<PAGE>
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.
[X]
POST-EFFECTIVE AMENDMENT NO. 3
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 5
(CHECK APPROPRIATE BOX OR BOXES)
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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 COPY TO:
SERVICE: Stephen E. Roth, Esquire
Sutherland, Asbill & Brennan
H. James Wilson 1275 Pennsylvania Avenue, N.W.
Executive Vice President and General Washington, D.C. 20004-2404
Counsel
New England Mutual Life Insurance
Company
501 Boylston Street
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
[X] on May 1, 1996 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[_] 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
SUPPLEMENT DATED MAY 1, 1996
TO PROSPECTUS DATED MAY 1, 1996
For Contracts issued in Texas, the guaranteed minimum Death Proceeds will be
recalculated on the sixth Contract Anniversary, and every sixth year
anniversary thereafter until the Contract Owner's (or, if applicable, the
Annuitant's) 76th birthday to determine whether a higher (but never a lower)
guarantee will apply. (For a jointly owned Contract, this recalculation will
be made every six years until the 71st birthday of the older Contract Owner.)
For Contracts issued in other states, these recalculations will occur every
seventh year, as described in the prospectus. For more information about the
guaranteed minimum Death Proceeds, see "Payment on Death Prior to
Annuitization."
S-1
<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.
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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-50 of
this prospectus. The Statement of Additional Information is available without
charge and may be obtained by writing to New England Securities Corporation
("New England Securities"), 399 Boylston St., Boston, Massachusetts 02116.
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-23
Dollar Cost Averaging................................................. A-24
Surrenders............................................................ A-24
Systematic Withdrawals................................................ A-25
Loan Provision for Certain Tax Benefited Retirement Plans............. A-25
Suspension of Payments................................................ A-27
Ownership Rights...................................................... A-27
Requests and Elections................................................ A-28
Ten Day Right to Review............................................... A-28
ADMINISTRATION CHARGES, CONTINGENT DEFERRED SALES CHARGE AND OTHER DEDUC-
TIONS.................................................................... A-28
Administration Charges................................................ A-28
Mortality and Expense Risk Charge..................................... A-29
Contingent Deferred Sales Charge...................................... A-29
Premium Tax Charge.................................................... A-32
Other Expenses........................................................ A-32
Charges Under Contracts Purchased by Exchanging a Fund I, Preference
or Zenith Accumulator Contract....................................... A-33
ANNUITY PAYMENTS.......................................................... A-34
Election of Annuity................................................... A-34
Annuity Options....................................................... A-34
AMOUNT OF VARIABLE ANNUITY PAYMENTS....................................... A-35
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS............................ A-36
FEDERAL INCOME TAX STATUS................................................. A-37
Introduction.......................................................... A-37
Taxation of the Company............................................... A-37
Tax Status of the Contract............................................ A-38
Taxation of Annuities................................................. A-39
Qualified Contracts................................................... A-40
Withholding........................................................... A-42
Possible Changes in Taxation.......................................... A-42
Other Tax Consequences................................................ A-43
General............................................................... A-43
VOTING RIGHTS............................................................. A-43
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DISTRIBUTION OF CONTRACTS.................................................. A-44
THE FIXED ACCOUNT.......................................................... A-44
General Description of the Fixed Account............................... A-44
Contract Value and Fixed Account Transactions.......................... A-44
FINANCIAL STATEMENTS....................................................... A-45
INVESTMENT EXPERIENCE INFORMATION.......................................... A-46
APPENDIX A: Consumer Tips.................................................. A-48
APPENDIX B: Contingent Deferred Sales Charge............................... A-49
</TABLE>
A-3
<PAGE>
GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS
ACCOUNT--A sub-account of the Variable Account or the Fixed Account.
ACCUMULATION UNIT--An accounting device used to calculate the Contract Value
prior to 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 that permit
Contract loans, the Contract Value also includes the amount of Contract Value
transferred to the Company's general account as a result of a loan and any
interest credited on that amount. Under Contracts with the Fixed Account
option, the Contract Value also includes the amount of Contract Value
allocated to the Fixed Account.
CONTRACT YEAR--A twelve month period commencing with the Contract Date and
with each Contract anniversary thereafter.
DEATH PROCEEDS (prior to annuitization)--The amount payable by the Company,
prior to annuitization, upon receipt of due proof of 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. 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 or outstanding loans. 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 in
"Investments of the Variable Account."
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 "Contract Value and Fixed
Account Transactions."
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).
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.
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.
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"), the Company will accept a
minimum initial purchase payment as low as $2,000, or monthly purchase
payments as low as $100 per month if you choose to have them withdrawn from
your bank checking account or TNE Cash Management Trust account, a service
known as the Master Service Account arrangement ("MSA"). For Contracts issued
in connection with other types of retirement plans qualifying for tax-
benefited treatment under the Code, the Company will accept monthly purchase
payments as low as $50 per month if payments are made through a group billing
arrangement (also known as a "list bill" arrangement). For all other
Contracts, the Company will accept monthly purchase payments as low as $100
per month if they are made through MSA. 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.")
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) (but not under Section 401(k)) or 403(a) of the Code
("Qualified Plans"), certain annuity plans under Section 403(b) of the Code
("TSA Plans"), IRAs, simplified employee pension plans and salary reduction
simplified employee pension plans under Section 408(k) of the Code ("SEPs" and
"SARSEPs"), eligible deferred compensation plans under Section 457 of the Code
("Section 457 Plans"), and governmental plans within the meaning of Section
414(d) of the Code ("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 Eligible Funds or to the Fixed
Account (if available under your Contract). Your Contract Value may be
distributed among no more than 10 accounts (including the Fixed Account) at
any time.
You may change 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 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
A-6
<PAGE>
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.")
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 or outstanding loans
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, reduced in either case by the amount of any
outstanding loan plus accrued interest. (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.)
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A-8
<PAGE>
EXPENSE TABLE
<TABLE>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES(1)
Sales Charge Imposed on Purchase Payments (as a percentage of pur-
chase 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 a 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 CURRENT 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.......... .40% .35% .70% .70% 1.00% .70% .90%
Other Expenses.......... .15% .15% .15% .15% 0% .15% .40%
---- ---- ---- ---- ----- ---- -----
Total Series 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.................. .75% .75% .55% .65%
Other Expenses.................. .15% .15% .15% .20%
---- ---- ---- ----
Total Series Operating Ex-
penses....................... .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>
<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):
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Back Bay Advisors Bond Income........... $85.02 $110.92 $137.18 $228.29
Back Bay Advisors Money Market.......... 84.55 109.47 134.70 223.07
Westpeak Value Growth................... 87.81 119.54 151.92 259.02
Loomis Sayles Avanti Growth............. 87.81 119.54 151.92 259.02
Loomis Sayles Small Cap................. 89.22 123.82 159.20 274.01
Loomis Sayles Balanced.................. 87.81 119.54 151.92 259.02
Draycott International Equity........... 91.99 132.33 173.59 303.27
Alger Equity Growth..................... 88.28 120.97 154.36 264.04
Venture Value........................... 88.28 120.97 154.36 264.04
Salomon Brothers U.S. Government........ 86.42 115.24 144.58 243.78
Salomon Brothers Strategic Bond Opportu-
nities................................. 87.81 119.54 151.92 259.02
</TABLE>
A-10
<PAGE>
<TABLE>
<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): 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Back Bay Advisors Bond Income........... $19.95 $ 61.65 $105.85 $ 228.29
Back Bay Advisors Money Market.......... 19.45 60.13 103.29 223.07
Westpeak Value Growth................... 22.96 70.73 121.06 259.02
Loomis Sayles Avanti Growth............. 22.96 70.73 121.06 259.02
Loomis Sayles Small Cap................. 24.47 75.24 128.58 274.01
Loomis Sayles Balanced.................. 22.96 70.73 121.06 259.02
Draycott International Equity........... 27.46 84.20 143.44 303.27
Alger Equity Growth..................... 23.46 72.24 123.58 264.04
Venture Value........................... 23.46 72.24 123.58 264.04
Salomon Brothers U.S. Government........ 21.46 66.20 113.49 243.78
Salomon Brothers Strategic Bond Opportu-
nities................................. 22.96 70.73 121.06 259.02
</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
.07%, based on an estimated average Contract Value of approximately
$45,000 over the period from April 10, 1995 (when the Contracts became
available) to December 31, 1995.
(5) These charges are not imposed after annuitization if annuity payments are
made on a fixed basis.
(6) Total Series 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 in effect for 1996. Total Series
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 Series Operating
Expenses for the Back Bay Advisors Money Market, Westpeak Value Growth and
Loomis Sayles Avanti Growth Series for the year ended December 31, 1995
would have been .51%, 1.06% and 1.06%, respectively. For the Loomis Sayles
Small Cap Series, Total Series 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 Series Operating Expenses
for the Loomis Sayles Small Cap Series for the year ended December 31,
1995 would have been 1.91%. For the six other Series shown, the Total
Series Operating Expenses are after giving effect to a voluntary expense
deferral. Under the deferral, expenses which exceed a certain limit are
paid by TNE Advisers in the year 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
Opportunities 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 Series 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 1.85%, 3.12%, 2.45%, 1.51%, 2.90%, and 2.44%,
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 .07% 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
04/19/95* to 12/31/95................ 1.834830 1.889065 2,759
Zenith Back Bay Advisors Bond Income
Sub-account
04/19/95* to 12/31/95................ 2.700549 3.037039 1,299
Zenith Loomis Sayles Avanti Growth
Sub-account
04/19/95* to 12/31/95................ 1.201698 1.438865 2,010
Zenith Loomis Sayles Small Cap Sub-ac-
count
04/19/95* to 12/31/95................ 1.010468 1.219226 2,427
Zenith Loomis Sayles Balanced Sub-ac-
count
04/19/95* to 12/31/95................ 1.073645 1.227281 3,848
Zenith Westpeak Value Growth Sub-ac-
count
04/19/95* to 12/31/95................ 1.193057 1.485762 2,885
Zenith Draycott International Equity
Sub-account
04/19/95* to 12/31/95................ 1.034539 1.073005 2,973
Zenith Alger Equity Growth Sub-account
04/19/95* to 12/31/95................ 1.091430 1.402375 3,908
Zenith Venture Value Sub-account
04/19/95* to 12/31/95................ 1.071598 1.323183 3,798
Zenith Salomon Brothers U.S. Govern-
ment Sub-account
04/19/95* to 12/31/95................ 1.046872 1.139109 2,122
Zenith Salomon Brothers Strategic Bond
Opportunities Sub-account
04/19/95* to 12/31/95................ 1.031165 1.158823 1,975
</TABLE>
- --------
* Date on which the sub-account first became available.
A-14
<PAGE>
HOW THE CONTRACT WORKS
- ------------------------ -------------------------- ------------------------
PURCHASE PAYMENT CONTRACT VALUE DAILY DEDUCTION FROM
. You can make a . Payments are allocated . Mortality and expense
one-time investment to your choice, within risk charge of 1.25%
or establish an limits, of Eligible on an annualized
ongoing investment Funds and/or the basis is deducted
program, subject to Fixed Account. from the Contract
the Company's Value daily.
minimum and maximum . The Contract Value
purchase payment reflects purchase . Administration Asset
guidelines. payments, investment Charge of 0.10% on an
- ------------------------ experience, interest annualized basis is
- ------------------------ credited on Fixed deducted from the
ADDITIONAL PAYMENTS Account allocations, Contract Value daily.
partial surrenders,
. Generally may be made and Contract charges. . Investment advisory
at any time, (subject fees are deducted
to Company limits), but . The Contract Value from the Eligible
no purchase payments invested in the Fund assets daily.
allowed: (1) during the Eligible Funds is ------------------------
seven years not guaranteed. ------------------------
immediately preceding ANNUAL CONTRACT FEE
the Maturity Date . Earnings are
(except under Contracts accumulated free . $30 Administration
issued in Pennsylvania of any current Contract Charge is
or New York); or (2) income taxes (see deducted from the
after a Contract Owner page A-39). Contract Value in the
(or the Annuitant, Variable Account
if not owned in an . You may change the on each anniversary
individual capacity) allocation of while the Contract
reaches age 86. future payments, is in-force, other
within limits, at than under a
. Minimum $250 with any time. Payment Option.
certain exceptions (May be waived for
(see page A-18). . Prior to certain large
- ------------------------ annuitization, you Contracts.) A pro
- ------------------------ may transfer Contract rata portion is
LOANS Value among accounts, deducted on full
currently free of surrender and at
. The Company intends to charge. (Special annuitization.
make loans available limits apply to the -----------------------
to participants of Fixed Account and to -----------------------
certain tax qualified situations that SURRENDER CHARGE
pension plans involve "market
(see page A-25). timing.") . Consists of
- ------------------------ Contingent
- ------------------------ . Allocations of Deferred Sales
SURRENDERS payments and Charge based on
transfers of purchase payments
. Up to the greater of: Contract Value are made (see pages
10% of the Contract limited in that A-29 to A-32).
Value at the Contract Value may -----------------------
beginning of the not be allocated -----------------------
Contract Year; and among more than ten PREMIUM TAX CHARGE
the excess of the accounts (including
Contract Value over the Fixed Account) . Where applicable, is
purchase payments at any time. deducted from the
that are subject to -------------------------- Contract Value when
the Contingent -------------------------- annuity benefits
Deferred Sales Charge RETIREMENT BENEFITS commence (and, in
on the date of certain states, at
surrender, can be . Lifetime income the earliest of:
withdrawn each year options. full or partial
without incurring a surrender;
Contingent Deferred . Fixed and/or annuitization; or
Sales Charge, variable payout payment of the
subject to any options. Death Proceeds due
applicable tax to the death of a
law restrictions. . Retirement Contract Owner or,
benefits may be if applicable, of
. Surrenders may taxable. the Annuitant).
be taxable. -----------------------
. Premium tax charge -----------------------
. Prior to age 59 1/2 may apply. ADDITIONAL BENEFITS
a 10% penalty tax --------------------------
may apply. . You pay no taxes on
your investment as
. Premium tax charge long as it remains
may apply. in the Contract.
- ------------------------
- ------------------------ . Contract may be
DEATH PROCEEDS surrendered at any
time for its Contrac
. Guaranteed not to be Value, less any
less than your total applicable
purchase payments Contingent Deferred
adjusted for any prior Sales Charge,
surrenders or Charge, subject
outstanding loans to any applicable
(and, where tax law
applicable, net of restrictions.
premium tax charges).
