<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1996
REGISTRATION NOS. 33-85442
811-8828
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 2 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 4 [X]
(CHECK APPROPRIATE BOX OR BOXES)
----------------
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
(EXACT NAME OF REGISTRANT)
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
501 BOYLSTON STREET, BOSTON, MASSACHUSETTS 02117
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER: 617-578-2000
NAME AND ADDRESS OF AGENT FOR SERVICE: COPY TO:
H. James Wilson Stephen E. Roth, Esquire
Executive Vice President and General Counsel Sutherland, Asbill & Brennan
New England Mutual Life Insurance Company 1275 Pennsylvania Avenue, N.W.
501 Boylston Street Washington, D.C. 20004-2404
Boston, Massachusetts 02117
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[_] on May 1, 1996 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[X] on May 1, 1996 pursuant to paragraph (a)(i) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
[_] on (date) pursuant to paragraph (a)(ii) of Rule 485
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SECURITIES UNDER THE
SECURITIES ACT OF 1933 IN ACCORDANCE WITH RULE 24F-2 UNDER THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED.
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<PAGE>
CROSS REFERENCE SHEETS
Between information contained in the Prospectus and Statement of Additional
Information and the Required Items of Form N-4.
<TABLE>
<CAPTION>
FORM N-4 CAPTION IN STATEMENT
ITEM NO. CAPTION IN PROSPECTUS OF ADDITIONAL INFORMATION
-------- --------------------- -------------------------
<C> <S> <C>
1 Cover Page........................
2 Glossary of Special Terms used in
this Prospectus..................
3 Highlights; Expense Table.........
4 Accumulation Unit Values..........
5 The Company; The Variable Account;
Investments of the Variable
Account--The New England Zenith
Fund Series; Administration
Charges, Contingent Deferred
Sales Charge and Other
Deductions; Voting Rights........
6 Administrative Charges, Contingent
Deferred Sales Charge and Other
Deductions.......................
7 The Contracts; Investments of the
Variable Account (Substitution of
Investments); Annuity Payments;
The Fixed Account; Guaranteed
Option...........................
8 Annuity Payments; Amount of
Variable Annuity Payments........
9 The Contracts.....................
10 The Contracts; Cover Page......... Net Investment Factor
11 The Contracts; Loan Provision for
Certain Tax-Benefited Retirement
Plans............................
12 Retirement Plans Offering Federal
Tax Benefits; Federal Income Tax
Status (Taxation of the
Contracts).......................
13 Inapplicable......................
14 Table of Contents of Statement of
Additional Information...........
15 Cover Page
16 Table of Contents
17 Inapplicable
18 Services to the Variable Account
19 Administration Charges, Contingent
Deferred Sales Charge and Other
Deductions.......................
20 Services to the Variable Account
21(b) Calculation of Performance Data
22 Annuity Payments
23 Financial Statements
</TABLE>
<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. The Contracts are not intended for use with Section 401(k) plans or
Section 403(b) plans subject to ERISA. See "Retirement Plans Offering Federal
Tax Benefits" for more information. 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
Alger Equity Growth Series
Back Bay Advisors Money Market
Series Venture Value Series
Loomis Sayles Avanti Growth Series
Salomon Brothers U.S. Government
Westpeak Value Growth Series Series
Salomon Brothers Strategic Bond
Loomis Sayles Small Cap Series Opportunities Series
Loomis Sayles Balanced Series
A Fixed Account option is also available in states that have approved this
option. (See "The Fixed Account" for more information.) Special limits apply
--------------------
to transfers of Contract Value to and from the Fixed Account.
- -------------------------------------------------------------
This prospectus sets forth concisely the information about the Contracts
that a prospective investor ought to know before investing. The prospectus
should be read carefully and retained for future reference.
Certain additional information about the Contracts is contained in a
Statement of Additional Information dated May 1, 1996, as it may be
supplemented from time to time, which has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Table of
Contents of the Statement of Additional Information appears on page A- 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. The New
England and Metropolitan Life Insurance Company ("MetLife") have entered into
an agreement to merge, with MetLife to be the survivor of the merger. See "The
Company" for more information.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is May 1, 1996.
THIS PROSPECTUS 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-9
HOW THE CONTRACT WORKS.................................................... A-15
THE COMPANY............................................................... A-16
THE VARIABLE ACCOUNT...................................................... A-16
INVESTMENTS OF THE VARIABLE ACCOUNT....................................... A-16
Investment Advice..................................................... A-18
Substitution of Investments........................................... A-18
GUARANTEED OPTION......................................................... A-18
THE CONTRACTS............................................................. A-18
Purchase Payments..................................................... A-18
Allocation of Purchase Payments....................................... A-19
Contract Value and Accumulation Unit Value............................ A-20
Payment on Death Prior to Annuitization............................... A-20
Transfer Privilege.................................................... A-22
Dollar Cost Averaging................................................. A-23
Surrenders............................................................ A-23
Systematic Withdrawals................................................ A-24
Loan Provision for Certain Tax Benefited Retirement Plans............. A-25
Suspension of Payments................................................ A-27
Ownership Rights...................................................... A-27
Requests and Elections................................................ A-27
Ten Day Right to Review............................................... A-28
ADMINISTRATION CHARGES, CONTINGENT DEFERRED SALES CHARGE AND OTHER
DEDUCTIONS............................................................... A-28
Administration Charges................................................ A-28
Mortality and Expense Risk Charge..................................... A-28
Contingent Deferred Sales Charge...................................... A-29
Premium Tax Charge.................................................... A-31
Other Expenses........................................................ A-31
Charges Under Contracts Purchased by Exchanging a Fund I, Preference
or Zenith Accumulator Contract....................................... A-32
ANNUITY PAYMENTS.......................................................... A-33
Election of Annuity................................................... A-33
Annuity Options....................................................... A-33
AMOUNT OF VARIABLE ANNUITY PAYMENTS....................................... A-34
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS............................ A-35
FEDERAL INCOME TAX STATUS................................................. A-36
Introduction.......................................................... A-36
Taxation of the Company............................................... A-36
Tax Status of the Contract............................................ A-37
Taxation of Annuities................................................. A-37
Qualified Contracts................................................... A-39
Withholding........................................................... A-41
Possible Changes in Taxation.......................................... A-41
Other Tax Consequences................................................ A-41
General............................................................... A-41
VOTING RIGHTS............................................................. A-42
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DISTRIBUTION OF CONTRACTS.................................................. A-42
THE FIXED ACCOUNT.......................................................... A-43
General Description of the Fixed Account............................... A-43
Contract Value and Fixed Account Transactions.......................... A-43
FINANCIAL STATEMENTS....................................................... A-44
INVESTMENT EXPERIENCE INFORMATION.......................................... A-45
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 or $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 applications of proceeds to certain annuity payment
options, or, in certain circumstances, upon withdrawal of amounts that were
applied to an annuity 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--The mutual fund portfolios in which the Variable Account
invests. Eligible Funds currently available consist of 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- to A- .
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- .
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
an annuity payment option. The term includes (i) an Annuitant, (ii) a
Beneficiary or contingent Beneficiary who becomes entitled to payments upon
death of the 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:
Taxation of earnings under variable annuities is generally deferred until
amounts are withdrawn or distributions made. The deferral of taxes on earnings
under variable annuities is designed to encourage long-term personal savings
and supplemental retirement plans.
THE CONTRACT:
The American Growth Series is a variable annuity issued by the Company. 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. Annuity payments
generally are made on a monthly basis and will vary in amount according to the
annuity payment option selected and the investment results of the underlying
Eligible Fund(s). (See "Annuity Payments".)
A-5
<PAGE>
PURCHASE PAYMENTS:
Under current rules, the minimum initial purchase payment is $5,000, and the
minimum subsequent purchase payment is $250, with the following exceptions.
The Company will accept purchase payments as low as: $2,000 per year for
Contracts issued in connection with individual retirement accounts under
Section 408(a) of the Code or individual retirement annuities under Section
408(b) of the Code (both referred to as "IRAs"); $50 per month for other types
of retirement plans qualifying for tax benefited treatment under the Code and
for which payments are made through a group billing arrangement (also known as
a "list bill" arrangement); and $100 per month if you choose to have them
withdrawn from your bank checking account or TNE Cash Management Trust account
(a service is known as the Master Service Account arrangement). In the case of
a Contract issued in exchange for a contract issued by New England Variable
Annuity Fund I (a "Fund I contract"), New England Retirement Investment
Account (a "Preference contract"), or The New England Variable Account (a
"Zenith Accumulator contract") (each an "old contract"), the Company may
consent to waive the minimum initial and subsequent purchase payment amounts
to correspond with the terms of the old contract. The maximum purchase payment
is $1,000,000, unless the Company consents to a higher amount. 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 intended for use with the
following retirement plans which offer Federal tax benefits: plans qualified
under Section 401(a) or 403(a) of the Code ("Qualified Plans"), certain
annuity plans under Section 403(b) of the Code ("TSA Plans"), 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"),
simplified employee pension plans and salary reduction simplified employee
pension plans under Section 408(k) of the Code ("SEPs" and "SARSEPs"),
eligible deferred compensation plans under Section 457 of the Code ("Section
457 Plans"), and governmental plans within the meaning of Section 414(d) of
the Code ("Governmental Plans"). See "Retirement Plans Offering Federal Tax
Benefits." The Contracts may not yet be available to all of the foregoing
types of plans pending appropriate state approvals. The Contracts are not
currently available to other plans, such as 401(k) plans or TSA Plans subject
to ERISA 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. It is the
Company's position that, under current tax law, you may also transfer Contract
Value between Eligible Funds without incurring federal income tax
consequences. The Company reserves the right to limit the number and amount of
transfers and charge a transfer fee. Currently the Company does not charge a
transfer fee or limit the number of transfers prior to annuitization. However,
special limits apply in
A-6
<PAGE>
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 to or from 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 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 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. (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 annuity payment
options, or, in certain circumstances, on withdrawal of amounts that were
applied to an annuity 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- .)
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 until 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".)
A-7
<PAGE>
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". Special rules apply if the Contract is subject
to a loan.) The Federal tax laws impose penalties upon, and in some cases
prohibit, certain premature distributions from the Contracts before or after
the date on which the annuity payments are to begin. (See "Federal Income Tax
Status.") A Contingent Deferred Sales Charge will be imposed in connection
with certain Contract surrenders and applications of proceeds to certain
annuity payment options, or, in certain circumstances, upon subsequent
withdrawal of amounts applied to an annuity 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-8
<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
ANNUAL CONTRACT FEE
Administration Contract Charge (per Contract)(4)..................... $30
SEPARATE ACCOUNT ANNUAL EXPENSES(5)
(as percentage of average net assets)
Mortality and Expense Risk Charge.................................... 1.25%
Administration Asset Charge.......................................... .10%
-----
Total Separate Account Annual Expenses........................... 1.35%
</TABLE>
A-9
<PAGE>
NEW ENGLAND ZENITH FUND
OPERATING EXPENSES FOR THE YEAR ENDED 12/31/95
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE CAP OR EXPENSE DEFERRAL)(6)
<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.......... % % % % % % %
Other Expenses.......... % % % % % % %
---- ---- ---- ---- ----- ---- -----
Total Operating
Expenses............. .55% .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................... % % % %
Other Expenses................... % % % %
---- ---- ---- ----
Total Operating Expenses....... .90% .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 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <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 (a contingent deferred sales
charge will apply at the end of 1 year,
3 years and 5 years):
Back Bay Advisors Bond Income.......... $ $ $ $
Back Bay Advisors Money Market.........
Westpeak Value Growth..................
Loomis Sayles Avanti Growth............
Loomis Sayles Small Cap................
Loomis Sayles Balanced.................
Draycott International Equity..........
Alger Equity Growth....................
Venture Value..........................
Salomon Brothers U.S. Government.......
Salomon Brothers Strategic Bond
Opportunities.........................
</TABLE>
A-10
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <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 (no contingent deferred sales
charge will apply)(8):
Back Bay Advisors Bond Income........... $ $ $ $
Back Bay Advisors Money Market..........
Westpeak Value Growth...................
Loomis Sayles Avanti Growth.............
Loomis Sayles Small Cap.................
Loomis Sayles Balanced..................
Draycott International Equity...........
Alger Equity Growth.....................
Venture Value...........................
Salomon Brothers U.S. Government........
Salomon Brothers Strategic Bond
Opportunities..........................
</TABLE>
A-11
<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 two 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 reserves the right to limit the number and amount of transfers
and impose a transfer 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
%, based on an estimated average Contract Value of approximately
$ over the period from January 1, 1995 to December 31, 1995.
(5) These charges are not imposed after annuitization if annuity payments are
made on a fixed basis.
(6) Total Operating Expenses are based on the amount of such expenses applied
against assets at December 31, 1995, after giving effect to a voluntary
expense cap or expense deferral. 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 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 Bond Income, Back Bay
Advisors Money Market, Westpeak Value Growth and Loomis Sayles Avanti
Growth Series for the year ended December 31, 1995 would have been %,
%, % and %, respectively. For the Loomis Sayles Small Cap
Series, 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 for the year ended December 31, 1995 would have been
%. For the six other Series shown, the Total Operating Expenses are
after giving effect to a voluntary expense deferral. Under the deferral,
expenses which exceed a certain limit are paid by TNE Advisers in the year
they are incurred and transferred to the Series in a future year when
actual expenses of the Series are below the limit. The limit on expenses
for each of these Series is: .70% of average daily net assets for the
Salomon Brothers U.S. Government Series; .85% of average daily net assets
for the Salomon Brothers Strategic Bond and Loomis Sayles Balanced Series;
.90% of average daily net assets for the Venture Value and Alger Equity
Growth Series; and 1.30% of average daily net assets for the Draycott
International Equity Series. Absent the voluntary expense deferral, Total
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 for
the year ended December 31, 1995 would have been %, %, %,
%, %, and %, 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 % 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 that were
remaining, when the proceeds were applied to the option, until the date
when the Contingent Deferred Sales Charge would expire.
- -------------------------------------------------------------------------------
A-12
<PAGE>
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-13
<PAGE>
ACCUMULATION UNIT VALUES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION
ACCUMULATION ACCUMULATION UNITS
UNIT VALUE UNIT VALUE OUTSTANDING AT
AT BEGINNING AT END OF END OF PERIOD
OF PERIOD PERIOD (IN THOUSANDS)
------------ ------------ --------------
<S> <C> <C> <C>
Zenith Back Bay Advisors Money Market
Sub-account
04/ /95* to 12/31/95.................
Zenith Back Bay Advisors Bond Income
Sub-account
04/ /95* to 12/31/95.................
