<PAGE>
ZENITH LIFE
ZENITH LIFE ONE
ZENITH LIFE PLUS
ZENITH LIFE EXECUTIVE 65
ZENITH SURVIVORSHIP LIFE
ZENITH FLEXIBLE LIFE
Supplement dated November 13, 1995
to Prospectus dated May 1, 1995
New England Variable Life Insurance Company (the "Company") is a wholly-owned
subsidiary of New England Mutual Life Insurance Company ("The New England").
The New England and Metropolitan Life Insurance Company ("MetLife") have
entered into an agreement to merge, with MetLife to be the survivor of the
merger. The merger is conditioned upon, among other things, approval by the
policyholders of The New England and MetLife and receipt of certain regulatory
approvals. The merger is not expected to occur until after December 31, 1995.
If the merger is consummated, the Company will become a direct or indirect
wholly-owned subsidiary of MetLife. The Company is not expected to be affected
by the merger except to the extent that assets of The New England may be
transferred to the Company in connection with consummation of the merger.
ZENITH FLEXIBLE LIFE
Under "Toll-Free Numbers" on page A-44, the correct toll-free number for sub-
account transfers or premium reallocations is 1-800-200-2214.
NEW ENGLAND ZENITH FUND
Supplement dated November 13, 1995 to
Prospectus dated May 1, 1995
BACK BAY ADVISORS MONEY MARKET SERIES WESTPEAK VALUE GROWTH SERIES
BACK BAY ADVISORS BOND INCOME SERIES WESTPEAK STOCK INDEX SERIES
BACK BAY ADVISORS MANAGED SERIES DRAYCOTT INTERNATIONAL EQUITY SERIES
LOOMIS SAYLES AVANTI GROWTH SERIES ALGER EQUITY GROWTH SERIES
LOOMIS SAYLES SMALL CAP SERIES VENTURE VALUE SERIES
LOOMIS SAYLES BALANCED SERIES CAPITAL GROWTH SERIES
New England Mutual Life Insurance Company ("The New England") and
Metropolitan Life Insurance Company ("MetLife") have entered into an agreement
to merge, with MetLife to be the survivor of the merger. The merger is
conditioned upon, among other things, approval by the policyholders of The New
England and MetLife and receipt of certain regulatory approvals. The merger is
not expected to occur until after December 31, 1995.
TNE Advisers, Inc. ("TNE Advisers"), investment adviser to each Series of New
England Zenith Fund (the "Fund") except the Capital Growth Series, is a wholly-
owned subsidiary of The New England. The New England owns the sole general
partner of New England Investment Companies, L.P. ("NEIC") and a majority of
the limited partnership interest in NEIC. NEIC is the owner of a majority
limited partnership interest in the Capital Growth Series' investment adviser,
Capital Growth Management Limited Partnership. Also, the subadvisers of nine
Series of the Fund are currently wholly-owned subsidiaries of NEIC. These
subadvisers are Back Bay Advisors, L.P., Loomis Sayles & Company, L.P.,
Westpeak Investment Advisors, L.P. and Draycott Partners, Ltd. The subadvisers
of the remaining two Series offered through this prospectus are not affiliated
with The New England or NEIC.
VL-101-95
<PAGE>
The merger of The New England into MetLife is being treated, for purposes of
the Investment Company Act of 1940 (the "Act"), as an "assignment" of the
existing advisory agreements for each Series and of the subadvisory agreements
of the nine Series that have NEIC subsidiaries as subadvisers. Under the Act,
such an "assignment" will result in an automatic termination of these
agreements. The subadvisory agreements for the other two Series terminate
automatically, by their terms, upon any termination of TNE Advisers' advisory
agreement with the Fund. Thus, those subadvisory agreements will also terminate
at the time of the merger.
Prior to the merger, shareholders of the Series will be asked to approve new
investment advisory and subadvisory agreements, intended to take effect at the
time of the merger. The new agreements are expected to be substantially
identical to the existing agreements. Prior to the shareholder vote regarding
the new agreements, a proxy statement describing them in more detail will be
sent to those Policy Owners who are entitled to give instructions as to how
shares of the Series should be voted.
----------------
DRAYCOTT INTERNATIONAL EQUITY SERIES
Draycott Partners, Ltd. ("Draycott") serves as subadviser to the Draycott
International Equity Series (the "Series"). Draycott's parent, NEIC, has agreed
to sell Draycott to Cursitor Holdings Ltd. U.K. ("Cursitor"). The sale is
expected to occur in late December, 1995. Under the Act, the sale will
constitute a change in control of Draycott, which will terminate the current
subadvisory agreement between Draycott and TNE Advisers. Cursitor,
headquartered at 66 Buckingham Gate, London SW1E 6AU, England, is an investment
advisory holding company that had approximately $9.4 billion under management
at September 30, 1995.
Subsequent to the acquisition of Draycott by Cursitor, Cursitor itself is
expected to be acquired by Alliance Capital Management, L.P. ("Alliance"). This
transaction would result in Draycott becoming a wholly-owned subsidiary of a
new entity, Cursitor Alliance LLC, in which Alliance would own a 93% interest.
Alliance Capital Management Corporation, the sole general partner of, and the
owner of a 1% general partnership interest in, Alliance, is an indirect wholly-
owned subsidiary of The Equitable Life Assurance Society of the United States,
which is a wholly-owned subsidiary of The Equitable Companies Incorporated, a
holding company controlled by AXA, a French insurance holding company. If
consummated, the transaction would constitute a further change in control of
Draycott, which would again terminate the subadvisory agreement between
Draycott and TNE Advisers.
No changes in the Series' investment objective or policies, or in the
portfolio management personnel responsible for the Series' day-to-day
investment management, are contemplated in connection with either transaction.
Before either transaction is effected, shareholders of the Series will be asked
to approve new subadvisory agreements intended to take effect in the event the
transactions are consummated. The new subadvisory agreements are expected to be
identical in substance to the existing subadvisory agreement. Prior to the
shareholder vote regarding the new subadvisory agreements, a proxy statement
describing them in more detail will be sent to those Contract Owners who are
entitled to give instructions as to how shares of the Series should be voted.