. Contingent Deferred
. Death proceeds pass Sales Charge may be
to the beneficiary waived upon
without probate. evidence of terminal
illness, confinement
. Death proceeds may to a nursing home,
be taxable. or permanent and
total disability, if
. Premium tax charge may this benefit is
apply. available in your
- ------------------------ state.
------------------------
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 $16 billion of assets and approximately $62 billion of
life insurance in force. As of December 31, 1995, The New England and its
affiliates had over $86 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. 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 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 seeks to provide a high level of
current income consistent with protection of capital and moderate investment
risk through investment primarily in U.S. Government and corporate bonds.
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 reasonable long-term investment
return from a combination of long-term capital appreciation and moderate
current income. The Series is "flexibly managed" in that sometimes it invests
more heavily in equity securities and at other times it invests more heavily
in fixed-income securities, depending on its subadviser's view of the economic
and investment outlook.
DRAYCOTT INTERNATIONAL EQUITY SERIES
The Draycott International Equity Series seeks total return from long-term
growth of capital and dividend income, primarily through investment in
international equity securities.
ALGER EQUITY GROWTH SERIES
The Alger Equity Growth Series seeks long-term capital appreciation. The
Series' assets will be invested primarily in a diversified, actively managed
portfolio of equity securities, primarily of companies having a total market
capitalization of $1 billion or greater.
VENTURE VALUE SERIES
The Venture Value Series seeks growth of capital. The Series will primarily
invest in domestic common stocks that its subadviser believes have capital
growth potential due to factors such as undervalued assets or earnings
potential, product development and demand, favorable operating ratios,
resources for expansion, management abilities, reasonableness of market price,
and favorable overall business prospects. The Series will generally invest
predominantly in equity securities of companies with market capitalizations of
at least $250 million.
SALOMON BROTHERS U.S. GOVERNMENT SERIES
The Salomon Brothers U.S. Government Series seeks to provide a high level of
current income consistent with preservation of capital and maintenance of
liquidity. The Series invests primarily in debt obligations (including
mortgage-backed securities) issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or 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 among U.S. Government obligations, mortgage backed securities,
domestic and foreign corporate debt and sovereign debt securities rated
investment grade (BBB or higher by S&P or Baa or higher by Moody's) (or
unrated but deemed to be of equivalent quality in the subadviser's judgement)
and domestic and foreign corporate debt and sovereign debt securities rated
below investment grade. Depending on market conditions, the Series may invest
without limit in below investment grade fixed-income securities. Securities of
below investment grade quality are considered high yield, high risk securities
and are commonly known as "junk bonds."
INVESTMENT ADVICE
TNE Advisers, Inc., a subsidiary of The New England, serves as investment
adviser for the Eligible Funds. Each of the 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. 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 Inc. Each of the Eligible
Funds is a Series of the New England Zenith Fund (the "Zenith Fund"). More
complete information on each Series of 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 annuitization, the
Company will make variable annuity payments on a monthly basis unless you
elect otherwise. You assume the risk of investment gain or loss 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 Fund(s) 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.
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"), the Company will accept a
minimum initial purchase payment as low as $2,000, or monthly purchase
payments as low as $100 per month if you choose to have them withdrawn from
your bank checking account or TNE Cash Management Trust account,
A-18
<PAGE>
a service known as the Master Service Account arrangement ("MSA"). For
Contracts issued in connection with other types of retirement plans qualifying
for tax-benefited treatment under the Code, the Company will accept monthly
purchase payments as low as $50 per month if payments are made through a group
billing arrangement (also known as a "list bill" arrangement). For all other
Contracts, the Company will accept monthly purchase payments as low as $100
per month if they are made through MSA. 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 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 his or her 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 under the systematic withdrawal feature than the Zenith Accumulator
contract, and access to an assortment of investment options that differs from
those currently available under the old contracts. For more information, see
"Payment on 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
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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 a Fund I, Preference or Zenith
Accumulator contract, the payment will be applied using the Accumulation Unit
Value next determined following approval of the Contract application and
receipt of the proceeds of the 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 sub-account assets. The Accumulation Unit Value of
each sub-account was set at $1.00 on or about the date on which shares of the
corresponding Eligible Fund 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 Contract
Value also includes the amount of Contract Value transferred to the Company's
general account (but outside of the Fixed Account) as a result of a loan and
any interest credited on that amount. Interest earned on the amount held in
the general account as a result of a loan will be credited to the Contract's
sub-accounts 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 the Company receives at the Administrative
Office: (1) due proof of death; or (2) an election of continuation of the
Contract or of payment either in one sum or under an annuity payment option.
Death proceeds will be reduced by the amount of any outstanding loan plus
accrued interest. (See "Loan Provision for Certain Tax Benefited Retirement
Plans.") 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 Death Proceeds 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 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 Death Proceeds will be recalculated on each
seven-year anniversary of the effective date of the exchange.
Options for Death Proceeds. The Death Proceeds, reduced by the amount of any
---------------------------
outstanding loan plus accrued interest, will be paid in a lump sum or will be
applied to provide one or more of the fixed or variable methods of payment
available (see "Annuity Options"). (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
elected a form of payment, the Beneficiary has 90 days after the Company
receives due proof of death to make an election. Whether and when such an
election is made could affect when the Death Proceeds are deemed to be
received under the tax laws. The Beneficiary has a choice of: (1) receiving
payment in a single sum; (2) receiving payment in the form of certain annuity
options that begin within one year of the date of death; or (3) if eligible,
continuing the Contract under the Beneficiary Continuation provision or the
Spousal Continuation provision, as further described below. IF THE BENEFICIARY
DOES NOT MAKE AN ELECTION WITHIN 90 DAYS AFTER THE COMPANY RECEIVES DUE PROOF
OF DEATH, AND THE BENEFICIARY IS ELIGIBLE FOR EITHER THE BENEFICIARY
CONTINUATION OR THE SPOUSAL CONTINUATION PROVISION, THE CONTRACT WILL BE
CONTINUED UNDER THE APPLICABLE CONTINUATION PROVISION.
For non-tax qualified plans, the Code requires that if the Contract Owner
(or, if applicable, the Annuitant) dies prior to annuitization, the Death
Proceeds must be either: (1) distributed within five years after the date of
death; or (2) applied to a payment option payable over the life (or over a
period not exceeding the life expectancy) of the Beneficiary, provided further
that payments under the payment option must begin within one year of the date
of death. There are comparable rules for distributions on the death of the
Annuitant under tax qualified plans; however, if the Beneficiary under a tax
qualified Contract is the Annuitant's spouse, the Code generally allows
distributions to begin by the year in which the Annuitant would have reached
age 70 1/2 (which may be more or less than five years after the Annuitant's
death). See "Qualified Contracts--Distributions from the Contract."
If a Contract Owner (or, if applicable, the Annuitant) dies on or after
annuitization, the remaining interest in the Contract must be distributed at
least as quickly as under the method of distribution in effect on the date of
death.
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--BENEFICIARY CONTINUATION
In keeping with the Code's general requirement that Death Proceeds must be
distributed within five years after the death of the Contract Owner (or, if
applicable, the Annuitant), the Beneficiary Continuation provision permits a
Beneficiary to hold his or her share of the Death Proceeds (as determined
after the Death Proceeds have been reduced by the amount of any outstanding
loan plus accrued interest), in the Contract and to continue the Contract for
a period ending five years after the date of death, provided that the
Beneficiary's share of the Death Proceeds meets the Company's published
minimum (currently $5,000 for non-tax qualified Contracts and $2,000 for tax
qualified Contracts). THE CONTRACT CANNOT BE CONTINUED FOR ANY BENEFICIARY
WHOSE SHARE OF THE DEATH PROCEEDS DOES NOT MEET THE MINIMUM.
The Beneficiary has 90 days after the date the Company receives due proof of
death to make an election with respect to his or her share of the Death
Proceeds. The Beneficiary may elect either: (1) payment in a single sum; (2)
application to a permitted payment option with payments to begin within one
year of the date of death; or (3) Beneficiary Continuation, provided that the
Beneficiary's share of the Death Proceeds meets the Company's published
minimum. IF THE BENEFICIARY DOES NOT MAKE AN ELECTION WITHIN 90 DAYS AFTER THE
COMPANY RECEIVES DUE PROOF OF DEATH, THE CONTRACT WILL BE CONTINUED UNDER THE
BENEFICIARY CONTINUATION PROVISION FOR A PERIOD ENDING FIVE YEARS AFTER THE
DATE OF DEATH. IF BENEFICIARY CONTINUATION IS NOT AVAILABLE BECAUSE THE
BENEFICIARY'S SHARE OF THE DEATH PROCEEDS DOES NOT MEET THE COMPANY'S
PUBLISHED MINIMUM, HOWEVER, THE DEATH PROCEEDS WILL BE PAID IN A SINGLE SUM
UNLESS THE BENEFICIARY ELECTS AN ANNUITY PAYMENT OPTION WITHIN 90 DAYS AFTER
THE COMPANY RECEIVES DUE PROOF OF DEATH.
If the Contract is continued under the Beneficiary Continuation provision,
the Death Proceeds (reduced by the amount of any outstanding loan plus accrued
interest and 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 they had been prior to the continuation. In
addition, the Beneficiary will have the right to make transfers and fully or
partially surrender his or her portion of the Contract Value, but may not make
further purchase payments, take loans, or exercise the dollar cost averaging
feature. No guaranteed minimum Death Proceeds amount or Contingent Deferred
Sales Charge will apply. Five years from the date of death of the Contract
Owner (or, if applicable, the Annuitant), the Company will pay the
Beneficiary's Contract Value to the Beneficiary. If the Beneficiary dies
during that five year period, the Beneficiary's death benefit will be the
Beneficiary's Contract Value on the date when the Company receives due proof
of the Beneficiary's death.
--SPECIAL OPTIONS FOR SPOUSES.
Under the Spousal Continuation provision, the Contract may be continued
after the death of a Contract Owner (or the Annuitant, if the Contract is not
owned in an individual capacity) prior to annuitization 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, the other may elect to continue the Contract under the Spousal
Continuation provision rather than receive the Death Proceeds. In addition, if
only one spouse is the Contract Owner (or, if applicable, the Annuitant) and
the other spouse is the primary 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 one of the
following three options within 90 days after the Company receives due proof of
death of the Contract Owner (or, if applicable, the Annuitant). The surviving
spouse may elect: (1) to receive the Death Proceeds (reduced by the amount of
any outstanding loan plus accrued interest) either in one sum or under a
permitted payment option; (2) to continue the Contract under the Beneficiary
Continuation provision; or (3) to continue the Contract under the Spousal
Continuation provision with the surviving spouse as the Contract Owner (or, if
applicable, the Annuitant). IF THE SURVIVING SPOUSE DOES NOT MAKE AN ELECTION
WITHIN 90 DAYS AFTER THE COMPANY RECEIVES DUE PROOF OF DEATH, THE CONTRACT
WILL AUTOMATICALLY BE CONTINUED UNDER THE SPOUSAL CONTINUATION PROVISION, WITH
THE RESULT THAT THE SURVIVING SPOUSE WILL FOREGO THE RIGHT TO RECEIVE THE
DEATH PROCEEDS AT THAT TIME.
A surviving spouse who elects Beneficiary Continuation under a Contract that
is qualified for tax-benefited treatment under the Code must begin to receive
distributions from the Contract by the earlier of: (1) five years from the
date of death; and (2) the year in which the Contract Owner (or, if
applicable, the Annuitant) would have reached age 70 1/2.
Under the Spousal Continuation provision, all terms and conditions of the
Contract that applied prior to the death will continue to apply, regardless of
whether or not the Contract is qualified for tax benefited treatment under the
Code, except that:
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a. The surviving spouse will not be permitted to make additional purchase
payments or take loans under Contracts issued in connection with a
retirement plan qualifying for tax benefited treatment under Sections 401
or 403 of the Internal Revenue Code; and
b. The Maturity Date will be reset, if necessary, based on the age of the
surviving spouse.
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.
Spousal Continuation will not be available if the reset Maturity Date would
be greater than the Company's permitted maximum, or if, at the time of the
Contract Owner's death, the surviving spouse is older than the maximum
maturity age under applicable state law. In addition, the Spousal Continuation
provision will not be available if, at the original Maturity Date, the
surviving spouse would be older than the maximum maturity age under applicable
state law. In most states, the maximum maturity age is 95, but the maximum age
is 85 in New York and Pennsylvania.
If a Contract is subject to a loan at the time the Contract Owner (or, if
applicable, the Annuitant) dies, and the Contract is continued under the
Spousal Continuation provision, the amount of the outstanding loan plus
accrued interest will be treated as a taxable distribution from the Contract
to the deceased Contract Owner, and the Contract Value will be reduced
accordingly.
TRANSFER PRIVILEGE
It is the position of the Company that you may transfer your Contract Value
among 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. The Company's
current 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, and the Fixed
Account is not available under variable payment options. 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.
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).
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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. In New
York as in all other states, 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 for more information about Dollar
Cost Averaging.)
SURRENDERS
Prior to annuitization, you may surrender your Contract for all or part of
the Contract Value. You may receive the proceeds in cash or apply them to a
payment option. The proceeds you receive will be the Contract Value reduced by
the following amounts:
. any applicable Contingent Deferred Sales Charge;
. a pro rata portion of the Administration Contract Charge (on a full
surrender only);
. a premium tax charge (in certain states only);
. any outstanding loan plus accrued interest (on a full surrender only).
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.
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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 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 AND COMPLIES WITH THE ERISA
REGULATIONS ON PARTICIPANT PLAN LOANS.
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<PAGE>
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 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
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<PAGE>
plan. In the case of a TSA Plan not subject to ERISA, the Company will report
the surrender to the IRS as a taxable distribution under the Contract.
The Internal Revenue Service issued proposed regulations in December of
1995, which, if finalized in their present form, would require that if the
repayment terms of a loan are not satisfied after the loan has been made due
to a failure to make a loan repayment as scheduled, including any applicable
grace period, the balance of the loan would be deemed to be distributed. If
the loan is treated as a distribution under Code Section 72(p), the proposed
regulations state that the amount so distributed is to be treated as a taxable
distribution subject to the normal rules of Code Section 72, if the
participant's interest in the plan includes after-tax contributions (or other
tax basis). A deemed distribution would also be a distribution for purposes of
the 10 percent tax in Code Section 72(t) and the excise tax on excess
distributions under Section 4980A. However, a deemed distribution under
Section 72(p) would not be treated as an actual distribution for purposes of
Code Section 401, the rollover and income averaging provisions of Section 402
and the distribution restrictions of Section 403(b).