Zenith Loomis Sayles Avanti Growth
Sub-account
04/ /95* to 12/31/95.................
Zenith Loomis Sayles Small Cap
Sub-account
04/ /95* to 12/31/95.................
Zenith Loomis Sayles Balanced
Sub-account
04/ /95* to 12/31/95.................
Zenith Westpeak Value Growth
Sub-account
04/ /95* to 12/31/95.................
Zenith Draycott International Equity
Sub-account
04/ /95* to 12/31/95.................
Zenith Alger Equity Growth Sub-account
04/ /95* to 12/31/95.................
Zenith Venture Value Sub-account
04/ /95* to 12/31/95.................
Zenith Salomon Brothers U.S.
Government Sub-account
04/ /95* to 12/31/95.................
Zenith Salomon Brothers Strategic Bond
Opportunities Sub-account
04/ /95* to 12/31/95.................
</TABLE>
- --------
* Date on which the sub-account first became available.
A-14
<PAGE>
HOW THE CONTRACT WORKS
PURCHASE PAYMENT CONTRACT VALUE DAILY DEDUCTION FROM
ASSETS
. 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- ) 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 free of
86. charge. (Special SURRENDER CHARGE
limits apply to
. Minimum $250 the Fixed Account . Consists of
and to situations Contingent
LOANS that involve Deferred Sales
"market timing".) Charge based on
. The Company purchase payments
intends to . Allocations of made (see pages A-
make loans payments and to A- )
available to transfers of
participants Contract Value are PREMIUM TAX CHARGE
of certain tax limited in that
qualified Contract Value may . Where applicable,
pension plans not be allocated is deducted from
(see page A- ) among more than the Contract Value
ten accounts when annuity
SURRENDERS (including the benefits commence
Fixed Account) at (and, in certain
. Up to the any time. states, at the
greater of: earliest of: full
10% of the or partial
Contract Value surrender,
at the annuitization or
beginning of payment of the
the Contract Death Proceeds due
Year, and the to the death of a
excess of the Contract Owner or,
Contract Value if applicable, of
over purchase the Annuitant.)
payments that RETIREMENT BENEFITS
are subject to
the Contingent . Lifetime income
Deferred Sales options
Charge on the
date of . Fixed and/or
surrender can variable payout
be withdrawn options
each year
without
incurring a . Retirement ADDITIONAL BENEFITS
Contingent benefits may be
Deferred Sales taxable . You pay no taxes
Charge, on your investment
subject to any . Premium tax charge as long as it
applicable tax may apply remains in the
law restrictions Contract
. Surrenders may . Contract may be
be taxable surrendered at any
time for its
. Prior to age Contract Value,
59 1/2 a 10% less any applicable
penalty tax Contingent Deferred
may apply Sales Charge,
subject to any
. Premium tax applicable tax
charge may law restrictions
apply
. Contingent
Deferred Sales
DEATH PROCEEDS Charge may be
waived upon
. Guaranteed not evidence of
to be less terminal illness,
than your confinement to a
total purchase nursing home, or
payments permanent and
adjusted for total disability,
any prior if this benefit is
surrenders available in your
(and, where state.
applicable,
net of premium
tax charges)
. Death proceeds
pass to the
beneficiary
without probate
. Death proceeds
may be taxable
. Premium tax
charge may apply
A-15
<PAGE>
THE COMPANY
The Company 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. The Company's Home Office is in Wilmington, Delaware and its
Administrative Office is at 501 Boylston Street, Boston, Massachusetts 02116.
The Company 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, 1995, The
New England had over $ billion of assets and approximately $ billion of
life insurance in force. As of December 31, 1995, The New England and its
affiliates had over $ billion in assets under management.
The New England and Metropolitan Life Insurance Company ("MetLife") have
entered into an agreement to merge, with MetLife to be the survivor of the
merger. The merger is conditioned upon, among other things, approval by the
policyholders of The New England and MetLife and receipt of certain regulatory
approvals. The merger is not expected to occur until [ ] 1996. If the merger
is consummated, the Company will become an indirect wholly-owned subsidiary of
MetLife. The Company is not expected to be affected by the merger except to
the extent that assets of The New England may be transferred to the Company in
connection with consummation of the merger.
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. Beginning in 1996, the Variable Account is expected to support other
variable annuity contracts besides the Contracts.
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 and the other variable annuity
contracts supported by the Variable Account. 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 or remove Eligible Funds from time to time
as investments for the Variable Account. See "Substitution of Investments."
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.
A-16
<PAGE>
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.
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 invests primarily
in stocks of small capitalization companies with good earnings growth
potential that Loomis Sayles believes are undervalued by the market.
Typically, such companies range in size from $100 million to $500 million in
market capitalization, have better than average growth rates at below average
price/earnings ratios, and have strong balance sheets and cash flow.
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-17
<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 Davis Selected 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 in states that
have approved the Fixed Account option. The Fixed Account is a part of the
Company's general account and provides guarantees of principal and interest.
(See "The Fixed Account" for more information.)
THE CONTRACTS
The Contracts provide that your purchase payments will be invested by the
Company in the Eligible Fund(s) you select and that, after the Maturity Date,
the Company will make variable annuity payments on a monthly basis unless you
elect otherwise. 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.
PURCHASE PAYMENTS
The minimum initial purchase payment currently required is $5,000, and the
minimum subsequent purchase payment is $250, with the following exceptions.
The Company will accept purchase payments as low as: $2,000 per year for
Contracts
A-18
<PAGE>
issued in connection with individual retirement accounts under Section 408(a)
of the Code or individual retirement annuities under Section 408(b) of the
Code (both referred to as "IRAs"); $50 per month for other types of retirement
plans qualifying for tax benefited treatment under the Code and for which
payments are made through a group billing arrangement (also known as a "list
bill" arrangement); and $100 per month if you choose to have them withdrawn
from your bank checking account or TNE Cash Management Trust account. (This
service is known as the Master Service Account arrangement.) In the case of a
Contract issued in exchange for a Fund I, Preference or Zenith Accumulator
contract, the Company may consent to waive the minimum initial and subsequent
purchase payment amounts to correspond with the terms of the old contract. 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 (including the
initial purchase payment) 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
--------------
contract 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
Company may consent to waive the minimum initial and subsequent purchase
payment amount to correspond to the terms of the old 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, a
benefit that is not available under the Zenith Accumulator 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 the Company, whereas the
old contracts were issued by The New England. Although The New England is the
parent of the Company, it does not guarantee the obligations of the Company.
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 10 accounts, including the Fixed Account, at any time). The
A-19
<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".) Under a Contract that permits Contract loans, the total
Contract Value also includes the amount of the Contract Value transferred to
the Company's general account (but outside of the Fixed Account) as a result
of a loan and any interest credited on that amount. Interest earned on the
amount held in the general account as a result of a loan will be credited to
the Contract's sub-accounts at least annually in accordance with the
allocation instructions in effect for purchase payments under your Contract on
the date of the crediting. (See "Loan Provision for Certain Tax Benefited
Retirement Plans".)
PAYMENT ON DEATH PRIOR TO ANNUITIZATION
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 an annuity payment option is received at the Administrative Office.
Death proceeds will be reduced by the amount of any outstanding loan plus
accrued interest. (See "Loan Provision for Certain Tax Benefited Retirement
Plans.") 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
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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 payment 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. Whether and when such an election is made could affect when
the Death Proceeds are deemed to be received under the tax laws. 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.
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 a 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 a
Contract Owner (or, if applicable, the Annuitant) dies on or after
annuitization, the remaining interest in the Contract must be distributed at
least as quickly as under the method of distribution in effect on the date of
death. There are comparable rules for distributions on the death of the
Annuitant under tax benefited retirement plans. See "Federal Income Tax
Status--Qualified Contracts--Distributions from the Contract."
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 a Contract Owner (or, if applicable, of the Annuitant) if such
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 will be held in the Contract and the Contract will be continued for
the maximum five year period, for each Beneficiary whose
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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
It is the position of the Company that you may transfer your Contract Value
among sub-accounts and/or the Fixed Account without incurring federal income
tax consequences. It is not clear, however, whether the Internal Revenue
Service will limit the number of transfers between sub-accounts and/or the
Fixed Account in an attempt to limit the Contract Owner's incidents of
ownership in the assets used to support the Contract. See "Tax Status of the
Contract--Diversification."
The Company currently does not charge a transfer fee or limit the number of
transfers prior to annuitization. The Company reserves the right to limit
transfers and to charge a transfer fee. 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 to or from any sub-account must be at least $100. (If the full
amount of Contract Value in a sub-account is less than $100, 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, the Company 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 the Company. 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.
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<PAGE>
For transfers that the Company 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 the Company'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, the Company
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 the Company'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 the Company.
If a transfer is executed under one Contract and, within the next 30 days, a
transfer request for another Contract is determined by the Company to be
related to the executed transfer under this paragraph's rules, the transfer
request will not be executed by the Company. (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).
The Company'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. The Company 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.
The foregoing limitations on transfers that the Company determines to be
based on market-timing do not apply to Contracts issued in New York. Under
such Contracts, however, transfers can be made under Power of Attorney only
with Company consent.
Contract Owners will be notified, in advance, if a transfer fee or limits on
the number of transfers will be imposed, or of any change in any transfer fee
or 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 10 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. If a transfer
fee is imposed, transfers made under the dollar cost averaging program will be
counted against the number of transfers per year permitted free of charge. You
may cancel your use of the dollar cost averaging program at any time prior to
the monthly transfer date. (See Appendix A.)
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-23
<PAGE>
. a pro rata portion of the Administration Contract Charge (on a full
surrender only);
. a premium tax charge (in certain states only);
. any outstanding loan plus accrued interest.
See "Administration Charges, Contingent Deferred Sales Charge and Other
Deductions" and "Loan Provision for Certain Tax Benefited Retirement Plans"
for a description of these reductions 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. No surrender is permitted in connection with a
Contract issued pursuant to the Optional Retirement Program of the University
of Texas System prior to the plan participant's death, retirement, or
termination of employment in all Texas public institutions of higher
education. 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 or, if the Contract is subject
to an outstanding loan, the remaining unloaned Contract Value must be at least
10% of the total Contract Value after the partial surrender or $1,000,
whichever is greater (unless the Company consents to a lesser 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
A-24
<PAGE>
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.
LOAN PROVISION FOR CERTAIN TAX BENEFITED RETIREMENT PLANS
The Company intends to make Contract loans available to participants under
TSA Plans that are not subject to ERISA and to trustees of Qualified Plans.
Availability of Contract loans will be subject to state insurance department
approval.
The Department of Labor has issued regulations (the "ERISA regulations")
governing plan participant loans under retirement plans subject to ERISA.
Generally, the ERISA regulations will apply to retirement plans that qualify
under Section 401(a) or 403(a). YOU AND YOUR EMPLOYER ARE RESPONSIBLE FOR
DETERMINING WHETHER YOUR PLAN IS SUBJECT TO THE ERISA REGULATIONS ON
PARTICIPANT PLAN LOANS.
It is the responsibility of the trustee of a Qualified Plan subject to ERISA
to ensure that the proceeds of a Contract loan are made available to a
participant under a separate plan loan agreement, the terms of which comply
with all the plan qualification requirements including the requirements of the
ERISA regulations on plan loans. Therefore, the plan loan agreement may differ
from the Contract loan provisions and, if you are a participant in a Qualified
Plan subject to ERISA, you should consult with the fiduciary administering the
plan loan program to determine your rights and obligations with respect to
plan loans.
The ERISA regulations contain requirements for plan loans relating to their
maximum amount, availability, and other matters. Among the rules are the
requirements that the loan bear a reasonable rate of interest, be adequately
secured, provide a reasonable repayment schedule, and be made available on a
basis that does not discriminate in favor of employees who are officers or
shareholders or who are highly compensated. These regulations may change from
time to time. Failure to comply with these requirements may result in tax
penalties under the Code and under ERISA.
One of the current requirements of the ERISA regulations is that the plan
must charge a "commercially reasonable" rate of interest for plan loans. The
Contract loan interest rate may not be considered "commercially reasonable"
within the meaning of the ERISA regulations, and it is the responsibility of
the plan fiduciary to charge the participant any additional interest under the
plan loan agreement which may be necessary to make the overall rate charged
comply with the regulation. The ERISA regulations also currently require that
a loan be adequately secured, but provide that not more than 50% of the
participant's vested account balance under the plan may be used as security
for the loan. A Contract loan is secured by the portion of the Contract Value
which is held in the Company's general account as a result of the loan. The
plan fiduciary must ensure that the Contract Value held as security under the
Contract, plus any additional portion of the participant's vested account
balance which is used as security under the plan loan agreement, does not
exceed 50% of the participant's total vested account balance under the plan.
The amount of any loan may not exceed the maximum loan amount as determined
under the Company's maximum loan formula. The effect of a loan on your
Contract is that a portion of the Contract Value equal to the amount of the
loan will be transferred to the Company's general account and will earn
interest (which is credited to the Contract), currently at the effective rate
of 4 1/2% per year. This earned interest will be credited to the Contract's
sub-accounts (and, if available under your Contract, to the Fixed Account)
annually in accordance with the allocation instructions in effect for purchase
payments under your Contract on the date of the crediting. Under current
rules, interest charged on the loan will be 6 1/2% per year. Depending on the
Company's interpretation of applicable law and on the Company's administrative
procedures, the interest rates charged and earned on loaned amounts may be
changed (for example, to provide for a variable interest rate) with respect to
new loans made. The Company may also establish a minimum loan amount. Because
the amount moved to the general account as a result of the loan does not
participate in the Variable Account's investment experience, a Contract loan
can have a permanent effect on the Contract Value and death proceeds.
The Company will not permit more than one loan at a time on any Contract
except where state regulators require otherwise. In addition, the Code
provides that the total amount of loans under all your retirement plans may
not at any one
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<PAGE>
time exceed $50,000 less the highest outstanding loan balance in the preceding
12 months, subject, however, to a smaller maximum if applicable, of the
greater of (1) $10,000, or (2) 50% of the value of your nonforfeitable,
accrued benefits. Loans must be repaid within 5 years except for certain loans
used for the purchase of a principal residence, which must be repaid within 20
years. Repayment of the principal amount and interest on the loan will be
required in equal monthly installments by means of repayment procedures
established by the Company. Contract loans are subject to applicable
retirement program laws and their taxation is determined under the Code. Under
current practice, if a Contract loan installment repayment is not made, the
Company may (unless restricted by law) make a full or partial surrender of the
Contract in the amount of the unpaid installment repayment on the Contract
loan or, if there is a default on the Contract loan, in an amount equal to the
outstanding loan balance (plus any applicable Contingent Deferred Sales Charge
and Administration Contract Charge in each case). (A default on the loan is
defined in the loan application and includes among other things, nonpayment of
three consecutive or a total of five installment repayments, or surrender of
the Contract.) An installment repayment of less than the amount billed will
not be accepted. A full or partial surrender of the Contract to repay all or
part of the loan may result in serious adverse tax consequences for the plan
participant (including penalty taxes) and may adversely affect the
qualification of the plan or Contract. The trustee of a Qualified Plan subject
to ERISA will be responsible for reporting to the IRS and advising the
participant of any tax consequences resulting from the reduction in the
Contract Value caused by the surrender and for determining whether the
surrender adversely affects the qualification of the plan. In the case of a
TSA Plan not subject to ERISA, the Company will report the surrender to the
IRS as a taxable distribution under the Contract.