----------------
ALGER EQUITY GROWTH SERIES
The trustees of the Fund have approved a new investment advisory agreement
between the Fund and TNE Advisers and a new subadvisory agreement between TNE
Advisers and Fred Alger Management, Inc. ("Alger"), both relating to the Alger
Equity Growth Series (the "Series") of the Fund. The new advisory and
subadvisory agreements would increase the fee rates payable by the Series to
TNE Advisers and payable by TNE Advisers to Alger, effective May 1, 1996. The
annual rate of the fee payable by the Series to TNE Advisers under the new
advisory agreement would be 0.75% of the Series' average daily net assets, as
compared to the current fee rate of 0.70%. The annual rate of the fee payable
by TNE Advisers to Alger under the new subadvisory agreement would be 0.45% of
the first $100,000,000 of the Series' average daily net
2
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assets, 0.40% of the next $400,000,000 of such assets and 0.35% of such assets
in excess of $500,000,000. A meeting of the Series' shareholders will be held
for the purpose of voting to approve or disapprove the new agreements. The new
agreements will not take effect unless they are approved by vote of the Series'
shareholders at the meeting. A proxy statement describing the new agreements in
more detail will be sent in advance of the meeting to those Policy Owners who
are entitled to give instructions as to how shares of the Series should be
voted at the meeting.
Effective January 1, 1996, TNE Advisers will modify the expense deferral
arrangement that currently applies to the Series by raising the expense limit
from 0.85% to 0.90% of the Series' net assets. Pursuant to the expense deferral
arrangement, TNE Advisers defers those operating expenses (other than brokerage
costs, interest, taxes and extraordinary expenses) in excess of the expense
limit until a subsequent year, if any, when total expenses are less than the
limit. (See "Expense Deferral Arrangement" under the section of the prospectus
entitled "Management.")
----------------
LOOMIS SAYLES SMALL CAP SERIES
The following information reflects changes in the investment management and
policies of the Loomis Sayles Small Cap Series (the "Series"):
Jeffrey C. Petherick, Vice President of Loomis, Sayles & Company, L.P.
("Loomis Sayles") and New England Zenith Fund, and Mary Champagne, Vice
President of Loomis Sayles, have day-to-day management responsibility for the
Series. Mr. Petherick has co-managed the Series since its inception. Mr.
Petherick was an investment manager at Masco Corporation prior to joining
Loomis Sayles in 1990. Ms. Champagne has co-managed the Series since July 1995.
Prior to joining Loomis Sayles in 1993, Ms. Champagne served as a portfolio
manager at NBD Bank for 10 years.
Loomis Sayles manages the Series by investing primarily in stocks of small
cap companies with good earnings growth potential that Loomis Sayles believes
are undervalued by the market. Loomis Sayles seeks to build a core small cap
portfolio of solid growth companies' stock with a smaller emphasis on special
situations and turnarounds (companies that have experienced significant
business problems but which Loomis Sayles believes have favorable prospects for
recovery), as well as unrecognized stocks.
----------------
VENTURE VALUE SERIES
Selected/Venture Advisers, L.P., sub-adviser to the Venture Value Series (the
"Series"), changed its name to Davis Selected Advisers, L.P. ("Davis Selected")
on October 1, 1995. Venture Advisers, Inc. is the sole general partner of Davis
Selected, which, in turn, is controlled by Shelby M. C. Davis.
Shelby M. C. Davis, a director of Venture Advisers, Inc. since 1968, was
primarily responsible for the day-to-day management of the Series from its
inception through September, 1995. Since October 1995, Mr. Davis and
Christopher C. Davis have co-managed the Series. Christopher C. Davis is a
Portfolio Manager at Davis Selected and a director of Venture Advisers, Inc.
and has been employed by Davis Selected since 1989.
3
<PAGE>
NEW ENGLAND VARIABLE LIFE
INSURANCE COMPANY
Variable Ordinary Life Insurance Policies
Issued by
New England Variable Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus describes individual Variable Ordinary Life Insurance
Policies (the "Policies") offered by New England Variable Life Insurance
Company ("NEVLICO"), a stock life insurance company that is a wholly-owned
subsidiary of New England Mutual Life Insurance Company ("The New England").
Each Policy provides lifetime insurance protection for the insured named in
the Policy, as long as required scheduled premium payments are made when due.
The Policy provides for the payment of scheduled premiums until age 100. Under
certain circumstances, however, the Policy Owner may not be required to pay a
scheduled premium to keep the Policy in force on a premium paying basis. The
Policy also allows the Policy Owner to make unscheduled payments, subject to
certain restrictions.
A Policy Owner may choose one form of death benefit ("Option 1") which
remains fixed in the amount initially selected or a second form ("Option 2")
which may vary daily with the net investment experience of one or more mutual
fund portfolios. Under both death benefit options, the death benefit will
never be less than the face amount specified in the Policy provided that
required scheduled premium payments are made when due. (See "Loan Provision"
for the effect of an "excess policy loan" on the Policy.) The Policy provides
a net cash value while the insured is living. The cash value of the Policy
generally increases with the payment of each premium and varies daily with the
investment experience of the mutual fund portfolios. There is no guaranteed
minimum cash value for investments in the mutual fund portfolios.
The Policy Owner may cancel the Policy during the "free look" period. As of
the "investment start date", the first net scheduled premium for the Policy,
plus any unscheduled payment made, will be allocated to the Zenith Money
Market Sub-Account until the later of 45 days after the date Part I of the
application is signed or 10 days after NEVLICO mails the Notice of Withdrawal
Right. Thereafter, the Policy's cash value will be invested according to the
instructions of the Policy Owner.
Each Policy Owner may allocate the net scheduled premiums and net
unscheduled payments for his or her Policy among one or more of the 16
investment sub-accounts of NEVLICO's Variable Life Separate Account (the
"Variable Account") or NEVLICO'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 Value Growth Series, the Loomis Sayles Avanti Growth Series, the
Loomis Sayles Small Cap Series, the Alger Equity Growth Series*, the Loomis
Sayles Balanced Series*, the Venture Value Series* and the Draycott
International Equity Series* of the New England 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").
- --------
* (subject to any necessary state insurance department approvals).
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.
