-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ECfUZJ2WO3rDEBKIJS0wiZ4w7RUF3+BDF8KyzBOZf3VFDl3wkur7UaYGgDyG0phK AhiEy/eqCG88W7Y7tL/Kag== 0000950109-98-003871.txt : 19980710 0000950109-98-003871.hdr.sgml : 19980710 ACCESSION NUMBER: 0000950109-98-003871 CONFORMED SUBMISSION TYPE: S-6/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19980709 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT CENTRAL INDEX KEY: 0000717347 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042708937 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6/A SEC ACT: SEC FILE NUMBER: 333-46401 FILM NUMBER: 98662820 BUSINESS ADDRESS: STREET 1: 501 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02117 BUSINESS PHONE: 6175782000 MAIL ADDRESS: STREET 1: NEW ENGLAND VARIABLE LIFE INSURANCE CO STREET 2: 501 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02117 S-6/A 1 FORM S-6/A As filed with Securities and Exchange Commission on July 9, 1998 Registration No. 333-46401 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ FORM S-6 PRE-EFFECTIVE AMENDMENT No. 1 to the REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------------ NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT (Exact Name of Trust) NEW ENGLAND LIFE INSURANCE COMPANY (Name of Depositor) 501 Boylston Street Boston, Massachusetts 02117 (Address of depositor's principal executive offices) ------------------------------------ MARIE C. SWIFT Counsel New England Life Insurance Company 501 Boylston Street Boston, Massachusetts 02117 (Name and address of agent for service) Copies to: STEPHEN E. ROTH Sutherland, Asbill & Brennan LLP 1275 Pennsylvania Avenue, N.W. Washington, D.C. 20004 ------------------------------------ Title of Securities Being Registered: Flexible Premium Adjustable Variable Life Insurance Policies As soon as practicable after the effective date of this Registration Statement (Approximate date of proposed public offering) The Registrant hereby amends this Registration Statement under the Securities Act of 1933 on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT Registration Statement on Form S-6 Cross-Reference Sheet Form N-8B-2 Item No. Caption in Prospectus - ---------- --------------------- 1 Cover Page 2 Cover Page 3 Inapplicable 4 NELICO's Distribution Agreement 5 NELICO 6 The Variable Account 9 Inapplicable 10(a) Other Policy Features 10(b) Policy Values and Benefits 10(c), (d), (e) Death Benefit; Cash Value; 24 Month Right; Surrender; Partial Surrender; Right to Return the Policy; Loan Provision; Transfer Option; Premiums 10(f), (g), (h) Voting Rights; Rights Reserved by NELICO 10(i) Limits to NELICO's Right to Challenge the Policy; Payment of Proceeds; Investment Options 11 The Variable Account 12 Investments of the Variable Account; NELICO's Distribution Agreement 13 Charges and Expenses; NELICO's Distribution Agreement; Charge for NELICO's Income Taxes; Appendix A 14 Amount Provided for Investment Under the Policy; NELICO's Distribution Agreement 15 Premiums 16 Investments of the Variable Account 17 Captions referenced under Items 10(c), (d), (e) and (i) above 18 The Variable Account 19 Reports; NELICO's Distribution Agreement 20 Captions referenced under Items 6 and 10(g) above 21 Loan Provision 22 Inapplicable 23 NELICO's Distribution Agreement 24 Limits to NELICO's Right to Challenge the Policy 25 NELICO 26 NELICO's Distribution Agreement Form N-8B-2 Item No. Caption in Prospectus - ----------- --------------------- 27 NELICO 28 Management 29 NELICO 30 Inapplicable 31 Inapplicable 32 Inapplicable 33 Inapplicable 34 NELICO's Distribution Agreement 35 NELICO 36 Inapplicable 37 Inapplicable 38 NELICO's Distribution Agreement 39 NELICO's Distribution Agreement 40 NELICO's Distribution Agreement 41(a) NELICO's Distribution Agreement 42 Inapplicable 43 Inapplicable 44(a) Investments of the Variable Account; Amount Provided for Investment Under the Policy; Deductions from Premiums; Flexible Premiums 44(b) Charges and Expenses 44(c) Flexible Premiums; Deductions from Premiums 45 Inapplicable 46 Investments of the Variable Account; Captions referenced under Items 10(c), (d) and (e) above 47 Inapplicable 48 Inapplicable 49 Inapplicable 50 Inapplicable 51 Cover Page; Death Benefit; Lapse and Reinstatement; Charges and Expenses; Additional Benefits by Rider; 24 Month Right; Payment Options; Policy Owner and Beneficiary; Premiums; NELICO's Distribution Agreement 52 Rights Reserved by NELICO 53 Tax Considerations 54 Inapplicable 55 Inapplicable 59 Financial Statements ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ + + +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ NEW ENGLAND LIFE INSURANCE COMPANY Flexible Premium Adjustable Variable Life Insurance Policies Issued by: Administrative Office: New England Life Insurance Company 501 Boylston Street 6425 Powers Ferry Road Boston, Massachusetts 02116 Atlanta, Georgia 30339 (617) 578-2000 (800) - This prospectus describes individual Flexible Premium Adjustable Variable Life Insurance Policies (the "Policies") offered by New England Life Insurance Company ("NELICO"), an indirect, wholly-owned subsidiary of Metropolitan Life Insurance Company ("MetLife"). Each Policy provides premium flexibility and a death benefit. An optional rider is available under certain circumstances which provides a death benefit guarantee as long as the total amount of premiums paid less any partial surrenders and less any outstanding Policy loan plus accrued loan interest at least equals certain minimum amounts. You may choose between two death benefit options, one of which provides a fixed death benefit equal to the Policy's face amount and one of which provides a variable death benefit which may vary daily with the net investment experience of one or more mutual fund portfolios. Under either of the death benefit options, a death benefit guarantee is available under certain circumstances. The cash value of the Policy generally will increase with the payment of each premium but will vary daily with the investment experience of the mutual fund portfolios. There is no guaranteed minimum cash value for investments in the mutual fund portfolios. You may cancel the Policy during the "right to return the Policy" period. The first net premium for the Policy will be credited with net investment experience equal to that of the Zenith Money Market Sub-Account until the day that NELICO mails the confirmation for the initial premium (in some states, until 15 days after the date the initial premium confirmation is mailed). Thereafter, and as of the "investment start date" in other states, the Policy's cash value will be invested according to your instructions. You may, within limits, allocate premiums to one or more of the 16 investment Sub-Accounts of NELICO's Variable Life Separate Account (the "Variable Account") or to NELICO's Fixed Account, after certain deductions have been made. Each Sub-Account of the Variable Account invests in the shares of one of the Eligible Funds. The Eligible Funds are: the Back Bay Advisors Money Market Series, the Back Bay Advisors Bond Income Series, the Capital Growth Series, the Westpeak Stock Index Series, the Back Bay Advisors Managed Series, the Westpeak Growth and Income Series, the Loomis Sayles Small Cap Series, the Alger Equity Growth Series, the Loomis Sayles Balanced Series, the Goldman Sachs Midcap Value Series, the Davis Venture Value Series, and the Morgan Stanley International Magnum Equity Series of the New England Zenith Fund (the "Zenith Fund"); the Equity-Income Portfolio, Overseas Portfolio and High Income Portfolio of the Variable Insurance Products Fund ("VIP Fund"); and the Asset Manager Portfolio of the Variable Insurance Products Fund II ("VIP Fund II"). The Series of the Zenith Fund are advised by affiliates of NELICO. The VIP Fund and VIP Fund II are advised by Fidelity Management & Research Company. SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE OUT OF THE FIXED ACCOUNT. It may not be advantageous to replace existing insurance with the Policy described in this prospectus. (See "Charges and Expenses".) - ------- 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 THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS IS NOT VALID UNLESS ACCOMPANIED OR PRECEDED BY THE CURRENT PROSPECTUSES OF THE NEW ENGLAND ZENITH FUND AND OF THE VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II, WHICH ARE ATTACHED AT THE END OF THIS PROSPECTUS. THESE PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. SHARES OF THE ZENITH FUND, THE VIP FUND AND THE VIP FUND II, AND INTERESTS IN THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, A BANK, AND THE SHARES AND INTERESTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. PRELIMINARY PROSPECTUS--JULY 9, 1998 SUBJECT TO COMPLETION TABLE OF CONTENTS
PAGE ---- GLOSSARY.................................................................. A-4 INTRODUCTION TO THE POLICIES.............................................. A-6 The Policies............................................................ A-6 Availability of the Policy.............................................. A-8 Policy Charges.......................................................... A-8 How the Policy Works.................................................... A-9 Communications and Payments............................................. A-10 NELICO.................................................................. A-10 POLICY VALUES AND BENEFITS................................................ A-11 Death Benefit........................................................... A-11 Guaranteed Death Benefit Rider.......................................... A-11 Adjustments to the Death Proceeds Payable............................... A-12 Change in Death Benefit Option.......................................... A-12 Cash Value.............................................................. A-13 Allocation of Net Premiums.............................................. A-13 Amount Provided for Investment under the Policy......................... A-14 Right to Return the Policy.............................................. A-14 CHARGES AND EXPENSES...................................................... A-14 Deductions from Premiums................................................ A-15 Monthly Deduction from Cash Value....................................... A-15 Charges Against the Eligible Funds...................................... A-17 Special Arrangements.................................................... A-18 PREMIUMS.................................................................. A-18 Flexible Premiums....................................................... A-18 Lapse and Reinstatement................................................. A-20 OTHER POLICY FEATURES..................................................... A-20 Increase in Face Amount................................................. A-20 Loan Provision.......................................................... A-21 Surrender............................................................... A-22 Partial Surrender....................................................... A-22 Reduction in Face Amount................................................ A-23 Acceleration of Death Benefit Rider..................................... A-23 Investment Options...................................................... A-24 Transfer Option......................................................... A-24 Dollar Cost Averaging................................................... A-24 Asset Rebalancing....................................................... A-25 Substitution of Insured Person.......................................... A-25 Payment of Proceeds..................................................... A-25 24 Month Right.......................................................... A-26 Payment Options......................................................... A-26 Additional Benefits by Rider............................................ A-27 Policy Owner and Beneficiary............................................ A-27 THE VARIABLE ACCOUNT...................................................... A-28 Investments of the Variable Account..................................... A-28 Investment Management................................................... A-31 THE FIXED ACCOUNT......................................................... A-32 General Description..................................................... A-32 Values and Benefits..................................................... A-33 Policy Transactions..................................................... A-33 NELICO'S DISTRIBUTION AGREEMENT........................................... A-34
A-2
PAGE ---- LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY.......................... A-35 Misstatement of Age or Sex.............................................. A-35 Suicide................................................................. A-35 TAX CONSIDERATIONS........................................................ A-35 Policy Proceeds......................................................... A-35 Charge for NELICO's Income Taxes........................................ A-39 MANAGEMENT................................................................ A-39 VOTING RIGHTS............................................................. A-42 RIGHTS RESERVED BY NELICO................................................. A-43 TOLL-FREE NUMBERS......................................................... A-43 REPORTS................................................................... A-43 ADVERTISING PRACTICES..................................................... A-43 LEGAL MATTERS............................................................. A-44 REGISTRATION STATEMENT.................................................... A-44 EXPERTS................................................................... A-44 APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, AND ACCUMULATED PREMIUMS................................................. A-46 APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............................. A-55 APPENDIX C: LONG TERM MARKET TRENDS....................................... A-76 APPENDIX D: TAX INFORMATION............................................... A-78 APPENDIX E: CASH VALUE ACCUMULATION TEST AND GUIDELINE PREMIUM TEST....... A-79 FINANCIAL STATEMENTS...................................................... F-1
A-3 GLOSSARY ACCOUNT. A sub-account of the Variable Account or the Fixed Account. AGE. For purposes of this prospectus, the age of an insured refers to the insured's age at his or her nearest birthday. CASH VALUE. A Policy's cash value includes the amount of its cash value held in the Variable Account, the amount held in the Fixed Account and, if there is an outstanding Policy loan, the amount of its cash value held in NELICO's general account as a result of the loan. (See "Cash Value".) COST OF INSURANCE CHARGE. This charge for providing insurance protection is deducted on the Policy Date and on the first day of each Policy month. The cost of insurance for a Policy month is equal to the amount at risk multiplied by the cost of insurance rate for that month. Cost of insurance rates vary monthly. (See "Monthly Deduction from Cash Value".) DEATH BENEFIT OPTION 1. Death Benefit equals the greater of (i) the face amount of the Policy and (ii) at your option, either (A) a percentage, determined in accordance with federal income tax laws, of the Policy's cash value, including the pro rata portion of any Monthly Deduction made for a period beyond the date of death; or (B) the Policy's cash value plus the pro rata portion of any Monthly Deduction made for a period beyond the date of death; divided by the applicable net single premium specified in federal income tax laws. (See "Death Benefit".) DEATH BENEFIT OPTION 2. Death Benefit equals the greater of (i) the face amount of the Policy plus the Policy's cash value and (ii) at your option, either (A) a percentage, determined in accordance with federal income tax laws, of the Policy's cash value, including the pro rata portion of any Monthly Deduction made for a period beyond the date of death; or (B) the Policy's cash value plus the pro rata portion of any Monthly Deduction made for a period beyond the date of death; divided by the applicable net single premium specified in federal income tax laws. (See "Death Benefit".) ELIGIBLE FUNDS. Each Sub-Account of the Variable Account invests in the shares of one of the Eligible Funds. The Eligible Funds are: the Back Bay Advisors Money Market Series, the Back Bay Advisors Bond Income Series, the Capital Growth Series, the Westpeak Stock Index Series, the Back Bay Advisors Managed Series, the Westpeak Growth and Income Series, the Loomis Sayles Small Cap Series, the Alger Equity Growth Series, the Loomis Sayles Balanced Series, the Goldman Sachs Midcap Value Series, the Davis Venture Value Series and the Morgan Stanley International Magnum Equity Series of the Zenith Fund; the Equity-Income Portfolio, Overseas Portfolio and the High Income Portfolio of the VIP Fund; and the Asset Manager Portfolio of VIP Fund II. (See "The Variable Account".) EXCESS POLICY LOAN. The situation when Policy loans plus accrued interest exceed the Policy's cash value less the applicable Surrender Charge. (See "Loan Provision".) FIXED ACCOUNT. The Fixed Account is a part of NELICO's general account to which net premiums may be allocated. NELICO provides guarantees of principal and interest with respect to amounts allocated to the Fixed Account. (See "The Fixed Account".) INVESTMENT START DATE. This is the latest of the date NELICO first receives a premium payment for the Policy, the date Part II of the Policy application is signed and the Policy Date. (See "Amount Provided for Investment under the Policy".) MINIMUM PREMIUM. Generally, the Minimum Premium is that amount which, if timely paid, guarantees that the Policy will not lapse during the first three Policy years even if the Policy's net cash value is insufficient to pay the Monthly Deduction in any month. The Minimum Premium amount may be recalculated following certain Policy transactions. In addition, no three-year Minimum Premium death benefit guarantee will apply to the Policy following certain other Policy transactions. (See "Premiums".) MONTHLY DEDUCTION. The Monthly Deduction is the amount of charges deducted from the Policy's cash value each month and includes the monthly cost of insurance, the monthly cost of any benefits provided by rider (including the Guaranteed Death Benefit, if elected), the monthly policy fee and the monthly mortality and expense risk charge. (See "Monthly Deduction from Cash Value".) NET CASH VALUE. The amount you may obtain upon surrender of the Policy and which is equal to the Policy's cash value reduced by any outstanding Policy loan and accrued interest on the loan. (See "Cash Value".) NET INVESTMENT EXPERIENCE. For any period, a Sub-Account's net investment experience equals the investment experience of the underlying Eligible Fund's shares for the same period. (See "Net Investment Experience".) A-4 PLANNED PREMIUM. The Planned Premium is the premium payment schedule you choose in an effort to meet your future goals under the Policy. The Planned Premium is a level amount that is subject to certain limits under the Policy. Payments in addition to any Planned Premium are referred to in the Policy as unscheduled payments and can be paid at any time, subject to certain limits. (See "Premiums".) PREMIUMS. Premiums include all payments under the Policy, whether a Planned Premium or an unscheduled payment. (See "Premiums".) POLICY DATE. If you make a premium payment with the application, the Policy Date is generally the later of the date Part II of the application was signed and receipt of the premium payment. If you choose to pay the initial premium upon delivery of the Policy, the Policy will be issued with a Policy Date which is generally five days after issue. (See "Amount Provided for Investment under the Policy".) TARGET PREMIUM. The Target Premium is used to determine the amount of Sales Charge that is imposed on each premium payment. It varies by issue age, sex and underwriting class of the insured and the Policy's face amount. The Target Premium is equal to the net annual premium that would be paid assuming the Policy provides for paid-up benefits after the payment of seven level net annual premiums determined in accordance with federal income tax laws. YOU. When used in this prospectus, "you" refers to the Policy Owner. A-5 INTRODUCTION TO THE POLICIES This prospectus describes Policies under which net premiums are allocated to the Variable Account. If the Fixed Account is available in your state, you may choose to allocate or transfer all or part of your funds to that account. NELICO provides guarantees of principal and interest with respect to the Fixed Account which is part of NELICO's general account. Amounts in the Fixed Account are backed by NELICO's general account, rather than the Variable Account. For a description of the Fixed Account, see "The Fixed Account" which appears later in this prospectus. THE POLICIES The individual Flexible Premium Adjustable Variable Life Insurance Policies offered by this prospectus are designed to provide lifetime insurance coverage under Policies (together constituting a "case") linked by a non-arbitrary factor (such as a common employer of each Insured under the case). They are not offered primarily as an investment. The following is a brief listing of the basic features of the Policy. These and other features of the Policy are explained in detail throughout the prospectus. You should be sure to read the entire prospectus for more complete information. --You may choose to make premium payments under the Policy based on a schedule you determine, subject to certain limits. NELICO can limit or prohibit unscheduled payments in certain situations, including cases where the insured is in a substandard risk class. (See "Premiums".) --After an initial period during which net premiums may be credited with net investment experience equal to that of the Zenith Back Bay Advisors Money Market Sub-Account, net premiums are invested according to your instructions in one or more of the Sub-Accounts of the Variable Account corresponding to mutual fund portfolios, or the Fixed Account. (See "Allocation of Net Premiums" and "Investment Options".) --The mutual fund portfolios available to you under the Policy include several common stock funds, including funds which invest primarily in foreign securities, two bond funds, two managed funds, a balanced fund, and a money market fund. Currently, you may allocate your Policy's cash value to an unlimited number of the available accounts (including the Fixed Account). (See "Investments of the Variable Account".) --If the Fixed Account is available in your state, you may also allocate funds to that account. NELICO provides guarantees of Fixed Account principal and interest. SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE FROM THE FIXED ACCOUNT. NELICO also reserves the right to restrict transfers of cash value and allocations of premiums into the Fixed Account. (See "The Fixed Account".) --The cash value of the Policy will vary daily based on, among other things, the net investment experience of the Sub-Accounts to which amounts have been allocated and the amount of interest credited to any of the Policy's cash value in the Fixed Account. (See "Cash Value", "Charges and Expenses", "Premiums", "Loan Provision" and "Partial Surrender".) --The portion of the cash value which you invest in the Sub-Accounts is not guaranteed. You bear the investment risk on this portion of the cash value. (See "Cash Value".) --You may choose between two death benefit options under the Policy. The level option provides a death benefit equal to the Policy's face amount. The variable option provides a death benefit equal to the face amount plus any cash value, which varies with the net investment experience of the Sub-Accounts to which amounts have been allocated and the rate of interest credited on any cash value in the Fixed Account. Under either of these options the death benefit could be increased to satisfy tax law requirements if the cash value reaches certain levels. (See "Death Benefit".) --You may decrease or, after the first Policy year, increase the Policy's face amount. The increase or decrease will be reflected in the Policy's charges. (See "Increase in Face Amount" and "Reduction in Face Amount".) --If you elect the Guaranteed Death Benefit rider which is available under certain circumstances, then regardless of investment experience, each form of death benefit is guaranteed not to be less than the Policy's face amount, as long as the total amount of premiums paid less any partial surrenders and outstanding Policy loan plus accrued loan interest at least equals certain minimum amounts. (See "Death Benefit" and "Guaranteed Death Benefit Rider".) --You may change your allocation of future net premiums at any time. (See "Allocation of Net Premiums" and "Investment Options".) A-6 --Once 15 days have elapsed after the initial payment confirmation is mailed, the Policy provides that you may transfer portions of the Policy's cash value among the Sub-Accounts and, generally, to the Fixed Account up to four times per policy year (twelve times per policy year for Policies issued in New York) without NELICO's consent. NELICO currently allows 12 transfers per policy year in all states. Transfers and allocations involving the Fixed Account are subject to certain limits. (See "Transfer Option" and "The Fixed Account--Policy Transactions".) --A loan privilege is available under the Policy. A partial surrender feature is also available. (See "Loan Provision" and "Partial Surrender".) --Death benefits paid to the beneficiary under the Policy generally are not subject to Federal income tax. Under current law, undistributed increases in cash value generally are not taxable to you. (See "Tax Considerations".) --Loans, assignments and other pre-death distributions under the Policy may have tax consequences depending primarily on the amount which you have paid into the Policy but also on any "material change" in the terms or benefits of the Policy or any death benefit reduction. If premium payments, a death benefit reduction, or a material change in the terms or benefits of the Policy cause it to become a "modified endowment contract", then pre-death distributions (including loans) will be included in income on an income first basis, and a 10% penalty tax may be imposed on income distributed before the Policy Owner attains age 59 1/2. Tax considerations may therefore influence the amount and timing of premium payments and certain Policy transactions which you choose to make. (See "Tax Considerations".) --If the Policy is not a modified endowment contract, NELICO believes that loans under the Policy during the first 10 Policy years will not be taxable to you as long as the Policy has not lapsed, been surrendered or terminated. The tax consequences of a policy loan after the tenth policy year are not clear. You should consult a tax advisor if you intend to take out a policy loan after the tenth policy year or allow a policy loan taken out during the first 10 policy years to remain outstanding after the tenth policy year. With certain exceptions, other pre-death distributions under a Policy that is not a modified endowment contract are includible in income only to the extent they exceed the investment in the Policy. (See "Tax Considerations".) --In recent years, Congress has adopted new rules relating to life insurance owned by businesses. Any business contemplating the purchase of a new life insurance contract or a change in an existing life insurance contract should consult a tax adviser. (See "Tax Considerations".) --You have an opportunity during the "Right to Return the Policy" period to return the Policy for a refund. In some states NELICO is required to refund premiums paid; in other states, NELICO refunds an amount that reflects investment experience since the "investment start date" and certain charges. You also have the right for a limited period to cancel an increase in the Policy's face amount which you have requested. (See "Right to Return the Policy".) --Within 24 months after a Policy's date of issue or the effective date of a face amount increase, you may exercise the Policy's 24 Month Right, which will result in the allocation of all or part of your Policy's cash value and future premiums to the Fixed Account. The purpose of the 24 Month Right is to provide you with fixed Policy values and benefits. (See "24 Month Right" for a description of this provision generally and for a description of the variation which applies to Policies issued in Maryland and New Jersey.) In many respects the Policies are similar to fixed-benefit universal life insurance. Like universal life insurance, the Policies offer death benefits and provide flexible premiums, a cash value, and loan privileges. The Policies are different from fixed-benefit universal life insurance in that the death benefit may, and the cash value will, vary to reflect the investment experience of the selected Sub-Accounts of the Variable Account. The variable universal life insurance policies offered by NELICO are designed to provide insurance protection. Although the underlying mutual fund portfolios invest in securities similar to those in which mutual funds available directly to the public invest, in many ways the Policies differ from mutual fund investments. The main differences are: --The Policy provides a death benefit based on NELICO's assumption of an actuarially calculated risk. --If the net cash value is not sufficient to pay a Monthly Deduction, the Policy may lapse with no value unless additional premiums are paid. If the Policy lapses when Policy loans are outstanding, adverse tax consequences may result. A-7 --In addition to sales charges, insurance-related charges not associated with mutual fund investments are deducted from the premiums and values of the Policy. These charges include various insurance, risk, administrative and premium tax charges. (See "Charges and Expenses".) --The Variable Account, not the Policy Owner, owns the mutual fund shares. --Federal income tax liability on any earnings is deferred until you receive a distribution from the Policy. Transfers from one underlying fund portfolio to another are accomplished without tax liability under current law. --Dividends and capital gains are automatically reinvested. AVAILABILITY OF THE POLICY Each Policy is part of a "case," which is a grouping of one or more Policies linked together by a non-arbitrary factor such as a common employer of each Insured under the Policies. The Company in its sole discretion determines the Policies that constitute a case. Policies in a case generally have a common Policy owner (for example, the employer of the respective Insureds). In addition, eligibility to purchase a Policy is contingent on the total annual premium payment payable on the Policies included in the case meeting the following minimums: cases of at least five Policies--$100,000; and cases of fewer than five Policies--$250,000. The Policies may be issued on the lives of insureds from the age of 20 to 80 on an underwritten basis, and on the lives of insureds from the age of 20 to 65 on a guaranteed issue basis. (Guaranteed issue Policies may not be available in New Jersey.) All persons must meet NELICO's underwriting and other criteria for issuance. Generally, the minimum face amount available is $50,000 unless NELICO consents to a lower amount. The Policies are not available to employee benefit plans qualified under Section 401 of the Internal Revenue Code, except with NELICO's consent. POLICY CHARGES PREMIUM-BASED CHARGES. NELICO deducts the following charges from premiums: --A maximum sales charge of 8% on each premium payment made during a Policy year until an amount equal to the Target Premium has been paid; and 1% on each premium payment made thereafter during the Policy year; and --A premium tax charge of 2%. MONTHLY DEDUCTION FROM CASH VALUE. NELICO deducts certain charges from the cash value: --Monthly charge for the cost of insurance; and for any benefits provided by rider including the Minimum Guaranteed Death Benefit (if elected); --Monthly mortality and expense risk charge, equal to an annual rate of 0.75% during the first ten Policy years, and currently, 0.25% thereafter (guaranteed not to exceed 0.75%); --Monthly policy fee currently equal to $5.00 per month (guaranteed not to exceed $10.00 per month). CHARGE FOR FACE AMOUNT INCREASES. If you increase your Policy's face amount and medical underwriting is required for the increase, a charge of $0.80 per $1,000 of the face amount increase (not to exceed $25.00) will be deducted from your Policy's cash value on the date that the increase takes effect, and on the first day of the next eleven Policy months. CHARGES DEDUCTED FROM THE ELIGIBLE FUNDS. Daily charges against the Eligible Fund portfolios are deducted for investment advisory services and fund operating expenses. Currently, no charge is made to the Variable Account for federal income taxes that may be attributable to the Variable Account. NELICO may, however, impose such a charge in the future. You can designate a Single Source Expense Sub-Account from which Monthly Deductions and any charges for face amount increases will be taken. See "Charges and Expenses" and "Other Policy Features--Increase in Face Amount". A-8 HOW THE POLICY WORKS Premium Payments .Flexible .Planned premium options -Minimum premium (in first three Policy years) -Guaranteed Death Benefit Premium (to age 100)(available only if cash value accumulation test elected for Policy) Charges from Premium Payments .Sales Load: 8% on amount paid up to a Target Premium in each Policy year and 1% on amount paid above a Target Premium in each Policy year (for each underwritten face amount segment and each segment resulting from a term conversion) .State Premium Tax Charge: 2% Loans .Beginning 15 days after mailing of initial premium confirmation, you may borrow a portion of your cash value .Loan interest charge is 4.75%. Loaned funds are transferred out of the Eligible Funds into the General Account where they are credited with not less than 4.0% interest. (Currently NELICO intends to credit 4.50% interest after 10 Policy years.) Retirement Benefits .Fixed settlement options are available for policy proceeds Cash Values .Net Premium payments invested in your choice of Eligible Fund investments or the Fixed Account (in some cases after an initial period during which net investment experience equal to that of the Zenith Money Market Sub-Account may be credited) .The cash value reflects investment experience, interest, premium payments, policy charges and any distributions from the Policy .The cash value invested in mutual funds is not guaranteed .Any earnings are accumulated free of any current income taxes .You may change the allocation of future net premiums at any time. You may currently transfer funds among investment options (and to the Fixed Account) up to 12 times per policy year, beginning 15 days after mailing of the initial premium confirmation. Transfers from (and, in certain circumstances, to) the Fixed Account are limited as to timing, frequency and amount .Your cash value may be allocated among a maximum of ten accounts at any one time Death Benefit .Level or Variable Death Benefit Options .Policy is guaranteed not to lapse regardless of net cash value amount if Guaranteed Death Benefit rider is in effect (available under certain circumstances) .Income tax free to named beneficiary .Death benefit will not be less than that required by federal tax law, using tax law test you select (guideline premium or cash value accumulation) .If you add term insurance coverage, you elect whether to include it in the calculation of the Option 1 or Option 2 death benefit .Face amount may be increased, subject to any necessary underwriting and a monthly charge of $0.80 per $1,000 of increase (not to exceed $25) for 12 months, if the increase is underwritten Daily Deductions from Assets .Investment advisory fees and other expenses are deducted from the Eligible Fund values daily Beginning of Month Charges .The cost of insurance protection (reflecting any substandard risk or guaranteed issue rating) is deducted from the cash value each month .Any Rider Charges .Policy Fee: $5.00 (not to exceed $10.00) per month .Mortality and expense risk charge of .75% in the first 10 Policy years and .25% thereafter (guaranteed not to exceed .75%) .Death Benefit Guarantee Charge (if rider selected): $.01 per $1000 face amount monthly Living Benefits .If policyholder has elected and qualified for benefits for disability and becomes totally disabled, company will waive monthly charges during the period of disability up to certain limits. .Policy may be surrendered at any time for its cash surrender value .Deferred income taxes, including taxes on amounts borrowed, become payable upon surrender .Grace period for lapsing with no value is 62 days from the first date in which Monthly Deduction was not paid due to insufficient cash .Subject to NELICO's rules, a lapsed Policy may be reinstated within seven years of date of lapse if it has not been surrendered A-9 COMMUNICATIONS AND PAYMENTS NELICO will treat your request for a Policy transaction, or your submission of a payment, as received by us, if it is received at our Administrative Office before the close of regular trading on the New York Stock Exchange on that day. If it is received after that time, or if the New York Stock Exchange is not open that day, then it will be treated as received on the next day when the New York Stock Exchange is open. NELICO NELICO was organized as a stock life insurance company in Delaware in 1980 and is licensed to sell life insurance in all states, the District of Columbia and Puerto Rico. Before August 30, 1996, NELICO was a wholly-owned subsidiary of New England Mutual Life Insurance Company ("New England Mutual"). Effective August 30, 1996, New England Mutual merged into MetLife, a mutual life insurance company whose principal office is One Madison Avenue, New York, NY 10010. With the merger, New England Mutual's separate corporate existence ended, and MetLife became the parent of NELICO. In connection with the merger, NELICO 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. NELICO's Administrative Office for the Policies is at 6425 Powers Ferry Road, Atlanta, Georgia, 30339; the mailing address is: The following chart illustrates the relationship of NELICO, the Fixed Account, the Variable Account and the Eligible Funds.
- ----------------------------------------------------------------------------------------------------------------------------------- NELICO - ----------------------------------------------------------------------------------------------------------------------------------- (Insurance company subsidiary of Metlife) Charges are deducted. Net premiums and net unscheduled payments are allocated to the Policy Owner's choice of sub-accounts in the Premiums Variable Account or to the Fixed Account and---------------------------------------------------------------------------------------------------------------------- Unscheduled VARIABLE ACCOUNT Payments---------------------------------------------------------------------------------------------------------------------- Fixed Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Equity Over- High Asset Account Capital Bond Money Man- Stock Growth Small Bal- Equity Venture Midcap Inter- Income seas Income Man- Growth Income Market aged Index and Cap anced Growth Value Value nation- Sub- Sub- Sub- ager Sub- Sub- Sub- Sub- Sub- Income Sub- Sub- Sub- Sub- Sub- al Account Ac- Account Sub- Account Account Account Account Account Sub- Account Account Account Account Ac- Magnum . count . Ac- . . . . . Account . . . . count Equity . . . count . . . . . . . . . . . Sub- . . . . . . . . . . . . . . . Account . . . . . . . . . . . . . . . . . . . . Sub- . . . . . . . . . . . . . . . . accounts . . . . . . . . . . . . . . . . buy . . . . . . . . . . . . . . . . shares . . . . . . . . . . . . . . . . of the . . . . . . . . . . . . . . . . Eligible . . . . . . . . . . . . . . . . Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --------------------------------------------------------------------------------------------------------------------------- VIP FUND NEW ENGLAND ZENITH FUND VIP FUND II -------------------------------------------------------------------------------------------------==================------- Capital Back Back Back Westpeak Westpeak Loomis Loomis Alger Davis Goldman Morgan Equity Over- High Asset Growth Bay Bay Bay Stock Growth Sayles Sayles Equity Venture Sachs Stanley Income seas Income Man- Series Advis- Advisors Advis- Index and Small Bal- Growth Value Midcap Inter- Port- Port- Port- ager ors Money ors Series Income Cap anced Series Series Value nation- folio folio folio Port- Bond Market Managed Series Series Series Series al folio Income Series Series Magnum Series Equity Series -------------------------------------------------------------------------------------------------==================-------
Eligible Funds buy portfolio investments to support values and benefits of the Policies. - ------------------------------------------------------------------------------- A-10 POLICY VALUES AND BENEFITS DEATH BENEFIT If the insured dies while the Policy is in force, NELICO will pay a death benefit to the beneficiary. DEATH BENEFIT OPTIONS. When you apply for a Policy, you may choose between two death benefit options. The Option 1 (Face Amount) death benefit provides a death benefit equal to the face amount of the Policy. The Option 1 death benefit is fixed, subject to increases required by the Internal Revenue Code. The Option 2 (Face Amount Plus Cash Value) death benefit provides a death benefit equal to the face amount of the Policy plus the amount, if any, of the Policy's cash value. The Option 2 death benefit is also subject to increases required by the Internal Revenue Code. In order to meet the Internal Revenue Code's definition of life insurance, the Policies provide that the death benefit, which for these purposes includes any coverage provided under any Adjustable Term Insurance Rider, will not be less than that required by the "cash value accumulation test" specified in Section 7702(a)(1) of the Internal Revenue Code, or the "guideline premium test" specified in Section 7702(a)(2) of the Internal Revenue Code, as selected by you when the Policy is issued. Once the Policy is issued with either the cash value accumulation test or the guideline premium test, that test will be used for the life of the Policy. Under the cash value accumulation test, the death benefit payable on any day is not less than the Policy's cash value including the pro rata portion of any Monthly Deduction made for a period beyond the date of death, divided by the applicable net single premium set by the Internal Revenue Code. Net single premiums are based on the age and sex of the insured at the time of the calculation, and decline over time. A table of representative net single premiums is set forth in Appendix E. Under the guideline premium test, the death benefit is not less than a percentage of the Policy's cash value, including the pro rata portion of any Monthly Deduction made for a period beyond the date of death, as set forth in Table I in Appendix E. This means that, if the cash value grows to certain levels, the death benefit will be increased to satisfy the tax law requirements. At that point, any payment you make into the Policy will increase the death benefit by more than it increases the cash value. (See "Premiums".) If you select the cash value accumulation test, a higher amount of premium payments can generally be made for any given face amount; and a higher death benefit may result in the long term. If cash value growth in the early Policy years is your primary objective, the cash value accumulation test may be the appropriate choice because it allows you to invest more premiums in the Policy per dollar of death benefit. If death benefit protection is your primary objective, the guideline premium test may be the appropriate choice because it generally gives you more coverage per dollar invested, although this is not necessarily the case at later durations of the Policy. If you select the guideline premium test, you will not be able to add the Guaranteed Death Benefit Rider to your Policy. (See "Guaranteed Death Benefit Rider" below.) In addition, if you add an Adjustable Term Insurance Rider to the Policy, you may choose to have the face amount of the coverage provided under the Rider added to the face amount of the Policy for purposes of calculating the Option 1 or Option 2 death benefit. If you elect to include the rider coverage in the calculation of the death benefit, the Policy may provide an increased potential for cash value to grow relative to the death benefit than would otherwise be the case. If you elect not to include the rider coverage in the calculation of the death benefit, the Policy may provide an increased potential for the death benefit to grow relative to cash value than would otherwise be the case. (If you elect the Adjustable Term Insurance Rider after the Policy is issued and your Policy has the Guaranteed Death Benefit Rider, then you must choose to add the Adjustable Term Insurance Rider coverage to the Policy's face amount in the calculation of the Policy's Option 1 or Option 2 death benefit. See "Guaranteed Death Benefit Rider" below.) If death occurs at or after the Policy Anniversary when the insured reaches attained age 100, the death benefit is equal to the greater of (i) the cash value on the date of death; or (ii) the face amount, if the Policy had a Guaranteed Death Benefit rider attached, and the Guaranteed Death Benefit was in effect on the Policy Anniversary when the Insured reached attained age 100. GUARANTEED DEATH BENEFIT RIDER Subject to state availability, if you have elected the cash value accumulation test, you may also elect on your application a rider benefit under the Policy that provides a Guaranteed Death Benefit. (If you have elected coverage under an Adjustable Term A-11 Insurance Rider, you may elect the Guaranteed Death Benefit Rider only if you have chosen to add the Adjustable Term Insurance Rider coverage to the Policy's face amount in the calculation of the Policy's Option 1 or Option 2 death benefit). If the Guaranteed Death Benefit is in effect, as determined on the first day of each Policy month until the insured attains age 100, the Policy will not lapse even if the net cash value is insufficient to cover the Monthly Deduction due for that month. The death benefit will be adjusted as described below before the proceeds are paid. On the first day of a Policy month, if the total premiums you have paid, less all partial surrenders you have made and less any outstanding Policy loan plus accrued loan interest, is at least equal to: the Guaranteed Death Benefit Premium shown in Section 1 of your Policy, multiplied by the number of complete Policy years the Policy has been in force, plus 1/12 of that premium for each Policy month of the current policy year up to and including the Policy month in question, then the guarantee will apply for that month. If you reduce the Policy's face amount or make a partial surrender which reduces the face amount, or reduce or delete a rider benefit from your Policy, or if your Policy's rating classification is improved, the Guaranteed Death Benefit premium shown in Section 1 of your Policy will be recalculated, as well as following an increase in the Policy's face amount or in the amount of coverage provided by riders. (See "Premiums" below.) In applying the formula to determine whether the Guaranteed Death Benefit is in effect, the Policy's original Guaranteed Death Benefit premium will be used for the period of time it was in effect, and each recalculated Guaranteed Death Benefit premium for the period of time it was in effect. If you elect this benefit, a charge will apply to your Policy as part of the Monthly Deduction, currently until the Policy anniversary when the insured reaches attained age 100, unless you request that the rider terminate before that time. The rider cannot be added after issue of the Policy. NELICO may restrict any unplanned premium payment that would increase the Policy's death benefit by more than it would increase cash value. (See "Flexible Premiums.") Under some circumstances, this could result in your being unable to make unplanned premium payments that are necessary in order to keep the Guaranteed Death Benefit rider benefit in effect. ADJUSTMENTS TO THE DEATH PROCEEDS PAYABLE The death proceeds actually paid to the beneficiary are equal to the death benefit in effect on the date of the insured's death reduced by any outstanding loan and accrued loan interest as of that date and by the portion of any unpaid Monthly Deduction for the period prior to that date. The death proceeds will be increased by any rider benefits payable. The death proceeds may also be adjusted if the insured's age or sex was misstated in the application, if death results from the insured's suicide within two years (or less if provided by state law) from the Policy's date of issue or within two years (or less if provided by state law) from an increase in the Policy's face amount, or if limits on the death benefit are imposed by rider. (See "Limits to NELICO's Right to Challenge the Policy".) CHANGE IN DEATH BENEFIT OPTION At any time after the first Policy year, you may change your death benefit option by sending your written request for change to NELICO's Administrative Office. The request will be effective on the date it is received at NELICO's Administrative Office. A change in death benefit option may result in tax consequences to you. (See "Tax Considerations".) If you change from Option 1 (Face Amount) to Option 2 (Face Amount Plus Cash Value), the Policy's face amount will be reduced by the amount necessary for the death benefit to be the same immediately before and after the change. The face amount reduction will apply to the Policy's initial face amount and any prior increases in face amount on a pro rata basis. A face amount reduction below $50,000 is permitted only with NELICO's consent. Any rider benefits under the Policy may also have to be decreased. If you selected the guideline premium test for the Policy, in some circumstances a partial surrender of cash value may be necessary in order to comply with Federal tax law limits on the amount of premiums that can be paid into the Policy. If you change from Option 2 (Face Amount Plus Cash Value) to Option 1 (Face Amount), the Policy's face amount will be increased, if necessary, for the death benefit to be the same immediately before and after the change. The resulting increase in face amount will be applied to the Policy's initial face amount and any prior increase in face amount on a pro rata basis. After the Policy is issued, you cannot change your election of the tax test (cash value accumulation test or guideline premium test). In addition, your election whether to add the face amount of any Adjustable Term Insurance Rider that is part of your Policy to the face amount of the base Policy for purposes of calculating the Option 1 or Option 2 death benefit cannot be changed. (See "Death Benefit Options".) A-12 CASH VALUE Your Policy's cash value includes its cash value in the Variable Account, in the Fixed Account and, if you have an outstanding Policy loan, in NELICO's general account as a result of the loan. The cash value reflects net premium payments, the investment experience of the Policy's Sub-Accounts, interest credited on its cash value in the Fixed Account and on amounts held in the general account as a result of a loan, the death benefit option chosen, amounts deducted for Policy charges, amounts surrendered and transfers among the Policy's Sub-Accounts and the Fixed Account. Your Policy's net cash value is the amount you will receive if you surrender the Policy. The net cash value is the cash value reduced by any outstanding Policy loan (and accrued interest). The net cash value is increased by the portion of any cost of insurance charge deducted that applies to the period beyond the date of surrender. If you surrender the Policy during the grace period, the net cash value you receive is reduced by an amount to cover the Monthly Deduction to the date of surrender. (See "Loan Provision" and "Monthly Deduction from Cash Value".) The Policy's cash value in the Variable Account may increase or decrease daily depending on the investment experience of the Policy's Sub-Accounts. Unfavorable investment experience can reduce the net cash value to zero. Because there is no guaranteed minimum cash value in the Variable Account, you bear the entire investment risk with respect to the cash value. The premium payment schedule you choose will also affect the Policy's net cash value. Cash value attributable to the Variable Account is determined by multiplying the number of units credited to each sub-account by the appropriate unit values. That portion of any premium payment or transfer amount allocated to a sub-account is converted to units of the sub-account(s) selected by dividing the allocated premium payment or transfer amount by the unit value for the selected sub-account next determined following (i) for premium payments, receipt of the premium payment at NELICO's Administrative Office (or, in the case of the initial premium payment, determined on the Investment Start Date); (ii) for transfers, receipt of the transfer request at NELICO's Administrative Office. The number of units in a sub-account will be reduced whenever its value is reduced due to a full or partial surrender, a Policy loan, a transfer, a Monthly Deduction, and payment of a face amount increase administrative charge. The reduction is determined by dividing the dollar amount of the transaction by the unit value for the affected sub-account next determined following the transaction. The 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. The unit value for each sub-account was set at $100.00 on or about the date on which shares of the corresponding Eligible Fund first became available to investors. The unit value is determined as of the close of regular trading on the New York Stock Exchange on each day that the Exchange is open for trading by multiplying the most recent unit value by the net investment factor ("NIF") for that day (see below). The NIF 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 deductions for taxes, if any, made from the Variable Account. Specifically, a sub-account's NIF for a given day is equal to the net asset value per share of the Eligible Fund corresponding to the sub-account at the end of the day, plus the per-share amount of any dividend, capital gain or other distribution made by the Eligible Fund on such day; divided by the net asset value per share of that Eligible Fund as of the end of the immediately preceding day; minus a factor for taxes deducted from the sub-account and attributable to the Policy, if any. The NIF can be greater or less than one. ALLOCATION OF NET PREMIUMS The first net premium for the Policy is credited with net investment experience equal to that of the Zenith Money Market Sub-Account from the investment start date until the day that NELICO mails the confirmation for the initial premium (in states that require a refund of premiums paid upon exercise of the Right to Return the Policy, until 15 days after the date the initial premium confirmation is mailed). Thereafter, the Policy's cash value (which will reflect at least one Monthly Deduction) is allocated to the Sub- Accounts and/or the Fixed Account according to your instructions. (See "Investment Options" and "Monthly Deduction from Cash Value.") Your cash value is maintained in the general account of NELICO or an affiliate until the date that NELICO mails the confirmation for the initial premium. If the face amount of the Policy is increased, the portion of net premiums attributable to the increase will be allocated among accounts in accordance with your current allocation instructions. Currently, allocations can be made to an unlimited number of available accounts (including the Fixed Account) at any one time. A-13 AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY The investment start date is the latest of: the date when NELICO first receives a premium payment for the Policy, the date Part II of the Policy application is signed and the Policy Date. (For this purpose, receipt of the premium payment means receipt by your registered representative, if the payment is made with the application; otherwise, it means receipt by a NELICO agency or, in the case of a Policy sold through MetLife Brokerage, receipt by MetLife Brokerage at its Princeton, New Jersey office.) If you make a premium payment with the application, the Policy Date is generally the later of the date Part II of the application is signed and receipt of the premium payment. In that case, the Policy Date and investment start date are the same. The amount of premium paid with the application must be at least 10% of the annual Planned Premium for the Policy. Only one premium payment may be made before the Policy is issued. If you make a premium payment with the application, the insured will be covered under a temporary insurance agreement for a limited period that is described in the temporary insurance agreement form. Generally, coverage under the temporary insurance agreement begins on the later of the date when NELICO receives the premium for the Policy and the date when Part II of the application is signed. The maximum amount of coverage provided is the lesser of the amount of insurance applied for and $500,000 for standard and preferred risks ($250,000 for substandard risks and $50,000 for persons who are determined to be uninsurable). There may be variations to these provisions required by state law. If a Policy is issued, Monthly Deductions, including cost of insurance charges, begin as of the Policy Date, even if the Policy's issuance was delayed due to underwriting requirements; and will be in amounts based on the face amount of the Policy issued, even if the temporary insurance coverage received during the underwriting period was for a lesser amount. If NELICO declines an application, it will refund the premium payment made plus interest at the rate currently in use by NELICO. If you choose to pay the initial premium upon delivery of the Policy, the Policy will have a Policy Date which is generally five days after issue. The investment start date will be the later of the Policy Date and the date the premium is received. Monthly Deductions will begin on the Policy Date. Interest at a 4% net rate will be credited on the applicable net Minimum Premium for the period, if any, between the Policy Date and the investment start date. Insurance coverage under the Policy will begin upon receipt of the portion of the Minimum Premium due for the first quarter (or, upon receipt of the number of monthly payments due under NELICO's Master Service Account arrangement.) Under limited circumstances, NELICO may backdate a Policy, upon request, by assigning a Policy Date earlier than the date the application is signed. Backdating may be desirable, for example, so that you can purchase a particular Policy face amount for lower cost of insurance rates, based on a younger insurance age. For a backdated Policy, you must also pay the Minimum Premium payable for the period between the Policy Date and the investment start date. As of the investment start date, NELICO will allocate to the Policy those net premiums, adjusted for monthly Policy charges and interest at a 4% net rate, for the period between