The Internal Revenue Service issued proposed regulations in December of
1995, which, if finalized in their present form, would require that if the
repayment terms of a loan are not satisfied after the loan has been made due
to a failure to make a loan repayment as scheduled, including any applicable
grace period, the balance of the loan would be deemed to be distributed. If
the loan is treated as a distribution under Code Section 72(p), the proposed
regulations state that the amount so distributed is to be treated as a taxable
distribution subject to the normal rules of Code Section 72, if the
participant's interest in the plan includes after-tax contributions (or other
tax basis). A deemed distribution would also be a distribution for purposes of
the 10 percent tax in Code Section 72(t) and the excise tax on excess
distributions under Section 4980A. However, a deemed distributuion under
Section 72(p) would not be treated as an actual distribution for purposes of
Code Section 401, the rollover and income averaging provisions of Section 402
and the distribution restrictions of Section 403(b).
Partial surrenders will be restricted by the existence of a loan and, after
any partial surrender, the remaining unloaned Contract Value must be at least
10% of the total Contract Value after the partial surrender or $1,000,
whichever is greater (unless the Company consents to a lesser amount). If a
partial surrender by the Company to enforce the loan repayment schedule would
reduce the unloaned Contract Value below this amount, the Company reserves the
right to surrender the entire Contract and apply the Contract Value to the
Contingent Deferred Sales Charge, the Administration Contract Charge and the
amount owed to the Company under the loan. If at any time an excess Contract
loan exists (that is, the Contract loan balance exceeds the Contract Value),
the Company has the right to terminate the Contract.
Unless you request otherwise, Contract loans will reduce the amount of the
Contract Value in the sub-accounts (and, if available under your Contract, in
the Fixed Account) in proportion to the Contract Value then in each sub-
account (and in the Fixed Account). If any portion of the Contract loan was
attributable to Contract Value in the Fixed Account, then an equal portion of
each loan repayment will have to be allocated to the Fixed Account. (For
example, if 50% of the loan was attributable to your Fixed Account Contract
Value, then 50% of each loan repayment will be allocated to the Fixed
Account). Unless you request otherwise, a repayment will be allocated to the
sub-accounts in the same proportions to which the loan was attributable to the
sub-accounts.
The amount of the death proceeds, the amount payable upon surrender of the
Contract and the amount applied on the Maturity Date to provide annuity
payments will be reduced by the amount of any outstanding Contract loan plus
accrued interest.
The tax and ERISA rules relating to participant loans under tax benefited
retirement plans are complex and in some cases unclear, and they may vary
depending on the individual circumstances of each loan. The Company strongly
recommends that you, your employer and your plan fiduciary consult a qualified
tax adviser regarding the currently applicable tax and ERISA rules before
taking any action with respect to loans.
The Company will provide further information regarding loans upon request.
A-26
<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. Transfer of ownership of the Contract under an ERISA
"Pension Plan" to a non-spousal beneficiary may require spousal consent.
Qualified Plans and certain TSA Plans with sufficient employer involvement
are deemed to be "Pension Plans" under ERISA and are, therefore, subject to
rules under the Retirement Equity Act of 1984. These rules require that
benefits from annuity contracts purchased by a Pension Plan and distributed to
or owned by a participant be provided in accordance with certain spousal
consent, present value and other requirements which are not enumerated in the
Contract. Thus, the tax consequences of the purchase of the Contracts by
Pension Plans should be considered carefully.
Those Contracts offered by the prospectus which are designed to qualify for
the favorable tax treatment described below under "Federal Income Tax Status"
contain restrictions on transfer or assignment, reflecting requirements of the
Code which must be satisfied in order to assure continued eligibility for such
tax treatment. In accordance with such requirements, ownership of such a
Contract may not be changed and the Contract may not be sold, assigned or
pledged as collateral for a loan or for any other purpose except under certain
limited circumstances. A Contract Owner contemplating a sale, assignment or
pledge of the Contract should carefully review its provisions and consult a
qualified tax adviser.
If Contracts offered by this prospectus are used in connection with deferred
compensation plans or retirement plans not qualifying for favorable Federal
tax treatment, such plans may also restrict the exercise of rights by the
Contract Owner. A Contract Owner should review the provisions of any such
plan.
REQUESTS AND ELECTIONS
Requests for sub-account transfers or reallocation of future purchase
payments may be made by telephone or written request (which may be telecopied)
to the Company at its Administrative Office. 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 Company's Administrative Office at 1-800-777-
5897 between the hours of 9:00 a.m. and 4:00 p.m., Eastern Time. Requests for
transfer (that are within the Company's current limits applicable to
transfers) or reallocation by telephone will be automatically permitted. The
Company (or any servicer acting on its behalf) will use reasonable procedures
such as requiring certain identifying information from the caller, tape
recording the telephone instructions, and providing written confirmation of
the transaction, in order to confirm that instructions communicated by
telephone are genuine. Any telephone instructions reasonably believed by the
Company (or any servicer acting on its behalf) to be genuine will be your
responsibility, including losses arising from any errors in the communication
of instructions. As a result of this policy, you will bear the risk of loss.
If the Company (or any servicer acting on its behalf) does not employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, 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.
A-27
<PAGE>
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.
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 may (but does not currently) charge 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, but will notify
Contract Owners in advance of any such change. (See "Transfer Privilege".) The
Company expects that the amount of any transfer fee will not exceed the actual
costs (including overhead costs) of administering transfers.
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
A-28
<PAGE>
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.")
The Mortality and Expense Risk Charge is computed and deducted on a daily
basis from the assets in each sub-account attributable to the Contracts. The
charge is at an annual rate of 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.
In the event that tax law requires you to take distributions of Contract
Value prior to the Maturity Date, they may be subject to the Contingent
Deferred Sales Charge to the extent they exceed the free withdrawal amount, as
described above, in any Contract Year. See "Federal Income Tax Status--Tax
Status of the Contract" and "--Qualified Plans."
A-29
<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 1/1/00.... $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 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
A-30
<PAGE>
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 Company may also waive the Contingent Deferred Sales Charge if a
Contract Owner surrenders a Contract or Contracts in order to purchase a group
variable annuity issued by the Company or The New England.
The Contracts may be sold directly, without compensation, to a registered
representative, to employees, officers, directors, and trustees of the
Company, 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 consistent with applicable state
insurance law, the Contracts may also be sold, without compensation, to the
Company or The New England for use with deferred compensation plans for
agents, employees, officers, directors, and trustees of the Company, The New
England and their affiliated companies, or to persons who obtain the Contract
through a bank, adviser or consultant to whom they pay a fee for investment or
planning advice. 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 annuity benefits commence. 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 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-31
<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. 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. A
comparison of the other fees and charges under an American Growth Series
Contract to those under a Fund I contract would also include the following:
Total asset-based charges (including the investment advisory fee) under the
Fund I contracts currently equal approximately 1.35%. Deductions for sales and
administrative expenses are made from ongoing purchase payments under the Fund
I contracts. Any applicable premium tax charges are deducted from purchase
payments in South Dakota and Kentucky and at annuitization in North Carolina.
With respect to a Preference contract, a comparison of fees and charges under
an American Growth Series Contract to those under a Preference contract would
include the following: 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 South Dakota and
Kentucky and at annuitization in North Carolina.
In the case of a Contract issued by exchanging a Zenith Accumulator
contract, 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. Following is a
comparison of other fees and charges under Zenith Accumulator contracts and
American Growth Series Contracts. 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 three states, from purchase payments in South Dakota and
Kentucky, and at annuitization in North Carolina. 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. 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
that the American Growth Series Contract may require a higher minimum for any
subsequent purchase payments you may wish to make, although the Company may
consent to waive the minimum to correspond to the terms of the old 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-32
<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.
For Contracts with an outstanding loan, the amount of Contract Value or Death
Proceeds applied to a payment option will be reduced by the amount of the loan
outstanding plus accrued interest.
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.
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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.
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* 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 and by any
outstanding loan plus accrued interest) 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.
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<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 remains alive, 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.
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS
The Federal tax laws provide for a variety of retirement plans offering tax
benefits. These plans, which may be funded through the purchase of the
individual variable annuity contracts offered in this prospectus, include:
1. Plans qualified under Section 401(a) or 403(a) of the Code ("Qualified
Plans") but not plans qualified under Section 401(k);
2. Annuity purchase plans adopted by public school systems and certain
tax-exempt organizations pursuant to Section 403(b) of the Code ("TSA
Plans") which are funded solely by salary reduction contributions and which
are not otherwise subject to ERISA;
3. Individual retirement accounts adopted by or on behalf of individuals
pursuant to Section 408(a) of the Code and individual retirement annuities
purchased pursuant to Section 408(b) of the Code (both of which may be
referred to as "IRAs"), including simplified employee pension plans and
salary reduction simplified employee pension plans, which are specialized
IRAs that meet the requirements of Section 408(k) of the Code ("SEPs" and
SARSEPs");
4. Eligible deferred compensation plans (within the meaning of Section
457 of the Code) for employees of state and local governments and tax-
exempt organizations ("Section 457 Plans"); and
5. Governmental plans (within the meaning of Section 414(d) of the Code)
for governmental employees, including Federal employees ("Governmental
Plans").
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<PAGE>
An investor should consult a qualified tax or other adviser as to the
suitability of a Contract as a funding vehicle for retirement plans qualifying
for tax benefited treatment, as to the rules underlying such plans and as to
the state and Federal tax aspects of such plans. In particular, the Contract
is not intended for use with plans qualified under Section 401(k) of the Code
or with TSA Plans that are subject to ERISA. The Company will not provide all
the administrative support appropriate for such plans. Accordingly, the
Contract should NOT be purchased for use with such plans.
A summary of the Federal tax laws regarding contributions to, and
distributions from, the above tax benefited retirement plans may be found
below under "Federal Income Tax Status-Qualified Contracts." It should be
understood that should a tax benefited retirement plan lose its qualification
for tax-exempt status, employees will lose some of the tax benefits described
herein.
In the case of certain TSA Plans under Section 403(b)(1) of the Code and
IRAs purchased under Section 408(b) of the Code, the individual variable
annuity contracts offered in this prospectus comprise the retirement "plan"
itself. These Contracts will be endorsed, if necessary, to comply with Federal
and state legislation governing such plans, and such endorsements may alter
certain Contract provisions described in this prospectus. Refer to the
Contracts and any endorsements for more complete information.
FEDERAL INCOME TAX STATUS
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.
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 the Internal
Revenue Code of 1986, as amended (the "Code"). For purposes of this
prospectus, Qualified Contracts are Contracts that fund Qualified Plans, TSA
Plans, SEPs and SARSEPs, Section 457 Plans, and Governmental Plans, as defined
above under "Retirement Plans Offering Federal Tax Benefits." 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 THE COMPANY
The Company 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 the
Company, and its operations form a part of the Company, 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, the Company 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, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Variable Account and, therefore, the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the
Company being taxed on income or gains attributable to the Variable Account,
then the Company 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.
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<PAGE>
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 must 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."
The ownership rights under the Contract are similar to, but also different
in certain respects from, those described by the IRS in rulings in which it
was determined that contract owners were not owners of separate account
assets. For example, a Contract Owner has additional flexibility in allocating
premium payments and account values. These differences could result in a
Contract Owner being treated as the owner of a pro rata portion of the assets
of the Variable Account. In addition, the Company does not know what standards
will be set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. The Company therefore reserves the
right to modify the Contract as necessary to attempt to prevent a Contract
Owner from being considered the owner of a pro rata share of the assets of the
Variable Account.
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
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. The Company 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.
-----------
The Company 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.
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<PAGE>
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.
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 the Company (or its affiliates) to the same owner during any
calendar year are treated as one annuity contract for purposes of determining
the amount includible
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<PAGE>
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 with certain retirement plans that qualify
for Federal tax benefits. Such plans are defined above under the heading
"Retirement Plans Offering Federal Tax Benefits." 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.
The Company 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. Adverse tax or other legal consequences to the plan, to the
participant or to both may result if the Contract is assigned or transferred
to any individual as a means to provide benefit payments, unless the plan
complies with all legal requirements applicable to such benefits prior to
transfer of the Contract. 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.
(i) Plan Contribution Limits
QUALIFIED PLANS, SEPS, SARSEPS AND GOVERNMENTAL PLANS
Statutory limitations on contributions to Qualified Plans, SEPs, SARSEPs and
Governmental Plans may limit the amount of money that may be contributed to
the Contract in any Contract Year. Any purchase payments attributable to such
contributions are tax deductible to the employer and are not currently taxable
to the Annuitants for whom the Contracts are purchased. The contributions to
the Contract and any increase in Contract Value attributable to such
contributions are not subject to taxation until payments from the Contract are
made to the Annuitant or his/her Beneficiaries.
TSA PLANS
Purchase payments attributable to TSA Plans are not includible within the
Annuitant's income to the extent such purchase payments do not exceed certain
statutory limitations, including the "exclusion allowance." The exclusion
allowance is a calculation which takes into consideration the Annuitant's
includible compensation, number of years of service, and prior years of
contributions. For more information about all the applicable limitations, the
Annuitant should obtain a copy of IRS Publication 571 on TSA Programs for
Employees of Public Schools and Certain Tax Exempt Organizations which will
better assist the Annuitant in calculating the exclusion allowance and other
limitations to which he or she may be subject for any given tax year. Any
purchase payments attributable to permissible contributions under Code Section
403(b) (and earnings thereon) are not taxable to the Annuitant until amounts
are distributed from the Contract.
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<PAGE>
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.