THESE SECURITIES ARE OFFERED FOR SALE IN THE COMMONWEALTH OF PUERTO RICO
PURSUANT TO REGISTRATION WITH THE SECURITIES OFFICE OF THE DEPARTMENT OF THE
TREASURY, BUT SUCH REGISTRATION DOES NOT CONSTITUTE A FINDING THAT THIS
PROSPECTUS IS TRUE, COMPLETE, AND NOT MISLEADING, NOR HAS THE SECURITIES
OFFICE OF THE DEPARTMENT OF THE TREASURY PASSED IN ANY WAY UPON THE MERITS OF,
RECOMMENDED, OR GIVEN APPROVAL TO SUCH SECURITIES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
MAY 1, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY.................................................................. A-4
INTRODUCTION TO POLICIES.................................................. A-6
The Policies............................................................ A-6
Availability of the Policy.............................................. A-8
Charges Assessed in Connection with the Policy.......................... A-8
Cost of Insurance Charges............................................... A-9
How the Policy Works.................................................... A-10
Receipt of Communications and Payments at NEVLICO's Administrative Of-
fice................................................................... A-11
NEVLICO and The New England............................................. A-11
POLICY VALUES AND BENEFITS................................................ A-12
Death Benefit........................................................... A-12
Guaranteed Minimum Death Benefit........................................ A-13
Adjustments to the Death Proceeds Payable............................... A-13
Cash Value.............................................................. A-13
Net Investment Experience............................................... A-14
Allocation of Net Premiums.............................................. A-14
Amount Provided for Investment under the Policy......................... A-14
"Free Look" Provision................................................... A-15
CHARGES AND EXPENSES...................................................... A-16
Deductions from Premiums and Unscheduled Payments....................... A-16
Surrender Charge........................................................ A-17
Deductions from Cash Value.............................................. A-19
Charges Against the Eligible Funds and the Sub-Accounts of the Variable
Account................................................................ A-21
Guarantee of Premiums and Certain Charges............................... A-21
Group or Sponsored Arrangements......................................... A-21
PREMIUMS.................................................................. A-22
Scheduled Premiums...................................................... A-22
Unscheduled Payments.................................................... A-23
Special Premium Option.................................................. A-24
Default and Lapse Options............................................... A-24
OTHER POLICY FEATURES..................................................... A-26
Loan Provision.......................................................... A-26
Surrender............................................................... A-28
Partial Surrender and Partial Withdrawal................................ A-28
Acceleration of Death Benefit Rider..................................... A-29
Investment Options...................................................... A-29
Transfer Option......................................................... A-29
Substitution of Insured Person.......................................... A-30
Payment of Proceeds..................................................... A-30
Exchange of Policy During First 24 Months............................... A-30
Payment Options......................................................... A-31
Additional Benefits by Rider............................................ A-31
Policy Owner and Beneficiary............................................ A-32
THE VARIABLE ACCOUNT...................................................... A-33
Investments of the Variable Account..................................... A-33
Investment Management................................................... A-37
THE FIXED ACCOUNT......................................................... A-38
General Description..................................................... A-38
Values and Benefits..................................................... A-39
Policy Transactions..................................................... A-39
</TABLE>
A-2
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<TABLE>
<S> <C>
DISTRIBUTION AGREEMENT AND OTHER CONTRACTUAL ARRANGEMENTS................. A-40
LIMITS TO NEVLICO'S RIGHT TO CHALLENGE THE POLICY......................... A-41
Misstatement of Age or Sex.............................................. A-41
Suicide................................................................. A-41
TAX CONSIDERATIONS........................................................ A-41
Policy Proceeds......................................................... A-41
Charge for NEVLICO's Income Taxes....................................... A-45
MANAGEMENT................................................................ A-45
VOTING RIGHTS............................................................. A-46
RIGHTS RESERVED BY NEVLICO................................................ A-47
TOLL-FREE NUMBERS......................................................... A-47
REPORTS................................................................... A-47
ADVERTISING PRACTICES..................................................... A-47
LEGAL MATTERS............................................................. A-48
REGISTRATION STATEMENT.................................................... A-48
EXPERTS................................................................... A-48
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET CASH VALUES
AND ACCUMULATED SCHEDULED PREMIUMS....................................... A-49
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............................. A-59
APPENDIX C: LONG TERM MARKET TRENDS....................................... A-77
APPENDIX D: USES OF LIFE INSURANCE........................................ A-79
APPENDIX E: TAX INFORMATION............................................... A-80
APPENDIX F: POLICY ILLUSTRATIONS BASED ON VERSION 1 AUTOMATIC ISSUE COST
OF INSURANCE RATES....................................................... A-81
FINANCIAL STATEMENTS...................................................... A-85
</TABLE>
A-3
<PAGE>
GLOSSARY
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
ACTUAL INVESTMENT RETURN. This term appears in the Policy only and is the
same as net investment experience. (See "Net Investment Experience".)
AUTOMATIC PREMIUM LOAN OPTION. Upon election by the Policy Owner, the
Policy's loan value will be used to pay a scheduled premium, if the scheduled
premium has not been paid by the end of the grace period. (See "Scheduled
Premiums".)
BASE INVESTMENT RETURN. This term appears in the Policy only, in the context
of Variable Paid-Up Insurance and tabular cash value, and equals net
investment experience at an assumed rate of 5% per year. (See "Death Benefit"
and "Default and Lapse Options".)
BASIC SCHEDULED PREMIUM. Scheduled premium minus (i) charges for any
supplementary benefits provided by rider; (ii) any extra premiums paid for a
Policy in a substandard risk classification or for a Version 2 automatic issue
Policy; and (iii) the portion of the annual Policy administrative charge
allocable to the premium. (See "Deductions From Premiums and Unscheduled
Payments".)
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 NEVLICO'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 "Deductions from Cash Value".)
DEATH BENEFIT OPTION 1. Death Benefit equals the greater of (i) the face
amount of the Policy and (ii) the Policy's cash value divided by the net
single premium per $1 of death benefit at the insured's attained age. (See
"Death Benefit".)
DEATH BENEFIT OPTION 2. Death Benefit equals the greater of (i) the face
amount of the Policy plus any excess of the Policy's cash value over its
"tabular cash value" and (ii) the Policy's cash value divided by the net
single premium per $1 of death benefit at the insured's attained age. (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 Value Growth Series, the Loomis Sayles Avanti
Growth Series, the Loomis Sayles Small Cap Series, the Alger Equity Growth
Series*, the Loomis Sayles Balanced Series*, the Venture Value Series* and the
Draycott International Equity Series* of the New England Zenith Fund; the
Equity-Income Portfolio, the Overseas Portfolio and the High Income Portfolio
of the VIP Fund; and the Asset Manager Portfolio of VIP Fund II.