the Policy Date and the investment start date. The amount provided for investment in the Policy is adjusted as of each day the New York Stock Exchange is open to reflect the investment experience of the Sub-Accounts for that day. RIGHT TO RETURN THE POLICY You may cancel the Policy within 10 days (or more where required by applicable state insurance law) after you receive the Policy. The Policy may be returned to NELICO or its agent. Insurance coverage ends as soon as the Policy is returned (as determined by its postmark, if the Policy is mailed). If you choose to cancel the Policy, NELICO will refund the cash value of the Policy plus any sales charges and premium tax charges that were deducted from the premiums you paid, or if required by state insurance law, any premiums paid with interest at the rate currently in use by NELICO. You may cancel an increase in face amount which you have requested within 10 days (or more where required by state law) after you receive the adjusted Policy. You may return the face amount increase to NELICO or your registered representative. The face amount increase will be canceled from its beginning and any Monthly Deduction and charge deducted in connection with the face amount increase will be returned to your cash value. CHARGES AND EXPENSES 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 Policy. For example, the sales charge may not fully A-14 cover all of the sales and distribution expenses actually incurred by NELICO, and proceeds from other charges, including the mortality and expense risk charge, may be used in part to cover such expenses. DEDUCTIONS FROM PREMIUMS SALES CHARGE. NELICO deducts a sales charge of 8% from each premium payment made during a Policy year until an amount equal to the Target Premium has been paid; and 1% from each premium payment made thereafter during a Policy year. The sales charges under a Policy in a given Policy year are not necessarily related to NELICO's actual sales expenses for that year. Sales charges for Policies sold to certain cases may be reduced. NELICO may reduce or eliminate the sales charge when you purchase a Policy, on cash value transferred in the first year from life insurance policies that were issued by New England Mutual, NELICO or NELICO's affiliates and that meet certain premium, cash value and/or face amount minimums, as currently published by NELICO. NELICO's normal issuance criteria, including reinsurance and other limitations, as well as certain other eligibility requirements, would also apply in these situations. Your registered representative can advise you regarding the availability of this feature. PREMIUM TAX CHARGE. NELICO deducts 2% from each premium payment made to cover premium taxes. Premium taxes vary from state to state. MONTHLY DEDUCTION FROM CASH VALUE On the first day of each Policy month, starting with the Policy Date, NELICO deducts the "Monthly Deduction" from your cash value. If a Guaranteed Death Benefit rider is in effect, or if the Policy is protected against lapse by payment of the Minimum Premium during the first three Policy years, the Monthly Deduction is made, whether or not premiums are paid, until the cash value equals zero. Otherwise, the Monthly Deduction is made, whether or not premiums are paid, as long as the net cash value is sufficient to cover the entire Monthly Deduction. If the net cash value is insufficient to cover the entire Monthly Deduction and no Guaranteed Death Benefit rider or Minimum Premium guarantee is in effect, the Policy will be in default and may lapse. (See "Lapse and Reinstatement".) The Monthly Deduction reduces the cash value in each Sub-Account of the Variable Account and in the Fixed Account in proportion to the cash value in each, unless you have specified a "Single Source Expense Sub-Account" on the Policy application. If a Single Source Expense Sub-Account has been specified, the Monthly Deduction will reduce the cash value in the sub-account that you have designated until that sub- account's cash value has been exhausted; and then will reduce the cash value in the sub-accounts and the Fixed Account on a pro rata basis, as described above. The Fixed Account cannot be designated as the monthly charge sub- account. The Monthly Deduction includes the following charges: POLICY FEE. The Policy fee is currently equal to $5.00 per month. The fee is guaranteed not to exceed $10.00 per month. MORTALITY AND EXPENSE RISK CHARGE. NELICO deducts a charge from your cash value on each Monthly Deduction Date for the mortality and expense risks that NELICO assumes. This charge is set at an annual rate of 0.75% during the first ten Policy years, and 0.25% thereafter (guaranteed not to exceed 0.75%). The mortality risk NELICO assumes is that insureds may live for shorter periods of time than NELICO estimated. The expense risk is that NELICO's costs of issuing and administering the Policies may be more than NELICO estimated. If the proceeds from this charge are not needed to cover mortality and expense risks, the Company may use proceeds to finance distribution of the Policies. The mortality and expense risk charge is deducted last after all other components of the Monthly Deduction. It is calculated separately for each segment of coverage that was underwritten; the actual charge is based on a weighted average of the mortality and expense risk charge applicable to each underwritten segment (based on relative Target Premiums associated with each segment). MONTHLY CHARGES FOR THE COST OF INSURANCE. This charge covers the cost of providing insurance protection under your Policy. No cost of insurance charge is deducted on or after the Policy Anniversary when the insured reaches attained age 100. The cost of insurance charge for a Policy month is equal to the "amount at risk" under the Policy, multiplied by the cost of insurance rate for that Policy month. The amount at risk is determined on the first day of the Policy month after the Monthly Deduction (except for the mortality and expense risk charge component) has been processed and is the amount by which the death benefit (discounted at the monthly equivalent of 4% per year) exceeds the Policy's cash value. The cost of insurance rate for your Policy changes from month to month. The Adjustable Term Insurance Rider has its own cost of insurance rates that are different from those of the base Policy. However, if you elect to add the Adjustable Term Insurance Rider to the face amount of the base Policy in the calculation of A-15 Death Benefit Option 1 or 2, then once the net amount at risk of the base Policy has been reduced to zero, any excess cash value of the base Policy will be used to reduce the net amount at risk under the term insurance rider; if the Adjustable Term Insurance Rider is not added to the face amount of the base Policy in the calculation of Death Benefit Option 1 or 2, then the term rider's net amount at risk is not reduced by any of the base Policy's cash value. The guaranteed cost of insurance rates for a Policy depend on the insured's underwriting class, age on the first day of the Policy year and sex (if the Policy is sex-based). The current cost of insurance rates will also depend on the insured's age at issue of the Policy and on the duration of the Policy. The rates are guaranteed not to be higher than rates based on the 1980 Commissioners Standard Ordinary Mortality Tables (the "1980 CSO Tables"). The rates actually used may be lower than these maximum rates, depending on NELICO's expectations regarding future mortality and expense experience, lapse rates and investment earnings. NELICO reviews the adequacy of its current cost of insurance rates and may adjust their level periodically. Any change in the current cost of insurance rates will be applied prospectively only and will be on a non-discriminatory basis. The current cost of insurance rate for a Policy is set forth in the Policy Owner's annual statement. (For information regarding a Policy's cost of insurance rates following a face amount increase, see "Increase in Face Amount".) The underwriting classes used for determining cost of insurance rates are smoker standard, smoker rated, nonsmoker preferred, nonsmoker standard, nonsmoker rated and guaranteed issue. Rated and guaranteed issue classifications result in higher cost of insurance deductions. The guaranteed maximum mortality charges for rated Policies are based on multiples of the 1980 CSO Tables. (For information regarding a Policy's underwriting classification following a face amount increase, see "Increase in Face Amount".) For fully underwritten Policies with a face amount of $100,000 or more and where the insured's issue age is 20 through 75, the standard nonsmoker underwriting classes are nonsmoker preferred and nonsmoker standard; for Policies with a face amount less than $100,000 and for Policies where the insured's issue age is above 75 only the nonsmoker standard class is used. The nonsmoker preferred class generally offers more favorable rates on a current basis than the nonsmoker standard class. Cost of insurance rates are generally more favorable for nonsmoker than for smoker insureds and generally more favorable for female than for male insureds. Within a given underwriting class, cost of insurance rates are generally more favorable for insureds with lower issue ages. Where required by state law, and for Policies sold in connection with certain employee benefit plans, cost of insurance rates (and Policy values and benefits) do not vary based on the sex of the insured. NELICO may offer Policies on a guaranteed issue basis to certain cases. If an eligible case purchases Policies on a guaranteed issue basis, the Policies will be issued up to a predetermined face amount limit, with only minimum evidence of insurability. Guaranteed issue Policies provide substantial benefit to such arrangements in that minimal time and effort is necessary to qualify an entire group of persons for coverage without extensive applications or medical examinations. Because only limited underwriting information is obtained, NELICO has determined that the issuance of Policies on a guaranteed issue basis may present additional mortality cost to NELICO relative to Policies issued to individuals in the standard class. Therefore, NELICO will generally use higher current cost of insurance rates for guaranteed issue Policies. For certain cases, the charge may vary based on the size of the group, the total premium to be paid by the group and certain characteristics of its members. The overall guaranteed maximum monthly cost of insurance charges for guaranteed issue status will exceed charges based on 100% of the 1980 CSO Tables. Policies issued on a guaranteed issue basis will have cost of insurance rates that vary depending on whether the insured is a smoker or nonsmoker. Nonsmokers will be treated as a group in that no preferred nonsmoker rates will be available. The cost of insurance rates for guaranteed issue Policies will not vary according to the face amount of an individual Policy; however, currently the rates may be lower if the Policy is issued to a case where its members have certain characteristics. Generally the monthly cost of insurance charges will be higher than they would be for the same insured under a fully underwritten Policy, if the insured is not a substandard risk. Eligible cases may also elect to purchase Policies on a simplified underwriting basis, either as an alternative to guaranteed issue or for amounts of insurance which exceed NELICO's guaranteed issue limits, but may not elect guaranteed issue for some members of the group and simplified underwriting for others. Policies issued on a simplified underwriting basis will have the same cost of insurance rates as fully underwritten Policies; however, the nonsmoker preferred class is not available to these Policies. GUARANTEED DEATH BENEFIT RIDER CHARGE. If you have elected the Guaranteed Death Benefit rider, the guaranteed death benefit rider charge is $0.01 per $1,000 of face amount (including the base Policy and any Adjustable Term Rider), and is deducted as part of the Monthly Deduction, currently until the Policy anniversary when the insured reaches attained age 100. A-16 This charge compensates NELICO for its guarantee that, regardless of the investment experience of the Policy's Sub-Accounts, the Policy will not lapse, provided that the total amount of premiums paid, less partial surrenders and loans, equals or exceeds the applicable multiple of the Guaranteed Death Benefit premium shown in Section 1 of the Policy. (See "Guaranteed Death Benefit Rider" and "Adjustments to the Death Proceeds Payable".) CHARGES FOR ADDITIONAL BENEFITS AND SERVICES. NELICO imposes charges for the cost of any additional Rider benefits as described in the rider form. NELICO also reserves the right to charge Policy Owners a nominal fee, which will be billed directly to the Policy Owner, in the event that a Policy re-issue or re-dating is requested. CHARGES FOR INCOME TAXES. NELICO currently makes no charge for income taxes against the Variable Account, but in the future NELICO may impose such a charge, if appropriate. NELICO reserves the right to make a charge for any taxes imposed on the Policies by any governmental body in the future. (See "Charge for NELICO's Income Taxes".) CHARGES AGAINST THE ELIGIBLE FUNDS Charges for investment advisory fees and other expenses are deducted from the assets of the Eligible Funds. The Zenith Fund Series incur charges for advisory fees and certain other expenses. The series (other than the Capital Growth Series) are advised by TNE Advisers, Inc., an affiliate of NELICO. Under a voluntary expense cap by TNE Advisers for each of the Back Bay Advisors Bond Income, Back Bay Advisors Money Market, Back Bay Advisors Managed, Westpeak Stock Index, and Westpeak Growth and Income Series, TNE Advisers will bear those expenses (other than the management fee) that exceed 0.15% of average daily net assets; for the Loomis Sayles Small Cap Series, TNE Advisers will bear all expenses that exceed 1.00% of average daily net assets. For the remaining Zenith Fund Series (other than the Capital Growth Series), TNE Advisers, under a voluntary expense deferral arrangement, will bear those expenses (other than the management fee) which exceed a certain limit in the year in which they are incurred and will charge those expenses to the series in a future year when actual expenses of the series are below the limit up until two years after the end of the fiscal year in which the expense was incurred. The expense cap and expense deferral arrangement may be terminated at any time. The following table shows the annual operating expenses for each series, based on actual expenses for 1997, (for the Goldman Sachs Midcap Value Series, anticipated expenses for 1998), after giving effect to the applicable expense cap or expense deferral arrangement: ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER ANY EXPENSE CAP)
BACK BACK BAY BAY BACK WESTPEAK LOOMIS ADVISORS ADVISORS BAY WESTPEAK GROWTH SAYLES CAPITAL BOND MONEY ADVISORS STOCK AND SMALL GROWTH INCOME MARKET MANAGED INDEX INCOME CAP SERIES SERIES SERIES SERIES SERIES SERIES SERIES ------- -------- -------- -------- -------- -------- ------ Management Fee.......... .63% .40% .35% .50% .25% .70% 1.00% Other Expenses.......... .04% .12% .10% .11% .15% .12% -- ---- ---- ---- ---- ---- ---- ----- Total Series Operating............ .67% .52% .45% .61% .40% .82% 1.00%
EXPENSES ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
GOLDMAN MORGAN SACHS LOOMIS STANLEY DAVIS ALGER MIDCAP SAYLES INTERNATIONAL VENTURE EQUITY VALUE BALANCED MAGNUM VALUE GROWTH SERIES* SERIES EQUITY SERIES SERIES SERIES ------- -------- ------------- ------- ------ Management Fee.................... .75% .70% .90% .75% .75% Other Expenses.................... .15% .15% .40% .15% .12% ---- ---- ----- ---- ---- Total Operating Expenses........ .90% .85% 1.30% .90% .87%
- -------- * 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-17 The investment adviser for the VIP Fund and VIP Fund II is Fidelity Management & Research Company, a registered investment adviser under the Investment Advisers Act of 1940. The Portfolios of the VIP Fund and VIP Fund II, as part of their operating expenses, pay investment management fees to Fidelity Management & Research Company. The Portfolios also bear certain other expenses. For the year ended December 31, 1997, the total operating expenses incurred by the Portfolios, as a percentage of Portfolio average net assets, were as follows:
MANAGEMENT OTHER TOTAL ANNUAL PORTFOLIO FEES EXPENSES EXPENSES - --------- ---------- -------- ------------ VIP Fund Equity-Income......................... .50% .08% .58%* VIP Fund Overseas.............................. .75% .17% .92%* VIP Fund High Income........................... .59% .12% .71% VIP Fund II Asset Manager...................... .55% .10% .65%*
- -------- * Total annual expenses do not reflect certain expense reductions due to directed brokerage arrangements and custodian interest credits. Had these reductions been included, total annual expenses would have been .57% for Equity-Income Portfolio, .90% for Overseas Portfolio and .64% for Asset Manager Portfolio. Affiliates of Fidelity Management & Research Company compensate NELICO and/or certain affiliates for administrative, distribution, or other services relating to these Portfolios of VIP Fund and VIP Fund II. Such compensation is based on assets of the Portfolios attributable to the Policies and certain other variable insurance products issued by NELICO and its affiliates. SPECIAL ARRANGEMENTS For Policies issued in connection with certain cases, NELICO may waive or reduce one or more of the following charges: the sales charge, charges for the cost of insurance including any additional charge for guaranteed issue status, mortality and expense risk charge, Policy Fee, face amount increase charge, and/or premium tax charges described in "Charges and Expenses". (In addition, the interest rate credited on amounts taken from the sub-accounts as a result of a Policy loan may be increased for these Policies.) NELICO will waive or reduce these charges according to its rules in effect when the Policy application is approved. To qualify for a waiver or reduction, the case must satisfy certain criteria as to, for example, size and number of years in existence. Generally, the sales contacts and effort, administrative costs and mortality cost per Policy vary based on such factors as the size of the case, its stability, the purposes for which the Policies are purchased and certain characteristics of its members. The amount of reduction and the criteria for qualification will reflect the reduced sales and administrative effort resulting from sales to qualifying cases. NELICO may modify from time to time both the amounts of reductions and the criteria for qualification. Reductions in or waiver of these charges will not be unfairly discriminatory against any person, including the affected Policy Owners and all other Policy Owners of Policies funded by the Variable Account. The waiver or reduction of Policy charges for certain cases described above will not apply to Policies issued in the state of New York, other than Policies issued to non-tax qualified deferred compensation plans of various types. The United States Supreme Court has held that certain insurance policies providing values and benefits that vary with the sex of the insured may not be used to fund certain employee benefit programs. Therefore, NELICO offers Policies that do not vary based on the sex of the insured for use in connection with certain employee benefit programs. NELICO recommends that any employer proposing to offer the Policies to employees consult its attorney before doing so. PREMIUMS FLEXIBLE PREMIUMS Within the limits described below, you may choose the amount and frequency of premium payments. You may select a Planned Premium schedule, which is a level amount. This schedule, which must be within NELICO's minimum and maximum limits, appears in your Policy. It is not necessarily designed to keep your Policy in force, and you may skip Planned Premium payments or make additional payments. Additional payments could be subject to underwriting. No payment can be less than $25 ($10 for payments made pursuant to certain monthly payment arrangements), and the total of Planned Premiums and other payments will be limited to NELICO's published maximum. Planned Premiums can be paid on an annual, semi-annual, quarterly or monthly schedule. You can change your Planned Premium schedule by sending your request to NELICO's Administrative Office. However, the amount of your Planned Premium A-18 cannot be increased except with the consent of NELICO, and underwriting may be required. Cash values and death benefits are permanently affected by the amount and frequency of premium payments. You may make payments by check or money order. NELICO will send premium notices for annual, semi-annual, quarterly or monthly Planned Premiums. Premium payments may also be made by wire transfer of federal funds in accordance with our procedures then in effect. Premium payments may not be made on and after the Policy anniversary on which the insured reaches attained age 100. NELICO offers two types of premium payment levels that can protect your Policy against lapse over specified time periods. First, NELICO determines a three-year Minimum Premium amount based on the Policy's face amount, the age, sex (unless unisex rates apply) and underwriting class of the insured, the current level of Policy charges and any rider benefit selected. Generally, during this three-year period, as long as the Minimum Premium amount is timely paid, the Policy is guaranteed not to lapse even if the Policy's net cash value is insufficient to pay the Monthly Deduction in any month. (To determine whether the Policy will lapse, NELICO compares (a) the total monthly Minimum Premiums for the Policy from the Policy Date to that Policy month, to (b) the total premiums paid to date, less all partial surrenders and any outstanding Policy loan balance. If (b) is greater than or equal to (a), the Policy will not lapse.) However, no three-year Minimum Premium death benefit guarantee will apply if you substitute the insured or reinstate the Policy in the first three Policy years, unless, in the case of a reinstatement, you pay all the applicable Minimum Premiums that were not paid including those for the period when the Policy was lapsed. The Minimum Premium will be recalculated if you increase the face amount, reduce the face amount or make a partial surrender that reduces the face amount, or add, reduce or delete a rider benefit, or if the rating classification of your Policy is improved in the first three Policy years. Second, if you have elected the Guaranteed Death Benefit Rider and the Guaranteed Death Benefit premium shown in Section 1 of your Policy is timely paid, then the Policy will stay in force until the insured reaches age 100. The Guaranteed Death Benefit premium is based on the Policy's face amount, the age, sex (unless unisex rates apply) and underwriting class of the insured, the death benefit option chosen, the guaranteed level of Policy charges and any rider benefit selected. If you reduce the Policy's face amount or make a partial surrender which reduces the face amount, or reduce or delete a rider benefit from your Policy, or if your Policy's rating classification is improved, the Guaranteed Death Benefit premium will be recalculated, as well as following an increase in the Policy's face amount or in the amount of coverage provided by riders. If you have selected the guideline premium test, Federal tax law limits the amount of premiums that can be paid under the Policy. In addition, if any payments under the Policy exceed the "7-pay test" under Federal tax law, you may be taxed on certain distributions. (See "Tax Considerations".) NELICO's consent is required if, in order to satisfy tax law requirements, any payment would increase the Policy's death benefit by more than it would increase cash value. NELICO may require evidence of insurability before accepting the payment. NELICO allocates net payments to your Policy's Sub-Accounts as of the date the payment is received at NELICO's Administrative Office. (See "Receipt of Communications and Payments at NELICO's Administrative Office".) A payment is treated first as a Planned Premium, second as repayment of Policy loan interest due, third as repayment of a Policy loan, and last as an unscheduled payment, unless you designate otherwise in writing to NELICO. (For Policies issued in New York, a payment will be treated as a Planned Premium when a Policy loan is outstanding only if the payment is in the exact amount of the Planned Premium next due; otherwise, it will be treated first as repayment of Policy loan interest due, second as repayment of a Policy loan, third as a Planned Premium, and last as an unscheduled payment.) If you have a Policy loan, it may be more advantageous to repay the loan than to make a premium payment, because the premium payment is subject to sales and tax charges, whereas the loan repayment is not subject to any charges. (See "Loan Provision", "Deductions from Premiums" and "Death Benefit".) Under Policies issued in New Jersey, if you have met the requirements for the three-year Minimum Premium death benefit guarantee at the end of the three year guarantee period, the Minimum Premium death benefit guarantee will continue to apply during the fourth Policy year as long as payments made during that Policy year, less partial surrenders and loans made in that year, equal the guaranteed maximum Policy charges for the fourth Policy year. If you make a Policy transaction that changes the amount of the guaranteed maximum Policy charges for that year, then the amount you need to pay in order to preserve the Minimum Premium death benefit guarantee for an extra Policy year will change accordingly. A-19 LAPSE AND REINSTATEMENT LAPSE. Unless the Guaranteed Death Benefit is in effect (or, during the first three Policy years, unless the Minimum Premium requirements described under "Premiums" have been met), in any month that there is insufficient net cash value to pay a Monthly Deduction the Policy will be in default. The Policy provides a 62 day grace period for payment of a premium sufficient to permit the Monthly Deduction to be made (as well as applicable deductions from the premium). (For Policies issued in New Jersey the amount due is the least of: a premium large enough to permit the Monthly Deduction, as well as applicable deductions from the premium, to be made; a premium large enough to permit the Guaranteed Death Benefit to be in effect; and a premium large enough to permit the three year Minimum Premium death benefit to be in effect. NELICO will notify you of the amount due. During the grace period insurance coverage continues under your Policy, but if the insured dies before the premium is paid, NELICO will deduct from the death proceeds the portion of the unpaid Monthly Deduction for the period prior to the date of death. If the required premium is unpaid at the end of the grace period, the Policy will lapse without value. REINSTATEMENT. If your Policy has lapsed, it may be reinstated within seven years after the date of lapse. If more than seven years have passed, or if you have surrendered the Policy, NELICO's consent is required to reinstate. Reinstatement in all cases is subject to payment of certain charges described in the Policy and generally requires evidence of insurability that is satisfactory to NELICO. OTHER POLICY FEATURES INCREASE IN FACE AMOUNT After the first Policy year you may increase the face amount of your Policy. The request for an increase will be subject to NELICO's underwriting rules and requirements, including proof of insurability. The amount of the increase must be at least $10,000. If the increase requires medical underwriting, a face amount increase charge of $0.80 per $1,000 of the face amount increase (not to exceed $25.00) will be deducted on the date the increase takes effect, and on the first day of the next eleven Policy months, from the Policy's cash value in the sub-accounts and the Fixed Account, in proportion to the amount of cash value in each (unless you have elected a Single Source Expense Sub-Account). After an underwritten face amount increase, NELICO will attribute a portion of each premium payment you make to the face amount increase, even if you do not increase the amount or frequency of your premiums. Following an underwritten face increase, a new Target Premium will be established for that segment of coverage under the Policy, based on the insured's age and underwriting class at the time of the increase and the amount of the increase. (The insured's age at the time of the increase will be the insured's age at the start of that Policy year.) Following such an increase, sales charges will be deducted from the portion of each premium paid after a face amount increase by applying premium payments to each segment of coverage based on the relative Target Premium amount attributable to each segment, determining whether an amount equal to the Target Premium for each segment has been paid, and calculating and imposing the applicable sales charge with respect to each segment. See "Charges and Expenses" for a description of the sales charges that will apply. Face amount increases that are not medically underwritten do not require payment of the face amount increase charge; and generally do not result in an increase in the Target Premium. (The exception is a conversion from term insurance, which will result in an increased Target Premium but no face amount increase charge.) The Monthly Deduction applicable to the Policy will be adjusted beginning with the effective date of a face amount increase to reflect the new face amount and amount at risk under the Policy. Cost of insurance charges for the segment of coverage attributable to the increase will be based on the insured's age at the time of the increase (if underwritten or the result of a conversion from term insurance), or on age at issue (if not underwritten) and will reflect any change in risk classification of the insured if the face amount increase was medically underwritten. Future cost of insurance rates for the entire Policy after an increase will be based on a weighted average of relative net amount at risk amounts for each segment of coverage. (See "Charges and Expenses--Monthly Deduction from Cash Value.") NELICO determines the net amount at risk associated with a face amount increase by calculating the amount by which the net amount at risk was increased as a percentage of the Policy's total net amount at risk immediately following the increase. The resulting percentage of the Policy's total net amount at risk is applicable to the face amount increase. The remaining percentage of the Policy's total net amount at risk is applicable to the initial face amount. (For example, if the Policy's face A-20 amount is increased by $100,000 and the total net amount at risk immediately following the increase in $250,000, then 40% of the total net amount at risk applies to the face amount increase. The remaining 60% applies to the initial face amount.) On each monthly processing day, the net amount at risk used to determine the cost of insurance charge associated with the face amount increase is the Policy's total net amount at risk at that time, multiplied by the percentage calculated as described above. This percentage remains fixed until there is another face amount increase. The mortality and expense risk charge is calculated separately for each segment of coverage that was underwritten or that resulted from a conversion from term insurance; the actual charge is based on a weighted average of the mortality and expense risk charge applicable to each underwritten segment and each segment resulting from a term conversion (based on relative Target Premiums associated with each segment). An increase in face amount will take effect on the first day of the Policy month following NELICO's approval of your application for the increase. You can contact NELICO's Administrative Office or your registered representative to determine the procedures for requesting a face amount increase. You have a limited time in which you may cancel a face amount increase. (See "Right to Return the Policy".) If a Policy has an Adjustable Term Insurance Rider, then NELICO may offer increases in term insurance coverage, including annual term insurance increases which are related to increases in salary or which are based on a fixed annual percentage (the "Salary Refresh" program). Limits on the annual and/or total amount of term insurance increases per Policy that will be permitted on a guaranteed issue basis will be determined at issue of the Policies. Increases that are not being made pursuant to an annual increase, or which exceed this limit, will require underwriting. The terms and conditions of the Salary Refresh program are contained in NELICO's published rules which are furnished at the time of application. LOAN PROVISION You may borrow all or part of the Policy's "loan value" once fifteen days have elapsed after we mail the confirmation for the initial premium. NELICO will make the loan as of the date when a loan request is received at NELICO's Administrative Office. (See "Receipt of Communications and Payments at NELICO's Administrative Office".) You should contact NELICO's Administrative Office or your registered representative for information regarding the procedures to follow for requesting a loan. The Policy's loan value is equal to 90% (or more where required by state law) of the Policy's cash value. The amount of loan value available to be borrowed at any time is reduced by the amount of any outstanding Policy loan plus accrued interest. If you purchase a Policy with the proceeds of another life insurance policy that has an outstanding policy loan (see "Premium Payments"), the following conditions must be met. First, the applicable application forms must be completed. Second, if the value to be applied from the existing policy to a Policy is subject to a policy loan, then any loan remaining against the new Policy cannot exceed 75% of the cash value of the Policy at issue. It may not be advantageous to replace existing insurance with a Policy. When Policy loan proceeds are paid to you, cash value in the amount of the loan is taken from Sub-Accounts and transferred to NELICO's general account as collateral for the loan. When you make a loan repayment, cash value held as collateral is transferred from the general account back to the Sub-Accounts, and thereby increases the cash value in the Sub-Accounts by the amount of the repayment. Unless you specify a different allocation, cash value transferred for a Policy loan is taken from the Sub-Accounts of the Variable Account in proportion to the cash value in each. All loan repayments are allocated, unless you request otherwise, to repay the loans made against the Sub-Accounts of the Variable Account in proportion to the cash value in each at the time of repayment. The interest rate charged on Policy loans is 4.75% per year. It accrues daily, and is due on the Policy Anniversary. If not paid at that time, the interest accrued on the loan is added to the loan, and an amount equal to the unpaid interest is deducted from the Policy's cash value in the Sub-Accounts in proportion to the amount in each. Amounts taken as collateral for a loan earn interest at not less than a 4.00% rate per year. Currently, the rate credited is 4.00% for the first 10 Policy years and 4.50% thereafter. Interest earned on amounts held in NELICO's general account as collateral for a Policy loan is credited to the Policy's Sub-Accounts on the Policy Anniversary, in proportion to the cash value in each. The tax consequences of a policy loan after the tenth policy year are not clear. You should consult a tax advisor if you intend to take out a policy loan after the tenth policy year or allow a policy loan taken out during the first 10 policy years to remain outstanding after the tenth policy year. A-21 The amount taken from the Policy's Sub-Accounts as a result of a loan does not participate in the investment experience of the Sub-Accounts. Therefore, the death benefit and cash value of the Policy can be permanently affected by a Policy loan, even if it is repaid. In addition, any proceeds payable under a Policy are reduced by the amount of any outstanding loan plus accrued interest. Any payment received while a Policy loan is outstanding is treated first as a Planned Premium, second as repayment of Policy loan interest due, third as repayment of a Policy loan, and last as an unscheduled payment, unless you designate otherwise in writing to NELICO. (For Policies issued in New York, a payment will be treated as a Planned Premium when a Policy loan is outstanding only if the payment is in the exact amount of the Planned Premium; otherwise, it will be treated first as repayment of Policy loan interest due, second as repayment of a Policy loan, third as a Planned Premium, and last as an unscheduled payment.) If a Policy loan is outstanding, it may be more advantageous to repay the loan than to pay a premium, because the payment is subject to sales and premium tax charges, and the loan repayment is not subject to charges. (See "Deductions from Premiums" and "Death Benefit".) If Policy loans plus accrued interest exceed the Policy's cash value at any time, NELICO will notify you that the Policy is going to terminate. (This situation is referred to as an "excess policy loan".) The Policy will terminate without value 62 days after the notice is mailed unless the excess amount is paid to NELICO within that time. If the Policy lapses with a loan outstanding, adverse tax consequences may result. (See "Tax Considerations" below.) Department of Labor ("DOL") regulations set forth requirements for participant loans under retirement plans subject to the Employee Retirement Income Security Act of 1974 ("ERISA"). Generally, the DOL regulations will apply to plans that qualify under Section 401 of the Internal Revenue Code (the "Code"). If the retirement plan is subject to ERISA, the plan fiduciary authorized to oversee/direct the plan loan program must fulfill the requirements of the regulations including charging a "commercially reasonable" rate of interest. The policy loan interest rate may not be considered "commercially reasonable" within the meaning of the DOL regulations. In addition, the DOL regulations require that a plan loan be adequately secured but provide that not more than 50% of the participant's vested account balance (including the Policy cash value) be used as security for the loan. The DOL regulations and applicable tax law may also contain other requirements for plan loans. Therefore, plan loan provisions may differ from Policy loan provisions. If you are a participant in a retirement plan subject to ERISA, you should consult with the fiduciary administering the plan loan program. Failure of the plan loan program to comply with the requirements of the DOL regulations and of tax law may result in tax penalties under the Code and under ERISA. SURRENDER You may surrender a Policy for its net cash value at any time while the insured is living by a request conforming to NELICO's administrative procedures. The net cash value of the surrendered Policy is determined as of the date when a surrender request is received at NELICO's Administrative Office. The net cash value equals the cash value reduced by any Policy loan and accrued interest. The net cash value paid on surrender is increased by the portion of any cost of insurance charge deducted that applies to the period beyond the date of surrender. If you surrender the Policy during the grace period (that is, at a time when the net cash value was not sufficient to cover the Monthly Deduction and no Guaranteed Death Benefit or three year Minimum Premium guarantee applies to the Policy), the net cash value you receive is reduced by an amount to cover the Monthly Deduction to the date of surrender. You may elect in writing to have all or part of the net cash value applied to a payment option. (See "Payment Options".) A surrender may result in adverse tax consequences. (See "Tax Considerations" below.) PARTIAL SURRENDER You may make a partial surrender of the Policy to receive a portion of its net cash value once fifteen days have elapsed after we mail the confirmation of the initial premium payment. A partial surrender will cause a reduction in the Policy's death benefit and may cause a reduction in the Policy's face amount if necessary in order that the amount at risk under the Policy not increase. Any reduction in the face amount causes a proportionate reduction in the Policy's Target Premium. Rider benefits may also have to be reduced. For purposes of calculating any future cost of insurance charges, any face amount reduction will apply to the initial face amount and to any prior increase in face amount on a pro rata basis. No partial surrender may reduce the face amount below the Policy's required minimum except with NELICO's consent. A-22 Partial surrenders in any one Policy year are limited, except with NELICO's consent, to 20% of the Policy's net cash value as of the date of the first partial surrender for the Policy year or, if less, the Policy's available loan value. Currently, NELICO permits partial surrenders of up to 90% of the Policy's net cash value per year, assuming sufficient available loan value. You should be aware that cash value paid upon partial surrender may not be reinvested in the Policy except as premium payments, which are subject to the charges described under "Deductions From Premiums." A partial surrender first reduces the Policy's cash value in the Sub- Accounts of the Variable Account, in proportion to the amount of cash value in each, and then the Fixed Account, unless you request otherwise. (See "The Fixed Account" below.) The amount of net cash value paid upon partial surrender is determined as of the date when a request conforming to NELICO's administrative procedures is received at NELICO's Administrative Office. NELICO's administrative procedures can be determined by contacting your registered representative or the Administrative Office. A reduction in the death benefit as a result of a partial surrender may cause the Policy to become a "modified endowment contract". If you are contemplating a partial surrender, you should consult your tax advisor regarding the tax consequences of the transaction. (See "Tax Considerations".) REDUCTION IN FACE AMOUNT After the first Policy year, you may reduce the face amount of your Policy without receiving a distribution of any of the Policy's cash value. (This feature differs from a partial surrender in that a partial surrender causes part of the Policy's cash value to be distributed to you.) For purposes of calculating future cost of insurance charges, a face amount reduction will apply to the initial face amount and to any prior increase in face amount on a pro rata basis. The face amount remaining after a reduction has to meet NELICO's minimum face amount requirements for issue, except with NELICO's consent. If you decrease the face amount of your Policy, the Target Premium is also decreased. Your Policy's actual cash value is not reduced, but generally, the Policy's death benefit is decreased. However, if the death benefit is being increased in accordance with federal income tax laws, the death benefit will not be decreased by a face amount reduction. A reduction in face amount in this situation is not advisable, because it will not reduce your death benefit or cost of insurance charges. In addition, any rider benefits attached to the Policy may also have to be decreased. Finally, if you have selected the guideline premium test, a reduction in the face amount of your Policy will reduce the Federal tax law limitations on the amount of premiums that can be paid under the Policy. In these cases, a portion of the Policy's cash value may be paid to you if necessary to allow the Policy to comply with Federal tax law. A face amount reduction takes effect as of the first day of the Policy month on or after the date when NELICO has received a request at its Administrative Office meeting NELICO's administrative requirements. You can determine NELICO's administrative requirements by contacting your registered representative or the Administrative Office. A reduction in the face amount of a Policy that causes a death benefit reduction may cause the Policy to become a "modified endowment contract". If you are contemplating a reduction in face amount, you should consult your tax advisor regarding the tax consequences of the transaction. (See "Tax Considerations".) ACCELERATION OF DEATH BENEFIT RIDER NELICO may offer in the future a rider benefit that will allow you to receive an accelerated payment of your Policy's death benefit. This advance payment of the death benefit will be available where certain special needs exist, as described briefly below. The right to exercise the rider will be subject to certain conditions contained in the rider. NELICO will make the accelerated benefits rider available to you only if: (1) your state insurance department has approved the rider, and (2) NELICO believes that the rider will meet the definition of an accelerated death benefit for Federal income tax purposes and (3) NELICO believes that the availability of the rider will not jeopardize the qualification of the Policy as life insurance under federal income tax law. If the accelerated benefits rider is offered, it is expected to provide that if the insured is diagnosed as terminally ill, as defined in the rider, you may request an accelerated payment of the Policy's death benefit. The payment may be subject to discounting and charges. Payment will be subject to evidence satisfactory to NELICO. A-23 See "Tax Considerations", below, for a discussion of the tax consequences associated with the accelerated benefits rider. INVESTMENT OPTIONS You may allocate your Policy's premiums and cash value among the Sub- Accounts of the Variable Account and the Fixed Account in any combination. Currently, allocations can be made to an unlimited number of the available accounts (including the Fixed Account) at any time; NELICO reserves the right to limit the number of available accounts to which allocations can be made to ten. A minimum of 1% of the premium must be allocated to each Sub-Account selected. Percentages allocated must be in whole numbers. You make the initial premium allocation when you apply for a Policy. You may change the allocation of future premiums at any time thereafter. The change will be effective for premiums applied on or after the date when NELICO receives your request. You may request the change by telephone or by written request in a form satisfactory to NELICO. (See "Receipt of Communications and Payments at NELICO's Administrative Office.") See "Transfer Option" below for information on how to request a transfer or reallocation by telephone. TRANSFER OPTION Beginning fifteen days after NELICO mails the confirmation for the initial premium, you may transfer your Policy's cash value between Sub-Accounts up to four times in a policy year (twelve times per policy year for Policies issued in New York) without NELICO's consent. NELICO currently allows 12 Sub-Account transfers per Policy year under all Policies. Transfers under dollar cost averaging, and transfers out of the Fixed Account, are not counted against this limit. All Sub-Account transfer requests made at the same time will be treated as a single request. The transfer will be effective as of the date when NELICO receives the transfer request at its Administrative Office. (See "Communications and Payments".) For special rules regarding transfers involving the Fixed Account, see "The Fixed Account". You may request a Sub-Account transfer or reallocation of future premiums by written request (which may be telecopied) to NELICO's Administrative Office or by telephoning NELICO. To request a transfer or reallocation by telephone, you should contact your registered representative or contact NELICO at 1-800- . Requests for transfers (up to NELICO's current limit per Policy year) or reallocations by telephone will be automatically permitted. NELICO 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 NELICO 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 NELICO does not employ reasonable procedures to confirm that instructions communicated by telephone are genuine, it may be liable for any losses due to unauthorized or fraudulent instructions. DOLLAR COST AVERAGING NELICO offers an automated transfer privilege referred to here as dollar cost averaging. The main objective of dollar cost averaging is to shield investments from short term price fluctuations. Since the same dollar amount is transferred to selected Sub-Accounts each month, over time more purchases of Eligible Fund shares are made when the value of those shares is low, and fewer shares are purchased when the value is high. As a result, a lower than average cost of purchases may be achieved over the long term. This plan of investing allows Policy Owners to take advantage of investment fluctuations, but does not assure a profit or protect against a loss in declining markets. Under this feature, you may request that a certain amount of your cash value be transferred on any selected business day of each month (or if not a day when the New York Stock Exchange is open, the next such day), from any one Sub-Account to one or more of the other Sub-Accounts. We reserve the right to limit allocation of cash value to no more than 10 of the Sub-Accounts at any one time. A minimum of $100 must be transferred to each Sub-Account that you select under this feature. Currently, transfers made under the dollar cost averaging program will not be counted against the 12 transfers that may be made each year. You may select a dollar cost averaging program when you apply for the Policy or at a later date by contacting NELICO's Administrative Office. You may participate in the dollar cost averaging program while you are participating in the asset rebalancing program as long as the sub-account from which you are transferring cash value under the dollar cost averaging program is not included in the asset rebalancing program. (See "Asset Rebalancing" below). You may cancel your use of the dollar cost averaging program at any time prior to the monthly transfer date. Transfers will continue until you notify us to stop making transfers or there no longer is sufficient cash value in the Sub-Account from which you are transferring cash value. A-24 ASSET REBALANCING NELICO offers an asset rebalancing program for cash value. Cash value allocated to the Sub-Accounts can be expected to increase or decrease at different rates. An asset rebalancing program automatically reallocates your cash value among the Sub-Accounts each quarter to return the allocation to the allocation percentages you specify. Asset rebalancing is intended to transfer cash value from those Sub-Accounts that have increased in value to those that have declined, or not increased as much, in value. Over time, this method of investing may help a Policy Owner "buy low and sell high," although there can be no assurance that this objective will be achieved. Asset rebalancing does not guarantee profits, nor does it assure that a Policy Owner will not have losses. You may select an asset rebalancing program when you apply for the Policy or at a later date by contacting NELICO's Administrative Office. You specify the percentage allocations according to which your cash value will be reallocated among the Sub-Accounts. You may participate in the asset rebalancing program while you are participating in the dollar cost averaging program as long as the sub-account from which you are transferring cash value under the dollar cost averaging program is not included in the asset rebalancing program. (See "Dollar Cost Averaging" above). On the last day of each calendar quarter on which the New York Stock Exchange is open, we will transfer cash value among the Sub-Accounts to the extent necessary to return the allocation to your specifications. Asset rebalancing will continue until a written or telephone request to terminate is received at NELICO's Administrative Office. Currently, transfers made under an asset rebalancing program are not counted for purposes of the transfer rules described above. SUBSTITUTION OF INSURED PERSON Subject to state insurance department approval, NELICO offers a rider benefit that will allow you to substitute the insured person under your Policy, if you provide satisfactory evidence that the person proposed to be insured is insurable. The right to substitute the insured person is subject to certain restrictions. A substitution of the insured person will result in a taxable exchange. In addition, a substitution of the insured person could reduce the amount of premiums allowed to be paid into the Policy under Federal tax law if you selected the guideline premium test and, as a result, may require a partial surrender of cash value. This rider may not be approved in every state and therefore may not be available in every state. Your registered representative can provide current information on the availability of the rider. Since substituting the insured person may be a taxable event, you should consult your tax advisor before substituting the insured person under your Policy. PAYMENT OF PROCEEDS NELICO will ordinarily pay any net cash value, loan value or death benefit proceeds payable from the Sub-Accounts within seven days after receipt at the Administrative Office of a request, or proof of death of the insured, in a form satisfactory to NELICO. (See "Receipt of Communications and Payments at NELICO's Administrative Office".) However, NELICO may delay payment (except when a loan is made to pay a premium to NELICO) or transfers from the Sub- Accounts: (i) if the New York Stock Exchange is closed for other than weekends or holidays, or if trading on the New York Stock Exchange is restricted, (ii) if the SEC determines that a state of emergency exists that makes payments or Sub-Account transfers impractical, or (iii) at any other time when the Eligible Funds or the Variable Account have the legal right to suspend payment. NELICO may withhold payment of surrender or loan proceeds to the extent that those proceeds are derived from a Policy Owner's check which has not yet cleared. In those cases, NELICO will process the surrender or loan to the extent of Policy values for which the Policy Owner has made full payment. The balance of the surrender or loan proceeds will be paid when the Policy Owner's check has cleared. NELICO may also delay payment if it considers whether to contest the Policy. NELICO will pay interest on the death benefit proceeds from the date they become payable to the date they are paid in one sum or, if a payment option was selected, to the effective date of the option. (See "Payment Options".) Death benefit proceeds may be paid pursuant to NELICO's Access Plus program. If the Access Plus program is elected, an Access Plus account will be established at State Street Bank & Trust Company at the time that death benefit proceeds are payable. The Access Plus account provides convenient access to proceeds, which are maintained in MetLife's general account, through checkbook privileges with State Street. A beneficiary may elect to have death benefit proceeds paid through the Access Plus program at any time prior to the payment of death benefit proceeds. Payments of cash value, or of any loan value available, from cash value in the Fixed Account will normally be paid promptly. However, NELICO has the right to delay such payments for up to six months from the date of the request (to the extent allowed by state insurance law). NELICO will pay interest in accordance with state insurance law requirements on payments that are delayed. A-25 24 MONTH RIGHT GENERAL RIGHT. Generally, during the first 24 months after the Policy's issue date, and during the first 24 months after the effective date of an increase in face amount, you may convert this Policy, or a portion thereof, to fixed benefit coverage by transferring all or a portion of your Policy's cash value, and allocating all or a portion of future premiums, to the Fixed Account. The request to convert to fixed benefit coverage must be in written form satisfactory to NELICO. This privilege may be exercised only once within 24 months after issue, and only once within 24 months after each increase in face amount. Transfers into the Fixed Account pursuant to this right will not count toward the limit on the number of cash value transfers permitted under the Policy each year. Cash value that is transferred to the Fixed Account, and future premium amounts allocated to the Fixed Account, may subsequently be transferred back to one or more Sub-Accounts of the Variable Account, subject to the Policy's general limits on transfers from the Fixed Account (see "The Fixed Account"). The Policy generally permits NELICO to limit allocations to the Fixed Account under certain circumstances. (See "The Fixed Account.") If NELICO limits such allocations and you subsequently wish to exercise the 24 Month Right, your right will be limited to (i) the Policy's cash value prior to any face amount increase plus that portion of future premiums attributable to the Policy's face amount prior to any increase, if the right is exercised during the first 24 months after issue, or (ii) that portion of the Policy's cash value and future premiums attributable to the face amount increase, if the right is exercised within 24 months after a face amount increase. After exercising the 24 Month Right, you may continue to allocate to the Fixed Account only the percentage of premiums that was allocated to the Fixed Account pursuant to your most recent exercise of the 24 Month Right. In addition, if you have exercised this right, and NELICO subsequently limits such allocations, then you may continue to allocate to the Fixed Account only the lowest percentage of premiums that was allocated to the Fixed Account at any time since your most recent exercise of the 24 Month Right. FOR POLICIES ISSUED IN MARYLAND AND NEW JERSEY. Under Policies issued in Maryland and New Jersey, you can exchange the initial face amount of your Policy, and any increase in face amount of your Policy, for a fixed benefit whole life or endowment life insurance policy provided that (1) the Policy has not lapsed and (2) the exchange is made within 24 months after the Policy's issue date or, if you are exchanging an increase in face amount, within 24 months after the effective date of the increase. The new policy will be issued by NELICO or, if no such policy is available for an exchange, by MetLife. If you exercise this option, you will have to make up any investment loss you had that is attributable to the portion of the variable life insurance policy being exchanged. The exchange will be made without evidence of insurability. The new policy will have, at the option of the policyholder, either the same death benefit or the same net amount at risk as that being exchanged. For the exchange of the initial face amount of the variable life policy, the new policy will have the same issue age, underwriting class and policy date as the variable life policy had. For the exchange of an increase in face amount, the new policy will have the same issue age of the insured as the age of the insured on the effective date of the increase, the same underwriting class as the underwriting class on the effective date of the increase, and a policy date equal to the effective date of the increase. Any riders to the original Policy will be attached to the new policy if they are available. The exchange will be effective on the date when NELICO receives