Partial surrenders will be restricted by the existence of a loan and, after
any partial surrender, the remaining unloaned Contract Value must be at least
10% of the total Contract Value after the partial surrender or $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. In these circumstances, the amount of the outstanding
Contract loan plus accrued interest generally will be taxed as a taxable
distribution.
The tax and ERISA rules relating to participant loans under tax benefited
retirement plans are complex and in some cases unclear, and they may vary
depending on the individual circumstances of each loan. The Company strongly
recommends that you, your employer and your plan fiduciary consult a qualified
tax 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.
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.
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<PAGE>
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.
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 (see the following paragraph) 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.
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<PAGE>
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 annuitization 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 experience (death rate) of persons
receiving such payments or of the general population. The Company assumes this
mortality risk by virtue of annuity rates in the Contract that cannot be
changed. The Company also assumes the risk of making a minimum death benefit
payment if the Contract Owner (or, if applicable, the Annuitant) dies prior to
annuitization. (See "Payment on Death Prior to Annuitization.")
The 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 after annuitization. (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.
A-29
<PAGE>
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 an annuity 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 payment
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."
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<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.
<TABLE>
<CAPTION>
HYPOTHETICAL CONTRACT VALUE 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.
<TABLE>
<CAPTION>
HYPOTHETICAL CONTRACT VALUE 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.
<TABLE>
<CAPTION>
HYPOTHETICAL CONTRACT VALUE 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
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<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 their
Contracts 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.
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<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.
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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 payment 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 annuity 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 you
may designate a portion to be paid on a variable basis and a portion on a
fixed basis. If you select payments on a fixed basis, the amount of Contract
Value applied to the fixed payment option (net of any applicable charges
described under "Administration Charges, Contingent Deferred Sales Charge and
Other Deductions") will be transferred to the general account of the Company,
and the annuity payments will be fixed in amount and duration by the annuity
payment option selected, the age of the Payee and, for Contracts issued in New
York or Oregon for use in situations not involving an employer-sponsored plan,
by the sex of the Payee. (See "Amount of Variable Annuity Payments".)
Contracts acquired by retirement plans qualifying for tax benefited
treatment may be subject to various requirements concerning the time by which
benefit payments must commence, the period over which such payments may be
made, the annuity payment options that may be selected, and the minimum annual
amounts of such payments. Penalty taxes or other adverse tax consequences may
occur upon failure to meet such requirements.
ANNUITY OPTIONS
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 an
annuity payment option. You may also elect to have the Contract's Death
Proceeds applied to an annuity 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 an annuity 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 an annuity 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 an
annuity 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 an annuity payment option will be reduced by the amount of
the loan outstanding plus accrued interest.
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The Contract offers the variable annuity 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.
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 VARIABLE ANNUITY
PAYMENT IF THE PAYEE DIES (OR PAYEES DIE) BEFORE THE DUE DATE OF THE SECOND
PAYMENT OR TO RECEIVE ONLY TWO VARIABLE ANNUITY PAYMENTS IF THE PAYEE DIES
(OR PAYEES DIE) BEFORE THE DUE DATE OF THE THIRD PAYMENT, AND SO ON.
Comparable fixed payment options are also available for all of the options
described above. In addition, other annuity payment options (including other
periods certain) may be available from time to time, and you should consult
the Company as to their availability. If you do not elect an annuity payment
option by the Maturity Date, variable payments under the Contract will be made
while the Payee is living but for at least ten years. (This is the Variable
Life Income with Period Certain Option.) If installments under an annuity
payment option would be less than the Company's published minimum, then the
Contract proceeds can be applied to an annuity 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 annuity 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
annuity 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 annuity 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
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assumed interest rate selected, (iii) the type of payment option selected, and
(iv) the investment performance of the Eligible Funds selected. (The Fixed
Account is not available under variable payment options.)
The annuity purchase rates are used to calculate the basic payment level
purchased by the Contract Value. These rates vary according to the age of the
Payee. The higher the Payee's age at annuitization, the greater the basic
payment level under options involving life contingencies, because the Payee's
life expectancy and thus the period of anticipated income payments will be
shorter. With respect to Contracts issued in New York or Oregon for use in
situations not involving an employer-sponsored plan, purchase rates used to
calculate the basic payment level will also reflect the sex of the Payee.
Under such Contracts, a given Contract Value will produce a higher basic
payment level for a male Payee than for a female Payee, reflecting the longer
life expectancy of the female Payee. If the Contract Owner has selected an
annuity 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 dollar amount of the annuity
payments will increase. Conversely, if the actual rate is less than the
assumed interest rate, the dollar amount of the annuity payments will
decrease. If actual investment performance is equal to the assumed interest
rate, the monthly payments will remain level.
Unless otherwise provided, the assumed interest rate will be at an annual
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 annuity 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 annuity payment
options available, and other matters also of importance.
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS
The Federal tax laws provide for a variety of retirement plans offering tax
benefits. These plans, which may be funded through the purchase of the
individual variable annuity contracts offered in this prospectus, include:
1. Plans qualified under Section 401(a) 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");
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4. Eligible deferred compensation plans (within the meaning of Section
457 of the Code) for employees of state and local governments and tax-
exempt organizations ("Section 457 Plans"); and
5. Governmental plans (within the meaning of Section 414(d) of the Code)
for governmental employees, including Federal employees ("Governmental
Plans").
An investor should consult a qualified tax or other 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.
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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.
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.
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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.
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
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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 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
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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. However, these payments may
be subject to FICA (Social Security) taxes.
IRAS, SEPS, SARSEPS
The maximum tax deductible purchase payment which may be contributed each
year to an IRA is the lesser of $2,000 or 100 percent of includible
compensation if the taxpayer is not covered under an employer plan. A spousal
IRA is available if the taxpayer and spouse file a joint return and the spouse
earns no compensation (or elects to be treated as earning no compensation) and
is not yet age 70 1/2. The maximum tax deductible purchase payment which a
taxpayer may make to 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. An IRA is also the vehicle
that receives contributions to SEPs and SARSEPs. Maximum contributions
(including elective deferrals) to SEPs and SARSEPs are currently limited to
the lesser of 15% of compensation (generally up to $150,000 for 1996) or
$30,000. For more information concerning the contributions to IRAs, SEPs and
SARSEPs, you should obtain a copy of IRS Publication 590 on Individual
Retirement Accounts. In addition to the above, an individual may make a
"rollover" contribution into an IRA with the proceeds of 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
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qualified domestic relations order do not apply. A tax-free rollover may be
made once each year among individual retirement arrangements subject to the
conditions and limitations described in the Code.
If the Annuitant dies before distributions begin, distributions must be
completed within five years after death, unless payments begin within one year
after death and are made over the life (or life expectancy) of the
Beneficiary. If the Annuitant's spouse is the Beneficiary, distributions need
not begin until the Annuitant would have reached age 70 1/2. If the Annuitant
dies after annuity payments have begun, payments must continue to be made at
least as rapidly as payments made before death.
With respect to TSA Plans, elective contributions to the Contract made after
December 31, 1988 and any increases in Contract Value after that date may not
be distributed prior to attaining age 59 1/2, termination of employment, death
or disability. Contributions (but not earnings) made after December 31, 1988
may also be distributed by reason of financial hardship. These restrictions on
withdrawal will not apply to the Contract Value as of December 31, 1988. These
restrictions are not expected to change the circumstances under which
transfers to other investments which qualify for tax free treatment under
Section 403(b) of the Code may be made.
Annuity payments, periodic payments or annual distributions generally must
commence by April 1 of the calendar year following the year in which the
Annuitant attains age 70 1/2. In the case of a Governmental Plan, these
distributions must begin by the later of the date determined by the preceding
sentence or April 1 of the calendar year following the year in which the
Annuitant retires. Each annual distribution must equal or exceed a "minimum
distribution amount" which is determined by minimum distribution rules under
the plan. A penalty tax of up to 50% of the amount which should 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.
Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under the Contracts or under the terms of
the Qualified Plans in respect of which the Contracts are issued.
SECTION 457 PLANS
When a distribution under a Contract held under a Section 457 Plan is made
to the Annuitant, such amounts are taxed as ordinary income in the year in
which received. The plan must not permit distributions prior to the
Annuitant's separation from service (except in the case of unforeseen
emergency).
Generally, annuity payments, periodic payments or annual distributions must
commence by April 1 of the calendar year following the year in which the
Annuitant attains age 70 1/2 and meet other distribution requirements. Minimum
distributions under a Section 457 Plan may be further deferred if the
Annuitant remains employed with the sponsoring employer. Each annual
distribution must equal or exceed a "minimum distribution amount" which is
determined by distribution rules under the plan. If the Annuitant dies before
distributions begin, the same special distribution rules apply in the case of
Section 457 Plans as apply in the case of Qualified Plans, TSA Plans, IRAs,
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).
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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 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 they have a right of instruction will be determined as
of the record date for the meeting. All Eligible Fund shares held in any sub-
account of the Variable Account or any other registered (or to the extent
voting privileges are granted by the issuing insurance company, unregistered)
separate accounts of the Company or any affiliate for which no timely
instructions are received will be voted for, against, or withheld from voting
on any proposition in the same proportion as the shares held in that sub-
account for all policies or contracts for which voting instructions are
received.
All Eligible Fund shares held by the general investment account (or any
unregistered separate account for which voting privileges are not extended) of
the Company or its affiliates will be voted in the same proportion as the
aggregate of (i) the shares for which voting instructions are received and
(ii) the shares that are voted in proportion to such voting instructions.
The SEC requires the Eligible 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.
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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.
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
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limited to the lesser of $30 and 2% of the total Contract Value, including
Contract Value in the Fixed Account.) Except as described below, amounts in
the Fixed Account are subject to the same rights and limitations as are
amounts in the Variable Account with respect to transfers, surrenders and
partial surrenders. The following special rules apply to transfers involving
the Fixed Account.
The amount of Contract Value which may be transferred from the Fixed Account
----------------------------------------------------------------------------
is limited to the greater of: 25% of the Contract Value in the Fixed Account
- ----------------------------------------------------------------------------
at the end of the first day of the Contract Year, and the amount of Contract
- ----------------------------------------------------------------------------
Value that was transferred from the Fixed Account in the previous Contract
- --------------------------------------------------------------------------
Year, except with the consent of the Company. (Also, after the transfer is
- --------------------------------------------------------------------------
made, the Contract Value may not be allocated among more than ten of the sub-
- -----------------------------------------------------------------------------
accounts and/or the Fixed Account.) The Company intends to restrict purchase
- -----------------------------------
payments and transfers of Contract Value into the Fixed Account: (1) if the
interest rate which would be credited to the deposit would be equivalent to an
annual effective rate of 3%; or (2) if the total Contract Value in the Fixed
Account exceeds a maximum amount published by the Company (currently
$500,000). In addition, the Company intends to restrict transfers of Contract
Value into the Fixed Account, and reserves the right to restrict purchase
payments 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. See
"Loan Provision for Certain Tax Benefited Retirement Plans." The rate of
interest for each loan repayment applied to the Fixed Account will be the
lesser of: (1) the effective interest rate for your Contract on the date the
loan repayment is applied to the Fixed Account; and (2) the current Fixed
Account interest rate set by the Company in advance for that date. 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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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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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, as well as other unmanaged indices of stock and bond performance
described in the Statement of Additional Information in the Notes to the
illustration of Annual Percentage Change in Contract Value and Annual
Percentage Change in Surrender Value for a $10,000 Single Purchase Payment
Contract. The percentage change is calculated by dividing the difference in
unit or index values at the beginning and end of the period by the beginning
unit or index value. See the Statement of Additional Information for a
description of the method for calculating the annual effective rate of return
in this illustration.
From time to time the Company may advertise (in sales literature or
advertising material) performance rankings of the sub-accounts of the Variable
Account assigned by independent services, such as Variable Annuity Research
and Data Services ("VARDS"). VARDS monitors and ranks the performance of
variable annuity accounts on an industry-wide basis in each of the major
categories of investment objectives. The performance analysis prepared by
VARDS ranks accounts on the basis of total return calculated using
Accumulation Unit Values. Thus, the effect of the Contingent Deferred Sales
Charge and Administration Contract Charge assessed under the Contracts is not
taken into consideration.
From time to time, articles discussing the Variable Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited to, Lipper Analytical Services, Inc. and
Morningstar) may publish their own rankings or performance reviews of variable
contract separate accounts, including the Variable Account. References to,
reprints or portions of reprints of such articles or rankings may be used by
the Company as sales literature or advertising material and may include
rankings that indicate the names of other variable contract separate accounts
and their investment experience.
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APPENDIX A
CONSUMER TIPS
DOLLAR COST AVERAGING
Dollar cost averaging allows a person to take advantage of the historical
long-term stock market results, assuming that they continue, although it does
not guarantee a profit or protect against a loss. If an investor follows a
program of dollar cost averaging on a long-term basis and the stock fund
selected performs at least as well as the S&P 500 has historically, it is
likely although not guaranteed that the price at which shares are surrendered,
for whatever reason, will be higher than the average cost per share.
An investor using dollar cost averaging invests the same amount of money in
the same professionally managed fund at regular intervals over a long period
of time. Dollar cost averaging keeps an investor from investing too much when
the price of shares is high and too little when the price is low. When the
price of shares is low, the money invested buys more shares. When it is high,
the money invested buys fewer shares. If the investor has the ability and
desire to maintain this program over a long period of time (for example, 20
years), and the stock fund chosen follows the historical upward market trends,
the price at which the shares are sold should be higher than their average
cost. The price could be lower, however, if the fund chosen does not follow
these historical trends.
Investors contemplating the use of dollar cost averaging should consider
their ability to continue the on-going purchases so that they can take
advantage of periods of low price levels.
DIVERSIFICATION
Diversifying investment choices can enhance returns, by providing a wider
opportunity for safe returns, and reduce risks, by spreading the chance of
loss. Holding a single investment requires of that investment a safe return
because a loss may risk the entire investment. By diversifying, on the other
hand, an investor can more safely take a chance that some investments will
under-perform and that others will over-perform. Thus an investor can
potentially earn a better-than-average rate of return on a diversified
portfolio than on a single safe investment. This is because, although portions
of a diversified investment may be totally lost, other portions may perform at
above-average rates that more than compensate for the loss.
