<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
REGISTRATION NOS. 33-85442
811-8828
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM N-4
-----------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 5 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 8 [X]
(CHECK APPROPRIATE BOX OR BOXES)
-----------------
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
Executive Vice President and General Sutherland, Asbill & Brennan, LLP
Counsel 1275 Pennsylvania Avenue, N.W.
New England Life Insurance Washington, D.C. 20004-2404
Company
501 Boylston Street
Boston, Massachusetts 02117
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on May 1, 1997 pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
Title of Securities Being Registered: Individual Variable Annuity Contracts
================================================================================
<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>
CAPTION IN STATEMENT
FORM N-4 OF ADDITIONAL
ITEM NO. CAPTION IN PROSPECTUS INFORMATION
- -------- --------------------- --------------------
<S> <C> <C>
1 Cover Page ................................
2 Glossary of Special Terms used in this
Prospectus................................
3 Highlights; Expense Table .................
4 Accumulation Unit Values ..................
5 The Company; The Variable Account;
Investments of the Variable Account--The
New England Zenith Fund Series;
Administration Charges, Contingent
Deferred Sales Charge and Other
Deductions; Voting Rights ................
6 Administrative Charges, Contingent Deferred
Sales Charge and Other Deductions ........
7 The Contracts; Investments of the Variable
Account (Substitution of Investments);
Annuity Payments; The Fixed Account;
Guaranteed Option ........................
8 Annuity Payments; Amount of Variable
Annuity Payments .........................
9 The Contracts .............................
10 The Contracts; Cover Page ................. Net Investment Factor
11 The Contracts; Loan Provision for Certain
Tax-Benefited Retirement Plans ...........
12 Retirement Plans Offering Federal Tax
Benefits; Federal Income Tax Status
(Taxation of the Contracts) ..............
13 Inapplicable ..............................
14 Table of Contents of Statement of
Additional Information ...................
15 Cover Page
16 Table of Contents
17 Inapplicable
18 Services to the Variable
Account
19 Administration Charges, Contingent Deferred
Sales Charge and Other Deductions ........
20 Services to the Variable
Account
21(b) Calculation of
Performance Data
22 Annuity Payments
23 Financial Statements
</TABLE>
<PAGE>
This filing contains a profile in addition to the prospectus for the American
Growth Series variable annuity contract. In Texas, the prospectus is used with
the supplement dated May 1, 1998, included herewith, that addresses
recalculation of the guaranteed minimum Death Proceeds for contracts issued in
Texas.
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
INDIVIDUAL VARIABLE ANNUITY CONTRACT PROFILE
AMERICAN GROWTH SERIES
May 1, 1998
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 Company may make the Contracts
available for use with Section 401(k) plans. The Contract is not currently
intended for use with 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 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 (or the maximum age permitted by state law). 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 7 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
$5,000, and any subsequent investments must be at least $250, with certain
exceptions described in the prospectus. 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
$5,000,000.
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) 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.
Roth IRAs--Roth individual retirement accounts under Section 408A 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 advisor about
using the Contract with those plans. The Company may make the Contract
available for use with Section 401(k) plans. The Contract is not currently
available for use with other plans, including 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
Salomon Brothers U.S. Government
Goldman Sachs Midcap Value Series Series
Davis Venture Value Series
Westpeak Growth and Income Series Back Bay Advisors Money Market Series
In addition, the Fixed Account is available in some states.
5. WHAT ARE THE EXPENSES UNDER THE CONTRACT?
Administration Charges. To cover the costs of the administrative services
that we provide for the Contracts, we impose a daily charge at an annual rate
of .10% of the daily net assets attributable to your Contract. We also impose
an "administration contract charge" each year 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 1.25% 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 seven 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..................... 7%
2..................... 6%
3..................... 5%
4..................... 4%
5..................... 3%
6..................... 2%
7..................... 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), 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. Deductions for state
premium tax charges currently range from 1/2% to 2.25% of the contract value
(or, if applicable, purchase payments or 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 .10%
administration asset charge, the 1.25% mortality and expense risk charge, and
the investment charges for each Fund for the year ended December 31, 1997 (as
a percentage of average net assets after giving effect to any current expense
cap or expense deferral). Charges and expenses represent anticipated amounts
for the Midcap Value Series based on the management fee approved by
shareholders of the Series that became effective on May 1, 1998, and other
expenses actually incurred for the Series for 1997. 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 seven 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 12/31/97 CHARGES ONE YEAR TEN YEARS
- ---- --------- -------------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Small Cap............... 1.41% 1.00% 2.41% $ 89.14 $ 273.24
International Magnum Eq-
uity................... 1.41% 1.30% 2.71% 91.92 302.52
Equity Growth........... 1.41% .87% 2.28% 87.93 260.25
Midcap Value............ 1.41% .90% 2.31% 88.21 263.26
Venture Value........... 1.41% .90% 2.31% 88.21 263.26
Growth and Income....... 1.41% .82% 2.23% 87.47 255.20
Balanced................ 1.41% .85% 2.26% 87.75 258.23
Strategic Bond Opportu-
nities................. 1.41% .85% 2.26% 87.75 258.23
Bond Income............. 1.41% .52% 1.93% 84.68 224.35
U.S. Government......... 1.41% .70% 2.11% 86.35 242.98
Money Market............ 1.41% .45% 1.86% 84.02 217.00
</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. Certain penalties may apply if amounts are withdrawn
prematurely. 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 Contracts issued under certain tax
benefited retirement plans, 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 $1,000.
While you have access to your money during the accumulation phase, certain
charges, such as the administration contract charge, 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 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ---- ----- ----- ----- ----- ----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............... 21.27 % 26.50 % 24.12% N/A
International Magnum Eq-
uity................... (5.50)% 2.29 % 1.81% N/A
Equity Growth........... 22.04 % 9.56 % 43.71% N/A
Midcap Value............ 13.54 % 13.51 % 25.46% (4.60)% N/A
Venture Value........... 29.88 % 21.91 % 34.42% N/A
Growth and Income....... 29.57 % 14.09 % 31.47% (5.53)% N/A
Balanced................ 12.41 % 12.84 % 20.12% N/A
Strategic Bond Opportu-
nities................. 7.21 % 10.20 % 14.78% N/A
Bond Income............. 7.78 % 1.55 % 17.64% (6.47)% 9.12 % 4.65 % 14.02% 4.17% 8.13% 4.14%
U.S. Government......... 4.28 % (0.80)% 10.48% N/A
Money Market............ 1.49 % 1.24 % 1.78% 0.07 % (0.90)% (0.08)% 2.25% 4.09% 5.01% 3.21%
</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 minimum guaranteed 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, without Company consent, 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. Certain limitations may apply. 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 02116, 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 GROWTH SERIES
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY
NEW ENGLAND LIFE INSURANCE COMPANY
SUPPLEMENT DATED MAY 1, 1998
TO PROSPECTUS DATED MAY 1, 1998
For Contracts issued in Texas, the guaranteed minimum Death Proceeds will be
recalculated on the sixth Contract Anniversary, and every sixth year
anniversary thereafter until the Contract Owner's (or, if applicable, the
Annuitant's) 76th birthday to determine whether a higher (but never a lower)
guarantee will apply. (For a jointly owned Contract, this recalculation will
be made every six years until the 71st birthday of the older Contract Owner.)
For Contracts issued in other states, these recalculations will occur every
seventh year, as described in the prospectus. For more information about the
guaranteed minimum Death Proceeds, see "Payment on Death Prior to
Annuitization."
S-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
American Growth Series Prospectus.......................................... A-1
New England Zenith Fund Prospectus......................................... B-1
Submission Requirements.................................................... C-1
Application
Substitute W9, Registered Representative and NSP-244 Information
Trustee Certification
Dollar Cost Averaging and Settlement Option Election
MSA/ACH and Systematic Withdrawal Election
Transfer Request
Prospectus Receipt
</TABLE>
<PAGE>
AMERICAN GROWTH 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 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
Salomon Brothers U.S. Government
Goldman Sachs Midcap Value Series 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, 1998, 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-56 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, 1998.
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-6
EXPENSE TABLE............................................................. A-9
HOW THE CONTRACT WORKS.................................................... A-14
THE COMPANY............................................................... A-15
THE VARIABLE ACCOUNT...................................................... A-15
INVESTMENTS OF THE VARIABLE ACCOUNT....................................... A-15
Investment Advice........................................................ A-17
Substitution of Investments.............................................. A-17
GUARANTEED OPTION......................................................... A-18
THE CONTRACTS............................................................. A-18
Purchase Payments........................................................ A-18
Allocation of Purchase Payments.......................................... A-19
Contract Value and Accumulation Unit Value............................... A-19
Payment on Death Prior to Annuitization.................................. A-20
Transfer Privilege....................................................... A-23
Dollar Cost Averaging.................................................... A-24
Surrenders............................................................... A-24
Systematic Withdrawals................................................... A-25
Loan Provision for Certain Tax Benefited Retirement Plans................ A-26
Disability Benefit Rider................................................. A-28
Suspension of Payments................................................... A-28
Ownership Rights......................................................... A-28
Requests and Elections................................................... A-29
Ten Day Right to Review.................................................. A-29
ADMINISTRATION CHARGES, CONTINGENT DEFERRED SALES CHARGE AND OTHER DEDUC-
TIONS.................................................................... A-30
Administration Charges................................................... A-30
Mortality and Expense Risk Charge........................................ A-31
Contingent Deferred Sales Charge......................................... A-31
Premium Tax Charge....................................................... A-33
Other Expenses........................................................... A-34
Charges Under Contracts Purchased by Exchanging a Fund I, Preference or
Zenith Accumulator Contract............................................. A-34
ANNUITY PAYMENTS.......................................................... A-35
Election of Annuity...................................................... A-35
Annuity Options.......................................................... A-36
AMOUNT OF VARIABLE ANNUITY PAYMENTS....................................... A-37
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS............................ A-38
FEDERAL INCOME TAX STATUS................................................. A-39
Introduction............................................................. A-39
Taxation of the Company.................................................. A-39
Tax Status of the Contract............................................... A-40
Taxation of Annuities.................................................... A-41
Qualified Contracts...................................................... A-42
Withholding.............................................................. A-46
Possible Changes in Taxation............................................. A-46
Other Tax Consequences................................................... A-46
General.................................................................. A-47
VOTING RIGHTS............................................................. A-47
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DISTRIBUTION OF CONTRACTS.................................................. A-48
THE FIXED ACCOUNT.......................................................... A-48
General Description of the Fixed Account.................................. A-48
Contract Value and Fixed Account Transactions............................. A-49
FINANCIAL STATEMENTS....................................................... A-50
INVESTMENT EXPERIENCE INFORMATION.......................................... A-50
APPENDIX A: Consumer Tips.................................................. A-53
APPENDIX B: Contingent Deferred Sales Charge............................... A-54
APPENDIX C: Premium Tax.................................................... A-55
</TABLE>
A-3
<PAGE>
GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
ACCUMULATION UNIT. An accounting device used to calculate the Contract Value
prior to annuitization.
ACCUMULATION UNIT VALUE. The value of an Accumulation Unit, determined as of
the close of regular trading on the New York Stock Exchange on each day the
Exchange is open. The Accumulation Unit Value of a sub-account reflects the
net investment experience of the underlying Eligible Fund and daily deductions
for the Mortality and Expense Risk Charge and Administration Asset Charge.
ADMINISTRATION ASSET CHARGE. A charge deducted daily from the assets of each
sub-account of the Variable Account to cover the Company's cost of providing
certain administrative services relating to the Contracts and the Variable
Account. On an annualized basis, the charge equals .10% of daily net assets.
ADMINISTRATION CONTRACT CHARGE. A charge deducted annually from the Contract
Value in the Variable Account to cover the Company's cost of providing certain
administrative services relating to the Contracts and the Variable Account.
The charge is the lesser of 2% of the total Contract Value or $30.
ANNUITANT. The person on whose life the Contract is issued.
ANNUITIZATION. Application of proceeds under the Contract to an annuity
option on the Maturity Date or upon an earlier surrender of the Contract.
ANNUITY UNIT. An accounting device used to calculate the dollar amount of
annuity payments.
BENEFICIARY. The person designated to receive Death Proceeds under a
Contract if a Contract Owner (or Annuitant, if the Contract Owner is not a
natural person) dies before annuitization of the Contract.
COMMUTATION RIGHT. The payee's right, under certain variable annuity payment
options, to withdraw the commuted value of remaining annuity income payments.
The commuted value is calculated based on the assumed interest rate under the
Contract. (See "Annuity Payments--Annuity Options.")
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.
A-4
<PAGE>
CONTRACT YEAR. A twelve month period commencing with the Contract Date and
with each Contract anniversary thereafter.
DEATH PROCEEDS (PRIOR TO ANNUITIZATION). The amount payable by the Company,
prior to annuitization, upon receipt of due proof of the death of the Contract
Owner (or of the death of the first Contract Owner to die under a jointly
owned Contract) and election of payment. For a Contract that is not owned by
an individual, the Death Proceeds are payable upon receipt of due proof of the
death of the Annuitant (and election of payment) prior to annuitization. The
Death Proceeds are guaranteed to be no less than the purchase payments made,
adjusted for any previous surrenders or outstanding loans. However, after the
first seven Contract Years, a higher (but never a lower) guarantee may apply,
depending on your Contract Value. In certain states, the Death Proceeds will
be reduced by the applicable premium tax charge.
ELIGIBLE FUNDS. The mutual fund portfolios in which the Variable Account
invests. Eligible Funds currently available consist of 11 Series of the New
England Zenith Fund. Purchase payments allocated to the Variable Account may
be invested in shares of one or more of these Series, as described in
"Investments of the Variable Account."
FIXED ACCOUNT. A part of the Company's general account to which net purchase
payments may be allocated under certain Contracts. The Fixed Account provides
guarantees of principal and interest. Special limits apply to transfers of
Contract Value to and from the Fixed Account. See "Contract Value and Fixed
Account Transactions."
MATURITY DATE. The date on which annuity payments are to commence, unless
the Contract Owner applies the Contract Value to an annuity payment option at
an earlier date. The Maturity Date will be the date when the older of the
Contract Owner(s) and the Annuitant at his or her nearest birthday would be
age 95 (or the maximum age permitted by state law, if less).
MORTALITY AND EXPENSE RISK CHARGE. A charge deducted daily from the assets
of each sub-account of the Variable Account to compensate the Company for
assuming certain mortality and expense risks under the Contracts. On an
annualized basis, the charge equals 1.25% of daily net assets.
PAYEE. Any person or entity entitled to receive payment in one sum or under
an annuity payment option. The term includes (i) an Annuitant, (ii) a
Beneficiary or contingent Beneficiary who becomes entitled to payments upon
death of the Contract Owner (or Annuitant, if the Contract is not owned in an
individual capacity), and (iii) in the event of surrender or partial surrender
of the Contract, the Contract Owner.
PREMIUM TAX CHARGE. A charge to recover premium taxes which the Company pays
to certain states.
PURCHASE PAYMENTS. Amounts paid to the Company for investment in the
Contract.
SYSTEMATIC WITHDRAWALS. A method of distributing your Contract Value which
involves a series of partial surrenders.
TEN DAY RIGHT TO REVIEW. Within 10 days (or more if required by law) of your
receipt of an issued Contract you may return it to the Company or its agent
for cancellation. Upon cancellation of the Contract, the Company will return
to you the Contract Value (or, if required by state law, all purchase payments
made).
VARIABLE ACCOUNT. A separate investment account of the Company designated as
the New England Variable Annuity Separate Account. The Variable Account is
divided into sub-accounts, each of which invests in shares of one of the
Eligible Funds.
VARIABLE ANNUITY. An annuity providing for payments varying in amount in
accordance with the investment experience of the assets of a separate
investment account.
A-5
<PAGE>
HIGHLIGHTS
This prospectus describes Contracts under which purchase payments are
allocated to the Variable Account. If the Fixed Account is available under
your Contract, you may allocate all or part of your purchase payments or
transfer all or part of your Contract Value to that account. For a description
of the Fixed Account, the rules regarding transactions which involve the Fixed
Account (such as special restrictions on transfers of Contract Value to and
from the Fixed Account), and the way in which the Fixed Account affects the
Contract Value, see "The Fixed Account." You should review "The Fixed Account"
carefully before allocating purchase payments or Contract Value to that
account.
TAX DEFERRED VARIABLE ANNUITIES:
Taxation of earnings under variable annuities is generally deferred until
amounts are withdrawn or distributions made. The deferral of taxes on earnings
under variable annuities is designed to encourage long-term personal savings
and supplemental retirement plans.
THE CONTRACT:
The American Growth Series is a variable annuity issued by the Company. The
variable annuity provides for variable payments to commence at the Maturity
Date. The Contract Owner may, however, surrender the Contract and apply the
proceeds to an annuity payment option at an earlier date. Annuity payments
generally are made on a monthly basis and will vary in amount according to the
annuity payment option selected and the investment results of the underlying
Eligible Fund(s). (See "Annuity Payments.")
PURCHASE PAYMENTS:
Under current rules, the minimum initial purchase payment is $5,000, and the
minimum subsequent purchase payment is $250, with the following exceptions.
For Contracts issued in connection with individual retirement accounts under
Section 408(a) of the Code or individual retirement annuities under Section
408(b) of the Code (both referred to as "IRAs"), and Roth IRAs under Section
408A of the Code ("Roth IRAs") the Company will accept a minimum initial
purchase payment as low as $2,000, and monthly purchase payments as low as
$100 per month if you choose to have them withdrawn from your bank checking
account or New England Cash Management Trust account, a service known as the
Master Service Account arrangement ("MSA"). For Contracts issued in connection
with other types of retirement plans qualifying for tax-benefited treatment
under the Code, the Company will accept monthly purchase payments as low as
$50 per month if payments are made through a group billing arrangement (also
known as a "list bill" arrangement). For all other Contracts, the Company will
accept monthly purchase payments as low as $100 per month if they are made
through MSA. In the case of a Contract issued in exchange for a contract
issued by New England Variable Annuity Fund I (a "Fund I contract"), New
England Retirement Investment Account (a "Preference contract"), or The New
England Variable Account (a "Zenith Accumulator contract") (each an "old
contract"), the Company may consent to waive the minimum initial and
subsequent purchase payment amounts to correspond with the terms of the old
contract. The Company reserves the right to limit purchase payments made in
any Contract Year or in total under a Contract. The Company currently reserves
the right not to accept any purchase payment that, when combined with the
Contract Value under all Contracts owned by a Single Contract Owner, would
exceed $1,000,000. Under current rules, in no event will the Company accept a
purchase payment that, when combined with the Contract Value under all
Contracts owned by a Single Contract Owner, would exceed $5,000,000. 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.
No purchase payment may be made (1) within seven years prior to the Contract's
Maturity Date (except under Contracts issued in Pennsylvania or New York), or
(2) after a Contract Owner (or after the Annuitant, if the Contract is not
owned in an individual capacity) reaches age 86. (See "Purchase Payments.")
OWNERSHIP:
The Contracts may be purchased and owned by an individual, an employer, a
trust, a corporation, a partnership, a custodian or any entity specified in an
eligible employee benefit plan. The Contracts are intended for use with the
following retirement plans which offer Federal tax benefits: plans qualified
under Section 401(a) or 403(a) of the Code ("Qualified Plans"), certain
annuity plans under Section 403(b) of the Code ("TSA Plans"), IRAs,
A-6
<PAGE>
including Roth 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
Company may make the Contracts available for use with Section 401(k) plans.
The Contracts are not currently available to other plans, such as 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 or TSA Plan, the Contract
Owner must be the Annuitant, and no Contingent Annuitant will be allowed.
The Company relies on instructions from trustees and custodians, as Contract
Owners, who may exercise certain rights under the Contracts on behalf of plan
participants. In any event, references to "you" in this prospectus refer to
the Contract Owner(s) or to plan participants who may be entitled to instruct
their trustee or custodian with regard to the exercise of these rights. (See
"Ownership Rights.")
INVESTMENT OPTIONS:
You may allocate purchase payments to the Eligible Funds or to the Fixed
Account (if available under your Contract). Your Contract Value may be
distributed among no more than 10 accounts (including the Fixed Account) at
any time.
You may change your allocation of future purchase payments. It is the
Company's position that, under current tax law, you may also transfer Contract
Value between Eligible Funds without incurring federal income tax
consequences. The Company reserves the right to limit the number and amount of
transfers and charge a transfer fee. Currently the Company does not charge a
transfer fee or limit the number of transfers prior to annuitization. However,
special limits apply in situations which the Company determines involve
"market-timing." (See "Transfer Privilege" for more information.) 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.
After variable annuity payments begin, the Company allows one transfer per
year in total without Company consent. Special limits apply to transfers of
Contract Value to and from the Fixed Account. (See "The Fixed Account" for a
description of transfers involving that account.) 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. (See Appendix C.) Generally, the Company deducts any applicable premium
tax charge from the Contract Value on the date when annuity payments begin. In
South Dakota the Company deducts the premium tax charge at the earliest of: a
full or partial surrender, annuitization or payment of the Death Proceeds
(including application of the Death Proceeds to the Beneficiary Continuation
provision) due to the death of a Contract Owner (or Annuitant under a Contract
not owned in an individual capacity). (See "Premium Tax Charge.") For assuming
mortality and expense risks under the Contract, the Company deducts an amount
equal to an annual rate of 1.25% of the daily net assets of the Variable
Account. (See "Mortality and Expense Risk Charge.") The Company deducts an
amount equal to an annual rate of .10% of the daily net assets of the Variable
Account for administrative expenses and also imposes an annual administration
charge against your Contract Value in the Variable Account, equal to the
lesser of 2% of the total Contract Value (including any Contract Value you
have allocated to the Fixed Account and any Contract Value held in the
Company's general account as the result of a loan) 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-7
<PAGE>
A Contingent Deferred Sales Charge will be imposed on certain full and
partial surrenders and applications of proceeds to certain annuity payment
options, or, in certain circumstances, on withdrawal of amounts that were
applied to an annuity payment option. (See "Contingent Deferred Sales
Charge.") In addition, a Contingent Deferred Sales Charge may apply at the
Maturity Date under Contracts issued in Pennsylvania or New York, if at that
time a purchase payment has been invested less than seven years. The
Contingent Deferred Sales Charge is a maximum of 7% of each purchase payment
made. In no event will the amount of the Contingent Deferred Sales Charge
exceed the equivalent of 8% of the first $50,000 of purchase payments and 6.5%
of purchase payments in excess of $50,000.
TEN DAY RIGHT TO REVIEW:
Within 10 days (or more where required by state insurance law) after you
receive the Contract you may return it to the Company or the Company's agent
for cancellation. The Company will return to you the Contract Value (or, if
required by state law or regulation, all purchase payments made). (See "Ten
Day Right to Review.")
PAYMENT ON DEATH:
The Contract provides for a payment to the Beneficiary if the Contract Owner
dies (or if a Contract Owner under a jointly owned Contract dies) prior to
annuitization. (In the case of a Contract not owned in an individual capacity,
the Death Proceeds will be paid if the Annuitant dies prior to annuitization.)
The Contract has a minimum guaranteed death benefit, equal to the purchase
payments made under the Contract, adjusted for any previous surrenders.
However, on the seventh Contract Anniversary, and at seven year intervals
thereafter until the Contract Owner's 76th birthday, the minimum guaranteed
death benefit payable is recalculated to determine whether a higher (but never
a lower) guarantee will apply. (Under a jointly owned Contract, the
recalculation of the minimum death benefit will be made at seven year
intervals until the 71st birthday of the older Contract Owner.) Any additional
purchase payments will immediately increase your minimum guaranteed death
benefit and any partial surrenders will immediately decrease your minimum
guaranteed death benefit. The Death Proceeds payable will be the greater of
the minimum guaranteed death benefit amount applicable to the Contract and the
current Contract Value, reduced in either case by the amount of any
outstanding loan plus accrued interest and, in certain states, by a premium
tax charge. (See "Payment on Death Prior to Annuitization.")
SURRENDERS:
Generally, you may surrender the Contract for all or a portion of the
Contract Value by written request at any time prior to annuitization so long
as, after a partial surrender, the remaining Contract Value is at least
$1,000. Under the Company's current rules, a partial surrender must be at
least $100. (See "Surrenders." 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 may be surrendered without sales charge 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 (the "free
withdrawal amount"). (See "Contingent Deferred Sales Charge" for more
information.)
- -------------------------------------------------------------------------------
A-8
<PAGE>
EXPENSE TABLE
<TABLE>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES(1)
Sales Charge Imposed on Purchase Payments (as a percentage of pur-
chase payments)..................................................... 0%
Maximum Contingent Deferred Sales Charge(2) (as a percentage of each
purchase payment)................................................... 7%
Transfer Fee(3)...................................................... $ 0
ANNUAL CONTRACT FEE
Administration Contract Charge (per Contract)(4)..................... $30
SEPARATE ACCOUNT ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Mortality and Expense Risk Charge.................................... 1.25%
Administration Asset Charge.......................................... .10%
-----
Total Separate Account Annual Expenses........................... 1.35%
</TABLE>
NEW ENGLAND ZENITH FUND
OPERATING EXPENSES FOR THE YEAR ENDED 12/31/97
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER CURRENT EXPENSE CAP OR EXPENSE
DEFERRAL)(6)
<TABLE>
<CAPTION>
MORGAN
LOOMIS STANLEY GOLDMAN WESTPEAK
SAYLES INTERNATIONAL SACHS DAVIS GROWTH LOOMIS
SMALL MAGNUM ALGER EQUITY MIDCAP VENTURE AND SAYLES
CAP EQUITY GROWTH VALUE VALUE INCOME BALANCED
SERIES SERIES SERIES SERIES* SERIES SERIES SERIES
------ ------------- ------------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... 1.00% .90% .75% .75% .75% .70% .70%
Other Expenses.......... -- .40% .12% .15% .15% .12% .15%
----- ----- ---- ---- ---- ---- ----
Total Series Operating
Expenses............. 1.00% 1.30% .87% .90% .90% .82% .85%
</TABLE>
<TABLE>
<CAPTION>
SALOMON BACK BAY SALOMON BACK BAY
BROTHERS ADVISORS BROTHERS ADVISORS
STRATEGIC BOND BOND U.S. MONEY
OPPORTUNITIES INCOME GOVERNMENT MARKET
SERIES SERIES SERIES SERIES
-------------- -------- ---------- --------
<S> <C> <C> <C> <C>
Management Fee...................... .65% .40% .55% .35%
Other Expenses...................... .20% .12% .15% .10%
---- ---- ---- ----
Total Series Operating Expenses... .85% .52% .70% .45%
</TABLE>
- --------
* Anticipated annual operating expenses for the Goldman Sachs Midcap Value
Series are based on the management fee approved by shareholders of the
Series that became effective on May 1, 1998, and other expenses actually
incurred for the Series for 1997.
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, 3 years and 5
years):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap................... $89.14 $123.60 $158.19 $273.24
Morgan Stanley International Magnum Equi-
ty....................................... 91.92 132.11 173.06 302.52
Alger Equity Growth....................... 87.93 119.89 151.68 260.25
Goldman Sachs Midcap Value................ 88.21 120.74 153.18 263.26
Davis Venture Value....................... 88.21 120.74 153.18 263.26
Westpeak Growth and Income................ 87.47 118.46 149.16 255.20
Loomis Sayles Balanced.................... 87.75 119.32 150.67 258.23
Salomon Brothers Strategic Bond Opportuni-
ties..................................... 87.75 119.32 150.67 258.23
Back Bay Advisors Bond Income............. 84.68 109.82 133.91 224.35
Salomon Brothers U.S. Government.......... 86.35 115.02 143.09 242.98
Back Bay Advisors Money Market............ 84.02 107.80 130.32 217.00
</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................... $24.39 $75.01 $128.19 $273.24
Morgan Stanley International Magnum Equi-
ty....................................... 27.38 83.97 143.06 302.52
Alger Equity Growth....................... 23.09 71.10 121.68 260.25
Goldman Sachs Midcap Value................ 23.39 72.00 123.18 263.26
Davis Venture Value....................... 23.39 72.00 123.18 263.26
Westpeak Growth and Income................ 22.59 69.59 119.16 255.20
Loomis Sayles Balanced.................... 22.89 70.50 120.67 258.23
Salomon Brothers Strategic Bond Opportuni-
ties..................................... 22.89 70.50 120.67 258.23
Back Bay Advisors Bond Income............. 19.58 60.50 103.91 224.35
Salomon Brothers U.S. Government.......... 21.38 65.97 113.09 242.98
Back Bay Advisors Money Market............ 18.87 58.37 100.32 217.00
</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 (or if applicable, purchase payments). 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 and
declines annually over the first seven year period the purchase payment is
invested in the Contract until it reaches 0% for that purchase payment.
Amounts subject to the Contingent Deferred Sales Charge will be determined
by assuming that purchase payments are withdrawn (whether for a surrender
or annuitization) on a "first in-first out" basis. An amount may be
surrendered without sales charge in any one Contract Year 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.
(3) The Company reserves the right to limit the number and amount of transfers
and impose a transfer fee.
(4) This charge is not imposed after annuitization. As a percentage of the
estimated average Contract Value in the Variable Account, this fee equals
.06%, based on an estimated average Contract Value of approximately
$50,981 over the period from January 1, 1997 to December 31, 1997.
(5) These charges are not imposed on the Fixed Account 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, 1997, after giving effect to the
applicable voluntary expense cap or expense deferral. 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. Absent this cap or any other expense
reimbursement arrangement, Total Series Operating Expenses for the Loomis
Sayles Small Cap Series for the year ended December 31, 1997 would have
been 1.14%. Total Series Operating Expenses for the Goldman Sachs Midcap
Value (formerly 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 bears 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 Goldman Sachs Midcap Value (formerly Loomis Sayles Avanti Growth)
for the year ended December 31, 1997 would have been .86%. For the six
other Series shown, the Total Series Operating Expenses are after giving
effect to a voluntary expense deferral. Effective May 1, 1998 the Goldman
Sachs Midcap Value is subject to the voluntary expense deferral described
below for the six other Series shown with an annual expense limit of .90%
of net assets. Under the deferral, expenses which exceed a certain limit
are paid by TNE Advisers in the year they are incurred and transferred to
the Series in a future year when actual expenses of the Series are below
the limit. The limit on expenses for each of these Series is: 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, 1997
would have been: 1.59% for Morgan Stanley International Magnum Equity
Series; .86% for Loomis Sayles Balanced Series; .87% for Salomon Brothers
Strategic Bond Opportunities Series and .98% for Salomon Brothers U.S.
Government Series. Total Series Operating Expenses for Davis Venture Value
Series would have been 0.85%, however, pursuant to the expense deferral
arrangement, 0.05% was carried over from a previous year in which
operating expenses exceeded the limit. The expense cap and deferral
arrangements are voluntary and may be terminated at any time. See the
attached prospectus of the New England Zenith Fund for more complete
information.
(7) 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
A-11
<PAGE>
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.
- -------------------------------------------------------------------------------
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>
ACCUMULATION UNIT VALUES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION
ACCUMULATION UNITS
UNIT VALUE AT ACCUMULATION OUTSTANDING AT
BEGINNING OF UNIT VALUE AT END OF PERIOD
PERIOD END OF PERIOD (IN THOUSANDS)
------------- ------------- --------------
<S> <C> <C> <C>
Small Cap Sub-account
04/19/95* to 12/31/95............. 1.010468 1.219226 2,427
01/01/96 to 12/31/96.............. 1.219226 1.571807 9,083
01/01/97 to 12/31/97.............. 1.571807 1.936137 26,450
International Magnum Equity Sub-ac-
count
04/19/95* to 12/31/95............. 1.034539 1.073005 2,973
01/01/96 to 12/31/96.............. 1.073005 1.129151 12,898
01/01/97 to 12/31/97.............. 1.129151 1.099535 22,065
Equity Growth Sub-account
04/19/95* to 12/31/95............. 1.091430 1.402375 3,908
01/01/96 to 12/31/96.............. 1.402375 1.565675 18,547
01/01/97 to 12/31/97.............. 1.565675 1.940577 32,284
Midcap Value Sub-account
04/19/95* to 12/31/95............. 1.201698 1.438865 2,010
01/01/96 to 12/31/96.............. 1.438865 1.669358 9,083
01/01/97 to 12/31/97.............. 1.669358 1.932280 15,872
Venture Value Sub-account
04/19/95* to 12/31/95............. 1.071598 1.323183 3,798
01/01/96 to 12/31/96.............. 1.323183 1.642613 17,783
01/01/97 to 12/31/97.............. 1.642613 2.163463 39,083
Growth and Income Sub-account
04/19/95* to 12/31/95............. 1.193057 1.485762 2,885
01/01/96 to 12/31/96.............. 1.485762 1.730922 9,527
01/01/97 to 12/31/97.............. 1.730922 2.279329 18,638
Balanced Sub-account
04/19/95* to 12/31/95............. 1.073645 1.227281 3,848
01/01/96 to 12/31/96.............. 1.227281 1.415482 17,356
01/01/97 to 12/31/97.............. 1.415482 1.622453 33,627
Strategic Bond Opportunities Sub-
account
04/19/95* to 12/31/95............. 1.031165 1.158823 1,975
01/01/96 to 12/31/96.............. 1.158823 1.307292 11,146
01/01/97 to 12/31/97.............. 1.307292 1.432601 23,303
Bond Income Sub-account
04/19/95* to 12/31/95............. 2.700549 3.037039 1,299
01/01/96 to 12/31/96.............. 3.037039 3.134109 4,588
01/01/97 to 12/31/97.............. 3.134109 3.428788 7,595
U.S. Government Sub-account
04/19/95* to 12/31/95............. 1.046872 1.139109 2,122
01/01/96 to 12/31/96.............. 1.139109 1.160957 5,512
01/01/97 to 12/31/97.............. 1.160957 1.242399 8,346
Money Market Sub-account
04/19/95* to 12/31/95............. 1.834830 1.889065 2,759
01/01/96 to 12/31/96.............. 1.889065 1.959126 9,258
01/01/97 to 12/31/97.............. 1.959126 2.036045 8,797
</TABLE>
- --------
*Date on which the sub-account first became available.
A-13
<PAGE>
HOW THE CONTRACT WORKS
<TABLE>
<S> <C> <C>
PURCHASE PAYMENT CONTRACT VALUE DAILY DEDUCTION FROM
. You can make a . Payments are VARIABLE ACCOUNT
one-time allocated to your . Mortality and
investment or choice, within expense risk
establish an limits, of charge of 1.25%
ongoing Eligible Funds on an annualized
investment and/or the Fixed basis is deducted
program, subject Account. from the Contract
to the Company's Value daily.
minimum and . The Contract
maximum purchase Value reflects . Administration
payment purchase Asset Charge of
guidelines. payments, 0.10% on an
investment annualized basis
experience, is deducted from
ADDITIONAL PAYMENTS interest credited the Contract
. Generally may be on Fixed Account Value daily.
made at any time, allocations,
(subject to partial . Investment
Company limits), surrenders, and advisory fees are
but no purchase Contract charges. deducted from the
payments allowed: Eligible Fund
(1) during the . The Contract assets daily.
seven years Value invested in
immediately the Eligible
preceding the Funds is not ANNUAL CONTRACT FEE
Maturity Date guaranteed. . $30
(except under Administration
Contracts issued . Earnings are Contract Charge
in Pennsylvania accumulated free is deducted from
or New York); or of any current the Contract
(2) after a income taxes (see Value in the
Contract Owner page A-41). Variable Account
(or the on each
Annuitant, if not . You may change anniversary while
owned in an the allocation of the Contract is
individual future payments, in-force, other
capacity) reaches within limits, at than under a
age 86. any time. Payment Option.
(May be waived
. Minimum $250 with . Prior to for certain large
certain annuitization, Contracts.) A pro
exceptions (see you may transfer rata portion is
page A-18). Contract Value deducted on full
among accounts, surrender and at
currently free of annuitization.
LOANS charge. (Special
. Loans are limits apply to
available to the Fixed Account SURRENDER CHARGE
participants of and to situations . Consists of
certain tax that involve Contingent
qualified pension "market timing.") Deferred Sales
plans (see page Charge based on
A-26). . Allocations of purchase payments
payments and made (see pages
transfers of A-31 to A-33).
SURRENDERS Contract Value
. Up to the greater are limited in
of: 10% of the that Contract PREMIUM TAX CHARGE
Contract Value at Value may not be . Where applicable,
the beginning of allocated among is deducted from
the Contract more than ten the Contract
Year; and the accounts Value when
excess of the (including the annuity benefits
Contract Value Fixed Account) at commence (and, in
over purchase any time. certain states,
payments that are at the earliest
subject to the of: full or
Contingent RETIREMENT BENEFITS partial
Deferred Sales . Lifetime income surrender;
Charge on the options. annuitization; or
date of payment of the
surrender, can be . Fixed and/or Death Proceeds
withdrawn each variable payout due to the death
year without options. of a Contract
incurring a Owner or, if
Contingent . Retirement applicable, of
Deferred Sales benefits may be the Annuitant).
Charge, subject taxable.
to any applicable
tax law . Premium tax ADDITIONAL BENEFITS
restrictions. charge may apply. . You pay no taxes
on your
. Surrenders may be investment as
taxable. long as it
remains in the
. Prior to age 59 Contract.
1/2 a 10% penalty
tax may apply. (A . Contract may be
25% penalty tax surrendered at
may apply upon any time for its
surrender from a Contract Value,
SIMPLE IRA within less any
the first two applicable
years.) Contingent
Deferred Sales
. Premium tax Charge, subject
charge may apply. to any applicable
tax law
restrictions.
DEATH PROCEEDS
. Guaranteed not to . Contingent
be less than your Deferred Sales
total purchase Charge may be
payments adjusted waived upon
for any prior evidence of
surrenders or terminal illness,
outstanding loans confinement to a
(and, where nursing home, or
applicable, net permanent and
of premium tax total disability,
charges). if this benefit
is available in
. Death proceeds your state.
pass to the
beneficiary
without probate.
. Death proceeds
may be taxable.
. Premium tax
charge may apply.
</TABLE>
A-14
<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. Effective August 30, 1996, New England Mutual
Life Insurance Company merged into Metropolitan Life Insurance Company
("MetLife"), a mutual life insurance company whose principal office is at One
Madison Avenue, New York, NY 10010. With the merger, New England Mutual Life
Insurance Company'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. The Variable Account meets the
definition of a "separate account" under Federal securities laws. The Variable
Account may also be used to support other variable annuity contracts besides
the Contracts. The other contracts may have different charges, and provide
different benefits.
Applicable state insurance law provides that the assets in the Variable
Account equal to the reserves and other contract liabilities of the Variable
Account shall not be chargeable with liabilities arising out of any other
business the Company may conduct. The Company believes this means that the
assets of the Variable Account equal to its reserves and other contract
liabilities are not available to meet the claims of the Company's general
creditors and may only be used to support the Contract Values under the
Contracts 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."
The investment objectives and policies of certain Eligible Funds are similar
to the investment objectives and policies of other funds that may be managed
by the same subadviser. The investment results of the Eligible Funds, however,
may be higher or lower than the results of such other funds. There can be no
assurance, and no representation is made, that the investment results of any
of the Eligible Funds will be comparable to the investment results of any
other fund, even if the other fund has the same subadviser.
A-15
<PAGE>
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.
Normally, the Series will invest at least 65% of its assets in companies with
market capitalization in the range of the market capitalization of those
companies which make up the Russell 2000 Index at the time of investment.
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES (FORMERLY DRAYCOTT
INTERNATIONAL 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 weightings of countries included in the
Morgan Stanley Capital International EAFE Index, 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.
GOLDMAN SACHS MIDCAP VALUE (FORMERLY LOOMIS SAYLES AVANTI GROWTH SERIES)
The Goldman Sachs Midcap Value Series seeks long-term capital appreciation.
The Series invests, under normal circumstances, substantially all of its
assets in equity securities and at least 65% of its total assets in equity
securities of companies with public stock market capitalizations within the
range of the market capitalization of companies constituting the Russell
Midcap Index at the time of investment.
DAVIS VENTURE VALUE SERIES (FORMERLY 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 (FORMERLY WESTPEAK VALUE GROWTH 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
A-16
<PAGE>
or Baa or higher by Moody's) (or unrated but deemed to be of equivalent
quality in the subadviser's judgment) 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."
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.
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 or its
agencies, authorities 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 the Company, 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 the Company. The Westpeak Growth and Income Series
receives investment subadvisory services from Westpeak Investment Advisors,
L.P., an affiliate of the Company. The Loomis Sayles Small Cap and Loomis
Sayles Balanced Series receive investment subadvisory services from Loomis
Sayles & Company, L.P., an affiliate of the Company. 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
Goldman Sachs Midcap Value Series' subadviser was Loomis Sayles until May 1,
1998, when Goldman Sachs Asset Management became the subadviser. The Davis
Venture Value Series receives investment subadvisory services from Davis
Selected Advisers, L.P. Davis Selected Advisers may delegate any of its
responsibilities to Davis Selected--NY, a wholly-owned subsidiary. The Salomon
Brothers U.S. Government Series and Salomon Brothers Strategic Bond
Opportunities Series receive investment subadvisory services from Salomon
Brothers Asset Management Inc. The Salomon Brothers Strategic Bond
Opportunities Series also receives certain investment subadvisory services
from Salomon Brothers Asset Management Limited, a London based affiliate of
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.
A-17
<PAGE>
GUARANTEED OPTION
Purchase payments may also be allocated to the Fixed Account in states that
have approved the Fixed Account option. The Fixed Account is a part of the
Company's general account and provides guarantees of principal and interest.
(See "The Fixed Account" for more information.)
THE CONTRACTS
The Contracts provide that your purchase payments will be invested by the
Company in the Eligible Fund(s) you select and that, after annuitization, the
Company will make variable annuity payments on a monthly basis unless you
elect otherwise. You assume the risk of investment gain or loss because the
value of your Contract before annuitization and, in the case of a variable
payment option, the annuity payments after annuitization, will vary with the
investment performance of the Eligible Fund(s) in which your Contract is
invested.
PURCHASE PAYMENTS
The minimum initial purchase payment currently required is $5,000, and the
minimum subsequent purchase payment is $250, with the following exceptions.
For Contracts issued in connection with individual retirement accounts under
Section 408(a) of the Code or individual retirement annuities under Section
408(b) of the Code (both referred to as "IRAs"), and Roth IRAs under Section
408A of the Code ("Roth IRAs") the Company will accept a minimum initial
purchase payment as low as $2,000, or monthly purchase payments as low as $100
per month if you choose to have them withdrawn from your bank checking account
or New England Cash Management Trust account, a service known as the Master
Service Account arrangement ("MSA"). For Contracts issued in connection with
other types of retirement plans qualifying for tax-benefited treatment under
the Code, the Company will accept monthly purchase payments as low as $50 per
month if payments are made through a group billing arrangement (also known as
a "list bill" arrangement). For all other Contracts, the Company will accept
monthly purchase payments as low as $100 per month if they are made through
MSA. In the case of a Contract issued in exchange for a Fund I, Preference or
Zenith Accumulator contract, the Company may consent to waive the minimum
initial and subsequent purchase payment amounts to correspond with the terms
of the old contract. The Company reserves the right to limit purchase payments
made under a Contract. The Company currently reserves the right not to accept
any purchase payment that, when combined with the Contract Value under all
Contracts owned by a single Contract Owner, would exceed $1,000,000. Under
current rules, in no event will the Company accept a purchase payment that,
when combined with the Contract Value under all Contracts owned by a single
Contract Owner, would exceed $5,000,000. If a Contract Owner selects a single
purchase payment Contract in the application, the Company reserves the right
not to accept any additional purchase payments. If a Contract Owner selects a
flexible purchase payment Contract in the application, the Company reserves
the right to limit purchase payments in any Contract Year to three times the
amount shown in the application.
NO PURCHASE PAYMENTS MAY BE MADE: (1) WITHIN SEVEN YEARS PRIOR TO THE
CONTRACT'S MATURITY DATE (EXCEPT UNDER CONTRACTS ISSUED IN PENNSYLVANIA OR NEW
YORK); OR (2) AFTER A CONTRACT OWNER (OR THE ANNUITANT, IF THE CONTRACT IS NOT
OWNED IN AN INDIVIDUAL CAPACITY) REACHES AGE 86.
The Company will determine whether to approve applications for new
Contracts, and will apply initial purchase payments under new Contracts, not
later than two business days after a completed application (including the
initial purchase payment) is received at the Company's Home Office. If an
application is not complete upon receipt, the Company will apply the initial
purchase payment not later than two business days after it is completed. If an
incomplete application is not completed within five days after the Company
receives it, however, the Company will inform the applicant of the reasons for
the delay and will refund any purchase payment unless the applicant agrees to
have the Company retain the purchase payment until the application is
completed. The Company reserves the right to reject any application.
Exchange Offer. An owner of a Fund I, Preference or Zenith Accumulator
contract may exchange his or her old contract for an American Growth Series
Contract (a "new contract"), provided that the owner's age does not exceed the
Company's maximum age at issue for a new contract, the contract value of the
old contract (along with any purchase payments submitted with the exchange
application) is at least equal to the minimum initial purchase
A-18
<PAGE>
payment for a new contract and (unless waived by the Company) the owner meets
the Company's underwriting standards. The Company may consent to waive the
minimum initial and subsequent purchase payment amount to correspond to the
terms of the old contract. The contract value of the old contract as of the
date the exchange is effected will be credited as the initial purchase payment
to the new contract for purposes of certain administrative rules and Contract
benefits. No charges will be deducted at the time of exchange. See "Charges
Under Contracts Purchased by Exchanging Fund I, Preference and Zenith
Accumulator Contracts" for a comparison of the charges under the old contracts
and the new contracts.
The American Growth Series Contract provides an enhanced death benefit, more
options under the systematic withdrawal feature than the Zenith Accumulator
contract, and access to an assortment of investment options that differs from
those currently available under the old contracts. For more information, see
"Payment on Death Prior to Annuitization," "Systematic Withdrawals,"
"Investments of the Variable Account" and "Charges Under Contracts Purchased
by Exchanging a Fund I, Preference or Zenith Accumulator Contract." In
addition, the American Growth Series Contract offers a Fixed Account option,
which is not available under the Fund I or Preference contracts. For more
information, see "The Fixed Account." In specified circumstances of Contract
Owner illness or disability, the Company will waive the Contingent Deferred
Sales Charge on an American Growth Series contract, a benefit that is not
available under the Zenith Accumulator contract. For more information, see
"Waiver of the Contingent Deferred Sales Charge" under "Contingent Deferred
Sales Charge." This benefit may not be available in all states.
The American Growth Series Contract is issued by the Company, whereas
MetLife is the issuer of the old contracts. Although the Company is a
subsidiary of MetLife, MetLife does not guarantee the obligations of the
Company.
ALLOCATION OF PURCHASE PAYMENTS
Purchase payments are converted into Accumulation Units of the sub-accounts
you select (subject to the limitation that the Contract Value may be allocated
among no more than 10 accounts, including the Fixed Account, at any time). The
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. In the case of an initial purchase payment to be made by
exchanging a Fund I, Preference or Zenith Accumulator contract, the payment
will be applied using the Accumulation Unit Value next determined following
approval of the Contract application and receipt of the proceeds of the other
variable annuity contract.)
CONTRACT VALUE AND ACCUMULATION UNIT VALUE
The value of a Contract is determined by multiplying the number of
Accumulation Units credited to the Contract by the appropriate Accumulation
Unit Values. As described below, the Accumulation Unit Value of each sub-
account depends on the net investment experience of its corresponding Eligible
Fund and reflects fees and expenses borne by the Eligible Fund as well as
charges assessed against sub-account assets. The Accumulation Unit Value of
each sub-account was set at $1.00 on or about the date on which shares of the
corresponding Eligible Fund were first publicly available. The Accumulation
Unit Value is determined as of the close of regular trading on the New York
Stock Exchange on each day the Exchange is open for trading by multiplying the
most recent Accumulation Unit Value by the net investment factor for that day.
The net investment factor for any sub-account reflects the change in net asset
value per share of the corresponding Eligible Fund as of the close of regular
trading on the Exchange from the net asset value most recently determined, the
amount of dividends or other distributions made by that Eligible Fund since
the previous determination of net asset value per share, and daily deductions
for the Mortality and Expense Risk Charge and Administration Asset Charge,
equal, on an annual basis, to 1.35% of the average daily net asset value of
the sub-account. The net investment factor may be greater or less than one.
The formula for determining the net investment factor is described under the
caption "Net Investment Factor" in the Statement of Additional Information.
Under a Contract with the Fixed Account option, the total Contract Value
includes the amount of Contract Value held in the Fixed Account. (See "The
Fixed Account.") Under a Contract that permits Contract loans, the Contract
A-19
<PAGE>
Value also includes the amount of Contract Value transferred to the Company's
general account (but outside of the Fixed Account) as the result of a loan and
any interest credited on that amount. Interest earned on the amount held in
the general account as the 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 minimum guaranteed death benefit. For this purpose, the
current Contract Value is the value next determined after the later of the
date when the Company receives at the Administrative Office: (1) due proof of
death; or (2) an election of continuation of the Contract or of payment either
in one sum or under an annuity payment option. Death proceeds will be reduced
by the amount of any outstanding loan plus accrued interest (see "Loan
Provision for Certain Tax Benefited Retirement Plans") and, in certain states,
by the applicable premium tax charge.
At the inception of the Contract, the minimum guaranteed death benefit is
equal to your initial purchase payment. Thereafter, until the seventh Contract
Anniversary, any subsequent purchase payment will immediately increase your
minimum guaranteed death benefit by the amount of the purchase payment. Any
partial surrender will immediately decrease your minimum guaranteed death
benefit 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 minimum guaranteed death benefit 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 minimum guaranteed death benefit to increase on the recalculation date,
but cannot cause it to decrease. The minimum guaranteed death benefit
determined on a recalculation date is the larger of:
(a) the minimum guaranteed death benefit that applied to your Contract
just before the recalculation; and
(b) the Contract Value on the date of the recalculation.
The new minimum guaranteed death benefit 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 minimum guaranteed death
benefit as is made during the first seven years.
EXAMPLE:
Assume that a Contract is issued with a $10,000 purchase payment on
5/1/98. 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 minimum guaranteed death benefit is
$10,000. Assume that on the Contract Anniversary on 5/1/05, the
Contract Value is $25,000. The minimum guaranteed death benefit is
reset on that date to $25,000.
Assume that the Contract Value increases to $27,000 by 1/1/06, and
that you request a partial surrender of 20% of your Contract Value,
or $5,400, on that date. The minimum guaranteed death benefit
immediately following the partial surrender is $20,000 [$25,000--
.20($25,000)].
Assume that on 6/15/06 the Contract Value has decreased to $18,000.
The minimum guaranteed death benefit remains at $20,000 and the
Death Proceeds payable on 6/15/06 is $20,000.
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Under Exchanged Contracts. The initial minimum guaranteed death benefit
amount under a Contract issued in exchange for the Fund I, Preference or
Zenith Accumulator variable annuity contracts issued by New England Mutual
Life Insurance Company (now MetLife) will be the greater of the minimum death
benefit that applied to the exchanged contract on the effective date of the
exchange and the amount paid into the American Growth Series Contract at
issue. (See "Purchase Payments--Exchange Offer.") The minimum guaranteed death
benefit will be recalculated on each seven-year anniversary of the effective
date of the exchange. Any subsequent purchase payment will immediately
increase your minimum guaranteed death benefit and any partial surrenders will
immediately decrease your minimum guaranteed death benefit.
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. Special options apply under a non-tax qualified plan for spouses.
See "Special Options for Spouses." There are comparable rules for
distributions on the death of the Annuitant under tax qualified plans;
however, if the Beneficiary under a tax qualified Contract is the Annuitant's
spouse, the Code generally allows distributions to begin by the year in which
the Annuitant would have reached age 70 1/2 (which may be more or less than
five years after the Annuitant's death). See "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 $5,000 for non-tax qualified
Contracts and $2,000 for tax qualified Contracts). THE CONTRACT CANNOT BE
CONTINUED FOR ANY BENEFICIARY WHOSE SHARE OF THE DEATH PROCEEDS DOES NOT MEET
THE MINIMUM.
The Beneficiary has 90 days after the date the Company receives due proof of
death to make an election with respect to his or her share of the Death
Proceeds. The Beneficiary may elect either: (1) payment in a single sum;
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(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 minimum guaranteed death benefit 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.
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.