written notice at its Administrative Office in a form satisfactory to NELICO, the Policy and payment to NELICO of any cost to exchange. (See "Receipt of Communications and Payments at NELICO's Administrative Office".) The exchange may result in a cost or credit to you. The cost or credit will reflect any differences in cash values and charges between the exchanged portion of the variable life policy and the new policy. Upon the exchange, you may also need to make an immediate premium payment on the new policy in order to keep it in force. Any policy loan outstanding must be repaid on or before the effective date of the exchange. PAYMENT OPTIONS The Policy's death benefit and net cash value will be paid in one sum unless the Policy Owner or payee chooses to put all or part of the proceeds under a payment option. You can choose a combination of payment options. The selection of a payment option and the naming of a payee must be in written form satisfactory to NELICO. You can make, change or revoke the selection before the death of the insured. The payment options available are fixed benefit options only; therefore, proceeds applied to an option will no longer be affected by the investment experience of the Variable Account. The guaranteed mortality assumptions used in determining payment levels under the options will not vary based on sex. (For Policies issued in New York and Oregon, however, and which are not issued for use in connection with certain employee benefit plans and fringe benefit programs, the A-26 mortality assumptions will vary based on sex. See "Group or Sponsored Arrangements".) Once payments under an option begin, withdrawal rights may be restricted. The following payment options are available: (i) INCOME FOR A SPECIFIED NUMBER OF YEARS. Proceeds are paid in equal monthly installments for up to 30 years, with interest at a rate not less than 3.5% a year, compounded yearly. Additional interest paid by NELICO for any year will be added to the monthly payments for that year. (ii) LIFE INCOME. Proceeds are paid in equal monthly installments (i) during the life of the payee, (ii) for the longer of the life of the payee or 10 years, or (iii) for the longer of the life of the payee or 20 years. (iii) LIFE INCOME WITH REFUND. Proceeds are paid in equal monthly installments during the life of the payee. At the payee's death, any unpaid proceeds remaining are paid either in one sum or in equal monthly installments until the total proceeds have been paid. (iv) INTEREST. Proceeds are held for the life of the payee or another agreed upon period. Interest of at least 3.5% a year is paid monthly or added to the principal annually. At the death of the payee, or at the end of the period agreed to, the balance of principal and any interest will be paid in one sum. (v) SPECIFIED AMOUNT OF INCOME. Proceeds plus accrued interest of at least 3.5% a year are paid in an amount and at a frequency elected until total proceeds have been paid. Any amounts unpaid at the death of the payee will be paid in one sum. (vi) LIFE INCOME FOR TWO LIVES. Proceeds will be paid in equal monthly installments (i) while either of two payees is living, (ii) for the longer of the surviving payee or 10 years, or (iii) while the two payees are living and, after the death of one payee, two-thirds of the monthly amount for the life of the surviving payee will be paid. NELICO's consent to use of an option is required if the installment payments would be less than $20. ADDITIONAL BENEFITS BY RIDER The Guaranteed Death Benefit, if elected at issue, is added to the Policy by rider. A Policy can include additional benefits provided by rider to the Policy, subject to NELICO's underwriting and issuance standards. These additional benefits usually require an additional charge as part of the Monthly Deduction from cash value. The rider benefits available with the Policies provide fixed benefits that do not vary with the investment experience of the Variable Account, and rider benefits are subject to different terms, conditions, and guarantees than is the Policy. It may be to your economic advantage to include a significant portion or percentage of your insurance coverage under a term rider. However, like the cost of coverage under the Policy, charges deducted from the Policy's cash value to pay for term coverage no longer participate in the investment experience of the Variable Account, and generally increase with the age of the covered individual. Use of a term rider reduces sales compensation. Your registered representative can provide you more information on the uses of term rider coverage. The following riders are available: ADJUSTABLE TERM RIDER, which provides term insurance. This Rider terminates no later than the Policy anniversary on which the insured has reached attained age 100. WAIVER OF MONTHLY DEDUCTION, which provides for waiver of Monthly Deductions upon the disability of the insured. TEMPORARY TERM INSURANCE, which provides for insurance from the date of issue to the Policy Date. Not all riders may be available to you and riders in addition to those listed above may be made available. You should consult your registered representative regarding the availability of particular riders. POLICY OWNER AND BENEFICIARY The Policy Owner is named in the application but may be changed from time to time. At the death of the Policy Owner, his or her estate will become the Policy Owner unless a successor Policy Owner has been named. The Policy Owner's rights (except for rights to payment of benefits) terminate at the death of the insured. A-27 The beneficiary is also named in the application. The beneficiary of the Policy may be changed at any time before the death of the insured. The beneficiary has no rights under the Policy until the death of the insured and must survive the insured in order to receive the death proceeds. If no named beneficiary survives the insured, the proceeds will be paid to the Policy Owner. A change of Policy Owner or beneficiary must be in written form satisfactory to NELICO and must be dated and signed by the Policy Owner making the change. The change will be subject to all payments made and actions taken by NELICO under the Policy before the signed change form is received by NELICO at its Administrative Office. You may assign (transfer) your rights in the Policy to someone else. An absolute assignment of the Policy is a change of Policy Owner and beneficiary to the assignee. A collateral assignment of the Policy does not change the Policy 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 NELICO under the Policy before a signed copy of the assignment form is received at NELICO's Administrative Office. NELICO will not be responsible for determining whether or not an assignment is valid. Changing the Policy Owner or assigning the Policy may have tax consequences. (See "Tax Considerations" below.) THE VARIABLE ACCOUNT The Variable Account was established as a separate investment account of NELICO on January 31, 1983 under Delaware law and became subject to Massachusetts law when NELICO changed its domicile to Massachusetts on August 30, 1996. The Variable Account is the funding vehicle for other NELICO variable life insurance policies in addition to the Policies; these other policies impose different costs, and provide different benefits, from the Policies. The Variable Account meets the definition of a "separate account" under Federal securities laws. The Variable Account is registered with the Securities and Exchange Commission (the "SEC") as a unit investment trust under the Investment Company Act of 1940. Registration with the SEC does not involve supervision by the SEC of the management or investment practices or policies of the Variable Account. However, both NELICO and the Variable Account are subject to regulation by the Massachusetts Insurance Commissioner and to the insurance laws and regulations in every jurisdiction where the Policies are sold. Although the assets of the Variable Account are owned by NELICO, applicable law provides that the portion of the Variable Account assets equal to the reserves and other liabilities of the Variable Account may not be charged with liabilities that arise out of any other business NELICO may conduct. NELICO believes this means that the assets of the Variable Account equal to the reserves and other liabilities of the Variable Account are not available to meet the claims of NELICO's general creditors, and may only be used to support the cash values under its variable life insurance policies issued by the Variable Account. But NELICO may transfer to its general account assets which exceed the reserves and other liabilities of the Variable Account. Before making any such transfer, NELICO will consider any possible adverse impact the transfer might have on the Variable Account. Income and realized and unrealized capital gains and losses of the Variable Account are credited to the Variable Account without regard to any of NELICO's other income or capital gains and losses. INVESTMENTS OF THE VARIABLE ACCOUNT The Variable Account currently has 16 Sub-Accounts, each of which invests in a series of an Eligible Fund. The Sub-Accounts of the Variable Account are: --The Zenith Money Market Sub-Account, which invests in the Back Bay Advisors Money Market Series of the Zenith Fund --The Zenith Bond Income Sub-Account, which invests in the Back Bay Advisors Bond Income Series of the Zenith Fund --The Zenith Capital Growth Sub-Account, which invests in the Capital Growth Series of the Zenith Fund --The Zenith Stock Index Sub-Account, which invests in the Westpeak Stock Index Series of the Zenith Fund --The Zenith Managed Sub-Account, which invests in the Back Bay Advisors Managed Series of the Zenith Fund --The Zenith Growth and Income Sub-Account, which invests in the Westpeak Growth and Income Series of the Zenith Fund --The Zenith Small Cap Sub-Account, which invests in the Loomis Sayles Small Cap Series of the Zenith Fund A-28 --The Zenith Balanced Sub-Account, which invests in the Loomis Sayles Balanced Series of the Zenith Fund --The Zenith Equity Growth Sub-Account, which invests in the Alger Equity Growth Series of the Zenith Fund --The Zenith Venture Value Sub-Account, which invests in the Davis Venture Value Series of the Zenith Fund --The Zenith Midcap Value Sub-Account, which invests in the Goldman Sachs Midcap Value Series (formerly the Loomis Sayles Avanti Growth Series) of the Zenith Fund --The Zenith International Magnum Equity Sub-Account, which invests in the Morgan Stanley International Magnum Equity Series of the Zenith Fund --The Equity-Income Sub-Account, which invests in the Equity-Income Portfolio of the VIP Fund --The Overseas Sub-Account, which invests in the Overseas Portfolio of the VIP Fund --The High Income Sub-Account, which invests in the High Income Portfolio of the VIP Fund --The Asset Manager Sub-Account, which invests in the Asset Manager Portfolio of VIP Fund II The Zenith Fund is an open-end diversified management investment company, more commonly known as a mutual fund. The Zenith Fund was established as an investment vehicle for separate investment accounts of NELICO and of other life insurance companies. Currently the Zenith Fund is the funding vehicle for the Variable Account and for separate accounts of NELICO and MetLife that issue variable annuity contracts. The VIP Fund and VIP Fund II are open-end, diversified management investment companies (mutual funds) that serve as the investment vehicles for variable life insurance and variable annuity separate accounts of various insurance companies. The VIP Fund and VIP Fund II were organized by Fidelity Management & Research Company. Shares of the Eligible Funds are purchased and sold by the Variable Account at their net asset value (without a deduction for sales load) determined as of the close of regular trading on the New York Stock Exchange on each day when the exchange is open for trading. The investment objectives of the Eligible Funds' portfolios are described briefly below. There is, of course, no assurance that these objectives will be met. A full description of the Eligible Funds, including their investment objectives and policies, expenses, and risks of investing in the Eligible Funds, is contained in the attached Eligible Fund prospectuses, as well as in the Zenith Fund's Statement of Additional Information, which is referenced in the Zenith Fund prospectus, and in the Statement of Additional Information for the VIP Fund and VIP Fund II, which is referenced in those Funds' prospectus. 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 sub-adviser. 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 sub-adviser. The Zenith Back Bay Advisors Money Market Series' investment objective is the highest possible level of current income consistent with preservation of capital through investment in a managed portfolio 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. The Zenith Back Bay Advisors Bond Income Series' investment objective is to provide a high level of current income consistent with protection of capital. The Zenith Capital Growth Series' investment objective is long-term growth of capital through investment primarily in equity securities of companies whose earnings are expected to grow at a faster rate than the U.S. economy. The Zenith Westpeak Stock Index Series' investment objective is to provide investment results that correspond to the composite price and yield performance of United States publicly traded common stocks. The Series currently seeks to achieve its objective by attempting to duplicate the composite price and yield performance of the Standard & Poor's 500 Composite Stock Price Index. A-29 The Zenith Back Bay Advisors Managed Series' investment objective is to provide a favorable total investment return through investment in a diversified portfolio of common stocks and fixed income securities. The Zenith Westpeak Growth and Income Series' investment objective is long- term total return (capital appreciation and dividend income) through investment in equity securities. Emphasis will be given to both undervalued securities ("value" style) and securities of companies with growth potential ("growth" style). The Zenith Loomis Sayles Small Cap Series' investment objective is long-term capital growth from investments in common stocks or their equivalent. The Series invests primarily in stocks of small cap companies with good earnings growth potential that Loomis Sayles 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. The Zenith Loomis Sayles Balanced Series' investment objective is 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. The Series invests at least 25% of its assets in fixed income securities and, under normal market conditions, more than 50% of its assets in common stocks. The Zenith Morgan Stanley International Magnum Equity Series' investment objective is long-term capital appreciation through investment primarily in international equity securities of non-U.S. issuers, in accordance with the EAFE country weightings determined by the series' sub-adviser. Under normal circumstances at least 65% of the total assets of the series will be invested in equity securities of issuers in at least three countries outside the United States. The Zenith Goldman Sachs Midcap Value Series' investment objective is 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 capitalization within the range of the market capitalization of companies constituting the Russell Midcap Index at the time of investment. The Zenith Davis Venture Value Series' investment objective is growth of capital. The Series will primarily invest in domestic common stocks that the Series' 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. The Zenith Alger Equity Growth Series' investment objective is to seek 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. The VIP Fund Equity-Income Portfolio's investment objective is to seek reasonable income by investing primarily in income-producing equity securities. In choosing these securities, the Portfolio will also consider the potential for capital appreciation. The Portfolio's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Composite Stock Price Index. The VIP Fund Overseas Portfolio's investment objective is long-term growth of capital primarily through investments in foreign securities. VIP Overseas Portfolio provides a means for investors to diversify their own portfolios by participating in companies and economies outside of the United States. The VIP Fund High Income Portfolio's investment objective is to obtain a high level of current income by investing primarily in high yielding, lower rated, fixed-income securities, while also considering growth of capital. The Portfolio may purchase lower-quality bonds which provide poor protection for payment of principal and interest (commonly referred to as "junk bonds"). For a discussion of the risks of investment in these securities, please see the prospectus for the VIP Funds, which is attached to this prospectus. The VIP Fund II Asset Manager Portfolio's investment objective is to seek a high total return with reduced risk over the long-term by allocating its assets among domestic and foreign stocks, bonds and short-term money market instruments. The basic objective of the Policy is to provide benefits which increase in value when the investment experience of the Policy's sub-accounts is favorable. Historically, the investment performance of common stocks over the long term has generally been superior to that of long or short term debt securities, although common stocks have been subject to more dramatic changes in value over short periods of time. The Zenith Capital Growth, Zenith Midcap Value, Zenith Equity Growth, Zenith A-30 Venture Value, Zenith Growth and Income, Zenith Stock Index, Zenith International Magnum Equity or Zenith Small Cap Sub-Accounts, or the Equity- Income or Overseas Sub-Accounts, or some combination of these sub-accounts, may, therefore, be a more desirable selection for Policy Owners who have a long-term time horizon and/or are willing to accept such risks of short term fluctuations in value. For a demonstration of certain of these market trends, see Appendix C: Long Term Market Trends. Historically, the investment performance of "small cap" stocks over the long term has generally been superior to stocks of large capitalization companies, although "small cap" stocks have been substantially more volatile than "large cap" stocks. Historically, having a small percentage of a portfolio invested in overseas stocks and the rest in domestic stocks has produced a portfolio that has less, although still substantial, volatility than a completely domestic portfolio. Equity investors should recognize that overseas and "small cap" funds taken alone traditionally involve more risk than most domestic stock funds. The performance of the various financial markets over shorter periods of time has sometimes differed from their long term historical results. Short term interest rates were very high in the late 1970's and early 1980's, but are now lower. Long term bond values continue to fluctuate and could lose value if interest rates rise. Common stock prices, which have risen substantially at times, have also had periods of significant negative returns. Policy Owners who seek somewhat greater protection against loss of principal in the short term than that afforded by a stock fund may prefer the High Income Sub-Account or the Zenith Bond Income Sub-Account. However, because the High Income Portfolio invests in higher yielding, lower rated and unrated fixed income securities (including bonds commonly referred to as "junk" bonds), it has a higher degree of risk associated with it relative to more conservative fixed income funds. Those who seek even greater safety of principal may select the Zenith Money Market Sub-Account, although it is subject to possible rapid changes in short term interest rates. Those who primarily seek safety of principal should consider fixed life insurance as an alternative to variable life insurance. NELICO guarantees the principal invested in the Fixed Account, although this guarantee is subject to NELICO's claims paying ability. You may wish to consider diversifying your investments by allocating the Policy's cash value among two or more sub-accounts. Policy Owners may also diversify by selecting the Zenith Managed Sub- Account, Zenith Balanced Sub-Account or the Asset Manager Sub-Account, since each generally invests its assets at most times in a combination of bonds, stocks and short term instruments, in varying proportions depending upon the investment adviser's evaluation of the economy and financial markets. The Asset Manager Portfolio has the ability to invest its stock portfolio more aggressively than the Back Bay Advisors Managed Series. You may also wish to diversify your cash value by country. The Overseas Sub-Account and Zenith International Magnum Equity Sub-Account allow you to participate primarily in companies and economies outside the United States. The selection of a Policy's sub-accounts is a matter of your own choice and should depend on your willingness to accept investment risks, the other types of investments you have and your own assessment of future economic and financial market conditions. INVESTMENT MANAGEMENT The adviser and sub-adviser for each series of the Zenith Fund are listed in the chart below. TNE Advisers, which is an indirect, wholly-owned subsidiary of NELICO, CGM, and each of the sub-advisers are registered with the SEC as investment advisers under the Investment Advisers Act of 1940.
SERIES ADVISER SUB-ADVISER ------ ------- ----------- Capital Growth Capital Growth Management Limited Partnership ("CGM")* Back Bay Advisors Money Market TNE Advisers, Inc. Back Bay Advisors, L.P.* Back Bay Advisors Bond Income TNE Advisers, Inc. Back Bay Advisors, L.P.* Back Bay Advisors Managed TNE Advisers, Inc. Back Bay Advisors, L.P.* Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.* Westpeak Growth and Income TNE Advisers, Inc. Westpeak Investment Advisors, 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 International TNE Advisers, Inc. Morgan Stanley Asset Management Inc. Magnum Equity
A-31
SERIES ADVISER SUB-ADVISER ------ ------- ----------- Goldman Sachs Midcap Value TNE Advisers, Inc. Goldman Sachs Asset Management Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.** Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
- -------- *An affiliate of NELICO ** Davis Selected may also delegate any of its responsibilities to Davis Selected Advisers--NY, Inc., a wholly-owned subsidiary of Davis Selected. In the case of the Back Bay Advisors Money Market Series, Back Bay Advisors Bond Income Series, Back Bay Advisors Managed Series, Westpeak Stock Index Series, Westpeak Growth and Income Series, Goldman Sachs Midcap Value Series and Loomis Sayles Small Cap Series, TNE Advisers became the adviser on May 1, 1995. Prior to that date those series were advised by their current sub- advisers, except as follows. New England Mutual served as investment adviser to the Back Bay Advisors Money Market and Back Bay Advisors Bond Income Series until September 10, 1986 when Back Bay Advisors assumed New England Mutual's responsibilities under the investment advisory agreements with those Series. Back Bay Advisors served as investment adviser to the Westpeak Stock Index Series until August 2, 1993, when Westpeak became the investment adviser. The Capital Growth Series was managed by Loomis Sayles until March 1, 1990, when its Capital Growth Management Division was reorganized into CGM. The Morgan Stanley International Magnum Equity Series' sub-adviser was Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset Management became the sub- adviser. The Goldman Sachs Midcap Value Series' sub-adviser was Loomis Sayles until May 1, 1998, when Goldman Sachs became the sub-adviser. For more information about the Series' advisory agreements, see the Zenith Fund prospectus attached at the end of this prospectus and the Zenith Fund's Statement of Additional Information. Fidelity Management & Research Company, the investment adviser for the VIP Fund and VIP Fund II, is the original Fidelity company and was founded in 1946. It provides a number of mutual funds and other clients with investment research and portfolio management services. It maintains a large staff of experienced investment personnel and a full complement of related support facilities. For more information regarding the Equity-Income, Overseas High Income and Asset Manager Portfolios and Fidelity Management & Research Company, see the VIP Fund and VIP Fund II prospectus attached at the end of this prospectus and their Statement of Additional Information. THE FIXED ACCOUNT A FIXED ACCOUNT OPTION IS AVAILABLE UNDER THE POLICY IN STATES WHERE IT HAS BEEN APPROVED BY THE STATE INSURANCE DEPARTMENT. THE FIXED ACCOUNT MAY NOT BE APPROVED BY EVERY STATE INSURANCE DEPARTMENT AND THEREFORE IT MAY NOT BE AVAILABLE IN EVERY STATE. You may allocate net premiums for your Policy, and may transfer your Policy's cash value, to the Fixed Account, which is part of NELICO's general account. Because of exemptive and exclusionary provisions in the Federal securities laws, 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 Fixed Account, the general account nor any interests therein are generally subject to the provisions of these Acts, and NELICO has been advised that the staff of the SEC 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 NELICO's general account includes all the assets owned by NELICO, other than the assets in the Variable Account or in any other separate accounts that NELICO may establish. NELICO has sole discretion over the investment of assets in the general account, including the Fixed Account. Policy Owners who allocate cash value to the Fixed Account will not share in the actual investment experience of the Fixed Account. Instead, NELICO guarantees that cash values in the Fixed Account will earn interest at an annual rate of at least 4%. NELICO may from time to time credit interest at a higher rate than 4%, but it is under no obligation to do so. NELICO declares the current interest rate for the Fixed Account periodically. Your Policy cash values that are in the Fixed Account will earn interest daily. A-32 NELICO may vary the way in which it credits interest in the Fixed Account from time to time. The following is a description of NELICO's current method for crediting interest to cash value in the Fixed Account. All of your Policy's cash value in the Fixed Account on a Policy anniversary will earn interest at the declared annual rate in effect on the anniversary. It will earn interest at this rate until the next Policy anniversary, when it will be credited with the current rate declared by NELICO. (Although NELICO's current practice is to credit your entire Fixed Account cash value on a Policy anniversary with the most recently declared annual rate until the next anniversary, NELICO can select any portion, from 0% to 100%, of your Fixed Account cash value on a Policy anniversary to earn interest at the most recently declared rate until the next Policy anniversary.) Any net premiums allocated or any portion of your Policy's cash value transferred to the Fixed Account from the Variable Account on a date other than a Policy anniversary will earn interest at NELICO's most recently declared rate until the next Policy anniversary. Any loan repayment allocated to the Fixed Account will be credited with the lesser of the most recently declared interest rate and the effective interest rate for your Policy's cash value in the Fixed Account on the date of the repayment. The effective interest rate credited at any time to your cash value in the Fixed Account will be a weighted average of all the Fixed Account rates for your Policy. VALUES AND BENEFITS The Policy's cash value in the Fixed Account reflects the net premiums allocated to the Fixed Account, interest credited to cash value in the Fixed Account, any loans, partial surrenders made from the Fixed Account cash value, charges deducted, and any transfers of cash value to or from the Variable Account. Charges will be deducted from the Policy's cash value in the Fixed Account and in the Policy's Sub-Accounts in proportion to the amount of the Policy's cash value in each, unless you have designated a monthly charge sub- account. (See "Monthly Deduction from Cash Value".) The Fixed Account cannot be selected as the monthly charge sub-account. A Policy's total cash value will include its cash value in the Variable Account, its cash value in the Fixed Account, and any of its cash value held in NELICO's general account (but outside of the Fixed Account) as a result of a Policy loan. The amount of the Policy's cash value in the Fixed Account will be taken into account in the calculation of the Policy's death benefit in the same manner as the cash value in the Variable Account. (See "Death Benefit".) POLICY TRANSACTIONS NELICO reserves the right to restrict allocations to the Fixed Account if the effective annual rate of interest that would apply to the amount allocated is the minimum 4% rate. Otherwise, allocations of net premiums to the Fixed Account are subject to the same percentage requirements that apply to the Variable Account. (See "Allocation of Net Premiums".) Except as described below, amounts in the Fixed Account are subject to the same rights and limitations regarding premium allocations, transfers, loans, surrenders and partial surrenders that apply to amounts in the Variable Account. (See "Other Policy Features".) The following special rules apply to transactions involving amounts in the Fixed Account. TRANSFERS OF AMOUNTS FROM THE FIXED ACCOUNT TO THE VARIABLE ACCOUNT WILL BE ALLOWED ONLY ONCE IN EACH POLICY YEAR. A TRANSFER OF CASH VALUE FROM THE FIXED ACCOUNT WILL BE PROCESSED ONLY IF NELICO RECEIVES THE TRANSFER REQUEST WITHIN THE 30 DAY PERIOD AFTER THE POLICY ANNIVERSARY, AND THE TRANSFER WILL BE EFFECTED AS OF THE DATE THE TRANSFER REQUEST IS RECEIVED AT NELICO'S ADMINISTRATIVE OFFICE. THE AMOUNT OF CASH VALUE WHICH MAY BE TRANSFERRED FROM THE FIXED ACCOUNT IS LIMITED TO THE GREATER OF 25% OF THE POLICY'S CASH VALUE IN THE FIXED ACCOUNT ON THE TRANSFER DATE OR THE AMOUNT OF CASH VALUE TRANSFERRED FROM THE FIXED ACCOUNT IN THE PRECEDING POLICY YEAR. Regardless of these limits, if a transfer of cash value from the Fixed Account would reduce the remaining cash value in the Fixed Account below $100, you may transfer the entire amount of cash value from the Fixed Account. The total number of transfers among Sub-Accounts and from the Sub-Accounts to the Fixed Account may not exceed four in one Policy year without NELICO's consent. NELICO currently allows 12 such transfers per Policy year. Transfers out of the Fixed Account will not be counted against this limit. NELICO reserves the right to restrict transfers of cash value into the Fixed Account, if the effective annual rate of interest that would apply to the amount transferred is the minimum 4% rate. Unless you request otherwise, a Policy loan will reduce the Policy's cash value in the Sub-Accounts and not the cash value in the Fixed Account. If there is not enough cash value in the Policy's Sub-Accounts to provide the amount of the loan, however, the balance of the loan will be taken from the cash value in the Fixed Account. All loan repayments will be allocated first to the outstanding loan balance attributable to the Fixed Account. The amount removed from the Policy's Sub-Accounts and the Fixed Account as a result of a loan will earn interest at not less than 4% per year, which will be credited annually to the Policy's cash value in the Sub-Accounts and the Fixed Account in proportion to the Policy's cash value in each on the day it is credited. A-33 Unless you request otherwise, partial surrenders will be taken only from the Policy's Sub-Accounts and not the Fixed Account. If there is not enough cash value in the Policy's sub-accounts to provide the full amount requested, the balance of the partial surrender will be taken from the Fixed Account. NELICO has the right to delay transfers, surrenders, and Policy loans from the Fixed Account for up to six months (to the extent allowed by state insurance law). Loans to pay premiums on policies issued by NELICO will not be delayed. NELICO'S DISTRIBUTION AGREEMENT NELICO sells the Policies through agents who are licensed by state insurance officials to sell NELICO's variable life insurance policies. These agents are also registered representatives of New England Securities Corporation ("New England Securities"). New England Securities, a Massachusetts corporation organized in 1968 and an indirect, wholly-owned subsidiary of NELICO, is registered with the SEC as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. New England Securities, whose principal business address is 399 Boylston Street, Boston, Massachusetts 02116, serves as the principal underwriter for the Policies under a Distribution Agreement between NELICO and New England Securities. Under the Distribution Agreement, NELICO pays the following sales expenses: general agent and agency manager's compensation, agents' training allowances, deferred compensation and insurance benefits of agents, general agents and agency managers and advertising expenses and all other expenses of distributing the Policies. The selling agent may select one of three alternative schedules for payment by NELICO of commissions and/or service fees for sales of a Policy: (1) a maximum of 12.5% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in the first Policy year, a maximum of 6% in Policy years two through ten, and a maximum of 2% thereafter; with a maximum commission of .67% of each payment in excess of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in any year; (2) a maximum of 12.5% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in the first Policy year, and, after the first Policy year, a maximum of 2% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in each Policy year plus a maximum of .175% of the Policy's cash value; with a maximum commission of .67% of each payment in excess of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in any year; or (3) a maximum commission of 12.5% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in the first Policy year, plus a maximum of .26% of the Policy's cash value after the first Policy year; with a maximum commission of .67% of each payment in excess of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in any year. For Policies sold to certain cases the maximum 12.5% first year commission may be paid in installments over a period of years rather than all in the first Policy year. Agents who meet certain productivity and persistency standards in selling policies issued by NELICO may be eligible for additional compensation. Non-cash forms of compensation may also be paid in compliance with applicable law. Sales expenses in any year are not equal to the deduction for sales charges in that year. New England Securities distributes mutual funds, variable annuity contracts and variable life insurance policies. It is the principal underwriter for the Zenith Fund; The New England Variable Account; New England Retirement Investment Account; New England Variable Annuity Separate Account; and New England Variable Annuity Fund I. New England Securities also sells interests in various investment partnerships. New England Securities may enter into selling agreements with other broker- dealers registered under the Securities Exchange Act of 1934 whose representatives are authorized by applicable law to sell variable life insurance policies. Under the agreements with those broker-dealers, the commission paid to the broker-dealer on behalf of the registered representative will not exceed the following, depending upon the compensation schedule elected by the selling agent: (1) 12.5% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in the first Policy year, 6% in Policy years two through ten, and a maximum of 2% thereafter, and .67% of all payments in excess of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in any year; (2) a maximum of 12.5% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in the first Policy year, and, after the first Policy year, a A-34 maximum of 2% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in each Policy year plus a maximum of .175% of the Policy's cash value; with a maximum commission of .67% of each payment in excess of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in any year; or (3) a maximum commission of 12.5% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in the first Policy year, plus a maximum of .26% of the Policy's cash value after the first Policy year; with a maximum commission of .67% of each payment in excess of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in any year. NELICO may pay certain broker-dealers an additional bonus after the first Policy year on behalf of certain registered representatives, the maximum amount of which may equal up to the amount of the basic commission for the particular Policy year. Commissions will be paid through the registered broker- dealer, which may also be reimbursed for portions of expenses incurred in connection with the sale of the Policies or paid additional compensation. LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY Generally, NELICO can challenge the validity of your Policy or a rider to your Policy during the insured's lifetime for two years (or less, if required by state law) from the date of issue, based on misrepresentations made in the application. NELICO can challenge the portion of the death benefit resulting from payment of an underwritten premium payment for two years during the insured's lifetime from the date the premium payment was received and can challenge the portion of the death benefit resulting from an increase in face amount for two years during the insured's lifetime from the effective date of the increase. However, if the insured dies within two years of the date of issue, NELICO can challenge all or part of the Policy at any time with respect to misrepresentations in the application. If the insured dies within two years of the effective date of an increase in face amount, NELICO can challenge the portion of the death benefit resulting from the face amount increase at any time with respect to misrepresentation. MISSTATEMENT OF AGE OR SEX If the insured's age or sex is misstated in the application, the Policy's death benefit will be the amount that the most recent Monthly Deduction which was made would have provided, based on the insured's correct age and, if the Policy is sex-based, on the insured's correct sex. SUICIDE If the insured commits suicide within two years (or less, if required by state law) from the date of issue set forth in the Policy, the death benefit will be limited to the amount of the premiums paid, less any policy loan balance, and less any partial surrenders. If the insured commits suicide more than two years from the issue date of the Policy but within two years from the effective date of an increase in face amount, the death benefit for the increase in face amount will be limited to the Monthly Deductions and any Face Amount Increase Administrative Charge made to pay for that increase. (Where required by state law, NELICO will determine the death benefit under this provision by using the greater of: the reserve of the insurance which is subject to the provision; and the amounts used to purchase the insurance which is subject to the provision.) TAX CONSIDERATIONS POLICY PROCEEDS The following discussion of Federal income tax issues relating to the Policies is general in nature and is not intended as tax advice. It describes what NELICO believes is the Federal income tax treatment of the Policies in the most commonly occurring circumstances and does not reflect the effect of Federal income taxes in all situations. In addition, there is no guarantee that the Federal income tax laws and regulations or interpretation of them will not change. Therefore, NELICO recommends that you consult your own tax advisor for more complete information and advice. DEFINITION OF LIFE INSURANCE. Section 7702 of the Internal Revenue Code of 1986, as amended ("Code") defines a life insurance contract for Federal income tax purposes. The Section 7702 definition can be met if a life insurance contract satisfies either one of two tests set forth in that section. The manner in which these tests should be applied to certain features of the Policy is not directly addressed by Section 7702 or A-35 proposed regulations issued under that section. The presence of these Policy features, the absence of final regulations, and the lack of other pertinent interpretations of Section 7702, thus creates some uncertainty about the application of Section 7702 to the Policy. Nevertheless, NELICO believes that the Policy qualifies as a life insurance contract for federal income tax purposes. This means that: . the death benefit should be fully excludible from the gross income of the beneficiary under Section 101(a)(1) of the Code; and . the Policy Owner should not be considered in constructive receipt of the cash surrender value, including any increases, unless and until they are distributed from the Policy. Because of the absence of final regulations or any other pertinent interpretations, it, however, is unclear whether substandard risk and automatic issue Policies or Policies with term riders added will, in all cases, meet the statutory life insurance contract definition. If a Policy were determined not to be a life insurance contract for purposes of Section 7702, such Policy would not provide most of the tax advantages normally provided by a life insurance contract. NELICO thus reserves the right to make changes in the Policy if such changes are deemed necessary to attempt to assure its qualification as a life insurance contract for tax purposes. TAXATION OF ACCELERATED BENEFITS RIDER. NELICO believes that payments received under the accelerated benefits rider it makes available will qualify as an accelerated death benefit under the Code. (See "Acceleration of Death Benefit Rider" for more information regarding the rider.) Pursuant to the Health Insurance Portability and Accountability Act of 1996, a payment that is treated as an accelerated death benefit for federal income tax purposes should be fully excludable from the gross income of the beneficiary, as long as the beneficiary is the insured under the Policy. If such payments do not qualify as an accelerated death benefit, their tax treatment would depend on whether or not the Policy is a modified endowment contract. You should consult a qualified tax adviser about the consequences of adding this rider to a Policy or requesting a payment under this rider. TAX LAW EFFECTS ON CERTAIN PRE-DEATH DISTRIBUTIONS. Section 7702A of the Code contains provisions affecting the tax treatment of any loan, assignment or other pre-death distribution from a life insurance policy which is also a "modified endowment contract" (defined below under "Modified Endowment Contracts"). Whether a Policy will be classified as a modified endowment contract will depend upon the amount and timing of payments made under the Policy. NON-MODIFIED ENDOWMENT CONTRACTS. For Policies not classified as modified endowment contracts NELICO believes any Policy loans received under such Policies will be treated as indebtedness of the Policy Owner and will not be treated as taxable income to you. This assumes that the Policy has not lapsed, been surrendered or terminated. As a general rule, Policy loan interest is not deductible under current Federal income tax law. You may be subject to Federal income tax upon surrender of your Policy if the net cash surrender value of the Policy is greater than the investment in the Policy less prior distributions from the Policy that were not taxed. If a Policy has a Policy loan and is surrendered or lapses, the Policy loan is treated as a distribution and would be taxable if there is a gain in the Policy. In that case, the gain in the Policy would be taxable even if the Policy has no net cash surrender value. If you incur a loss upon the surrender it is not likely to be deductible for Federal income tax purposes. Generally, a partial surrender of the Policy will not be taxable to you unless it is greater than the investment in the Policy less the untaxed portions of any prior distributions. The Code does provide, however, that in certain situations in the first 15 years of the Policy partial surrenders may be taxable, in whole or in part, if the cash value is greater than the total investment in the Policy. In this case, an amount may be taxable even if the amount of the partial surrender is less than the investment in the Policy. MODIFIED ENDOWMENT CONTRACTS. A modified endowment contract is a life insurance contract which fails to satisfy a "7-pay test". In general, a Policy will fail to satisfy the 7-pay test if the total amount paid under the Policy at any time during the first seven Policy years exceeds the sum of the net level premiums that would have been paid on or before such time if the Policy provided for paid up future benefits after the payment of seven level annual premiums. (The amount of premiums payable under the 7-pay test are calculated based upon certain assumptions regarding the Policy's earnings and the use of a reasonable mortality charge. Variable Account investment experience does not affect whether or not a Policy will become a modified endowment contract.) Riders to the Policy are considered part of the Policy for purposes of applying the 7-pay test. If there is a A-36 reduction in the Policy's death benefit (for example, as a result of a partial surrender or face amount reduction) at any time during the first seven Policy years or within seven years of a face amount increase or "material change" (see below), the 7-pay test will be applied back to issue (or to the date of the most recent face amount increase or material change, whichever is latest), as if the Policy's coverage were equal to the reduced face amount at that time. If there is a reduction in rider or other benefits during the first seven Policy years, the 7-pay test will be applied as if the Policy had originally been issued at the reduced benefit amount. Any Policy received in exchange for a modified endowment contract will also be a modified endowment contract. Your registered representative can provide you with information about the maximum amount of premiums which you can make under your Policy during the first seven Policy years and still satisfy the 7-pay test. This information will be based upon NELICO's current understanding of the Federal tax law. As is the case with any provision of the Internal Revenue Code, there is no assurance that the Internal Revenue Service will agree with NELICO's interpretation. NELICO will monitor any IRS announcements or rulings concerning compliance with the 7-pay test. MATERIAL CHANGES. If a "material change" in the benefits or other Policy terms occurs under a Policy which has satisfied the 7-pay test, the Policy may be treated as a new Policy entered into on the day on which the material change occurred. The Policy will be retested under the 7-pay test, after making certain adjustments to reflect the Policy's existing cash value. Any increase in future benefits under the Policy (for example, an increase pursuant to the "Salary Refresh" program) may constitute a material change if the increase is not due to the payment of premiums necessary to fund the Policy's lowest death benefit payable in the first seven Policy years, or the crediting of interest or other earnings with respect to such premiums. A material change would also occur if certain Policy changes occurred. If you do not wish to have the Policy become a modified endowment contract, you may be required to limit the payment of premiums under the Policy at some point (or limit your reduction of benefits). The point at which you may have to limit the payment of premiums will depend upon the issue age and sex of the insured, investment experience and the amount of your previous payments. If you exchange your policy for another life insurance policy, the new insurance policy should be reviewed to determine how the rules regarding modified endowment contracts may apply to the new policy. (See "24 Month Right".) DISTRIBUTIONS UNDER MODIFIED ENDOWMENT CONTRACTS. If a Policy is a modified endowment contract, then the following rules will apply to distributions under such contract: (a) Distributions will be includible in your gross income to the extent the cash value of the Policy exceeds your investment in the Policy (i.e., will be treated as income first). (b) Loans (including any unpaid interest) are considered distributions. Your investment in the Policy will be increased by the amount of any prior loan that was included in your gross income. (c) A Policy assignment is treated as a distribution. For example, in a split dollar insurance plan involving a collateral assignment of the Policy, the collateral assignment is a distribution which will subject any gain that accrues in the Policy to taxation. (d) For purposes of determining the amount of the distribution which is includible in gross income, all modified endowment contracts issued by NELICO or its affiliates to the same Policy Owner during any calendar year must be treated as one modified endowment contract. Any taxable distribution will be subject to an additional tax equal to 10% of the taxable amount of the distribution unless the distribution is: (a) made on or after the date when you attain age 59 1/2; (b) is attributable to your becoming disabled; or (c) is part of a series of substantially equal periodic payments made no less frequently than annually for your life (or life expectancy) or for the joint lives (or life expectancies) of you and your beneficiary. If a Policy becomes a modified endowment contract, distributions made during the Policy year in which it becomes a modified endowment contract, distributions in any subsequent Policy year and distributions within two years before the Policy becomes a modified endowment contract will be subject to the tax treatment described above. This means that a distribution from a Policy that is not a modified endowment contract could later become taxable as a distribution from a modified endowment A-37 contract. In addition, regulations or other interpretations may be issued which will apply similar tax treatment to other distributions made in anticipation of a Policy becoming a modified endowment contract. AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS. In the case of a pre-death distribution (including a loan, partial surrender, collateral assignment or full surrender) from a Policy that is treated as a modified endowment contract, a special aggregation requirement may apply for purposes of determining the amount of the income on the Policy. Specifically, if NELICO or any of its affiliates issues to the same Policy Owner more than one modified endowment contract within a calendar year, then for purposes of measuring the income on the Policy with respect to a distribution from any of those policies, the income on the policy for all those policies will be aggregated and attributed to that distribution. OTHER POLICY OWNER TAX MATTERS. Federal and state estate, inheritance and other tax consequences of ownership or receipt of proceeds under the Policy depend upon the individual circumstances of each Policy Owner or beneficiary. The tax consequences of continuing the Policy beyond the insured's 100th year are unclear. You should consult a tax advisor if you intend to allow the Policy to remain in force beyond the insured's 100th year. Section 817(h) of the Code requires the investments of the Variable Account to be "adequately diversified" in accordance with Treasury Regulations for the Policy to qualify as a life insurance contract under Section 7702 of the Code. Failure to comply with the diversification requirements may result in not treating the Policy as life insurance. If the Policy does not qualify as life insurance, you may be subjected to immediate taxation on the incremental increases in cash value of the Policy plus the cost of insurance protection for the year. Regulations specifying the diversification requirements have been issued by the Department of Treasury, and NELICO believes it complies fully with such requirements. In connection with the issuance of the diversification regulations, the Treasury Department stated that it anticipates the issuance of additional guidance prescribing the circumstances in which an owner's control of the investments of a separate account may cause a Policy Owner, rather than the insurance company, to be treated as the owner of the assets in the separate account. If a Policy Owner is considered the owner of the assets of the Separate Account, income and gains from the Account would be included in the Owner's gross income. The ownership rights under the Policy are similar to, but different in certain respects from, those described by the Internal Revenue Service in rulings in which it determined that the owners were not owners of separate account assets. For example, a Policy Owner has additional flexibility in allocating payments and cash values. These differences could result in the owner being treated as the owner of a pro rata share of the assets of the Separate Account. In addition, NELICO does not know what standards will be set forth in the additional guidance which the Treasury has stated it expects to be issued. NELICO therefore reserves the right to modify the Policy as necessary to attempt to prevent the Policy Owner from being considered the owner of the assets of the Separate Account. In the event that a Policy is owned by the trustee under a pension or profit sharing plan, or similar deferred compensation arrangement, the Federal, state and estate tax consequences of ownership or receipt of proceeds under the Policy could differ from the principles stated herein. However, if ownership of such Policy is transferred from the plan to a plan participant (upon termination of employment, for example), the Policy will be subject to all of the rules described above relating to Federal tax treatment, including the rules regarding modified endowment contracts. Policies owned by the trustee under the plans described above may be subject to restrictions under ERISA. You should consult a qualified tax advisor regarding any applicable requirements of ERISA. If the Policy is owned as part of a pension or profit-sharing plan qualified under Section 401 of the Code, the current cost of insurance for the net amount at risk is treated as a "current fringe benefit" and is required to be included annually in the plan participant's gross income. This cost (generally referred to as the "P.S. 58" cost) is reported to the participant annually. If the plan participant dies while covered by the plan and the Policy proceeds are paid to the participant's beneficiary, then the excess of the death benefit over the cash value will not be subject to Federal income tax. However, the cash value will generally be taxable to the extent it exceeds the participant's cost basis in the Policy. The participant's cost basis will generally include the costs of insurance previously reported as income to the participant. Special rules may apply if the participant had borrowed from his cash value or was an owner-employee under the plan. There are limits on the amounts of life insurance that may be purchased on behalf of a participant in a pension or profit-sharing plan. Complex rules, in addition to those discussed above, apply whenever life insurance is purchased by a tax qualified plan. A-38 The Policies may be used in various arrangements, including nonqualified deferred compensation or salary continuance plans, split dollar insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit plans, retiree medical benefit plans and others. The tax consequences of such plans may vary depending on the particular facts and circumstances of each individual arrangement. Therefore, if you are contemplating the use of the Policies in any arrangement the value of which depends in part on its tax consequences, you should be sure to consult a qualified tax advisor regarding the tax attributes of the particular arrangement and the suitability of this product for the arrangement. Moreover, in recent years, Congress has adopted new rules relating to corporate owned life insurance. Any business contemplating the purchase of a new life insurance contract or a change in an existing life insurance contract should consult a tax advisor. NELICO believes that Policies subject to the provisions of the Puerto Rican tax law will generally receive similar tax treatment, with certain modifications, as that described above for Policies subject to the Internal Revenue Code. For taxable years commencing after July 1, 1995, amounts in the nature of accelerated death benefits are excluded from gross income. The individual must be certified by a physician as terminally ill and prior approval of the Secretary of the Treasury must be obtained. You should note that Policies governed by the Puerto Rican tax law are not currently subject to the above described rules regarding modified endowment contracts. If such a Policy becomes subject to the Internal Revenue Code, however, the rules regarding modified endowment contracts will apply, and they may apply retroactively. You should consult your tax advisor if a Policy governed by the Puerto Rican tax law subsequently becomes subject to the Internal Revenue Code. POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the Policy 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 this Policy. It is possible that any legislative 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 Policy. CHARGE FOR NELICO'S INCOME TAXES Under current Federal income tax law no tax is imposed on NELICO as a result of the operations of the Variable Account. Thus, no charge is being made currently to the Variable Account for company Federal income taxes, except for the charge for federal taxes that is deducted from premiums. NELICO reserves its rights to charge the Variable Account for company Federal income taxes in the future. Under current laws NELICO may incur state and local taxes (in addition to premium taxes) in several states. At present these taxes are not significant and, accordingly, NELICO is not currently making a charge for them. If they increase, however, charges for such taxes attributable to the Variable Account may be made. MANAGEMENT The directors and executive officers of NELICO and their principal business experience during the past five years are: DIRECTORS OF NELICO
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE BUSINESS ADDRESS DURING THE PAST FIVE YEARS ------------------ ----------------------------- James M. Benson Chairman, President and Chief Executive Officer of NELICO since 1998; formerly, Director, President and Chief Operating Officer 1997-1998 of NELICO; President and CEO 1996-1997 of Equitable Life Assurance Society and President and COO of Equitable Companies, Inc.; Senior Vice President 1993-1996 of Equitable Life Assurance Society. Robert H. Benmosche Director of NELICO since 1998 and Chairman, President Metropolitan Life and Chief Executive Officer of Metropolitan Life Insurance Co. Insurance Company since 1998; formerly, Director, One Madison Avenue President and Chief Operating Officer 1997-1998; New York, NY 10010 Executive Vice President 1995-1997 of Metropolitan Life; Executive Vice President 1989-1995 of Paine Webber. Susan C. Crampton Director of NELICO since 1996 and serves as Principal 127 Tarbox Road of The Vermont Partnership, a business consulting firm Jericho, VT 05465 located in Jericho, Vermont since 1989; formerly, Director 1989-1996 of New England Mutual.
