject to the
Contingent Deferred Sales Charge on the date of surrender. If not used, the
free withdrawal amount does not carry over to the next Contract Year.
A-25
<PAGE>
EXAMPLE: Assume that a single purchase payment of $10,000 is made into the
Contract. The following illustrates the free withdrawal amount
available under two hypothetical situations.
HYPOTHETICAL CONTRACT VALUE
<TABLE>
<CAPTION>
10% OF
BEGINNING OF MAXIMUM FREE
AT BEGINNING ON WITHDRAWAL YEAR CONTRACT WITHDRAWAL
OF CONTRACT YEAR DATE CONTRACT GAIN VALUE AMOUNT
---------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Situation 1:............ $12,500 $14,000 $4,000 $1,250 $4,000
Situation 2:............ $11,000 $10,000 $ 0 $1,100 $1,100
</TABLE>
EXAMPLE: Assume that a $10,000 purchase payment is made into the Contract on
6/1/95 and another $10,000 purchase payment is made on 2/1/96. The
following illustrates the Contingent Deferred Sales Charge that
would apply on partial surrenders in two hypothetical situations.
HYPOTHETICAL CONTRACT VALUE
<TABLE>
<CAPTION>
10% OF
BEGINNING OF MAXIMUM FREE
AT BEGINNING ON WITHDRAWAL YEAR CONTRACT WITHDRAWAL
OF CONTRACT YEAR DATE CONTRACT GAIN VALUE AMOUNT
---------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Situation 1: $7,000
partial surrender on
12/1/96............... $22,000 $25,000 $5,000 $2,200 $5,000
</TABLE>
The first $5,000 withdrawn would be free of the Contingent Deferred Sales
Charge. The remaining $2,000 of the withdrawal would be made from the oldest
purchase payment (i.e. the 6/1/95 purchase payment). A 6% Contingent
Deferred Sales Charge would apply to the $2,000, because the withdrawal
would be taking place in the second year following the date of the purchase
payment.
HYPOTHETICAL CONTRACT VALUE
<TABLE>
<CAPTION>
10% OF
BEGINNING OF MAXIMUM FREE
AT BEGINNING ON WITHDRAWAL YEAR CONTRACT WITHDRAWAL
OF CONTRACT YEAR DATE CONTRACT GAIN VALUE AMOUNT
---------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Situation 2: $25,000
surrender on 5/1/00.... $30,000 $33,000 $13,000 $3,000 $13,000
</TABLE>
The first $13,000 withdrawn would be free of the Contingent Deferred Sales
Charge. The remaining $12,000 of the withdrawal would be made by withdrawing
the $10,000 purchase payment made on 6/1/95 and $2,000 of the $10,000
purchase payment that was made on 2/1/96. The Contingent Deferred Sales
Charge that would apply is: 3% X $10,000 + 4% X $2,000, or $380. The
remaining amount of purchase payments that could be subject to the
Contingent Deferred Sales Charge (assuming no further purchase payments were
made) would be $8,000.
Amounts surrendered under the free withdrawal provision do not reduce the
total purchase payments that are potentially subject to the Contingent
Deferred Sales Charge under your Contract.
If your Contract Value is less than your total purchase payments due to a
free withdrawal, negative investment performance or deduction of the
Administration Contract Charge, the following rules apply for calculating the
Contingent Deferred Sales Charge: the deficiency will be attributed to your
most recent purchase payment first, and subsequent earnings will be credited
to that deficiency (and not treated as earnings) until Contract Value exceeds
purchase payments.
Waiver of Contingent Deferred Sales Charge. No Contingent Deferred Sales
-------------------------------------------
Charge will apply:
. After 30 days from issue of the Contract if you apply the proceeds to a
variable or fixed payment option involving a life contingency (described
under "Annuity Options"), or, for a minimum specified period of 15 years,
to either the
A-26
<PAGE>
Variable Income for a Specified Number of Years Option or the Variable
Income Payments to Age 100 Option (described under "Annuity Options"), or
a comparable fixed option. However, if you subsequently withdraw the
commuted value of amounts placed under any of those options, the Company
will deduct from the amount you receive a portion of the Contingent
Deferred Sales Charge amount that would have been deducted when you
originally applied the Contract proceeds to the option, taking into
account the lapse of time from annuitization to surrender. The applicable
portion of the Contingent Deferred Sales Charge will be based on the ratio
of (1) the number of whole months remaining, on the date of the
withdrawal, until the date when the Contingent Deferred Sales Charge would
expire, to (2) the number of whole months that were remaining, when the
proceeds were applied to the option, until the date when the Contingent
Deferred Sales Charge would expire. (See example in Appendix B.)
. On full or partial surrenders if the Contract Owner submits satisfactory
evidence to the Company that the Contract Owner (or one Contract Owner
under a jointly owned Contract, or the Annuitant, if the Contract is not
owned in an individual capacity) is terminally ill (as defined in the
Contract), has been confined to a nursing home for more than 90
continuous days, or is permanently and totally disabled (as defined in
the Contract). This benefit is only available to an original owner of the
Contract who was not over age 65 at issue of the Contract, and may not be
available in every state.
. If under the Spousal Continuation provision the Contract's Maturity Date
is reset to a date that is less than seven years after the most recent
purchase payment made under the Contract. The Contingent Deferred Sales
Charge will not apply to the Contract in these circumstances. This waiver
of the Contingent Deferred Sales Charge will not apply, however, to
Contracts issued in New York or Pennsylvania.
The Contracts may be sold directly, without compensation, to a registered
representative, to employees, officers, directors, and trustees of NEVLICO,
The New England and their affiliated companies, and spouses and immediate
family members (i.e. children, siblings, parents and grandparents) of the
foregoing, and to employees, officers, directors, trustees and registered
representatives of any broker/dealer authorized to sell the Contracts and of
any sub-adviser to the Eligible Funds, and spouses and immediate family
members of the foregoing. If sold under these circumstances, the Contracts
will be credited with an additional percentage of premium to reflect in part
or in whole any cost savings associated with the direct sale, but only if such
credit will not be unfairly discriminatory to any person.
PREMIUM TAX CHARGE
Certain states impose a premium tax on annuity purchase payments received by
insurance companies. The Company pays this tax when incurred, and recovers
this tax by imposing a premium tax charge on affected Contracts in accordance
with the following rules. Generally, the Company incurs a state premium tax
liability on the date when the Contract Owner elects to commence annuity
benefits. In those states, the Company deducts the premium tax charge from the
Contract Value on that date. However, for Contracts subject to the premium tax
law of states which impose a premium tax on purchase payments when they are
made (currently Pennsylvania, South Dakota and Kentucky), the Company deducts
the applicable premium tax charge at the earliest of: a full or partial
surrender of the Contract, the date when annuity benefits commence, or payment
of the Death Proceeds (including application of the Death Proceeds to the
Beneficiary Continuation provision) upon the death of a Contract Owner (or of
the Annuitant, if the Contract is not owned in an individual capacity). To
determine whether and when a premium tax charge will be imposed on a Contract,
the Company looks to the state of residence of the Annuitant when a surrender
is made, annuity benefits commence or Death Proceeds are paid. The Company
reserves the right to impose a premium tax charge when a premium tax is
incurred or at a later date.
Deductions for state premium tax charges currently range from 1/2% to 2.00%
of the Contract Value (or, if applicable, Death Proceeds) for Contracts used
with retirement plans qualifying for tax benefited treatment under the Code
and from 1% to 3.5% of the Contract Value (or, if applicable, Death Proceeds)
for all other Contracts. Premium tax rates are subject to being changed by
law, administrative interpretations or court decisions.
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 prospectus and Statement of Additional Information of the
Eligible Funds describe these deductions and expenses.
A-27
<PAGE>
CHARGES UNDER CONTRACTS PURCHASED BY EXCHANGING A FUND I, PREFERENCE OR ZENITH
ACCUMULATOR CONTRACT
If a Contract is purchased by exchanging a variable annuity contract issued
by New England Variable Annuity Fund I (a "Fund I contract"), by New England
Retirement Investment Account (a "Preference contract"), or by The New England
Variable Account (a "Zenith Accumulator contract"), the charges described
above will apply except that the sales charges will be calculated as described
below.
A Contract issued by exchanging a Fund I or Preference contract will have no
Contingent Deferred Sales Charge on assets transferred. (Any remaining
surrender charge on the Preference contract will also be waived on the
exchange.) Subsequent purchase payments will be subject to the Contingent
Deferred Sales Charge described above. Assets transferred from the Fund I or
Preference contract will be treated as a purchase payment under the American
Growth Series contract for purposes of calculating the free withdrawal amount
and Contingent Deferred Sales Charge, but in no event will those assets be
subject to the charge. Total asset-based charges (including the investment
advisory fee) under the Fund I contracts currently equal approximately 1.25%.