Except under Contracts issued in New York or Pennsylvania, if the reset
Maturity Date would be less than seven years after the date of the most recent
purchase payment made, no Contingent Deferred Sales Charge will apply under
the Contract.
Spousal Continuation will not be available if the reset Maturity Date would
be greater than the Company's permitted maximum, or if, at the time of the
Contract Owner's death, the surviving spouse is older than the
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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.
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.
If a Contract is subject to a loan at the time the Contract Owner (or, if
applicable, the Annuitant) dies, and the Contract is continued under the
Spousal Continuation provision, the amount of the outstanding loan plus
accrued interest will be treated as a taxable distribution from the Contract
to the deceased Contract Owner, and the Contract Value will be reduced
accordingly.
TRANSFER PRIVILEGE
It is the position of the Company that you may transfer your Contract Value
among sub-accounts and/or the Fixed Account without incurring federal income
tax consequences. It is not clear, however, whether the Internal Revenue
Service will limit the number of transfers between sub-accounts and/or the
Fixed Account in an attempt to limit the Contract Owner's incidents of
ownership in the assets used to support the Contract. See "Tax Status of the
Contract--Diversification."
The Company currently does not charge a transfer fee or limit the number of
transfers prior to annuitization. The Company reserves the right to limit
transfers and to charge a transfer fee. Currently all transfers prior to
annuitization are subject to a maximum of $500,000 per transfer. The Company's
current rules for transfers prior to annuitization require that the amount
transferred to or from any sub-account must be at least $100. (If the full
amount of Contract Value in a sub-account is less than $100, the amount may be
transferred to a sub-account in which Contract Value is already invested, or
it may be transferred to any sub-account if it is transferred in combination
with Contract Value from another sub-account so that the total transferred to
the new sub-account is at least $100.) After variable annuity payments begin,
the Company allows one transfer per Contract year without Company consent, and
the Fixed Account is not available under variable payment options. In applying
the $500,000 limit, the Company will treat as one transfer all transfers
requested by a Contract Owner on the same day for all Contracts he or she
owns. If the $500,000 limitation is exceeded for multiple transfers requested
on the same day that are treated as a single transfer, no amount of the
transfer will be executed by the Company. Transfers will be made at the
Accumulation Unit Values next determined after the request is received.
However, Contract Owners should be aware that because transfer limitations may
prevent you from making a transfer on the date you want to, your future
Contract Value may be lower than it would have been had the transfer been made
on the desired date.
For transfers that the Company determines to be based on "market-timing"
(e.g., transfers under different Contracts that are being requested under
Powers of Attorney with a common attorney-in-fact or that are, in the
Company's determination, based on the recommendation of a common investment
adviser or broker/dealer), the current transfer limitation prior to
annuitization is one transfer every 30 days, each transfer subject to a
maximum of $500,000. In applying the limitation of one $500,000 transfer every
30 days, the Company will treat as one transfer all transfers requested under
different Contracts that are being requested under Powers of Attorney with a
common attorney-in-fact or that are, in the Company's determination, based on
the recommendation of a common investment adviser or broker/dealer. If the
$500,000 limitation is exceeded for multiple transfers requested on the same
day that are treated as a single transfer, no amount of the transfer will be
executed by the Company. If a transfer is executed under one Contract and,
within the next 30 days, a transfer request for another Contract is determined
by the Company to be related to the executed transfer under this paragraph's
rules, the transfer request will not be executed by the Company. (In order for
the transfer request to be executed, it would need to be requested again after
the 30-day period and it, along with any other transfer requests that are
collectively treated as a single transfer, would need to total no more than
$500,000.)
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The Company's interest in applying these limitations on the maximum number
and size of transfers is to protect the interests of both Contract Owners who
are not engaging in significant transfer activity and Contract Owners who are
engaging in such activity. The Company has determined that the actions of
Contract Owners engaging in significant transfer activity among sub-accounts
may cause an adverse effect on the performance of the underlying Eligible
Funds. The movement of significant sub-account values from one sub-account to
another may prevent the appropriate Eligible Fund from taking advantage of
investment opportunities because it must maintain a significant cash position
in order to handle redemptions. Such movement may also cause a substantial
increase in Eligible Fund transaction costs which must be indirectly borne by
Contract Owners.
The foregoing limitations on transfers that the Company determines to be
based on market-timing do not apply to Contracts issued in New York. In New
York as in all other states, however, transfers can be made under 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 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. The Company currently restricts the amount of Contract Value which may
be transferred from the Fixed Account. However, these limits do not apply to
new deposits to the Fixed Account for which the dollar cost averaging program
has been elected within 30 days from the date of the deposit. In such case,
the amount of Contract Value which may be transferred from the Fixed Account
will be the greatest of: a) 25% of the Contract Value in the Fixed Account at
the end of the first day of the Contract Year; b) the amount of Contract Value
that was transferred from the Fixed Account in the previous Contract Year; or
c) the amount of Contract Value in the Fixed Account to be transferred out of
the Fixed Account under dollar cost averaging elected on new deposits within
30 days from the date of each deposit. The Company allows one dollar cost
averaging program to be active at a time. Therefore, if you transfer pre-
existing assets (corresponding to Contract Value for which the dollar cost
averaging program was not elected within 30 days from the date of each
deposit) out of the Fixed Account under the dollar cost averaging program and
would like to transfer up to 100% of new deposits under the program, then the
dollar cost averaging program on the pre-existing assets will be canceled and
a new program will begin with respect to new deposits. In this case, the pre-
existing assets may still be transferred out of the Fixed Account, however,
not under a dollar cost averaging program, subject to the limitations on
transfers generally out of the Fixed Account. 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);
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. a premium tax charge (in certain states only); and
. any outstanding loan plus accrued interest (on a full surrender only).
See "Administration Charges, Contingent Deferred Sales Charge and Other
Deductions" and "Loan Provision for Certain Tax Benefited Retirement Plans"
for a description of these reductions and when they apply.
Federal tax laws, laws relating to employee benefit plans, or the terms of
benefit plans for which the Contracts may be purchased may restrict your right
to surrender the Contract. No surrender is permitted in connection with a
Contract issued pursuant to the Optional Retirement Program of the University
of Texas System prior to the plan participant's death, retirement, or
termination of employment in all Texas public institutions of higher
education. In addition, Federal tax laws impose penalties on certain premature
distributions from the Contracts. Full and partial surrenders and systematic
withdrawals prior to age 59 1/2 may be subject to a 10% penalty tax (and 25%
in the case of a withdrawal from a SIMPLE IRA within the first two years).
(See "Federal Income Tax Status.") The Company currently waives the Contingent
Deferred Sales Charge on distributions that are intended to satisfy required
minimum distributions, calculated as if this Contract were the participant's
only retirement plan asset. This waiver only applies if the required minimum
distribution exceeds the free withdrawal amount and no previous surrenders
were made during the Contract Year. Because a surrender may result in adverse
tax consequences, you should consult a qualified tax advisor before taking a
distribution from the Contract. (See "Federal Income Tax Status--Qualified
Contracts.")
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 $1,000,
unless the Company consents to a lower amount or, if the Contract is subject
to an outstanding loan, the remaining unloaned Contract Value must be at least
10% of the total Contract Value after the partial surrender or $1,000,
whichever is greater (unless the Company consents to a lesser amount).
Otherwise, at your option, either the amount of the partial surrender will be
reduced or the transaction will be treated as a full surrender that is subject
to the full amount of any applicable Contingent Deferred Sales Charge. A
partial surrender will reduce your Contract Value in the sub-accounts in
proportion to the amount of your Contract Value in each sub-account, unless
you request otherwise.
SYSTEMATIC WITHDRAWALS
The Systematic Withdrawal feature available in connection with the Contract
allows you to have a portion of the Contract Value withdrawn automatically on
a monthly basis prior to annuitization. You can elect to withdraw each month
either a fixed dollar amount (which you can change periodically) or the
investment gain in the Contract. If you elect to withdraw the investment gain
only, no loans will be permitted. Conversely, if you have a loan, you will not
be able to elect the investment gain only option under the Systematic
Withdrawal feature. 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
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partial surrenders and surrenders of Contract Value. (See "Contingent Deferred
Sales Charge.") If you make a partial surrender or a purchase payment at the
same time that you are having the investment gain withdrawn under the
Systematic Withdrawal feature, the Systematic Withdrawal will be canceled
effective as of the next monthly withdrawal date; however, at your option, the
Company will resume Systematic Withdrawals on the following monthly withdrawal
date (that is, the second monthly withdrawal date after the purchase payment
or partial surrender). The amount of the Systematic Withdrawals will be
adjusted to reflect the purchase payment or partial surrender. Continuing to
make purchase payments under the Contract while you are making Systematic
Withdrawals means that you could incur any applicable Contingent Deferred
Sales Charge on the withdrawals at the same time that you are making the new
purchase payments; however, no Contingent Deferred Sales Charge will apply if
you are having the investment gain (rather than a fixed dollar amount)
withdrawn. The Federal tax laws may include systematic withdrawals in the
Contract Owner's gross income in the year in which the withdrawal amount is
received 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
Contract loans are 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.
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The amount of any loan may not exceed the maximum loan amount as determined
under the Company's maximum loan formula. The effect of a loan on your
Contract is that a portion of the Contract Value equal to the amount of the
loan will be transferred to the Company's general account and will earn
interest (which is credited to the Contract), currently at the effective rate
of 4 1/2% per year. This earned interest will be credited to the Contract's
sub-accounts (and, if available under your Contract, to the Fixed Account)
annually in accordance with the allocation instructions in effect for purchase
payments under your Contract on the date of the crediting. Under current
rules, interest charged on the loan will be 6 1/2% per year. Depending on the
Company's interpretation of applicable law and on the Company's administrative
procedures, the interest rates charged and earned on loaned amounts may be
changed (for example, to provide for a variable interest rate) with respect to
new loans made. The minimum loan amount is currently $1,000. 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. Loans
will not be permitted for Contracts participating in the investment gain only
option of the Systematic Withdrawal feature.
The Company will not permit more than one loan at a time on any Contract
except where state regulators require otherwise. In addition, the maximum
amount for a qualified loan is limited such that the amount of the loan, when
added to the outstanding loan balance of other loans, whenever made, from all
other plans of the same employer, does not exceed $50,000 reduced by the
excess of the highest outstanding loan balance of loans under such plans
during the one-year period, ending on the day before the date on which the
loan is made, over the outstanding balance of loans under such plans on the
date the loan was made, or if less, the greater of: (1) $10,000; or (2) 50% of
the current value of your nonforfeitable, accrued benefits under the plan.
Loans must be repaid within 5 years except for certain loans used for the
purchase of a principal residence, which must be repaid within 20 years.
Repayment of the principal amount and interest on the loan will be required in
equal monthly installments by means of repayment procedures established by the
Company. Contract loans are subject to applicable retirement program laws and
their taxation is determined under the Code. Under current practice, if a
Contract loan installment repayment is not made, the Company 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.) For TSA Plans that are not subject to ERISA, the current
actual distribution will be limited to pre-1989 money unless you are age 59
1/2 or otherwise comply with the legal requirements for permitted
distributions under the TSA contract. If these limitations do not apply (i.e.
you are under the age of 59 1/2 or no pre-1989 money is in your contract) the
Company will report the amount of the unpaid installment repayment or default
as a deemed distribution for tax purposes, but will postpone an actual
distribution from the Contract until the earliest distribution date permitted
under the law. An installment repayment of less than the amount billed will
not be accepted. A full or partial surrender of the Contract to repay all or
part of the loan may result in serious adverse tax consequences for the plan
participant (including penalty taxes) and may adversely affect the
qualification of the plan or Contract. The trustee of a Qualified Plan subject
to ERISA will be responsible for reporting to the IRS and advising the
participant of any tax consequences resulting from the reduction in the
Contract Value caused by the surrender and for determining whether the
surrender adversely affects the qualification of the plan. In the case of a
TSA Plan not subject to ERISA, the Company will report the default to the IRS
as a taxable distribution under the Contract.
The Internal Revenue Service issued proposed regulations in December of
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). 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).
A-27
<PAGE>
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.
The amount of the death proceeds, the amount payable upon surrender of the
Contract and the amount applied on the Maturity Date to provide annuity
payments will be reduced by the amount of any outstanding Contract loan plus
accrued interest. In these circumstances, the amount of the outstanding
Contract loan plus accrued interest generally will be taxed as a taxable
distribution.
The tax and ERISA rules relating to participant loans under tax benefited
retirement plans are complex and in some cases unclear, and they may vary
depending on the individual circumstances of each loan. The Company strongly
recommends that you, your employer and your plan fiduciary consult a qualified
tax advisor regarding the currently applicable tax and ERISA rules before
taking any action with respect to loans.
The Company will provide further information regarding loans upon request.
DISABILITY BENEFIT RIDER
Subject to state availability the Company intends to offer a disability
benefit rider which may be purchased, provided the Annuitant satisfies any
applicable underwriting standards. This feature will be available only if you
are under age 60 when your Contract is issued and if you plan to make regular
annual contributions to the Contract. If the Annuitant becomes totally
disabled, the rider will provide that the Company will make monthly purchase
payments under the Contract, subject to the terms and conditions of the rider.
Consult your registered representative regarding the availability of this
rider.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the payment of any
amounts due under the Contract or transfers of Contract Values between sub-
accounts 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.
A-28
<PAGE>
Qualified Plans and certain TSA Plans with sufficient employer involvement
are deemed to be "Pension Plans" under ERISA and may, therefore, be subject to
rules under the Retirement Equity Act of 1984. These rules require that
benefits from annuity contracts purchased by a Pension Plan and distributed to
or owned by a participant be provided in accordance with certain spousal
consent, present value and other requirements which are not enumerated in the
Contract. Thus, the tax consequences of the purchase of the Contracts by
Pension Plans should be considered carefully.
Those Contracts offered by the prospectus which are designed to qualify for
the favorable tax treatment described below under "Federal Income Tax Status"
contain restrictions on transfer or assignment, reflecting requirements of the
Code which must be satisfied in order to assure continued eligibility for such
tax treatment. In accordance with such requirements, ownership of such a
Contract may not be changed and the Contract may not 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 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.
A-29
<PAGE>
ADMINISTRATION CHARGES, CONTINGENT
DEFERRED SALES CHARGE AND OTHER DEDUCTIONS
The Company deducts various charges from Contract Value for the services
provided, expenses incurred and risks assumed in connection with the
Contracts. For example, the Company incurs costs and expenses in connection
with issuing Contracts, maintaining Contract Owner records and providing
accounting, valuation, regulatory and reporting services. The Company also
incurs costs and expenses associated with the marketing, sale and distribution
of the Contracts. In addition, the Company assumes mortality and expense risks
under the Contracts. In particular, the Company guarantees that the dollar
amount of the Administration Contract Charge and the amount of the
Administration Asset Charge as a percentage of Contract Value will not
increase over the life of a Contract, regardless of the actual expenses. Also,
the Company guarantees that, although annuity payments will vary according to
the performance of the investments you select, annuity payments will not be
affected by the mortality experience (death rate) of persons receiving such
payments or of the general population. The Company assumes this mortality risk
by virtue of annuity rates in the Contract that cannot be changed. The Company
also assumes the risk of making a minimum death benefit payment if the
Contract Owner (or, if applicable, the Annuitant) dies prior to annuitization.
(See "Payment on Death Prior to Annuitization.") The amount and manner of
deduction of Contract charges is described below. The amount of a charge may
not necessarily correspond to the costs associated with providing the services
or benefits indicated by the designation of the charge or associated with the
particular Contract. For example, the Contingent Deferred Sales Charge may not
fully cover all of the sales and distribution expenses actually incurred by
the Company, and proceeds from other charges, including the mortality and
expense risk charge, may be used in part to cover such expenses.
ADMINISTRATION CHARGES
The Company deducts Administration Charges generally equal, on an annual
basis, to $30 per Contract (see the following paragraph) plus .10% of the
daily net assets of each sub-account. In addition, the Company may (but does
not currently) charge a transfer fee for certain transfers of Contract Value
among the sub-accounts and/or the Fixed Account, as described below.
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. Currently, the charge is not
imposed after annuitization. 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
or the Company's general account as the result of a loan. The charge is the
lesser of: 2% of the total Contract Value (including any Contract Value you
have allocated to the Fixed Account and any Contract Value held in the
Company's general account as the result of a loan) and $30. The charge will be
waived for a Contract Year if (1) the Contract Value at the end of the year
was at least $50,000, OR (2) you made at least $1,000 in net deposits
(purchase payments minus partial surrenders) during that Contract Year and the
Contract Value at the end of the previous Contract Year was at least $25,000.
(A pro rata charge will always be made on a full surrender and at
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.
The Administration Asset Charge is equal to an annual rate of .10% of net
assets and is deducted on a daily basis from each sub-account. As a percentage
of net assets, this charge will not increase over the life of a Contract, but
the total dollar amount of the charge will vary depending on the level of
Contract Value in the Variable Account. The Administration Asset Charge will
continue to be assessed after annuitization if annuity payments are made on a
variable basis.
The Company reserves the right to charge a transfer fee for transfers of
Contract Value among sub-accounts and/or the Fixed Account, but will notify
Contract Owners in advance of any such charge. (See "Transfer Privilege.")
A-30
<PAGE>
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 1.25% of the daily net assets of each such sub-account, of which .70%
represents a mortality risk charge and .55% represents an expense risk charge.
The Mortality and Expense Risk Charge as a percentage of Contract Value will
not increase over the life of a Contract. The Mortality and Expense Risk
Charge will continue to be assessed if annuity payments are made on a variable
basis after annuitization. (See "Annuity Payments.")
CONTINGENT DEFERRED SALES CHARGE
No charge for sales expenses is deducted from purchase payments when they
are made. However, a Contingent Deferred Sales Charge may apply on certain
events ("CDSC events"). CDSC events are: (a) a full or partial surrender of
your Contract (including surrenders where you apply the proceeds to certain
payment options); (b) in certain circumstances, a withdrawal of the commuted
value of amounts that you applied to an annuity payment option; or (c) under
Contracts issued in Pennsylvania or New York, the Maturity Date if at that
date a purchase payment has been invested for less than seven years.
The Contingent Deferred Sales Charge is taken into account in calculating
the proceeds payable on a full surrender. On a partial surrender, the
Contingent Deferred Sales Charge is deducted from the Contract Value remaining
after deduction of the surrender amount requested and is taken from the
Contract Value in the sub-accounts and the Fixed Account in the same
proportion as the Contract Value surrendered.
The Contingent Deferred Sales Charge equals a percentage of each purchase
payment. Each purchase payment is subject to the charge for seven years (12
month periods) from the date it is received by the Company, as follows:
<TABLE>
<CAPTION>
IF WITHDRAWN DURING YEAR CHARGE
------------------------ ------
<S> <C>
1................................... 7%
2................................... 6%
3................................... 5%
4................................... 4%
5................................... 3%
6................................... 2%
7................................... 1%
Thereafter............................ 0%
</TABLE>
In no event will the amount of the Contingent Deferred Sales Charge exceed
the equivalent of 8% of the first $50,000 of purchase payments and 6.5% of
purchase payments in excess of $50,000.
Whether amounts surrendered, withdrawn or applied to an annuity payment
option are considered to include purchase payments subject to the Contingent
Deferred Sales Charge depends on the following rules.
In any Contract Year you may surrender a portion of your Contract Value, the
free withdrawal amount, without incurring the Contingent Deferred Sales
Charge. The free withdrawal amount for each Contract Year is equal to the
greater of: (1) 10% of the Contract Value at the beginning of the Contract
Year; and (2) the excess of the Contract Value over purchase payments subject
to the Contingent Deferred Sales Charge on the date of surrender. If not used,
the free withdrawal amount does not carry over to the next Contract Year.
A-31
<PAGE>
EXAMPLE:
Assume that a single purchase payment of $10,000 is made into the
Contract. The following illustrates the free withdrawal amount
available under two hypothetical situations.
HYPOTHETICAL CONTRACT VALUE
<TABLE>
<CAPTION>
10% OF
BEGINNING OF MAXIMUM FREE
AT BEGINNING ON WITHDRAWAL YEAR CONTRACT WITHDRAWAL
OF CONTRACT YEAR DATE CONTRACT GAIN VALUE AMOUNT
---------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Situation 1:............ $12,500 $14,000 $4,000 $1,250 $4,000
Situation 2:............ $11,000 $10,000 $ 0 $1,100 $1,100
</TABLE>
A surrender will be attributed first to the free withdrawal amount. If you
surrender an amount greater than the free withdrawal amount, the excess will
be attributed to purchase payments on a "first-in, first-out" basis. That is,
your purchase payments will be withdrawn in the order they were made.
EXAMPLE:
Assume that a $10,000 purchase payment is made into the Contract on
6/1/98 and another $10,000 purchase payment is made on 2/1/99. The
following illustrates the Contingent Deferred Sales Charge that
would apply on partial surrenders in two hypothetical situations.
HYPOTHETICAL CONTRACT VALUE
<TABLE>
<CAPTION>
10% OF
BEGINNING OF MAXIMUM FREE
AT BEGINNING ON WITHDRAWAL YEAR CONTRACT WITHDRAWAL
OF CONTRACT YEAR DATE CONTRACT GAIN VALUE AMOUNT
---------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Situation 1: $7,000 par-
tial
surrender on 12/1/99... $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 6/1/98 purchase payment). A 6% Contingent
Deferred Sales Charge would apply to the $2,000, because the withdrawal
would be taking place in the second year following the date of the purchase
payment.
HYPOTHETICAL CONTRACT VALUE
<TABLE>
<CAPTION>
10% OF
BEGINNING OF MAXIMUM FREE
AT BEGINNING ON WITHDRAWAL YEAR CONTRACT WITHDRAWAL
OF CONTRACT YEAR DATE CONTRACT GAIN VALUE AMOUNT
---------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Situation 2: $25,000
surrender on 1/1/03.... $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 6/1/98 and $2,000 of the $10,000
purchase payment that was made on 2/1/99. The Contingent Deferred Sales
Charge that would apply is: 3% X $10,000 + 4% X $2,000, or $380. The
remaining amount of purchase payments that could be subject to the
Contingent Deferred Sales Charge (assuming no further purchase payments were
made) would be $8,000.
Amounts surrendered under the free withdrawal provision do not reduce the
total purchase payments that are potentially subject to the Contingent
Deferred Sales Charge under your Contract.
If your Contract Value is less than your total purchase payments due to a
free withdrawal, negative investment performance or deduction of the
Administration Contract Charge, the following rules apply for calculating the
Contingent Deferred Sales Charge: the deficiency will be attributed to your
most recent purchase payment first, and subsequent earnings will be credited
to that deficiency (and not treated as earnings) until Contract Value exceeds
purchase payments.
A-32
<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 seven years after the most recent
purchase payment made under the Contract. The Contingent Deferred Sales
Charge will not apply to the Contract in these circumstances. This waiver
of the Contingent Deferred Sales Charge will not apply, however, to
Contracts issued in New York or Pennsylvania.
. On minimum distributions required by tax law. The Company currently
waives the Contingent Deferred Sales Charge on distributions that are
intended to satisfy required minimum distributions, calculated as if this
Contract were the participant's only retirement plan asset. This waiver
only applies if the required minimum distribution exceeds the free
withdrawal amount and no previous Surrenders were made during the
Contract Year. (See "Federal Income Tax Status--Qualified Contracts.")
The Company may also waive the Contingent Deferred Sales Charge if a
Contract Owner surrenders a Contract or Contracts in order to purchase a group
variable annuity issued by the Company or New England Mutual Life Insurance
Company (now MetLife).
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 or any bank affiliated with such a broker-dealer and of any
sub-adviser to the Eligible Funds, and spouses and immediate family members of
the foregoing. If consistent with applicable state insurance law, the
Contracts may also be sold, without compensation, to the Company or 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
A-33
<PAGE>
Contracts in accordance with the following rules. Generally, the Company
incurs a state premium tax liability on the date when annuity benefits
commence. In those states, the Company deducts the premium tax charge from the
Contract Value on that date. However, for Contracts subject to the premium tax
law of states which impose a premium tax on purchase payments when they are
made (currently South Dakota), the Company deducts the applicable premium tax
charge at the earliest of: a full or partial surrender of the Contract, the
date when annuity benefits commence, or payment of the Death Proceeds
(including application of the Death Proceeds to the Beneficiary Continuation
provision) upon the death of a Contract Owner (or of the Annuitant, if the
Contract is not owned in an individual capacity). To determine whether and
when a premium tax charge will be imposed on a Contract, the Company looks to
the state of residence of the Annuitant when a surrender is made, annuity
benefits commence or Death Proceeds are paid. The Company reserves the right
to impose a premium tax charge when a premium tax is incurred or at a later
date.
Deductions for state premium tax charges currently range from 1/2% to 2.25%
of the Contract Value (or, if applicable, purchase payments or 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.
CHARGES UNDER CONTRACTS PURCHASED BY EXCHANGING A FUND I, PREFERENCE OR ZENITH
ACCUMULATOR CONTRACT
If a Contract is purchased by exchanging a variable annuity contract issued
by New England Variable Annuity Fund I (a "Fund I contract"), by New England
Retirement Investment Account (a "Preference contract"), or by The New England
Variable Account (a "Zenith Accumulator contract") (each of which is now a
separate account of MetLife), the charges described above will apply except
that the sales charges will be calculated as described below.
A Contract issued by exchanging a Fund I or Preference contract will have no
Contingent Deferred Sales Charge on assets transferred. Subsequent purchase
payments will be subject to the Contingent Deferred Sales Charge described
above. Assets transferred from the Fund I or Preference contract will be
treated as a purchase payment under the American Growth Series contract for
purposes of calculating the free withdrawal amount and Contingent Deferred
Sales Charge, but in no event will those assets be subject to the charge. A
comparison of the other fees and charges under an American Growth Series
Contract to those under a Fund I contract would also include the following:
Total asset-based charges (including the investment advisory fee) under the
Fund I contracts currently equal approximately 1.35%. Deductions for sales and
administrative expenses are made from ongoing purchase payments under the Fund
I contracts. Any applicable premium tax charges are deducted from purchase
payments in South Dakota. With respect to a Preference contract, a comparison
of fees and charges under an American Growth Series Contract to those under a
Preference contract would include the following: The Preference contracts have
the same 1.25% asset-based charge for mortality and expense risks which is
imposed under the American Growth Series Contracts, but the Preference
contracts do not have an asset-based administration charge. The Preference
contracts impose a $30 annual administration charge, but the charge is not
limited to 2% of the contract value as it is under the American Growth Series
Contract, and there is no waiver of the charge for contracts which reach
certain asset levels as there is under the American Growth Series Contract.
There will be no contingent deferred sales charge under the Preference
contracts beginning in the seventh contract year, and there is no limit on or
charge for fund transfers, although transfers are subject to a $25 minimum.
Any applicable premium tax charges are deducted from purchase payments in
South Dakota.
A-34
<PAGE>
In the case of a Contract issued by exchanging a Zenith Accumulator
contract, the assets transferred will be treated as a purchase payment under
the American Growth Series contract for purposes of calculating the free
withdrawal amount and Contingent Deferred Sales Charge under the American
Growth Series contract. However, if the transferred assets are surrendered
from the American Growth Series contract, they will be subject to the table of
declining contingent deferred sales charge percentages that would have applied
under the Zenith Accumulator contract in the year of the surrender. In the
case of an exchange of a Zenith Accumulator contract that has been outstanding
for less than three years, MetLife currently intends to waive any contingent
deferred sales charge applicable to the transferred assets if they are
surrendered more than seven years after the exchange. Following is a
comparison of other fees and charges under Zenith Accumulator contracts and
American Growth Series Contracts. The Zenith Accumulator contracts and
American Growth Series Contracts impose the same aggregate amount of asset-
based charges (the administration asset charge and mortality and expense risk
charge) and generally the same annual administration contract charge, but the
annual administration contract charge under the Zenith Accumulator contract is
not limited to 2% of the contract value and is not waived for contracts which
reach certain asset levels, as it is under the American Growth Series
Contract. Under the Zenith Accumulator contract, the premium tax charge is
currently deducted from purchase payments in South Dakota. Transfers under the
Zenith Accumulator are not currently limited in number or amount prior to
annuitization, but a $10 fee is currently imposed for transfers in excess of
12 per year. The American Growth Series Contract imposes higher minimums for
amounts transferred from and remaining in a sub-account.
If you are contemplating an exchange of a Fund I, Preference or Zenith
Accumulator contract for an American Growth Series Contract, you should
compare all charges (including investment advisory fees) deducted under your
existing contract and under the American Growth Series Contract, as well as
the investment options offered by each. In addition, you should keep in mind
that the American Growth Series Contract may require a higher minimum for any
subsequent purchase payments you may wish to make, although the Company may
consent to waive the minimum to correspond to the terms of the old contract.
See "Purchase Payments--Exchange Offers" and "Payment on Death Prior to
Annuitization--Under Exchanged Contracts" for more information concerning the
consequences of an exchange.
ANNUITY PAYMENTS
ELECTION OF ANNUITY
The Maturity Date of the Contract is based on the older of the Contract
Owner(s) and the Annuitant and is the date when that person, at his or her
nearest birthday, would be age 95 (or the maximum age allowed by state law).
If a Contract is acquired pursuant to an exchange from an old contract (see
"The Contracts--Purchase Payments"), the Maturity Date of the Contract would
be set at age 95 (or the maximum allowed by state law) regardless of what the
maturity date may have been for the old Contract. The Contract Owner may not
change the Maturity Date to an earlier date. However, the Contract Owner may
surrender the Contract at any time before the Maturity Date and apply the
surrender proceeds to an annuity payment option.
If the Contract Owner and Annuitant are not the same and the Annuitant dies
prior to the Maturity Date, the Contract will continue for the benefit of the
Contingent Annuitant. The Maturity Date will be reset, if necessary, based on
the age of the older Contract Owner.
Ownership of the Contract may not be changed without Company consent. If
ownership is changed, a change in the Maturity Date may be required, based on
the new Contract Owner's age. The new Maturity Date will be based on the older
of the new Contract Owner and the Annuitant and will be the date when that
person, at his or her nearest birthday, would be age 95 (or the maximum age
allowed by state law).
The Contract that is issued to you will provide for variable annuity
payments to begin at the Maturity Date for the life of the Payee, but for at
least ten years. If you wish to change this annuity payment option you may do
so at any time prior to the Maturity Date. You may elect to have annuity
payments under a Contract made on a variable basis or on a fixed basis, or you
may designate a portion to be paid on a variable basis and a portion on a
fixed basis. If you select payments on a fixed basis, the amount of Contract
Value applied to the fixed payment option
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(net of any applicable charges described under "Administration Charges,
Contingent Deferred Sales Charge and Other Deductions") will be transferred to
the general account of the Company, and the annuity payments will be fixed in
amount and duration by the annuity payment option selected, the age of the
Payee and, for Contracts issued in New York or Oregon for use in situations
not involving an employer-sponsored plan, by the sex of the Payee. (See
"Amount of Variable Annuity Payments.")
Contracts acquired by retirement plans qualifying for tax benefited
treatment may be subject to various requirements concerning the time by which
benefit payments must commence, the period over which such payments may be
made, the annuity payment options that may be selected, and the minimum annual
amounts of such payments. Penalty taxes or other adverse tax consequences may
occur upon failure to meet such requirements.
ANNUITY OPTIONS
The Contract provides several annuity payment options. Prior to the Maturity
Date you may elect to have the Contract Value applied to one of these payment
options at maturity. If you make a full or partial surrender of the Contract,
you may elect in your surrender request to apply the surrender proceeds to an
annuity payment option. You may also elect to have the Contract's Death
Proceeds applied to an annuity payment option, or, if the Death Proceeds
become payable and you have not previously elected a payment option, the
Beneficiary can elect to apply the Death Proceeds to an annuity payment
option; however, the Variable Income Payments to Age 100 Option and the
Variable Life Income for Two Lives Option, described below, and comparable
fixed options, are not available for this purpose.
The selection of an annuity payment option must be made by written request
to the Company and is subject to any applicable Federal tax law restrictions.
The amount of the Death Proceeds or of the Contract Value at the Maturity Date
that is applied to an annuity payment option will be reduced by any applicable
premium tax charge. The Contract Value at the Maturity Date is also reduced by
a pro rata portion of the Administration Contract Charge and by any applicable
Contingent Deferred Sales Charge. The amount of Contract Value applied to an
annuity payment option at a full or partial surrender will be reduced by any
applicable Contingent Deferred Sales Charge and premium tax charge, and, on a
full surrender, by a pro rata portion of the Administration Contract Charge.
For Contracts with an outstanding loan, the amount of Contract Value or Death
Proceeds applied to an annuity payment option will be reduced by the amount of
the loan outstanding plus accrued interest.
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 ("American Income Advantage"). The
Company will make variable monthly payments for the number of whole years
until the Payee is age 100. THIS OPTION CANNOT BE SELECTED FOR DEATH
PROCEEDS.
Variable Life Income for Two Lives. The Company will make variable
monthly payments which will continue: while either of two Payees is living
(Joint and Survivor Variable Life Income)*, while either of two Payees is
living but for at least 10 years (Joint and Survivor Variable Life Income,
10 Years Certain); while two Payees are living, and, after the death of one
while the other is still living, two-thirds to the survivor (Joint and 2/3
to Survivor Variable Life Income).* THIS OPTION CANNOT BE SELECTED FOR
DEATH PROCEEDS.
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* IT IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE VARIABLE ANNUITY
PAYMENT IF THE PAYEE DIES (OR PAYEES DIE) BEFORE THE DUE DATE OF THE SECOND
PAYMENT OR TO RECEIVE ONLY TWO VARIABLE ANNUITY PAYMENTS IF THE PAYEE DIES
(OR PAYEES DIE) BEFORE THE DUE DATE OF THE THIRD PAYMENT, AND SO ON.
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Comparable fixed payment options are also available for all of the options
described above. In addition, other annuity payment options (including other
periods certain) may be available from time to time, and you should consult
the Company as to their availability. If you do not elect an annuity payment
option by the Maturity Date, variable payments under the Contract will be made
while the Payee is living but for at least ten years. (This is the Variable
Life Income with Period Certain Option.) If installments under an annuity
payment option would be less than the Company's published minimum, then the
Contract proceeds can be applied to an annuity payment option only with the
consent of the Company.
The Payee under the Variable Income for a Specified Number of Years Option
or the Variable Income Payments to Age 100 Option may withdraw the commuted
value of the remaining payments. The Payee (or Payees) under the Variable Life
Income with Period Certain Option or the Joint and Survivor Variable Life
Income, 10 Years Certain Option may withdraw the commuted value of the
remaining period certain portion of the payment option. The commuted value of
such payments is calculated based on the assumed interest rate under the
Contract. The life income portion of the payment 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.) Current annuity purchase rates used to determine the amount
of monthly payments will generally be more favorable if the Maturity Date is
at least two Contract Years after the Contract Date. Current annuity purchase
rates may be changed by the Company periodically, and will be applied
prospectively on a non-discriminatory basis.
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
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Payee. If the Contract Owner has selected an annuity payment option that
guarantees that payments will be made for a certain number of years regardless
of whether the Payee remains alive, the Contract Value will purchase lower
monthly benefits than under a life contingent option.
The dollar amount of the initial variable annuity payment will be at the
basic payment level. The assumed interest rate under the Contract will affect
both this basic payment level and the amount by which subsequent payments
increase or decrease. Each payment after the first will vary with the
difference between the net investment performance of the sub-accounts selected
and the assumed interest rate under the Contract. If the actual net investment
rate exceeds the assumed interest rate, the dollar amount of the annuity
payments will increase. Conversely, if the actual rate is less than the
assumed interest rate, the dollar amount of the annuity payments will
decrease. If actual investment performance is equal to the assumed interest
rate, the monthly payments will remain level.
Unless otherwise provided, the assumed interest rate will be at an annual
effective rate of 3.5%. You may select as an alternative an assumed interest
rate equal to an annual effective rate of 0% or, if allowed by applicable law
or regulation, 5%. A higher assumed interest rate will produce a higher first
payment, a more slowly rising series of subsequent payments when the actual
net investment performance exceeds the assumed interest rate, and a more rapid
drop in subsequent payments when the actual net investment performance is less
than the assumed interest rate. A lower assumed interest rate will produce a
lower first payment, a more rapidly rising series of subsequent payments when
the actual net investment performance exceeds the assumed interest rate, and a
less rapid drop in subsequent payments when the actual net investment
performance is less than the assumed interest rate.
You may, even after variable annuity payments have commenced, direct that
all or a portion of your investment in one sub-account be transferred to
another sub-account of the Variable Account in the manner provided under
"Transfer Privilege."
The Company may require proof of age, sex (if applicable) and survival of
any person upon the continuation of whose life annuity payments depend.
For more information regarding annuity payment options, you should refer to
the Statement of Additional Information and also to the Contract, which
contains detailed information about the various forms of annuity payment
options available, and other matters also of importance.
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS
The Federal tax laws provide for a variety of retirement plans offering tax
benefits. These plans, which may be funded through the purchase of the
individual variable annuity contracts offered in this prospectus, include:
1. Plans qualified under Section 401(a) or 403(a) of the Code ("Qualified
Plans");
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, including Roth IRAs, 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") and Roth Individual Retirement Accounts
under Section 408A of the Code ("Roth 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
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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 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. The
Company may make the Contract available for use with Section 401(k) plans.
A summary of the Federal tax laws regarding contributions to, and
distributions from, the above tax benefited retirement plans may be found
below under "Federal Income Tax Status--Qualified Contracts." It should be
understood that should a tax benefited retirement plan lose its qualification
for tax-exempt status, employees will lose some of the tax benefits described
herein.
In the case of certain TSA Plans under Section 403(b)(1) of the Code, IRAs
purchased under Section 408(b) of the Code and Roth IRAs under Section 408A of
the Code, the individual variable annuity contracts offered in this prospectus
comprise the retirement "plan" itself. These Contracts will be endorsed, if
necessary, to comply with Federal and state legislation governing such plans,
and such endorsements may alter certain Contract provisions described in this
prospectus. Refer to the Contracts and any endorsements for more complete
information.
FEDERAL INCOME TAX STATUS
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 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, Roth 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
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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.
The Company believes that the Contract will be subject to tax as an annuity
contract under the Code, which generally means that any increase in a
Contract's Account Value will not be taxable until amounts are received from
the Contract, either in the form of Annuity payments or in some other form. In
order to be subject to annuity contract treatment for tax purposes, the
Contract must meet the following Code requirements:
TAX STATUS OF THE CONTRACT
Diversification. Section 817(h) of the Code requires that with respect to
---------------
Non-Qualified Contracts, the investments of the Funds must be "adequately
diversified" in accordance with Treasury regulations in order for the
Contracts to qualify as annuity contracts under federal tax law. The Variable
Account, through the Eligible Funds, intends to comply with the
diversification requirements prescribed by the Treasury in Reg. Sec. 1.817-5,
which affect how the Eligible Funds' assets may be invested.
Owner Control. 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
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which is distributed over the life of such "designated beneficiary" or over a
period not extending beyond the life expectancy of that beneficiary, provided
that such distributions begin within one year of the owner's death. The
"designated beneficiary" refers to a natural person designated by the owner as
a Beneficiary and to whom ownership of the contract passes by reason of death.
However, if the "designated beneficiary" is the surviving spouse of a deceased
owner, the contract may be continued with the surviving spouse as the new
owner.
The Non-Qualified Contracts contain provisions which are intended to comply
with the requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions when they are issued and modify the contracts in
question if necessary to assure that they comply with the requirements of Code
Section 72(s). Other rules may apply to Qualified Contracts.
The following discussion is based on the assumption that the Contract
qualifies as an annuity contract for federal income tax purposes.
TAXATION OF ANNUITIES
In General. Section 72 of the Code governs taxation of annuities in general.
----------
The Company believes that a Contract Owner who is a natural person generally
is not taxed on increases in the value of a Contract until distribution occurs
by withdrawing all or part of the Contract Value (e.g., withdrawals or annuity
payments under the Annuity Option elected). For this purpose, the assignment,
pledge, or agreement to assign or pledge any portion of the Contract Value
(and in the case of a Qualified Contract, any portion of an interest in the
qualified plan) generally will be treated as a distribution. The taxable
portion of a distribution (in the form of a single sum payment or an annuity)
is taxable as ordinary income.
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
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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 adviser
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.
Transfers, Assignments, Exchanges and Maturity Dates. A transfer of
----------------------------------------------------
ownership of a Contract, the designation of an Annuitant, Payee or other
Beneficiary who is not also an Owner, the selection of certain Maturity Dates,
the exchange of a Contract, or the receipt of a Contract in an exchange may
result in certain tax consequences that are not discussed herein. Anyone
contemplating any such designation, transfer, assignment, selection, or
exchange should contact a competent tax adviser with respect to the potential
tax effects of such a transaction.
Multiple Contracts. All deferred non-qualified annuity contracts that are
------------------
issued by the Company (or its affiliates) to the same owner during any
calendar year are treated as one annuity contract for purposes of determining
the amount includible 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; 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
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individual as a means to provide benefit payments, unless the plan complies
with all legal requirements applicable to such benefits prior to transfer of
the Contract. Contract Owners are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts satisfy applicable law. Purchasers of Contracts for use with any
retirement plan should consult their legal counsel and tax adviser regarding
the suitability of the Contract under applicable federal and state tax laws
and ERISA.
The sale of a Contract for use with an IRA may be subject to special
disclosure requirements of the Internal Revenue Service. Purchasers of a
Contract for use with IRAs will be provided with supplemental information
required by the Internal Revenue Service or other appropriate agency. Such
purchasers will have the right to revoke their purchase within seven days of
the earlier of the establishment of the IRA or their purchase. A Contract
issued in connection with an IRA will be amended as necessary to conform to
the requirements of the Code. Purchasers should seek competent advice as to
the suitability of the Contract for use with IRAs.
(i) Plan Contribution Limits
Statutory limitations on contributions to retirement plans that qualify for
federal tax benefits may limit the amount of money that may be contributed to
the Contract in any Contract Year. Any purchase payments attributable to such
contributions may be tax deductible to the employer and are not currently
taxable to the Annuitants for whom the Contracts are purchased. The
contributions to the Contract and any increase in Contract Value attributable
to such contributions are not subject to taxation until payments from the
Contract are made to the Annuitant or his/her Beneficiaries.
TSA PLANS
Purchase payments attributable to TSA Plans are not includible within the
Annuitant's income to the extent such purchase payments do not exceed certain
statutory limitations, including the "exclusion allowance." The exclusion
allowance is a calculation which takes into consideration the Annuitant's
includible compensation, number of years of service, and prior years of
contributions. For more information 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.
The Contract includes a Death benefit that in some cases may exceed the
greater of the Purchase Payments or the Contract Value. The Death benefit
could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under section 403(b). Because the Death
benefit may exceed this limitation, employers using the Contract in connection
with such plans should consult their tax adviser.
IRAS, SEPS, SARSEPS, SIMPLE IRAS AND ROTH 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
is not yet age 70 1/2. The maximum tax deductible purchase payment which a
taxpayer may make to a spousal IRA is $2,000. If covered under an employer
plan, taxpayers are permitted to make deductible purchase payments; however,
for 1998 the deductions are phased out and eventually eliminated, on a pro
rata basis, for adjusted gross income between $30,000 and $40,000 for an
individual, between $50,000 and $60,000 for the covered spouse of a married
couple filing jointly, between $150,000 and $160,000 for the non-covered
spouse of a married couple filing jointly, and between $0 and $10,000 for a
married person filing separately. A taxpayer may also make nondeductible
purchase payments. However, the total of deductible and nondeductible purchase
payments may not exceed the limits described above for deductible payments. An
IRA is also the vehicle that receives contributions to SEPs, SARSEPs and
SIMPLE IRAs. Maximum contributions (including elective deferrals) to SEPs and
SARSEPs are currently limited
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to the lesser of 15% of compensation (generally up to $160,000 for 1998) 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 to a SIMPLE IRA, 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.
ROTH IRAS
Effective January 1, 1998, section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which
are subject to certain limitations, are not deductible and must be made in
cash or as a rollover or transfer from another Roth IRA or other IRA. A
rollover from or conversion of an IRA to a Roth IRA may be subject to tax and
other special rules may apply. The maximum purchase payment which may be
contributed each year to a Roth IRA is the lesser of $2,000 or 100 percent of
includible compensation. A spousal Roth IRA is available if the taxpayer and
spouse file a joint return. The maximum purchase payment that a taxpayer may
make to a spousal Roth IRA is $2,000. Except in the case of a rollover or a
transfer, no more than $2,000 can be contributed in aggregate to all IRAs and
Roth IRAs of either spouse during any tax year. The Roth IRA contribution may
be limited to less than $2,000 depending on the taxpayer's adjusted gross
income ("AGI"). The maximum contribution begins to phase out if the taxpayer
is single and the taxpayer's AGI is more than $95,000 or if the taxpayer is
married and files a joint tax return and the taxpayer's AGI is more than
$150,000. The taxpayer may not contribute to a Roth IRA if the taxpayer's AGI
is over $110,000 (if the taxpayer is single), $160,000 (if the taxpayer is
married and files a joint tax return), or $10,000 (if the taxpayer is married
and files separate tax returns).You should consult a tax adviser before
combining any converted amounts with any other Roth IRA contributions,
including any other conversion amounts from other tax years.
SECTION 457 PLANS
Generally, under a Section 457 Plan, an employee or executive may defer
income under a written agreement in an amount equal to the lesser of 33 1/3%
of includible compensation or $8,000. The amounts so deferred (including
earnings thereon) by an employee or executive electing to contribute to a
Section 457 Plan are includible in gross income only in the tax year in which
such amounts are paid or made available to that employee or executive or
his/her Beneficiary. With respect to a Section 457 Plan for a nonprofit
organization other than a governmental entity, (i) once contributed to the
plan, any Contracts purchased with employee contributions remain the sole
property of the employer and may be subject to the general creditors of the
employer and (ii) the employer retains all ownership rights to the Contract
including voting and redemption rights which may accrue to the Contract(s)
issued under the plan. The Plans may permit participants to specify the form
of investment for their deferred compensation accounts. Depending on the terms
of the particular plan, a non-governmental employer may be entitled to draw on
deferred amounts for purposes unrelated to its Section 457 Plan obligations.
QUALIFIED PLANS
Code section 401(a) permits employers to establish various types of
retirement plans for employees, and permit self-employed individuals to
establish retirement plans for themselves and their employees. These
retirement plans may permit the purchase of the Contracts to accumulate
retirement savings under the plans. Adverse tax consequences to the plan, to
the participant or to both may result if this Contract is assigned or
transferred to any individual as a means to provide benefit payments.
The Contract includes a Death benefit that in some cases may exceed the
greater of the Purchase Payments or the Contract Value. The Death benefit
could be characterized as an incidental benefit, the amount of which is
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limited in any pension or profit-sharing plan. Because the Death benefit may
exceed this limitation, employers using the Contract in connection with such
plans should consult their tax adviser.
(ii) Distributions from the Contract
MANDATORY WITHHOLDING ON CERTAIN DISTRIBUTIONS
Distributions called "eligible rollover distributions" from Qualified Plans
and from many TSA Plans are subject to mandatory withholding by the plan or
payor at the rate of 20%. An eligible rollover distribution is the taxable
portion of any distribution from a Qualified Plan or a TSA Plan, except for
certain distributions such as distributions required by the Code or in a
specified annuity form. 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, ROTH 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.
Distributions from a Roth IRA generally are not taxed, except that, once
aggregate distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject
to certain exceptions) or (2) during the five taxable years starting with the
year in which the first contribution is made to the Roth IRA.
Except under a Roth IRA, if the Annuitant dies before distributions begin,
distributions must be completed within five years after death, unless payments
begin within one year after death and are made over 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, the 10% penalty tax described above is
increased to 25% with respect to withdrawals made during the first two years
of participation. With respect to Roth IRAs, distributions representing
amounts attributable to contributions to a Roth IRA which has been established
for five years or more are generally not taxed.
Except under a Roth IRA, 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
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of a Qualified Plan or a Governmental Plan, if the Annuitant is not a "five-
percent owner" as defined in the Code, these distributions must begin by the
later of the date determined by the preceding sentence or the year in which
the Annuitant retires. Each annual distribution must equal or exceed a
"minimum distribution amount" which is determined by minimum distribution
rules under the plan. The Company currently waives the Contingent Deferred
Sales Charge on distributions that are intended to satisfy required minimum
distributions, calculated as if this Contract were the participant's only
retirement plan asset. This waiver only applies if the required minimum
distribution exceeds the free withdrawal amount and no previous surrenders
were made during the Contract Year. Rules regarding required minimum
distributions apply to IRAs (including SEP, SARSEPs and SIMPLEs), Qualified
Plans, TSA Plans and Governmental Plans. Roth IRAs under Section 408A do not
require distributions at any time prior to the Contract Owner's death. 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.
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 the later of April 1 of the calendar year following the year in
which the Annuitant attains age 70 1/2 or the year of retirement, and meets
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, generally 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
Although the likelihood of legislative change is uncertain, there is always
the possibility that the tax treatment of the Contracts could change by
legislation or other means. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely modify the federal
taxation of the Contracts. It is also possible that any change could be
retroactive (that is, effective prior to the date of the change). A tax
adviser should be consulted with respect to legislative developments and their
effect on the Contract.
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.
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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.
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.
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DISTRIBUTION OF CONTRACTS
New England Securities, the principal underwriter of the Contracts, is a
broker-dealer registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of the National Association of Securities
Dealers, Inc. New England Securities may enter into selling agreements with
other broker-dealers registered under the Exchange Act whose registered
representatives are authorized under applicable law to sell variable annuity
contracts. The Company will pay compensation to the New England Securities
registered representatives or other broker-dealers involved in the sale of a
Contract (including the exchange of a Fund I or Preference contract). Such
compensation will generally have a present value that does not exceed 7% of
purchase payments under the Contract (although a lower amount may be paid in
certain circumstances, such as sales of the Contracts to a person over age
75), and such compensation may be paid either as a percentage of purchase
payments at the time the Company receives them, as a percentage of Contract
Value on an ongoing basis, or in some combination of both. No commission is
paid in connection with the initial issuance of a Contract as a result of an
exchange from a Zenith Accumulator contract, although the Company reserves the
right to pay a flat servicing or handling fee--not to be deducted from
Contract Value--in connection with such exchanges.
THE FIXED ACCOUNT
A Fixed Account option is included under Contracts issued in those states
where it has been approved by the state insurance department. In these states,
you may allocate net purchase payments and may transfer Contract Value in the
Variable Account to the Fixed Account, which is part of the Company's general
account. The Fixed Account offers diversification to a Variable Account
contract, allowing the Contract Owner to protect principal and earn, at least,
a guaranteed rate of interest.
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933, and neither
the Fixed Account nor the general account has been registered as an investment
company under the Investment Company Act of 1940. Therefore, neither the
general account, the Fixed Account nor any interests therein are generally
subject to the provisions of these Acts, and the Company has been advised that
the staff of the Securities and Exchange Commission does not review
disclosures relating to the general account. Disclosures regarding the Fixed
Account may, however, be subject to certain generally applicable provisions of
the Federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
GENERAL DESCRIPTION OF THE FIXED ACCOUNT
The Company's general account consists of all assets owned by the Company
other than those in the Variable Account and the Company's other separate
accounts. The Company has sole discretion over the investment of assets in the
general account, including those in the Fixed Account. Contract Owners do not
share in the actual investment experience of the assets in the Fixed Account.
Instead, the Company guarantees that Contract Values in the Fixed Account will
be credited with interest at an effective annual rate of at least 3%. The
Company is not obligated to credit interest at a rate higher than 3%, although
in its sole discretion it may do so. Contract Values in the Fixed Account will
be credited with interest daily.
Any purchase payment or portion of Contract Value ("deposit") allocated to
the Fixed Account will earn interest at an annual rate determined by the
Company for that deposit for a 12 month period. At the end of each succeeding
12 month period, the Company will determine the interest rate that will apply
to that deposit plus accrued interest for the next 12 months. This renewal
rate may differ from the interest rate that is applied to new deposits made to
the Fixed Account on that same day. (See "Contract Value and Fixed Account
Transactions" below for a description of the interest rate that will be
applied to Contract loan repayments allocated to the Fixed Account.)