A-39
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE BUSINESS ADDRESS DURING THE PAST FIVE YEARS ------------------ ----------------------------- Edward A. Fox Director of NELICO since 1996 and Chairman of the Board SLM Holdings of SLM Holdings since 1997; formerly, Director 1994- 1050 Thomas Jefferson 1996 of New England Mutual and Dean 1990-1994 of The St., N.W. Amos Tuck School of Business Administration at Washington, D.C. 20007 Dartmouth College. George J. Goodman Director of NELICO since 1996 and author, television Adam Smith's Money World journalist, and editor. 50th Floor, Craig Drill Capital General Motors Building 767 Fifth Street New York, NY 10153 Dr. Evelyn E. Handler Director of NELICO since 1996; formerly Director 1987- 74 Tater Street 1996 of New England Mutual and Executive Director and Mont Vernon, NH 03057 Chief Executive Officer 1994-1997 of the California Academy of Sciences and Research Fellow and an Associate 1991-1994 of the Graduate School of Education at Harvard University and a Senior Fellow at The Carnegie Foundation for the Advancement of Teaching. Philip K. Howard, Esq. Director of NELICO since 1996 and Partner of the law Howard, Darby & Levin firm of Howard, Darby & Levin in New York City. 1330 Avenue of the Americas New York, NY 10019 Bernard A. Leventhal Director of NELICO since 1996; formerly, Vice Chairman Burlington Industries of the Board of Directors 1995-1998 of Burlington 1345 Avenue of the Industries, Inc.; Director and Executive Vice Americas President 1993-1995 of Burlington Menswear Division. 17th Floor New York, NY 10105 Thomas J. May Director of NELICO since 1996 and Chairman, President Boston Edison Company and Chief Executive Officer of Boston Edison Company 800 Boylston Street since 1994; formerly, Director 1994-1996 of New Boston, MA 02199 England Mutual; President and Chief Operating Officer 1993-1994 of Boston Edison Co. Stewart G. Nagler Director of NELICO since 1996 and Vice Chairman and Metropolitan Life Chief Financial Officer of Metropolitan Life Insurance Insurance Co. Company since 1998; formerly, Senior Executive Vice One Madison Avenue President and Chief Financial Officer 1986-1998 of New York, NY 10010 Metropolitan Life Insurance Company. Catherine A. Rein Director of NELICO since 1998 and Senior Executive Vice Metropolitan Life President of Metropolitan Life Insurance Company since Insurance Company 1998; formerly, Executive Vice President 1989-1998 of One Madison Avenue Metropolitan Life Insurance Company. New York, NY 10010 Rand N. Stowell Director of NELICO since 1996 and President of United United Timber Corp. Timber Corp. of Dixfield, Maine; formerly, Director P.O. Box 650 1990-1996 of New England Mutual. Pine Street Dixfield, ME 04224 Alexander B. Trowbridge Director of NELICO since 1996 and President of Trowbridge Partners Inc. Trowbridge Partners, Inc. in Washington, DC; formerly, 1317 F Street, NW, Director 1983-1996 of New England Mutual. Suite 500 Washington, D.C. 20004
A-40 EXECUTIVE OFFICERS OF NELICO OTHER THAN DIRECTORS
PRINCIPAL BUSINESS EXPERIENCE NAME DURING THE PAST FIVE YEARS ---- ----------------------------- James M. Benson See Directors above. David W. Allen Senior Vice President of NELICO since 1996; formerly, Senior Vice President 1994-1996 and Vice President 1990-1994 of New England Mutual. Anthony J. Candito President, New England Financial Information Services (a business unit of NELICO) and Chief Information Officer since 1998; formerly, Senior Vice President 1995-1998 of New England Life and Vice President 1994- 1995, Second Vice President 1990-1994 of New England Mutual. Thom A. Faria President, Career Agency System (a business unit of NELICO) since 1996; formerly, Executive Vice President in 1996, Senior Vice President 1993-1996 of New England Mutual. Anne M. Goggin Senior Vice President and Associate General Counsel of NELICO since 1997; formerly, Vice President and Counsel of NELICO in 1996, Vice President and Counsel 1994-1996 and Second Vice President and Counsel 1988- 1994 of New England Mutual. Daniel D. Jordan Second Vice President, Counsel and Secretary since 1996; formerly, Counsel and Assistant Secretary 1990- 1996 of New England Mutual. Richard D. Keidan Senior Vice President of NELICO since 1996; formerly, Vice President 1994-1996 of Metropolitan Life (Chief Marketing Officer of MetLife Brokerage) and Regional Sales and Marketing Manager 1989-1994 of Phoenix Home Life. Stephan M. Largent Senior Vice President of NELICO since 1998; formerly, President 1995-1998 of First Variable Life Company, President 1993-1995 of ING Equities, Inc. and Vice President 1993-1995 of Security Life of Denver. Alan C. Leland, Jr. Senior Vice President of NELICO since 1996; formerly, Vice President 1984-1996 of New England Mutual. Bruce C. Long President, New England Annuities (a business unit of NELICO) since 1996; formerly, President 1994-1996 New England Annuities (a business unit of New England Mutual) and Senior Vice President in 1994 of New England Annuities; Vice President 1992-1994 of Keyport Life Insurance. George J. Maloof Senior Vice President of NELICO since 1996; formerly, Vice President 1991-1996 of New England Mutual. Thomas W. McConnell Senior Vice President of NELICO since 1996 and Director, Chief Executive Officer and President of New England Securities Corporation since 1993; formerly, National Sales Manager 1993 of Alliance Fund Distributors; National Sales Manager 1992-1993 of Equitable Capital Securities. Thomas W. Moore Senior Vice President of NELICO since 1996; formerly, Vice President 1990-1996 of New England Mutual. Robert W. Powell President, Life Brokerage (a business unit of NELICO) since 1996; formerly, Officer-In-Charge 1994-1996 of MetLife Brokerage (a subsidiary of Metropolitan Life Insurance Company) and Marketing Vice President 1988- 1994 of MetLife. Robert E. Schneider Executive Vice President, Chief Financial Officer and Chief Accounting Officer of NELICO since 1998; formerly, Executive Vice President and Chief Financial Officer 1996-1998 of NELICO, Director, Executive Vice President and Chief Financial Officer 1993-1996 and Executive Vice President and Chief Financial Officer 1990-1993 of New England Mutual. John G. Small, Jr. President, New England Services (a business unit of NELICO) since 1997; formerly, Senior Vice President 1996-1997 of NELICO and Senior Vice President 1990- 1996 of New England Mutual.
A-41
PRINCIPAL BUSINESS EXPERIENCE NAME DURING PAST FIVE YEARS ---- ----------------------------- H. James Wilson Executive Vice President and General Counsel of NELICO since 1996; formerly, Executive Vice President and General Counsel 1993-1996, Senior Vice President and General Counsel 1992-1993 of New England Mutual. John W. Wright President, New England Financial Employee Benefits Group (a business unit of NELICO) since 1996; formerly, President 1993-1996 New England Employee Benefits Group (a business unit of New England Mutual), Senior Vice President 1989-1993 of New England Employee Benefits Group of New England Mutual. Frederick K. Zimmermann Executive Vice President and Chief Investment Officer of NELICO since 1996; formerly, Executive Vice President and Chief Investment Officer 1993-1996 and Senior Vice President--Investments 1989-1993 of New England Mutual.
The principal business address for each of the directors and executive officers is the same as NELICO's except where indicated otherwise. 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 a 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. VOTING RIGHTS NELICO 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 applicable Federal securities law, NELICO will give you, as Policy Owner, the right to instruct NELICO how to vote the shares that are attributable to your Policy. The Policy Owners who are entitled to give voting instructions and the number of shares attributable to their Policies 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 in any other registered (or to the extent voting privileges are granted by the issuing insurance company, unregistered) separate account of NELICO or an affiliate, and for which timely instructions are not received, will be voted in the same proportion as (i) the aggregate cash value of policies giving instructions, respectively, to vote, for, against, or withhold votes on a proposition, bears to (ii) the total cash value in that Sub-Account for all policies for which voting instructions are received. No voting privileges apply with respect to cash value removed from the Variable Account as a result of a Policy loan. All Zenith Fund shares held by the general account (or any unregistered separate account for which voting privileges were not extended) of NELICO or its affiliates will be voted in the same proportion as the total of (i) shares for which voting instructions were received and (ii) shares that are voted in proportion to such voting instructions. The SEC requires the Eligible Funds' Boards of Trustees to monitor events to identify conflicts that may arise from the sale of Eligible Fund 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 in voting instructions given by variable life and variable annuity contract owners, for example. If there is a material conflict, the Board of Trustees will have an obligation to determine what action should be taken, including the removal of the affected Sub-Accounts from the Eligible Fund(s), if necessary. If NELICO believes any Eligible Fund action is insufficient, NELICO will consider taking other action to protect Policy Owners. There could, however, be unavoidable delays or interruptions of operations of the Variable Account that NELICO may be unable to remedy. If required by state insurance authorities, NELICO may disregard voting instructions if they would require that shares be voted to cause a change in the investment objectives of the portfolios of the Eligible Funds or to approve or disapprove an A-42 investment advisory or underwriting contract for a portfolio. In addition, NELICO may disregard voting instructions in favor of changes, initiated by a Policy Owner or an Eligible Fund's Board of Trustees, in the investment policy, investment adviser or principal underwriter of the Eligible Fund portfolio if NELICO (i) reasonably disapproves of the changes and (ii) in the case of a change in investment policy or investment adviser, makes a good faith determination that the proposed change is contrary to state law or is prohibited by state regulatory authorities or that the change would be inconsistent with a Sub-Account's investment objectives or would result in the purchase of securities which vary from the general quality and nature of investments and investment techniques utilized by other separate accounts of NELICO or of an affiliated life insurance company, which separate accounts have investment objectives similar to those of the Sub-Account. If NELICO does disregard voting instructions, a summary of that action and the reasons for it will be included in the next semiannual report to Policy Owners. RIGHTS RESERVED BY NELICO NELICO and its affiliates may change the voting procedures described above, and may vote Eligible Fund shares in their own right without instructions from Policy Owners, if the applicable Federal securities laws or regulations or interpretations of them change. NELICO also reserves the right: (1) to create new investment accounts; (2) to combine any two or more separate investment accounts including the Variable Account; (3) to make available additional Sub- Accounts of the Variable Account investing in additional Eligible Fund portfolios or in portfolios of other mutual funds; (4) to invest the assets of the Variable Account in securities other than Eligible Fund shares or in shares of a different series of the Eligible Funds as a substitute for such shares already purchased or as the securities to be purchased in the future, to withdraw the availability of a series of the Eligible Funds as an investment option under the Policies, or to transfer assets to NELICO's general account as permitted by applicable law; (5) to operate the Variable Account as a management investment company under the Investment Company Act of 1940 or in any other form permitted by law; and (6) to deregister the Variable Account under the Investment Company Act of 1940 if registration is no longer required. NELICO will exercise these rights in accordance with applicable law, including approval of Policy Owners if required. NELICO will notify you if exercise of any of these rights would result in a material change in the Variable Account or its investments. TOLL-FREE NUMBERS For information about historical values of the Variable Account Sub- Accounts, call the toll-free number 1-800-333-2501. For Sub-Account transfers, premium reallocations, or Statements of Additional Information for the Eligible Funds, call the toll-free number 1- 800- . You may also call our Administrative Office toll-free at 1-800- to request current information about your Policy values, to change or update Policy information such as your address, billing mode, beneficiary or ownership, or to request Policy loans of less than $25,000. Requests must be in writing if the Policy is owned by a corporation or a pension trust. For all other types of Policy changes, please contact your registered representative. REPORTS NELICO will send you a statement annually showing your Policy's death benefit, cash value and any outstanding Policy loan principal. NELICO will also confirm Policy loans, subaccount transfers, lapses, surrenders and other Policy transactions when they occur. You will be sent semiannual reports containing the financial statements of the Variable Account and the Eligible Funds. ADVERTISING PRACTICES NELICO may from time to time receive endorsements of the Policies from professional organizations. NELICO may refer to or use such endorsements in advertisements or sales material for the Policies. NELICO may also pay the professional organization making the endorsement for the use of its customer or mailing lists in order to distribute promotional materials regarding the Policies. An endorsement of the Policies by a third party is not necessarily indicative of the future performance or results which may be obtained by persons who purchase the Policies. 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 A-43 to Lipper Analytical Services, Inc. and Morningstar, Inc.) 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 NELICO as sales literature or advertising material and may include rankings that indicate the names of other variable contract separate accounts and their investment experience. Articles and releases, developed by NELICO, the Eligible Funds and other parties, about the Variable Account or the Eligible Funds regarding individual Eligible Funds' and fund groups' asset levels and sales volumes, statistics and analyses of industry sales volume and asset levels, and other characteristics may appear in various publications. References to or reprints of such articles may be used in promotional literature for the Policies or the Variable Account. Such literature may refer to personnel of the advisers, who have portfolio management responsibility, and their investment style. The reference may allude to or include excerpts from articles appearing in the media. NELICO 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. The advertising and sales literature for the Policies and the Variable Account may refer to historical, current and prospective economic trends. In addition, sales literature may be published concerning topics of general investor interest for the benefit of registered representatives and prospective Policy Owners. 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. LEGAL MATTERS Legal matters in connection with the Policies described in this prospectus have been passed on by H. James Wilson, General Counsel of NELICO. Sutherland, Asbill & Brennan LLP, of Washington, D.C., has provided advice on certain matters relating to federal securities laws. REGISTRATION STATEMENT This prospectus omits certain information contained in the Registration Statement which has been filed with the SEC. Copies of such additional information may be obtained from the SEC upon payment of the prescribed fee. EXPERTS The financial statements of New England Variable Life 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 years ended December 31, 1997 and 1996 included in this Prospectus 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 interim financial statements of NELICO as of March 31, 1998 and for the three month period ended March 31, 1998 and the interim financial statements of New England Variable Life Separate Account as of December 31, 1998 and for each of the three month periods ended March 31, 1998 and 1997 have not been audited, reviewed or compiled by Deloitte & Touche LLP, and they assume no responsibility for such financial statements. The statutory statements of operations, surplus and cash flows of New England Variable Life Insurance Company and New England Pension and Annuity Company for the year 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 A-44 and auditing. The statutory statements of operations and surplus, and cash flows of Exeter Reassurance Company, Ltd. for the year ended December 31, 1995 (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 statements of operations, shareholder's equity, and cash flows of New England Securities Corporation for the year ended December 31, 1995 (not included herein); the statements of operations, changes in shareholder's equity, and cash flows of TNE Advisers, Inc. 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 statements of earnings and retained earnings, and cash flows of Newbury Insurance Company, Limited for the year ended December 31, 1995 (not included herein), have been incorporated herein in reliance on the reports of Coopers & Lybrand, chartered accountants, given on the authority of that firm as experts in accounting and auditing. The statements of operations and changes in net assets of New England Variable Life Separate Account for the period ended December 31, 1995, 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. Actuarial matters included in this prospectus have been examined by Rodney J. Chandler, F.S.A., M.A.A.A., Second Vice President and Actuary of NELICO, as stated in his opinion filed as an exhibit to the Registration Statement. A-45 APPENDIX A ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, AND ACCUMULATED PREMIUMS The tables in Appendix A illustrate the way the Policies operate. They show how the death benefit and cash value could vary over an extended period of time assuming hypothetical gross rates of return (i.e., investment income and capital gains and losses, realized or unrealized) for the Variable Account equal to constant after tax annual rates of 0%, 6% and 12%. The insured is assumed to be in the nonsmoker preferred risk classification. The Tables assume no rider benefits and assume that no allocations are made to the Fixed Account. (See "Charges and Expenses.") Each illustration is given for a Policy with an Option 1 and an Option 2 death benefit, and for the cash value accumulation test and guideline premium test. These tables may assist in the comparison of death benefits, net cash values and cash values for the Policies with those under other variable life insurance policies which may be issued by NELICO or other companies. Death benefits and cash values for a Policy would be different from the amounts shown if the actual gross rates of return averaged 0%, 6% or 12%, but varied above and below that average for the period, if premiums were paid in other amounts or at other than annual intervals. They would also be different depending on the allocation of cash value among the Variable Account's Sub- Accounts, if the actual gross rate of return for all Sub-Accounts averaged 0%, 6% or 12%, but varied above or below that average for individual Sub-Accounts. They would also differ if any Policy loan or partial surrender were made during the period of time illustrated, if the insured were female or in another risk classification, or if the Policies were issued at unisex rates. The death benefits and cash values shown in the tables reflect: (i) deductions from premiums for the sales charge and premium tax charge; and (ii) a Monthly Deduction (consisting of a Policy fee, a mortality and expense risk fee, and a charge for the cost of insurance) from the cash value on the first day of each Policy month. (See "Charges and Expenses".) The illustrations are based on an average of the investment advisory fees and operating expenses incurred by the Eligible Funds, at an annual rate of .76% of the average daily net assets of the Eligible Funds. This average reflects voluntary expense cap and expense deferral arrangements between TNE Advisers and the Zenith Fund, under which TNE Advisers bears operating expenses of the Zenith Fund Series (other than the Capital Growth Series) that exceed certain amounts. TNE Advisers could terminate the expense cap and expense deferral arrangements at any time. If TNE Advisers terminates these arrangements, the values illustrated on the following pages could be less. (See "Charges Against the Eligible Funds and the Sub-Accounts of the Variable Account".) Taking account of the average investment advisory fee and operating expenses of the Eligible Funds, the gross annual rates of return of 0%, 6% and 12% correspond to net investment experience at constant annual rates of -0.76%, 5.2% and 11.15%, respectively. The hypothetical rates of return shown in the tables do not reflect any tax charges attributable to the Variable Account since no such charges are currently made. If any such charges are imposed in the future, the gross annual rate of return would have to exceed the rates shown by an amount sufficient to cover the tax charges, in order to produce the death benefits, net cash values and cash values illustrated. (See "Charges for NELICO's Income Taxes".) The second column of each table shows the amount which would accumulate if an amount equal to the annual premium were invested to earn interest, after taxes, of 5% per year, compounded annually. The internal rate of return on net cash value is equivalent to an interest rate (after taxes) at which an amount equal to the illustrated premiums could have been invested outside the Policy to arrive at the net cash value of the Policy. The internal rate of return on the death benefit is equivalent to an interest rate (after taxes) at which an amount equal to the illustrated premiums could have been invested outside the Policy to arrive at the death benefit of the Policy. The internal rate of return is compounded annually, and the premiums are assumed to be paid at the beginning of each Policy year. NELICO will furnish upon request a personalized illustration reflecting the proposed insured's age, sex, underwriting classification, and the face amount or premium payment schedule requested. Where applicable, NELICO will also furnish upon request an illustration for a Policy which is not affected by the sex of the insured. A-46 MALE ISSUE AGE 40 $50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS NONSMOKER PREFERRED UNDERWRITING RISK $1,054,000 FACE AMOUNT OPTION 1 DEATH BENEFIT CASH VALUE ACCUMULATION TEST THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF POLICY INTEREST -------------------------------- ------------------------------ ------------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- -- -- --- -- -- --- -- -- --- 1 $ 52,500 $1,054,000 $1,054,000 $1,054,000 $ 42,015 $ 44,605 $ 47,193 -15.97% -10.79% -5.61% 2 107,625 1,054,000 1,054,000 1,054,000 83,415 91,205 99,292 -11.50 -5.98 -0.47 3 165,506 1,054,000 1,054,000 1,054,000 124,133 139,817 156,739 -9.17 -3.47 2.21 4 226,282 1,054,000 1,054,000 1,054,000 164,084 190,443 220,015 -7.76 -1.95 3.85 5 290,096 1,054,000 1,054,000 1,054,000 203,461 243,369 289,934 -6.79 -0.89 4.98 6 357,100 1,054,000 1,054,000 1,054,000 243,313 299,716 368,175 -5.96 -0.03 5.88 7 427,455 1,054,000 1,054,000 1,231,484 282,541 358,565 454,300 -5.36 0.60 6.53 8 448,828 1,054,000 1,054,000 1,313,790 276,838 373,044 499,591 -4.67 1.28 7.17 9 471,270 1,054,000 1,054,000 1,401,829 271,095 388,086 549,352 -4.23 1.73 7.61 10 494,833 1,054,000 1,054,000 1,496,420 265,427 403,824 604,167 -3.92 2.05 7.93 15 631,546 1,054,000 1,082,929 2,134,836 242,139 504,943 995,422 -3.04 3.09 8.97 20 806,031 1,054,000 1,180,866 3,065,931 213,259 629,131 1,633,439 -2.88 3.50 9.38 25 1,028,722 1,054,000 1,294,410 4,426,144 172,863 779,267 2,664,648 -3.16 3.69 9.58 30 1,312,940 1,054,000 1,429,710 6,438,469 112,308 959,283 4,319,973 -4.14 3.79 9.69 35 1,675,681 1,054,000 1,603,808 9,511,616 33,081 1,182,121 7,010,743 -7.14 3.87 9.76 INTERNAL RATE OF RETURN ON DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS END OF ANNUAL RATE OF RETURN OF POLICY -------------------------------- YEAR 0% 6% 12% - ------ -- -- --- 1 2008.00% 2008.00% 2008.00% 2 311.84 311.84 311.84 3 136.03 136.03 136.03 4 79.23 79.23 79.23 5 52.55 52.55 52.55 6 37.45 37.45 37.45 7 27.90 27.90 31.95 8 22.64 22.64 27.34 9 18.98 18.98 24.11 10 16.30 16.30 21.74 15 9.47 9.71 15.85 20 6.65 7.35 13.41 25 5.11 6.09 12.09 30 4.15 5.33 11.29 35 3.50 4.86 10.80
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. A-47 MALE ISSUE AGE 40 $50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS NONSMOKER PREFERRED UNDERWRITING RISK $1,054,000 FACE AMOUNT OPTION 1 DEATH BENEFIT CASH VALUE ACCUMULATION TEST THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF POLICY INTEREST -------------------------------- ---------------------------- -------------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- -- -- --- -- -- --- -- -- --- 1 $ 52,500 $1,054,000 $1,054,000 $1,054,000 $ 41,183 $ 43,748 $ 46,310 -17.63% -12.50% -7.38% 2 107,625 1,054,000 1,054,000 1,054,000 81,610 89,297 97,279 -12.81 -7.31 -1.82 3 165,506 1,054,000 1,054,000 1,054,000 121,312 136,760 153,435 -10.24 -4.55 1.14 4 226,282 1,054,000 1,054,000 1,054,000 160,284 186,218 215,330 -8.66 -2.84 2.98 5 290,096 1,054,000 1,054,000 1,054,000 198,548 237,791 283,611 -7.59 -1.66 4.23 6 357,100 1,054,000 1,054,000 1,054,000 236,105 291,583 358,985 -6.81 -0.81 5.15 7 427,455 1,054,000 1,054,000 1,197,387 272,981 347,736 441,721 -6.22 -0.16 5.82 8 448,828 1,054,000 1,054,000 1,269,811 264,627 359,150 482,867 -5.56 0.52 6.48 9 471,270 1,054,000 1,054,000 1,346,646 256,023 370,835 527,727 -5.17 0.97 6.92 10 494,833 1,054,000 1,054,000 1,428,159 247,123 382,778 576,607 -4.92 1.28 7.24 15 631,546 1,054,000 1,054,000 1,916,457 196,179 445,845 893,597 -4.75 2.03 8.02 20 806,031 1,054,000 1,054,000 2,572,471 127,052 512,573 1,370,538 -5.83 2.26 8.28 25 1,028,722 1,054,000 1,054,000 3,453,697 24,993 580,726 2,079,211 -11.42 2.32 8.37 30 1,312,940 0 1,054,000 4,637,355 0 644,581 3,111,493 -100.00 2.28 8.38 35 1,675,681 0 1,054,000 6,227,164 0 695,393 4,589,867 -100.00 2.17 8.33 INTERNAL RATE OF RETURN ON DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS END OF ANNUAL RATE OF RETURN OF POLICY -------------------------------- YEAR 0% 6% 12% - ------ -- -- --- 1 2,008.00% 2,008.00% 2,008.00% 2 311.84 311.84 311.84 3 136.03 136.03 136.03 4 79.23 79.23 79.23 5 52.55 52.55 52.55 6 37.45 37.45 37.45 7 27.90 27.90 31.21 8 22.64 22.64 26.61 9 18.98 18.98 23.38 10 16.30 16.30 21.00 15 9.47 9.47 14.86 20 6.65 6.65 12.27 25 5.11 5.11 10.86 30 4.15 4.15 9.97 35 3.50 3.50 9.36
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. A-48 MALE ISSUE AGE 40 $50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS NONSMOKER PREFERRED UNDERWRITING RISK $1,054,000 FACE AMOUNT OPTION 2 DEATH BENEFIT CASH VALUE ACCUMULATION TEST THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF POLICY INTEREST -------------------------------- ---------------------------- ------------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- -- -- --- -- -- --- -- -- --- 1 $ 52,500 $1,095,918 $1,098,502 $1,101,084 $ 41,918 $ 44,502 $ 47,084 -16.16% -11.00% -5.83% 2 107,625 1,137,123 1,144,883 1,152,938 83,123 90,883 98,938 -11.71 -6.21 -0.71 3 165,506 1,177,531 1,193,128 1,209,954 123,531 139,128 155,954 -9.40 -3.72 1.96 4 226,282 1,217,031 1,243,190 1,272,533 163,031 189,190 218,533 -8.01 -2.21 3.58 5 290,096 1,255,833 1,295,354 1,341,459 201,833 241,354 287,459 -7.05 -1.17 4.69 6 357,100 1,295,295 1,351,103 1,418,819 241,295 297,103 364,819 -6.19 -0.28 5.62 7 427,455 1,334,040 1,409,184 1,504,029 280,040 355,184 450,029 -5.58 0.37 6.29 8 448,828 1,327,868 1,422,831 1,548,378 273,868 368,831 494,378 -4.88 1.05 6.96 9 471,270 1,321,632 1,436,919 1,597,137 267,632 382,919 543,137 -4.44 1.50 7.42 10 494,833 1,315,489 1,451,630 1,650,928 261,489 397,630 596,928 -4.13 1.83 7.75 15 631,546 1,289,264 1,544,687 2,106,957 235,264 490,687 982,423 -3.27 2.84 8.85 20 806,031 1,256,147 1,653,673 3,025,883 202,147 599,673 1,612,103 -3.19 3.21 9.30 25 1,028,722 1,209,675 1,775,265 4,368,321 155,675 721,265 2,629,837 -3.63 3.33 9.52 30 1,312,940 1,141,871 1,902,878 6,354,349 87,871 848,878 4,263,532 -5.01 3.33 9.63 35 1,675,681 1,058,374 2,043,136 9,387,338 4,374 989,136 6,919,141 -12.90 3.29 9.72 INTERNAL RATE OF RETURN ON DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS END OF ANNUAL RATE OF RETURN OF POLICY -------------------------------- YEAR 0% 6% 12% - ------ -- -- --- 1 2,091.84% 2,097.00% 2,102.17% 2 329.50 331.12 332.79 3 146.63 147.91 149.29 4 87.50 88.74 90.11 5 59.71 60.99 62.45 6 44.00 45.36 46.94 7 34.05 35.49 37.22 8 27.57 29.06 30.90 9 23.04 24.56 26.49 10 19.72 21.26 23.28 15 11.27 12.89 15.73 20 7.74 9.46 13.32 25 5.77 7.61 12.03 30 4.46 6.44 11.24 35 3.51 5.65 10.75
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. A-49 MALE ISSUE AGE 40 $50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS NONSMOKER PREFERRED UNDERWRITING RISK $1,054,000 FACE AMOUNT OPTION 2 DEATH BENEFIT CASH VALUE ACCUMULATION TEST THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF POLICY INTEREST -------------------------------- ---------------------------- -------------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- -- -- --- -- -- --- -- -- --- 1 $ 52,500 $1,095,054 $1,097,610 $1,100,165 $ 41,054 $ 43,610 $ 46,165 -17.89% -12.78% -7.67% 2 107,625 1,135,209 1,142,855 1,150,794 81,209 88,855 96,794 -13.10 -7.62 -2.15 3 165,506 1,174,479 1,189,805 1,206,347 120,479 135,805 152,347 -10.56 -4.89 0.78 4 226,282 1,212,836 1,238,494 1,267,290 158,836 184,494 213,290 -9.01 -3.20 2.59 5 290,096 1,250,283 1,288,987 1,334,166 196,283 234,987 280,166 -7.96 -2.06 3.82 6 357,100 1,286,791 1,341,321 1,407,544 232,791 287,321 353,544 -7.21 -1.23 4.71 7 427,455 1,322,364 1,395,566 1,488,083 268,364 341,566 434,083 -6.64 -0.61 5.39 8 448,828 1,312,660 1,404,787 1,526,846 258,660 350,787 472,846 -6.01 0.04 6.05 9 471,270 1,302,662 1,413,961 1,569,141 248,662 359,961 515,141 -5.64 0.47 6.51 10 494,833 1,292,321 1,423,032 1,615,278 238,321 369,032 561,278 -5.43 0.76 6.85 15 631,546 1,233,424 1,464,254 1,916,381 179,424 410,254 862,381 -5.47 1.33 7.71 20 806,031 1,155,710 1,488,861 2,480,539 101,710 434,861 1,321,559 -7.07 1.28 8.05 25 1,028,722 0 1,478,889 3,330,228 0 424,889 2,004,879 -100.00 0.88 8.20 30 1,312,940 0 1,399,370 4,471,530 0 345,370 3,000,231 -100.00 -0.05 8.23 35 1,675,681 0 1,193,448 6,004,455 0 139,448 4,425,714 -100.00 -2.84 8.21 INTERNAL RATE OF RETURN ON DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS END OF ANNUAL RATE OF RETURN OF POLICY -------------------------------- YEAR 0% 6% 12% - ------ -- -- --- 1 2,090.11% 2,095.22% 2,100.33% 2 329.11 330.70 332.35 3 146.38 147.64 148.99 4 87.29 88.52 89.87 5 59.52 60.79 62.22 6 43.79 45.12 46.68 7 33.82 35.23 36.93 8 27.33 28.79 30.59 9 22.78 24.27 26.17 10 19.45 20.95 22.94 15 10.87 12.41 14.86 20 7.22 8.80 12.04 25 5.11 6.73 10.68 30 4.15 5.25 9.82 35 3.50 3.90 9.24
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. A-50 MALE ISSUE AGE 40 $50,000 ANNUAL PREMIUM FOR TWENTY POLICY YEARS NONSMOKER PREFERRED UNDERWRITING RISK $2,900,000 FACE AMOUNT OPTION 1 DEATH BENEFIT GUIDELINE PREMIUM TEST THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF POLICY INTEREST --------------------------------- ------------------------------- ------------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- -- -- --- -- -- --- -- -- --- 1 $ 52,500 $2,900,000 $2,900,000 $ 2,900,000 $ 37,899 $ 40,357 $ 42,815 -24.20% -19.29% -14.37% 2 107,625 2,900,000 2,900,000 2,900,000 75,090 82,361 89,917 -17.64 -12.26 -6.88 3 165,506 2,900,000 2,900,000 2,900,000 111,338 125,837 141,506 -14.18 -8.53 -2.89 4 226,282 2,900,000 2,900,000 2,900,000 146,340 170,536 197,732 -12.11 -6.27 -0.46 5 290,096 2,900,000 2,900,000 2,900,000 180,644 217,063 259,654 -10.64 -4.67 1.27 6 357,100 2,900,000 2,900,000 2,900,000 217,692 268,995 331,407 -9.10 -3.11 2.85 7 427,455 2,900,000 2,900,000 2,900,000 253,932 322,994 410,383 -8.03 -2.01 3.98 8 501,328 2,900,000 2,900,000 2,900,000 289,667 379,454 497,641 -7.22 -1.17 4.84 9 578,895 2,900,000 2,900,000 2,900,000 324,547 438,135 593,712 -6.62 -0.53 5.50 10 660,339 2,900,000 2,900,000 2,900,000 358,972 499,528 699,906 -6.13 -0.02 6.03 15 1,132,875 2,900,000 2,900,000 2,900,000 529,300 864,758 1,452,255 -4.50 1.76 7.89 20 1,735,963 2,900,000 2,900,000 3,530,284 675,561 1,319,296 2,715,603 -3.91 2.57 8.78 25 2,215,577 2,900,000 2,900,000 5,410,965 563,581 1,622,297 4,509,137 -3.79 3.07 9.30 30 2,827,700 2,900,000 2,900,000 8,599,552 398,175 1,993,010 7,477,871 -4.56 3.33 9.58 35 3,608,942 2,900,000 2,900,000 13,049,926 183,089 2,477,971 12,428,501 -6.73 3.54 9.78 INTERNAL RATE OF RETURN ON DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS END OF ANNUAL RATE OF RETURN OF POLICY -------------------------------- YEAR 0% 6% 12% - ------ -- -- --- 1 5,700.00% 5,700.00% 5,700.00% 2 613.22 613.22 613.22 3 248.60 248.60 248.60 4 143.55 143.55 143.55 5 96.81 96.81 96.81 6 71.12 71.12 71.12 7 55.12 55.12 55.12 8 44.31 44.31 44.31 9 36.57 36.57 36.57 10 30.80 30.80 30.80 15 15.64 15.64 15.64 20 9.32 9.32 10.92 25 6.64 6.64 10.38 30 5.12 5.12 10.24 35 4.15 4.15 9.97
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. A-51 MALE ISSUE AGE 40 $50,000 ANNUAL PREMIUM FOR TWENTY POLICY YEARS NONSMOKER PREFERRED UNDERWRITING RISK $2,900,000 FACE AMOUNT OPTION 1 DEATH BENEFIT GUIDELINE PREMIUM TEST THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF POLICY INTEREST -------------------------------- ---------------------------- ------------------------------ YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- -- -- --- -- -- --- -- -- --- 1 $ 52,500 $2,900,000 $2,900,000 $2,900,000 $ 35,655 $ 38,042 $ 40,429 -28.69% -23.92% -19.14% 2 107,625 2,900,000 2,900,000 2,900,000 70,123 77,102 84,363 -21.45 -16.13 -10.81 3 165,506 2,900,000 2,900,000 2,900,000 103,437 117,251 132,199 -17.47 -11.82 -6.18 4 226,282 2,900,000 2,900,000 2,900,000 135,519 158,451 184,269 -14.98 -9.10 -3.25 5 290,096 2,900,000 2,900,000 2,900,000 166,373 200,751 241,033 -13.28 -7.23 -1.22 6 357,100 2,900,000 2,900,000 2,900,000 195,927 244,121 302,926 -12.07 -5.86 0.28 7 427,455 2,900,000 2,900,000 2,900,000 224,188 288,620 370,521 -11.16 -4.82 1.42 8 501,328 2,900,000 2,900,000 2,900,000 251,110 334,258 444,414 -10.47 -4.00 2.34 9 578,895 2,900,000 2,900,000 2,900,000 276,676 381,077 525,301 -9.92 -3.34 3.08 10 660,339 2,900,000 2,900,000 2,900,000 300,791 429,048 613,899 -9.50 -2.80 3.70 15 1,132,875 2,900,000 2,900,000 2,900,000 395,406 684,859 1,205,029 -8.53 -1.14 5.73 20 1,735,963 2,900,000 2,900,000 2,900,000 431,856 962,623 2,174,024 -8.92 -0.36 6.93 25 2,215,577 2,900,000 2,900,000 4,157,370 153,974 986,279 3,464,475 -13.12 -0.09 7.72 30 2,827,700 0 2,900,000 6,334,859 0 888,154 5,508,573 -100.00 -0.58 8.15 35 3,608,942 0 2,900,000 9,213,315 0 507,450 8,774,586 -100.00 -2.67 8.44 INTERNAL RATE OF RETURN ON DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS END OF ANNUAL RATE OF RETURN OF POLICY -------------------------------- YEAR 0% 6% 12% - ------ -- -- --- 1 5,700.00% 5,700.00% 5,700.00% 2 613.22 613.22 613.22 3 248.60 248.60 248.60 4 143.55 143.55 143.55 5 96.81 96.81 96.81 6 71.12 71.12 71.12 7 55.12 55.12 55.12 8 44.31 44.31 44.31 9 36.57 36.57 36.57 10 30.80 30.80 30.80 15 15.64 15.64 15.64 20 9.32 9.32 9.32 25 6.64 6.64 8.81 30 5.12 5.12 8.81 35 4.15 4.15 8.62
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. A-52 MALE ISSUE AGE 40 $50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS FOR NONSMOKER PREFERRED UNDERWRITING RISK $1,054,000 FACE AMOUNT OPTION 2 DEATH BENEFIT GUIDELINE PREMIUM TEST THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF POLICY INTEREST -------------------------------- ---------------------------- ------------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- -- -- --- -- -- --- -- -- --- 1 $ 52,500 $1,095,918 $1,098,502 $1,101,084 $ 41,918 $ 44,502 $ 47,084 -16.16% -11.00% -5.83% 2 107,625 1,137,123 1,144,883 1,152,938 83,123 90,883 98,938 -11.71 -6.21 -0.71 3 165,506 1,177,531 1,193,128 1,209,954 123,531 139,128 155,954 -9.40 -3.72 1.96 4 226,282 1,217,031 1,243,190 1,272,533 163,031 189,190 218,533 -8.01 -2.21 3.58 5 290,096 1,255,833 1,295,354 1,341,459 201,833 241,354 287,459 -7.05 -1.17 4.69 6 357,100 1,295,295 1,351,103 1,418,819 241,295 297,103 364,819 -6.19 -0.28 5.62 7 427,455 1,334,040 1,409,184 1,504,029 280,040 355,184 450,029 -5.58 0.37 6.29 8 448,828 1,327,868 1,422,831 1,548,378 273,868 368,831 494,378 -4.88 1.05 6.96 9 471,270 1,321,632 1,436,919 1,597,137 267,632 382,919 543,137 -4.44 1.50 7.42 10 494,833 1,315,489 1,451,630 1,650,928 261,489 397,630 596,928 -4.13 1.83 7.75 15 631,546 1,289,264 1,544,687 2,036,567 235,264 490,687 982,567 -3.27 2.84 8.85 20 806,031 1,256,147 1,653,673 2,671,856 202,147 599,673 1,617,856 -3.19 3.21 9.32 25 1,028,722 1,209,675 1,775,265 3,716,865 155,675 721,265 2,662,865 -3.63 3.33 9.58 30 1,312,940 1,141,871 1,902,878 5,436,955 87,871 848,878 4,382,955 -5.01 3.33 9.74 35 1,675,681 1,058,374 2,043,136 8,293,903 4,374 989,136 7,239,903 -12.90 3.29 9.87 INTERNAL RATE OF RETURN ON DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS END OF ANNUAL RATE OF RETURN OF POLICY -------------------------------- YEAR 0% 6% 12% - ------ -- -- --- 1 2,091.84% 2,097.00% 2,102.17% 2 329.50 331.12 332.79 3 146.63 147.91 149.29 4 87.50 88.74 90.11 5 59.71 60.99 62.45 6 44.00 45.36 46.94 7 34.05 35.49 37.22 8 27.57 29.06 30.90 9 23.04 24.56 26.49 10 19.72 21.26 23.28 15 11.27 12.89 15.41 20 7.74 9.46 12.52 25 5.77 7.61 11.22 30 4.46 6.44 10.61 35 3.51 5.65 10.33
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. A-53 MALE ISSUE AGE 40 $50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS NONSMOKER PREFERRED UNDERWRITING RISK $1,054,000 FACE AMOUNT OPTION 2 DEATH BENEFIT GUIDELINE PREMIUM TEST THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF POLICY INTEREST -------------------------------- ---------------------------- -------------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- -- -- --- -- -- --- -- -- --- 1 $ 52,500 $1,095,054 $1,097,610 $1,100,165 $ 41,054 $ 43,610 $ 46,165 -17.89% -12.78% -7.67% 2 107,625 1,135,209 1,142,855 1,150,794 81,209 88,855 96,794 -13.10 -7.62 -2.15 3 165,506 1,174,479 1,189,805 1,206,347 120,479 135,805 152,347 -10.56 -4.89 0.78 4 226,282 1,212,836 1,238,494 1,267,290 158,836 184,494 213,290 -9.01 -3.20 2.59 5 290,096 1,250,283 1,288,987 1,334,166 196,283 234,987 280,166 -7.96 -2.06 3.82 6 357,100 1,286,791 1,341,321 1,407,544 232,791 287,321 353,544 -7.21 -1.23 4.71 7 427,455 1,322,364 1,395,566 1,488,083 268,364 341,566 434,083 -6.64 -0.61 5.39 8 448,828 1,312,660 1,404,787 1,526,846 258,660 350,787 472,846 -6.01 0.04 6.05 9 471,270 1,302,662 1,413,961 1,569,141 248,662 359,961 515,141 -5.64 0.47 6.51 10 494,833 1,292,321 1,423,032 1,615,278 238,321 369,032 561,278 -5.43 0.76 6.85 15 631,546 1,233,424 1,464,254 1,916,381 179,424 410,254 862,381 -5.47 1.33 7.71 20 806,031 1,155,710 1,488,861 2,377,999 101,710 434,861 1,323,999 -7.07 1.28 8.06 25 1,028,722 0 1,478,889 3,086,179 0 424,889 2,032,179 -100.00 0.88 8.26 30 1,312,940 0 1,399,370 4,167,135 0 345,370 3,113,135 -100.00 -0.05 8.38 35 1,675,681 0 1,193,448 5,813,070 0 139,448 4,759,070 -100.00 -2.84 8.45 INTERNAL RATE OF RETURN ON DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS END OF ANNUAL RATE OF RETURN OF POLICY -------------------------------- YEAR 0% 6% 12% - ------ -- -- --- 1 2,090.11% 2,095.22% 2,100.33% 2 329.11 330.70 332.35 3 146.38 147.64 148.99 4 87.29 88.52 89.87 5 59.52 60.79 62.22 6 43.79 45.12 46.68 7 33.82 35.23 36.93 8 27.33 28.79 30.59 9 22.78 24.27 26.17 10 19.45 20.95 22.94 15 10.87 12.41 14.86 20 7.22 8.80 11.77 25 5.11 6.73 10.30 30 4.15 5.25 9.54 35 3.50 3.90 9.13
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. A-54 APPENDIX B INVESTMENT EXPERIENCE INFORMATION The information contained in this Appendix gives hypothetical illustrations of the Variable Account's and the Policy's investment experience based on the historical investment experience of the Eligible Funds. It does not represent what may happen in the future. The Policies were not available until , 1998. The Zenith Fund and the Variable Account commenced operations on August 26, 1983. The Westpeak Stock Index and Back Bay Advisors Managed Series of the Zenith Fund commenced operations on May 1, 1987. The Westpeak Growth and Income Series and Goldman Sachs Midcap Value Series of the Zenith Fund commenced operations on April 30, 1993. The Loomis Sayles Small Cap Series of the Zenith Fund commenced operations on May 2, 1994. The remaining Zenith Fund Series commenced operations on October 31, 1994. The Equity-Income Portfolio and Overseas Portfolio of the VIP Fund commenced operations on October 9, 1986 and January 28, 1987, respectively. The High Income Portfolio of the VIP Fund and the Asset Manager Portfolio of the VIP Fund II commenced operations on September 19, 1985 and September 6, 1989, respectively. The illustrations are based on the actual investment experience of the relevant Eligible Funds for the periods shown (net of actual charges and expenses incurred by the Eligible Funds). The illustrations assume that premiums are paid at the beginning of each year and that no loans, transfers or other Policy Owner transactions were made during the periods shown. VARIABLE ACCOUNT INVESTMENT EXPERIENCE The Policies are supported by the Variable Account which invests in the Eligible Funds. The investment experience of the Sub-Account or Sub-Accounts you choose will affect the values and benefits of your Policy. Many factors in addition to investment experience will affect the actual values and benefits of your Policy. For instance, these investment experience figures do not reflect the charges deducted from Premiums and Monthly Deductions from the cash value. (See "Charges and Expenses".) NET RATES OF RETURN The annual net rate is the effective earnings rate at which the investment Sub-Accounts increased or decreased over a one-year period, based on the investment experience of the relevant Eligible Funds. The rate is calculated by taking the difference between the Sub-Accounts' ending values and beginning values of the period and dividing it by the beginning values of the period. The effective annual net rate of return since inception is the annualized effective interest rate at which the Sub-Accounts increased or decreased since the inception dates of the Sub-Accounts. For each Sub-Account, the rate is calculated by taking the difference between the Sub-Account's ending value and the value on the date of its inception and dividing it by the value on the date of inception. This result is the total net rate of return since inception ("Total Return"). The effective annual net rate of return is the rate which, if compounded annually, would equal the total net rate of return since inception. A-55 SUB-ACCOUNTS INVESTING IN NEW ENGLAND ZENITH FUND
----------------------------------------------------- 8/26/83- SUB-ACCOUNT 12/31/83 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 - ----------- -------- -------- -------- -------- -------- -------- Capital Growth*. 8.87% -0.36% 68.10% 95.21% 52.71% -8.81% Bond Income..... 3.20 12.61 18.76 14.83 2.27 8.37 Money Market.... 3.20 10.73 8.26 6.80 6.53 7.52 ANNUAL NET RATE OF RETURN --------------------------------------------------------------------------------- 8/26/83- 8/26/83- FOR ONE YEAR ENDING 12/31/97 12/31/97 --------------------------------------------------------------------------------- TOTAL EFFECTIVE SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL - ----------- -------- -------- -------- -------- -------- --------- -------- -------- -------- --------- --------- Capital Growth*. 31.59% -4.07% 53.98% -6.05% 14.97% -7.74% 39.59% 20.59% 23.48% 1,895.71% 23.20% Bond Income..... 12.30 8.09 17.96 8.18 12.61 (3.36) 21.20 4.61 10.89 316.19 10.45 Money Market.... 9.25 8.19 6.21 3.80 2.97 3.97 5.70 5.13 5.34 147.14 6.51 ----------------- 5/1/87- SUB-ACCOUNT 12/31/87 12/31/88 - ----------- -------- -------- Stock Index......................................... (12.20%) 16.34% Managed............................................. (0.66) 9.48 ANNUAL NET RATE OF RETURN --------------------------------------------------------------------------------- 5/1/87- 5/1/87- FOR ONE YEAR ENDING 12/31/97 12/31/97 --------------------------------------------------------------------------------- TOTAL EFFECTIVE SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL - ----------- -------- -------- -------- -------- -------- --------- -------- -------- -------- --------- --------- Stock Index...... 30.15% (4.14%) 30.43% 7.30% 9.72% 1.12% 36.92% 22.47% 32.50% 337.49% 14.84% Managed.......... 19.08 3.21 20.17 6.70 10.65 (1.11) 31.26 15.03 26.56 258.44 12.71 ANNUAL NET RATE OF RETURN --------------------------------------------- 4/30/93- 4/30/93- FOR ONE YEAR ENDING 12/31/97 12/31/97 4/30/93- ------------------------------------ TOTAL EFFECTIVE SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL - ----------- -------- --------- -------- -------- -------- --------- --------- Growth and Income................... 14.24% (1.21%) 36.47% 18.10% 33.47% 142.77% 20.91% Midcap Value***..................... 14.74 (.27) 30.35 17.61 17.32 105.81 16.71 ANNUAL NET RATE OF RETURN ------------------------------------ 5/2/94- 5/2/94- FOR ONE YEAR ENDING 12/31/97 12/31/97 5/2/94- -------------------------- TOTAL EFFECTIVE SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL - ----------- --------- -------- -------- -------- --------- --------- Small Cap.................................... (3.23%) 28.84% 30.68% 24.85% 103.44% 21.38% ANNUAL NET RATE OF RETURN ------------------------------------ 10/31/94- 10/31/94- FOR ONE YEAR ENDING 12/31/97 12/31/97 10/31/94- -------------------------- TOTAL EFFECTIVE SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL - ----------- --------- -------- -------- -------- --------- --------- Equity Growth................................ (4.20%) 48.69% 13.17% 25.63% 102.54% 24.96% Balanced..................................... (.10) 24.79 16.91 16.18 69.33 18.09 Venture Value................................ (3.50) 39.28 25.84 33.50 125.80 29.32 International Magnum Equity**................ 2.60 6.23 6.67 (1.30) 14.76 4.44 - ------- * Rates of return reflect the Capital Growth Series' former investment advisory fee of .50% of average daily net assets for the period through December 31, 1987 and its current advisory fee schedule thereafter. ** The Morgan Stanley International Magnum Equity Series' sub-adviser was Draycott Partners until May 1, 1997, when Morgan Stanley Asset Management became the sub-adviser. *** The Goldman Sachs Midcap Value Series' sub-adviser was Loomis Sayles until May 1, 1998, when Goldman Sachs Asset Management became the sub-adviser. Rates of return reflect the Series' former investment advisory fee of .70% of average daily net assets. Beginning May 1, 1998, the Series' investment advisory fee is .75%. SUB-ACCOUNTS INVESTING IN VARIABLE INSURANCE PRODUCTS FUND -------------------------- 10/9/86- SUB-ACCOUNT 12/31/86 12/31/87 12/31/88 - ----------- -------- -------- -------- Equity-Income.............................. .20% -1.13% 21.93% ANNUAL NET RATE OF RETURN --------------------------------------------------------------------------------- 10/9/86- 10/9/86- FOR ONE YEAR ENDING 12/31/97 12/31/97 --------------------------------------------------------------------------------- TOTAL EFFECTIVE SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL - ----------- -------- -------- -------- -------- -------- --------- -------- -------- -------- --------- --------- Equity-Income..... 19.54% -16.31% 31.44% 16.89% 18.29% 6.93% 35.90% 13.75% 28.11% 365.04% 14.67% ----------------- 1/28/87- SUB-ACCOUNT 12/31/87 12/31/88 - ----------- -------- -------- Overseas............................................ -5.38% 9.63% ANNUAL NET RATE OF RETURN --------------------------------------------------------------------------------- 1/28/87- 1/28/87- FOR ONE YEAR ENDING 12/31/97 12/31/97 --------------------------------------------------------------------------------- TOTAL EFFECTIVE SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL - ----------- -------- -------- -------- -------- -------- --------- -------- -------- -------- --------- --------- Overseas......... 23.97% -1.20% 8.00% -10.72% 37.35% 1.21% 11.02% 12.43% 11.56% 137.09% 8.22% ----------------------------------- 9/19/85- SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 - ----------- -------- -------- -------- -------- High Income....................... 6.38% 17.68% 1.22% 11.53% ANNUAL NET RATE OF RETURN --------------------------------------------------------------------------------- 9/19/85- 9/19/85- FOR ONE YEAR ENDING 12/31/97 12/31/97 --------------------------------------------------------------------------------- TOTAL EFFECTIVE SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL - ----------- -------- -------- -------- -------- -------- --------- -------- -------- -------- --------- --------- High Income...... -4.07% -2.23% 35.08% 23.17% 20.40% -1.45% 20.79% 13.75% 17.67% 322.94% 12.46% SUB-ACCOUNT INVESTING IN VARIABLE INSURANCE PRODUCTS FUND II ANNUAL NET RATE OF RETURN --------------------------------------------------------------------------------- 9/6/89- 9/6/89- FOR ONE YEAR ENDING 12/31/97 12/31/97 9/6/89- ------------------------------------------------------------------------ TOTAL EFFECTIVE SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL - ----------- -------- -------- -------- -------- -------- --------- -------- -------- -------- --------- --------- Asset Manager..... 1.32% 6.19% 22.56% 11.71% 21.23% -6.43% 17.68% 14.31% 20.65% 171.19% 12.74%
