<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION NO. 33-64879
811-8828
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 1 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 8 [X]
NEW ENGLAND VARIABLE ANNUITY
SEPARATE ACCOUNT
(EXACT NAME OF REGISTRANT)
NEW ENGLAND LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
501 BOYLSTON STREET, BOSTON, MASSACHUSETTS 02117
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER: 617-578-2000
NAME AND ADDRESS OF AGENT FOR SERVICE: COPY TO:
H. James Wilson Stephen E. Roth, Esquire
General Counsel Sutherland, Asbill & Brennan, L.L.P.
New England Life 1275 Pennsylvania Avenue, N.W.
Insurance Company Washington, D.C. 20004-2404
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, 1997 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on May 1, 1997 pursuant to paragraph (a)(1) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[_] on (date) pursuant to paragraph (a)(2) of Rule 485
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. REGISTRANT FILED A NOTICE ON FORM 24F-2 ON
FEBRUARY 25, 1997.
================================================================================
<PAGE>
CROSS REFERENCE SHEETS
Between information contained in the Prospectus and Statement of Additional
Information and the Required Items of Form N-4.
<TABLE>
<CAPTION>
FORM N-4 CAPTION IN STATEMENT OF
ITEM NO. CAPTION IN PROSPECTUS ADDITIONAL INFORMATION
- - -------- --------------------- -----------------------
<C> <S> <C>
1 Cover Page
2 Glossary of Special Terms used in
this Prospectus
3 Highlights; Expense Table
4 Inapplicable
5 The Company; The Variable Account;
Investments of the Variable
Account-The New England Zenith
Fund Series
6 Administrative Charges, Contingent
Deferred Sales Charge and Other
Deductions; Distribution of the
Contracts
7 The Contracts; Investments of the
Variable Account (Substitution of
Investments); The Fixed Account;
8 Annuity Payments; Amount of
Variable Annuity Payments
9 The Contracts
10 The Contracts; Cover Page Net Investment Factor
11 The Contracts;
12 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>
This filing contains a profile in addition to the prospectus for the American
Forerunner Series variable annuity contract.
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
INDIVIDUAL VARIABLE ANNUITY CONTRACT PROFILE
AMERICAN FORERUNNER SERIES
May 1, 1997
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED IN THE PROSPECTUS WHICH ACCOMPANIES THIS PROFILE. PLEASE READ THE
PROSPECTUS CAREFULLY.
"We," "us," and "our" refer to New England Life Insurance Company. "You" and
"your" refer to the owner of a Contract.
1. WHAT IS THE CONTRACT? The Contract is an individual variable annuity
contract that provides you with a means of investing on a tax-deferred basis
through the New England Variable Annuity Separate Account (the "Variable
Account") in one or more of eleven series of the New England Zenith Fund (the
"Funds"). The Contract is 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 Contract is not intended for use
with Section 401(k) plans or Section 403(b) plans subject to ERISA. It provides
a death benefit and annuity payment options, some of which provide guaranteed
income or guaranteed payment periods.
The Funds offer a range of investment objectives, from conservative to
aggressive. Your investment in the Funds is NOT guaranteed and you could lose
some or all of any money you allocate to the Funds.
An option is available in some states under which you may allocate all or part
of the value of your Contract to what we call the "Fixed Account." We guarantee
interest on amounts allocated to the Fixed Account at an effective annual rate
of at least 3%. We may credit a higher rate of interest. The Fixed Account
option offers you an opportunity to protect your principal and earn, at least, a
guaranteed rate of interest.
The Contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the annuity phase. During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as income when you
make a withdrawal. The annuity phase begins when you begin receiving payments
under one of the annuity payment options described in Section 2. The amount of
money accumulated under your Contract during the accumulation phase will
determine the amount of your annuity payments during the annuity phase.
2. WHAT ARE MY ANNUITY OPTIONS? The Contract offers the following annuity
payment options, either in a fixed or variable form:
. Income for a specified number of years;
. Income for life;
. Income for life, but guaranteed for at least 10 years (this is your default
option);
. Income for life, but guaranteed for at least 20 years;
. Income to age 100;
. Income for two lives, while either is still living;
. Income for two lives, but guaranteed for at least 10 years; and
. Income for two lives, with full payments while both are living and
two-thirds to the survivor.
We may make other annuity payment options available from time to time. The
Contract, when issued, will provide for the third option in variable form,
beginning at age 95. During the accumulation phase, you may select another
option, and/or start annuity payments (that is, annuitize) at an earlier date by
surrendering the Contract. If annuity payments start less than 4 years after you
make an investment in the Contract, charges may apply.
<PAGE>
3. HOW DO I PURCHASE A CONTRACT? The minimum initial investment is currently
$10,000, and any subsequent investments must be at least $250. We reserve the
right not to accept any purchase payment that, when combined with the value of
all the Contracts that you own, would exceed $1,000,000. Currently, we won't
accept any investment that, when combined with the value of all the Contracts
you own, would exceed $2,000,000.
You are eligible to purchase a Contract if you are an individual, employer,
trust, corporation, partnership, custodian, or any entity specified in an
eligible employee benefit plan. A Contract may have joint owners. The Contract
is intended for use with the following retirement plans which offer Federal tax
benefits under the Internal Revenue Code (the "Code"):
Qualified Plans--plans qualified under Section 401(a) (but not under Section
401(k)) or 403(a) of the Code.
TSA Plans--certain annuity plans under Section 403(b) of the Code.
IRAs--individual retirement accounts under Section 408(a) of the Code and
individual retirement annuities under Section 408(b) of the Code.
SEPs and SARSEPs--simplified employee pension plans and salary reduction
simplified employee pension plans under Section 408(k) of the Code.
SIMPLE IRAs--simple retirement accounts under Section 408(p) of the Code.
457 Plans--eligible deferred compensation plans under Section 457 of the Code.
Governmental Plans--governmental plans within the meaning of Section 414(d) of
the Code.
The Contract may not yet be available to all of the foregoing plans, pending
appropriate state approvals. You should consult a qualified adviser about using
the Contract with those plans. The Contract is not currently available for use
with other plans, including 401(k) plans or TSA plans subject to the Employee
Retirement Income Security Act of 1974.
4. WHAT ARE MY INVESTMENT OPTIONS UNDER THE CONTRACT? You can allocate your
investment among subaccounts of the Variable Account, which in turn invest in
the Funds. Your investment can be allocated to any one or a combination (within
limits) of the Funds. The Funds currently available under the Contract are:
Loomis Sayles Small Cap Series Loomis Sayles Balanced Series
Morgan Stanley International Magnum Salomon Brothers Strategic Bond
Equity Series Opportunities Series
Alger Equity Growth Series Back Bay Advisors Bond Income Series
Loomis Sayles Avanti Growth Series Salomon Brothers U.S. Government Series
Davis Venture Value Series Back Bay Advisors Money Market Series
Westpeak Growth and Income Series
In addition, the Fixed Account is available in some states.
5. WHAT ARE THE EXPENSES UNDER THE CONTRACT?
Administration Charge. Each year, we impose an "administration contract
charge" generally equal to the lesser of 2% of your total contract value or $30
to help cover the costs of the administrative services that we provide for the
Contracts. We waive this charge in certain circumstances.
Mortality and Expense Risk Charge. As compensation for assuming mortality and
expense risks under the Contract, we impose a daily charge at an annual rate of
1.00% of the daily net assets attributable to your Contract. This charge, as a
percentage of your contract value, is guaranteed not to increase over the life
of your Contract.
Contingent Deferred Sales Charge. We do not impose any sales charge on
investments when they are made, nor do we impose a contingent deferred sales
charge ("CDSC") on withdrawals up to a certain amount each year (the "free
withdrawal amount"). We do, however, impose a CDSC upon the occurrence of a
"CDSC event," one of which is a withdrawal or surrender (including a surrender
to start annuity payments) in excess of the free withdrawal amount. All of the
CDSC events are described in the Prospectus.
2
<PAGE>
The CDSC is deducted only from the investments that we received from you
within four years of the CDSC event according to the following schedule:
<TABLE>
<CAPTION>
NUMBER OF YEARS SINCE WE APPLICABLE
RECEIVED THE INVESTMENT CDSC CHARGE
- - ------------------------ -------------
<S> <C>
1 . . . . . . . . . 4%
2 . . . . . . . . . 3%
3 . . . . . . . . . 2%
4 . . . . . . . . . 1%
Thereafter . . . . . . 0%
</TABLE>
We will waive the CDSC in certain circumstances.
Premium Tax Charges. Certain states impose a premium tax on annuity purchase
payments received by insurance companies. Generally, we incur a state premium
tax liability on the date when annuity benefits commence. In those states, we
deduct 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), we
deduct 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 your death. State premium tax charges
currently range from 1/2% to 2% of the contract value (or, if applicable, death
proceeds) for Contracts used with retirement plans qualifying for tax benefited
treatment and from 1% to 3 1/2% of the contract value (or, if applicable, death
proceeds) for all other Contracts.
Other Expenses. In addition to our charges under the Contract, each Fund
deducts amounts from its assets to pay for its advisory fees and other expenses.
The following chart is designed to help you understand the charges in the
Contract. The column "Total Annual Charges" shows the total of the
administration contract charge (which is represented as .06%), the 1.00%
mortality and expense risk charge, and the investment charges for each Fund for
the year ended December 31, 1996 (as a percentage of average net assets after
giving effect to any current expense cap or expense deferral). The next two
columns show the dollar amount of charges you would pay assuming that you
invested $1,000 in a Contract which earns 5% annually and further assuming 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: (1) at the end of
one year, and (2) at the end of ten years. In the first example, a CDSC will be
charged because you would be surrendering or annuitizing the Contract within
four years of making the investment. In the second example, there would be no
CDSC. We are also assuming that no premium taxes have been assessed in either
example. For more detailed information, see the Fee Table in the Prospectus for
the Contract.
<TABLE>
<CAPTION>
TOTAL TOTAL ANNUAL EXAMPLES OF TOTAL EXPENSES
ANNUAL FUND CHARGES TOTAL PAID AT THE END OF:
INSURANCE FOR YEAR ANNUAL ---------------------------
FUND CHARGES ENDED 12/31/95 CHARGES ONE YEAR TEN YEARS
- - ---- --------- -------------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Small Cap . . . . . . 1.06% 1.00% 2.06% $58.05 $238.19
International Magnum
Equity . . . . . . . 1.06% 1.30% 2.36% 60.94 268.60
Equity Growth . . . . 1.06% .90% 1.96% 57.09 227.83
Avanti Growth . . . . 1.06% .85% 1.91% 56.61 222.61
Venture Value . . . . 1.06% .90% 1.96% 57.09 227.83
Growth and Income . . 1.06% .85% 1.91% 56.61 222.61
Balanced . . . . . . 1.06% .85% 1.91% 56.61 222.61
Strategic Bond
Opportunities . . . 1.06% .85% 1.91% 56.61 222.61
Bond Income . . . . . 1.06% .52% 1.58% 53.43 187.42
U.S. Government . . . 1.06% .70% 1.76% 55.17 206.77
Money Market . . . . 1.06% .50% 1.56% 53.23 185.24
</TABLE>
3
<PAGE>
6. HOW WILL MY INVESTMENT IN THE CONTRACT BE TAXED? You should consult a
qualified tax advisor with regard to your Contract. Generally, taxation of
earnings under variable annuities is deferred until amounts are withdrawn or
distributions are made. The deferral of taxes on earnings under variable
annuities is designed to encourage long-term personal savings and supplemental
retirement plans. The taxable portion of a withdrawal or distribution is taxed
as ordinary income.
Special rules apply to the owner of a Contract that is not a natural person.
Generally, such an owner must include in income any increase in the excess of
the contract value over the "investment in the contract" during the taxable
year.
7. DO I HAVE ACCESS TO MY MONEY? You have access to your money during the
accumulation phase by surrendering your Contract or withdrawing part of the
value of your Contract at any time. Under some Contracts, you may also take a
loan against its value. If you are making a withdrawal, we require that you
withdraw at least $100 and that the value of your Contract after the withdrawal
be at least $2,500.
While you have access to your money during the accumulation phase, certain
charges, such as the administration contract, CDSC, and premium tax charges, may
be deducted on a surrender or withdrawal. Moreover, a withdrawal or surrender
may cause you to incur income taxes or penalties under the Federal tax laws.
After annuitization, under certain annuity options, you may withdraw the
commuted value of the remaining payments.
8. HOW HAVE THE FUNDS PERFORMED? The following chart shows the total returns
for each Fund for each of the last 10 years (or less if the Fund began less than
10 years ago), based on a $1,000 purchase payment. The total returns are
adjusted to reflect all Contract expenses and deductions described above except
the CDSC and premium tax charges. If applied, these charges would reduce the
performance figures in the chart. Please remember that past performance is not a
guarantee of future results.
<TABLE>
<CAPTION>
FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- - ---- ------- ------ ----------- ------- ----- ------ ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap . . . . . . . . . 26.97 % 24.57% N/A
International Magnum Equity 2.67 % 2.18% N/A
Equity Growth . . . . . . . 9.96 % 44.22% N/A
Avanti Growth . . . . . . . 13.94 % 25.92% (4.26)%
Venture Value . . . . . . . 22.36 % 34.90% N/A
Growth and Income . . . . . 14.51 % 31.95% (5.19)%
Balanced . . . . . . . . . . 13.25 % 20.55% N/A
Strategic Bond N/A
Opportunities . . . . . . . 10.61 % 15.20%
Bond Income . . . . . . . . 1.98 % 18.12% (6.08)% 9.56% 5.08% 14.47% 4.58% 8.55% 4.54% (1.46)%
U.S. Government . . . . . . (0.43)% 10.88% N/A
Money Market . . . . . . . . 1.71 % 2.23% 0.51 % (0.47)% 0.33% 2.66% 4.50% 5.42% 3.60% 2.55%
</TABLE>
9. DOES THE CONTRACT HAVE A DEATH BENEFIT? Yes. If you, the owner, die (or, if
the owner is not an individual, the annuitant dies) prior to the annuity phase
of the Contract, a death benefit will be payable to a person that you name as
the beneficiary. The death benefit will be the greater of two values: (1) the
value of the Contract next determined after the later of the date when we
receive due proof of death or an election of continuation or payment from the
beneficiary; or (2) the guaranteed minimum death benefit under the Contract,
which we calculate using a formula described in the Prospectus.
10. IS THERE ANYTHING ELSE I SHOULD KNOW? The Contract has several additional
features that you may be interested in, including the following:
Transfer Privilege. You can transfer from $100 to $500,000 of your Contract's
value from one Fund to another free of charge. During the accumulation phase of
the Contract, you can make as many transfers among the Funds as you like.
However, different rules apply to transfers to and from the Fixed Account. Also,
during the annuity phase, if you have chosen a variable payment option, you can
only make one transfer between Funds per
4
<PAGE>
year and you cannot make transfers to the Fixed Account. We reserve the right to
charge a fee for transfers (although we do not currently do so) and to limit the
number and amount of transfers in certain circumstances.
Dollar Cost Averaging. We offer an automated transfer privilege that we call
"dollar cost averaging," under which you can instruct us to make monthly
transfers from any one of your investment options to any other investment
options, subject to certain limitations, provided that a minimum of $100 must be
transferred to each investment option that you select under this feature.
Systematic Withdrawals. This feature allows you to have a portion of the value
of your Contract withdrawn automatically on a monthly basis during the
accumulation phase. As long as the amount of each withdrawal is at least $100,
you can elect a fixed dollar amount or elect to have your Contract's investment
gain withdrawn. Of course, you may have to pay taxes and a CDSC on these
withdrawals.
Free Look Right. You should also know that you have a "free look right"; i.e.,
the right to return the Contract to us or your sales representative and have us
cancel it within a certain number of days (usually 10, although this varies from
state to state). If you exercise this right, we will cancel the Contract as of
the day we receive your request and send you its value on that day, which may be
more or less than your initial investment in the Contract. In some states, we
are required to refund your initial investment rather than sending you the value
of your Contract.
11. WHO CAN I CONTACT FOR MORE INFORMATION? You can write to us at New England
Annuities, P.O. Box 642, Boston, Massachusetts 02117, or call us at
(800) 777-5897. You can also get a recording of daily unit values by calling
(800) 333-2501. You can also request a copy of the Prospectus or Statement of
Additional Information from New England Securities Corporation, 399 Boylston
Street, Boston, Massachusetts 02116.
5
<PAGE>
AMERICAN FORERUNNER SERIES
Individual Variable Annuity Contracts
Issued By
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus offers individual flexible and single purchase payment
variable annuity contracts (the "Contracts") that are currently intended for 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 Life Insurance Company
("NELICO" 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 choice of Eligible Funds at any time. Any one or a
combination of the following Eligible Funds may be selected, within limits:
Loomis Sayles Small Cap Series Loomis Sayles Balanced Series
Morgan Stanley International Magnum Salomon Brothers Strategic Bond
Equity Series Opportunities Series
Alger Equity Growth Series Back Bay Advisors Bond Income Series
Loomis Sayles Avanti Growth Series Salomon Brothers U.S. Government Series
Davis Venture Value Series Back Bay Advisors Money Market Series
Westpeak Growth and Income Series
A Fixed Account option is also available in states that have approved this
option. (See "The Fixed Account" for more information.) Special limits apply to
-----------------------
transfers of Contract Value to and from the Fixed Account.
- - ---------------------------------------------------------
This prospectus sets forth concisely the information about the Contracts that
a prospective investor ought to know before investing. The prospectus should be
read carefully and retained for future reference.
Certain additional information about the Contracts is contained in a Statement
of Additional Information ("SAI") dated May 1, 1997, 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
SAI appears on page A-50 of this prospectus. The SAI is available without charge
and may be obtained by writing to New England Securities Corporation ("New
England Securities"), 399 Boylston St., Boston, Massachusetts 02116 or
telephoning 1-800-356-5015.
New England Securities, an indirect subsidiary of NELICO, serves as principal
underwriter for the Variable Account.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1997.
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-13
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . A-14
INVESTMENTS OF THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . A-14
Investment Advice . . . . . . . . . . . . . . . . . . . . . . . . . . A-16
Substitution of Investments . . . . . . . . . . . . . . . . . . . . . A-16
GUARANTEED OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . A-16
THE CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
Allocation of Purchase Payments . . . . . . . . . . . . . . . . . . . A-17
Contract Value and Accumulation Unit Value . . . . . . . . . . . . . A-17
Payment on Death Prior to Annuitization . . . . . . . . . . . . . . . A-18
Transfer Privilege . . . . . . . . . . . . . . . . . . . . . . . . . A-21
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . A-22
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
Systematic Withdrawals . . . . . . . . . . . . . . . . . . . . . . . A-23
Loan Provision for Certain Tax Benefited Retirement Plans . . . . . . A-24
Suspension of Payments . . . . . . . . . . . . . . . . . . . . . . . A-26
Ownership Rights . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
Requests and Elections . . . . . . . . . . . . . . . . . . . . . . . A-26
Ten Day Right to Review . . . . . . . . . . . . . . . . . . . . . . . A-27
ADMINISTRATION CHARGES, CONTINGENT DEFERRED SALES CHARGE AND OTHER
DEDUCTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-27
Administration Charges . . . . . . . . . . . . . . . . . . . . . . . A-27
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . A-28
Contingent Deferred Sales Charge . . . . . . . . . . . . . . . . . . A-28
Premium Tax Charge . . . . . . . . . . . . . . . . . . . . . . . . . A-30
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . A-31
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . A-31
Election of Annuity . . . . . . . . . . . . . . . . . . . . . . . . . A-31
Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . A-32
AMOUNT OF VARIABLE ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . A-33
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS . . . . . . . . . . . . A-34
FEDERAL INCOME TAX STATUS . . . . . . . . . . . . . . . . . . . . . . A-35
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
Taxation of the Company . . . . . . . . . . . . . . . . . . . . . . . A-35
Tax Status of the Contract . . . . . . . . . . . . . . . . . . . . . A-35
Taxation of Annuities . . . . . . . . . . . . . . . . . . . . . . . . A-36
Qualified Contracts . . . . . . . . . . . . . . . . . . . . . . . . . A-38
Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
Possible Changes in Taxation . . . . . . . . . . . . . . . . . . . . A-41
Other Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . A-41
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-42
DISTRIBUTION OF CONTRACTS . . . . . . . . . . . . . . . . . . . . . . A-42
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
THE FIXED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . A-43
General Description of the Fixed Account . . . . . . . . . . . . . . A-43
Contract Value and Fixed Account Transactions . . . . . . . . . . . A-43
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . A-44
INVESTMENT EXPERIENCE INFORMATION . . . . . . . . . . . . . . . . . . A-44
APPENDIX A: Consumer Tips . . . . . . . . . . . . . . . . . . . . . . A-47
APPENDIX B: Contingent Deferred Sales Charge . . . . . . . . . . . . A-48
APPENDIX C: Premium Tax . . . . . . . . . . . . . . . . . . . . . . . A-49
</TABLE>
A-3
<PAGE>
GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
ACCUMULATION UNIT. An accounting device used to calculate the Contract Value
prior to 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.
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
upon receipt of due proof of the death of the Contract Owner (or of the death of
the first Contract Owner to die under a jointly owned Contract) and election of
payment prior to annuitization. For a Contract that is not owned by an
individual, the Death Proceeds are payable upon receipt of due proof of the
death of the Annuitant (and election of payment) prior to annuitization. The
Death Proceeds are guaranteed to be no less than the purchase payments made,
adjusted for any previous
A-4
<PAGE>
surrenders. However, after the first seven Contract Years, a higher (but never a
lower) guarantee may apply, depending on your Contract Value. In certain states,
the Death Proceeds will be reduced by the applicable premium tax charge.
ELIGIBLE FUNDS. The mutual fund portfolios in which the Variable Account
invests. Eligible Funds currently available consist of 11 Series of the New
England Zenith Fund. Purchase payments allocated to the Variable Account may be
invested in shares of one or more of these Series, as described in "Investments
of the Variable Account."
FIXED ACCOUNT. A part of the Company's general account to which net purchase
payments may be allocated under certain Contracts. The Fixed Account provides
guarantees of principal and interest. Special limits apply to transfers of
Contract Value to and from the Fixed Account. See "Contract Value and Fixed
Account Transactions."
MATURITY DATE. The date on which annuity payments are to commence, 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 1.00% 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
A-5
<PAGE>
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 Forerunner 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.")
PURCHASE PAYMENTS:
Under current rules, the minimum initial purchase payment is $10,000. The
maximum purchase payment permitted is $1,000,000, unless the Company consents to
a higher amount. Any subsequent purchase payments must be at least $250. The
Company reserves the right to limit purchase payments made in any Contract Year
or in total under a Contract. No purchase payment may be made (1) within four
years prior to the Contract's Maturity Date (except under Contracts issued in
Pennsylvania or New York), unless the initial purchase payment is $1,000,000 or
more, 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"), individual retirement accounts under Section 408(a) of the Code
and individual retirement annuities under Section 408(b) of the Code (both
referred to as "IRAs"), simplified employee pension plans and salary reduction
simplified employee pension plans under Section 408(k) of the Code ("SEPs" and
"SARSEPs"), Simple Retirement Accounts under Section 408(p) of the Code ("SIMPLE
IRAs"), 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.")
A-6
<PAGE>
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 of Contract Value to and from the Fixed Account. (See
"The Fixed 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 1.00% of the daily net assets of the Variable Account. (See
"Mortality and Expense Risk Charge.") The Company 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 a certain amount
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 four years. The Contingent Deferred Sales Charge is a maximum
of 4% of each purchase payment made. No Contingent Deferred Sales Charge will be
imposed if the initial purchase payment is $1,000,000 or more.
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
A-7
<PAGE>
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.")
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 $2,500. Under the
Company's current rules, a partial surrender must be at least $100. (See
"Surrenders." Special rules apply if the Contract is subject to a loan.) The
Federal tax laws impose penalties upon, and in some cases prohibit, certain
premature distributions from the Contracts before or after the date on which the
annuity payments are to begin. (See "Federal Income Tax Status.") A Contingent
Deferred Sales Charge will be imposed in connection with certain Contract
surrenders and applications of proceeds to certain annuity payment options, or,
in certain circumstances, upon subsequent withdrawal of amounts applied to an
annuity payment option. Upon a full surrender, a pro rata portion of the annual
$30 administration charge and, in certain states, a premium tax charge will also
be deducted. In any Contract Year, an amount equal to the greater of (1) 10% of
the Contract Value at the beginning of the Contract Year and (2) the excess of
the Contract Value over purchase payments subject to the Contingent Deferred
Sales Charge on the date of the surrender may be surrendered without sales
charge. (See "Contingent Deferred Sales Charge" for more information.)
- - -----------------------------------------------------------------------------
A-8
<PAGE>
EXPENSE TABLE
<TABLE>
<CAPTION>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES(1)
Sales Charge Imposed on Purchase Payments (as a percentage of 0%
purchase payments) . . . . . . . . . . . . . . . . . . . . . .
Maximum Contingent Deferred Sales Charge(2) (as a percentage of 4%
each purchase payment) . . . . . . . . . . . . . . . . . . . .
Transfer Fee(3) . . . . . . . . . . . . . . . . . . . . . . . . $ 0
ANNUAL CONTRACT FEE
Administration Contract Charge (per Contract)(4) . . . . . . . . $30
SEPARATE ACCOUNT ANNUAL EXPENSES(5)
(as percentage of average net assets)
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . 1.00%
----
Total Separate Account Annual Expenses . . . . . . . . . . 1.00%
</TABLE>
NEW ENGLAND ZENITH FUND
ANNUAL OPERATING EXPENSES FOR THE YEAR ENDED 12/31/96
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER CURRENT EXPENSE CAP OR EXPENSE
DEFERRAL)(6)
<TABLE>
<CAPTION>
MORGAN
LOOMIS STANLEY LOOMIS
SAYLES INTERNATIONAL SAYLES DAVIS WESTPEAK
SMALL MAGNUM ALGER EQUITY AVANTI VENTURE GROWTH
CAP EQUITY GROWTH GROWTH VALUE AND INCOME
SERIES SERIES SERIES SERIES SERIES SERIES
------ -------------- ------------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Management Fee . . . 1.00% .90% .74% .70% .75% .70%
Other Expenses . . . -- .40% .16% .15% .15% .15%
----- ----- ---- ---- ---- ----
Total Series
Operating
Expenses . . . . 1.00% 1.30% .90% .85% .90% .85%
</TABLE>
<TABLE>
<CAPTION>
SALOMON BACK BAY SALOMON BACK BAY
LOOMIS BROTHERS ADVISORS BROTHERS ADVISORS
SAYLES STRATEGIC BOND BOND U.S. MONEY
BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
SERIES SERIES SERIES SERIES SERIES
-------- -------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Management Fee . . . .70% .65% .40% .55% .35%
Other Expenses . . . .15% .20% .12% .15% .15%
---- ---- ---- ---- ----
Total Series
Operating
Expenses . . . . .85% .85% .52% .70% .50%
</TABLE>
A-9
<PAGE>
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:
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 and 3 years):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap . . . . . . . $58.05 $84.20 $110.72 $238.19
Morgan Stanley International Magnum
Equity . . . . . . . . . . . . . . . 60.94 93.08 125.86 268.60
Alger Equity Growth . . . . . . . . . 57.09 81.23 105.62 227.83
Loomis Sayles Avanti Growth . . . . . 56.61 79.74 103.06 222.61
Davis Venture Value . . . . . . . . . 57.09 81.23 105.62 227.83
Westpeak Growth and Income . . . . . . 56.61 79.74 103.06 222.61
Loomis Sayles Balanced . . . . . . . . 56.61 79.74 103.06 222.61
Salomon Brothers Strategic Bond
Opportunities. . . . . . . . . . . . 56.61 79.74 103.06 222.61
Back Bay Advisors Bond Income . . . . 53.43 69.83 86.00 187.42
Salomon Brothers U.S. Government . . . 55.17 75.25 95.34 206.77
Back Bay Advisors Money Market . . . . 53.23 69.24 84.96 185.24
</TABLE>
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):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap . . . . . . . $20.91 $64.55 $110.72 $238.19
Morgan Stanley International Magnum
Equity . . . . . . . . . . . . . . . 23.92 73.61 125.86 268.60
Alger Equity Growth . . . . . . . . . 19.91 61.52 105.62 227.83
Loomis Sayles Avanti Growth . . . . . 19.41 60.00 103.06 222.61
Davis Venture Value . . . . . . . . . 19.91 61.52 105.62 227.83
Westpeak Growth and Income . . . . . . 19.41 60.00 103.06 222.61
Loomis Sayles Balanced . . . . . . . . 19.41 60.00 103.06 222.61
Salomon Brothers Strategic Bond
Opportunities. . . . . . . . . . . . 19.41 60.00 103.06 222.61
Back Bay Advisors Bond Income . . . . 16.09 49.89 86.00 187.42
Salomon Brothers U.S. Government . . . 17.90 55.42 95.34 206.77
Back Bay Advisors Money Market . . . . 15.88 49.28 84.96 185.24
</TABLE>
A-10
<PAGE>
- - ---------
NOTES:
(1) Premium tax charges are not shown. They range from 0% (in most states) to
3.5% of Contract Value. The amount of the premium tax charge, if any, is
generally deducted from Contract Value on the date selected by the Contract
Owner for the commencement of annuity benefits, but in certain 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 except
that no Contingent Deferred Sales Charge will apply if the initial purchase
payment for a Contract is $1,000,000 or more. The Contingent Deferred Sales
Charge declines by 1% annually over the first four year period the purchase
payment is invested in the Contract until it reaches 0% for that purchase
payment at the end of four years. 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 charge 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
.06%, based on an estimated average Contract Value of approximately $48,200.
(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, 1996, after giving effect to a
voluntary expense cap or expense deferral in effect for 1997. For the Loomis
Sayles Small Cap Series, Total Series Operating Expenses take into account a
voluntary cap on expenses by TNE Advisers, Inc. ("TNE Advisers"), the
Series' investment adviser, which will bear all expenses that exceed 1.00%
of average daily net assets. In the absence of this cap or any other expense
reimbursement arrangement, Total Series Operating Expenses for the Loomis
Sayles Small Cap Series for the year ended December 31, 1996 would have been
1.29%. Total Series Operating Expenses for the Loomis Sayles Avanti Growth,
Westpeak Growth and Income, Back Bay Advisors Bond Income and Back Bay
Advisors Money Market Series are after giving effect to a voluntary expense
cap. For each of these Series, TNE Advisers 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 Loomis Sayles Avanti Growth and Westpeak
Growth and Income Series for the year ending December 31, 1996 would have
been 0.92% and 0.91%, respectively. For the six other Series shown, the
Total Series Operating Expenses are after giving effect to a voluntary
expense deferral. Under the deferral, expenses which exceed a certain limit
are paid by TNE Advisers in the year in which they are incurred and
transferred to the Series in a future year when actual expenses of the
Series are below the limit. The limit on expenses for each of these Series
is: 1.30% of average daily net assets for the Morgan Stanley International
Magnum Equity Series; .90% of average daily net assets for the Alger Equity
Growth and Davis Venture Value Series; .85% of average daily net assets for
the Loomis Sayles Balanced and Salomon Brothers Strategic Bond Opportunities
Series; and .70% of average daily net assets for the Salomon Brothers U.S.
Government Series. Absent the expense deferral, Total Series Operating
Expenses for these Series for the year ended December 31, 1996 would have
been: 1.66% for Morgan Stanley International Magnum Equity Series, 0.96% for
Davis Venture Value Series, 0.99% for Loomis Sayles Balanced Series, 1.19%
for Salomon Brothers Strategic Bond Opportunities Series and 1.37% for
Salomon Brothers U.S. Government Series. The expense cap and deferral
arrangements are voluntary and may be terminated at any time. (See the
attached prospectus of New England Zenith Fund for more complete
information.)
(7) In these examples, the average Administration Contract Charge of .06% 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.
- - -----------------------------------------------------------------------------
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<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-12
<PAGE>
HOW THE CONTRACT WORKS
PURCHASE PAYMENT
. You can make a one-time investment or establish an ongoing investment
program, subject to the Company's minimum and maximum purchase payment
guidelines.
ADDITIONAL PAYMENTS
. Generally may be made at any time, (subject to Company limits), but no
purchase payments allowed (1) during the four years immediately preceding
the Maturity Date (except under Contracts issued in Pennsylvania or New
York), unless the initial purchase payment is $1,000,000 or more, or (2)
after a Contract Owner (or the Annuitant, if not owned in an individual
capacity) reaches age 86.