MISCELLANEOUS
Toll-free telephone 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 02116
A-48
<PAGE>
APPENDIX B
CONTINGENT DEFERRED SALES CHARGE
The following example illustrates how the Contingent Deferred Sales Charge
would apply if the commuted value of amounts that have been placed under
certain payment options is later withdrawn. As described in the prospectus in
the section "Contingent Deferred Sales Charge", no Contingent Deferred Sales
Charge will apply if at any time more than 30 days from issue of the Contract
you apply the proceeds to a variable or fixed payment option involving a life
contingency or, for a minimum specified period of 15 years, to either the
Variable Income for a Specified Number of Years Option or the Variable Income
Payments to Age 100 Option, or a comparable fixed option. However, if you
subsequently withdraw the commuted value of amounts placed under any of those
options, the Company will deduct from the amount you receive a portion of the
Contingent Deferred Sales Charge that was waived, based on the ratio of: (1)
the number of whole months remaining on the date of withdrawal until the date
when the Contingent Deferred Sales Charge would expire, to (2) the number of
whole months that were remaining when the proceeds were applied to the option,
until the date when the Contingent Deferred Sales Charge would expire.
As an example, assume that $100,000 of Contract Value (net of any premium
tax charge and Administration Contract Charge) is applied to the Variable
Income for a Specified Number of Years Option for a 20 year period. Assume
further that the proceeds are derived from a $30,000 purchase payment made ten
years ago, a $30,000 purchase payment made exactly two years ago, and
investment earnings, and that the Contingent deferred Sales Charge waived on
application of the proceeds to the payment option was $1,500. If the Payee
surrenders the commuted value of the proceeds under option six months later,
the Contingent Deferred Sales Charge would be $1,350 (representing the $1,500
waived at annuitization multiplied by 54/60, where 54 is the number of whole
months currently remaining until the Contingent Deferred Sales Charge would
expire, and 60 is the number of whole months that remained at the time of
annuitization until the Contingent Deferred Sales Charge would expire).
A-49
<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-25
APPENDIX A................................................................ II-41
</TABLE>
If you would like to obtain a copy of the Statement of Additional
Information, please complete the request form below and mail to:
New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
Please send a copy of the Statement of Additional
Information of New England Variable Annuity Separate
Account to:
_______________________________________________________
Name
_______________________________________________________
Street
_______________________________________________________
City State Zip
A-50
<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-25
Appendix A................................................................ II-41
</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 L.L.P., located at One International Place, Boston, Massachusetts
02109, conducts an annual audit of the Variable Account's financial
statements. Coopers & Lybrand L.L.P. 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 (the "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 (and may be waived for certain large Contracts). 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.
- --------
* In the illustrations that follow, the calculations are based on the
Accumulation Unit Values for the next business day following December 31,
1995, which was a Sunday.
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.................................................... 10.84%
5 Years................................................... 6.57%
10 years.................................................. 6.17%
Since Inception........................................... 7.36%
<CAPTION>
For purchase payment allocated to the Back Bay Advisors Money Market Series
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year.................................................... -4.21%
5 Years................................................... -.22%
10 years.................................................. 1.98%
Since Inception........................................... 2.84%
<CAPTION>
For purchase payment allocated to the Westpeak Value Growth Series
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year.................................................... 26.26%
Since Inception........................................... 11.59%
<CAPTION>
For purchase payment allocated to the Loomis Sayles Avanti Growth Series
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 21.34%
Since Inception.................................................. 10.22%
</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........................................................... 19.17%
Since Inception.................................................. 6.08%
For purchase payment allocated to the Loomis Sayles Balanced Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 14.76%
Since Inception.................................................. 11.53%
For purchase payment allocated to the Draycott International Equity Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... -2.85%
Since Inception.................................................. -1.33%
For purchase payment allocated to the Salomon Brothers U.S. Government
Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 4.49%
Since Inception.................................................. 3.64%
For purchase payment allocated to the Salomon Brothers Strategic Bond
Opportunities Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 9.25%
Since Inception.................................................. 5.53%
For purchase payment allocated to the Venture Value Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 28.83%
Since Inception.................................................. 19.79%
For purchase payment allocated to the Alger Equity Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1995
-------------------------------
<S> <C>
1 Year........................................................... 39.95%
Since Inception.................................................. 26.01%
</TABLE>
Information is available illustrating the impact of fund performance on
annuity payouts. For examples, see "Historical Illustrations of Annuity Income
Payments" and "Hypothetical Illustrations of Annuity Income Payments" in this
Statement of Additional Information.
The following chart illustrates how the average annual total return was
determined for the five year period ending December 31, 1995 for the sub-
account investing in 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............ 518.0258 1.930406 $1,000.00 $ -- --
December 31, 1991............ 504.6720 2.246568 1,133.78 1,073.78 7.38%
December 31, 1992............ 492.1598 2.397657 1,180.03 1,130.03 6.30%
December 31, 1993............ 480.8978 2.663825 1,281.03 1,241.03 7.46%
December 31, 1994............ 469.0581 2.533842 1,188.52 1,158.52 3.75%
December 31, 1995............ 459.1786 3.036590 1,394.34 1,374.34 6.57%
</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
-----------------------------------------------------------------
BACK BAY BACK BAY LOOMIS LOOMIS
ADVISORS ADVISORS WESTPEAK SAYLES SAYLES LOOMIS
BOND MONEY VALUE AVANTI SMALL SAYLES
INCOME MARKET GROWTH GROWTH CAP BALANCED
---------- ---------- ---------- ---------- ---------- ----------
<S> <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
1995............ 29,943.73 18,403.95 14,848.15 14,265.95 12,155.60 12,291.47
<CAPTION>
CONTRACT VALUE
------------------------------------------------------------
SALOMON
SALOMON BROTHERS
DRAYCOTT BROTHERS STRATEGIC ALGER
INTERNATIONAL U.S. BOND VENTURE EQUITY
EQUITY GOVERNMENT OPPORTUNITIES VALUE GROWTH
------------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
As of December 31:
1983............
1984............
1985............
1986............
1987............
1988............
1989............
1990............
1991............
1992............
1993............
1994............ $10,196.29 $10,026.51 $ 9,817.20 $ 9,657.56 $ 9,561.73
1995............ 10,746.82 11,348.95 11,577.43 13,279.91 14,212.45
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SURRENDER VALUE (1)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BACK BAY BACK BAY LOOMIS LOOMIS
ADVISORS ADVISORS WESTPEAK SAYLES SAYLES LOOMIS
BOND MONEY VALUE AVANTI SMALL SAYLES
INCOME MARKET GROWTH GROWTH CAP BALANCED
---------- ---------- ---------- ---------- ---------- ----------
As of December 31:
1983............ $ 9,660.92 $ 9,609.51
1984............ 10,843.60 10,565.37
1985............ 12,878.02 11,395.91
1986............ 14,727.28 12,105.01
1987............ 14,932.32 12,812.58
1988............ 16,040.76 13,686.84
1989............ 17,872.33 14,835.51
1990............ 19,141.99 15,906.87
1991............ 22,246.32 16,638.79
1992............ 23,713.05 17,008.60
1993............ 26,316.57 17,249.26 $10,637.58 $10,586.07
1994............ 25,002.44 17,669.32 10,390.70 10,359.67 $ 8,897.68 $ 9,325.15
1995............ 29,933.73 18,393.95 14,328.15 13,745.95 11,535.60 11,686.47
</TABLE>
<TABLE>
<CAPTION>
SALOMON
SALOMON BROTHERS
DRAYCOTT BROTHERS STRATEGIC AGLGER
INTERNATIONAL U.S. BOND VENTURE EQUITY
EQUITY GOVERNMENT OPPORTUNITIES VALUE GROWTH
------------- ---------- ------------- ---------- ----------
<C> <C> <C> <C> <C>
As of December 31:
1983............
1984............
1985............
1986............
1987............
1988............
1989............
1990............
1991............
1992............
1993............
1994............ $ 9,547.90 $ 9,390.01 $ 9,195.35 $ 9,046.88 $ 8,957.76
1995............ 10,157.87 10,743.95 10,972.43 12,674.92 13,607.45
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE CHANGE IN CONTRACT VALUE(1)
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................... 19.72 4.10 34.93 30.02 27.79 23.45 5.40 13.19
Cumulative Return....... 199.44 84.04 48.48 42.66 21.56 22.91 7.47 13.49
Annual Effective Rate of
Return................. 9.29 5.07 15.97 14.24 12.43 19.39 6.38 11.48
</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................... 17.93 37.51 48.64 36.83 37.45 15.31 2.54
Cumulative Return....... 15.77 32.80 42.12 557.53 471.03 230.41 53.19
Annual Effective Rate of
Return................. 13.40 27.59 35.24 16.50 15.17 10.18 3.52
</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................... 19.72 4.10 37.89 32.69 29.65 25.32 6.39 14.42
Cumulative Return....... 199.34 83.94 43.28 37.46 15.36 16.86 1.58 7.44
Annual Effective Rate of
Return................. 9.29 5.06 14.43 12.66 8.95 14.32 1.35 6.36
</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................... 19.33 40.10 51.91 36.83 37.45 15.31 2.54
Cumulative Return....... 9.72 26.75 36.07 557.53 471.03 230.41 53.19
Annual Effective Rate of
Return................. 8.30 22.58 30.28 16.50 15.17 10.18 3.52
</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 65,732.84 48,479.27 10,288.25 9,914.15
Annual Effective Rate of
Return................. 8.90% 4.26% 19.28% 16.31%
</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 $1,940.75 $ 501.86 $ 501.65 $ 490.87 $ 509.33 $ 496.40 $ 491.13
1995................... 5,000 5,903.23 3,731.25 3,921.81 4,234.87 3,659.97 4,150.63 3,821.54
Annual Effective Rate of
Return................. 20.35% 10.68% 19.62% 34.58% 7.36% 30.53% 14.90%
</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> <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 64,882.84 47,629.27 9,778.25 9,404.15
Annual Effective Rate of
Return................. 8.70% 3.99% 15.22% 12.16%
</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 $1,788.05 $ 463.83 $ 463.64 $ 453.61 $ 470.78 $ 458.76 $ 453.85
1995................... 5,000 5,553.23 3,494.32 3,676.81 3,989.87 3,426.49 3,905.63 3,578.64
Annual Effective Rate of
Return................. 12.53% -.26% 8.14% 22.85% -3.35% 18.86% 3.61%
</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 in the prospectus under "Investment
Experience Information." The annual effective rate of return in these
illustrations is calculated by dividing the unit value at the end of the
period by the unit value at the beginning of the period, raising this quantity
to the power of 1/n (where n is the number of years in the period), and then
subtracting 1.
Set forth on the following pages are illustrations of the percentage change
in unit value information and annual effective rate of return information
discussed above that may appear in the Variable Account's Annual and Semi-
Annual Reports and in other illustrations of historical investment
performance. Such illustrations do not reflect the impact of any Contingent
Deferred Sales Charge, 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...................................... 3.036590 19.8%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
12 years, 4 months ended December 31, 1995.............. 203.7% 9.4%
10 years ended December 31, 1995........................ 127.1% 8.5%
5 years ended December 31, 1995......................... 57.3% 9.5%
1 year ended December 31, 1995.......................... 19.8% 19.8%
</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...................................... 1.889333 4.3%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
12 years, 4 months ended December 31, 1995.............. 88.9% 5.3%
10 years ended December 31, 1995........................ 57.6% 4.7%
5 years ended December 31, 1995......................... 16.6% 3.1%
1 year ended December 31, 1995.......................... 4.3% 4.3%
</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...................................... 1.442289 30.3%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
2 years, 8 months ended December 31, 1995............... 44.2% 14.7%
1 year ended December 31, 1995.......................... 30.3% 30.3%
</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...................................... 1.487750 35.3%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
2 years, 8 months ended December 31, 1995............... 48.8% 16.0%
1 year ended December 31, 1995.......................... 35.3% 35.3%
</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...................................... 1.219149 28.2%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 8 months ended December 31, 1995................ 21.9% 12.6%
1 year ended December 31, 1995.......................... 28.2% 28.2%
</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...................................... 1.232234 23.8%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995................ 23.2% 19.6%
1 year ended December 31, 1995.......................... 23.8% 23.8%
</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...................................... 1.077837 5.7%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995................ 7.8% 6.6%
1 year ended December 31, 1995.......................... 5.7% 5.7%
</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...................................... 1.137909 13.5%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995................ 13.8% 11.7%
1 year ended December 31, 1995.......................... 13.5% 13.5%
</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...................................... 1.160788 18.2%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995................ 16.1% 13.6%
1 year ended December 31, 1995.......................... 18.2% 18.2%
</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...................................... 0.965720 -3.4%
December 31, 1995...................................... 1.331068 37.8%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995................ 33.1% 27.8%
1 year ended December 31, 1995.......................... 37.8% 37.8%
</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...................................... 1.404202 48.9%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
1 year, 2 months ended December 31, 1995................ 40.4% 33.8%
1 year ended December 31, 1995.......................... 48.9% 48.9%
</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 net investment factor ("Net Investment Factor") for any sub-account is
determined on each day on which the New York Stock Exchange is open for
trading as follows:
(1) The net asset value per share of the Eligible Fund held in the sub-
account determined as of the close of regular trading on the New York Stock
Exchange on a particular day;
(2) Plus the per share amount of any dividend or capital gains
distribution made by the Eligible Fund since the close of regular trading
on the New York Stock Exchange on the preceding trading day;
(3) Is divided by the net asset value per share of the Eligible Fund as
of the close of regular trading on the New York Stock Exchange on the
preceding trading day; and
(4) Finally, the daily charges for the Administration Asset Charge and
Mortality and Expense Risk Charge that have accumulated since the close of
regular trading on the New York Stock Exchange on the preceding trading day
are subtracted. (See "Administration Charges, Contingent Deferred Sales
Charge and Other Deductions" in the prospectus.) On an annual basis, the
total deduction for such charges equals 1.35% of the daily net asset value
of the Variable Account.
ANNUITY PAYMENTS
At 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 annuity 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 annuity 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.
Illustrations of annuity income payments under various hypothetical and
historical rates appear in the tables below. The monthly equivalents of the
hypothetical annual net returns of 0%, 5.79%, 6%, 8% and 10% shown in the
tables at pages II-19 and II-20 are 0%, .5%, .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%, 5.79%, 6%, 8% or 10%. The
values would be different from those shown if the returns averaged 0%, 5.79%,
6%, 8% or 10%, but fluctuated over and under those averages throughout the
years.
The tables reflect the daily charge to the sub-accounts for assuming
mortality and expense risks, which is equivalent to an annual charge of 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 0.84% 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 0.84%, 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 0.84% for investment management and
operating expenses. Since these charges are deducted daily from assets, the
difference between the gross and net rate is not exactly 2.19%.