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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 the 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 or the Company's general account as the
result of a loan. (However, that charge is limited to the lesser of $30 and 2%
of the total Contract Value, including Contract Value you have allocated to
the Fixed Account and any Contract Value held in the Company's general account
as the result of a loan.) 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. However these limits do not
apply to new deposits to the Fixed Account for which the dollar cost averaging
program has been elected within 30 days from the date of the deposit. In such
case, the amount of Contract Value which may be transferred from the Fixed
Account will be the greatest of: a) 25% of the Contract Value in the Fixed
Account at the end of the first day of the Contract Year; b) the amount of
Contract Value that was transferred from the Fixed Account in the previous
Contract Year; or c) the amount of Contract Value in the Fixed Account to be
transferred out of the Fixed Account under dollar cost averaging elected on
new deposits within 30 days from the date of deposit. The Company allows one
dollar cost averaging program to be active at a time. Therefore, if you
transfer pre-existing assets (corresponding to Contract Value for which the
dollar cost averaging program was not elected within 30 days from the date of
each deposit) out of the Fixed Account under the dollar cost averaging program
and would like to transfer up to 100% of new deposits under the program, then
the dollar cost averaging program on the pre-existing assets will be canceled
and a new program will begin with respect to new deposits. In this case, the
pre-existing assets may still be transferred out of the Fixed Account,
however, not under a dollar cost averaging program, subject to the limitations
on transfers generally out of the Fixed Account. (Also, after the transfer is
made, the Contract Value may not be allocated among more than ten of the sub-
accounts and/or the Fixed Account.) The Company intends to restrict purchase
payments and transfers of Contract Value into the Fixed Account: (1) if the
interest rate which would be credited to the deposit would be equivalent to an
annual effective rate of 3%; or (2) if the total Contract Value in the Fixed
Account exceeds a maximum amount published by the Company (currently
$500,000). (For Contracts issued in Maryland, the Company reserves the right
to restrict such purchase payments and transfers if the total Contract Value
in the Fixed Account equals or exceeds $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. Amounts withdrawn
from the Fixed Account due to a Contract loan will be on a "last-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 rate the borrowed money was receiving at the time the loan
was made from the Fixed Account; and (2) the 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.
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The Company reserves the right to delay transfers, surrenders, partial
surrenders and Contract loans from the Fixed Account for up to six months.
Like all financial services providers, NELICO utilizes systems that may be
affected by Year 2000 transition issues, and it relies on a number of third
parties including banks, custodians, and investment managers, that also may be
affected. NELICO and its affiliates have developed, and are in the process of
implementing, a Year 2000 transition plan, and are confirming that their
service providers are also so engaged. The resources that are being devoted to
this effort are substantial. It is difficult to predict with precision whether
the amount of resources ultimately devoted, or the outcome of these efforts,
will have any negative impact on NELICO. However, as of the date of this
prospectus, it is not anticipated that Owners will experience negative effects
on their investment, or on the services provided in connection therewith, as
result of Year 2000 transition implementation. NELICO currently anticipates
that its systems will be Year 2000 compliant on or about December 31, 1998,
with systems testing and compliance verification to follow. There can,
however, be no assurance that the other service providers have anticipated
every step necessary to avoid any adverse effect on the Variable Account
attributable to Year 2000 transition.
FINANCIAL STATEMENTS
The financial statements of the Company and the Variable Account may be
found in the Statement of Additional Information.
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. Such performance information will be accompanied
by SEC standard performance information for each sub-account, based on the
actual investment experience of the sub-account since its inception and for
the one, five, and ten year periods ending with the date of the information
shown. 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, 1997 and more
information about how they are calculated.
The Company may also illustrate how the average annual total return for a
five year period was determined by illustrating the average annual total
return for each year in the five year period ending with the date of the
illustration. Such illustrations are based on the same assumptions and reflect
the same expenses and deductions described in the preceding paragraph. See
"Calculation of Performance Data" in the Statement of Additional Information
for an example of this type of illustration and more information about how
average annual total returns are calculated.
The Company may illustrate what would have been the growth and value of a
single $10,000 purchase payment for the Contract if it had been invested in
each of the Eligible Funds on the first day of the first month after those
Eligible Funds commenced operations. These illustrations show Contract Value
and surrender value, calculated in the same manner as when they are used to
arrive at average annual total return, as of the end of each year, ending with
the date of the illustration. The surrender values reflect the deduction of
any applicable Contingent Deferred Sales Charge, but do not reflect the
deduction of any premium tax charge. These illustrations may also show annual
percentage changes in Contract Value and surrender value, cumulative returns,
and annual effective rates of return. The difference between the Contract
Value or surrender value at the beginning and at the end of
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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 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.
In addition, the Company may illustrate how variable annuity income payments
under the Contract and commuted values of annuity income options change with
investment performance over periods of time; such illustrations may be
hypothetical (based on assumed uniform annual rates of return) or historical
(based on historical annual returns of the sub-accounts). See "Hypothetical
Illustrations of Annuity Income Payouts" and "Historical Illustrations of
Annuity Income Payouts" in the Statement of Additional Information for a
description of these illustrations.
A-51
<PAGE>
From time to time the Company may advertise (in sales literature or
advertising material) performance rankings of the sub-accounts of the Variable
Account assigned by independent services, such as Variable Annuity Research
and Data Services ("VARDS"). VARDS monitors and ranks the performance of
variable annuity accounts on an industry-wide basis in each of the major
categories of investment objectives. The performance analysis prepared by
VARDS ranks accounts on the basis of total return calculated using
Accumulation Unit Values. Thus, the effect of the Contingent Deferred Sales
Charge and Administration Contract Charge assessed under the Contracts is not
taken into consideration.
From time to time, articles discussing the Variable Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited to, Lipper Analytical Services, Inc. and
Morningstar) may publish their own rankings or performance reviews of variable
contract separate accounts, including the Variable Account. References to,
reprints or portions of reprints of such articles or rankings may be used by
the Company as sales literature or advertising material and may include
rankings that indicate the names of other variable contract separate accounts
and their investment experience.
The Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
A-52
<PAGE>
APPENDIX A
CONSUMER TIPS
DOLLAR COST AVERAGING
Dollar cost averaging allows a person to take advantage of the historical
long-term stock market results, assuming that they continue, although it does
not guarantee a profit or protect against a loss. If an investor follows a
program of dollar cost averaging on a long-term basis and the stock fund
selected performs at least as well as the S&P 500 has historically, it is
likely although not guaranteed that the price at which shares are surrendered,
for whatever reason, will be higher than the average cost per share.
An investor using dollar cost averaging invests the same amount of money in
the same professionally managed fund at regular intervals over a long period
of time. Dollar cost averaging keeps an investor from investing too much when
the price of shares is high and too little when the price is low. When the
price of shares is low, the money invested buys more shares. When it is high,
the money invested buys fewer shares. If the investor has the ability and
desire to maintain this program over a long period of time (for example, 20
years), and the stock fund chosen follows the historical upward market trends,
the price at which the shares are sold should be higher than their average
cost. The price could be lower, however, if the fund chosen does not follow
these historical trends.
Investors contemplating the use of dollar cost averaging should consider
their ability to continue the on-going purchases so that they can take
advantage of periods of low price levels.
DIVERSIFICATION
Diversifying investment choices can enhance returns, by providing a wider
opportunity for safe returns, and reduce risks, by spreading the chance of
loss. Holding a single investment requires of that investment a safe return
because a loss may risk the entire investment. By diversifying, on the other
hand, an investor can more safely take a chance that some investments will
under-perform and that others will over-perform. Thus an investor can
potentially earn a better-than-average rate of return on a diversified
portfolio than on a single safe investment. This is because, although portions
of a diversified investment may be totally lost, other portions may perform at
above- average rates that more than compensate for the loss.
MISCELLANEOUS
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 02116
A-53
<PAGE>
APPENDIX B
CONTINGENT DEFERRED SALES CHARGE
The following example illustrates how the Contingent Deferred Sales Charge
would apply if the commuted value of amounts that have been placed under
certain payment options is later withdrawn. As described in the prospectus in
the section "Contingent Deferred Sales Charge," no Contingent Deferred Sales
Charge will apply if at any time more than 30 days from issue of the Contract
you apply the proceeds to a variable or fixed payment option involving a life
contingency or, for a minimum specified period of 15 years, to either the
Variable Income for a Specified Number of Years Option or the Variable Income
Payments to Age 100 Option, or a comparable fixed option. However, if you
subsequently withdraw the commuted value of amounts placed under any of those
options, the Company will deduct from the amount you receive a portion of the
Contingent Deferred Sales Charge that was waived, based on the ratio of: (1)
the number of whole months remaining on the date of withdrawal until the date
when the Contingent Deferred Sales Charge would expire, to (2) the number of
whole months that were remaining when the proceeds were applied to the option,
until the date when the Contingent Deferred Sales Charge would expire.
As an example, assume that $100,000 of Contract Value (net of any premium
tax charge and Administration Contract Charge) is applied to the Variable
Income for a Specified Number of Years Option for a 20 year period. Assume
further that the proceeds are derived from a $30,000 purchase payment made ten
years ago, a $30,000 purchase payment made exactly two years ago, and
investment earnings, and that the Contingent Deferred Sales Charge waived on
application of the proceeds to the payment option was $1,500. If the Payee
surrenders the commuted value of the proceeds under option six months later,
the Contingent Deferred Sales Charge would be $1,350 (representing the $1,500
waived at annuitization multiplied by 54/60, where 54 is the number of whole
months currently remaining until the Contingent Deferred Sales Charge would
expire, and 60 is the number of whole months that remained at the time of
annuitization until the Contingent Deferred Sales Charge would expire).
A-54
<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>
California 0.50% 2.35%
District of Columbia 2.25% 2.25%
Kentucky 2.00% 2.00%
Maine -- 2.00%
Nevada -- 3.50%
Puerto Rico 1.00% 1.00%
South Dakota -- 1.25%
West Virginia 1.00% 1.00%
Wyoming -- 1.00%
</TABLE>
See "Premium Tax Charges" in the prospectus for more information about how
premium taxes affect the Contracts.
A-55
<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-24
LEGAL MATTERS............................................................. II-24
APPENDIX A................................................................ II-25
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 Growth Series) to:
--------------------------------------------------------
Name
--------------------------------------------------------
Street
--------------------------------------------------------
City State Zip
A-56
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
AMERICAN GROWTH SERIES
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
(PART B)
MAY 1, 1998
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated May 1, 1998 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-23
Experts................................................................... II-26
Legal Matters............................................................. II-26
Appendix A................................................................ II-27
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
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. For the years
ended December 31, 1995, 1996 and 1997, the Company paid commissions in the
amount of $1,223,006.20, $3,782,305.00 and $5,081,873.33 respectively.
PERFORMANCE COMPARISONS
Articles and releases, developed by the Company, the Eligible Funds (as
defined in the Prospectus) and other parties, about the Account or the
Eligible Funds regarding performance, rankings, statistics and analyses of the
Account's, the individual Eligible Funds' and fund groups' asset levels and
sales volumes, statistics and analyses of industry sales volumes and asset
levels, and other characteristics may appear in publications, including, but
not limited to, those publications listed in Appendix A to this Statement of
Additional Information. In particular, some or all of these publications may
publish their own rankings or performance reviews including the Account or the
Eligible Funds. References to or reprints of such articles may be used in
promotional literature. Such literature may refer to personnel of the advisers
and/or subadvisers who have portfolio management responsibility, and their
investment style. The references may allude to or include excerpts from
articles appearing in the media.
The advertising and sales literature for the Contracts and the Account may
refer to historical, current and prospective economic trends and may include
historical and current performance and total returns of investment
alternatives.
In addition, sales literature may be published concerning topics of general
investor interest for the benefit of registered representatives and
prospective Contractholders. These materials may include, but are not limited
to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
II-3
<PAGE>
CALCULATION OF PERFORMANCE DATA
The tables below illustrate hypothetical average annual total returns for
each sub-account for the periods shown, based on the actual investment
experience of the sub-accounts, and the New England Zenith Fund (the "Zenith
Fund") during those periods. The tables do not represent what may happen in
the future.
The Variable Account was not established until July, 1994. The Contracts
were not available before April 10, 1995. The Back Bay Advisors Bond Income
and Back Bay Advisors Money Market Series commenced operations on August 26,
1983. The Westpeak Growth and Income and Goldman Sachs Midcap Value Series
(formerly the Loomis Sayles Avanti Growth Series) commenced operations on
April 30, 1993. The Small Cap Series commenced operations on May 2, 1994. The
six other Eligible Funds did not commence operations until October 31, 1994.
Calculations of average annual total return are based on the assumption that
a single investment of $1,000 was made at the beginning of each period shown.
The figures do not reflect the effect of any premium tax charge, which applies
in certain states, and which would reduce the results shown.
The average annual total return is related to surrender value and is
calculated as follows. The amount of the assumed $1,000 purchase payment for a
Contract issued at the beginning of the period is divided by the Accumulation
Unit Value of each sub-account at the beginning of the period shown to arrive
at the number of Accumulation Units purchased. The number of Accumulation
Units is reduced on each Contract anniversary to reflect deduction of the
annual $30 Administration Contract Charge from the Contract Value. For
purposes of this calculation, the maximum Administration Contract Charge of
$30 is deducted, although the actual charge will be the lesser of 2% of
Contract Value and $30 (and may be waived for certain large Contracts). Each
such $30 deduction reduces the number of units held under the Contract by an
amount equal to $30 divided by the Accumulation Unit Value on the date of the
deduction. The total number of units held under the Contract at the beginning
of the last Contract Year covered by the period shown is multiplied by the
Accumulation Unit Value on December 31, 1997 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, 1997 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, 1997. In other words, the average annual total return is the rate which,
when added to 1, raised to a power reflecting the number of years in the
period shown, and multiplied by the initial $1,000 investment, yields the
surrender value at the end of the period. The average annual total returns
assume that no premium tax charge has been deducted.
Sub-Account average annual total return, which is calculated in accordance
with the SEC standardized formula, uses the inception date of the sub-account
through which the Eligible Fund shown is available. Fund total return adjusted
for Contract charges uses the inception date of the Eligible Fund shown, and
therefore may reflect periods prior to the availability of the corresponding
sub-account under the Contract. THIS INFORMATION DOES NOT INDICATE OR
REPRESENT FUTURE PERFORMANCE.
SUB-ACCOUNT AVERAGE ANNUAL TOTAL RETURN
For purchase payment allocated to the Loomis Sayles Small Cap Series
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. 14.18%
Since Inception of the Sub-Account................................. 23.40%
</TABLE>
For purchase payment allocated to the Morgan Stanley International Magnum
Equity Series*
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year.......................................................... -10.72%
Since Inception of the Sub-Account.............................. -2.33%
</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 Alger Equity Growth Series
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. 14.95%
Since Inception of the Sub-Account................................. 19.83%
</TABLE>
For purchase payment allocated to the Goldman Sachs Midcap Value Series**
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. 6.75%
Since Inception of the Sub-Account................................. 15.12%
For purchase payment allocated to the Davis Venture Value Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. 22.71%
Since Inception of the Sub-Account................................. 25.90%
For purchase payment allocated to the Westpeak Growth and Income Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. 22.68%
Since Inception of the Sub-Account................................. 23.22%
For purchase payment allocated to the Loomis Sayles Balanced Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. 5.62%
Since Inception of the Sub-Account................................. 12.27%
For purchase payment allocated to the Salomon Brothers Strategic Bond
Opportunities Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. .83%
Since Inception of the Sub-Account................................. 8.63%
For purchase payment allocated to the Back Bay Advisors Bond Income Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. .66%
Since Inception of the Sub-Account................................. 4.69%
For purchase payment allocated to the Salomon Brothers U.S. Government Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. -1.60%
Since Inception of the Sub-Account................................. 1.88%
For purchase payment allocated to the Back Bay Advisors Money Market Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. -4.52%
Since Inception of the Sub-Account................................. -.72%
</TABLE>
- --------
** The Goldman Sachs Midcap Value Series' Subadviser was Loomis, Sayles &
Company, L.P. until May 1, 1998, when Goldman Sachs Asset Management became
the subadviser.
II-5
<PAGE>
FUND TOTAL RETURN ADJUSTED FOR CONTRACT CHARGES
For purchase payment allocated to the Loomis Sayles Small Cap Series
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. 14.18%
Since Inception of the Fund........................................ 16.35%
</TABLE>
For purchase payment allocated to the Morgan Stanley International Magnum
Equity Series*
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year.......................................................... -10.72%
Since Inception of the Fund..................................... -1.06%
For purchase payment allocated to the Alger Equity Growth Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year.......................................................... 14.95%
Since Inception of the Fund..................................... 20.10%
</TABLE>
For purchase payment allocated to the Goldman Sachs Midcap Value Series**
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. 6.75%
Since Inception of the Fund........................................ 12.16%
For purchase payment allocated to the Davis Venture Value Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. 22.71%
Since Inception of the Fund........................................ 24.35%
For purchase payment allocated to the Westpeak Growth and Income Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. 22.68%
Since Inception of the Fund........................................ 16.37%
For purchase payment allocated to the Loomis Sayles Balanced Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. 5.62%
Since Inception of the Fund........................................ 12.92%
For purchase payment allocated to the Salomon Brothers Strategic Bond
Opportunities Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. .83%
Since Inception of the Fund........................................ 8.25%
</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.
** The Goldman Sachs Midcap Value Series' Subadviser was Loomis, Sayles &
Company, L.P. until May 1, 1998, when Goldman Sachs Asset Management became
the subadviser.
II-6
<PAGE>
For purchase payment allocated to the Back Bay Advisors Bond Income Series
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. .66%
5 Years............................................................ 4.30%
10 years........................................................... 6.09%
Since Inception of the Fund........................................ 7.03%
For purchase payment allocated to the Salomon Brothers U.S. Government
Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. -1.60%
Since Inception of the Fund........................................ 3.10%
For purchase payment allocated to the Back Bay Advisors Money Market Series
<CAPTION>
PERIOD ENDING DECEMBER 31, 1997
-------------------------------
<S> <C>
1 Year............................................................. -4.52%
5 Years............................................................ -.17%
10 years........................................................... 1.67%
Since Inception of the Fund........................................ 2.68%
</TABLE>
Information is available illustrating the impact of fund performance on
annuity payouts. For examples, see "Hypothetical Illustrations of Annuity
Income Payments" and "Historical Illustrations of Annuity Income Payments" in
this Statement of Additional Information.
The following chart illustrates how the average annual total return was
determined for the five year period ending December 31, 1997 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, 1992.......... 417.0739 2.397657 1,000.00 -- --
December 31, 1993.......... 405.8119 2.663825 1,081.01 $1,022.64 2.26%
December 31, 1994.......... 393.9999 2.539801 1,000.68 955.65 -2.24%
December 31, 1995.......... 384.1219 3.037039 1,166.59 1,126.59 4.05%
December 31, 1996.......... 374.5498 3.134109 1,173.88 1,143.88 3.42%
December 31, 1997.......... 365.8003 3.428788 1,254.25 1,234.25 4.30%
</TABLE>
II-7
<PAGE>
The following charts illustrate what would have been the growth and value of
a $10,000 purchase payment if it had been invested in each of the Eligible
Funds on the first day of the first month after those Eligible Funds became
available: September 1, 1983 for the Back Bay Advisors Money Market and Back
Bay Advisors Bond Income Series; May 1, 1993 for the Westpeak Growth and
Income and Goldman Sachs Midcap Value Series; May 2, 1994 for the Loomis
Sayles Small Cap Series; and November 1, 1994 for the other series of the
Zenith Fund. The figures shown do not reflect the deduction of any premium tax
charge on surrender. During the period when the Contingent Deferred Sales
Charge applies, the percentage return on surrender value from year to year
(after the 1st year) will be greater than the percentage return on Contract
Value for the same years. This is because the percentage return on surrender
value reflects not only investment experience but also the annual reduction in
the applicable Contingent Deferred Sales Charge. In the first chart, the
Contract Value and surrender value on each date shown are calculated in the
manner described in the preceding illustrations of average annual total
return, assuming that no premium tax charge is deducted on surrender.
In the second and third charts, the difference between the Contract Value or
surrender value at the beginning and at the end of each year is divided by the
beginning Contract Value or surrender value to arrive at the annual percentage
change. The cumulative return information set forth in these charts is
determined by taking the difference between the $10,000 investment and the
ending Contract Value or surrender value and dividing it by $10,000. The
annual effective rate of return in this illustration is calculated in the same
manner as the average annual total return described in the preceding
illustration, assuming that no premium tax charge is deducted on surrender.
$10,000 SINGLE PURCHASE PAYMENT CONTRACT
BACK BAY ADVISORS BOND INCOME AND BACK BAY ADVISORS MONEY MARKET SERIES ISSUED
SEPTEMBER 1, 1983
WESTPEAK GROWTH AND INCOME AND GOLDMAN SACHS MIDCAP VALUE(3) SERIES ISSUED MAY
1, 1993
LOOMIS SAYLES SMALL CAP SERIES ISSUED MAY 2, 1994
OTHER ZENITH FUND SERIES ISSUED NOVEMBER 1, 1994
INVESTMENT RESULTS
CONTRACT VALUE(1)
<TABLE>
<CAPTION>
MORGAN SALOMON
LOOMIS STANLEY GOLDMAN WESTPEAK BROTHERS BACK BAY
SAYLES INTERNATIONAL ALGER SACHS DAVIS GROWTH LOOMIS STRATEGIC ADVISORS
SMALL MAGNUM EQUITY MIDCAP VENTURE AND SAYLES BOND BOND
CAP EQUITY(2) GROWTH VALUE(3) VALUE INCOME BALANCED OPPORTUNITIES INCOME
---------- ------------- ---------- ---------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ $10,339.37
1984............ 11,453.64
1985............ 13,388.01
1986............ 15,137.25
1987............ 15,242.29
1988............ 16,265.40
1989............ 17,990.50
1990............ 19,151.95
1991............ 22,256.25
1992............ 23,722.98
1993............ $11,370.39 $11,321.11 26,326.49
1994............ $ 9,590.97 $10,237.83 $ 9,695.00 11,157.06 $ 9,628.96 11,004.57 $ 9,968.28 $ 9,838.87 25,071.19
1995............ 12,156.37 10,698.65 14,193.96 14,313.48 12,201.25 14,780.39 12,242.06 11,557.83 29,948.07
1996............ 15,637.59 11,227.90 15,815.91 16,574.48 16,356.09 17,185.98 14,087.95 13,008.06 30,873.63
1997............ 19,225.09 10,904.04 19,572.63 19,149.94 21,511.41 22,593.88 16,117.11 14,224.45 33,745.26
<CAPTION>
SALOMON BACK BAY
BROTHERS ADVISORS
U.S. MONEY
GOVERNMENT MARKET
---------- ----------
<S> <C> <C>
As of December
31:
1983............ $10,258.59
1984............ 11,175.34
1985............ 11,905.86
1986............ 12,514.94
1987............ 13,122.50
1988............ 13,889.20
1989............ 14,941.00
1990............ 15,916.76
1991............ 16,648.66
1992............ 17,018.47
1993............ 17,259.12
1994............ $10,038.07 17,674.12
1995............ 11,360.92 18,401.19
1996............ 11,548.68 19,053.28
1997............ 12,328.54 19,770.95
</TABLE>
II-8
<PAGE>
SURRENDER VALUE(1)
<TABLE>
<CAPTION>
MORGAN SALOMON
LOOMIS STANLEY GOLDMAN WESTPEAK BROTHERS BACK BAY
SAYLES INTERNATIONAL ALGER SACHS DAVIS GROWTH LOOMIS STRATEGIC ADVISORS
SMALL MAGNUM EQUITY MIDCAP VENTURE AND SAYLES BOND BOND
CAP EQUITY(2) GROWTH VALUE(3) VALUE INCOME BALANCED OPPORTUNITIES INCOME
---------- ------------- ---------- ---------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ $ 9,675.61
1984............ 10,843.64
1985............ 12,878.01
1986............ 14,727.29
1987............ 14,932.29
1988............ 16,055.40
1989............ 17,880.50
1990............ 19,141.95
1991............ 22,246.25
1992............ 23,712.98
1993............ $10,650.39 $10,601.11 26,316.49
1994............ $ 8,972.10 $ 9,586.18 $ 9,081.35 10,537.06 $ 9,019.93 10,389.62 $ 9,335.50 $ 9,215.15 25,061.19
1995............ 11,538.87 10,112.28 13,588.96 13,793.48 12,596.25 14,260.39 11,637.06 10,952.83 29,938.07
1996............ 15,120.09 10,722.90 15,310.91 16,154.48 15,851.09 16,765.98 13,582.95 12,503.06 30,863.63
1997............ 18,807.59 10,507.64 19,167.63 18,829.94 21,106.41 22,273.88 15,712.11 14,219.45 33,735.26
<CAPTION>
SALOMON BACK BAY
BROTHERS ADVISORS
U.S. MONEY
GOVERNMENT MARKET
---------- ----------
<S> <C> <C>
As of December
31:
1983............ $ 9,600.49
1984............ 10,565.34
1985............ 11,395.86
1986............ 12,104.94
1987............ 12,812.50
1988............ 13,679.20
1989............ 14,831.00
1990............ 15,906.76
1991............ 16,638.66
1992............ 17,008.47
1993............ 17,249.12
1994............ $ 9,400.41 17,664.12
1995............ 10,755.92 18,391.19
1996............ 11,043.68 19,043.28
1997............ 11,923.54 19,760.95
</TABLE>
ANNUAL PERCENTAGE CHANGE IN CONTRACT VALUE(1)
<TABLE>
<CAPTION>
MORGAN SALOMON
LOOMIS STANLEY GOLDMAN WESTPEAK BROTHERS
SAYLES INTERNATIONAL ALGER SACHS DAVIS GROWTH LOOMIS STRATEGIC
SMALL MAGNUM EQUITY MIDCAP VENTURE AND SAYLES BOND
CAP EQUITY(2) GROWTH VALUE(3) 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................... 13.70% 13.21%
1994................... -4.09% 2.38% -3.05% -1.88 -3.71% -2.80 -0.32% -1.61%
1995................... 26.75 4.50 46.40 28.29 37.10 34.31 22.81 17.47
1996................... 28.64 4.95 11.43 15.80 23.90 16.28 15.08 12.55
1997................... 22.94 -2.88 23.75 15.54 31.52 31.47 14.40 9.35
Cumulative Return....... 92.25 9.04 95.73 91.50 115.11 125.94 61.17 42.24
Annual Effective Rate of
Return................. 19.52 2.77 23.64 14.93 27.39 19.08 16.28 11.78
</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(4) INDEX(5) INDEX(6) INDEX(7)
-------- ---------- -------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983................... 3.39% 2.59% 5.11% 1.79% 4.51% 1.07%
1984................... 10.78 8.94 1.35 6.27 14.37 3.95
1985................... 16.89 6.54 33.62 31.73 18.06 3.77
1986................... 13.07 5.12 27.25 18.66 13.13 1.13
1987................... 0.69 4.85 5.55 5.25 3.66 4.41
1988................... 6.71 5.84 16.21 16.61 6.67 4.42
1989................... 10.61 7.57 32.24 31.69 12.77 4.65
1990................... 6.46 6.53 -0.54 -3.10 9.16 6.11
1991................... 16.21 4.60 24.25 30.47 14.62 3.06
1992................... 6.59 2.22 7.40 7.62 7.17 2.90
1993................... 10.97 1.41 16.97 10.08 8.79 2.75
1994................... -4.77 0.38% 2.40 5.02 1.32 -1.93 2.67
1995................... 19.45 13.18 4.11 36.94 37.58 15.33 2.54
1996................... 3.09 1.65 3.54 28.91 22.96 4.05 3.32
1997................... 9.30 6.75 3.77 24.91 33.36 7.87 1.83
Cumulative Return....... 237.45 23.29 97.71 1,166.71 1,026.38 283.07 65.47
Annual Effective Rate of
Return................. 8.86 6.84 4.87 18.44 17.52 9.37 3.41
</TABLE>
II-9
<PAGE>
ANNUAL PERCENTAGE CHANGE IN SURRENDER VALUE(1)
<TABLE>
<CAPTION>
MORGAN SALOMON
LOOMIS STANLEY GOLDMAN WESTPEAK BROTHERS
SAYLES INTERNATIONAL ALGER SACHS DAVIS GROWTH LOOMIS STRATEGIC
SMALL MAGNUM EQUITY MIDCAP VENTURE AND SAYLES BOND
CAP EQUITY(2) GROWTH VALUE(3) 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................... 6.50% 6.01%
1994................... -10.28% -4.14% -9.19% -1.06 -9.80% -1.99 -6.64% -7.85%
1995................... 28.61 5.49 49.64 30.90 39.65 37.26 24.65 18.86
1996................... 31.04 6.04 12.67 17.12 25.84 17.57 16.72 14.15
1997................... 24.39 -2.01 25.19 16.56 33.15 32.85 15.68 13.73
Cumulative Return....... 88.08 5.08 91.68 88.30 111.06 122.74 57.12 42.19
Annual Effective Rate of
Return................. 18.81 1.58 22.83 14.52 26.63 18.71 15.35 11.77
</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(4) INDEX(5) INDEX(6) INDEX(7)
-------- ---------- -------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31:
1983................... -3.24% -4.00% 5.11% 1.79% 4.51% 1.07%
1984................... 12.07 10.05 1.35 6.27 14.37 3.95
1985................... 18.76 7.86 33.62 31.73 18.06 3.77
1986................... 14.36 6.22 27.25 18.66 13.13 1.13
1987................... 1.39 5.85 5.55 5.25 3.66 4.41
1988................... 7.52 6.76 16.21 16.61 6.67 4.42
1989................... 11.37 8.42 32.24 31.69 12.77 4.65
1990................... 7.05 7.25 -0.54 -3.10 9.16 6.11
1991................... 16.22 4.60 24.25 30.47 14.62 3.06
1992................... 6.59 2.22 7.40 7.62 7.17 2.90
1993................... 10.98 1.41 16.97 10.08 8.79 2.75
1994................... -4.77 -6.00% 2.41 5.02 1.32 -1.93 2.67
1995................... 19.46 14.42 4.12 36.94 37.58 15.33 2.54
1996................... 3.09 2.68 3.55 28.91 22.96 4.05 3.32
1997................... 9.30 7.97 3.77 24.91 33.36 7.87 1.83
Cumulative Return....... 237.35 19.24 97.61 1,166.71 1,026.38 283.07 65.47
Annual Effective Rate of
Return................. 8.85 5.72 4.87 18.44 17.52 9.37 3.41
</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 Goldman Sachs Midcap Value 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 Goldman Sachs Midcap Value Series' subadviser was Loomis, Sayles &
Company, L.P. until May 1, 1998, when Goldman Sachs Asset Management
became the subadviser.
(4) The 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.
(5) 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.
(6) 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.
(7) 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-10
<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
Goldman Sachs Midcap Value 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,
1997. 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, 1997
FOR BOND INCOME AND MONEY MARKET SERIES
MAY 1, 1993--DECEMBER 31, 1997 FOR GROWTH AND INCOME AND MIDCAP VALUE SERIES
MAY 2, 1994--DECEMBER 31, 1997 FOR SMALL CAP SERIES
NOVEMBER 1, 1994--DECEMBER 31, 1997 FOR OTHER ZENITH FUND SERIES
<TABLE>
<CAPTION>
CONTRACT VALUE
-------------------------------------
MORGAN
LOOMIS STANLEY
SAYLES INTERNATIONAL ALGER
CUMULATIVE SMALL MAGNUM EQUITY
PAYMENTS(1) CAP EQUITY(2) GROWTH
----------- ----------- ------------- ----------
<S> <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
1994............ 34,000 $ 1,956.63 $ 511.41 $ 497.71
1995............ 37,000 5,897.75 3,638.51 4,223.53
1996............ 40,000 11,030.05 6,861.95 7,869.16
1997............ 43,000 16,920.50 9,556.93 13,012.63
Annual Effective
Rate of Return. 24.09% .37% 20.31%
<CAPTION>
CONTRACT VALUE
-----------------------------------------------------------------------------------------------
GOLDMAN DAVIS WESTPEAK SALOMON BACK BAY SALOMON BACK BAY
SACHS VENTURE GROWTH LOOMIS BROTHERS ADVISORS BROTHERS ADVISORS
MIDCAP VALUE AND SAYLES BOND BOND U.S. MONEY
VALUE(3) GROWTH INCOME BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
----------- ---------- ----------- ---------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ $ 1,012.82 $ 1,016.10
1984............ 4,349.17 4,230.31
1985............ 8,365.14 7,594.48
1986............ 12,621.63 11,052.43
1987............ 15,732.03 14,672.07
1988............ 19,860.86 18,635.16
1989............ 25,137.16 23,179.99
1990............ 29,936.01 27,818.23
1991............ 38,128.97 32,191.38
1992............ 43,796.87 35,969.10
1993............ $ 2,122.25 $ 2,120.94 51,743.14 39,536.81
1994............ 5,100.04 $ 494.93 5,051.82 $ 502.23 $ 492.22 52,263.51 $ 502.43 43,574.89
1995............ 9,880.99 4,127.35 10,265.42 3,906.01 3,815.40 65,744.71 3,736.04 48,480.34
1996............ 14,643.89 8,539.41 15,252.30 7,782.17 7,482.81 70,935.93 6,854.02 53,307.79
1997............ 20,152.48 14,643.35 23,498.65 12,123.84 11,325.33 80,749.76 10,435.60 58,434.53
Annual Effective
Rate of Return. 15.64% 28.44% 22.45% 15.57% 11.11% 8.32% 5.86% 4.14%
</TABLE>
- -------
(1) For the Westpeak Growth and Income and Goldman Sachs Midcap Value 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, as of December 31, 1996 would be $11,000 and as of December 31,
1997 would be $14,000. 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, as of December 31, 1996 would be $8,000 and as of
December 31, 1997 would be $11,000. 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, as of December 31, 1996 would be $6,500 and as
of December 31, 1997 would be $9,500.
(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.
(3) The Goldman Sachs Midcap Value Series' subadviser was Loomis, Sayles &
Company, L.P. until May 1, 1998 when Goldman Sachs Asset Management became
the subadviser.
II-11
<PAGE>
<TABLE>
<CAPTION>
SURRENDER VALUE
--------------------------------------
LOOMIS MORGAN
SAYLES STANLEY ALGER
CUMULATIVE SMALL INTERNATIONAL EQUITY
PAYMENTS(1) CAP MAGNUM(2) GROWTH
----------- ----------- ------------- -----------
<S> <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
1994............ 34,000 $ 1,803.92 $ 472.36 $ 459.62
1995............ 37,000 5,550.25 3,406.14 3,978.53
1996............ 40,000 10,522.55 6,462.04 7,449.16
1997............ 16,283.00 9,054.53 12,447.63
Annual Effective
Rate of Return. 21.85% -2.93% 17.32%
<CAPTION>
SURRENDER VALUE
-------------------------------------------------------------------------------------------------
GOLDMAN SALOMON BACK BAY SALOMON BACK BAY
SACHS DAVIS WESTPEAK LOOMIS BROTHERS ADVISORS BROTHERS ADVISORS
MIDCAP VENTURE GROWTH SAYLES BOND BOND U.S. MONEY
VALUE(3) VALUE AND INCOME BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
----------- ----------- ----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December
31:
1983............ $ 933.67 $ 936.73
1984............ 4,069.17 3,957.75
1985............ 7,915.14 7,149.73
1986............ 12,031.63 10,462.43
1987............ 15,032.03 13,972.07
1988............ 19,080.86 17,855.16
1989............ 24,307.16 22,349.99
1990............ 29,086.01 26,968.23
1991............ 37,278.97 31,341.38
1992............ 42,946.87 35,119.10
1993............ $ 1,962.25 $ 1,960.94 50,893.14 38,686.81
1994............ 4,765.49 $ 457.04 4,720.67 $ 463.83 $ 454.51 51,413.51 $ 464.01 42,724.89
1995............ 9,370.99 3,882.35 9,755.42 3,661.01 3,572.58 64,894.71 3,498.43 47,630.34
1996............ 14,003.89 8,119.41 14,612.30 7,362.17 7,062.81 70,085.93 6,455.26 52,457.79
1997............ 19,412.48 14,078.35 22,758.65 11,558.84 10,760.33 79,899.76 9,875.72 57,584.53
Annual Effective
Rate of Return. 14.01% 25.69% 21.02% 12.43% 7.81% 8.19% 2.40% 3.95%
</TABLE>
- -------
(1) For the Westpeak Growth and Income and Goldman Sachs Midcap Value 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, as of December 31, 1996 would be $11,000 and as of December 31,
1997 would be $14,000. 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, as of December 31, 1996 would be $8,000 and, as of
December 31, 1997 would be $11,000. 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, as of December 31, 1996 would be $6,500 and as
of December 31, 1997 would be $9,500.
(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.
(3) The Goldman Sachs Midcap Value Series' subadviser was Loomis, Sayles &
Company, L.P. until May 1, 1998, when Goldman Sachs Asset Management
became the subadviser.
As discussed in the prospectus in the section entitled "Investment
Experience Information", the Variable Account may illustrate historical
investment performance by showing the percentage change in unit value and the
annual effective rate of return of each sub-account of the Variable Account
for every calendar year since inception of the corresponding Eligible Funds to
the date of the illustration and for the ten, five and one year periods ending
with the date of the illustration. Examples of such illustrations follow. Such
illustrations do not reflect the impact of any Contingent Deferred Sales
Charge, premium tax charge, or the annual $30 Administration Contract Charge.
The method of calculating the percentage change in unit value is described in
the prospectus under "Investment Experience Information." The annual effective
rate of return in these illustrations is calculated by dividing the unit value
at the end of the period by the unit value at the beginning of the period,
raising this quantity to the power of 1/n (where n is the number of years in
the period), and then subtracting 1.
Set forth on the following pages are illustrations of the percentage change
in unit value information and annual effective rate of return information
discussed above that may appear in the Variable Account's Annual and Semi-
Annual Reports and in other illustrations of historical investment
performance. Such illustrations do not reflect the impact of any Contingent
Deferred Sales Charge, premium tax charge, or the annual Administration
Contract Charge.
LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
May 1, 1994.......................................... 1.000000
December 31, 1994.................................... 0.959097 -4.1%
December 31, 1995.................................... 1.219226 27.1%
December 31, 1996.................................... 1.571807 28.9%
December 31, 1997.................................... 1.936137 23.2%
</TABLE>
- -------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge, premium tax charge, or the annual Administration Contract Charge.
II-12
<PAGE>
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, 1997.............. 93.6% 19.7%
1 year ended December 31, 1997......................... 23.2% 23.2%
</TABLE>
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT**
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994...................................... 1.000000
December 31, 1994..................................... 1.023745 2.4%
December 31, 1995..................................... 1.073005 4.8%
December 31, 1996..................................... 1.129151 5.2%
December 31, 1997..................................... 1.099535 -2.6%
</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, 2 months ended December 31, 1997.............. 10.0% 3.0%
1 year ended December 31, 1997......................... -2.6% -2.6%
</TABLE>
EQUITY GROWTH SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994...................................... 1.000000
December 31, 1994..................................... 0.955891 -4.4%
December 31, 1995..................................... 1.402375 46.7%
December 31, 1996..................................... 1.565675 11.6%
December 31, 1997..................................... 1.940577 23.9%
</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, 2 months ended December 31, 1997.............. 94.1% 23.3%
1 year ended December 31, 1997......................... 23.9% 23.9%
</TABLE>
GOLDMAN SACHS MIDCAP VALUE SUB-ACCOUNT***
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
April 30, 1993........................................ 1.000000
December 31, 1993..................................... 1.137039 13.7%
December 31, 1994..................................... 1.118794 -1.6%
December 31, 1995..................................... 1.438865 28.6%
December 31, 1996..................................... 1.669358 16.0%
December 31, 1997..................................... 1.932280 15.7%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge, premium tax charge, or the annual 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.
*** The Goldman Sachs Midcap Value Series' subadviser was Loomis, Sayles &
Company, L.P. until May 1, 1998, when Goldman Sachs Asset Management became
the subadviser.
II-13
<PAGE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
4 years, 8 months ended December 31, 1997.............. 93.2% 15.1%
1 year ended December 31, 1997......................... 15.7% 15.7%
</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..................................... 0.962860 -3.7%
December 31, 1995..................................... 1.323183 37.4%
December 31, 1996..................................... 1.642613 24.1%
December 31, 1997..................................... 2.163463 31.7%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
3 years, 2 months ended December 31, 1997.............. 116.3% 27.6%
1 year ended December 31, 1997......................... 31.7% 31.7%
</TABLE>
WESTPEAK GROWTH AND INCOME SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
April 30, 1993........................................ 1.000000
December 31, 1993..................................... 1.132111 13.2%
December 31, 1994..................................... 1.103489 -2.5%
December 31, 1995..................................... 1.485762 34.6%
December 31, 1996..................................... 1.730922 16.5%
December 31, 1997..................................... 2.279329 31.7%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
4 years, 8 months ended December 31, 1997.............. 127.9% 19.3%
1 year ended December 31, 1997......................... 31.7% 31.7%
</TABLE>
LOOMIS SAYLES BALANCED SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994...................................... 1.000000
December 31, 1994..................................... 0.996791 -0.3%
December 31, 1995..................................... 1.227281 23.1%
December 31, 1996..................................... 1.415482 15.3%
December 31, 1997..................................... 1.622453 14.6%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge, premium tax charge, or the annual Administration Contract Charge.
II-14
<PAGE>
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, 2 months ended December 31, 1997.............. 62.2% 16.5%
1 year ended December 31, 1997......................... 14.6% 14.6%
</TABLE>
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994...................................... 1.000000
December 31, 1994..................................... 0.983850 -1.6%
December 31, 1995..................................... 1.158823 17.8%
December 31, 1996..................................... 1.307292 12.8%
December 31, 1997..................................... 1.432601 9.6%
</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, 2 months ended December 31, 1997.............. 43.3% 12.0%
1 year ended December 31, 1997......................... 9.6% 9.6%
</TABLE>
BACK BAY ADVISORS BOND INCOME SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
August 26, 1983....................................... 1.000000
December 31, 1983..................................... 1.027196 2.7%
December 31, 1984..................................... 1.141109 11.1%
December 31, 1985..................................... 1.337005 17.2%
December 31, 1986..................................... 1.514752 13.3%
December 31, 1987..................................... 1.528314 0.9%
December 31, 1988..................................... 1.633970 6.9%
December 31, 1989..................................... 1.810362 10.8%
December 31, 1990..................................... 1.930406 6.6%
December 31, 1991..................................... 2.246568 16.4%
December 31, 1992..................................... 2.397657 6.7%
December 31, 1993..................................... 2.663825 11.1%
December 31, 1994..................................... 2.539801 -4.7%
December 31, 1995..................................... 3.037039 19.6%
December 31, 1996..................................... 3.134109 3.2%
December 31, 1997..................................... 3.428788 9.4%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
14 years, 4 months ended December 31, 1997............. 242.9% 9.0%
10 years ended December 31, 1997....................... 124.4% 8.4%
5 years ended December 31, 1997........................ 43.0% 7.4%
1 year ended December 31, 1997......................... 9.4% 9.4%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge, premium tax charge, or the annual Administration Contract Charge.
II-15
<PAGE>
SALOMON BROTHERS U.S. GOVERNMENT SUB-ACCOUNT
ANNUAL PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
ACCUMULATION %
DATE UNIT VALUE CHANGE
---- ------------ ------
<S> <C> <C>
October 31, 1994...................................... 1.000000
December 31, 1994..................................... 1.003770 0.4%
December 31, 1995..................................... 1.139109 13.5%
December 31, 1996..................................... 1.160957 1.9%
December 31, 1997..................................... 1.242399 7.0%
</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, 2 months ended December 31, 1997.............. 24.2% 7.1%
1 year ended December 31, 1997......................... 7.0% 7.0%
</TABLE>
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..................................... 1.027165 2.7%
December 31, 1984..................................... 1.122053 9.2%
December 31, 1985..................................... 1.198477 6.8%
December 31, 1986..................................... 1.262853 5.4%
December 31, 1987..................................... 1.327245 5.1%
December 31, 1988..................................... 1.407892 6.1%
December 31, 1989..................................... 1.517621 7.8%
December 31, 1990..................................... 1.619846 6.7%
December 31, 1991..................................... 1.697425 4.8%
December 31, 1992..................................... 1.738206 2.4%
December 31, 1993..................................... 1.765866 1.6%
December 31, 1994..................................... 1.811432 2.6%
December 31, 1995..................................... 1.889065 4.3%
December 31, 1996..................................... 1.959126 3.7%
December 31, 1997..................................... 2.036045 3.9%
</TABLE>
PERCENT CHANGE IN UNIT VALUE AND ANNUAL EFFECTIVE RATE OF RETURN*
<TABLE>
<CAPTION>
% CHANGE ANNUAL
IN UNIT EFFECTIVE
VALUE RATE
-------- ---------
<S> <C> <C>
14 years, 4 months ended December 31, 1997............. 103.6% 5.1%
10 years ended December 31, 1997....................... 53.4% 4.4%
5 years ended December 31, 1997........................ 17.1% 3.2%
1 year ended December 31, 1997......................... 3.9% 3.9%
</TABLE>
- --------
* Unit values do not reflect the impact of any Contingent Deferred Sales
Charge, premium tax charge, or the annual 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
Administration Asset Charge and Mortality and Expense Risk Charge since the
close of regular trading on the New York Stock Exchange on the preceding
trading day. (See "Administration Charges, Contingent Deferred Sales Charge
and Other Deductions" in the prospectus.) On an annual basis, the total
deduction for such charges equals 1.35% of the daily net asset value of the
Variable Account.
ANNUITY PAYMENTS
At 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(s) selected.
When a variable annuity payment option is selected, the Contract proceeds
will be applied at annuity purchase rates, which vary depending on the
particular option selected and the age of the Payee, to calculate the basic
payment level purchased by the Contract Value. With respect to Contracts
issued in New York or Oregon for use in situations not involving an employer-
sponsored plan, annuity purchase rates used to calculate the basic payment
level will also reflect the sex of the Payee when the annuity payment option
involves a life contingency. The impact of the choice of option and the sex
and age of the Payee on the level of annuity payments is described in the
prospectus under "Amount of Variable Annuity Payments."
The amount of the basic payment level is determined by applying the
applicable annuity purchase rate to the amount applied from each sub-account
to provide the annuity. This basic payment level is converted into annuity
units, the number of which remains constant. Each monthly annuity payment is
in an amount equal to that number of annuity units multiplied by the
applicable annuity unit value for that payment (described below). The
applicable annuity unit value for each sub-account will change from day to day
depending upon the investment performance of the sub-account, which in turn
depends upon the investment performance of the Eligible Fund in which the sub-
account invests.
The selection of an assumed interest rate ("Assumed Interest Rate") will
affect both the basic payment level and the amount by which subsequent
payments increase or decrease. The basic payment level is calculated on the
assumption that the Net Investment Factors applicable to the Contract will be
equivalent on an annual basis to a net investment return at the Assumed
Interest Rate. If this assumption is met following the date any payment is
determined, then the amount of the next payment will be exactly equal to the
amount of the preceding payment. If the actual Net Investment Factors are
equivalent to a net investment return greater than the Assumed Interest Rate,
the next payment will be larger than the preceding one; if the actual Net
Investment Factors are equivalent to a net investment return smaller than the
Assumed Interest Rate, then the next payment will be smaller than the
preceding
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/or any outstanding loan plus
accrued interest, as described in the prospectus.)
(2) The number of annuity units is determined by dividing the amount of
the basic payment level by the applicable annuity unit value(s) next
determined following the date of application of proceeds.
The dollar amount of the initial payment will be at the basic payment level.
(If the initial payment is due more than 14 days after the proceeds are
applied, the Company will add interest to that initial payment.) The dollar
amount of each subsequent payment is determined by multiplying the number of
annuity units by the applicable annuity unit value which is determined at
least 14 days before the payment is due.
The value of an annuity unit for each sub-account depends on the Assumed
Interest Rate and on the Net Investment Factors applicable at the time of
valuation. The initial annuity unit values were set at $1.00 effective on or
about the date on which shares of the corresponding Eligible Funds were first
publicly available. The Net Investment Factor and, therefore, changes in the
value of an annuity unit under a variable payment option, reflect the
deduction of the Mortality and Expense Risk Charge and Administration Asset
Charge. (See "Net Investment Factor" above.)
The annuity unit value for each sub-account is equal to the corresponding
annuity unit value for the sub-account previously determined multiplied by the
applicable Net Investment Factor for that sub-account for the New York Stock
Exchange trading day then ended, and further multiplied by the assumed
interest factor ("Assumed Interest Factor") for each day of the valuation
period. The Assumed Interest Factor represents the daily equivalent of the
Contract's annual Assumed Interest Rate. In the calculation of annuity unit
values, the Assumed Interest Factor has the effect of reducing the Net
Investment Factor by an amount equal to the daily equivalent of the Contract's
Assumed Interest Rate. The result of this adjustment is that if the Net
Investment Factor for a valuation period is greater (when expressed as an
annual net investment return) than the Assumed Interest Rate, the annuity unit
value will increase. If the Net Investment Factor for the period is less (when
expressed as an annual net investment return) than the Assumed Interest Rate,
the annuity unit value will decrease. At an Assumed Interest Rate of 3.5%, the
Assumed Interest Factor is .9999058. Assumed Interest Factors for other
Assumed Interest Rates are computed on a consistent basis.
Illustrations of annuity income payments under various hypothetical and
historical rates appear in the tables below. The monthly equivalents of the
hypothetical annual net returns of 0%, 5.78%, 6%, 8% and 10% shown in the
tables at pages II-19 and II-20 are 0%, .5%, .5%, .6% and .8%.
HYPOTHETICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS
The following tables have been prepared to show how variable annuity income
payments under the Contract change with investment performance over an
extended period of time. The tables illustrate how monthly annuity income
payments would vary over time if the return on assets in the selected
portfolios were a uniform gross annual rate of 0%, 5.78%, 6%, 8% or 10%. The
values would be different from those shown if the returns averaged 0%, 5.78%,
6%, 8% or 10%, but fluctuated over and under those averages throughout the
years.
The tables reflect the daily charge to the sub-accounts for assuming
mortality and expense risks, which is equivalent to an annual charge of 1.25%
and the daily administrative charge which is equivalent to an annual charge of
0.10%. The amounts shown in the tables also take into account the portfolios'
management fees and operating
II-18
<PAGE>
expenses which are assumed to be at an annual rate of 0.83% 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 0.83%, will
vary from year to year, and will depend on how you allocate your Contract
Value. See the section in your current prospectus entitled "Expense Table" for
more complete details. The monthly annuity income payments illustrated are on
a pre-tax basis. The federal income tax treatment of annuity income
considerations is generally described in the section of your current
prospectus entitled "Federal Income Tax Status."
The tables show both the gross rate and the net rate. The difference between
gross and net rates represents the 1.35% for mortality and expense risk and
administrative charges and the assumed 0.83% for investment management and
operating expenses. Since these charges are deducted daily from assets, the
difference between the gross and net rate is not exactly 2.18%.
Three 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 with annuitization occurring within the first two
years. The third 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,
with annuitization occurring after the second year. Both illustrations assume
that the final value of the accumulation account is $100,000 and is applied at
age 65 to purchase a life annuity for a guaranteed period of 10 years certain
and life thereafter.
When part of the Contract Value has been allocated to the fixed annuity
income option, the guaranteed minimum annuity income payment resulting from
this allocation is also shown. The illustrated variable annuity income
payments are determined through the use of standard mortality tables and an
assumed interest rate of 3.5% per year. Thus, actual performance greater than
3.5% per year will result in increasing annuity income payments and actual
performance less than 3.5% per year will result in decreasing annuity income
payments. The Company offers alternative Assumed Interest Rates from which you
may select. Fixed annuity income payments remain constant. Initial monthly
annuity income payments under a fixed annuity income payout are generally
higher than initial payments under a variable income payout option.
These tables show the monthly income payments for several hypothetical
constant assumed interest rates. Of course, actual investment performance will
not be constant and may be volatile. Actual monthly income amounts would
differ from those shown if the actual rate of return averaged the rate shown
over a period of years, but also fluctuated above or below those averages for
individual contract years. Upon request, and when you are considering an
annuity income option, the Company will furnish a comparable illustration
based on your individual circumstances.
II-19
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 4/1/98
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME PAY- Monthly
MENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED WITHIN THE FIRST TWO YEARS: For age 65: $634.00
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED AFTER TWO YEARS: For age 65: $648.00
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: 3.5%
VARIABLE MONTHLY ANNUITY INCOME PAYMENT ON THE DATE OF THE
ILLUSTRATION: $581.00
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE. NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED.