A-56 POLICY PERFORMANCE The material below assumes a Policy was issued with a $1,054,000 face amount ($2,900,000 face amount in the case of the Option 1 death benefit, guideline premium test example) with premiums paid on August 26 of the years in which they are paid (May 1 in the case of the Zenith Stock Index, Zenith Managed and Zenith Small Cap Sub-Accounts; October 31 in the case of the Zenith Balanced, Zenith International Magnum Equity, Zenith Venture Value and Zenith Equity Growth Sub-Accounts; October 9 in the case of the Equity-Income Sub-Account, January 28 in the case of the Overseas Sub-Account; April 30 in the case of the Zenith Growth and Income and Zenith Midcap Value Sub-Accounts; September 19 in the case of the High Income Sub-Account; September 6 in the case of the Asset Manager Sub-Account), to a male age 40 in the nonsmoker preferred risk category. Values and benefits are shown for Policies with an Option 1 and Option 2 death benefit, and for the cash value accumulation test and guideline premium test. The death benefits, cash values and internal rates of return assume in each instance that the entire Policy value was invested in the particular Sub-Account for the period shown. These illustrations of policy investment experience reflect all Policy charges. (See "Charges and Expenses".) (See Appendix A for the definition of the internal rate of return.) MALE NONSMOKER PREFERRED RISK, AGE 40 $1,054,000 FACE AMOUNT OPTION 1 DEATH BENEFIT CASH VALUE ACCUMULATION TEST ZENITH CAPITAL GROWTH SUB-ACCOUNT*
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- August 26, 1983......... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1983....... 50,000 1,054,000 1,054,000 47,893 47,893 -11.64% -- December 31, 1984....... 100,000 1,054,000 1,054,000 90,141 90,141 -11.72 786.55% December 31, 1985....... 150,000 1,054,000 1,054,000 202,325 202,325 23.49 215.77 December 31, 1986....... 200,000 1,054,000 1,317,628 435,027 435,027 45.37 125.72 December 31, 1987....... 250,000 1,054,000 2,028,976 691,181 691,181 45.49 101.61 December 31, 1988....... 300,000 1,054,000 1,901,908 668,310 668,310 28.39 68.21 December 31, 1989....... 350,000 1,054,000 2,513,994 910,975 910,975 28.33 59.72 December 31, 1990....... 350,000 1,054,000 2,314,394 864,610 864,610 21.09 45.30 December 31, 1991....... 350,000 1,054,000 3,421,044 1,317,258 1,317,258 25.69 45.67 December 31, 1992....... 350,000 1,054,000 3,086,150 1,224,464 1,224,464 20.50 36.78 December 31, 1993....... 350,000 1,054,000 3,413,880 1,395,329 1,395,329 19.67 33.39 December 31, 1994....... 350,000 1,054,000 3,041,428 1,280,198 1,280,198 16.18 27.76 December 31, 1995....... 350,000 1,054,000 4,100,847 1,777,020 1,777,020 18.28 28.43 December 31, 1996....... 350,000 1,054,000 4,777,283 2,130,349 2,130,349 18.42 27.32 December 31, 1997....... 350,000 1,054,000 5,700,132 2,614,672 2,614,672 18.77 26.65
A-57 ZENITH BOND INCOME SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE CASH VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- ---------- -------------- ------------- August 26, 1983......... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1983....... 50,000 1,054,000 1,054,000 45,280 45,280 -24.80% -- December 31, 1984....... 100,000 1,054,000 1,054,000 96,850 96,850 -3.72 786.55% December 31, 1985....... 150,000 1,054,000 1,054,000 159,420 159,420 4.57 215.77 December 31, 1986....... 200,000 1,054,000 1,054,000 225,497 225,497 6.56 107.68 December 31, 1987....... 250,000 1,054,000 1,054,000 272,105 272,105 3.62 66.26 December 31, 1988....... 300,000 1,054,000 1,054,000 336,745 336,745 4.06 45.19 December 31, 1989....... 350,000 1,054,000 1,160,419 420,492 420,492 5.46 35.61 December 31, 1990....... 350,000 1,054,000 1,203,947 449,770 449,770 5.78 29.05 December 31, 1991....... 350,000 1,054,000 1,363,182 524,887 524,887 7.65 26.39 December 31, 1992....... 350,000 1,054,000 1,415,920 561,782 561,782 7.56 22.99 December 31, 1993....... 350,000 1,054,000 1,534,036 626,995 626,995 8.08 21.08 December 31, 1994....... 350,000 1,054,000 1,428,275 601,189 601,189 6.59 17.61 December 31, 1995....... 350,000 1,054,000 1,675,579 726,079 726,079 7.98 17.58 December 31, 1996....... 350,000 1,054,000 1,693,258 755,080 755,080 7.60 15.97 December 31, 1997....... 350,000 1,054,000 1,814,263 832,209 832,209 7.82 15.20 ZENITH MONEY MARKET SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE CASH VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- ---------- -------------- ------------- August 26, 1983......... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1983....... 50,000 1,054,000 1,054,000 45,386 45,386 -24.29% -- December 31, 1984....... 100,000 1,054,000 1,054,000 93,940 93,940 -7.18 786.55% December 31, 1985....... 150,000 1,054,000 1,054,000 144,652 144,652 -2.68 215.77 December 31, 1986....... 200,000 1,054,000 1,054,000 196,689 196,689 -0.90 107.68 December 31, 1987....... 250,000 1,054,000 1,054,000 251,448 251,448 0.25 66.26 December 31, 1988....... 300,000 1,054,000 1,054,000 312,688 312,688 1.45 45.19 December 31, 1989....... 350,000 1,054,000 1,059,313 383,855 383,855 2.75 32.86 December 31, 1990....... 350,000 1,054,000 1,099,292 410,673 410,673 3.68 26.85 December 31, 1991....... 350,000 1,054,000 1,120,728 431,531 431,531 3.94 22.45 December 31, 1992....... 350,000 1,054,000 1,116,907 443,145 443,145 3.74 18.94 December 31, 1993....... 350,000 1,054,000 1,106,471 452,239 452,239 3.52 16.25 December 31, 1994....... 350,000 1,054,000 1,111,254 467,749 467,749 3.51 14.35 December 31, 1995....... 350,000 1,054,000 1,134,254 491,506 491,506 3.67 13.04 December 31, 1996....... 350,000 1,054,000 1,151,535 513,508 513,508 3.75 11.92 December 31, 1997....... 350,000 1,054,000 1,172,025 537,613 537,613 3.83 11.02 ZENITH STOCK INDEX SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE CASH VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- ---------- -------------- ------------- May 1, 1987............. $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1987....... 50,000 1,054,000 1,054,000 37,995 37,995 -33.68% -- December 31, 1988....... 100,000 1,054,000 1,054,000 89,361 89,361 -9.27 463.55% December 31, 1989....... 150,000 1,054,000 1,054,000 169,006 169,006 7.31 168.48 December 31, 1990....... 200,000 1,054,000 1,054,000 200,966 200,966 0.22 91.74 December 31, 1991....... 250,000 1,054,000 1,054,000 307,644 307,644 7.85 58.80 December 31, 1992....... 300,000 1,054,000 1,056,259 374,034 374,034 6.98 41.13 December 31, 1993....... 350,000 1,054,000 1,243,164 453,936 453,936 7.07 34.80 December 31, 1994....... 350,000 1,054,000 1,205,715 453,861 453,861 5.59 27.21 December 31, 1995....... 350,000 1,054,000 1,597,712 619,840 619,840 10.24 28.00 December 31, 1996....... 350,000 1,054,000 1,864,591 745,335 745,335 11.60 26.45 December 31, 1997....... 350,000 1,054,000 2,380,040 979,993 979,993 13.87 26.59
A-58 ZENITH MANAGED SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- May 1, 1987............. $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1987....... 50,000 1,054,000 1,054,000 43,013 43,013 -20.16% -- December 31, 1988....... 100,000 1,054,000 1,054,000 91,682 91,682 -7.22 463.55% December 31, 1989....... 150,000 1,054,000 1,054,000 158,023 158,023 3.15 168.48 December 31, 1990....... 200,000 1,054,000 1,054,000 206,075 206,075 1.38 91.74 December 31, 1991....... 250,000 1,054,000 1,054,000 293,132 293,132 6.01 58.80 December 31, 1992....... 300,000 1,054,000 1,054,000 357,389 357,389 5.54 41.06 December 31, 1993....... 350,000 1,054,000 1,200,639 438,408 438,408 6.13 33.82 December 31, 1994....... 350,000 1,054,000 1,138,608 428,600 428,600 4.35 25.91 December 31, 1995....... 350,000 1,054,000 1,443,372 559,963 559,963 8.40 26.04 December 31, 1996....... 350,000 1,054,000 1,585,778 633,885 633,885 9.07 23.76 December 31, 1997....... 350,000 1,054,000 1,933,488 796,123 796,123 11.00 23.54 ZENITH GROWTH AND INCOME SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- April 30, 1993.......... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1993....... 50,000 1,054,000 1,054,000 49,314 49,314 -2.04% -- December 31, 1994....... 100,000 1,054,000 1,054,000 91,336 91,336 -7.51 461.80% December 31, 1995....... 150,000 1,054,000 1,054,000 176,580 176,580 10.05 168.16 December 31, 1996....... 200,000 1,054,000 1,054,000 254,295 254,295 11.33 91.62 December 31, 1997....... 250,000 1,054,000 1,133,755 390,254 390,254 17.06 62.05 ZENITH MIDCAP VALUE SUB-ACCOUNT** TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- April 30, 1993.......... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1993....... 50,000 1,054,000 1,054,000 49,536 49,536 -1.38% -- December 31, 1994....... 100,000 1,054,000 1,054,000 92,180 92,180 -6.76 461.80% December 31, 1995....... 150,000 1,054,000 1,054,000 171,888 171,888 8.35 168.16 December 31, 1996....... 200,000 1,054,000 1,054,000 245,951 245,951 9.72 91.62 December 31, 1997....... 250,000 1,054,000 1,054,000 336,903 336,903 11.34 58.74 ZENITH SMALL CAP SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- May 2, 1994............. $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1994....... 50,000 1,054,000 1,054,000 41,500 41,500 -24.41% -- December 31, 1995....... 100,000 1,054,000 1,054,000 104,932 104,932 4.20 465.32% December 31, 1996....... 150,000 1,054,000 1,054,000 185,031 185,031 13.09 168.81 December 31, 1997....... 200,000 1,054,000 1,054,000 282,743 282,743 16.55 91.85
A-59 ZENITH BALANCED SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- October 31, 1994........ $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1994....... 50,000 1,054,000 1,054,000 44,272 44,272 -51.72% -- December 31, 1995....... 100,000 1,054,000 1,054,000 99,674 99,674 -0.49 1,177.18% December 31, 1996....... 150,000 1,054,000 1,054,000 159,765 159,765 5.47 253.93 December 31, 1997....... 200,000 1,054,000 1,054,000 227,978 227,978 7.93 119.01 ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- October 31, 1994........ $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1994....... 50,000 1,054,000 1,054,000 45,344 45,344 -44.28% -- December 31, 1995....... 100,000 1,054,000 1,054,000 93,476 93,476 -9.80 1,177.18% December 31, 1996....... 150,000 1,054,000 1,054,000 142,219 142,219 -4.52 253.93 December 31, 1997....... 200,000 1,054,000 1,054,000 181,110 181,110 -5.91 119.01 ZENITH VENTURE VALUE SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- October 31, 1994........ $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1994....... 50,000 1,054,000 1,054,000 42,929 42,929 -59.84% -- December 31, 1995....... 100,000 1,054,000 1,054,000 104,157 104,157 6.22 1,177.18% December 31, 1996....... 150,000 1,054,000 1,054,000 174,848 174,848 13.51 253.93 December 31, 1997....... 200,000 1,054,000 1,054,000 275,721 275,721 19.77 119.01 ZENITH EQUITY GROWTH SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- October 31, 1994........ $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1994....... 50,000 1,054,000 1,054,000 41,903 41,903 -65.26% -- December 31, 1995....... 100,000 1,054,000 1,054,000 104,376 104,376 6.55 1,177.18% December 31, 1996....... 150,000 1,054,000 1,054,000 161,043 161,043 6.17 253.93 December 31, 1997....... 200,000 1,054,000 1,054,000 244,056 244,056 12.13 119.01 EQUITY-INCOME SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- October 9, 1986......... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1986....... 50,000 1,054,000 1,054,000 44,463 44,463 -40.32% -- December 31, 1987....... 100,000 1,054,000 1,054,000 78,734 78,734 -29.50 1,017.57% December 31, 1988....... 150,000 1,054,000 1,054,000 137,473 137,473 -6.99 239.99 December 31, 1989....... 200,000 1,054,000 1,054,000 203,562 203,562 1.02 115.01 December 31, 1990....... 250,000 1,054,000 1,054,000 214,954 214,954 -6.76 69.51 December 31, 1991....... 300,000 1,054,000 1,054,000 326,357 326,357 3.08 46.94 December 31, 1992....... 350,000 1,054,000 1,184,342 426,982 426,982 6.12 37.39 December 31, 1993....... 350,000 1,054,000 1,344,307 499,678 499,678 8.45 32.57 December 31, 1994....... 350,000 1,054,000 1,379,722 528,604 528,604 7.96 27.22 December 31, 1995....... 350,000 1,054,000 1,800,224 710,727 710,727 11.62 27.67 December 31, 1996....... 350,000 1,054,000 1,968,492 800,624 800,624 11.75 25.26 December 31, 1997....... 350,000 1,054,000 2,434,931 1,019,945 1,019,945 13.45 25.09
A-60 OVERSEAS SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- January 28, 1987........ $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1987....... 50,000 1,054,000 1,054,000 40,135 40,135 -21.18% -- December 31, 1988....... 100,000 1,054,000 1,054,000 91,763 91,763 -5.89 338.48% December 31, 1989....... 150,000 1,054,000 1,054,000 164,134 164,134 4.75 142.48 December 31, 1990....... 200,000 1,054,000 1,054,000 203,149 203,149 0.65 81.84 December 31, 1991....... 250,000 1,054,000 1,054,000 263,833 263,833 1.85 53.89 December 31, 1992....... 300,000 1,054,000 1,054,000 271,968 271,968 -2.86 38.23 December 31, 1993....... 350,000 1,054,000 1,161,488 428,478 428,478 5.16 30.96 December 31, 1994....... 350,000 1,054,000 1,128,239 429,032 429,032 4.15 24.44 December 31, 1995....... 350,000 1,054,000 1,202,367 471,186 471,186 5.06 21.61 December 31, 1996....... 350,000 1,054,000 1,298,212 524,142 524,142 5.91 19.73 December 31, 1997....... 350,000 1,054,000 1,397,586 581,186 581,186 6.50 18.26 HIGH INCOME SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- September 19, 1985...... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1985....... 50,000 1,054,000 1,054,000 46,970 46,970 -19.87% -- December 31, 1986....... 100,000 1,054,000 1,054,000 99,624 99,624 -0.48 900.55% December 31, 1987....... 150,000 1,054,000 1,054,000 142,133 142,133 -4.16 228.43 December 31, 1988....... 200,000 1,054,000 1,054,000 200,698 200,698 0.20 111.57 December 31, 1989....... 250,000 1,054,000 1,054,000 231,477 231,477 -3.37 68.00 December 31, 1990....... 300,000 1,054,000 1,054,000 267,146 267,146 -4.17 46.13 December 31, 1991....... 350,000 1,054,000 1,117,595 403,944 403,944 4.35 35.07 December 31, 1992....... 350,000 1,054,000 1,320,836 492,193 492,193 7.99 31.75 December 31, 1993....... 350,000 1,054,000 1,526,457 586,286 586,286 9.89 29.03 December 31, 1994....... 350,000 1,054,000 1,444,273 571,612 571,612 7.92 23.57 December 31, 1995....... 350,000 1,054,000 1,677,710 684,034 684,034 9.40 22.63 December 31, 1996....... 350,000 1,054,000 1,842,678 773,738 773,738 9.82 21.14 December 31, 1997....... 350,000 1,054,000 2,094,154 905,285 905,285 10.54 20.37 ASSET MANAGER SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- September 6, 1989....... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- -- December 31, 1989....... 50,000 1,054,000 1,054,000 44,725 44,725 -29.59% -- December 31, 1990....... 100,000 1,054,000 1,054,000 92,438 92,438 -9.30 835.70% December 31, 1991....... 150,000 1,054,000 1,054,000 156,791 156,791 3.39 221.42 December 31, 1992....... 200,000 1,054,000 1,054,000 218,058 218,058 4.79 109.43 December 31, 1993....... 250,000 1,054,000 1,054,000 307,968 307,968 9.06 67.04 December 31, 1994....... 300,000 1,054,000 1,054,000 327,179 327,179 3.08 45.62 December 31, 1995....... 350,000 1,054,000 1,183,071 427,610 427,610 6.01 36.48 December 31, 1996....... 350,000 1,054,000 1,297,728 483,582 483,582 7.51 31.07 December 31, 1997....... 350,000 1,054,000 1,502,896 577,237 577,237 9.52 28.52
A-61 $1,054,000 FACE AMOUNT OPTION 2 DEATH BENEFIT CASH VALUE ACCUMULATION TEST ZENITH CAPITAL GROWTH SUB-ACCOUNT*
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- August 26, 1983......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1983....... 50,000 1,054,000 1,101,847 47,847 47,847 -11.88% -- December 31, 1984....... 100,000 1,054,000 1,143,947 89,947 89,947 -11.96 846.61% December 31, 1985....... 150,000 1,054,000 1,255,588 201,588 201,588 23.19 244.67 December 31, 1986....... 200,000 1,054,000 1,486,851 432,851 432,851 45.05 135.93 December 31, 1987....... 250,000 1,054,000 2,019,199 687,851 687,851 45.26 101.33 December 31, 1988....... 300,000 1,054,000 1,893,368 665,309 665,309 28.22 68.03 December 31, 1989....... 350,000 1,054,000 2,503,211 907,068 907,068 28.21 59.58 December 31, 1990....... 350,000 1,054,000 2,304,467 860,902 860,902 20.99 45.19 December 31, 1991....... 350,000 1,054,000 3,406,369 1,311,607 1,311,607 25.61 45.58 December 31, 1992....... 350,000 1,054,000 3,072,911 1,219,212 1,219,212 20.43 36.70 December 31, 1993....... 350,000 1,054,000 3,399,235 1,389,344 1,389,344 19.60 33.32 December 31, 1994....... 350,000 1,054,000 3,028,380 1,274,705 1,274,705 16.13 27.70 December 31, 1995....... 350,000 1,054,000 4,083,254 1,769,396 1,769,396 18.23 28.38 December 31, 1996....... 350,000 1,054,000 4,756,787 2,121,209 2,121,209 18.37 27.28 December 31, 1997....... 350,000 1,054,000 5,675,676 2,603,454 2,603,454 18.73 26.61 ZENITH BOND INCOME SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- August 26, 1983......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1983....... 50,000 1,054,000 1,099,237 45,237 45,237 -25.00% -- December 31, 1984....... 100,000 1,054,000 1,150,642 96,642 96,642 -3.97 851.03% December 31, 1985....... 150,000 1,054,000 1,212,855 158,855 158,855 4.30 238.79 December 31, 1986....... 200,000 1,054,000 1,278,327 224,327 224,327 6.28 123.21 December 31, 1987....... 250,000 1,054,000 1,324,219 270,219 270,219 3.32 78.11 December 31, 1988....... 300,000 1,054,000 1,387,988 333,988 333,988 3.77 55.72 December 31, 1989....... 350,000 1,054,000 1,470,805 416,805 416,805 5.20 42.84 December 31, 1990....... 350,000 1,054,000 1,499,199 445,199 445,199 5.55 34.41 December 31, 1991....... 350,000 1,054,000 1,572,973 518,973 518,973 7.44 29.30 December 31, 1992....... 350,000 1,054,000 1,608,993 554,993 554,993 7.36 25.20 December 31, 1993....... 350,000 1,054,000 1,673,078 619,078 619,078 7.90 22.38 December 31, 1994....... 350,000 1,054,000 1,647,160 593,160 593,160 6.42 19.49 December 31, 1995....... 350,000 1,054,000 1,769,967 715,967 715,967 7.83 18.23 December 31, 1996....... 350,000 1,054,000 1,798,179 744,179 744,179 7.45 16.61 December 31, 1997....... 350,000 1,054,000 1,873,851 819,851 819,851 7.69 15.51
A-62 ZENITH MONEY MARKET SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- --------- -------------- ------------- August 26, 1983......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1983....... 50,000 1,054,000 1,099,343 45,343 45,343 -24.50% -- December 31, 1984....... 100,000 1,054,000 1,147,737 93,737 93,737 -7.43 849.11% December 31, 1985....... 150,000 1,054,000 1,198,146 144,146 144,146 -2.93 236.73 December 31, 1986....... 200,000 1,054,000 1,249,702 195,702 195,702 -1.17 121.34 December 31, 1987....... 250,000 1,054,000 1,303,765 249,765 249,765 -0.04 77.28 December 31, 1988....... 300,000 1,054,000 1,364,218 310,218 310,218 1.18 55.05 December 31, 1989....... 350,000 1,054,000 1,434,553 380,553 380,553 2.49 42.07 December 31, 1990....... 350,000 1,054,000 1,460,434 406,434 406,434 3.44 33.77 December 31, 1991....... 350,000 1,054,000 1,480,365 426,365 426,365 3.71 28.06 December 31, 1992....... 350,000 1,054,000 1,491,084 437,084 437,084 3.52 23.88 December 31, 1993....... 350,000 1,054,000 1,499,238 445,238 445,238 3.30 20.74 December 31, 1994....... 350,000 1,054,000 1,513,601 459,601 459,601 3.29 18.37 December 31, 1995....... 350,000 1,054,000 1,535,945 481,945 481,945 3.46 16.56 December 31, 1996....... 350,000 1,054,000 1,556,386 502,386 502,386 3.53 15.08 December 31, 1997....... 350,000 1,054,000 1,578,689 524,689 524,689 3.61 13.86 ZENITH STOCK INDEX SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- --------- -------------- ------------- May 1, 1987............. $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1987....... 50,000 1,054,000 1,091,937 37,937 37,937 -33.83% -- December 31, 1988....... 100,000 1,054,000 1,143,122 89,122 89,122 -9.48 494.44% December 31, 1989....... 150,000 1,054,000 1,222,315 168,315 168,315 7.05 186.73 December 31, 1990....... 200,000 1,054,000 1,253,814 199,814 199,814 -0.04 103.46 December 31, 1991....... 250,000 1,054,000 1,359,318 305,318 305,318 7.56 70.53 December 31, 1992....... 300,000 1,054,000 1,424,819 370,819 370,819 6.71 51.58 December 31, 1993....... 350,000 1,054,000 1,503,874 449,874 449,874 6.83 40.20 December 31, 1994....... 350,000 1,054,000 1,503,254 449,254 449,254 5.37 32.27 December 31, 1995....... 350,000 1,054,000 1,667,076 613,076 613,076 10.04 28.83 December 31, 1996....... 350,000 1,054,000 1,844,004 737,106 737,106 11.43 26.27 December 31, 1997....... 350,000 1,054,000 2,353,760 969,172 969,172 13.72 26.43 ZENITH MANAGED SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- --------- -------------- ------------- May 1, 1987............. $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1987....... 50,000 1,054,000 1,096,947 42,947 42,947 -20.34% -- December 31, 1988....... 100,000 1,054,000 1,145,433 91,433 91,433 -7.44 495.23% December 31, 1989....... 150,000 1,054,000 1,211,375 157,375 157,375 2.90 185.60 December 31, 1990....... 200,000 1,054,000 1,258,900 204,900 204,900 1.12 103.74 December 31, 1991....... 250,000 1,054,000 1,344,937 290,937 290,937 5.72 70.03 December 31, 1992....... 300,000 1,054,000 1,408,362 354,362 354,362 5.27 51.17 December 31, 1993....... 350,000 1,054,000 1,488,502 434,502 434,502 5.88 39.90 December 31, 1994....... 350,000 1,054,000 1,478,168 424,168 424,168 4.13 31.88 December 31, 1995....... 350,000 1,054,000 1,607,562 553,562 553,562 8.19 28.12 December 31, 1996....... 350,000 1,054,000 1,680,281 626,281 626,281 8.88 24.72 December 31, 1997....... 350,000 1,054,000 1,910,060 786,476 786,476 10.83 23.37
A-63 ZENITH GROWTH AND INCOME SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- --------- -------------- ------------- April 30, 1993.......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $44,770 -- -- December 31, 1993....... 50,000 1,054,000 1,103,229 49,229 49,229 -2.29% -- December 31, 1994....... 100,000 1,054,000 1,145,066 91,066 91,066 -7.74 493.20% December 31, 1995....... 150,000 1,054,000 1,229,807 175,807 175,807 9.77 187.14 December 31, 1996....... 200,000 1,054,000 1,306,729 252,729 252,729 11.03 106.19 December 31, 1997....... 250,000 1,054,000 1,441,180 387,180 387,180 16.75 73.22 ZENITH MIDCAP VALUE SUB-ACCOUNT** TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- --------- -------------- ------------- April 30, 1993.......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $44,770 -- -- December 31, 1993....... 50,000 1,054,000 1,103,451 49,451 49,451 -1.63% -- December 31, 1994....... 100,000 1,054,000 1,145,907 91,907 91,907 -7.00 493.49% December 31, 1995....... 150,000 1,054,000 1,225,137 171,137 171,137 8.08 186.66 December 31, 1996....... 200,000 1,054,000 1,298,436 244,436 244,436 9.43 105.75 December 31, 1997....... 250,000 1,054,000 1,388,208 334,208 334,208 11.03 71.45 ZENITH SMALL CAP SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- --------- -------------- ------------- May 2, 1994............. $ 50,000 $1,054,000 $1,098,770 $ 44,770 $44,770 -- -- December 31, 1994....... 50,000 1,054,000 1,095,437 41,437 41,437 -24.59% -- December 31, 1995....... 100,000 1,054,000 1,158,647 104,647 104,647 3.96 501.66% December 31, 1996....... 150,000 1,054,000 1,238,246 184,246 184,246 12.81 188.75 December 31, 1997....... 200,000 1,054,000 1,335,054 281,054 281,054 16.25 107.97 ZENITH BALANCED SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- --------- -------------- ------------- October 31, 1994........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $44,770 -- -- December 31, 1994....... 50,000 1,054,000 1,098,247 44,247 44,247 -51.88% -- December 31, 1995....... 100,000 1,054,000 1,153,493 99,493 99,493 -0.76 1,286.61% December 31, 1996....... 150,000 1,054,000 1,213,257 159,257 159,257 5.19 281.82 December 31, 1997....... 200,000 1,054,000 1,280,890 226,890 226,890 7.64 136.50 ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- --------- -------------- ------------- October 31, 1994........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $44,770 -- -- December 31, 1994....... 50,000 1,054,000 1,099,319 45,319 45,319 -44.47% -- December 31, 1995....... 100,000 1,054,000 1,147,314 93,314 93,314 -10.04 1,279.86% December 31, 1996....... 150,000 1,054,000 1,195,790 141,790 141,790 -4.77 278.87 December 31, 1997....... 200,000 1,054,000 1,234,304 180,304 180,304 -6.17 133.10
A-64 ZENITH VENTURE VALUE SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- October 31, 1994........ $50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1994....... 50,000 1,054,000 1,096,905 42,905 42,905 -59.98% -- December 31, 1995....... 100,000 1,054,000 1,157,964 103,964 103,964 5.93 1,291.50% December 31, 1996....... 150,000 1,054,000 1,228,275 174,275 174,275 13.22 284.35 December 31, 1997....... 200,000 1,054,000 1,328,338 274,338 274,338 19.46 139.87 ZENITH EQUITY GROWTH SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- October 31, 1994........ $50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1994....... 50,000 1,054,000 1,095,879 41,879 41,879 -65.37% -- December 31, 1995....... 100,000 1,054,000 1,158,176 104,176 104,176 6.25 1,291.73% December 31, 1996....... 150,000 1,054,000 1,214,515 160,515 160,515 5.88 282.04 December 31, 1997....... 200,000 1,054,000 1,296,853 242,853 242,853 11.83 137.64 EQUITY-INCOME SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- October 9, 1986......... $50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1986....... 50,000 1,054,000 1,098,437 44,437 44,437 -40.47% -- December 31, 1987....... 100,000 1,054,000 1,132,591 78,591 78,591 -29.70 1,089.85% December 31, 1988....... 150,000 1,054,000 1,191,049 137,049 137,049 -7.23 262.58 December 31, 1989....... 200,000 1,054,000 1,256,614 202,614 202,614 0.75 130.16 December 31, 1990....... 250,000 1,054,000 1,267,660 213,660 213,660 -7.03 79.53 December 31, 1991....... 300,000 1,054,000 1,377,925 323,925 323,925 2.81 57.57 December 31, 1992....... 350,000 1,054,000 1,477,517 423,517 423,517 5.87 44.34 December 31, 1993....... 350,000 1,054,000 1,549,148 495,148 495,148 8.23 36.14 December 31, 1994....... 350,000 1,054,000 1,577,413 523,413 523,413 7.77 30.00 December 31, 1995....... 350,000 1,054,000 1,781,952 703,513 703,513 11.44 27.49 December 31, 1996....... 350,000 1,054,000 1,948,510 792,497 792,497 11.60 25.10 December 31, 1997....... 350,000 1,054,000 2,410,213 1,009,592 1,009,592 13.31 24.95 OVERSEAS SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- January 28, 1987........ $50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1987....... 50,000 1,054,000 1,094,042 40,042 40,042 -21.38% -- December 31, 1988....... 100,000 1,054,000 1,145,445 91,445 91,445 -6.12 359.94% December 31, 1989....... 150,000 1,054,000 1,217,331 163,331 163,331 4.49 157.10 December 31, 1990....... 200,000 1,054,000 1,255,791 201,791 201,791 0.37 92.30 December 31, 1991....... 250,000 1,054,000 1,315,613 261,613 261,613 1.56 63.21 December 31, 1992....... 300,000 1,054,000 1,323,539 269,539 269,539 -3.12 45.62 December 31, 1993....... 350,000 1,054,000 1,478,446 424,446 424,446 4.92 37.41 December 31, 1994....... 350,000 1,054,000 1,478,431 424,431 424,431 3.93 30.33 December 31, 1995....... 350,000 1,054,000 1,519,389 465,389 465,389 4.85 25.90 December 31, 1996....... 350,000 1,054,000 1,571,039 517,039 517,039 5.70 22.75 December 31, 1997....... 350,000 1,054,000 1,626,798 572,798 572,798 6.31 20.37
A-65 HIGH INCOME SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- September 19, 1985...... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1985....... 50,000 1,054,000 1,100,934 46,934 46,934 -20.09% -- December 31, 1986....... 100,000 1,054,000 1,153,424 99,424 99,424 -0.74 978.99% December 31, 1987....... 150,000 1,054,000 1,195,659 141,659 141,659 -4.41 250.45 December 31, 1988....... 200,000 1,054,000 1,253,727 199,727 199,727 -0.08 126.04 December 31, 1989....... 250,000 1,054,000 1,283,975 229,975 229,975 -3.65 78.49 December 31, 1990....... 300,000 1,054,000 1,319,107 265,107 265,107 -4.45 54.86 December 31, 1991....... 350,000 1,054,000 1,454,591 400,591 400,591 4.10 43.22 December 31, 1992....... 350,000 1,054,000 1,541,609 487,609 487,609 7.77 35.59 December 31, 1993....... 350,000 1,054,000 1,634,486 580,486 580,486 9.70 30.44 December 31, 1994....... 350,000 1,054,000 1,619,660 565,660 565,660 7.75 25.57 December 31, 1995....... 350,000 1,054,000 1,730,656 676,656 676,656 9.24 23.10 December 31, 1996....... 350,000 1,054,000 1,822,643 765,325 765,325 9.68 21.00 December 31, 1997....... 350,000 1,054,000 2,071,381 895,440 895,440 10.42 20.24 ASSET MANAGER SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- -------- ----- -------- -------------- ------------- September 6, 1989....... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1989....... 50,000 1,054,000 1,098,691 44,691 44,691 -29.76% -- December 31, 1990....... 100,000 1,054,000 1,146,261 92,261 92,261 -9.52 902.09% December 31, 1991....... 150,000 1,054,000 1,210,271 156,271 156,271 3.13 244.76 December 31, 1992....... 200,000 1,054,000 1,270,991 216,991 216,991 4.52 124.75 December 31, 1993....... 250,000 1,054,000 1,359,903 305,903 305,903 8.77 80.46 December 31, 1994....... 300,000 1,054,000 1,378,526 324,526 324,526 2.79 55.98 December 31, 1995....... 350,000 1,054,000 1,477,881 423,881 423,881 5.74 43.32 December 31, 1996....... 350,000 1,054,000 1,532,801 478,801 478,801 7.28 35.18 December 31, 1997....... 350,000 1,054,000 1,625,146 571,146 571,146 9.32 30.13
- ---------- * Rates of return and Policy values and benefits shown reflect the Capital Growth Series' investment advisory fee of .50% of average daily net assets for the period through December 31, 1987 and its current advisory fee schedule thereafter. ** Rates of return and Policy 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' investment advisory fee is .75%. A-66 MALE NON-SMOKER PREFERRED RISK AGE 40 $2,900,000 FACE AMOUNT OPTION 1 DEATH BENEFIT GUIDELINE PREMIUM TEST ZENITH CAPITAL GROWTH SUB-ACCOUNT*
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT CASH VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- -------- ---------- -------- -------------- ------------- August 26, 1983......... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1983....... 50,000 2,900,000 2,900,000 46,146 46,146 -20.59% -- December 31, 1984....... 100,000 2,900,000 2,900,000 83,880 83,880 -19.27 1,859.74% December 31, 1985....... 150,000 2,900,000 2,900,000 186,199 186,199 16.71 415.88 December 31, 1986....... 200,000 2,900,000 2,900,000 398,104 398,104 39.81 198.89 December 31, 1987....... 250,000 2,900,000 2,900,000 632,523 632,523 41.30 122.80 December 31, 1988....... 300,000 2,900,000 2,900,000 612,555 612,555 25.25 85.77 December 31, 1989....... 350,000 2,900,000 2,900,000 836,915 836,915 25.81 64.36 December 31, 1990....... 400,000 2,900,000 2,900,000 836,806 836,806 18.76 50.59 December 31, 1991....... 450,000 2,900,000 2,900,000 1,325,784 1,325,784 23.90 41.08 December 31, 1992....... 500,000 2,900,000 2,900,000 1,282,024 1,282,024 18.55 34.16 December 31, 1993....... 550,000 2,900,000 2,900,000 1,509,458 1,509,458 17.85 28.92 December 31, 1994....... 600,000 2,900,000 2,900,000 1,427,553 1,427,553 14.00 24.85 December 31, 1995....... 650,000 2,900,000 3,472,481 2,030,691 2,030,691 16.66 24.07 December 31, 1996....... 700,000 2,900,000 4,085,880 2,491,390 2,491,390 17.02 23.25 December 31, 1997....... 750,000 2,900,000 4,879,151 3,107,740 3,107,740 17.56 22.77 ZENITH BOND INCOME SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT CASH VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- -------- ---------- -------- -------------- ------------- August 26, 1983......... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1983....... 50,000 2,900,000 2,900,000 43,537 43,537 -32.82% -- December 31, 1984....... 100,000 2,900,000 2,900,000 90,352 90,352 -11.47 1,859.74% December 31, 1985....... 150,000 2,900,000 2,900,000 146,915 146,915 -1.54 415.88 December 31, 1986....... 200,000 2,900,000 2,900,000 206,124 206,124 1.64 198.89 December 31, 1987....... 250,000 2,900,000 2,900,000 247,103 247,103 -0.50 122.80 December 31, 1988....... 300,000 2,900,000 2,900,000 305,270 305,270 0.61 85.77 December 31, 1989....... 350,000 2,900,000 2,900,000 382,025 382,025 2.61 64.36 December 31, 1990....... 400,000 2,900,000 2,900,000 452,527 452,527 3.19 50.59 December 31, 1991....... 450,000 2,900,000 2,900,000 573,774 573,774 5.51 41.08 December 31, 1992....... 500,000 2,900,000 2,900,000 656,781 656,781 5.53 34.16 December 31, 1993....... 550,000 2,900,000 2,900,000 775,953 775,953 6.28 28.92 December 31, 1994....... 600,000 2,900,000 2,900,000 786,331 786,331 4.52 24.85 December 31, 1995....... 650,000 2,900,000 2,900,000 995,369 995,369 6.48 21.59 December 31, 1996....... 700,000 2,900,000 2,900,000 1,080,816 1,080,816 6.11 18.94 December 31, 1997....... 750,000 2,900,000 2,900,000 1,237,191 1,237,191 6.51 16.75
A-67 ZENITH MONEY MARKET SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- ---------- ---------- ---------- -------------- ------------- August 26, 1983......... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1983....... 50,000 2,900,000 2,900,000 43,632 43,632 -32.40% -- December 31, 1984....... 100,000 2,900,000 2,900,000 87,603 87,603 -14.77 1,859.74% December 31, 1985....... 150,000 2,900,000 2,900,000 133,251 133,251 -8.59 415.88 December 31, 1986....... 200,000 2,900,000 2,900,000 179,616 179,616 -5.76 198.89 December 31, 1987....... 250,000 2,900,000 2,900,000 227,974 227,974 -3.92 122.80 December 31, 1988....... 300,000 2,900,000 2,900,000 282,977 282,977 -2.05 85.77 December 31, 1989....... 350,000 2,900,000 2,900,000 348,241 348,241 -0.15 64.36 December 31, 1990....... 400,000 2,900,000 2,900,000 415,087 415,087 0.96 50.59 December 31, 1991....... 450,000 2,900,000 2,900,000 478,510 478,510 1.41 41.08 December 31, 1992....... 500,000 2,900,000 2,900,000 533,501 533,501 1.33 34.16 December 31, 1993....... 550,000 2,900,000 2,900,000 586,724 586,724 1.20 28.92 December 31, 1994....... 600,000 2,900,000 2,900,000 649,443 649,443 1.34 24.85 December 31, 1995....... 650,000 2,900,000 2,900,000 725,127 725,127 1.71 21.59 December 31, 1996....... 700,000 2,900,000 2,900,000 800,191 800,191 1.93 18.94 December 31, 1997....... 750,000 2,900,000 2,900,000 880,405 880,405 2.15 16.75 ZENITH STOCK INDEX SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- ---------- ---------- ---------- -------------- ------------- May 1, 1987............. $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1987....... 50,000 2,900,000 2,900,000 35,600 35,600 -39.84% -- December 31, 1988....... 100,000 2,900,000 2,900,000 82,139 82,139 -15.76 981.11% December 31, 1989....... 150,000 2,900,000 2,900,000 154,280 154,280 1.69 315.22 December 31, 1990....... 200,000 2,900,000 2,900,000 182,221 182,221 -4.25 167.71 December 31, 1991....... 250,000 2,900,000 2,900,000 277,357 277,357 3.91 108.65 December 31, 1992....... 300,000 2,900,000 2,900,000 337,612 337,612 3.73 77.95 December 31, 1993....... 350,000 2,900,000 2,900,000 410,999 410,999 4.37 59.50 December 31, 1994....... 400,000 2,900,000 2,900,000 453,983 453,983 3.03 47.32 December 31, 1995....... 450,000 2,900,000 2,900,000 671,492 671,492 8.44 38.75 December 31, 1996....... 500,000 2,900,000 2,900,000 856,518 856,518 10.16 32.43 December 31, 1997....... 550,000 2,900,000 2,900,000 1,180,208 1,180,208 12.95 27.60 ZENITH MANAGED SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- ---------- ---------- ---------- -------------- ------------- May 1, 1987............. $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1987....... 50,000 2,900,000 2,900,000 40,344 40,344 -27.46% -- December 31, 1988....... 100,000 2,900,000 2,900,000 84,386 84,386 -13.72 981.11% December 31, 1989....... 150,000 2,900,000 2,900,000 144,341 144,341 -2.29 315.22 December 31, 1990....... 200,000 2,900,000 2,900,000 186,992 186,992 -3.08 167.71 December 31, 1991....... 250,000 2,900,000 2,900,000 264,466 264,466 2.11 108.65 December 31, 1992....... 300,000 2,900,000 2,900,000 322,870 322,870 2.32 77.95 December 31, 1993....... 350,000 2,900,000 2,900,000 397,206 397,206 3.44 59.50 December 31, 1994....... 400,000 2,900,000 2,900,000 431,010 431,010 1.79 47.32 December 31, 1995....... 450,000 2,900,000 2,900,000 613,062 613,062 6.54 38.75 December 31, 1996....... 500,000 2,900,000 2,900,000 741,449 741,449 7.48 32.43 December 31, 1997....... 550,000 2,900,000 2,900,000 982,902 982,902 9.92 27.60
A-68 ZENITH GROWTH AND INCOME SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- April 30, 1993.......... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1993....... 50,000 2,900,000 2,900,000 46,028 46,028 -11.60% -- December 31, 1994....... 100,000 2,900,000 2,900,000 83,837 83,837 -14.19 976.68% December 31, 1995....... 150,000 2,900,000 2,900,000 161,175 161,175 4.36 314.55 December 31, 1996....... 200,000 2,900,000 2,900,000 230,701 230,701 6.67 167.48 December 31, 1997....... 250,000 2,900,000 2,900,000 353,034 353,034 13.15 108.54 ZENITH MIDCAP VALUE SUB-ACCOUNT** TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- April 30, 1993.......... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1993....... 50,000 2,900,000 2,900,000 46,246 46,246 -10.98% -- December 31, 1994....... 100,000 2,900,000 2,900,000 84,668 84,668 -13.44 976.68% December 31, 1995....... 150,000 2,900,000 2,900,000 157,024 157,024 2.76 314.55 December 31, 1996....... 200,000 2,900,000 2,900,000 223,270 223,270 5.12 167.48 December 31, 1997....... 250,000 2,900,000 2,900,000 304,772 304,772 7.49 108.54 ZENITH SMALL CAP SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- May 1, 1994............. $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1994....... 50,000 2,900,000 2,900,000 38,815 38,815 -31.64% -- December 31, 1995....... 100,000 2,900,000 2,900,000 96,567 96,567 -2.96 985.58% December 31, 1996....... 150,000 2,900,000 2,900,000 168,954 168,954 7.30 315.90 December 31, 1997....... 200,000 2,900,000 2,900,000 257,201 257,201 11.91 167.93 ZENITH BALANCED SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- October 31, 1994........ $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1994....... 50,000 2,900,000 2,900,000 43,234 43,234 -58.11% -- December 31, 1995....... 100,000 2,900,000 2,900,000 93,799 93,799 -9.31 3,057.30% December 31, 1996....... 150,000 2,900,000 2,900,000 148,172 148,172 -1.05 499.94 December 31, 1997....... 200,000 2,900,000 2,900,000 209,514 209,514 2.80 221.34 ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- October 31, 1994........ $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1994....... 50,000 2,900,000 2,900,000 44,295 44,295 -51.56% -- December 31, 1995....... 100,000 2,900,000 2,900,000 87,967 87,967 -18.10 3,057.30% December 31, 1996....... 150,000 2,900,000 2,900,000 131,930 131,930 -10.74 499.94 December 31, 1997....... 200,000 2,900,000 2,900,000 166,391 166,391 -10.89 221.34
A-69 ZENITH VENTURE VALUE SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- October 31, 1994........ $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1994....... 50,000 2,900,000 2,900,000 41,902 41,902 -65.26% -- December 31, 1995....... 100,000 2,900,000 2,900,000 97,965 97,965 -3.05 3,057.30% December 31, 1996....... 150,000 2,900,000 2,900,000 162,184 162,184 6.79 499.94 December 31, 1997....... 200,000 2,900,000 2,900,000 253,603 253,603 14.52 221.34 ZENITH EQUITY GROWTH SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- October 31, 1994........ $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1994....... 50,000 2,900,000 2,900,000 40,890 40,890 -69.99% -- December 31, 1995....... 100,000 2,900,000 2,900,000 98,083 98,083 -2.87 3,057.30% December 31, 1996....... 150,000 2,900,000 2,900,000 149,351 149,351 -0.37 499.94 December 31, 1997....... 200,000 2,900,000 2,900,000 224,332 224,332 6.95 221.34 EQUITY-INCOME SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- October 9, 1986......... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1986....... 50,000 2,900,000 2,900,000 43,444 43,444 -46.10% -- December 31, 1987....... 100,000 2,900,000 2,900,000 74,063 74,063 -36.03 2,552.32% December 31, 1988....... 150,000 2,900,000 2,900,000 127,216 127,216 -13.02 468.95 December 31, 1989....... 200,000 2,900,000 2,900,000 186,445 186,445 -4.04 213.38 December 31, 1990....... 250,000 2,900,000 2,900,000 195,833 195,833 -10.92 128.99 December 31, 1991....... 300,000 2,900,000 2,900,000 295,975 295,975 -0.50 89.08 December 31, 1992....... 350,000 2,900,000 2,900,000 388,212 388,212 3.20 66.38 December 31, 1993....... 400,000 2,900,000 2,900,000 496,234 496,234 5.72 51.93 December 31, 1994....... 450,000 2,900,000 2,900,000 566,747 566,747 5.38 42.02 December 31, 1995....... 500,000 2,900,000 2,900,000 807,683 807,683 9.84 34.85 December 31, 1996....... 550,000 2,900,000 2,900,000 955,640 955,640 10.16 29.45 December 31, 1997....... 600,000 2,900,000 2,900,000 1,262,137 1,262,137 12.31 25.26 OVERSEAS SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- January 28, 1987........ $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1987....... 50,000 2,900,000 2,900,000 36,295 36,295 -29.32% -- December 31, 1988....... 100,000 2,900,000 2,900,000 82,978 82,978 -12.42 675.33% December 31, 1989....... 150,000 2,900,000 2,900,000 148,046 148,046 -0.68 261.68 December 31, 1990....... 200,000 2,900,000 2,900,000 182,363 182,363 -3.77 148.57 December 31, 1991....... 250,000 2,900,000 2,900,000 235,931 235,931 -1.98 99.34 December 31, 1992....... 300,000 2,900,000 2,900,000 244,318 244,318 -5.97 72.60 December 31, 1993....... 350,000 2,900,000 2,900,000 386,982 386,982 2.56 56.08 December 31, 1994....... 400,000 2,900,000 2,900,000 428,024 428,024 1.53 44.97 December 31, 1995....... 450,000 2,900,000 2,900,000 517,622 517,622 2.83 37.06 December 31, 1996....... 500,000 2,900,000 2,900,000 622,936 622,936 4.01 31.16 December 31, 1997....... 550,000 2,900,000 2,900,000 738,747 738,747 4.90 26.62
A-70 HIGH INCOME SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- September 19, 1985...... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1985....... 50,000 2,900,000 2,900,000 45,524 45,524 -28.27% -- December 31, 1986....... 100,000 2,900,000 2,900,000 93,442 93,442 -8.42 2,195.51% December 31, 1987....... 150,000 2,900,000 2,900,000 131,563 131,563 -9.98 443.48 December 31, 1988....... 200,000 2,900,000 2,900,000 183,998 183,998 -4.65 206.58 December 31, 1989....... 250,000 2,900,000 2,900,000 210,569 210,569 -7.49 126.11 December 31, 1990....... 300,000 2,900,000 2,900,000 242,185 242,185 -7.72 87.55 December 31, 1991....... 350,000 2,900,000 2,900,000 366,840 366,840 1.43 65.45 December 31, 1992....... 400,000 2,900,000 2,900,000 489,002 489,002 5.26 51.31 December 31, 1993....... 450,000 2,900,000 2,900,000 626,858 626,858 7.60 41.59 December 31, 1994....... 500,000 2,900,000 2,900,000 653,037 653,037 5.48 34.53 December 31, 1995....... 550,000 2,900,000 2,900,000 825,606 825,606 7.47 29.21 December 31, 1996....... 600,000 2,900,000 2,900,000 978,597 978,597 8.15 25.07 December 31, 1997....... 650,000 2,900,000 2,900,000 1,189,982 1,189,982 9.17 21.77 ASSET MANAGER SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- September 6, 1989....... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- -- December 31, 1989....... 50,000 2,900,000 2,900,000 43,332 43,332 -36.26% -- December 31, 1990....... 100,000 2,900,000 2,900,000 86,547 86,547 -16.62 2,003.02% December 31, 1991....... 150,000 2,900,000 2,900,000 144,853 144,853 -2.63 428.16 December 31, 1992....... 200,000 2,900,000 2,900,000 199,729 199,729 -0.07 202.35 December 31, 1993....... 250,000 2,900,000 2,900,000 280,075 280,075 4.92 124.30 December 31, 1994....... 300,000 2,900,000 2,900,000 296,799 296,799 -0.38 86.58 December 31, 1995....... 350,000 2,900,000 2,900,000 388,619 388,619 3.15 64.85 December 31, 1996....... 400,000 2,900,000 2,900,000 485,141 485,141 5.01 50.92 December 31, 1997....... 450,000 2,900,000 2,900,000 622,394 622,394 7.38 41.31 $1,054,000 FACE AMOUNT OPTION 2 DEATH BENEFIT GUIDELINE PREMIUM TEST ZENITH CAPITAL GROWTH SUB-ACCOUNT* TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- ---------- ---------- -------------- ------------- August 26, 1983......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1983....... 50,000 1,054,000 1,101,847 47,847 47,847 -11.88% -- December 31, 1984....... 100,000 1,054,000 1,143,947 89,947 89,947 -11.96 846.61% December 31, 1985....... 150,000 1,054,000 1,255,588 201,588 201,588 23.19 244.67 December 31, 1986....... 200,000 1,054,000 1,486,851 432,851 432,851 45.05 135.93 December 31, 1987....... 250,000 1,054,000 1,742,667 688,667 688,667 45.32 93.01 December 31, 1988....... 300,000 1,054,000 1,720,403 666,403 666,403 28.28 64.18 December 31, 1989....... 350,000 1,054,000 1,963,291 909,291 909,291 28.28 51.83 December 31, 1990....... 350,000 1,054,000 1,917,833 863,833 863,833 21.07 40.54 December 31, 1991....... 350,000 1,054,000 2,595,710 1,317,620 1,317,620 25.70 39.74 December 31, 1992....... 350,000 1,054,000 2,342,186 1,226,275 1,226,275 20.53 31.80 December 31, 1993....... 350,000 1,054,000 2,588,331 1,399,098 1,399,098 19.71 29.05 December 31, 1994....... 350,000 1,054,000 2,339,268 1,285,268 1,285,268 16.24 24.18 December 31, 1995....... 350,000 1,054,000 3,054,918 1,786,501 1,786,501 18.34 24.79 December 31, 1996....... 350,000 1,054,000 3,517,899 2,145,061 2,145,061 18.50 23.90 December 31, 1997....... 350,000 1,054,000 4,140,654 2,637,359 2,637,359 18.86 23.38
A-71 ZENITH BOND INCOME SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- August 26, 1983......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1983....... 50,000 1,054,000 1,099,237 45,237 45,237 -25.00% -- December 31, 1984....... 100,000 1,054,000 1,150,642 96,642 96,642 -3.97 851.03% December 31, 1985....... 150,000 1,054,000 1,212,855 158,855 158,855 4.30 238.79 December 31, 1986....... 200,000 1,054,000 1,278,327 224,327 224,327 6.28 123.21 December 31, 1987....... 250,000 1,054,000 1,324,219 270,219 270,219 3.32 78.11 December 31, 1988....... 300,000 1,054,000 1,387,988 333,988 333,988 3.77 55.72 December 31, 1989....... 350,000 1,054,000 1,470,805 416,805 416,805 5.20 42.84 December 31, 1990....... 350,000 1,054,000 1,499,199 445,199 445,199 5.55 34.41 December 31, 1991....... 350,000 1,054,000 1,572,973 518,973 518,973 7.44 29.30 December 31, 1992....... 350,000 1,054,000 1,608,993 554,993 554,993 7.36 25.20 December 31, 1993....... 350,000 1,054,000 1,673,078 619,078 619,078 7.90 22.38 December 31, 1994....... 350,000 1,054,000 1,647,160 593,160 593,160 6.42 19.49 December 31, 1995....... 350,000 1,054,000 1,769,967 715,967 715,967 7.83 18.23 December 31, 1996....... 350,000 1,054,000 1,798,179 744,179 744,179 7.45 16.61 December 31, 1997....... 350,000 1,054,000 1,873,851 819,851 819,851 7.69 15.51 ZENITH MONEY MARKET SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- August 26, 1983......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1983....... 50,000 1,054,000 1,099,343 45,343 45,343 -24.50% -- December 31, 1984....... 100,000 1,054,000 1,147,737 93,737 93,737 -7.43 849.11% December 31, 1985....... 150,000 1,054,000 1,198,146 144,146 144,146 -2.93 236.73 December 31, 1986....... 200,000 1,054,000 1,249,702 195,702 195,702 -1.17 121.34 December 31, 1987....... 250,000 1,054,000 1,303,765 249,765 249,765 -0.04 77.28 December 31, 1988....... 300,000 1,054,000 1,364,218 310,218 310,218 1.18 55.05 December 31, 1989....... 350,000 1,054,000 1,434,553 380,553 380,553 2.49 42.07 December 31, 1990....... 350,000 1,054,000 1,460,434 406,434 406,434 3.44 33.77 December 31, 1991....... 350,000 1,054,000 1,480,365 426,365 426,365 3.71 28.06 December 31, 1992....... 350,000 1,054,000 1,491,084 437,084 437,084 3.52 23.88 December 31, 1993....... 350,000 1,054,000 1,499,238 445,238 445,238 3.30 20.74 December 31, 1994....... 350,000 1,054,000 1,513,601 459,601 459,601 3.29 18.37 December 31, 1995....... 350,000 1,054,000 1,535,945 481,945 481,945 3.46 16.56 December 31, 1996....... 350,000 1,054,000 1,556,386 502,386 502,386 3.53 15.08 December 31, 1997....... 350,000 1,054,000 1,578,689 524,689 524,689 3.61 13.86 ZENITH STOCK INDEX SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- -------------- ------------- May 1, 1987............. $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1987....... 50,000 1,054,000 1,091,937 37,937 37,937 -33.83% -- December 31, 1988....... 100,000 1,054,000 1,143,122 89,122 89,122 -9.48 494.44% December 31, 1989....... 150,000 1,054,000 1,222,315 168,315 168,315 7.05 186.73 December 31, 1990....... 200,000 1,054,000 1,253,814 199,814 199,814 -0.04 103.46 December 31, 1991....... 250,000 1,054,000 1,359,318 305,318 305,318 7.56 70.53 December 31, 1992....... 300,000 1,054,000 1,424,819 370,819 370,819 6.71 51.58 December 31, 1993....... 350,000 1,054,000 1,503,874 449,874 449,874 6.83 40.20 December 31, 1994....... 350,000 1,054,000 1,503,254 449,254 449,254 5.37 32.27 December 31, 1995....... 350,000 1,054,000 1,667,076 613,076 613,076 10.04 28.83 December 31, 1996....... 350,000 1,054,000 1,791,119 737,119 737,119 11.43 25.78 December 31, 1997....... 350,000 1,054,000 2,023,653 969,653 969,653 13.72 24.21
A-72 ZENITH MANAGED SUB-ACCOUNT