(*Availability of these Series is subject to any necessary state insurance
department approvals.)
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 NEVLICO's general account to
which net premiums and net unscheduled payments may be allocated and which
provides guarantees of principal and interest.
GUARANTEED MINIMUM DEATH BENEFIT. The death benefit is guaranteed not to be
less than the Policy's face amount, regardless of the investment experience of
the Policy's sub-accounts, as long as scheduled premiums have been paid when
due or are not required to be paid, pursuant to the Special Premium Option.
(See "Guaranteed Minimum Death Benefit".)
INVESTMENT START DATE. This is the latest of the date NEVLICO receives a
premium payment for the Policy, the date Part II of the Policy application is
signed and the Policy Date and is the date that an amount is first provided
for investment under the Policy. (See "Amount Provided for Investment under
the Policy.")
MORTALITY AND EXPENSE RISK CHARGE. This charge is made daily at an annual
rate of .60% of the value of each sub-account's assets that come from the
Policies. The mortality risk NEVLICO assumes is that insureds may live for
shorter periods of time than estimated. The expense risk NEVLICO assumes is
that the costs of issuing and administering Policies may be more than
estimated. (See "Charges Against the Eligible Funds and the Sub-Accounts of
the Variable Account").
NET CASH VALUE. The amount the Policy Owner 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; reduced by any applicable
Surrender Charge; and
A-4
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increased by the portion of any cost of insurance charge deducted from the
period beyond the date of surrender. (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, reduced by the amount of charges against the sub-
account for that period. (See "Net Investment Experience".)
NET SCHEDULED PREMIUM. The amount allocated to the Variable Account and/or
the Fixed Account and which is equal to the basic scheduled premium less the
sales charge and the state premium tax charge. (See "Deductions from Premiums
and Unscheduled Payments".)
NET UNSCHEDULED PAYMENT. The amount allocated to the Variable Account and/or
the Fixed Account and which is equal to the unscheduled payment less the sales
charge and the state premium tax charge. (See "Deductions From Premiums and
Unscheduled Payments".)
PREMIUM DUE DATE. The date on which a scheduled premium is payable. Net
scheduled premiums, after the first, are allocated to a Policy's sub-accounts
on the premium due dates. (See "Premiums".)
POLICY DATE. If a premium payment has been made with the application, the
Policy Date is the later of the date Part II of the application has been
signed and receipt of the premium payment. If the initial premium is to be
paid 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.")
SPECIAL PREMIUM OPTION. Upon election by the Policy Owner, the Policy Owner
may not be required to pay a scheduled premium or premiums under certain
circumstances. (See "Special Premium Option".)
TABULAR CASH VALUE. The value which the Policy would have if: (i) all
scheduled premiums were paid when due; (ii) no unscheduled payments, partial
surrenders, partial withdrawals, or loans were made; (iii) the Policy's cash
value in the Variable Account, and the Policy's cash value in the Fixed
Account, earned a five percent annual net rate of return; and (iv) the maximum
guaranteed cost of insurance rates were deducted from the cash value. (See
"Death Benefit".)
VERSION 1 AUTOMATIC ISSUE POLICIES. Policies issued to certain group or
sponsored arrangements with only minimal underwriting required. These Policies
have different cost of insurance rates and basic scheduled premiums than
underwritten Policies. (See "Charges and Expenses -- Deductions from Cash
Value".)
VERSION 2 AUTOMATIC ISSUE POLICIES. Policies issued to certain eligible
group or sponsored arrangements with only minimal underwriting required. These
Policies have the same cost of insurance rates and basic scheduled premiums as
smoker and nonsmoker underwritten Policies but require an additional premium.
(See "Charges and Expenses -- Deductions from Cash Value".)
YOU. When used in this prospectus, "you" refers to the Policy Owner.
A-5
<PAGE>
INTRODUCTION TO POLICIES
This prospectus describes Policies under which net scheduled premiums and
net unscheduled payments 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. NEVLICO provides guarantees of
principal and interest with respect to the Fixed Account which is part of
NEVLICO's general account. Amounts in the Fixed Account are backed by
NEVLICO's general account, rather than the Variable Account. For a description
of the Fixed Account, the rules regarding policy transactions (such as
transfers, loans and surrenders) which involve the Fixed Account, and the way
in which amounts in the Fixed Account affect policy values and benefits, see
"The Fixed Account" which appears later in this prospectus.
THE POLICIES
The individual Variable Ordinary Life Insurance Policies offered by this
prospectus are designed to provide lifetime insurance coverage. They are not
primarily offered as an investment.
The following is a brief listing of some of the basic features of the
Policy. These and other features of the Policy are explained in detail
throughout this prospectus. You should be sure to read the prospectus for more
complete information.
-- The Policy requires payment of a level scheduled premium. (See
"Scheduled Premiums".)
-- You may choose to make additional, unscheduled payments under the
Policy. NEVLICO can limit or prohibit unscheduled payments in certain
situations, including cases where the insured is in a substandard risk
class. (See "Unscheduled Payments".)
-- Net scheduled premiums and net unscheduled payments 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, after an initial period in the Money Market Sub-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, subject to any necessary state insurance
department approvals. You may allocate your Policy's cash value to a
maximum of ten accounts (including the Fixed Account) at any one time.
(See "Investments of the Variable Account".)
-- If the Fixed Account is available in your state, you may also allocate
funds to that account. NEVLICO provides guarantees of Fixed Account
principal and interest. SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE
-----------------------------------------------
FROM THE FIXED ACCOUNT. NEVLICO 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 which is allocated to the Fixed Account. (See
"Cash Value", "Charges and Expenses", "Premiums", "Loan Provision" and
"Partial Surrender and Partial Withdrawal".)
-- The portion of the cash value which you invest in the sub-accounts is
not guaranteed. Your bear the investment risk on this portion of the
cash value. (See "Cash Value".)
-- You may choose between two forms of death benefit options under the
Policy. One option provides a death benefit equal to the Policy's face
amount. The other option provides a death benefit 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 both options the death benefit could be increased
to satisfy tax law requirements if the cash value reaches certain
levels. (See "Death Benefit".)