. Minimum $250.
LOANS
. The Company intends to make loans available to participants of certain tax
qualified pension plans (see page A-24).
SURRENDERS
. Up to the greater of: 10% of the Contract Value at the beginning of the
Contract Year, and the excess of the Contract Value over purchase payments
that are subject to the Contingent Deferred Sales Charge on the date of
surrender can be withdrawn each year without incurring a Contingent
Deferred Sales Charge, subject to any applicable tax law restrictions.
. Surrenders may be taxable.
. Prior to age 59 1/2 a 10% penalty tax may apply. (A 25% penalty tax may
apply upon surrender from a SIMPLE IRA within the first two years.)
. Premium tax charge may apply.
DEATH PROCEEDS
. Guaranteed not to be less than your total purchase payments adjusted for
any prior surrenders or outstanding loans (and, where applicable, net of
premium tax charges).
. Death proceeds pass to the beneficiary without probate.
. Death proceeds may be taxable.
. Premium tax charge may apply.
CONTRACT VALUE
. Payments are allocated to your choice, within limits, of Eligible Funds
and/or the Fixed Account.
. The Contract Value reflects purchase payments, investment experience,
interest credited on Fixed Account allocations, partial surrenders, and
Contract charges.
. The Contract Value invested in the Eligible Funds is not guaranteed.
. Earnings are accumulated free of any current income taxes (see pages A-36 to
A-37).
. You may change the allocation of future payments, within limits, at any
time.
. Prior to annuitization, you may transfer Contract Value among accounts,
currently free of charge. (Special limits apply to the Fixed Account and to
situations that involve "market timing.")
. Allocations of payments and transfers of Contract Value are limited in that
Contract Value may not be allocated among more than ten accounts (including
the Fixed Account) at any time.
RETIREMENT BENEFITS
. Lifetime income options.
. Fixed and/or variable payout options.
. Retirement benefits may be taxable.
. Premium tax charge may apply.
DAILY DEDUCTION FROM ASSETS
. Mortality and expense risk charge of 1.00% on an annualized basis is
deducted from the Contract Value daily.
. Investment advisory fees are deducted from the Eligible Fund assets daily.
ANNUAL CONTRACT FEE
. $30 Administration Contract Charge is deducted from the Contract Value in
the Variable Account on each anniversary while the Contract is in-force,
other than under a Payment Option. (May be waived for certain large
Contracts.) A pro rata portion is deducted on full surrender and at
annuitization.
SURRENDER CHARGE
. Consists of Contingent Deferred Sales Charge based on purchase payments made
(see pages A-28 to A-30).
PREMIUM TAX CHARGE
. Where applicable, is deducted from the Contract Value when annuity benefits
commence (or, in certain states, at the earliest of: full or partial
surrender; annuitization; or payment of the Death Proceeds due to the death
of a Contract Owner or, if applicable, of the Annuitant).
ADDITIONAL BENEFITS
. You pay no taxes on your investment as long as it remains in the Contract.
. Contract may be surrendered at any time for its Contract Value, less any
applicable Contingent Deferred Sales Charge, subject to any applicable tax
law restrictions.
. Contingent Deferred Sales Charge may be waived upon evidence of terminal
illness, confinement to a nursing home, or permanent and total disability,
if this benefit is available in your state.
A-13
<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 was formerly a wholly-owned subsidiary of New England
Mutual Life Insurance Company ("The New England"). Effective August 30, 1996,
The New England merged into Metropolitan Life Insurance Company ("MetLife"), a
mutual life insurance company whose principal office is at One Madison Avenue,
New York, N.Y. 10010. With the merger, The New England's separate corporate
existence ended, and MetLife became the parent of the Company. In connection
with the merger, the Company changed its name from "New England Variable Life
Insurance Company" to "New England Life Insurance Company," and changed its
domicile from the State of Delaware to the Commonwealth of Massachusetts. The
Company's Home Office is at 501 Boylston Street, Boston, Massachusetts 02116.
THE VARIABLE ACCOUNT
The Variable Account was established by the Company as a separate investment
account under Delaware law on July 1, 1994, and became subject to Massachusetts
law when the Company changed its domicile to Massachusetts on August 30, 1996.
The Variable Account is registered as a unit investment trust under the
Investment Company Act of 1940, and meets the definition of a "separate account"
under Federal securities laws. The Variable Account supports 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."
LOOMIS SAYLES SMALL CAP SERIES
The Loomis Sayles Small Cap Series seeks long-term capital growth from
investments in common stocks or their equivalent. The Series invests primarily
in stocks of small capitalization companies with good earnings growth potential
that its subadviser believes are undervalued by the market. Typically, such
companies have market
A-14
<PAGE>
capitalization of less than $1 billion, have better than average growth rates at
below average price/earnings ratios, and have strong balance sheets and cash
flow.
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES
The Morgan Stanley International Magnum Equity Series seeks long-term capital
appreciation through investment primarily in equity securities of non-U.S.
issuers, in accordance with the EAFE country weightings determined by the
Series' subadviser. Under normal circumstances, at least 65% of the Series'
total assets will be invested in equity securities of at least three different
countries outside the United States.
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.
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).
DAVIS VENTURE VALUE SERIES
The Davis Venture Value Series seeks growth of capital. The Series will
primarily invest in domestic common stocks that its subadviser believes have
capital growth potential due to factors such as undervalued assets or earnings
potential, product development and demand, favorable operating ratios, resources
for expansion, management abilities, reasonableness of market price, and
favorable overall business prospects. The Series will generally invest
predominantly in equity securities of companies with market capitalizations of
at least $250 million.
WESTPEAK GROWTH AND INCOME SERIES
The Westpeak Growth and Income 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 BALANCED SERIES
The Loomis Sayles Balanced Series seeks reasonable long-term investment return
from a combination of long-term capital appreciation and moderate current
income. The Series is "flexibly managed" in that sometimes it invests more
heavily in equity securities and at other times it invests more heavily in
fixed-income securities, depending on its subadviser's view of the economic and
investment outlook.
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
The Salomon Brothers Strategic Bond Opportunities Series seeks a high level of
total return consistent with preservation of capital. Assets will be allocated
among U.S. Government obligations, mortgage backed securities, domestic and
foreign corporate debt and sovereign debt securities rated investment grade (BBB
or higher by S&P or Baa or higher by Moody's) (or unrated but deemed to be of
equivalent quality in the subadviser's 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."
A-15
<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.
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.
BACK BAY ADVISORS MONEY MARKET SERIES
The Back Bay Advisors Money Market Series seeks the highest possible level of
current income consistent with preservation of capital. The Series invests in a
variety of high quality money market instruments. Money market funds are neither
insured nor guaranteed by the U.S Government and there can be no assurance that
the Series will maintain a stable net asset value of $100 per share.
INVESTMENT ADVICE
TNE Advisers, Inc., an indirect subsidiary of NELICO, serves as investment
adviser for the Eligible Funds. Each of the Eligible Funds also has a
subadviser. The Back Bay Advisors Bond Income and Back Bay Advisors Money Market
Series receive investment subadvisory services from Back Bay Advisors, L.P., an
affiliate of NELICO. The Westpeak Growth and Income Series receives investment
subadvisory services from Westpeak Investment Advisors, L.P., an affiliate of
NELICO. The Loomis Sayles Avanti Growth, Loomis Sayles Small Cap and Loomis
Sayles Balanced Series receive investment subadvisory services from Loomis
Sayles & Company, L.P., an affiliate of NELICO. The Morgan Stanley International
Magnum Equity Series receives investment subadvisory services from Morgan
Stanley Asset Management Inc. The Alger Equity Growth Series receives investment
subadvisory services from Fred Alger Management, Inc. The Davis Venture Value
Series receives investment subadvisory services from Davis Selected Advisers,
L.P. 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 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 or
telephoning 1-800-356-5015.
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.)
A-16
<PAGE>
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 $10,000. Any
subsequent purchase payments must be at least $250. The Company reserves the
right to limit purchase payments made under a Contract. The Company currently
reserves the right not to accept any purchase payment that, when combined with
the Contract Value under all Contracts owned by a single Contract Owner, would
exceed $1,000,000. Under its current rules, in no event will the Company accept
a purchase payment that, when combined with the Contract Value under all
Contracts owned by a single Contract Owner, would exceed $2,000,000. If a
Contract Owner selects a single purchase payment Contract in the application,
the Company reserves the right not to accept any additional purchase payments.
If a Contract Owner selects a flexible purchase payment Contract in the
application, the Company reserves the right to limit purchase payments in any
Contract Year to three times the amount shown in the application.
NO PURCHASE PAYMENTS MAY BE MADE (1) WITHIN FOUR YEARS PRIOR TO THE CONTRACT'S
MATURITY DATE (EXCEPT UNDER CONTRACTS ISSUED IN PENNSYLVANIA OR NEW YORK),
UNLESS THE INITIAL PURCHASE PAYMENT IS $1,000,000 OR MORE, 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 and any documentation the Company requires to effect an exchange from
another annuity) is received at the Company's Home Office. A new Contract will
not be issued until the Company has received the cash proceeds of another
annuity that is used to purchase the new Contract. 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.
ALLOCATION OF PURCHASE PAYMENTS
Purchase payments are converted into Accumulation Units of the sub-accounts
you select (subject to the limitation that the Contract Value may be allocated
among no more than ten accounts, including the Fixed Account, at any time). The
number of Accumulation Units of each sub-account to be credited to the Contract
is determined by dividing the purchase payment by the Accumulation Unit Value
for the selected sub-accounts next determined following receipt of the purchase
payment at the Company's Home Office (or, in the case of the initial purchase
payment, next determined following approval of the Contract application.
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
A-17
<PAGE>
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, equal, on an annual basis, to 1.00% 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 guaranteed minimum Death Proceeds. For this purpose, the
current Contract Value is the value next determined after the later of the date
when the Company receives at the Home Office: (1) due proof of death; or (2) an
election of continuation of the Contract or of payment 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") and, in certain states, by the applicable premium
tax charge.
At the inception of the Contract, the guaranteed minimum Death Proceeds 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 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 under the Contract is
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 experience can cause
the guaranteed minimum Death Proceeds 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 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 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 as is made during the first seven years.
A-18
<PAGE>
- - -------------------------------------------------------------------------------
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 is
$10,000. Assume that on the Contract Anniversary on 5/1/02, the
Contract Value is $25,000. The minimum guaranteed Death Proceeds 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
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 remains at $20,000 and the
Death Proceeds payable on 6/15/03 is $20,000.
- - -------------------------------------------------------------------------------
Options for Death Proceeds. The Death Proceeds, reduced by the amount of any
---------------------------
outstanding loan plus accrued interest and by any applicable premium tax charge,
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
payment 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.
--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 and by any applicable premium tax charge) 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 $10,000). THE CONTRACT CANNOT BE CONTINUED FOR ANY
BENEFICIARY WHOSE SHARE OF THE DEATH PROCEEDS DOES NOT MEET THE MINIMUM.
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<PAGE>
The Beneficiary has 90 days after the date the Company receives due proof of
death to make an election with respect to his or her share of the Death
Proceeds. The Beneficiary may elect either: (1) payment in a single sum; (2)
application to a permitted annuity payment option with payments to begin within
one year of the date of death; or (3) Beneficiary Continuation, provided that
the Beneficiary's share of the Death Proceeds meets the Company's published
minimum. IF THE BENEFICIARY DOES NOT MAKE AN ELECTION WITHIN 90 DAYS AFTER THE
COMPANY RECEIVES DUE PROOF OF DEATH, THE CONTRACT WILL BE CONTINUED UNDER THE
BENEFICIARY CONTINUATION PROVISION FOR A PERIOD ENDING FIVE YEARS AFTER THE DATE
OF DEATH. IF BENEFICIARY CONTINUATION IS NOT AVAILABLE BECAUSE THE BENEFICIARY'S
SHARE OF THE DEATH PROCEEDS DOES NOT MEET THE COMPANY'S PUBLISHED MINIMUM,
HOWEVER, THE DEATH PROCEEDS WILL BE PAID IN A SINGLE SUM UNLESS THE BENEFICIARY
ELECTS AN ANNUITY PAYMENT OPTION WITHIN 90 DAYS AFTER THE COMPANY RECEIVES DUE
PROOF OF DEATH.
If the Contract is continued under the Beneficiary Continuation provision, the
Death Proceeds (reduced by the amount of any outstanding loan plus accrued
interest 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 spouse can elect to continue
the Contract in the event of the Contract Owner's (or Annuitant'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 and by any applicable premium tax charge)
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:
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.
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Except under Contracts issued in New York or Pennsylvania, if the reset
Maturity Date would be less than four 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, net of any transfer
fee, the amount may be transferred to a sub-account in which Contract Value is
already invested, or it may be transferred to any sub-account if it is
transferred in combination with Contract Value from another sub-account so that
the total transferred to the new sub-account is at least $100.) After variable
annuity payments begin, the Company currently allows one transfer per Contract
year, 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
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will not be executed by the Company. (In order for it to be executed, it would
need to be requested again after the 30-day period and it, along with any other
transfer requests that are collectively treated as a single transfer, would need
to total no more than $500,000).
The Company's interest in applying these limitations on the maximum number and
size of transfers is to protect the interests of both Contract Owners who are
not engaging in significant transfer activity and Contract Owners who are
engaging in such activity. The Company has determined that the actions of
Contract Owners engaging in significant transfer activity among sub-accounts may
cause an adverse effect on the performance of the underlying Eligible Funds. The
movement of significant sub-account values from one sub-account to another may
prevent the appropriate Eligible Fund from taking advantage of investment
opportunities because it must maintain a significant cash position in order to
handle redemptions. Such movement may also cause a substantial increase in
Eligible Fund transaction costs which must be indirectly borne by Contract
Owners.
The foregoing limitations on transfers that the Company determines to be based
on market-timing do not apply to Contracts issued in New York. In New York as in
all other states, however, transfers can be made under Powers of Attorney only
with the Company's 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); and
. any outstanding loan plus accrued interest (on a full surrender only).
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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 (and 25% in the case of a withdrawal
from a SIMPLE IRA within the first two years). (See "Federal Income Tax
Status.") Because a surrender may result in adverse tax consequences, you should
consult a qualified tax advisor before taking a distribution from the Contract.
To surrender, you must submit a request in proper form to the Company's Home
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 SO INDICATE IN YOUR SURRENDER
REQUEST; OTHERWISE YOU WILL RECEIVE THE PROCEEDS IN A LUMP SUM AND MAY BE TAXED
ON THEM AS A FULL DISTRIBUTION. The surrender request must be received at the
Home 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 Home 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 Home 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 $2,500, 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 $2,500, 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
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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
(including those subject to ERISA). 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) and certain other employer-sponsored qualified plans. YOU
AND YOUR EMPLOYER ARE RESPONSIBLE FOR DETERMINING WHETHER YOUR PLAN IS SUBJECT
TO AND COMPLIES WITH THE ERISA REGULATIONS ON PARTICIPANT PLAN LOANS.
It is the responsibility of the trustee of a Qualified Plan 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 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
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<PAGE>
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 Company intends, by the end of 1997, to postpone a full or partial
surrender attributable to a defaulted loan until the earliest permitted
distribution date under the law governing the applicable retirement program. The
trustee of a Qualified Plan subject to ERISA will be responsible for reporting
to the IRS and advising the participant of any tax consequences resulting from
the reduction in the Contract Value caused by the surrender and for determining
whether the surrender adversely affects the qualification of the plan. In the
case of a TSA Plan not subject to ERISA, the Company will report the surrender
to the IRS as a taxable distribution under the Contract.
The Internal Revenue Service issued proposed regulations in December of 1995,
which, if finalized in their present form, would require that if the repayment
terms of a loan are not satisfied after the loan has been made due to a failure
to make a loan repayment as scheduled, including any applicable grace period,
the balance of the loan would be deemed to be distributed. If the loan is
treated as a distribution under Code Section 72(p), the proposed regulations
state that the amount so distributed is to be treated as a taxable distribution
subject to the normal rules of Code Section 72, if the participant's interest in
the plan includes after-tax contributions (or other tax basis). A deemed
distribution would also be a distribution for purposes of the 10 percent tax in
Code Section 72(t) and the excise tax on excess distributions under Section
4980A. However, a deemed 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 accounts in proportion to the Contract Value then in each
account. If any portion of the Contract loan was attributable to Contract Value
in the Fixed Account, then an equal portion of each loan repayment will have to
be allocated to the Fixed Account. (For example, if 50% of the loan was
attributable to your Fixed Account Contract Value, then 50% of each loan
repayment will be allocated to the Fixed Account). Unless you request otherwise,
a repayment will be allocated to the sub-accounts in the same proportions to
which the loan was attributable to the sub-accounts.
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The amount of the death proceeds, the amount payable upon surrender of the
Contract and the amount applied on the Maturity Date to provide annuity payments
will be reduced by the amount of any outstanding Contract loan plus accrued
interest. In these circumstances, the amount of the outstanding Contract loan
plus accrued interest generally will be taxed as a taxable distribution.
The tax and ERISA rules relating to participant loans under tax benefited
retirement plans are complex and in some cases unclear, and they may vary
depending on the individual circumstances of each loan. The Company strongly
recommends that you, your employer and your plan fiduciary consult a qualified
tax advisor regarding the currently applicable tax and ERISA rules before taking
any action with respect to loans.
The Company will provide further information regarding loans upon request.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the payment of any
amounts due under the Contract or transfers of Contract Values between
sub-accounts or to the Fixed Account when permitted under applicable Federal
laws, rules and regulations. Current Federal law permits such suspension or
postponement if: (a) the New York Stock Exchange is closed (other than for
customary weekend and holiday closings); (b) trading on the Exchange is
restricted; (c) an emergency exists such that it is not reasonably practicable
to dispose of securities held in the Variable Account or to determine the value
of its assets; or (d) the Securities and Exchange Commission by order so permits
for the protection of securities holders.
OWNERSHIP RIGHTS
During the Annuitant's lifetime, all rights under the Contract belong solely
to the Contract Owner unless otherwise provided. These rights include the right
to change the Beneficiary, to change the payment option, to assign the Contract
(subject to the restrictions referred to below), and to exercise all other
rights, benefits, options and privileges conferred by the Contract or allowed by
the Company. Transfer of ownership of the Contract under an ERISA "Pension Plan"
to a non-spousal beneficiary may require spousal consent.
Qualified Plans and certain TSA Plans and IRAs with sufficient employer
involvement are deemed to be "Pension Plans" under ERISA and may, therefore, be
subject to rules under the Retirement Equity Act of 1984. These rules require
that benefits from annuity contracts purchased by a Pension Plan and distributed
to or owned by a participant be provided in accordance with certain spousal
consent, present value and other requirements which are not enumerated in the
Contract. Thus, the tax consequences of the purchase of the Contracts by Pension
Plans should be considered carefully.
Those Contracts offered by the prospectus which are designed to qualify for
the favorable tax treatment described below under "Federal Income Tax Status"
contain restrictions on transfer or assignment, reflecting requirements of the
Code which must be satisfied in order to assure continued eligibility for such
tax treatment. In accordance with such requirements, ownership of such a
Contract may not be changed and the Contract may not be sold, assigned or
pledged as collateral for a loan or for any other purpose except under certain
limited circumstances. A Contract Owner contemplating a sale, assignment or
pledge of the Contract should carefully review its provisions and consult a
qualified tax advisor.
If Contracts offered by this prospectus are used in connection with deferred
compensation plans or retirement plans not qualifying for favorable Federal tax
treatment, such plans may also restrict the exercise of rights by the Contract
Owner. A Contract Owner should review the provisions of any such plan.
REQUESTS AND ELECTIONS
Requests for 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 Home 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
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617-578-5412. To request a transfer or change of allocation by telephone, please
contact your registered representative, or contact the Company's Home Office at
1-800-435-4117 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 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 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 does
not employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, the Company 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 Home 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
The Company deducts various charges from Contract Value for the services
provided, expenses incurred and risks assumed in connection with the Contracts.
For example, the Company incurs costs and expenses in connection with issuing
Contracts, maintaining Contract Owner records and providing accounting,
valuation, regulatory and reporting services. The Company also incurs costs and
expenses associated with the marketing, sale and distribution of the Contracts.
In addition, the Company assumes mortality and expense risks under the
Contracts. In particular, the Company guarantees that the dollar amount of the
Administration Contract Charge will not increase over the life of a Contract,
regardless of the actual expenses. Also, the Company guarantees that, although
annuity payments will vary according to the performance of the investments you
select, annuity payments will not be affected by the mortality experience (death
rate) of persons receiving such payments or of the general population. The
Company assumes this mortality risk by virtue of annuity rates in the Contract
that cannot be changed. The Company also assumes the risk of making a minimum
death benefit payment if the Contract Owner (or, if applicable, the Annuitant)
dies prior to annuitization. (see "Payment on Death Prior to Annuitization.")
The amount and manner of deduction of Contract charges is described below.
ADMINISTRATION CHARGES
The Company deducts an Administration Contract Charge generally equal to the
lesser of: 2% of the total Contract Value (including any Contract Value in the
Fixed Account) and $30. 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. The Company will notify Contract Owners
in advance of imposing any such fee. (See "Transfer Privilege.")
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 will be waived for a Contract
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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 annuitization, 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.
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a Mortality and Expense Risk Charge from the Variable
Account. This charge is computed and deducted on a daily basis from the assets
in each sub-account attributable to the Contracts. The charge is at an annual
rate of 1.00% of the daily net assets of each such sub-account, of which .70%
represents a mortality risk charge and .30% 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"), except that no Contingent Deferred Sales Charge will apply if
the initial purchase payment is $1,000,000 or more. 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 four 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 four 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 . . . . . . . . . . . . . . . 4%
2 . . . . . . . . . . . . . . . 3%
3 . . . . . . . . . . . . . . . 2%
4 . . . . . . . . . . . . . . . 1%
Thereafter . . . . . . . . . . . 0%
</TABLE>
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
A-28
<PAGE>
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."
- - -----------------------------------------------------------------------------
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 3% 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
12/1/98 . . . . . . $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: 1% X $10,000 + 2% X $2,000, or $140. 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.
A-29
<PAGE>
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
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 four 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.
. If the initial purchase payment is $1,000,000 or more.
The Contracts may be sold directly, without compensation, to a registered
representative, to employees, officers, directors, and trustees of the Company
and its affiliated companies, and spouses and immediate family members (i.e.
children, siblings and parents (including siblings and parents of spouses) 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 also may be sold, without compensation, to the
Company or MetLife for use with deferred compensation plans for agents,
employees, officers, directors, and trustees of the Company and its affiliated
companies, subject to any restrictions imposed by the terms of such plans, 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. No additional premium will be credited to Contracts purchased by persons
described above in exchange for another variable annuity contract issued by the
Company or its affiliated companies.
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 Kentucky and South Dakota), 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
A-30
<PAGE>
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. See Appendix C for a list of premium tax rates. 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.
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). 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.
A-31
<PAGE>
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.
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.
- - ---------
* 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
A-32
<PAGE>
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 option cannot be commuted, and variable annuity payments based on that
portion will resume at the expiration of the period certain if the Annuitant is
alive at that time. (See "Amount of Variable Annuity Payments.") 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 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
A-33
<PAGE>
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") and
Simple Retirement Accounts under Section 408(p) of the Code ("SIMPLE IRAs");
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 advisor as to the
suitability of a Contract as a funding vehicle for retirement plans qualifying
for tax benefited treatment, as to the rules underlying such plans and as to the
state and Federal tax aspects of such plans. 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.
A-34
<PAGE>
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 advisor before initiating any
transaction. This discussion is based upon NELICO'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 Sections 401, 403,
408 and 457 of 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, IRAs, SEPs and SARSEPs, SIMPLE IRAs, Section 457
Plans, and Governmental Plans, as defined above under "Retirement Plans Offering
Federal Tax Benefits." The ultimate effect of federal income taxes on the
amounts held under a Contract, on annuity payments, and on the economic benefit
to the Contract Owner, the Annuitant, or the Beneficiary may depend on the type
of retirement plan, and on the tax status of the individual concerned. In
addition, certain requirements must be satisfied in purchasing a Qualified
Contract and receiving distributions from a Qualified Contract in order to
continue receiving favorable tax treatment. Therefore, purchasers of Qualified
Contracts should seek competent legal and tax advice regarding the suitability
of the Contract for their situation, the applicable requirements, and the tax
treatment of the rights and benefits of the Contract. The following discussion
assumes that a Qualified Contract is purchased with proceeds from and/or
contributions under retirement plans that qualify for the intended special
federal income tax treatment.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under Part I of Subchapter L
of the Code. Since the Variable Account is not an entity separate from the
Company, and its operations form a part of the Company, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
Investment income and realized capital gains arising from the operation of the
Variable Account are automatically applied to increase reserves under the
Contracts. Under existing federal income tax law, the Company believes that the
Variable Account's investment income and realized net capital gains will not be
taxed to the extent that such income and gains are applied to increase the
reserves under the Contracts.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Variable Account and, therefore, the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the Company
being taxed on income or gains attributable to the Variable Account, then the
Company may impose a charge against the Variable Account (with respect to some
or all Contracts) in order to set aside amounts to pay such taxes.
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
A-35
<PAGE>
Contracts to qualify as annuity contracts under federal tax law. The Variable
Account, through the Eligible Funds, intends to comply with the diversification
requirements prescribed by the Treasury in Reg. Sec. 1.817-5, which affect how
the Eligible Funds' assets may be invested.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control for the investments of a
segregated asset account may cause the investor [i.e., the Contract Owner],
----
rather than the insurance company, to be treated as the owner of the assets in
the account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct their
investments to particular Sub-Accounts without being treated as owners of the
underlying assets."
The ownership rights under the Contract are similar to, but also different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, a Contract Owner has additional flexibility in allocating premium
payments and account values. These differences could result in a Contract Owner
being treated as the owner of a pro rata portion of the assets of the Variable
Account. In addition, the Company does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. The Company therefore reserves the right to modify
the Contract as necessary to attempt to prevent a Contract Owner from being
considered the owner of a pro rata share of the assets of the Variable Account.
Required Distributions. In order to be treated as an annuity contract for
-----------------------
federal income tax purposes, section 72(s) of the Code requires Non-Qualified
Contracts to provide that (a) if any Owner dies on or after the annuity date but
prior to the time the entire interest in the Contract has been distributed, the
remaining portion of such interest will be distributed at least as rapidly as
under the method of distribution being used as of the date of such owner's
death; and (b) if any Owner dies prior to the annuity date, the entire interest
in the Contract will be distributed within five years after the date of such
Owner's death. These requirements will be considered satisfied as to any portion
of an owner's interest which is payable to or for the benefit of a "designated
beneficiary" and which is distributed over the life of such "designated
beneficiary" or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of the
owner's death. The "designated beneficiary" refers to a natural person
designated by the owner as a Beneficiary and to whom ownership of the contract
passes by reason of death. However, if the "designated beneficiary" is the
surviving spouse of a deceased owner, the contract may be continued with the
surviving spouse as the new owner.
The Non-Qualified Contracts contain provisions which are intended to comply
with the requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions when they are issued and modify the contracts in question
if necessary to assure that they comply with the requirements of Code Section
72(s). Other rules may apply to Qualified Contracts.
The following discussion is based on the assumption that the Contract
qualifies as an annuity contract for federal income tax purposes.
TAXATION OF ANNUITIES
In General. Section 72 of the Code governs taxation of annuities in general.
-----------
The Company believes that a Contract Owner who is a natural person generally is
not taxed on increases in the value of a Contract until distribution occurs by
withdrawing all or part of the Contract Value (e.g., withdrawals or annuity
----
payments under
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<PAGE>
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 advisor.
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. For these purposes, the investment in the
Contract is not affected by the Owner's (or Annuitant's) death. That is, the
investment in the Contract remains the amount of any purchase payments paid
which were not excluded from gross income.
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<PAGE>
Transfers, Assignments, Exchanges and Maturity Dates. A transfer of ownership
-----------------------------------------------------
of a Contract, the designation of an Annuitant, Payee or other Beneficiary who
is not also an Owner, the selection of certain Maturity Dates, the exchange of a
Contract, or the receipt of a Contract in an exchange may result in certain tax
consequences that are not discussed herein. Anyone contemplating any such
designation, transfer, assignment, selection, or exchange should contact a
competent tax advisor 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 advisor 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
Statutory limitations on contributions to retirement plans that quailify for
federal tax benefits may limit the amount of money that may be contributed to
the Contract in any Contract Year. Any purchase payments attributable to such
contributions may be tax deductible to the employer and are not currently
taxable to the Annuitants for
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<PAGE>
whom the Contracts are purchased. The contributions to the Contract and any
increase in Contract Value attributable to such contributions are not subject to
taxation until payments from the Contract are made to the Annuitant or his/her
Beneficiaries.
TSA PLANS
Purchase payments attributable to TSA Plans are not includible within the
Annuitant's income to the extent such purchase payments do not exceed certain
statutory limitations, including the "exclusion allowance." The exclusion
allowance is a calculation which takes into consideration the Annuitant's
includible compensation, number of years of service, and prior years of
contributions. For more information about all the applicable limitations, the
Annuitant should obtain a copy of IRS Publication 571 on TSA Programs for
Employees of Public Schools and Certain Tax Exempt Organizations which will
better assist the Annuitant in calculating the exclusion allowance and other
limitations to which he or she may be subject for any given tax year. Any
purchase payments attributable to permissible contributions under Code Section
403(b) (and earnings thereon) are not taxable to the Annuitant until amounts are
distributed from the Contract. However, these payments may be subject to FICA
(Social Security) taxes.
IRAS, SEPS, SARSEPS AND SIMPLE IRAS
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 a spousal IRA is $2,000. 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, SARSEPs and SIMPLE
IRAs. Maximum contributions (including elective deferrals) to SEPs and SARSEPs
are currently limited to the lesser of 15% of compensation (generally up to
$160,000 for 1997) or $30,000. The maximum salary reduction contribution
currently permitted to a SIMPLE IRA is $6,000. In addition, an employer may make
a matching contribution, typically of 2% or 3% of the compensation (as limited
by the Code) of the employee. For more information concerning the contributions
to IRAs, SEPs, SARSEPs and SIMPLE IRAs, you should obtain a copy of IRS
Publication 590 on Individual Retirement Accounts. In addition to the above, an
individual may make a "rollover" contribution into an IRA with the proceeds of a
"lump sum" distribution (as defined in the Code) from a Qualified Plan.
SECTION 457 PLANS
Generally, under a Section 457 Plan, an employee or executive may defer income
under a written agreement in an amount equal to the lesser of 33 1/3% of
includible compensation or $7,500. The amounts so deferred (including earnings
thereon) by an employee or executive electing to contribute to a Section 457
Plan are includible in gross income only in the tax year in which such amounts
are paid or made available to that employee or executive or his/ her
Beneficiary. With respect to a Section 457 Plan for a nonprofit organization
other than a governmental entity, (i) once contributed to the plan, any
Contracts purchased with employee contributions remain the sole property of the
employer and may be subject to the general creditors of the employer and (ii)
the employer retains all ownership rights to the Contract including voting and
redemption rights which may accrue to the Contract(s) issued under the plan. The
plans may permit participants to specify the form of investment for their
deferred compensation accounts. Depending on the terms of the particular plan,
the employer may be entitled to draw on deferred amounts for purposes unrelated
to its Section 457 Plan obligations.
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<PAGE>
(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, SIMPLE IRAS AND GOVERNMENTAL
PLANS
Payments made from the Contracts held under a Qualified Plan, TSA Plan, IRA,
SEP, SARSEP, SIMPLE IRA 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, SARSEPs and SIMPLE IRAs, the exceptions for distributions on account of
early retirement at or after age 55 or made pursuant to a qualified domestic
relations order do not apply. A tax-free rollover may be made once each year
among individual retirement arrangements subject to the conditions and
limitations described in the Code.
If the Annuitant dies before distributions begin, distributions must be
completed within five years after death, unless payments begin within one year
after death and are made over the life (or life expectancy) of the Beneficiary.
If the Annuitant's spouse is the Beneficiary, distributions need not begin until
the Annuitant would have reached age 70 1/2. If the Annuitant dies after annuity
payments have begun, payments must continue to be made at least as rapidly as
payments made before death.
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.
With respect to a SIMPLE IRA, there is an additional tax of 25% applicable to
withdrawals made during the first two years of participation.