INTERNAL RATE TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- ------------- ------------- May 1, 1987............. $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1987....... 50,000 1,054,000 1,096,947 42,947 42,947 -20.34% -- December 31, 1988....... 100,000 1,054,000 1,145,433 91,433 91,433 -7.44 495.23% December 31, 1989....... 150,000 1,054,000 1,211,375 157,375 157,375 2.90 185.60 December 31, 1990....... 200,000 1,054,000 1,258,900 204,900 204,900 1.12 103.74 December 31, 1991....... 250,000 1,054,000 1,344,937 290,937 290,937 5.72 70.03 December 31, 1992....... 300,000 1,054,000 1,408,362 354,362 354,362 5.27 51.17 December 31, 1993....... 350,000 1,054,000 1,488,502 434,502 434,502 5.88 39.90 December 31, 1994....... 350,000 1,054,000 1,478,168 424,168 424,168 4.13 31.88 December 31, 1995....... 350,000 1,054,000 1,607,562 553,562 553,562 8.19 28.12 December 31, 1996....... 350,000 1,054,000 1,680,281 626,281 626,281 8.88 24.72 December 31, 1997....... 350,000 1,054,000 1,840,527 786,527 786,527 10.83 22.83 ZENITH GROWTH AND INCOME SUB-ACCOUNT INTERNAL RATE TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- ------------- ------------- April 30, 1993.......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1993....... 50,000 1,054,000 1,103,229 49,229 49,229 -2.29% -- December 31, 1994....... 100,000 1,054,000 1,145,066 91,066 91,066 -7.74 493.20% December 31, 1995....... 150,000 1,054,000 1,229,807 175,807 175,807 9.77 187.14 December 31, 1996....... 200,000 1,054,000 1,306,729 252,729 252,729 11.03 106.19 December 31, 1997....... 250,000 1,054,000 1,441,180 387,180 387,180 16.75 73.22 ZENITH MIDCAP VALUE SUB-ACCOUNT** INTERNAL RATE TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- ------------- ------------- April 30, 1993.......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1993....... 50,000 1,054,000 1,103,451 49,451 49,451 -1.63% -- December 31, 1994....... 100,000 1,054,000 1,145,907 91,907 91,907 -7.00 493.49% December 31, 1995....... 150,000 1,054,000 1,225,137 171,137 171,137 8.08 186.66 December 31, 1996....... 200,000 1,054,000 1,298,436 244,436 244,436 9.43 105.75 December 31, 1997....... 250,000 1,054,000 1,388,208 334,208 334,208 11.03 71.45 ZENITH SMALL CAP SUB-ACCOUNT INTERNAL RATE TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- ------------- ------------- May 2, 1994............. $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1994....... 50,000 1,054,000 1,095,437 41,437 41,437 -24.59% -- December 31, 1995....... 100,000 1,054,000 1,158,647 104,647 104,647 3.96 501.66% December 31, 1996....... 150,000 1,054,000 1,238,246 184,246 184,246 12.81 188.75 December 31, 1997....... 200,000 1,054,000 1,335,054 281,054 281,054 16.25 107.97 ZENITH BALANCED SUB-ACCOUNT INTERNAL RATE TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT - ---- -------- ---------- ---------- -------- -------- ------------- ------------- October 31, 1994........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1994....... 50,000 1,054,000 1,098,247 44,247 44,247 -51.88% -- December 31, 1995....... 100,000 1,054,000 1,153,493 99,493 99,493 -0.76 1,286.61% December 31, 1996....... 150,000 1,054,000 1,213,257 159,257 159,257 5.19 281.82 December 31, 1997....... 200,000 1,054,000 1,280,890 226,890 226,890 7.64 136.50
A-73 ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- -------- ----- -------- -------------- ------------- October 31, 1994........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1994....... 50,000 1,054,000 1,099,319 45,319 45,319 -44.47% -- December 31, 1995....... 100,000 1,054,000 1,147,314 93,314 93,314 -10.04 1,279.86% December 31, 1996....... 150,000 1,054,000 1,195,790 141,790 141,790 -4.77 278.87 December 31, 1997....... 200,000 1,054,000 1,234,304 180,304 180,304 -6.17 133.10 ZENITH VENTURE VALUE SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- -------- ----- -------- -------------- ------------- October 31, 1994........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1994....... 50,000 1,054,000 1,096,905 42,905 42,905 -59.98% -- December 31, 1995....... 100,000 1,054,000 1,157,964 103,964 103,964 5.93 1,291.50% December 31, 1996....... 150,000 1,054,000 1,228,275 174,275 174,275 13.22 284.35 December 31, 1997....... 200,000 1,054,000 1,328,338 274,338 274,338 19.46 139.87 ZENITH EQUITY GROWTH SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- -------- ----- -------- -------------- ------------- October 31, 1994........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1994....... 50,000 1,054,000 1,095,879 41,879 41,879 -65.37% -- December 31, 1995....... 100,000 1,054,000 1,158,176 104,176 104,176 6.25 1,291.73% December 31, 1996....... 150,000 1,054,000 1,214,515 160,515 160,515 5.88 282.04 December 31, 1997....... 200,000 1,054,000 1,296,853 242,853 242,853 11.83 137.64 EQUITY-INCOME SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- -------- ----- -------- -------------- ------------- October 9, 1986......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1986....... 50,000 1,054,000 1,098,437 44,437 44,437 -40.47% -- December 31, 1987....... 100,000 1,054,000 1,132,591 78,591 78,591 -29.70 1,089.85% December 31, 1988....... 150,000 1,054,000 1,191,049 137,049 137,049 -7.23 262.58 December 31, 1989....... 200,000 1,054,000 1,256,614 202,614 202,614 0.75 130.16 December 31, 1990....... 250,000 1,054,000 1,267,660 213,660 213,660 -7.03 79.53 December 31, 1991....... 300,000 1,054,000 1,377,925 323,925 323,925 2.81 57.57 December 31, 1992....... 350,000 1,054,000 1,477,517 423,517 423,517 5.87 44.34 December 31, 1993....... 350,000 1,054,000 1,549,148 495,148 495,148 8.23 36.14 December 31, 1994....... 350,000 1,054,000 1,577,413 523,413 523,413 7.77 30.00 December 31, 1995....... 350,000 1,054,000 1,757,515 703,515 703,515 11.44 27.24 December 31, 1996....... 350,000 1,054,000 1,846,607 792,607 792,607 11.60 24.27 December 31, 1997....... 350,000 1,054,000 2,064,290 1,010,290 1,010,290 13.32 22.83
A-74 OVERSEAS SUB-ACCOUNT
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- -------- ----- -------- -------------- ------------- January 28, 1987........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1987....... 50,000 1,054,000 1,094,042 40,042 40,042 -21.38% -- December 31, 1988....... 100,000 1,054,000 1,145,445 91,445 91,445 -6.12 359.94% December 31, 1989....... 150,000 1,054,000 1,217,331 163,331 163,331 4.49 157.10 December 31, 1990....... 200,000 1,054,000 1,255,791 201,791 201,791 0.37 92.30 December 31, 1991....... 250,000 1,054,000 1,315,613 261,613 261,613 1.56 63.21 December 31, 1992....... 300,000 1,054,000 1,323,539 269,539 269,539 -3.12 45.62 December 31, 1993....... 350,000 1,054,000 1,478,446 424,446 424,446 4.92 37.41 December 31, 1994....... 350,000 1,054,000 1,478,431 424,431 424,431 3.93 30.33 December 31, 1995....... 350,000 1,054,000 1,519,389 465,389 465,389 4.85 25.90 December 31, 1996....... 350,000 1,054,000 1,571,039 517,039 517,039 5.70 22.75 December 31, 1997....... 350,000 1,054,000 1,626,798 572,798 572,798 6.31 20.37 HIGH INCOME SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- -------- ----- -------- -------------- ------------- September 19, 1985...... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1985....... 50,000 1,054,000 1,100,934 46,934 46,934 -20.09% -- December 31, 1986....... 100,000 1,054,000 1,153,424 99,424 99,424 -0.74 978.99% December 31, 1987....... 150,000 1,054,000 1,195,659 141,659 141,659 -4.41 250.45 December 31, 1988....... 200,000 1,054,000 1,253,727 199,727 199,727 -0.08 126.04 December 31, 1989....... 250,000 1,054,000 1,283,975 229,975 229,975 -3.65 78.49 December 31, 1990....... 300,000 1,054,000 1,319,107 265,107 265,107 -4.45 54.86 December 31, 1991....... 350,000 1,054,000 1,454,591 400,591 400,591 4.10 43.22 December 31, 1992....... 350,000 1,054,000 1,541,609 487,609 487,609 7.77 35.59 December 31, 1993....... 350,000 1,054,000 1,634,486 580,486 580,486 9.70 30.44 December 31, 1994....... 350,000 1,054,000 1,619,660 565,660 565,660 7.75 25.57 December 31, 1995....... 350,000 1,054,000 1,730,656 676,656 676,656 9.24 23.10 December 31, 1996....... 350,000 1,054,000 1,819,325 765,325 765,325 9.68 20.97 December 31, 1997....... 350,000 1,054,000 1,949,609 895,609 895,609 10.42 19.51 ASSET MANAGER SUB-ACCOUNT TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT - ---- -------- ------- -------- ----- -------- -------------- ------------- September 6, 1989....... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- -- December 31, 1989....... 50,000 1,054,000 1,098,691 44,691 44,691 -29.76% -- December 31, 1990....... 100,000 1,054,000 1,146,261 92,261 92,261 -9.52 902.09% December 31, 1991....... 150,000 1,054,000 1,210,271 156,271 156,271 3.13 244.76 December 31, 1992....... 200,000 1,054,000 1,270,991 216,991 216,991 4.52 124.75 December 31, 1993....... 250,000 1,054,000 1,359,903 305,903 305,903 8.77 80.46 December 31, 1994....... 300,000 1,054,000 1,378,526 324,526 324,526 2.79 55.98 December 31, 1995....... 350,000 1,054,000 1,477,881 423,881 423,881 5.74 43.32 December 31, 1996....... 350,000 1,054,000 1,532,801 478,801 478,801 7.28 35.18 December 31, 1997....... 350,000 1,054,000 1,625,146 571,146 571,146 9.32 30.13
- -------- * Rates of return and Policy values and benefits shown reflect the Capital Growth Series' investment advisory fee of .50% of average daily net assets for the period through December 31, 1987 and its current advisory fee schedule thereafter. ** Rates of return and Policy 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' investment advisory fee is .75%. A-75 APPENDIX C LONG TERM MARKET TRENDS The information below is a comparison of the average annual returns of common stock, high grade corporate bonds and 30-day U.S. Treasury bills over 20-year and 30-year holding periods.* The average annual returns assume the reinvestment of dividends, capital gains and interest. This is an historical record and is not intended as a projection of future performance. Charges associated with a variable life policy are not reflected. The data indicates that, historically, the investment performance of common stocks over long periods of time has been positive and has generally been superior to that of long-term, high grade debt securities. Common stocks have, however, been subject to more dramatic market adjustments over short periods of time. These trends indicate the potential advantages of holding a variable life insurance policy for a long period of time. Over the 53 20-year time periods beginning in 1926 and ending in 1997 (i.e., 1926-1945, 1927-1946, and so on through 1978-1997): --The average annual return of common stocks was superior to that of high grade, long-term corporate bonds in 50 of the 53 periods. --The average annual return of common stocks surpassed that of U.S. Treasury bills in each of the 53 periods. --Common stock average annual returns exceeded the average annual rate of inflation in each of the 53 periods. Over the 43 30-year periods beginning in 1926 and ending in 1997, the average annual return of common stocks was superior to that of high grade, long-term corporate bonds, U.S. Treasury bills and inflation in all 43 periods. From 1926 through 1997 the average annual return for common stocks was 11.0%, compared to 5.7% for high grade, long-term corporate bonds, 3.8% for U.S. Treasury bills and 3.1% for the Consumer Price Index. - ---------- * Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM), Ibbotson Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield). Used with permission. All rights reserved. ---------------- SUMMARY: HISTORIC S&P STOCK INDEX RESULTS FOR SPECIFIC HOLDING PERIODS The following chart categorizes the historical results of the Standard & Poor's 500 Stock Index with dividends reinvested, over one-year, five-year and twenty-year periods beginning in 1926 and ending 1997. The chart shows that, historically, the longer that a portfolio matching the S&P 500 Stock Index was held, the less likely was the chance of a loss. Conversely, the shorter the holding period of such a portfolio, the more likely was the chance of a loss. The chart also shows that shorter term results tend to be more extreme than longer term results. The chart is not a projection or representation of future stock market results. It cannot be taken as representative of the performance of any one fund. Rather it shows the historic performance of a broad index of stocks. ---------------- PERCENT OF HOLDING PERIODS WITH THE FOLLOWING RETURNS:
GREATER THAN HOLDING NEGATIVE 0-5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00% PERIOD RETURN RETURN RETURN RETURN RETURN RETURN - ------- -------- ------- ----------- ------------ ------------ ------- 1 year......... 28% 4% 11% 7% 11% 39% 5 years........ 10% 15% 15% 31% 19% 10% 10 years........ 3% 10% 34% 24% 27% 2% 20 years........ 0% 6% 32% 55% 7% 0%
- ---------- Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM), Ibbotson Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield). Used with permission. All rights reserved. A-76 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. This 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. A-77 APPENDIX D TAX INFORMATION The Office of Tax Analysis of the U.S. Department of the Treasury published a "Report to the Congress on the Taxation of Life Insurance Company Products" in March 1990. Page 4 of this report is Table 1.1, a "Comparison of Tax Treatment of Life Insurance Products and Other Retirement Savings Plans". Because it is a convenient summary of the relevant tax characteristics of these products and plans, we have reprinted it here, and added footnotes to reflect exceptions to the general rules. --------------------- TABLE 1.1 COMPARISON OF TAX TREATMENT OF LIFE INSURANCE PRODUCTS AND OTHER RETIREMENT SAVINGS PLANS
CASH-VALUE LIFE NON-QUALIFIED QUALIFIED INSURANCE ANNUITIES IRA'S PENSION ---------- ------------- --------- --------- Annual Contribution Limits No No Yes Yes Income Eligibility Limits No No Yes** No Borrowing Treated as Distribu- tions No* Yes Loans not Yes, allowed beyond $50,000 Income Ordering Rules (Income included in First No* Yes Yes Yes Distribution) Early Withdrawal Penalties No* Yes*** Yes*** Yes*** Minimum Distribution Rules by Age 70 1/2 No No Yes Yes Maximum Annual Distribution Rules No No Yes Yes Anti-discrimination Rules No No No Yes
- ---------- Department of the Treasury March 1990 Office of Tax Analysis * If the Policy is not a modified endowment contract. ** If amounts paid in to fund the IRA are deductible; once over the income eligibility limits amounts paid into an IRA are permitted but not deductible. *** There are several exceptions to the application of the early withdrawal penalties for annuities, IRAs and qualified pensions. The foregoing information is not intended as tax advice. You should consult with your own tax advisor for more complete information. A-78 APPENDIX E CASH VALUE ACCUMULATION TEST AND GUIDELINE PREMIUM TEST In order to meet the Internal Revenue Code's definition of life insurance, the Policies provide that the death benefit will not be less than that required by the "cash value accumulation test" specified in Section 7702(a)(1) of the Internal Revenue Code, or the "guideline premium test" specified in Section 7702(a)(2) of the Internal Revenue Code, as selected by you when the Policy is issued. Once the Policy is issued with either the cash value accumulation test or the guideline premium test, that test will be used for the life of the Policy. (See "Death Benefit".) With respect to the cash value accumulation test, representative net single premiums for selected ages of male and female, nonsmoker insureds are set forth below.
NET SINGLE PREMIUM ------------------------------- AGE MALE NONSMOKER FEMALE NONSMOKER --- -------------- ---------------- 30........................................... 0.2015 0.1719 40........................................... 0.2801 0.2396 50........................................... 0.3821 0.3272 60........................................... 0.5046 0.4903 70........................................... 0.6365 0.5742
With respect to the guideline premium test, Table I shows the percentage of the Policy's cash value, including the pro rata portion of any Monthly Deduction made for a period beyond the date of death, that is used to determine the death benefit. TABLE I
AGE OF AGE OF INSURED AT INSURED AT START OF PERCENTAGE OF START OF PERCENTAGE OF THE POLICY YEAR CASH VALUE* THE POLICY YEAR CASH VALUE* - ------------------- ------------- --------------- ------------- 0 through 40 250 61 128 41 243 62 126 42 236 63 124 43 229 64 122 44 222 65 120 45 215 66 119 46 209 67 118 47 203 68 117 48 197 69 116 49 191 70 115 50 185 71 113 51 178 72 111 52 171 73 109 53 164 74 107 54 157 75 through 90 105 55 150 91 104 56 146 92 103 57 142 93 102 58 138 94 through 99 101 59 134 100+ 100 60 130
- ---------- * including the pro rata portion of any Monthly Deduction made for a period beyond the date of death. A-79 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY REPORT OF INDEPENDENT AUDITORS To the Policy Owners and Board of Directors of New England Life Insurance Company: We have audited the accompanying statement of assets and liabilities of the New England Variable Life Separate Account (comprised of Capital Growth Sub- Account, Bond Income Sub-Account, Money Market Sub-Account, Stock Index Sub- Account, Managed 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, Bond Opportunities Sub-Account, Equity-Income Sub-Account, Overseas Sub-Account, High Income Sub-Account and Asset Manager 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 two years then ended for all Sub-Accounts. 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. The statements of operations and changes in net assets of New England Variable Life Separate Account for the year ended December 31, 1995 were audited by other auditors whose report, dated February 6, 1996, expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the respective aforementioned sub-accounts comprising the New England Variable Life Separate Account of New England Life Insurance Company as of December 31, 1997, and the results of their operations and the changes in their net assets for the two years then ended, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Boston, Massachusetts February 10, 1998 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Policy Owners and Board of Directors of New England Variable Life Separate Account of New England Variable Life Insurance Company: We have audited the statements of operations and changes in net assets of New England Variable Life Separate Account, comprised of Capital Growth Sub- Account, Bond Income Sub-Account, Money Market Sub-Account, Stock Index Sub- Account, Managed Sub-Account, Avanti Growth Sub-Account, Growth and Income Sub-Account (formerly Value Growth Sub-Account), Small Cap Sub-Account, Equity-Income Sub-Account, Overseas Sub-Account, High Income Sub-Account and Asset Manager Sub-Account for the year ended December 31, 1995, and also comprised of the Balanced Sub-Account, Equity Growth Sub-Account, International Equity Sub-Account, and Venture Value Sub-Account for the period May 1, 1995 (commencement of operations) through December 31, 1995, of New England Variable Life Insurance Company. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements of operations and changes in net assets are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements of operations and changes in net assets. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statements of operations and changes in net assets. We believe that our audit of the statements of operations and changes in net assets provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and changes in net assets of the respective aforementioned sub-accounts comprising New England Variable Life Separate Account of New England Variable Life Insurance Company for each of the aforementioned periods ending December 31, 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts February 6, 1996 F-2 [THIS PAGE INTENTIONALLY LEFT BLANK] F-3 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1997
NEW ENGLAND ZENITH FUND ------------------------------------------------------------------------------------- GROWTH CAPITAL BOND MONEY STOCK AVANTI AND GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ----------- ----------- ----------- ----------- ------------ ----------- ASSETS Investments in New England Zenith Fund, Variable Insurance Products Fund, and Variable Insurance Products Fund II at value (Note 2)............................. $761,342,931 $46,779,684 $36,990,546 $66,002,486 $42,839,748 $35,698,565 $36,701,292 SHARES COST --------- -------------- Capital Growth Series............ 1,905,310 $ 669,976,568 Back Bay Advisors Bond Income Series............ 431,109 45,887,625 Back Bay Advisors Money Market Series............ 369,905 36,990,546 Westpeak Stock Index Series...... 423,745 46,113,427 Back Bay Advisors Managed Series.... 225,651 33,392,311 Loomis Sayles Avanti Growth Series............ 209,265 28,734,184 Westpeak Growth and Income Series............ 203,930 29,842,628 Loomis Sayles Small Cap Series.. 347,003 49,723,722 Salomon Brothers U.S. Government Series............ 15,715 176,828 Loomis Sayles Balanced Series... 547,678 7,495,878 Alger Equity Growth Series..... 2,783,337 43,651,128 Morgan Stanley International Magnum Equity Series............ 773,563 8,555,901 Davis Venture Value Series...... 2,875,094 49,085,168 Salomon Brothers Bond Opportunities Series............ 52,710 635,304 VIP Equity-Income Portfolio......... 5,116,958 91,540,584 VIP Overseas Portfolio......... 4,049,703 66,617,006 VIP High Income Portfolio......... 622,056 7,482,998 VIP II Asset Manager Portfolio......... 350,236 5,336,650 -------------- Total........... $1,221,238,456 ============== Amount due and accrued (payable) from policy-related transactions net..... 101,231 159,544 897,289 107,549 48,961 (8,730) 9,824 Dividends receivable................. -- -- 165,664 -- -- -- -- ------------ ----------- ----------- ----------- ---------- ----------- ----------- Total Assets...................... 761,444,162 46,939,228 38,053,499 66,110,035 42,888,709 35,689,835 36,711,116 LIABILITIES Due New England Life Insurance Company 69,802,554 5,423,528 4,948,075 8,559,199 4,348,325 4,623,232 4,943,446 ------------ ----------- ----------- ----------- ----------- ----------- ----------- NET ASSETS FOR VARIABLE LIFE INSURANCE POLICIES............................. $691,641,608 $41,515,700 $33,105,424 $57,550,836 $38,540,384 $31,066,603 $31,767,670 ============ =========== =========== =========== =========== =========== ===========
See Notes to Financial Statements F-4
VARIABLE INSURANCE PRODUCTS FUND - ----------------------------------------------------------------------------------------- ------------------------------------ SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ----------- ----------- ----------- ----------- ------------- ----------- ------------- ------------ ----------- ----------- $55,145,780 $174,912 $8,138,490 $49,042,395 $8,400,895 $59,801,951 $633,048 $124,239,747 $77,754,305 $8,447,518 140,958 (1,259) 1,139 (20,153) (30,340) 168,093 (525) 127,430 31,232 10,331 -- -- -- -- -- -- -- -- -- -- - ----------- -------- ---------- ----------- ---------- ----------- -------- ------------ ----------- ---------- 55,286,738 173,653 8,139,629 49,022,242 8,370,555 59,970,044 632,523 124,367,177 77,785,537 8,457,849 7,776,303 12,470 1,264,381 7,085,182 1,237,518 8,553,311 44,786 17,035,856 9,960,217 1,277,576 - ----------- -------- ---------- ----------- ---------- ----------- -------- ------------ ----------- ---------- $47,510,435 $161,183 $6,875,248 $41,937,060 $7,133,037 $51,416,733 $587,737 $107,331,321 $67,825,320 $7,180,273 =========== ======== ========== =========== ========== =========== ======== ============ =========== ========== VARIABLE INSURANCE PRODUCTS FUND II - ------------ -------------- ASSET MANAGER SUB-ACCOUNT TOTAL - ------------ -------------- $6,307,747 $1,424,442,040 (2,214) 1,740,360 -- 165,664 - ------------ -------------- 6,305,533 1,426,348,064 856,655 157,752,614 - ------------ -------------- $5,448,878 $1,268,595,450 ============ ==============
See Notes to Financial Statements F-5 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1998 (UNAUDITED)
NEW ENGLAND ZENITH FUND -------------------------------------------------------------------------------------- GROWTH CAPITAL BOND MONEY STOCK AVANTI AND GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- ------------ ----------- ----------- ----------- ----------- ----------- ASSETS Investments in New England Zenith Fund, Variable Insurance Products Fund, and Variable Insurance Products Fund II at value (Note 2)............................. $902,464,811 $50,031,439 $39,292,980 $81,517,617 $48,105,570 $40,686,546 $46,830,880 SHARES COST --------- -------------- Capital Growth Series............ 1,915,369 673,925,319 Back Bay Advisors Bond Income Series............ 451,466 48,128,241 Back Bay Advisors Money Market Series............ 392,934 39,292,980 Westpeak Stock Index Series...... 460,630 52,177,353 Back Bay Advisors Managed Series.... 228,965 34,050,946 Loomis Sayles Avanti Growth Series............ 210,713 28,959,408 Westpeak Growth and Income Series............ 227,224 34,239,050 Loomis Sayles Small Cap Series.. 382,251 55,457,458 Salomon Bros. U.S. Government Series............ 16,948 190,783 Loomis Sayles Balanced Series... 617,661 8,566,360 Alger Equity Growth Series..... 2,984,199 47,355,847 Morgan Stanley International Magnum Equity Series............ 781,569 8,622,650 Davis Venture Value Series...... 3,383,877 59,837,290 Salomon Bros. Bond Opportunities Series............ 78,795 952,377 VIP Equity-Income Series............ 5,602,398 102,967,970 VIP Overseas Series............ 4,408,384 73,392,247 VIP High Income Series............ 826,228 10,094,610 VIP II Asset Manager Series.... 427,709 6,620,263 -------------- Total........... $1,284,831,152 ============== Amount due and accrued (payable) from policy-related transactions, net........... (128,164) (6,530) 524,663 56,629 14,733 12,912 22,857 Dividends receivable........................ -- -- 154,798 -- -- -- -- ------------ ----------- ----------- ----------- ----------- ----------- ----------- Total Assets............................. 902,336,647 50,024,909 39,972,441 81,574,246 48,120,303 40,699,458 46,853,737 LIABILITIES Due New England Life Insurance Company...... 75,520,840 4,912,001 5,188,379 9,766,409 4,454,392 4,572,184 5,720,674 ------------ ------------ ----------- ----------- ----------- ----------- ----------- NET ASSETS FOR VARIABLE LIFE INSURANCE POLICIES.................................... $826,815,807 $45,112,908 $34,784,062 $71,807,837 $43,665,911 $36,127,274 $41,133,063 ============ ============ =========== =========== =========== =========== ===========
See Notes to Financial Statements F-6
VARIABLE INSURANCE PRODUCTS FUND - ---------------------------------------------------------------------------------------- ------------------------------------- SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ----------- ----------- ----------- ----------- ------------- ----------- ------------- ------------ ----------- ----------- $66,660,743 $191,682 $9,833,167 $60,817,984 $9,746,164 $76,035,726 $969,176 $141,740,676 $89,402,025 $10,476,565 36,348 -- 28,569 34,786 (2,236) 66,009 -- 79,398 (31,113) 3,851 -- -- -- -- -- -- -- -- -- -- - ----------- -------- ---------- ----------- ---------- ----------- -------- ------------ ----------- ----------- 66,697,091 191,682 9,861,736 60,852,770 9,743,928 76,101,735 969,176 141,820,074 89,370,912 10,480,416 8,555,316 15,447 1,426,151 8,793,795 1,324,069 10,041,659 61,086 17,036,298 10,128,801 1,433,289 - ----------- -------- ---------- ----------- ---------- ----------- -------- ------------ ----------- ----------- $58,141,775 $176,235 $8,435,585 $52,058,975 $8,419,859 $66,060,076 $908,090 $124,783,776 $79,242,111 $ 9,047,127 =========== ======== ========== =========== ========== =========== ======== ============ =========== =========== VARIABLE INSURANCE PRODUCTS FUND II - ----------- -------------- ASSET MANAGER SUB-ACCOUNT TOTAL - ----------- -------------- $7,283,891 $1,682,087,642 1,978 714,690 -- 154,798 - ----------- -------------- 7,285,869 1,682,957,130 887,187 169,837,977 - ----------- -------------- $6,398,682 $1,513,119,153 =========== ==============
See Notes to Financial Statements F-7 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
NEW ENGLAND ZENITH FUND ------------------------------------------------------------------------------------- GROWTH CAPITAL BOND MONEY STOCK AVANTI AND GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ----------- ----------- ----------- ----------- ----------- ----------- INCOME Dividends............... $184,229,729 $3,419,409 $1,852,865 $ 1,082,727 $5,025,764 $2,781,138 $3,928,553 EXPENSE Mortality and expense risk charge (Note 3)... 4,170,905 253,374 241,048 333,771 229,423 207,451 190,264 ------------ ---------- ---------- ----------- ---------- ---------- ---------- Net investment income... 180,058,824 3,166,035 1,611,817 748,956 4,796,341 2,573,687 3,738,289 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net unrealized appreciation (depreciation) on investments: Beginning of year...... 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090 End of year............ 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,664 ------------ ---------- ---------- ----------- ---------- ---------- ---------- Net change in unrealized appreciation (depreciation)......... (46,643,042) 851,540 -- 12,256,046 3,309,808 2,141,065 3,751,574 Net realized gain on investments............ 1,699,829 15,488 -- 35,165 242,079 87,159 17,721 ------------ ---------- ---------- ----------- ---------- ---------- ---------- Net realized and unrealized gain (loss) on investments......... (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295 ------------ ---------- ---------- ----------- ---------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ $135,115,611 $4,033,063 $1,611,817 $13,040,167 $8,348,228 $4,801,911 $7,507,584 ============ ========== ========== =========== ========== ========== ==========
See Notes to Financial Statements F-8
VARIABLE INSURANCE PRODUCTS FUND ---------------------------------------------------------------------------------------- ----------------------------------- SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ----------- ----------- ----------- ------------- ----------- ------------- ----------- ----------- ----------- $6,279,206 $ 9,089 $438,430 $4,721,050 $ 209,389 $ 1,822,395 $43,914 $ 8,872,794 $ 5,434,055 $393,295 275,141 2,290 50,941 265,599 51,702 276,055 9,400 676,059 447,597 41,502 ---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- -------- 6,004,065 6,799 387,489 4,455,451 157,687 1,546,340 34,514 8,196,735 4,986,458 351,793 3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600 5,422,058 (1,916) 642,612 5,391,267 (155,006) 10,716,783 (2,256) 32,699,163 11,137,299 964,520 ---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- -------- 2,362,493 (1,097) 405,987 3,306,878 (291,197) 8,318,760 (1,103) 16,289,174 1,635,083 601,920 20,956 1 55,231 75,802 8,303 21,718 201 126,489 67,905 12,234 ---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- -------- 2,383,449 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154 ---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- -------- $8,387,514 $ 5,703 $848,707 $7,838,131 $(125,207) $ 9,886,818 $33,612 $24,612,398 $ 6,689,446 $965,947 ========== ======= ======== ========== ========= =========== ======= =========== =========== ======== VARIABLE INSURANCE PRODUCTS FUND II - ----------- ------------ ASSET MANAGER SUB-ACCOUNT TOTAL - ----------- ------------ $528,401 $231,072,203 33,135 7,755,657 - ----------- ------------ 495,266 223,316,546 547,647 194,486,245 971,097 203,203,584 - ----------- ------------ 423,450 8,717,339 5,368 2,491,649 - ----------- ------------ 428,818 11,208,988 - ----------- ------------ $924,084 $234,525,534 =========== ============
F-9 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
NEW ENGLAND ZENITH FUND ---------------------------------------------------------------------------------- CAPITAL BOND MONEY STOCK AVANTI GROWTH AND GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME SUB- SUB- SUB- SUB- SUB- SUB- SUB- ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ----------- ---------- ---------- ---------- ---------- ---------- ---------- INCOME Dividends............... $32,991,113 $2,579,133 $1,306,712 $ 841,454 $2,942,415 $1,494,679 $1,804,344 EXPENSE Mortality and expense risk charge (Note 3)... 2,981,244 192,456 160,903 168,590 158,607 137,775 100,738 ----------- ---------- ---------- ---------- ---------- ---------- ---------- Net investment income (loss)................. 30,009,869 2,386,677 1,145,809 672,864 2,783,808 1,356,904 1,703,606 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net unrealized appreciation (depreciation) on investments: Beginning of year...... 71,963,590 997,195 -- 2,853,587 5,216,548 2,881,100 2,105,777 End of year............ 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090 ----------- ---------- ---------- ---------- ---------- ---------- ---------- Net change in unrealized appreciation (depreciation)......... 66,045,815 (956,676) -- 4,779,426 921,081 1,942,216 1,001,313 Net realized gain (loss) on investments......... 985,421 299 -- 1,808 69,775 27,429 18,964 ----------- ---------- ---------- ---------- ---------- ---------- ---------- Net realized and unrealized gain (loss) on investments......... 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277 ----------- ---------- ---------- ---------- ---------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ $97,041,105 $1,430,300 $1,145,809 $5,454,098 $3,774,664 $3,326,549 $2,723,883 =========== ========== ========== ========== ========== ========== ==========
* For the period July 1, 1996 (Commencement of Operations) through December 31, 1996. See Notes to Financial Statements F-10
VARIABLE INSURANCE VARIABLE INSURANCE PRODUCTS PRODUCTS FUND FUND II - ---------------------------------------------------------------------------------- ------------------------------ --------- SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH ASSET CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME MANAGER SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- ACCOUNT ACCOUNT* ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT* ACCOUNT ACCOUNT ACCOUNT ACCOUNT - ---------- ---------- -------- ---------- ------------- ---------- ------------- ---------- ---------- -------- --------- $1,624,708 $ 702 $104,939 $ 44,863 $ 71,347 $ 444,012 $1,218 $2,662,990 $1,164,550 $199,463 $174,907 90,146 28 11,713 104,685 19,385 64,656 40 428,473 325,346 19,551 20,483 - ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- -------- 1,534,562 674 93,226 (59,822) 51,962 379,356 1,178 2,234,517 839,204 179,912 154,424 768,552 -- 3,769 65,901 24,089 171,931 -- 9,642,454 4,022,725 167,043 269,255 3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600 547,647 - ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- -------- 2,291,013 (819) 232,856 2,018,488 112,102 2,226,092 (1,153) 6,767,535 5,479,491 195,557 278,392 31,570 -- 2,318 11,723 159 4,907 -- 27,750 44,049 1,942 4,122 - ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- -------- 2,322,583 (819) 235,174 2,030,211 112,261 2,230,999 (1,153) 6,795,285 5,523,540 197,499 282,514 - ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- -------- $3,857,145 $(145) $328,400 $1,970,389 $164,223 $2,610,355 $ 25 $9,029,802 $6,362,744 $377,411 $436,938 ========== ===== ======== ========== ======== ========== ====== ========== ========== ======== ======== TOTAL - ------------ $ 50,453,549 4,984,819 - ------------ 45,468,730 101,153,516 194,486,245 - ------------ 93,332,729 1,232,236 - ------------ 94,564,965 - ------------ $140,033,695 ============
See Notes to Financial Statements F-11 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
NEW ENGLAND ZENITH FUND -------------------------------------------------------------------------------- GROWTH CAPITAL BOND MONEY STOCK AVANTI AND GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME SUB- SUB- SUB- SUB- SUB- SUB- SUB- ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ------------ ---------- ---------- ---------- ---------- ---------- ---------- INCOME Dividends............... $ 58,318,276 $1,844,411 $1,109,838 $ 627,118 $1,061,289 $ 535,217 $ 606,696 EXPENSE Mortality and expense risk charge (Note 3)... 2,173,846 143,873 112,033 95,240 113,501 77,636 52,633 ------------ ---------- ---------- ---------- ---------- ---------- ---------- Net investment income... 56,144,430 1,700,538 997,805 531,878 947,788 457,581 554,063 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net unrealized appreciation (depreciation) on investments: Beginning of year...... 9,892,073 (2,028,893) -- (1,645,744) 703,242 205,680 1,918 End of year............ 71,963,590 997,195 -- 2,853,587 5,216,548 2,881,100 2,105,777 ------------ ---------- ---------- ---------- ---------- ---------- ---------- Net change in unrealized appreciation (depreciation)......... 62,071,517 3,026,088 -- 4,499,331 4,513,306 2,675,420 2,103,859 Net realized gain (loss) on investments......... 1,613,390 7,382 -- 7,637 42,457 21,233 9,493 ------------ ---------- ---------- ---------- ---------- ---------- ---------- Net realized and unrealized gain on investments............ 63,684,907 3,033,470 -- 4,506,968 4,555,763 2,696,653 2,113,352 ------------ ---------- ---------- ---------- ---------- ---------- ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $119,829,337 $4,734,008 $ 997,805 $5,038,846 $5,503,551 $3,154,234 $2,667,415 ============ ========== ========== ========== ========== ========== ==========
* For the period May 1, 1995 (Commencement of Operations) through December 31, 1995. See Notes to Financial Statements F-12
VARIABLE INSURANCE VARIABLE INSURANCE PRODUCTS PRODUCTS FUND FUND II - ---------------------------------------------------- ------------------------------- --------- ------------ SMALL EQUITY INTERNATIONAL VENTURE EQUITY HIGH ASSET CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- ACCOUNT ACCOUNT* ACCOUNT* ACCOUNT* ACCOUNT* ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL - ---------- -------- -------- ------------- -------- ----------- ---------- -------- --------- ------------ $365,015 $17,538 $195,436 $12,460 $ 86,716 $ 2,284,557 $ 282,520 $ 8,412 $ 11,896 $ 67,367,395 24,746 743 11,686 2,165 7,251 233,864 240,253 6,639 9,537 3,305,646 - ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------ 340,269 16,795 183,750 10,295 79,465 2,050,693 42,267 1,773 2,359 64,061,749 4,662 -- -- -- -- 149,659 260,895 213 (1,503) 7,542,202 768,552 3,769 65,901 24,089 171,931 9,642,454 4,022,725 167,043 269,255 101,153,516 - ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------ 763,890 3,769 65,901 24,089 171,931 9,492,795 3,761,830 166,830 270,758 93,611,314 1,325 223 237 (34) 203 61,089 32,279 2,817 4,661 1,804,392 - ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------ 765,215 3,992 66,138 24,055 172,134 9,553,884 3,794,109 169,647 275,419 95,415,706 - ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------ $1,105,484 $20,787 $249,888 $34,350 $251,599 $11,604,577 $3,836,376 $171,420 $277,778 $159,477,455 ========== ======= ======== ======= ======== =========== ========== ======== ======== ============
See Notes to Financial Statements F-13 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
NEW ENGLAND ZENITH FUND ----------------------------------------------------------------------------------------- CAPITAL BOND MONEY STOCK AVANTI GROWTH AND GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ----------- ----------- ----------- ----------- ----------- ----------- INCOME Dividends $ -- $ -- $461,470 $ -- $ -- $ -- $ -- EXPENSE Mortality and expense risk charge (Note 3) 1,359,946 76,401 66,196 131,195 75,114 71,090 78,671 ------------ ---------- -------- ----------- ----------- ----------- ----------- Net investment income (loss) (1,359,946) (76,401) 395,274 (131,195) (75,114) (71,090) (78,671) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net unrealized appreciation (depreciation) on investments: Beginning of period 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,665 End of period 228,539,492 1,903,198 -- 29,340,264 14,054,624 11,727,138 12,591,830 ------------ ---------- -------- ----------- ----------- ----------- ----------- Net change in unrealized appreciation (depreciation) 137,173,129 1,011,139 -- 9,451,205 4,607,187 4,762,757 5,733,165 Net realized gain (loss) on investments -- -- -- -- -- -- -- ------------ ---------- -------- ----------- ----------- ----------- ----------- Net realized and unrealized gain (loss) on investments 137,173,129 1,011,139 -- 9,451,205 4,607,187 4,762,757 5,733,165 ------------ ---------- -------- ----------- ----------- ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $135,813,183 $ 934,738 $395,274 $ 9,320,010 $ 4,532,073 $ 4,691,667 $ 5,654,494 ============ ========== ======== =========== =========== =========== ===========
See Notes to Financial Statements F-14
VARIABLE INSURANCE PRODUCTS FUND - ------------------------------------------------------------------------------------------- ----------------------------------- SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ----------- ----------- ----------- ----------- ------------- ----------- ------------- ----------- ----------- ----------- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 8,088,940 $ 6,093,523 $1,064,286 110,409 1,190 20,860 108,809 23,546 126,568 5,614 224,751 139,750 15,964 - ----------- ------- ---------- ----------- ---------- ----------- ------- ----------- ----------- ---------- (110,409) (1,190) (20,860) (108,809) (23,546) (126,568) (5,614) 7,864,189 5,953,773 1,048,322 5,422,058 (1,916) 642,612 5,391,267 (155,005) 10,716,783 (2,256) 32,699,163 11,137,299 964,520 11,203,285 899 1,266,807 13,462,137 1,123,514 16,198,436 16,799 38,772,706 16,009,778 381,955 - ----------- ------- ---------- ----------- ---------- ----------- ------- ----------- ----------- ---------- 5,781,227 2,815 624,195 8,070,870 1,278,519 5,481,653 19,055 6,073,543 4,872,479 (582,565) -- -- -- -- -- -- -- -- -- -- - ----------- ------- ---------- ----------- ---------- ----------- ------- ----------- ----------- ---------- 5,781,227 2,815 624,195 8,070,870 1,278,519 5,481,653 19,055 6,073,543 4,872,479 (582,565) - ----------- ------- ---------- ----------- ---------- ----------- ------- ----------- ----------- ---------- $ 5,670,818 $ 1,625 $ 603,335 $ 7,962,061 $1,254,973 $ 5,355,085 $13,441 $13,937,732 $10,826,252 $ 465,757 =========== ======= ========== =========== ========== =========== ======= =========== =========== ========== VARIABLE INSURANCE PRODUCTS FUND II - ----------- ------------ ASSET MANAGER SUB-ACCOUNT TOTAL - ----------- ------------ $ 834,951 $ 16,543,170 11,344 2,647,418 - ----------- ------------ 823,607 13,895,752 971,097 203,203,586 663,628 397,256,490 - ----------- ------------ (307,469) 194,052,904 -- -- - ----------- ------------ (307,469) 194,052,904 - ----------- ------------ $ 516,138 $207,948,656 =========== ============
F-15 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
NEW ENGLAND ZENITH FUND ------------------------------------------------------------------------------------- GROWTH CAPITAL BOND MONEY STOCK AVANTI AND GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ----------- ----------- ----------- ----------- ----------- ----------- INCOME Dividends .............. $ -- $ -- $412,321 $ -- $ -- $ -- $ -- EXPENSE Mortality and expense risk charge (Note 3) .. 900,993 54,992 53,388 59,926 47,755 41,819 34,298 ----------- --------- -------- --------- --------- ----------- --------- Net investment income (loss) ................ (900,993) (54,992) 358,933 (59,926) (47,755) (41,819) (34,298) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ........ Net unrealized appreciation (depreciation) on investments: Beginning of period ... 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090 End of period ......... 153,141,313 (52,784) -- 8,420,247 6,740,164 3,473,231 3,409,503 ----------- --------- -------- --------- --------- ----------- --------- Net change in unrealized appreciation (depreciation) ........ 15,131,908 (93,303) -- 787,234 602,535 (1,350,085) 302,413 Net realized gain (loss) on investments ........ -- -- -- -- -- -- -- ----------- --------- -------- --------- --------- ----------- --------- Net realized and unrealized gain (loss) on investments ........ 15,131,908 (93,303) -- 787,234 602,535 (1,350,085) 302,413 ----------- --------- -------- --------- --------- ----------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ....... $14,230,915 $(148,295) $358,933 $ 727,308 $ 554,780 $(1,391,904) $ 268,115 =========== ========= ======== ========= ========= =========== =========
See Notes to Financial Statements F-16
VARIABLE INSURANCE PRODUCTS FUND ----------------------------------------------------------------------------------------- ------------------------------------- SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ----------- ----------- ----------- ------------- ----------- ------------- ----------- ----------- ----------- $ -- $-- $ -- $ -- $ -- $ -- $ -- $8,872,794 $5,434,055 $393,295 44,079 301 8,520 46,253 8,754 38,400 571 136,519 95,951 7,791 ---------- ----- -------- ---------- --------- --------- ------ ---------- ---------- -------- (44,079) (301) (8,520) (46,253) (8,754) (38,400) (571) 8,736,275 5,338,104 385,504 3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600 2,528,912 (887) 184,126 1,783,260 19,085 2,544,772 (1,557) 8,401,186 6,106,908 (43,017) ---------- ----- -------- ---------- --------- --------- ------ ---------- ---------- -------- (530,653) (68) (52,499) (301,129) (117,106) 146,749 (404) (8,008,803) (3,395,308) (405,617) -- -- -- -- -- -- -- -- -- -- ---------- ----- -------- ---------- --------- --------- ------ ---------- ---------- -------- (530,653) (68) (52,499) (301,129) (117,106) 146,749 (404) (8,008,803) (3,395,308) (405,617) ---------- ----- -------- ---------- --------- --------- ------ ---------- ---------- -------- $(574,732) $(369) $(61,019) $(347,382) $(125,860) $ 108,349 $ (975) $ 727,472 $1,942,796 $(20,113) ========== ===== ======== ========== ========= ========= ====== ========== ========== ======== VARIABLE INSURANCE PRODUCTS FUND II - ----------- ----------- ASSET MANAGER SUB-ACCOUNT TOTAL - ----------- ----------- $528,401 $15,640,866 6,661 1,586,971 - ----------- ----------- 521,740 14,053,895 547,647 194,486,245 11,516 196,665,978 - ----------- ----------- (536,131) 2,179,733 -- -- - ----------- ----------- (536,131) 2,179,733 - ----------- ----------- $(14,391) $16,233,628 =========== ===========
F-17 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
NEW ENGLAND ZENITH FUND ----------------------------------------------------------------------------------------------------------- GROWTH CAPITAL BOND MONEY STOCK AVANTI AND SMALL GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME CAP SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ------------- ----------- ------------- ------------ ----------- ----------- ----------- ----------- FROM OPERATING ACTIVITIES Net investment income......... $ 180,058,824 $ 3,166,035 $ 1,611,817 $ 748,956 $ 4,796,341 $ 2,573,687 $ 3,738,289 $ 6,004,065 Net realized and unrealized gain (loss) on investments.... (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295 2,383,449 ------------- ----------- ------------- ------------ ----------- ----------- ----------- ----------- Net Increase (decrease) in net assets resulting from operations.... 135,115,611 4,033,063 1,611,817 13,040,167 8,348,228 4,801,911 7,507,584 8,387,514 FROM POLICY- RELATED TRANSACTIONS Net premiums transferred from New England Life Insurance Company (Note 4)....... 115,563,292 9,916,442 112,790,933 11,030,326 6,066,893 8,052,822 6,483,236 12,931,007 Net transfers (to) from other sub-accounts... 19,184,703 2,250,884 (100,492,346) 13,670,086 2,168,458 728,467 6,112,407 13,551,252 Net transfers to New England Life Insurance Company........ (103,221,618) (7,435,545) (10,617,259) (11,516,905) (6,628,199) (5,007,957) (5,507,253) (8,882,069) ------------- ----------- ------------- ------------ ----------- ----------- ----------- ----------- Net Increase in net assets resulting from policy related transactions... 31,526,377 4,731,781 1,681,328 13,183,507 1,607,152 3,773,332 7,088,390 17,600,190 ------------- ----------- ------------- ------------ ----------- ----------- ----------- ----------- Net increase in net assets..... 166,641,988 8,764,844 3,293,145 26,223,674 9,955,380 8,575,243 14,595,974 25,987,704 NET ASSETS, AT BEGINNING OF THE YEAR....... 524,999,620 32,750,856 29,812,279 31,327,162 28,585,004 22,491,360 17,171,696 21,522,731 ------------- ----------- ------------- ------------ ----------- ----------- ----------- ----------- NET ASSETS, AT END OF THE YEAR........... $ 691,641,608 $41,515,700 $ 33,105,424 $ 57,550,836 $38,540,384 $31,066,603 $31,767,670 $47,510,435 ============= =========== ============= ============ =========== =========== =========== ===========
See Notes to Financial Statements F-18