Two tables follow. The first table assumes that 100% of the Contract Value
is allocated to a variable annuity income option, the second assumes that 50%
of the Contract Value is placed under a fixed annuity income option, using the
fixed crediting rate the Company offered on the fixed annuity income option at
the date of the illustration. Both illustrations assume that the final value
of the accumulation account is $100,000 and is applied at age 65 to purchase a
life annuity for a guaranteed period of 10 years certain and life thereafter.
When part of the Contract Value has been allocated to the fixed annuity
income option, the guaranteed minimum annuity income payment resulting from
this allocation is also shown. The illustrated variable annuity income
payments are determined through the use of standard mortality tables and an
assumed interest rate of 3.5% per year. Thus, actual performance greater than
3.5% per year will result in increasing annuity income payments and actual
performance less than 3.5% per year will result in decreasing annuity income
payments. The Company offers alternative Assumed Interest Rates from which you
may select. Fixed annuity income payments remain constant. Initial monthly
annuity income payments under a fixed annuity income payout are generally
higher than initial payments under a variable income payout option.
These tables show the monthly income payments for several hypothetical
constant assumed interest rates. Of course, actual investment performance will
not be constant and may be volatile. Actual monthly income amounts would
differ from those shown if the actual rate of return averaged the rate shown
over a period of years, but also fluctuated above or below those averages for
individual contract years. Upon request, and when you are considering an
annuity income option, the Company will furnish a comparable illustration
based on your individual circumstances.
II-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 PAY- Monthly
MENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED: For age 65: $661.00
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 100% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT.
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN
CONSTANT: 3.50%
VARIABLE MONTHLY ANNUITY INCOME PAYMENT ON THE DATE OF THE
ILLUSTRATION: $581.00
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE. NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED.
<TABLE>
<CAPTION>
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN
WITH AN ASSUMED RATE OF RETURN OF:
---------------------------------------------
GROSS 0% 5.79% 6% 8% 10%
PAYMENT CALENDAR ----- ----------------- -------- -------- ---------
YEAR YEAR AGE NET** -2.17% 3.50% 3.70% 5.66% 7.62%
- ------- -------- --- ----- ----------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1996 65 $ 581.00 $ 581.00 $ 581.00 $ 581.00 $ 581.00
2 1997 66 549.19 581.00 582.15 593.13 604.11
3 1998 67 519.13 581.00 583.29 605.51 628.15
4 1999 68 490.71 581.00 584.44 618.16 653.14
5 2000 69 463.84 581.00 585.60 631.06 679.13
10 2005 74 350.03 581.00 591.39 699.75 825.41
15 2010 79 264.15 581.00 597.25 775.91 1,003.19
20 2015 84 199.34 581.00 603.16 860.37 1,219.28
</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 PAY- Monthly
MENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT FOR AGE 65 BASED ON CURRENT RATES, IF
100% FIXED ANNUITY OPTION SELECTED: $661.00
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 50% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT AND 50% TO FIXED PAYOUT
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN
CONSTANT: 3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE, BUT WILL NEVER
BE LESS THAN: $330.50. THE MONTHLY GUARANTEED PAYMENT OF $330.50 IS BEING
PROVIDED BY THE $50,000 APPLIED UNDER THE FIXED ANNUITY OPTION.
<TABLE>
<CAPTION>
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN
WITH AN ASSUMED RATE OF RETURN OF:
-------------------------------------------------
GROSS 0% 5.79% 6% 8% 10%
PAYMENT CALENDAR ----- --------- --------- --------- --------- ---------
YEAR YEAR AGE NET** -2.17% 3.50% 3.70% 5.66% 7.62%
- ------- -------- --- ----- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1996 65 $ 621.00 $ 621.00 $ 621.00 $ 621.00 $ 621.00
2 1997 66 605.10 621.00 621.57 627.07 632.56
3 1998 67 590.06 621.00 622.15 633.26 644.57
4 1999 68 575.85 621.00 622.72 639.58 657.07
5 2000 69 562.42 621.00 623.30 646.03 670.06
10 2005 74 505.52 621.00 626.20 680.37 743.20
15 2010 79 462.58 621.00 629.12 718.46 832.10
20 2015 84 430.17 621.00 632.08 760.68 940.14
</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 sub-accounts 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: $661.00; FOR AGE 75: $806.00 AND FOR AGE
76: $823.00.
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 100% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT.
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN
CONSTANT: 3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE. NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED.
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN WITH 100% OF THE CONTRACT VALUE
INVESTED IN:
<TABLE>
<CAPTION>
LOOMIS LOOMIS
BACK BAY BACK BAY SAYLES WESTPEAK SAYLES LOOMIS
PAYMENT CALENDAR BOND MONEY AVANTI VALUE SMALL SAYLES
YEAR YEAR AGE INCOME MARKET GROWTH GROWTH CAP BALANCED
- ------- -------- --- -------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1983 65 $ 581.00 $581.00
2 1984 66 593.85 589.21
3 1985 67 637.34 621.82
4 1986 68 721.50 641.71
5 1987 69 789.77 653.31
6 1988 70 769.90 663.40
7 1989 71 795.21 679.85
8 1990 72 851.26 708.06
9 1991 73 877.02 730.20
10 1992 74 986.14 739.29
11 1993 75 1,016.77 731.38 $747.00 $ 747.00
12 1994 76 1,091.45 717.90 829.98 826.38 $765.00 $765.00
13 1995 77 1,005.44 711.52 789.05 778.25 733.73 758.20
14 1996 78 1,161.63 716.92 980.46 1,012.42 901.19 901.95
</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. The following expenses
are for the year ended December 31, 1995, after giving effect to expense caps
or deferrals in effect for 1996: 0.55% Back Bay Bond Income, 0.50% Back Bay
Money Market, 0.85% Loomis Sayles Avanti Growth, 0.85% Westpeak Value Growth,
1.00% Loomis Sayles Small Cap, 0.85% Loomis Sayles Balanced, 1.30% Draycott
International Equity, 0.70% Salomon US Government, 0.85% Salomon Strategic
Bond Opportunities, 0.90% Venture Value, 0.90% 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 PAY- Monthly
MENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED: FOR AGE 76: $823.00.
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 100% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN
CONSTANT: 3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE. NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED.
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN WITH 100% OF THE CONTRACT VALUE
INVESTED IN:
<TABLE>
<CAPTION>
SALOMON
DRAYCOTT SALOMON STRATEGIC ALGER
PAYMENT CALENDAR INTERNATIONAL U.S. BOND VENTURE EQUITY
YEAR YEAR AGE EQUITY GOVERMENT OPPORTUNITIES VALUE GROWTH
- ------- -------- --- ------------- --------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
12 1994 76 $765.00 $765.00 $765.00 $765.00 $ 765.00
13 1995 77 778.70 763.51 748.36 732.39 737.42
14 1996 78 788.57 837.15 851.64 972.43 1,045.27
</TABLE>
INVESTMENT PERFORMANCE RESULTS CONTAINED IN THIS REPORT REPRESENT PAST
PERFORMANCE AND ARE NOT INDICATIVE OF FUTURE RETURNS. THE PERFORMANCE RESULTS
OF A CONTRACT MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE CONTRACT OWNER
AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED. SINCE IT IS HIGHLY
LIKELY THAT PERFORMANCE WILL FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME
(BASED ON THE VARIABLE ACCOUNT) WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE
MADE BY THE COMPANY OR THE FUNDS THAT THESE HISTORICAL RETURNS CAN BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
THE PAYMENTS IN THIS ILLUSTRATION ARE NET OF ALL CHARGES: MORTALITY AND
EXPENSE RISK CHARGE AND ADMINISTRATION ASSET CHARGE (1.35%), MANAGEMENT FEES
AND OTHER EXPENSES (These may vary from year to year. The following expenses
are for the year ended December 31, 1995, after giving effect to expense caps
or deferrals in effect for 1996: 0.55% Back Bay Bond Income, 0.50% Back Bay
Money Market, 0.85% Loomis Sayles Avanti Growth, 0.85% Westpeak Value Growth,
1.00% Loomis Sayles Small Cap, 0.85% Loomis Sayles Balanced, 1.30% Draycott
International Equity, 0.70% Salomon US Government, 0.85% Salomon Strategic
Bond Opportunities, 0.90% Venture Value, 0.90% 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 of the Company included in this Statement of Additional Information have
been included herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
Legal matters in connection with the Contracts described in this
registration statement have been passed on by 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.
II-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the New England Variable
Annuity Separate Account of New England Variable
Life Insurance Company:
We have audited the accompanying statement of assets and liabilities of the
New England Variable Annuity Separate Account (comprised of Bond Income Sub-
Account, Money Market Sub-Account, Avanti Growth Sub-Account, Value Growth
Sub-Account, Small Cap Sub-Account, U.S. Government Sub-Account, Balanced Sub-
Account, Equity Growth Sub-Account, International Equity Sub-Account, Venture
Value Sub-Account and Bond Opportunities Sub-Account) of New England Variable
Life Insurance Company as of December 31, 1995, and the related statement of
operations and changes in net assets for the period April 19, 1995
(commencement of operations) to December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the respective
aforementioned sub-accounts comprising the New England Variable Annuity
Separate Account of the New England Variable Life Insurance Company as of
December 31, 1995, and the results of their operations and changes in their
net assets for the period April 19, 1995 (commencement of operations) to
December 31, 1995, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 6, 1996
II-25
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
BOND MONEY AVANTI VALUE SMALL U.S. EQUITY
INCOME MARKET GROWTH GROWTH CAP GOVERNMENT BALANCED GROWTH
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith
Fund, at value..................... $3,959,570 $5,099,918 $2,833,600 $4,274,260 $2,950,820 $2,407,213 $4,698,510 $5,456,949
<CAPTION>
SHARES COST
------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Back Bay
Advisors Bond
Income Series... 36,437 4,015,808
Back Bay
Advisors Money
Market Series... 50,999 5,099,918
Loomis Sayles
Avanti Growth
Series.......... 19,893 2,854,404
Westpeak Value
Growth Series... 30,247 4,191,054
Loomis Sayles
Small Cap
Series.......... 24,843 2,858,059
Salomon Brothers
U.S. Government
Series.......... 218,045 2,400,357
Loomis Sayles
Balanced Series. 393,181 4,613,309
Alger Equity
Growth Series... 395,429 5,436,490
Draycott
International
Equity Series... 294,625 3,103,065
Venture Value
Series.......... 382,090 4,825,951
Salomon Brothers
Strategic Bond
Opportunities
Series.......... 210,673 2,342,030
Amount due and accrued (payable)
from contract-related transactions,
net................................ (10,683) 95,147 60,384 17,048 10,790 12,364 27,935 32,239
Dividends receivable............... -- 23,176 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Assets...................... 3,948,887 5,218,241 2,893,984 4,291,308 2,961,610 2,419,577 4,726,445 5,489,188
LIABILITIES
Due New England Variable Life
Insurance Company.................. 3,342 6,815 2,388 4,416 2,956 2,813 3,613 8,373
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities................. 3,342 6,815 2,388 4,416 2,956 2,813 3,613 8,373
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS.......................... $3,945,545 $5,211,426 $2,891,596 $4,286,892 $2,958,654 $2,416,764 $4,722,832 $5,480,815
========== ========== ========== ========== ========== ========== ========== ==========
Net Assets consist of:
Net Assets attributable to Variable
Annuity Contracts.................. $3,941,803 $5,211,426 $2,891,596 $4,284,982 $2,956,794 $2,416,764 $4,719,088 $5,479,050
Annuity Reserves................... 3,742 -- -- 1,910 1,860 -- 3,744 1,765
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL NET ASSETS.................. $3,945,545 $5,211,426 $2,891,596 $4,286,892 $2,958,654 $2,416,764 $4,722,832 $5,480,815
========== ========== ========== ========== ========== ========== ========== ==========
<CAPTION>
STRATEGIC
INTERNATIONAL VENTURE BOND
EQUITY VALUE OPPORTUNITIES
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT TOTAL
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith
Fund, at value..................... $3,167,224 $5,005,375 $2,285,801 $42,139,240
<CAPTION>
<S> <C> <C> <C> <C>
Back Bay
Advisors Bond
Income Series...
Back Bay
Advisors Money
Market Series...
Loomis Sayles
Avanti Growth
Series..........
Westpeak Value
Growth Series...
Loomis Sayles
Small Cap
Series..........
Salomon Brothers
U.S. Government
Series..........
Loomis Sayles
Balanced Series.
Alger Equity
Growth Series...
Draycott
International
Equity Series...
Venture Value
Series..........
Salomon Brothers
Strategic Bond
Opportunities
Series..........