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 Qualified Plan or a Governmental
Plan, these distributions must begin by the later of the date determined by the
preceding sentence or the year in which the Annuitant retires. Each annual
distribution must equal or exceed a "minimum distribution amount" which is
determined by minimum distribution rules under the plan. A penalty tax of up to
50% of the amount which should have been distributed may be imposed by the IRS
for failure to distribute the required minimum distribution amount.
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.
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<PAGE>
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,
SIMPLE IRAs 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. The Company is required to withhold taxes from certain
distributions under certain qualified contracts.
POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of non-qualified annuities that
did not have "substantial life contingencies" by taxing income as it is credited
to the annuity. Although as of the date of this prospectus Congress is not
actively considering any legislation regarding the taxation of annuities, there
is always the possibility that the tax treatment of annuities could change by
legislation or other means (such as IRS regulations, revenue rulings, judicial
decisions, etc.). Moreover, it is also possible that any change could be
retroactive (that is, effective prior to the date of the change).
OTHER TAX CONSEQUENCES
As noted above, the foregoing discussion of the federal income tax
consequences is not exhaustive and special rules are provided with respect to
other tax situations not discussed in this Prospectus. Further, the federal
income tax consequences discussed herein reflect the Company's understanding of
the current law and the law may change. Federal estate and gift tax consequences
of ownership or receipt of distributions under the Contract depend on the
individual circumstances of each Contract Owner or recipient of a distribution.
A competent tax advisor 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 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.
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<PAGE>
VOTING RIGHTS
The Company is the legal owner of the Eligible Fund shares held in the
Variable Account and has the right to vote those shares at meetings of the
Eligible Fund shareholders. However, to the extent required by Federal
securities law, the Company will give you, as Contract Owner, the right to
instruct the Company how to vote the shares that are attributable to your
Contract.
Prior to annuitization, the number of votes as to which you have a right of
instruction is determined by applying your percentage interest in a sub-account
to the total number of votes attributable to the sub-account. After
annuitization, the number of votes attributable to your Contract is determined
by applying the percentage interest reflected by the reserve for your Contract
to the total number of votes attributable to the sub-account. After
annuitization the votes attributable to your Contract decrease as reserves
underlying the Contract decrease.
Contract Owners who are entitled to give voting instructions and the number of
shares as to which they have a right of instruction will be determined as of the
record date for the meeting. All Eligible Fund shares held in any sub-account of
the Variable Account or any other registered (or to the extent voting privileges
are granted by the issuing insurance company, unregistered) separate accounts of
the Company or any affiliate for which no timely instructions are received will
be voted for, against, or withheld from voting on any proposition in the same
proportion as the shares held in that sub-account for all policies or contracts
for which voting instructions are received.
All Eligible Fund shares held by the general investment account (or any
unregistered separate account for which voting privileges are not extended) of
the Company or its affiliates will be voted in the same proportion as the
aggregate of (i) the shares for which voting instructions are received and (ii)
the shares that are voted in proportion to such voting instructions.
The SEC requires the Eligible Funds' Board of Trustees to monitor events to
identify conflicts that may arise from the sale of shares to variable life and
variable annuity separate accounts of affiliated and, if applicable,
unaffiliated insurance companies. Conflicts could arise as a result of changes
in state insurance law or Federal income tax law, changes in investment
management of any portfolio of the Eligible Funds, or differences between voting
instructions given by variable life and variable annuity contract owners, for
example. If there is a material conflict, the Boards of Trustees will have an
obligation to determine what action should be taken, including the removal of
the affected sub-account(s) from the Eligible Fund(s), if necessary. If the
Company believes any Eligible Fund action is insufficient, the Company will
consider taking other action to protect Contract Owners. There could, however,
be unavoidable delays or interruptions of operations of the Variable Account
that the Company may be unable to remedy.
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 generally will have a present value that does not
exceed 4% of purchase payments under the Contract (although a lower amount may
be paid in certain limited circumstances (such as sales of the Contracts to
persons 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. The Company
will generally pay compensation with a lower present value as a percentage of
purchase payments for Contracts purchased with an initial purchase payment of
$1,000,000 or more.
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<PAGE>
THE FIXED ACCOUNT
A Fixed Account option is included under Contracts issued in those states
where it has been approved by the state insurance department. In these states,
you may allocate net purchase payments and may transfer Contract Value in the
Variable Account to the Fixed Account, which is part of the Company's general
account. The Fixed Account offers diversification to a Variable Account
contract, allowing the Contract Owner to protect principal and earn, at least, a
guaranteed rate of interest.
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933, and neither
the Fixed Account nor the general account has been registered as an investment
company under the Investment Company Act of 1940. Therefore, neither the general
account, the Fixed Account nor any interests therein are generally subject to
the provisions of these Acts, and the Company has been advised that the staff of
the Securities and Exchange Commission does not review disclosures relating to
the general account. Disclosures regarding the Fixed Account may, however, be
subject to certain generally applicable provisions of the Federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
GENERAL DESCRIPTION OF THE FIXED ACCOUNT
The Company's general account consists of all assets owned by the Company
other than those in the Variable Account and the Company's other separate
accounts. The Company has sole discretion over the investment of assets in the
general account, including those in the Fixed Account. Contract Owners do not
share in the actual investment experience of the assets in the Fixed Account.
Instead, the Company guarantees that Contract Values in the Fixed Account will
be credited with interest at an effective annual rate of at least 3%. The
Company is not obligated to credit interest at a rate higher than 3%, although
in its sole discretion it may do so. Contract Values in the Fixed Account will
be credited with interest daily.
Any purchase payment or portion of Contract Value ("deposit") allocated to the
Fixed Account will earn interest at an annual rate determined by the Company for
that deposit for a 12 month period. At the end of each succeeding 12 month
period, the Company will determine the interest rate that will apply to that
deposit plus accrued interest for the next 12 months. This renewal rate may
differ from the interest rate that is applied to new deposits made to the Fixed
Account on that same day. (See "Contract Value and Fixed Account Transactions"
below for a description of the interest rate that will be applied to Contract
loan repayments allocated to the Fixed Account.)
CONTRACT VALUE AND FIXED ACCOUNT TRANSACTIONS
A Contract's total Contract Value will include its Contract Value in the
Variable Account, in the Fixed Account, and, for Contracts under which Contract
loans are available, any of its Contract Value held in the Company's general
account (but outside the Fixed Account) as a result of a Contract loan.
Unless you request otherwise, a partial surrender will reduce the Contract
Value in the sub-accounts of the Variable Account and the Fixed Account
proportionately. The annual Administration Contract Charge will be deducted
entirely from the Contract Value in the Variable Account, and not from the
Contract Value in the Fixed Account. (However, that charge is limited to the
lesser of $30 and 2% of the total Contract Value, including Contract Value in
the Fixed Account.) Except as described below, amounts in the Fixed Account are
subject to the same rights and limitations as are amounts in the Variable
Account with respect to transfers, surrenders and partial surrenders. The
following special rules apply to transfers involving the Fixed Account.
The amount of Contract Value which may be transferred from the Fixed Account
----------------------------------------------------------------------------
is limited to the greater of: 25% of the Contract Value in the Fixed Account at
- - -------------------------------------------------------------------------------
the end of the first day of the Contract Year, and the amount of Contract Value
- - -------------------------------------------------------------------------------
that was transferred from the Fixed Account in the previous Contract Year,
- - --------------------------------------------------------------------------
except with the consent of the Company. (Also, after the transfer is made, the
- - ------------------------------------------------------------------------------
Contract Value may not be allocated among more than ten of the sub-accounts
- - ---------------------------------------------------------------------------
and/or the Fixed Account.) The Company intends to restrict purchase payments and
- - --------------------------
transfers of
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<PAGE>
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 equals or exceeds a
maximum amount published by the Company (currently $500,000). (For Contracts
issued in Maryland this maximum amount will not be less than $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. Please note that the financial
statements of the Variable Account are dated prior to the time the Company began
selling the Contracts described in this prospectus. Accordingly, the financial
statements of the Variable Account do not reflect the expenses or unit
information applicable to the Contracts described herein.
INVESTMENT EXPERIENCE INFORMATION
The Company may advertise performance by illustrating hypothetical average
annual total returns for each sub-account of the Variable Account, based on the
actual investment experience of the Eligible Funds since their inception and for
the year-to-date, one, three, five, and ten year periods ending with the date of
the illustration. 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, 1996 and more information about how they are
calculated.
A-44
<PAGE>
The Company may also illustrate how the average annual total return for a five
year period was determined by illustrating the average annual total return for
each year in the five year period ending with the date of the illustration. Such
illustrations are based on the same assumptions and reflect the same expenses
and deductions described in the preceding paragraph. See "Calculation of
Performance Data" in the Statement of Additional Information for an example of
this type of illustration and more information about how average annual total
returns are calculated.
The Company may illustrate what would have been the growth and value of a
single $10,000 purchase payment for the Contract if it had been invested in each
of the Eligible Funds on the first day of the first month after those Eligible
Funds commenced operations. These illustrations show Contract Value and
surrender value, calculated in the same manner as when they are used to arrive
at average annual total return, as of the end of each year, ending with the date
of the illustration. The surrender values reflect the deduction of any
applicable Contingent Deferred Sales Charge, but do not reflect the deduction of
any premium tax charge. These illustrations may also show annual percentage
changes in Contract Value and surrender value, cumulative returns, and annual
effective rates of return. The difference between the Contract Value or
surrender value at the beginning and at the end of each year is divided by the
beginning Contract Value or surrender value to arrive at the annual percentage
change. The cumulative return is determined by taking the difference between the
$10,000 investment and the ending Contract Value or surrender value and dividing
it by $10,000. The annual effective rate of return is calculated in the same
manner as average annual total return. See "Calculation of Performance Data" in
the Statement of Additional Information for examples of these illustrations and
more information about how they are calculated.
The Variable Account may update the performance history of one or more of its
sub-accounts on a quarterly basis by illustrating the one, three, five, and ten
year values (or since inception, if less) of a single $10,000 purchase payment
invested at the beginning of such periods using the same method of calculation
described in the preceding paragraph, but using the periods ending with the date
of the quarterly illustration. Such illustrations will show the Contract Value
at the end of the period and the cumulative return and annual effective rate of
return for the period. The illustration may also include the cumulative return
and annual effective rate of return of an appropriate securities index and the
Consumer Price Index for the same period.
The Company may illustrate what would have been the change in value of a $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.
The Variable Account may make available illustrations showing historical
Contract Values and the annual effective rate of return, based upon hypothetical
purchase payment amounts and frequencies, which can be selected by the client.
The method of calculation described in the preceding paragraph will be used, but
the illustration will reflect the effect of any premium tax charge applicable in
the state where the illustration is delivered. The beginning date of the
illustration can be selected by the client. Contract Values will be shown as of
the end of each calendar year in the period and as of the end of the most recent
calendar quarter.
Historical investment performance may also be illustrated by showing the
percentage change in the Accumulation Unit Value and annual effective rate of
return of a sub-account without reflecting the deduction of any Contingent
Deferred Sales Charge, premium tax charge, or the annual $30 Administration
Contract Charge, all of which have the effect of reducing historical
performance. The percentage change in unit value and annual effective rate of
return of each sub-account may be shown from inception of the Eligible Fund to
the date of the report and for the year-to-date, one, three, 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
A-45
<PAGE>
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.
A-46
<PAGE>
APPENDIX A
CONSUMER TIPS
DOLLAR COST AVERAGING
Dollar cost averaging allows a person to take advantage of the 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 1-800-435-4117.
Written
Communications: --All communications and inquiries regarding address
changes, premium payments, billing, fund transfers,
surrenders, maturities and any other processing
matters relating to your Contract should be directed
to:
New England Annuities
P.O. Box 642
Boston, Mass 02117
A-47
<PAGE>
APPENDIX B
CONTINGENT DEFERRED SALES CHARGE
The following example illustrates how the Contingent Deferred Sales Charge
would apply if the commuted value of amounts that have been placed under certain
payment options is later withdrawn. As described in the prospectus in the
section "Contingent Deferred Sales Charge," no Contingent Deferred Sales Charge
will apply if at any time more than 30 days from issue of the Contract you apply
the proceeds to a variable or fixed payment option involving a life contingency
or, for a minimum specified period of 15 years, to either the Variable Income
for a Specified Number of Years Option or the Variable Income Payments to Age
100 Option, or a comparable fixed option. However, if you subsequently withdraw
the commuted value of amounts placed under any of those options, the Company
will deduct from the amount you receive a portion of the Contingent Deferred
Sales Charge that was waived, based on the ratio of: (1) the number of whole
months remaining on the date of withdrawal until the date when the Contingent
Deferred Sales Charge would expire, to (2) the number of whole months that were
remaining when the proceeds were applied to the option, until the date when the
Contingent Deferred Sales Charge would expire.
As an example, assume that $100,000 of Contract Value (net of any premium tax
charge and Administration Contract Charge) is applied to the Variable Income for
a Specified Number of Years Option for a 20 year period. Assume further that the
proceeds are derived from a $30,000 purchase payment made ten years ago, a
$30,000 purchase payment made exactly two years ago, and investment earnings,
and that the Contingent Deferred Sales Charge waived on application of the
proceeds to the payment option was $600. If the Payee surrenders the commuted
value of the proceeds under option six months later, the Contingent Deferred
Sales Charge would be $450 (representing the $600 waived at annuitization
multiplied by 18/24, where 18 is the number of whole months currently remaining
until the Contingent Deferred Sales Charge would expire, and 24 is the number of
whole months that remained at the time of annuitization until the Contingent
Deferred Sales Charge would expire).
A-48
<PAGE>
APPENDIX C
PREMIUM TAX
Premium tax rates are subject to change. At present the Company pays premium
taxes in the following jurisdictions at the rates shown
<TABLE>
<CAPTION>
CONTRACTS USED WITH TAX
JURISDICTION QUALIFIED RETIREMENT PLANS ALL OTHER CONTRACTS
- - ------------ -------------------------- -------------------
<S> <C> <C>
Alabama . . . . . . . 1.00% 1.00%
California . . . . . 0.50% 2.35%
District of Columbia 2.00% 2.00%
Kansas . . . . . . . -- 2.00%
Kentucky . . . . . . 2.00% 2.00%
Maine . . . . . . . . -- 2.00%
Mississippi . . . . . -- 2.00%
Nevada . . . . . . . -- 3.50%
North Carolina . . . -- 1.75%
Puerto Rico . . . . . 1.00% 1.00%
South Dakota . . . . -- 1.25%
West Virginia . . . . 1.00% 1.00%
Wyoming . . . . . . . -- 1.00%
</TABLE>
See "Premium Tax Charges" in the prospectus for more information about how
premium taxes affect the Contracts.
A-49
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
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-17
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . II-17
Hypothetical Illustrations of Annuity Income Payouts . . . . . . . . II-18
Historical Illustrations of Annuity Income Payouts . . . . . . . . . II-22
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-25
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . II-25
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-26
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
If you would like to obtain a copy of the Statement of Additional Information,
please complete the request form below and mail to:
New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
Please send a copy of the Statement of Additional Information for New
England Variable Annuity Separate Account (American Forerunner Series) to:
- - ----------------------------------------------------------------------------
Name
- - ----------------------------------------------------------------------------
Street
- - ----------------------------------------------------------------------------
City State Zip
A-50
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
AMERICAN FORERUNNER SERIES
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
(PART B)
MAY 1, 1997
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated May 1, 1997 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-17
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . II-17
Hypothetical Illustrations of Annuity Income Payouts . . . . . II-18
Historical Illustrations of Annuity Income Payouts . . . . . . II-22
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-25
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . II-25
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . II-26
Financial Statements . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
II-2
<PAGE>
THE COMPANY
New England Life Insurance Company ("The Company") is an indirect,
wholly-owned subsidiary of Metropolitan Life Insurance Company ("MetLife").
SERVICES RELATING TO THE VARIABLE ACCOUNT AND THE CONTRACTS
The Company maintains the books and records of the Variable Account and
provides issuance and other administrative services for the Contracts.
Auditors. Deloitte & Touche LLP, located at 125 Summer Street, Boston,
Massachusetts 02110, conducts an annual audit of the Variable Account's
financial statements.
Principal Underwriter. New England Securities Corporation ("New England
Securities"), an indirect subsidiary of the Company, serves as principal
underwriter for the Variable Account pursuant to a distribution agreement with
the Company. The Contracts are offered continuously and may be sold by
registered representatives of broker-dealers that have selling agreements with
New England Securities as well as by the Company's life insurance agents and
insurance brokers who are registered representatives of New England Securities.
The Company pays commissions, none of which are retained by New England
Securities, in connection with sales of 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 of Additional Information.
In particular, some or all of these publications may publish their own rankings
or performance reviews including the Account or the Eligible Funds. References
to or reprints of such articles may be used in the Company's promotional
literature. Such literature may refer to personnel of the advisers, who have
portfolio management responsibility, and their investment style. The references
may allude to or include excerpts from articles appearing in the media.
The advertising and sales literature of the Contract and the Account may refer
to historical, current and prospective economic trends and may include
historical and current performance and total returns of investment alternatives.
In addition, sales literature may be published concerning topics of general
investor interest for the benefit of registered representatives and prospective
Contractholders. These materials may include, but are not limited to,
discussions of college planning, retirement planning, reasons for investing and
historical examples of the investment performance of various classes of
securities, securities markets and indices.
II-3
<PAGE>
CALCULATION OF PERFORMANCE DATA
The tables below illustrate hypothetical average annual total returns for each
sub-account for the periods shown, based on the actual investment experience of
the 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 October, 1996. The Back Bay Advisors Bond Income and Back
Bay Advisors Money Market Series commenced operations on August 26, 1983. The
Westpeak Growth and Income and Loomis Sayles Avanti Growth Series commenced
operations on April 30, 1993. The Loomis Sayles 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,
1996 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, 1996 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, 1996. In other words, the average annual total return is
the rate which, when added to 1, raised to a power reflecting the number of
years in the period shown, and multiplied by the initial $1,000 investment,
yields the surrender value at the end of the period. The average annual total
returns assume that no premium tax charge has been deducted.
AVERAGE ANNUAL TOTAL RETURN
For purchase payment allocated to the Loomis Sayles Small Cap Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 23.37%
Since Inception . . . . . . . . . . . . . . . . . . . 15.50%
</TABLE>
For purchase payment allocated to the Morgan Stanley International Magnum
Equity Series:*
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . -.17%
Since Inception . . . . . . . . . . . . . . . . 2.24%
</TABLE>
For purchase payment allocated to the Alger Equity Growth Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 6.10%
Since Inception . . . . . . . . . . . . . . . . . . . 20.16%
</TABLE>
- - ---------
* The Morgan Stanley International Magnum Equity Series' subadviser was Draycott
Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset Management Inc.
became the subadviser.
II-4
<PAGE>
For purchase payment allocated to the Loomis Sayles Avanti Growth Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 10.43%
Since Inception . . . . . . . . . . . . . . . . . . . 12.50%
</TABLE>
For purchase payment allocated to the Davis Venture Value Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 10.91%
Since Inception . . . . . . . . . . . . . . . . . . . 13.64%
</TABLE>
For purchase payment allocated to the Westpeak Growth and Income Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 18.58%
Since Inception . . . . . . . . . . . . . . . . . . . 22.74%
</TABLE>
For purchase payment allocated to the Loomis Sayles Balanced Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 9.74%
Since Inception . . . . . . . . . . . . . . . . . . . 14.21%
</TABLE>
For purchase payment allocated to the Salomon Brothers Strategic Bond
Opportunities Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . 7.24%
Since Inception . . . . . . . . . . . . . . . . . . . 9.89%
</TABLE>
For purchase payment allocated to the Back Bay Advisors Bond Income Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . -2.16%
5 Years . . . . . . . . . . . . . . . . . . . . . . . 4.50%
10 years . . . . . . . . . . . . . . . . . . . . . . 5.45%
Since Inception . . . . . . . . . . . . . . . . . . . 7.36%
</TABLE>
For purchase payment allocated to the Salomon Brothers U.S. Government Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . . -3.40%
Since Inception . . . . . . . . . . . . . . . . . . . 3.76%
</TABLE>
For purchase payment allocated to the Back Bay Advisors Money Market Series:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1996
-------------------------------
<S> <C>
1 Year . . . . . . . . . . . . . . . . . . . . . . . -1.66%
5 Years . . . . . . . . . . . . . . . . . . . . . . . .25%
10 years . . . . . . . . . . . . . . . . . . . . . . 2.21%
Since Inception . . . . . . . . . . . . . . . . . . . 3.17%
</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.
II-5
<PAGE>
The following chart illustrates how the average annual total return was
determined for the five year period ending December 31, 1996 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 illustration assumes no
premium tax charge is deducted.
The unit values of the sub-accounts reflect the change in the net asset value
of the underlying Eligible Funds plus the reinvestment of dividends from net
investment income and of distributions from net realized gains, if any. The unit
values also reflect the deduction of the Mortality and Expense Risk Charge as
well as the Administration Asset Charge.
<TABLE>
<CAPTION>
AVERAGE
UNIT CONTRACT SURRENDER ANNUAL TOTAL
DATE UNITS VALUE VALUE VALUE RETURN
---- -------- -------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
December 31, 1991 . . 432.3030 2.313192 $1,000.00
December 31, 1992 . . 420.1938 2.477440 1,041.01 $1,012.90 1.29%
December 31, 1993 . . 409.3325 2.762110 1,130.62 1,110.62 5.39%
December 31, 1994 . . 397.9806 2.642721 1,051.75 1,042.29 0.04%
December 31, 1995 . . 388.5203 3.171150 1,232.06 1,232.06 2.17%
December 31, 1996 . . 379.3853 3.284075 1,245.93 1,245.93 3.45%
</TABLE>
The following charts illustrate what would have been the growth and value of a
$10,000 purchase payment if it had been invested in each of the Eligible Funds
on the first day of the first month after those Eligible Funds became available:
September 1, 1983 for the Back Bay Advisors Money Market and Back Bay Advisors
Bond Income Series; May 1, 1993 for the Westpeak Growth and Income 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.
II-6
<PAGE>
$10,000 SINGLE PURCHASE PAYMENT CONTRACT
BACK BAY ADVISORS BOND INCOME AND BACK BAY ADVISORS MONEY MARKET SERIES ISSUED
SEPTEMBER 1, 1983
WESTPEAK GROWTH AND INCOME 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(1)
----------------------------------------------------------------------------------------------------
MORGAN SALOMON
LOOMIS STANLEY LOOMIS BROTHERS
SAYLES INTERNATIONAL ALGER SAYLES DAVIS WESTPEAK LOOMIS STRATEGIC
SMALL MAGNUM EQUITY AVANTI VENTURE GROWTH AND SAYLES BOND
CAP EQUITY(2) GROWTH GROWTH VALUE INCOME BALANCED OPPORTUNITIES
---------- ------------- ---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . .
1984 . . . . . .
1985 . . . . . .
1986 . . . . . .
1987 . . . . . .
1988 . . . . . .
1989 . . . . . .
1990 . . . . . .
1991 . . . . . .
1992 . . . . . .
1993 . . . . . . $11,397.11 $11,347.71
1994 . . . . . . $ 9,613.26 $10,243.62 $ 9,700.49 11,222.50 $ 9,634.41 11,069.10 $ 9,973.92 $ 9,844.44
1995 . . . . . . 12,227.33 10,742.23 14,251.70 14,447.98 13,254.98 14,919.25 12,291.89 11,604.89
1996 . . . . . . 15,784.66 11,313.70 15,936.61 16,789.71 16,480.87 17,409.10 14,195.49 13,107.39
<CAPTION>
BACK BAY SALOMON BACK BAY
ADVISORS BROTHERS ADVISORS
BOND U.S. MONEY
INCOME GOVERNMENT MARKET
---------- ---------- ------------
<S> <C> <C> <C>
As of December 31:
1983 . . . . . . $10,351.26 $10,270.39
1984 . . . . . . 11,507.34 11,227.73
1985 . . . . . . 13,498.13 12,003.81
1986 . . . . . . 15,315.56 12,662.45
1987 . . . . . . 15,476.33 13,324.15
1988 . . . . . . 16,573.59 14,152.61
1989 . . . . . . 18,396.11 15,278.22
1990 . . . . . . 19,653.55 16,334.13
1991 . . . . . . 22,920.11 17,145.98
1992 . . . . . . 24,517.44 17,589.42
1993 . . . . . . 27,304.55 17,901.77
1994 . . . . . . 26,094.74 $10,043.75 18,397.52
1995 . . . . . . 31,281.00 11,407.18 19,222.62
1996 . . . . . . 32,363.23 11,636.91 19,975.60
</TABLE>
<TABLE>
<CAPTION>
SURRENDER VALUE(1)
----------------------------------------------------------------------------------------------------
MORGAN SALOMON
LOOMIS STANLEY LOOMIS BROTHERS
SAYLES INTERNATIONAL ALGER SAYLES DAVIS WESTPEAK LOOMIS STRATEGIC
SMALL MAGNUM EQUITY AVANTI VENTURE GROWTH AND SAYLES BOND
CAP EQUITY(2) GROWTH GROWTH VALUE INCOME BALANCED OPPORTUNITIES
---------- ------------- ---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . .
1984 . . . . . .
1985 . . . . . .
1986 . . . . . .
1987 . . . . . .
1988 . . . . . .
1989 . . . . . .
1990 . . . . . .
1991 . . . . . .
1992 . . . . . .
1993 . . . . . . $10,977.11 $10,927.71
1994 . . . . . . $ 9,251.23 $ 9,868.87 $ 9,347.47 10,902.50 $ 9,284.03 10,749.81 $ 9,609.96 $ 9,485.66
1995 . . . . . . 11,909.83 10,445.35 13,946.70 14,227.98 12,949.96 14,699.25 11,986.89 11,299.89
1996 . . . . . . 15,567.16 11,108.70 15,731.61 16,669.71 16,275.87 17,289.10 13,990.49 12,902.39
<CAPTION>
BACK BAY SALOMON BACK BAY
ADVISORS BROTHERS ADVISORS
BOND U.S. MONEY
INCOME GOVERNMENT MARKET
---------- ---------- ------------
<S> <C> <C> <C>
As of December 31:
1983 . . . . . . $ 9,967.21 $ 9,899.58
1984 . . . . . . 11,197.34 10,917.73
1985 . . . . . . 13,288.13 11,793.81
1986 . . . . . . 15,205.56 12,552.45
1987 . . . . . . 15,466.33 13,314.15
1988 . . . . . . 16,563.59 14,142.61
1989 . . . . . . 18,386.11 15,268.22
1990 . . . . . . 18,643.55 16,324.13
1991 . . . . . . 22,910.11 17,135.98
1992 . . . . . . 24,507.44 17,579.42
1993 . . . . . . 27,294.55 17,891.77
1994 . . . . . . 26,084.74 $ 9,677.00 18,387.52
1995 . . . . . . 31,271.00 11,102.18 19,212.62
1996 . . . . . . 32,353.23 11,431.91 19,965.60
</TABLE>
II-7
<PAGE>
ANNUAL PERCENTAGE CHANGE IN CONTRACT VALUE(1)
<TABLE>
<CAPTION>
MORGAN SALOMON
LOOMIS STANLEY LOOMIS BROTHERS
SAYLES INTERNATIONAL ALGER SAYLES DAVIS WESTPEAK LOOMIS STRATEGIC
SMALL MAGNUM EQUITY AVANTI VENTURE GROWTH SAYLES BOND
CAP EQUITY(2) GROWTH GROWTH VALUE AND INCOME BALANCED OPPORTUNITIES
------ ------------- ------ ------ ------- ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . . . .
1984 . . . . . . . . . . . .
1985 . . . . . . . . . . . .
1986 . . . . . . . . . . . .
1987 . . . . . . . . . . . .
1988 . . . . . . . . . . . .
1989 . . . . . . . . . . . .
1990 . . . . . . . . . . . .
1991 . . . . . . . . . . . .
1992 . . . . . . . . . . . .
1993 . . . . . . . . . . . . 13.97% 13.48%
1994 . . . . . . . . . . . . -3.87% 2.44% -3.00% -1.53 -3.66% -2.46 -0.26% -1.56%
1995 . . . . . . . . . . . . 27.19 4.87 46.92 28.74 37.58 34.78 23.24 17.88
1996 . . . . . . . . . . . . 29.09 5.32 11.82 16.21 24.34 16.69 15.49 12.95
Cumulative Return . . . . . . . 57.85 13.14 59.37 67.90 64.81 74.09 41.95 31.07
Annual Effective Rate of Return 18.68 5.87 24.03 15.17 25.97 16.31 17.57 13.32
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
INTERMEDIATE
BACK BAY SALOMON BACK BAY GOVERNMENT/
ADVISORS BROTHERS ADVISORS DOW JONES S&P 500 CORPORATE CONSUMER
BOND U.S. MONEY INDUSTRIAL STOCK BOND PRICE
INCOME GOVERNMENT MARKET AVERAGE(2) INDEX(3) INDEX(4) INDEX(5)
-------- ---------- -------- ---------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . 3.51% 2.70% 5.11% 1.79% 4.51% 1.07%
1984 . . . . . . . 11.17 9.32 1.35 6.27 14.37 3.95
1985 . . . . . . . 17.30 6.91 33.62 31.73 18.06 3.77
1986 . . . . . . . 13.46 5.49 27.25 18.66 13.13 1.13
1987 . . . . . . . 1.05 5.23 5.55 5.25 3.66 4.41
1988 . . . . . . . 7.09 6.22 16.21 16.61 6.67 4.42
1989 . . . . . . . 11.00 7.95 32.24 31.69 12.77 4.65
1990 . . . . . . . 6.84 6.91 -.54 -3.10 9.16 6.11
1991 . . . . . . . 16.62 4.97 24.25 30.47 14.62 3.06
1992 . . . . . . . 6.97 2.59 7.40 7.62 7.17 2.90
1993 . . . . . . . 11.37 1.78 16.97 10.08 8.79 2.75
1994 . . . . . . . -4.43 0.44% 2.77 5.02 1.32 -1.93 2.67
1995 . . . . . . . 19.87 13.57 4.48 36.94 37.58 15.33 2.54
1996 . . . . . . . 3.46 2.01 3.92 28.91 22.96 4.05 3.32
Cumulative Return . . 223.63 16.37 99.76 745.61 601.48 241.73 58.21
Annual Effective Rate
of Return . . . . . 9.21 7.26 5.33 17.36 15.73 9.65 3.50
</TABLE>
ANNUAL PERCENTAGE CHANGE IN SURRENDER VALUE(1)
<TABLE>
<CAPTION>
MORGAN SALOMON
LOOMIS STANLEY LOOMIS BROTHERS
SAYLES INTERNATIONAL ALGER SAYLES DAVIS WESTPEAK LOOMIS STRATEGIC
SMALL MAGNUM EQUITY AVANTI VENTURE GROWTH SAYLES BOND
CAP EQUITY(2) GROWTH GROWTH VALUE AND INCOME BALANCED OPPORTUNITIES
------ ------------- ------ ------ ------- ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . . . .
1984 . . . . . . . . . . . .
1985 . . . . . . . . . . . .
1986 . . . . . . . . . . . .
1987 . . . . . . . . . . . .
1988 . . . . . . . . . . . .
1989 . . . . . . . . . . . .
1990 . . . . . . . . . . . .
1991 . . . . . . . . . . . .
1992 . . . . . . . . . . . .