<TABLE>
<CAPTION>
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN
WITH AN ASSUMED RATE OF RETURN OF:
----------------------------------------------
GROSS 0% 5.78% 6% 8% 10%
PAYMENT CALENDAR ----- ----------------------------------------------
YEAR YEAR AGE NET** 2.15% 3.50% 3.72% 5.67% 7.63%
- ------- -------- --- ----- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1998 65 $ 581.00 $ 581.00 $ 581.00 $ 581.00 $ 581.00
2 1999 66 549.26 581.00 582.21 593.20 604.19
3 2000 67 519.25 581.00 583.43 605.66 628.30
4 2001 68 490.88 581.00 584.65 618.38 653.37
5 2002 69 464.06 581.00 585.87 631.36 679.45
10 2007 74 350.41 581.00 592.02 700.49 826.28
15 2012 79 264.59 581.00 598.24 777.20 1,004.85
20 2017 84 199.79 581.00 604.52 862.30 1,222.02
</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 THE PERFORMANCE WILL
FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME (BASED ON THE VARIABLE ACCOUNT)
WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS
THAT THIS HYPOTHETICAL PERFORMANCE CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
- -------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period,
payments will be continued for the balance of the Certain Period. The
cumulative amount of income payments received under the annuity depends on
how long the Annuitant lives after the Certain Period. An annuity pools the
mortality experience of Annuitants. Annuitants who die earlier, in effect,
subsidize the payments for those who live longer.
** The illustrated Net Assumed Rates of Return reflect the deduction of
average fund expenses and the 1.35% Mortality and Expense Risk and
Administration Asset Charges from the Gross Rates of Return.
II-20
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION, ANNUITIZATION OCCURING WITHIN TWO YEARS
(50% VARIABLE--50% FIXED PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 4/1/98
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME PAY- Monthly
MENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT FOR AGE 65 BASED ON CURRENT RATES, IF
100% FIXED ANNUITY OPTION SELECTED: $634.00
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 50% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN CONSTANT: 3.5%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE, BUT WILL NEVER
BE LESS THAN: $317.00. THE MONTHLY GUARANTEED PAYMENT OF $317.00 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% 5.78% 6% 8% 10%
PAYMENT CALENDAR ----- ------------------- --------- --------- ---------
YEAR YEAR AGE NET** (2.15)% 3.50% 3.72% 5.67% 7.63%
- ------- -------- --- ----- ------------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1998 65 $ 607.50 $ 607.50 $ 607.50 $ 607.50 $ 607.50
2 1999 66 591.63 607.50 608.11 613.60 619.09
3 2000 67 576.62 607.50 608.72 619.83 631.15
4 2001 68 562.44 607.50 609.33 626.19 643.69
5 2002 69 549.03 607.50 609.94 632.68 656.72
10 2007 74 492.20 607.50 613.01 667.25 730.14
15 2012 79 449.29 607.50 616.12 705.60 819.43
20 2017 84 416.89 607.50 619.26 748.15 928.01
</TABLE>
IT IS EMPHASIZED THAT THE ASSUMED RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE.
ACTUAL PERFORMANCE RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY
THE CONTRACT OWNER AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED.
THE AMOUNT OF THE INCOME PAYMENT WOULD BE DIFFERENT FROM THAT SHOWN IF THE
ACTUAL PERFORMANCE AVERAGED THE ASSUMED RATES OF RETURN SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. SINCE IT IS HIGHLY LIKELY THAT THE PERFORMANCE WILL
FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME (BASED ON THE VARIABLE ACCOUNT)
WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS
THAT THIS HYPOTHETICAL PERFORMANCE CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
- -------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period,
payments will be continued for the balance of the Certain Period. The
cumulative amount of income payments received under the annuity depends on
how long the Annuitant lives after the Certain Period. An annuity pools the
mortality experience of Annuitants. Annuitants who die earlier, in effect,
subsidize the payments for those who live longer.
** The illustrated Net Assumed Rates of Return apply only to the variable
portion of the monthly payment and reflect the deduction of average fund
expenses and the 1.35% Mortality and Expense Risk and Administration Asset
Charges from the Gross Rate of Return.
II-21
<PAGE>
ANNUITY PAY-OUT ILLUSTRATION, ANNUITIZATION OCCURING AFTER TWO YEARS
(50% VARIABLE--50% FIXED PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 4/1/98
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME PAY- Monthly
MENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT FOR AGE 65 BASED ON CURRENT RATES, IF
100% FIXED ANNUITY OPTION SELECTED: $648.00
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 50% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN CONSTANT: 3.5%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE, BUT WILL NEVER
BE LESS THAN: $324.00. THE MONTHLY GUARANTEED PAYMENT OF $317.00 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% 5.78% 6% 8% 10%
PAYMENT CALENDAR ----- ------------------- --------- --------- ---------
YEAR YEAR AGE NET** (2.15)% 3.50% 3.72% 5.67% 7.63%
- ------- -------- --- ----- ------------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1998 65 $ 614.50 $ 614.50 $ 614.50 $ 614.50 $ 614.50
2 1999 66 598.63 614.50 615.11 620.60 626.09
3 2000 67 583.62 614.50 615.72 626.83 638.15
4 2001 68 569.44 614.50 616.33 633.19 650.69
5 2002 69 556.03 614.50 616.94 639.68 663.72
10 2007 74 499.20 614.50 620.01 674.25 737.14
15 2012 79 456.29 614.50 623.12 712.60 826.43
20 2017 84 423.89 614.50 626.26 755.15 935.01
</TABLE>
IT IS EMPHASIZED THAT THE ASSUMED RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE.
ACTUAL PERFORMANCE RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY
THE CONTRACT OWNER AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED.
THE AMOUNT OF THE INCOME PAYMENT WOULD BE DIFFERENT FROM THAT SHOWN IF THE
ACTUAL PERFORMANCE AVERAGED THE ASSUMED RATES OF RETURN SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. SINCE IT IS HIGHLY LIKELY THAT THE PERFORMANCE WILL
FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME (BASED ON THE VARIABLE ACCOUNT)
WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS
THAT THIS HYPOTHETICAL PERFORMANCE CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
- -------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period,
payments will be continued for the balance of the Certain Period. The
cumulative amount of income payments received under the annuity depends on
how long the Annuitant lives after the Certain Period. An annuity pools the
mortality experience of Annuitants. Annuitants who die earlier, in effect,
subsidize the payments for those who live longer.
** The illustrated Net Assumed Rates of Return apply only to the variable
portion of the monthly payment and reflect the deduction of average fund
expenses and the 1.35% Mortality and Expense Risk and Administration Asset
Charges from the Gross Rate of Return.
II-22
<PAGE>
HISTORICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS
The following tables have been prepared to show how variable annuity income
payments under the Contract change with investment performance over an
extended period of time. In comparison with hypothetical illustrations based
on a uniform annual rate of return, the table uses historical annual returns
to illustrate that monthly annuity income payments vary over time based on
fluctuations in annual returns.
The tables reflect the daily charge to the sub-accounts for assuming
mortality and expense risks, which is equivalent to an annual charge of 1.25%
and the daily administrative charge which is equivalent to an annual charge of
0.10%. The amounts shown in the tables also take into account the actual
portfolios' management fees and operating expenses. Actual fees and expenses
of the portfolios associated with your Contract may be more or less than the
historical fees, will vary from year to year, and will depend on how you
allocate your Contract Value. See the section in your current prospectus
entitled "Expense Table" for more complete details. The monthly annuity income
payments illustrated are on a pre-tax basis. The federal income tax treatment
of annuity income considerations is generally described in the section of your
current prospectus entitled "Federal Income Tax Status."
The following tables assume that 100% of the Contract Value is allocated to
a variable annuity income option, that the final value of the accumulation
account is $100,000 and is applied at age 65 to purchase a life annuity for a
guaranteed period of 10 years certain and life thereafter. The table assumes
that the Annuitant was age 65 in 1983, the year of inception for the Bond
Income and Money market portfolios, and that the Annuitant's age has increased
by the time the other portfolios became available. The historical variable
annuity income payments are based on an assumed interest rate of 3.5% per
year. Thus, actual performance greater than 3.5% per year resulted in an
increased annuity income payment and actual performance less than 3.5% per
year resulted in a decreased annuity income payment. We offer alternative
Assumed Interest Rates (AIR) from which you may select: 0% and 5%. An AIR of
0% will result in a lower initial payment than a 3.5% or 5% AIR. Similarly, an
AIR of 5% will result in a higher initial payment 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-23
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 4/1/98
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME PAY- Monthly
MENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED WITHIN THE FIRST TWO YEARS: FOR AGE 75: $767.00 AND
FOR AGE 76: $782.00.
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED AFTER TWO YEARS: FOR AGE 75: $783.00 AND FOR AGE 76:
$799.00.
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 100% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT.
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN CONSTANT:
3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE. NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED.
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN WITH
100% OF THE CONTRACT VALUE INVESTED IN:
<TABLE>
<CAPTION>
LOOMIS MORGAN GOLDMAN WESTPEAK
SAYLES STANLEY ALGER SACHS DAVIS GROWTH
PAYMENT CALENDAR SMALL INTERNATIONAL EQUITY MIDCAP VENTURE AND
YEAR YEAR AGE CAP MAGNUM GROWTH VALUE** VALUE INCOME
- ------- -------- --- --------- ------------- --------- --------- --------- ---------
<S> <C> <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 $ 747.00
12 1994 76 $ 765.00 $765.00 $ 765.00 829.98 $ 765.00 826.38
13 1995 77 733.73 778.70 737.42 789.05 732.39 778.25
14 1996 78 901.19 788.57 1,045.27 980.46 972.43 1,012.42
15 1997 79 1,122.40 801.70 1,127.42 1,098.95 1,166.26 1,139.48
16 1998 80 1,335.81 754.27 1,350.12 1,229.02 1,484.12 1,449.76
</TABLE>
INVESTMENT PERFORMANCE RESULTS CONTAINED IN THIS REPORT REPRESENT PAST
PERFORMANCE AND ARE NOT INDICATIVE OF FUTURE RETURNS. THE PERFORMANCE RESULTS
OF A CONTRACT MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE CONTRACT OWNER
AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED, SINCE IT IS HIGHLY
LIKELY THAT PERFORMANCE WILL FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME
(BASED ON THE VARIABLE ACCOUNT) WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE
MADE BY THE COMPANY OR THE FUNDS THAT THESE HISTORICAL RETURNS CAN BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
THE PAYMENTS IN THIS ILLUSTRATION ARE NET OF ALL CHARGES: MORTALITY AND
EXPENSE RISK CHARGE AND ADMINISTRATION ASSET CHARGE (1.35%), MANAGEMENT FEES
AND OTHER EXPENSES (These may vary from year to year. The following expenses
are for the year ended December 31, 1997, after giving effect to current
expense caps or deferrals: 1.00% Loomis Sayles Small Cap, 1.30% Morgan Stanley
International Magnum, 0.87% Alger Equity Growth, 0.85% Goldman Sachs Midcap
Value, 0.90% Davis Venture Value, 0.82% 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, 0.45% Back Bay Money Market.)
Effective May 1, 1998 the Goldman Sachs Midcap Value Series is subject to a
voluntary expense deferral arrangement with an annual expense limit of .90% of
net assets.
- -------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period,
payments will be continued for the balance of the Certain Period. The
cumulative amount of income payments received under the annuity depends on
how long the Annuitant lives after the Certain Period. An annuity pools the
mortality experience of Annuitants. Annuitants who die earlier, in effect,
subsidize the payments for those who live longer.
** Rates of return and Contract Values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998 the Series' advisory fee is .75%.
II-24
<PAGE>
ANNUITY PAY-OUT HISTORICAL ILLUSTRATION
(100% VARIABLE PAYOUT)
<TABLE>
<S> <C> <C> <C>
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE: $100,000
SEX: Unisex DATE OF ILLUSTRATION: 4/1/98
ANNUITY OPTION SELECTED: Life Income with 10 Years Certain*
FREQUENCY OF INCOME PAY- Monthly
MENTS:
</TABLE>
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED WITHIN THE FIRST TWO YEARS: FOR AGE 65: $634.00; FOR
AGE 75: $767.00 AND FOR AGE 76: $782.00.
FIXED MONTHLY ANNUITY INCOME PAYMENT BASED ON CURRENT RATES, IF 100% FIXED
ANNUITY OPTION SELECTED AFTER TWO YEARS: FOR AGE 65: $648.00; FOR AGE 75:
$783.00 AND FOR AGE 76: $799.00.
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 100% OF THE CONTRACT VALUE IS ALLOCATED
TO VARIABLE PAYOUT.
ASSUMED INTEREST RATE AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN CONSTANT:
3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE. NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED.
AMOUNT OF FIRST MONTHLY PAYMENT IN YEAR SHOWN WITH
100% OF THE CONTRACT VALUE INVESTED IN:
<TABLE>
<CAPTION>
SALOMON
LOOMIS STRATEGIC BACK BAY SALOMON BACK BAY
PAYMENT CALENDAR SAYLES BOND BOND U.S. MONEY
YEAR YEAR AGE BALANCED OPPORTUNITIES INCOME GOVERNMENT MARKET
- ------- -------- --- --------- ------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1983 65 $ 581.00 $581.00
2 1984 66 593.85 589.21
3 1985 67 637.34 621.82
4 1986 68 721.50 641.71
5 1987 69 789.77 653.31
6 1988 70 769.90 663.40
7 1989 71 795.21 679.85
8 1990 72 851.26 708.06
9 1991 73 877.02 730.20
10 1992 74 986.14 739.29
11 1993 75 1,016.77 731.38
12 1994 76 $ 765.00 $765.00 1,091.45 $765.00 717.90
13 1995 77 758.20 748.36 1,005.44 763.51 711.52
14 1996 78 901.95 851.64 1,161.63 837.15 716.92
15 1997 79 1,004.99 928.18 1,158.11 824.28 718.30
16 1998 80 1,112.99 982.75 1,224.15 852.27 721.25
</TABLE>
INVESTMENT PERFORMANCE RESULTS CONTAINED IN THIS REPORT REPRESENT PAST
PERFORMANCE AND ARE NOT INDICATIVE OF FUTURE RETURNS. THE PERFORMANCE RESULTS
OF A CONTRACT MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE CONTRACT OWNER
AND THE VARIOUS RATES OF RETURN OF THE PORTFOLIOS SELECTED, SINCE IT IS HIGHLY
LIKELY THAT PERFORMANCE WILL FLUCTUATE FROM MONTH TO MONTH, MONTHLY INCOME
(BASED ON THE VARIABLE ACCOUNT) WILL ALSO FLUCTUATE. NO REPRESENTATION CAN BE
MADE BY THE COMPANY OR THE FUNDS THAT THESE HISTORICAL RETURNS CAN BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
THE PAYMENTS IN THIS ILLUSTRATION ARE NET OF ALL CHARGES: MORTALITY AND
EXPENSE RISK CHARGE AND ADMINISTRATION ASSET CHARGE (1.35%), MANAGEMENT FEES
AND OTHER EXPENSES (These may vary from year to year. The following expenses
are for the year ended December 31, 1997, after giving effect to expense caps
or deferrals: 1.00% Loomis Sayles Small Cap, 1.30% Morgan Stanley
International Magnum, 0.87% Alger Equity Growth, 0.85% Goldman Sachs Midcap
Value, 0.90% Davis Venture Value, 0.82% 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, 0.45% Back Bay Money Market.)
Effective May 1, 1998 the Goldman Sachs Midcap Value Series is subject to a
voluntary expense deferral arrangement with an annual expense limit of .90% of
net assets.
- -------
* Income payments are made during the Annuitant's lifetime. If the Annuitant
dies before payments have been made for the 10 Year Certain Period,
payments will be continued for the balance of the Certain Period. The
cumulative amount of income payments received under the annuity depends on
how long the Annuitant lives after the Certain Period. An annuity pools the
mortality experience of Annuitants. Annuitants who die earlier, in effect,
subsidize the payments for those who live longer.
** Rates of return and Contract values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998 the Series' advisory fee is .75%.
II-25
<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 and December
31, 1997 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 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 (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 year ended December
31, 1995, 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.
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 LLP, Washington, D.C., have acted
as special counsel on certain matters relating to the Federal securities laws.
II-26
<PAGE>
APPENDIX A
ABC and affiliates Indianapolis Star San Jose Mercury
Atlanta Constitution Institutional Investor Seattle Post-
Atlanta Journal Investment Dealers Intelligencer
Austin American Digest Seattle Times
Statesman Investment Vision Smart Money
Baltimore Sun Investor's Daily St. Louis Post Dispatch
Barron's Journal of Commerce St. Petersburg Times
Bond Buyer Kansas City Star Standard & Poor's
Boston Business Journal LA Times Outlook
Boston Globe Leckey, Andrew Standard & Poor's Stock
Boston Herald (syndicated column) Guide
Broker World Life Association News Stanger's Investment
Business Radio Network Miami Herald Advisor
Business Week Milwaukee Sentinel Stockbroker's Register
CBS and affiliates Money Strategic Insight
CFO Money Maker Tampa Tribune
Changing Times Money Management Letter Time
Chicago Sun Times Morningstar Tobias, Andrew
Chicago Tribune National Public Radio (syndicated column)
Christian Science National Underwriter UPI
Monitor NBC and affiliates US News and World Report
Christian Science New England Business USA Today
Monitor News Service New England Cable News Value Line
Cincinnati Enquirer New Orleans Times- Wall St. Journal
Cincinnati Post Picayune Wall Street Letter
CNBC New York Daily News Wall Street Week
CNN New York Times Washington Post
Columbus Dispatch Newark Star Ledger WBZ
Dallas Morning News Newsday WBZ-TV
Dallas Times-Herald Newsweek WCVB-TV
Denver Post Nightly Business Report WEEI
Des Moines Register Orange County Register WHDH
Detroit Free Press Orlando Sentinel Worcester Telegram
Donoghues Money Fund Pension World Worth Magazine
Report Pensions and Investments WRKO
Dorfman, Dan (syndicated Personal Investor
column) Philadelphia Inquirer
Dow Jones News Service Porter, Sylvia
Economist (syndicated column)
FACS of the Week Portland Oregonian
Financial News Network Public Broadcasting
Financial Planning Service
Financial Services Week Quinn, Jane Bryant
Financial World (syndicated column)
Forbes Registered
Fort Worth Star-Telegram Representative
Fortune Research Magazine
Fox Network and Resource
affiliates Reuters
Fund Action Rukeyser's Business
Hartford Courant (syndicated column)
Houston Chronicle Sacramento Bee
INC San Francisco Chronicle
San Francisco Examiner
II-27
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT AUDITORS
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, 1997, and the
related statements of operations and changes in net assets for the twelve
months ended December 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material 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, 1997, and the results of
their operations and the changes in net assets for the twelve months ended
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 17, 1998
F-1
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments in New England Zenith Fund, at
value (Note 2)..............................
SHARES COST
---------- --------------
Back Bay Advisors
Bond Income
Series........... 247,325 $ 27,066,266
Back Bay Advisors
Money Market
Series........... 179,741 17,974,088
Loomis Sayles
Avanti Growth
Series........... 183,864 29,669,016
Westpeak Growth
and Income
Series........... 252,320 41,645,334
Loomis Sayles
Small Cap Series. 326,968 48,736,032
Salomon Brothers
U.S. Government
Series........... 954,895 10,606,355
Loomis Sayles
Balanced Series.. 3,765,551 51,022,152
Alger Equity
Growth Series.... 3,594,498 58,013,641
Morgan Stanley
International
Magnum Equity
Series........... 2,273,617 25,467,235
Davis Venture
Value Series..... 4,139,394 70,081,860
Solomon Brothers
Strategic Bond
Opportunities
Series........... 2,873,726 34,227,075
--------------
Total............ $ 414,509,054
==============
Amount due and accrued from
contract-related
transactions, net............
Dividends receivable.........
TOTAL ASSETS.........
LIABILITIES
Due to (from) New England
Life Insurance Company.......
NET ASSETS
Net Assets consist of:
Net Assets attributable to
Variable Annuity
Contracts....................
Annuity Reserves (Note 7)....
TOTAL NET ASSETS.....
<CAPTION>
-------------------------------------------------------------------------------------------------
BOND MONEY AVANTI GROWTH AND SMALL U.S. EQUITY
INCOME MARKET GROWTH INCOME CAP GOVERNMENT BALANCED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New
England Zenith Fund,
at value
(Note 2)......... $26,837,199 $17,974,088 $31,365,400 $45,409,964 $51,961,757 $10,627,983 $55,956,082 $63,335,055
Back Bay Advisors
Bond Income
Series...........
Back Bay Advisors
Money Market
Series...........
Loomis Sayles
Avanti Growth
Series...........
Westpeak Growth
and Income
Series...........
Loomis Sayles
Small Cap Series.
Salomon Brothers
U.S. Government
Series...........
Loomis Sayles
Balanced Series..
Alger Equity
Growth Series....
Morgan Stanley
International
Magnum Equity
Series...........
Davis Venture
Value Series.....
Solomon Brothers
Strategic Bond
Opportunities
Series...........
Total............
Amount due and accrued from
contract-related
transactions, net............ 131,882 141,693 91,737 154,813 208,618 4,971 316,322 152,279
Dividends receivable......... -- 83,229 -- -- -- -- -- --
------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS......... 26,969,081 18,199,010 31,457,137 45,564,777 52,170,375 10,632,954 56,272,404 63,487,334
LIABILITIES
Due to (from) New England
Life Insurance Company....... (8,486) 30,130 (16,967) (118,819) 88,945 9,698 90,193 61,299
------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS $26,977,567 $18,168,880 $31,474,104 $45,683,596 $52,081,430 $10,623,256 $56,182,211 $63,426,035
============ =========== =========== =========== =========== =========== =========== ===========
Net Assets consist of:
Net Assets attributable to
Variable Annuity
Contracts.................... $26,042,398 $17,910,620 $30,668,885 $42,482,915 $51,209,887 $10,369,656 $54,558,995 $62,648,691
Annuity Reserves (Note 7).... 935,169 258,260 805,219 3,200,681 871,543 253,600 1,623,216 777,344
------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL NET ASSETS..... $26,977,567 $18,168,880 $31,474,104 $45,683,596 $52,081,430 $10,623,256 $56,182,211 $63,426,035
============ =========== =========== =========== =========== =========== =========== ===========
<CAPTION>
----------------------------------------------------
INTERNATIONAL VENTURE BOND
EQUITY VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in New
England Zenith Fund,
at value
(Note 2)......... $24,691,485 $86,099,383 $34,513,448 $448,771,844
Back Bay Advisors
Bond Income
Series...........
Back Bay Advisors
Money Market
Series...........
Loomis Sayles
Avanti Growth
Series...........
Westpeak Growth
and Income
Series...........
Loomis Sayles
Small Cap Series.
Salomon Brothers
U.S. Government
Series...........
Loomis Sayles
Balanced Series..
Alger Equity
Growth Series....
Morgan Stanley
International
Magnum Equity
Series...........
Davis Venture
Value Series.....
Solomon Brothers
Strategic Bond
Opportunities
Series...........
Total............
Amount due and accrued from
contract-related
transactions, net............ 78,406 224,873 79,872 1,585,466
Dividends receivable......... -- -- -- 83,229
----------- ----------- ----------- ------------
TOTAL ASSETS......... 24,769,891 86,324,256 34,593,320 450,440,539
LIABILITIES
Due to (from) New England Life
Insurance Company............ (44,237) 223,486 (82,976) 232,266
----------- ----------- ----------- ------------
NET ASSETS $24,814,128 $86,100,770 $34,676,296 $450,208,273
=========== =========== =========== ============
Net Assets consist of:
Net Assets attributable to
Variable Annuity
Contracts.................... $24,261,165 $84,555,420 $33,384,179 $438,092,811
Annuity Reserves (Note 7).... 552,963 1,545,350 1,292,117 12,115,462
----------- ----------- ----------- ------------
TOTAL NET ASSETS..... $24,814,128 $86,100,770 $34,676,296 $450,208,273
=========== =========== =========== ============
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
BOND MONEY AVANTI GROWTH AND SMALL U.S. EQUITY INTERNATIONAL
INCOME MARKET GROWTH INCOME CAP GOVERNMENT BALANCED GROWTH EQUITY
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------- -------- ---------- ---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends........ $1,945,217 $976,275 $2,407,620 $4,798,541 $5,930,573 $550,466 $3,047,021 $6,117,169 $ 621,097
EXPENSES
Mortality,
expense risk and
administrative
charges
(Note 3)......... 273,001 256,711 338,700 426,698 501,429 110,575 571,695 661,841 278,858
---------- -------- ---------- ---------- ---------- -------- ---------- ---------- -----------
Net investment
income........... 1,672,216 719,564 2,068,920 4,371,843 5,429,144 439,891 2,475,326 5,455,328 342,239
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
year............ (388,420) -- 365,848 534,754 1,485,276 (92,485) 1,957,461 2,073,762 368,493
End of year..... (229,067) -- 1,696,384 3,764,630 3,225,725 21,628 4,933,930 5,321,414 (775,750)
---------- -------- ---------- ---------- ---------- -------- ---------- ---------- -----------
Net change in
unrealized
appreciation
(depreciation)... 159,353 -- 1,330,536 3,229,876 1,740,449 114,113 2,976,469 3,247,652 (1,144,243)
Net realized gain
(loss) on
investments...... 234 -- 2,229 1,645 567 85 700 465 117
---------- -------- ---------- ---------- ---------- -------- ---------- ---------- -----------
Net realized and
unrealized gain
(loss) on
investments...... 159,587 -- 1,332,765 3,231,521 1,741,016 114,198 2,977,169 3,248,117 (1,144,126)
---------- -------- ---------- ---------- ---------- -------- ---------- ---------- -----------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $1,831,803 $719,564 $3,401,685 $7,603,364 $7,170,160 $554,089 $5,452,495 $8,703,445 $ (801,887)
========== ======== ========== ========== ========== ======== ========== ========== ===========
<CAPTION>
BOND
VENTURE OPPORTUNITIES
VALUE SUB-
SUB-ACCOUNT ACCOUNT TOTAL
------------ ------------- -----------
<S> <C> <C> <C>
INCOME
Dividends........ $ 2,640,935 $2,382,489 $31,417,403
EXPENSES
Mortality,
expense risk and
administrative
charges
(Note 3)......... 816,066 347,454 4,583,028
------------ ------------- -----------
Net investment
income........... 1,824,869 2,035,035 26,834,375
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
year............ 3,645,390 45,311 9,995,390
End of year..... 16,017,523 286,373 34,262,790
------------ ------------- -----------
Net change in
unrealized
appreciation
(depreciation)... 12,372,133 241,062 24,267,400
Net realized gain
(loss) on
investments...... (34) (71) 5,937
------------ ------------- -----------
Net realized and
unrealized gain
(loss) on
investments...... 12,372,099 240,991 24,273,337
------------ ------------- -----------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $14,196,968 $2,276,026 $51,107,712
============ ============= ===========
</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. EQUITY
INCOME MARKET GROWTH INCOME CAP GOVERNMENT BALANCED GROWTH INTERNATIONAL
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- EQUITY
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT SUB-ACCOUNT
--------- -------- ---------- ---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <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 $ 49,135 $217,097
EXPENSES
Mortality,
expense risk and
administrative
charges
(Note 3)......... 117,696 139,034 106,974 128,321 124,297 55,834 173,854 213,057 111,065
--------- -------- ---------- ---------- ---------- -------- ---------- ---------- --------
Net investment
income (loss).... 878,922 445,542 689,895 1,357,873 1,111,803 258,741 516,373 (163,922) 106,032
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
year............ (56,238) -- (20,804) 83,206 92,761 6,856 85,201 20,459 64,159
End of year..... (388,420) -- 365,848 534,754 1,485,276 (92,485) 1,957,461 2,073,762 368,493
--------- -------- ---------- ---------- ---------- -------- ---------- ---------- --------
Net change in
unrealized
appreciation
(depreciation)... (332,182) -- 386,652 451,548 1,392,515 (99,341) 1,872,260 2,053,303 304,334
Net realized gain
(loss) on
investments...... (73) -- 56 172 202 1,012 72 (131) 804
--------- -------- ---------- ---------- ---------- -------- ---------- ---------- --------
Net realized and
unrealized gain
(loss) on
investments...... (332,255) -- 386,708 451,720 1,392,717 (98,329) 1,872,332 2,053,172 305,138
--------- -------- ---------- ---------- ---------- -------- ---------- ---------- --------
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 $1,889,250 $411,170
========= ======== ========== ========== ========== ======== ========== ========== ========
<CAPTION>
VENTURE
VALUE BOND
SUB- OPPORTUNITIES
ACCOUNT SUB-ACCOUNT TOTAL
---------- ------------- -----------
<S> <C> <C> <C>
INCOME
Dividends........ $ 679,955 $891,674 $ 7,943,020
EXPENSES
Mortality,
expense risk and
administrative
charges
(Note 3)......... 204,628 92,995 1,467,755
---------- ------------- -----------
Net investment
income (loss).... 475,327 798,679 6,475,265
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of
year............ 179,424 (56,229) 398,795
End of year..... 3,645,390 45,311 9,995,390
---------- ------------- -----------
Net change in
unrealized
appreciation
(depreciation)... 3,465,966 101,540 9,596,595
Net realized gain
(loss) on
investments...... 440 705 3,259
---------- ------------- -----------
Net realized and
unrealized gain
(loss) on
investments...... 3,466,406 102,245 9,599,854
---------- ------------- -----------
NET INCREASE IN
NET ASSETS
RESULTING FROM
OPERATIONS........ $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 CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
BOND MONEY AVANTI GROWTH AND SMALL U.S. EQUITY
INCOME MARKET GROWTH INCOME CAP GOVERNMENT BALANCED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income.......... $ 1,672,216 $ 719,564 $ 2,068,920 $ 4,371,843 $ 5,429,144 $ 439,891 $ 2,475,326 $ 5,455,328
Net realized and
unrealized gain
(loss) on
investments..... 159,587 -- 1,332,765 3,231,521 1,741,016 114,198 2,977,169 3,248,117
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase
(decrease) in
net assets
resulting from
operations...... 1,831,803 719,564 3,401,685 7,603,364 7,170,160 554,089 5,452,495 8,703,445
FROM CONTRACT-
RELATED
TRANSACTIONS
Purchase
payments
transferred from
New England Life
Insurance
Company......... 11,236,642 33,271,900 12,535,013 20,020,290 21,326,402 3,841,692 26,180,743 23,395,987
Net transfers
(to) from other
sub-accounts.... 936,254 (32,091,801) 1,384,330 4,744,804 6,042,290 259,045 2,443,590 4,307,055
Net transfers to
New England Life
Insurance
Company......... (1,406,131) (1,866,995) (1,008,921) (3,176,042) (1,565,170) (430,245) (2,461,194) (2,018,944)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
contract-related
transactions.... 10,766,765 (686,896) 12,910,422 21,589,052 25,803,522 3,670,492 26,163,139 25,684,098
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE IN
NET ASSETS....... 12,598,568 32,668 16,312,107 29,192,416 32,973,682 4,224,581 31,615,634 34,387,543
NET ASSETS, AT
BEGINNING OF THE
YEAR............. 14,378,999 18,136,212 15,161,997 16,491,180 19,107,748 6,398,675 24,566,577 29,038,492
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS, AT
END OF THE YEAR.. $26,977,567 $18,168,880 $31,474,104 $45,683,596 $52,081,430 $10,623,256 $56,182,211 $63,426,035
=========== =========== =========== =========== =========== =========== =========== ===========
<CAPTION>
INTERNATIONAL VENTURE BOND
EQUITY VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income.......... $ 342,239 $ 1,824,869 $ 2,035,035 $ 26,834,375
Net realized and
unrealized gain
(loss) on
investments..... (1,144,126) 12,372,099 240,991 24,273,337
------------- ------------ ------------- -------------
Net increase
(decrease) in
net assets
resulting from
operations...... (801,887) 14,196,968 2,276,026 51,107,712
FROM CONTRACT-
RELATED
TRANSACTIONS
Purchase
payments
transferred from
New England Life
Insurance
Company......... 11,037,821 36,720,286 17,465,416 217,032,192
Net transfers
(to) from other
sub-accounts.... 938,157 8,959,499 2,076,777 --
Net transfers to
New England Life
Insurance
Company......... (923,740) (2,986,228) (1,713,411) (19,557,021)
------------- ------------ ------------- -------------
Net Increase
(decrease) in
net assets
resulting from
contract-related
transactions.... 11,052,238 42,693,557 17,828,782 197,475,171
------------- ------------ ------------- -------------
NET INCREASE IN
NET ASSETS....... 10,250,351 56,890,525 20,104,808 248,582,883
NET ASSETS, AT
BEGINNING OF THE
YEAR............. 14,563,777 29,210,245 14,571,488 201,625,390
------------- ------------ ------------- -------------
NET ASSETS, AT
END OF THE YEAR.. $24,814,128 $86,100,770 $34,676,296 $450,208,273
============= ============ ============= =============
</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>
------------------------------------------------------------------------------------------------------
U.S.
BOND MONEY AVANTI GROWTH AND SMALL GOVERNMENT EQUITY
INCOME MARKET GROWTH INCOME CAP SUB- BALANCED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <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 $ 516,373 ($163,922)
Net realized and
unrealized gain
(loss) on
investments..... (332,255) -- 386,708 451,720 1,392,717 (98,329) 1,872,332 2,053,172
----------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
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 1,889,250
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 16,027,105 19,491,589
Net transfers
(to) from other
sub-accounts..... 308,694 (16,711,897) 1,607,239 1,390,946 1,878,952 62,147 2,053,141 2,962,775
Net transfers
(to) from New
England Life
Insurance
Company.......... (489,973) (975,438) (430,695) (957,156) (547,400) (469,227) (623,930) (789,579)
----------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
Net increase in
net assets
resulting from
contract-related
transactions.... 9,887,447 12,477,842 11,194,098 10,394,839 13,644,666 3,821,307 17,456,316 21,664,785
----------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
NET INCREASE IN
NET ASSETS....... 10,434,114 12,923,384 12,270,701 12,204,432 16,149,186 3,981,719 19,845,021 23,554,035
NET ASSETS, AT
BEGINNING OF THE
YEAR............. 3,944,885 5,212,828 2,891,296 4,286,748 2,958,562 2,416,956 4,721,556 5,484,457
----------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
NET ASSETS, AT
END OF THE YEAR.. $14,378,999 $18,136,212 $15,161,997 $16,491,180 $19,107,748 $6,398,675 $24,566,577 $29,038,492
=========== =========== =========== =========== =========== ========== =========== ===========
<CAPTION>
INTERNATIONAL VENTURE BOND
EQUITY VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss).... $ 106,032 $ 475,327 $ 798,679 $ 6,475,265
Net realized and
unrealized gain
(loss) on
investments..... 305,138 3,466,406 102,245 9,599,854
------------- ------------ ------------- -------------
Net increase in
net assets
resulting from
operations...... 411,170 3,941,733 900,924 16,075,119
FROM CONTRACT-
RELATED
TRANSACTIONS
Purchase payments
transferred from
New England Life
Insurance
Company.......... 9,804,736 18,465,880 10,298,058 150,841,375
Net transfers
(to) from other
sub-accounts..... 1,727,240 2,832,686 1,888,077 --
Net transfers
(to) from New
England Life
Insurance
Company.......... (569,779) (1,055,952) (804,697) (7,713,826)
------------- ------------ ------------- -------------
Net increase in
net assets
resulting from
contract-related
transactions.... 10,962,197 20,242,614 11,381,438 143,127,549
------------- ------------ ------------- -------------
NET INCREASE IN
NET ASSETS....... 11,373,367 24,184,347 12,282,362 159,202,668
NET ASSETS, AT
BEGINNING OF THE
YEAR............. 3,190,410 5,025,898 2,289,126 42,422,722
------------- ------------ ------------- -------------
NET ASSETS, AT
END OF THE YEAR.. $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
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-7
<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 contract 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 Bond
Income TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Money
Market TNE Advisers, Inc. Back Bay Advisors, L.P.*
Westpeak Growth and
Income TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Loomis Sayles Avanti
Growth TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Morgan Stanley TNE Advisers, Inc. Morgan Stanley Asset Management Inc.
International Magnum
Equity Series
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.(a)
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
Salomon Brothers U.S.
Government TNE Advisers, Inc. Salomon Brothers Asset Management Inc
Salomon Brothers TNE Advisers, Inc. Salomon Brothers Asset Management Inc(b)
Strategic Bond
Opportunities
</TABLE>
- --------
* An affiliate of NELICO
(a) Davis Selected Advisers, L.P. may also delegate any of its
responsibilities to Davis Selected Advisers-NY, Inc. a wholly-owned
subsidiary of Davis Selected Advisers, L.P.
(b) In connection with Solomon Brothers Asset Management Inc's service as
subadviser to the Strategic Bond Opportunities Series, Solomon Brothers
Asset Management Inc's London based affiliate, Solomon Brothers Asset
Management Limited provides certain subadvisory services to Solomon
Brothers Asset Management Inc.
Effective May 1, 1997 the Draycott International Equity Series was renamed the
Morgan Stanley International Magnum Equity Series and a new Sub-Advisory
agreement between TNE Advisers, Inc. and Morgan Stanley Asset Management Inc.
went into effect replacing the prior agreement between TNE Advisers, Inc. and
Draycott Partners Ltd.
F-8
<PAGE>
NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
On January 28, 1998 the Zenith Fund's Board of Trustees approved new advisory
and subadvisory agreements (the "New Agreements") relating to the Loomis
Sayles Avanti Growth Series between TNE Advisers, Inc. and the Zenith Fund on
behalf of the Series, and between TNE Advisers, Inc. and Goldman Sachs Asset
Management ("Goldman Sachs"), respectively. The New Agreements, which are
subject to shareholder approval, are expected to become effective on or about
May 1, 1998. Under the New Agreements, Goldman Sachs would become the
subadvisor of the Series, succeeding Loomis Sayles & Company, L.P., and would
become responsible for the day-to-day management of the Series' investment
operations under the oversight of TNE Advisers, Inc. Accordingly, the name of
the Series would be changed to the "Goldman Sachs Midcap Value Series" at the
time the New Agreements take effect. Goldman Sachs is a separate operating
division of Goldman, Sachs & Co., a privately-owned global financial services
company.
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, 1997:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Back Bay Advisors Bond Income Series $16,841,907 $ 4,349,249
Back Bay Advisors Money Market Series 48,685,335 48,970,324
Westpeak Growth and Income Series 33,233,707 7,534,134
Loomis Sayles Avanti Growth Series 20,301,291 5,362,826
Loomis Sayles Small Cap Series 37,778,826 6,600,835
Loomis Sayles Balanced Series 37,134,670 8,695,188
Morgan Stanley International Magnum Equity Series 17,187,373 5,848,475
Davis Venture Value Series 55,094,472 10,493,506
Alger Equity Growth Series 39,728,632 8,594,154
Salomon Brothers U.S. Government Series 6,432,752 2,290,291
Salomon Brothers Strategic Bond Opportunities
Series 26,804,707 7,095,236
</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. For contracts payable on or after January 1, 1998 annuity
reserves will be computed according to the Annuity 2000 Mortality Tables.
F-9
<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, 1997:
<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
12/31/96................ 4,587,906.5882 9,257,297.7125 9,082,531.9506 9,527,396.1743 12,156,548.3743 5,511,551.9895
Units Purchased......... 3,916,068.5631 14,956,260.5578 8,525,396.2900 11,653,129.7279 16,140,136.9031 3,969,281.2671
Units Redeemed.......... 636,015.0558 15,289,943.9985 1,319,345.0539 1,137,962.5425 1,397,023.7503 930,233.5378
--------------- --------------- --------------- --------------- --------------- --------------
Units Outstanding
12/31/97................ 7,867,960.0955 8,923,614.2718 16,288,583.1867 20,042,563.3597 26,899,661.5271 8,550,599.7188
=============== =============== =============== =============== =============== ==============
Unit Value 12/31/97..... 3.428788 2.036045 1.932280 2.279329 1.936137 1.242399
=============== =============== =============== =============== =============== ==============
<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
12/31/96................ 17,355,626.7971 18,546,947.2516 12,897,988.9760 17,782,791.6006 11,146,314.4768
Units Purchased......... 19,437,082.4699 15,656,144.5554 11,248,885.8471 23,868,861.2391 14,867,651.3746
Units Redeemed.......... 2,164,765.8566 1,518,980.2309 1,579,036.1913 1,853,990.5224 1,808,834.3458
--------------- --------------- --------------- --------------- ---------------
Units Outstanding
12/31/97................ 34,627,943.4104 32,684,111.5761 22,567,838.6318 39,797,662.3173 24,205,131.5056
=============== =============== =============== =============== ===============
Unit Value 12/31/97..... 1.622453 1.940577 1.099535 2.163463 1.432601
=============== =============== =============== =============== ===============
</TABLE>
F-10
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of New England
Life Insurance Company (formerly New England Variable Life Insurance Company)
and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such 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, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
In 1996, as discussed in Note 1 to the financial statements, the Company (1)
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) reflected the effects of the changes in
corporate organizations.
The consolidated statements of earnings, equity, and cash flows for the period
ended December 31, 1995 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
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 17, 1998
Boston, Massachusetts
N-1
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES 1997 1996
----- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed Maturities:
Available for Sale, at Estimated Fair Value...... 2,11 $ 734,391 $ 524,285
Held to Maturity, at Amortized Cost.............. 2 -- 29,666
Equity Securities................................. 2,11 9,399 --
Policy Loans...................................... 11 104,783 76,263
Real Estate....................................... 2,757 1,702
Short-Term Investments............................ 11 27,944 156,560
Other Invested Assets............................. 24,349 12,956
---------- ----------
Total Investments.............................. 903,623 801,432
Cash and Cash Equivalents.......................... 11 74,148 49,147
Deferred Policy Acquisition Costs.................. 565,769 434,637
Accrued Investment Income.......................... 18,712 13,713
Premiums and Other Receivables..................... 4 63,036 5,941
Other Assets....................................... 62,326 95,106
Separate Account Assets............................ 1,988,225 1,206,959
---------- ----------
TOTAL ASSETS................................... $3,675,839 $2,606,935
========== ==========
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits............................. 4 $ 500,429 $ 464,889
Policyholder Account Balances...................... 4,11 240,411 181,594
Other Policyholder Funds........................... 11 8,380 2,071
Policyholder Dividends Payable..................... 14,719 9,018
Short and Long-Term Debt........................... 8,11 85,981 84,057
Income Taxes Payable: 5
Current........................................... 9,102 6,272
Deferred.......................................... 42,066 39,463
Due to Parent...................................... 107,337 40,225
Other Liabilities.................................. 45,647 21,965
Separate Account Liabilities....................... 1,988,225 1,206,959
---------- ----------
TOTAL LIABILITIES.............................. 3,042,297 2,056,513
---------- ----------
Commitments and Contingencies (Notes 2, 4, 8 and 9)
EQUITY
Common Stock, $125.00 par value; 50,000 shares
authorized, 20,000 shares issued and outstanding.. 2,500 2,500
Contributed Capital................................ 545,477 497,946
Retained Earnings.................................. 68,218 46,249
Net Unrealized Investment Gains.................... 3 17,347 3,727
---------- ----------
TOTAL EQUITY................................... 12 633,542 550,422
---------- ----------
TOTAL LIABILITIES AND EQUITY....................... $3,675,839 $2,606,935
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
N-2
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Premiums...................................... 4 $ 63,616 $ 37,410 $ 38,566
Universal Life and Investment-Type Product
Policy Fee Income............................ 145,157 101,756 79,371
Net Investment Income......................... 3 61,059 49,628 41,815
Investment Gains (Losses), Net................ 3 890 8,822 10,514
Commissions, Fees and Other Income............ 28,302 44,930 34,555
-------- -------- --------
TOTAL REVENUES.............................. 299,024 242,546 204,821
-------- -------- --------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits......................... 4 100,180 65,520 55,810
Interest Credited to Policyholder Account
Balances..................................... 6,220 5,558 2,564
Policyholder Dividends........................ 21,325 14,830 13,954
Other Operating Costs and Expenses............ 10 144,342 143,886 99,424
-------- -------- --------
TOTAL BENEFITS AND OTHER DEDUCTIONS......... 272,067 229,794 171,752
-------- -------- --------
Earnings from Operations before Income Taxes.. 26,957 12,752 33,069
Income Taxes.................................. 5 4,988 3,051 12,303
-------- -------- --------
NET EARNINGS.................................. $ 21,969 $ 9,701 $ 20,766
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
N-3
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EQUITY
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK & NET UNREALIZED
CONTRIBUTED RETAINED INVESTMENT
CAPITAL EARNINGS GAINS (LOSSES) TOTAL
----------- -------- -------------- --------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994.... 228,057 15,782 (670) 243,169
Net Earnings..................... 20,766 20,766
Change in Net Unrealized Invest-
ment Gains (Losses)............. 27,026 27,026
Contributed Capital.............. 63,543 63,543
-------- ------- -------- --------
BALANCES AT DECEMBER 31, 1995.... 291,600 36,548 26,356 354,504
Net Earnings..................... 9,701 9,701
Change in Net Unrealized Invest-
ment Gains (Losses)............. (22,629) (22,629)
Contributed Capital.............. 208,846 208,846
-------- ------- -------- --------
BALANCES AT DECEMBER 31, 1996.... 500,446 46,249 3,727 550,422
Net Earnings..................... 21,969 21,969
Change in Net Unrealized Invest-
ment Gains (Losses)............. 13,620 13,620
Contributed Capital.............. 47,531 47,531
-------- ------- -------- --------
BALANCES AT DECEMBER 31, 1997.... $547,977 $68,218 $ 17,347 $633,542
======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
N-4
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES......... $(121,838) $ (85,674) $(111,834)
--------- --------- ---------
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Available for Sale Fixed Maturities.......... 178,003 276,420 538,297
Held to Maturity Fixed Maturities............ -- 10,519 625
Mortgage Loans on Real Estate................ -- 2,210 12
Other, Net................................... 128 -- --
Purchases of:
Available for Sale Fixed Maturities.......... (326,059) (259,713) (983,518)
Real Estate.................................. -- (480) --
Fixed Asset Property and Equipment........... (101) (3,786) --
Other Assets................................. -- (11,024) (15)
Net Change in Short-Term Investments......... 128,616 (135,731) 379,325
Net Change in Policy Loans................... (28,520) (18,052) (14,243)
Other, Net................................... 177 67 (114)
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES......... (47,756) (139,570) (79,631)
--------- --------- ---------
Cash Flows from Financing Activities:
Common Stock
Capital Contributions........................ 46,681 159,162 9,515
Borrowed Money............................... (3,181) -- 25,000
Policyholder Account Balances
Deposits..................................... 244,338 482,552 281,762
Withdrawals.................................. (95,066) (364,933) (148,403)
Financial Reinsurance Receivables............ 1,823 (37,519) --
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES..... 194,595 239,262 167,874
--------- --------- ---------
Change in Cash and Cash Equivalents........... 25,001 14,018 (23,591)
Cash and Cash Equivalents, Beginning of Year.. 49,147 35,129 58,720
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR........ $ 74,148 $ 49,147 $ 35,129
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid................................ $ 1,495 $ 1,523 $ 1,277
========= ========= =========
Income Taxes Paid............................ $ 5,470 $ 4,721 $ 6,765
========= ========= =========
NET EARNINGS.................................. 21,969 9,701 20,766
Adjustments to Reconcile Net Earnings to Net
Cash Provided by (Used in) Operating
Activities:
Change in Deferred Policy Acquisition Costs,
Net......................................... (140,578) (68,626) (45,823)
Change in Accrued Investment Income.......... (4,999) 909 (11,507)
Change in Premiums and Other Receivables..... (57,095) 4,370 (4,073)
Gains from Sales of Investments, Net......... (890) (15,979) (21,980)
Depreciation and Amortization Expenses....... 10,085 4,120 5,725
Interest Credited to Policyholder Account
Balances.................................... 6,220 5,558 2,565
Universal Life and Investment-Type Product
Policy Fee Income........................... -- (101,756) (79,371)
Change in Future Policy Benefits............. 35,540 18,202 14,539
Change in Other Policyholder Funds........... 6,309 (283) 1,789
Change in Policyholder Dividends Payable..... 5,701 1,671 114
Change in Income Taxes Payable............... 1,674 (6,634) 10,211
Other, Net................................... (5,774) 63,073 (4,789)
--------- --------- ---------
NET CASH USED BY OPERATING ACTIVITIES......... $(121,838) $ (85,674) $(111,834)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
N-5
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
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. The Company also provides participating
traditional life insurance, annuity contracts, pension products, as well as,
group life, group medical, and group disability coverage.
Prior to the merger of New England Mutual Life Insurance Company (NEMLICO)
with MetLife on August 30, 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 of 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 $208,846 consisting of
$129,254 of cash and $79,592 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 in cash. MetLife made an
additional statutory capital contribution to NELICO of $50,000 in cash during
1997, which was offset by $2,469 of returned capital.
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. On February 28, 1997, NELICO created and
became the sole owner of New England Life Holdings, Inc. which was established
as a holding company for the non-insurance operations of the Company,
principally, New England Securities and TNE Advisers, Inc. 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.
N-6
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
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 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 each claim,
$1,000 annual aggregate each insured, $3,500, $3,500 and $3,000 annual
aggregate all insured in 1997, 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 cumulative effect of such
adoption of all applicable authoritative GAAP pronouncements as of January 1,
1994 was reflected in the financial statements of NELICO as an adjustment of
equity at January 1, 1994.
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
$105, net of deferred income taxes and adjustments of deferred policy
acquisition costs and future policy benefits.
Effective July 1, 1997, management realigned its fixed maturity investment
classifications and transferred all securities classified as held to maturity
to available for sale. As a result, consolidated equity at July 1, 1997
increased by $798, excluding the effects of deferred income taxes, amounts
attributable to participating pension contractholders and adjustments of
deferred policy acquisition costs and future policy benefits.
N-7
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
VALUATION OF INVESTMENTS
As mentioned above, during 1997 management reclassified all of the company's
fixed maturity securities to available for sale. Accordingly, as of December
31, all of the company's investment securities are carried at estimated fair
value. Prior to this reclassification, certain fixed maturity securities
(principally bonds) were carried at amortized cost. Unrealized investment
gains and losses on investment securities are recorded directly as a separate
component of equity net of related deferred income taxes and adjustments of
deferred policy acquisition costs and future policy benefits. Costs of
securities are adjusted for impairments in value deemed to be other than
temporary. Such adjustments are recorded as realized investment losses. All
securities transactions are recorded on a trade date basis.
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 which approximates fair
value.
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. Valuation allowances are netted
against asset categories to which they apply and provisions for losses for
investments are included in investment gains and losses.
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 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 $13,203, and $3,118 at December 31, 1997 and 1996,
respectively. Related depreciation and amortization expense was $10,085,
$3,118, and $0 for the years ended December 31, 1997, 1996 and 1995,
respectively.
RECOGNITION OF INCOME AND EXPENSES
Premiums from traditional life and annuity policies with life contingencies
are generally recognized 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.
N-8
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
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.
Deferred policy acquisition costs are amortized over a period up to 40 years
for traditional life, variable life, universal life products and 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 and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., files a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and nonlife
insurance direct subsidiaries. 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 income 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.
N-9
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
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.
CONSOLIDATED STATEMENTS OF CASH FLOWS--NON CASH TRANSACTIONS
For the years ended December 31, 1997, 1996 and 1995, the Company received
capital contributions in the form of transfer of assets of $0, $79,592 and
$54,028, respectively.
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.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
The FASB has issued SFAS No. 130 REPORTING COMPREHENSIVE INCOME which
establishes standards for reporting and presentation of comprehensive income
and its components. Comprehensive income (loss) was $35,589, $(12,928), and
$47,792 in 1997, 1996, and 1995, respectively. Consolidated statements of
comprehensive income, which will be required in 1998, have not been presented
as the Company has not determined the individual amounts to be displayed in
such statements.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts to conform to
the 1997 presentation.
N-10
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
2. INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
The amortized cost, gross unrealized gain (loss) and estimated fair value of
fixed securities and equity securities, by category, are shown below.