-- Regardless of investment experience, either form of death benefit is
guaranteed never to be less than the Policy's face amount, as long as
the required scheduled premiums are paid when due. (See "Death
Benefit".)
-- If you elect the "Special Premium Option", you can under certain
circumstances miss a scheduled premium payment without causing the
Policy to lapse. In that case, the Policy will keep its minimum death
benefit guarantee. (See "Special Premium Option".)
A-6
<PAGE>
-- You may change your allocation of future net scheduled premiums and net
unscheduled payments at any time. (See "Allocation of Net Premiums" and
"Investment Options".)
-- After the "free look" period, 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 without NEVLICO's consent. NEVLICO
currently allows 12 transfers per policy year. 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. Partial withdrawal and
partial surrender features are also available. (See "Loan Provision" and
"Partial Surrender and Partial Withdrawal".)
-- Death benefits paid to the beneficiary under the Policy are not subject
to Federal income tax. Under current law, undistributed increases in
cash value 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. If premium payments or a material change in
the terms or benefits of the Policy cause it to become a "modified
endowment contract", then pre-death distributions will be includable 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 premiums
and unscheduled payments and certain Policy transactions which you
choose to make. (See "Tax Considerations".)
-- If the Policy is not a modified endowment contract, NEVLICO believes
that loans under the Policy will not be taxable to you as long as the
Policy has not lapsed, been surrendered or terminated. 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".)
-- You have an opportunity during the "free look" period to return the
Policy for a refund. (See "Free Look Provision".)
-- Within twenty-four months after a Policy's date of issue, you may
exchange the Policy, without evidence of insurability, for a fixed-
benefit policy issued by New England Mutual Life Insurance Company on
the life of the insured. If you exercise this option, you will have to
make up any investment loss. (See "Exchange of Policy During First 24
Months".)
In many respects the Policies are similar to traditional fixed-benefit whole
life insurance. Like whole-life insurance, the Policies provide for a
guaranteed minimum death benefit, scheduled premium payments, a cash value,
and loan privileges.
The Policies are different from fixed-benefit 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. In addition,
you can elect an option under the Policy which will allow you, under certain
circumstances, not to pay a particular scheduled premium or premiums and still
keep the Policy in force on a premium paying basis.
The variable life insurance policies offered by NEVLICO 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 NEVLICO's assumption of an
actuarially calculated risk.
-- If scheduled premiums are not paid according to the requirements of the
Policy, the Policy may lapse. If the Policy lapses when Policy loans are
outstanding, adverse tax consequences may result.
-- 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 Life Separate Account, and 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.
-- Dividend and capital gains distributions are automatically reinvested.
For a discussion of some of the uses of the Policies, see "Appendix D: Uses
of Life Insurance".
A-7
<PAGE>
AVAILABILITY OF THE POLICY
A Policy may be issued to a smoker standard or substandard risk insured or
to a nonsmoker standard or substandard risk insured from the age of 20 to 75.
A Policy may be issued to a standard or substandard risk insured from the age
of 0 to 19. With the consent of NEVLICO, a Policy may be issued to an insured
from the age of 76 to 80. All persons must meet certain health and other
criteria. The minimum face amount which may be purchased is $5,000 for
Policies issued in connection with employer-sponsored benefit plans qualified
under Section 401 of the Internal Revenue Code, and is $15,000 for all other
Policies unless NEVLICO consents to a lower amount. NEVLICO may require a
higher face amount in certain states in order to comply with certain
requirements of state law. At this time the Policies are only available on a
limited basis to plans qualified under Section 401(k) of the Internal Revenue
Code. For certain group or sponsored arrangements the Policies may, within
certain limits, be issued on a "automatic issue" basis with minimal
individualized underwriting.
CHARGES ASSESSED IN CONNECTION WITH THE POLICY
PREMIUM-BASED CHARGES. Before allocating net scheduled premiums and net
unscheduled payments to your choice of sub-accounts, NEVLICO deducts the
following:
(i) From each scheduled premium, any premiums for rider benefits,
substandard risk classification or Version 2 automatic issue status,
and the portion of the annual administrative charge allocable to the
premium equal to $55 per year (or $45 per year for a Version 1
automatic issue Policy) if premiums are paid annually (or up to a total
of $58.41 per year if premiums are paid more frequently) (See "Charges
and Expenses -- Deductions from Cash Value" for a description of
Version 1 and Version 2 automatic issue Policies.);
(ii) From each scheduled premium, after deducting the charges listed in (i)
above, a state premium tax charge of 2% and, during the first 15
policy years, a sales charge of 6%;
(iii) From each unscheduled payment, a state premium tax charge of 2% and a
sales charge of 6%. (See "Deductions from Premiums and Unscheduled
Payments".)
SURRENDER CHARGE. If a Policy is totally or partially surrendered or lapses
during the first 15 policy years, a surrender charge consisting of a deferred
administrative charge and a deferred sales charge will be deducted from the
cash value. The maximum dollar amount of the deferred administrative charge is
$5.00 per $1,000 of face amount. The maximum dollar amount of the deferred
sales charge is an amount equal to 24% of the Policy's basic scheduled
premiums for the first policy year plus 4% of the Policy's basic scheduled
premiums for policy years two through ten. The maximum deferred sales charge,
therefore, increases in amount for each of the first ten policy years to a
maximum dollar amount equal to 6% of the Policy's basic scheduled premiums for
the first ten policy years. (A basic scheduled premium is the scheduled
premium less the portion of the annual administrative charge allocable to the
premium and less premiums for rider benefits, substandard risk classification
and Version 2 automatic issue status.) (See "Surrender Charge".) This maximum
deferred sales charge (6% of the Policy's basic scheduled premiums for the
first ten policy years) is in addition to the 6% premium-based sales charge
described in "Premium-Based Charges" above.
The surrender charge is deducted from the Policy's available cash value,
regardless of whether that cash value is derived from scheduled premiums,
unscheduled payments, or investment experience.
CHARGES DEDUCTED FROM CASH VALUE. NEVLICO will deduct the following monthly
charges from each Policy's cash value: a charge for the cost of insurance; an
administrative charge of $0.015 per $1,000 of face amount; a minimum death
benefit risk charge of $0.01 per $1,000 of face amount; and, during the first
policy year, an extra administrative charge of $0.035 per $1,000 of face
amount. If, pursuant to the Special Premium Option, you do not pay a scheduled
premium, NEVLICO will deduct from the Policy's cash value any applicable
charges for rider benefits, substandard risk or Version 2 automatic issue
status and the amount of the Policy's annual administrative charge which is
allocable to the unpaid premium. The amount deducted will equal 92% of the
charges otherwise payable for these items. (See "Deductions from Cash Value".)