Amount due and accrued (payable)
from contract-related transactions,
net................................ 26,438 25,547 5,609 302,818
Dividends receivable............... -- -- -- 23,176
------------- ---------- ------------- -----------
Total Assets...................... 3,193,662 5,030,922 2,291,410 42,465,234
LIABILITIES
Due New England Variable Life
Insurance Company.................. 3,115 5,017 2,163 45,011
------------- ---------- ------------- -----------
Total Liabilities................. 3,115 5,017 2,163 45,011
------------- ---------- ------------- -----------
NET ASSETS.......................... $3,190,547 $5,025,905 $2,289,247 $42,420,223
============= ========== ============= ===========
Net Assets consist of:
Net Assets attributable to Variable
Annuity Contracts.................. $3,188,720 $5,025,905 $2,285,536 $42,401,664
Annuity Reserves................... 1,827 -- 3,711 18,559
------------- ---------- ------------- -----------
TOTAL NET ASSETS.................. $3,190,547 $5,025,905 $2,289,247 $42,420,223
============= ========== ============= ===========
</TABLE>
See Notes to Financial Statements
II-26
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 19, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER
31, 1995
<TABLE>
<CAPTION>
BOND MONEY AVANTI VALUE SMALL U.S. EQUITY INTERNATIONAL VENTURE
INCOME MARKET GROWTH GROWTH CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
-------- -------- -------- -------- -------- ---------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends....... $234,534 $106,464 $ 84,980 $208,739 $129,385 $84,803 $167,655 $157,204 $33,056 $107,503
EXPENSES
Mortality and
expense risk and
administrative
charges......... 14,321 25,668 10,383 16,718 10,463 10,204 20,240 20,957 11,324 18,852
-------- -------- -------- -------- -------- ------- -------- -------- ------- --------
Net investment
income.......... 220,213 80,796 74,597 192,021 118,922 74,599 147,415 136,247 21,732 88,651
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS
Net unrealized
appreciation
(depreciation)
on investments:
Beginning of
period.......... -- -- -- -- -- -- -- -- -- --
End of period... (56,238) -- (20,804) 83,206 92,761 6,856 85,201 20,459 64,159 179,424
-------- -------- -------- -------- -------- ------- -------- -------- ------- --------
Net change in
unrealized
appreciation
(depreciation).. (56,238) -- (20,804) 83,206 92,761 6,856 85,201 20,459 64,159 179,424
Net realized
gain (loss) on
investments..... 210 -- 8 188 (8) 131 6 12 2 113
-------- -------- -------- -------- -------- ------- -------- -------- ------- --------
Net realized and
unrealized gain
(loss) on
investments..... (56,028) -- (20,796) 83,394 92,753 6,987 85,207 20,471 64,161 179,537
-------- -------- -------- -------- -------- ------- -------- -------- ------- --------
NET INCREASE IN
NET ASSETS
RESULTING FROM
OPERATIONS....... $164,185 $ 80,796 $ 53,801 $275,415 $211,675 $81,586 $232,622 $156,718 $85,893 $268,188
======== ======== ======== ======== ======== ======= ======== ======== ======= ========
<CAPTION>
STRATEGIC
BOND
OPPORTUNITIES
SUB-
ACCOUNT TOTAL
------------- ----------
<S> <C> <C>
INCOME
Dividends....... $146,583 $1,460,906
EXPENSES
Mortality and
expense risk and
administrative
charges......... 8,218 167,348
------------- ----------
Net investment
income.......... 138,365 1,293,558
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS
Net unrealized
appreciation
(depreciation)
on investments:
Beginning of
period.......... -- --
End of period... (56,229) 398,795
------------- ----------
Net change in
unrealized
appreciation
(depreciation).. (56,229) 398,795
Net realized
gain (loss) on
investments..... 293 955
------------- ----------
Net realized and
unrealized gain
(loss) on
investments..... (55,936) 399,750
------------- ----------
NET INCREASE IN
NET ASSETS
RESULTING FROM
OPERATIONS....... $ 82,429 $1,693,308
============= ==========
</TABLE>
See Notes to Financial Statements
II-27
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD APRIL 19, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER
31, 1995
<TABLE>
<CAPTION>
BOND MONEY AVANTI VALUE SMALL U.S. EQUITY INTERNATIONAL
INCOME MARKET GROWTH GROWTH CAP GOVERNMENT BALANCED GROWTH EQUITY
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income.......... $ 220,213 $ 80,796 $ 74,597 $ 192,021 $ 118,922 $ 74,599 $ 147,415 $ 136,247 $ 21,732
Net realized and
unrealized gain
(loss) on
investments..... (56,028) -- (20,796) 83,394 92,753 6,987 85,207 20,471 64,161
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase in net
assets derived
from investment
activities...... 164,185 80,796 53,801 275,415 211,675 81,586 232,622 156,718 85,893
FROM CONTRACT-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England
Variable Life
Insurance
Company......... 3,512,772 8,774,833 2,697,244 2,346,443 2,581,472 2,209,207 4,350,428 5,139,557 2,959,953
Net transfers
(to) from other
sub-accounts.... 288,578 (3,490,074) 151,126 1,658,049 175,700 161,291 247,728 230,721 169,830
Net transfers
(to) from New
England Variable
Life Insurance
Company......... (19,990) (154,129) (10,575) 6,985 (10,193) (35,320) (107,946) (46,181) (25,129)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase in net
assets derived
from contract-
related
transactions.... 3,781,360 5,130,630 2,837,795 4,011,477 2,746,979 2,335,178 4,490,210 5,324,097 3,104,654
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE IN
NET ASSETS....... 3,945,545 5,211,426 2,891,596 4,286,892 2,958,654 2,416,764 4,722,832 5,480,815 3,190,547
NET ASSETS, AT
BEGINNING OF THE
PERIOD........... -- -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS, AT
END OF THE
PERIOD........... $3,945,545 $5,211,426 $2,891,596 $4,286,892 $2,958,654 $2,416,764 $4,722,832 $5,480,815 $3,190,547
========== ========== ========== ========== ========== ========== ========== ========== ==========
<CAPTION>
STRATEGIC
VENTURE BOND
VALUE OPPORTUNITIES
SUB- SUB-
ACCOUNT ACCOUNT TOTAL
----------- ------------- ------------
<S> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income.......... $ 88,651 $ 138,365 $ 1,293,558
Net realized and
unrealized gain
(loss) on
investments..... 179,537 (55,936) 399,750
----------- ------------- ------------
Increase in net
assets derived
from investment
activities...... 268,188 82,429 1,693,308
FROM CONTRACT-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England
Variable Life
Insurance
Company......... 4,408,888 2,229,504 41,210,301
Net transfers
(to) from other
sub-accounts.... 353,605 53,446 --
Net transfers
(to) from New
England Variable
Life Insurance
Company......... (4,776) (76,132) (483,386)
----------- ------------- ------------
Increase in net
assets derived
from contract-
related
transactions.... 4,757,717 2,206,818 40,726,915
----------- ------------- ------------
NET INCREASE IN
NET ASSETS....... 5,025,905 2,289,247 42,420,223
NET ASSETS, AT
BEGINNING OF THE
PERIOD........... -- -- --
----------- ------------- ------------
NET ASSETS, AT
END OF THE
PERIOD........... $5,025,905 $2,289,247 $42,420,223
=========== ============= ============
</TABLE>
See Notes to Financial Statements
II-28
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. New England Variable Annuity Separate Account (the "Account") of New
England Variable Life Insurance Company ("NEVLICO"), was established by
NEVLICO's Board of Directors on July 1, 1994 in accordance with the
regulations of the Delaware Insurance Department. NEVLICO is a wholly-owned
subsidiary of New England Mutual Life Insurance Company ("The New England").
The Account is registered as a unit investment trust under the Investment
Company Act of 1940. The assets of the Account are owned by NEVLICO. However,
that portion of the Account assets equal to the reserves and other liabilities
of the Account may not be charged with liabilities that arise out of any other
business NEVLICO may conduct.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. The Account has eleven investment sub-accounts each of which invests in
the shares of one series of the New England Zenith Fund ("Zenith Fund"). The
series of the Zenith Fund in which the sub-accounts invest are referred to
herein as the "Eligible Funds". The Zenith Fund is a diversified, open-end
management investment company. The values of the shares of the Eligible Funds
are determined as of the close of the New York Stock Exchange (normally 4:00
p.m. EST) on each day the Exchange is open for trading. Realized gains and
losses on the sale of the Eligible Funds' shares are computed on the basis of
identified cost on the trade date. Income from dividends is recorded on the
ex-dividend date.
3. Certain deductions for risk and administrative charges are taken from the
contract values, to compensate NEVLICO for administrative expenses and for the
assumption of mortality and expense risks. Currently, the charges are made
daily at an annual rate of 1.35% of the net assets of the Account. NEVLICO
also imposes an annual administration charge of $30 (not to exceed 2% of the
total contract value) against contract value in the Account, but this charge
is waived for any contract year in which the contract value reaches certain
amounts. A premium tax charge applies to the contracts in certain states.
Additionally, a contingent deferred sales charge may be imposed in the event
of a partial or full surrender or application of proceeds to certain payment
options, or, in certain circumstances, upon subsequent withdrawal of amounts
applied to a payment option. Charges for investment advisory fees and other
expenses are deducted from the assets of the Eligible funds.
4. For federal income tax purposes the Account's operations are included
with those of NEVLICO. NEVLICO intends to make appropriate charges against the
Account in the future if and when tax liabilities arise.
II-29
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. The adviser and sub-adviser for each Eligible Fund are listed in the
chart below. TNE Advisers, Inc. which is a wholly-owned subsidiary of The New
England, and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
ELIGIBLE FUND ADVISER SUB-ADVISER
------------- ------- -----------
<S> <C> <C>
Back Bay Advisors Bond
Income TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Money
Market TNE Advisers, Inc. Back Bay Advisors, L.P.*
Westpeak Value Growth TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Loomis Sayles Avanti
Growth TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Draycott International
Equity TNE Advisers, Inc. Draycott Partners, Ltd.
Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
Salomon Brothers U.S.
Government TNE Advisers, Inc. Salomon Brothers Asset Management, Inc.
Salomon Brothers
Strategic Bond
Opportunities TNE Advisers, Inc. Salomon Brothers Asset Management, Inc.
</TABLE>
- --------
* An indirect subsidiary of The New England
6. The following table shows the aggregate cost of Eligible Fund shares
purchased and proceeds from sales of Eligible Fund shares for each sub-account
for the period April 19, 1995 (commencement of operations) through December
31, 1995:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- ----------
<S> <C> <C>
Back Bay Advisors Bond Income Series..................... $ 4,498,696 $ 482,889
Back Bay Advisors Money Market Series.................... 10,396,246 5,296,328
Loomis Sayles Avanti Growth Series....................... 3,113,183 258,779
Westpeak Value Growth Series............................. 4,559,122 368,067
Loomis Sayles Small Cap Series........................... 3,270,485 412,426
Salomon Brothers U.S. Government Series.................. 2,864,874 464,517
Loomis Sayles Balanced Series............................ 5,258,232 644,923
Alger Equity Growth Series............................... 6,124,635 688,145
Draycott International Equity Series..................... 3,541,171 438,107
Venture Value Series..................................... 5,230,929 404,978
Salomon Brothers Strategic Bond Opportunities Series..... 2,735,519 393,489
</TABLE>
7. Annuity reserves are computed for currently payable contracts according
to the 1983-a Mortality Tables. The assumed interest rate may be 0%, 3.5% or
5% as elected by the annuitant and as regulated by laws of the respective
states. Adjustments to annuity reserves are reimbursed to or from NEVLICO.
II-30
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. A summary of units outstanding for variable annuity contracts for the
period April 19, 1995 (commencement of operations) to December 31, 1995:
<TABLE>
<CAPTION>
SMALL U.S.
BOND INCOME MONEY MARKET AVANTI GROWTH VALUE GROWTH CAP GOVERNMENT
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Units Outstanding
4/19/95................ -- -- -- -- -- --
Units Purchased......... 1,388,273.8460 4,880,871.6501 2,064,257.2902 2,950,143.4465 2,495,595.4909 2,343,474.2683
Units Redeemed.......... 89,131.9180 2,122,139.2819 54,620.8846 64,828.4141 68,930.3068 221,847.5497
Units Outstanding
12/31/95............... 1,299,141.9280 2,758,732.3682 2,009,636.4056 2,885,315.0324 2,426,665.1841 2,121,626.7186
-------------- -------------- -------------- -------------- -------------- --------------
Unit Value 12/31/95... 3.037039 1.889065 1.438865 1.485762 1.219226 1.139109
============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION> STRATEGIC
INTERNATIONAL BOND
BALANCED EQUITY GROWTH EQUITY VENTURE VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Units Outstanding
4/19/95................ -- -- -- -- --
Units Purchased......... 4,131,044.4174 4,088,668.8820 3,130,883.0353 3,878,075.8874 2,137,842.5933
Units Redeemed.......... 282,835.9517 180,432.3120 157,414.2725 79,730.5090 162,349.7665
Units Outstanding
12/31/95............... 3,848,208.4657 3,908,236.5700 2,973,468.7628 3,798,345.3784 1,975,492.8268
-------------- -------------- -------------- -------------- --------------
Unit Value 12/31/95... 1.227281 1.402375 1.073005 1.323183 1.158823
============== ============== ============== ============== ==============
</TABLE>
II-31
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of New England Variable Life
Insurance Company:
We have audited the accompanying balance sheets of New England Variable Life
Insurance Company (a wholly-owned subsidiary of New England Mutual Life
Insurance Company) as of December 31, 1995 and 1994, and the related
statements of operations, surplus, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New England Variable Life
Insurance Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with the
accounting practices prescribed or permitted by the Insurance Department of
the State of Delaware, which are considered generally accepted accounting
principles for wholly-owned stock life insurance subsidiaries of mutual life
insurance companies.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 8, 1996
II-32
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
-------------- ------------
<S> <C> <C>
Bonds............................................ $ 60,779,522 $ 7,828,833
Mortgage loan.................................... 2,210,153 2,221,942
Policy loans..................................... 58,210,498 43,967,343
Cash and short-term investments.................. 32,416,437 10,669,045
Accrued investment income........................ 3,102,970 1,377,286
Premiums deferred and uncollected................ 8,897,630 6,892,888
Due from separate account, net................... 95,638,637 79,549,258
Due from New England Mutual Life Insurance
Company......................................... 4,706,831 1,889,855
Other assets..................................... 554,844 814,991
Separate account assets.......................... 748,184,716 445,040,547
-------------- ------------
Total assets................................. $1,014,702,238 $600,251,988
============== ============
LIABILITIES AND SURPLUS
Policy reserves.................................. $ 79,511,870 $ 44,648,304
Due to New England Mutual Life Insurance Company. 6,239,406 3,219,350
Borrowed money and accrued interest.............. 25,137,373 --
Income taxes payable............................. 5,487,501 4,611,653
Accrued expenses................................. 6,663,644 4,746,096
Asset valuation reserve.......................... 372,954 137,202
Other liabilities................................ 4,767,424 1,120,620
Separate account liabilities..................... 748,184,716 445,040,547
-------------- ------------
Total liabilities............................ 876,364,888 503,523,772
Surplus:
Common stock (shares authorized: 50,000; issued
and outstanding:
20,000; par value $125)....................... 2,500,000 2,500,000
Paid-in capital in excess of par value........... 171,738,031 117,709,808
Unassigned surplus............................... (35,900,681) (23,481,592)
-------------- ------------
Total surplus................................ 138,337,350 96,728,216
-------------- ------------
Total liabilities and surplus.............. $1,014,702,238 $600,251,988
============== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-33
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Income:
Premiums......................................... $279,517,998 $201,732,909
Net investment income............................ 3,250,606 3,093,033
Considerations for supplementary contracts....... 2,243,426 --
------------ ------------
285,012,030 204,825,942
Expenses:
Death and other benefits......................... 41,689,601 23,345,664
Increase in policy reserves...................... 34,863,564 17,743,158
Commissions...................................... 40,691,028 37,220,361
Net transfers to separate account................ 120,149,836 87,853,704
General and administrative....................... 54,105,390 43,395,223
------------ ------------
291,499,419 209,558,110
------------ ------------
Loss from operations before provision for income
taxes............................................. (6,487,389) (4,732,168)
Provision for income taxes......................... 5,516,062 2,968,375
------------ ------------
Net loss........................................... $(12,003,451) $ (7,700,543)
============ ============
</TABLE>
STATEMENTS OF SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Surplus, beginning of year.......................... $ 96,728,216 $94,378,654
Net loss............................................ (12,003,451) (7,700,543)
Change in non-admitted assets....................... (179,886) (19,141)
Change in asset valuation reserve................... (235,752) 69,246
Capital contribution from New England Mutual Life
Insurance Company.................................. 54,028,223 10,000,000
------------ -----------
Surplus, end of year................................ $138,337,350 $96,728,216
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-34
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Premiums and other considerations.............. $ 277,077,189 $ 199,670,506
Net investment income.......................... 1,719,860 2,773,220
Benefits....................................... (39,541,592) (23,510,882)
Expenses and taxes............................. (95,265,433) (80,900,670)
Net transfers to separate account.............. (136,239,215) (103,547,077)
Net increase in policy loans................... (14,243,155) (13,293,625)
Other income and disbursements, net............ 2,191,111 (1,972,032)
------------- -------------
Net cash flows used in operating activities.. (4,301,235) (20,780,560)
Cash flows from investing activities:
Proceeds from investments sold, matured or
repaid........................................ 715,484 166,942
Cost of investments acquired................... 333,143 (11)
------------- -------------
Net cash flows from investing activities..... 1,048,627 166,931
Cash flows from financing activities:
Capital contribution from New England Mutual
Life Insurance Company........................ -- 10,000,000
Borrowed money................................. 25,000,000 --
------------- -------------
Net cash flows from financing activities..... 25,000,000 10,000,000
Net cash flows................................... 21,747,392 (10,613,629)
Cash and short-term investments, beginning of
year............................................ 10,669,045 21,282,674
------------- -------------
Cash and short-term investments, end of year..... $ 32,416,437 $ 10,669,045
============= =============
Non-cash financing activities:
Capital contribution from New England Mutual
Life Insurance Company........................ $ 54,028,223 $ --
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-35
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
New England Variable Life Insurance Company (the "Company") is a wholly-
owned stock life insurance subsidiary of New England Mutual Life Insurance
Company (The New England). The Company sells variable life insurance and
variable annuity products through a network of general agencies located
throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The Company prepares its statutory financial statements, except as to form,
in accordance with accounting practices prescribed or permitted by the
Insurance Department of the State of Delaware. Prescribed statutory accounting
practices include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations, and
general administrative rules. Permitted accounting practices encompass all
accounting practices not so prescribed. Permitted and prescribed statutory
accounting practices are currently considered generally accepted accounting
principles (GAAP) for wholly-owned stock life insurance subsidiaries of a
mutual life insurance company.