However, beginning December 1, 1994, The New England intends to have Fund I
bear certain operating expenses which have previously been borne by The New
England. Deductions for sales and administrative expenses will be made from
ongoing purchase payments under the Fund I contracts. Any applicable premium
tax charges are deducted from purchase payments in Pennsylvania, South Dakota
and Kentucky and at an annuitization in North Carolina. The Preference
contracts have the same 1.25% asset-based charge for mortality and expense
risks which is imposed under the American Growth Series Contracts, but the
Preference contracts do not have an asset-based administration charge. The
Preference contracts impose a $30 annual administration charge, but the charge
is not limited to 2% of the contract value as it is under the American Growth
Series Contract, and there is no waiver of the charge for contracts which
reach certain asset levels as there is under the American Growth Series
Contract. There will be no contingent deferred sales charge under the
Preference contracts beginning in the seventh contract year, and there is no
limit on or charge for fund transfers, although transfers are subject to a $25
minimum. Any applicable premium tax charges are deducted from purchase
payments in Pennsylvania, South Dakota and Kentucky and at an annuitization in
North Carolina.
In the case of a Contract issued by exchanging a Zenith Accumulator
contract, the Company has applied for an SEC order permitting the following
terms of exchange. The assets transferred will be treated as a purchase
payment under the American Growth Series contract for purposes of calculating
the free withdrawal amount and Contingent Deferred Sales Charge under the
American Growth Series contract. However, if the transferred assets are
surrendered from the American Growth Series contract, they will be subject to
the table of declining contingent deferred sales charge percentages that would
have applied under the Zenith Accumulator contract in the year of the
surrender. In the case of an exchange of a Zenith Accumulator contract that
has been outstanding for less than three years, The New England currently
intends to waive any contingent deferred sales charge applicable to the
transferred assets if they are surrendered more than seven years after the
exchange. The Zenith Accumulator contracts and American Growth Series
Contracts impose the same aggregate amount of asset-based charges (the
administration asset charge and mortality and expense risk charge) and
generally the same annual administration contract charge, but the annual
administration contract charge under the Zenith Accumulator contract is not
limited to 2% of the contract value and is not waived for contracts which
reach certain asset levels, as it is under the American Growth Series
Contract. Under the Zenith Accumulator contract, the premium tax charge is
currently deducted in four states, from purchase payments in Pennsylvania,
South Dakota and Kentucky, and at annuitization in North Carolina. Fund
transfers under the Zenith Accumulator are not currently limited in number or
amount prior to annuitization, but a $10 fee is currently imposed for
transfers in excess of 12 per year, as it currently is under the American
Growth Series Contract. The American Growth Series Contract imposes higher
minimums for amounts transferred from and remaining in a sub-account.
If you are contemplating an exchange of a Fund I, Preference or Zenith
Accumulator contract for an American Growth Series Contract, you should
compare all charges (including investment advisory fees) deducted under your
existing contract and under the American Growth Series Contract, as well as
the investment options offered by each. In addition, you should keep in mind
the higher minimum ($250) for any subsequent purchase payments you may wish to
make to the American Growth Series Contract. See "Purchase Payments--
Exchanges" and "Payment on Death Prior to Annuitization--Under Exchanged
Contracts" for more information concerning the consequences of an exchange.
A-28
<PAGE>
ANNUITY PAYMENTS
ELECTION OF ANNUITY
The Maturity Date of the Contract is based on the older of the Contract
Owner(s) and the Annuitant and is the date when that person, at his or her
nearest birthday, would be age 95 (or the maximum age allowed by state law).
If a Contract is acquired pursuant to an exchange from an old contract (see
"The Contracts--Purchase Payments"), the Maturity Date of the Contract would
be set at age 95 (or the maximum allowed by state law) regardless of what the
maturity date may have been for the old Contract. The Contract Owner may not
change the Maturity Date to an earlier date. However, the Contract Owner may
surrender the Contract at any time before the Maturity Date and apply the
surrender proceeds to an annuity option.
If the Contract Owner and Annuitant are not the same and the Annuitant dies
prior to the Maturity Date, the Contract will continue for the benefit of the
Contingent Annuitant. The Maturity Date will be reset, if necessary, based on
the age of the older Contract Owner.
Ownership of the Contract may not be changed without Company consent. If
ownership is changed, a change in the Maturity Date may be required, based on
the new Contract Owner's age. The new Maturity Date will be based on the older
of the new Contract Owner and the Annuitant and will be the date when that
person, at his or her nearest birthday, would be age 95 (or the maximum age
allowed by state law).
The Contract that is issued to you will provide for variable annuity
payments to begin at the Maturity Date for the life of the Payee, but for at
least ten years. If you wish to change this payment option you may do so at
any time prior to the Maturity Date. You may elect to have annuity payments
under a Contract made on a variable basis or on a fixed basis, or may
designate a portion to be paid on a variable basis and a portion on a fixed
basis. If you select payments on a fixed basis, the amount of Contract Value
applied to the fixed payment option (net of any applicable charges described
under "Administration Charges, Contingent Deferred Sales Charge and Other
Deductions") will be transferred to the general account of the Company, and
the annuity payments will be fixed in amount and duration by the payment
option selected, the age of the Payee and, for Contracts issued in New York or
Oregon for use in situations not involving an employer-sponsored plan, by the
sex of the Payee. (See "Amount of Variable Annuity Payments".)
Contracts acquired by retirement plans qualifying for tax benefited
treatment may be subject to various requirements concerning the time by which
benefit payments must commence, the period over which such payments may be
made, the payment options that may be selected, and the minimum annual amounts
of such payments. Penalty taxes or other adverse tax consequences may occur
upon failure to meet such requirements.
ANNUITY OPTIONS
The Contract provides several annuity payment options. Prior to the Maturity
Date you may elect to have the Contract Value applied to one of these payment
options at maturity. If you make a full or partial surrender of the Contract,
you may elect in your surrender request to apply the surrender proceeds to a
payment option. You may also elect to have the Contract's Death Proceeds
applied to a payment option, or, if the Death Proceeds become payable and you
have not previously elected a payment option, the Beneficiary can elect to
apply the Death Proceeds to a payment option; however, the Variable Income
Payments to Age 100 Option and the Variable Life Income for Two Lives Option,
described below, and comparable fixed options, are not available for this
purpose.
The selection of an annuity payment option must be made by written request
to the Company and is subject to any applicable Federal tax law restrictions.
The amount of the Death Proceeds or of the Contract Value at the Maturity Date
that is applied to a payment option will be reduced by any applicable premium
tax charge. The Contract Value at the Maturity Date is also reduced by a pro
rata portion of the Administration Contract Charge and by any applicable
Contingent Deferred Sales Charge. The amount of Contract Value applied to a
payment option at a full or partial surrender will be reduced by any
applicable Contingent Deferred Sales Charge and premium tax charge, and, on a
full surrender, by a pro rata portion of the Administration Contract Charge.
The Contract offers the variable payment options listed below.
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.
A-29
<PAGE>
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.)
Variable Income Payments to Age 100. The Company will make variable
monthly payments for the number of whole years until the Payee is age 100.
THIS OPTION CANNOT BE SELECTED FOR DEATH PROCEEDS.
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.
- --------
* IT IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE
PAYEE DIES (OR PAYEES DIE) BEFORE THE DUE DATE OF THE SECOND PAYMENT OR TO
RECEIVE ONLY TWO ANNUITY PAYMENTS IF THE PAYEE DIES (OR PAYEES DIE) BEFORE
THE DUE DATE OF THE THIRD PAYMENT, AND SO ON.
Comparable fixed payment options are also available for all of the options
described above. In addition, other payment options (including other periods
certain) may be available from time to time, and you should consult the
Company as to their availability. If you do not elect a payment option by the
Maturity Date, variable payments under the Contract will be made while the
Payee is living but for at least ten years. (This is the Variable Life Income
with Period Certain Option.) If installments under an option would be less
than the Company's published minimum, then the Contract proceeds can be
applied to a payment option only with the consent of the Company.
The Payee under the Variable Income for a Specified Number of Years Option
or the Variable Income Payments to Age 100 Option may withdraw the commuted
value of the remaining payments. The Payee (or Payees) under the Variable Life
Income with Period Certain Option or the Joint and Survivor Variable Life
Income, 10 Years Certain Option may withdraw the commuted value of the
remaining period certain portion of the payment option. The commuted value of
such payments is calculated based on the assumed interest rate under the
Contract. The life income portion of the payment portion 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."). Amounts applied to a fixed payment
option may not be withdrawn.
The section of the prospectus entitled "Administration Charges, Contingent
Deferred Sales Charge and Other Deductions" describes whether a Contingent
Deferred Sales Charge will be deducted upon application of the Contract's
proceeds to a particular payment option or upon withdrawal of the commuted
value of any payments certain under a variable payment option.
Payees under the Variable Income for a Specified Number of Years Option or
the Variable Income Payments to Age 100 Option may convert to a variable
payment option involving a life contingency.