DAILY CHARGES AGAINST THE SUB-ACCOUNTS OF THE VARIABLE ACCOUNT AND AGAINST
THE ELIGIBLE FUNDS. NEVLICO charges the sub-accounts of the Variable Account
for the mortality and expense risks NEVLICO assumes. The charge is made daily
at an annual rate of .60% of the value of each sub-account's assets that come
from the Policies. Charges for investment advisory fees and other expenses are
deducted from the assets of the Eligible Funds. (See "Charges Against the
Eligible Funds and the Sub-Accounts of the Variable Account" and "Investment
Management".)
A-8
<PAGE>
Under current Federal income tax law no tax is imposed upon NEVLICO 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.
NEVLICO reserves its rights to charge the Variable Account for company Federal
income taxes in the future.
COST OF INSURANCE CHARGES
Cost of insurance rates for underwritten risks are guaranteed never to be
higher than those based on the 1980 Commissioners Standard Ordinary Mortality
Tables, with smoker/nonsmoker modifications. Cost of insurance rates under
Version 1 automatic issue Policies issued to group or sponsored arrangements
are guaranteed never to be higher than 150% of those based on the 1980
Commissioners Standard Ordinary Mortality Tables. (Both the 1980 Commissioners
Standard Ordinary Mortality Tables, with smoker/nonsmoker modifications and
the 1980 Commissioners Standard Ordinary Mortality Tables are referred to in
this prospectus as the "1980 CSO Tables".) NEVLICO offers a second type of
automatic issue Policy, the Version 2 automatic issue Policy, to certain
eligible group or sponsored arrangements. (See "Charges and Expenses --
Deductions from Cash Value" for more information on the Version 1 and Version
2 automatic issue Policies.)
The cost of insurance rates actually charged may be lower than the maximums
described above. The level of the rates charged will vary depending on the
insured's sex (if the Policy is sex-based), age and underwriting class.
NEVLICO's current cost of insurance rates range from 64% to 100% of the
relevant 1980 CSO Tables for underwritten Policies and from 114% to 150% of
the relevant 1980 CSO Tables for Version 1 automatic issue Policies. NEVLICO
reviews the adequacy of its current cost of insurance rates annually and may
adjust their level periodically, as it has done in the past.
NEVLICO generally intends to charge Version 1 automatic issue Policies
higher cost of insurance rates than it would charge a fully underwritten
Policy issued to a nonsmoker. Because little underwriting is required from the
members of such a group, a healthy individual could be charged as if in a
substandard risk class. Version 2 automatic issue Policies have the same cost
of insurance rates as smoker and nonsmoker underwritten Policies but require
an additional premium. (See "Charges and Expenses -- Deductions from Cash
Value".)
A-9
<PAGE>
HOW THE POLICY WORKS
Premium payments
. Guaranteed not to increase
Charges from Premium
. Any rider premiums
. Annual Admin Charge - $55
. Substandard Risk Premium
. Version 2 Automatic Issue Premium
. Sales Load (6%* for 15 years)
. Premium Tax Charge (2%*)
Unscheduled Payments
. Sales Load (6%)
. State Premium Tax Charge (2%)
Special Premium Option
. If used, charges for Annual Admin. Charge and any riders or substandard risk
or Version 2 automatic issue premium are deducted from cash value
Loans
. After the free look period, you may borrow up to 90% of the adjusted cash
value (100% in Alabama)
. The loan interest charge is 6%. Loaned funds are transferred out of the
Eligible Funds into the General Account where they are credited with 5%
interest
Retirement Benefits
. Fixed settlement options are available for policy proceeds
Cash Values
. Net scheduled premiums or net unscheduled payments invested in your choice of
Eligible Fund investments or the Fixed Account after an initial period in the
Zenith Money Market Sub-Account
. The cash value reflects investment experience, interest, payments and policy
charges
. 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 up to 12 times per policy
year, after the free look period
. Your cash value may be allocated among a maximum of ten accounts at any one
time
Death Benefit
. Level or Variable Death Benefit Options
. Guaranteed not to be less than initial face amount net of any loan balance
. Income tax free to named beneficiary
Daily Deductions from Assets
. Mortality and expense risk charges of 0.60% on an annual basis are deducted
from the cash value daily
. Investment advisory fees and other expenses are deducted from the Eligible
Fund values daily
Beginning of Month Charges
. The cost of insurance protection is deducted from the cash value each month
. Minimum Death Benefit Guarantee Charge of $.01 per $1000 face amount monthly
. Admin. Charge 1st yr. $.05 per $1000 face amount monthly; .015 per $1000 face
amount monthly in renewal years
Surrender Charges
. Consists of Deferred Sales Charge and Deferred Administrative Charge (see page
A-17)
Living Benefits
. If policyholder has elected and qualified for disability waiver of premium
rider and becomes totally disabled, company will waive premiums during the
period of disability. Unscheduled payments are not covered by the waiver of
premium rider
. 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 scheduled premiums is 31 days from due date. Nonforfeiture
options are extended term insurance and paid-up insurance
. Subject to company rules, a lapsed policy may be reinstated within seven years
of date of lapse if it has not been surrendered
* Percent of Premium after deducting Annual Admin. Charge, Rider Premiums and
Substandard Risk and Version 2 Automatic Issue Premiums
A-10
<PAGE>
RECEIPT OF COMMUNICATIONS AND PAYMENTS AT NEVLICO'S ADMINISTRATIVE OFFICE
Your request for a particular transaction or your submission of payments or
other items (for example, a returned Policy) is treated as received at
NEVLICO's Administrative Office on any day when the New York Stock Exchange is
open if it is received there before the close of regular trading on the New
York Stock Exchange on such day. However, if any such item is received at or
after the above-specified times, the request will be treated as received on
the next such day.
NEVLICO AND THE NEW ENGLAND
NEVLICO was organized as a stock life insurance company in 1980 under
Delaware law as New England Pension and Annuity Company. Its current name was
adopted on January 7, 1983. As of December 31, 1994, NEVLICO was authorized to
transact a life insurance business in all states, the District of Columbia and
Puerto Rico. The Home Office of NEVLICO is in Wilmington, Delaware and its
Administrative Office is at 501 Boylston Street, Boston, Massachusetts 02116.