The Financial Accounting Standards Board issued Interpretation No. 40,
Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises, and Statement of Financial Accounting
Standards No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts. The American Institute of Certified Public
Accountants issued Statement of Position 95-1, Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises. Neither of these
groups has a role in establishing regulatory accounting practices. These
pronouncements will require stock life subsidiaries of a mutual life insurance
company parent to modify their financial statements in order for them to
continue to be in accordance with generally accepted accounting principles,
effective for the Company's 1996 financial statements. The manner in which
policy reserves, new business acquisition costs, asset valuations and the
related tax effects are recorded will change. Management has not determined
the impact of such changes on its financial statements.
Certain amounts from the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in accordance with permitted and
prescribed statutory accounting practices requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
INVESTED ASSETS
Carrying values of bonds have been determined in accordance with methods and
values adopted by the National Association of Insurance Commissioners. Bonds
are carried at amortized cost.
The Company's mortgage loan on real estate is carried at outstanding
principal balance. The estimated fair value of this loan is determined using
an internal matrix based on market rates and a credit rating system.
Policy loans are carried at the aggregate of the unpaid balances. Policy
loans are an integral part of insurance products and have no maturity dates.
Consequently, it is not practicable to value these instruments.
II-36
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Short-term investments are carried principally at cost, which approximates
fair value, and include securities with a maturity date at purchase of less
than one year.
Investment income is recognized on the accrual basis. Realized gains and
losses on the sales of investments are determined on the specific
identification method. Unrealized gains and losses are accounted for as direct
increases or decreases in surplus.
SEPARATE ACCOUNT
Separate account assets represent managed funds held for the benefit of
variable life and variable annuity policyholders and are reported at fair
value. Since the policyholders receive the full benefit and bear the full risk
of the separate account investments, the investment results are reflected in
the liabilities related to the separate account. The statements of operations
include the general account business and the net transfers to the separate
account.
VARIABLE LIFE RESERVES
Reserves for variable life insurance policies are developed using the 1958
and 1980 Commissioners' Standard Ordinary Mortality Table on the Net Level
Premium Method, the Net Single Premium Method, or the Modified Full
Preliminary Term Method with assumed interest rates ranging from 4% to 5%.
DUE FROM SEPARATE ACCOUNT, NET
The Company records as a receivable amounts that are due from the separate
account for policy charges (including cost of insurance charges,
administrative charges and minimum death benefit charges), and amounts held
for policy account values in excess of the statutory reserve.
Amounts held in excess of the reserve cannot be transferred unless the
policy is terminated or the policy account value is withdrawn.
Actual transfers from the separate account to the general account for the
policy charges are made on a periodic basis to reduce this receivable. The
components of the amount due from the separate account, net as of December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Account values in excess of reserves................ $93,318,010 $75,718,686
Policy charges...................................... 2,320,627 3,830,572
----------- -----------
Total............................................. $95,638,637 $79,549,258
=========== ===========
</TABLE>
II-37
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
RECOGNITION OF PREMIUM REVENUE AND RELATED EXPENSES
Variable life premium revenue is recognized during the premium paying
period. Annuity considerations and deposits are recognized as revenue when
received. Commissions and other expenses in connection with acquiring new
business are charged to current operations as incurred.
FEDERAL INCOME TAXES
The Company's federal income tax return is consolidated with The New
England. The method of allocation between the companies is subject to a tax
sharing agreement, and allocation is based upon separate return calculations
with current credit for net losses. Net operating loss carryforwards to the
extent not previously reimbursed will be utilized as a deduction before
determining the tax liability to The New England.
3. INVESTMENT RESERVES AND INTEREST MAINTENANCE RESERVE:
The Asset Valuation Reserve (AVR) is designed to mitigate the effect of
valuation and credit-related losses on unassigned surplus. The AVR covers all
invested asset classes with risk of loss, including bonds and mortgage loans.
The Interest Maintenance Reserve (IMR) accumulates realized capital gains
and losses on the sale of all types of fixed income securities which result
from changes in the overall level of interest rates. These gains are amortized
into operating income over the remaining life of each investment sold. The IMR
amounted to $74,707 and $75,451 as of December 31, 1995 and 1994,
respectively. The amortization of the IMR into net income net of federal
income tax for 1995 and 1994 was $3,117 and $2,702, respectively.
4. INVESTMENTS:
The carrying value and estimated fair values of debt securities excluding
separate account assets are as follows:
<TABLE>
<CAPTION>
1995
GROSS UNREALIZED
CARRYING ----------------- ESTIMATED
VALUE GAINS LOSSES FAIR VALUE
-------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies................................ $ 3,847 $ 61 $ -- $ 3,908
Corporate securities..................... 56,393 1,353 (355) 57,391
Mortgage-backed securities............... 70 1 -- 71
Other.................................... 470 61 -- 531
------- -------- ------- -------
Totals................................... $60,780 $ 1,476 $ (355) $61,901
======= ======== ======= =======
<CAPTION>
1994
GROSS UNREALIZED
CARRYING ----------------- ESTIMATED
VALUE GAINS LOSSES FAIR VALUE
-------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies................................ $ 4,191 $ 62 $ (60) $ 4,193
Corporate securities..................... 3,546 125 (7) 3,664
Mortgage-backed securities............... 92 -- (3) 89
------- -------- ------- -------
Totals................................... $ 7,829 $ 187 $ (70) $ 7,946
======= ======== ======= =======
</TABLE>
II-38
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Publicly traded debt securities are valued based upon quoted market prices.
The fair values of private placement obligations are determined using an
internal matrix based on market interest rates, the credit rating of the
specific security, and public prices of similar securities.
The carrying value and estimated fair value of debt securities at December
31, 1995, by contractual maturity, are shown below. Stated maturities may
differ from contractual maturities because some borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in 1 year or less....................................... $ 4,775 $ 4,826
Due after 1 year through 5 years............................ 27,217 27,911
Due after 5 years through 10 years.......................... 27,119 27,267
Due after 10 years.......................................... 1,599 1,826
Mortgage-backed securities.................................. 70 71
------- -------
Totals...................................................... $60,780 $61,901
======= =======
</TABLE>
Gross realized gains from sale of debt securities were $3,651 and $3,817 in
1995 and 1994, respectively. There were no gross realized losses in 1995 and
1994. Net realized gains of $2,373 and $2,481 in 1995 and 1994, respectively,
were transferred to the IMR.
There are no significant concentrations of bonds by issuer or by industry.
The estimated fair value of the Company's mortgage loan was $2,210,000 and
$2,241,000 at December 31, 1995 and 1994, respectively.
Components of Net Investment Income are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------
1995 1994
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Debt securities.................................................. $ 897 $ 619
Short-term investments........................................... 1,140 597
Mortgage loans................................................... 234 235
Policy loans..................................................... 2,832 1,996
------ ------
Total investment income........................................ 5,103 3,447
Investment expenses including interest of $1,160,000 on borrowed
money (see Note 5).............................................. 1,852 354
------ ------
Net investment income............................................ $3,251 $3,093
====== ======
</TABLE>
5. BORROWED MONEY:
In 1995, the Company borrowed $25,000,000 from a bank, bearing interest at a
variable rate, equal to the greater of the bank's base rate or money market
rates plus .6% per annum payable monthly (5.8% at December 31, 1995). The loan
is collateralized by sales loads and surrender charges collected on a defined
block of variable life insurance policies issued by the Company. Repayment is
structured in a manner to result in repayment over a term of five years. The
carrying value of the loan approximates its fair value.
6. RELATED PARTY TRANSACTIONS:
Under the terms of a service agreement, The New England furnishes all
executive, legal, clerical, and other personnel services to the Company. The
fees for such services amounted to $50,875,006 and $40,071,822 in 1995 and
1994, respectively.
II-39
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
All of the officers and directors of the Company are officers of The New
England.
In 1995, The New England made a noncash capital contribution to the Company
of publicly traded debt securities and private placement obligations with an
estimated fair value of $54,028,223. In 1994, The New England made a cash
capital contribution of $10,000,000.
The Company also reinsures certain risks with The New England. (See Note 8).
7. FEDERAL INCOME TAXES:
Federal income taxes are provided on the basis of amounts estimated to be
payable under the Internal Revenue Code. The Company files a consolidated
federal income tax return with The New England.
Below is a reconciliation of income before federal income taxes to taxable
gain from operations.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
----------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Operating loss before federal income taxes................... $(6,487) $(4,732)
Deferred acquisition costs................................... 13,451 11,035
Expense related differences.................................. 11,030 3,816
Other income related differences............................. (2,234) (1,639)
------- -------
Taxable gain from operations................................. 15,760 8,480
------- -------
Federal income taxes @ 35%................................... $ 5,516 $ 2,968
======= =======
</TABLE>
The Internal Revenue Service has completed its examination of the Company's
income tax returns through 1991 and is currently examining the income tax
returns for 1992 to 1993. The New England is contesting certain issues since
1976. The outcome of these proceedings is not currently determinable but, in
the opinion of management, would not have a materially adverse effect on the
financial statements.
8. REINSURANCE:
The Company's practice on individual products is to retain not more than
$250,000 of risk on any person, excluding accidental death benefits. Prior to
January 1, 1995, this retention limit had been $75,000 of risk on any person
excluding accidental death benefits. Total individual life premiums ceded were
$6.3 million and $13.8 million at December 31, 1995 and 1994, respectively. In
1995, $1.3 million of the $6.3 million premiums ceded were ceded to The New
England, and in 1994, $9.5 million of the $13.8 million premiums ceded were
ceded to The New England.
The individual life insurance inforce ceded was $4.0 billion and $9.7
billion at December 31, 1995 and 1994, respectively.
The Company is contingently liable with respect to ceded insurance should
any reinsurer be unable to meet the obligations assumed by it.
9. SUBSEQUENT EVENTS:
The New England and Metropolitan Life Insurance Company (MetLife) have
entered into a definitive agreement, effective as of August 16, 1995, pursuant
to which The New England would be merged with and into MetLife. The closing of
the merger is subject to various conditions, including but not limited to the
obtaining of various regulatory approvals and the necessary approvals of the
policyholders of both companies. It is currently anticipated that the merger
will be consummated no later than the third quarter of 1996.
II-40
<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
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
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-41
<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 included 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 included 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.
(10) (i) Consent of Coopers & Lybrand L.L.P.
(ii) Consent of Sutherland, Asbill & Brennan.
(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) Power of Attorney. Additional Powers of Attorney are incorporated
herein by reference to Registration Statement on Form N-4 (33-85442) filed on
October 20, 1994.
(27) Financial Data Schedule
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>
Chester R. Frost........ Director, Vice President--
Controller and Treasurer --
Director, Vice President--
Edward C. Hall.......... Administration --
Kernan F. King.......... Director --
Robert E. Schneider..... Director --
Robert A. Shafto........ Chairman of the Board, Director,
President and Chief Executive
Officer --
Director, General Counsel and
H. James Wilson......... Secretary --
Director, Vice President--
Frederick K. Zimmermann. Investments --
Vice President--Broker/Dealer
William A. Campagna..... Distribution --
Rodney J. Chandler...... Chief Actuary --
Vice President--Portfolio
John F. Guthrie......... Strategy --
Kenneth J. Schweiger.... Vice President--Bank Distribution --
Vice President and Chief
John G. Small, Jr....... Underwriter --
Vice President and Medical
Philip G. Sullivan...... Director --
Marie C. Swift.......... Counsel and Assistant Secretary --
</TABLE>
Principal Business Address: 501 Boylston Street, Boston, MA 02117
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The following two 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 ("The New England" or
the "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.
The first list provides information regarding the direct and indirect
(indicated by the hyphen) subsidiaries of The New England. The second list
provides information about the direct and indirect (indicated by a hyphen)
subsidiaries of New England Investment Companies, L.P., which is under common
control of the Depositor. The New England owns directly 55.9% of the voting
securities of New England Investment Companies, L.P.