SECTION 457 PLANS
Generally, under a Section 457 Plan, an employee or executive may defer
income under a written agreement in an amount equal to the lesser of 33 1/3%
of includible compensation or $7,500. The amounts so deferred (including
earnings thereon) by an employee or executive electing to contribute to a
Section 457 Plan are includible in gross income only in the tax year in which
such amounts are paid or made available to that employee or executive or
his/her Beneficiary. Once contributed to the plan, any Contracts purchased
with employee contributions remain the sole property of the employer and may
be subject to the general creditors of the employer. The employer retains all
ownership rights to the Contract including voting and redemption rights which
may accrue to the Contract(s) issued under the plan.
(ii) Distributions from the Contract
MANDATORY WITHHOLDING ON CERTAIN DISTRIBUTIONS
After January 1, 1993, many distributions called "eligible rollover
distributions" from Qualified Plans and from many TSA Plans will be subject to
automatic withholding by the plan or payor at the rate of 20%. Withholding can
be avoided by arranging a direct transfer of the eligible rollover
distribution to a Qualified Plan, TSA or IRA.
QUALIFIED PLANS, TSA PLANS, IRAS, SEPS, SARSEPS AND GOVERNMENTAL PLANS
Payments made from the Contracts held under a Qualified Plan, TSA Plan, IRA,
SEP, SARSEP or Governmental Plan are taxable under Section 72 of the Code as
ordinary income, in the year of receipt. Any amount received in surrender of
all or part of the Contract Value prior to annuitization will, subject to
restrictions and penalties discussed below, also be included in income in the
year of receipt. If there is any "investment" in the Contract, a portion of
each amount received is excluded from gross income as a return of such
investment. Distributions or withdrawals prior to age 59 1/2 may be subject to
a penalty tax of 10% of the amount includible in income. This penalty tax does
not apply: (i) to distributions of excess contributions or deferrals; (ii) to
distributions made on account of the Annuitant's death, retirement, disability
or early retirement at or after age 55; (iii) when distribution from the
Contract is in the form of an annuity over the life or life expectancy of the
Annuitant (or joint lives or life expectancies of the Annuitant and his or her
Beneficiary); or (iv) when distribution is made pursuant to a divorce (in the
case of IRAs) or a qualified domestic relations order. In the case of IRAs,
SEPs and SARSEPs, the exceptions for distributions on account of early
retirement at or after age 55 or made pursuant to a qualified domestic
relations order do not apply. A tax-free rollover may be made once each year
among individual retirement arrangements subject to the conditions and
limitations described in the Code.
If the Annuitant dies before distributions begin, distributions must be
completed within five years after death, unless payments begin within one year
after death and are made over the life (or life expectancy) of the
Beneficiary. If the Annuitant's spouse is the Beneficiary, distributions need
not begin until the Annuitant would have reached age 70 1/2. If the Annuitant
dies after annuity payments have begun, payments must continue to be made at
least as rapidly as payments made before death.
A-40
<PAGE>
With respect to TSA Plans, elective contributions to the Contract made after
December 31, 1988 and any increases in Contract Value after that date may not
be distributed prior to attaining age 59 1/2, termination of employment, death
or disability. Contributions (but not earnings) made after December 31, 1988
may also be distributed by reason of financial hardship. These restrictions on
withdrawal will not apply to the Contract Value as of December 31, 1988. These
restrictions are not expected to change the circumstances under which
transfers to other investments which qualify for tax free treatment under
Section 403(b) of the Code may be made.
Annuity payments, periodic payments or annual distributions 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
have been 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.
SECTION 457 PLANS
When a distribution under a Contract held under a Section 457 Plan is made
to the Annuitant, such amounts are taxed as ordinary income in the year in
which received. The plan must not permit distributions prior to the
Annuitant's separation from service (except in the case of unforeseen
emergency).
Generally, annuity payments, periodic payments or annual distributions must
commence by April 1 of the calendar year following the year in which the
Annuitant attains age 70 1/2 and meet other distribution requirements. Minimum
distributions under a Section 457 Plan may be further deferred if the
Annuitant remains employed with the sponsoring employer. Each annual
distribution must equal or exceed a "minimum distribution amount" which is
determined by distribution rules under the plan. If the Annuitant dies before
distributions begin, the same special distribution rules apply in the case of
Section 457 Plans as apply in the case of Qualified Plans, TSA Plans, IRAs,
SEPs, SARSEPs and Governmental Plans. These rules are discussed above in the
immediately preceding section of this prospectus.
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 the Company'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
A-41
<PAGE>
annuity contract, the Company may require that the prospective purchaser
provide the information with regard to the federal income tax status of the
previous annuity contract. The Company 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; the Company 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 for which no timely instructions are received
will be voted for, against, or withheld from voting on any proposition in the
same proportion as the shares held in that sub-account for all policies or
contracts for which voting instructions are received. Similar procedures will
be followed for Eligible Fund shares held by any other separate account of the
Company or any affiliate to which voting instruction privileges have been
extended.
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 (the
"Exchange Act") and a member of the National Association of Securities
Dealers, Inc. New England Securities may enter into selling agreements with
other broker-dealers registered under the Exchange Act whose registered
representatives are authorized under applicable law to sell variable annuity
contracts. The Company will pay compensation to the New England Securities
registered representatives or other broker-dealers involved in the sale of a
Contract. Such compensation will generally have a present value that does not
exceed 7% of purchase payments under the Contract (although a lower amount may
be paid in certain circumstances, such as sales of the Contracts to a person
over age 75), and such compensation may be paid either as a percentage of
purchase payments at the time the Company receives them, as a percentage of
Contract Value on an ongoing basis, or in some combination of both. 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, although the Company reserves the right to pay a flat servicing or
handling fee--not to be deducted from Contract Value--in connection with such
exchanges.
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<PAGE>
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 assets in the Fixed Account.
Instead, the Company guarantees that Contract Values in the Fixed Account will
be credited with interest at an effective annual 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
be credited with 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. (See "Contract Value and Fixed Account
Transactions" below for a description of the interest rate that will be
applied to Contract loan repayments allocated to the Fixed Account.)
CONTRACT VALUE AND FIXED ACCOUNT TRANSACTIONS
A Contract's total Contract Value will include its Contract Value in the
Variable Account, in the Fixed Account and, for Contracts under which Contract
loans are available, any of its Contract Value held in the Company's general
account (but outside the Fixed Account) as a result of a Contract loan.
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
- -------------------
A-43
<PAGE>
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 and loan
prepayments into the Fixed Account, for 180 days following a transfer or loan
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.
If any portion of a Contract loan was attributable to Contract Value in the
Fixed Account, then an equal portion of each loan repayment must be allocated
to the Fixed Account. (For example, if 50% of the loan was attributable to
your Fixed Account Contract Value, then 50% of each loan repayment will be
allocated to the Fixed Account.) Similarly, unless you request otherwise, the
balance of the loan repayment will be allocated to the sub-accounts in the
same proportions in which the loan was attributable to the sub-accounts. The
rate of interest for each loan repayment applied to the Fixed Account will be
the lesser of: (1) the effective interest rate for your Contract on the date
the loan repayment is applied to the Fixed Account; and (2) the current Fixed
Account interest rate set by the Company in advance for that date. If the loan
is being prepaid, however, and prepayments into the Fixed Account are
restricted as described above, the portion of the loan prepayment that would
have been allocated to the Fixed Account will be allocated to the Zenith Back
Bay Advisors Money Market Sub-account instead.
The Company reserves the right to delay transfers, surrenders, partial
surrenders and Contract loans from the Fixed Account for up to six months.
FINANCIAL STATEMENTS
The financial statements of the Company and the Variable Account may be
found in the Statement of Additional Information.
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<PAGE>
INVESTMENT EXPERIENCE INFORMATION
The Company may advertise performance by illustrating hypothetical average
annual total returns for each sub-account of the Variable Account, based on
the actual investment experience of the Eligible Funds since their inception
and for the one, five, and ten year periods ending with the date of the
illustration. Calculations of average annual total return are based on the
assumption that a single investment of $1,000 was made at the beginning of
each period illustrated. Average annual total return calculations reflect
changes in the net asset values of the Eligible Funds plus the reinvestment of
dividends from net investment income and of distributions from net realized
gains, if any. The calculations also reflect the deduction of the Mortality
and Expense Risk Charge and the Administration Asset Charge. They also reflect
annual deductions for the Administration Contract Charge, and the deduction of
any Contingent Deferred Sales Charge applicable at the end of the period
illustrated. The calculations do not reflect the effect of any premium tax
charge, which applies in certain states, and which would reduce the results
shown. The average annual total return is the annual compounded rate of return
which would produce the surrender value at the end of the period illustrated.
See "Calculation of Performance Data" in the Statement of Additional
Information for average annual total returns as of December 31, 1995 and more
information about how they are calculated.
The Company may also illustrate how the average annual total return for a
five year period was determined by illustrating the average annual total
return for each year in the five year period ending with the date of the
illustration. Such illustrations are based on the same assumptions and reflect
the same expenses and deductions described in the preceding paragraph. See
"Calculation of Performance Data" in the Statement of Additional Information
for an example of this type of illustration and more information about how
average annual total returns are calculated.
The Company may illustrate what would have been the growth and value of a
single $10,000 purchase payment for the Contract if it had been invested in
each of the Eligible Funds on the first day of the first month after those
Eligible Funds commenced operations. These illustrations show Contract Value
and surrender value, calculated in the same manner as when they are used to
arrive at average annual total return, as of the end of each year, ending with
the date of the illustration. The surrender values reflect the deduction of
any applicable Contingent Deferred Sales Charge, but do not reflect the
deduction of any premium tax charge. These illustrations may also show annual
percentage changes in Contract Value and surrender value, cumulative returns,
and annual effective rates of return. The difference between the Contract
Value or surrender value at the beginning and at the end of each year is
divided by the beginning Contract Value or surrender value to arrive at the
annual percentage change. The cumulative return is determined by taking the
difference between the $10,000 investment and the ending Contract Value or
surrender value and dividing it by $10,000. The annual effective rate of
return is calculated in the same manner as average annual total return. See
"Calculation of Performance Data" in the Statement of Additional Information
for examples of these illustrations and more information about how they are
calculated.
The Variable Account may update the performance history of one or more of
its sub-accounts on a quarterly basis by illustrating the one, five, and ten
year values (or since inception, if less) of a single $10,000 purchase payment
invested at the beginning of such periods using the same method of calculation
described in the preceding paragraph, but using the periods ending with the
date of the quarterly illustration. Such illustrations will show the Contract
Value at the end of the period and the cumulative return and annual effective
rate of return for the period. The illustration may also include the
cumulative return and annual effective rate of return of an appropriate
securities index and the Consumer Price Index for the same period.
The Company may illustrate what would have been the change in value of a
$250 monthly purchase payment plan if the monthly payments had been invested
in each of the Eligible Funds on the first day of each month starting with the
first day of the first month after those Eligible Funds commenced operations.
These illustrations show cumulative payments, Contract Value and surrender
value as of the end of each year, ending with the date of the illustration.
Surrender values reflect the deduction of any applicable Contingent Deferred
Sales Charge. The illustrations also show annual effective rates of return,
which represent the compounded annual rates that the hypothetical purchase
payments would have had to earn in order to produce the Contract Value and
surrender value as of the date of the illustration. See "Calculation of
Performance Data" in the Statement of Additional Information for examples of
these illustrations and more information about how they are calculated.
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<PAGE>
The Variable Account may make available illustrations showing historical
Contract Values and the annual effective rate of return, based upon
hypothetical purchase payment amounts and frequencies, which can be selected
by the client. The method of calculation described in the preceding paragraph
will be used, but the illustration will reflect the effect of any premium tax
charge applicable in the state where the illustration is delivered. The
beginning date of the illustration can be selected by the client. Contract
Values will be shown as of the end of each calendar year in the period and as
of the end of the most recent calendar quarter.
Historical investment performance may also be illustrated by showing the
percentage change in the Accumulation Unit Value and annual effective rate of
return of a sub-account without reflecting the deduction of any Contingent
Deferred Sales Charge, premium tax charge, or the annual $30 Administration
Contract Charge, all of which have the effect of reducing historical
performance. The percentage change in unit value and annual effective rate of
return of each sub-account may be shown from inception of the Eligible Fund to
the date of the report and for the one, five, and ten year periods ending with
the date of the report. The percentage change in unit value and annual
effective rate of return also may be compared with the percentage change and
annual effective rate for the Dow Jones Industrial Average and S&P 500 Stock
Index, unmanaged indices of stock performance described in the Statement of
Additional Information in Notes (2) and (3) to the illustration of Annual
Percentage Change in Contract Value and Annual Percentage Change in Surrender
Value for a $10,000 Single Purchase Payment Contract. The percentage change is
calculated by dividing the difference in unit or index values at the beginning
and end of the period by the beginning unit or index value. See the Statement
of Additional Information for a description of the method for calculating the
annual effective rate of return in this illustration.
From time to time the Company may advertise (in sales literature or
advertising material) performance rankings of the sub-accounts of the Variable
Account assigned by independent services, such as Variable Annuity Research
and Data Services ("VARDS"). VARDS monitors and ranks the performance of
variable annuity accounts on an industry-wide basis in each of the major
categories of investment objectives. The performance analysis prepared by
VARDS ranks accounts on the basis of total return calculated using
Accumulation Unit Values. Thus, the effect of the Contingent Deferred Sales
Charge and Administration Contract Charge assessed under the Contracts is not
taken into consideration.
From time to time, articles discussing the Variable Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited to, Lipper Analytical Services, Inc. and
Morningstar) may publish their own rankings or performance reviews of variable
contract separate accounts, including the Variable Account. References to,
reprints or portions of reprints of such articles or rankings may be used by
the Company as sales literature or advertising material and may include
rankings that indicate the names of other variable contract separate accounts
and their investment experience.
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
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).
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<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE COMPANY............................................................... II-3
SERVICES TO THE VARIABLE ACCOUNT.......................................... II-3
PERFORMANCE COMPARISONS................................................... II-3
CALCULATION OF PERFORMANCE DATA........................................... II-4
NET INVESTMENT FACTOR..................................................... II-16
ANNUITY PAYMENTS.......................................................... II-16
HYPOTHETICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS...................... II-17
HISTORICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS........................ II-21
EXPERTS................................................................... II-24
LEGAL MATTERS............................................................. II-24
FINANCIAL STATEMENTS...................................................... II-24
APPENDIX A................................................................ II-
</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
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<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
AMERICAN GROWTH SERIES
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
(PART B)
MAY 1, 1996
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated May 1, 1996 and
should be read in conjunction therewith. A copy of the Prospectus may be
obtained by writing to New England Securities Corporation ("New England
Securities") 399 Boylston Street, Boston, Massachusetts 02116.