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 if
annuity payments are made under any variable payment option (either before or
after the Maturity Date), 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) is applied
toward the purchase of monthly annuity payments. The amount of monthly
variable annuity 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.
A-30
<PAGE>
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 longer
life expectancy of the female Payee. If the Contract Owner has selected a
payment option that guarantees that payments will be made for a certain number
of years regardless of whether the Payee dies, the Contract Value will
purchase lower monthly benefits than under a life contingent option.
The dollar amount of the initial variable annuity payment will be at the
basic payment level. The assumed interest rate under the Contract will affect
both this basic payment level and the amount by which subsequent payments
increase or decrease. Each payment after the first will vary with the
difference between the net investment performance of the sub-accounts selected
and the assumed interest rate under the Contract. If the actual net investment
rate exceeds the assumed interest rate, the payments will increase.
Conversely, if the actual rate is less than the assumed interest rate, annuity
payments will decrease. If actual investment performance is equal to the
assumed interest rate, the monthly payments will remain level.
Unless otherwise provided, the assumed interest rate will be at an annual
effective rate of 3.5%. You may select as an alternative an assumed interest
rate equal to an annual effective 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. A lower assumed interest rate will produce a
lower first payment, a more rapidly rising series of subsequent payments when
the actual net investment performance exceeds the assumed interest rate, and a
less 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".
The Company may require proof of age, sex (if applicable) and survival of
any person upon the continuation of whose life annuity payments depend.
For more information regarding payment options, you should refer to the
Statement of Additional Information and also to the Contract, which contains
detailed information about the various forms of options available, and other
matters also of importance.
FEDERAL INCOME TAX STATUS
INTRODUCTION
The following discussion is a general discussion of federal income tax
considerations relating to the Contract and is not intended as tax advice.
This discussion is not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or may receive a
distribution under the Contract. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction. This discussion is based upon NEVLICO's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue service ("IRS"). No representation is made as to the
likelihood of the continuation of the present federal income tax laws or of
the current interpretation by the IRS. Moreover, no attempt has been made to
consider any applicable state or other tax laws.
A-31
<PAGE>
The Contract may be purchased on a non-tax qualified basis ("Non-Qualified
Contract") or purchased and used in connection with certain plans entitled to
special income tax treatment ("Qualified Contracts") under section 408 of the
Internal Revenue Code of 1986, as amended (the "Code"). The ultimate effect of
federal income taxes on the amounts held under a Contract, on annuity
payments, and on the economic benefit to the Contract Owner, the Annuitant, or
the Beneficiary may depend on the type of retirement plan, and on the tax
status of the individual concerned. In addition, certain requirements must be
satisfied in purchasing a Qualified Contract and receiving distributions from
a Qualified Contract in order to continue receiving favorable tax treatment.
Therefore, purchasers of Qualified Contracts should seek competent legal and
tax advice regarding the suitability of the Contract for their situation, the
applicable requirements, and the tax treatment of the rights and benefits of
the Contract. The following discussion assumes that a Qualified Contract is
purchased with proceeds from and/or contributions under retirement plans that
qualify for the intended special federal income tax treatment.
TAXATION OF NEVLICO
NEVLICO is taxed as a life insurance company under Part I of Subchapter L of
the Code. Since the Variable Account is not an entity separate from NEVLICO,
and its operations form a part of NEVLICO, it will not be taxed separately as
a "regulated investment company" under Subchapter M of the Code. Investment
income and realized capital gains arising from the operation of the Variable
Account are automatically applied to increase reserves under the Contracts.
Under existing federal income tax law, NEVLICO believes that the Variable
Account's investment income and realized net capital gains will not be taxed
to the extent that such income and gains are applied to increase the reserves
under the Contracts.
Accordingly, NEVLICO does not anticipate that it will incur any federal
income tax liability attributable to the Variable Account and, therefore,
NEVLICO does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in NEVLICO
being taxed on income or gains attributable to the Variable Account, then
NEVLICO may impose a charge against the Variable Account (with respect to some
or all Contracts) in order to set aside amounts to pay such taxes.
TAX STATUS OF THE CONTRACT
Diversification. Section 817(h) of the Code requires that with respect to
----------------
Non-Qualified Contracts, the investments of the Funds be "adequately
diversified" in accordance with Treasury regulations in order for the
Contracts to qualify as annuity contracts under federal tax law. The Variable
Account, through the Eligible Funds, intends to comply with the
diversification requirements prescribed by the Treasury in Reg. Sec. 1.817-5,
which affect how the Eligible Funds' assets may be invested.
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." As of the date of
this prospectus, no guidance has been issued.
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, NEVLICO 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. NEVLICO 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.
Required Distributions. In order to be treated as an annuity contract for
-----------------------
federal income tax purposes, section 72(s) of the Code requires Non-Qualified
Contracts to provide that (a) if any Owner dies on or after the annuity date
but prior to the time the entire interest in the Contract has been
distributed, the remaining portion of such interest will be distributed at
A-32
<PAGE>
least as rapidly as under the method of distribution being used as of the date
of such owner's death; and (b) if any Owner dies prior to the annuity date,
the entire interest in the Contract will be distributed within five years
after the date of such Owner's death. These requirements will be considered
satisfied as to any portion of an owner's interest which is payable to or for
the benefit of a "designated beneficiary" and which is distributed over the
life of such "designated beneficiary" or over a period not extending beyond
the life expectancy of that beneficiary, provided that such distributions
begin within one year of the owner's death. The "designated beneficiary"
refers to a natural person designated by the owner as a Beneficiary and to
whom ownership of the contract passes by reason of death. However, if the
"designated beneficiary" is the surviving spouse of a deceased owner, the
contract may be continued with the surviving spouse as the new owner.
The Non-Qualified Contracts contain provisions which are intended to comply
with the requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. NEVLICO intends to
review such provisions when they are issued and modify the contracts in
question if necessary to assure that they comply with the requirements of Code
Section 72(s). Other rules may apply to Qualified Contracts.
The following discussion is based on the assumption that the Contract
qualifies as an annuity contract for federal income tax purposes.
TAXATION OF ANNUITIES
In General. Section 72 of the Code governs taxation of annuities in general.
-----------
NEVLICO believes that a Contract Owner who is a natural person generally is
not taxed on increases in the value of a Contract until distribution occurs by
withdrawing all or part of the Contract Value (e.g., withdrawals or annuity
----
payments under the Annuity Option elected). For this purpose, the assignment,
pledge, or agreement to assign or pledge any portion of the Contract Value
(and in the case of a Qualified Contract, any portion of an interest in the
qualified plan) generally will be treated as a distribution. The taxable
portion of a distribution (in the form of a single sum payment or an annuity)
is taxable as ordinary income.
The owner of any annuity contract who is not a natural person generally must
include in income any increase in the excess of the Contract Value over the
"investment in the contract" (discussed below) during the taxable year. There
are some exceptions to this rule and prospective Contract Owners that are not
natural persons may wish to discuss these with a competent tax adviser.
The following discussion generally applies to a Contract owned by a natural
person.
Surrenders. In the case of a surrender under a Qualified Contract, including
-----------
Systematic Withdrawals, a ratable portion of the amount received is taxable,
generally based on the ratio of the "investment in the contract" to the
individual's total accrued benefit under the retirement plan. The "investment
in the contract" generally equals the amount of any non-deductible purchase
payments paid by or on behalf of any individual. For a Contract issued in
connection with qualified plans, the "investment in the contract" can be zero.
Special tax rules may be available for certain distributions from a Qualified
Contract.
With respect to Non-Qualified Contracts, partial surrenders, including
Systematic Withdrawals, are generally treated as taxable income to the extent
that the Contract Value immediately before the surrender exceeds the
"investment in the contract" at that time. Full surrenders are treated as
taxable income to the extent that the amount received exceeds the "investment
in the contract".
Annuity Payments. Although the tax consequences may vary depending on the
-----------------
annuity payment elected under the Contract, in general, only the portion of
the annuity payment that represents the amount by which the Contract Value
exceeds the "investment in the contract" will be taxed; after the "investment
in the contract" is recovered, the full amount of any additional annuity
payments is taxable. For variable annuity payments, the taxable portion is
generally determined by an equation that establishes a specific dollar amount
of each payment that is not taxed. The dollar amount is determined by dividing
the "investment in the contract" by the total number of expected periodic
payments. However, the entire distribution will be taxable once the recipient
has recovered the dollar amount of his or her "investment in the contract".
For fixed annuity payments, in general there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the annuity payments for the term of the
payments; however, the remainder of each annuity payment is taxable. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional annuity payments is taxable. If annuity payments cease as a result
of an Annuitant's death before full recovery of the "investment in the
contract," consult a competent tax advisor regarding deductibility of the
unrecovered amount.