1993 . . . . . . . . . . . . 9.77% 9.28%
1994 . . . . . . . . . . . . -7.49% -1.31% -6.53% -0.68 -7.16% -1.63 -3.90% -5.14%
1995 . . . . . . . . . . . . 28.74 5.84 49.20 30.50 39.49 36.74 24.73 19.13
1996 . . . . . . . . . . . . 30.71 6.35 12.80 17.16 25.68 17.62 16.71 14.18
Cumulative Return . . . . . . . 55.67 11.09 57.32 66.70 62.76 72.89 39.90 29.02
Annual Effective Rate of Return 18.06 4.98 23.29 14.95 25.24 16.10 16.78 12.49
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
LEHMAN
INTERMEDIATE
BACK BAY SALOMON BACK BAY GOVERNMENT/
ADVISORS BROTHERS ADVISORS DOW JONES S&P 500 CORPORATE CONSUMER
BOND U.S. MONEY INDUSTRIAL STOCK BOND PRICE
INCOME GOVERNMENT MARKET AVERAGE(2) INDEX(3) INDEX(4) INDEX(5)
-------- ---------- -------- ---------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . . . . -0.33% -1.10% 5.11% 1.79% 4.51% 1.07%
1984 . . . . . . . . . . . . 12.34 10.40 1.35 6.27 14.38 3.95
1985 . . . . . . . . . . . . 18.67 8.02 33.62 31.73 18.06 3.77
1986 . . . . . . . . . . . . 14.43 6.43 27.25 18.66 13.13 1.13
1987 . . . . . . . . . . . . 1.71 6.07 5.55 5.25 3.66 4.41
1988 . . . . . . . . . . . . 7.09 6.22 16.21 16.61 6.67 4.42
1989 . . . . . . . . . . . . 11.00 7.96 32.24 31.69 12.77 4.65
1990 . . . . . . . . . . . . 6.84 6.92 -.54 -3.10 9.16 6.11
1991 . . . . . . . . . . . . 16.63 4.97 24.25 30.47 14.62 3.06
1992 . . . . . . . . . . . . 6.97 2.59 7.40 7.62 7.17 2.90
1993 . . . . . . . . . . . . 11.37 1.78 16.97 10.08 8.79 2.75
1994 . . . . . . . . . . . . -4.43 -3.23% 2.77 5.02 1.32 -1.93 2.67
1995 . . . . . . . . . . . . 19.88 14.73 4.49 36.94 37.58 15.33 2.54
1996 . . . . . . . . . . . . 3.46 2.97 3.92 28.91 22.96 4.05 3.32
Cumulative Return . . . . . . . 223.53 14.32 99.66 745.61 601.48 241.73 58.21
Annual Effective Rate of Return 9.21 6.38 5.32 17.36 15.73 9.65 3.50
</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 Growth and Income 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 Morgan Stanley International Magnum Equity Series' subadviser was
Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset
Management Inc. became the subadviser.
(3) The 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.
(4) 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.
(5) 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.
(6) The Consumer Price Index, published by the U.S. Bureau of Labor Statistics,
is a statistical measure of changes, over time, in the prices of goods and
services. 1983 figures are from September 1 through December 31, 1983.
II-9
<PAGE>
The chart below illustrates what would have been the change in value of a $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 Growth and Income 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, 1996. 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, 1996
FOR BACK BAY ADVISORS BOND INCOME AND BACK BAY ADVISORS MONEY MARKET SERIES
MAY 1, 1993--DECEMBER 31, 1996 FOR WESTPEAK GROWTH
AND INCOME AND LOOMIS SAYLES AVANTI GROWTH SERIES
MAY 2, 1994--DECEMBER 31, 1996 FOR LOOMIS SAYLES SMALL CAP SERIES
NOVEMBER 1, 1994--DECEMBER 31, 1996 FOR OTHER ZENITH FUND SERIES
<TABLE>
<CAPTION>
CONTRACT VALUE
--------------------------------------------------------------
MORGAN
LOOMIS STANLEY LOOMIS
SAYLES INTERNATIONAL ALGER SAYLES DAVIS
CUMULATIVE SMALL MAGNUM EQUITY AVANTI VENTURE
PAYMENTS(1) CAP EQUITY(2) GROWTH GROWTH VALUE
----------- ----------- ------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . . . . $ 1,000
1984 . . . . . . . . . . . . 4,000
1985 . . . . . . . . . . . . 7,000
1986 . . . . . . . . . . . . 10,000
1987 . . . . . . . . . . . . 13,000
1988 . . . . . . . . . . . . 16,000
1989 . . . . . . . . . . . . 19,000
1990 . . . . . . . . . . . . 22,000
1991 . . . . . . . . . . . . 25,000
1992. . . . . . . . . . . . . 28,000
1993 . . . . . . . . . . . . 31,000 $ 2,125.09
1994 . . . . . . . . . . . . 34,000 $ 1,956.63 $ 511.62 $ 497.92 5,115.79 $ 495.14
1995 . . . . . . . . . . . . 37,000 5,897.75 3,646.54 4,233.52 9,930.80 4,136.90
1996 . . . . . . . . . . . . 40,000 11,030.05 6,891.00 7,903.51 14,748.59 8,577.96
Annual Effective Rate of Return 24.97% 5.28% 18.40% 16.15% 26.73%
</TABLE>
- - ---------
(1) For the Westpeak Growth and Income and Loomis Sayles Avanti Growth series
cumulative payments of December 31, 1993 would be $2,000, as of December 31,
1994 would be $5,000, as of December 31, 1995 would be $8,000 and as of
December 31, 1996 would be $11,000. For the Loomis Sayles Small Cap Series
cumulative payments as of December 31, 1994 would be $2,000, as of December
31, 1995 would be $5,000 and as of December 31, 1996 would be $8,000. For the
other Zenith Fund Series, cumulative payments as of December 31, 1994 would be
$500, as of December 31, 1995 would be $3,500 and as of December 31, 1996
would be $6,500.
(2) The Morgan Stanley International Magnum Equity Series' subadviser was
Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset
Management Inc. became the subadviser.
II-10
<PAGE>
<TABLE>
<CAPTION>
CONTRACT VALUE
--------------------------------------------------------------------------------
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
WESTPEAK LOOMIS STRATEGIC ADVISORS BROTHERS ADVISORS
CUMULATIVE GROWTH SAYLES BOND BOND U.S. MONEY
PAYMENTS(1) AND INCOME BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
----------- ------------ ----------- ------------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . . $ 1,000 $ 1,013.55 $ 1,016.83
1984 . . . . . . . . . . 4,000 4,360.19 4,241.06
1985 . . . . . . . . . . 7,000 8,402.33 7,627.78
1986 . . . . . . . . . . 10,000 12,703.24 11,121.55
1987 . . . . . . . . . . 13,000 15,865.00 14,791.57
1988 . . . . . . . . . . 16,000 20,068.30 18,822.80
1989 . . . . . . . . . . 19,000 25,450.73 23,459.07
1990 . . . . . . . . . . 22,000 30,372.07 28,210.29
1991 . . . . . . . . . . 25,000 38,766.70 32,711.68
1992 . . . . . . . . . . 28,000 44,628.94 36,625.42
1993 . . . . . . . . . . 31,000 $ 2,123.78 52,847.29 40,339.74
1994 . . . . . . . . . . 34,000 5,067.22 $ 502.44 $ 492.42 53,498.02 $ 502.65 44,548.95
1995 . . . . . . . . . . 37,000 10,317.07 3,914.86 3,823.97 67,450.71 3,744.38 49,664.32
1996 . . . . . . . . . . 40,000 15,361.29 7,815.88 7,514.40 72,948.46 6,881.60 54,723.55
Annual Effective Rate of
Return . . . . . . . . . 18.48% 17.28% 13.44% 8.57% 5.15% 4.55%
</TABLE>
<TABLE>
<CAPTION>
SURRENDER VALUE
----------------------------------------------------------------
MORGAN
LOOMIS STANLEY LOOMIS
SAYLES INTERNATIONAL ALGER SAYLES DAVIS
CUMULATIVE SMALL MAGNUM EQUITY AVANTI VENTURE
PAYMENTS(1) CAP EQUITY(2) GROWTH GROWTH VALUE
----------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . . . . . $ 1,000
1984 . . . . . . . . . . . . . 4,000
1985 . . . . . . . . . . . . . 7,000
1986 . . . . . . . . . . . . . 10,000
1987 . . . . . . . . . . . . . 13,000
1988 . . . . . . . . . . . . . 16,000
1989 . . . . . . . . . . . . . 19,000
1990 . . . . . . . . . . . . . 22,000
1991 . . . . . . . . . . . . . 25,000
1992 . . . . . . . . . . . . . 28,000
1993 . . . . . . . . . . . . . 31,000 $ 2,025.09
1994 . . . . . . . . . . . . . 34,000 $ 1,803.92 $ 487.16 $ 474.00 4,924.01 $ 471.34
1995 . . . . . . . . . . . . . 37,000 5,550.25 3,513.46 4,093.52 9,660.80 3,996.90
1996 . . . . . . . . . . . . . 40,000 10,522.55 6,676.42 7,678.51 14,438.59 8,352.96
Annual Effective Rate of Return . 21.10% 2.40% 15.54% 14.98% 23.98%
</TABLE>
<TABLE>
<CAPTION>
SURRENDER VALUE
---------------------------------------------------------------------------
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
WESTPEAK LOOMIS STRATEGIC ADVISORS BROTHERS ADVISORS
CUMULATIVE GROWTH SAYLES BOND BOND U.S. MONEY
PAYMENTS(1) AND INCOME BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
----------- ----------- ---------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983 . . . . . . . . . . . . $ 1,000 $ 964.01 $ 967.16
1984 . . . . . . . . . . . . 4,000 4,200.19 4,084.91
1985 . . . . . . . . . . . . 7,000 8,162.33 7,389.54
1986 . . . . . . . . . . . . 10,000 12,413.24 10,831.55
1987 . . . . . . . . . . . . 13,000 15,555.00 14,481.57
1988 . . . . . . . . . . . . 16,000 19,758.30 18,512.80
1989 . . . . . . . . . . . . 19,000 25,140.73 23,149.07
1990 . . . . . . . . . . . . 22,000 30,062.07 27,900.29
1991 . . . . . . . . . . . . 25,000 38,456.70 32,401.68
1992 . . . . . . . . . . . . 28,000 44,318.94 36,315.42
1993 . . . . . . . . . . . . 31,000 $ 2,023.78 52,537.29 40,029.74
1994 . . . . . . . . . . . . 34,000 4,877.50 $ 478.35 $ 468.73 53,188.02 $ 478.54 44,238.95
1995 . . . . . . . . . . . . 37,000 10,047.07 3,774.86 3,684.90 67,140.71 3,608.30 49,354.32
1996 . . . . . . . . . . . . 40,000 15,051.29 7,590.88 7,289.40 72,638.46 6,667.73 54,413.55
Annual Effective Rate of Return 17.31% 14.42% 10.53% 8.51% 2.27% 4.47%
</TABLE>
- - ---------
(1) For the Westpeak Growth and Income 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, as of December 31, 1995 would be $8,000 and as of
December 31, 1996 would be $11,000. For the Loomis Sayles Small Cap Series,
cumulative payments as of December 31, 1994 would be $2,000, as of December 31,
1995 would be $5,000 and as of December 31, 1996 would be $8,000. For the other
Zenith Fund Series, cumulative payments as of December 31, 1994 would be $500,
as of December 31, 1995 would be $3,500 and as of December 31, 1996 would be
$6,500.
(2) The Morgan Stanley International Magnum Equity Series' subadviser was
Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset Management
Inc. became the subadviser.
II-11
<PAGE>
As discussed in the prospectus in the third to the last paragraph of the
section entitled "Investment Experience Information," the Variable Account may
illustrate historical investment performance by showing the percentage change in
unit value and the annual effective rate of return of each sub-account of the
Variable Account for every calendar year since inception of the corresponding
Eligible Funds to the date of the illustration and for the 10, 5 and 1 year
periods and the year-to-date period ending with the date of the illustration.
Examples of such illustrations follow. Such illustrations do not reflect the
impact of any Contingent Deferred Sales Charge or the annual $30 Administration
Contract Charge. The method of calculating the percentage change in unit value
is described in the prospectus under "Investment Experience Information." The
annual effective rate of return in these illustrations is calculated by dividing
the unit value at the end of the period by the unit value at the beginning of
the period, raising this quantity to the power of 1/n (where n is the number of
years in the period), and then subtracting 1.
Set forth on the following pages are illustrations of the percentage change in
unit value information and annual effective rate of return information discussed
above that may appear in the Variable Account's Annual and Semi-Annual Reports
and in other illustrations of historical investment performance. Such
illustrations do not reflect the impact of any Contingent Deferred Sales Charge
or the annual Administration Contract Charge.
LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ --------
<S> <C> <C>
May 2, 1994 . . . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . 0.961326 -3.9%
December 31, 1995 . . . . . . . . . . . . . 1.226330 27.6%
December 31, 1996 . . . . . . . . . . . . . 1.586549 29.4%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
2 years, 8 months ended December 31, 1996 . . 58.7% 18.9%
1 year ended December 31, 1996 . . . . . . . . 29.4% 29.4%
</TABLE>
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT**
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ --------
<S> <C> <C>
October 31, 1994 . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . 1.024334 2.4%
December 31, 1995 . . . . . . . . . . . . . 1.077376 5.2%
December 31, 1996 . . . . . . . . . . . . . 1.137758 5.6%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
2 years, 2 months ended December 31, 1996 . . 13.8% 6.1%
1 year ended December 31, 1996 . . . . . . . . 5.6% 5.6%
</TABLE>
- - ---------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
** The Morgan Stanley International Magnum Equity Series' subadviser was
Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset Management
Inc. became the subadviser.
II-12
<PAGE>
ALGER EQUITY GROWTH SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
--- ------------ --------
<S> <C> <C>
October 31, 1994 . . . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . . . 0.956441 -4.4%
December 31, 1995 . . . . . . . . . . . . . . . 1.408084 47.2%
December 31, 1996 . . . . . . . . . . . . . . . 1.577605 12.0%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
2 year, 2 months ended December 31, 1996 . . . . 57.8% 23.4%
1 year ended December 31, 1996 . . . . . . . . . 12.0% 12.0%
</TABLE>
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 . . . . . . . . . . . . . . . 1.139711 14.0%
December 31, 1994 . . . . . . . . . . . . . . . 1.125345 -1.3%
December 31, 1995 . . . . . . . . . . . . . . . 1.452347 29.1%
December 31, 1996 . . . . . . . . . . . . . . . 1.690956 16.4%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
3 years, 8 months ended December 31, 1996 . . . . 69.1% 15.4%
1 year ended December 31, 1996 . . . . . . . . . 16.4% 16.4%
</TABLE>
DAVIS VENTURE VALUE SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
--- ------------ --------
<S> <C> <C>
October 31, 1994 . . . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . . . 0.963414 -3.7%
December 31, 1995 . . . . . . . . . . . . . . . 1.328568 37.9%
December 31, 1996 . . . . . . . . . . . . . . . 1.655125 24.6%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
2 years, 2 months ended December 31, 1996 . . . . 65.5% 26.1%
1 year ended December 31, 1996 . . . . . . . . . 24.6% 24.6%
</TABLE>
- - ---------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-13
<PAGE>
WESTPEAK GROWTH AND INCOME SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ --------
<S> <C> <C>
April 30, 1993 . . . . . . . . . . . . . . . 1.000000
December 31, 1993 . . . . . . . . . . . . . 1.134771 13.5%
December 31, 1994 . . . . . . . . . . . . . 1.109950 -2.2%
December 31, 1995 . . . . . . . . . . . . . 1.499680 35.1%
December 31, 1996 . . . . . . . . . . . . . 1.753311 16.9%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
3 years, 8 months ended December 31, 1996 . . 75.3% 16.5%
1 year ended December 31, 1995 . . . . . . . . 16.9% 16.9%
</TABLE>
LOOMIS SAYLES BALANCED SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ --------
<S> <C> <C>
October 31, 1994 . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . 0.997365 -0.3%
December 31, 1995 . . . . . . . . . . . . . 1.232277 23.6%
December 31, 1996 . . . . . . . . . . . . . 1.426266 15.7%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
2 years, 2 months ended December 31, 1996 . . 42.6% 17.8%
1 year ended December 31, 1996 . . . . . . . . 15.7% 15.7%
</TABLE>
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ --------
<S> <C> <C>
October 31, 1994 . . . . . . . . . . . . . . 1.000000
December 31, 1994 . . . . . . . . . . . . . 0.984417 -1.6%
December 31, 1995 . . . . . . . . . . . . . 1.163542 18.2%
December 31, 1996 . . . . . . . . . . . . . 1.317253 13.2%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
2 years, 2 months ended December 31, 1996 . . 31.7% 13.5%
1 year ended December 31, 1996 . . . . . . . . 13.2% 13.2%
</TABLE>
- - ---------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-14
<PAGE>
BACK BAY ADVISORS BOND INCOME SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
August 26, 1983 . . . . . . . . . . . . . . 1.000000
December 31, 1983 . . . . . . . . . . . . . 1.028437 2.8%
December 31, 1984 . . . . . . . . . . . . . 1.146514 11.5%
December 31, 1985 . . . . . . . . . . . . . 1.348044 17.6%
December 31, 1986 . . . . . . . . . . . . . 1.532610 13.7%
December 31, 1987 . . . . . . . . . . . . . 1.551754 1.2%
December 31, 1988 . . . . . . . . . . . . . 1.664845 7.3%
December 31, 1989 . . . . . . . . . . . . . 1.851018 11.2%
December 31, 1990 . . . . . . . . . . . . . 1.980714 7.0%
December 31, 1991 . . . . . . . . . . . . . 2.313192 16.8%
December 31, 1992 . . . . . . . . . . . . . 2.477440 7.1%
December 31, 1993 . . . . . . . . . . . . . 2.762110 11.5%
December 31, 1994 . . . . . . . . . . . . . 2.642721 4.3%
December 31, 1995 . . . . . . . . . . . . . 3.171150 20.0%
December 31, 1996 . . . . . . . . . . . . . 3.284075 3.6%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
13 years, 4 months ended December 31, 1996 . . 228.4% 9.3%
10 years ended December 31, 1996 . . . . . . . 114.3% 7.9%
5 years ended December 31, 1996 . . . . . . . 42.0% 7.3%
1 year ended December 31, 1996 . . . . . . . . 3.6% 3.6%
</TABLE>
SALOMON BROTHERS U.S. GOVERNMENT SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ --------
<S> <C> <C>
October 31, 1994 . . . . . . . . . . . . . 1.000000 --
December 31, 1994 . . . . . . . . . . . . . 1.004348 0.4%
December 31, 1995 . . . . . . . . . . . . . 1.143747 13.9%
December 31, 1996 . . . . . . . . . . . . . 1.169805 2.3%
</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, 2 months ended December 31, 1996 . . 17.0% 7.5%
1 year ended December 31, 1996 . . . . . . . . 2.3% 2.3%
</TABLE>
- - ---------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-15
<PAGE>
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 . . . . . . . . . . . . . . . 1.028407 2.8%
December 31, 1984 . . . . . . . . . . . . . . . 1.127368 9.6%
December 31, 1985 . . . . . . . . . . . . . . . 1.208374 7.2%
December 31, 1986 . . . . . . . . . . . . . . . 1.277745 5.7%
December 31, 1987 . . . . . . . . . . . . . . . 1.347602 5.5%
December 31, 1988 . . . . . . . . . . . . . . . 1.434497 6.4%
December 31, 1989 . . . . . . . . . . . . . . . 1.551704 8.2%
December 31, 1990 . . . . . . . . . . . . . . . 1.662062 7.1%
December 31, 1991 . . . . . . . . . . . . . . . 1.747768 5.2%
December 31, 1992 . . . . . . . . . . . . . . . 1.796049 2.8%
December 31, 1993 . . . . . . . . . . . . . . . 1.831027 1.9%
December 31, 1994 . . . . . . . . . . . . . . . 1.884840 2.9%
December 31, 1995 . . . . . . . . . . . . . . . 1.972491 4.7%
December 31, 1996 . . . . . . . . . . . . . . . 2.052875 4.1%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- -----------
<S> <C> <C>
13 years, 4 months ended December 31, 1996 . . . 105.3% 5.5%
10 years ended December 31, 1996 . . . . . . . . 60.7% 4.9%
5 years ended December 31, 1996 . . . . . . . . . 17.5% 3.3%
1 year ended December 31, 1996 . . . . . . . . . 4.1% 4.1%
</TABLE>
- - ---------
* Unit values do not reflect the impact of any Contingent Deferred Sales Charge
or the annual $30 Administration Contract Charge.
II-16
<PAGE>
NET INVESTMENT FACTOR
The Company determines the net investment factor ("Net Investment Factor") for
any sub-account on each day on which the New York Stock Exchange is open for
trading as follows:
(1) The Company takes the net asset value per share of the Eligible Fund
held in the sub-account determined as of the close of regular trading on the
New York Stock Exchange on a particular day.
(2) Next, the Company adds the per share amount of any dividend or capital
gains distribution made by the Eligible Fund since the close of regular
trading on the New York Stock Exchange on the preceding trading day.
(3) This total amount is then divided by the net asset value per share of
the Eligible Fund as of the close of regular trading on the New York Stock
Exchange on the preceding trading day.
(4) Finally, the Company subtracts the daily charges for the Mortality and
Expense Risk Charge since the close of regular trading on the New York Stock
Exchange on the preceding trading day. (See "Administration Charges,
Contingent Deferred Sales Charge and Other Deductions" in the prospectus.) On
an annual basis, the total deduction for such charges equals 1.00% of the
daily net asset value of the Variable Account.
ANNUITY PAYMENTS
At annuitization, the Contract Value is applied toward the purchase of monthly
variable annuity payments. The amount of these payments will be determined on
the basis of (i) annuity purchase rates not lower than the rates set forth in
the Life Income Tables contained in the Contract that reflect the age of the
Payee at annuitization, (ii) the assumed interest rate selected, (iii) the type
of payment option selected, and (iv) the investment performance of the Eligible
Fund selected.
When a variable 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
II-17
<PAGE>
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
reduced by any applicable Contingent Deferred Sales Charge, Administration
Contract Charge, premium tax charge and the amount of any outstanding loan
plus accrued interest.)
(2) The number of annuity units is determined by dividing the amount of
the basic payment level by the applicable annuity unit value(s) next
determined following the date of application of proceeds.
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. (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 below. The monthly equivalents of the hypothetical
annual net returns of 0%, 5.42%, 6%, 8% and 10% shown in the tables at pages
II-20 and II-21 are 0%, .45%, .50%, .67% and .83%.
II-18
<PAGE>
HYPOTHETICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS
The following tables have been prepared to show how variable annuity income
payments under the Contract change with investment performance over an extended
period of time. The tables illustrate how monthly annuity income payments would
vary over time if the return on assets in the selected portfolios were a uniform
gross annual rate of 0%, 5.42%, 6%, 8% or 10%. The values would be different
from those shown if the returns averaged 0%, 5.42%, 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 1.00%. 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."
The tables show both the gross rate and the net rate. The difference between
gross and net rates represents the 1.00% for mortality and expense risk 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 1.84%.
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. We offer
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, we will furnish a comparable illustration based on your
individual circumstances.
II-19
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(100% VARIABLE PAYOUT)
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT $100,000
VALUE:
SEX: Unisex DATE OF ILLUSTRATION: 1/1/97
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME
PAYMENTS: Monthly
FIXED MONTHLY ANNUITY INCOME PAYMENT FOR AGE 65 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% 5.42% 6% 8% 10%
PAYMENT CALENDAR ------ ------- ------- ------- ------- ------------
YEAR YEAR AGE NET** 1.82% 3.50% 4.07% 6.03% 8.00%
- - ---------- -------- ---- ------ ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1997 65 $581.00 $581.00 $581.00 $581.00 $ 581.00
2 1998 66 551.13 581.00 584.20 595.22 606.24
3 1999 67 522.79 581.00 587.41 609.79 632.58
4 2000 68 495.91 581.00 590.65 624.71 660.07
5 2001 69 470.42 581.00 593.90 640.00 688.75
10 2006 74 361.30 581.00 610.42 722.26 851.95
15 2011 79 277.49 581.00 627.40 815.08 1,053.83
20 2016 84 213.12 581.00 644.85 919.83 1,303.55
</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 1.00% Mortality and Expense Risk Charge from the Gross
Rates of Return.
II-20
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(50% VARIABLE--50% FIXED PAYOUT)
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT
VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/97
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME
PAYMENTS: Monthly
FIXED MONTHLY ANNUITY INCOME PAYMENT FOR AGE 65 BASED ON CURRENT RATES, IF 100%
FIXED ANNUITY OPTION SELECTED FOR AGE 65: $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% 5.42% 6% 8% 10%
PAYMENT CALENDAR ------ -------- -------- -------- -------- ----------
YEAR YEAR AGE NET** -1.82% 3.50% 4.07% 6.03% 8.00%
-------- -------- ---- ------ -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1997 65 $621.00 $621.00 $621.00 $621.00 $621.00
2 1998 66 606.06 621.00 622.60 628.12 633.62
3 1999 67 591.90 621.00 624.21 635.39 646.79
4 2000 68 578.46 621.00 625.82 642.86 660.53
5 2001 69 565.71 621.00 627.45 650.50 674.87
10 2006 74 511.15 621.00 635.71 691.63 756.48
15 2011 79 469.24 621.00 644.20 738.04 857.42
20 2016 84 437.06 621.00 652.93 790.42 982.27
</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 1.00% Mortality and Expense Risk Charge from the Gross Rate of
Return.
II-21
<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 1.00%. 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 had 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-22
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT
VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/97
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME
PAYMENTS: Monthly
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>
MORGAN
STANLEY LOOMIS
LOOMIS INTERNATIONAL ALGER SAYLES DAVIS
PAYMENT CALENDAR SAYLES MAGNUM EQUITY AVANTI VENTURE
YEAR YEAR AGE SMALL CAP EQUITY GROWTH GROWTH VALUE
- - ------- -------- ---- --------- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1983 65
2 1984 66
3 1985 67
4 1986 68
5 1987 69
6 1988 70
7 1989 71
8 1990 72
9 1991 73
10 1992 74
11 1993 75 $ 747.00
12 1994 76 $ 765.00 $765.00 $ 765.00 831.93 $ 765.00
13 1995 77 735.22 779.14 737.83 793.67 732.81
14 1996 78 906.18 791.78 1,049.51 989.65 976.38
15 1997 79 1,132.60 807.80 1,136.00 1,113.17 1,175.13
</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 CHARGES (1.00%), MANAGEMENT FEES AND OTHER EXPENSES (These may vary from
year to year. The following expenses are for the year ended December 31, 1996,
after giving effect to expense caps or deferrals in effect for 1997: 1.00%
Loomis Sayles Small Cap, 1.30% Morgan Stanley International Magnum Equity, 0.90%
Alger Equity Growth, 0.85% Loomis Sayles Avanti Growth, 0.90% Davis Venture
Value, 0.85% Westpeak Growth and Income, 0.85% Loomis Sayles Balanced, 0.85%
Salomon Strategic Bond Opportunities, 0.52% Back Bay Bond Income, 0.70% Salomon
US Government, 0.50% Back Bay Money Market.)
- - ---------
* 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>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT
VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 1/1/97
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME
PAYMENTS: Monthly
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>
WESTPEAK SALOMON
GROWTH LOOMIS STRATEGIC BACK BAY SALOMON BACK BAY
PAYMENT CALENDAR AND SAYLES BOND BOND U.S. MONEY
YEAR YEAR AGE INCOME BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
- - ------- -------- --- --------- --------- ------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1983 65 $ 581.00 $581.00
2 1984 66 594.53 589.89
3 1985 67 640.32 624.72
4 1986 68 727.41 646.97
5 1987 69 799.04 660.98
6 1988 70 781.66 673.54
7 1989 71 810.19 692.66
8 1990 72 870.33 723.92
9 1991 73 899.82 749.18
10 1992 74 1,015.33 761.17
11 1993 75 $ 747.00 1,050.55 755.68
12 1994 76 828.32 $ 765.00 $765.00 1,131.65 $765.00 744.34
13 1995 77 782.81 758.63 748.78 1,046.12 763.94 740.31
14 1996 78 1,021.90 905.62 855.10 1,212.85 840.56 748.54
15 1997 79 1,154.22 1,012.64 935.24 1,213.45 830.56 752.63
</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 CHARGES (1.00%), MANAGEMENT FEES AND OTHER EXPENSES (These may vary from
year to year. The following expenses are for the year ended December 31, 1996,
after giving effect to expense caps or deferrals in effect for 1997: 1.00%
Loomis Sayles Small Cap, 1.30% Morgan Stanley International Magnum Equity, 0.90%
Alger Equity Growth, 0.85% Loomis Sayles Avanti Growth, 0.90% Davis Venture
Value, 0.85% Westpeak Growth and Income, 0.85% Loomis Sayles Balanced, 0.85%
Salomon Strategic Bond Opportunities, 0.52% Back Bay Bond Income, 0.70% Salomon
US Government, 0.50% Back Bay Money Market.)
- - ---------
* 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-24
<PAGE>
EXPERTS
The financial statements of New England Variable Annuity Separate Account of
New England Life Insurance Company ("NELICO") (formerly New England Variable
Life Insurance Company) and the consolidated financial statements of NELICO and
subsidiaries as of and for the year ended December 31, 1996 included in this
Statement of Additional Information have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein (whose reports
express unqualified opinions and, with respect to NELICO, includes an
explanatory paragraph referring to the change in the basis of accounting and the
change in corporate organization), and have been so included in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing. The adjustments that were applied to restate the 1995 and 1994
financial statements to reflect the effects of the changes for adoption of
generally accepted accounting principles and the changes in corporate
organization have also been audited by Deloitte & Touche LLP.
The statutory balance sheets of New England Variable Life Insurance Company
and New England Pension and Annuity Company as of December 31, 1995, and the
related statutory statements of operations, surplus, and cash flows for each of
the two years in the period ended December 31, 1995 (not included herein), have
been incorporated herein in reliance on the reports (which reports include
adverse opinions as to generally accepted accounting principles and unqualified
opinions as to statutory accounting practices prescribed or permitted by the
Insurance Department of the State of Delaware) of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing. The statutory balance sheet of Exeter Reassurance
Company, Ltd. as at December 31, 1995, and the related statutory statements of
income, capital and surplus, and cash flows for the year then ended (not
included herein), have been incorporated herein in reliance on the report (which
report includes an adverse opinion as to generally accepted accounting
principles and an unqualified opinion as to conformity with The Insurance Act
1978, amendments thereto and related regulations) of Coopers & Lybrand,
chartered accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated statement of financial condition of New England Securities
Corporation as of December 31, 1995, and the related consolidated statements of
operations, shareholder's equity, and cash flows for the year then ended (not
included herein); the balance sheet of TNE Advisers, Inc. as of December 31,
1995, and the related statements of operations, changes in shareholder's equity
(deficit), and cash flows for the year ended December 31, 1995 and for the
period August 26, 1994 (commencement of operations) through December 31, 1994
(not included herein), have been incorporated 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. The balance sheet of Newbury
Insurance Company, Limited as of December 31, 1995, and the related statements
of earnings and retained earnings, and cash flows for the years ended December
31, 1995 and 1994 (not included herein), have been incorporated herein in
reliance on the reports of Coopers & Lybrand, chartered accountants, given on
the authority of that firm as experts in accounting and auditing.
The statements of operations and changes in net assets of New England Variable
Annuity Separate Account for the period ended December 31, 1995 have been
incorporated herein in reliance on the report 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 of the
Company. Sutherland, Asbill & Brennan, Washington, D.C., have acted as special
counsel on certain matters relating to the Federal securities laws.
II-25
<PAGE>
APPENDIX A
ABC and affiliates Fortune Public Broadcasting
Atlanta Constitution Fox Newtwork and Service
Atlanta Journal affiliates Quinn, Jane Bryant
Austin American Fund Action (syndicated column)
Statesman Hartford Courant Registered Representative
Baltimore Sun Houston Chronicle Research Magazine
Barron's INC Resource
Bond Buyer Indianapolis Star Reuters
Boston Business Institutional Investor Rukeyser's Business
Journal Investment Dealers (syndicated column)
Boston Globe Digest Sacramento Bee
Boston Herald Investment Vision San Francisco Chronicle
Broker World Investor's Daily San Francisco Examiner
Business Radio Network Journal of Commerce San Jose Mercury
Business Week Kansas City Star Seattle
CBS and affiliates LA Times Post-Intelligencer
CFO Leckey, Andrew Seattle Times
Changing Times (syndicated column) Smart Money
Chicago Sun Times Life Association News St. Louis Post Dispatch
Chicago Tribune Miami Herald St. Petersburg Times
Christian Science Milwaukee Sentinel Standard & Poor's Outlook
Monitor Money Standard & Poor's Stock
Christian Science Money Maker Guide
Monitor News Service Money Management Stanger's Investment
Cincinnati Enquirer Letter Advisor
Cincinnati Post Morningstar Stockbroker's Register
CNBC National Public Radio Strategic Insight
CNN National Underwriter Tampa Tribune
Columbus Dispatch NBC and affiliates Time
Dallas Morning News New England Business Tobias, Andrew
Dallas Times-Herald New England Cable News (syndicated column)
Denver Post New Orleans UPI
Des Moines Register Times-Picayune US News and World Report
Detroit Free Press New York Daily News USA Today
Donoghues Money Fund New York Times Value Line
Report Newark Star Ledger Wall St. Journal
Dorfman, Dan Newsday Wall Street Letter
(syndicated column) Newsweek Wall Street Week
Dow Jones News Service Nightly Business Washington Post
Economist Report WBZ
FACS of the Week Orange County Register WBZ-TV
Financial News Network Orlando Sentinel WCVB-TV
Financial Planning Pension World WEEI
Financial Services Pensions and WHDH
Week Investments Worcester Telegram
Financial World Personal Investor Worth Magazine
Forbes Philadelphia Inquirer WRKO
Fort Worth Porter, Sylvia
Star-Telegram (syndicated column)
Portland Oregonian
II-26
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
New England 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, Growth and Income
Sub-Account (formerly Value Growth Sub-Account), Small Cap Sub-Account, U.S.