II-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The Company............................................................... II-3
Services to the Variable Account.......................................... II-3
Performance Comparisons................................................... II-3
Calculation of Performance Data........................................... II-4
Net Investment Factor..................................................... II-16
Annuity Payments.......................................................... II-16
Hypothetical Illustrations of Annuity Income Payouts...................... II-17
Historical Illustrations of Annuity Income Payouts........................ II-21
Experts................................................................... II-24
Legal Matters............................................................. II-24
Financial Statements...................................................... II-24
Appendix A................................................................ II-
</TABLE>
II-2
<PAGE>
THE COMPANY
New England Variable Life Insurance Company ("The Company") is a direct,
wholly-owned subsidiary of New England Mutual Life Insurance Company ("The New
England"). The New England and Metropolitan Life Insurance Company ("MetLife")
have entered into an agreement to merge, with MetLIfe to be the survivor of
the merger. See "The Company" in the prospectus for more information.
SERVICES TO THE VARIABLE ACCOUNT
The New England maintains the books and records of the Variable Account and
provides issuance and other administrative services for the Contracts. Coopers
& Lybrand, located at One International Place, Boston, Massachusetts 02109,
conducts an annual audit of the Variable Account's financial statements.
Coopers & Lybrand performs this function as one of its services as independent
accountant for the Company.
Principal Underwriter. New England Securities Corporation ("New England
Securities"), an affiliate of the Company, serves as principal underwriter for
the Variable Account pursuant to a distribution agreement between the Company
and New England Securities. The Contracts are offered continuously and are
sold by the Company's life insurance agents and insurance brokers who are
registered representatives of New England Securities. Contracts also may be
sold by registered representatives of broker-dealers that have selling
agreements with New England Securities. The Company pays commissions, none of
which are retained by New England Securities, to the New England Securities
registered representatives and other broker-dealers involved in selling the
Contracts.
PERFORMANCE COMPARISONS
Articles and releases, developed by the Company, the Eligible Funds (as
defined in the Prospectus) and other parties, about the Account or the
Eligible Funds regarding performance, rankings, statistics and analyses of the
Account's, the individual Eligible Funds' and fund groups' asset levels and
sales volumes, statistics and analyses of industry sales volumes and asset
levels, and other characteristics may appear in publications, including, but
not limited to, those publications listed in Appendix A to this Statement. In
particular, some or all of these publications may publish their own rankings
or performance reviews including the Account or the Eligible Funds. References
to or reprints of such articles may be used in the promotional literature.
Such literature may refer to personnel of the advisers and/or subadvisers, who
have portfolio management responsibility, and their investment style. The
references may allude to or include excerpts from articles appearing in the
media.
The advertising and sales literature for the Contracts and the Account may
refer to historical, current and prospective economic trends and may include
historical and current performance and total returns of investment
alternatives.
In addition, sales literature may be published concerning topics of general
investor interest for the benefit of registered representatives and
prospective Contractholders. These materials may include, but are not limited
to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
II-3
<PAGE>
CALCULATION OF PERFORMANCE DATA
The tables below illustrate hypothetical average annual total returns for
each sub-account for the periods shown, based on the actual investment
experience of the New England Zenith Fund during those periods. 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. For
purposes of this calculation, the maximum Administration Contract Charge of
$30 is deducted, although the actual charge will be the lesser of 2% of
Contract Value and $30. Each such $30 deduction reduces the number of units
held under the Contract by an amount equal to $30 divided by the Accumulation
Unit Value on the date of the deduction. The total number of units held under
the Contract at the beginning of the last Contract Year covered by the period
shown is multiplied by the Accumulation Unit Value on December 31, 1995 to
arrive at the Contract Value on that date. This Contract Value is then reduced
by the applicable Contingent Deferred Sales Charge and the portion of the $30
Administration Contract Charge which would be deducted upon surrender on
December 31, 1995 to arrive at the surrender value. The average annual total
return is the annual compounded rate of return which would produce the
surrender value on December 31, 1995. In other words, the average annual total
return is the rate which, when added to 1, raised to a power reflecting the
number of years in the period shown, and multiplied by the initial $1,000
investment, yields the surrender value at the end of the period. The average
annual total returns assume that no premium tax charge has been deducted.
AVERAGE ANNUAL TOTAL RETURN
For purchase payment allocated to the Back Bay Advisors Bond Income Series
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... %
5 Years.......................................................... %
10 years......................................................... %
Since Inception.................................................. %
For purchase payment allocated to the Back Bay Advisors Money Market Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... %
5 Years.......................................................... %
10 years......................................................... %
Since Inception.................................................. %
For purchase payment allocated to the Westpeak Value Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... %
Since Inception.................................................. %
For purchase payment allocated to the Loomis Sayles Avanti Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... %
Since Inception.................................................. %
</TABLE>
II-4
<PAGE>
For purchase payment allocated to the Loomis Sayles Small Cap Series
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... %
Since Inception.................................................. %
For purchase payment allocated to the Loomis Sayles Balanced Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... %
Since Inception.................................................. %
For purchase payment allocated to the Draycott International Equity Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... %
Since Inception.................................................. %
For purchase payment allocated to the Salomon Brothers U.S. Government
Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... %
Since Inception.................................................. %
For purchase payment allocated to the Salomon Brothers Strategic Bond
Opportunities Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... %
Since Inception.................................................. %
For purchase payment allocated to the Venture Value Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... %
Since Inception.................................................. %
For purchase payment allocated to the Alger Equity Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... %
Since Inception.................................................. %
</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, 1995 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, 1990................... $ $ %
December 31, 1991................... %
December 31, 1992................... %
December 31, 1993................... %
December 31, 1994................... %
December 31, 1995................... %
</TABLE>
II-5
<PAGE>
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; 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
1995............
<CAPTION>
--------------------
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
1995............
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SURRENDER VALUE (1)
-----------------------------------------------------------------------------------------------------------------
SALOMON
BACK BAY BACK BAY LOOMIS LOOMIS SALOMON BROTHERS
ADVISORS ADVISORS WESTPEAK SAYLES SAYLES LOOMIS DRAYCOTT BROTHERS STRATEGIC ALGER
BOND MONEY VALUE AVANTI SMALL SAYLES INTERNATIONAL U.S. BOND VENTURE EQUITY
INCOME MARKET GROWTH GROWTH CAP BALANCED EQUITY GOVERNMENT OPPORTUNITIES VALUE GROWTH
---------- ---------- ---------- ---------- --------- --------- ------------- ---------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of
Decem-
ber 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 $9,046.88 $8,957.76
1995...
</TABLE>
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%
1995...................
Cumulative Return.......
Annual Effective Rate of
Return.................
</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
1995...................
Cumulative Return.......
Annual Effective Rate of
Return.................
</TABLE>
II-7
<PAGE>
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%
1995...................
Cumulative Return.......
Annual Effective Rate of
Return.................
</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................... --8.05% --9.53% --10.42% 5.06 1.31 -1.95 2.78
1995...................
Cumulative Return.......
Annual Effective Rate of
Return.................
</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 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.
(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.
II-8
<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,
1995. The annual effective rate of return is the rate which, when added to 1
and raised to a power equal to the number of months for which the payment is
invested divided by twelve, and multiplied by the payment amount, for all
monthly payments, would yield the Contract Value or surrender value on the
ending date of the illustration.
INVESTMENT RESULTS
SEPTEMBER 1, 1983--DECEMBER 31, 1995
FOR BOND INCOME AND MONEY MARKET SERIES
MAY 1, 1993--DECEMBER 31, 1995 FOR VALUE GROWTH AND AVANTI GROWTH SERIES
MAY 2, 1994--DECEMBER 31, 1995 FOR SMALL CAP SERIES
NOVEMBER 1, 1994--DECEMBER 31, 1995 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
1995.................... 37,000
Annual Effective Rate of
Return.................. % % % %
</TABLE>
- --------
NOTE: *For the Westpeak Value Growth and Loomis Sayles Avanti Growth Series,
cumulative payments as of December 31, 1993 would be $2,000, as of
December 31, 1994 would be $5,000 and as of December 31, 1995 would be
$8,000. For the Loomis Sayles Small Cap Series, cumulative payments as
of December 31, 1994 would be $2,000 and as of December 31, 1995 would
be $5,000. For the other Zenith Fund Series, cumulative payments as of
December 31, 1994 would be $500 and as of December 31, 1995 would be
$3,500.
II-9
<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
1995................... 5,000
Annual Effective Rate of
Return................. % % % % % % %
</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
1995................... 37,000
Annual Effective Rate of
Return................. % % % %
</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
1995................... 5,000
Annual Effective Rate of
Return................. % % % % % % %
</TABLE>
- -------
NOTES: *For the Westpeak Value Growth and Loomis Sayles Avanti Growth Series,
cumulative payments as of December 31, 1993 would be $2,000, as of
December 31, 1994 would be $5,000 and as of December 31, 1995 would be
$8,000. For the Loomis Sayles Small Cap Series, cumulative payments as
of December 31, 1994 would be $2,000 and as of December 31, 1995 would
be $5,000. For the other Zenith Fund Series, cumulative payments as of
December 31, 1994 would be $500 and as of December 31, 1995 would be
$3,500.
II-10
<PAGE>
As discussed in the prospectus in the third to the last paragraph of the
section entitled "Investment Experience Information", the Variable Account may
illustrate historical investment performance by showing the percentage change
in unit value and the annual effective rate of return of each sub-account of
the Variable Account for every calendar year since inception of the
corresponding Eligible Funds to the date of the illustration and for the ten,
five and one year periods ending with the date of the illustration. Examples
of such illustrations follow. Such illustrations do not reflect the impact of
any Contingent Deferred Sales Charge, premium tax charge, or the annual $30
Administration Contract Charge. The method of calculating the percentage
change in unit value is described on page A- of the prospectus. The annual
effective rate of return in these illustrations is calculated by dividing the
unit value at the end of the period by the unit value at the beginning of the
period, raising this quantity to the power of 1/n (where n is the number of
years in the period), and then subtracting 1.
Set forth on the following pages are illustrations of the percentage change
in unit value information and annual effective rate of return information
discussed above that may appear in the Variable Account's Annual and Semi-
Annual Reports and in other illustrations of historical investment
performance. Such illustrations do not reflect the impact of any Contingent
Deferred Sales Charge, premium tax charge, or the annual Administration
Contract Charge.
ZENITH BACK BAY ADVISORS BOND INCOME SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
August 26, 1983........................................ 1.000000 --
December 31, 1983...................................... 1.025551 2.6%
December 31, 1984...................................... 1.141109 11.3%
December 31, 1985...................................... 1.337005 17.2%
December 31, 1986...................................... 1.514752 13.3%
December 31, 1987...................................... 1.528314 0.9%
December 31, 1988...................................... 1.632495 6.8%
December 31, 1989...................................... 1.809536 10.8%
December 31, 1990...................................... 1.930406 6.7%
December 31, 1991...................................... 2.246568 16.4%
December 31, 1992...................................... 2.397657 6.7%
December 31, 1993...................................... 2.663825 11.1%
December 31, 1994...................................... 2.533842 -4.9%
December 31, 1995......................................
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
12 years, 4 months ended December 31, 1995.............. % %
10 years ended December 31, 1995........................ % %
5 years ended December 31, 1995......................... % %
1 year ended December 31, 1995.......................... % %
</TABLE>
- --------
NOTE: *Unit values do not reflect the impact of any Contingent Deferred Sales
Charge, premium tax charge, or the annual Administration Contract
Charge.
II-11
<PAGE>
ZENITH BACK BAY ADVISORS MONEY MARKET SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
August 26, 1983........................................ 1.000000 --
December 31, 1983...................................... 1.028062 2.8%
December 31, 1984...................................... 1.122053 9.1%
December 31, 1985...................................... 1.198477 6.8%
December 31, 1986...................................... 1.262853 5.4%
December 31, 1987...................................... 1.327245 5.1%
December 31, 1988...................................... 1.408658 6.1%
December 31, 1989...................................... 1.518070 7.8%
December 31, 1990...................................... 1.619846 6.7%
December 31, 1991...................................... 1.697425 4.8%
December 31, 1992...................................... 1.738206 2.4%
December 31, 1993...................................... 1.765866 1.6%
December 31, 1994...................................... 1.811950 2.6%
December 31, 1995......................................
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
12 years, 4 months ended December 31, 1995.............. % %
10 years ended December 31, 1995........................ % %
5 years ended December 31, 1995......................... % %
1 year ended December 31, 1995.......................... % %
</TABLE>
ZENITH LOOMIS SAYLES AVANTI GROWTH SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
April 30, 1993......................................... 1.000000 --
December 31, 1993...................................... 1.137039 13.7%
December 31, 1994...................................... 1.106525 -2.7%
December 31, 1995......................................
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
2 years, 8 months ended December 31, 1995............... % %
1 year ended December 31, 1995.......................... % %
</TABLE>
- --------
NOTE: *Unit values do not reflect the impact of any Contingent Deferred Sales
Charge, premium tax charge, or the annual Administration Contract
Charge.
II-12
<PAGE>
ZENITH WESTPEAK VALUE GROWTH SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
April 30, 1993......................................... 1.000000 --
December 31, 1993...................................... 1.132111 13.2%
December 31, 1994...................................... 1.099884 -2.8%
December 31, 1995......................................
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
2 years, 8 months ended December 31, 1995............... % %
1 year ended December 31, 1995.......................... % %
</TABLE>
ZENITH LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
May 1, 1994............................................ 1 --
December 31, 1994...................................... 0.951213 -4.9%
December 31, 1995......................................
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 8 months ended December 31, 1995................ % %
1 year ended December 31, 1995..........................
</TABLE>
ZENITH LOOMIS SAYLES BALANCED SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994....................................... 1 --
December 31, 1994...................................... 0.995641 -0.4%
December 31, 1995......................................
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995................ % %
1 year ended December 31, 1995..........................
</TABLE>
- --------
NOTE: *Unit values do not reflect the impact of any Contingent Deferred Sales
Charge, premium tax charge, or the annual Administration Contract
Charge.
II-13
<PAGE>
ZENITH DRAYCOTT INTERNATIONAL EQUITY SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994....................................... 1 --
December 31, 1994...................................... 1.019591 2.0%
December 31, 1995......................................
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995................ % %
1 year ended December 31, 1995..........................
</TABLE>
ZENITH SALOMON BROTHERS U.S. GOVERNMENT SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994....................................... 1 --
December 31, 1994...................................... 1.002614 0.3%
December 31, 1995......................................
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995................ % %
1 year ended December 31, 1995..........................
</TABLE>
ZENITH SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994....................................... 1 --
December 31, 1994...................................... 0.981684 -1.8%
December 31, 1995......................................