A-33
<PAGE>
Penalty Tax. In the case of a distribution pursuant to a Non-Qualified
------------
Contract, there may be imposed a federal income tax penalty equal to 10% of
the amount treated as taxable income. In general, however, there is no penalty
tax on distributions: (1) made on or after the date on which the taxpayer
attains age 59 1/2; (2) made as a result of death or disability of an owner;
(3) received in substantially equal periodic payments as a life annuity or a
joint and survivor annuity for the lives or life expectancies of the owner and
a "designated beneficiary". Other tax penalties may apply to certain
distributions pursuant to a Qualified Contract.
Taxation of Death Benefit Proceeds. Amounts may be distributed from the
-----------------------------------
Contract because of the death of a Contract Owner (or Annuitant if the
Contract Owner is not an individual). 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.
Transfers, Assignments, Exchanges and Maturity Dates. 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,
the exchange of a Contract, or the receipt of a Contract in an exchange may
result in certain tax consequences that are not discussed herein. Anyone
contemplating any such designation, transfer, assignment, selection, or
exchange should contact a competent tax adviser with respect to the potential
tax effects of such a transaction.
Multiple Contracts. All deferred non-qualified annuity contracts that are
-------------------
issued by NEVLICO (or its affiliates) to the same owner during any calendar
year are treated as one annuity contract for purposes of determining the
amount includible in gross income under section 72(e) of the Code. In
addition, the Treasury Department has specific authority to issue regulations
that prevent the avoidance of section 72(e) through the serial purchase of
annuity contracts or otherwise. Congress has also indicated that the Treasury
Department may have authority to treat the combination purchase of an
immediate annuity contract and separate deferred annuity contracts as a single
annuity contract under its general authority to prescribe rules as may be
necessary to enforce the income tax laws.
QUALIFIED CONTRACTS
The Contract is designed for use as an Individual Retirement Annuity
("IRA"). Section 408(b) of the Code permits individuals to establish IRA's on
a tax benefited basis. The Contract is also designed for use with Simplified
Employee Pension Plans ("SEP"), which certain employers may adopt in order to
contribute to IRA's on their employees' behalf. The tax rules applicable to
participants and beneficiaries in these retirement plans vary according to the
type of plan and the terms and conditions of the plan. Special favorable tax
treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in
excess of specified limits; distributions prior to age 59 1/2 (subject to
certain exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; aggregate distributions in excess
of a specified annual amount; and in other specified circumstances.
NEVLICO makes no attempt to provide more than general information about use
of the Contracts with the various types of retirement plans. Contract Owners
and participants under retirement plans as well as Annuitants and
Beneficiaries are cautioned that the rights of any person to any benefits
under these Contracts may be subject to the terms and conditions of the plans
themselves, regardless of the terms and conditions of the Contract issued in
connection with such a plan. Some retirement plans are subject to distribution
and other requirements that are not incorporated in the administration of the
Contracts. Contract Owners are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts satisfy
applicable law. Purchasers of Contracts for use with any retirement plan
should consult their legal counsel and tax adviser regarding the suitability
of the Contract under applicable federal and state tax laws and ERISA.
The sale of a Contract for use with an IRA may be subject to special
disclosure requirements of the Internal Revenue Service. Purchasers of a
Contract for use with IRAs will be provided with supplemental information
required by the Internal Revenue Service or other appropriate agency. Such
purchasers will have the right to revoke their purchase within seven days of
the earlier of the establishment of the IRA or their purchase. A Contract
issued in connection with an IRA will be amended as necessary to conform to
the requirements of the Code. Purchasers should seek competent advice as to
the suitability of the Contract for use with IRAs.
A-34
<PAGE>
(i) Plan Contribution Limits
SEPS
Statutory limitations on contributions to SEPs may limit the amount of money
that may be contributed to the Contract in any Contract Year. Any purchase
payments attributable to such contributions are tax deductible to the employer
and are not currently taxable to the Annuitants for whom the Contracts are
purchased. The contributions to the Contract and any increase in Contract
Value attributable to such contributions are not subject to taxation until
payments from the Contract are made to the Annuitant or his/her Beneficiaries.
IRA'S
The maximum tax deductible purchase payment which may be contributed each
year to an IRA is the lesser of $2,000 or 100 percent of includible
compensation if the taxpayer is not covered under an employer plan. A spousal
IRA is available if the taxpayer and spouse file a joint return and the spouse
earns no compensation (or elects to be treated as earning no compensation) and
is not yet age 70 1/2. The maximum tax deductible purchase payment which a
taxpayer may make to his or her own IRA and a spousal IRA, combined, is the
lesser of $2,250 or 100 percent of compensation of the working spouse. If
covered under an employer plan, taxpayers are permitted to make deductible
purchase payments; however, the deductions are phased out and eventually
eliminated, on a pro rata basis, for adjusted gross income between $25,000 and
$35,000 for an individual, between $40,000 and $50,000 for a married couple
filing jointly and between $0 and $10,000 for a married person filing
separately. A taxpayer may also make nondeductible purchase payments. However,
the total of deductible and nondeductible purchase payments may not exceed the
limits described above for deductible payments. For more information
concerning the contributions to IRAs, you should obtain a copy of IRS
Publication 590 on Individual Retirement Accounts. In addition to the above,
an individual may make a "rollover" contribution into an IRA with the proceeds
of a "lump sum" distribution (as defined in the Code) from a Qualified Plan.
(ii) Distributions from the Contract
IRAS AND SEPS
Payments made from the Contracts held under an IRA or a SEP are taxable
under Section 72 of the Code as ordinary income, in the year of receipt. Any
amount received in surrender of all or part of the Contract Value prior to
annuitization will, subject to restrictions and penalties discussed below,
also be included in income in the year of receipt. If there is any
"investment" in the Contract, a portion of each amount received is excluded
from gross income as a return of such investment. Distributions or withdrawals
prior to age 59 1/2 may be subject to a penalty tax of 10% of the amount
includible in income. This penalty tax does not apply: (i) to distributions of
excess contributions or deferrals; (ii) to distributions made on account of
the Annuitant's death, retirement, disability or early retirement at or after
age 55; (iii) when distribution from the Contract is in the form of an annuity
over the life or life expectancy of the Annuitant (or joint lives or life
expectancies of the Annuitant and his or her Beneficiary); or (iv) when
distribution is made pursuant to a divorce (in the case of IRAs) or a
qualified domestic relations order. In the case of IRAs, the exceptions for
distributions on account of early retirement at or after age 55 or made
pursuant to a qualified domestic relations order do not apply. A tax-free
rollover may be made once each year among individual retirement arrangements
subject to the conditions and limitations described in the Code.
If the Annuitant dies before distributions begin, distributions must be
completed within five years after death, unless payments begin within one year
after death and are made over the life (or life expectancy) of the
Beneficiary. If the Annuitant's spouse is the Beneficiary, distributions need
not begin until the Annuitant would have reached age 70 1/2. If the Annuitant
dies after annuity payments have begun, payments must continue to be made at
least as rapidly as payments made before death.
Annuity payments, periodic payments or annual distributions generally must
commence by April 1 of the calendar year following the year in which the
Annuitant attains age 70 1/2. Each annual distribution must equal or exceed a
"minimum distribution amount" which is determined by minimum distribution
rules under the plan. A penalty tax of up to 50% of the amount which should be
distributed may be imposed by the IRS for failure to distribute the required
minimum distribution amount. Other tax penalties may apply to aggregate annual
distributions in excess of $150,000.
A-35
<PAGE>
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for
the recipient's federal income tax liability at rates that vary according to
the type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions.
POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of non-qualified annuities that
did not have "substantial life contingencies" by taxing income as it is
credited to the annuity. Although as of the date of this prospectus Congress
is not actively considering any legislation regarding the taxation of
annuities, there is always the possibility that the tax treatment of annuities
could change by legislation or other means (such as IRS regulations, revenue
rulings, judicial decisions, etc.). Moreover, it is also possible that any
change could be retroactive (that is, effective prior to the date of the
change).
OTHER TAX CONSEQUENCES
As noted above, the foregoing discussion of the federal income tax
consequences is not exhaustive and special rules are provided with respect to
other tax situations not discussed in this Prospectus. Further, the federal
income tax consequences discussed herein reflect NEVLICO's understanding of
the current law and the law may change. Federal estate and gift tax
consequences of ownership or receipt of distributions under the Contract
depend on the individual circumstances of each Contract Owner or recipient of
a distribution. A competent tax adviser should be consulted for further
information.
GENERAL
At the time the initial purchase payment is paid, a prospective purchaser
must specify whether he or she is purchasing a Non-Qualified Contract or a
Qualified Contract. If the initial premium is derived from an exchange or
surrender of another annuity contract, NEVLICO may require that the
prospective purchaser provide the information with regard to the federal
income tax status of the previous annuity contract. NEVLICO will require that
persons purchase separate Contracts if they desire to invest monies qualifying
for different annuity tax treatment under the Code. Each such separate
Contract would require the minimum initial purchase payment stated above.
Additional purchase payments under a Contract must qualify for the same
federal income tax treatment as the initial purchase payment under the
Contract; NEVLICO will not accept an additional purchase payment under a
Contract if the federal income tax treatment of such purchase payment would be
different from that of the initial purchase payment.