Government Sub-Account, Balanced Sub-Account, Equity Growth Sub-Account,
International Equity Sub-Account, Venture Value Sub-Account and Bond
Opportunities Sub-Account) of New England Life Insurance Company (formerly New
England Variable Life Insurance Company) as of December 31, 1996, and the
related statements of operations and changes in net assets for the year 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. The financial statements of New England Variable
Annuity Separate Account for the period April 19, 1995 (Commencement of
Operations) to December 31, 1995, was audited by other auditors whose report,
dated February 6, 1996, expressed an unqualified opinion on those statements.
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
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the respective aforementioned
sub-accounts comprising the New England Variable Annuity Separate Account of New
England Life Insurance Company as of December 31, 1996, and the results of their
operations and the changes in net assets for the year then ended, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE
Boston, Massachusetts
February 18, 1997
F-1
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
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 statements of operations and changes in net assets of 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 Strategic Bond Opportunities Sub-Account) of New England Variable Life
Insurance Company for the period April 19, 1995 (commencement of operations)
through 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 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 statements of operations and changes in
net assets are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statements of
operations and changes in net assets. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the statements of operations and
changes in net assets. We believe that our audit of the statements of operations
and changes in net assets provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and changes in net assets of
the respective aforementioned sub-accounts comprising New England Variable
Annuity Separate Account of New England Variable Life Insurance Company for the
period April 19, 1995 (commencement of operations) through December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1996
F-2
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
-------------------------------------------------------------------
BOND MONEY AVANTI GROWTH AND SMALL
INCOME MARKET GROWTH INCOME CAP
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England
Zenith Fund, at value (Note 2) . . . . . . . . . . . . . . $14,184,954 $18,259,077 $15,094,170 $16,478,871 $19,042,750
SERIES SHARES COST
- - -------------------------------------- --------- -----------
Back Bay Advisors Bond Income
Series . . . . . . . . . . . . . . 134,289 $14,573,374
Back Bay Advisors Money Market
Series . . . . . . . . . . . . . . 182,591 18,259,077
Loomis Sayles Avanti Growth
Series . . . . . . . . . . . . . . 95,581 14,728,322
Westpeak Growth and Income
Series . . . . . . . . . . . . . . 108,578 15,944,117
Loomis Sayles Small Cap Series . . . 131,985 17,557,474
Salomon Brothers U.S. Government
Series. . . . . . . . . . . . . . . 588,303 6,463,809
Loomis Sayles Balanced Series . . . 1,811,028 22,581,970
Alger Equity Growth Series . . . . . 1,858,309 26,878,698
Draycott International Equity
Series . . . . . . . . . . . . . . 1,284,031 14,128,220
Davis Venture Value Series . . . . . 1,810,212 25,480,928
Salomon Brothers Strategic Bond
Opportunities Series . . . . . . . 1,253,269 14,517,675
Amount due and accrued
(payable) from contract-
related transactions, net . . . . . . . . . . . . . . . . . 192,083 (170,779) 80,204 20,055 78,873
Dividends receivable . . . . . . . . . . . . . . . . . . . . -- 70,788 -- -- --
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . 14,377,037 18,159,086 15,174,374 16,498,926 19,121,623
LIABILITIES
Due to (from) New England
Life Insurance Company . . . . . . . . . . . . . . . . . . (1,962) 22,874 12,377 7,746 13,875
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . (1,962) 22,874 12,377 7,746 13,875
----------- ----------- ----------- ----------- -----------
NET ASSETS $14,378,999 $18,136,212 $15,161,997 $16,491,180 $19,007,748
=========== =========== =========== =========== ===========
Net Assets consist of:
Net Assets attributable to
Variable Annuity Contracts . . . . . . . . . . . . . . . . $14,097,309 $17,847,460 $14,922,559 $15,888,304 $18,874,283
Annuity Reserves (Note 7). . . . . . . . . . . . . . . . . . 281,690 288,752 239,438 602,876 233,465
----------- ----------- ----------- ----------- -----------
TOTAL NET ASSETS . . . . . . . . . . . . . . . . $14,378,999 $18,136,212 $15,161,997 $16,491,160 $19,007,748
=========== =========== =========== =========== ===========
<CAPTION>
- - ---------------------------------------------------------------------------------
U.S. EQUITY INTERNATIONAL VENTURE BOND
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES
SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- - ---------- ----------- ----------- ------------- ----------- -------------
<C> <C> <C> <C> <C> <C>
$6,371,324 $24,539,431 $28,952,460 $14,496,713 $29,126,318 $14,562,966
29,862 46,142 109,739 79,290 104,566 22,886
-- -- -- -- -- --
- - ---------- ----------- ----------- ----------- ----------- -----------
6,401,186 24,585,573 29,062,199 14,576,603 29,230,684 14,585,872
2,511 18,996 23,707 12,226 20,639 14,384
- - ---------- ----------- ----------- ----------- ----------- -----------
2,511 18,996 23,707 12,226 20,639 14,384
- - ---------- ----------- ----------- ----------- ----------- -----------
$6,398,675 $24,566,577 $29,038,492 $14,563,777 $29,210,245 $14,571,488
========== =========== =========== =========== =========== ===========
$6,109,799 $24,220,021 $28,745,760 $14,234,613 $28,833,544 $13,982,409
288,876 346,556 292,732 329,164 376,701 589,079
- - ---------- ----------- ----------- ----------- ----------- -----------
$6,398,675 $24,566,577 $29,038,492 $14,563,777 $29,210,245 $14,571,488
========== =========== =========== =========== =========== ===========
<CAPTION>
- - --------------
TOTAL
- - --------------
<C>
$201,109,054
592,921
70,788
------------
201,772,763
147,373
------------
147,373
------------
$201,625,390
============
$197,756,061
3,669,329
------------
$201,625,390
============
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
BOND MONEY AVANTI GROWTH AND SMALL U.S.
INCOME MARKET GROWTH INCOME CAP GOVERNMENT BALANCED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends . . . . . . . . . . . . . $ 996,618 $584,576 $ 796,869 $1,486,194 $1,236,100 $314,575 $ 690,227
EXPENSES
Mortality, expense risk and
administrative charges
(Note 3) . . . . . . . . . . . . . 117,696 139,034 106,974 128,321 124,297 55,834 173,854
--------- -------- ---------- ---------- ---------- -------- ----------
Net investment income (loss) . . . 878,922 445,542 689,895 1,357,873 1,111,803 258,741 516,373
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net unrealized appreciation
(depreciation) on
investments:
Beginning of period . . . . . . (56,238) -- (20,804) 83,206 92,761 6,856 85,201
End of period . . . . . . . . . (388,420) -- 365,848 534,754 1,485,276 (92,485) 1,957,461
--------- -------- ---------- ---------- ---------- -------- ----------
Net change in unrealized
appreciation (depreciation) . . . (332,162) -- 386,652 451,548 1,392,515 (99,341) 1,872,260
Net realized gain (loss) on
investments. . . . . . . . . . . . (73) -- 56 172 202 1,012 72
--------- -------- ---------- ---------- ---------- -------- ----------
Net realized and unrealized gain
(loss) on investments . . . . . (332,255) -- 386,708 451,720 1,392,717 (98,329) 1,872,332
--------- -------- ---------- ---------- ---------- -------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . $ 546,667 $445,542 $1,076,603 $1,809,593 $2,504,520 $160,412 $2,388,705
========= ======== ========== ========== ========== ======== ==========
<CAPTION>
---------------------------------------------------------------------
EQUITY INTERNATIONAL VENTURE BOND
GROWTH EQUITY VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
----------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME
Dividends . . . . . . . . . . . . . $ 49,135 $217,097 $ 679,955 $891,674 $ 7,943,020
EXPENSES
Mortality, expense risk and
administrative charges
(Note 3) . . . . . . . . . . . . . 213,057 111,065 204,628 92,995 1,467,755
---------- -------- ---------- -------- -----------
Net investment income (loss) . . . (163,922) 106,032 475,327 798,679 6,475,285
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net unrealized appreciation
(depreciation) on
investments:
Beginning of period . . . . . . 20,495 64,159 179,424 (56,229) 398,795
End of period . . . . . . . . . 2,073,762 368,493 3,645,390 45,311 9,995,390
---------- -------- ---------- -------- -----------
Net change in unrealized
appreciation (depreciation) . . . 2,053,303 304,334 3,465,966 101,540 9,596,595
Net realized gain (loss) on
investments. . . . . . . . . . . . (131) 804 440 705 3,259
---------- -------- ---------- -------- -----------
Net realized and unrealized gain
(loss) on investments . . . . . 2,053,172 305,138 3,466,406 102,245 9,599,854
---------- -------- ---------- -------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . $1,889,250 $411,170 $3,941,733 $900,924 $16,075,119
========== ======== ========== ======== ===========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 19, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
1995
<TABLE>
<CAPTION>
-----------------------------------------------------------------
BOND MONEY AVANTI GROWTH AND SMALL
INCOME MARKET GROWTH INCOME CAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . $234,534 $106,461 $ 84,980 $208,739 $129,385
EXPENSES
Mortality, expense risk and administrative charges
(Note 3) . . . . . . . . . . . . . . . . . . . . 14,321 25,668 10,383 16,718 10,463
-------- -------- -------- -------- --------
Net investment income. . . . . . . . . . . . . . . 220,213 80,796 74,597 192,021 118,922
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
-------- -------- -------- -------- --------
Net change in unrealized appreciation
(depreciation). . . . . . . . . . . . . . . . . . (56,238) -- (20,804) 83,206 92,761
Net realized gain (loss) on investments . . . . . 210 -- 8 188 (8)
-------- -------- -------- -------- --------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . . . (56,028) -- (20,796) 83,394 92,753
-------- -------- -------- -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS . . . . . . . . . . . . . . . . . . . . $164,185 $ 80,796 $ 53,801 $275,415 $211,675
======== ======== ======== ======== ========
<CAPTION>
-------------------------------------------------------------------
U.S. EQUITY INTERNATIONAL VENTURE
GOVERNMENT BALANCED GROWTH EQUITY VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . $84,803 $167,655 $157,204 $33,056 $107,503
EXPENSES
Mortality, expense risk and administrative charges
(Note 3) . . . . . . . . . . . . . . . . . . . . 10,204 20,240 20,957 11,324 18,852
------- -------- -------- ------- --------
Net investment income. . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . 6,856 85,201 20,459 64,159 179,424
------- -------- -------- ------- --------
Net change in unrealized appreciation
(depreciation). . . . . . . . . . . . . . . . . . 6,856 85,201 20,459 64,159 179,424
Net realized gain (loss) on investments . . . . . 131 6 12 2 113
------- -------- -------- ------- --------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . . . 6,987 65,207 20,471 64,161 179,537
------- -------- -------- ------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS . . . . . . . . . . . . . . . . . . . . $81,586 $232,622 $156,718 $85,893 $268,188
======= ======== ======== ======= ========
<CAPTION>
---------------------------
BOND
OPPORTUNITIES
SUB-ACCOUNT TOTAL
------------- ------------
<S> <C> <C>
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . $146,583 $1,406,906
EXPENSES
Mortality, expense risk and administrative charges
(Note 3) . . . . . . . . . . . . . . . . . . . . 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
F-5
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
BOND MONEY AVANTI GROWTH AND SMALL U.S.
INCOME MARKET GROWTH INCOME CAP GOVERNMENT
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATING ACTIVITIES
Net Investment income
(loss) . . . . . . . . . . . . . . . . $ 878,922 $ 445,542 $ 689,895 $ 1,357,873 $ 1,111,803 $ 258,741
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . (332,255) -- 386,708 451,720 1,392,717 (98,329)
----------- ------------ ----------- ----------- ----------- ----------
Net Increase in net assets resulting
from operations . . . . . . . . . . . 546,667 445,542 1,076,603 1,809,593 2,504,520 160,412
FROM CONTRACT-RELATED TRANSACTIONS
Purchase payments transferred from New
England Life Insurance Company . . . . 10,068,726 30,165,177 10,017,554 9,961,049 12,313,114 4,228,387
Net transfers (to) from other
sub-accounts . . . . . . . . . . . . 308,694 (16,711,897) 1,607,239 1,390,946 1,878,952 62,147
Net transfers (to) from New England
Life Insurance Company . . . . . . . (489,973) (975,438) (430,695) (957,156) (547,400) (469,227)
----------- ------------ ----------- ----------- ----------- ----------
Increase in net assets resulting from
contract-related transactions . . . . 9,887,447 12,477,842 11,194,098 10,394,839 13,644,666 3,621,307
----------- ------------ ----------- ----------- ----------- ----------
NET INCREASE IN NET ASSETS . . . . . . . 10,434,114 12,923,384 12,270,701 12,204,432 16,149,186 3,981,719
NET ASSETS, AT BEGINNING OF THE
PERIOD . . . . . . . . . . . . . . . . 3,944,885 5,212,828 2,891,296 4,286,748 2,958,562 2,416,956
----------- ------------ ----------- ----------- ----------- ----------
NET ASSETS, AT END OF THE
PERIOD . . . . . . . . . . . . . . . . $14,378,999 $ 18,136,212 $15,161,997 $16,491,180 $19,107,748 $6,398,675
=========== ============ =========== =========== =========== ==========
<CAPTION>
---------------------------------------------------------------------------------------
EQUITY INTERNATIONAL VENTURE BOND
BALANCED GROWTH EQUITY VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ------------ ------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATING ACTIVITIES
Net Investment income
(loss) . . . . . . . . . . . . . . . . $ 516,373 $ (163,922) $ 106,032 $ 475,327 $ 798,679 $ 6,475,265
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . 1,872,332 2,053,172 305,138 3,466,406 102,245 9,599,854
----------- ----------- ----------- ----------- ----------- ------------
Net Increase in net assets resulting
from operations . . . . . . . . . . . 2,388,705 1,889,250 411,170 3,941,733 900,924 16,075,119
FROM CONTRACT-RELATED TRANSACTIONS
Purchase payments transferred from New
England Life Insurance Company . . . . 16,027,105 19,491,589 9,804,736 18,465,880 10,298,058 150,841,375
Net transfers (to) from other
sub-accounts . . . . . . . . . . . . 2,053,141 2,962,775 1,727,240 2,832,686 1,888,077 --
Net transfers (to) from New England
Life Insurance Company . . . . . . . (623,930) (789,579) (569,779) (1,055,952) (804,697) (7,713,826)
----------- ----------- ----------- ----------- ----------- ------------
Increase in net assets resulting from
contract-related transactions . . . . 17,456,316 21,664,785 10,962,197 20,242,614 11,381,438 143,127,549
----------- ----------- ----------- ----------- ----------- ------------
NET INCREASE IN NET ASSETS . . . . . . . 19,845,021 23,554,035 11,373,367 24,184,347 12,282,362 159,202,668
NET ASSETS, AT BEGINNING OF THE
PERIOD . . . . . . . . . . . . . . . . 4,721,556 5,484,457 3,190,410 5,025,898 2,289,126 42,422,722
----------- ----------- ----------- ----------- ----------- ------------
NET ASSETS, AT END OF THE
PERIOD . . . . . . . . . . . . . . . . $24,566,577 $29,038,492 $14,563,777 $29,210,245 $14,571,488 $201,625,390
=========== =========== =========== =========== =========== ============
</TABLE>
See Notes to Financial Statements
F-6
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND 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 GROWTH AND SMALL U.S.
INCOME MARKET GROWTH INCOME CAP GOVERNMENT BALANCED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING ACTIVITIES
Net investment Income . . . . . . . $ 220,213 $ 80,796 $ 74,597 $ 192,021 $ 118,922 $ 74,599 $ 147,415
Net realized and unrealized gain
(loss) of investments . . . . . . (56,028) -- (20,796) 83,394 92,753 6,987 85,207
---------- ----------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets
resulting from operations . . . 164,185 80,796 53,801 275,415 211,675 81,586 232,622
FROM CONTRACT-RELATED TRANSACTIONS
Purchase payments transferred from
New England Life Insurance
Company . . . . . . . . . . . . . 3,512,772 8,774,833 2,697,244 2,346,443 2,851,472 2,209,207 4,350,428
Net transfers (to) from other
sub-account. . . . . . . . . . . . 288,578 (3,490,074) 151,126 1,658,049 175,700 161,291 247,728
Net transfers (to) from New England
Life insurance Company . . . . . . (20,650) (152,727) (10,875) 6,841 (10,285) (35,128) (109,222)
---------- ----------- ---------- ---------- ---------- ---------- ----------
Increase in net assets resulting
from contact-related
transactions . . . . . . . . . . 3,780,700 5,132,032 2,637,495 4,011,333 2,746,887 2,335,370 4,488,934
---------- ----------- ---------- ---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS . . . . 3,944,885 5,212,828 2,891,296 4,286,748 2,958,562 2,416,956 4,721,556
NET ASSETS, AT BEGINNING OF THE
PERIOD . . . . . . . . . . . . . . -- -- -- -- -- -- --
---------- ----------- ---------- ---------- ---------- ---------- ----------
NET ASSETS, AT END OF THE PERIOD . $3,944,885 $ 5,212,828 $2,691,296 $4,286,748 $2,958,562 $2,416,956 $4,721,556
========== =========== ========== ========== ========== ========== ==========
<CAPTION>
----------------------------------------------------------------------
EQUITY INTERNATIONAL VENTURE BOND
GROWTH EQUITY VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
----------- ------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
FROM OPERATING ACTIVITIES
Net investment Income . . . . . . . $ 136,247 $ 21,732 $ 88,651 $ 138,365 $ 1,293,558
Net realized and unrealized gain
(loss) of investments . . . . . . 20,471 64,161 179,537 (55,936) 399,750
---------- ---------- ---------- ---------- -----------
Net increase in net assets
resulting from operations . . . 156,718 85,893 268,188 82,429 1,693,308
FROM CONTRACT-RELATED TRANSACTIONS
Purchase payments transferred from
New England Life Insurance
Company . . . . . . . . . . . . . 5,139,557 2,959,953 4,408,888 2,229,504 41,210,301
Net transfers (to) from other
sub-account. . . . . . . . . . . . 230,721 169,830 353,605 53,446 --
Net transfers (to) from New England
Life insurance Company . . . . . . (42,539) (25,266) (4,783) (76,253) (480,687)
---------- ---------- ---------- ---------- -----------
Increase in net assets resulting
from contact-related
transactions . . . . . . . . . . 5,327,739 3,104,517 4,757,710 2,206,697 40,729,414
---------- ---------- ---------- ---------- -----------
NET INCREASE IN NET ASSETS . . . . 5,484,457 3,190,410 5,025,698 2,289,126 42,422,722
NET ASSETS, AT BEGINNING OF THE
PERIOD . . . . . . . . . . . . . . -- -- -- -- --
---------- ---------- ---------- ---------- -----------
NET ASSETS, AT END OF THE PERIOD . $5,484,457 $3,190,410 $5,025,898 $2,289,126 $42,422,722
========== ========== ========== ========== ===========
</TABLE>
See Notes to Financial Statements
F-7
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS. New England Variable Annuity Separate Account (the
"Account") of New England Life Insurance Company ("NELICO"), formerly New
England Variable Life Insurance Company ("NEVLICO"), was established by NELICO's
Board of Directors on July 1, 1994 in accordance with the regulations of the
Delaware Insurance Department and is now operating in accordance with the
regulations of the Commonwealth of Massachusetts Division of Insurance. The
Account is registered as a unit investment trust under the investment Company
Act of 1940. The assets of the Account are owned by NELICO. The net assets of
the Account are restricted from use in the ordinary business of NELICO.
Effective with the merger on August 30, 1996 of New England Mutual Life
Insurance Company ("NEMLICO") and Metropolitan Life Insurance Company ("MLI"),
NEMLICO ceased to exist, with MLI the surviving company of the merger. NELICO
then became an indirect wholly-owned subsidiary of MLI.
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 disclosures 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. SUB-ACCOUNTS. The Account has eleven investment sub-accounts each of which
invests in the shares of one portfolio of the New England Zenith Fund ("Zenith
Fund"). The portfolios 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 Account purchases or redeems shares
of the eleven Eligible Funds based on the amount of purchase payments invested
in the Account, transfers among the sub-accounts, surrender payments, annuity
payments and death benefit payments. 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 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. Charges for investment advisory fees and other expenses are
reflected in the carrying value of the assets of the Eligible Funds.
3. MORTALITY AND EXPENSE RISKS AND ADMINISTRATION CHARGES. Although variable
annuity payments differ according to the investment performance of the Eligible
Funds, they are not affected by mortality or expense experience because NELICO
assumes the mortality and expense risks under the contracts. The mortality risk
assumed by NELICO has two elements, a life annuity mortality risk and, for
deferred annuity contracts, a minimum death refund risk. The life annuity
mortality risk results from a provision in the contract in which NELICO agrees
to make annuity payments regardless of how long a particular annuitant or other
payee lives and how long all annuitants or other payees as a class live if
payment options involving life contingencies are chosen. Those annuity payments
are determined in accordance with annuity purchase rate provisions established
at the time that contracts are issued. Under deferred annuity contracts, NELICO
also assumes a minimum death refund risk by providing that there will be
payable, on the death of the annuitant during the accumulation period, an amount
equal to the greater of (1) a guaranteed amount equal to the aggregate purchase
payments made, without interest, reduced by any partial surrender, and (2) the
value of the contract as of the death valuation date. The guaranteed amount in
(1) above is recalculated at the specific contract anniversaries to determine
whether a higher (but never a lower) guarantee will apply, based on the contract
value at the time of recalculation. Death proceeds are reduced by any
outstanding contract loan and, in certain states, by a premium tax charge. The
expense risk assumed by NELICO is the risk that the deductions for sales and
administrative expenses provided for in the variable annuity contract may prove
to be insufficient to cover the cost of those items.
F-8
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NELICO charges the Account for the mortality and expense risk NELICO assumes.
Currently, the charges are made daily at an annual rate of 1.25% of the Account
assets attributable to the American Growth Series individual variable annuity
contracts, and 1.00% of the Account assets attributable to the American
Forerunner Series individual variable annuity contracts. NELICO also imposes an
administration asset charge at an annual rate of .10% of the Account assets
attributable to American Growth Series and an annual administration charge of
$30 (not to exceed 2% of the total contract value) per contract against contract
value in the Account for both the American Growth Series and American Forerunner
Series, 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.
4. FEDERAL INCOME TAXES. For federal income tax purposes the Account's
operations are included with those of NELICO. NELICO intends to make appropriate
charges against the Account in the future if and when tax liabilities arise.
5. INVESTMENT ADVISERS. The adviser and sub-adviser for each series of the
Zenith Fund are listed in the chart below. TNE Advisers, Inc. which is a
subsidiary of NELICO, and each of the sub-advisers are registered with the SEC
as investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ---------------------- ---------------------------
<S> <C> <C>
Back Bay Advisors Money TNE Advisers, Inc. Back Bay Advisors, L.P.*
Market
Back Bay Advisors Bond TNE Advisers, Inc. Back Bay Advisors, L.P.*
Income
Westpeak Growth and TNE Advisers, Inc. Westpeak Investment Advisors,
Income L.P.*
Loomis Sayles Avanti TNE Advisers, Inc. Loomis, Sayles & Company,
Growth 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 TNE Advisers, Inc. Draycott Partners, Ltd.
Equity
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, Inc.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
Salomon Brothers U.S. TNE Advisers, Inc. Salomon Brothers Asset
Government Management, Inc.
Salomon Brothers TNE Advisers, Inc. Salomon Brothers Asset
Strategic Bond Management, Inc.
Opportunities
</TABLE>
* An affiliate of NELICO
On January 22, 1997, the Board of Trustees of the New England Zenith Fund
approved a new subadvisory agreement between TNE Advisers, Inc. and Morgan
Stanley Asset Management Inc. ("MSAM") relating to the Draycott International
Equity Series. This new agreement is expected to become effective May 1, 1997
(subject to shareholder approval). Under this new agreement MSAM would become
subadviser of the Series, succeeding Draycott Partners, Ltd., and would be
responsible for the day to day management of the Series. The name of the Series
will be changed to Morgan Stanley International Magnum Equity Series. On March
4, 1997 the Board of Trustees of the New England Zenith Fund (i) confirmed their
approval of the subadvisory agreement with MSAM, in light of information about a
proposed merger (which is expected to occur in mid-1997) of Dean Witter,
Discover & Co. and MSAM's parent company, Morgan Stanley Group Inc., and (ii)
approved a second new subadvisory agreement with MSAM, to be effective upon the
merger, subject to shareholder approval.
F-9
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENT PURCHASES AND SALES. The following table shows the aggregate cost
of Eligible Fund shares purchased and proceeds from the sales of Eligible Fund
shares for each sub-account for the year ended December 31, 1996:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -------------
<S> <C> <C>
Back Bay Advisors Bond Income Series $13,732,383 $ 3,174,744
Back Bay Advisors Money Market Series 38,621,933 25,462,774
Westpeak Growth and Income Series 14,465,759 2,712,869
Loomis Sayles Avanti Growth Series 13,712,075 1,838,213
Loomis Sayles Small Cap Series 17,261,521 2,562,308
Loomis Sayles Balanced Series 20,829,127 2,860,539
Draycott International Equity Series 13,447,726 2,423,375
Davis Venture Value Series 24,335,339 3,680,801
Alger Equity Growth Series 25,518,273 4,075,933
Salomon Brothers U.S. Government Series 5,917,918 1,855,478
Salomon Brothers Strategic Bond Opportunities Series 14,549,387 2,374,447
</TABLE>
7. ANNUITY RESERVES. Annuity reserves are computed for currently payable
contracts according to the 1983-a Mortality Tables. The assumed interest rate
may be 0%, 3.5% or 5% as elected by the annuitant and as regulated by the laws
of the respective states. Adjustments to annuity reserves are reimbursed to or
from NELICO.
F-10
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INCREASE (DECREASES) IN ACCUMULATION UNITS. A summary of units outstanding
for variable annuity contracts for the year ended December 31, 1996:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
BOND MONEY AVANTI GROWTH AND SMALL U.S.
INCOME MARKET GROWTH INCOME CAP GOVERNMENT
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- --------------- -------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Units Outstanding
12/31/95 . . . . . . . . . 1,229,141.9280 2,758,732.3682 2,009,636.4056 2,885,315.0324 2,426,665.1841 2,121,626.7186
Units Purchased . . . . . . 3,860,256.9291 17,925,424.8317 7,671,946.0255 7,512,008.6078 10,757,551.7684 4,459,399.2737
Units Redeemed . . . . . . 571,492.2689 11,426,859.4874 599,050.4805 869,927.4659 1,027,668.5782 1,069,474.0028
-------------- --------------- -------------- -------------- --------------- --------------
Units Outstanding
12/31/96 . . . . . . . . . 4,587,906.5882 9,257,297.7125 9,082,531.9506 9,527,396.1743 12,156,548.3743 5,511,551.9895
============== =============== ============== ============== =============== ==============
Unit Value 12/31/96 . . . . 3.134109 1.959126 1.669358 1.730922 1.571807 1.60957
============== =============== ============== ============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
EQUITY INTERNATIONAL VENTURE BOND
BALANCED GROWTH EQUITY VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
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
Units Purchased . . . . . . 14,413,725.8704 16,000,458.3012 11,037,940.0287 15,270,320.1983 10,084,304.6635
Units Redeemed . . . . . . 906,307.5390 1,361,747.6196 1,113,419.8155 1,285,873.9761 913,483.0135
--------------- --------------- --------------- --------------- ---------------
Units Outstanding
12/31/96 . . . . . . . . . 17,355,626.7971 18,546,974.2516 12,897,988.9760 17,782,791.6006 11,146,314.4768
=============== =============== =============== =============== ===============
Unit Value 12/31/96 . . . . 1.415482 1.565675 1.129151 1.642613 1.307292
=============== =============== =============== =============== ===============
</TABLE>
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
New England Life Insurance Company:
We have audited the accompanying consolidated balance sheet of New England Life
Insurance Company (formally New England Variable Life Insurance Company) and
subsidiaries as of December 31, 1996, and the related consolidated statement of
earnings, equity, and cash flows for the year 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 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 1996 consolidated financial statements present fairly, in
all material respects, the financial position of the New England Life Insurance
Company and subsidiaries as of December 31, 1996 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
In 1996, as discussed in Note 1 to the financial statements, the Company (1) has
adopted all applicable generally accepted accounting principles as required for
mutual life insurance enterprises (or wholly-owned stock life insurance company
subsidiaries of mutual life insurance enterprises) by 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 Policies; and (2)
has reflected the effects of the changes in corporate organization.
The consolidated balance sheet of the Company and subsidiaries as of December
31, 1995 and the related consolidated statements of earnings, equity, and cash
flows for the periods ended December 31, 1995 and 1994 present the combination
of the individual financial statements of New England Variable Life Insurance
Company and other entities listed in Note 1. Such individual financial
statements were audited by other auditors before the applicable effects of the
changes described in the paragraph above and their reports on the financial
statements of each of the insurance entities listed in Note 1 expressed an
adverse opinion as to the conformity with generally accepted accounting
principles and an unqualified opinion as to conformity with statutory principles
and their reports on the financial statements of each of the other entities
expressed an unqualified opinion. We have audited the adjustments that were
applied to restate the 1995 and 1994 financial statements to reflect the effects
of the changes for the adoption of generally accepted accounting principles and
the changes in corporate organization as described in Note 1. In our opinion,
such adjustments are appropriate and have been properly applied.