NEVLICO's mailing address is: P.O. Box 9116, Boston, Massachusetts 02117.
NEVLICO is a wholly-owned subsidiary of The New England, which was organized
in Massachusetts in 1835. The New England is the oldest chartered mutual life
insurance company in the United States. On December 31, 1994, The New England
had over $15 billion of assets and over $69 billion of life insurance in
force. As of December 31, 1994, The New England and its affiliates had over
$65 billion in assets under management.
As of December 31, 1994 the value of The New England's investment in NEVLICO
was $96.7 million. It is anticipated that The New England will from time to
time make additional capital contributions to NEVLICO to enable it to meet its
initial reserve requirements and expenses in connection with its business.
However, The New England is not legally required to make such contributions
and The New England's assets do not support the benefits payable under the
Policies. (See financial statements of NEVLICO under "Financial Statements".)
NEVLICO may reinsure a portion of a Policy's death benefit with The New
England.
NEVLICO is subject to regulation and supervision by the Delaware Insurance
Commissioner. In addition, NEVLICO is subject to the applicable insurance laws
and regulations of all jurisdictions in which it is authorized to do business.
NEVLICO submits annual reports of its operations and finances to insurance
officials in jurisdictions in which it does business.
The Policy described in this prospectus has been filed with, and approved
where required by, insurance officials in those jurisdictions where it is
sold.
A-11
<PAGE>
The following chart illustrates the relationship of NEVLICO, the Fixed
Account, the Variable Account and the Eligible Funds.
- --------------------------------------------------------------------------------
NEVLICO
- --------------------------------------------------------------------------------
(Insurance company subsidiary of The New England)
Charges are deducted.
Net premiums and net unscheduled payments are allocated to the Policy Owner's
choice of sub-accounts in the Variable Account or to the Fixed Account.
Premiums and Unscheduled Payments
Fixed Account
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Equity- Over- High Asset
Capital Bond Money Man- Stock Value Avanti Small Bal- Equity Value Inter- Income seas Income Man-
Growth Income Market aged Index Growth Growth Cap anced Growth Sub- national Sub- Sub- Sub- ager
Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Account Equity Account Account Account Sub-
Account Account Account Account Account Account Account Account Account Account Sub- Account
Account
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Sub-accounts buy shares of the Eligible Funds.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NEW ENGLAND ZENITH FUND
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Back Bay Back Bay Back Bay Westpeak Westpeak Loomis Loomis Loomis Alger Venture Draycott
Growth Advisors Advisors Advisors Stock Value Sayles Sayles Sayles Equity Value Inter-
Series Bond Money Managed Index Growth Avanti Small Bal- Growth Series national
Income Market Series Series Series Growth Cap anced Series Equity
Series Series Series Series Series Series
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------
VIP
FUND
VIP FUND II
- --------------------------------
<S> <C> <C> <C>
Equity- Over- High Asset
Income seas Income Man-
Port- Port- Port- ager
folio folio folio Port-
folio
- --------------------------------
</TABLE>
Eligible Funds buy portfolio investments to support values and benefits of the
Policies.
POLICY VALUES AND BENEFITS
DEATH BENEFIT
DEATH BENEFIT OPTIONS. On the Policy application, you may choose between two
death benefit options. The scheduled premium and face amount for the Policy
will be the same for a given insured, regardless of which death benefit option
is selected. The death benefit option under a Policy may not be changed.
The Option 1 death benefit provides a death benefit equal to the greater of
(i) the face amount of the Policy and (ii) the Policy's cash value divided by
the net single premium per $1 of death benefit at the insured's attained age.
The alternative in item (ii) means that the death benefit will not be less
than the amount of insurance which could be purchased on that date by a net
single premium equal to the Policy's cash value and is designed to ensure that
the Policy will meet the Internal Revenue Code's definition of life insurance.
Therefore, if the Option 1 death benefit is selected, the death benefit will
not vary unless the death benefit is increased above the face amount to
satisfy federal tax law requirements.
The Option 2 death provides a death benefit equal to the greater of (i) the
face amount of the Policy plus any excess of the Policy's cash value over its
"tabular cash value" and (ii) the Policy's cash value divided by the net
single premium per $1 of death benefit at the insured's attained age.
The Policy's "tabular cash value" is a hypothetical value which is used in
determining the amount of the death benefit provided under Option 2, in
determining whether a scheduled premium payment is not required, pursuant to
the Special Premium Option, and in determining the amount of cash value
available to be withdrawn from the Policy. (See "Special Premium Option" and
"Partial Surrender and Partial Withdrawal".) The "tabular cash value" is the
value which the Policy would have if: (i) all scheduled premiums were paid
when due; (ii) no unscheduled payments, partial surrenders, partial
withdrawals, or loans were made; (iii) the Policy's sub-accounts, and the
Policy's cash value in the Fixed Account, earned a 5% annual net rate of
return;
A-12
<PAGE>
and (iv) the maximum guaranteed cost of insurance rates were deducted from the
cash value. The Policy's payment schedule will affect the amount of the
tabular cash value. The Policy's tabular cash value on any day will be
calculated as if the payment schedule on that day had been in effect since
inception of the Policy.
Under the Option 2 death benefit, the death benefit may increase if the
Policy's sub-accounts (and the Policy's cash value in the Fixed Account) have
earned at greater than a 5% net rate of return, if you have paid more than the
scheduled premiums for the Policy, or if less than the maximum guaranteed cost
of insurance charges have been deducted from the cash value. The death benefit
may decrease if the Policy's sub-accounts have earned at less than a 5% net
rate of return, or if you have made partial withdrawals or loans or exercised
the Special Premium Option. Even if unfavorable net investment experience
reduces the Policy's cash value below its tabular cash value, the Option 2
death benefit will not be less than the Policy's face amount. The amount by
which the tabular cash value exceeds the cash value must be restored to the
Policy, however, either by favorable net investment experience or unscheduled
payments, before further favorable investment experience or unscheduled
payments will increase the death benefit above the face amount.