VOTING RIGHTS
The Company is the legal owner of the Eligible Fund shares held in the
Variable Account and has the right to vote those shares at meetings of the
Eligible Fund shareholders. However, to the extent required by Federal
securities law, the Company will give you, as Contract Owner, the right to
instruct the Company how to vote the shares that are attributable to your
Contract.
Prior to annuitization, the number of votes as to which you have a right of
instruction is determined by applying your percentage interest in a sub-
account to the total number of votes attributable to the sub-account. After
annuitization, the number of votes attributable to your Contract is determined
by applying the percentage interest reflected by the reserve for your Contract
to the total number of votes attributable to the sub-account. After
annuitization the votes attributable to your Contract decrease as reserves
underlying the Contract decrease.
Contract Owners who are entitled to give voting instructions and the number
of shares as to which you have a right of instruction will be determined as of
the record date for the meeting. All Eligible Fund shares held in any sub-
account of the Variable Account or any other registered (or to the extent
voting privileges are granted by the issuing insurance company, unregistered)
separate accounts of the Company or any affiliate for which no timely
instructions are received will be voted
A-36
<PAGE>
for, against, or withheld from voting on any proposition in the same
proportion as the shares held in that sub-account for all policies or
contracts for which voting instructions are received.
All Eligible Fund shares held by the general investment account (or any
unregistered separate account for which voting privileges are not extended) of
the Company or its affiliates will be voted in the same proportion as the
aggregate of (i) the shares for which voting instructions are received and
(ii) the shares that are voted in proportion to such voting instructions.
The SEC requires the Eligible Fund Boards of Trustees to monitor events to
identify conflicts that may arise from the sale of shares to variable life and
variable annuity separate accounts of affiliated and, if applicable,
unaffiliated insurance companies. Conflicts could arise as a result of changes
in state insurance law or Federal income tax law, changes in 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.
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. Except in
certain limited circumstances (such as sales of the Contracts to persons over
age 75), the Company will pay commissions of at least 3% of purchase payments
to the New England Securities registered representative involved in the sale
of a Contract. Additional compensation may be paid by the Company to the
general agent involved in the transaction. No commission is paid in connection
with the initial issuance of a Contract as a result of an exchange from a Fund
I, Preference or Zenith Accumulator contract.
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 also be at least 3% of
purchase payments (except as described in the preceding paragraph).
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. In these states,
you may allocate net purchase payments and may transfer Contract Value in the
Variable Account to the Fixed Account, which is part of the Company's general
account. The Fixed Account offers diversification to a Variable Account
contract, allowing the Contract Owner to protect principal and earn, at least,
a guaranteed rate of interest.
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933, and neither
the Fixed Account nor the general account has been registered as an investment
company under the Investment Company Act of 1940. Therefore, neither the
general account, the Fixed Account nor any interests therein are generally
subject to the provisions of these Acts, and the Company has been advised that
the staff of the Securities and Exchange Commission does not review
disclosures relating to the general account. Disclosures regarding the Fixed
Account may, however, be subject to certain generally applicable provisions of
the Federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
GENERAL DESCRIPTION OF THE FIXED ACCOUNT
The Company's general account consists of all assets owned by the Company
other than those in the Variable Account and the Company's other separate
accounts. The Company has sole discretion over the investment of assets in the
general account, including those in the Fixed Account. Contract Owners do not
share in the actual investment experience of the
A-37
<PAGE>
assets in the Fixed Account. Instead, the Company guarantees that Contract
Values in the Fixed Account will earn interest at an effective annual rate of
at least 3%. The Company is not obligated to credit interest at a rate higher
than 3%, although in its sole discretion it may do so. Contract Values in the
Fixed Account will earn interest daily.
Any purchase payment or portion of Contract Value ("deposit") allocated to
the Fixed Account will earn interest at an annual rate determined by the
Company for that deposit for a 12 month period. At the end of each succeeding
12 month period, the Company will determine the interest rate that will apply
to that deposit plus accrued interest for the next 12 months. This renewal
rate may differ from the interest rate that is applied to new deposits made to
the Fixed Account on that same day.
CONTRACT VALUE AND FIXED ACCOUNT TRANSACTIONS
A Contract's total Contract Value will include its Contract Value in the
Variable Account and in the Fixed Account.
Unless you request otherwise, a partial surrender will reduce the Contract
Value in the sub-accounts of the Variable Account and the Fixed Account
proportionately. The annual Administration Contract Charge will be deducted
entirely from the Contract Value in the Variable Account, and not from the
Contract Value in the Fixed Account. (However, that charge is limited to the
lesser of $30 and 2% of the total Contract Value, including Contract Value in
the Fixed Account.) 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 and partial surrenders. The
following special rules apply to transfers involving the Fixed Account.
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
- ----------------------------------------------------------------------------
at the end of the first day of the Contract Year, and the amount of Contract
- ----------------------------------------------------------------------------
Value that was transferred from the Fixed Account in the previous Contract
- --------------------------------------------------------------------------
Year, except with the consent of the Company. (Also, after the transfer is
- --------------------------------------------------------------------------
made, the Contract Value may not be allocated among more than ten of the sub-
- -----------------------------------------------------------------------------
accounts and/or the Fixed Account.) The Company intends to restrict purchase
- -----------------------------------
payments and transfers of Contract Value into the Fixed Account: (1) if the
interest rate which would be credited to the deposit would be equivalent to an
annual effective rate of 3%; or (2) if the total Contract Value in the Fixed
Account exceeds a maximum amount published by the Company (currently
$500,000). In addition, the Company intends to restrict transfers of Contract
Value into the Fixed Account, and reserves the right to restrict purchase
payments into the Fixed Account, for 180 days following a transfer out of the
Fixed Account.
Amounts transferred to the sub-accounts from the Fixed Account will be on a
"last-in, first-out" basis; that is, they will be made in the reverse order in
which the deposits into the Fixed Account were made. Amounts surrendered from
the Fixed Account will be on a "first-in, first-out" basis.
The Company reserves the right to delay transfers, surrenders and partial
surrenders from the Fixed Account for up to six months.
FINANCIAL STATEMENTS
The financial statements of the Company may be found in the Statement of
Additional Information.
A-38
<PAGE>
INVESTMENT EXPERIENCE INFORMATION
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 New England Zenith Fund during those periods. For sub-
accounts investing in Eligible Funds that did not commence operations until
1994, returns have not been annualized. The tables do not represent what may
happen in the future.
The Variable Account was not established until July, 1994. The Contracts
were not available before April 10, 1995. The Back Bay Advisors Bond Income
and Back Bay Advisors Money Market Series commenced operations on August 26,
1983. The Westpeak Value Growth and Loomis Sayles Avanti Growth Series
commenced operations on April 30, 1993. The Small Cap Series commenced
operations on May 2, 1994. The six other Eligible Funds did not commence
operations until 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 charge, which applies
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, 1994 to arrive at the Contract Value
on that date. This Contract Value is then reduced by the applicable Contingent
Deferred Sales Charge and the portion of the $30 Administration Contract
Charge which would be deducted upon surrender on December 31, 1994 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, 1994. The average annual total returns assume that no premium tax charge
has been deducted.
AVERAGE ANNUAL TOTAL RETURN
For purchase payment allocated to the Back Bay Advisors Bond Income Series
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1994
-------------------------------
<S> <C>
1 Year.......................................................... -12.81%
5 Years......................................................... 4.00%
10 years........................................................ 6.12%
Since Inception................................................. 6.43%
For purchase payment allocated to the Back Bay Advisors Money Market Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1994
-------------------------------
<S> <C>
1 Year.......................................................... -5.77%
5 Years......................................................... 0.32%
10 years........................................................ 2.28%
Since Inception................................................. 2.89%
For purchase payment allocated to the Westpeak Value Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1994
-------------------------------
<S> <C>
1 Year.......................................................... -10.90%
Since Inception................................................. -0.55%
For purchase payment allocated to the Loomis Sayles Avanti Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1994
-------------------------------
<S> <C>
1 Year.......................................................... -10.74%
Since Inception................................................. -0.20%
</TABLE>
A-39
<PAGE>
The tables below illustrate hypothetical cumulative total returns for each
sub-account for the periods shown. Cumulative total return is calculated like
average annual total return, above, except that the return for the period is
not annualized. Instead, the cumulative total return reflects the actual
investment experience of the Eligible Fund for the period from inception to
December 31, 1994, which in all cases is less than one year.