DELOITTE & TOUCHE LLP
February 18, 1997
Boston, Massachusetts
F-12
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
NOTES 1996 1995
----- -------------- ----------------
<S> <C> <C> <C>
Investments:
Fixed Maturities:
Available for Sale, at Estimated
Fair Value . . . . . . . . . . 2,11 $ 524,284,643 $ 575,834,866
Held to Maturity, at Amortized
Cost. . . . . . . . . . . . . . 29,666,318 36,550,618
Mortgage Loans on Real Estate . . . 2,11 -- 2,210,153
Policy Loans . . . . . . . . . . . 11 76,262,779 58,210,498
Real Estate . . . . . . . . . . . . 1,701,981 --
Short-Term Investments . . . . . . 11 156,559,460 20,828,254
Other Invested Assets . . . . . . . 12,956,434 206,000
-------------- --------------
Total Investments . . . . . . 801,431,615 693,840,389
Cash and Cash Equivalents . . . . . . 11 49,147,342 35,129,015
Deferred Policy Acquisition Costs . . 434,636,666 353,809,245
Accrued Investment Income . . . . . . 13,712,748 14,621,811
Premiums and Other Receivables . . . 4 5,941,433 10,311,027
Other Assets . . . . . . . . . . . . 95,106,160 11,148,103
Separate Account Assets . . . . . . . 1,206,959,498 748,184,716
-------------- --------------
TOTAL ASSETS . . . . . . . . $2,606,935,462 $1,867,044,306
============== ==============
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits . . . . . . . 4 $ 464,888,914 $ 446,687,020
Policyholder Account Balances . . . . 4,11 181,594,090 138,831,391
Other Policyholder Funds . . . . . . 11 2,071,162 2,353,586
Policyholder Dividends Payable . . . 9,018,002 7,346,500
Short and Long-Term Debt . . . . . . 8,11 84,056,337 79,347,546
Income Taxes Payable: 5
Current . . . . . . . . . . . . . . 6,272,302 9,179,749
Deferred . . . . . . . . . . . . . 39,463,081 54,981,645
Other Liabilities . . . . . . . . . . 62,190,384 25,629,031
Separate Account Liabilities . . . . 1,206,959,498 748,184,716
-------------- --------------
Total Liabilities . . . . . . 2,056,513,770 1,512,541,184
-------------- --------------
Commitments and Contingencies
(Notes 2, 4, 8 and 9)
EQUITY
Common Stock . . . . . . . . . . . . 2,500,000 2,500,000
Contributed Capital . . . . . . . . . 497,945,598 289,099,450
Retained Earnings . . . . . . . . . . 46,248,721 36,547,252
Net Unrealized Investment Gains . . . 3 3,727,373 26,356,420
-------------- --------------
Total Equity . . . . . . . . 550,421,692 354,503,122
-------------- --------------
TOTAL LIABILITIES AND
EQUITY . . . . . . . . . . . $2,606,935,462 $1,867,044,306
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NOTES 1996 1995 1994
------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
REVENUES
Premiums, net . . . . . . 4 $ 37,410,040 $ 38,565,735 $206,099,650
Universal Life and
Investment-Type Product
Policy Fee Income . . . 101,755,632 79,371,437 63,349,660
Net Investment Income . . 3 49,628,343 41,815,075 4,069,355
Investment Gains (Losses),
Net. . . . . . . . . . . 3 15,979,267 21,979,906 (64,081)
Commissions, Fees and
Other Income . . . . . . 44,929,609 34,554,617 264,883,323
------------ ------------ ------------
Total Revenues . . . . . 249,702,891 216,286,770 538,337,907
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits,
net . . . . . . . . . . 4 65,520,519 55,810,172 435,150,792
Interest Credited to
Policyholder Account
Balances . . . . . . . . 5,557,652 2,564,651 904,003
Policyholder Dividends . 14,829,641 13,953,664 7,232,042
Other Operating Costs and
Expenses . . . . . . . . 151,043,021 110,890,061 83,725,839
------------ ------------ ------------
Total Benefits and Other
Deductions . . . . . . . 236,950,833 183,218,548 527,012,676
------------ ------------ ------------
Earnings from Continuing
Operations before Income
Taxes . . . . . . . . . 12,752,058 33,068,222 11,325,231
Income Taxes . . . . . . 5 3,050,589 12,302,605 4,188,483
------------ ------------ ------------
NET EARNINGS . . . . . . $ 9,701,469 $ 20,765,617 $ 7,136,748
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NET
COMMON UNREALIZED
STOCK & INVESTMENT
CONTRIBUTED RETAINED GAINS
CAPITAL EARNINGS (LOSSES) TOTAL
------------ ----------- ------------- ---------------
<S> <C> <C> <C> <C>
BALANCES AT JANUARY 1,
1994 . . . . . . . . $175,028,227 $ 8,644,887 $ 104,801 $183,777,915
Net Earnings . . . . 7,136,748 7,136,748
Change in Net
Unrealized Investment
Gains (Losses) . . . (774,432) (774,432)
Contributed Capital . 53,028,000 53,028,000
------------ ----------- ------------ ------------
BALANCES AT DECEMBER
31, 1994 . . . . . . 228,056,227 15,781,635 (669,631) 243,168,231
Net Earnings . . . . 20,765,617 20,765,617
Change in Net
Unrealized Investment
Gains (Losses) . . . 27,026,051 27,026,051
Contributed Capital . 63,543,223 63,543,223
------------ ----------- ------------ ------------
BALANCES AT DECEMBER
31, 1995 . . . . . . 291,599,450 36,547,252 26,356,420 354,503,122
Net Earnings . . . . 9,701,469 9,701,469
Change in Net
Unrealized Investment
Gains (Losses) . . . (22,629,047) (22,629,047)
Contributed Capital . 208,846,148 208,846,148
------------ ----------- ------------ ------------
BALANCES AT DECEMBER
31, 1996 . . . . . . $500,445,598 $46,248,721 $ 3,727,373 $550,421,692
============ =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- ----------------
<S> <C> <C> <C>
NET CASH USED IN OPERATING
ACTIVITIES. . . . . . . . . $ (85,673,871) $(111,833,907) $ (46,062,592)
------------- ------------- -------------
Cash Flows from Investing
Activities:
Sales, Maturities and
Repayments of:
Available for Sale Fixed
Maturities . . . . . . 276,420,158 538,296,916 13,480,392
Held to Maturity Fixed
Maturities . . . . . . 10,519,220 625,000 --
Mortgage Loans on Real
Estate . . . . . . . . 2,210,152 11,789 8,000
Purchases of:
Available for Sale Fixed
Maturities . . . . . . (259,713,146) (983,517,566) (121,490,180)
Real Estate . . . . . . (480,007) -- --
Fixed Asset Property and
Equipment. . . . . . . (3,786,192) -- --
Other Assets . . . . . (11,024,000) (15,000) (32,000)
Net Change in Short-Term
Investments. . . . . . . (135,731,206) 379,325,026 13,737,203
Net Change in Policy
Loans . . . . . . . . . (18,052,280) (14,243,155) (13,293,625)
Other, Net . . . . . . . . 66,820 (114,000) 2,255,589
------------- ------------- -------------
NET CASH USED IN INVESTING
ACTIVITIES. . . . . . . . . (139,570,481) (79,630,990) (105,334,621)
------------- ------------- -------------
Cash Flows from Financing
Activities:
Common Stock . . . . . . .
Capital Contributions . . 159,162,170 9,515,000 52,698,000
Borrowed Money . . . . . . 25,000,000 50,000,000
Policyholder Account
Balances:
Deposits . . . . . . . 482,551,966 281,761,424 201,732,909
Withdrawals . . . . . . (364,932,882) (148,402,748) (108,766,575)
Financial Reinsurance
Receivables. . . . . . . (37,518,575) -- --
------------- ------------- -------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES . . . 239,262,679 167,873,676 195,664,334
------------- ------------- -------------
Change in Cash and Cash
Equivalents . . . . . . . . 14,018,327 (23,591,221) 44,267,121
Cash and Cash Equivalents,
Beginning of Year . . . . . 35,129,015 58,720,236 14,453,115
------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF YEAR . . . . . . . . $ 49,147,342 $ 35,129,015 $ 58,720,236
============= ============= =============
Supplemental Cash Flow
Information:
Interest Paid . . . . . . $ 1,523,134 $ 1,277,033 $ --
============= ============= =============
Income Taxes Paid . . . . $ 4,720,928 $ 6,764,653 $ 132,000
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- ----------------
<S> <C> <C> <C>
NET EARNINGS . . . . . . . . $ 9,701,469 $ 20,765,617 $ 7,136,748
Adjustments to Reconcile Net
Earnings to Net Cash
Provided by (Used in)
Operating Activities:
Change in Deferred Policy
Acquisition Costs, Net . (68,626,162) (45,823,425) (128,219,002)
Change in Accrued
Investment Income . . . 909,063 (11,507,438) (87,020)
Change in Premiums and
Other Receivables . . . 4,369,594 (4,072,681) (1,494,680)
Investment (Gains) Losses,
Net. . . . . . . . . . . (15,979,267) (21,979,906) 64,081
Depreciation and
Amortization Expenses . 4,119,881 5,724,945 99,912
Change in Transfer to
Separate Account . . . . (2,242,885) 1,412,264 105,477
Interest Credited to
Policyholder Account
Balances . . . . . . . . 5,557,652 2,564,651 904,003
Universal Life and
Investment-Type Product
Policy Fee Income . . . (101,755,632) (79,371,437) (63,349,660)
Change in Future Policy
Benefits . . . . . . . . 18,201,894 14,538,593 125,898,745
Change in Other
Policyholder Funds . . . (282,879) 1,789,475 156,400
Change in Policyholder
Dividends Payable . . . 1,671,502 114,458 7,232,042
Change in Income Taxes
Payable. . . . . . . . . (6,633,789) 10,210,526 10,337,032
Other, Net . . . . . . . . 65,315,688 (6,199,549) (4,846,670)
------------- ------------- -------------
NET CASH USED IN OPERATING
ACTIVITIES. . . . . . . . . $ (85,673,871) $(111,833,907) $ (46,062,592)
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
New England Life Insurance Company and its subsidiaries (the "Company") is a
wholly-owned stock life insurance subsidiary of Metropolitan Life Insurance
Company (MetLife). The Company principally provides variable life insurance and
variable annuity products through a network of general agencies located
throughout the United States.
Prior to the merger of New England Mutual Life Insurance Company (NEMLICO)
with MetLife on August 31, 1996, New England Life Insurance Company (NELICO),
formerly known as New England Variable Life Insurance Company (NEVLICO) was a
subsidiary of NEMLICO. NEMLICO was merged directly into MetLife and ceased to
exist as a separate mutual life insurance company. In conjunction with the
merger, NEVLICO became a subsidiary of MetLife and changed its name to New
England Life Insurance Company. NELICO has continued after the merger to conduct
its existing businesses and is also administering the business activities for
the former parent NEMLICO. (Note 13)
NELICO is headquartered in Boston, Massachusetts and became a Massachusetts
chartered company through a legal process known as redomestication. Prior to the
merger, NEVLICO was organized under Delaware law. The capital structure of
NELICO continues in the same form subsequent to the merger with common stock
authorized at 50,000 shares and 20,000 shares issued and outstanding with a par
value of $125 per share. MetLife made an additional statutory capital
contribution to NELICO at the merger date totaling $208,003,770 consisting of
$128,412,170 of cash and $79,591,600 of bonds, real estate, mortgages, common
stock of affiliates and furniture and equipment. Prior to the merger, NELICO
received a capital contribution from NEMLICO for $20,000,000 in cash. The total
contributed capital for 1996 equaled $228,003,770.
Certain companies that were subsidiaries of NEMLICO became subsidiaries of
NELICO as of the merger. The principal subsidiaries of which NELICO owns 100% of
the outstanding common stock are Exeter Reassurance Company, Ltd., New England
Pension and Annuity Company and Newbury Insurance Company Limited for insurance
operations and New England Securities Corporation and TNE Advisers, Inc. for
other operations. The principal business activities of the subsidiaries are
disclosed below.
Exeter Reassurance Company, Ltd., (Exeter) was incorporated in Bermuda on
November 15, 1994, and registered as an insurer under The Insurance Act 1978
(Bermuda). Exeter engages in financial reinsurance of life insurance and annuity
policies.
New England Pension and Annuity Company (NEPA) was incorporated under the laws
of the State of Delaware on September 12, 1980. NEPA holds licenses in 20
states, but is currently not actively engaged in the sale or distribution of
insurance products.
New England Securities Corporation (NES), a National Association of Securities
Dealers ("NASD") registered broker/dealer, conducts business as a wholesale
distributor of investment products through the sales force of NELICO.
Established in 1968, NES offers a range of investment products including mutual
funds, investment partnerships, and individual securities. In 1994, NES became a
Registered Investment Advisor with the Securities and Exchange Commission
("SEC") and now offers individually managed portfolios. NES is the national
distributor for variable annuity and variable life products issued by NELICO.
NES is the sole owner of Hereford Insurance Agency, Inc.
Newbury Insurance Company, Limited (Newbury) was incorporated in Bermuda on
May 1, 1987, and is registered as a Class 2 insurer under The Insurance Act 1978
(Bermuda). Newbury provides professional liability
F-18
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
and personal injury coverage to the agents of NELICO through a facultative
reinsurance agreement with Lexington Insurance Company. The policy applies to
claims made during the policy period or during the discovery period with limits
of $1,000,000 each claim, $1,000,000 annual aggregate each insured, $3,500,000
and $3,000,000 annual aggregate all insured in 1996 and 1995 respectively.
TNE Advisers, Inc. was incorporated on August 26, 1994, and is registered as
an investment adviser with the SEC, under the Investment Advisers Act of 1940.
TNE Advisers, Inc. was organized to serve as an investment adviser to certain
mutual funds of the New England Zenith Fund and does not intend to engage in any
business activities other than providing investment management and
administrative services.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"), and include
the accounts of NELICO and its subsidiaries in which NELICO has control and a
majority economic interest. The consolidated financial statements have been
prepared as though the current reporting entity had always existed. Significant
intercompany transactions and balances have been eliminated in consolidation.
Prior to 1996, NELICO, as a wholly owned stock life insurance subsidiary of a
mutual life insurance company, prepared its financial statements in conformity
with accounting practices prescribed or permitted by the Insurance Department of
the State of Delaware (statutory financial statements), which accounting
practices were considered to be GAAP. In 1996, NELICO adopted Interpretation No.
40, Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises (the "Interpretation") and Statement of
Financial Accounting Standards ("SFAS") No. 120, Accounting and Reporting by
Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain Long
Duration Participating Policies (the "Standard"), of the Financial Accounting
Standards Board ("FASB"). The Interpretation and Standard required mutual life
insurance companies to adopt all standards promulgated by the FASB in their
general purpose financial statements. The financial statements of NELICO for
1995 and 1994 have been retroactively restated to reflect the adoption of all
applicable authoritative GAAP pronouncements. The cumulative effect of such
adoption as of January 1, 1994 has been reflected in an adjustment of equity at
January 1, 1994 (see Note 12).
As of December 31, 1993, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", which expanded the use of fair value accounting for those
securities that a company does not have positive intent and ability to hold to
maturity. Implementation of SFAS No. 115 increased consolidated equity by
$104,801, net of deferred income taxes and adjustments of deferred policy
acquisition costs and future policy benefits.
VALUATION OF INVESTMENTS
Fixed maturity securities for which the Company has the positive intent and
ability to hold to maturity are stated principally at amortized cost and include
bonds and redeemable preferred stock. All other fixed maturity securities are
classified as available for sale and are reported at estimated fair market
value. Unrealized holding gains and losses on fixed maturity securities
available for sale are reported as a separate component of equity. Such amounts
are net of related deferred income taxes and adjustments of deferred policy
acquisition costs and future policy benefits relating to unrealized gains on
available for sale securities. Amortized cost of fixed maturity securities is
adjusted for impairments in value deemed to be other than temporary. All
securities are recorded on a trade date basis.
The Company's mortgage loan on real estate was carried at outstanding
principal balance. Mortgage loans are considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contract terms of the loan agreement.
The mortgage loan was in good standing at December 31, 1995 and no allowance for
loss was required.
F-19
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Real estate is considered held for sale by management and is reported at the
lower of cost or estimated fair market value less allowances for the estimated
cost of sales. No impairment allowance is required on the property.
Policy loans are stated at unpaid principal balances.
Short-term investments are stated at amortized cost which approximates fair
value.
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less. These are carried at cost, which approximates fair value.
INVESTMENT RESULTS
Realized investment gains and losses are determined by specific identification
and are presented as a component of revenues.
PROPERTY AND EQUIPMENT
Property and equipment and leasehold improvements are included in other assets
and are stated at cost, less accumulated depreciation and amortization.
Depreciation, including charges relating to capitalized leases, is provided
using the straight line method over the estimated useful lives of the assets
which generally range from 4 to 15 years or the term of the lease, if shorter.
Amortization of leasehold improvements is provided using the straight line
method over the lesser of the term of the leases or the estimated useful life of
the improvements.
Accumulated depreciation and amortization on property and equipment and
leasehold improvements was $3,117,743 and $0 at December 31, 1996 and 1995,
respectively. Related depreciation and amortization expense was $3,117,743, $0
and $0 for the years ended December 31, 1996, 1995 and 1994, respectively.
RECOGNITION OF INCOME AND EXPENSES
Premiums from traditional life policies are recognized generally as income
when due. Benefits and expenses are matched with such income so as to result in
the recognition of profits over the life of the contract. This match is
accomplished by means of the provision for liabilities for future policy
benefits and the deferral and subsequent amortization of policy acquisition
costs.
Reinsurance allowances for individual non-medical health contracts are
recognized as income when due.
Premiums from variable life, universal life and investment-type contracts are
reported as deposits to policyholder account balances. Revenues from these
contracts consist of amounts assessed during the period against policyholder
account balances for mortality charges, policy administration charges and
surrender charges. Policy benefits and claims that are charged to expense
include benefit claims incurred in the period in excess of related policyholder
account balances and interest credited to policyholder account balances.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, agency and
policy issue expenses, all of which vary with and are primarily related to the
production of new business, have been deferred. Deferred policy acquisition
costs are subject to recoverability testing at the time of policy issue and loss
recognition testing at the end of each accounting period.
F-20
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Deferred policy acquisition costs are amortized over a period up to 40 years
for traditional life, variable life, universal life products and for
investment-type products as a constant percentage of estimated gross margins or
profits arising principally from surrender charges and interest, mortality and
expense margins based on historical and anticipated future experience, updated
regularly. The effects of revisions to experience on previous amortization of
deferred policy acquisition costs are reflected in earnings in the period
estimated gross margins or profits are revised.
For non-medical health insurance contracts, deferred policy acquisition costs
are amortized over the life of the contracts (generally between 10 and 30 years)
in proportion to anticipated reinsurance allowances.
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life insurance
policies are equal to the aggregate of net level premium reserve for death and
endowment policy benefits and the liability for terminal dividends. The net
level premium reserve is calculated based on the dividend fund interest rate and
mortality rates guaranteed in calculating the cash surrender values described in
such contracts. Interest rates used in establishing future policy benefit
liabilities range from 4 percent to 5 percent for life insurance policies.
Policyholder account balances for variable life, universal life and
investment-type contracts are equal to the policy account values. The policy
account values represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals.
Benefit liabilities for non-medical health insurance are calculated as the net
GAAP liability plus the unamortized deferred acquisition costs. Benefit
liabilities for disabled lives are estimated using the present value of benefits
method and experience assumptions as to claim terminations, expenses and
interest.
INCOME TAXES
NELICO files a consolidated Federal Income Tax return with Exeter Reassurance
Company, Ltd. The future tax consequences of temporary differences between
financial reporting and tax basis of assets and liabilities are measured as of
the balance sheet dates and are recorded as deferred tax assets or liabilities.
SEPARATE ACCOUNT OPERATIONS
Separate Accounts are established in conformity with the state insurance laws
and are generally not chargeable with liabilities that arise from any other
business of the Company. Separate Account assets are subject to general account
claims only to the extent the value of such assets exceed the Separate Account
liabilities.
Investments held in the Separate Accounts (stated at estimated fair market
value) and liabilities of the Separate Accounts (including participants'
corresponding equity in the Separate Accounts) are reported separately as assets
and liabilities. Deposits to Separate Accounts are reported as increases in
Separate Account liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges to all Separate Accounts are included in
revenues.
POLICYHOLDER DIVIDENDS
The amount of policyholder dividends to be paid is determined annually by the
Board of Directors. The aggregate amount of policyholder dividends is related to
actual interest, mortality, morbidity and expense experience for the year and
management's judgment as to the appropriate level of statutory surplus to be
retained by the Company.
F-21
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CONSOLIDATED STATEMENTS OF CASH FLOWS--NON CASH TRANSACTIONS
For the years ended December 31, 1996 and 1995, respectively, the Company
received capital contributions in the form of transfer of assets of $49,683,978
and $54,028,223. In 1994, $296,815,969 of bonds were received in support of the
coinsurance treaty with NEMLICO.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. INVESTMENTS
DEBT SECURITIES
The carrying value, gross unrealized gain (loss) and estimated fair value of
fixed securities, by category, as of December 31, 1996 and 1995 are shown below.
HELD TO MATURITY SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
ESTIMATED ------------------ AMORTIZED
FAIR VALUE GAIN LOSS COST
----------- -------- -------- -------------
<S> <C> <C> <C> <C>
1996
Fixed Maturities:
Bonds:
U.S. Treasury Securities
and obligations of U.S.
government corporations
and agencies . . . . . . $ 7,344,149 $ 51,289 $ 6,095 $ 7,298,955
States and political
subdivisions . . . . . . 517,770 38,031 479,739
Corporate . . . . . . . . 22,648,666 860,180 99,138 21,887,624
----------- -------- -------- -----------
Total Fixed Maturities . . . . $30,510,585 $949,500 $105,233 $29,666,318
=========== ======== ======== ===========
1995
Fixed Maturities:
Bonds:
U.S. Treasury Securities
and obligations of U.S.
government corporations
and agencies . . . . . . $ 9,695,983 $179,024 $ $ 9,516,959
States and political
subdivisions . . . . . . 530,650 60,604 470,046
Corporate . . . . . . . . 26,599,841 257,222 170,994 26,513,613
Other . . . . . . . . . . 50,000 50,000
----------- -------- -------- -----------
Total Fixed Maturities . . . . $36,876,474 $496,850 $170,994 $36,550,618
=========== ======== ======== ===========
</TABLE>
F-22
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
AVAILABLE FOR SALE SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ----------------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
------------ ----------- ---------- --------------
<S> <C> <C> <C> <C>
1996
Fixed Maturities:
Bonds:
U.S. Treasury
Securities and
obligations of
U.S. government
corporations and
agencies. . . . . $ 5,464,659 $ 46,737 $ 24,580 $ 5,486,816
Foreign
governments . . . 1,577,439 1,147 57,272 1,521,314
Corporate . . . . 505,682,553 18,637,259 7,092,856 517,226,956
Mortgage-backed
securities. . . . 48,759 798 49,557
------------ ----------- ---------- ------------
Total Fixed
Maturities . . . . . . $512,773,410 $18,685,941 $7,174,708 $524,284,643
============ =========== ========== ============
1995
Fixed Maturities:
Bonds:
U.S. Treasury
Securities and
obligations of
U.S. government
corporations and
agencies. . . . . $ 1,991,186 $ 746 $ 1,135 $ 1,990,797
Foreign
governments . . . 3,017,691 178,111 3,195,802
Corporate . . . . 512,320,546 58,440,764 183,844 570,577,466
Mortgage-backed
securities. . . . 69,877 924 70,801
------------ ----------- ---------- ------------
Total Fixed
Maturities . . . . . . $517,399,300 $58,620,545 $ 184,979 $575,834,866
============ =========== ========== ============
</TABLE>
Included in net unrealized appreciation (depreciation) of investments are
unrealized gains on foreign currency investments as well as unrealized gains on
the associated forward foreign exchange contracts. Unrealized appreciation
(depreciation) of investments consists of the following:
<TABLE>
<CAPTION>
1996 1995
------- -----------
<S> <C> <C>
Net unrealized gains on investments . . . . . . . . . . $ 8,213 $372,881
Unrealized gains (losses) on the maturity of forward
contracts . . . . . . . . . . . . . . . . . . . . . . . 13,665 (76,214)
------- --------
$21,878 $296,667
======= ========
</TABLE>
The estimated fair value and amortized cost of bonds classified as held to
maturity, by contractual maturity, at December 31, 1996 are shown below.
<TABLE>
<CAPTION>
ESTIMATED AMORTIZED
FAIR VALUE COST
----------- -------------
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . . $ 3,792,488 $ 3,783,539
Due after one year through five years . . . . . . 8,714,767 8,791,593
Due after five years through ten years . . . . . . 17,503,330 16,591,186
Due after ten years . . . . . . . . . . . . . . . 500,000 500,000
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . $30,510,585 $29,666,318
=========== ===========
</TABLE>
F-23
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The amortized cost and estimated fair value of bonds classified as available
for sale, by contractual maturity, at December 31, 1996 are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
------------ --------------
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . $ $
Due after one year through five years . . . . . 23,380,259 23,820,548
Due after five years through ten years . . . . . 51,941,867 51,169,921
Due after ten years . . . . . . . . . . . . . . 437,402,525 449,244,617
------------ ------------
Subtotal . . . . . . . . . . . . . . . . . . . 512,724,651 524,235,086
Mortgage-backed securities . . . . . . . . . . . 48,759 49,557
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . $512,773,410 $524,284,643
============ ============
</TABLE>
Bonds not due at a single maturity date have been included in the above tables
in the year of final maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without prepayment penalties.
ASSETS HELD IN TRUST FOR THE BENEFIT OF OTHER PARTIES
Exeter has deposited in a trust for the benefit of MetLife certain assets for
the purpose of allowing MetLife to record a reserve credit as permitted by
regulations of the State of New York. Under the terms of the Trust Agreement
MetLife enjoys broad powers to withdraw funds from the trust for the payment of
policyholder claims incurred by Exeter under its reinsurance treaty and to
direct the investment of funds held in the trust. The Trust Agreement limits the
types of investments that may be held in trust to cash and certificates of
deposit, U.S. Government bonds and notes and publicly traded securities of U.S.
companies having a National Association of Insurance Commissioners (NAIC) rating
of 1. At December 31, 1996, the trust held $786,828 of cash and $468,847,351 of
bonds and short-term investments, and at December 31, 1995 $487,268,195 of bonds
and short-term investments.
MORTGAGE LOANS
As of December 31, 1995 the mortgage loan investment was collateralized by
industrial property in Baltimore, Maryland.
ASSETS ON DEPOSIT
As of December 31, 1996 and 1995, the Company had assets on deposit with
regulatory agencies of $5,884,253 and $6,486,794, respectively.
F-24
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
3. INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of investment income are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Fixed maturities . . . . . . . . . . . $44,629,921 $39,264,322 $1,597,939
Mortgage loans on real estate . . . . 110,037 233,974 235,138
Real estate . . . . . . . . . . . . . 55,149
Policy loans . . . . . . . . . . . . . 3,734,183 2,831,097 1,996,359
Cash, cash equivalents and short-term
investments . . . . . . . . . . . . . 3,656,448 1,173,815 597,425
Other investment income . . . . . . . 37,135
----------- ----------- ----------
Gross investment income . . . . . . . 52,222,873 43,503,208 4,426,861
Investment expenses . . . . . . . . . 2,594,530 1,688,133 357,506
----------- ----------- ----------
Investment income, net . . . . . . . . $49,628,343 $41,815,075 $4,069,355
=========== =========== ==========
</TABLE>
Investment gains (losses), are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Fixed maturities . . . . . . . . . . . $15,467,124 $21,981,201 $(64,090)
Other . . . . . . . . . . . . . . . . 512,143 (1,295) 9
----------- ----------- --------
Investment gains (losses), net . . . . $15,979,267 $21,979,906 $(64,081)
=========== =========== ========
</TABLE>
Proceeds from the sales of bonds classified as available for sale during 1996,
1995 and 1994 were $275,008,306, $518,416,727 and $13,127,940 respectively.
During 1996, 1995 and 1994, respectively, gross gains of $19,109,340,
$22,557,997 and $77,319, and gross losses of $3,878,497, $576,796, and $141,409
were realized on those sales.
Proceeds from the call of direct issue bonds classified as held to maturity
during 1996, 1995 and 1994 were $5,290,796, $0, and $0, respectively. During
1996, 1995 and 1994, respectively, gross gains of $236,280, $0 and $0, and gross
losses of $0, $0, and $0 were realized due to prepayment premiums received.
There were no sales of fixed maturities classified as held to maturity.
The unrealized investment gains (losses), which are included in the
consolidated balance sheets as a component of equity and the changes for the
corresponding years are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31
Balance, beginning of year . . . . $ 26,356,420 $ (669,631) $ 104,801
Change in unrealized investment
gains (losses) . . . . . . . . (46,851,102) 58,946,561 --
Effect of adopting
SFAS No. 115 . . . . . . . . . -- -- (931,481)
Change in unrealized investment
gains (losses) attributable to:
Deferred policy acquisition
cost allowances . . . . . . 12,210,988 (17,883,703) 98,294
Deferred income tax (expense)
benefit. . . . . . . . . . . 12,011,067 (14,036,807) 58,755
------------ ------------ ---------
Balance, end of year . . . . . . . $ 3,727,373 $ 26,356,420 $(669,631)
============ ============ =========
</TABLE>
F-25
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
DECEMBER 31
Balance, end of year, comprises:
Unrealized investment gains
(losses) on:
Fixed maturities . . . . . . . $11,524,866 $ 58,369,351 $(574,586)
Other . . . . . . . . . . . . (4,327) 2,290 (334)
----------- ------------ ---------
11,520,539 58,371,641 (574,920)
Amounts of unrealized investment
gains (loss) attributable to:
Deferred policy acquisition cost
allowances. . . . . . . . . . . (5,755,640) (17,966,628) (82,925)
Deferred income taxes . . . . . . (2,037,526) (14,048,593) (11,786)
----------- ------------ ---------
Balance, end of year . . . . . . . $ 3,727,373 $ 26,356,420 $(669,631)
=========== ============ =========
</TABLE>
Net unrealized investment gains at December 31, 1996, before deferred Federal
income tax, reflects gross unrealized gains of $18,685,941 and gross unrealized
losses of $7,174,708.
4. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
In the normal course of business, the Company assumes and cedes reinsurance
with other insurance companies. The accompanying consolidated statements of
earnings are presented net of reinsurance ceded.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- ----------------
<S> <C> <C> <C>
Direct premiums . . . . . . . $ 2,681,689 $ 2,794,103 $ 329,113
Reinsurance assumed . . . . . 67,482,752 69,329,831 402,121,966
Reinsurance ceded . . . . . . (32,754,401) (33,558,199) (196,351,429)
------------ ------------ -------------
Net premiums earned . . . . . $ 37,410,040 $ 38,565,735 $ 206,099,650
============ ============ =============
</TABLE>
Policyholder benefits in the accompanying consolidated statements of earnings
are presented net of reinsurance recoveries of $23,961,773, $22,577,080 and
$4,948,808 for the years ended December 31, 1996, 1995 and 1994, respectively.
Premiums and other receivables in the accompanying consolidated balance sheets
include reinsurance recoveries of $0.2 million and $0 million at December 31,
1996 and 1995, respectively.
A contingent liability exists with respect to reinsurance ceded should the
reinsurers be unable to meet their obligations.
5. INCOME TAXES
Income tax expense for U.S. operations has been calculated in accordance with
the provisions of the Internal Revenue Code, as amended.
NELICO and its eligible subsidiary file a consolidated U. S. income tax return
and other subsidiaries file separate income tax returns as required. The Company
uses the liability method of accounting for income taxes. Income tax provisions
are based on income reported for financial statement purposes. Deferred income
taxes arise from the recognition of temporary differences between income
determined for financial reporting purposes and income tax purposes.
F-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
A summary of income tax expense (benefit) in the consolidated statements of
earnings is shown below:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------------ ------------ --------------
<S> <C> <C> <C>
1996
Federal . . . . . . . . . . . . . $ 5,333,391 $(1,531,395) $ 3,801,996
State and Local . . . . . . . . . (751,407) (751,407)
----------- ----------- -----------
Total . . . . . . . . . . . . . . $ 5,333,391 $(2,282,802) $ 3,050,589
=========== =========== ===========
1995
Federal . . . . . . . . . . . . . $ 5,503,644 $ 6,354,610 $11,858,254
State and Local . . . . . . . . . 444,351 444,351
----------- ----------- -----------
Total . . . . . . . . . . . . . . $ 5,503,644 $ 6,798,961 $12,302,605
=========== =========== ===========
1994
Federal . . . . . . . . . . . . . $(1,960,017) $ 5,557,870 $ 3,597,853
State and Local . . . . . . . . . 590,630 590,630
----------- ----------- -----------
Total . . . . . . . . . . . . . . $(1,960,017) $ 6,148,500 $ 4,188,483
=========== =========== ===========
</TABLE>
Reconciliations of the differences between income taxes computed at the
federal statutory tax rates and consolidated provisions for income taxes are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ --------------
<S> <C> <C> <C>
Income before taxes . . . . . . . $ 12,752,058 $33,068,222 $11,325,231
Income tax rate . . . . . . . . . 35% 35% 35%
------------ ----------- -----------
Expected income tax expense at
federal statutory income tax
rate . . . . . . . . . . . . . . 4,463,220 11,573,878 3,963,831
Tax effect of:
Change in valuation allowance . (13,948,000) (413,000) (402,850)
NOL benefit write-off . . . . . 13,012,000 -- --
State and local income taxes . (488,415) 288,828 383,910
Tax credits . . . . . . . . . .