III-2
<PAGE>
SUBSIDIARIES OF THE NEW ENGLAND
(UNDER COMMON CONTROL WITH THE DEPOSITOR)
<TABLE>
<CAPTION>
PERCENTAGE OF
VOTING
STATE OF SECURITIES
ORGANI- OWNED BY
SUBSIDIARY ZATION THE COMPANY PRINCIPAL BUSINESS
---------- -------- --------------- ---------------------------------
<S> <C> <C> <C>
Boylston Capital inactive
Advisors, Inc.......... MA 100%
- --New England Portfolio MA 100% investment advisor to insurance
Advisors, Inc.......... 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, 100% real estate
Inc....................
L/C Development 100%
Corporation............
LC Park Place 100%
Corporation............
Lyons/Copley Development CA 100% general partner in general
Corp................... 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 U.K. 95% broker-dealer (inactive)
International Ltd......
Mercadian Funding L.P... DE limited party to investment and
partnership repurchase agreements with tax-
interest 95% exempt bond issuers
- --Mercadian Funding DE 100% owned by party to investment and
Inc.................... Mercadian repurchase agreements with tax-
Funding L.P. exempt bond issuers
NEL Partnership MA 100% general partner of private
Investments I, Inc..... limited partnership
NELRECO Troy, Inc....... MA 100% real estate investment holding,
developing, leasing corp.
(inactive)
Newbury Insurance Bermuda 100% issuer of life insurance agent's
Companies, Limited..... professional liability insurance
New England Investment
Companies, Inc......... MA 100% general partner of New England
Investment Companies, L.P.
New England Investment DE 64.98% investment adviser and holding
Companies, L.P......... co. for the Insurance co.'s
investment related operating
affiliates
New England Life
Mortgage Funding MA 100% issuer of commercial mortgage-
Corporation............ 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
SUBSIDIARY ZATION THE COMPANY PRINCIPAL BUSINESS
---------- -------- ------------- ---------------------------------
<S> <C> <C> <C>
- --Hereford Insurance insurance agency
Agency, Inc............ MA 100%
- --Hereford Insurance
Agency of Alabama...... AL 100% insurance agency
- --Hereford Insurance
Agency of Minnesota,
Inc. .................. MN 100% insurance agency
Omega Reinsurance reinsurance
Corporation............ AZ 100%
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 software
Services, Inc.......... MA 100%
</TABLE>
The above list does not include real estate joint ventures and partnerships
of which The New England is an investment partner. Also, it 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
SUBSIDIARY ZATION THE COMPANY PRINCIPAL BUSINESS
---------- -------- ------------- ---------------------------------
<S> <C> <C> <C>
general partner of investment
Back Bay Advisors, Inc.. MA 55.9% adviser
Back Bay Advisors, L.P.. DE 55.9% investment adviser
BBC Investment Advisors,
Inc....................
BBC Investment Advisors,
L.P....................
Capital Growth MA NEIC, L.P. investment adviser
Management Limited owns 50%
Partnership limited
partnership
interest
Copley Investment Group,
Inc....................
Copley Management and
Advisors, L.P..........
Copley Public
Partnership Holding,
L.P....................
Copley Real Estate
Advisors, Inc.......... MA 55.9% real estate manager and adviser
- --Copley Advisors, Inc.. MA 55.9% investment adviser
- --Copley Properties MA 55.9% general partner of publicly
Company, Inc........... offered limited partnership
- --Copley Properties MA 55.9% general partner of publicly
Company II, Inc. ...... offered limited partnership
- --Copley Properties MA 55.9% managing general partner of
Company III, Inc....... publicly offered limited
partnership
- --Copley Securities MA 55.9% Massachusetts securities
Corporation............ corporation (buys, sells, holds,
securities exclusively for own
account)
- --CTR Corporation....... MA 55.9% real estate investment
- --Eighth Copley MA 55.9% real estate investment holding,
Corporation............ developing and leasing
corporation
- --Fifth Copley MA 55.9% general partner of publicly
Corporation............ offered limited partnership
</TABLE>
III-4
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
VOTING
STATE OF SECURITIES
ORGANI- OWNED BY
SUBSIDIARY ZATION THE COMPANY PRINCIPAL BUSINESS
---------- -------- ------------- ---------------------------------
<S> <C> <C> <C>
- --Fifth Singleton general partner of private
Corporation............ MA 55.9% limited partnership
- --First Income MA 55.9% general partner of publicly
Corporation............ offered limited partnership
- --Fourth Copley MA 55.9% general partner of publicly
Corporation............ offered limited partnership
- --Fourth Income MA 55.9% general partner of publicly
Corporation............ offered limited partnership
- --Fourth Singleton MA 55.9% (inactive) organized for use in
Corporation............ connection with limited
partnership
- --New England Investment DE 55.9% insurance agent and marketer of
Associates, Inc........ financial products and services
to institutional investors
- --Second Income MA 55.9% general partner of publicly
Corporation............ offered limited partnership
- --Seventh Copley MA 55.9% general partner of publicly
Corporation............ offered limited partnership
- --Sixth Copley MA 55.9% general partner of publicly
Corporation............ offered limited partnership
- --Sixth Singleton general partner of private
Corporation............ MA 55.9% limited partnership
- --Third Income MA 55.9% general partner of publicly
Corporation............ offered limited partnership
- --Third Singleton general partner of private
Corporation............ MA 55.9% limited partnership
CREA Limited
Partnership............
Graystone Partners,
Inc.................... 55.9%
Graystone Partners,
L.P. ..................
Harris Associates,
Inc. ..................
Harris Associates,
L.P. ..................
Loomis, Sayles & general partner of investment
Company, Inc........... MA 55.9% adviser
Loomis, Sayles &
Company, L.P........... DE 55.9% investment adviser
Marlborough Capital general partner of investment
Advisors, Inc. ........ MA 55.9% manager
Marlborough Capital
Advisors, L.P. ........ DE 55.9% investment manager
general partner of MC Management,
MC Management, Inc...... MA 55.9% L.P.
MC Management, L.P...... DE 55.9% general and limited partner of
limited partnership that serves
as general partner of private
investment partnership
NEF Corporation......... MA 55.9% general partner of mutual fund
wholesale broker-dealer, transfer
agent and of investment adviser
NEIC Holdings, Inc...... MA 55.9% holding company
New England Funds, mutual fund wholesale broker-
L.P. .................. DE 55.9% dealer
New England Funds
Management, L.P. ...... DE 55.9% investment adviser
R & T Asset Management, general partner investment
Inc.................... MA 55.9% advisers
Reich & Tang Asset
Management, L.P. ...... DE 55.9% investment adviser
Reich & Tang DE 55.9% mutual fund wholesale broker-
Distributors, L.P. .... dealer and transfer agent
Reich & Tang Services,
L.P.................... DE 55.9% broker-dealer, transfer agent
Westpeak Investment general partner of investment
Advisors, Inc. ........ MA 55.9% adviser
Westpeak Investment
Advisors, L.P. ........ DE 55.9% investment adviser
</TABLE>
III-5
<PAGE>
ITEM 27. NUMBER OF CONTRACTOWNERS
As of March 29, 1996, there were 679 owners of tax-qualified Contracts and
819 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
- ------------------- ---------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
New England Securi-
ties Corporation $1,228,178.99 -0- -0- -0-
</TABLE>
Commissions are paid by the Company directly to agents who are registered
representatives of the principal underwriter, or to broker-dealers that have
entered into selling agreements 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;
(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, CERTIFIES
THAT IT MEETS THE REQUIREMENTS OF SECURITIES ACT RULE 485(B) FOR EFFECTIVENESS
OF THIS REGISTRATION STATEMENT AND HAS CAUSED THIS AMENDMENT TO ITS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF, IN THE CITY OF BOSTON, AND
COMMONWEALTH OF MASSACHUSETTS ON THIS 26TH DAY OF APRIL, 1996.
New England Variable Annuity
Separate Account
By: New England Variable Life
Insurance Company (Depositor)
Rodney J. Chandler
By__________________________________
RODNEY J. CHANDLER
CHIEF ACTUARY
Attest:
Marie C. Swift
- -------------------------------------
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, CERTIFIES
THAT IT MEETS THE REQUIREMENTS OF SECURITIES ACT RULE 485(B) FOR EFFECTIVENESS
OF THIS REGISTRATION STATEMENT AND HAS CAUSED THIS AMENDMENT TO ITS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF, IN THE CITY OF BOSTON, AND
COMMONWEALTH OF MASSACHUSETTS, ON THIS 26TH DAY OF APRIL, 1996.
New England Variable Life Insurance
Company
By Rodney J. Chandler
----------------------------------
RODNEY J. CHANDLER
CHIEF ACTUARY
Attest:
Marie C. Swift
- -------------------------------------
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Robert A. Shafto* Chairman, President April 26, 1996
- ------------------------------------- and Chief Executive
ROBERT A. SHAFTO Officer
Chester R. Frost* Director, Vice April 26, 1996
- ------------------------------------- President,
CHESTER R. FROST Controller,
Principal Financial
Officer and
Principal
Accounting Officer
Edward C. Hall* Director April 26, 1996
- -------------------------------------
EDWARD C. HALL
Kernan F. King* Director April 26, 1996
- -------------------------------------
KERNAN F. KING
Robert E. Schneider* Director April 26, 1996
- -------------------------------------
ROBERT E. SCHNEIDER
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
H. James Wilson* Director, General April 26, 1996
- ------------------------------------- Counsel, Secretary
H. JAMES WILSON
Frederick K. Zimmermann* Director April 26, 1996
- -------------------------------------
FREDERICK K. ZIMMERMANN
</TABLE>
By Anne M. Goggin
-----------------------------
ANNE M. GOGGIN
* Executed by Anne M. Goggin, Esq.
on behalf of those indicated
pursuant to a Power of Attorney
filed either with Registration
Statement on Form N-4 on October
20, 1994 or herewith.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NO.
(ON EXECUTED
COPY ONLY)
------------
<C> <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................
(10) (i) Consent of Coopers & Lybrand L.L.P. .................
(ii) Consent of Sutherland, Asbill & Brennan. ............
(11) None
(12) None
(13) Schedule of computations for performance quotations***.....
(14) Power of Attorney. (Additional Powers of Attorney*)........
(27) Financial Data Schedule....................................
</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.
<PAGE>
Exhibit 9
New England Variable Life Insurance Company
501 Boylston Street
Boston, MA 02117
H. James Wilson
General Counsel
April 25, 1996
New England Variable Life Insurance Company
New England Variable Annuity Separate Account
501 Boylston Street
Boston, MA 02117
Gentlemen and Ladies:
In my capacity as General Counsel of New England Variable Life Insurance
Company (the "Company"), I am rendering the following opinion in connection with
the filing with the Securities and Exchange Commission of a post-effective
amendment to the Registration Statement on Form N-4 under the Securities Act of
1933 and the Investment Company Act of 1940 (File Nos. 33-85442 and 811-8828).
This amendment is being filed with respect to individual variable annuity
contracts (the "Contracts") issued by New England Variable Annuity Separate
Account (the "Account").
In forming the following opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary and
appropriate.
It is my opinion that:
1. The Account is a separate investment account of the Company and is duly
created and validly existing pursuant to the laws of the State of
Delaware.
2. The Contracts, when issued in accordance with the Prospectus of the
Account and in compliance with applicable local law, are and will be
legal and binding obligations of the Company in accordance with their
terms.
3. Assets attributable to reserves and other contract liabilities and held
in the Account will not be chargeable with liabilities arising out of
any other business the Company may conduct.
I consent to the filing of this opinion as an exhibit to the
above-mentioned amendment to the Registration Statement and to the inclusion
of my name under the caption "Legal Matters" in the Statement of Additional
Information filed as part of this amendment to the Registration Statement on
Form N-4.
Very truly yours,
/s/ H. Hames Wilson
H. James Wilson
General Counsel
HJW:nlf
<PAGE>
Exhibit 10(i)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 3 to the
Registration Statement on Form N-4 (File No. 33-85442) of our report dated
February 6, 1996, on our audit of the financial statements of the New England
Variable Annuity Separate Account of New England Variable Life Insurance Company
as of December 31, 1995, and for the indicated period then ended, which are
included in the "Statement of Additional Information." We also consent to the
inclusion of our report dated March 8, 1996, on our audits of the financial
statements of New England Variable Life Insurance Company as of December 31,
1995 and 1994, and for the two years in the period ended December 31, 1995,
which are included in the "Statement of Additional Information." We also consent
to the reference to our Firm under the caption "Experts" in the "Statement of
Additional Information" in this Post-Effective Amendment.
Boston, Massachusetts Coopers & Lybrand L.L.P.
April 25, 1996
<PAGE>
Exhibit 10(ii)
[LETTERHEAD OF SUTHERLAND, ASBILL & BRENNAN APPEARS HERE]
April 23, 1995
Board of Directors
New England Variable Life
Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Statement of Additional Information filed as part of
Post-Effective Amendment No. 1 to the registration statement on Form N-4 for New
England Variable Annuity Separate Account (File No. 33-85442). In giving this
consent, we do not admit that we are in the category of the persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By /s/ Stephen E. Roth
----------------------------
Stephen E. Roth
<PAGE>
Exhibit 14
POWER OF ATTORNEY
-----------------
I, the undersigned Director and Vice President-Controller, Treasurer,
Principal Financial Officer and Principal Accounting Officer of New England
Variable Life Insurance Company, a Delaware corporation, hereby constitute and
appoint Anne M. Goggin, Rodney J. Chandler, Marie C. Swift and H. James Wilson,
and each of them singly, my true and lawful attorneys, with full power to them
and each of them to sign for me and in my name and in the capacities indicated,
the Registration Statements filed with the Securities and Exchange Commission
for the purpose of registering New England Variable Annuity Separate Account
established by New England Variable Life Insurance Company on July 1, 1994 as a
unit investment trust under the Investment Company Act of 1940 and the variable
annuity contracts issued by said separate account under the Securities Act of
1933, and any and all amendments thereto, hereby ratifying and confirming my
signature as it may be signed by my said attorneys to said Registration
Statements and any and all amendments thereto.
Witness my hand on the 24th day of April, 1996.
Chester R. Frost
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from New England
Variable Annuity Separate Account and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 41,740,445
<INVESTMENTS-AT-VALUE> 42,139,240
<RECEIVABLES> 325,994
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46,456,234
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,011
<TOTAL-LIABILITIES> 45,011
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 42,420,223
<DIVIDEND-INCOME> 1,460,906
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 167,348
<NET-INVESTMENT-INCOME> 1,293,558
<REALIZED-GAINS-CURRENT> 955
<APPREC-INCREASE-CURRENT> 398,795
<NET-CHANGE-FROM-OPS> 1,693,308
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 42,420,223
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