For purchase payment allocated to the Loomis Sayles Small Cap Series
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1994
-------------------------------
<S> <C>
Since Inception................................................. -12.70%
For purchase payment allocated to the Loomis Sayles Balanced Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1994
-------------------------------
<S> <C>
Since Inception................................................. -7.17%
For purchase payment allocated to the Draycott International Equity Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1994
-------------------------------
<S> <C>
Since Inception................................................. -4.94%
For purchase payment allocated to the Salomon Brothers U.S. Government
Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1994
-------------------------------
<S> <C>
Since Inception................................................. -6.52%
For purchase payment allocated to the Salomon Brothers Strategic Bond
Opportunities Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1994
-------------------------------
<S> <C>
Since Inception................................................. -8.47%
For purchase payment allocated to the Venture Value Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1994
-------------------------------
<S> <C>
Since Inception................................................. -9.95%
For purchase payment allocated to the Alger Equity Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1994
-------------------------------
<S> <C>
Since Inception................................................. -12.09%
</TABLE>
Information is available illustrating the impact of fund performance on
annuity payouts.
The following chart illustrates how the average annual total return was
determined for the five year period ending December 31, 1994 for the Back Bay
Advisors Bond Income Series based on the assumptions used in the above table.
The units column below shows the number of accumulation units hypothetically
purchased by the $1000 investment in the Series in the first year. The units
are reduced on each Contract anniversary to reflect the deduction of the $30
Administration Contract Charge. The example 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, 1989............. 552.6279 1.809536 $1000.00
December 31, 1990............. 537.0871 1.930406 1036.80 $ 980.81 -1.92%
December 31, 1991............. 523.7334 2.246568 1176.60 1126.60 6.14%
December 31, 1992............. 511.2212 2.397657 1225.73 1185.73 5.84%
December 31, 1993............. 499.9592 2.663825 1331.80 1301.80 6.82%
December 31, 1994............. 488.1194 2.533842 1236.82 1216.82 4.00%
</TABLE>
The following charts illustrate what would have been the growth and value of
a $10,000 purchase payment 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 for the Back Bay Advisors Money Market and Back
Bay Advisors Bond Income Series; May 1, 1993 for the Westpeak Value Growth and
Loomis Sayles Avanti Growth Series; May 2, 1994 for the Loomis Sayles Small
Cap Series;
A-40
<PAGE>
and November 1, 1994 for the other series of the Zenith Fund. The figures
shown do not reflect the deduction of any premium tax charge on surrender.
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 on surrender.
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 on surrender.
$10,000 SINGLE PURCHASE PAYMENT CONTRACT
BACK BAY ADVISORS BOND INCOME AND BACK BAY ADVISORS MONEY MARKET SERIES ISSUED
SEPTEMBER 1, 1983
WESTPEAK VALUE GROWTH AND LOOMIS SAYLES AVANTI GROWTH SERIES ISSUED MAY 1,
1993
LOOMIS SAYLES SMALL CAP SERIES ISSUED MAY 2, 1994
OTHER ZENITH FUND SERIES ISSUED NOVEMBER 1, 1994
INVESTMENT RESULTS
<TABLE>
<CAPTION>
CONTRACT VALUE
------------------------------------------------------------------------------------------------------
SALOMON
BACK BAY BACK BAY LOOMIS LOOMIS SALOMON BROTHERS
ADVISORS ADVISORS WESTPEAK SAYLES SAYLES LOOMIS DRAYCOTT BROTHERS STRATEGIC
BOND MONEY VALUE AVANTI SMALL SAYLES INTERNATIONAL U.S. BOND
INCOME MARKET GROWTH GROWTH CAP BALANCED EQUITY GOVERNMENT OPPORTUNITIES
---------- ---------- ---------- ---------- --------- --------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of
December 31:
1983............ $10,322.81 $10,267.54
1984............ 11,453.60 11,175.37
1985............ 13,388.02 11,905.91
1986............ 15,137.28 12,515.01
1987............ 15,242.32 13,122.58
1988............ 16,250.76 13,896.84
1989............ 17,982.33 14,945.51
1990............ 19,151.99 15,916.87
1991............ 22,256.32 16,648.79
1992............ 23,723.05 17,018.60
1993............ 26,326.57 17,259.26 $11,357.58 $11,306.07
1994............ 25,012.44 17,679.32 11,004.10 10,972.12 $9,512.13 $9,956.78 $10,196.29 $10,026.51 $9,817.20
<CAPTION>
CONTRACT VALUE
-------------------
ALGER
VENTURE EQUITY
VALUE GROWTH
--------- ---------
<S> <C> <C>
As of
December 31:
1983............
1984............
1985............
1986............
1987............
1988............
1989............
1990............
1991............
1992............
1993............
1994............ $9,657.56 $9,561.73
</TABLE>
<TABLE>
<CAPTION>
SURRENDER VALUE (1)
------------------------------------------------------------------------------------------------------
SALOMON
BACK BAY BACK BAY LOOMIS LOOMIS SALOMON BROTHERS
ADVISORS ADVISORS WESTPEAK SAYLES SAYLES LOOMIS DRAYCOTT BROTHERS STRATEGIC
BOND MONEY VALUE AVANTI SMALL SAYLES INTERNATIONAL U.S. BOND
INCOME MARKET GROWTH GROWTH CAP BALANCED EQUITY GOVERNMENT OPPORTUNITIES
---------- ---------- ---------- ---------- --------- --------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of
December 31:
1983............ $ 9,660.92 $ 9,609.51
1984............ 10,843.60 10,565.37
1985............ 12,878.02 11,395.91
1986............ 14,727.28 12,105.01
1987............ 14,932.32 12,812.58
1988............ 16,040.76 13,686.84
1989............ 17,872.33 14,835.51
1990............ 19,141.99 15,906.87
1991............ 22,246.32 16,638.79
1992............ 23,713.05 17,008.60
1993............ 26,316.57 17,249.26 $10,637.58 $10,586.07
1994............ 25,002.44 17,669.32 10,390.70 10,359.67 $8,897.68 $9,325.15 $ 9,547.90 $ 9,390.01 $9,195.35
<CAPTION>
SURRENDER VALUE (1)
-------------------
ALGER
VENTURE EQUITY
VALUE GROWTH
--------- ---------
<S> <C> <C>
As of
December 31:
1983............
1984............
1985............
1986............
1987............
1988............
1989............
1990............
1991............
1992............
1993............
1994............ $9,046.88 $8,957.76
</TABLE>
A-41
<PAGE>
ANNUAL PERCENTAGE CHANGE IN CONTRACT VALUE(1)
<TABLE>
<CAPTION>
BACK BAY BACK BAY LOOMIS SALOMON
ADVISORS ADVISORS WESTPEAK LOOMIS SAYLES LOOMIS DRAYCOTT BROTHERS
BOND MONEY VALUE SAYLES AVANTI SMALL SAYLES INTERNATIONAL U.S.
INCOME MARKET GROWTH GROWTH CAP BALANCED EQUITY GOVERNMENT
-------- -------- -------- ------------- ------ -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983................... 3.23% 2.68%
1984................... 10.95 8.84
1985................... 16.89 6.54
1986................... 13.07 5.12
1987................... .69 4.85
1988................... 6.62 5.90
1989................... 10.66 7.55
1990................... 6.50 6.50
1991................... 16.21 4.60
1992................... 6.59 2.22
1993................... 10.97 1.41 13.58% 13.06%
1994................... -4.99 2.43 -3.11 -2.95 -4.88% -0.43% 1.96% 0.27%
Cumulative Return....... 150.12 76.79 10.04 9.72 -4.88 -0.43 1.96 0.27
Annual Effective Rate of
Return................. 8.42 5.15 5.90 5.72
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
SALOMON INTERMEDIATE
BROTHERS GOVERNMENT/
STRATEGIC ALGER DOW JONES S&P 500 CORPORATE CONSUMER
BOND VENTURE EQUITY INDUSTRIAL STOCK BOND PRICE
OPPORTUNITIES VALUE GROWTH AVERAGE(2) INDEX(3) INDEX(4) INDEX(5)
------------- ------- ------ ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983................... 5.89% 1.71% 4.50% 1.07%
1984................... 1.30 6.22 14.38 3.95
1985................... 33.55 31.64 18.05 3.80
1986................... 27.10 18.62 13.12 1.10
1987................... 5.48 5.21 3.67 4.43
1988................... 16.14 16.50 6.78 4.42
1989................... 32.19 31.59 12.76 4.65
1990................... -1.00 -3.12 9.17 6.11
1991................... 24.19 30.34 14.63 3.06
1992................... 7.39 7.61 7.17 2.90
1993................... 16.97 10.06 8.79 2.75
1994................... -1.83% -3.42% -4.38% 5.06 1.31 -1.95 2.78
Cumulative Return....... -1.83 -3.42 -4.38 378.41 312.26 185.02 49.52
Annual Effective Rate of
Return................. 14.81 13.31 9.68 3.61
</TABLE>
ANNUAL PERCENTAGE CHANGE IN SURRENDER VALUE(1)
<TABLE>
<CAPTION>
BACK BAY BACK BAY LOOMIS LOOMIS SALOMON
ADVISORS ADVISORS WESTPEAK SAYLES SAYLES LOOMIS DRAYCOTT BROTHERS
BOND MONEY VALUE AVANTI SMALL SAYLES INTERNATIONAL U.S.