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995................ % %
1 year ended December 31, 1995..........................
</TABLE>
- --------
NOTE: *Unit values do not reflect the impact of any Contingent Deferred Sales
Charge, premium tax charge, or the annual Administration Contract
Charge.
II-14
<PAGE>
ZENITH VENTURE VALUE SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994....................................... 1 --
December 31, 1994...................................... 0.96572 -3.4%
December 31, 1995......................................
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995................ % %
1 year ended December 31, 1995..........................
</TABLE>
ZENITH ALGER EQUITY GROWTH SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994....................................... 1 --
December 31, 1994...................................... 0.942751 -5.7%
December 31, 1995......................................
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995................ % %
1 year ended December 31, 1995..........................
</TABLE>
- --------
NOTE: *Unit values do not reflect the impact of any Contingent Deferred Sales
Charge, premium tax charge, or the Annual Administration Contract Charge.
II-15
<PAGE>
NET INVESTMENT FACTOR
The Company determines the net investment factor ("Net Investment Factor")
for any sub-account on each day on which the New York Stock Exchange is open
for trading as follows:
(1) The Company takes the net asset value per share of the Eligible Fund
held in the sub-account determined as of the close of regular trading on
the New York Stock Exchange on a particular day.
(2) Next, the Company adds the per share amount of any dividend or
capital gains distribution made by the Eligible Fund since the close of
regular trading on the New York Stock Exchange on the preceding trading
day.
(3) This total amount is then divided by the net asset value per share of
the Eligible Fund as of the close of regular trading on the New York Stock
Exchange on the preceding trading day.
(4) Finally, the Company subtracts the daily charges for the
Administration Asset Charge and Mortality and Expense Risk Charge since the
close of regular trading on the New York Stock Exchange on the preceding
trading day. (See "Administration Charges, Contingent Deferred Sales Charge
and Other Deductions" in the prospectus.) On an annual basis, the total
deduction for such charges equals 1.35% of the daily net asset value of the
Variable Account.
ANNUITY PAYMENTS
At the Maturity Date (or any other application of proceeds to a payment
option), the Contract Value (less any applicable deductions) is applied toward
the purchase of monthly variable annuity payments. The amount of these
payments will be determined on the basis of (i) annuity purchase rates not
lower than the rates set forth in the Life Income Tables contained in the
Contract that reflect the age of the Payee at the Maturity Date (or date of
other application of proceeds to a payment option), (ii) the assumed interest
rate selected, (iii) the type of payment option selected, and (iv) the
investment performance of the Eligible Fund(s) selected.
When a variable payment option is selected, the Contract proceeds will be
applied at annuity purchase rates, which vary depending on the particular
option selected and the age of the Payee, to calculate the basic payment level
purchased by the Contract Value. With respect to Contracts issued in New York
or Oregon for use in situations not involving an employer-sponsored plan,
annuity purchase rates used to calculate the basic payment level will also
reflect the sex of the Payee when the payment option involves a life
contingency. The impact of the choice of option and the sex and age of the
Payee on the level of annuity payments is described in the prospectus under
"Amount of Variable Annuity Payments".
The amount of the basic payment level is determined by applying the
applicable annuity purchase rate to the amount applied from each sub-account
to provide the annuity. This basic payment level is converted into annuity
units, the number of which remains constant. Each monthly annuity payment is
in an amount equal to that number of annuity units multiplied by the
applicable annuity unit value for that payment (described below). The
applicable annuity unit value for each sub-account will change from day to day
depending upon the investment performance of the sub-account, which in turn
depends upon the investment performance of the Eligible Fund in which the sub-
account invests.
The selection of an assumed interest rate ("Assumed Interest Rate") will
affect both the basic payment level and the amount by which subsequent
payments increase or decrease. The basic payment level is calculated on the
assumption that the Net Investment Factors applicable to the Contract will be
equivalent on an annual basis to a net investment return at the Assumed
Interest Rate. If this assumption is met following the date any payment is
determined, then the amount of the next payment will be exactly equal to the
amount of the preceding payment. If the actual Net Investment Factors are
equivalent to a net investment return greater than the Assumed Interest Rate,
the next payment will be larger than the preceding one; if the actual Net
Investment Factors are equivalent to a net investment return smaller than the
Assumed Interest Rate, then the next payment will be smaller than the
preceding payment. The definition of the Assumed Interest Rate, and the effect
of the level of the Assumed Interest Rate on the amount of monthly payments is
explained in the prospectus under "Amount of Variable Annuity Payments".
The number of annuity units credited under a variable payment option is
determined as follows:
(1) The Contract proceeds are applied at the Company's annuity purchase
rates for the selected Assumed Interest Rate to determine the basic payment
level. (The amount of Contract Value or Death Proceeds applied will be
II-16
<PAGE>
reduced by any applicable Contingent Deferred Sales Charge, Administration
Contract Charge, premium tax charge, and/or any outstanding loan plus
accrued interest, as described in the prospectus).
(2) The number of annuity units is determined by dividing the amount of
the basic payment level by the applicable annuity unit value(s) next
determined following the date of application of proceeds.
The dollar amount of the initial payment will be at the basic payment level.
(If the initial payment is due more than 14 days after the proceeds are
applied, the Company will add interest to that initial payment.) The dollar
amount of each subsequent payment is determined by multiplying the number of
annuity units by the applicable annuity unit value which is determined at
least 14 days before the payment is due.
The value of an annuity unit for each sub-account depends on the Assumed
Interest Rate and on the Net Investment Factors applicable at the time of
valuation. The initial annuity unit values were set at $1.00 effective on or
about the date on which shares of the corresponding Eligible Funds were first
publicly available. The Net Investment Factor and, therefore, changes in the
value of an annuity unit under a variable payment option, reflect the
deduction of the Mortality and Expense Risk Charge and Administration Asset
Charge./1/ (See "Net Investment Factor" above.)
The annuity unit value for each sub-account is equal to the corresponding
annuity unit value for the sub-account previously determined multiplied by the
applicable Net Investment Factor for that sub-account for the New York Stock
Exchange trading day then ended, and further multiplied by the assumed
interest factor ("Assumed Interest Factor") for each day of the valuation
period. The Assumed Interest Factor represents the daily equivalent of the
Contract's annual Assumed Interest Rate. In the calculation of annuity unit
values, the Assumed Interest Factor has the effect of reducing the Net
Investment Factor by an amount equal to the daily equivalent of the Contract's
Assumed Interest Rate. The result of this adjustment is that if the Net
Investment Factor for a valuation period is greater (when expressed as an
annual net investment return) than the Assumed Interest Rate, the annuity unit
value will increase. If the Net Investment Factor for the period is less (when
expressed as an annual net investment return) than the Assumed Interest Rate,
the annuity unit value will decrease. At an Assumed Interest Rate of 3.5%, the
Assumed Interest Factor is .9999058. Assumed Interest Factors for other
Assumed Interest Rates are computed on a consistent basis.
An illustration of annuity income payments under various hypothetical and
historical rates appears in the tables on pages through . The monthly
equivalents of the hypothetical annual net returns of 0%, %, 6%, 8% and 10%
shown in the tables at pages 15 and 16 are 0%, %, .5%, .6% and .8%.
HYPOTHETICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS
The following tables have been prepared to show how variable annuity income
payments under the Contract change with investment performance over an
extended period of time. The tables illustrate how monthly annuity income
payments would vary over time if the return on assets in the selected
portfolios were a uniform gross annual rate of 0%, %, 6%, 8% or 10%. The
values would be different from those shown if the returns averaged 0%, %, 6%,
8% or 10%, but fluctuated over and under those averages throughout the years.
The tables reflect the daily charge to the Subaccounts for assuming
mortality and expense risks, which is equivalent to an annual charge of 1.25%
and the daily administrative charge which is equivalent to an annual charge of
0.10%. The amounts shown in the tables also take into account the portfolios'
management fees and operating expenses which are assumed to be at an annual
rate of % of the average daily net assets of the Eligible Funds. Actual fees
and expenses of the portfolios associated with your Contract may be more or
less than %, will vary from year to year, and will depend on how you
allocate your Contract Value. See the section in your current prospectus
entitled "Expense Table" for more complete details. The monthly annuity income
payments illustrated are on a pre-tax basis. The federal income tax treatment
of annuity income considerations is generally described in the section of your
current prospectus entitled "Federal Income Tax Status".
- --------
/1/The Company and Variable Account represent that the amount of the Mortality
and Expense Risk Charge is within the range of industry practice for
comparable annuity contracts. The Company believes there is a reasonable
likelihood that the distribution financing arrangements for the Contracts
will benefit the Variable Account and Contract Owners. The Company
represents that if the Account invests in Eligible Funds that adopt a Rule
12b-1 plan to finance distribution expenses, it will invest in such funds
only if the 12b-1 plan is approved by a board of trustees a majority of whom
are not interested persons of the funds.
II-17
<PAGE>
The tables show both the gross rate and the net rate. The difference between
gross and net rates represents the 1.35% for mortality and expense risk and
administrative charges and the assumed % for investment management and
operating expenses. Since these charges are deducted daily from assets, the
difference between the gross and net rate is not exactly %.
Two tables follow. The first table assumes that 100% of the Contract Value
is allocated to a variable annuity income option, the second assumes that 50%
of the Contract Value is placed under a fixed annuity income option, using the
fixed crediting rate the Company and offered on the fixed annuity income
option at the date of the illustration. Both illustrations assume that the
final value of the accumulation account is $100,000 and is applied at age 65
to purchase a life annuity for a guaranteed period of 10 years certain and
life thereafter.
When part of the Contract Value has been allocated to the fixed annuity
income option, the guaranteed minimum annuity income payment resulting from
this allocation is also shown. The illustrated variable annuity income
payments are determined through the use of standard mortality tables and an
assumed interest rate of 3.5% per year. Thus, actual performance greater than
3.5% per year will result in increasing annuity income payments and actual
performance less than 3.5% per year will result in decreasing annuity income
payments. The Company offers alternative Assumed Interest Rates from which you
may select. Fixed annuity income payments remain constant. Initial monthly
annuity income payments under a fixed annuity income payout are generally
higher than initial payments under a variable income payout option.
These tables show the monthly income payments for several hypothetical
constant assumed interest rates. Of course, actual investment performance will
not be constant and may be volatile. Actual monthly income amounts would
differ from those shown if the actual rate of return averaged the rate shown
over a period of years, but also fluctuated above or below those averages for
individual contract years. Upon request, and when you are considering an
annuity income option, the Company will furnish a comparable illustration
based on your individual circumstances.
II-18
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/96
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME Monthly
PAYMENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED: For age 65: $
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 100% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT.
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN
CONSTANT: 3.50%
VARIABLE MONTHLY ANNUITY INCOME PAYMENT ON THE DATE OF THE ILLUSTRATION: $
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE. NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED.
<TABLE>
<CAPTION>
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN
WITH AN ASSUMED RATE OF RETURN OF:
--------------------------------------------------
GROSS 0% % 6% 8% 10%
PAYMENT CALENDAR ----- --------- ---------- --------- --------- ---------
YEAR YEAR AGE NET** % 3.50% % % %
- ------- -------- --- ----- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1996 65
2 1997 66
3 1998 67
4 1999 68
5 2000 69
10 2005 74
15 2010 79
20 2015 84
</TABLE>
IT IS EMPHASIZED THAT THE ASSUMED RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE.
ACTUAL PERFORMANCE RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY
THE CONTRACT OWNER AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED.
THE AMOUNT OF THE INCOME PAYMENT WOULD BE DIFFERENT FROM THAT SHOWN IF THE
ACTUAL PERFORMANCE AVERAGED THE ASSUMED RATES OF RETURN SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. SINCE IT IS HIGHLY LIKELY THAT PERFORMANCE WILL
FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME (BASED ON THE VARIABLE ACCOUNT)
WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS
THAT THIS HYPOTHETICAL PERFORMANCE CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
- --------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period, payments
will be continued for the balance of the Certain Period. The cumulative
amount of income payments received under the annuity depends on how long the
Annuitant lives after the Certain Period. An annuity pools the mortality
experience of Annuitants. Annuitants who die earlier, in effect, subsidize
the payments for those who live longer.
** The illustrated Net Assumed Rates of Return reflect the deduction of
average fund expenses and the 1.35% Mortality and Expense Risk and
Administration Asset Charges from the Gross Rates of Return.
II-19
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(50% VARIABLE--50% FIXED PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/96
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME Monthly
PAYMENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT FOR AGE 65 BASED ON CURRENT RATES, IF
100% FIXED ANNUITY OPTION SELECTED: $
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 50% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT AND 50% TO FIXED PAYOUT
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN
CONSTANT: 3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE, BUT WILL NEVER
BE LESS THAN: $ . THE MONTHLY GUARANTEED PAYMENT OF $ IS BEING PROVIDED
BY THE $50,000 APPLIED UNDER THE FIXED ANNUITY OPTION.
<TABLE>
<CAPTION>
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN
WITH AN ASSUMED RATE OF RETURN OF:
-------------------------------------------------
GROSS 0% % 6% 8% 10%
PAYMENT CALENDAR ----- --------- ------------------- --------- ---------
YEAR YEAR AGE NET** % 3.50% % % %
- ------- -------- --- ----- --------- ------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1996 65
2 1997 66
3 1998 67
4 1999 68
5 2000 69
10 2005 74
15 2010 79
20 2015 84
</TABLE>
IT IS EMPHASIZED THAT THE ASSUMED RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE.
ACTUAL PERFORMANCE RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY
THE CONTRACT OWNER AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED.
THE AMOUNT OF THE INCOME PAYMENT WOULD BE DIFFERENT FROM THAT SHOWN IF THE
ACTUAL PERFORMANCE AVERAGED THE ASSUMED RATES OF RETURN SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. SINCE IT IS HIGHLY LIKELY THAT PERFORMANCE WILL
FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME (BASED ON THE VARIABLE ACCOUNT)
WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS
THAT THIS HYPOTHETICAL PERFORMANCE CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
- --------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period, payments
will be continued for the balance of the Certain Period. The cumulative
amount of income payments received under the annuity depends on how long the
Annuitant lives after the Certain Period. An annuity pools the mortality
experience of Annuitants. Annuitants who die earlier, in effect, subsidize
the payments for those who live longer.
** The illustrated Net Assumed Rates of Return apply only to the variable
portion of the monthly payment and reflect the deduction of average fund
expenses and the 1.35% Mortality and Expense Risk and Administration Asset
Charges from the Gross Rate of Return.