VARIABLE INSURANCE PRODUCTS FUND - ------------------------------------------------------------------------------- -------------------------------------- U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT - ---------- ----------- ----------- ------------- ------------ ------------- ------------ ----------- ----------- $ 6,799 $ 387,489 $ 4,455,451 $ 157,687 $ 1,546,340 $ 34,514 $ 8,196,735 $ 4,986,458 $ 351,793 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154 -------- ----------- ----------- ----------- ------------ -------- ------------ ----------- ----------- 5,703 848,707 7,838,131 (125,207) 9,886,818 33,612 24,612,398 6,689,446 965,947 -- 2,146,406 14,606,449 3,056,999 13,157,429 -- 23,866,781 17,551,475 2,042,291 118,925 2,461,028 6,194,266 1,537,466 22,596,463 563,357 5,377,892 1,724,137 1,829,771 (9,482) (1,814,302) (8,772,068) (1,574,196) (10,885,947) (36,000) (18,885,322) (9,549,079) (1,756,377) -------- ----------- ----------- ----------- ------------ -------- ------------ ----------- ----------- 109,443 2,793,132 12,028,647 3,020,269 24,867,945 527,357 10,359,351 9,726,533 2,115,685 -------- ----------- ----------- ----------- ------------ -------- ------------ ----------- ----------- 115,146 3,641,839 19,866,778 2,895,062 34,754,763 560,969 34,971,749 16,415,979 3,081,632 46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768 72,359,572 51,409,341 4,098,641 -------- ----------- ----------- ----------- ------------ -------- ------------ ----------- ----------- $161,183 $ 6,875,248 $41,937,060 $ 7,133,037 $ 51,416,733 $587,737 $107,331,321 $67,825,320 $ 7,180,273 ======== =========== =========== =========== ============ ======== ============ =========== =========== VARIABLE INSURANCE PRODUCTS FUND II - ----------- --------------- ASSET MANAGER SUB- ACCOUNT TOTAL - ----------- --------------- $ 495,266 $ 223,316,546 428,818 11,208,988 - ----------- --------------- 924,084 234,525,534 1,403,144 360,665,925 422,784 -- (881,229) (212,980,807) - ----------- --------------- 944,699 147,685,118 - ----------- --------------- 1,868,783 382,210,652 3,580,095 886,384,798 - ----------- --------------- $5,448,878 $1,268,595,450 =========== ===============
See Notes to Financial Statements F-19 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
NEW ENGLAND ZENITH FUND ------------------------------------------------------------------------------------------- GROWTH CAPITAL BOND MONEY STOCK AVANTI AND GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ----------- ------------ ----------- ----------- ----------- ----------- FROM OPERATING ACTIVITIES Net investment income (loss)................. $ 30,009,869 $ 2,386,677 $ 1,145,809 $ 672,864 $ 2,783,808 $ 1,356,904 $ 1,703,606 Net realized and unrealized gain (loss) on investments......... 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Net Increase (decrease) in net assets resulting from operations............ 97,041,105 1,430,300 1,145,809 5,454,098 3,774,664 3,326,549 2,723,883 FROM POLICY-RELATED TRANSACTIONS Net premiums transferred from New England Life Insurance Company (Note 4)..................... 111,194,198 8,517,031 79,806,482 6,566,717 5,631,293 7,140,375 5,201,936 Net transfers (to) from other sub-accounts..... (1,541,352) 1,894,963 (61,482,739) 5,875,439 1,412,522 2,859,556 2,274,270 Net transfers to New England Life Insurance Company................ (76,528,987) (5,770,575) (9,089,129) (5,144,242) (4,232,475) (5,172,577) (3,338,671) ------------ ----------- ------------ ----------- ----------- ----------- ----------- Net Increase in net assets resulting from policy related transactions........... 33,123,859 4,641,419 9,234,614 7,297,914 2,811,340 4,827,354 4,137,335 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Net increase in net assets................. 130,164,964 6,071,719 10,380,423 12,752,012 6,586,004 8,153,903 6,861,218 NET ASSETS, AT BEGINNING OF THE YEAR............ 394,834,656 26,679,137 19,431,856 18,575,150 21,999,000 14,337,457 10,310,478 ------------ ----------- ------------ ----------- ----------- ----------- ----------- NET ASSETS, AT END OF THE YEAR............... $524,999,620 $32,750,856 $ 29,812,279 $31,327,162 $28,585,004 $22,491,360 $17,171,696 ============ =========== ============ =========== =========== =========== ===========
* For the period July 1, 1996 (Commencement of Operations) through December 31, 1996. See Notes to Financial Statements F-20
- -------------------------------------------------------------------------------------------- EQUITY SMALL U.S. GROWTH INTERNATIONAL VENTURE BOND CAP GOVERNMENT BALANCED SUB- EQUITY VALUE OPPORTUNITIES SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* - ----------- ------------ ----------- ----------- ------------- ----------- ------------- $ 1,534,562 $ 674 $ 93,226 $ (59,822) $ 51,962 $ 379,356 $ 1,178 2,322,583 (819) 235,174 2,030,211 112,261 2,230,999 (1,153) - ----------- ------- ---------- ----------- ----------- ----------- ------- 3,857,145 (145) 328,400 1,970,389 164,223 2,610,355 25 5,440,860 -- 811,932 9,286,073 1,454,605 4,876,053 -- 10,060,122 46,951 2,383,695 11,496,667 2,908,047 9,510,686 27,190 (4,380,392) (769) (708,829) (6,395,345) (1,242,748) (3,721,564) (447) - ----------- ------- ---------- ----------- ----------- ----------- ------- 11,120,590 46,182 2,486,798 14,387,395 3,119,904 10,665,175 26,743 - ----------- ------- ---------- ----------- ----------- ----------- ------- 14,977,735 46,037 2,815,198 16,357,784 3,284,127 13,275,530 26,768 6,544,996 -- 418,211 5,712,498 953,848 3,386,440 -- - ----------- ------- ---------- ----------- ----------- ----------- ------- $21,522,731 $46,037 $3,233,409 $22,070,282 $ 4,237,975 $16,661,970 $26,768 =========== ======= ========== =========== =========== =========== ======= VARIABLE INSURANCE VARIABLE INSURANCE PRODUCTS PRODUCTS FUND FUND II - --------------------------------------- ------------ -------------- EQUITY- HIGH ASSET INCOME OVERSEAS INCOME MANAGER SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL - ------------ ------------- ------------ ------------ -------------- $ 2,234,517 $ 839,204 $ 179,912 $ 154,424 $ 45,468,730 6,795,285 5,523,540 197,499 282,514 94,564,965 - ------------ ------------- ------------ ------------ -------------- 9,029,802 6,362,744 377,411 436,938 140,033,695 20,426,731 17,135,189 970,763 1,258,847 285,719,085 9,029,810 1,051,463 1,631,762 560,948 -- (13,479,623) (11,522,274) (623,788) (649,631) (152,002,266) - ------------ ------------- ------------ ------------ -------------- 15,976,918 6,664,378 1,978,737 1,170,164 133,716,819 - ------------ ------------- ------------ ------------ -------------- 25,006,720 13,027,122 2,356,148 1,607,102 273,750,514 47,352,852 38,382,219 1,742,493 1,972,993 612,634,284 - ------------ ------------- ------------ ------------ -------------- $72,359,572 $ 51,409,341 $4,098,641 $3,580,095 $ 886,384,798 ============ ============= ============ ============ ==============
See Notes to Financial Statements F-21 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
NEW ENGLAND ZENITH FUND ------------------------------------------------------------------------------------------- GROWTH CAPITAL BOND MONEY STOCK AVANTI AND GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ----------- ------------ ----------- ----------- ----------- ----------- FROM OPERATING ACTIVI- TIES Net investment income... $ 56,144,430 $ 1,700,538 $ 997,805 $ 531,878 $ 947,788 $ 457,581 $ 554,063 Net realized and unrealized gain on investments............ 63,684,907 3,033,470 -- 4,506,968 4,555,763 2,696,653 2,113,352 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Net Increase in net assets resulting from operations............ 119,829,337 4,734,008 997,805 5,038,846 5,503,551 3,154,234 2,667,415 FROM POLICY-RELATED TRANSACTIONS Net premiums transferred from New England Life Insurance Company (Note 4)..................... 100,611,223 7,330,838 40,457,027 4,559,195 4,757,562 5,407,500 3,473,273 Net transfers (to) from other sub-accounts..... (7,820,362) 2,481,090 (32,083,917) 2,734,513 286,111 3,131,998 2,645,617 Net transfers to New England Life Insurance Company................ (67,280,279) (4,616,930) (6,819,802) (3,436,368) (3,307,802) (3,767,486) (2,568,808) ------------ ----------- ------------ ----------- ----------- ----------- ----------- Net Increase in net assets resulting from policy related transactions........... 25,510,582 5,194,998 1,553,308 3,857,340 1,735,871 4,772,012 3,550,082 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Net increase in net assets................. 145,339,919 9,929,006 2,551,113 8,896,186 7,239,422 7,926,246 6,217,497 NET ASSETS, AT BEGINNING OF THE YEAR............ 249,494,737 16,750,131 16,880,743 9,678,964 14,759,578 6,411,211 4,092,981 ------------ ----------- ------------ ----------- ----------- ----------- ----------- NET ASSETS, AT END OF THE YEAR............... $394,834,656 $26,679,137 $ 19,431,856 $18,575,150 $21,999,000 $14,337,457 $10,310,478 ============ =========== ============ =========== =========== =========== ===========
* For the period May 1, 1995 (Commencement of Operations) through December 31, 1995. See Notes to Financial Statements F-22
VARIABLE INSURANCE VARIABLE INSURANCE PRODUCTS PRODUCTS FUND FUND II - ------------------------------------------------------------------- ------------------------------------- --------- SMALL EQUITY INTERNATIONAL VENTURE EQUITY- HIGH ASSET CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ----------- ------------ ------------ ------------- ------------ ----------- ----------- ----------- ----------- $ 340,269 $ 16,795 $ 183,750 $ 10,295 $ 79,465 $ 2,050,693 $ 42,267 $ 1,773 $ 2,359 765,215 3,992 66,138 24,055 172,134 9,553,884 3,794,109 169,647 275,419 - ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ---------- 1,105,484 20,787 249,888 34,350 251,599 11,604,577 3,836,376 171,420 277,778 2,237,626 81,978 1,048,361 241,835 625,044 13,985,879 17,076,602 395,370 696,227 4,814,141 409,874 5,735,744 948,764 3,228,499 12,483,761 (2,007,296) 1,503,857 1,507,606 (1,803,085) (94,428) (1,321,495) (271,101) (718,702) (9,853,532) (8,392,295) (358,576) (709,312) - ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ---------- 5,248,682 397,424 5,462,610 919,498 3,134,841 16,616,108 6,677,011 1,540,651 1,494,521 - ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ---------- 6,354,166 418,211 5,712,498 953,848 3,386,440 28,220,685 10,513,387 1,712,071 1,772,299 190,830 -- -- -- -- 19,132,167 27,868,832 30,422 200,694 - ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ---------- $ 6,544,996 $418,211 $ 5,712,498 $ 953,848 $3,386,440 $47,352,852 $38,382,219 $1,742,493 $1,972,993 =========== ======== =========== ========= ========== =========== =========== ========== ========== - -------------- TOTAL - -------------- $ 64,061,749 95,415,706 - -------------- 159,477,455 202,985,540 -- (115,320,001) - -------------- 87,665,539 - -------------- 247,142,994 365,491,290 - -------------- $ 612,634,284 ==============
See Notes to Financial Statements F-23 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
NEW ENGLAND ZENITH FUND ------------------------------------------------------------------------------------------- GROWTH CAPITAL BOND MONEY STOCK AVANTI AND GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME SUB- SUB- SUB- SUB- SUB- SUB- SUB- ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ------------ ----------- ------------ ----------- ----------- ----------- ----------- FROM OPERATING ACTIVITIES Net investment income (loss) ............... $ (1,359,946) $ (76,401) $ 395,274 $ (131,195) $ (75,114) $ (71,090) $ (78,671) Net realized and unrealized gain (loss) on investments ....... 137,173,129 1,011,139 -- 9,451,205 4,607,187 4,762,757 5,733,165 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Net increase in net assets resulting from operations .......... 135,813,183 934,738 395,274 9,320,010 4,532,073 4,691,667 5,654,494 FROM POLICY-RELATED TRANSACTIONS Net premiums transferred from New England Life Insurance Company (Note 4) ..... 31,524,433 2,508,936 36,098,434 2,838,291 1,465,442 2,146,084 2,314,584 Net transfers (to) from other sub-accounts ... 3,517,293 1,157,191 (31,659,585) 6,231,622 654,492 (192,918) 3,405,949 Net transfers (to) from New England Life Insurance Company .... (35,680,710) (1,003,657) (3,155,485) (4,132,922) (1,526,480) (1,584,162) (2,009,634) ------------ ----------- ------------ ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from policy related transactions . (638,984) 2,662,470 1,283,364 4,936,991 593,454 369,004 3,710,899 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Net increase in net assets ............... 135,174,199 3,597,208 1,678,638 14,257,001 5,125,527 5,060,671 9,365,393 NET ASSETS, AT BEGINNING OF THE PERIOD ............... 691,641,608 41,515,700 33,105,424 57,550,836 38,540,384 31,066,603 31,767,670 ------------ ----------- ------------ ----------- ----------- ----------- ----------- NET ASSETS, AT END OF THE PERIOD ........... $826,815,807 $45,112,908 $ 34,784,062 $71,807,837 $43,665,911 $36,127,274 $41,133,063 ============ =========== ============ =========== =========== =========== ===========
See Notes to Financial Statements F-24
VARIABLE INSURANCE PRODUCTS FUND - ------------------------------------------------------------------------------------------- ------------------------------------- SMALL U.S. EQUITY VENTURE BOND EQUITY- HIGH CAP GOVERNMENT BALANCED GROWTH INTERNATIONAL VALUE OPPORTUNITIES INCOME OVERSEAS INCOME SUB- SUB- SUB- SUB- EQUITY SUB- SUB- SUB- SUB- SUB- ACCOUNT ACCOUNT ACCOUNT ACCOUNT SUB- ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT - ----------- ---------- ---------- ------------ ------------- ----------- ------------- ------------ ----------- ---------- $ (110,409) $ (1,190) $ (20,860) $ (108,809) $ (23,546) $ (126,568) $ (5,614) $ 7,864,189 $ 5,953,773 $1,048,322 5,781,227 2,815 624,195 8,070,870 1,278,519 5,481,653 19,055 6,073,543 4,872,479 (582,565) - ----------- -------- ---------- ------------ ---------- ----------- -------- ------------ ----------- ---------- 5,670,818 1,625 603,335 7,962,061 1,254,973 5,355,085 13,441 13,937,732 10,826,252 465,757 4,312,164 -- 681,446 4,059,732 783,837 4,929,980 -- 6,389,053 4,503,263 596,395 3,385,719 3,079 645,712 1,891,804 (425,321) 7,814,039 237,047 2,536,689 (568,397) 1,237,258 (2,737,361) 10,348 (370,156) (3,791,682) (326,667) (3,455,761) 69,865 (5,411,019) (3,344,327) (432,556) - ----------- -------- ---------- ------------ ---------- ----------- -------- ------------ ----------- ---------- 4,960,522 13,427 957,002 2,159,854 31,849 9,288,258 306,912 3,514,723 590,539 1,401,097 - ----------- -------- ---------- ------------ ---------- ----------- -------- ------------ ----------- ---------- 10,631,340 15,052 1,560,337 10,121,915 1,286,822 14,643,343 320,353 17,452,455 11,416,791 1,866,854 47,510,435 161,183 6,875,248 41,937,060 7,133,037 51,416,733 587,737 107,331,321 67,825,320 7,180,273 - ----------- -------- ---------- ------------ ---------- ----------- -------- ------------ ----------- ---------- $58,141,775 $176,235 $8,435,585 $ 52,058,975 $8,419,859 $66,060,076 $908,090 $124,783,776 $79,242,111 $9,047,127 =========== ======== ========== ============ ========== =========== ======== ============ =========== ========== VARIABLE INSURANCE PRODUCTS FUND II - ----------- --------------- ASSET MANAGER SUB- ACCOUNT TOTAL - ----------- --------------- $ 823,607 $ 13,895,752 (307,469) 194,052,904 - ----------- --------------- 516,138 207,948,656 555,057 105,707,131 128,327 -- (249,718) (69,132,084) - ----------- --------------- 433,666 36,575,047 - ----------- --------------- 949,804 244,523,703 5,448,878 1,268,595,450 - ----------- --------------- $6,398,682 $1,513,119,153 =========== ===============
F-25 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
NEW ENGLAND ZENITH FUND ------------------------------------------------------------------------------------------ GROWTH CAPITAL BOND MONEY STOCK AVANTI AND GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME SUB- SUB- SUB- SUB- SUB- SUB- SUB- ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ------------ ----------- ----------- ----------- ----------- ----------- ----------- FROM OPERATING ACTIVITIES Net investment income (loss)............... $ (900,993) $ (54,992) $ 358,933 $ (59,926) $ (47,755) $ (41,819) $ (34,298) Net realized and unrealized gain (loss) on investments.......... 15,131,908 (93,303) -- 787,234 602,535 (1,350,085) 302,413 ------------ ----------- ----------- ----------- ----------- ----------- ----------- Net Increase (decrease) in net assets resulting from operations..... 14,230,915 (148,295) 358,933 727,308 554,780 (1,391,904) 268,115 FROM POLICY-RELATED TRANSACTIONS Net premiums transferred from New England Life Insurance Company (Note 4)............. 28,014,580 2,199,642 23,099,255 2,057,572 1,439,000 2,029,690 1,403,484 Net transfers (to) from other sub- accounts............. (91,496) 107,865 (18,114,943) 2,988,353 387,696 717,709 789,760 Net transfers to New England Life Insurance Company.... (26,501,970) (1,981,732) (3,039,397) (2,473,583) (1,727,053) (1,368,087) (1,312,128) ------------ ----------- ----------- ----------- ----------- ----------- ----------- Net Increase in net assets resulting from policy related transactions......... 1,421,114 325,775 1,944,915 2,572,342 99,643 1,379,312 881,116 ------------ ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets............... 15,652,029 177,480 2,303,848 3,299,650 654,423 (12,592) 1,149,231 NET ASSETS, AT BEGINNING OF THE PERIOD............... 524,999,620 32,750,856 29,812,279 31,327,162 28,585,004 22,491,360 17,171,696 ------------ ----------- ----------- ----------- ----------- ----------- ----------- NET ASSETS, AT END OF THE PERIOD........... $540,651,649 $32,928,336 $32,116,127 $34,626,812 $29,239,427 $22,478,768 $18,320,927 ============ =========== =========== =========== =========== =========== ===========
See Notes to Financial Statements F-26
VARIABLE INSURANCE PRODUCTS FUND - ------------------------------------------------------------------------------------------ ------------------------------------ SMALL U.S. EQUITY VENTURE BOND EQUITY- HIGH CAP GOVERNMENT BALANCED GROWTH INTERNATIONAL VALUE OPPORTUNITIES INCOME OVERSEAS INCOME SUB- SUB- SUB- SUB- EQUITY SUB- SUB- SUB- SUB- SUB- ACCOUNT ACCOUNT ACCOUNT ACCOUNT SUB- ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT - ----------- ---------- ---------- ----------- ------------- ----------- ------------- ----------- ----------- ---------- $ (44,079) $ (301) $ (8,520) $ (46,253) $ (8,754) $ (38,400) $ (571) $ 8,736,275 $ 5,338,104 $ 385,504 (530,653) (68) (52,499) (301,129) (117,106) 146,749 (404) (8,008,803) (3,395,308) (405,617) - ----------- ------- ---------- ----------- ---------- ----------- -------- ----------- ----------- ---------- (574,732) (369) (61,019) (347,382) (125,860) 108,349 (975) 727,472 1,942,796 (20,113) 2,614,881 -- 479,012 3,485,633 537,259 2,235,369 -- 6,078,065 4,309,590 471,412 3,712,376 8,141 790,576 1,437,554 184,460 5,101,599 205,164 1,195,723 296,427 344,865 (2,102,861) (1,934) (343,271) (2,214,397) (415,212) (2,023,274) (4,471) (4,608,002) (3,643,272) (400,395) - ----------- ------- ---------- ----------- ---------- ----------- -------- ----------- ----------- ---------- 4,224,396 6,207 926,317 2,708,790 306,507 5,313,694 200,693 2,665,786 962,745 415,882 - ----------- ------- ---------- ----------- ---------- ----------- -------- ----------- ----------- ---------- 3,649,664 5,838 865,298 2,361,408 180,647 5,422,043 199,718 3,393,258 2,905,541 395,769 21,522,731 46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768 72,359,572 51,409,341 4,098,641 - ----------- ------- ---------- ----------- ---------- ----------- -------- ----------- ----------- ---------- $25,172,395 $51,875 $4,098,707 $24,431,690 $4,418,622 $22,084,013 $226,486 $75,752,830 $54,314,882 $4,494,410 =========== ======= ========== =========== ========== =========== ======== =========== =========== ========== VARIABLE INSURANCE PRODUCTS FUND II - ----------- ------------- ASSET MANAGER SUB- ACCOUNT TOTAL - ----------- ------------- $ 521,740 $ 14,053,895 (536,131) 2,179,733 - ----------- ------------- (14,391) 16,233,628 458,555 80,912,999 (61,829) -- (135,879) (54,296,918) - ----------- ------------- 260,847 26,616,081 - ----------- ------------- 246,456 42,849,709 3,580,095 886,384,798 - ----------- ------------- $3,826,551 $929,234,507 =========== =============
F-27 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 1. NATURE OF BUSINESS. New England Variable Life 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 January 31, 1983 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 as 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 eighteen investment sub-accounts each of which invest in the shares of one portfolio of the New England Zenith Fund ("Zenith Fund"), the Variable Insurance Products Fund or the Variable Insurance Products Fund II. The portfolios of the Zenith Fund, the Variable Insurance Products Fund and the Variable Insurance Products Fund II in which the sub-accounts invest are referred to herein as the "Eligible Funds". The Zenith Fund, the Variable Insurance Products Fund and the Variable Insurance Products Fund II are diversified, open-end management investment companies. The Account purchases or redeems shares of the eighteen Eligible Funds based on the amount of net premiums invested in the Account, transfers among the sub-accounts, policy loans, surrender 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 RISK CHARGES. NELICO charges the Account for the mortality and expense risk NELICO assumes. The mortality risk assumed by NELICO is the risk that insureds may live for shorter periods of time than NELICO estimated when setting its cost of insurance charges. The expense risk assumed by NELICO is the risk that the deductions for sales and administrative charges may prove insufficient to cover actual cost. If these deductions are insufficient to cover the cost of the mortality and expense risk assumed by NELICO, NELICO absorbs the resulting losses and makes sufficient transfers to the Fund from its general assets. Conversely, if those deductions are more than sufficient after the establishment of any contingency reserves deemed prudent or required by law, the excess is retained by NELICO. Currently, the charges are made daily at an annual rate of .35% of the Account assets attributable to fixed premium ("Zenith Life") variable policies, .45% of the Account assets attributable to single premium ("Zenith Life One") variable life policies, .60% of the Account assets attributable to variable ordinary ("Zenith Life Plus", "Zenith Life Plus II" and "Zenith Variable Whole Life") life policies and limited payment ("Zenith Life Executive 65") variable life policies, .90% of the Account assets attributable to variable survivorship ("Zenith Survivorship Life") life policies, and .75% of the Account assets attributable to flexible premium ("Zenith Flexible Life") variable life policies. For the modified single premium ("American Gateway") variable life policies mortality and expense risk charges are not charged daily against the sub-account assets but are deducted from the policy cash values monthly at an annual rate of .90%. 4. NET PREMIUM TRANSFERS AND DEDUCTIONS FROM CASH VALUE. Certain deductions are made from each premium payment paid to NELICO to arrive at a net premium that is transferred to the Account. Certain deductions are made from cash value in the sub-accounts. These deductions, depending on the policy, could include sales loads, F-28 administrative charges, premium tax charges, risk charges, cost of insurance charges, and charges for rider benefits and special risk charges. 5. 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. 6. 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 an indirect subsidiary of NELICO, Capital Growth Management Limited Partnership ("CGM"), and each of the sub-advisers are registered with the SEC as investment advisers under the Investment Advisers Act of 1940.
SERIES ADVISER SUB-ADVISER ------ ------------------ ------------------------------------- Capital Growth CGM* -- Back Bay Advisors Money TNE Advisers, Inc. Back Bay Advisors, L.P.* Market Back Bay Advisors Bond TNE Advisers, Inc. Back Bay Advisors, L.P.* Income Back Bay Advisors TNE Advisers, Inc. Back Bay Advisors, L.P.* Managed Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.* Westpeak Growth and TNE Advisers, Inc. Westpeak Investment Advisors, L.P.* Income Loomis Sayles Avanti TNE Advisers, Inc. Loomis, Sayles & Company, L.P.* Growth 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 Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P. Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc. Salomon Brothers U.S. TNE Advisers, Inc. Salomon Brothers Asset Management Inc Government Salomon Brothers TNE Advisers, Inc. Salomon Brothers Asset Management Inc Strategic Bond Opportunities
* An affiliate of NELICO 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. On January 28, 1998, the 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 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 subadviser 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. F-29 7. 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:
PURCHASES SALES ------------ ------------ Capital Growth Series $190,848,855 $152,123,058 Back Bay Advisors Money Market Series 165,843,613 162,797,235 Back Bay Advisors Bond Income Series 19,577,841 13,951,014 Back Bay Advisors Managed Series 12,248,935 9,123,459 Westpeak Stock Index Series 31,190,566 13,926,513 Westpeak Growth and Income Series 16,870,544 7,986,008 Loomis Sayles Avanti Growth Series 14,966,505 10,913,924 Loomis Sayles Small Cap Series 35,774,167 14,288,925 Loomis Sayles Balanced Series 6,944,300 3,461,274 Morgan Stanley International Magnum Equity Series 7,071,617 3,577,480 Davis Venture Value Series 41,982,387 11,519,957 Alger Equity Growth Series 27,712,451 13,170,766 Salomon Brothers U.S. Government Series 315,478 195,450 Salomon Brothers Strategic Bond Opportunities Series 711,406 148,625 VIP Equity-Income Portfolio 43,541,020 28,601,305 VIP Overseas Portfolio 33,752,160 24,396,016 VIP High Income Portfolio 5,573,049 2,765,596 VIP II Asset Manager Portfolio 3,323,050 2,105,248
F-30 8. NET INVESTMENT RETURNS. The following table shows the net investment return of the sub-account for each type of variable life insurance policy investing in the Account. The net investment return reflects the appropriate mortality and expense risk charge against sub-account assets, where applicable, for each type of variable life insurance policy shown (in the case of American Gateway Series, the mortality and expense risk charge is deducted monthly from the cash values rather than daily from sub-account assets and, therefore, does not impact sub-account net investment returns). These figures do not reflect charges deducted from premiums and the cash values of the policies. Such charges will affect the actual cash values and benefits of the policies. Certain amounts have been restated to conform with the current calculation of net investment return to provide greater comparability with industry convention. FIXED PREMIUM ("ZENITH LIFE") POLICIES
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS ----------------------------------------------------------------------------------------- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Capital Growth.......... (9.11%) 30.30% (3.82%) 53.45% (6.38%) 14.57% (7.39%) 37.55% 20.65% 23.05% Bond Income............. 7.99% 11.91% 7.71% 17.55% 7.80% 12.22% (3.70%) 20.78% 4.24% 10.50% Money Market............ 7.14% 8.87% 7.81% 5.84% 3.43% 2.61% 3.61% 5.33% 4.76% 4.97% 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Stock Index............. 15.93% 29.70% (4.48%) 29.98% 6.92% 9.34% 0.76% 36.44% 22.04% 32.03% Managed................. 9.10% 18.67% 2.85% 19.75% 6.33% 10.26% (1.46%) 30.81% 14.62% 26.12% 4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- Avanti Growth........................................................ 14.47% (0.62%) 29.90% 17.20% 16.91% Growth and Income.................................................... 13.97% (1.55%) 35.99% 17.68% 33.01% 4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- Equity-Income........................................................ 9.29% 6.69% 34.62% 13.88% 27.66% Overseas............................................................. 14.57% 1.37% 9.30% 12.82% 11.17% 5/2/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- Small Cap..................................................................... (3.45%) 28.40% 30.22% 24.42% 8/31/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- High Income................................................................... (0.58%) 20.18% 13.63% 17.26% Asset Manager................................................................. (4.41%) 16.55% 14.20% 20.23% 5/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- Equity Growth.......................................................................... 24.84% 12.78% 25.19% Balanced............................................................................... 13.75% 16.50% 15.77% International Equity................................................................... 3.85% 6.30% (1.64%) Venture Value.......................................................................... 21.64% 25.40% 33.03%
F-31 SINGLE PREMIUM ("ZENITH LIFE ONE") POLICIES
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS ----------------------------------------------------------------------------------------- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Capital Growth.......... (9.20%) 30.17% (3.91%) 53.29% (6.47%) 14.46% (7.38%) 37.41% 20.53% 22.92% Bond Income............. 7.88% 11.79% 7.60% 17.43% 7.69% 12.10% (3.80%) 20.66% 4.14% 10.39% Money Market............ 7.03% 8.77% 7.71% 5.74% 3.33% 2.51% 3.35% 5.23% 4.65% 4.87% 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Stock Index............. 15.82% 29.57% (4.58%) 29.85% 6.81% 9.23% 0.66% 36.30% 21.91% 31.90% Managed................. 8.99% 18.55% 2.75% 19.63% 6.22% 10.15% (1.56%) 30.67% 14.51% 25.99% 4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- Avanti Growth........................................................ 14.39% (0.72%) 29.77% 17.08% 16.80% Growth and Income.................................................... 13.90% (1.65%) 35.85% 17.56% 32.87% 4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- Equity Income........................................................ 9.22% 6.59% 34.49% 13.77% 27.53% Overseas............................................................. 14.49% 1.27% 9.19% 12.70% 11.05% 5/2/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- Small Cap..................................................................... (3.52%) 28.27% 30.09% 24.29% 8/31/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- High Income................................................................... (0.61%) 20.06% 13.52% 17.14% Asset Manager................................................................. (4.45%) 16.43% 14.09% 20.11% 5/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- Equity Growth.......................................................................... 24.76% 12.66% 25.06% Balanced............................................................................... 13.67% 16.39% 15.66% International Equity................................................................... 3.79% 6.19% (1.74%) Venture Value.......................................................................... 21.56% 25.27% 32.90%
F-32 VARIABLE ORDINARY ("ZENITH LIFE PLUS", "ZENITH LIFE PLUS II" AND "ZENITH VARIABLE WHOLE LIFE") AND LIMITED PAYMENT ("ZENITH LIFE EXECUTIVE 65") POLICIES
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS ----------------------------------------------------------------------------------------- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Capital Growth.......... (9.34%) 29.98% (4.06%) 53.06% (6.61%) 14.28% (7.62%) 37.21% 20.34% 22.74% Bond Income............. 7.72% 11.63% 7.44% 17.25% 7.53% 11.94% (3.94%) 20.47% 3.98% 10.23% Money Market............ 6.87% 8.60% 7.54% 5.58% 3.18% 2.36% 3.35% 5.07% 4.50% 4.71% 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Stock Index............. 15.65% 29.37% (4.72%) 29.65% 6.65% 9.07% 0.51% 36.10% 21.73% 31.70% Managed................. 8.83% 18.37% 2.59% 19.45% 6.06% 9.99% (1.70%) 30.48% 14.34% 25.81% 4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- Avanti Growth........................................................ 14.28% (0.87%) 29.57% 16.90% 16.62% Growth and Income.................................................... 13.78% (1.80%) 35.65% 17.38% 32.67% 4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- Equity-Income........................................................ 9.11% 6.43% 34.29% 13.59% 27.34% Overseas............................................................. 14.38% 1.12% 9.02% 12.53% 10.89% 5/2/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- Small Cap..................................................................... (3.61%) 28.08% 29.90% 24.11% 8/31/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- High Income................................................................... (0.66%) 19.88% 13.35% 16.96% Asset Manager................................................................. (4.49%) 16.26% 13.91% 19.93% 5/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- Equity Growth.......................................................................... 24.64% 12.49% 24.88% Balanced............................................................................... 13.56% 16.21% 15.48% International Equity................................................................... 3.68% 6.03% (1.89%) Venture Value.......................................................................... 21.44% 25.08% 32.70%
F-33 VARIABLE SURVIVORSHIP ("ZENITH SURVIVORSHIP LIFE") POLICIES
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS ----------------------------------------------------------------------------------------- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Capital Growth.......... (9.61%) 29.59% (4.35%) 52.61% (6.90%) 13.94% (7.90%) 36.80% 19.98% 22.37% Bond Income............. 7.40% 11.29% 7.11% 16.90% 7.21% 11.60% (4.23%) 20.12% 3.67% 9.90% Money Market............ 6.55% 8.28% 7.22% 5.26% 2.87% 2.05% 3.04% 4.75% 4.18% 4.39% 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Stock Index............. 15.30% 28.99% (5.01%) 29.27% 6.33% 8.74% 0.21% 35.69% 21.36% 31.31% Managed................. 8.50% 18.02% 2.28% 19.10% 5.74% 9.69% (2.00%) 30.09% 13.99% 25.43% 4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- Avanti Growth........................................................ 14.05% (1.16%) 29.19% 16.55% 16.27% Growth and Income.................................................... 13.55% (2.09%) 35.25% 17.03% 32.28% 4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- Equity-Income........................................................ 8.89% 6.11% 33.89% 13.25% 26.96% Overseas............................................................. 14.15% 0.82% 8.70% 12.19% 10.56% 5/2/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- Small Cap..................................................................... (3.80%) 27.69% 29.50% 23.73% 8/31/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- High Income................................................................... (0.76%) 19.53% 13.00% 16.61% Asset Manager................................................................. (4.59%) 15.91% 13.57% 19.57% 5/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- Equity Growth.......................................................................... 24.39% 12.15% 24.50% Balanced............................................................................... 13.33% 15.86% 15.14% International Equity................................................................... 3.48% 5.71% (2.18%) Venture Value.......................................................................... 21.20% 24.71% 32.30%
F-34 FLEXIBLE PREMIUM ("ZENITH FLEXIBLE LIFE") POLICIES
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS ----------------------------------------------------------------------------------------- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Capital Growth.......... (9.47%) 31.88% (5.73%) 52.83% (6.75%) 14.11% (7.76%) 37.00% 20.16% 22.56% Bond Income............. 7.56% 11.46% 7.28% 17.08% 7.37% 11.77% (4.08%) 20.29% 3.82% 10.06% Money Market............ 6.71% 8.44% 7.38% 5.42% 3.02% 2.20% 3.20% 4.91% 4.34% 4.55% 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Stock Index............. 15.47% 29.18% (4.86%) 29.46% 6.49% 8.90% 0.36% 35.90% 21.55% 31.51% Managed................. 8.67% 18.20% 2.44% 19.28% 5.90% 9.82% (1.85%) 30.28% 14.16% 25.62% 4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- Avanti Growth........................................................ 14.16% (1.01%) 29.38% 16.72% 16.45% Growth and Income.................................................... 13.67% (1.94%) 35.45% 17.21% 32.47% 4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- Equity-Income........................................................ 9.00% 6.27% 34.09% 13.42% 27.15% Overseas............................................................. 14.26% 0.97% 8.86% 12.36% 10.72% 5/2/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- Small Cap..................................................................... (3.71%) 27.88% 29.70% 23.92% 8/31/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- High Income................................................................... (0.71%) 19.71% 13.17% 16.79% Asset Manager................................................................. (4.54%) 16.08% 13.74% 19.75% 5/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- Equity Growth.......................................................................... 24.51% 12.32% 24.69% Balanced............................................................................... 13.44% 16.03% 15.31% International Equity................................................................... 3.58% 5.87% (2.04%) Venture Value.......................................................................... 21.32% 24.89% 32.50%
F-35 MODIFIED SINGLE PREMIUM ("AMERICAN GATEWAY") POLICIES
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS ----------------------------------------------------------------------------------------- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Bond Income............. 8.37% 12.30% 8.09% 17.96% 8.18% 12.61% (3.36%) 21.20% 4.61% 10.89% Money Market............ 7.52% 9.25% 8.19% 6.21% 3.80% 2.97% 3.97% 5.70% 5.13% 5.34% 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Stock Index............. 16.34% 30.15% (4.14%) 30.43% 7.30% 9.72% 1.12% 36.92% 22.47% 32.50% Managed................. 9.48% 19.08% 3.21% 20.17% 6.70% 10.65% (1.11%) 31.26% 15.03% 26.56% 4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- -------- Avanti Growth........................................................ 14.74% (0.27%) 30.35% 17.61% 17.32% Growth and Income.................................................... 14.24% (1.21%) 36.47% 18.10% 33.47% 5/2/94- 1/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- -------- Small Cap..................................................................... (3.23%) 28.84% 30.68% 24.85% 5/1/95- 1/1/96- 1/1/97- SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 - ----------- -------- -------- -------- Equity Growth.......................................................................... 25.13% 13.17% 25.63% Balanced............................................................................... 14.01% 16.91% 16.18% International Equity................................................................... 4.01% 6.67% (1.30%) Venture Value.......................................................................... 21.92% 25.84% 33.50% 6/28/96- 1/1/97- SUB-ACCOUNT 12/31/96 12/31/97 - ----------- -------- -------- U.S. Government................................................................................. 4.55% 8.47% Strategic Bond Opportunities.................................................................... 8.46% 11.07%
The net investment return of a sub-account is calculated by taking the difference between the sub-account's ending value and the beginning value for the period and dividing it by the beginning value for the period. F-36 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 NEW ENGLAND LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, --------------------- MARCH 31, NOTES 1997 1996 1998 ----- ---------- ---------- ----------- (UNAUDITED) ASSETS Investments: Fixed Maturities: Available for Sale, at Estimated Fair Value............................... 2,11 $ 734,391 $ 524,285 $ 747,114 Held to Maturity, at Amortized Cost.. 2 -- 29,666 -- Equity Securities..................... 2,11 9,399 -- 12,020 Policy Loans.......................... 11 104,783 76,263 112,789 Real Estate........................... 2,757 1,702 -- Short-Term Investments................ 11 27,944 156,560 15,296 Other Invested Assets................. 24,349 12,956 21,869 ---------- ---------- ---------- Total Investments.................. 903,623 801,432 909,088 Cash and Cash Equivalents.............. 11 74,148 49,147 54,591 Deferred Policy Acquisition Costs...... 565,769 434,637 606,466 Accrued Investment Income.............. 18,712 13,713 21,515 Premiums and Other Receivables......... 4 63,036 5,941 72,923 Other Assets........................... 62,326 95,106 83,906 Separate Account Assets................ 1,988,225 1,206,959 2,402,826 ---------- ---------- ---------- TOTAL ASSETS....................... $3,675,839 $2,606,935 $4,151,315 ========== ========== ========== LIABILITIES AND EQUITY LIABILITIES Future Policy Benefits................. 4 $ 500,429 $ 464,889 $ 526,569 Policyholder Account Balances.......... 4,11 240,411 181,594 255,999 Other Policyholder Funds............... 11 8,380 2,071 11,283 Policyholder Dividends Payable......... 14,719 9,018 14,841 Short and Long-Term Debt............... 8,11 85,981 84,057 85,121 Income Taxes Payable: 5 Current............................... 9,102 6,272 11,877 Deferred.............................. 42,066 39,463 42,350 Due to Parent.......................... 107,337 40,225 122,523 Other Liabilities...................... 45,647 21,965 43,256 Separate Account Liabilities........... 1,988,225 1,206,959 2,402,826 ---------- ---------- ---------- TOTAL LIABILITIES.................. 3,042,297 2,056,513 3,516,645 ---------- ---------- ---------- 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 2,500 Contributed Capital.................... 545,477 497,946 545,537 Retained Earnings...................... 68,218 46,249 69,708 Net Unrealized Investment Gains........ 3 17,347 3,727 16,925 ---------- ---------- ---------- TOTAL EQUITY....................... 12 633,542 550,422 634,670 ---------- ---------- ---------- TOTAL LIABILITIES AND EQUITY........... $3,675,839 $2,606,935 $4,151,315 ========== ========== ==========
See accompanying notes to consolidated financial statements. N-2 NEW ENGLAND LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF EARNINGS (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, THREE MONTHS -------------------------- ENDED NOTES 1997 1996 1995 MARCH 31, 1998 ----- -------- -------- -------- -------------- (UNAUDITED) REVENUES Premiums....................... 4 $ 63,616 $ 37,410 $ 38,566 $ 41,498 Universal Life and Investment- Type Product Policy Fee Income........................ 145,157 101,756 79,371 32,684 Net Investment Income.......... 3 61,059 49,628 41,815 15,020 Investment Gains (Losses), Net. 3 890 8,822 10,514 265 Commissions, Fees and Other Income........................ 28,302 44,930 34,555 13,969 -------- -------- -------- -------- TOTAL REVENUES............... 299,024 242,546 204,821 103,436 -------- -------- -------- -------- BENEFITS AND OTHER DEDUCTIONS Policyholder Benefits.......... 4 100,180 65,520 55,810 34,475 Interest Credited to Policyholder Account Balances. 6,220 5,558 2,564 1,893 Policyholder Dividends......... 21,325 14,830 13,954 4,855 Other Operating Costs and Expenses...................... 10 144,342 143,886 99,424 59,976 -------- -------- -------- -------- TOTAL BENEFITS AND OTHER DEDUCTIONS.................. 272,067 229,794 171,752 101,199 -------- -------- -------- -------- Earnings from Operations before Income Taxes.................. 26,957 12,752 33,069 2,237 Income Taxes................... 5 4,988 3,051 12,303 747 -------- -------- -------- -------- NET EARNINGS................... $ 21,969 $ 9,701 $ 20,766 $ 1,490 ======== ======== ======== ========
See accompanying notes to consolidated financial statements. N-3 NEW ENGLAND LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
COMMON STOCK & NET UNREALIZED CONTRIBUTED RETAINED INVESTMENT CAPITAL EARNINGS GAINS (LOSSES) TOTAL ----------- -------- -------------- -------- 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 ======== ======= ======== ========
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (DOLLARS IN THOUSANDS) (UNAUDITED)
COMMON STOCK & NET UNREALIZED CONTRIBUTED RETAINED INVESTMENT CAPITAL EARNINGS GAINS (LOSSES) TOTAL ----------- -------- -------------- -------- BALANCE AT DECEMBER 31, 1997..... $547,977 $68,218 $17,347 $633,542 Net Earnings..................... -- 1,490 -- 1,490 Change in Net Unrealized Investment Gains (Losses)....... -- -- (422) (422) Contributed Capital.............. 60 -- -- 60 -------- ------- ------- -------- BALANCE AT MARCH 31, 1998........ $548,037 $69,708 $16,925 $634,670 ======== ======= ======= ========
See accompanying notes to consolidated financial statements. N-4 NEW ENGLAND LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
THREE MONTHS YEARS ENDED DECEMBER 31, ENDED ------------------------------- MARCH 31, 1997 1996 1995 1998 --------- --------- --------- ------------ (UNAUDITED) NET CASH USED BY OPERATING ACTIVITIES...................... $(121,838) $ (85,674) $(111,834) $(59,097) --------- --------- --------- -------- Cash Flows from Investing Activities: Sales, Maturities and Repayments of: Available for Sale Fixed Maturities..................... 178,003 276,420 538,297 12,763 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) (12,446) 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 17,361 Net Change in Policy Loans...... (28,520) (18,052) (14,243) (8,006) Other, Net...................... 177 67 (114) (1,793) --------- --------- --------- -------- NET CASH USED BY INVESTING ACTIVITIES...................... (47,756) (139,570) (79,631) (7,879) --------- --------- --------- -------- Cash Flows from Financing Activities: Capital Contributions........... 46,681 159,162 9,515 60 Borrowed Money.................. (3,181) -- 25,000 (2,208) Policyholder Account Balances Deposits........................ 244,338 482,552 281,762 63,575 Withdrawals..................... (95,066) (364,933) (148,403) (31,231) Financial Reinsurance Receivables.................... 1,823 (37,519) -- 1,465 --------- --------- --------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES...................... 194,595 239,262 167,874 31,661 --------- --------- --------- -------- Change in Cash and Cash Equivalents..................... 25,001 14,018 (23,591) (19,557) Cash and Cash Equivalents, Beginning of Year............... 49,147 35,129 58,720 74,148 --------- --------- --------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR............................ $ 74,148 $ 49,147 $ 35,129 $ 54,591 ========= ========= ========= ======== Supplemental Cash Flow Information: Interest Paid................... $ 1,495 $ 1,523 $ 1,277 $ 374 ========= ========= ========= ======== Income Taxes Paid............... $ 5,470 $ 4,721 $ 6,765 $ 2,612 ========= ========= ========= ======== NET EARNINGS..................... $ 21,969 $ 9,701 $ 20,766 $ 1,490 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) (41,846) Change in Accrued Investment Income......................... (4,999) 909 (11,507) (2,803) Change in Premiums and Other Receivables.................... (57,095) 4,370 (4,073) (9,887) Gains from Sales of Investments, Net............................ (890) (15,979) (21,980) 265 Depreciation and Amortization Expenses....................... 10,085 4,120 5,725 2,521 Interest Credited to Policyholder Account Balances.. 6,220 5,558 2,565 1,893 Universal Life and Investment- Type Product Policy Fee Income. -- (101,756) (79,371) -- Change in Future Policy Benefits....................... 35,540 18,202 14,539 26,140 Change in Other Policyholder Funds.......................... 6,309 (283) 1,789 15,588 Change in Policyholder Dividends Payable........................ 5,701 1,671 114 (122) Change in Income Taxes Payable.. 1,674 (6,634) 10,211 284 Other, Net...................... (5,774) 63,073 (4,789) (52,620) --------- --------- --------- -------- NET CASH USED BY OPERATING ACTIVITIES...................... $(121,838) $ (85,674) $(111,834) $(59,097) ========= ========= ========= ========
See accompanying notes to consolidated financial statements. N-5 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 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 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 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 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 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
GROSS UNREALIZED AMORTIZED -----------------ESTIMATED COST GAIN LOSS FAIR VALUE --------- -------- ------------------ 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 GROSS UNREALIZED AMORTIZED -----------------ESTIMATED COST GAIN LOSS FAIR VALUE --------- -------- ------------------ 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 GROSS UNREALIZED AMORTIZED -----------------ESTIMATED COST GAIN LOSS FAIR VALUE --------- -------- ------------------ 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 ======== ======== ======= ========
N-11 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:
1997 1996 ---- ---- Net unrealized gains on investments................................ $281 $ 8 Unrealized gains (losses) on the maturity of forward contracts..... 14 14 ---- --- $295 $22 ==== ===
The amortized cost and estimated fair value of bonds classified as available for sale, by contractual maturity, at December 31, 1997 are shown below.