INCOME MARKET GROWTH GROWTH CAP BALANCED EQUITY GOVERNMENT
-------- -------- -------- ------ ------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983................... -3.39% -3.90%
1984................... 12.24 9.95
1985................... 18.76 7.86
1986................... 14.36 6.22
1987................... 1.39 5.85
1988................... 7.42 6.82
1989................... 11.42 8.39
1990................... 7.10 7.22
1991................... 16.22 4.60
1992................... 6.59 2.22
1993................... 10.98 1.41 6.38 5.86
1994................... -4.99 2.44 -2.32 -2.14 -11.02% -6.75% -4.52% -6.10%
Cumulative Return....... 150.02 76.69 3.91 3.60 -11.02 -6.75 -4.52 -6.10
Annual Effective Rate of
Return................. 8.42 5.15 2.32 2.14
</TABLE>
A-42
<PAGE>
<TABLE>
<CAPTION>
LEHMAN
SALOMON INTERMEDIATE
BROTHERS GOVERNMENT/
STRATEGIC ALGER DOW JONES S&P 500 CORPORATE CONSUMER
BOND VENTURE EQUITY INDUSTRIAL STOCK BOND PRICE
OPPORTUNITIES VALUE GROWTH AVERAGE(2) INDEX(3) INDEX(4) INDEX(5)
------------- ------- ------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983................... 5.89% 1.71% 4.50% 1.07%
1984................... 1.30 6.22 14.38 3.95
1985................... 33.55 31.64 18.05 3.80
1986................... 27.10 18.62 13.12 1.10
1987................... 5.48 5.21 3.67 4.43
1988................... 16.14 16.50 6.78 4.42
1989................... 32.19 31.59 12.76 4.65
1990................... -1.00 -3.12 9.17 6.11
1991................... 24.19 30.34 14.63 3.06
1992................... 7.39 7.61 7.17 2.90
1993................... 16.97 10.06 8.79 2.75
1994................... -8.05% -9.53% -10.42% 5.06 1.31 -1.95 2.78
Cumulative Return....... -8.05 -9.53 -10.42 378.41 312.26 185.02 49.52
Annual Effective Rate of
Return................. 14.81 13.31 9.68 3.61
</TABLE>
- --------
NOTES:
(1) The Contract Values, surrender values, and annual percentage change
figures assume reinvestment of dividends and capital gain distributions.
The Contract Values are net of all deductions and expenses other than any
applicable Contingent Deferred Sales Charge or premium tax charge. Each
surrender value equals the Contract Value less any applicable Contingent
Deferred Sales Charge and a pro rata portion of the annual $30
Administration Contract Charge, but does not reflect a deduction for the
premium tax charge. (See "Administration Charges, Contingent Deferred
Sales Charge and Other Deductions."). 1983 figures for the Back Bay
Advisors Bond Income and Back Bay Advisors Money Market Series are from
September 1 through December 31, 1983. 1993 figures for the Westpeak Value
Growth and Loomis Sayles Avanti Growth Series are from May 1, 1993 through
December 31, 1993. 1994 figures for the Loomis Sayles Small Cap Series are
from May 2 through December 31, 1994. 1994 figures for all other series of
the Zenith Fund are from November 1 through December 31, 1994. The charts
do not show an Annual Effective Rate of Return for the Loomis Sayles Small
Cap Series or for the other Zenith Fund Series that commenced operations
in 1994 because none of these Series had a full year of operations.
(2) The Dow Jones Industrial Average is a market value-weighted and unmanaged
index of 30 large industrial stocks traded on the New York Stock Exchange.
The annual percentage change figures have been adjusted to reflect
reinvestment of dividends. 1983 figures are from September 1 through
December 31, 1983.
(3) The S&P 500 Stock Index is an unmanaged weighted index of the stock
performance of 500 industrial, transportation, utility and financial
companies. The annual percentage change figures have been adjusted to
reflect reinvestment of dividends. 1983 figures are from September 1
through December 31, 1983.
(4) The Lehman Intermediate Government/Corporate Bond Index is a subset of the
Lehman Government/Corporate Bond Index covering all issues with maturities
between 1 and 10 years which is composed 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 composed of taxable,
fixed rate publicly-issued, investment grade non-convertible corporate
debt obligations. 1983 figures are from September 1 through December 31,
1983.
(5) The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of changes, over time, in the prices
of goods and services. 1983 figures are from September 1 through December
31, 1983.
A-43
<PAGE>
The chart below illustrates what would have been the change in value of a
$250 monthly investment under a Contract in each of the Eligible Funds if
purchase payments had been made on the first day of each month starting with
September 1, 1983 for the Back Bay Advisors Bond Income and Back Bay Advisors
Money Market Series, May 1, 1993 for the Westpeak Value Growth and Loomis
Sayles Avanti Growth Series, May 2, 1994 for the Loomis Sayles Small Cap
Series and November 1, 1994 for the other series of the Zenith Fund. The
figures shown do not reflect the deduction of any premium tax charge on
surrender, 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 to reflect the $30 Administration Contract Charge, in the
same manner 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,
1994. See the Statement of Additional Information for a description of the
method of calculating the annual effective rate of return in this
illustration. The charts do not show an annual effective rate of return for
the Loomis Sayles Small Cap Series or for the other Zenith Fund Series that
commenced operations in 1994 because none of these Series had a full year of
operations. Instead, the rates of return shown for these Series are not
annualized.
INVESTMENT RESULTS
SEPTEMBER 1, 1983--DECEMBER 31, 1994
FOR BOND INCOME AND MONEY MARKET SERIES
MAY 1, 1993--DECEMBER 31, 1994 FOR VALUE GROWTH AND AVANTI GROWTH SERIES
MAY 2, 1994--DECEMBER 31, 1994 FOR SMALL CAP SERIES
NOVEMBER 1, 1994--DECEMBER 31, 1994 FOR OTHER ZENITH FUND SERIES
<TABLE>
<CAPTION>
CONTRACT VALUE
-----------------------------------------
BACK BAY BACK BAY LOOMIS
ADVISORS ADVISORS WESTPEAK SAYLES
CUMULATIVE BOND MONEY VALUE AVANTI
PAYMENTS* INCOME MARKET GROWTH GROWTH
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
As of December 31:
1983.................... $ 1,000 $ 1,011.27 $ 1,016.83
1984.................... 4,000 4,349.54 4,229.09
1985.................... 7,000 8,364.65 7,592.64
1986.................... 10,000 12,619.16 11,049.80
1987.................... 13,000 15,729.32 14,668.84
1988.................... 16,000 19,839.99 18,641.31
1989.................... 19,000 25,121.19 23,181.95
1990.................... 22,000 29,930.59 27,812.46
1991.................... 25,000 38,121.49 32,184.97
1992.................... 28,000 43,792.49 35,962.33
1993.................... 31,000 51,735.96 39,529.83 $2,121.35 $2,119.07
1994.................... 34,000 52,139.85 43,580.04 5,040.23 5,047.30
Annual Effective Rate of
Return.................. 7.28% 4.27% 0.92% 1.08%
</TABLE>
- --------
NOTE: *For the Westpeak Value Growth and Loomis Sayles Avanti Growth Series,
cumulative payments as of December 31, 1993 would be $2,000 and as of
December 31, 1994 would be $5,000. For the Loomis Sayles Small Cap
Series, cumulative payments as of December 31, 1994 would be $2,000. For
the other Zenith Fund Series, cumulative payments as of December 31,
1994 would be $500.