AVAILABLE FOR SALE SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 12,105 $ 101 $ -- $ 12,206
Foreign governments.................... 2,316 67 -- 2,383
Corporate.............................. 620,916 41,564 3,308 659,172
Mortgage-backed securities............. 57,348 3,282 -- 60,630
-------- -------- ------- --------
Total Fixed Maturities............... $692,685 $ 45,014 $ 3,308 $734,391
======== ======== ======= ========
Equity Securities:
Common stocks.......................... 9,424 216 241 9,399
-------- -------- ------- --------
Total Equity Securities.............. $ 9,424 $ 216 $ 241 $ 9,399
======== ======== ======= ========
AVAILABLE FOR SALE SECURITIES
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 5,465 $ 47 $ 25 $ 5,487
Foreign governments.................... 1,577 1 57 1,521
Corporate.............................. 505,683 18,637 7,093 517,227
Mortgage-backed securities............. 49 1 -- 50
-------- -------- ------- --------
Total Fixed Maturities............... $512,774 $ 18,686 $ 7,175 $524,285
======== ======== ======= ========
HELD TO MATURITY SECURITIES
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 7,299 $ 51 $ 6 $ 7,344
States and political subdivisions...... 480 38 -- 518
Corporate.............................. 21,887 860 99 22,648
-------- -------- ------- --------
Total Fixed Maturities............... $ 29,666 $ 949 $ 105 $ 30,510
======== ======== ======= ========
</TABLE>
N-11
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Included in net unrealized investment gains (losses) are unrealized gains on
foreign currency investments as well as unrealized gains on the associated
forward foreign exchange contracts. Unrealized investment gains (losses)
consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net unrealized gains on investments................................ $281 $ 8
Unrealized gains (losses) on the maturity of forward contracts..... 14 14
---- ---
$295 $22
==== ===
</TABLE>
The amortized cost and estimated fair value of bonds classified as available
for sale, by contractual maturity, at December 31, 1997 are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less................................. $ 5,729 $ 5,723
Due after one year through five years................... 61,395 62,503
Due after five years through ten years.................. 155,795 157,820
Due after ten years..................................... 412,418 447,715
-------- --------
Subtotal.............................................. 635,337 673,761
Mortgage-backed securities.............................. 57,348 60,630
-------- --------
Total................................................. $692,685 $734,391
======== ========
</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, 1997 the trust held $516,491 of bonds and short-
term investments, and at December 31, 1996, the trust held $787 of cash and
$468,847 of bonds and short-term investments.
ASSETS ON DEPOSIT
As of December 31, 1997 and 1996, the Company had assets on deposit with
regulatory agencies of $7,020 and $5,884, respectively.
N-12
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
3. NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................. $50,348 $44,630 $39,264
Equity securities................................ 4,915 -- --
Mortgage loans on real estate.................... -- 110 234
Real estate...................................... 815 55 --
Policy loans..................................... 5,081 3,734 2,831
Cash, cash equivalents and short-term
investments..................................... 4,160 3,656 1,174
Other investment income.......................... 591 38 --
------- ------- -------
Gross investment income.......................... 65,910 52,223 43,503
Investment expenses.............................. (4,851) (2,595) (1,688)
------- ------- -------
Net Investment income............................ $61,059 $49,628 $41,815
======= ======= =======
</TABLE>
Investment gains (losses) are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Fixed maturities................................... $ (774) $15,467 $21,981
Other.............................................. 1,032 512 (1)
------ ------- -------
Subtotal......................................... 258 15,979 21,980
Investment gains (losses) related to accelerated
amortization of deferred
policy acquisition costs.......................... (632) 7,157 11,466
------ ------- -------
Investment gains (losses), net..................... $ 890 $ 8,822 $10,514
====== ======= =======
</TABLE>
Proceeds from the sales of bonds classified as available for sale during 1997,
1996 and 1995 were $143,107, $275,008 and $518,417 respectively. During 1997,
1996 and 1995, respectively, gross gains of $1,846, $19,109 and $22,558, and
gross losses of $1,489, $3,878, and $577 were realized on those sales.
Proceeds from the call of direct issue fixed maturities classified as held to
maturity during 1997, 1996 and 1995 were $0, $5,291 and $0, respectively.
During 1997, 1996 and 1995, respectively, gross gains of $0, $236 and $0, and
gross losses of $0, $0 and $0 were realized due to prepayment premiums
received. In 1997 the Company transferred all fixed maturities classified as
held to maturity to available for sale.
N-13
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
The net 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>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Year ended December 31
Balance, beginning of year................... $ 3,727 $ 26,356 $ (670)
Change in unrealized investment gains
(losses).................................. 30,207 (46,850) 58,947
Change in unrealized investment gains
(losses) attributable to:
Deferred policy acquisition cost
allowances.............................. (9,446) 12,211 (17,884)
Deferred income tax (expense) benefit.... (7,141) 12,010 (14,037)
-------- -------- --------
Balance, end of year......................... $ 17,347 $ 3,727 $ 26,356
======== ======== ========
December 31
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed maturities......................... $ 41,706 $ 11,525 $ 58,369
Other.................................... 22 (4) 2
-------- -------- --------
41,728 11,521 58,371
Amounts of unrealized investment gains
(losses) attributable to:
Deferred policy acquisition cost
allowances................................ (15,202) (5,756) (17,967)
Deferred income tax (expense) benefit...... (9,179) (2,038) (14,048)
-------- -------- --------
Balance, end of year......................... $ 17,347 $ 3,727 $ 26,356
======== ======== ========
</TABLE>
Net unrealized investment gains at December 31, 1997, before deferred Federal
income tax, reflects gross unrealized gains of $45,014 and gross unrealized
losses of $3,308.
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.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................................ $ 30,975 $ 2,682 $ 2,794
Reinsurance assumed............................ 62,315 67,483 69,330
Reinsurance ceded.............................. (29,674) (32,755) (33,558)
-------- -------- --------
Net premiums earned............................ $ 63,616 $ 37,410 $ 38,566
======== ======== ========
</TABLE>
N-14
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Policyholder benefits in the accompanying consolidated statements of earnings
are presented net of reinsurance recoveries of $55,445, $23,962 and $22,577
for the years ended December 31, 1997, 1996 and 1995, respectively. Premiums
and other receivables in the accompanying consolidated balance sheets include
reinsurance recoveries of $1,489 and $200 at December 31, 1997 and 1996,
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 (the "Code").
NELICO and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., files a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and nonlife
insurance direct subsidiaries. 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.
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>
1997
Federal............................................ $8,473 $(3,772) $ 4,701
State and Local.................................... 316 (29) 287
------ ------- -------
Total............................................ $8,789 $(3,801) $ 4,988
====== ======= =======
1996
Federal............................................ $5,333 $(1,531) $ 3,802
State and Local.................................... -- (751) (751)
------ ------- -------
Total............................................ $5,333 $(2,282) $ 3,051
====== ======= =======
1995
Federal............................................ $5,504 $ 6,355 $11,859
State and Local.................................... -- 444 444
------ ------- -------
Total.......................................... $5,504 $ 6,799 $12,303
====== ======= =======
</TABLE>
Reconciliations of the differences between income taxes of operations computed
at the federal statutory tax rates and consolidated provisions for income
taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income before taxes.............................. $26,957 $12,752 $33,069
Income tax rate.................................. 35% 35% 35%
------- ------- -------
Expected income tax expense at federal statutory
income tax rate................................. 9,435 4,463 11,574
Tax effect of:
Change in valuation allowance.................. -- (13,948) (413)
NOL benefit write-off.......................... -- 13,012 --
State and local income taxes................... (1,013) (488) 289
Other, net..................................... (3,434) 12 853
------- ------- -------
Income Tax Expense............................... $ 4,988 $ 3,051 $12,303
======= ======= =======
</TABLE>
N-15
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
The net deferred tax liabilities 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 liabilities at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities............................ $ 63,723 $ 83,304
Net operating loss carryforward..................... -- 12,548
Other............................................... 81,988 14,690
--------- ---------
Total gross assets................................ 145,711 110,542
--------- ---------
Deferred tax liabilities:
Investments......................................... (2,456) (2,526)
Deferred policy acquisition costs................... (168,270) (132,965)
Net unrealized capital gains........................ (9,179) (2,038)
Other............................................... (7,872) (12,476)
--------- ---------
Total gross liabilities........................... (187,777) (150,005)
--------- ---------
Net deferred tax liability............................ $ (42,066) $ (39,463)
========= =========
</TABLE>
The sources of the deferred tax expense (benefit) and their tax effects are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Policyholder liabilities....................... $(23,759) $(17,818) $(4,110)
Net operating loss carryforward................ 12,548 464 --
Investments.................................... 1,319 -- --
Deferred policy acquisition costs.............. 33,621 21,828 13,878
Other, net..................................... (27,530) (6,756) (2,969)
-------- -------- -------
Total........................................ $ (3,801) $ (2,282) $ 6,799
======== ======== =======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
Prior to the merger, substantially all employees were employed by NEMLICO and
were covered under the Home Office Retirement Plan and related Select
Employees' Supplemental Retirement Plan (collectively referred to as the
Plans). Subsequent to the merger substantially all of the employees became
employees of the Company and continued to be covered by the Plans, which
became the Plans of the Company. Under the Plans 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
Company's net pension cost charged to income in 1997, 1996, and 1995 was $277,
$159, and $150, respectively, which represents the Company's allocation of the
total net periodic pension cost of the Plans as shown below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost................................... $ 5,310 $ 5,761 $ 4,797
Interest cost on projected benefit obligation.. 13,958 12,489 11,012
Actual return on assets........................ (22,250) (15,468) (21,221)
Net amortization and deferrals................. 11,092 6,009 13,059
-------- -------- --------
Net periodic pension cost.................... $ 8,110 $ 8,791 $ 7,647
======== ======== ========
</TABLE>
N-16
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
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 Plans includes amounts relating to NEMLICO.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of accumulated plan benefits.... $143,681 $133,000
======== ========
Projected benefit obligation............................ 193,652 182,000
======== ========
Net assets available for plan benefits.................. 150,820 130,992
======== ========
Unrecognized prior service cost......................... 2,844 224
======== ========
Unrecognized net (loss) from past experience difference
from that assumed...................................... (18,936) (37,327)
======== ========
Unamortized transition gains............................ $ 5,832 $ 4,015
======== ========
</TABLE>
The weighted average discount rate was 7.75%, 7.5% and 8.0% in 1997, 1996 and
1995, respectively. The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit was 5.0% for
1997, 1996 and 1995. Assets of the Plans consist of bonds, stocks, real
estate, and insurance contracts and have an assumed long-term rate of return
of 8.75% for 1997, and 8.5% for 1996 and 1995.
OTHER POSTRETIREMENT BENEFITS
Prior to the merger, NEMLICO provided certain health care and life insurance
benefits for retired employees. Substantially all employees would have become
eligible for these benefits had they reached retirement age while working for
NEMLICO. Subsequent to the merger, these benefits are being provided by
MetLife, with respect to benefits earned prior to the merger, and the Company,
with respect to benefits earned subsequent to the merger.
As claims were incurred, the Company made contributions to the plan in 1997
and 1996 which were considered immaterial. The total contributions made to the
plan were $3,670 and $3,386, in 1997 and 1996, respectively. The following
table sets forth the plan's fiscal year end funded status:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $33,823 $28,566
Fully eligible active plan participants................... 4,487 5,482
All other actives......................................... 11,114 11,098
------- -------
Total....................................................... 49,424 45,146
plus: unrecognized net gain............................... 15,726 19,997
------- -------
Accrued postretirement benefit liability.................... $65,150 $65,143
======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
The components of net postretirement benefit cost
were:
Service cost........................................ $ 880 $ 876 $ 876
Interest cost....................................... 3,690 3,183 3,768
Amortization of gain................................ (849) (1,155) (1,043)
------ ------ ------
Net periodic postretirement benefit cost.............. $3,721 $2,904 $3,601
====== ====== ======
</TABLE>
N-17
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Net periodic postretirement benefit costs for the years ended December 31,
1997, 1996 and 1995, includes the cost of benefits earned by active employees,
interest cost, gains and losses arising from differences between actuarial
assumptions and actual experience, and amortization of the transition
obligation. The discount rate used to determine the net periodic
postretirement benefit cost was 7.75%, 7.25% and 8.5% for 1997, 1996 and 1995,
respectively.
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.75% and 7.50% as of December 31, 1997 and 1996, respectively.
The health care cost trend rate was 7.8% graded to 5.0% over 8 years for 1997,
and 8.2% graded to 5.0% over 8 years for 1996. 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 1998 and the succeeding four years are $13,323,
$13,057, $11,765, $10,739 and $10,468, respectively, and $95,762 thereafter.
Minimum future sub-lease rental income on these non-cancelable leases for 1998
and the succeeding four years is $3,553, $3,620, $3,600, $3,578 and $3,578,
respectively, and $15,257 thereafter.
8. DEBT
In 1995, the Company borrowed $25,000 from a bank, bearing interest at a
variable rate, equal to the greater of the bank's base rate or money market
rates plus 0.6% per annum payable monthly, 5.8% at December 31, 1997 and 5.7%
at December 31, 1996. 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 of $21,965, repayments made during 1997 were
$3,181.
Exeter privately placed $75,118 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. The issue costs of the Notes of
$130 were deducted from Notes, net of discount, to arrive at net subordinated
notes payable of $49,870. 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 of $64,016, repayments made during 1997 were $0.
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.
N-18
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
10. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Compensation costs........................... $ 58,754 $ 36,172 $ 23,630
Commissions.................................. 77,351 51,617 37,476
Debt expense................................. 6,750 6,261 5,659
Amortization of policy acquisition costs..... 17,723 22,233 21,199
Capitalization of policy acquisition costs... (157,670) (98,016) (65,850)
Rent expense, net of sub-lease income of
$719, $119 and $0........................... 4,473 3,060 1,609
Other........................................ 136,961 122,559 75,701
--------- -------- --------
Total...................................... $ 144,342 $143,886 $ 99,424
========= ======== ========
</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, 1997 and 1996 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, 1997:
ASSETS
Fixed Maturities......................................... $734,391 $734,391
Equity Securities........................................ 9,399 9,399
Policy loans............................................. 104,783 104,783
Short-term investments................................... 27,944 27,944
Cash and cash equivalents................................ 74,148 74,148
LIABILITIES
Policyholder account balances............................ 9,271 8,508
Other policyholder funds................................. 4,324 4,324
Short and long-term debt................................. 85,981 85,981
DECEMBER 31, 1996:
ASSETS
Fixed Maturities......................................... $553,951 $554,795
Policy loans............................................. 76,263 76,263
Short-term investments................................... 156,560 156,560
Cash and cash equivalents................................ 49,147 49,147
LIABILITIES
Policyholder account balances............................ 3,368 3,168
Other policyholder funds................................. 2,868 2,868
Short and long-term debt................................. 84,057 84,057
</TABLE>
N-19
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
For bonds that are publicly traded, estimated fair value was obtained from an
independent market pricing service. Publicly traded bonds represented
approximately 91% of the carrying value and estimated fair value of the total
bonds as of December 31, 1997 and 96% of the carrying value and estimated fair
value of the total bonds as of December 31, 1996. 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
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 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,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income (loss)................ $ (37,358) $ (46,021) $ 375
Adjustments to GAAP for life insurance
companies:
Future policy benefits and policyholders
account balances........................ (718,229) (41,174) (9,616)
Deferred policy acquisition costs........ 139,947 68,626 45,823
Deferred Federal Income taxes............ 4,009 2,283 (6,799)
Statutory interest maintenance reserve... 342 231 --
Other, net............................... 633,258 25,756 (9,017)
--------- --------- ---------
Net GAAP Earnings.......................... $ 21,969 $ 9,701 $ 20,766
========= ========= =========
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory surplus.......................... $ 307,290 $ 355,853 $ 203,374
Adjustments to GAAP for life insurance
companies:
Future policy benefits and policyholders
account balances........................ (279,510) (195,273) (154,099)
Deferred policy acquisition costs........ 565,769 434,637 353,809
Deferred Federal Income taxes............ (43,318) (40,185) (55,201)
Valuation of investments................. 56,873 11,503 58,063
Statutory interest maintenance reserve... 571 306 74
Statutory investment valuation reserves.. 8,388 3,335 373
Surplus notes............................ (64,016) (58,911) (54,210)
Receivables from reinsurance
transactions............................ 27,519 26,030 --
Other, net............................... 53,976 13,127 2,320
--------- --------- ---------
GAAP Equity................................ $ 633,542 $ 550,422 $ 354,503
========= ========= =========
</TABLE>
N-20
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
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 $186,757 including accruals for administrative
services on NEMLICO administered contracts for 1997. The Company charged
MetLife $88,043 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 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 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 1997, MetLife made a capital contribution to the Company of $50,000 in
cash. 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 $29,558. MetLife also made non-
cash capital contributions of home-office properties of $10,301, socially-
responsible investments with a book value of $11,916, furniture, equipment and
leasehold improvements of $27,816, and a cash contribution of $128,412. Prior
to the merger, NEMLICO made a cash contribution to NELICO of $20,000.
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. NELICO received cash contributions from NEMLICO of
$8,215 in 1995.
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 lease payments to MetLife of $2,340 and $780
in 1997 and 1996, respectively.
On June 21, 1996, NEMLICO purchased a mortgage from NELICO for $2,217 which
included principal of $2,204, and interest of $13.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1997 were $16,799
and $1,127, respectively. Included in accrued income at December 31, 1997,
were amounts receivable for sales-based commissions from NEF and SSR totaling
$233 and $13, respectively. In 1997, NES earned asset-based income of $8,777
and $61 on average assets of approximately $3.9 billion and $33 million under
management with NEF and SSR, respectively.
Exeter has a privately-placed subordinated notes payable to MetLife for
$64,016 at December 31, 1997 and $58,911 at December 31, 1996.
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.
N-21
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
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.
14. SUBSEQUENT EVENTS
In February 1998, the Company signed a definitive agreement to acquire all of
the outstanding common stock of Nathan Lewis Holding Corp. (Nathan Lewis) a
broker-dealer based in New York City. Under the terms of the agreement, the
Company will pay approximately $28 million in cash at the close and $2 million
per year over the next three years subject to certain financial conditions.
Nathan Lewis had approximately $22 million in assets and earned $2.1 million
on revenues of $78.4 million for the twelve month fiscal period ended
September 30, 1997. The acquisition, which is expected to close in the second
quarter of 1998, will be accounted for as a purchase under generally accepted
accounting principles.
N-22
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholder of
New England Variable Life Insurance Company:
We have audited the statutory statements of operations, surplus, and cash
flows of New England Variable Life Insurance Company (a wholly-owned
subsidiary of New England Mutual Life Insurance Company) for the year 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 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 statements of operations,
surplus, and cash flows are free of material misstatement. An audit includes
examining, on 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 presentation of the statements of operations, surplus,
and cash flows. We believe that our audit of the statements of operations,
surplus, and cash flows provides a reasonable basis for our opinion.
As described more fully in Note 1 to the aforementioned financial statements,
the Company prepared the statements of operations, surplus, and cash flows
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
statements of operations, surplus, and cash flows, prepared using SAP,
presented fairly, in all material respects the results of operations and cash
flows of New England Variable Life Insurance Company for the year ended
December 31, 1995 in conformity with GAAP. As described in Note 1 to the
aforementioned 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 statements of operations,
surplus, and cash flows 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 results
of operations or cash flows of New England Variable Life Insurance Company for
the year 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 results of
operations and cash flows of New England Variable Life Insurance Company for
the year 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 8, 1996, except for the information in the
second paragraph under "Basis of Presentation
and Principles of Consolidation" of Note 1, for which
the date is February 18, 1997
N-23
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT ON INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholder of
New England Pension and Annuity Company:
We have audited the statutory statements of operations and surplus, and cash
flows of New England Pension and Annuity Company (a wholly-owned subsidiary of
New England Mutual Life Insurance Company) for the year 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 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 statements of operations and
surplus, and cash flows 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 presentation of the statements of operations and
surplus, and cash flows. We believe that our audit of the statements of
operations and surplus, and cash flows provides a reasonable basis for our
opinion.
As described more fully in Note 1 to the aforementioned financial statements,
the Company prepared the statements of operations and surplus, and cash flows
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
statements of operations and surplus, and cash flows, prepared using SAP,
presented fairly, in all material respects the results of operations and cash
flows of New England Pension and Annuity Company for the year ended December
31, 1995 in conformity with GAAP. As described in Note 1 to the aforementioned
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 statements of operations and surplus, and cash
flows 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 results
of operations or cash flows of New England Pension and Annuity Company for the
year 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 results of
operations and cash flows of New England Pension and Annuity Company for the
year 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 8, 1996, except for the information in the
second paragraph under "Basis of Presentation and
Principles of Consolidation" of Note 1, for which the
date is February 18, 1997
N-24
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
April 23, 1996
To The Board of Directors and Shareholder of
Exeter Reassurance Company, Ltd.
We have audited the statutory statements of operations and surplus, and cash
flows of Exeter Reassurance Company, Ltd. (a wholly-owned subsidiary of New
England Mutual Life Insurance Company) for the year 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 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
statements of operations and surplus, and cash flows 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 presentation
of the statements of operations and surplus, and cash flows. We believe that
our audit of the statements of operations and surplus, and cash flows provides
a reasonable basis for our opinion.
The statutory statements of operations and surplus, and cash flows 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
results of operations or cash flows of Exeter Reassurance Company, Ltd. for
the year 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 results of operations and cash flows of Exeter
Reassurance Company, Ltd. for the year ended December 31, 1995 in conformity
with the Insurance Act 1978, amendments thereto and related regulations.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
N-25
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholder of
New England Securities Corporation:
We have audited the consolidated statements of operations, shareholder's
equity, and cash flows of New England Securities Corporation for the year
ended December 31, 1995. 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 statements of operations,
shareholder's equity, and cash flows 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 presentation of the statements of operations,
shareholder's equity, and cash flows. We believe that our audit of the
statements of operations, shareholder's equity, and cash flows 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 results of
operations and cash flows of New England Securities Corporation for the year
ended December 31, 1995 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 9, 1996
N-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholder and Board of Directors of
TNE Advisers, Inc.:
We have audited the statements of operations, changes in shareholder's equity,
and cash flows of TNE Advisers, Inc. for the year ended December 31, 1995.
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 statements of operations,
changes in shareholder's equity, and cash flows 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 presentation
of the statements of operations, changes in shareholder's equity, and cash
flows. We believe that our audit of the statements of operations, changes in
shareholder's equity, and cash flows 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 results of operations
and cash flows of TNE Advisers, Inc. for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 29, 1996
N-27
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
March 14, 1996
To The Shareholders of
Newbury Insurance Company, Limited
We have audited the statements of earnings and retained earnings, and cash
flows of Newbury Insurance Company, Limited for the year 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 audit.
Except as discussed in the following paragraph, 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 statements of earnings and retained
earnings, and cash flows 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 presentation of the statements of earnings and retained
earnings, and cash flows. We believe that our audit of the statements of
earnings and retained earnings, and cash flows provides a reasonable basis for
our opinion.
The provision for losses incurred but not reported is calculated in the manner
described in note 3(b). We have not reviewed the underlying information used
in the calculation of the provision and therefore we have been unable to
determine whether the provision for the year ended December 31, 1995 is
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 results of operations and cash flows of Newbury Insurance Company, Limited
for the year ended December 31, 1995, in conformity with accounting principles
generally accepted in the United States of America.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
N-28
<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, 1997.
Statement of Operations for the years ended December 31, 1997 and 1996.
Statement of Changes in Net Assets for the years ended December 31, 1997
and 1996.
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, 1997 and 1996.
Consolidated Statements of Earnings for the years ended December 31, 1997,
1996 and 1995.
Consolidated Statements of Equity for the years ended December 31, 1997,
1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.
Notes to Financial Statements.
(b) Exhibits
(1) Resolutions of Board of Directors of the Depositor authorizing the
Registrant.
(2) None.
(3) (i) Form of Distribution Agreement.
(ii) Form of Selling Agreement with other broker-dealers.
<PAGE>
(iii) Additional Form of Selling Agreement with broker-dealers 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 is incorporated herein by
reference to Post- Effective Amendment No. 4 to the Registration Statement
on Form N-4 (No. 33-85442) filed on April 30, 1997.
(4) (i) Variable Annuity Contract, including Application.
(ii) Forms of Endorsements.
(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 the
Registration Statement on Form N-4 (No. 33-85442) filed on April 30, 1997.
(ii) Amended and restated By-Laws of Depositor.
(7) None
(8) None
(9) Opinion and consent of H. James Wilson, Esq.
(10) (i) Consent of Deloitte & Touche, LLP.
(ii) Consent of Sutherland, Asbill and Brennan, L.L.P.
(11) None
(12) None
(13) Schedule of computations for performance quotations.
(14) Powers of Attorney.
III-2
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
---------------------------------------
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
- -------------------------------------------- -------------------------------------------
<S> <C>
James M. Benson* 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
50th Floor, Craig Drill Capital
General Motors Building
767 Fifth Street
New York, NY 10153
Dr. Paul E. Gray Director
MIT
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-3
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS 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.
P.O. Box 650
Pine Street
Dixfield, ME 04224
Alexander B. Trowbridge Director
Trowbridge Partners Inc.
1317 F Street, NW, Suite 500
Washington, D.C. 20004
David W. Allen* Senior Vice President
Thom A. Faria* President, Career Agency System
(a business unit of NELICO)
Anne M. Goggin* Senior Vice President and Associate
General Counsel
Daniel D. Jordan* Second Vice President, Counsel and
Secretary
Richard D. Keidan* Senior Vice President
</TABLE>
III-4
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
- -------------------------------------------- -------------------------------------------
<S> <C>
Alan C. Leland, Jr.* Senior Vice President.
Bruce C. Long* President, New England Annuities
(a business unit of NELICO)
George J. Maloof* Senior Vice President
Thomas W. McConnell* Senior Vice President
Thomas W. Moore* Senior Vice President
Robert W. Powell* President, Life Brokerage
(a business unit of NELICO)
Richard A. Robinson* Second Vice President and chief accounting
officer
Gregory A. Ross* Executive Vice President and Chief
Information Officer
Robert E. Schneider* Executive Vice President and Chief
Financial Officer
John G. Small, Jr.* President, New England Services
(a business unit of NELICO)
Ellen D. Sullivan* Senior Vice President and Associate
General Counsel
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>
*The principal business address for each of the directors and officers is the
same as NELICO's except where indicated otherwise.
III-5
<PAGE>
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-6
<PAGE>
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1997
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1997. 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)
f. MetLife Healthcare Holdings, 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)
C-3
<PAGE>
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%).
(i) MetLife Capital CFLI Holdings, LLC (DE)
(1) MetLife Capital CFLI Leasing, LLC
(DE)
(6) MetLife Capital Portfolio Investments, Inc. (Nevada)
(a) MetLife Capital Funding Corp. (Delaware)
(7) MetLife Capital Funding Corp. II (Delaware)
(8) MetLife Capital Funding Corp. III (Delaware)
ii. MetLife Capital Financial Corporation (Delaware)
90% of outstanding equity interest in Metlife
Capital Financial Corporation held directly
by Metropolitan Life Insurance Company.
C-4
<PAGE>
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 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.
5. SSRM Holdings, Inc. (Delaware)
a. GFM International Investors Ltd. (United Kingdom).
b. GFM International Investors, Inc. (United Kingdom).
i. GFM Investments Limited (United Kingdom)
c. State Street Research & Management Company (Delaware). Is a sub-
investment manager for the Growth, Income, Diversified and
Aggressive Growth Portfolios of Metropolitan Series Fund, Inc.
i. State Street Research Investment Services, Inc.
(Massachusetts)
d. SSR Realty Advisors, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Property Management, Inc. (Delaware)
(1) Metric Realty (Delaware). SSR Realty Advisors, Inc.
and Metric Property Management, Inc. each hold 50% of
the common stock of Metric Realty.
(a) Metric Institutional Apartment Fund II, L.P.
(California). Metric Realty holds a 1% interest
as general partner and Metropolitan holds an
approximately 14.6% limited partnership interest
in Metric Institutional Apartment Fund II, L.P.
(2) Metric Colorado, Inc. (Colorado). Metric Property
Management, Inc. holds 80% of the common stock of
Metric Colorado, Inc.
iii. Metric Capital Corporation (California)
iv. Metric Assignor, Inc. (California)
v. SSR AV, Inc. (Delaware)
C-5
<PAGE>
6. MetLife Holdings, Inc. (Delaware)
a. MetLife Funding, Inc. (Delaware)
b. MetLife Credit Corp. (Delaware)
7. Metropolitan Tower Realty Company, Inc. (Delaware)
8. Met Life Real Estate Advisors, Inc. (California)
9. Security First Group, Inc. (DE)
a. Security First Life Insurance Company (DE)
(i) Security First Life Insurance Company of Arizona (AZ)
b. Security First Insurance Agency, Inc. (MA)
c. Security First Financial Insurance Agency, Inc. (NV)
d. Security First Group of Ohio, Inc. (OH)
e. Security First Financial, Inc. (DE)
f. Security First Investment Management Corporation (DE)
g. Security First Management Corporation (DE)
h. Security First Real Estate, Inc. (DE)
10. Natiloportem Holdings, Inc. (Delaware)
B. Metropolitan Tower Life Insurance Company (Delaware)
C. MetLife Security Insurance Company of Louisiana (Louisiana)
D. MetLife Texas Holdings, Inc. (Delaware)
1. Texas Life Insurance Company (Texas)
a. Texas Life Agency Services, Inc. (Texas)
b. Texas Life Agency Services of Kansas, Inc. (Kansas)
E. MetLife Securities, Inc. (Delaware)
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)
C-6
<PAGE>
3. Morguard Investments Limited (Ontario, Canada)
Shares of Morguard Investments Limited ("Morguard") are held by
Metropolitan Life Holdings Limited (72%) and by employees of Morguard
(28%).
4. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
H. Santander Met, S.A. (Spain). Shares of Santander Met, S.A. are held by
Metropolitan (50%) and by an entity (50%) unaffiliated with Metropolitan.
1. Seguros Genesis, S.A. (Spain)
2. Genesis Seguros Generales, Sociedad Anomina de Seguros y Reaseguros
(Spain)
I. 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.
C-7
<PAGE>
J. Metropolitan Life Seguros de Vida S.A. (Argentina)
K. Metropolitan Life Seguros de Retiro S.A. (Argentina).
L. Met Life Holdings Luxembourg (Luxembourg)
M. Metropolitan Life Holdings, Netherlands BV (Netherlands)
N. MetLife International Holdings, Inc. (Delaware)
O. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
P. Metropolitan Marine Way Investments Limited (Canada)
Q. P.T. MetLife Sejahtera (Indonesia)
R. Seguros Genesis S.A. (Mexico) Metropolitan holds 85.49%, Metropolitan Tower
Corp. holds 7.31% and Metropolitan Asset Management Corporation holds 7.20%
of the common stock of Seguros Genesis S.A.
S. AFORE Genesis Metropolitan S.A. de C.V. (Mexico)
T. Metropolitan Life Seguros E Previdencia Privada S.A. (Brazil)
U. Hyatt Legal Plans, Inc. (Delaware)
V. One Madison Merchandising L.L.C. (Connecticut) Ownership of membership
interests in One Madison Merchandising L.L.C. is as follows: Metropolitan
owns 99% and Metropolitan Tower Corp. owns 1%.
C-8
<PAGE>
W. 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. Subrown Corp. (New York)
X. MetPark Funding, Inc. (Delaware)
Y. 2154 Trading Corporation (New York)
Z. Transmountain Land & Livestock Company (Montana)
AA. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
C-9
<PAGE>
A.B. MetLife Trust Company, National Association. (United States)
A.C. 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)
A.D. Benefit Services Corporation (Georgia)
A.E. G.A. Holding Corporation (MA)
A.F. TNE-Y, Inc. (DE)
A.G. CRH., Inc. (MA)
A.H. NELRECO Troy, Inc. (MA)
A.I. TNE Funding Corporation (DE)
A.J. L/C Development Corporation (CA)
A.K. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.L. CRB Co., Inc. (MA) AEW Real Estate Advisors, Inc. holds 49,000 preferred
non-voting shares of CRB Co., Inc. AEW Advisors, Inc. holds 1,000
preferred non-voting shares of CRB Co., Inc.
A.M. DPA Holding Corp. (MA)
A.N. Lyon/Copley Development Corporation (CA)
A.O. NEL Partnership Investments I, Inc. (MA)
A.P. New England Life Mortgage Funding Corporation (MA)
A.Q. 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.R. 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.S. MetLife New England Holdings, Inc. (DE)
1. New England Life Insurance Company (MA)
a. New England Life Holdings, Inc. (DE)
i. New England Securities Corporation (MA)
1. Hereford Insurance Agency, Inc. (MA)
2. Hereford Insurance Agency of Alabama, Inc. (AL)
3. Hereford Insurance Agency of Minnesota, Inc. (MN)
4. Hereford Insurance Agency of Ohio, Inc. (OH)
5. Hereford Insurance Agency of New Mexico, Inc. (NM)
ii. TNE Advisers, Inc. (MA)
iii. TNE Information Services, Inc. (MA)
b. Exeter Reassurance Company, Ltd. (MA)
c. Omega Reinsurance Corporation (AZ)
d. New England Pension and Annuity Company (DE)
e. Newbury Insurance Company, Limited (Bermuda)
2. New England Investment Companies, Inc. (MA)
a. New England Investment companies, L.P. (DE) New England Investment
Companies, Inc. holds a 1.7% general partnership interest in New
England Investment Companies, L.P. MetLife New England Holdings,
Inc. holds a 3.3% general partnership interest in New England
Investment Companies, L.P.
3. NEIC Operating Partnership, L.P.
New England Investment Companies, L.P. holds a 14.2% general
partnership Interest and New England Investment Companies, Inc.
holds a 0.00002% general Partnership Interest in NEIC operating
Partnership, L.P. Metropolitan holds a 46.3% Limited Partnership
Interest in NEIC Operating Partnership, L.P.
a. NEIC Holdings, Inc. (MA)
i. Back Bay Advisors, Inc. (MA)
(1) 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. R & T Asset Management, Inc. (MA)
(1) Reich & Tang Distributors, L.P. (DE)
R & T Asset Management Inc.
holds a 1% general interest and
R & T Asset Management, L.P.
holds a 99.5% limited partner
interest in Reich Tang Distributors, L.P.
(2) R & T Asset Management L.P.
R & T Asset Management, Inc.
holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited
partner interest in &
Asset Management, L.P.
(3) Reich & Tang Services, L.P. (DE)
R & T Asset Management, Inc.
holds a 1% general partner interest and
R & T Asset Management, L.P.
holds a 99% limited partner interest
in Reich & Tang Services, L.P.
iii. Loomis, Sayles & Company, Inc. (MA)
(1) Loomis Sayles & Company, L.P. (DE)
Loomis Sayles & Company, Inc.
holds a 1% general partner interest and
R & T Asset Management, Inc. holds a 99%
limited partner interest in Loomis Sayles &
Company, L.P.
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 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 a 99%
limited partner interest in Vaughan, Nelson
Scarborough & McConnell, L.P.
a. Breen Trust Company
vi. MC Management, Inc. (MA)
(1) MC Management, L.P. (DE)
MC Management, Inc. holds a 1% general partner
interest and R & T Asset Management, Inc.
holds a 99% limited partner interest in MC
Management, L.P.
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 NEIC Operating Partnership,
L.P. 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
NEIC Operating Partnership, L.P.
holds a 99% limited partner interest in
Graystone Partners, L.P.
ix. NEF Corporation (MA)
(1) New England Funds, L.P. (DE) NEF Corporation holds a
1% general partner interest and NEIC Operating
Partnership, L.P. holds a 99% limited
partner interest in New England Funds, L.P.
(2) New England Funds Management, L.P. (DE) NEF
Corporation holds a 1% general partner interest and
NEIC Operating Partnership, L.P. holds a 99%
limited partner interest in New England Funds
Management, L.P.
x. New England Investment Associates, Inc.
xi. Snyder Capital Management, Inc.
(1) Snyder Capital Management, L.P. NEIC Operating
Partnership holds a 99.5% limited partnership
interest and Snyder Capital Management Inc. holds a
0.5% general partnership interest.
xii. Jurika & Voyles, Inc.
(1) Jurika & Voyles, L.P NEIC Operating Partnership,
L.P. holds a 99% limited partnership interest and
Jurika & Voyles, Inc. holds a 1% general partnership
interest.
b. Capital Growth Management, L.P. (DE)
NEIC Operating Partnership, L.P. holds a 50% limited partner
interest in Capital Growth Management, L.P.
c. AEW Capital Management, Inc. (DE)
i. AEW Securities, L.P. (DE) AEW Capital Management, Inc. holds
a 1% general partnership and AEW Capital Management, L.P.
holds a 99% limited partnership interest in AEW Securities,
L.P.
d. 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. Copley Public Partnership Holding, L.P. (MA)
AEW Investment Group, Inc. holds a 25% general partnership
interest and AEW Capital Management, L.P. holds a 75%
limited partnership interest in Copley Public Partnership
Holding, L.P.
b. AEW Management and Advisors L.P. (MA)
AEW Investment Group, Inc. holds a 25% general partnership
interest and AEW Capital Management, L.P. holds a 75% limited
partnership interest in AEW Management and Advisors L.P.
i. BBC Investment Advisors, Inc. (MA)
AEW Investment Group, Inc. holds 60% of the voting securities
and Back Bay Advisors, L.P. holds 40% of the voting securities
of BBC Investment Advisors, Inc.
1. BBC Investment Advisors, L.P. (MA)
BBC Investment Advisors, Inc. holds a 1% general partnership interest
and AEW Management and Advisors, L.P. holds a 59.4% limited
partnership interest and Back Bay Advisors, L.P. holds a 39.6% limited
partnership interest in BBC Investment Advisors, L.P.
ii. AEW Real Estate Advisors, Inc. (MA)
1. AEW Advisors, Inc. (MA)
2. Copley Properties Company, Inc. (MA)
3. Copley Properties Company II, Inc. (MA)
4. Copley Properties Company III, Inc. (MA)
5. Fourth Copley Corp. (MA)
6. Fifth Copley Corp. (MA)
7. Sixth Copley Corp. (MA)
8. Seventh Copley Corp. (MA).
9. Eighth Copley Corp. (MA).
10. First Income Corp. (MA).
11. Second Income Corp. (MA).
12. Third Income Corp. (MA).
13. Fourth Income Corp. (MA).
14. Third Singleton Corp. (MA).
15. Fourth Singleton Corp. (MA)
16. Fifth Singleton Corp. (MA)
17. Sixth Singleton Corp. (MA).
18. BCOP Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 1% general
partner interest in BCOP Associates L.P.
iii. CREA Western Investors I, Inc. (MA)
1. CREA Western Investors I, L.P. (DE)
CREA Western Investors I, Inc. holds a 24.28% general
partnership interest and Copley Public Partnership Holding,
L.P. holds a 57.62% limited partnership interest in CREA
Western Investors I, L.P.
iv. CREA Investors Santa Fe Springs, Inc. (MA)
2. Copley Public Partnership Holding, L.P. (DE)
AEW Capital Management, L.P. holds a 75% limited partner interest and
AEW Investment Group, Inc. holds a 25% general partner interest and
CREA Western Investors I, L.P holds a 57.62% Limited Partnership
interest.
3. AEW Real Estate Advisors, Limited Partnership (MA)
AEW Real Estate Advisors, Inc. holds a 25% general partnership interest
and AEW Capital Management, L.P. holds a 75% limited partnership
interest in AEW Real Estate Advisors, Limited Partnership.
4. AEW Hotel Investment Corporation (MA)
a. AEW Hotel Investment, Limited Partnership (MA)
AEW Hotel Investment Corporation holds a 1% general
partnership interest and AEW Capital Management, L.P. holds a
99% limited partnership interest in AEW Hotel Investment,
Limited Partnership.
5. Aldrich Eastman Global Investment Strategies, LLC (DE)
AEW Capital Management, L.P. holds a 25% membership interest and an
unaffiliated third party holds a 75% membership interest in Aldrich
Eastman Global Investment Strategies, LLC.
C-10
<PAGE>
In addition to the entities listed above, Metropolitan (or where indicated an
affiliate) also owns an interest in the following entities, among others:
1) CP&S Communications, Inc., a New York corporation, holds federal radio
communications licenses for equipment used in Metropolitan owned facilities and
airplanes. It is not engaged in any business.
2) Quadreal Corp., a New York corporation, is the fee holder of a parcel of
real property subject to a 999 year prepaid lease. It is wholly owned by
Metropolitan, having been acquired by a wholly owned subsidiary of Metropolitan
in 1973 in connection with a real estate investment and transferred to
Metropolitan in 1988.
3) Met Life International Real Estate Equity Shares, Inc., a Delaware
corporation, is a real estate investment trust. Metropolitan owns approximately
18.4% of the outstanding common stock of this company and has the right to
designate 2 of the 5 members of its Board of Directors.
4) Metropolitan Structures is a general partnership in which Metropolitan owns
a 50% interest.
5) 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% mt ST, owns a 50% interest and has the right to
designate 2 of the 4 members of the Board of Directors.
C-11
<PAGE>
6) Metropolitan owns varying interests in certain mutual funds distributed by
its affiliates. These ownership interests are generally expected to decrease as
shares of the funds are purchased by unaffiliated investors.
7) Metropolitan Lloyds Insurance Company of Texas, an affiliated association,
provides homeowner and related insurance for the Texas market. It is an
association of individuals designated as underwriters. Metropolitan Lloyds,
Inc., a subsidiary of Metropolitan Property and Casualty Insurance Company ("MET
P&C"), serves as the attorney-in-fact and manages the association.
8) 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's ownership
interests in certain companies. The various MILPs own, directly or indirectly,
more than 50% of the voting stock of the following company: Coating
Technologies International, Inc.
NOTE: THE METROPOLITAN LIFE ORGANIZATIONAL CHART DOES NOT INCLUDE REAL ESTATE
- ----
JOINT VENTURES AND PARTNERSHIPS OF WHICH METROPOLITAN LIFE AND/OR ITS
SUBSIDIARIES IS AN INVESTMENT PARTNER. IN ADDITION, CERTAIN INACTIVE
SUBSIDIARIES HAVE ALSO BEEN OMITTED.
C-12
<PAGE>
ITEM 27. NUMBER OF CONTRACTOWNERS
As of March 31, 1998, there were 4322 owners of tax-qualified Contracts and
4573 owners of non-qualified Contracts.
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
by-laws provides for the indemnification (under certain circumstances) of
individuals serving as directors or officers or employees of the Depositor.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers or controlling persons (if any)
of the Underwriter or Depositor pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification may be against public
policy as expressed in the Act and may be, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Depositor or Underwriter of expenses incurred
or paid by a director, officer or controlling person of the Depositor or
Underwriter in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Depositor or Underwriter will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) New England Securities Corporation also serves as principal underwriter
for:
New England Zenith Fund
New England Variable Annuity Fund I
New England Variable Life Separate Account
New England Retirement Investment Account
The New England Variable Account
(b) The directors and officers of the Registrant's principal underwriter,
New England Securities Corporation, and their addresses are as follows:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
NAME PRINCIPAL UNDERWRITER WITH REGISTRANT
---- ---------------------------------------------------- ---------------------
<S> <C> <C>
Thomas W. McConnell*.... Director, President and CEO None
Frederick K. Zimmer-
mann**................. Chairman of Board, Director None
Bradley W. Anderson*.... Vice President None
Anne M. Goggin**........ Vice President, General Counsel, Secretary and Clerk None
Mark F. Greco*.......... Vice President and Chief Operating Officer None
Laura A. Hutner*........ Vice President None
Mitchell A. Karman**.... Vice President None
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
NAME PRINCIPAL UNDERWRITER WITH REGISTRANT
---- ----------------------------------------------------- ---------------------
<S> <C> <C>
John Peruzzi**.......... Assistant 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
Larry Thiel............. Vice President None
Michael E. Toland*...... Vice President, Chief Compliance Officer, Chief None
Financial Officer, Treasurer, Assistant Secretary and
Assistant Clerk
</TABLE>
Principal Business Address:*399 Boylston Street, Boston, MA 02116
**501 Boylston Street, Boston, MA 02117
***500 Boylston Street, Boston, MA 02117
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NAME OF NET UNDERWRITING
PRINCIPAL DISCOUNTS AND COMPENSATION ON BROKERAGE
UNDERWRITER COMMISSIONS REDEMPTION COMMISSIONS COMPENSATION
- ---------------------- ---------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
New England Securities
Corporation 5,081,873 -0- -0- -0-
</TABLE>
Commissions are paid by the Company directly to agents who are registered
representatives of the principal underwriter, or to broker-dealers that have
entered into selling agreements with the principal underwriter with respect to
sales of the Contracts.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The following companies will maintain possession of the documents required
by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder:
(a) Registrant
(b) State Street Bank & Trust Company 225 Franklin Street Boston,
Massachusetts 02110
(c) New England Securities Corporation 399 Boylston Street Boston,
Massachusetts 02116
(d) New England 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
<PAGE>
(2) To include either (a) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant can check to
request a Statement of Additional Information or (b) a postcard or similar
written communication affixed to or included in the prospectus that the
applicant can remove to send for a Statement of Additional Information;
(3) To deliver a Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly upon
written or oral request;
(4) To offer Contracts to participants in the Texas Optional Retirement
program in reliance upon Rule 6c-7 of the Investment Company Act of 1940
and to comply with paragraphs (a)-(d) of that Rule; and
(5) To comply with and rely upon the Securities and Exchange Commission
No-Action letter to The American Council of Life Insurance, dated November
28, 1988, regarding Sections 22(e), 27(c)(1) and 27(d) of the Investment
Company Act of 1940.
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.
3
<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 30TH DAY OF APRIL, 1998.
NEW ENGLAND ANNUITY SEPARATE ACCOUNT
By: New England Life Insurance Company
(Depositor)
By: H. JAMES WILSON
_____________________________________
H. JAMES WILSON
EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
Attest:
Marie C. Swift
_________________________
Marie C. Swift
III-7
<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 30TH DAY OF APRIL, 1998.
NEW ENGLAND LIFE INSURANCE COMPANY
By: H. JAMES WILSON
__________________________________
H. JAMES WILSON
EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
Attest:
Marie C. Swift
_________________________
Marie C. Swift
AS REQUIRED BY THE SECURITIES AND EXCHANGE ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS, IN THE CAPACITIES INDICATED,
ON APRIL 30, 1998.
<TABLE>
<CAPTION>
Signature Title
- ---------------------------------- ---------------------------------------
<S> <C>
* President and Chief Executive Officer
- ----------------------------------
James M. Benson
* Director
- ----------------------------------
Susan C. Crampton
* Second Vice President and
- ---------------------------------- Chief Accounting Officer
Richard A. Richardson
</TABLE>
III-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title
- ---------------------------------- ---------------------------------------
<S> <C>
* 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
* Director
- ----------------------------------
Bernard A. Leventhal
* Director
- ----------------------------------
Thomas J. May
* Director
- ----------------------------------
Stewart G. Nagler
</TABLE>
III-9
<PAGE>
<TABLE>
<CAPTION>
Signature Title
- ---------------------------------- ---------------------------------------
<S> <C>
* Executive Vice President and
- ---------------------------------- Chief Financial Officer
Robert E. Schneider
* Director
- ----------------------------------
Rand N. Stowell
* Director
- ----------------------------------
Alexander B. Trowbridge
</TABLE>
/s/ Anne M. Goggin
By:________________________________
ANNE M. GOGGIN, ESQ.
ATTORNEY-IN-FACT
* Executed by Anne M. Goggin, Esq. on behalf of those indicated pursuant to a
Powers of Attorney filed herewith and incorporated herein by reference to
Post-Effective Amendment No. 4 to the Registration Statement on Form N-4
(No. 33-85442) filed on April 30, 1997.
III-10
<PAGE>
Exhibit Index
-------------
(1) Resolutions of Board of Directors of the Depositor authorizing
the Registrant.
(2) None
(3) (i) Form of Distribution Agreement.
(ii) Form of Selling Agreement with other broker-dealers.
(iii) Additional Form of Selling Agreement with other broker-dealers.*
(iv) Additional Forms of Selling Agreement with other broker-
dealers.**
(4) (i) Variable Annuity Contract, including Application.
(ii) Forms of Endorsements
(5) Application (included in Exhibit 4(i)).
(6) (i) Copy of charter (Amended and restated Articles of
Incorporation).**
(ii) Amended By-Laws of Depositor.
(7) None
(8) None
(9) Opinion and consent of H. James Wilson, Esq.
(10) (i) Consent of Deloitte & Touche LLP
(ii) Consent of Sutherland, Asbill & Brennan, L.L.P.
(11) None
(12) None
(13) Schedule of computations for performance quotations.
(14) (i) Powers of Attorney**
(ii) Powers of Attorney for James Benson and Richard Robinson
* Filed with Registration Statement on Form N-4 (No. 33-64879) filed on
December 11, 1995.
** Filed with Post-Effective Amendment No. 4 to Registration Statement on Form
N-4 (No. 33-85442) on April 30, 1997.
<PAGE>
Exhibit 1
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
Actions of the Board of Directors
Effective July 1, 1994
The following actions of NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY (the
"Company") are taken, effective July 1, 1994, by the execution hereof by the
undersigned, who constitute all members of the Company's Board of Directors.
These actions have the same effect for all purposes as resolutions duly adopted
at a meeting of the Board of Directors.
Establishment of Variable Annuity Account
-----------------------------------------
RESOLVED: That the Company establish a separate account, to be known as "New
England Variable Annuity Separate Account" (the "Variable Account")
or such other name as shall be determined by the Chairman of the
Board, in accordance with the provisions of Section 2932 of the
Delaware Insurance Code for the purpose of investing payments
received under variable annuity contracts issued by the Company (the
"Contracts"); that the portion of the assets of the Variable Account
equal to the reserves and other contract liabilities of the Variable
Account not be chargeable with liabilities arising out of any other
business the Company may conduct; that the assets of the Variable
Account be invested in shares of the New England Zenith Fund or, in
lieu thereof or in addition thereto, in the shares of any other
investment company registered under the Investment Company Act of
1940, at the net asset value of such shares; and that all steps
deemed necessary or appropriate be taken to comply with applicable
federal and state laws in order that the Contracts may be sold in all
jurisdictions in which the Company is authorized to conduct a
variable annuity business.
Registration of Variable Annuity Account
----------------------------------------
RESOLVED: That the Variable Account be organized as a unit investment trust,
that it be registered, if necessary or appropriate, with the United
States Securities and Exchange Commission under the Investment
Company Act of 1940, and that the Contracts be registered for sale
under the Securities Act of 1933; that for that purpose the Chairman
of the Board, the President, the Secretary, the General Counsel and
the Chief Actuary hereby are severally authorized and empowered to
execute and file or cause to be filed with the Securities and
Exchange Commission, in the name of and on behalf of the Company and
the Variable Account, a Notification of Registration on Form N-8A and
a Registration Statement on Form N-4, or on any other forms which the
rules of said Commission may permit and to take all other actions
which are necessary in
<PAGE>
connection with the offering of the Contracts for sale and the
operation of the Variable Account in order to comply with the
Investment Company Act of 1940, the Securities Exchange Act of 1934,
the Securities Act of 1933 and other applicable federal laws,
including the filing of any amendments to registration statements,
any undertakings, and any applications for exemptions from the
Investment Company Act of 1940 or other applicable federal laws as
the individual or individuals so acting shall deem necessary or
appropriate; and that H. James Wilson or his successor as General
Counsel of the Company is hereby appointed as agent for service under
any such registration statements duly authorized to receive
communications and notices from the Securities and Exchange
Commission with respect thereto.
Services and Distribution Agreements
------------------------------------
RESOLVED: That the Chairman of the Board, the President, the Secretary and the
General Counsel hereby are severally authorized and empowered to
execute such agreement or agreements as are deemed necessary and
appropriate including but not limited to an agreement under which New
England Mutual Life Insurance Company will provide all services
required to sell, issue and maintain the Contracts, and an agreement
under which New England Securities Corporation will act as principal
underwriter and distributor for the Contracts and may provide certain
other services for the Variable Account.
_______________________
Edward C. Hall
_______________________
Kernan F. King
_______________________
Robert E. Schneider
_______________________
Robert A. Shafto
_______________________
Daniel J. Toran
_______________________
Frederick K. Zimmermann
<PAGE>
Exhibit 3(i)
------------
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made as of this ____ day of ____________, 1995 by and between New
England Securities Corporation, a Massachusetts Corporation (the "Distributor")
and New England Variable Life Insurance Company, a Delaware Corporation (the
"Company").