AMORTIZED ESTIMATED COST FAIR VALUE --------- ---------- 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 ======== ========
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 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:
1997 1996 1995 ------- ------- ------- 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 ======= ======= =======
Investment gains (losses) are summarized as follows:
1997 1996 1995 ------ ------- ------- 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 ====== ======= =======
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 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:
1997 1996 1995 -------- -------- -------- 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 ======== ======== ========
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:
1997 1996 1995 -------- -------- -------- 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 ======== ======== ========
N-14 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:
CURRENT DEFERRED TOTAL ------- -------- ------- 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 ====== ======= =======
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:
1997 1996 1995 ------- ------- ------- 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 ======= ======= =======
N-15 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:
1997 1996 --------- --------- 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) ========= =========
The sources of the deferred tax expense (benefit) and their tax effects are as follows:
1997 1996 1995 -------- -------- ------- 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 ======== ======== =======
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:
1997 1996 1995 -------- -------- -------- 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 ======== ======== ========
N-16 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.
1997 1996 -------- -------- 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 ======== ========
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:
1997 1996 ------- ------- 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 ======= =======
1997 1996 1995 ------ ------ ------ 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 ====== ====== ======
N-17 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 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:
1997 1996 1995 --------- -------- -------- 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 ========= ======== ========
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.
CARRYING ESTIMATED VALUE FAIR VALUE -------- ---------- 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
N-19 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.
YEARS ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 --------- --------- --------- 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 ========= ========= ========= YEARS ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 --------- --------- --------- 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 ========= ========= =========
N-20 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 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 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 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 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 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 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 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 Part II UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. RULE 484 UNDERTAKING Section 9 of NELICO's By-Laws provides that NELICO shall, to the extent legally permissible, indemnify its directors and officers against liabilities and expenses relating to lawsuits and proceedings based on such persons' roles as directors or officers. However, Section 9 further provides that no such indemnification shall be made with respect to any matter as to which a director or officer is adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interest of the corporation. Section 9 also provides that in the event a matter is disposed of by a settlement payment by a director or officer, indemnification will be provided only if the settlement is approved as in the best interest of the corporation by (a) a disinterested majority of the directors then in office, (b) a majority of the disinterested directors then in office, or (c) the holders of a majority of outstanding voting stock (exclusive of any stock owned by any interested director or officer). Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of NELICO pursuant to the foregoing provisions, or otherwise, NELICO 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 payment by NELICO of expenses incurred or paid by a director, officer, or controlling person of NELICO 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. NELICO 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. II-1 REPRESENTATIONS New England Life Insurance Company hereby represents that the fees and charges deducted under the flexible premium adjustable variable life insurance policies described in this registration statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by New England Life Insurance Company. CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following papers and documents: The facing sheet. A reconciliation and tie-in of the information shown in the prospectus with the items of Form N-8B-2. The prospectus consisting of 143 pages. The undertaking to file reports. The undertaking pursuant to Rule 484(b) under the Securities Act of 1933. The signatures. Written consents of the following persons: Independent Auditors H. James Wilson, Esq. Rodney J. Chandler, F.S.A., M.A.A.A. Sutherland, Asbill & Brennan LLP The following exhibits: 1.A. (1) January 31, 1983 resolution of the Board of Directors of NEVLICO *** (2) None (3) (a) Distribution Agreement between NEVLICO and NELESCO **** (b) (i) Form of Contract between NELICO and its General Agents *** (ii) Form of contract between NEVLICO and its Agents **** (c) Commission Schedule for Policies II-2 (d) Form of contract among NES, NELICO and other broker dealers * (4) None (5) (a) Specimen of Policy ** (b) Riders and Endorsements (6) (a) Amended and restated Articles of Incorporation of NELICO ## (b) Amended and restated By-Laws of NELICO * (7) None (8) None (9) None (10) Specimen of Applications for Policy ** 2. See Exhibit 3(i) 3. (i) Opinion and Consent of H. James Wilson, Esquire (ii) Opinion and Consent of Rodney J. Chandler, F.S.A., M.A.A.A. 4. None 5. Inapplicable 6. Consent of Sutherland, Asbill & Brennan LLP 7. (i) Powers of Attorney ## (ii) Powers of Attorney for James M. Benson and Robert E. Schneider, Robert H. Benmosche and Catherine A. Rein 8. Inapplicable 9. Inapplicable 10. Inapplicable 11. Consents of Independent Auditors 12. Schedule for computation of performance quotations **** 13. Consolidated memorandum describing certain procedures, filed pursuant to Rule 6e-2(b)(12)(ii) and Rule 6e-3(T)(b)(12)(iii) **** 14. (i) Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and New England Variable Life Insurance Company **** (ii) Amendment No. 1 to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and New England Variable Life Insurance Company # (iii) Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and New England Variable Life Insurance Company # II-3 # Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Variable Account's Form S-6 Registration Statement, File No. 33-88082, filed June 22, 1995. ## Incorporated herein by reference to the Variable Account's Form S-6 Registration Statement, File No. 333-21767, filed February 13, 1997. ### Incorporated herein by reference to Post-Effective Amendment No. 8 to the Variable Account's Form S-6 Registration Statement, File No. 33-52050, filed April 30, 1997. * Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Variable Account's Form S-6 Registration Statement, File No. 333-21767, filed July 16, 1997. ** Incorporated herein by reference to the Variable Account's Form S-6 Registration Statement, File No. 333-46401, filed February 17, 1998. *** Incorporated herein by reference to Post Effective Amendment No. 9 to the Variable Account's Form S-6 Registration Statement, File No. 33-66864, filed February 25, 1998. **** Incorporated herein by reference to Post-Effective Amendment No. 9 to the Variable Account's Form S-6 Registration Statement, File No. 33-52050, filed April 24, 1998. (coli) II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant, New England Variable Life Separate Account, has duly caused this amended Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the city of Boston, and the Commonwealth of Massachusetts, on the 7th day of July, 1998. New England Variable Life Separate Account (Registrant) By: New England Life Insurance Company (Depositor) By: /s/ H. James Wilson ------------------------- H. James Wilson Executive Vice President and General Counsel Attest: /s/ Marie C. Swift - ----------------------- Marie C. Swift II-5 Pursuant to the requirements of the Securities Act of 1933, New England Life Insurance Company has duly caused this amended Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the city of Boston, and the Commonwealth of Massachusetts, on the 7th day of July, 1998. New England Life Insurance Company (Seal) Attest: /s/ Marie C. Swift By: /s/ H. James Wilson ---------------------- --------------------------- Marie C. Swift H. James Wilson Executive Vice President and General Counsel Pursuant to the requirements of the Securities Act of 1933, this amended Registration Statement has been signed below by the following persons in the capacities indicated on July 7, 1998 Chairman, President and * Chief Executive Officer - ----------------------- James M. Benson * - ----------------------- Director Robert H. Benmosche * - ----------------------- Director Susan C. Crampton * - ----------------------- Director Edward A. Fox * - ----------------------- Director George J. Goodman * - ----------------------- Director Evelyn E. Handler * - ----------------------- Director Philip K. Howard * - ----------------------- Director Bernard A. Leventhal * - ----------------------- Director Thomas J. May * - ----------------------- Director Stewart G. Nagler * - ----------------------- Director Catherine A. Rein II-6 * Executive Vice President, - ---------------------- Chief Financial Officer and Robert E. Schneider Chief Accounting Officer * - ---------------------- Director Rand N. Stowell * - ----------------------- Director Alexander B. Trowbridge By: /s/ Anne M. Goggin ------------------------ Anne M. Goggin, Esq. Attorney-in-fact * Executed by Anne M. Goggin, Esquire on behalf of those indicated pursuant to powers of attorney filed herewith and filed with the Variable Account's Form S-6 Registration Statement, File No. 333-21767, on February 13, 1997. II-7 EXHIBIT LIST
Sequentially Exhibit Number Title Numbered Page* - -------------- -------------------------------------------- -------------- 1.A.3(c) Commission Schedule 1.A.5(b) Riders and Endorsements 3. (i) Opinion and Consent of H. James Wilson, Esquire 3. (ii) Opinion and Consent of Rodney J. Chandler, F.S.A., M.A.A.A. 6. Consent of Sutherland, Asbill & Brennan LLP 7. Powers of Attorney 11. Consents of the Independent Auditors _________ * Page numbers inserted on manually-signed copy only.
EX-1.A3.C 2 COMMISSION SCHEDULE Exhibit 1.A(3)(c) Commission Schedule The following commissions will be paid with respect to sales of the Policies. The selling agent may select one of three alternative schedules for payment by NELICO of commissions and/or service fees for sales of a Policy: (1) a maximum of 12.5% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in the first Policy year, a maximum of 6% in Policy years two through ten, and a maximum of 2% thereafter; with a maximum commission of .67% of each payment in excess of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in any year; (2) a maximum of 12.5% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in the first Policy year, and, after the first Policy year, a maximum of 2% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in each Policy year plus a maximum of .175% of the Policy's cash value; with a maximum commission of .67% of each payment in excess of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in any year; or (3) a maximum commission of 12.5% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in the first Policy year, plus a maximum of .26% of the Policy's cash value after the first Policy year; with a maximum commission of .67% of each payment in excess of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in any year. For Policies sold to certain cases the maximum 12.5% first year commission may be paid in installments over a period of years rather than all in the first Policy year. Agents who meet certain productivity and persistency standards in selling policies issued by NELICO may be eligible for additional compensation. Non-cash forms of compensation may also be paid in compliance with applicable law. Sales expenses in any year are not equal to the deduction for sales charges in that year. New England Securities may enter into selling agreements with other broker- dealers registered under the Securities Exchange Act of 1934 whose representatives are authorized by applicable law to sell variable life insurance policies. Under the agreements with those broker-dealers, the commission paid to the broker-dealer on behalf of the registered representative will not exceed the following, depending upon the compensation schedule elected by the selling agent: (1) 12.5% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in the first Policy year, 6% in Policy years two through ten, and a maximum of 2% thereafter, and .67% of all payments in excess of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in any year; (2) a maximum of 12.5% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in the first Policy year, and, after the first Policy year, a maximum of 2% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in each Policy year plus a maximum of .175% of the Policy's cash value; with a maximum commission of .67% of each payment in excess of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in any year; or (3) a maximum commission of 12.5% of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) paid in the first Policy year, plus a maximum of .26% of the Policy's cash value after the first Policy year; with a maximum commission of .67% of each payment in excess of the Target Premium (plus any additional portion of a premium which NELICO attributes to certain riders for commission paying purposes) in any year. NELICO may pay certain broker-dealers an additional bonus after the first Policy year on behalf of certain registered representatives, the maximum amount of which may equal up to the amount of the basic commission for the particular Policy year. Commissions will be paid through the registered broker-dealer, which may also be reimbursed for portions of expenses incurred in connection with the sale of the Policies or paid additional compensation. 2 EX-99.1A5(B) 3 RIDERS AND ENDORSEMENTS Exhibit 1.A.5(b) NEL-41 - -------------------------------------------------------------------------------- Rider: Guaranteed Death Benefit The Policy to which this Rider is attached is issued by the Company subject to the provisions of this Rider. Guaranteed Death Benefit On the first day of each policy month the Company will determine if the Guaranteed Death Benefit is in effect. If the Benefit is in effect, the Policy will not be lapsed even if the Net Cash Value of the Policy on the first day of the policy month is not enough to cover the full Monthly Deduction for that month. If the Insured dies while the Benefit is in effect, the Death Benefit of the Policy will be based on the Death Benefit Option in effect on the date of death. The Guaranteed Death Benefit Premium is shown in the Policy Schedule. This Premium will be recalculated when: the Face Amount is increased or decreased; the amount provided by riders attached to the Policy is increased or decreased; a partial surrender which results in a decrease in Face Amount is made; or the underwriting class of the Policy and its riders is changed to a more favorable underwriting class. When this Premium is recalculated, the new Premium and its effective date will be shown in Section 1 of the Policy. The Benefit will be in effect if (a) is equal to or greater than (b) where: (a) equals the total of the premiums paid to date; less every partial surrender made to date; less any Cash Value paid to you to allow the Policy to continue to qualify as life insurance; less the Policy Loan Balance; and (b) equals the sum of 1/12 of each Guaranteed Death Benefit Premium times the number of completed policy months the Premium was in effect plus 1/12 of the most recent Guaranteed Death Benefit Premium. If the Benefit is not in effect, the amount of premium required to put the Benefit in force is: the sum of 1/12 of each Guaranteed Death Benefit Premium times the number of completed policy months the Premium was in effect plus 1/12 of the most recent Guaranteed Death Benefit Premium; minus the total amount of premium which has already been paid into the Policy; less every partial surrender made to date; less any Cash Value paid to you to allow the Policy to continue to qualify as life insurance; less the Policy Loan Balance. Cost of Rider Whether or not the Benefit is in effect, the cost for this Rider is charged as part of the Monthly Deductions. The monthly cost for this Rider equals: the Face Amount of the Policy plus the Term Amount of the Adjustable Term Insurance Rider, if any; times $0.00001. Contract This Rider is made part of the Policy to which it is attached if the Rider is listed in the Policy Schedule. (See Section 1 of the Policy.) This Rider has no cash value. Termination This Rider will terminate upon the earliest of: . Termination of the Policy; . Death of the Insured; . The Insured's age 100; or . Receipt by the Company at its Administrative Office of written election signed by the Owner of the Policy to terminate the Rider. If you elect to terminate this Rider, there can be no Guaranteed Death Benefit for this Policy. New England Life Insurance Company 501 Boylston Street, Boston, Massachusetts ABCD ABCD President Secretary NEL-41 NEL-44 - -------------------------------------------------------------------------------- Rider: Adjustable Term Insurance The Company agrees that if the Insured dies while this Rider is in force, the amount of Adjustable Term Insurance will be paid as a part of the policy proceeds. When you apply for this Rider, you can choose to have the Term Amount of the Rider added to the Face Amount of the Policy for purposes of calculating the Death Benefit. Your choice cannot be changed. Cost of Rider The cost for this Rider is charged as part of the Monthly Deductions. The rates for the Rider are set by the Company each year on the policy anniversary, based on the expectations of the Company as to future experience. The rates are guaranteed for one year. The rates for the Rider will never be more than the rates shown in the attached Table of Guaranteed Monthly Insurance Rates Per $1,000. Date of Issue The Date of Issue of this Rider is the same as the Date of Issue of the Policy unless a later Date of Issue is shown for the Rider in the Policy Schedule. Rider years will coincide with policy years. If this Rider is issued after the Date of Issue of the Policy, the first rider year will begin on the policy anniversary on or next following the Date of Issue of the Rider. The term insurance provided by this Rider will be in force from the Date of Issue of the Rider. The effective date of this Rider is its Date of Issue. Increase in Term Amount After the first policy year, the Term Amount can be increased effective on the first day of any policy month. An increase in Term Amount is subject to: . Written application to increase the Term Amount; . Proof that the Insured is insurable; . The underwriting rules of the Company allowing new insurance for the amount of the increase at the age of the Insured on the Adjustment Date; . The amount of the increase being at least $10,000, except with the consent of the Company; and . A Monthly Deduction for the increase. The Application to increase the Term Amount must be signed by you and the Insured. An increase will be effective on the Adjustment Date shown in the new Policy Schedule. Decrease in Term Amount The Term Amount can be decreased effective on the first day of any policy month by written application to the Company; but only if the Term Amount after the decrease is at least $10,000, except with the consent of the Company. A decrease in Term Amount will be applied to reduce the initial Term Amount and each increase in Term Amount on a pro rata basis, except with the consent of the Company. A decrease in Term Amount will be effective on the Adjustment Date shown in the new Policy Schedule. Adjustment of the Policy The Policy Schedule and the Rider's Table of Guaranteed Monthly Insurance Rates Per $1,000 must reflect an increase or a decrease in the Term Amount. The new Policy Schedule, the new Table, if any, and the Application for the adjustment will be made part of the Policy when the Company, at its option: . Sends you a new Policy Schedule and Table, if any, and a copy of the Application for the adjustment for you to attach to the Policy; or . Requires that the Policy be returned to have the new Policy Schedule and Table, if any, and a copy of the Application for the adjustment attached to the Policy by the Company; or . Sends you an adjusted policy to take the place of this Policy. Upon adjustment, the Policy will be in force only as adjusted. Not Contestable After Two Years The insurance issued under this Rider will not be contestable after it has been in force during the life of the Insured: . For the Death Benefit associated with the initial Term Amount, for two years from the Date of Issue of this Rider; and . For the Death Benefit associated with each increase in Term Amount of this Rider, for two years from the Adjustment Date for that increase. NEL-44 (continued) NEL-44 - -------------------------------------------------------------------------------- Suicide Within Two Years If the death of the Insured is by suicide while sane or insane within two years of the Date of Issue of this Rider or within two years of the Adjustment Date of an increase in Term Amount, a limited benefit will be paid. The amount payable under this Rider: will be limited to the portion of the Monthly Deduction made to pay for the insurance subject to this provision; and will be paid as part of the benefits of the Policy. Contract A copy of the Application for this Rider is attached to and made a part of the Rider. This Rider is made a part of the Policy to which it is attached if the Rider is listed in the Policy Schedule. This Rider has no cash value. Exchange Option You can, after the first policy year and before the policy anniversary on which the Insured is age 80, exchange any portion of the insurance then in force under this Rider for an increase in Face Amount for this Policy effective on the first day of any policy month. If you have not chosen to have the Term Amount of this Rider added to the Face Amount of the Policy for purposes of calculating the Death Benefit, you can, before the policy anniversary on which the Insured is age 80, exchange any portion of the insurance then in force under this Rider: for a policy issued on any plan of fixed or variable whole life insurance; or of fixed or variable flexible premium adjustable life insurance issued by the Company on the Policy Date of the new policy at any time. The exchange can be made without proof that the Insured is insurable. The Term Amount in force after the exchange will equal: the Term Amount in force immediately before the exchange; less the Term Amount exchanged. The coverage resulting from an exchange will not be subject to the Contestable and Suicide periods beyond the date that the exchanged insurance would have been subject to those provisions. Exchange to Fixed or Variable Whole Life Insurance or to Fixed or Variable Flexible Premium Adjustable Life Insurance Any policy resulting from an exchange under this Rider will be issued: . With a Face Amount equal to the amount of term insurance being exchanged; . With the same Insured and underwriting class as this Rider; . On a policy form and at premium rates in use by the Company on the Policy Date of the new policy; . With a current Policy Date and Age of Insured; and . Subject to any assignments and limitations to which this Rider is subject, and to payment of the first premium for the new policy. An exchange can be made only with the consent of the Company if: the amount of term insurance you want to exchange is less than the Company's published minimum limits of issue; or any rider is to be attached to the new policy. Exchange for an Increase in Face Amount for This Policy Any Increase in Face Amount for this Policy resulting from an exchange under this Rider is subject to: . The underwriting rules of the Company allowing new Insurance for the amount of the increase on the same plan at the age of the Insured on the Adjustment Date; . The amount of the increase being at least $10,000, except with the consent of the Company; . A Monthly Deduction for the increase. An increase will be effective on the Adjustment Date shown in the new Policy Schedule. NEL-44 (continued) NEL-44 - -------------------------------------------------------------------------------- Automatic Exchange At Age 100 At the Insured's age 100, if a Guaranteed Death Benefit rider is attached to the Policy and the Benefit is in effect, the Term Amount will be exchanged for an increase in Face Amount for this Policy. No evidence of insurability will be required. No Face Amount Increase Administrative Charge will be imposed. The increase will be effective on the Adjustment Date shown in the new Policy Schedule. Termination This Rider will terminate upon the earliest of: (a) termination of the Policy; (b) exchange of the full amount of term insurance under the Rider for a new policy; (c) a decrease in coverage which decreases the Term Amount to zero; (d) receipt at the Administrative Office of the Company of written election signed by the Owner of the Policy to terminate the Rider; and (e) the Insured's age 100. New England Life Insurance Company 501 Boylston Street, Boston, Massachusetts ABCD ABCD President Secretary NEL-44 (continued) NEL-44 - -------------------------------------------------------------------------------- Table of Guaranteed Monthly Insurance Rates Per $1,000 Policy Number: Specimen Insured: John Smith - -------------------------------------------------------------------------------- Rider Monthly Rider Monthly Rider Monthly Year Rate Year Rate Year Rate 1 .1758 23 1.0408 45 7.5875 2 .1867 24 1.1325 46 8.2367 3 .2000 25 1.2308 47 8.9567 4 .2150 26 1.3400 48 9.7708 5 .2325 27 1.4617 49 10.6883 6 .2517 28 1.5992 50 11.6875 7 .2742 29 1.7550 51 12.7458 8 .2967 30 1.9283 52 13.8408 9 .3225 31 2.1183 53 14.9625 10 .3492 32 2.3208 54 16.1058 11 .3792 33 2.5367 55 17.2742 12 .4100 34 2.7658 56 18.4808 13 .4433 35 3.0142 57 19.7483 14 .4783 36 3.2925 58 21.1208 15 .5175 37 3.6083 59 22.6758 16 .5592 38 3.9708 60 24.6583 17 .6083 39 4.3867 61 27.4967 18 .6633 40 4.8492 62 32.0458 19 .7258 41 5.3492 63 40.0167 20 .7967 42 5.8775 64 54.8317 21 .8725 43 6.4267 65 83.3333 22 .9550 44 6.9917 This Rider is adjustable. If it is adjusted, a new Table will supersede this Table. - -------------------------------------------------------------------------------- [SIGNATURE APPEARS HERE] Secretary NEL-44 NEL-79 - -------------------------------------------------------------------------------- Rider: Waiver of Monthly Deductions -- Disability of Insured The Company agrees to waive the monthly deductions for the Policy and all Riders on receipt of proof that total disability of the Insured: . Started while this Rider was in force; and . Has continued for at least six months. Definitions "Total disability" means disability of the Insured: . Which results from sickness or accidental bodily injury; and . Which continuously prevents the Insured from working for pay or profit. During the first 36 months of disability, "working" means engaging in the occupation which was the regular occupation of the Insured when total disability started; and thereafter means engaging in any occupation for which the Insured is or becomes fit by education, training or experience. Total disability may be the result of a sickness which began or an injury which occurred either before or after this Rider was issued. "Working for pay or profit" includes attending school or college as a full time student, if that was the main occupation of the Insured when the disability started. Total disability will be presumed if, as the result of a sickness or an accidental bodily injury, the Insured has a total loss, which begins while this Rider is in force, of: . Speech; or sight in both eyes; or hearing in both ears; or . Use of both hands; or use of both feet; or use of one hand and one foot. Total disability will be presumed as long as the loss continues, even if the Insured is working for pay or profit. NEL-79 (continued) NEL-79 - -------------------------------------------------------------------------------- Exclusion This Rider does not provide benefits for total disability which results from a sickness or an injury caused by war or an act of war after the Date of Issue of this Rider. Increase in Waiver Coverage Coverage under this Rider can be increased, subject to the underwriting rules of the Company, when the Face Amount is increased if the Insured is not totally disabled. Increase is subject to: . The terms of the Adjustment Section of the Policy; . The limits of the Company for Waiver of Monthly Deductions benefits; and . An increase in the premiums for the Rider. Application to increase the Face Amount will be deemed to be application to increase coverage under this Rider also, unless otherwise stated. Monthly Deductions to be Waived After total disability has continued for at least six months, monthly deductions will be waived for the period: . Which starts on the first day of the policy month in which total disability started; and . Which ends at the end of the second full policy month after total disability ends. No monthly deductions will be waived beyond the policy anniversary on which the Insured is age 65, unless total disability has been continuous for the full five year period which ends on that anniversary. Monthly deductions will not be waived for any period more than one year before proof of total disability is received by the Company at its Home Office. The amount of all monthly deductions made after the start of total disability but before the Company approves a claim for waiver will be added to the cash value by the Company when a claim is approved. NEL-79 (continued) NEL-79 - -------------------------------------------------------------------------------- Proof of Disability Proof of total disability must be furnished: . During the life of the Insured; and . During the period of total disability; and . Not more than one year after (a) the due date of a premium in default; or (b) the policy anniversary on which the Insured is age 65; or (c) the surrender or maturity of the Policy. The Company has the right to require proof that total disability continues to exist. This right will be exercised at reasonable times; but after total disability has continued for two years, proof will not be required more often than once a year. Failure to furnish proof of total disability within the time required will not void or reduce a claim for benefits if it is shown that: . It was not reasonably possible to furnish proof within that time; and . Proof was furnished as soon as reasonably possible. Policy Benefits The Policy proceeds will be the same while Monthly Deductions are being waived as they would be if each Monthly Deduction were paid in cash on the first day of the policy month. Premiums For This Rider Premiums for this Rider are charged as part of the monthly deductions. The factors for calculating the premiums for the Rider are shown in the Table of Premium Factors for Waiver of Monthly Deductions. Date of Issue The Date of Issue of this Rider is the same as the Date of Issue of the Policy unless a later Date of Issue is shown for the Rider in the Policy Schedule. The effective date of this Rider is its Date of Issue. NEL-79 (continued) NEL-79 - -------------------------------------------------------------------------------- Not Contestable After Two Years This Rider will not be contestable after it has been in force during the life of the Insured, and without the occurrence of total disability of the Insured: (a) with respect to the original coverage under the Rider, for two years from the Date of Issue of the Rider; and (b) with respect to each increase in the coverage under the Rider, for two years from the Adjustment Date of the Policy for that increase. Contract A copy of the application for this Rider is attached to and made a part of the Rider. This Rider is made a part of the Policy to which it is attached if the Rider is listed in the Policy Schedule. Termination This Rider will terminate upon the earliest of: . Termination of the Policy; . An increase in the Face Amount of the Policy which does not qualify for coverage under this Rider; . Death of the Insured; and . Receipt of the Company at its Administrative Office of written election signed by the Owner of the Policy to terminate the Rider. New England Life Insurance Company 501 Boylston Street, Boston, Massachusetts ABCD ABCD President Secretary NEL-79 (continued) NEL-79 - -------------------------------------------------------------------------------- Table of Premium Factors For Waiver of Monthly Deductions -- Disability of Insured Rider The monthly premium for the Waiver Rider equals: the current Cost of Insurance, expense charges and administrative charges for this Policy and the cost of any riders; times the Factor from the Table for the attained age of the Insured. This premium is part of the Policy's Monthly Deduction. Age Factor Age Factor 20 .0108 42 .0277 21 .0114 43 .0297 22 .0119 44 .0319 23 .0123 45 .0344 24 .0128 46 .0372 25 .0133 47 .0407 26 .0136 48 .0449 27 .0141 49 .0503 28 .0145 50 .0571 29 .0150 51 .0657 30 .0155 52 .0765 31 .0160 53 .0899 32 .0166 54 .1065 33 .0172 55 .1266 34 .0178 56 .1522 35 .0186 57 .1742 36 .0195 58 .1987 37 .0205 59 .2259 38 .0216 60 .1273 39 .0229 61 .1026 40 .0244 62 .0760 41 .0259 63 .0472 64 .0177 - -------------------------------------------------------------------------------- ABCD Secretary NEL-79 NEV-84 Rider: Change to a New Insured The Company agrees that after the first policy year the Policy to which this Rider is attached can be changed to a new policy on the life of a new insured. Conditions The change can be made only: . Upon application signed by the Owner of this Policy and by the new insured; . Subject to proof that the new insured is insurable; . If the age of the new insured on the Policy Date of the new policy is at least 1 and the age of the new insured on the Date of Issue of the new policy is less than 70; . If the Owner of this Policy has an insurable interest in the life of the new insured; and . If the Insured under this Policy is living on the Date of Issue of the new policy. Riders can be attached to the new policy only with the consent of the Company. This Policy will terminate at the end of the day prior to the Date of Issue of the new policy. The new policy will take effect on its Date of Issue. The New Policy The new policy will be issued: . On the same plan of Variable Life insurance as this Policy; . With a Policy Date, a Face Amount and a Death Benefit Option the same as this Policy; . With a Cash Value on its Date of Issue which is equal to the Cash Value of this Policy on the date it terminates; . Subject to any assignments and Policy Loans on this Policy; and . Subject to any change cost. The Date of Issue of the new policy will be the first day of the policy month which starts on or next follows: . The approval by the Company of the application for the change; and . Payment to the Company of any change cost. Change Cost and Change Credit There will be a change cost if there is an increase in the Net Cash Value as a result of the change. There will be a change credit payable to you if there is a decrease in the Net Cash Value as a result of the change. A detailed statement of the methods of computing the change cost and change credit have been filed, where required, with the Insurance Department of the state in which the Policy is delivered. Contract This Rider is made a part of the Policy to which it is attached if the Rider is listed in the Policy Schedule. This Rider has no cash value. Termination This Rider will terminate upon the earliest of: (a) lapse, termination or maturity of the Policy; (b) change of the Policy to a new policy under the provisions of the Rider; and (c) change of ownership of the Policy. New England Variable Life Insurance Company Administrative Office: 501 Boylston Street, Boston, Massachusetts Robert A. Shafto H. James Wilson /s/ /s/ President Secretary - -------------------------------------------------------------------------------- RIDER: ACCELERATION OF BENEFITS RECEIPT OF ACCELERATED BENEFITS MAY BE TAXABLE. THEREFORE, PRIOR TO EXERCISING THE OPTION, YOU SHOULD CONSULT A PERSONAL TAX ADVISOR TO DETERMINE ANY TAX CONSEQUENCES. THE COMPANY agrees to pay an accelerated benefit to the Owner of the Policy if the Insured is terminally ill. This agreement is subject to the following provisions. ELIGIBLE PROCEEDS Eligible Proceeds equal: the amount of insurance provided under the basic Policy; minus any Policy Loan and accrued loan interest; plus the amount of benefit provided by any rider the Company consents to exchange for an accelerated benefit. Eligible Proceeds will be calculated as of the date your request for accelerated benefits is received by the Company at its Home Office. When all of the Eligible Proceeds are exchanged: any rider covering the Insured's children will become fully paid-up with no further premiums due; and the Policy and its other riders will terminate. The Company will not allow the exchange of more than $250,000 of Eligible Proceeds on the life of any insured for accelerated benefits. BENEFIT BASE The accelerated benefit will be calculated using the Policy's Benefit Base. The Company will compute the Benefit Base by discounting the Eligible Proceeds being exchanged, using its then current assumptions. The Company's assumptions may change from time to time. Also, the computation of the amount of Benefit Base will reflect: . The life expectancy of the Insured; . The Net Cash Value on the date used to calculate the Eligible Proceeds; . The Death Benefit on the date used to calculate the Eligible Proceeds; . Expected future mortality and expense charges; . Interest at a rate set by the Company; and . A processing charge of not more than 3% of the Benefit Base before the charge. NEL-1581-1 (continued) You may choose to have the benefits paid to you: in one sum; or in monthly payments, if each payment is at least $20. The amount of monthly payments available will be quoted upon request. If the Insured dies before all monthly payments are made, the present value of any payments not yet made will be paid to the Beneficiary. Once an Option is chosen and benefits are being paid: the amount exchanged cannot be reduced; the number of payments cannot be changed; and the form of payment cannot be changed. The obligations of the Company are subject to all payments made and actions taken by the Company under the Policy before it receives at its Home Office proof of the Insured's death. TERMINAL ILLNESS OPTION You can exercise this Option if the Insured has a medical condition that is expected to result in death within six months. To exercise this Option, you must request acceleration in written form satisfactory to the Company. Also, you must provide the Company with: . Certification signed by a licensed medical doctor that the Insured 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 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. This right will be exercised at places convenient to the Insured. PARTIAL ACCELERATION OF BENEFITS If the Company consents, you may exchange less than the full amount of Eligible Proceeds for an accelerated benefit. NEL-1581-1 (continued) CONDITIONS The Company will accelerate benefits subject to the following conditions: . The Policy must be in force. . Every assignee must give written consent to the acceleration in a form satisfactory to the Company. . Every irrevocable beneficiary must give written consent to the acceleration in a form satisfactory to the Company. . Company consent must be given if there are less than 5 years remaining until the Policy will contractually expire or mature. . You are not being required by law to use the accelerated benefits to meet the claims of any creditors, whether in bankruptcy or not. . You are not being required by a government agency to accelerate benefits in order to apply for, obtain or keep a government benefit or entitlement. . Insurance subject to contestable and suicide provisions will not be included in the Eligible Proceeds. CONTRACT This Rider is made a part of the Policy to which it is attached if the Rider is listed in the Policy Schedule. This Rider has no cash value. DATE OF ISSUE The Date of Issue of the Rider is the same as the Date of Issue of the Policy unless a later Date of Issue is shown for the Rider in the Policy Schedule. The effective date of the Rider is its Date of Issue. TERMINATION This Rider will terminate upon the earliest of: (a) termination or maturity of the Policy; (b) exercise of this Rider; (c) the date on which this Policy would be disqualified as life insurance under the Internal Revenue Code as interpreted by the Internal Revenue Service or a court of competent jurisdiction because this Rider is attached; (d) receipt by the Company at its Home Office of written election signed by the Owner of the Policy to terminate the Rider; and (e) the death of the Insured. NEW ENGLAND LIFE INSURANCE COMPANY 501 Boylston Street, Boston, Massachusetts /s/ Robert A. Shafto /s/ Daniel D. Jordan President Secretary NEL-1581-1 Exhibit 1.A. 5.(b) NEV-40 Rider: Temporary Term Insurance The Company agrees that the Policy and its Riders will be in force as temporary term insurance from the Date of Issue to the Policy Date. During that period the amounts of insurance under the Policy and its Riders will be the same as the amounts on the Policy Date. The premium for this Rider is due on the Date of Issue in the amount shown in the Policy Schedule. During the temporary term insurance period the Policy will have no cash or loan value. This Rider is made a part of the Policy to which it is attached if the Rider is listed in the Policy Schedule. New England Variable Life Insurance Company 501 Boylston Street, Boston, Massachusetts John A. Fibiger Kernan F. King /s/ /s/ President Secretary EX-99.3(I) 4 OPINION & CONSENT OF H. JAMES WILSON Exhibit 3(i) New England Life Insurance Company 501 Boylston Street Boston, MA 02117 July 6, 1998 New England Variable Life Separate Account New England Life Insurance Company 501 Boylston Street Boston, MA 02117 Gentlemen: 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 Pre-effective Amendment No. 1 to the registration statement on Form S-6 (File No. 333-46401) under the Securities Act of 1933. This Pre-effective Amendment is being filed with respect to individual Flexible Premium Adjustable Variable Life Insurance Policies (the "Policies") issued by New England Variable Life Separate Account (the "Account"). It is my professional opinion that: 1. The Account is a separate investment account of the Company and is validly existing pursuant to the laws of the Commonwealth of Massachusetts. 2. The Flexible Premium Adjustable Variable Life Insurance Policies, when issued in accordance with the prospectus contained in the Registration Statement and in compliance with applicable local law, are and will be legal and binding obligations of the Company in accordance with their terms; and 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. In forming this opinion, I have made such examination of law and examined such records and other documents as in my judgment are necessary and appropriate. I hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the use of my name under the caption "Legal Matters" in the prospectus contained in the Registration Statement. Very truly yours, H. James Wilson General Counsel EX-99.3II 5 OPINION & CONSENT OF ACTUARY Exhibit 3(ii) New England Life Insurance Company 501 Boylston Street Boston, MA 02117 July 6, 1998 New England Life Insurance Company 501 Boylston Street Boston, Massachusetts 02117 Gentlemen: In my capacity as Second Vice President and Actuary of New England Life Insurance Company (the "Company"), I have provided actuarial advice concerning: The preparation of Pre-Effective Amendment No. 1 to the registration statement on Form S-6 (File No. 333-46401) filed by New England Variable Life Separate Account and the Company with the Securities and Exchange Commission under the Securities Act of 1933 with respect to variable life insurance policies (the "Registration Statement"); and The preparation of policy forms for the variable life insurance policies described in the Registration Statement (the "Policies"). It is my professional opinion that: 1. The illustrations of death benefits, net cash values, accumulated premiums, internal rates of return on net cash values and internal rates of return on death benefits shown in Appendix A of the Prospectus, based on the assumptions stated in the illustrations, are consistent with the provisions of the Policies. The rate structure of the Policies has not been designed so as to make the relationship between premiums and benefits, as shown in the illustrations, appear to be correspondingly more favorable to prospective purchasers of Policies for male insureds, aged 40 in the underwriting class illustrated than to prospective purchasers of Policies for insureds of other sexes or ages. Insureds in other underwriting classes may have higher cost of insurance charges. 2. The information contained in the description of historical investment experience in Appendix B, based on the assumptions stated in the Appendix, is consistent with the provisions of the Policies. I hereby consent to the filing of this opinion as an Exhibit to this Pre- Effective Amendment to the Registration Statement and to the use of my name under the heading "Experts" in the Prospectus. Sincerely, Rodney J. Chandler, F.S.A., M.A.A.A. Second Vice President and Actuary EX-99.6 6 CONSENT OF SUTHERLAND, ASBILL & BRENNAN Exhibit 6 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 Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 for certain variable life insurance policies issued through the New England Variable Life Separate Account of New England Life Insurance Company (File No. 333-46401). 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 By: /s/ Kimberly J. Smith --------------------- Kimberly J. Smith Washington, D.C. July 6, 1998 EX-99.7 7 POWERS OF ATTORNEY Exhibit 7 POWER OF ATTORNEY ----------------- I, the Chairman, President and Chief Executive 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. In addition, I, the Chairman, President and Chief Executive 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 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 27th of May, 1998. /s/ James M. Benson ------------------- James M. Benson Chairman, President and Chief Executive Officer POWER OF ATTORNEY ----------------- I, the Executive Vice President, Chief Financial Officer 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. In addition, I, the Executive Vice President, Chief Financial Officer 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 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 22nd of May, 1998. /s/ Robert E. Schneider ----------------------- Robert E. Schneider Executive Vice President, Chief Financial Officer and Chief Accounting Officer POWER OF ATTORNEY ----------------- I, 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, 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 7th of July, 1998. /s/ Robert H. Benmosche Robert H. Benmosche Director POWER OF ATTORNEY ----------------- I, 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, 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 7th of July, 1998. /s/ Catherine A. Rein Catherine A. Rein Director EX-99.11 8 CONSENT OF INDEPENDENT AUDITORS Exhibit 11 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Pre Effective Amendment No. 1 to the Registration Statement No. 333-46401 of New England Variable Life Separate Account (the "Separate Account") of New England Life Insurance Company (the "Company") of our reports dated February 10, 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 Prospectus (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 Registration Statement. DELOITTE & TOUCHE LLP Boston, Massachusetts July 7, 1998 Exhibit 11 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We consent to the inclusion in Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 (File No. 333-46401) of our reports, which include adverse opinions as to generally accepted accounting principles and unqualified opinions as to statutory accounting practices prescribed or permitted by the Insurance Department of the State of Delaware, dated March 8, 1996, except as to the information in the second paragraph under "Basis of Presentation and Principles of Consolidation" of Note 1, for which the date is February 18, 1997, on our audits of the statutory financial statements of New England Variable Life Insurance Company and New England Pension and Annuity Company, and our report dated February 6, 1996, on our audit of New England Variable Life Separate Account of New England Variable Life Insurance Company. We also consent to the inclusion in this registration statement of our report, which includes an adverse opinion as to generally accepted accounting principles and an unqualified opinion as to conformity with The Insurance Act 1978, dated April 23, 1996, on our audit of the statutory financial statements of Exeter Reassurance Company, Ltd., and our report dated February 9, 1996, on our audit of New England Securities Corporation, and our report dated February 29, 1996, on our audit of TNE Advisors, Inc., and our report dated March 14, 1996, on our audit of Newbury Insurance Company, Limited. We also consent to the reference to our firm under the caption "Experts" in this Pre-Effective Amendment. PricewaterhouseCoopers LLP PricewaterhouseCoopers Boston, Massachusetts July 7, 1998 -----END PRIVACY-ENHANCED MESSAGE-----