Other, net . . . . . . . . . . 11,784 852,899 243,592
------------ ----------- -----------
Income Tax Expense (Benefit) . . $ 3,050,589 $12,302,605 $ 4,188,483
============ =========== ===========
</TABLE>
F-27
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The deferred tax asset or liability recorded represents the net temporary
differences between the tax bases of assets and liabilities and their amounts
for financial reporting. The components of the net deferred tax asset or
liability at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- ----------------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities . . . . . . . . . $ 83,303,973 $ 69,491,980
Net operating loss carryforward . . . . . 12,547,940 13,012,000
Other . . . . . . . . . . . . . . . . . . 14,690,260 9,890,697
------------- -------------
Total gross assets . . . . . . . . . . . . . 110,542,173 92,394,677
Less valuation allowance . . . . . . . . . (13,948,000)
------------- -------------
Asset, net of valuation allowance . . . . . 110,542,173 78,446,677
------------- -------------
Deferred tax liabilities
Investments . . . . . . . . . . . . . . . (2,526,047) (7,185,868)
Deferred policy acquisition costs . . . . (132,964,603) (106,477,179)
Net unrealized capital gains . . . . . . . (2,037,526) (14,048,593)
Other . . . . . . . . . . . . . . . . . . (12,477,078) (5,716,682)
------------- -------------
Total gross liabilities . . . . . . . . . . (150,005,254) (133,428,322)
------------- -------------
Net deferred tax liability . . . . . . . . . $ (39,463,081) $ (54,981,645)
============= =============
</TABLE>
The sources of the deferred tax expense (benefit) and their tax effects are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ ---------------
<S> <C> <C> <C>
Policyholder liabilities . . . . $(17,818,264) $(4,109,738) $(25,551,114)
Net operating loss
carryforward . . . . . . . . . 464,060
Deferred policy acquisition
costs . . . . . . . . . . . . . 21,827,603 13,877,584 32,756,212
Other, net . . . . . . . . . . . (6,756,201) (2,968,885) (1,056,598)
------------ ----------- ------------
Total . . . . . . . . . . . . . $ (2,282,802) $ 6,798,961 $ 6,148,500
============ =========== ============
</TABLE>
6. EMPLOYEE BENEFIT PLANS
The Home Office Retirement Plan and related Select Employees' Supplemental
Retirement Plan (together the "Plan") cover substantially all of the Company's
employees. Retirement benefits are based primarily on years of service and the
employee's average salary. The Company's funding policy is to contribute
annually an amount that can be deducted for federal income tax purposes using a
different actuarial cost method and different assumptions from those used for
financial reporting purposes. The net pension cost charged to income in 1996,
1995, and 1994 was $159,000, $150,000, and $145,000, respectively. These amounts
are not representative of the net pension cost that can be expected to be
charged to income in future years, because substantially all the Company's
employees were employed by NEMLICO prior to the merger, and, correspondingly,
substantially all net pension cost was incurred by NEMLICO. The amounts of net
periodic pension cost disclosed below are more indicative of the net pension
cost that will be incurred in future years.
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- ---------------
<S> <C> <C> <C>
Service cost . . . . . . . . . $ 5,761,000 $ 4,797,000 $ 6,575,000
Interest cost on projected
benefit obligation . . . . . . 12,489,000 11,012,000 10,590,000
Actual return on assets . . . . (15,468,000) (21,221,000) 2,121,000
Net amortization and
deferrals . . . . . . . . . . 6,009,000 13,059,000 (10,002,000)
------------ ------------ ------------
Net periodic pension cost . . . $ 8,791,000 $ 7,647,000 $ 9,284,000
============ ============ ============
</TABLE>
F-28
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The assumed long-term rate of return on assets used in determining the net
periodic pension cost was 8.5 percent.
The following information for the plan includes amounts relating to NEMLICO.
<TABLE>
<CAPTION>
1996 1995
------------- ---------------
<S> <C> <C>
Actuarial present value of accumulated plan
benefits. . . . . . . . . . . . . . . . . . . $133,000,000 $119,000,000
============ ============
Projected benefit obligation . . . . . . . . . 182,000,000 168,000,000
============ ============
Net assets available for plan benefits . . . . 130,992,000 116,000,000
============ ============
Unrecognized prior service cost . . . . . . . 224,000 3,954,000
============ ============
Unrecognized net (loss) from past experience
difference from that assumed . . . . . . . . (37,327,000) (47,300,000)
============ ============
Unamortized transition gains . . . . . . . . . $ 4,015,000 $ 5,185,000
============ ============
</TABLE>
The weighted average discount rate was 7.5%, 8.0% and 7.5% in 1996, 1995 and
1994, respectively. The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit was 5.0% for
1996, 1995 and 1994. Plan assets consist of bonds, stocks, real estate, and
insurance contracts and have an assumed long-term rate of return of 8.5% for
1996, 1995 and 1994.
OTHER POSTRETIREMENT BENEFITS
In addition to pension benefits, the Company provides certain health care and
life insurance benefits for retired employees. Substantially all employees may
become eligible for these benefits if they reach retirement age while working
for the Company.
The following sets forth the plan's fiscal year end funded status reconciled
with amounts reported in the financial statements of MetLife. Subsequent to the
merger, substantially all employees covered by the plan are employed by the
Company. Accordingly, in future years these disclosures will reconcile to
amounts reported on the Company's balance sheet and income statement.
<TABLE>
<CAPTION>
1996 1995
----------- -------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . $28,566,000 $31,696,000
Fully eligible active plan participants . . . . 5,482,000 7,075,000
All other actives . . . . . . . . . . . . . . . 11,098,000 14,200,000
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . 45,146,000 52,971,000
plus: unrecognized net gain . . . . . . . . . . 19,997,000 12,654,000
----------- -----------
Accrued postretirement benefit liability . . . . . $65,143,000 $65,625,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
The components of net postretirement
benefit cost were:
Service cost . . . . . . . . . . $ 876,000 $ 876,000 $1,070,000
Interest cost . . . . . . . . . . 3,183,000 3,768,000 3,926,000
Amortization of gain . . . . . . (1,155,000) (1,043,000) (922,000)
----------- ----------- ----------
Net periodic postretirement benefit
cost . . . . . . . . . . . . . . . $ 2,904,000 $ 3,601,000 $4,074,000
=========== =========== ==========
</TABLE>
Net periodic postretirement benefit costs for the years ended December 31,
1996 and 1995, includes the cost of benefits earned by active employees,
interest cost, gains and losses arising from differences between actuarial
F-29
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
assumptions and actual experience, and amortization of the transition
obligation. The discount rate used to determine the net periodic postretirement
benefit cost was 7.25%, 8.5% and 8.0% for 1996, 1995 and 1994, respectively. The
Company made contributions to the plan of $3,386,000 in 1996, $3,700,000 in 1995
and $3,579,000 in 1994, as claims were incurred.
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.50% and 7.25% as of December 31, 1996 and 1995 respectively.
The health care cost trend rate was 8.2% graded to 5.0% over 8 years for 1996,
and 8.6% graded to 5.5% over 8 years for 1995. The health care cost trend rate
assumption has a minimal impact on the amounts reported, since the Company has
capped its contributions at 200% of 1993 levels.
7. LEASES
LEASE EXPENSE
The Company has entered into various lease agreements for office space, data
processing and other equipment. Future gross minimum rental payments under
non-cancelable leases for 1997 and the succeeding four years are $10,942,951,
$10,690,820, $10,919,215, $9,269,160 and $8,686,613, respectively, and
$51,208,079 thereafter. Minimum future sub-lease rental income on these
noncancelable leases is $3,202,010, $3,336,379, $3,336,379, $3,336,379 and
$3,336,379 for 1997 and the succeeding four years, respectively, and $16,518,626
thereafter.
8. DEBT
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, 5.7% at December 31, 1996 and 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.
Exeter privately placed $75,118,152 aggregate principal amount, subordinated
notes payable (the "Notes"), on December 30, 1994 which are due December 30,
2004, with no interest payments for the first five years and semiannual interest
payments thereafter. The Notes have been discounted to yield 8.45% for the first
five years and pay interest at 8.845% thereafter. The Notes are expressly
subordinated in right of payment to the insurance liabilities of Exeter. The
Notes are not subject to redemption by Exeter or through the operation of a
sinking fund prior to maturity. Proceeds of the issuance of the Notes, net of
discount, amounted to $50,000,000. The issue costs of the Notes of $130,000 were
deducted from Notes, net of discount, to arrive at net subordinated notes
payable of $49,870,000. The issue cost will be amortized over the life of the
Notes. The Notes are held by MetLife, and the carrying value of the loan
approximates its fair value.
9. CONTINGENCIES
The Company has no contingent liabilities which might materially affect the
financial position of the Company or the results of its operations. There are no
pending legal proceedings which are beyond the ordinary course of business which
could have a material financial effect.
F-30
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
10. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- ---------------
<S> <C> <C> <C>
Compensation costs . . . . . . $ 36,172,270 $ 23,629,621 $ 18,807,641
Commissions . . . . . . . . . . 51,616,356 37,476,445 37,220,361
Debt expense . . . . . . . . . 6,261,153 5,658,756 --
Amortization of policy
acquisition costs . . . . . . 29,390,090 32,664,723 23,130,743
Capitalization of policy
acquisition costs . . . . . . (98,016,252) (65,850,148) (63,779,884)
Rent expense, net of sub-lease
income of $119,272,
$0 and $0 . . . . . . . . . . 3,060,243 1,609,487 1,288,197
Other . . . . . . . . . . . . . 122,559,161 75,701,177 67,058,781
------------ ------------ ------------
Total . . . . . . . . . . . . . $151,043,021 $110,890,061 $ 83,725,839
============ ============ ============
</TABLE>
11. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments presented below have
been determined by the Company using market information available as of December
31, 1996 and 1995 and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value for financial instruments for which there are no
available market value quotations.
The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
------------ --------------
<S> <C> <C>
DECEMBER 31, 1996:
Assets
Fixed Maturities . . . . . . . . . . . . . . . $553,950,961 $554,795,228
Policy loans . . . . . . . . . . . . . . . . . 76,262,779 76,262,779
Short-term investments . . . . . . . . . . . . 156,559,460 156,559,460
Cash and cash equivalents . . . . . . . . . . 49,147,342 49,147,342
Separate Account Assets . . . . . . . . . . . 192,632,348 192,632,348
Liabilities
Policyholder account balances . . . . . . . . 6,269,574 6,031,664
Other policyholder funds . . . . . . . . . . . 2,071,162 2,071,162
Short and long-term debt . . . . . . . . . . . 84,056,337 84,056,337
Separate Account Balances . . . . . . . . . . 208,269,567 192,632,348
DECEMBER 31, 1995:
Assets
Fixed Maturities . . . . . . . . . . . . . . . $612,385,484 $612,711,339
Mortgage loans . . . . . . . . . . . . . . . . 2,210,153 2,210,153
Policy loans . . . . . . . . . . . . . . . . . 58,210,498 58,210,498
Short-term investments . . . . . . . . . . . . 20,828,254 20,828,254
Cash and cash equivalents . . . . . . . . . . 35,129,015 35,129,015
Separate Account Assets . . . . . . . . . . . 39,701,263 39,701,263
Liabilities
Policyholder account balances . . . . . . . . 2,582,913 2,382,538
Other policyholder funds . . . . . . . . . . . 2,353,586 2,353,586
Short and long-term debt . . . . . . . . . . . 79,347,546 79,347,546
Separate Account Balances . . . . . . . . . . 42,297,885 39,701,263
</TABLE>
F-31
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
For bonds that are publicly traded, estimated fair value was obtained from an
independent market pricing service. Publicly traded bonds represented
approximately 96 percent of the carrying value and estimated fair value of the
total bonds as of December 31, 1996 and 71 percent of the carrying value and
estimated fair value of the total bonds as of December 31, 1995. For all other
bonds, estimated fair value was determined by management, based primarily on
interest rates, maturity, credit quality and average life. Estimated fair values
of mortgage loans were generally based on discounted projected cash flows using
interest rates offered for loans to borrowers with comparable credit ratings and
for the same maturities. Estimated fair values of policy loans were based on
discounted projected cash flows using U.S. Treasury rates to approximate
interest rates and Company experience to project patterns of loan accrual and
repayment. For cash and cash equivalents and short-term investments, the
carrying amount is a reasonable estimate of fair value.
The fair values for policyholder account balances are estimated using
discounted projected cash flows, based on interest rates being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued. Other policyholder funds include liabilities without
defined durations such as policy proceeds and dividends left with the Company.
The estimated fair value of such liabilities, which generally are of short
duration or have periodic adjustments of interest rates, approximates their
carrying value.
The estimated fair value of short and long-term debt was determined using
rates currently available to the Company for debt with similar terms and
remaining maturities.
12. STATUTORY FINANCIAL INFORMATION
The Interpretation and Standard required life insurance companies to adopt all
standards promulgated by the FASB in their general purpose financial statements.
The effect of all adjustments of initially applying the Interpretation and
Standard has been presented as an adjustment to the 1994 opening balance of
equity. The components of such adjustments are as follows:
<TABLE>
<CAPTION>
<S> <C>
January 1, 1994:
NELICO Historical . . . . . . . . . . . . . . . . . . . . . $ 94,378,654
Other Subsidiaries Combined Historical . . . . . . . . . . . 13,965,944
------------
108,344,598
Adjustments to GAAP for life insurance companies:
Future policy benefits and policyholder account
balances . . . . . . . . . . . . . . . . . . . . . . . . (92,581,713)
Deferred policy acquisition costs . . . . . . . . . . . . 197,723,446
Deferred federal income taxes . . . . . . . . . . . . . . (28,204,895)
Valuation of investments . . . . . . . . . . . . . . . . 116,100
Statutory investment valuation reserves . . . . . . . . . 206,448
Statutory interest maintenance reserve . . . . . . . . . 75,672
Other, net . . . . . . . . . . . . . . . . . . . . . . . (1,901,741)
------------
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . $183,777,915
============
</TABLE>
F-32
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The following reconciles statutory net income and statutory surplus and
reflects the corporate reorganization described in Note 1 determined in
accordance with accounting practices prescribed or permitted by insurance
regulatory authorities with net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
-------------- -------------- ----------------
<S> <C> <C> <C>
Statutory net income
(loss) . . . . . . . . . . $ (46,020,586) $ 374,833 $ (56,208,918)
Adjustments to GAAP for life
insurance companies:
Future policy benefits and
policyholders account
balances . . . . . . . . (41,173,515) (9,616,060) (51,901,361)
Deferred policy acquisition
costs. . . . . . . . . . 68,626,162 45,823,425 128,219,002
Deferred Federal Income
taxes. . . . . . . . . . 2,282,802 (6,798,961) (6,148,500)
Statutory interest
maintenance reserve . . 231,011 (744) (221)
Other, net . . . . . . . . 25,755,595 (9,016,876) (6,823,254)
------------- ------------- -------------
Net GAAP Earnings . . . . . $ 9,701,469 $ 20,765,617 $ 7,136,748
============= ============= =============
Statutory surplus . . . . . $ 355,853,248 $ 203,373,628 $ 142,727,150
Adjustments to GAAP for life
insurance companies:
Future policy benefits and
policyholders account
balances . . . . . . . . (195,272,649) (154,099,134) (144,483,074)
Deferred policy acquisition
costs. . . . . . . . . . 434,636,395 353,809,245 325,859,523
Deferred Federal Income
taxes. . . . . . . . . . (40,185,081) (55,200,949) (34,365,181)
Valuation of investments . 11,502,988 58,062,684 114,109
Statutory interest
maintenance reserve . . 305,720 74,707 75,451
Statutory investment
valuation reserves . . . 3,334,658 372,954 137,202
Surplus notes . . . . . . (58,910,797) (54,210,173) (49,870,000)
Receivables from
reinsurance
transactions . . . . . . 26,029,575 -- --
Other, net . . . . . . . . 13,127,635 2,320,160 2,973,051
------------- ------------- -------------
GAAP Equity . . . . . . . . $ 550,421,692 $ 354,503,122 $ 243,168,231
============= ============= =============
</TABLE>
13. RELATED PARTY TRANSACTIONS
Prior to the merger NELICO operated under a service agreement with its parent
NEMLICO to receive all executive, legal, clerical and other personnel services.
Subsequent to the merger, the Company has entered into a Service Agreement to
provide all administrative, accounting, legal and similar services to MetLife
for certain Administered Contracts, which are life insurance and annuity
contracts issued by NEMLICO prior to the merger of NEMLICO and MetLife and those
policies and contracts defined in the Service Agreement as Transition Policies
which were sold by the Company's field force post-merger.
The Company charged MetLife $88,043,274 including accruals for administrative
services on NEMLICO administered contracts for the period of September 1, 1996
through December 31, 1996. Prior to the merger, the Company paid $62,643,521 to
NEMLICO for administrative services on variable-life and variable-annuity
contracts for the period of January 1, 1996 through August 31, 1996. In 1995,
the Company paid $50,875,006 to NEMLICO for administrative services. These
services were charged based upon direct costs incurred. Service fees are
recorded by NELICO as a reduction in operating expenses.
In 1996, MetLife made a non-cash capital contribution to the Company of common
stock of affiliated companies consisting of Exeter, NEPA, NES, Newbury, Omega
Reinsurance Corp., TNE Advisers Inc., and TNE Information Services Inc. with a
total estimated statutory fair value of $29,557,626. MetLife also made non-cash
capital contributions of home-office properties of $10,301,481,
socially-responsible investments with a book value
F-33
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
of $11,916,278, furniture, equipment and leasehold improvements of $27,816,216
and a cash contribution of $128,412,170. Prior to the merger, NEMLICO made a
cash contribution to NELICO of $20,000,000.
In 1995, NEMLICO made a non-cash capital contribution to NELICO of
publicly-traded debt securities and private-placement obligations with an
estimated fair value of $54,028,223. NELICO received cash contributions from
NEMLICO of $8,215,000 and $11,648,000 in 1995 and 1994, respectively.
The Company entered into a lease agreement with MetLife on August 30, 1996 for
the home-office building which it occupies on 501 Boylston Street in Boston,
Massachusetts. The Company paid $780,160 for lease payments to MetLife for 1996.
Commissions earned by NES from sales of New England Funds (NEF) shares, a
subsidiary of MetLife, amounted to $14,791,000 in 1996. Included in accrued
income at December 31, 1996, were amounts receivable for assets-based
commissions from NEF totaling $226,000. In 1996, NES earned asset based income
of $7,605,000 on average assets of approximately $3.5 billion under management
with NEF.
Exeter has a privately-placed subordinated notes payable to MetLife for
$58,910,797 at December 31, 1996 and $54,210,173 at December 31, 1995.
On June 21, 1996, NEMLICO purchased a mortgage from NELICO for $2,216,703
which included principal of $2,203,774, and interest of $12,929.
Stockholder dividends or other distributions proposed to be paid by NELICO
must be approved by the Massachusetts Commissioner of Insurance if such
dividends or distributions, together with other dividends or distributions made
within the preceding 12 months, exceeds the greater of (1) 10% of NELICO's
statutory surplus as regards policyholders as of the previous December 31, or
(2) NELICO's statutory net gain from operations for the 12 month period ending
the previous December 31.
Of the statutory profits earned by NELICO on participating policies and
contracts, the portion which shall inure to the benefit of NELICO's stockholder
shall not exceed the larger of (1) 10% of such statutory profits, or (2) fifty
cents per year per thousand dollars of participating life insurance other than
group term insurance in force at the end of the year.
F-34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
New England Variable Life Insurance Company:
We have audited the statutory balance sheet of New England Variable Life
Insurance Company (a wholly-owned subsidiary of New England Mutual Life
Insurance Company) as of December 31, 1995, and the related statutory statements
of operations, surplus, and cash flows for each of the two years in the period
ended December 31, 1995. These statutory financial statements (not presented
separately herein) 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.
As described more fully in Note 1 to the aforementioned financial statements,
the Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware
(SAP), which practices after 1996 (upon issuance of 1996 financial statements)
differ from generally accepted accounting principles (GAAP).
In our report dated March 8, 1996, we expressed our opinion that the 1995 and
1994 financial statements, prepared using SAP, presented fairly, in all material
respects the financial position of New England Variable Life Insurance Company
as of December 31, 1995, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1995 in conformity
with GAAP. As described in Note 1 to the financial statements, financial
statements of wholly-owned subsidiaries of mutual life insurance enterprises
prepared in accordance with SAP are no longer considered to be presented in
conformity with GAAP. Accordingly, our present opinion on the 1995 and 1994
financial statements is different from that expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above (and not
included herein) do not present fairly, in conformity with GAAP, the financial
position of New England Variable Life Insurance Company as of December 31, 1995,
or the results of its operations or its cash flows for each of the two years in
the period ended December 31, 1995.
In our opinion, the statutory financial statements referred to above (and not
included herein) present fairly, in all material respects, the financial
condition of New England Variable Life Insurance Company as of December 31,
1995, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1995, on the basis of accounting
practices prescribed or permitted by the Insurance Department of the State of
Delaware.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 6, 1996, except for the information
in the penultimate paragraph under
"Basis of Presentation and Principles of Consolidation"
of Note 1, for which the date is February 18, 1997
F-35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
New England Pension and Annuity Company:
We have audited the statutory balance sheet of New England Pension and Annuity
Company (a wholly-owned subsidiary of New England Mutual Life Insurance Company)
as of December 31, 1995, and the related statutory statements of operations and
surplus, and cash flows for each of the two years in the period ended December
31, 1995. These statutory financial statements (not presented separately herein)
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.
As described more fully in Note 1 to the aforementioned financial statements,
the Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware
(SAP), which practices after 1996 (upon issuance of 1996 financial statements)
differ from generally accepted accounting principles (GAAP).
In our report dated March 8, 1996, we expressed our opinion that the 1995 and
1994 financial statements, prepared using SAP, presented fairly, in all material
respects the financial position of New England Pension and Annuity Company as of
December 31, 1995, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 in conformity with GAAP.
As described in Note 1 to the financial statements, financial statements of
wholly-owned subsidiaries of mutual life insurance enterprises prepared in
accordance with SAP are no longer considered to be presented in conformity with
GAAP. Accordingly, our present opinion on the 1995 and 1994 financial statements
is different from that expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above (and not
included herein) do not present fairly, in conformity with GAAP, the financial
position of New England Pension and Annuity Company as of December 31, 1995, or
the results of its operations or its cash flows for each of the two years in the
period ended December 31, 1995.
In our opinion, the statutory financial statements referred to above (and not
included herein) present fairly, in all material respects, the financial
condition of New England Pension and Annuity Company as of December 31, 1995,
and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 1995, on the basis of accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 6, 1996, except for the information
in the penultimate paragraph under
"Basis of Presentation and Principles of Consolidation"
of Note 1, for which the date is February 18, 1997
F-36
<PAGE>
April 23, 1996
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholder of
Exeter Reassurance Company, Ltd.
We have audited the statutory balance sheet of Exeter Reassurance Company, Ltd.
(a wholly-owned subsidiary of New England Mutual Life Insurance Company) as of
December 31, 1995 and the related statutory statements of operations and
surplus, and cash flows for the year then ended. These statutory financial
statements (not presented separately herein) 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 auditing standards generally accepted
in the United States of America. 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 also 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.
The statutory financial statements have been prepared in conformity with The
Insurance Act 1978, amendments thereto and related regulations and are not
intended to be presented in conformity with accounting principles generally
accepted in the United States of America ("U.S. GAAP").
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above (and not included herein)
do not present fairly in conformity with U.S. GAAP, the financial position of
Exeter Reassurance Company, Ltd. as of December 31, 1995, or the results of its
operations or its cash flows for the year then ended. In our opinion, the
statutory financial statements referred to above (and not included herein)
present fairly, in all material respects, the financial condition of Exeter
Reassurance Company, Ltd. as of December 31, 1995, and the results of its
operations and its cash flows for the year then ended in conformity with the
Insurance Act 1978, amendments thereto and related regulations.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
F-37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
New England Securities Corporation:
We have audited the consolidated statement of financial condition of New England
Securities Corporation as of December 31, 1995, and the related consolidated
statements of operations, shareholder's equity, and cash flows for the year then
ended. These financial statements (not presented separately herein) 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 (and not included
herein) present fairly, in all material respects, the consolidated financial
position of New England Securities Corporation as of December 31, 1995, and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 9, 1996
F-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
TNE Advisers, Inc.:
We have audited the balance sheet of TNE Advisers, Inc. as of December 31, 1995,
and the related statements of operations, changes in shareholder's equity
(deficit), and cash flows for the year ended December 31, 1995, and for the
period August 26, 1994 (commencement of operations) through December 31, 1994.
These financial statements (not presented separately herein) 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 (and not included
herein) present fairly, in all material respects, the financial position of TNE
Advisers, Inc. as of December 31, 1995, and the results of its operations and
its cash flows for the year ended December 31, 1995, and for the period August
26, 1994 (commencement of operations) through December 31, 1994, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 29, 1996
F-39
<PAGE>
March 14, 1996
INDEPENDENT AUDITORS' REPORT
To The Shareholders of
Newbury Insurance Company, Limited
We have audited the accompanying balance sheets of Newbury Insurance Company,
Limited as of December 31, 1995, and the related statements of earnings and
retained earnings and cash flows for each of the two years in the period ended
December 31, 1995 (not presented separately herein). 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.
Except as discussed in the following paragraph, we conducted our audits in
accordance with auditing standards generally accepted in the United States of
America. 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.
The provision for losses incurred but not reported is calculated in the manner
described in note 3b). We have not reviewed the underlying information used in
the calculation of the provision and therefore we have been unable to determine
whether the provisions for the years ended December 31, 1995 and 1994 are
adequate, deficient or excessive.
In our opinion, except for the effects of such adjustments, if any, that might
have been determined to be necessary had we been able to assess fully the matter
described in the preceding paragraph, the financial statements referred to above
(and not included herein) present fairly, in all material respects, the
financial position of Newbury Insurance Company, Limited as of December 31,
1995, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1995 and 1994, in conformity with
accounting principles generally accepted in the United States of America.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
F-40
<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, 1996.
Statement of Operations for the years ended December 31, 1996 and 1995.
Statement of Changes in Net Assets for the years ended December 31, 1996 and
1995.
Notes to Financial Statements.
The following financial statements of the Depositor are included in Part B of
this Registration Statement:
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Earnings for the years ended December 31, 1996,
1995 and 1994.
Consolidated Statements of Equity for the years ended December 31, 1996, 1995
and 1994.
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994.
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 (No. 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 (No.
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 (No. 33-85442) filed March 7, 1995.
(iii) Additional form of Selling Agreement is incorporated herein by
reference to Registration Statement on Form N-4 (No. 33-64879) filed on
December 11, 1995.
(iv) Additional Forms of Selling Agreement with other broker-dealers are
incorporated herein by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form N-4 (No. 33-85442) filed on April 30,
1997.
(4) (i) Forms of Variable Annuity Contract (with and without Contingent
Deferred Sales Charge), and Application is incorporated herein by
reference to Registration Statement on Form N-4 (No. 33-64879) filed on
December 11, 1995.
(ii) Forms of Endorsements (Living Benefits and Individual Retirement
Annuity) are incorporated herein by reference to Registration Statement
on Form N-4 (No. 33-64879) filed on December 11, 1995.
(5) For Application, see (4)(i) above.
(6) (i) Copy of charter (Amended and Restated Articles of Incorporation) is
incorporated herein by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form N-4 (No. 33-85442) filed on April 30,
1997.
(ii) Amended and Restated By-laws of Depositor are incorporated herein by
reference to Post-Effective Amendment No. 4 to Registration Statement on
Form N-4 (No. 33-85442) filed on April 30, 1997.
(7) None
(8) None
III-1
<PAGE>
(9) Opinion and consent of H. James Wilson, Esq.
(10) (i) Consent of Coopers & Lybrand L.L.P.
(ii) Consent of Deloitte & Touche LLP
(iii) Consent of Sutherland, Asbill & Brennan, L.L.P.
(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 (No. 33-64879) filed on June 6, 1996.
(14) Powers of Attorney are incorporated herein by reference to Post-Effective
Amendment No. 4 to Registration Statement on Form N-4 (No. 33-85442) filed
on April 30, 1997.
(27) Financial Data Schedule.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS & OFFICES WITH DEPOSITOR
------------------ ----------------------------------
<S> <C>
Robert A. Shafto* Chairman, President and Chief Executive
Officer
Susan C. Crampton Director
127 Tarbox Road
Jericho, VT 05465
Edward A. Fox Director
RR Box 67-15
Harborside, ME 04642
George J. Goodman Director
Adam Smith's Money World
45 W. 45th Street
New York, NY 10036
Dr. Paul E. Gray Director
Massachusetts Institute of
Technology
77 Massachusetts Avenue,
Cambridge, MA 01239
Dr. Evelyn E. Handler Director
California Academy of Sciences
Golden Gate Park
San Francisco, CA 94118
Philip K. Howard, Esq. Director
Howard, Darby & Levin
1330 Avenue of the Americas
New York, NY 10019
Harry P. Kamen Director
Metropolitan Life Insurance
Company
One Madison Avenue
New York, NY 10010
</TABLE>
III-2
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS & OFFICES WITH DEPOSITOR
------------------ ----------------------------------
<S> <C>
Terence Lennon Director
Metropolitan Life
Insurance Company
One Madison Avenue
New York, NY 10010
Bernard A. Leventhal Director
Burlington Industries
1345 Avenue of the
Americas
New York, NY 10105
Thomas J. May Director
Boston Edison Company
800 Boylston Street
Boston, MA 02199
Stewart G. Nagler Director
Metropolitan Life
Insurance Company
One Madison Avenue
New York, NY 10010
Rand N. Stowell Director
United Timber Corp.
Pine Street
Dixfield, ME 04224
Alexander B. Trowbridge Director
Trowbridge Partners Inc.
1317 F Street, N.W.
Suite 500
Washington, D.C. 20036
James P. Bossert* Vice President and Controller
Thom A. Faria* President, Career Agency System (a business unit of
NELICO)
Chester R. Frost* Senior Vice President and Treasurer
Edward C. Hall* President, New England Services (a business unit of
NELICO)
Daniel D. Jordan* Second Vice President, Counsel and Secretary
Bruce C. Long* President, New England Annuities (a business unit of
NELICO)
Robert W. Powell* President, Life Brokerage (a business unit of
NELICO)
Gregory A. Ross* President, TNE Information Services (a business unit
of NELICO)
Robert E. Schneider* Executive Vice President and Chief Financial Officer
H. James Wilson* Executive Vice President and General Counsel
John W. Wright* President, New England Employee Benefits Group (a
business unit of NELICO)
Frederick K. Zimmermann* Executive Vice President and Chief Investment
Officer
</TABLE>
- - ---------
* Principal Business Address: 501 Boylston Street, Boston, MA 02116
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The following list provides information regarding the entities under common
control with the Depositor. The Depositor is a wholly-owned, indirect subsidiary
of Metropolitan Life Insurance Company, which is organized under the laws of New
York. The Depositor is organized under the laws of Massachusetts. No person is
controlled by the Registrant.
III-3
<PAGE>
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1996
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1996. Those entities which are listed at the
left margin (labelled with capital letters) are direct subsidiaries of
Metropolitan. Unless otherwise indicated, each entity which is indented under
another entity is a subsidiary of such indented entity and, therefore, an
indirect subsidiary of Metropolitan. Certain inactive subsidiaries have been
omitted from the Metropolitan Organizational listing. The voting securities
(excluding directors' qualifying shares, if any) of the subsidiaries listed are
100% owned by their respective parent corporations, unless otherwise indicated.
The jurisdiction of domicile of each subsidiary listed is set forth in the
parenthetical following such subsidiary.
A. Metropolitan Tower Corp. (Delaware)
1. Metropolitan Property and Casualty Insurance Company (Rhode Island)
a. Metropolitan Group Property and Casualty Insurance Company (Rhode
Island)
i. Metropolitan Reinsurance Company (U.K.) Limited (Great Britain)
b. Metropolitan Casualty Insurance Company (Rhode Island)
c. Metropolitan General Insurance Company (Rhode Island)
d. First General Insurance Company (Georgia)
e. Metropolitan P&C Insurance Services, Inc. (California)
f. Metropolitan Lloyds, Inc. (Texas)
g. Met P&C Managing General Agency, Inc. (Texas)
2. Metropolitan Insurance and Annuity Company (Delaware)
a. MetLife Europe I, Inc. (Delaware)
b. MetLife Europe II, Inc. (Delaware)
c. MetLife Europe III, Inc. (Delaware)
d. MetLife Europe IV, Inc. (Delaware)
e. MetLife Europe V, Inc. (Delaware)
3. MetLife General Insurance Agency, Inc. (Delaware)
a. MetLife General Insurance Agency of Alabama, Inc. (Alabama)
b. MetLife General Insurance Agency of Kentucky, Inc. (Kentucky)
c. MetLife General Insurance Agency of Mississippi, Inc. (Mississippi)
d. MetLife General Insurance Agency of Texas, Inc. (Texas)
e. MetLife General Insurance Agency of North Carolina, Inc. (North
Carolina)
f. MetLife General Insurance Agency of Massachusetts, Inc. (Massachusetts)
4. Metropolitan Asset Management Corporation (Delaware)
a. MetLife Capital Holdings, Inc. (Delaware)
i. MetLife Capital Corporation (Delaware)
(1) Searles Cogeneration, Inc. (Delaware)
(2) MLYC Cogen, Inc. (Delaware)
(3) MCC Yerkes Inc. (Washington)
(4) MetLife Capital, Limited Partnership (Delaware). Partnership
interests in MetLife Capital, Limited Partnership are held by
Metropolitan (90%) and MetLife Capital Corporation (10%).