W I T N E S S E T H:
WHEREAS the Company and the New England Variable Annuity Separate Account
(the "Account"), a separate investment account established pursuant to Section
2932 of the Delaware Insurance Code and a registered investment company under
the Investment Company Act of 1940 (the "1940 Act"), propose to offer for sale
certain variable annuity contracts and units thereunder (the "Contracts") that
may be deemed to be securities under the Securities Act of 1933 ("1933 Act") and
the laws of some states;
WHEREAS, the Distributor, a wholly-owned subsidiary of New England Mutual
Life Insurance Company, is registered as a broker-dealer with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934 (the "1934
Act") and is a member of the National Association of Securities Dealers, Inc.
("NASD");
WHEREAS, the parties desire to have the Distributor act as principal
underwriter for the Account and assume full responsibility for the securities
activities of any "person associated" (as that term is defined in Section 3(a)
(18) of the 1934 Act) with the Distributor and engaged directly or indirectly in
the variable annuity operation (the "associated persons");
WHEREAS, the parties desire to have the Company perform certain services in
connection with the sale of the Contracts;
<PAGE>
NOW, THEREFORE, in consideration of the covenants and mutual promises
herein contained, the Distributor and the Company agree as follows:
1. The Distributor will act as the exclusive principal underwriter during
the term of this agreement. The Distributor will be under no obligation to
effectuate any particular amount of sales of Contracts or to promote or make
sales except to the extent the Distributor deems advisable.
2. The Distributor will assume full responsibility for the securities
activities of, and for securities law compliance by, the associated persons,
including, as applicable, compliance with the NASD Rules of Fair Practice and
Federal and state laws and regulations. The Distributor, directly or through
the Company as its agent, will (a) make timely filings with the SEC, NASD, and
any other regulatory authorities of any sales literature or materials relating
to the Account, as required by law to be filed, (b) make available to the
Company copies of any agreements or plans intended for use in connection with
the sale of the Contracts in sufficient number and in adequate time for
clearance by the appropriate regulatory authorities before they are used, and it
is agreed that the parties will use their best efforts to obtain such clearance
as expeditiously as reasonably possible, and (c) train the associated persons,
use its best efforts to prepare them to complete satisfactorily applicable NASD
and state qualification examinations, register the associated persons as its
registered representatives before they engage in securities activities, and
supervise and control them in the performance of such activities.
3. The Company will, except as otherwise provided in this Agreement, bear
the cost of all services and expenses, including legal services and expenses and
registration, filing and other fees, in connection with (a) registering and
qualifying the Account, the Contracts, and (to the extent requested by the
Distributor) the associated persons with Federal and state regulatory
authorities and the NASD and (b) printing and distributing all registration
statements and prospectuses (including amendments),
2
<PAGE>
Contracts, notices, periodic reports, proxy solicitation materials, sales
literature and advertising filed or distributed in connection with the sale of
the Contracts.
4. The Company will, in connection with the sale of the Contracts, pay all
amounts (including sales commissions) due to the sales representatives or to
broker-dealers who have entered into sales agreements with the Distributor.
5. The Distributor, directly or through the Company as its agent, will
(a) maintain and preserve in accordance with Rules 17a-3 and 17a-4 under the
1934 Act all books and records required to be maintained in connection with the
offer and sale of the Contracts being distributed pursuant to this Agreement,
which books and records shall remain the property of the Distributor, and (b)
upon or prior to completion of each "transaction" as that term is used in Rule
10b-10 under the 1934 Act, send a written confirmation for each such transaction
reflecting the facts of the transaction and showing that it is being sent by or
on behalf of the Distributor acting in the capacity of agent for the Account.
6. The Distributor will execute such papers and do such acts and things as
shall from time to time be reasonably requested by the Company for the purpose
of (a) maintaining the registration of the Contracts under the 1933 Act and the
Account under the 1940 Act, and (b) qualifying and maintaining qualification of
the Contracts for sale under the applicable laws of any state.
7. Each party hereto shall advise the other promptly of (a) any action of
the SEC or any authorities of any state or territory, of which it has knowledge,
affecting registration or qualification of the Account or the Contracts, or the
right to offer the Contracts for sale, and (b) the happening of any event which
makes untrue any statement, or which requires the making of any change, in the
registration statement or prospectus in order to make the statements therein not
misleading.
8. As compensation for the Distributor's assuming the expenses and
performing the services to be assumed and performed by it pursuant to this
Agreement,
3
<PAGE>
the Distributor shall receive from the Company such amounts and at such times as
may from time to time be agreed upon by the Distributor and the Company.
9. As compensation for its services performed and expenses incurred under
this Agreement, the Company will receive all amounts charged as "Contingent
Deferred Sales Charges" for withdrawals made under the Contracts or any other
sales charges, as specified in the Contracts or in the prospectus or
prospectuses forming a part of any registration statement of the Account filed
under the 1933 Act. It is understood that the Company assumes the risk that the
above compensation for assuming such risk shall be included in and limited to
the periodic charge against assets of the Account described in said
prospectus(es).
10. The services of the Distributor and the Company under this Agreement
are not deemed to be exclusive and the Distributor and the Company shall be free
to render similar services to others, including without implied limitation such
other separate investment accounts as are now or hereafter established by the
Company, so long as the services of the Distributor and the Company hereunder
are not impaired or interfered with thereby.
11. It is understood that any Contractholder or agent of the Account may
be a policyholder, shareholder, director, officer, employee or agent of, or be
otherwise interested in, the Distributor, any affiliated person of the
Distributor, any organization in which the Distributor may have an interest or
any organization which may have an interest in the Distributor; that the
Distributor, any such affiliated person or any such organization may have an
interest in the Account; and that the existence of any such dual interest shall
not affect the validity hereof or of any transaction hereunder except as may
otherwise be provided in the articles of organization or bylaws of the
Distributor or by specific provisions of applicable law.
12. This Agreement shall become effective as of the date of its execution,
shall continue in full force and effect until terminated, may be amended at any
time by
4
<PAGE>
mutual agreement of the parties hereto, and may be terminated at any time
without penalty on sixty days' written notice by either party to the other.
13. For the purposes of this Agreement, the term "affiliated persons"
shall have its meaning defined in the 1940 Act subject, however, to such
exemptions as may be granted by the SEC under the 1940 Act.
14. This Agreement shall be governed by and construed in accordance with
the laws of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND SECURITIES CORPORATION
By
--------------------------------
NEW ENGLAND VARIABLE LIFE INSURANCE
COMPANY
By
--------------------------------
5
<PAGE>
Exhibit 3(ii)
NEW ENGLAND SECURITIES CORPORATION
VARIABLE PRODUCT SALES AGREEMENT
This Agreement is made and entered into as of _____, 199_, by and among New
England Securities Corporation ("NES"), a Massachusetts corporation, New England
Life Insurance Company ("NELICO"), a Massachusetts corporation and ___________
corporation, ("Contractor").
NES, principal underwriter of the Variable Products, hereby authorizes
Contractor to solicit applications for the purchase of such Variable Products,
in consideration of and subject to the following terms and conditions:
1. Definitions. For the purposes of this Agreement the following terms
-----------
are as defined:
1.1 "Variable Products" shall mean the variable life insurance policies
and/or variable annuity contracts issued by NELICO.
1.2 "Insurance Company" shall mean NELICO.
1.3 "Prospectus" shall mean the then-current prospectus for the Insurance
Company separate investment account that issues the Variable Product
together with the prospectus for any underlying mutual fund in which
the separate investment account may invest, and any supplements or
"stickers" to each such prospectus.
1.4 "Registered Representative" shall mean an individual who is duly
registered with the National Association of Securities Dealers, Inc.
("NASD") in compliance with the Securities Exchange Act of 1934, as
amended (the "1934 Act") and who is licensed as a life insurance
agent for the sale of variable life insurance and variable annuity
contracts in the jurisdictions in which applications are to be
solicited.
1.5 "Insurance Subsidiary" shall mean a subsidiary of the Contractor
formed as a domestic corporation that has obtained insurance agent or
broker licenses under applicable state law.
2. Licensing and Registration. Contractor represents that it is a
--------------------------
properly registered securities broker and/or dealer under applicable
federal and state securities laws and regulations. Each party hereto
represents that it is a member in good standing of the NASD, and
agrees to notify immediately the other should it cease to be either a
member in good standing of the NASD, and/or should it cease to be a
member of the NASD. It is further agreed that all rules and/or
regulations of the NASD now in effect or hereafter adopted, which are
binding upon underwriters and dealers in the distribution of variable
life insurance products and variable annuity contracts and such other
regulations applicable to Contractor and NES, shall be deemed to be a
part of this Agreement to the same extent as if set forth herein.
3. Contract Relationship. Throughout the term of this Agreement, the
---------------------
relationship of Contractor to NES shall be that of an independent
contractor. Contractor, and its employees, representatives and agents,
if any, are not and shall not be employees of NES.
1
<PAGE>
To preserve such independent contractor relationship, the parties
agree that Contractor at all times shall:
3.1 Pay all of its own overhead expenses, including but without
limitation, expenses for clerical assistance, rent, postage,
telephone and similar expenses, and federal and state income taxes
and payroll taxes under the Federal Insurance Contribution Act and
any applicable state unemployment, disability or other laws with
respect to its income.
3.2 Maintain such policies of workers compensation insurance as are
customary.
3.3 Not in any way hold itself out to any of its customers or potential
customers as being affiliated with NES.
3.4 Control the mode of conducting its business with complete discretion,
except as otherwise expressly provided in this Agreement.
3.5 Not enter into any agreement for or on behalf of NES, or create any
obligation, express or implied, by or in favor of NES.
3.6 Not accept payment for services for or on behalf of NES.
3.7 Not accept service of process for NES.
3.8 Not be a principal underwriter with respect to the Variable Products
or shares of the New England Zenith Fund.
4. Compensation.
------------
4.1 The Contractor, or if required by state law, the Insurance
Subsidiary, shall receive compensation with respect to sales of
Variable Products in transactions solicited by Registered
Representatives in accordance with the terms and conditions of NES'
then current distribution agreements applicable to sales of such
Variable Products, and in accordance with the terms and conditions
contained in the applicable Insurance Company broker-dealer insurance
marketing agreements, as may be amended from time to time. Such
compensation shall be remitted to Contractor or the Insurance
Subsidiary, as the case may be, through a General Agent of the
Insurance Company who is a Registered Representative of NES or by such
other procedures as NES shall specify. NES or such General Agent may
offset against any compensation payable to Contractor or the Insurance
Subsidiary any indebtedness owing from Contractor or the Insurance
Subsidiary to NES, the Insurance Company, or such General Agent.
4.2 Compensation shall be refunded by Contractor or the Insurance
Subsidiary, as the case may be, to NES, or its agent, in accordance
with the terms and conditions of the applicable Insurance Company
broker-dealer insurance marketing agreement, as amended from time to
time. Such refund may be effected, at NES' option, by deduction by NES
from other moneys to be paid to Contractor or the Insurance
Subsidiary.
5. Covenants of Contractor. Contractor covenants and agrees that,
-----------------------
during the term of this Agreement:
2
<PAGE>
5.1 Contractor is, and at all times during the term of this Agreement
shall be, a securities broker registered and in good standing with
the Securities and Exchange Commission ("SEC") as a broker-dealer
pursuant to Section 15(a) of the 1934 Act, a member in good standing
of the NASD, and a registered broker-dealer under state law to the
extent required in order to provide the services discussed in this
Agreement.
5.2 Contractor shall at all times conduct its business solely in
accordance with the rules and regulations of the SEC, the NASD, any
other appropriate self-regulatory organization and all appropriate
state insurance and securities authorities. Contractor shall assume
full responsibility for the securities activities of, and for
securities law compliance by, any "person associated" (as that term
is defined in Section 3(a)(18) of the 1934 Act) with Contractor,
including, as applicable, compliance with rules and regulations of
the NASD and with federal and state laws and regulations. Contractor
understands that if failure to comply with the rules, regulations,
and requirements of applicable state and federal law results in
disciplinary action against it by the NASD and any other regulatory
authority having jurisdiction, that such failure may result in the
suspension by NES, in the sole discretion of NES, of Contractor's
authority to represent NES or in the termination of this Agreement by
NES.
5.3 Contractor or the Insurance Subsidiary, as the case may be, shall
instruct purchasers to remit all premiums directly to the Insurance
Company or shall forward any premiums received from purchasers
directly to the Insurance Company.
5.4 Contractor agrees that NES will act as Contractor's agent in
providing customer confirmations pursuant to Rule l0b-10 under the
1934 Act.
5.5 Contractor will itself be, or will select persons associated with it
who are, trained and qualified to solicit applications for purchase
of the Variable Products in conformance with applicable state and
federal laws. Any such person shall be a Registered Representative of
Contractor in accordance with the rules of the NASD, be licensed to
offer the Variable Products in accordance with the insurance laws of
any jurisdiction in which such person solicits applications and be
licensed with and appointed by the applicable Insurance Company as an
insurance agent to solicit applications for the Variable Products.
The activities of all Registered Representatives of Contractor
referred to in this paragraph will be under the direct supervision
and control of Contractor. The right of such Registered
Representatives to solicit applications for the purchase of Variable
Products is subject to their continued compliance with the rules and
procedures which may be established by Contractor, NES or the
Insurance Companies, including those set forth in this Agreement.
5.6 Contractor and its Registered Representatives shall solicit
applications for the Variable Products in accordance with applicable
state insurance law requirements and other applicable federal and
state laws and regulations. Neither Contractor nor its Registered
Representatives shall offer the Variable Products for sale in any
state where such products are not qualified for sale under applicable
laws and regulations, where neither Contractor nor its Registered
Representatives is authorized to sell such Variable Products, or
where Contractor is not qualified to act as a broker-dealer.
3
<PAGE>
5.7 Contractor shall be responsible for the training, supervision and
control of all non-registered personnel of any Insurance Subsidiary
and generally shall be responsible for supervising and inspecting
each such Insurance Subsidiary.
5.8 Contractor shall use its best efforts to maximize sales of the
Variable Products contemplated by this Agreement, but shall not be
required to devote its exclusive efforts thereto.
5.9 Contractor shall provide or shall cause its Registered
Representatives to provide a Prospectus whenever required by
applicable law in connection with the sale or delivery of Variable
Products pursuant to the provisions of this Agreement, and shall
fully explain or shall cause its Registered Representatives to
explain to a prospective customer or customers the terms of any
Variable Product offered or sold to such customers.
5.10 Contractor shall not make, nor permit its Registered Representatives
to make, any untrue or misleading statement or representation, and
shall not omit, nor permit its Registered Representatives to omit, to
state any material information or fact, pertaining to any aspect of
an offer or sale of Variable Products to a prospective customer or
customers.
5.11 Contractor shall not use, nor permit its Registered Representatives
to use, any Prospectus, prospecting material, advertising, sales
material, or related materials in connection with offers and sales of
the Variable Products, unless the same have been provided or approved
in advance in writing by NES. Contractor shall comply with such
instructions relating to the sale of Variable Products as may
reasonably be requested by NES.
5.12 Contractor shall at all times use its best efforts to obtain and
maintain in full force and effect policies of professional liability
insurance against errors and omissions in such amounts and on such
terms as are customary in the securities industry for a broker of
Contractor's size and type. Contractor shall allow NES to review such
policies from time to time upon NES' request in writing. Contractor
agrees promptly to notify NES of any change in any such policy.
Contractor understands that Contractor is not covered under any
insurance policy, including but not limited to any errors and
omissions coverage, maintained by NES or any affiliate of NES.
5.13 Contractor agrees to furnish to NES such information as may from time
to time be requested by NES for the purpose of complying with the
applicable provisions of federal or state securities laws and the
by-laws, rules or regulations of the NASD or any other securities
regulatory authority. Contractor also agrees to furnish to NES such
information as may from time to time be requested by NES for the
purpose of updating the financial and other information supplied by
Contractor to NES prior to entering this Agreement. Contractor shall
immediately notify the Compliance Department of NES of any
proceeding, suit or action, whether criminal, civil or
administrative, or the commencement by the NASD or any other
securities regulatory authority or any other state or federal
authority of any investigation, if such proceeding, suit, action or
investigation arises out of or in connection with Contractor's
activities as broker or dealer with respect to Variable Products.
Contractor shall promptly notify NES if it becomes the subject of any
disciplinary or license revocation proceeding, or if it is the
subject of any governmental order, that affects its right or ability
to perform broker-dealer services. Contractor shall also immediately
notify the Compliance Department of NES of any complaint by a
prospect or customer or regulatory authority regarding the Variable
4
<PAGE>
Products or Contractor's activities as broker or dealer. NES and the
Insurance Company reserve the right to resolve any such complaints
involving the Variable Products by a prospect or customer or
regulatory authority. Any response by NES or the Insurance Company to
a complaint will be sent to Contractor for approval not less than
five business days before its being sent to the prospect, customer or
regulatory authority except that if a more prompt response is
required, the proposed response shall be communicated by telephone.
Contractor shall not be liable to NES or the Insurance Company on
account of any settlement of any claim or action effected without the
consent of Contractor.
5.14 Contractor shall advise NES of any claim or demand, including without
limitation, any pending or threatened litigation for which NES or the
Insurance Company would be entitled to indemnity or contribution
pursuant to paragraph 7 of this Agreement.
5.15 All covenants of Contractor contained in this Agreement shall be
deemed to be continuing representations and warranties of Contractor
which shall survive the termination of this Agreement.
6. Covenants of NES. NES covenants and agrees that, during the term of
----------------
this Agreement:
6.1 NES is, and at all times during the term of this Agreement shall be,
a securities broker registered and in good standing with the SEC as a
broker-dealer pursuant to Section 15(a) of the 1934 Act and a member
in good standing of the NASD.
6.2 NES shall at all times conduct its business solely in accordance
with the rules and regulations of the SEC, the NASD, any other
appropriate self-regulatory organization and all appropriate state
securities authorities.
6.3 NES shall advise Contractor of any claim or demand, including without
limitation, any pending or threatened litigation, for which
Contractor would be entitled to indemnity or contribution pursuant to
paragraph 7 of this Agreement.
6.4 All covenants of NES contained in this Agreement shall be deemed to
be continuing representations and warranties of NES which shall
survive the termination of this Agreement.
7. Indemnification. Contractor and NES agree as follows:
---------------
7.1 Contractor agrees to indemnify and hold NES and the Insurance Company
harmless from any and all cost, expense and liability, including
reasonable attorneys' fees, resulting from any claims, demands,
liabilities, losses, damages or expenses (collectively, "Claims")
arising out of or relating to (a) any offers and/or sales by
Contractor of securities other than the Variable Products
contemplated by this Agreement, (b) any business or activity of
Contractor not expressly contemplated by this Agreement, and (c) any
applications for Variable Products, solicitations of applications for
the Variable Products or offers to sell or sales of Variable Products
to the extent such Claims result from acts or omissions by
Contractor, its representatives, agents, sub-agents or any Insurance
Subsidiary. For purposes of this sub-paragraph 7.1, NES shall be
deemed to include its "controlling persons" as defined in Section 15
of the Securities Act of 1933 and Section 20(a) of the 1934 Act.
5
<PAGE>
7.2 NES agrees to indemnify and hold Contractor harmless from any and all
cost, expense and liability, including reasonable attorneys' fees,
resulting from any Claims arising out of or relating to any offer to
sell or sales of Variable Products made pursuant to this Agreement to
the extent such Claims result from acts or omissions by persons other
than the Contractor or persons with respect to whose activities the
Contractor is responsible. For purposes of this sub-paragraph 7.2,
Contractor shall be deemed to include its "controlling persons" as
defined in Section 15 of the Securities Act of 1933 and Section 20(a)
of the 1934 Act.
8. Application Procedures. Contractor shall comply with all procedures
----------------------
established by the Insurance Company and NES for the handling of
applications, initial premiums, and insurance policy proceeds. The
Insurance Company shall have the unqualified right to refuse any
application for a Variable Product.
9. Sales Material. No person is authorized to make any representations
--------------
concerning the Variable Products except those contained in the
currently applicable Prospectus and in sales literature issued and
approved by NES supplemental to such Prospectus. NES shall furnish
without charge additional copies of the current Prospectus and such
sales literature and other releases and information issued by NES in
reasonable quantities upon request. Contractor agrees that it shall in
all respects duly conform with all laws and regulations applicable to
the sale of the Variable Products. In the offer and sale of the
Variable Products, Contractor may not use any prospectus or
advertising, prospecting, or sales material not provided or approved
in writing by NES.
10. Confirmations: Books and Records. NES shall confirm or cause to be
--------------------------------
confirmed to customers of Contractor all policy transactions, as and
to the extent legally required. Contractor shall maintain all books
and records as required by Rules 17a-3 and 17a-4 under the 1934 Act,
except to the extent that NES may agree to maintain any such records
on Contractor's behalf. Records subject to any such agreement shall be
maintained by NES, either directly or through the services of NELICO
or an affiliate of NELICO, as agent for Contractor in compliance with
said rules, and such records shall be and remain the property of
Contractor and be at all times subject to inspection by the SEC in
accordance with Section 17(a) of the 1934 Act. Except for those books
and records maintained by or on behalf of Contractor in accordance
with Rules 17a-3 and 17a-4 under the 1934 Act, all books, documents,
prospectuses, application forms, or other materials or supplies in the
possession of Contractor which pertain to the Variable Products or to
the business of NES shall be the property of NES or the Insurance
Company, as the case may be, which at any and all times shall be open
to inspection by any duly authorized representative of NES or the
Insurance Company and at the termination of this Agreement shall be
returned to NES. All records and information obtained by Contractor
pursuant to this Agreement shall be deemed to be confidential in
nature, and Contractor shall not disclose or use any such records or
information in any manner whatsoever except as expressly authorized in
writing by NES or as required by federal or state regulatory
authorities or court order. Contractor shall submit to all regulatory
and administrative bodies having jurisdiction over the operations of
NES, the Insurance Company, or Contractor any information, reports or
other material obtained pursuant to this Agreement which any such body
may request or require pursuant to applicable laws or regulations.
6
<PAGE>
11. Assignments. No assignment of this Agreement or of commissions
-----------
payable hereunder shall be made by Contractor without the prior
written consent of NES. Any such assignment of commissions is also
subject to the requirement and limitations thereon contained in any
applicable Insurance Company broker dealer insurance marketing
agreements.
12. Miscellaneous. This Agreement supersedes and cancels any prior
-------------
agreement between Contractor and NES with respect to the sale of the
Variable Products. Either party to this Agreement may cancel this
Agreement without cause at any time by written notice to the other.
13. Any notice to NES shall be given if mailed or telegraphed to it at
the address specified below, or at such other address as NES gives
notice of to Contractor:
Compliance Department
New England Securities Corporation
501 Boylston Street, 10th Floor
Boston, MA 02116
Any notice to Contractor shall be duly given if mailed or telegraphed
to it at the address specified below, or at such other address as
Contractor gives notice of to NES:
--------------------------------------------
--------------------------------------------
--------------------------------------------
14. Governing Law. This Agreement shall be governed by the laws of The
-------------
Commonwealth of Massachusetts.
15. No Hire. Contractor and NELICO acknowledge that each will have access
-------
to the names of the other's Registered Representatives as a result of
performing their respective obligations under this Agreement, and that
each may establish close working relationships with such persons.
Therefore, Contractor and NELICO agree that while Registered
Representatives maintain their affiliation with each and for twelve
(12) months after their termination of the affiliation:
(a) Contractor and NELICO will not hire any Registered
Representatives of the other.
(b) Contractor and NELICO acknowledge that their Registered
Representatives hold important contractual and business
relationships with each and agree that each shall not interfere
in any way with the relationships, contractual or otherwise,
between the other and its Registered Representatives. Contractor
and NELICO shall not induce or encourage, or attempt to induce or
encourage, any Registered Representative of the other to
terminate or change his or her relationship with the other.
7
<PAGE>
The parties hereto have executed this Agreement as a sealed instrument as of the
date first above written.
CONTRACTOR: NEW ENGLAND SECURITIES
CORPORATION
By: By:
--------------------------- ---------------------------
Title: Title:
--------------------------- ---------------------------
NEW ENGLAND
LIFE INSURANCE COMPANY
By:
---------------------------
Title:
---------------------------
8
<PAGE>
V80
New England Variable Life
Insurance Company
Flexible Purchase Payment Deferred Variable Annuity Contract
Annuitant
John Alden
Contract Number
Specimen
New England Variable Life Insurance Company Agrees to pay monthly income to the
Annuitant under the Payment Option shown in Section 1 starting on the Maturity
Date unless Death Proceeds or full Surrender Proceeds have been paid; and to
provide the other rights and benefits of the Contract
These agreements are subject to all of the provisions of the Contract.
Signed on the Date of Issue for the Company at its
Administrative Office,
501 Boylston Street
Boston, MA 02117
Robert A. Shafto
/s/
President
Flexible Purchase Payment Deferred Variable Annuity Contract
. Monthly income is payable starting on the Maturity Date.
. The Death Proceeds are payable if an Owner dies before the Maturity Date,
unless the contract is in force under a Payment Option or is continued
under the Continuation provision. (See Death Proceeds provision in Section
8.)
. Purchase payments can be paid to the Company before the Maturity Date,
before Death Proceeds are paid, and before full surrender, subject to the
Amount and Frequency provision in Section 3.
<PAGE>
. Purchase payments can be increased or decreased from time to time, subject
to the Amount and Frequency provision in Section 3.
Please Read Your Contract Carefully
This is a legal contract between you and the Company.
Monthly payments and other values provided by this Contract, when based on the
investment performance of a separate investment account, are variable; they are
not guaranteed as to dollar amount.
Ten Day Right to Return the contract
When the Contract is issued, you have 10 days after you receive it from the
Company to review it. Within those 10 days, you can return the Contract to the
Company or its Agent for any reason. If you return the Contract: any Contract
Value on the date you return the Contract will be paid to you; and the Contract
will be cancelled from the start.
<PAGE>
Contract Provisions Alphabetical Guide
Section Section
1 Contract Schedule 6 Accumulation Units
2 Contract 6 Accumulation Unit Value
3 Purchase Payments 8 Amount of Variable
4 The Variable Account Monthly Payments
5 The Fixed Account 6 Annual Administration Fee
6 Contract Value 7 Annuitant, Contingent
7 Owner, Beneficiary and 8 Annuity Unit
Contingent Annuitant 8 Annuity Unit Value
8 Payment of Benefits 7 Assignments
9 Payment Options 8 Assumed Interest Factor
10 Variable Payment Option 8 Assumed Interest Rate
Tables 7 Beneficiary
. Riders, if any 8 Benefits, Payment of
. Copy of the Application 4 Change of Eligible Funds
. Amendments and 2 Claims of Creditors
Endorsements 6 Contingent Deferred
Sales Charges
7 Contingent Annuitant
2 Contract
1,2 Contract Date
6 Contract Value
8 Death Proceeds
5 Fixed Account
9 Fixed Payment Options
1,8 Maturity Date
8 Maturity Proceeds
6 Net Investment Factor
3 Net Purchase Payments
4 New England Zenith Fund
7 Owner
2 Periodic Reports
3 Purchase Payments
1 Schedule, Contract
8 Continuation
4 Sub-accounts
6 Surrender of the Contract
7 Suspension of Payments
4 Transfer Option
6 Valuation Dates
6 Valuation Periods
10 Variable Payment Option Tables
9 Variable Payment Options
<PAGE>
New England Variable Life
Insurance Company
1. Contract Schedule
Owner and Beneficiary As named in the application or as later changed. See the
Owner and Beneficiary Section of the Contract.
Contract Number Annuitant's Sex Annuitant's Date of Birth
Specimen Male December 1, 1959
Contract Date Date of Issue Maturity Date
December 1, 1994 December 1, 1994 December 1, 2054
Payment Option at Maturity
Variable Life Income, 10 Years Certain
Total Purchase Payments Per Year
Based on the Purchase Payment Mode and Amount
Shown in the Application: $1,000.00
Maximum Contingent Deferred Sales Charge (See Section 6): Each purchase payment
is subject to a Charge for 7 years from the date the payment is received by the
Company.
During Year Charge
1 7.0%
2 6.0%
3 5.0%
4 4.0%
5 3.0%
6 2.0%
7 1.0%
Thereafter 0%
Contingent Annuitant. As named in the Application or as later changed. See the
Contingent Annuitant provision in Section 7.
H. James Wilson
/s/
Secretary
<PAGE>
2. Contract
The Contract
This Annuity Contract is a legal contract between the Owner of the Contract
(called "you") and New England Variable Life Insurance Company (called the
"Company"). The Contract, which includes the attached Application, is the entire
contract between you and the Company. All Riders are listed in Section 1. A
change in or waiver of the provisions of the Contract must be signed by the
President or the Secretary of the Company to be valid.
Payments Under the Contract
All Contract amounts are in dollars of the United States of America. Payments by
the Company under the Contract will be made from the Administrative Office of
the Company.
Dates
Contract years, months and anniversaries are all measured from the Contract
Date. The Contract Date is shown in Section 1.
Claims of Creditors
The Contract and payments under it will be exempt from the claims of creditors
to the extent allowed by law.
Not Contestable
This Contract is not contestable.
Periodic Reports
The Company will send you an annual report which will show: the number of
Accumulation Units, if any, standing to the credit of the Contract; the
applicable Accumulation Unit Values; the Contract Value; and any other
information required by law or regulation.
The Company will send you all reports required by applicable laws and
regulations.
Expense and Mortality Experience
Regardless of the Company's expense and mortality experience, the charges
specified in this Contract will not be increased.
Annuity Contract
The Company reserves the right to make any change to the provisions of this
Contract to comply with or give the Owner or Beneficiary the benefit of any
federal or state law, rule or regulation. This includes, but is not limited to,
requirements for annuity contracts under the Internal
<PAGE>
Revenue Code (for example, the requirements for distribution on the death of a
holder) or the laws of any state.
3. Purchase Payments
Payment
Purchase payments are your payments to the Company for the Contract. Payments
are to be made at the Administrative Office of the Company. A receipt for
payment signed by the Secretary of the Company will be given on request. The
Contract will not be in force until the first purchase payment is paid.
Following payment of the first purchase payment, the Contract will be in force
by its terms; and failure to make subsequent purchase payments will not cause
the Contract to lapse.
The premium for any Rider is not a purchase payment for the Contract and is
payable in addition to the purchase payment.
Amount and Frequency
Your purchase payments can be made in any amounts, except that:
. No payment can be less than $250 except with the consent of the Company;
and
. The Company reserves the right to limit purchase payments in any contract
year to three times the amount per year shown, if the Purchase Payment
Amount in Section 1 is shown as an amount per year; and
. The Company reserves the right to limit purchase payments to the Purchase
Payment Amount, if the Purchase Payment Amount in Section 1 is shown as a
Single Payment.
No payment can be made:
. Within seven years of the Maturity Date; or
. After a living Owner is age 86; or
. After the Annuitant is age 86, if the Contract is not owned by a person; or
. If the Contract is being continued under Beneficiary Continuation; or
<PAGE>
. If the Contract is in force under a Payment Option.
You can arrange for purchase payments to be scheduled on dates which are the
first day of annual, semi-annual, or quarterly payment periods, or at any other
frequency agreed to by the Company.
Net Purchase Payments
A net purchase payment is equal to:
. The purchase payment paid;
LESS
. Any applicable state premium tax.
(See the State Premium Tax Charge provision of Section 6.)
4. The Variable Account
New England Variable Annuity Separate Account
The New England Variable Annuity Separate Account (called "the Account") is a
separate investment account established by the Company in accordance with
Delaware law. The assets of the Account are owned by the Company. The assets of
the Account will be used to provide values and benefits under this Contract and
similar contracts, but the Account is not chargeable with liabilities arising
out of any other business the Company may conduct.
Sub-Accounts
The Account consists of sub-accounts, each of which is invested in shares of one
series of the New England Zenith Fund or its successor or any other investment
company in which the Account is invested. Shares of a series are purchased for a
sub-account at their net asset value.
The Contract's first investment in the Account will be made as of the latest of:
. The Contract Date;
. The date the first purchase payment is received by the Company at its
Administrative Office; and
. The effective date of the election of a sub-account.
Each future net purchase payment allocated to the Account will be applied as of
the date it is received by the Company at its Administrative Office. Each
transfer to a sub-account
<PAGE>
will be applied as of the date the transfer request is received by the Company
at its Administrative Office. (See Transfer Option provision.)
Each distribution of income, dividends and capital gains from a series to the
Account will be reinvested for the benefit of the owners of the contracts at net
asset value in shares of the series which made the distribution.
The Contract Value at any time cannot be allocated among more than 10 sub-
accounts, except with the consent of the Company; and the Fixed Account will be
counted in the limit of 10.
The values of a contract depend on: the investment performance of the series in
which the sub-accounts are invested; and the interest credited to the Fixed
Account. You bear the investment risk for amounts invested in the sub-accounts
for your Contract.
Election of Sub-Accounts
You elect the sub-accounts in which the Contract Value is invested. The series
that are available as of the Date of Issue are listed in the then current
prospectus for the Account.
Change in Series
The Company can add or remove series as sub-account investments as permitted by
law. When a change is made, the Company will send you: a revised prospectus for
the Account which will describe all of the series then available under the
Contract in the New England Zenith Fund or its successor or any other investment
company in which the Account is invested; and any notice required by law.
When a series is removed, the Company has the right to substitute a different
series in which the sub-account will then invest the value of the removed
series.
Transfer Option
You can transfer the Contract's existing share of a sub-account to or from a
sub-account or the Fixed Account, subject to the Company's published rules for
transfers. While the Contract is in force other than under a Payment Option, the
Company reserves the right to: limit the number and amount of transfers in each
contract year; and to charge a fee for transfers. While a Variable Payment
Option is in effect, transfers of existing shares of a sub-account will be
subject to a limit of 1 in each contract year, except with the consent of the
Company. Requests for transfers can
<PAGE>
be made in writing or by telephone. The Company is not responsible for the
authenticity of transfer instructions received by telephone.
Rights Reserved by the Company
The Company reserves the right to take certain actions subject to compliance
with law and, if required, the approval of the owners of the contracts. These
actions are: (a) to create new investment accounts; (b) to combine any two or
more separate investment accounts, including the Account; (c) to invest the
assets of the Account other than in the New England Zenith Fund; (d) to invest
some or all of the assets of the Account in any other investment company chosen
by New England Variable Life Insurance Company; (e) to remove a series in which
the sub-account is invested or to substitute a different series; (f) to operate
the Account as a management investment company and to charge investment advisory
fees under the Investment Company Act of 1940 or in any other form permitted by
law; and (g) to deregister the Account under the Investment Company Act of 1940
if registration is no longer required.
5. The Fixed Account
The Fixed Account
The Fixed Account is part of the general account of the Company.
If you elect the Fixed Account, the first date on which money is applied to the
Fixed Account for the Contract is the latest of:
. The Contract Date;
. The date the first purchase payment is received by the Company at its
Administrative Office; and
. The effective date of the election of the Fixed Account.
Each future net purchase payment allocated to the Fixed Account will be applied
as of the date it is received by the Company at its Administrative Office. Each
transfer to the Fixed Account will be applied as of the date the transfer
request is received by the Company at its Administrative Office. (See the
Restriction of Payments and Transfers to the Fixed Account provision.)
For each transfer from the Fixed Account, the Contract's share of the Fixed
Account will be reduced by the amounts
<PAGE>
(plus the interest credited to the amounts) most recently applied to the Fixed
Account.
For each surrender from the Fixed Account, the Contract's share of the Fixed
Account will be reduced by the amounts (plus the interest credited to the
amounts) in the same order in which they were applied to the Fixed Account.
Fixed Account Interest
The rate of interest for each amount applied to the Fixed Account will be the
rate set by the Company in advance for the date the amount is applied to the
Fixed Account. This rate will apply for 12 months. Thereafter, each year a new
rate will apply to the amount plus the interest credited to the amount. The new
rate will be the renewal rate set by the Company in advance for that date and
will apply for 12 months. No rate will be less than the rate equivalent to an
annual effective rate of 3%.
Interest will be credited to the Fixed Account on a daily basis.
Restriction of Payments and Transfers to the Fixed Account
The Company reserves the right to restrict payments and transfers to the Fixed
Account for the Contract:
. If the effective annual rate of interest that would apply to the payment or
transfer is 3%; or
. If the Contract's value in the Fixed Account equals or exceeds the
Company's published maximum for Fixed Account investments.
For 180 days from the date of any transfer out of the Fixed Account: you cannot
make any transfers to the Fixed Account; and the Company reserves the right to
restrict payments to the Fixed Account for the Contract.
Transfers Out of the Fixed Account
Each contract year you can transfer a limited portion of the Contract's value in
the Fixed Account to the sub-accounts, subject to the Company's published limits
on the number and amount of transfers. (See Section 4.) Requests for transfers
can be made in writing or by telephone. The Company is not responsible for the
authenticity of transfer instructions received by telephone. Except with the
consent of the Company, the transfer will be limited to the greater of: 25% of
the Contract's value in the Fixed Account at the end of the first day of the
contract year; and the amount
<PAGE>
transferred out of the Fixed Account in the prior contract year.
For 180 days from the date of any transfer out of the Fixed Account, you cannot
make any transfers to the Fixed Account.
Election of the Fixed Account
You can elect to have future net purchase payments applied to the Fixed Account.
You can change the election for future net purchase payments at any time by
notice to the Company in writing. (See the Restriction of Payments and Transfers
to the Fixed Account provision.)
Postponement of Surrenders, Partial Surrenders and Transfers From the Fixed
Account
The Company can postpone for six months from the date of request: the payment of
the portion of the Contract's Surrender Proceeds and partial surrender proceeds
which is in the Fixed Account; and transfers from the Fixed Account. The
effective date of the transfer is the date on which values are transferred from
the Fixed Account.
6. Contract Value
Contract Value
On or before the Maturity Date and while the Contract is in force other than
under a Payment Option, the Contract Value is equal to: the number of
Accumulation Units standing to the credit of the Contract multiplied by the
applicable Accumulation Unit Value(s); plus the Contract's value in the Fixed
Account.
The Contract Value is not increased by the cash value of any Rider, unless
stated in the Rider.
The Contract's Value in the Fixed Account is equal to (a) plus (b) minus (c);
where
. (a) is equal to the portion of the net purchase payments applied to the
Fixed Account;
PLUS
the total of transfers into the Fixed Account for the Contract;
. (b) is equal to any interest credited for the Contract to the
Fixed Account; and
<PAGE>
. (c) is equal to the total of partial surrenders made from the Fixed Account
for the Contract;
PLUS
the total of transfers out of the Fixed Account for the Contract;
PLUS
the total of any charges deducted for transfers and partial surrenders from
the Fixed Account for the Contract.
Purchase Payments Allocated to the Account
Each net purchase payment allocated to the Account will be credited in the form
of Accumulation Units to the sub-accounts you elect. The number of Accumulation
Units credited to a sub-account will be equal to the portion of the net purchase
payment credited to that sub-account divided by the Accumulation Unit Value for
that sub-account for the applicable Valuation Period.
Accumulation Unit Value
An Accumulation Unit Value is determined for each sub-account of each Valuation
Period. The Accumulation Unit Value of each sub-account for its first Valuation
Period was set at $1.00 taking into account the performance history of the
underlying investment company. Each Accumulation Unit Value for each later
Valuation Period is equal to:
. The Net Investment Factor for that Valuation Period;
TIMES
. The Accumulation Unit Value for the immediately preceding Valuation Period.
The Net Investment Factor depends on the investment performance of the sub-
accounts elected and can be greater or less than one. Therefore, the
Accumulation Unit Value can increase or decrease.
Net Investment Factor
The Net Investment Factor for each sub-account for each Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result; where:
. (a) is equal to the net asset value per share of the series held in the
sub-account as of the end of that Valuation Period;
PLUS
<PAGE>
the per share amount of all dividend and capital gains distributions made
by the series held in the sub-account if the ex-dividend date occurs during
that Valuation Period;
PLUS or MINUS
a per share charge or credit for any reserve for taxes which the Company
determines to apply to the sub-account and to this Contract;
. (b) is equal to the net asset value per share of the series held
in the sub-account for the immediately preceding Valuation Period;
PLUS or MINUS
a per share charge or credit for any reserve for taxes which the Company
determines to apply to the sub-account and to this Contract; and
. (c) is equal to .0000369863 times the number of days in that Valuation
Period.
The daily deduction of .0000369863 is equal to .0135 on an annual basis. The
deduction of .0135 on an annual basis consists of: .007 for mortality risk
assumptions; and .0055 for expense risk assumptions; and .001 for an
administrative asset charge.
Valuation Periods and Valuation Dates
Values for a date depend on the time of day for which they are to be determined;
they will be determined with respect to each sub-account as of the next
occurring end of a Valuation Period. A Valuation Period for each sub-account is
a period:
. Which starts on a Valuation Date at the time of day specified by the
applicable series for determining the net asset value of its shares; and
. Which ends on the next succeeding Valuation Date at that time of day.
Each day the New York Stock Exchange is open for trading is a Valuation Date.
Annual Fees
The Company will charge an annual Administration Fee equal to the lesser of: 2%
of the Contract Value; $30; and the Contract's value in the sub-accounts. The
fee for a contract
<PAGE>
year will be charged on the first day of the next contract year unless:
. The Contract Value is at least $50,000 at the end of the contract year; or
. The total purchase payments made less surrenders taken in the contract year
were at least $1,000 and the Contract Value at the end of the prior
contract year was at least $25,000; or
. The Contract is in force under a Payment Option; or
. The Contract is being continued under Beneficiary Continuation.
If the Contract is surrendered or matures on a date which is not a contract
anniversary, the charge will be the pro rata portion of the fee for the period
beyond the most recent contract anniversary.
The fee will be charged against the sub-accounts proportionately. The portion of
the fee charged to each sub-account will reduce the number of Accumulation Units
standing to the credit of the Contract in that sub-account.
The fee will not be charged against the Fixed Account.
Surrender of the Contract
While the Contract is in force other than under a Payment Option, you can
surrender the Contract at any time prior to the Maturity Date by notice to the
Company in writing. Upon surrender, the Contract will terminate. The Surrender
Proceeds will be equal to: the Contract Value as of the Surrender Date; less any
Administration Fee; less any Contingent Deferred Sales Charge; and less any
State Premium Tax Charge. The Surrender Date is the date on which the Company
receives at its Administrative Office:
. Written request in proper form for surrender and payment in one sum; or
. Written request in proper form for surrender and payment under one of the
Payment Options; or any later date that may be specified in the request.
(See Payment of Benefits, Section 8.)
You can also make a partial surrender, but the consent of the Company will be
required if: the remaining Contract
<PAGE>
Value would be less than $1,000; or if the amount of partial surrender is less
than the Company's published minimum. A partial surrender will reduce the
Contract's share of the sub-accounts and the Fixed Account proportionately,
unless you request otherwise. A partial surrender will reduce the Minimum
Guaranteed Death Benefit (see Section 8) proportionately to the reduction in the
Contract Value.
Contingent Deferred Sales Charges
A Contingent Deferred Sales Charge will apply to certain partial or full
surrender transactions.
When one of these transactions occurs, the Company will determine if a Charge
applies. If a Charge applies, the Charge will be calculated as if purchase
payments were surrendered in the same order in which they were made. The Charge
is equal to the sum of: each purchase payment to be considered surrendered in
the calculation; times the appropriate percentage from the table in Section 1.
The total purchase payments subject to a Charge in the future will not be
decreased as a result of the surrender of the Free Surrender Amount (see below).
No Charge will be deducted in the event of:
. Maturity of the Contract; or
. Payment of the Death Proceeds; or
. Surrender 30 days or more from the Contract Date, if the proceeds are
applied: for a period of at least 15 years to the Income for Specified
Number of Years Option or to the Income Payment to Age 100 Option; or to
the Life Income Option; or to the Life Income for Two Lives Option.
In each contract year, the Free Surrender Amount will be exempt from any
Contingent Deferred Sales Charge. The Free Surrender Amount is equal to the
greater of: 10% of the Contract Value on the first day of the contract year; and
the excess of the Contract Value over purchase payments subject to the
Contingent Deferred Sales Charge on the date of surrender.
In no event will the total Charges exceed 8% of the first $50,000 of purchase
payments made under the Contract plus 6.5% of purchase payments in excess of
$50,000 made under the Contract.
<PAGE>
State Premium Tax Charge
A State Premium Tax Charge, as required by law, will be deducted from: proceeds
applied to a Payment Option; Death Proceeds; and partial and full surrenders.
The charge will equal the proceeds times the appropriate state premium tax
rates. The Company reserves the right to deduct state premium taxes from
purchase payments. (See the Net Purchase Payment provision of Section 3.)
7. Owner, Beneficiary and Contingent Annuitant
Owner
The Owner of the Contract is named in the Application (see copy attached); but,
with the consent of the Company the Owner can be changed. The new Owner will
succeed to all rights of the Owner, including the right to make a further change
of Owner. Joint Owners can be named. In this Contract "you" means the Owner,
whether an Owner is a person, a partnership, a corporation, a fiduciary or any
other legal entity. At the death of an Owner, Death Proceeds will be paid unless
the Contract is continued under the Continuation provision.
If an Owner is not a person, the Annuitant will be treated as the Owner for the
purposes of the Death Proceeds provision. (See Section 8.)
Beneficiary
The Death Proceeds will be paid to the Beneficiary if an Owner dies before the
Maturity Date, unless the Contract is in force under a Payment Option or is
continued under the Continuation provision. The Beneficiary is named in the
Application (see copy attached); but, the Beneficiary can be changed before the
Death Proceeds become payable. The Beneficiary has no rights in the Contract
until the death of an Owner. A person must be living when the Death Proceeds
become payable to qualify as Beneficiary. If none survives and the Contract had
joint Owners, the proceeds will be paid to the surviving Owner; otherwise, the
proceeds will be paid to the estate of the Owner. The Beneficiary can also be a
corporation, a partnership, a fiduciary, or any other legal entity.
Change of Owner or Beneficiary
A change of Owner or Beneficiary must be in written form satisfactory to the
Company, and must be dated and signed by the Owner making the change. The change
will be subject to all payments made and actions taken by the Company under the
<PAGE>
Contract before the signed change form is received by the Company at its
Administrative Office.
Assignments
An absolute assignment of the Contract by the Owner is a change of Owner and
Beneficiary to the assignee; but upon an absolute assignment after the
Annuitant's death, the Contingent Annuitant must be an Owner of the Contract. A
collateral assignment of the Contract by the Owner is not a change of Owner or
Beneficiary; but their rights will be subject to the terms of the assignment.
Assignments will be subject to all payments made and actions taken by the
Company before a signed copy of the assignment form is received by the Company
at its Administrative Office. The Company will not be responsible for
determining whether or not an assignment is valid.
Designation of Owner and Beneficiary
A numbered sequence can be used to name successive Beneficiaries. Co-
Beneficiaries will receive equal shares unless otherwise stated. Joint Owners
have equal rights under the Contract.
In naming Owners or Beneficiaries, unless otherwise stated:
. "Child" includes an adopted or posthumous child;
. "Provision for issue" means that if a Beneficiary is not living when Death
Proceeds are paid, the share of that Beneficiary will be taken by his or
her living issue by right of representation; and
. A family relation such as "wife", "husband", or "child" means the relation
to the Annuitant
At the time for payment of benefits the Company can rely on an affidavit of any
Owner or other responsible person to determine family relations or members of a
class.
Contingent Annuitant
A Contingent Annuitant must be named in the Application: if the Annuitant is not
an Owner of the Contract; and if an Owner is a person. The Contingent Annuitant
must be an Owner of the Contract. The Contingent Annuitant cannot be changed
after the death of the Annuitant.
Death of Annuitant
If the Owner is a person and if the Annuitant dies before the Contract is in
force under a Payment Option, the Contract will continue for the benefit of the
Contingent
<PAGE>
Annuitant. The Maturity Date will then be the contract anniversary on which the
older Owner will be the maximum maturity age allowed by the Company.
If the Owner is not a person, the Annuitant will be treated as Owner for the
purposes of the Death Proceeds provision. (See Section 8.)
8. Payment of Benefits
Maturity Date
The Maturity Date is shown in Section 1.
Maturity Proceeds
The Maturity Proceeds will be equal to: the Contract Value on the Maturity Date;
less any Administration Fee; and less any State Premium Tax Charge (see Section
6).
If the annuitant that is to receive monthly income benefits under the Contract
is living on the Maturity Date, the Company will apply the Maturity Proceeds to
the Payment Option shown in Section 1, with that individual as Payee.
Before the Maturity Date you can elect in writing that on the Maturity Date the
Maturity Proceeds will instead be:
. Paid in one sum; or
. Applied to any other Payment Option.
Death Proceeds
If an Owner is not a person, the Annuitant will be treated as the Owner for the
purposes of the Death Proceeds provision.
If an Owner dies before the Maturity Date, the Company will pay a death benefit
to the Beneficiary, unless the Contract is in force under a Payment Option or is
continued under the Continuation provision. The Death Proceeds will equal the
greater of:
. The Contract Value as of the Death Valuation Date; and
. The Minimum Guaranteed Death Benefit.
On the date the first purchase payment for the Contract is received, the Minimum
Guaranteed Death Benefit is equal to the purchase payment. Thereafter, the
Minimum Guaranteed Death Benefit will be: increased by any purchase payment
<PAGE>
made; and decreased by the percentage of any Contract Value surrendered.
Also, on the seventh anniversary and every seventh year anniversary thereafter,
except as noted below, the Minimum Guaranteed Death Benefit will be
recalculated. On each of these days the Minimum Guaranteed Death Benefit is
equal to the greater of: the Minimum Guaranteed Death Benefit before the
recalculation; and the Contract Value on the date of recalculation. If the Owner
is not a person, the Minimum Guaranteed Death Benefit will be recalculated until
the Annuitant is age 76. If the Contract is jointly owned, and both Owners are
living, the Minimum Guaranteed Death Benefit will be recalculated until an Owner
is age 71. Otherwise, it will be recalculated until the Owner is age 76.
The Death Valuation Date is the later of:
. The date on which the Company receives at its Administrative Office proof
of death of that Owner; and
. The date on which the Company receives at its Administrative Office
election of continuation of the contract or of payment in one sum or under
a Payment Option; provided that if no election has been received by the end
of the 90th day after the date proof of death was received, the Company
will deem the following to have been elected on the 90th day: Spousal
Continuation, if the surviving spouse qualifies for this right; or
otherwise, Beneficiary Continuation, if the Beneficiary qualifies for this
right; or otherwise, payment in one sum.
The Death Proceeds will be paid in one sum unless: all or part of the proceeds
is applied to a Payment Option: or the Contract is continued under the
Continuation provision. The obligations of the Company are subject to all
payments made and actions taken by the Company before receipt by the Company at
its Administrative Office of proof of the death.
Death Proceeds cannot be applied to the Variable Life Income for Two Lives
Option or to the Variable Income Payment to Age 100 Option.
Upon payment of Death Proceeds, the Contract will terminate.
Death of Owner on or After the Maturity Date
If the Owner dies on or after the Maturity Date and before the entire interest
has been distributed to the Annuitant, then the entire remaining interest must
be distributed at
<PAGE>
least as quickly as under the method of distribution being used on the date of
death of the Owner.
Continuation
The Company offers two types of Continuation rights: Spousal Continuation; and
Beneficiary Continuation.
The Company must receive written notice of the election of one of these
continuation rights by the end of the 90th day after it received proof of death.
If the surviving spouse qualifies for Spousal Continuation and has not elected a
method of payment for the Death Proceeds by the end of the 90 day period,
election of Spousal Continuation will be deemed to have been elected on the 90th
day. If a Beneficiary who does not qualify for Spousal Continuation but does
qualify for Beneficiary Continuation, has not elected a method of payment for
the Death Proceeds by the end of the 90 day period: election of Beneficiary
Continuation will be deemed to have been elected on the 90th day; and the
Contract will be continued for that Beneficiary; and the continued Contract will
have a Maturity Date equal to the fifth anniversary of the Owner's death.
Spousal Continuation
The Contract can be continued under Spousal Continuation if the surviving spouse
is less than the maximum maturity age allowed by the Company and if:
(a) There are two joint owners and they are married to each other; and
One of the joint owners dies before the Contract is in force under a Payment
Option; and
Both joint owners were the only named primary Beneficiaries on the date of
death; or
(b) The Owner is a person; and
The Owner dies; and
The Owner's spouse is the only named primary Beneficiary on the Owner's date of
death.