II-20
<PAGE>
HISTORICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS
The following tables have been prepared to show how variable annuity income
payments under the Contract change with investment performance over an
extended period of time. In comparison with hypothetical illustrations based
on a uniform annual rate of return, the table uses historical annual returns
to illustrate that monthly annuity income payments vary over time based on
fluctuations in annual returns.
The tables reflect the daily charge to the Subaccounts for assuming
mortality and expense risks, which is equivalent to an annual charge of 1.25%
and the daily administrative charge which is equivalent to an annual charge of
0.10%. The amounts shown in the tables also take into account the actual
portfolios' management fees and operating expenses. Actual fees and expenses
of the portfolios associated with your Contract may be more or less than the
historical fees, will vary from year to year, and will depend on how you
allocate your Contract Value. See the section in your current prospectus
entitled "Expense Table" for more complete details. The monthly annuity income
payments illustrated are on a pre-tax basis. The federal income tax treatment
of annuity income considerations is generally described in the section of your
current prospectus entitled "Federal Income Tax Status".
The following tables assume that 100% of the Contract Value is allocated to
a variable annuity income option, that the final value of the accumulation
account is $100,000 and is applied at age 65 to purchase a life annuity for a
guaranteed period of 10 years certain and life thereafter. The table assumes
that the Annuitant was age 65 in 1983, the year of inception for the Bond
Income and Money market portfolios, and that the Annuitant's age has increased
by the time the other portfolios became available. The historical variable
annuity income payments are based on an assumed interest rate of 3.5% per
year. Thus, actual performance greater than 3.5% per year resulted in an
increased annuity income payment and actual performance less than 3.5% per
year resulted in a decreased annuity income payment. We offer alternative
Assumed Interest Rates (AIR) from which you may select: 0% and 5%. An AIR of
0% will result in a lower initial payment than a 3.5% or 5% AIR. Similarly, an
AIR of 5% will result in a higher initial premium than a 0% or 3.5% AIR.
The table illustrates the amount of the first monthly payment for each year
shown. During each year, the monthly payments would vary to reflect
fluctuations in the actual rate of return on the portfolios. Upon request, and
when you are considering an annuity income option, we will furnish a
comparable illustration based on your individual circumstances.
II-21
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/96
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME PAY- Monthly
MENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED: FOR AGE 65: $ ; FOR AGE 68: $ ; FOR AGE 69: $ ;
AND FOR AGE 75: $ .
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 100% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT.
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN
CONSTANT: 3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE. NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED.
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN WITH
100% OF THE CONTRACT VALUE INVESTED IN:
<TABLE>
<CAPTION>
LOOMIS
BACK BAY BACK BAY SAYLES WESTPEAK
PAYMENT CALENDAR BOND MONEY AVANTI VALUE
YEAR YEAR AGE INCOME MARKET GROWTH GROWTH
- ------- -------- --- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1 1983 65 $ $
2 1984 66
3 1985 67
4 1986 68
5 1987 69
6 1988 70
7 1989 71
8 1990 72
9 1991 73
10 1992 74 $ $
11 1993 75
12 1994 76
13 1995 77
14 1996
</TABLE>
INVESTMENT PERFORMANCE RESULTS CONTAINED IN THIS REPORT REPRESENT PAST
PERFORMANCE AND ARE NOT INDICATIVE OF FUTURE RETURNS. THE PERFORMANCE RESULTS
OF A CONTRACT MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE CONTRACT OWNER
AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED. SINCE IT IS HIGHLY
LIKELY THAT PERFORMANCE WILL FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME
(BASED ON THE VARIABLE ACCOUNT) WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE
MADE BY THE COMPANY OR THE FUNDS THAT THESE HISTORICAL RETURNS CAN BE ACHIEVED
THE PAYMENTS IN THIS ILLUSTRATION ARE NET OF ALL CHARGES: MORTALITY AND
EXPENSE RISK CHARGE AND ADMINISTRATION ASSET CHARGE (1.35%), MANAGEMENT FEES
AND OTHER EXPENSES (These may vary from year to year. For the year ended
December 31, 1995, they were: % Back Bay Bond Income, % Back Bay Money
Market, % Loomis Sayles Avanti Growth, % Westpeak Value Growth, % Loomis
Sayles Small Cap, % Loomis Sayles Balanced, % Draycott International
Equity, % Salomon US Government, % Salomon Strategic Bond Opportunities,
% Venture Value, % Alger Equity Growth.)
- --------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period, payments
will be continued for the balance of the Certain Period. The cumulative
amount of income payments received under the annuity depends on how long the
Annuitant lives after the Certain Period. An annuity pools the mortality
experience of Annuitants. Annuitants who die earlier, in effect, subsidize
the payments for those who live longer.
II-22
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/96
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME Monthly
PAYMENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED: FOR AGE 76: $ .
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 100% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN
CONSTANT: 3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE. NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED.
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN WITH
100% OF THE CONTRACT VALUE INVESTED IN:
<TABLE>
<CAPTION>
SALOMON
LOOMIS LOOMIS DRAYCOTT SALOMON STRATEGIC ALGER
PAYMENT CALENDAR SAYLES SAYLES INTERNATIONAL U.S. BOND VENTURE EQUITY
YEAR YEAR AGE SMALL CAP BALANCED EQUITY GOVERMENT OPPORTUNITIES VALUE GROWTH
- ------- -------- --- --------- -------- ------------- --------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12 1994 76 $ $ $ $ $ $ $
13 1995 77
14 1996 78
</TABLE>
INVESTMENT PERFORMANCE RESULTS CONTAINED IN THIS REPORT REPRESENT PAST
PERFORMANCE AND ARE NOT INDICATIVE OF FUTURE RETURNS. THE PERFORMANCE RESULTS
OF A CONTRACT MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE CONTRACT OWNER
AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED. SINCE IT IS HIGHLY
LIKELY THAT PERFORMANCE WILL FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME
(BASED ON THE VARIABLE ACCOUNT) WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE
MADE BY THE COMPANY OR THE FUNDS THAT THESE HISTORICAL RETURNS CAN BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
THE PAYMENTS IN THIS ILLUSTRATION ARE NET OF ALL CHARGES: MORTALITY AND
EXPENSE RISK CHARGE AND ADMINISTRATION ASSET CHARGE (1.35%), MANAGEMENT FEES
AND OTHER EXPENSES (These may vary from year to year. For the year ended
December 31, 1995, they were: % Back Bay Bond Income, % Back Bay Money
Market, % Loomis Sayles Avanti Growth, % Westpeak Value Growth, % Loomis
Sayles Small Cap, % Loomis Sayles Balanced, % Draycott International
Equity, % Salomon US Government, % Salomon Strategic Bond Opportunities,
% Venture Value, % Alger Equity Growth.)
- --------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period, payments
will be continued for the balance of the Certain Period. The cumulative
amount of income payments received under the annuity depends on how long the
Annuitant lives after the Certain Period. An annuity pools the mortality
experience of Annuitants. Annuitants who die earlier, in effect, subsidize
the payments for those who live longer.
II-23
<PAGE>
EXPERTS
The financial statements of New England Variable Annuity Separate Account
and the Company included in this Statement of Additional Information have been
included herein in reliance on the reports of Coopers & Lybrand LLP,
Independent Accountants, given on the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
Legal matters in connection with the Contracts described in this
registration statement have been passed on by H. James Wilson, General Counsel
and Secretary of the Company. Sutherland, Asbill & Brennan, Washington, D.C.,
have acted as special counsel on certain matters relating to the Federal
securities laws.
FINANCIAL STATEMENTS
Financial Statements of the Registrant will be filed by amendment.
Financial Statements of the Depositor will be filed by amendment.
II-24
<PAGE>
APPENDIX A
ABC and affiliates
Atlanta Constitution
Atlanta Journal
Austin American Statesman
Baltimore Sun
Barron's
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghues Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Financial News Network
Financial Planning
Financial Services Week
Financial World
Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Institutional Investor
Investment Dealers Digest
II-25
<PAGE>
Investment Vision
Investor's Daily
Journal of Commerce
Kansas City Star
LA Times
Leckey, Andrew (syndicated column)
Life Association News
Miami Herald
Milwaukee Sentinel
Money
Money Maker
Money Management Letter
Morningstar
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rukeyser's Business (syndicated column)
Sacramento Bee
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
II-26
<PAGE>
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
UPI
US News and World Report
USA Today
Value Line
Wall St. Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
Worth Magazine
WRKO
II-27
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements of the Registrant are to be filed by
amendment for inclusion in Part B of this Registration Statement:
Statement of Assets and Liabilities as of December 31, 1995.
Statement of Operations for the year ended December 31, 1995.
Statement of Changes in Net Assets for the year ended December 31, 1995.
Notes to Financial Statements.
The following financial statements of the Depositor are to be filed by
amendment for inclusion in Part B of this Registration Statement:
Balance Sheet as of December 31, 1994 and 1995.
Statements of Operations for the years ended December 31, 1994 and 1995.
Statements of Surplus for the years ended December 31, 1994 and 1995.
Statements of Cash Flows for the years ended December 31, 1994 and 1995.
Notes to Financial Statements.
(b) Exhibits
(1) Resolutions of Board of Directors of the Depositor authorizing the
Registrant are incorporated herein by reference to Registration Statement on
Form N-4 (33-85442) filed on October 20, 1994.
(2) None
(3) (i) Form of Distribution Agreement is incorporated herein by reference
to Pre-Effective Amendment No. 1 to Registration Statement on Form N-4 (33-
85442) filed on March 7, 1995.
(ii) Form of Selling Agreement with other broker-dealers is incorporated
herein by reference to Pre-Effective Amendment No. 1 to
Registration Statement on Form N-4 (33-85442) filed on March 7,
1995.
(4) (i) Variable Annuity Contract, including Application, is incorporated
herein by reference to Registration Statement on Form N-4 (33-85442) filed on
October 20, 1994.
(ii) Forms of Endorsements (Living Benefits and Section 1035 Exchange)
are incorporated herein by reference to Registration Statement on
Form N-4 (33-85442) filed on October 20, 1994.
(iii) Form of Endorsement (Individual Retirement Annuity) is
incorporated herein by reference to Pre-Effective Amendment No. 1
to Registration Statement on Form N-4 (33-85442) filed on March 7,
1995.
(5) For Application, see (4)(i) above.
(6) (i) Copy of charter (Articles of Incorporation) is incorporated herein
by reference to Registration Statement on Form N-4 (33-85442) filed on October
20, 1994.
(ii) By-laws of Depositor are incorporated herein by reference to
Registration Statement on Form N-4 (33-85442) filed on October 20,
1994.
(7) None
III-1
<PAGE>
(8) Form of Administrative Services Agreement is incorporated herein by
reference to Pre-Effective Amendment No. 1 to Registration Statement on Form
N-4 (33-85442) filed on March 7, 1995.
(9) Opinion and consent of H. James Wilson, Esq. to be filed by amendment.
(10) (i) Consent of Coopers & Lybrand LLP to be filed by amendment.
(ii) Consent of Sutherland, Asbill & Brennan to be filed by amendment.
(11) None
(12) None
(13) Schedule of computations for performance quotations is incorporated
herein by reference to Pre-Effective Amendment No. 1 to Registration Statement
on Form N-4 (33-85442) filed on April 27, 1995.
(14) Powers of Attorney are incorporated herein by reference to Registration
Statement on Form N-4 (33-85442) filed on October 20, 1994.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR WITH REGISTRANT
------------------ --------------------------------- ---------------------
<S> <C> <C>
Edward C. Hall.......... Director, Vice President--
Administration --
Kernan F. King.......... Director --
Robert E. Schneider..... Director --
Robert A. Shafto........ Chairman of the Board, Director,
President and Chief Executive
Officer --
Daniel J. Toran......... Director --
H. James Wilson......... Director, General Counsel and
Secretary --
Frederick K. Zimmermann. Director, Vice President--
Investments --
William A. Campagna..... Vice President--Broker/Dealer
Distribution --
Rodney J. Chandler...... Chief Actuary --
John F. Guthrie......... Vice President--Portfolio
Strategy --
Chester R. Frost........ Vice President--Controller and
Treasurer --
Kenneth J. Schweiger.... Vice President--Bank Distribution --
John G. Small, Jr....... Vice President and Chief
Underwriter --
Philip G. Sullivan...... Vice President and Medical
Director --
Marie C. Swift.......... Counsel and Assistant Secretary --
</TABLE>
Principal Business Address: 501 Boylston Street, Boston, MA 02116
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The following lists provide information regarding the entities under Common
Control with the Depositor. The Depositor is a wholly-owned, direct subsidiary
of New England Mutual Life Insurance Company ("Company"), which is organized
under the laws of Massachusetts. The Depositor is organized under the laws of
Delaware. No person is controlled by the Registrant.
III-2
<PAGE>
DIRECT SUBSIDIARIES OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
(UNDER COMMON CONTROL WITH THE DEPOSITOR)
<TABLE>
<CAPTION>
PERCENTAGE OF
VOTING
STATE OF SECURITIES
ORGANI- OWNED BY
COMPANY ZATION COMPANY PRINCIPAL BUSINESS
------- -------- --------------- ---------------------------------
<S> <C> <C> <C>
Boylston Capital
Advisors, Inc.......... MA 100% inactive
- --New England Portfolio
Advisors, Inc.......... MA 100% investment advisor to insurance
company Separate Account
investors
COAC Co., Inc........... MA 100% holding company for corporation
with interests in real estate
joint ventures and partnerships
real estate investment holding
CRB Co. Inc............. MA 100% corporation
CRH Companies, Inc...... MA 100% limited partner of general
partner of publicly offered
limited partnership
- --South Sarasota Retail. FL 100% real estate investment holding
corporation (inactive)
DPA Holding Corporation. 100%
Exeter Reassurance...... Bermuda 100% reinsurance
GA Holdings Companies,
Inc.................... 100% real estate
L/C Development
Corporation............ 100%
LC Park Place
Corporation............ 100%
Lyons/Copley Development
Corp................... CA 100% general partner in general
account joint ventures
Mercadian Capital L.P... DE limited partner dealer in interest rate and
95% currency swaps
- --Mercadian Securities
(Holdings) U.K. Ltd.... U.K. 95% holding company (inactive)
- --Mercadian Securities
International Ltd...... U.K. 95% broker-dealer (inactive)
Mercadian Funding L.P... DE limited party to investment and
partnership repurchase agreements with tax-
interest 95% exempt bond issuers
- --Mercadian Funding
Inc.................... DE 100% owned by party to investment and
Mercadian repurchase agreements with tax-
Funding L.P. exempt bond issuers
NEL Partnership
Investments I, Inc..... MA 100% general partner of private
limited partnership
NELRECO Troy, Inc....... MA 100% real estate investment holding,
developing, leasing corp.