(5) CLJFinco, Inc. (Delaware)
(a) MetLife Capital Credit L.P. (Delaware). Partnership interests
in MetLife Capital Credit L.P. are held by Metropolitan (90%)
and CLJ Finco, Inc. (10%).
(6) MetLife Capital Portfolio Investments, Inc. (Nevada)
(a) MetLife Capital Funding Corp. (Delaware)
(7) MetLife Capital Funding Corp. II (Delaware)
III-4
<PAGE>
ii. MetLife Capital Financial Corporation (Delaware)
iii. MetLife Financial Acceptance Corporation (Delaware). MetLife
Capital Holdings, Inc. holds 100% of the voting preferred stock of
MetLife Financial Acceptance Corporation. Metropolitan Property and
Casualty Insurance Company holds 100% of the common stock of MetLife
Financial Acceptance Corporation.
iv. MetLife Capital International Ltd. (Delaware).
b. MetLife Investment Management Corporation (Delaware)
i. MetLife Investments Limited (United Kingdom). 23rd Street
Investments, Inc. holds one share of MetLife Investments Limited.
c. MetLife Investments Asia Limited (Hong Kong). One share of MetLife
Investments Asia Limited is held by W&C Services, Inc., a nominee of
Metropolitan Asset Management Corporation.
d. GFM International Investors Limited (United Kingdom). The common stock
of GFM International Investors Limited ("GFM") is held by Metropolitan
(99.5%) and by the former CEO of GFM (.5%). GFM is a sub-investment
manager for the International Stock Portfolio of Metropolitan Series
Fund, Inc.
i. GFM Investments Limited (United Kingdom)
5. SSRM Holdings, Inc. (Delaware)
a. State Street Research & Management Company (Delaware). Is a
sub-investment manager for the Growth, Income, Diversified and
Aggressive Growth Portfolios of Metropolitan Series Fund, Inc.
i. State Street Research Energy, Inc. (Massachusetts)
ii. State Street Research Investment Services, Inc. (Massachusetts)
iii. SSRM Management Company (Luxembourg).
b. Metric Holdings, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Realty Corp. (Delaware)
(1) Metric Realty Services, Inc. (Delaware). Metric Holdings, Inc.
and Metric Realty Corp. each hold 50% of the common stock of Metric
Realty Services, Inc.
(a) Metric Colorado, Inc. (Colorado). Metric Realty Services, Inc.
holds 80% of the common stock of Metric Colorado, Inc.
(2) Metric AV, Inc.
iii. Metric Realty (Illinois). Metric Realty Corp. and Metric Holdings,
Inc. each hold 50% of the common stock of Metric Realty.
(1) Metric Capital Corporation (California)
(2) Metric Assignor, Inc. (California)
(3) Metric Institutional Realty Advisors, Inc. (California)
(4) Metric Institutional Realty Advisors, L.P. (California). Metric
Realty holds a 99% limited partnership interest and Metric
Institutional Realty Advisors, Inc. holds a 1% interest as general
partner in Metric Institutional Realty Advisors, L.P.
(5) Metric Institutional Apartment Fund II, L.P. (California). Metric
Realty holds a 1% interest as general partner and Metropolitan
holds an approximately 14.6% limited partnership interest in Metric
Institutional Apartment Fund II, L.P.
iv. MetLife Realty Group, Inc. (Delaware)
6. MetLife Holdings, Inc. (Delaware)
a. MetLife Funding, Inc. (Delaware)
b. MetLife Credit Corp. (Delaware)
III-5
<PAGE>
7. Metropolitan Tower Realty Company, Inc. (Delaware)
8. Met Life Real Estate Advisors, Inc. (California)
9. MetLife HealthCare Holdings, Inc. (Delaware)
B. Metropolitan Tower Life Insurance Company (Delaware)
C. MetLife Security Insurance Company of Louisiana (Louisiana)
D. MetLife Texas Holdings, Inc. (Delaware)
1. Texas Life Insurance Company (Texas)
a. Texas Life Agency Services, Inc. (Texas)
b. Texas Life Agency Services of Kansas, Inc. (Kansas)
E. MetLife Securities, Inc. (Delaware)
F. 23rd Street Investments, Inc. (Delaware)
G. Metropolitan Life Holdings Limited (Ontario, Canada)
1. Metropolitan Life Financial Services Limited (Ontario, Canada)
2. Metropolitan Life Financial Management Limited (Ontario, Canada)
a. Metropolitan Life Insurance Company of Canada (Canada)
3. Morguard Investments Limited (Ontario, Canada) Shares of Morguard
Investments Limited ("Morguard") are held by Metropolitan Life Holdings
Limited (80%) and by employees of Morguard (20%).
4. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
5. 3309347 Canada, Inc. (Canada)
H. MetLife (UK) Limited (Great Britain). One share held by Metropolitan Tower
Corp.
1. Albany Life Assurance Company Limited (Great Britain)
a. Albany Pension Managers and Trustees Limited (Great Britain)
2. Albany Home Loans Limited (Great Britain)
3. ACFC Corporate Finance Limited (Great Britain)
4. Metropolitan Unit Trust Managers Limited (Great Britain)
5. Albany International Assurance Limited (Isle of Man)
6. MetLife Group Services Limited (Great Britain)
I. Santander Met, S.A. (Spain). Shares of Santander Met, S.A. are held by
Metropolitan (50%) and by an entity (50%) unaffiliated with Metropolitan.
1. Seguros Genesis, S.A. (Spain)
2. Genesis Seguros Generales, Sociedad Anomina de Seguros y Reaseguros (Spain)
J. Kolon-Met Life Insurance Company (Korea). Shares of Kolon-MetLife Insurance
Company are held by Metropolitan (51%) and by an entity (49%) unaffiliated
with Metropolitan.
K. Metropolitan Life Seguros de Vida S.A. (Argentina)
L. Metropolitan Life Seguros de Retiro S.A. (Argentina).
M. Met Life Holdings Luxembourg (Luxembourg)
III-6
<PAGE>
N. Metropolitan Life Holdings, Netherlands BV (Netherlands)
O. MetLife International Holdings, Inc. (Delaware)
P. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
Q. Metropolitan Realty Management, Inc. (Delaware)
1. Edison Supply and Distribution, Inc. (Delaware)
2. Cross & Brown Company (New York)
a. Cross & Brown Associates of New York, Inc. (New York)
b. Cross & Brown Construction Corp. (New York)
c. CBNJ, Inc. (New Jersey)
d. SubBrown Corp. (New York)
R. MetPark Funding, Inc. (Delaware)
S. 2154 Trading Corporation (New York)
T. Transmountain Land & Livestock Company (Montana)
U. Met West Agribusiness, Inc. (Delaware)
V. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
W. MetLife Trust Company, National Association. (United States)
X. PESCO Plus, L.C. (Florida). Metropolitan holds a 50% interest in PESCO Plus,
L.C. and an unaffiliated party holds a 50% interest.
1. Public Employees Equities Services Company (Florida)
Y. Benefit Services Corporation (Georgia)
Z. G.A. Holding Corporation (MA)
A.A. TNE-Y, Inc. (DE)
A.B. CRH Companies, Inc. (MA)
A.C. NELRECO Troy, Inc. (MA)
A.D. TNE Funding Corporation (DE)
A.E. L/C Development Corporation (CA)
A.F. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.G. CRB Co., Inc. (MA) AEW Real Estate Advisors, Inc. holds 49,000 preferred
non-voting shares of CRB Co., Inc. AEW Advisors, Inc. holds 1,000 preferred
non-voting shares of CRB Co., Inc.
III-7
<PAGE>
A.H. DPA Holding Corp. (MA)
A.I. Lyon/Copley Development Corporation (CA)
A.J. NEL Partnership Investments I, Inc. (MA)
A.K. New England Life Mortgage Funding Corporation (MA)
A.L. Mercadian Capital L.P. (DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian Capital L.P.
A.M. Mercadian Funding L.P. (DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian Funding L.P.
A.N. MetLife New England Holdings, Inc. (DE)
1. New England Life Insurance Company (MA)
a. New England Securities Corporation (MA)
b. Hereford Insurance Agency, Inc. (MA)
c. Hereford Insurance Agency of Alabama, Inc. (AL)
d. Hereford Insurance Agency of Minnesota, Inc. (MN)
e. Newbury Insurance Company, Limited (Bermuda)
f. TNE Information Services, Inc. (MA)
g. Exeter Reassurance Company, Ltd. (MA)
h. Omega Reinsurance Corporation (AZ)
i. New England Pension and Annuity Company (DE)
j. TNE Advisers, Inc. (MA)
k. New England Investment Companies, Inc. (MA)
1. New England Investment Companies, L.P. (DE) New England Investment
Companies, Inc. hold a 0.29% general partnership interest in New
England Investment Companies, L.P. MetLife New England Holdings, Inc.
holds a 54.90% limited partnership interest in New England Investment
Companies, L.P.
a. NEIC Holdings, Inc. (MA)
i. (1) Back Bay Advisors, Inc. (MA)
(2) Back Bay Advisors, L.P. (DE) Back Bay Advisors, Inc. holds a
1% general partner interest and NEIC Holdings, Inc. holds a
99% limited partner interest in Back Bay Advisors, L.P.
ii. Reich & Tang Asset Management, Inc. (MA)
(1) Reich & Tang Distributors, L.P. (DE) Reich & Tang Asset
Management Inc. holds a 1% general interest and Reich & Tang
Asset Management, L.P. holds a 99.5% limited partner interest
in Reich Tang Distributors, L.P.
(2) Reich & Tang Asset Management L.P. Reich & Tang Asset
Management, Inc. holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited partner interest in
Reich & Tang Asset Management, L.P.
(3) Reich & Tang Services, L.P. (DE) Reich & Tang Asset
Management, Inc. holds a 1% general partner interest and
Reich & Tang Asset Management, L.P. holds a 99% limited
partner interest in Reich & Tang Services, L.P.
III-8
<PAGE>
iii. Loomis, Sayles & Company, Inc. (MA)
(1) Loomis Sayles & Company, L.P. (DE) Loomis Sayles & Company,
Inc. holds a 1% general partner interest and Reich & Tang
Asset Management, Inc. holds a 99% limited partner interest
in Loomis Sayles & Company, L.P.
iv. Westpeak Investment Advisors, Inc. (MA)
(1) Westpeak Investment Advisors, L.P. (DE) Westpeak Investment
Advisors, Inc. holds a 1% general partner interest and Reich
& Tang Asset Management, Inc. holds a 99% limited partner
interest in Westpeak Investment Advisors, L.P.
v. VNSM, Inc. (DE)
(1) Vaughan, Nelson Scarborough & McConnell, L.P. (DE) VNSM,
Inc. holds a 1% general partner interest and Reich & Tang
Asset Management Inc. holds Advisors, L.P. a 99% limited
partner interest in Vaughan, Nelson Scarborough & McConnell,
L.P.
vi. MC Management, Inc. (MA)
(1) MC Management, L.P. (DE)
MC Management, Inc. holds a 1% general partner interest and
Reich & Tang Asset Management, Inc. holds a 99% limited
partner interest in MC Management, L.P.
vii. Harris Associates, Inc. (DE)
(1) Harris Associates Securities L.P. (DE)
Harris Associates, Inc. holds a 1% general partner interest
and Harris Associates L.P. holds a 99% limited partner
interest in Harris Associates Securities, L.P.
(2) Harris Associates L.P. (DE)
Harris Associates, Inc. holds a 0.33% general partner
interest and New England Investment Company, L.P. Inc. holds
a 99.67% limited partner interest in Harris Associates L.P.
(a) Harris Partners, Inc. (DE)
(b) Harris Partners L.L.C. (DE)
Harris Partners, Inc. holds a 1% membership interest and
Harris Associates L.P. holds a 99% membership interest in
Harris Partners L.L.C.
(i) Aurora Limited Partnership (DE)
Harris Partners L.L.C. holds a 1% general partner
interest
(ii) Perseus Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general partner
interest
(iii) Pleiades Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general partner
interest
(iv) Stellar Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general partner
interest
(v) SPA Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general partner
interest
viii. Graystone Partners, Inc. (MA)
(1) Graystone Partners, L.P. (DE)
Graystone Partners, Inc. holds a 1% general partner interest
and New England Investment Company, L.P. holds a 99% limited
partner interest in Graystone Partners, L.P.
III-9
<PAGE>
ix. NEF Corporation (MA)
(1) New England Funds, L.P. (DE)
NEF Corporation holds a 1% general partner interest and New
England Investment Company, L.P. holds a 99% limited partner
interest in New England Funds, L.P.
(2) New England Funds Management, L.P. (DE)
NEF Corporation holds a 1% general partner interest and New
England Investment Company, L.P. holds a 99% limited partner
interest in New England Funds Management, L.P.
l. Capital Growth Management, L.P. (DE)
New England Investment Companies, L.P. holds a 50% limited partner
interest in Capital Growth Management, L.P.
m. AEW Capital Management L.P. (DE)
New England Investment Companies, L.P. holds a 99% limited partner
interest and AEW Capital Management, Inc. holds a 1% general partner
interest in AEW Capital Management, L.P.
1. AEW Investment Group, Inc. (MA)
a. BBC Investment Advisors, Inc. (MA)
b. Copley/Ochard Investors, Inc. (MA)
i. Copley/Ochard Investors, L.P. (DE)
Copley/Ochard Investors, Inc. holds a 1% general partner
interest in Copley/Ochard Investors, L.P.
c. AEW Real Estate Advisors, Inc. (MA)
i. AEW Advisors, Inc. (MA)
(1) Copley Management Partnership (MA)
Copley Advisors, Inc. holds a 1% general partner interest in
Copley Management Partnership.
(2) Coptel Associates L.P. (DE)
Copley Advisors, Inc. holds a 1% general partner interest in
Coptel Associates L.P.
(3) CIIF Associates (MA)
Copley Advisors, Inc. holds a .15% general partner interest
in CIIF Associates.
(4) CIIF Associates II Limited Partnership (DE)
Copley Advisors, Inc. holds a .15% general partner interest
in CIIF Associates II Limited Partnership.
(5) CIIF McInnes Associates (MA)
AEW Advisors, Inc. holds a .15% general partnership interest
in CIIF McInnes Associates.
(6) CIIF Oxnard Associates (MA)
AEW Advisors, Inc. holds a .15% general partnership in CIIF
Oxnard Associates.
(7) CIIF II Crossroads Limited Partnership (DE)
AEW Advisors, Inc. holds a 1% general partnership in CIIF II
Crossroads Limited Partnership.
(8) CIIF II Tech Center Associates L.P. (DE)
AEW Advisors, Inc. holds a 1% general partnership in CIIF II
Tech Center Associates L.P.
(9) CIIF II Tech Center, Inc. (MA)
AEW Advisors, Inc. holds a 5% interest in CIIF II Tech Center
Associates, Inc.
III-10
<PAGE>
ii. Copley Properties Company, Inc. (MA)
(1) New England Life Pension Properties (MA)
Copley Properties Company, Inc. holds a 1% general partner
interest in New England Life Pension Properties.
iii. Copley Properties Company II, Inc. (MA)
(1) New England Life Pension Properties II (MA)
Copley Properties Company II, Inc. holds a 1% general
partner interest in New England Life Pension Properties II.
iv. Copley Properties Company III, Inc. (MA)
(1) New England Life Pension Properties III (MA)
Copley Properties Company III, Inc. holds a 1% general
partner interest in New England Life Pension Properties III.
v. Copley Securities Corporation (MA)
vi. Copley Margarita Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 0.001% general partner
interest in Copley Margarita Associates L.P.
vii. Fourth Copley Corp. (MA)
(1) New England Life Pension Properties IV (MA)
Fourth Copley Corp. holds a 1% general partner interest in
New England Life Pension Properties IV.
viii. Fifth Copley Corp. (MA)
(1) New England Life Pension Properties V (MA)
Fifth Copley Corp. holds a 1% general partner interest in
New England Life Pension Properties V.
ix. Sixth Copley Corp. (MA)
(1) Copley Pension Properties VI (MA)
Sixth Copley Corp. holds a 1% general partner interest in
Copley Pension Properties VI.
x. Seventh Copley Corp. (MA)
(1) Copley Pension Properties VII (MA)
Seventh Copley Corp. holds a 1% general partner interest in
Copley Pension Properties VII.
xi. Eighth Copley Corp. (MA)
xii. First Income Corp. (MA)
(1) Copley Realty Income Partners 1 (MA)
First Income Corp. holds a 1% general partner interest in
Copley Realty Income Partners 1.
xiii. Second Income Corp. (MA)
(1) Copley Realty Income Partners 2 (MA)
Second Income Corp. holds a 1% general partner interest in
Copley Realty Income Partners 2.
xiv. Third Income Corp. (MA)
(1) Copley Realty Income Partners 3 (MA)
Third Income Corp. holds a 1% general partner interest in
Copley Realty Income Partners 3.
III-11
<PAGE>
xv. Fourth Income Corp. (MA)
(1) Copley Realty Income Partners 4 (MA)
Fourth Income Corp. holds a 1% general partner interest in
Copley Realty Income Partners 4.
xvi. Third Singleton Corp. (MA)
(1) Copley Business Parks Associates L.P. (MA)
Third Singleton Corp. holds a 1% general partner interest in
Copley Business Parks Associates L.P.
xvii. Fourth Singleton Corp. (MA)
xviii. Fifth Singleton Corp. (MA)
(1) Copley Regional Centers Associates L.P. (MA)
Fifth Singleton Corp. holds a 1% general partner interest in
Copley Regional Centers Associates L.P.
xix. Sixth Singleton Corp. (MA)
(1) Copley Commerce Centers Associates L.P. (MA)
Sixth Singleton Corp. holds a 1% general partner interest in
Copley Commerce Centers Associates L.P.
xx. CTR Corp. (MA)
xxi. New England Investment Associates, Inc. (DE)
xxii. BCOP Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 1% general partner
interest in BCOP Associates L.P.
xxiii. AEW Real Estate Advisors Limited Partnership
AEW Real estate Advisors, Inc. holds a 25% general partner
interest in AEW Real Estate Advisors, Limited Partnership.
d. BBC Investment Advisors, Inc. (MA)
AEW Investment Group, Inc. holds a 60% general partner interest in
BBC Investment Advisors, Inc. and Back Bay Advisors, L.P. holds a
40% limited partner interest.
n. AEW Capital Management, Inc. (MA)
(i) Copley Management and Advisors, L.P. (DE)
AEW Capital Management, Inc. holds a 75% limited partner interest
and AEW Investment Group, Inc. holds a 25% general partner interest
in Copley Management and Advisors, L.P.
(a) BBC Investment Advisors, L.P. (DE)
Copley Management Advisors, L.P. holds a 59.4% limited partner
interest, Back Bay Advisors, L.P. holds a 39.6% limited partner
interest and BBC Investment Advisors, Inc. holds a 1% general
partner interest in BBC Investment Advisors, L.P.
2. Copley Public Partners Holding, L.P. (DE)
AEW Capital Management, L.P. holds a 75% limited partner interest and AEW
Investment Group, Inc. holds a 25% general partner interest.
3. AEW Hotel Investment Corporation.
In addition to the entities listed above, Metropolitan (or where indicated
an affiliate) also owns an interest in the following entities, among
others:
(1) CP&S Communications, Inc., a New York corporation, holds federal radio
communications licenses for equipment used in Metropolitan owned
facilities and airplanes. It is not engaged in any business.
(2) Quadreal Corp., a New York corporation, is the fee holder of a parcel
of real property subject to a 999 year prepaid lease. It is wholly
owned by Metropolitan, having been acquired by a wholly owned
III-12
<PAGE>
subsidiary of Metropolitan in 1973 in connection with a real estate
investment and transferred to Metropolitan in 1988.
(3) Met Life International Real Estate Equity Shares, Inc., a Delaware
corporation, is a real estate investment trust. Metropolitan owns
approximately 18.4% of the outstanding common stock of this company and
has the right to designate 2 of the 5 members of its Board of
Directors.
(4) Metropolitan Structures is a general partnership in which Metropolitan
owns a 50% interest. Metropolitan Structures owns 100% of the common
stock of Cicero/Cermak Corporation, an Illinois corporation.
(5) Seguros Genesis, S.A., (Mexico), is a Mexican insurer in which
Metropolitan and two of its subsidiaries collectively own a 24.5%
interest and have the right to designate 2 of the 9 members of the
Board of Directors.
(6) Interbroker, Correduria de Reaseguros, S.A., is a Spanish insurance
brokerage company in which Santander Met, S.A., a subsidiary of
Metropolitan in which Metropolitan owns a 50% interest and has the
right to designate 2 of the 4 members of the Board of Directors.
(7) Metropolitan owns varying interests in certain mutual funds distributed
by its affiliates. These ownership interests are generally expected to
decrease as shares of the funds are purchased by unaffiliated
investors.
(8) Metropolitan Lloyds Insurance Company of Texas, an affiliated
association, provides homeowner and related insurance for the Texas
market. It is an association of individuals designated as underwriters,
Metropolitan Lloyds, Inc., a subsidiary of Metropolitan Property and
Casualty Insurance Company ("MET P&C"), serves as the attorney-in-fact
and manages the association.
(9) Mezzanine Investment Limited Partnerships ("MILPs"), Delaware limited
partnerships, are investment vehicles through which investments in
certain entities are held. A wholly owned subsidiary of Metropolitan
serves as the general partner of the limited partnerships and
Metropolitan directly owns a 99% limited partnership interest in each
MILP. The MILPs have various ownership interests in certain companies.
The various MILPs own, directly or indirectly, more than 50% of the
voting stock of the following companies, Coating Technologies
International, Inc.; Dan River, Inc.; Igloo Holdings, Inc. and its
subsidiary, Igloo Products Corp.; Blodgett Holdings, Inc., and its
subsidiaries, GS Blodgett Corporation, GS Blodgett International Ltd.,
GS Blodgett Inc., Pitco Frialator, Inc., Frialator International
Limited, Magikitch'n, Inc., and Cloverleaf Properties, Inc.; and Briggs
Holdings, Inc., and its subsidiary, Briggs Plumbing Products, Inc.
NOTE: THE METROPOLITAN LIFE ORGANIZATION CHART DOES NOT INCLUDE REAL ESTATE
JOINT VENTURES AND PARTNERSHIPS OF WHICH METROPOLITAN LIFE AND/OR ITS
SUBSIDIARIES IS AN INVESTMENT PARTNER. IN ADDITION, CERTAIN INACTIVE
SUBSIDIARIES HAVE ALSO BEEN OMITTED.
III-13
<PAGE>
ITEM 27. NUMBER OF CONTRACTOWNERS
None
ITEM 28. INDEMNIFICATION
The Depositor's parent, Metropolitan Life Insurance Company ("MetLife"),
maintains a directors' and officers' liability policy with a maximum coverage of
$100 million under which the Depositor and New England Securities Corporation,
the Registrant's underwriter (the "Underwriter"), as well as certain other
subsidiaries of MetLife are covered. A provision in MetLife's by-laws provides
for the indemnification (under certain circumstances) of individuals serving as
directors or officers of certain organizations, including the Depositor and the
Underwriter. A provision in the Depositor's bylaws provides for the
indemnification (under certain circumstances) of individuals serving as
directors or officers 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 is 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 Retirement Investment Account
New England Variable Life Separate 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
POSITIONS AND OFFICES WITH PRINCIPAL OFFICES WITH
NAME UNDERWRITER REGISTRANT
- - ---- ------------------------------------ -------------
<S> <C> <C>
Thomas W. McConnell* Director, President and CEO None
Frederick K.
Zimmermann** Chairman of Board, Director None
Bradley W. Anderson* Vice President None
Beverly J. DeWitt** Assistant Secretary None
Anne M. Goggin** Vice President, General Counsel, Secretary
and Clerk None
Mark F. Greco* Vice President None
Laura A. Hutner* Vice President None
Mitchell A. Karman** Vice President None
Albert R. Margeson,
Jr.* Senior Vice President None
Robert F. Regan*** Vice President None
Jonathan M. Rozek* Vice President None
Andrea M. Ruesch* Vice President None
Robert E. Schneider** Director None
Michael E. Toland* Vice President, Chief Compliance Officer,
Chief Financial Officer, Treasurer, Assistant
Secretary and Assistant Clerk None
Principal Business
Address: *399 Boylston Street, Boston, MA 02116
** 501 Boylston Street, Boston, MA 02117
*** 500 Boylston Street, Boston, MA 02117
</TABLE>
III-14
<PAGE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NET
NAME OF UNDERWRITING COMPENSATION
PRINCIPAL DISCOUNTS & REDEMPTION OR BROKERAGE OTHER
UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION
- - ----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Not Applicable
</TABLE>
Commissions are paid by the Company directly to agents who are registered
representatives of the principal underwriter, or to broker-dealers that have
entered into a selling agreement with the principal underwriter with respect to
sales of the Contracts.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The following companies will maintain possession of the documents required by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder:
(a) Registrant
(b) State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(c) New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
(d) New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
Registrant hereby makes the following undertakings:
(1) To file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial statements
contained in the registration statement are never more than 16 months old for
so long as payments under the variable annuity contracts may be accepted;
(2) To include either (a) as part of any application to purchase a contract
offered by the prospectus, a space that an applicant can check to request a
Statement of Additional Information or (b) a postcard or similar written
communication affixed to or included in the prospectus that the applicant can
remove to send for a Statement of Additional Information; and
(3) To deliver a Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly upon
written or oral request.
New England Life Insurance Company hereby represents that the fees and charges
deducted under the Contracts, in the aggregate, are reasonable in relation to
the services rendered, the expenses to be incurred, and the risks assumed by New
England Life Insurance Company.
III-15
<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 29TH DAY OF APRIL, 1997.
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
By: New England Life Insurance Company
(Depositor)
By CHESTER R. FROST
----------------------------------
CHESTER R. FROST
SENIOR VICE PRESIDENT AND
TREASURER
Attest:
MARIE C. SWIFT
- - ------------------------------------
MARIE C. SWIFT
III-16
<PAGE>
SIGNATURES
AS REQUIRED BY THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF
1940, THE DEPOSITOR, NEW ENGLAND 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 29TH DAY OF APRIL, 1997.
NEW ENGLAND LIFE INSURANCE COMPANY
By CHESTER R. FROST
----------------------------------
CHESTER R. FROST
SENIOR VICE PRESIDENT AND
TREASURER
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 INDICATED, ON APRIL 29,
1997.
* Chairman, President and
- - ---------------------------------- Chief Executive Officer
ROBERT A. SHAFTO
* Director
- - ----------------------------------
SUSAN C. CRAMPTON
* Senior Vice President and Treasurer,
- - ---------------------------------- Chief Accounting Officer
CHESTER R. FROST
* Director
- - ----------------------------------
EDWARD A. FOX
* Director
- - ----------------------------------
GEORGE J. GOODMAN
* Director
- - ----------------------------------
PAUL E. GRAY
* Director
- - ----------------------------------
EVELYN E. HANDLER
* Director
- - ----------------------------------
PHILIP K. HOWARD
* Director
- - ----------------------------------
HARRY P. KAMEN
* Director
- - ----------------------------------
TERENCE LENNON
III-17
<PAGE>
* Director
- - ----------------------------------
BERNARD A. LEVENTHAL
* Director
- - ----------------------------------
THOMAS J. MAY
* Director
- - ----------------------------------
STEWART G. NAGLER
* Executive Vice President and
- - ---------------------------------- Chief Financial Officer
ROBERT E. SCHNEIDER
* Director
- - ----------------------------------
RAND N. STOWELL
* Director
- - ----------------------------------
ALEXANDER B. TROWBRIDGE
By: /S/ ANNE M. GOGGIN
---------------------------------
ANNE M. GOGGIN, ESQ.
ATTORNEY-IN-FACT
- - ---------
* Executed by Anne M. Goggin, Esquire on behalf of those indicated pursuant to
powers of attorney filed with Post-Effective No. 4 to Registration Statement in
Form N-4 (No. 33-85442) filed on April 30, 1997.
III-18
<PAGE>
EXHIBIT INDEX
(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.
(iii) Additional Form of Selling Agreement is incorporated herein by
reference to Registration Statement on Form N-4 (No. 33-64879) filed on
December 11, 1995.
(iv) Additional Forms of Selling Agreements are incorporated herein by
reference to Post-Effective Amendment No. 4 to Registration Statement on
Form N-4 (No. 33-85442) filed on April 30, 1997.
(4) (i) Forms of Variable Annuity Contract (with and without Contingent
Deferred Sales Charge), and Application is incorporated herein by reference
to Registration Statement on Form N-4 (No. 33-64879) filed on December 11,
1995.
(ii) Forms of Endorsements (Living Benefits and Individual Retirement
Annuity) are incorporated herein by reference to Registration Statement on
Form N-4 (No. 33-64879) filed on December 11, 1995.
(5) For Application, see (4)(i) above.
(6) (i) Copy of charter (Amended and Restated Articles of Incorporation) is
incorporated herein by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form N-4 (33-85442) filed on April 30, 1997.
(ii) Amended and Restated By-laws of Depositor are incorporated herein by
reference to Post-Effective Amendment No. 4 to Registration Statement on
Form N-4 (33-85442) filed on April 30, 1997.
(7) None
(8) None
(9) Opinion and consent of H. James Wilson, Esq.
(10) (i) Consent of Coopers & Lybrand L.L.P.
(ii) Consent of Deloitte & Touche LLP
(iii) Consent of Sutherland, Asbill & Brennan L.L.P.
(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 (No. 33-64879) filed on June 6, 1996.
(14) Powers of Attorney are incorporated herein by reference to Post-Effective
Amendment No. 4 to Registration Statement on Form N-4 (No. 33-85442) filed
on April 30, 1997.
(27) Financial Data Schedule.
<PAGE>
Exhibit 9
New England Life Insurance Company
501 Boylston Street
Boston, MA 02117
H. James Wilson
General Counsel
April 29, 1997
New England 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 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. 33-64879 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
Massachusetts.
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. James 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. 1 to the
Registration Statement on Form N-4 (File No. 33-64879) of our reports, which
include adverse opinions as to generally accepted accounting principles and
unqualified opinions as to statutory accounting practices prescribed or
permitted by the Insurance Department of the state of Delaware, dated March 8,
1996, except as to the information in the penultimate paragraph under "Basis of
Presentation and Principles of Consolidation" of Note 1, for which the date is
February 18, 1997, on our audits of the statutory financial statements of New
England Variable Life Insurance Company and New England Pension and Annuity
Company, and our report dated February 6, 1996, on our audit of New England
Variable Annuity Separate Account of New England Variable Life Insurance
Company. We also consent to the inclusion in this Registration Statement of our
report, which includes an adverse opinion as to generally accepted accounting
principles and an unqualified opinion as to conformity with The Insurance Act
1978, dated April 23, 1996, except as to the information in the penultimate
paragraph under "Basis of Presentation and Principles of Consolidation" of Note
1, for which the date is February 18, 1997, on our audit of the statutory
financial statements of Exeter Reassurance Company, Ltd., and our report dated
February 9, 1996, on our audit of New England Securities Corporation, and our
report dated February 29, 1996, on our audit of TNE Advisers, Inc., and our
report dated March 14, 1996, on our audit of Newbury Insurance Company, Limited.
We also consent to the reference to our Firm under the caption "Experts" in this
Post-Effective Amendment.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 28, 1997
<PAGE>
Exhibit 10(ii)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 1 to the Registration
Statement No. 33-64879 of New England Variable Annuity Separate Account (the
"Separate Account") of New England Life Insurance Company (the "Company") of our
reports dated February 18, 1997, on the financial statements of the Separate
Account and the Company for the year ended December 31, 1996, appearing in the
Statement of Additional Information, which is part of such Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Boston, Massachusetts
April 28, 1997
<PAGE>
Exhibit 10(iii)
Sutherland, Asbill & Brennan, L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
Susan S. Krawczyk
April 28, 1997
Board of Directors
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
Re: New England Variable Annuity Separate Account
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
certain variable annuity contracts issued through New England Variable Annuity
Separate Account (File No. 33-64879). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: Susan S. Krawczyk
<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-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 191,113,664
<INVESTMENTS-AT-VALUE> 201,109,054
<RECEIVABLES> 663,709
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 201,772,763
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 147,373
<TOTAL-LIABILITIES> 147,373
<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> 201,625,390
<DIVIDEND-INCOME> 7,943,020
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,467,755
<NET-INVESTMENT-INCOME> 6,475,265
<REALIZED-GAINS-CURRENT> 3,259
<APPREC-INCREASE-CURRENT> 9,596,595
<NET-CHANGE-FROM-OPS> 16,075,119
<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> 159,202,668
<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>