If the Contract is continued under Spousal Continuation: the Death Proceeds will
not be paid; the surviving spouse will be the Owner; the surviving spouse will
be the Annuitant, if the deceased Owner had been the Annuitant; and the
surviving spouse will be the Contingent Annuitant, if the deceased Owner had
been the Contingent Annuitant. The Maturity Date
<PAGE>
will then be the contract anniversary on which the surviving spouse (or
Annuitant if older) will be the maximum maturity age allowed by the Company. No
Contingent Deferred Sales Charge will apply to the Contract if: the Maturity
Date is changed as a result of the election of Spousal Continuation; and a
purchase payment was made less than seven years from the new Maturity Date.
Beneficiary Continuation
When Death Proceeds become payable. The Beneficiary can elect: a one sum payment
of the Death Proceeds; or the continuance of the Contract with a Maturity Date
equal to the fifth anniversary of the Owner's death (see below); or a Payment
Option. Payments under the Payment Option: must be payable for the life of the
Beneficiary or for a term which is not longer than the life expectancy of the
Beneficiary; and must start within one year after the death of the Owner.
The Contract can be continued under Beneficiary Continuation by a Beneficiary
whose share of the Death Proceeds is at least equal to the Company's published
minimum for this right.
If the Contract is continued under Beneficiary Continuation: the Death Proceeds
will not be paid to any Beneficiary continuing his/her share of the Proceeds;
the Death Proceeds continued in the Contact will be allocated in the same
proportion as the Contract Value was allocated to the sub-accounts and Fixed
Account on the Death Valuation Date: each Beneficiary will have the right to
make transfers and partial and full surrenders of his/her share of the Contract;
the Maturity Date will be the fifth anniversary of the Owner's death and cannot
be changed; no purchase payments can be made; no Contingent Deferred Sales
Charge will apply to the Contract; no Annual Fee will be deducted; and the Death
Benefit during the period of continuation for each Beneficiary will be equal to
the Beneficiary's share of the Contract Value on his/her Death Valuation Date.
The Death Valuation Date is the date on which the Company receives at its
Administrative Office proof of death of the Beneficiary. The Death Benefit
payable at the Beneficiary's death will be paid in a one sum payment.
On the Maturity Date each living Beneficiary will receive his/her share of the
Contract Value in a one sum payment and the Contract will terminate.
During the continuation period the Beneficiary can elect: to receive his/her
share of the Contract in a one sum payment; or to apply his/her share of the
Contract to a Payment
<PAGE>
Option. Payments under the Payment Option: must be payable for the life of the
Beneficiary or for a term which is not longer than the life expectancy of the
Beneficiary; and must start within one year after the death of the Owner.
Suspension of Payments
The Company can suspend payment of any amounts due under the Contract when
permitted under applicable Federal laws, rules and regulations.
Election of Payment Options; Option Date
The election of a Payment Option and the naming of the Payee must be in written
form satisfactory to the Company. You can make or change or revoke the election
before the Death Proceeds become payable or the Maturity Date, whichever occurs
first. The Option Date is the effective date of the Payment Option, as stated in
the form on which you made your choice.
Payee
A Payee is a person, a corporation, a partnership, a fiduciary or any other
legal entity entitled to receive payment in one sum or under a Payment Option.
Election By Payees
Any proceeds payable upon surrender or maturity of the Contract can be applied
to any Payment Option at the election of the Payee. Any Death Proceeds can be
applied to a Variable Income for Specified Number of Years or Variable Life
Income Payment Option at the election of the Payee. Further, subject to the
consent of the Company, any Payee who is entitled to receive proceeds in one sum
at the death of a prior Payee, or upon withdrawal of the proceeds, can elect to
apply the proceeds to a Payment Option.
Rights of Payees
A Payee under the Variable Income for a Specified Number of Years and the
Variable Income Payment to Age 100 Payment Options has the right to change to
the Variable Life Income Payment Option.
A Payee under the Variable Income for a Specified Number of Years and the
Variable Income Payment to Age 100 Payment Options has the right to withdraw the
commuted value of payments certain. See the third paragraph of the Contingent
Deferred Sales Charge provision in Section 6. If the Charge was waived when the
Surrender Proceeds were applied to the Payment Option, the commuted value will
be reduced by a portion of the Charge that was waived. The amount deducted from
the commuted value will equal: (a) the Charge that was
<PAGE>
waived: TIMES (b) the number of whole months remaining from the date of the
commutation until the date when the Charge would be zero; DIVIDED BY the number
of whole months that were remaining when the Surrender Proceeds were applied to
the Payment Option until the date when the Charge would be zero.
The Payee under the Variable Life Income or the Variable Life Income for Two
Lives Payment Options can withdraw the commuted value of the payments certain.
See the third paragraph of the Contingent Deferred Sales Charge provision. If
the Charge was waived when the Surrender Proceeds were applied to the Payment
Option, the commuted value will be reduced by a portion of the Charge that was
waived. The amount deducted from the commuted value will equal: (a) the Charge
that was waived; TIMES (b) the number of whole months remaining from the date of
the commutation until the date when the Charge would be zero; DIVIDED BY the
number of whole months that were remaining when the Surrender Proceeds were
applied to the Payment Option until the date when the Charge would be zero.
No Payee can assign or withdraw the commuted value of payments under any Fixed
Payment Option.
Payments in One Sum
Amounts payable in one sum will be payable:
. As of the Surrender Date in case of surrender;
. As of the Death Valuation Date in case of the payment of Death Proceeds;
. As of the Maturity Date in case of maturity;
. As of the date the request is received by the Company at its Administrative
Office in case of request for withdrawal of amounts under Payment Options;
or
. As of the date proof of death of the Payee is received by the Company at
its Administrative Office in case of an amount to be paid in one sum at the
death of the Payee.
An amount payable in one sum from the Account will be paid within 7 days of the
date it is payable, subject to the Suspension of Payments provision.
<PAGE>
Limitations
If installments under an Option would be less than the Company's published
minimum, proceeds can be applied to a Payment Option only with the consent of
the Company.
Variable Life Income Options
Variable Life Income Options are based on the age of the Payee on the Payee's
birthday nearest the Option Date and on the Assumed Interest Rate selected. The
Company will require proof of age. The Life Income Payments will be based on
rates not less than the rates shown in the Variable Life Income Tables (Section
10).
Amount of Variable Monthly Payments
The amount of the first monthly payment under a Variable Payment Option is equal
to:
. The number of thousands of dollars of proceeds applied to the Option;
TIMES
. The monthly payment rate per $1,000 for the Option.
The amount of each later monthly payment is equal to the number of Annuity Units
times the applicable Annuity Unit Values for the most recent Valuation Period
which ended at least 14 days prior to the date the payment is due.
Annuity Units; Annuity Unit Values
The number of Annuity Units credited under a Variable Payment Option is equal to
the amount of the first monthly payment divided by the applicable Annuity Unit
Value(s) as of the Option Date. The number of Annuity Units remains constant;
except that: (a) the number is adjusted to reflect different Annuity Unit Values
upon transfer of an interest of the Contract in a sub-account to another sub-
account; and (b) the number decreases by one-third at the death of the first
Payee under the Joint and 2/3 to Survivor Variable Life Income Option.
The Annuity Unit Values depend on the Assumed Interest Rate and on the Net
Investment Factor. An Annuity Unit Value is determined for each sub-account for
each Valuation Period. The Annuity Unit Value of each sub-account for its first
Valuation Period was set at $1.00 taking into account the performance history of
the underlying investment company. Each Annuity Unit Value for each later
Valuation Period is equal to:
<PAGE>
. The Annuity Unit Value for the immediately preceding Valuation Period;
TIMES
. The Net Investment Factor for that Valuation Period;
TIMES
. The daily Assumed Interest Factor for each day in that Valuation Period.
The Net investment Factor depends on the investment performance of the series
held in the sub-accounts elected. The Net Investment Factor multiplied by the
Assumed Interest Factor can be greater or less than one. Therefore, the Annuity
Unit Values can increase or decrease.
Choice of an Assumed Interest Rate
The amount of each monthly payment under a Variable Payment Option depends on an
Assumed Interest Rate. In the election of any of these Options, the effective
annual Assumed Interest Rate chosen can be:
. 0%; or
. 3 1/2%; or
. 5%, if allowed by applicable law or regulation.
If no choice is made, an effective annual interest rate of 3 1/2% will be used
as the Assumed Interest Rate. The rates shown in Sections 9 and 10 for the
Options are based on the 3 1/2% rate. The daily Assumed Interest Factor derived
from an effective annual Assumed Interest Rate of 3 1/2% is 0.9999058.
Correction of Benefits if Age Incorrect
If the age of the Payee under a Life Income Option has not been correctly
stated, the benefits will be corrected to the amounts which the proceeds would
have provided for the correct age. Any amount by which the payments by the
Company have been too large or too small, with interest at an effective annual
interest rate of 6% per year compounded yearly, will be:
. Charged against the next payment or payments if the payments have been too
large; or
. Added to the next payment if the payments have been too small.
<PAGE>
Death of Payee
Amounts to be paid after the death of a Payee under a Payment Option will be
paid as due to the successor Payee. If there is no successor Payee, amounts to
be paid in one sum, or the commuted value of any unpaid payments certain, will
be paid in one sum to the estate of the last Payee to die.
Commutation Rate for Variable Payment Options
The interest rate used to compute the commuted value of any unpaid payments
certain will be the Assumed Interest Rate. Each payment under a Variable Payment
Option will be assumed to be equal to the number of Annuity Units times the
applicable Annuity Unit Value.
See the third paragraph of the Contingent Deferred Sales Charge provision in
Section 6. If the Charge was waived when the Surrender Proceeds were applied to
the Payment Option, the commuted value will be reduced by a portion of the
Charge that was waived. The amount deducted from the commuted value will equal:
(a) the Charge that was waived; TIMES (b) the number of whole months remaining
from the date of the commutation until the date when the Charge would be zero;
DIVIDED BY the number of whole months that were remaining when the Surrender
Proceeds were applied to the Payment Option until the date when the Charge would
be zero.
9. Payment Options
Fixed Payment Options
All or any part of the contract proceeds can be applied to Fixed Payment
Options, subject to Section 8, to provide payments which do not depend on the
investment performance of the Account. The proceeds to be applied to Fixed
Payment Options will be transferred to the general account of the Company. The
Fixed Payment Option rates will not be less than rates based on an effective
annual interest rate of 3% per year; and on mortality: using a 50/50 male/female
weighting; based on the Individual Annuitant Mortality Table for 1983; and with
projection on Scale G to the year 2000 and then on Scale B Modified to the year
2035.
Variable Payment Options
All or part of any contract proceeds can be applied to any one of the following
Variable Payment Options, subject to Section 8, Payment of Benefits.
<PAGE>
Variable Income for Specified Number of Years
The Company will make variable monthly payments. Payments will start on the
Option Date and will continue for the number of years chosen. The number of
years chosen cannot be more than 30.
Variable Life Income
The Company will make variable monthly payments. Payments will start on the
Option Date and will continue:
. During the life of the Payee, with no payment after the death of the Payee,
called "Variable Life Income, No Refund"; or
. During the life of the Payee, but for at least 10 years, called "Variable
Life Income, 10 Years Certain"; or
. During the life of the Payee, but for at least 20 years, called "Variable
Life Income, 20 Years Certain".
Variable Life Income for Two Lives
The Company will make variable monthly payments. Payments will start on the
Option Date and will continue:
. While either of two Payees is living, called "Joint and Survivor Variable
Life Income"; or
. While either of two Payees is living, but for at least 10 years, called
"Joint and Survivor Variable Life Income, 10 Years Certain"; or
. While two Payees are living, and after the death of one Payee while the
other Payee is living, two-thirds of the monthly amount that would be
payable if both Payees were living, called "Joint and 2/3 to Survivor
Variable Life Income".
Variable Income Payment to Age 100
The Company will make variable monthly payments. Payments will start on the
Option Date and will continue for a whole number of years. The number of years
chosen must equal 100 minus the Payee's age on the Option Date.
<PAGE>
10. Variable Payment Option Tables
Variable Life Income Tables
Guaranteed first monthly payments per $1,000 of proceeds applied to the Variable
Life Income Options are shown below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Variable Life Income
- ----------------------------------------------------------
Age of No 10 20
Payee Refund Years Years
Certain Certain
- ----------------------------------------------------------
<S> <C> <C> <C>
55 $4.36 $4.34 $4.25
56 4.43 4.40 4.31
57 4.51 4.48 4.37
58 4.59 4.55 4.43
59 4.67 4.63 4.49
60 4.77 4.72 4.55
61 4.86 4.81 4.62
62 4.97 4.91 4.68
63 5.08 5.01 4.75
64 5.20 5.12 4.82
65 5.32 5.23 4.89
66 5.46 5.35 4.96
67 5.60 5.47 5.02
68 5.76 5.60 5.09
69 5.93 5.74 5.15
70 6.10 5.89 5.22
71 6.30 6.04 5.27
72 6.50 6.19 5.33
73 6.72 6.36 5.38
74 6.96 6.52 5.43
75 7.21 6.69 5.48
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Variable Life Income for Two Lives
- ----------------------------------------------------------------------
Age of One Age of Other Payee
Payee
55 60 65 70 75
Joint and Survivor
<S> <C> <C> <C> <C> <C>
55 $3.92 $4.04 $4.13 $4.21 $4.27
60 4.04 4.20 4.35 4.48 4.59
65 4.13 4.35 4.58 4.79 4.97
70 4.21 4.48 4.79 5.10 5.39
75 4.27 4.59 4.97 5.39 5.83
80 4.30 4.66 5.10 5.63 6.24
</TABLE>
<PAGE>
Joint and survivor, 10 Years Certain
<TABLE>
<S> <C> <C> <C> <C> <C>
55 $3.92 $4.04 $4.13 $4.21 $4.26
60 4.04 4.20 4.35 4.48 4.58
65 4.13 4.35 4.58 4.78 4.95
70 4.21 4.48 4.78 5.09 5.36
75 4.26 4.58 4.95 5.36 5.77
80 4.30 4.64 5.08 5.58 6.13
</TABLE>
Joint and 2/3 to Survivor
<TABLE>
<S> <C> <C> <C> <C> <C>
55 $4.20 $4.37 $4.55 $4.76 $4.98
60 4.37 4.56 4.78 5.03 5.29
65 4.55 4.78 5.05 5.35 5.68
70 4.76 5.03 5.35 5.73 6.15
75 4.98 5.29 5.68 6.15 6.68
80 5.21 5.57 6.02 6.59 7.26
</TABLE>
Payments for other ages will be quoted by the Company on request.
The Variable Life Income rates shown above are based on an effective annual
Assumed Interest Rate of 3 1/2% per year; and on mortality: using a 50/50
male/female weighting; based on the Individual Annuitant Mortality Table for
1983; and with projection on Scale G to the year 2000 and then on Scale B
Modified to the year 2035.
Variable Income Tables
Guaranteed first monthly payments per $1,000 of proceeds applied to the Variable
Income Options are shown below.
- -----------------------------------------------------------------------------
Variable Income for specified Number of Years
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Years Payment Years Payment Years Payment
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $84.65 11 $9.09 21 $5.56
2 43.05 12 8.46 22 5.39
3 29.19 13 7.94 23 5.24
4 22.27 14 7.49 24 5.09
5 18.12 15 7.10 25 4.96
6 15.35 16 6.76 26 4.84
7 13.38 17 6.47 27 4.73
8 11.90 18 6.20 28 4.63
9 10.75 19 5.97 29 4.53
10 9.83 20 5.75 30 4.45
</TABLE>
Guaranteed first monthly payments per $1,000 of proceeds applied to the Variable
Income Options are based on an effective annual Assumed Interest Rate of 3 1/2%.
<PAGE>
- ----------------------------------------------------------------------
Variable Income Payment to Age 100
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Years Payment Years Payment Years Payment
<S> <C> <C> <C> <C> <C>
1 $84.65 15 $7.10 28 $4.63
2 43.05 16 6.76 29 4.53
3 29.19 17 6.47 30 4.45
4 22.27 18 6.20 31 4.37
5 18.12 19 5.97 32 4.29
6 15.35 20 5.75 33 4.22
7 13.38 21 5.56 34 4.15
8 11.90 22 5.39 35 4.09
9 10.75 23 5.24 36 4.03
10 9.83 24 5.09 37 3.98
11 9.09 25 4.96 38 3.92
12 8.46 26 4.84 39 3.88
13 7.94 27 4.73 40 3.83
14 7.49
</TABLE>
Payments for other periods will be quoted by the Company on request.
<PAGE>
- ------------------------------------------------------------
Amendments and Endorsements (To be made only by the Company)
<PAGE>
New England Variable Life
Insurance Company
Administrative Office
501 Boylston Street
Boston, Massachusetts 02117
Flexible Purchase
Payment Deferred
Variable
Annuity Contract
. Monthly income is payable starting on the Maturity Date.
. The Death Proceeds are payable if an Owner dies before the Maturity Date,
unless the Contract is in force under a Payment Option or is continued
under the Continuation provision. (See Death Proceeds provision in Section
8.)
. Purchase payments can be paid to the Company before the Maturity Date,
before Death Proceeds are paid, and before full surrender, subject to the
Amount and Frequency provision in Section 3.
. Purchase payments can be increased or decreased from time to time, subject
to the Amount and Frequency provision in Section 3.
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 4 (iv)
NEL-398-97
Endorsement: Tax-Sheltered Annuity Endorsement To Qualify the Contract under
Section 403(b) of the Internal Revenue Code of 1986 ("the Code")
1. PROVISIONS FOR CERTAIN QUALIFIED PLAN CONTRACTS
In order to comply with provisions of the Internal Revenue Code, the terms
of this endorsement shall amend the Contract and override all conflicting
provisions of the Contract. It shall be effective as of the Date of Issue of
the Contract for Contracts intended to qualify under the Code Section
403(b).
2. RESTRICTION ON TRANSFERABILITY
This Contract is for the exclusive benefit of the Annuitant and his/her
beneficiaries. It is not transferable by the Owner, and the Owner's interest
in the Contract is nonforfeitable. The Owner of the Contract is the
Annuitant.
Except for contract loans permitted under Code Section 72(p) and Section 5
of this Endorsement, the Contract may not be sold, assigned, discounted, or
pledged as collateral or as security for the performance of an obligation or
for any other purpose, pursuant to Code Sections 401(a) and 403(b).
3. LIMIT ON CONTRIBUTIONS
Premiums, contributions or purchase payments under this Contract and all
other Section 403(b) policies issued to the same Owner may not exceed the
limitations in Code Sections 403(b)(2), 415 or the limitations of Code
Section 402(g) that apply to salary reduction elective deferrals under this
Contract and all other contracts and plans through your employer. The
Company will also accept purchase payments resulting from eligible rollover
distributions under Code Sections 403(b)(8) and 408(d)(3)(A)(iii) and
transfers from other tax-sheltered annuities in accordance with Rev. Rul.
90-24.
4. PAYMENTS PRIOR TO AGE 59 1/2
Salary reduction elective deferral premiums, contributions or purchase
payments after 1988 and the earnings credited to those payments cannot be
withdrawn until the Owner attains age 59 1/2, retires, terminates
employment, becomes disabled, encounters financial hardship or dies. This
restriction also applies to earnings after 1988 on amounts attributable to
pre-1989 elective deferral premiums, contributions or purchase payments. We
are required by Code Section 403(b)(11) to prohibit these withdrawals.
To the extent that we are required to apply the withdrawal restrictions of
the Code Section 403(b)(7)(A)(ii) to balances transferred on a non-taxable
basis into this Contract, we will do so.
"Disabled" means there is a medically determinable disability of such a
nature that the Owner is unable to engage in any substantial gainful
activity and that can be expected to result in death or be of long,
continued and indefinite duration.
Any request for withdrawal will be approved upon evidence that the
withdrawal satisfies applicable requirements of law or regulations.
In the case of financial hardship withdrawals will not include any earnings
on the contributions, purchase payments and premiums made through salary
reductions.
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5. CONTRACT LOANS
If your Contract permits loans, the following rules apply. Contract Loans
must be repaid within 5 years from the date of the loan. Such repayment must
be on a level basis over the 5-year period with repayments being made at
least monthly. If the Contract Loan is made to acquire a dwelling unit which
is to be used within a reasonable time as the principal residence of the
Owner, it must be repaid within a reasonable time but not limited to 5 years.
Such Contract Loan shall not exceed the lesser of (a) or (b), where (a)
equals $50,000 less the excess (if any) of (i) the highest outstanding loan
balance during the one year period ending on the day before such loan is made
over (ii) the outstanding loan balance on the date such loan is made and (b)
equals the greater of (i) 50% of the Contract Value or (ii) $10,000.
Notwithstanding anything else in this contract to the contrary, the terms of
the loan are governed by Section 72(p) of the Code and any rules and
regulations issued thereunder.
6. DISTRIBUTION OF OWNER'S INTEREST
The Owner's entire interest in this Contract attributable to post-1986
premiums, purchase payments and contributions and post-1986 earnings (whether
attributable to those premiums, purchase payments and contributions) will be
distributed or commence to be distributed, no later than the required
beginning date. Distribution will be made in equal or substantially equal
amounts, over (a) the life of the Owner, or the lives of the Owner and the
designated beneficiary, or (b) a period not extending beyond the life
expectancy of the Owner, or the joint and last survivor life expectancy of
the Owner and the designated beneficiary.
Annuity Payments must be made in periodic payments at intervals no longer
than one year. In addition, payments must be either non-increasing or they
may increase only as provided in Q&A F-3 of Section 1.401(a)(9)-1 of the
Proposed Income Tax Regulations.
Life expectancy and joint and last survivor expectancy are computed by use of
the return multiples contained in Section 1.72-9 of the Income Tax
Regulations. Life expectancies may be recalculated annually, except that the
life expectancy of a non-spouse beneficiary may not be recalculated, instead
life expectancy will be calculated using the attained age of such beneficiary
during the calendar year in which the beneficiary attains age 70 1/2, and
payments for subsequent years shall be calculated based on such life
expectancy reduced by one year for each calendar year which has elapsed since
the calendar year life expectancy was first calculated.
If you attained age 70 1/2 before January 1, 1988, or if you are a
participant in a church or governmental plan, you do not have to start to
receive your account balance until April 1 of the calendar year following the
year in which you retire.
For taxable years beginning after December 31, 1996 (except in the case of a
5% or more owner of the employer), distributions do not have to begin until
April 1 of the calendar year following the later of (i) the calendar year in
which you attain age 70 1/2, or (ii) if your plan permits, the calendar year
in which you retire.
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7. DISTRIBUTION UPON OWNER'S DEATH
If the Owner dies before the entire interest in this Contract is distributed,
the following distribution provisions shall apply:
1. If the Owner dies after distribution of the Owner's interest has commenced
the remaining portion of such interest will continue to be distributed at
least as rapidly as under the method of distribution being used prior to
the Owner's death.
2. If the Owner dies before distribution of the Owner's interest commences,
the Owner's entire interest will be distributed in accordance with one of
the following three provisions:
a. The Owner's entire interest will be paid by December 31 of the calendar
year containing the fifth anniversary of the Owner's death.
b. If the Owner's interest is payable to a designated beneficiary who is
not the Owner's spouse and the Owner has not elected (a) above, then
the Owner's entire interest may be distributed in substantially equal
installments over the life of the designated beneficiary or a period
not extending beyond the life expectancy of the designated beneficiary
on or before December 31 of the calendar year immediately following the
calendar year in which the Owner died.
c. If the designated beneficiary of the Owner is the Owner's surviving
spouse, the spouse may elect to receive equal or substantially equal
payments over the life of the spouse or over a period not extending
beyond the life expectancy of the surviving spouse. Such distribution
shall not be required earlier than the later of (1) December 31 of the
calendar year immediately following the calendar year in which the
Owner died or (2) December 31 of the calendar year in which the Owner
would have attained age 70 1/2. Such election must be made no later
than the earlier of December 31 of the calendar year containing the
fifth anniversary of the Owner's death or the date distributions are
required to begin pursuant to the preceding sentence.
8. SPECIAL RULES FOR DISTRIBUTION OF OWNER'S INTEREST AND FOR DISTRIBUTIONS UPON
OWNER'S DEATH
A. For the purposes of the above, payments will be calculated by the use of
the return multiples specified in Tables V and VI of Section 1.72-9 of the
Income Tax Regulations. For purposes of distributions beginning after the
Owner's death, the surviving spouse may elect to have life expectancies
recalculated annually. In the case of any other designated beneficiary,
life expectancies shall be calculated using the attained age of such
beneficiary during the calendar year in which distributions are required
to begin pursuant to this section, and payments for any subsequent
calendar year shall be calculated based on such life expectancy reduced by
one year for each calendar year which has elapsed since the calendar year
life expectancy was first calculated.
B. Distribution thereunder shall be made in accordance with the requirements
of Code Section 401(a)(9), and the regulations thereunder, including the
incidental death benefit requirements of Code Section 401 (a)(9)(G), and
the regulations thereunder, including the minimum distribution incidental
benefit requirement, and Section 1.401(a)(9)-2 of the proposed
regulations.
C. Distributions under this section are considered to have begun if
distributions are made on account of the individual reaching his or her
required beginning date or if prior to the required beginning date
distributions irrevocably commence to an individual over a period
permitted and in an annuity form acceptable under Section 1.401(a)(9) of
the proposed regulations.
D. Minimum distribution requirements may be satisfied by receiving a
distribution from one Tax Sheltered Annuity that is equal to the amount
required to satisfy the minimum distribution requirements for two or more
Tax Sheltered Annuities. For this purpose, the owner of two or more Tax
Sheltered Annuities may use the alternative method described in Notice 88-
38, 1988-1, C.B. 524, to satisfy the minimum distribution requirements
described above.
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9. ELIGIBLE ROLLOVER DISTRIBUTIONS
For distributions made after 1992, notwithstanding any provision of this
certificate to the contrary that would otherwise limit an election under this
provision, you (or your surviving spouse or former spouse who is an alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p)), hereinafter referred to as distributee, may elect at the time and in
the manner prescribed by us as payor (and if applicable, the Plan
Administrator) to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan you specify in a direct rollover. A
direct rollover is a payment of an eligible rollover distribution under this
certificate to the eligible retirement plan specified by the distributee. An
eligible rollover distribution from this certificate is the taxable portion
of any distribution to you, except that an eligible rollover distribution
does not include the following: (a) any distribution that is one of a series
of substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy of the distributee or the joint lives
or joint life expectancies) of the distributee and his or her beneficiary;
(b) any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) for a specified period of 10
years or more; (c) any distribution to the extent such distribution is
required under Code Section 401(a)(9); or (d) the portion of any distribution
that is not includible in gross income. An eligible retirement plan is an
individual retirement account as described in Code Section 408(a), an
individual retirement annuity as described in Code Section 408(b), a tax-
sheltered annuity as described in Code Section 403(b), that accepts your
eligible rollover distribution. However, in the case of an eligible rollover
distribution to your surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
This endorsement shall be interpreted and administered in accordance with the
requirements of Code Section 403(b). If the terms of this endorsement conflict
with the terms of the plan, where not prohibited by the Code or regulations
thereunder, the terms of the plan shall govern.
In order to preserve the status of your policy as a Section 403(b) annuity, we
have the right to amend it to make it comply with federal income tax rules. We
will notify you of any amendments and when required by law, we will obtain the
approval of the appropriate regulatory authority.
You are responsible for the tax treatment of any contributions, withdrawals and
distributions made from the Contract, and you must provide the Company with all
necessary instructions and information as may be required to report properly on
the qualified status of the Contract.
The Company will refund all or part of your account balance if necessary to
maintain your Contract as a 403(b) annuity. To the extent otherwise permitted by
your plan, we may also, where necessary to maintain your Contract as a 403(b)
annuity, treat contributions as after-tax employee contributions.
NEW ENGLAND LIFE INSURANCE COMPANY
501 Boylston Street, Boston, Massachusetts
/s/ Robert Shufto /s/ David D. Jordan
President Secretary
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NEL-439-98
SIMPLE INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT
1. PURPOSE
This endorsement is attached to and made a part of your annuity contract. It
is intended to conform the contract to the provisions of the Internal
Revenue Code ("Code"), for a SIMPLE IRA. If there is a conflict between the
terms of the contract and the terms of this endorsement, the endorsement
controls.
2. EXCLUSIVE BENEFIT
This Contract is established for the exclusive benefit of you, the Owner or
your beneficiaries. Your interest is nonforfeitable and the contract is
nontransferable by you.
3. CONTRIBUTIONS
This SIMPLE IRA will accept only cash contributions made on behalf of a
participant (you) pursuant to the terms of a SIMPLE IRA Plan described in
Section 408(p) of the Code. A rollover contribution or a transfer of assets
from another of your SIMPLE IRAs will also be accepted subject to the
provisions of Section 6. No other contributions will be accepted.
If contributions made on your behalf pursuant to a SIMPLE IRA Plan
maintained by your employer are received directly by us from the employer,
we will provide the employer with the summary description required by
Section 408(1)(2) of the Code.
4. DISTRIBUTIONS
The entire interest of the individual for whose benefit the contract is
maintained (Owner) will be distributed or commence to be distributed, no
later than the first day of April following the calendar year in which such
individual attains age 70 1/2 (required beginning date), over (a) the life
of such individual, or the lives of such individual and his or her
designated beneficiary, or (b) a period certain not extending beyond the
life expectancy of such individual and his or her designated beneficiary.
Payments must be made in periodic payments at intervals of no longer than
one year. In addition, payments must be either nonincreasing or they may
increase only as provided in Q&A F-3 of Section 1.40(a)(9)-1 of the Proposed
Income Tax Regulations.
All distributions made hereunder shall be made in accordance with the
requirements of Section 401(a)(9) of the Code, including the incidental
death benefit requirements of Section 401(a)(9)(G) of the Code, and the
regulations thereunder, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations.
Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations. Unless
otherwise elected by the individual by the time distributions are required
to begin, life expectancies shall be recalculated annually. Such election
shall be irrevocable by the individual and shall apply to all subsequent
years. The life expectancy of a non-spouse beneficiary may not be
recalculated. Instead, life expectancy will be calculated using the attained
age of such beneficiary during the calendar year in which the individual
attains age 70 1/2 and payments of subsequent years shall be calculated
based on such life expectancy reduced by one for each calendar year which
has elapsed since the calendar year life expectancy was first calculated.
5. (a) DISTRIBUTIONS BEGINNING BEFORE DEATH.
If the Owner dies after distribution of his or her interest has begun, the
remaining portion of such interest will continue to be distributed at least
as rapidly as under the method of distribution being used prior to the
individual's death.
(b) DISTRIBUTIONS BEGINNING AFTER DEATH.
If the Owner dies before distribution of his or her interest begins,
distribution of the Owner's entire interest shall be completed by December
31 of the calendar year containing the fifth anniversary of the individual's
death except to the extent that an election is made to receive distributions
in accordance with (1) or (2) below:
(1) If the Owner's interest is payable to a designated beneficiary, then the
entire interest of the Owner may be distributed over the life or over a
period certain not greater than the life expectancy of the designated
beneficiary commencing on or before December 31 of the calendar year
immediately following the calendar year in which the Owner died.
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(2) If the designated beneficiary is the Owner's surviving spouse, the date
distributions are required to begin in accordance with (1) above shall not be
earlier than the later of (A) December 31 of the calendar year immediately
following the calendar year in which the Owner died or (B) December 31 of the
calendar year in which the Owner would have attained age 70 1/2.
(3) If the designated beneficiary is the Owner's surviving spouse, the
spouse may treat the contract as his or her own IRA. This election will be
deemed to have been made if such surviving spouse makes a regular IRA
contribution to the contract, or fails to elect any of the above provisions.
(c) Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations. For purposes
of distributions beginning after the Owner's death, unless otherwise elected
by the surviving spouse by the time distributions are required to begin, life
expectancies shall be recalculated annually. Such election shall be
irrevocable by the surviving spouse and shall apply to all subsequent years.
In the case of any other designated beneficiary, life expectancies shall be
calculated using the attained age of such beneficiary during the calendar
year in which distributions are required to begin pursuant to this section,
and payments for any subsequent calendar year shall be calculated based on
such life expectancy reduced by one for each calendar year which has elapsed
since the calendar year life expectancy was first calculated.
(d) Distributions under this section are considered to have begun if
distributions are made on account of the Owner reaching his or her required
beginning date or if prior to the required beginning date distributions
irrevocably commence to an individual over a period permitted and in an
annuity form acceptable under Section 1.401(a)(9) of the Regulations.
6. TRANSFERS AND ROLLOVERS
Prior to the expiration of the 2-year period beginning on the date you first
participated in any SIMPLE IRA Plan maintained by your employer, any rollover
or transfer by you of funds from this SIMPLE IRA must be made to another of
your SIMPLE IRAs. Any distribution of funds to you during this 2-year period
may be subject to a 25-percent additional tax if you do not roll over the
amount distributed into a SIMPLE IRA. After the expiration of this 2-year
period, you may roll over or transfer funds to any of your IRAs that are
qualified under Section 408(a), (b), or (p) of the Code.
7. NO DESIGNATED FINANCIAL INSTITUTION
The contract may not be used by a trustee, custodian or issuer that is a
designated financial institution within the meaning of Section 408(p)(7) of
the Code.
8. ANNUAL REPORTS
The Company will furnish annual calendar year reports concerning the status
of this Contract.
9. AMENDMENTS
In order to continue to qualify this Contract under Section 408 of the Code,
the Company can amend this Endorsement to reflect changes in the provisions
of the Code and related regulations by sending an amendment to the Owner.
NEW ENGLAND LIFE INSURANCE COMPANY
501 Boylston Street, Boston, Massachusetts
/s/ /Robert A. Shufto David D, Jordan
President Secretary
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VE-6-94
Endorsement
As of the Endorsement Date the following provision is added to the Contract
Value section, if the Covered Person meets the Company's underwriting
requirements.
"Waiver of Contingent Deferred Sales Charge
The Company will waive any Contingent Deferred Sales Charge upon full or partial
surrender of the Contract if:
(a) The Covered Person has a medical condition that is expected to result
in death within six months; or
(b) The Covered Person has been confined to an Eligible Nursing Home for
at least 90 days and is expected to stay there until death; or
(c) The Covered Person is less than age 65, became permanently and totally
disabled since the Date of Issue of this Contract and is receiving
disability benefits from the Social Security Administration.
A Covered Person must be less than age 65 on the Date of Issue of this Contract
and is: an Owner of the Contract, if the Owner is a person and was an Owner on
the Date of Issue of this Contract; or the Annuitant, if the Owner is not a
person.
An Eligible Nursing Home is an institution or special nursing unit of a
hospital: which is located in the United States of America; and which meets at
least one of the following requirements.
. It is Medicare approved as a provider of skilled nursing care services; or
. It is licensed as a skilled nursing home or as an intermediate care
facility by the state in which it is located; or
. It meets all the requirements listed below:
a. It is licensed as a nursing home by the state in which it is located;
b. Its main function is to provide skilled, intermediate or custodial
nursing care;
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c. It is engaged in providing continuous room and board accommodations to
three or more persons;
d. It is under the supervision of a registered nurse or licensed
practical nurse;
e. It maintains a daily medical record of each patient; and
f. It maintains control and records for all medications dispensed.
Endorsement Date: Date of Issue
Institutions which primarily provide residential facilities are not Eligible
Nursing Homes.
If you are requesting a waiver of the Contingent Deferred Sales Charge under
(a), you must provide the Company with: certification signed by a licensed
medical doctor that the Covered Person has a medical condition that is expected
to result in death within six months; and any other information needed by the
Company to process your request. The Company may require a second opinion by a
licensed medical doctor chosen by the Company, at the Company's expense and at a
place convenient to the Covered Person who is terminally ill.
If you are requesting a waiver of the Contingent Deferred Sales Charge under (b)
you must provide the Company with: certification signed by a licensed medical
doctor that the Covered Person is expected to remain in the nursing home until
death; and any other information needed by the Company to process your request.
The certification must be supported by evidence satisfactory to the Company. The
Company may require a second opinion by a licensed medical doctor chosen by the
Company, at the Company's expense arid at a place convenient to the Covered
Person who is in the nursing home."
New England Variable Life insurance Company
Administrative Office:
501 Boylston Street, Boston, Massachusetts
Robert A. Shafto H. James Wilson
/s/ /s/
President Secretary
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VE-7-94
Endorsement
As of the Date of Issue of this Contract, the following change is made to the
Death Proceeds provision:
"On the Date of Issue the Minimum Guaranteed Death Benefit is equal to the
greater of: the purchase payment made for this Contract as a result of the
Exchange from a New England Mutual Life Insurance Company variable annuity
contract: and the total net payments made on the contract being Exchanged less
any partial surrenders from that contract. Thereafter, the Minimum Guaranteed
Death Benefit will be: increased by additional purchase payments made; and
decreased by the percentage of any Contract Value surrendered."
is substituted for
"On the date the first purchase payment for the Contract is received, the
Minimum Guaranteed Death Benefit is equal to the purchase payment. Thereafter,
the Minimum Guaranteed Death Benefit will be: increased by any purchase payment
made; and decreased by the percentage of any Contract Value surrendered."
New England Variable Life Insurance Company
Administrative Office:
501 Boylston Street, Boston, Massachusetts
Robert A. Shafto H. James Wilsom
/s/ /s/
President Secretary
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VE-18-98-LI
Endorsement
As of the Endorsement Date the following changes are made to the Contract.
The following provision is added to the Contract:
CONTRACT LOANS
CONTRACT LOANS
As provided for under Section 72(p) of the Internal Revenue Code ("Code"),
as amended, and other sections of the Code which may apply, loans may be made
from a qualified employer plan without realizing a taxable distribution, subject
to some limitations. Therefore, after the Right to Return the Contract period
and before the Maturity Date, unless the Contract is continued under a Payment
Option or is continued under the Continuation provision, you can borrow part of
the Contract Value by written request to the Company:
- - If the Contract is in force under a Plan which meets the requirements of
Section 403(b) of the Code; and
- - If the Plan allows loans; and
- - If there is no existing Contract Loan Balance; and
- - Subject to the Limitations on Contract Loans provision below.
The Company reserves the right to amend this endorsement in the event of a
change in the laws or regulations relating to the treatment of loans. The
Company will notify you in writing of any amendment required.
The Contract Loan provision is not intended to satisfy the requirements of
the Employee Retirement Income Security Act of 1974 (ERISA) relating to Plan
Participant Loans. It is the responsibility of the Plan Trustee of ERISA plans
to satisfy those requirements.
Contract Loans are made on the sole security of the Contract. Contract
Loans will reduce the Contract's share of the sub-accounts and of the Fixed
Accounts proportionately, unless you request otherwise. Assets equal to the
amount of the Loan:
- - Will be transferred to a Loan Collateral Account and held in the general
investment account of the Company; and
- - Will earn interest at the effective rate of 4 1/2% per year.
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Endorsement Date: Date of Issue
This interest will be credited to the sub-accounts and to the Fixed Account
in the same proportion as net purchase payments are being allocated to the sub-
accounts and to the Fixed Account: each year on the contract anniversary; and on
the date the Contract Loan is repaid in full.
Contract Loans, whether or not repaid, can have a permanent effect on
Contract Values and Death Proceeds.
LOAN VALUE
The Loan Value of the Contract is the amount which, with loan interest,
will equal 90% of the Contract Value projected to the next loan interest due
date, with interest at a rate equivalent to 4 1/2% per year. (See Limitations on
Contract Loans below.)
LIMITATIONS ON CONTRACT LOANS
The minimum loan available is $500.
The amount of the loan, when added to the outstanding loan balance of all
other loans, whenever made, from all other plans of the same employer, must not
exceed:
- - $50,000 reduced by the excess of the highest outstanding balance of loans
under such plans during the one year period, ending on the day before the
date on which the loan is made, over the outstanding balance of loans under
such plans on the date the loan is made; or, if less
- - The greater of $10,000 or one-half of the current value of the
nonforfeitable accrued benefit under the plan; or, if less
- - The Loan Value of the Contract.
The total of the Contract's share of the sub-accounts and the Fixed Account
immediately after a loan is made must be at least equal to the Company's
published minimum.
INTEREST ON LOANS; CONTRACT LOAN BALANCE
Contract Loans accrue interest at the rate of 6 1/2% per year. Interest
accrues daily. The Contract Loan Balance at any time means Contract Loans
outstanding plus loan interest accrued to date. Loan interest is due as provided
in the Repayment of Loans provision. Loan interest not paid when due will reduce
the Contract's share of the sub-accounts and of the Fixed Account
proportionately.
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REPAYMENT OF LOANS
Contract Loans must be repaid to the Company before the Maturity Date: and
by April 1 of the year following the year in which the Annuitant attains age 70
1/2; and: within 20 years if the loan is used to purchase your principal
residence; otherwise, within five years.
The Contract Loan, with interest, must be repaid on a monthly basis and on
a schedule set by the Company. Each monthly scheduled payment will be applied
first to reduce the accrued loan interest and then to reduce the Contract Loan.
Any amount paid in excess of the monthly scheduled payment will be applied to
reduce the Contract Loan.
If an amount equal to or greater than the full monthly scheduled payment is
not received by the Company at its Home Office no later than 15 days after the
scheduled due date of the payment, or in the event of a default as defined
below:
- - If the Annuitant is at least age 59 1/2, the Company reserves the right to
make a partial surrender of this Contract in an amount equal to the unpaid
scheduled payment plus any Contingent Deferred Sales Charge and any State
Premium Tax Charge as a result of the surrender and to pay the scheduled
payment with the proceeds. However, if a partial surrender for the amount
described above is not available (see Surrender of the Contract provision):
the Company reserves the right to make a full surrender; and the surrender
proceeds will be used to pay the unpaid scheduled payments or, in the case
of default, the Contract Loan Balance; and the Contract will terminate; and
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- - If the Annuitant is not yet age 59 1/2, the Company reserves the right to
make a partial surrender of this Contract from the portion of the Contract
Value attributable to pre-1989 purchase payments in an amount equal to the
unpaid scheduled payment plus any Contingent Deferred Sales Charge and any
State Premium Tax Charge as a result of the surrender and to pay the
scheduled payment with the proceeds. If the full unpaid scheduled payment
cannot be paid using this method, the Company reserves the right to report
a taxable deemed distribution currently and to make a partial surrender of
this Contract at the earliest of the Annuitant's disability and attainment
of age 59 1/2 and to pay the scheduled payment with the proceeds. The
amount of the partial surrender will be equal to: the unpaid scheduled
payment; plus any Contingent Deferred Sales Charge and any State Premium
Tax Charge as a result of the surrender and if allowed by the Code, the
loan interest accrued on the amount of the scheduled payment from the date
the payment was made to the date the partial surrender is made. However, if
a partial surrender is not available (see Surrender of the Contract
provision) upon the occurrence of the earliest of these events: the Company
reserves the right to make a full surrender; and the surrender proceeds
will be used to pay the unpaid scheduled payments; and the Contract will
terminate. Also, in the case of default, the Company reserves the right to
make a full surrender; and the surrender proceeds will be used to pay the
Contract Loan Balance; and the Contract will terminate.
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The entire Contract Loan Balance is in default and becomes due immediately
upon the earliest of:
- - The third consecutive monthly scheduled payment remaining unpaid at the end
of the 15 day period described above;
- - The fifth partial surrender made to pay an overdue monthly scheduled
payment;
- - The insolvency of the Owner or the institution of any proceeding under the
Bankruptcy Code by or against the Owner;
- - Surrender of the Contract; and
- - Termination of the Contract because the Contract Loan Balance exceeds the
Contract Value.
The monthly scheduled payment will be allocated in the same proportion as
the Contract Loan reduced the Contract's share of the sub-accounts and of the
Fixed Account, unless the Company consents to a different allocation. Any amount
paid in excess of the monthly scheduled payment will be allocated in the same
proportion as the Contract Loan reduced the Contract's share of the sub-accounts
and of the Fixed Account, except that the portion which would have been
allocated to the Fixed Account will be allocated to the Money Market sub-account
if:
- - Payments to the Fixed Account are being restricted by the Company; or
- - The payment is received by the Company within 180 days from the date of any
transfer out of or any loan made from the Fixed Account.
The rate of interest for each loan repayment applied to the Fixed Account
will be equal to at least the lesser of: the rate the borrowed money was
receiving before the loan was made from the Fixed Account; and the rate set by
the Company in advance for the date of repayment.
<PAGE>
A Contract Loan is a charge against the Contract. Any Contract Loan Balance
will be deducted from the payment of the proceeds of the Contract.
If the Contract Loan Balance at any time exceeds the Contract Value, the
Company will mail a notice to you and to any assignee. The notice will be mailed
to the addresses on record with the Company. If the excess amount is not paid to
the Company within 31 days after mailing of the notice, the Contract will be
canceled.
The following provision is added to the Contract section:
POSTPONEMENT OF CONTRACT LOANS FROM THE FIXED ACCOUNT
The Company can postpone the making of any Contract Loan from the Fixed
Account for six months from the date you apply.
The following is substituted for the first paragraph of the Contract Value
provision of the Contract Value section:
On or before the Maturity Date and while the Contract is in force other
than under a Payment Option, the Contract Value is equal to: the number of
Accumulation Units standing to the credit of the Contract multiplied by the
applicable Accumulation Unit Value; plus the Contract's value in the Fixed
Account; plus any amount held for the Contract in a Loan Collateral Account.
The following is substituted for the last sentence of the Annual Fees
provision of the Contract Value section:
The fee will not be charged against the Fixed Account or the Loan
Collateral Account.
<PAGE>
The following is substituted for the Surrender of the Contract provision of
the Contract Value section:
SURRENDER OF THE CONTRACT
While the Contract is in force other than under a Payment Option, you can
surrender the Contract at any time prior to the Maturity Date by notice to the
Company in writing. Upon surrender, the Contract will terminate. The Surrender
Proceeds will be equal to: the Contract Value as of the Surrender Date; less any
Administration Fee; less any Contingent Deferred Sales Charge; less any State
Premium Tax Charge; and less any Contract Loan Balance. Unless a later date is
specified in the request (see Payment of Benefits, Section 8), the Surrender
Date is the date on which the Company receives at its Home Office:
- - Written request in proper form for surrender and payment in one sum; or
- - Written request in proper form for surrender and payment under one of the
Payment Options.
You can also make a partial surrender, but the consent of the Company will
be required: if the amount of the partial surrender is less than the Company's
published minimum; or if the Contract Loan Balance would exceed the Loan Value
of the Contract; or if the remaining Contract Value outside of the Loan
Collateral Account would be less than the greater of: 10% of the remaining
Contract Value; and the Company's published minimum. A partial surrender will
reduce the Contract's share of the sub-accounts and the Fixed Account
proportionately, unless you request otherwise. A partial surrender will reduce
the Minimum Guaranteed Death Benefit (see Section 8) proportionately to the
reduction in Contract Value.
<PAGE>
The following is substituted for the first paragraph of the Maturity
Proceeds provision of the Payment of Benefits section:
The Maturity Proceeds will be equal to: the Contract Value on the Maturity
Date; less any Administration Fee; less any State Premium Tax Charge; and less
any Contract Loan Balance.
The following sentence is added to the Death Proceeds provision of the
Payment of Benefits section:
The Death Proceeds will be reduced by the amount of any Contract Loan
Balance.
The following sentence is added to Spousal Continuation in the Continuation
provision of the Payment of Benefits section:
The Contract Value to be continued under the Spousal Continuation will be
reduced by any Contract Loan Balance.
NEW ENGLAND LIFE INSURANCE COMPANY
501 Boylston Street, Boston, Massachusetts
ABCD ABCD
President Secretary
<PAGE>
Exhibit 4(vi)
NEL-446-98
ROTH INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT
This Endorsement is attached to and made a part of the Annuity Contract
(the "Contract") issued by New England Life Insurance Company (the "Company") to
qualify the Contract as a Roth Individual Retirement Annuity (IRA) under Section
408A of the Internal Revenue Code (the "Code"), as the same may be amended or
supplemented from time to time. All references to Code Sections are to those
Sections as they may be amended and/or renumbered from time to time. If any
provisions of the Contract conflict with this Endorsement, the provisions of
this Endorsement will apply.
[ ] Check here if this is a Roth Conversion IRA.
ARTICLE I -- OWNERSHIP
The individual who participates in this Roth IRA (the "Owner") is the Owner
of the Contract. The Contract is established for the exclusive benefit of the
Owner and his or her Beneficiary. The Owner may exercise all rights under the
Contract during his or her lifetime. The Owner's interest in the Contract is
nonforfeitable and nontransferable. The Contract may not be sold, assigned,
discounted or pledged as collateral or as security for the performance of an
obligation or for any other purpose. Separate records will be maintained for the
interest of each individual.
ARTICLE II -- DEPOSIT LIMITS
The Company may accept deposits on behalf of the Owner for a tax year of
the Owner. Deposits shall be in cash and shall not be fixed. If the Roth IRA is
not designated as a Roth Conversion IRA, then except in the case of a rollover
contribution described in Section 408A(e), the Company will accept deposits up
to a maximum of $2,000 for any tax year of the Owner. If the Owner also
maintains an IRA under Section 408(a) or 408(b) of the Internal Revenue Code,
the maximum $2,000 premium to the Owner's Roth IRA under Section 408A is reduced
by any contributions or premiums the Owner makes to his or her IRAs under
Sections 408(a) and 408(b). The Owner's total annual contributions to all IRAs
under Section 408(a), 408(b) and 408A cannot exceed the lesser of $2,000 or 100
percent of the Owner's compensation.
If this Roth IRA is designated as a Roth Conversion IRA, no deposits other
than IRA conversion contributions made during the same tax year will be
accepted.
No contributions will be accepted under either a SIMPLE plan or a SEP plan
established by any employer pursuant to Code Sections 408(p) and 408(k)
respectively. Transfer or rollover contributions may be made to this Roth IRA
from the custodian, trustee or issuer of another Roth IRA and such other types
of IRAs and plans as permitted by statute, regulation or other IRS
pronouncement.
Any refund of premiums (other than those attributable to excess deposits)
will be applied, before the close of the calendar year following the year of the
refund, toward the payment of future premiums or the purchase of additional
benefits.
ARTICLE III -- DISTRIBUTION LIMITS
1. The Owner's interest in the Contract is not subject to the required
distribution rules of Section 401(a)(9)(A), nor is the Contract subject to
the incidental death benefit requirements of Section 401(a).
2. The Owner may elect, in a manner acceptable to the Company, to have the
balance in the Contract distributed in one of the following forms:
a. a single sum payment;
b. equal or substantially equal payments over the life of the owner;
c. equal or substantially equal payments over the lives of the Owner and
his or her designated beneficiary;
d. equal or substantially equal payments over a specified period that may
not be longer than the Owner's life expectancy;
e. equal or substantially equal payments over a specified period that may
not be longer than the joint life and last survivor expectancy of the
Owner and his or her designated beneficiary;
f. any other increments permitted under the Contract.
<PAGE>
3. If the Owner dies before his or her entire interest is distributed to him
or her and the Owner's surviving spouse is not the sole beneficiary, the
entire remaining interest will, at the election of the Owner or, if the
Owner has not so elected, at the election of the beneficiary or
beneficiaries, either:
a. Be distributed by December 31 of the year containing the fifth
anniversary of the Owner's death, or
b. Be distributed over the life expectancy of the designated beneficiary
starting no later than December 31 of the year following the year of
the Owner's death.
If distributions do not begin by the date described in b., distribution
method a. will apply.
4. In the case of distribution method 3.b. above, to determine the minimum
annual payment for each year, divide the Owner's entire interest in the
annuity as of the close of business on December 31 of the preceding year by
the life expectancy of the designated beneficiary using the attained age of
the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence and subtract 1 for each subsequent
year.
5. If the Owner's spouse is the sole beneficiary on the Owner's date of death,
he or she may treat the Roth IRA as his or her own Roth IRA and would not
be subject to the required minimum distribution rules. The Owner's
surviving spouse will also be entitled to such additional beneficiary
payment options as are permitted under the law or related regulations.
All distributions made pursuant to paragraphs 3, 4 and 5 of this Article
III shall be made in accordance with the applicable requirements of Section
401(a)(9) of the Code and the regulations thereunder. Unless payments are
being made in accordance with the five year rule described above, payments
must be made in periodic payments at intervals of no longer than one year.
If a beneficiary elects distribution in the form of annuity payments, the
payments must be either nonincreasing or they may increase only as provided
in Q&A F-3 of Section 1.401(a)(9)-1 of the Proposed Income Tax Regulations.