A-44
<PAGE>
<TABLE>
<CAPTION>
CONTRACT VALUE
-------------------------------------------------------------------------
SALOMON
LOOMIS BROTHERS LOOMIS ALGER DRAYCOTT VENTURE SALOMON
CUMULATIVE SAYLES U.S. SAYLES EQUITY INTERNATIONAL VALUE BROTHERS BOND
PAYMENTS* SMALL CAP GOVERNMENT BALANCED GROWTH EQUITY GROWTH OPPORTUNITIES
---------- --------- ---------- -------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1994................... $2,000 $1,937.19 $501.86 $501.65 $490.87 $509 33 $496.40 $491.13
Rate of Return**........ -0.71% 0.25% 0.22% -1.22% 1.24% -0.48% -1.19%
</TABLE>
<TABLE>
<CAPTION>
SURRENDER VALUE
-----------------------------------------
BACK BAY BACK BAY LOOMIS
ADVISORS ADVISORS WESTPEAK SAYLES
CUMULATIVE BOND MONEY VALUE AVANTI
PAYMENTS* INCOME MARKET GROWTH GROWTH
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
As of December 31:
1983................... $ 1,000 $ 932.93 $ 938.10
1984................... 4,000 4,069.54 3,957.34
1985................... 7,000 7,914.65 7,148.73
1986................... 10,000 12,029.16 10,459.80
1987................... 13,000 15,029.32 13,968.84
1988................... 16,000 19,059.99 17,861.31
1989................... 19,000 24,291.19 22,351.95
1990................... 22,000 29,080.59 26,962.46
1991................... 25,000 37,271.49 31,334.97
1992................... 28,000 42,942.49 35,112.33
1993................... 31,000 50,885.96 38,679.83 $1,961.35 $1,959.07
1994................... 34,000 51,289.85 42,730.04 4,711.54 4,717.86
Annual Effective Rate of
Return................. 7.01% 3.94% -6.62% -6.48%
</TABLE>
<TABLE>
<CAPTION>
SURRENDER VALUE
----------------------------------------------------
SALOMON
LOOMIS BROTHERS LOOMIS ALGER DRAYCOTT VENTURE SALOMON
CUMULATIVE SAYLES U.S. SAYLES EQUITY INTERNATIONAL VALUE BROTHERS BOND
PAYMENTS* SMALL CAP GOVERNMENT BALANCED GROWTH EQUITY GROWTH OPPORTUNITIES
---------- --------- ---------- -------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1994................... $2,000 $1,802.23 $463.83 $463.64 $453.61 $470.78 $458.76 $453.85
Rate of Return**........ -2.32% -4.90% -4.93% -6.32% -3.95% -5.60% -6.29%
</TABLE>
- --------
NOTES: *For the Westpeak Value Growth and Loomis Sayles Avanti Growth Series,
cumulative payments as of December 31, 1993 would be $2,000 and as of
December 31, 1994 would be $5,000. For the Loomis Sayles Small Cap
Series, cumulative payments as of December 31, 1994 would be $2,000.
For the other Zenith Fund Series, cumulative payments as of December
31, 1994 would be $500.
**Rates of return for these series are not annualized because the series had
not had a full year of operations by December 31, 1994.
The Variable Account may update the performance history of one or more of
its sub-accounts on a quarterly basis by illustrating the one, five, and ten
year growth (or the growth since inception, if less than one year) of a
$10,000 single payment using the same method of calculation described on page
A-40, 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 Variable Account will make available illustrations showing historical
Contract Values and the annual effective rate of return, based upon
hypothetical purchase payment amounts and frequencies, which can be selected
by the client. The method of calculation described on page A-40 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 or the annual $30 Administration Contract Charge, both
of which have the effect of reducing historical performance.
A-45
<PAGE>
The percentage change in unit value and annual effective rate of return of
each sub-account may be shown from inception of the Eligible Fund to the date
of the report and for the 1, 5, and 10 year periods ending with the date of
the report. The percentage change in unit value and annual effective rate of
return also may be compared with the percentage change and annual effective
rate for the Dow Jones Industrial Average and S&P 500 Stock Index, unmanaged
indices of stock performance described in Notes (2) and (3) to the preceding
illustration of Annual Percentage Change in Contract Value and Annual
Percentage Change in Surrender Value for a $10,000 Single Purchase Payment
Contract. The percentage change is calculated by dividing the difference in
unit or index values at the beginning and end of the period by the beginning
unit or index value. See the Statement of Additional Information for a
description of the method for calculating the annual effective rate of return
in this illustration.
From time to time the Company may advertise (in sales literature or
advertising material) performance rankings of the sub-accounts of the Variable
Account assigned by independent services, such as Variable Annuity Research
and Data Services ("VARDS"). VARDS monitors and ranks the performance of
variable annuity accounts on an industry-wide basis in each of the major
categories of investment objectives. The performance analysis prepared by
VARDS ranks accounts on the basis of total return calculated using
Accumulation Unit Values. Thus, the effect of the Contingent Deferred Sales
Charge and $30 Administration Contract Charge assessed under the Contracts is
not taken into consideration.
From time to time, articles discussing the Variable Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited to, Lipper Analytical Services, Inc. and
Morningstar) may publish their own rankings or performance reviews of variable
contract separate accounts, including the Variable Account. References to,
reprints or portions of reprints of such articles or rankings may be used by
the Company as sales literature or advertising material and may include
rankings that indicate the names of other variable contract separate accounts
and their investment experience.
A-46
<PAGE>
APPENDIX A
CONSUMER TIPS
DOLLAR COST AVERAGING
Dollar cost averaging allows a person to take advantage of the historical
long-term stock market results, assuming that they continue, although it does
not guarantee a profit or protect against a loss. If an investor follows a
program of dollar cost averaging on a long-term basis and the stock fund
selected performs at least as well as the S&P 500 has historically, it is
likely although not guaranteed that the price at which shares are surrendered,
for whatever reason, will be higher than the average cost per share.
An investor using dollar cost averaging invests the same amount of money in
the same professionally managed fund at regular intervals over a long period
of time. Dollar cost averaging keeps an investor from investing too much when
the price of shares is high and too little when the price is low. When the
price of shares is low, the money invested buys more shares. When it is high,
the money invested buys fewer shares. If the investor has the ability and
desire to maintain this program over a long period of time (for example, 20
years), and the stock fund chosen follows the historical upward market trends,
the price at which the shares are sold should be higher than their average
cost. The price could be lower, however, if the fund chosen does not follow
these historical trends.
Investors contemplating the use of dollar cost averaging should consider
their ability to continue the on-going purchases so that they can take
advantage of periods of low price levels.
DIVERSIFICATION
Diversifying investment choices can enhance returns, by providing a wider
opportunity for safe returns, and reduce risks, by spreading the chance of
loss. Holding a single investment requires of that investment a safe return
because a loss may risk the entire investment. By diversifying, on the other
hand, an investor can more safely take a chance that some investments will
under-perform and that others will over-perform. Thus an investor can
potentially earn a better-than-average rate of return on a diversified
portfolio than on a single safe investment. This is because, although portions
of a diversified investment may be totally lost, other portions may perform at
above-average rates that more than compensate for the loss.
MISCELLANEOUS
<TABLE>
<C> <S>
Toll-free telephone service: --A recording of daily unit values is available
by calling 1-800-333-2501.
--Fund transfers and changes of future purchase
payment allocations can be made by calling 1-
800-777-5897 (Not available for fund transfers
under Contracts issued in New York.)
Written Communications: --All communications and inquiries regarding
address changes, premium payments, billing,
fund transfers, surrenders, maturities and any
other processing matters relating to your
Contract should be directed to:
New England Annuities
P.O. Box 642
Boston, Mass 02117
</TABLE>
A-47
<PAGE>
APPENDIX B
CONTINGENT DEFERRED SALES CHARGE
The following example illustrates how the Contingent Deferred Sales Charge
would apply if the commuted value of amounts that have been placed under
certain payment options is later withdrawn. As described in the prospectus in
the section "Contingent Deferred Sales Charge", no Contingent Deferred Sales
Charge will apply if at any time more than 30 days from issue of the Contract
you apply the proceeds to a variable or fixed payment option involving a life
contingency or, for a minimum specified period of 15 years, to either the
Variable Income for a Specified Number of Years Option or the Variable Income
Payments to Age 100 Option, or a comparable fixed option. However, if you
subsequently withdraw the commuted value of amounts placed under any of those
options, the Company will deduct from the amount you receive a portion of the
Contingent Deferred Sales Charge that was waived, based on the ratio of: (1)
the number of whole months remaining on the date of withdrawal until the date
when the Contingent Deferred Sales Charge would expire, to (2) the number of
whole months that were remaining when the proceeds were applied to the option,
until the date when the Contingent Deferred Sales Charge would expire.
As an example, assume that $100,000 of Contract Value (net of any premium
tax charge and Administration Contract Charge) is applied to the Variable
Income for a Specified Number of Years Option for a 20 year period. Assume
further that the proceeds are derived from a $30,000 purchase payment made ten
years ago, a $30,000 purchase payment made exactly two years ago, and
investment earnings, and that the Contingent deferred Sales Charge waived on
application of the proceeds to the payment option was $1,500. If the Payee
surrenders the commuted value of the proceeds under option six months later,
the Contingent Deferred Sales Charge would be $1,350 (representing the $1,500
waived at annuitization multiplied by 54/60, where 54 is the number of whole
months currently remaining until the Contingent Deferred Sales Charge would
expire, and 60 is the number of whole months that remained at the time of
annuitization until the Contingent Deferred Sales Charge would expire).
A-48
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SERVICES TO THE VARIABLE ACCOUNT........................................... 3
PERFORMANCE COMPARISONS.................................................... 3
CALCULATION OF PERFORMANCE DATA............................................ 4
NET INVESTMENT FACTOR...................................................... 7
ANNUITY PAYMENTS........................................................... 7
EXPERTS.................................................................... 16
LEGAL MATTERS.............................................................. 16
FINANCIAL STATEMENTS....................................................... 17
</TABLE>
If you would like to obtain a copy of the Statement of Additional
Information, please complete the request for below and mail to:
New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
Please send a copy of the Statement of Additional
Information of New England Variable Annuity Separate
Account to:
_______________________________________________________
Name
_______________________________________________________
Street
_______________________________________________________
City State Zip
A-49