(inactive)
Newbury Insurance
Companies, Limited..... Bermuda 100% issuer of life insurance agent's
professional liability insurance
New England Investment
Companies, Inc......... MA 100% general partner of New England
Investment Companies, L.P.
New England Investment
Companies, L.P......... DE 64.98% investment adviser and holding
co. for the Insurance co.'s
investment related operating
affiliates
New England Life
Mortgage Funding
Corporation............ MA 100% issuer of commercial mortgage-
backed securities
New England Pension and
Annuity Company........ DE 100% insurance
New England Securities broker-dealer
Corporation............ MA 100%
</TABLE>
III-3
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
VOTING
STATE OF SECURITIES
ORGANI- OWNED BY
COMPANY ZATION COMPANY PRINCIPAL BUSINESS
------- -------- ------------- ---------------------------------
<S> <C> <C> <C>
- --Hereford Insurance
Agency, Inc............ MA 100% insurance agency
- --Hereford Insurance
Agency of Alabama...... AL 100% insurance agency
- --Hereford Insurance
Agency of Minnesota,
Inc. .................. MN 100% insurance agency
Omega Reinsurance
Corporation............ AZ 100% reinsurance
TNE-Y, Inc.............. DE 100% corporate
TNE Advisers, Inc....... MA 100% investment advisers
TNE Funding Corporation. DE 100% issuer of commercial mortgage-
backed securities
TNE Information
Services, Inc.......... MA 100% software
</TABLE>
The above list does not include real estate joint ventures and partnerships
of which New England Mutual Life Insurance Company is an investment partner.
Also, does not include approximately 70 nonoperating subsidiaries of COAC Co.,
Inc. which generally have as their sole assets certain real estate partnership
interests. The Depositor has no subsidiaries.
SUBSIDIARIES OF NEW ENGLAND INVESTMENT COMPANIES, L.P.
<TABLE>
<CAPTION>
PERCENTAGE OF
VOTING
STATE OF SECURITIES
ORGANI- OWNED BY
COMPANY ZATION COMPANY PRINCIPAL BUSINESS
------- -------- ------------- ---------------------------------
<S> <C> <C> <C>
Back Bay Advisors, Inc.. MA 64.98% general partner of investment
adviser
Back Bay Advisors, L.P.. DE 64.98% investment adviser
BBC Investment Advisors,
Inc....................
BBC Investment Advisors,
L.P....................
Capital Growth
Management Limited
Partnership............ MA NEIC, L.P. investment adviser
owns 54%
limited
partnership
interest
Copley Investment Group,
Inc....................
Copley Management
Advisors, L.P..........
Copley Public Partners
Holding, L.P...........
Copley Real Estate
Advisors, Inc.......... MA 64.98% real estate manager and adviser
- --Copley Advisors, Inc.. MA 64.98% investment adviser
- --Copley Properties
Company, Inc........... MA 64.98% general partner of publicly
offered limited partnership
- --Copley Properties
Company II, Inc. ...... MA 64.98% general partner of publicly
offered limited partnership
- --Copley Properties
Company III, Inc....... MA 64.98% managing general partner of
publicly offered limited
partnership
- --Copley Securities
Corporation............ MA 64.98% Massachusetts securities
corporation (buys, sells, holds,
securities exclusively for own
account)
- --CTR Corporation....... MA 64.98% real estate investment
- --Eighth Copley
Corporation............ MA 64.98% real estate investment holding,
developing and leasing
corporation
- --Fifth Copley
Corporation............ MA 64.98% general partner of publicly
offered limited partnership
</TABLE>
III-4
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
VOTING
STATE OF SECURITIES
ORGANI- OWNED BY
COMPANY ZATION COMPANY PRINCIPAL BUSINESS
------- -------- ------------- ---------------------------------
<S> <C> <C> <C>
- --Fifth Singleton
Corporation............ MA 64.98% general partner of private
limited partnership
- --First Income
Corporation............ MA 64.98% general partner of publicly
offered limited partnership
- --Fourth Copley
Corporation............ MA 64.98% general partner of publicly
offered limited partnership
- --Fourth Income
Corporation............ MA 64.98% general partner of publicly
offered limited partnership
- --Fourth Singleton
Corporation............ MA 64.98% (inactive) organized for use in
connection with limited
partnership
- --New England Investment
Associates, Inc........ DE 64.98% insurance agent and marketer of
financial products and services
to institutional investors
- --Second Income
Corporation............ MA 64.98% general partner of publicly
offered limited partnership
- --Seventh Copley
Corporation............ MA 64.98% general partner of publicly
offered limited partnership
- --Sixth Copley
Corporation............ MA 64.98% general partner of publicly
offered limited partnership
- --Sixth Singleton
Corporation............ MA 64.98% general partner of private
limited partnership
- --Third Income
Corporation............ MA 64.98% general partner of publicly
offered limited partnership
- --Third Singleton
Corporation............ MA 64.98% general partner of private
limited partnership
CREA Limited
Partnership............
FundTech Services,
L.P. .................. DE 64.98% broker-dealer
Graystone Partners,
Inc.................... 64.98%
Graystone Partners,
L.P. ..................
Harris Associates,
Inc. ..................
Harris Associates,
L.P. ..................
Loomis, Sayles &
Company, Inc........... MA 64.98% general partner of investment
adviser
Loomis, Sayles &
Company, L.P........... DE 64.98% investment adviser
Marlborough Capital
Advisors, Inc. ........ MA 64.98% general partner of investment
manager
Marlborough Capital
Advisors, L.P. ........ DE 64.98% investment manager
MC Management, Inc...... MA 64.98% general partner of MC Management, L.P.
MC Management, L.P...... DE 64.98% general and limited partner of
limited partnership that serves
as general partner of private
investment partnership
NEF Corporation......... MA 64.98% general partner of mutual fund
wholesale broker-dealer,
transfer agent and of
investment adviser
NEIC Holdings, Inc...... MA 64.98% holding company
New England Funds,
L.P. .................. DE 64.98% mutual fund wholesale broker-
dealer
New England Funds
Management, L.P. ...... DE 64.98% investment adviser
R & T Asset Management,
Inc.................... MA 64.98% general partner investment advisers
Reich & Tang Asset
Management, L.P. ...... DE 64.98% investment adviser
Reich & Tang
Distributors, L.P. .... DE 64.98% mutual fund wholesale broker-
dealer and transfer agent
Reich & Tang Services,
L.P.................... 64.98%
Westpeak Investment
Advisors, Inc. ........ MA 64.98% general partner of investment adviser
Westpeak Investment
Advisors, L.P. ........ DE 64.98% investment adviser
</TABLE>
III-5
<PAGE>
ITEM 27. NUMBER OF CONTRACTOWNERS
As of January 31, 1996, there were 485 owners of tax-qualified Contracts and
596 owners of non-qualified Contracts.
ITEM 28. INDEMNIFICATION
The depositor maintains a directors' and officers' liability policy with a
maximum coverage of $15 million under which the depositor and New England
Securities Corporation, the Registrant's underwriter (the "Underwriter"), as
well as certain other subsidiaries of the Depositor's parent, New England
Mutual Life Insurance Company, are named insureds. A provision in New England
Mutual Life Insurance Company's by-laws provides for the indemnification
(under certain circumstances) of individuals serving as directors, officers
and employees of certain organizations, including the Depositor and the
Underwriter. A provision in the depositor's bylaws provides for the
indemnification (under certain circumstances) of individuals serving as
directors, officers or employees of the depositor.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers or controlling persons (if any)
of the Underwriter or Depositor pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification may be against public
policy as expressed in the Act and may be, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Depositor or Underwriter of expenses incurred
or paid by a director, officer or controlling person of the Depositor or
Underwriter in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Depositor or Underwriter will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) New England Securities Corporation also serves as principal underwriter
for:
New England Zenith Fund
New England Variable Annuity Fund I
New England Variable Life Separate Account
New England Retirement Investment Account
The New England Variable Account
(b) The directors and officers of the Registrant's principal underwriter,
New England Securities Corporation, and their addresses are as follows:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
NAME PRINCIPAL UNDERWRITER WITH REGISTRANT
---- -------------------------------------- ---------------------
<S> <C> <C>
Thomas W. McConnell*.... Director, President and CEO None
Kernan F. King**........ Chairman of Board, Director None
Beverly J. DeWitt**..... Assistant Secretary None
Anne M. Goggin**........ Vice President, General Counsel, None
Secretary and Clerk
Mark F. Greco*.......... Vice President None
Laura A. Hutner*........ Vice President None
Peter G. Lahaie*........ Assistant Vice President, Chief None
Financial Officer and Controller
Albert R. Margeson, None
Jr.*................... Senior Vice President
Robert F. Regan***...... Vice President None
Jonathan M. Rozek*...... Vice President None
Robert E. Schneider**... Director None
Michael E. Toland*...... Vice President, Chief Compliance None
Officer, Assistant Secretary and
Assistant Clerk
</TABLE>
III-6
<PAGE>
Principal Business Address: *399 Boylston Street, Boston, MA 02116
**501 Boylston Street, Boston, MA 02117
***500 Boylston Street, Boston, MA 02117
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NAME OF NET UNDERWRITING
PRINCIPAL DISCOUNTS AND COMPENSATION ON BROKERAGE
UNDERWRITER COMMISSIONS REDEMPTION COMMISSIONS COMPENSATION
- ----------- ---------------- --------------- ----------- ------------
To be supplied by amendment.
<S> <C> <C> <C> <C>
</TABLE>
Commissions are paid by the Company directly to agents who are registered
representatives of the principal underwriter, or to broker-dealers that have
entered into a selling agreement with the principal underwriter with respect
to sales of the Contracts.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The following companies will maintain possession of the documents required
by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder:
(a) Registrant
(b) State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(c) New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
(d) New England Variable Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
Registrant hereby makes the following undertakings:
(1) To file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial statements
contained in the registration statement are never more than 16 months old
for so long as payments under the variable annuity contracts may be
accepted;
(2) To include either (a) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant can check to
request a Statement of Additional Information or (b) a postcard or similar
written communication affixed to or included in the prospectus that the
applicant can remove to send for a Statement of Additional Information; and
(3) To deliver a Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly upon
written or oral request.
(4) To offer Contracts to participants in the Texas Optional Retirement
program in reliance upon Rule 6c-7 of the Investment Company Act of 1940
and to comply with paragraphs (a)-(d) of that Rule; and
(5) To comply with and rely upon the Securities and Exchange Commission
No-Action letter to The American Council of Life Insurance, dated November
28, 1988, regarding Sections 22(e), 27(c)(1) and 27(d) of the Investment
Company Act of 1940.
III-7
<PAGE>
SIGNATURES
AS REQUIRED BY THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF
1940, THE REGISTRANT, NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT HAS CAUSED
THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF, IN
THE CITY OF BOSTON, AND COMMONWEALTH OF MASSACHUSETTS ON THIS 1ST DAY OF
MARCH, 1996.
New England Variable Annuity
Separate Account
By: New England Variable Life
Insurance Company (Depositor)
By: _________________________________
RODNEY J. CHANDLER
CHIEF ACTUARY
Attest:
_____________________________________
MARIE C. SWIFT
<PAGE>
SIGNATURES
AS REQUIRED BY THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF
1940, THE DEPOSITOR, NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY HAS CAUSED
THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF, IN
THE CITY OF BOSTON, AND COMMONWEALTH OF MASSACHUSETTS, ON THIS 1ST DAY OF
MARCH, 1996.
New England Variable Life Insurance
Company
By:
---------------------------------
RODNEY J. CHANDLER
CHIEF ACTUARY
Attest:
- ----------------------------------
MARIE C. SWIFT
AS REQUIRED BY THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS
BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
Robert A. Shafto* Chairman, President March 1, 1996
- ------------------------------------- and Chief Executive
ROBERT A. SHAFTO Officer
Chester R. Frost* Vice President, March 1, 1996
- ------------------------------------- Controller,
CHESTER R. FROST Principal Financial
Officer and
Principal
Accounting Officer
Edward C. Hall* Director March 1, 1996
- -------------------------------------
EDWARD C. HALL
Kernan F. King* Director March 1, 1996
- -------------------------------------
KERNAN F. KING
Robert E. Schneider* Director March 1, 1996
- -------------------------------------
ROBERT E. SCHNEIDER
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
Daniel J. Toran* Director March 1, 1996
- -------------------------------------
DANIEL J. TORAN
H. James Wilson* Director, General March 1, 1996
- ------------------------------------- Counsel, Secretary
H. JAMES WILSON
Frederick K. Zimmermann* Director March 1, 1996
- -------------------------------------
FREDERICK K. ZIMMERMANN
By:
---------------------------------
ANNE M. GOGGIN
* Executed by Anne M. Goggin, Esq.
on behalf of those indicated
pursuant to a Power of Attorney
filed with Registration Statement
on Form N-4 on October 20, 1994.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NO.
(ON EXECUTED
COPY ONLY)
------------
<C> <S> <C>
(1) Resolutions of Board of Directors of the Depositor authorizing the Registrant.*..............................
(2) None
(3) (i) Form of Distribution Agreement**.......................................................................
(ii) Form of Selling Agreement with other broker- dealers**.................................................
(4) (i) Variable Annuity Contract, including Application*......................................................
(ii) Forms of Endorsements (Living Benefits and Section 1035 Exchange)*.....................................
(iii) Form of Endorsement (Individual Retirement Annuity)**..................................................
(5) Application (included in Exhibit 4(i)).......................................................................
(6) (i) Copy of charter (Articles of Incorporation)*...........................................................
(ii) By-laws of Depositor*..................................................................................
(7) None
(8) Form of Administrative Services Agreement**..................................................................
(9) Opinion and consent of H. James Wilson, Esq. to be filed by amendment........................................
(10) (i) Consent of Coopers & Lybrand L.L.P. to be filed by amendment...........................................
(ii) Consent of Sutherland, Asbill & Brennan to be filed by amendment.......................................
(11) None
(12) None
(13) Schedule of computations for performance quotations***.......................................................
(14) Powers of Attorney*..........................................................................................
</TABLE>
- --------
* Filed with Registration Statement on Form N-4 (No. 33-85442) filed on
October 20, 1994.
** Filed with Pre-Effective Amendment No. 1 to Registration Statement on Form
N-4 (33-85442) filed on March 7, 1995.
*** Filed with Post-Effective Amendment No. 1 to Registration Statement on
Form N-4 (33-85442) filed on April 27,1995.