For purposes of distributions beginning after the Owner's death, life
expectancy is computed by use of the expected return multiples in Tables V
and VI of Section 1.72-9 of the Income Tax Regulations.
ARTICLE IV -- REPORTING
The Owner agrees to provide the Company with information necessary for the
Company to prepare any report required under the Internal Revenue Code and
Regulations including Section 408(i) and 408A(d)(3)(E) and Regulations Sections
1.408-5 and 1.408-6 and under guidance published by the Internal Revenue
Service.
The Company shall furnish annual calendar year reports concerning the
status of the annuity.
ARTICLE V -- AMENDMENTS
Any amendment made for the purpose of complying with provisions of the Code
and related regulations may be made without the consent of the Owner. The Owner
will be deemed to have consented to any other amendment unless the Owner
notifies the Company that he or she does not consent within 30 days from the
date the Company mails the amendment to the Owner.
<PAGE>
ARTICLE VI -- RESPONSIBILITY OF THE PARTIES
The Company shall not be responsible for any penalties, taxes, judgments or
expenses incurred by the Owner in connection with this IRA and shall have no
duty to determine whether any contributions to or distributions from this IRA
comply with the Code, regulations or rulings.
NEW ENGLAND LIFE INSURANCE COMPANY
501 Boylston Street, Boston, Massachusetts
ABCD ABCD
President Secretary
<PAGE>
- --------------------------------------------------------------------------------
Endorsement
As of the Date of Issue of this Contract, this Endorsement is added to the
Contract.
In order to qualify this Contract as an annuity under the federal income tax
laws, if the Owner does not hold the Contract in an individual capacity, the
Annuitant will be treated as the Owner for the purposes of the Death of Owner
provision.
DEATH OF OWNER
Proof of the death of an Owner must be sent to the Company. If an Owner dies
before the Maturity Date, all of the death proceeds must be distributed within 5
years after the death of an Owner or applied to a Payment Option. Payments under
the Option: must be payable for the life of the Beneficiary or for a term which
is not longer than the life expectancy of the Beneficiary; and must start within
one year after the death of an Owner. If the Beneficiary is the surviving
spouse, as Joint Owner or primary Beneficiary, the Contract may be continued
with the surviving spouse as the new Owner.
QUALIFIED PLANS
If the Contract is used to provide benefits under a Plan or Trust which is
qualified under section 401 of the Internal Revenue Code:
1. The qualified Plan or Trust must be the Owner and the Beneficiary; and
2. The entire interest is onforfeitable and nontransferable except that the
Owner can make a change of Owner or make an absolute assignment to a plan
fiduciary under another qualified Plan or Trust or to the Annuitant when
allowed by the terms of the Plan or Trust.
If the Contract is used to provide benefits under a Plan which is qualified
under section 457 of the Internal Revenue Code:
1. The Plan or Employer must be the Owner and the Beneficiary; and
2. The entire interest is nonforfeitable and nontransferable except that the
Owner can make a change of Owner or make an absolute assignment to a plan
fiduciary under another governmental section 457 Plan or to the Annuitant
when allowed by the terms of the Plan.
3. In addition to the provisions under Death of Owner, if the Owner dies before
the Maturity Date and the beneficiary is not the spouse, the entire interest
in the Contract must be distributed during a period not to exceed fifteen
years.
NEW ENGLAND LIFE INSURANCE COMPANY
501 Boylston Street, Boston,
Massachusetts
ABCD ABCD
President Secretary
<PAGE>
- --------------------------------------------------------------------------------
Endorsement: Individual Retirement Annuity
As of the Date of Issue of this Contract, this Endorsement is added to the
Contract. In the event of a conflict between this Endorsement and the Contract,
the provisions of the Endorsement will control.
In order to qualify this Contract as an Individual Retirement Annuity under
Section 408(b) of the Internal Revenue Code, (the {Code"), the following
restrictions apply.
1. The Owner of the Contract is the Annuitant; and the Owner of the Contract
CANNOT be changed. The Contract is for the exclusive benefit of the Owner or
the named Beneficiary.
2. This Contract is a Flexible Purchase Payment Contract. Except in the case of
a rollover contribution (as permitted by Section 402(c), 403(a)(4),
403(b)(8), or 408(d)(3)) or a contribution made in accordance with the terms
of a Simplified Employee Pension (SEP) as described in Section 408(k), no
contributions will be accepted unless they are in cash, and the total of such
contributions shall not exceed $2,000 for any taxable year.
3. The payment of dividends, if any, will be applied to the purchase of
additional benefits before the end of the calendar year following the
declaration of dividends under this Contract. Any refund of purchase payments
(other than those attributable to excess contributions) will be applied,
before the close of the calendar year following the year of the refund,
toward the payment of future purchase payments or the purchase of additional
benefits.
4. The entire interest of the individual for whose benefit the contract is
maintained (Owner) will be distributed or commence to be distributed, no
later than the first day of April following the calendar year in which such
individual attains age 70 1/2 (required beginning date), over (a) the life of
such individual, or the lives of such individual and his or her designated
beneficiary, or (b) a period certain not extending beyond the life expectancy
of such individual and his or her designated beneficiary. Payments must be
made in periodic payments at intervals of no longer than one year. In
addition, payments must be either nonincreasing or they may increase only as
provided in Q&A F-3 of Section 1.401(a)(9)-1 of the Proposed Income Tax
Regulations. All distributions made hereunder shall be made in accordance
with the requirements of Section 401(a)(9) of the Code, including the
incidental death benefit requirements of Section 401(a)(9)(G) of the Code,
and the regulations thereunder, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations. Life expectancy is computed by use of the expected return
multiples in Tables V and VI of Section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the individual by the time distributions are
required to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable by the individual and shall apply to all
subsequent years. The life expectancy of a non-spouse beneficiary may not be
recalculated. Instead, life expectancy will be calculated using the attained
age of such beneficiary during the calendar year in which the individual
attains age 70 1/2, and payments for subsequent years shall be calculated
based on such life expectancy reduced by one for each calendar year which has
elapsed since the calendar year life expectancy was first
calculated.
<PAGE>
- --------------------------------------------------------------------------------
5. (a) Distributions beginning before death.
-------------------------------------
If the Owner dies after distribution of his or her interest has begun,
the remaining portion of such interest will continue to be distributed at
least as rapidly as under the method of distribution being used prior to
the individual's death.
(b) Distributions beginning after death
-----------------------------------
If the Owner dies before distribuon of his or her interest begins,
distribuion of the Owner's entire interest shall be completed by December
31 of the calendar year containing the fifth anniversry of the individu's
death except to the extent that an election is made to receive
distributions in accordance with (1) or (2) below:
(1) If the Owner's interest is payable to a designated beneficiary, then
the entire interest of the Owner may be distributed over the life or
over a period certain not greater than the life expectancy of the
designated beneficiary commencing on or before December 31 of the
calendar year immediately following the calendar year in which the
Owner died.
(2) If the designated beneficiary is the Owner's surviving spouse, the
date distributions are required to begin in accordance with (1) above
shall not be earlier than the later of (A) December 31 of the
calendar year immediately following the calendar year in which the
Owner died or (B) December 31 of the calendar year in which the Owner
would have attained age 70 1/2.
(3) If the designated beneficiary is the Owner's surviving spouse, the
spouse may treat the contract as his or her own IRA. This election
will be deemed to have been made if such surviving spouse makes a
regular IRA contribution to the contract, makes a rollover to or from
such contract, or fails to elect any of the above provisions.
(c) Life expectancy is computed by use of the expected return multiples
in Tables V and VI of Section 1.72-9 of the Income Tax Regulations.
For purposes of distributions beginning after the Owner's death,
unless otherwise elected by the surviving spouse by the time
distributions are required to begin, life expectancies shall be
recalculated annually. Such election shall be irrevocable by the
surviving spouse and shall apply to all subsequent years. In the case
of any other designated beneficiary, life expectancies shall be
calculated using the attained age of such beneficiary during the
calendar year in which distributions are required to begin pursuant
to this section, and payments for any subsequent calendar year shall
be calculated based on such life expectancy reduced by one for each
calendar year which has elapsed since the calendar year life
expectancy was first calculated.
(d) Distributions under this section are considered to have begun if
distributions are made on account of the Owner reaching his or her
required beginning date or if prior to the required beginning date
distributions irrevocably commence to an individual over a period
permitted and in an annuity form acceptable under Section 1.401(a)(9)
of the Regulations.
6. The entire interest of the Owner is nonforfeitable and nontransferable.
7. The Company will furnish annual calendar year reports concerning the status
of this Contract.
8. In order to continue to qualify this Contract under Section 408(b) of the
Code, the Company can amend this Endorsement to reflect changes in the
provisions of the Code and related regulations by sending an amendment to the
Owner.
NEW ENGLAND LIFE INSURANCE COMPANY
501 Boylston Street, Boston, Massachusetts
ABCD ABCD
President Secretary
<PAGE>
Exhibit 6(ii)
AMENDED AND RESTATED BY-LAWS
----------------------------
of
NEW ENGLAND LIFE INSURANCE COMPANY
(Effective June 1, 1997)
Section 1. ARTICLES OF ORGANIZATION
The name and purposes of the corporation shall be as set forth in the
Articles of Organization. These By-laws, the powers of the corporation and of
its directors and stockholders, or of any class of stockholders if there shall
be more than one class of stock, and all matters concerning the conduct and
regulation of the business and affairs of the corporation shall be subject to
such provisions in regard thereto, if any, as are set forth in the Articles of
Organization as from time to time in effect.
Section 2. STOCKHOLDERS
2.1. Annual Meeting. The annual meeting of stockholders shall be
--------------
held at 10:00 A.M. on the third Tuesday in March in each year (unless that day
be a legal holiday at the place where the meeting is to be held in which case
the meeting shall be held at the same hour on the next succeeding day not a
legal holiday) or at such other date and time as shall be determined from time
to time by the board of directors. Purposes for which an annual meeting is to
be held, additional to those prescribed by law, by the Articles of Organization
or by these By-laws, may be specified by the president or by the directors.
2.2 Special Meetings. A special meeting of the stockholders may be
----------------
called at any time by the president or by the directors. A special meeting of
the stockholders shall be called by the secretary upon the written request,
stating the purpose of the meeting, of stockholders who together own of record
25% or more of the outstanding stock of any class entitled to vote at such
meeting. Each call of a meeting shall state the place, date, hour and purposes
of the meeting.
2.3. Place of Meetings. All meetings of the stockholders shall be
-----------------
held at the principal office of the corporation in Massachusetts or, to the
extent permitted by the Articles of Organization, at such other place within the
United States as shall be fixed by the president or the directors. Any
adjourned session of any meeting of the stockholders shall be held at the same
city or town as the initial session, or within Massachusetts, in either case at
the place designated in the vote of adjournment.
<PAGE>
2.4. Notice of Meetings. A written notice of each meeting of
------------------
stockholders, stating the place, date and hour and the purposes of the meeting,
shall be given at least seven days before the meeting to each stockholder
entitled to vote thereat and to each stockholder who, by law, by the Articles of
Organization or by these By-laws, is entitled to notice, by leaving such notice
with him or at his residence or usual place of business, or by mailing it,
postage prepaid, addressed to such stockholder at his address as it appears in
the records of the corporation. Such notice shall be given by the secretary or
an assistant secretary or by an officer designated by the directors. Whenever
notice of a meeting is required to be given to a stockholder under any provision
of the Business Corporation Law of the Commonwealth of Massachusetts or of the
Articles of Organization or these By-laws, a written waiver thereof, executed
before or after the meeting by such stockholder or his attorney thereunto
authorized and filed with the records of the meeting, shall be deemed equivalent
to such notice.
2.5. Quorum of Stockholders. At any meeting of the stockholders, a
----------------------
quorum as to any matter shall consist of a majority of the votes entitled to be
cast on the matter, except when a larger quorum is required by law, by the
Articles of Organization or by these By-laws. Stock owned directly or
indirectly by the corporation, if any, shall not be deemed outstanding for this
purpose. Any meeting may be adjourned from time to time by a majority of the
votes properly cast upon the question, whether or not a quorum is present, and
the meeting may be held as adjourned without further notice.
2.6. Action by Vote. When a quorum is present at any meeting, a
--------------
plurality of the votes properly cast for election to any office shall elect to
such office, and a majority of the votes properly cast upon any question other
than an election to an office shall decide the question, except when a larger
vote is required by law, by the Articles of Organization or by these By-laws.
No ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
2.7. Voting. Stockholders entitled to vote shall have one vote for
------
each share of stock entitled to vote held by them of record according to the
records of the corporation, unless otherwise provided by the Articles of
Organization. The corporation shall not, directly or indirectly, vote any share
of its own stock.
2.8. Action by Writing. Any action required or permitted to be taken
-----------------
at any meeting of the stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders.
Such consents shall be treated for all purposes as a vote at a meeting.
-2-
<PAGE>
2.9. Proxies. To the extent permitted by law, stockholders entitled
-------
to vote may vote either in person or by proxy. Except to the extent permitted
by law, no proxy dated more than six months before the meeting named therein
shall be valid. Unless otherwise specifically limited by their terms, such
proxies shall entitle the holders thereof to vote at any adjournment of such
meeting but shall not be valid after the final adjournment of such meeting.
Section 3. BOARD OF DIRECTORS
3.1. Number. At the annual meeting of stockholders such stockholders
------
as have the right to vote for the election of directors shall fix the number of
directors at not less than seven nor more than twenty directors and shall elect
the number of directors so fixed. The number of directors may be increased or
decreased to any number permitted by law at any time or from time to time only
by vote of a majority of the stockholders having the right to vote thereon. No
director need be a stockholder.
3.2. Tenure. Except as otherwise provided by law, by the Articles of
------
Organization or by these By-laws, each director shall hold office until the next
annual meeting of the stockholders and thereafter until his successor is duly
elected and qualified, or until he sooner dies, resigns, is removed or becomes
disqualified.
Any director who is not an officer of the corporation or of an
affiliate of the corporation shall retire as a director not later than the date
of the next annual meeting of stockholders of the corporation following the
director's seventieth birthday, and shall be ineligible to serve as a director
after the date of such meeting. Any director who is an officer of the
corporation or of an affiliate of the corporation shall retire as a director not
later than the time he ceases to be such an officer, except that the person who
held the office of chief executive officer of the corporation on February 19,
1997 may at the discretion of the board of directors (and subject to annual
election by the stockholders) continue to serve as a director after he ceases to
be chief executive officer, but in no event beyond the date of the next annual
meeting of stockholders of the corporation following his seventieth birthday or
such earlier date as the board of directors may establish.
3.3. Powers. Except as reserved to the stockholders by law, by the
------
Articles of Organization or by these By-laws, the business of the corporation
shall be managed under the direction of the directors, who shall have and may
exercise all the powers of the corporation. In particular, and without limiting
the generality of the foregoing, the directors may at any time issue all or from
time to time any part of the unissued capital stock of the corporation from time
to time authorized under the Articles of Organization and may determine, subject
to any requirements of law, the consideration for which stock is to be issued
and the manner of allocating such consideration between capital and surplus.
3.4. Committees. The directors may, by vote of a Supermajority (as
----------
defined in Section 3.12 hereof) of the directors then in office, elect from
their number an executive
-3-
<PAGE>
committee and other committees and delegate to any such committee or committees
some or all of the powers of the directors except those which by law, by the
Articles of Organization or by these By-laws they are prohibited from
delegating. Except as the directors may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the directors or such rules, its business shall be conducted as nearly as may be
in the same manner as is provided by these By-laws for the conduct of business
by the directors. Notwithstanding any provision herein to the contrary, no such
committee shall have power or authority in reference to amending the Articles of
Organization of the corporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of
dissolution, amending these By-laws or taking any actions set forth in Section
3.12 hereof.
3.5. Regular Meetings. Regular meetings of the directors may be held
----------------
without call or notice at such places and at such times as the directors may
from time to time determine, provided that reasonable notice of the first
regular meeting following any such determination shall be given to absent
directors. A regular meeting of the directors may be held without call or
notice immediately after and at the same place as the annual meeting of the
stockholders.
3.6. Special Meetings. Special meetings of the directors may be held
----------------
at any time and at any place designated in the call of the meeting, when called
by the chairman of the board, if any, the president or the secretary, reasonable
notice thereof being given to each director by the secretary or an assistant
secretary, or by the officer calling the meeting.
3.7. Notice. It shall be sufficient notice to a director of a
------
meeting of the directors (1) to send notice by mail at least four days or by
telegram at least twenty-four hours before the meeting addressed to him at his
usual or last known business or residence address, (2) to give notice to him in
person or by telephone at least twenty-four hours before the meeting or (3) to
give him notice by such other means, and within such other time, as shall be
reasonable in the circumstances. Notice of a meeting need not be given to any
director if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
3.8 Quorum. At any meeting of the directors, a Supermajority (as
------
defined in Section 3.12 hereof) of the directors then in office (or such other
greater number as may be required by law) shall constitute a quorum. Any
meeting may be adjourned from time to time by a majority of the votes cast upon
the question, whether or not a quorum is present, and the meeting may be held as
adjourned without further notice.
-4-
<PAGE>
3.9. Action by Vote. When a quorum is present at any meeting, a
--------------
majority of the directors present may take any action, except when a larger vote
is required by law, by the Articles of Organization or by these By-laws.
3.10. Action by Writing. Unless the Articles of Organization
-----------------
otherwise provide, any action required or permitted to be taken at any meeting
of the directors may be taken without a meeting if all the directors consent to
the action in writing and the written consents are filed with the records of the
meetings of the directors. Such consents shall be treated for all purposes as a
vote taken at a meeting.
3.11. Presence Through Communications Equipment. Unless otherwise
-----------------------------------------
provided by law or the Articles of Organization, members of the board of
directors may participate in a meeting of such board by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
3.12. Approval of Certain Matters. Notwithstanding any provision
---------------------------
herein to the contrary, the affirmative vote of a Supermajority of the directors
then in office shall be required in order to authorize or undertake or cause the
corporation to: (i) adopt or materially modify the business plan of the
corporation; (ii) appoint or remove the chief executive officer; (iii) acquire,
or invest or make any capital contribution in excess of Twenty-Five Million
Dollars ($25,000,000) in, any subsidiary; (iv) create, incur, assume, issue or
guarantee any indebtedness (directly or through any of the corporation's
subsidiaries) for borrowed money in excess of Twenty-Five Million Dollars
($25,000,000); (v) enter into any joint venture or partnership with any person
or organization (other than a wholly owned subsidiary of the corporation); (vi)
adopt or modify any proposal for the sale, merger, consolidation, liquidation,
reorganization, rehabilitation, conservation or dissolution of, or the sale,
lease, assignment or other disposition of all or substantially all of the assets
of, the corporation or any of its subsidiaries; (vii) issue new shares of
capital stock of the corporation or any of its subsidiaries, grant any option to
acquire such stock or make any other changes in the capitalization of the
corporation or any of its subsidiaries; (viii) adopt or modify any stock option
plan; (ix) adopt or modify any agreement with any officer or director of the
corporation; (x) elect committees of the directors and delegate powers thereto
(as provided in Section 3.4 hereof); (xi) elect the chairman of the board or
designate any other officer who shall have general charge and supervision of the
business of the corporation (as provided in Sections 4.5 and 4.6 hereof); (xii)
remove a director from office (as provided in Section 5 hereof); (xiii) fix the
compensation of the directors (as provided in Article 6.8 of the Articles of
Organization); or (xiv) take any of the actions set forth in Article 6.6 of the
Articles of Organization. As used in these By-laws and in the Articles of
Organization, a "Supermajority" shall mean sixty-five percent.
-5-
<PAGE>
Section 4. OFFICERS AND AGENTS
4.1. Enumeration; Qualification. (a) The officers of the
--------------------------
corporation shall be (1) a president, a treasurer, a clerk and a secretary, (2)
such other officers as the directors from time to time may in their discretion
elect or appoint, (3) such senior vice presidents as the Personnel Committee of
the board of directors may in its discretion elect or appoint pursuant to
paragraph (b) of this Section 4.1 and (4) such other officers as the chief
executive officer of the corporation may, pursuant to paragraph (b) of this
Section 4.1, appoint. The corporation may also have such agents, if any, as the
directors from time to time may in their discretion appoint. Any officer may be
but none need be a director or stockholder. Any two or more offices may be held
by the same person. Any officer may be required by the directors to give bond
for the faithful performance of his duties to the corporation in such amount and
with such sureties as the directors may determine.
(b) Without limiting the authority or discretion of the directors to
elect or appoint persons to hold any such office, (1) the chief executive
officer shall have the authority to appoint, in his discretion, persons to hold
any office with the corporation other than offices ranking in authority at the
level of senior vice president or higher (that is, the offices of president,
chief executive officer, chairman of the board, chief operating officer,
president of a business unit of the corporation, executive vice president,
senior vice president or any other office that the directors shall from time to
time designate as ranking in authority at the level of senior vice president or
higher), treasurer, clerk or secretary, and (2) the Personnel Committee of the
board of directors shall have the authority in its discretion to appoint or
elect persons to the office of senior vice president of the corporation. With
respect to each such appointment by the chief executive officer or appointment
or election by the Personnel Committee of the board of directors, the chief
executive officer or the Personnel Committee of the board of directors (as the
case may be) shall, at or before the next regular meeting of the board of
directors following such appointment or election, give notice to the board of
directors of such appointment or election; provided, however, that failure to
give such notice shall not affect or impair the validity of such appointment or
election or the authority of any officer so appointed or elected.
4.2. Powers. Subject to law, to the Articles of Organization and to
------
the other provisions of these By-laws, each officer shall have, in addition to
the duties and powers herein set forth, such duties and powers as are commonly
incident to his office and such duties and powers as the directors (or (1) the
chief executive officer, in the case of any officer other than the treasurer,
the secretary, the clerk or any officer ranking in authority at the level of
senior vice president or higher or (2) the Personnel Committee of the board of
directors, in the case of any senior vice president) may from time to time
designate.
4.3. Election. The president, the treasurer, the secretary and the
--------
clerk shall be elected annually by the directors. Other officers, if any, may
be elected or appointed by the board of directors (or, to the extent permitted
by Section 4.1 hereof, appointed by the chief executive
-6-
<PAGE>
officer or appointed or elected by the Personnel Committee of the board of
directors) at any other time.
4.4. Tenure. Except as otherwise provided by law or by the Articles
------
of Organization or by these By-laws, the president, the treasurer, the
secretary, the clerk and each other officer shall hold office until their
respective successors are chosen and qualified, unless a shorter period shall
have been specified by the terms of his election or appointment, or in each case
until he sooner dies, resigns, is removed or becomes disqualified.
4.5. Chief Executive Officer. The chief executive officer of the
-----------------------
corporation shall be designated by the affirmative vote of a Supermajority (as
defined in Section 3.12 hereof) of the directors then in office and shall,
subject to the control of the directors, have general charge and supervision of
the business of the corporation. Unless the board of directors otherwise
specifies, if there is no chairman of the board, the chief executive officer
shall preside, or designate the person who shall preside, at all meetings of the
stockholders and of the board of directors.
4.6. Chairman of the Board. The directors may, by affirmative vote
---------------------
of a Supermajority (as defined in Section 3.12 hereof) of the directors then in
office, elect one of their number as chairman of the board. If a chairman of
the board of directors is elected, he shall have the duties and powers specified
in these By-laws and shall have such other duties and powers as may be
determined by the directors. Unless the board of directors otherwise specifies,
the chairman of the board shall preside, or designate the person who shall
preside, at all meetings of the stockholders and of the board of directors.
4.7. President and Vice Presidents. The president shall have the
-----------------------------
duties and powers specified in these By-laws and shall have such other duties
and powers as may be determined by the directors. Any president of a business
unit of the corporation shall have the duties and powers specified in these By-
laws and shall have such other duties and powers as may be determined by the
directors.
Any vice presidents (including any vice presidents with designations
such as "executive vice president," "senior vice president," "first vice
president," "second vice president" or "assistant vice president") shall have
such duties and powers as shall be designated from time to time by the directors
(or, (1) in the case of any senior vice president, by the Personnel Committee of
the board of directors or (2) except in the case of any vice president ranking
in authority at the level of senior vice president or higher, by the chief
executive officer).
4.8. Treasurer and Assistant Treasurers. Except as the directors
----------------------------------
shall otherwise determine, the treasurer shall be the chief financial and
accounting officer of the corporation and shall be in charge of its funds and
valuable papers, books of account and accounting records, and shall have such
other duties and powers as may be designated from time to time by the directors.
-7-
<PAGE>
Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the directors or by the chief executive officer.
4.9. Secretary and Assistant Secretary. The secretary shall record
---------------------------------
all proceedings of the stockholders in a book or series of books to be kept
therefor, which book or books shall be kept at the principal office of the
corporation or at the office of its transfer agent or of its secretary and shall
be open at all reasonable times to the inspection of any stockholder. In the
absence of the secretary from any meeting of stockholders, an assistant
secretary, or if there be none or he is absent, a temporary secretary chosen at
the meeting, shall record the proceedings thereof in the aforesaid book.
Unless a transfer agent has been appointed, the secretary shall keep or cause to
be kept the stock and transfer records of the corporation, which shall contain
the names and record addresses of all stockholders and the amount of stock held
by each. The secretary shall keep a true record of the proceedings of all
meetings of the directors and in his absence from any such meeting an assistant
secretary, or if there be none or he is absent, a temporary secretary chosen at
the meeting, shall record the proceedings thereof.
Any assistant secretaries shall have such other duties and powers as
shall be designated from time to time by the directors or by the chief executive
officer.
4.10. Certain Powers. The chief executive officer, the chairman of
--------------
the board, the president, any president of any business unit, or any one of the
vice presidents, including any executive vice president, senior vice president,
second vice president or assistant vice president, and such other employees of
the corporation specifically authorized by the chief executive officer shall
have authority to transfer securities, to execute releases, extensions, partial
releases, and assignments without recourse of mortgages, and to execute deeds
and other instruments or documents on behalf of the corporation, and whenever
necessary to affix the seal of the corporation to the same. The chief executive
officer, the chairman of the board, the president, any president of any business
unit or any executive vice president, senior vice president, vice president,
second vice president or assistant vice president may, whenever necessary,
delegate authority to perform any of the acts referred to in this paragraph to
any person pursuant to a special power of attorney.
The treasurer shall have charge of all moneys and securities of the
corporation and shall collect all proceeds from investments which the
corporation's records establish to be due.
The treasurer or an assistant treasurer shall have authority to
transfer securities; to execute releases, extensions, partial releases, and
assignments without recourse of mortgages, to execute deeds and other
instruments or documents on behalf of the corporation, and whenever necessary to
affix the seal of the corporation to the same; and shall have power to vote, on
behalf of the corporation, in any case where the corporation, as holder of any
security, is entitled to vote.
-8-
<PAGE>
Section 5. RESIGNATIONS AND REMOVALS
Any director or officer may resign at any time by delivering his
resignation in writing to the chairman of the board, if any, the president, the
treasurer or the secretary. In addition, a director may resign by delivering
his resignation in writing to a meeting of the directors. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. A director (including persons elected by directors to fill vacancies in
the board) may be removed from office with or without cause by the vote of the
holders of a majority of the shares issued and outstanding and entitled to vote
in the election of directors, provided that the directors of a class elected by
a particular class of stockholders may be removed only by the vote of the
holders of a majority of the shares of such class. The directors may remove any
officer with or without cause by the vote of a Supermajority (as defined in
Section 3.12 hereof) of the directors then in office. No director or officer
who is removed shall have any right to any compensation as such director or
officer for any period following his removal, or any right to damages on account
of such removal, whether his compensation be by the month or by the year or
otherwise; unless the body acting on the removal shall in its discretion provide
for compensation.
Section 6. VACANCIES
Any vacancy in the board of directors, including a vacancy resulting
from the enlargement of the board as the result of an action taken by the
stockholders in accordance with Section 3.1 hereof, may be filled by the
stockholders or, in the absence of stockholder action, by the directors by vote
of a Supermajority (as defined in Section 3.12 hereof) of the directors then in
office. The directors shall elect a successor if the office of the president,
treasurer, secretary or clerk becomes vacant; if any other office becomes
vacant, a successor may be appointed (1) by the directors, (2) by the Personnel
Committee of the board of directors, in the case of a vacancy in the office of
senior vice president or (3) except in the case of a vacancy in an office
ranking in authority at the level of senior vice president or higher, by the
chief executive officer. Each such successor shall hold office for the
unexpired term and in the case of the president, treasurer, secretary and clerk
until his successor is chosen and qualified, or in each case until he sooner
dies, resigns, is removed or becomes disqualified. The directors shall have and
may exercise all their powers notwithstanding the existence of one or more
vacancies in their number.
Section 7. CAPITAL STOCK
7.1. Number and Par Value. The total number of shares and the par
--------------------
value, if any, of each class of stock which the corporation is authorized to
issue shall be as stated in the Articles of Organization.
7.2. Shares Represented by Certificates and Uncertificated Shares.
------------------------------------------------------------
The board of directors may provide by resolution that some or all of any or all
classes and series of shares
-9-
<PAGE>
shall be uncertificated shares. Unless such a resolution has been adopted, a
stockholder shall be entitled to a certificate stating the number and the class
and the designation of the series, if any, of the shares held by him, in such
form as shall, in conformity to law, be prescribed from time to time by the
directors. Such certificate shall be signed by the chairman of the board, if
any, the president or a vice president and by the treasurer or an assistant
treasurer. Such signatures may be facsimiles if the certificate is signed by a
transfer agent, or by a registrar, other than a director, officer or employee of
the corporation. In case any officer who has signed or whose facsimile signature
has been placed on such certificate shall have ceased to be such officer before
such certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer at the time of its issue.
7.3. Loss of Certificates. In the case of the alleged loss or
--------------------
destruction or the mutilation of a certificate of stock, a duplicate certificate
may be issued in place thereof, upon such conditions as the directors may
prescribe.
Section 8. TRANSFER OF SHARES OF STOCK
8.1. Transfer on Books. Subject to the restrictions, if any, stated
-----------------
or noted on the stock certificates, shares of stock may be transferred on the
books of the corporation by the surrender to the corporation or its transfer
agent of the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with necessary transfer
stamps affixed, and with such proof of the authenticity of signature as the
directors or the transfer agent of the corporation may reasonably require.
Except as may be otherwise required by law, by the Articles of Organization or
by these By-laws, the corporation shall be entitled to treat the record holder
of stock as shown on its books as the owner of such stock for all purposes,
including the payment of dividends and the right to receive notice and to vote
with respect thereto, regardless of any transfer, pledge or other disposition of
such stock until the shares have been transferred on the books of the
corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the corporation of
his post office address.
8.2. Record Date and Closing Transfer Books. The directors may fix
--------------------------------------
in advance a time, which shall not be more than sixty days before the date of
any meeting of stockholders or the date for the payment of any dividend or
making of any distribution to stockholders or the last day on which the consent
or dissent of stockholders may be effectively expressed for any purpose, as the
record date for determining the stockholders having the right to notice of and
to vote at such meeting and any adjournment thereof or the right to receive such
dividend or distribution or the right to give such consent or dissent, and in
such case only stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the corporation after the
record date; or without fixing such record date the
-10-
<PAGE>
directors may for any of such purposes close the transfer books for all or any
part of such period. If no record date is fixed and the transfer books are not
closed:
(1) The record date for determining stockholders having the right to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the date next preceding the day on which notice is given.
(2) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors acts with respect thereto.
Section 9. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the extent legally permissible, indemnify
each of its directors and officers (including persons who serve at its request
as directors, officers or trustees of another organization, or in any capacity
with respect to any employee benefit plan) against all liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees, reasonably incurred by him in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, in which he may be involved or with which he may be
threatened, while in office or thereafter, by reason of his being or having been
such a director or officer, except with respect to any matter as to which he
shall have been adjudicated in any proceeding not to have acted in good faith in
the reasonable belief that his action was in the best interest of the
corporation (any person serving another organization in one or more of the
indicated capacities at the request of the corporation who shall have acted in
good faith in the reasonable belief that his action was in the best interest of
such other organization to be deemed as having acted in such manner with respect
to the corporation) or, to the extent that such matter relates to service with
respect to any employee benefit plan, in the best interest of the participants
or beneficiaries of such employee benefit plan; provided, however, that as to
any matter disposed of by a compromise payment by such director or officer,
pursuant to a consent decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless such compromise shall
be approved as in the best interest of the corporation, after notice that it
involves such indemnification: (a) by a disinterested majority of the directors
then in office; or (b) by a majority of the disinterested directors then in
office, provided that there has been obtained an opinion in writing of
independent legal counsel to the effect that such director or officer appears to
have acted in good faith in the reasonable belief that his action was in the
best interest of the corporation; or (c) by the holders of a majority of the
outstanding stock at the time entitled to vote for directors, voting as a single
class, exclusive of any stock owned by any interested director or officer.
Expenses, including counsel fees, reasonably incurred by any director or officer
in connection with the defense or disposition of any such action, suit or other
proceeding may be paid from time to time by the corporation in advance of the
final disposition thereof upon receipt of an undertaking by such director or
officer to repay the amounts so paid to the corporation if it is ultimately
determined that indemnification for such expenses is not authorized under this
section. The right of indemnification hereby provided
-11-
<PAGE>
shall not be exclusive of or affect any other rights to which any director or
officer may be entitled. As used in this section, the terms "director" and
"officer" include the relevant individual's heirs, executors and administrators,
and an "interested" director or officer is one against whom in such capacity the
proceedings in question or another proceeding on the same or similar grounds is
then pending. Nothing contained in this section shall affect any rights to
indemnification to which corporate personnel other than directors and officers
may be entitled by contract or otherwise under law.
Section 10. CORPORATE SEAL
The seal of the corporation shall, subject to alteration by the
directors, consist of a flat-faced circular die with the word "Massachusetts",
together with the name of the corporation and the year of its organization, cut
or engraved thereon.
Section 11. FISCAL YEAR
The fiscal year of the corporation shall end on December 31.
Section 12. AMENDMENTS
These By-laws may be altered, amended or repealed at any annual or
special meeting of the stockholders called for the purpose, of which the notice
shall specify the subject matter of the proposed alteration, amendment or repeal
or the sections to be affected thereby, by vote of the stockholders.
-12-
<PAGE>
Exhibit 9
New England Life Insurance Company
501 Boylston Street
Boston, MA 02117
H. James Wilson
General Counsel
April 29, 1998
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. 33-85442 and 811-8828). This amendment
is being filed with respect to individual variable annuity contracts (the
"Contracts") issued by New England Variable Annuity Separate Account (the
"Account").
In forming the following opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary and
appropriate.
It is my opinion that:
1. The Account is a separate investment account of the Company and is duly
created and validly existing pursuant to the laws of the State of
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
<PAGE>
Exhibit 10(i)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 5 to the
Registration Statement No. 33-85442 of New England Variable Annuity
Separate Account (the "Separate Account") of New England Life Insurance
Company (the "Company") of our reports dated April 17, 1998 and February
17, 1998, on the financial statements of the Separate Account and the
Company for the years ended December 31, 1997 and 1996 appearing in the
Statement of Additional Information (which expressed unqualified opinions
and, with respect to the Company, includes an explanatory paragraph
referring to the change in the basis of accounting and the change in
corporate organization), which is part of such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 28, 1998
<PAGE>
Exhibit 10 (ii)
Sutherland, Asbill & Brennan LLP
CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Legal Matters"
in the prospectus included in Post-Effective Amendment No. 5 to the Registration
Statement on Form N-4 for certain variable annuity contracts issued through
New England Variable Annuity Separate Account of New England Life Insurance
Company (File No. 33-85442). In giving this consent, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
SUTHERLAND, ASBILL & BRENNAN LLP
Washington, D.C.
April 28, 1998
<PAGE>
Exhibit 13
CALCULATION $10,000 Single Payment
<TABLE>
<CAPTION>
CALCULATION
<S> <C>
No Premium Tax Contract Value Surrender Value
-------------- ---------------
free withdrawal
0:Prem Tax AMOUNTS
Govt. Series Govt. Series Govt. Series Govt. Series
CV Paymts Fee UV's
11/1/94 10,000.00 10,000 0 0.999963 1 0.07
12/31/94 10,026.51 0 0 1.002614 1 0.07 2 9,390.01 1000
Percent Change Contract Value 0:Prem Tax Surrender Value
-------------- ---------------
Govt. Series Govt. Series
12/31/94 0.27% -6.10%
CALCULATION $250 Per Month 0:Prem Tax 471.86
No Premium Tax
amt subject to
surcharge
Cumulative Govt. Series Net Govt. Series Govt. Se. FREE SURR 12/31/94 SURR
Payments Cv Paymts Fee UV's CSV WTHDRL CHG CHG
11/1/94 250 250.00 250 250 0 0.999963 0 1 0.07 0 0 250.00 17.50
12/1/94 500 499.47 250 250 0 0.997855 1 1 0.07 1 1 221 86 15.53
12/31/94 500 501 .86 0 0 0 1.002614 2 1 0.07 2 2 463.83 25.00 33.03 000 000
500
IRR calc (monthly): 0.247%
4.903%
33.03
</TABLE>
<PAGE>
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS FOR U.S. GOVERNMENT FUND
Perid Ending: 12/31/94
since inception -6.52%
10/31/94 1 1000 1000
12/31/94 1.00261 -5 997.61
100.00
62.833
934.78
-6.52%
<PAGE>
Calculation $10,000 Single Payment
<TABLE>
<CAPTION>
No Premium Tax Contract Value Surrender Value
-------------- ---------------
<S> <C>
free withdrawal
AMOUNTS
0: Prem Tax
Balanced Balanced Balanced Balanced
CV Paymts Fee UV's
11/1/94 10,000.00 10,000 0 0.999963 1 0.07
12/31/94 9,956.78 0 0 0.995641 1 0.07 2 9,325.15 1000
Percent Change Contract Value 0: Prem Tax Surrender __________
--------------
Balanced Balanced
12/31/94 -0.43% -6.75%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALCULATION $250 Per Month 0:Prem Tax
<S> <C>
No Premium Tax amt subject to
surr charge
Cumulative Balanced Net Balanced Balanced. FREE SURR 12/31/94 SURR
Payments Cv Paymts Fee UV's CSV WTHDRL CHG CHG
11/1/94 250 250.00 250 250 0 0.999963 0 1 0.07 0 250,00 17.50
12/1/94 500 496.23 250 250 0 0.98487 1 1 0.07 1 221 65 15.52
12/31/94 500 501.65 0 0 0 0.995641 2 1 0.07 2 463.83 25.00 33.02 000 000
IRR calc (monthly): 0.220% 500
4.929% 33.02
</TABLE>
<PAGE>
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS FOR BALANCED FUND
Period Ending: 12/31/94
since inception -7.17%
10/31/94 1 1000 1000
12/31/94 0.99564 -5 990.64
100.00
62.3449
928.30
-7.17%
<PAGE>
<TABLE>
<CAPTION>
CALCULATION 10,000 Single Payment
<S> <C>
No Premium Tax Contract Value Surrender Value
-------------- ---------------
free withdrawal
0 :Prem Tax AMOUNTS
Equity Growth Equity Growth Equity Growth Equity Growth
CV Paymts Fee UV's
11/1/94 10,000.00 10,000 0 0.985963 1 0.07
12/31/94 9,561.73 0 0 0.942751 1 0.07 2 8,957.78 1000
Percent Change Contract Value 0:Prem Tax Surrender Value
--------------
Equity Growth Equity Growth
12/31/94 -4.38% -10.42%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALCULATION $250 Per Month 0:Prem Tax
<S> <C>
No Premium Tax
amt subject to
surr charge
Cumulative Equity Growth Net Equity Growth Equity Growth FREE SURR 12/31/94SURR
Payments Cv Paymts Fee UV's CSV WTHDRL CHG CHG
11/1/94 250 250.00 250 250 0 0.985963 0 1 0.07 0 250.00 17.50
12/1/94 500 487.31 250 250 0 0.935925 1 1 0.07 1 210.87 14.76
12/31/94 500 490.87 0 0 0 0.942751 2 1 0.07 2 453.61 25.00 32.26 000 000
500
IRR calc (monthly): -1.223%
-6.318%
32.26
</TABLE>
<PAGE>
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS FOR EQUITY GROWTH FUND
Perid Ending: 12/31/94
since inception --12.09%
10/31/94 1 1000 1000
12/31/94 0.94275 -5 937.75
100.00
58.6426
879.11
-12.09%
<PAGE>
<TABLE>
<CAPTION>
Calculation $10,000 Single Payment
<S> <C>
No Premium Tax Contract Value Surrender Value
-------------- ---------------
0: Prem Tax free withdrawal
AMOUNTS
International International International International
CV Paymts Fee UV's
11/1/94 10,000.00 10,000 0 0.999963 1 0.07
12/31/94 10,196.29 0 0 1.019591 1 0.07 2 9,547.90 1000
Percent Change Contract Value 0: Prem Tax Surrender Value __________
--------------
International International
12/31/94 1.96% -4.52%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Calculation $250 Per Month 0:Prem Tax 471.86
<S> <C>
No Premium Tax
amt subject to
surr charge
Cumulative Cumulative International Net International International. FREE SURR 12/31/94 SURR
Payments Cv Paymts Fee CSV WTHDRL CHG CHG
11/1/94 250 250.00 250 250 0 0.999965 0 1 0.07 0 250,00 17.50
12/1/94 500 500.47 250 250 0 0.001851 1 1 0.07 1 229.33 16.05
12/31/94 500 509.33 0 0 0 0.019591 2 1 0.07 2 470.78 25.00 33.55 000 000
500
IRR calc (monthly): 1.239%
-3.948%
33.35
</TABLE>
<PAGE>
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS FOR INTERNATIONAL FUND
Perid Ending: 12/31/94
since inception -4.94%
10/31/94 1 1000 1000
12/31/94 1.01959 -5 1014.59
100.00
64.0214
950.57
-4.94%
<PAGE>
<TABLE>
<CAPTION>
Calculation $10,000 Single Payment
<S> <C>
No Premium Tax Contract Value Surrender Value
-------------- ---------------
0: Prem Tax free withdrawal
AMOUNTS
Venture Venture Venture Venture
CV Paymts Fee UV's
11/1/94 10,000.00 10,000 0 0.999963 1 0.07
12/31/94 9,657.56 0 0.96572 1 0.07 2 9,046.88 1000
0
Percent Change Contract Value 0:Prem Tax Surrender Value ______________
--------------
Venture Venture
12/31/94 -3.42% -9.53%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Calculation $250 Per Month 0:Prem Tax
<S> <C>
No Premium Tax
amt subject to
surr charge
Cumulative Cumulative Venture Net Venture Venture FREE SURR 12/31/94 SURR
Payments Cv Paymts Fee UV's CSV WTHDRL CHG CHG
11/1/94 250 250.00 250 250 0 0.999963 0 1 0.07 0 250.00 17.50
12/1/94 500 486.74 250 250 0 0.946912 1 1 0.07 1 216.40 15.15
12/31/94 500 496.40 0 0 0 0.96572 2 1 0.07 2 458.76 25.00 32.26 000 000
IRR calc (monthly): -0.480% 500
-5.603%
32.65
</TABLE>
<PAGE>
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS FOR VENTURE FUND
Perid Ending: 12/31/94
since inception -9.95%
10/31/94 1 1000 1000
12/31/94 0.96572 -5 960.72
100.00
60.2504
900.47
9.95%
<PAGE>
<TABLE>
<CAPTION>
Calculation $10,000 Single Payment
<S> <C>
No Premium Tax Contract Value Surrender Value
-------------- --------------------------------------
0: Prem Tax free withdrawal
AMOUNTS
Bond Bond
CV Paymts Fee UV's Bond Bond
11/1/94 10,000.00 10,000 0 0.999963 1 0.07
12/31/94 9,817.20 0 0 0.981684 1 0.07 2 9,195.35 1000
Percent Change Contract Value Surrender Value
-------------- ---------------
Bond 0: Prem Tax Bond
12/31/94 -1.83% -8.05%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Calculation $250 Per Month 0:Prem Tax
<S> <C>
No Premium Tax
amt subject to
surr charge
Cumulative Cumulative Bond Net Bond Bond. FREE SURR 12/31/94 SURR
Payments Cv Paymts Fee UV's CSV WTHDRL CHG CHG
11/1/94 250 250.00 250 250 0 0.999963 0 1 0.07 0 250,00 17.50
12/1/94 500 499.72 250 250 0 0.999854 1 1 0.07 1 211.13 14.78
12/31/94 500 491.13 0 0 0 0.981684 2 1 0.07 2 453.85 25.00 32.28 000 000
IRR calc (monthly): -1.187% 500
-6.285%
32.28
</TABLE>
<PAGE>
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS FOR BOND FUND
Period Ending: 12/31/94
since inception -8.47%
10/31/94 1 1000 1000
12/31/94 0.98168 -5 976.68
100.00
61.3679
915.32
-8.47%
<PAGE>
<TABLE>
<CAPTION>
Calculation $10,000 Single Payment
<S> <C>
No Premium Tax Contract Surrender Value
-
0: Prem Tax free withdrawal
AMOUNTS
Sm Cap Sm Cap
6/1/94 10,000.00 Paymts Fee UV's
12/31/94 9,706. 161 10,000 0 0.98001 1 0.07
0 0 0.951213 1 0.07 9,080.45 1000
Percent Change Surr Value
Sm Cap Sm Cap
12/31/94 -2.94% -9.20%
-100.00%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALCULATION $250 Payment Per Month
No Premium Tax
Amt Subject to
Surr Value surr Charge
FREE SURR 12/31/94 SURR
Sm Cap WTHDRL CHG CHG
0
Cumulative Net
Payments Sm Cap Paymts Paymts Fee UV's
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/1/94 250 250.00 250 250 0 0.98001 1 0.07 250.00 17.50
7/1/94 500 495.14 250 250 0 0.960963 1 0.07 1 250.00 17.50
8/1/94 750 745.39 250 250 0 0.961455 1 0.07 2 250.00 17.50
9/1/94 1,000 1,027.96 250 250 0 1.00346 1 0.07 3 250.00 17.50
10/1/94 1,250 1,279.29 250 250 0 1.004758 1 0.07 4 250.00 17.50
11/1/94 1,500 1,515.15 250 250 0 0.99365 1 0.07 5 250.00 17.50
12/1/94 1,750 1,686.00 250 250 0 0.941747 1 0.07 6 160.45 11.23
12/31/94 1,750 1,702.95 0 0 0 0.951213 1 0.07 7 1,569.22 25.00 116.23 0.00 0.00
IRR Calc (monthly: -0.681% 1750 -2.726% 116.23
</TABLE>
<PAGE>
HYPOTHETICAL PERFORMANCE
FOR A CONTRACT BASED ON
AVERAGE ANNUAL TOTAL RETURNS FOR SMALL CAP FUND
Period Ending: 12/31/94
since inception -12.70%
5/2/94 1 1000 1000
12/31/94 0.99564 -5 931.21
100.00
58.18491
873.03
-12.70%
<PAGE>
<TABLE>
<CAPTION>
Calculation $10,000 Single Payment
<S> <C>
No Premium Tax Contract Surrender Value
-
0: Prem Tax free withdrawal
AMOUNTS
Sm Cap Sm Cap
5/2/94 10,000.00 Paymts Fee UV's
12/31/94 9,512.13 10,000 0 1 1 0.07
0 0 0.951213 1 0.07 8 8,897.68 1000
Percent Change Surr Value
Sm Cap Sm Cap
12/31/94 -4.88% 11.02%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALCULATION $250 Payment Per Month
No Premium Tax
Amt Subject to
Surr Value surr Charge
FREE SURR 12/31/94 SURR
Sm Cap WTHDRL CHG CHG
0
Cumulative Net
Payments Sm Cap Paymts Paymts Fee UV's
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/2/94 250 250.00 250 250 0 1 1 0.07 250.00 17.50
6/2/94 500 496.77 250 250 0 0.987066 1 0.07 250.00 17.50
7/2/94 750 731.80 250 250 0 0.957328 1 0.07 250.00 17.50
8/2/94 1,000 990.26 250 250 0 0.968396 1 0.07 250.00 17.50
9/2/94 1,250 1,273.13 250 250 0 1.000536 1 0.07 250.00 17.50
10/2/94 1,500 1,528.50 250 250 0 1.004758 1 0.07 250.00 17.50
11/2/94 1,750 1,766.83 250 250 0 0.997089 1 0.07 250.00 17.50
12/2/94 2,000 1,924.51 250 250 0 0.944987 1 0.07 142.19 9.95
12/31/94 2,000 1,937.19 0 0 0 0.951213 1 0.07 1,802.23 25.00 114.95 0.00 0.00
IRR Calc (monthly: -0.710% 2000 -2.319% 114.95
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulation UV
% Change
U.S. Gov Balanced Equity Growth International Venture Bond Oppt. U.S. Gov Balanced
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10/31/94 1 1 1 1 1 1
12/31/94 1.002614 0.995641 0.942751 1.019591 0.96572 0.981684 0.3%
</TABLE>
Percent Change in Unit Value and Annual
Effective Rate of Return
Since Inception ended December 31, 1994
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U S. Gov Balanced Equity Growth International Venture
% Change Annual % Change Annual % Change Annual % Change Annual % Change Annual
in Unit Effective in Unit Effective in Unit Effective in Unit Effective in Unit Effective
Value Rate Value Rate Value Rate Value Rate Value Rate
0.3% 0.3% -0.4% -0.4% -5.7% -5.7% -2.0% 2.0% -3.4% -3.4%
<CAPTION>
Bond Oppor.
% Change Annual
in Unit Effective
Value Rate
-1.89% -1.8%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
10/31/94- % Change % Change % Change % Change
12/31/94 Equity Growth International Venture Bond Oppor.
-5.7% 2.0% -3.4% -1.8%
</TABLE>
<PAGE>
Exhibit 14ii
POWER OF ATTORNEY
I, the President and Chief Operating Officer and a director of New England
Life Insurance Company, a Massachusetts corporation, hereby constitute and
appoint Anne M. Goggin, Rodney J. Chandler, Maura A. Murphy, Marie C. Swift and
H. James Wilson, each of them singly, my true and lawful attorneys, with full
power to them and each of them to sign for me and in my name and in the
capacities indicated below, the Registration Statements filed with the
Securities and Exchange Commission for the purpose of registering New England
Variable Life Separate Account established by New England Life Insurance Company
on January 31, 1983 as a unit investment trust under the Investment Company Act
of 1940 and the variable life policies issued by said separate account under the
Securities Act of 1933, and any and all amendments thereto, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to said
Registration Statements and any and all amendments thereto.
In addition, I, the President and Chief Operating Officer and a director of
New England Life Insurance Company, a Massachusetts corporation, hereby
constitute and appoint Anne M. Goggin, Rodney J. Chandler, Maura A. Murphy,
Marie C. Swift and H. James Wilson, each of them singly, my true and lawful
attorneys, with full power to them and each of them to sign for me and in my
name and in the capacities indicated below, the Registration Statements filed
with the Securities and Exchange Commission for the purpose of registering New
England Variable Annuity Separate Account established by New England Life
Insurance Company on July 1, 1994 as a unit investment trust under the
Investment Company Act of 1940 and the variable annuity contracts issued by said
separate account under the Securities Act of 1933, and any and all amendments
thereto, hereby ratifying and confirming my signature as it may be signed by my
said attorneys to said Registration Statements and any and all amendments
thereto.
Witness my hand on the 8th of July, 1997.
/s/ James M. Benson
Director, President and
Chief Operating Officer
<PAGE>
Exhibit 14(iii)
POWER OF ATTORNEY
I, the Second Vice President and Chief Accounting Officer of New England
Life Insurance Company, a Massachusetts corporation, hereby constitute and
appoint Anne M. Goggin, Rodney J. Chandler, Maura A. Murphy, Marie C. Swift and
H. James Wilson, each of them singly, my true and lawful attorneys, with full
power to them and each of them to sign for me and in my name and in the
capacities indicated below, the Registration Statements filed with the
Securities and Exchange Commission for the purpose of registering New England
Variable Life Separate Account established by New England Life Insurance Company
on January 31, 1983 as a unit investment trust under the Investment Company Act
of 1940 and the variable life policies issued by said separate account under the
Securities Act of 1933, and any and all amendments thereto, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to said
Registration Statements and any and all amendments thereto.
Witness my hand on the 12th of February, 1998.
/s/ Richard A. Robinson
Second Vice President and Chief
Accounting Officer