The premium payment schedule selected for a Policy will affect the amount of
its cash value and therefore may affect the amount of the death benefit
provided under Option 2. As under Option 1, the death benefit under Option 2
will never be less than the amount required to preserve the Policy's status as
life insurance under the Internal Revenue Code.
If two Policies with the same face amount have received the same amount of
premium payments and have earned the same annual net rate of return in excess
of 5%, in the early policy years the Policy with the Option 2 death benefit
will have a higher death benefit, higher cost of insurance charges and lower
cash value than the Policy with the Option 1 death benefit. In later policy
years, however, the death benefit and cash value of the Option 2 Policy will
both be lower than under the Option 1 Policy.
GUARANTEED MINIMUM DEATH BENEFIT
Under both death benefit options, the death benefit is guaranteed not to be
less than the Policy's face amount regardless of the investment experience of
the Policy's sub-accounts, as long as scheduled premiums either have been paid
when due or, pursuant to the Special Premium Option, are not required to be
paid. (See "Scheduled Premiums" and "Special Premium Option".) This amount
will be adjusted as described below to determine the death proceeds actually
paid. If, however, an "excess policy loan" exists, the Policy may terminate
even if all scheduled premiums have been paid. (See "Loan Provision" for the
definition of "excess policy loan".)
ADJUSTMENTS TO THE DEATH PROCEEDS PAYABLE
The proceeds actually paid to the insured's beneficiary will be the death
benefit provided under the Policy reduced by: (i) any outstanding policy loan
and accrued interest; (ii) (if death occurs during the grace period) the
portion of any unpaid scheduled premium (whether or not its payment is
required) that applies to the period prior to the date of death, and increased
by (i) the portion of any scheduled premium paid for a period beyond the date
of death; and (ii) the amount of any benefit payable by a rider. (See "Loan
Provision", "Scheduled Premiums" and "Additional Benefits by Rider".) The
death benefit may also be adjusted as a result of: (i) a misstatement of the
insured's age or sex made in the application for insurance; (ii) the insured's
suicide within two years from the Policy's date of issue (or less as required
by applicable state law); or (iii) any limits imposed by rider. (See "Limits
to NEVLICO's Right to Challenge the Policy".)
CASH VALUE
A Policy's cash value equals the total of its cash value held in the
Variable Account, in the Fixed Account and, if there is an outstanding policy
loan, in NEVLICO's general account as a result of the loan. While a Policy is
in force on a premium paying basis, its cash value equals the net scheduled
premiums paid and net unscheduled payments made; plus or minus any accumulated
net investment experience for the Policy; plus any interest payable on amounts
in the Fixed Account or transferred to NEVLICO's general account as a result
of policy loans; plus any interest credited to the Policy between the Policy
Date and the investment start date; minus accumulated Monthly Deductions and
monthly cost of insurance charges; minus any cash value withdrawn or
surrendered; and minus deductions from the cash value when you exercise the
Special Premium Option. (See "Premiums", "Net Investment Experience", "Amount
Provided for Investment under a Policy", "Loan Provision", "Deductions from
Cash Value" and "Partial Surrender and Partial Withdrawal".)
The net cash value is the amount which you may obtain upon surrender of the
Policy. The net cash value for a Policy is its cash value reduced by (i) any
outstanding policy loan (and accrued interest) and (ii) any applicable
Surrender Charge, and
A-13
<PAGE>
increased by the portion of any cost of insurance charge deducted for the
period beyond the date of surrender. (See "Loan Provision", "Surrender Charge"
and "Monthly Charges for the Cost of Insurance".) The amount payable upon
surrender may also include an additional benefit if provided by rider.
The net cash value in the Variable Account may increase or decrease daily
depending on the net investment experience of the Policy's sub-accounts. It is
possible for unfavorable investment experience of the sub-accounts to reduce
the Policy's 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 net cash value will be affected by the premium
payment schedule chosen.
NET INVESTMENT EXPERIENCE
The net investment experience of a Policy's sub-accounts will affect the
Policy's cash value and, in certain circumstances described earlier, may
affect the Policy's death benefit. For purposes of calculating cash values
and, where appropriate, death benefits, the net investment experience of a
Policy's sub-accounts is determined as of the close of regular trading on the
New York Stock Exchange on each day the New York Stock Exchange is open for
trading.
A sub-account's net investment experience for any period equals the
investment experience of the underlying Eligible Fund shares for the same
period, reduced by the amount of the charges against the sub-account for that
period. The investment experience of the underlying Eligible Fund shares is
the increase or decrease in the net asset value (which takes into account the
amount of advisory fees and other expenses charged against the Fund) of such
shares during the period, increased by the amount of any dividends or capital
gains distributions on those shares during the period. Such dividends and
distributions will be reinvested in Eligible Fund shares and will affect
subsequent investment experience. Charges against the Policy's sub-accounts
will initially be made only for the mortality and expense risks NEVLICO
assumes. In the future, NEVLICO will also impose a charge against the sub-
accounts for income taxes, if appropriate. (See "Charges Against the Eligible
Funds and the Sub-Accounts of the Variable Account" and "Charge for NEVLICO's
Income Taxes".)
A sub-account's net investment experience is referred to in the Policy as
"Actual Investment Return". The net investment experience at the monthly
equivalent of 5% per year is referred to in the Policy as "Base Investment
Return".
ALLOCATION OF NET PREMIUMS
As of the "investment start date," the net scheduled premium (and any net
unscheduled payment) will be allocated to the Zenith Money Market Sub-Account
until the later of 45 days after the date Part 1 of the application is signed
or 10 days after NEVLICO mails the Notice of Withdrawal Right. (See "Free Look
Provision". For the definition of the "investment start date," see "Amount
Provided for Investment under a Policy".) You will designate what percentage
of the cash value will be invested thereafter in the various sub-accounts
available to you or in NEVLICO's Fixed Account. In other words, your selection
of investment options will not take effect until the end of the period,
described above, during which the Policy's cash value is held in the Zenith
Money Market Sub-Account.
AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY
INITIAL AMOUNT. An amount is first provided for investment under a Policy as
of the "investment start date", which is the latest of the date NEVLICO 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 its receipt by a NEVLICO agent or, if a broker-dealer
other than New England Securities is involved, by a NEVLICO agency.)
If you make a premium payment with the application, the Policy Date will be
the later of the date Part II of the application has been signed and receipt
of the premium payment and, in such cases, is the same as the investment start
date. The amount of the premium payment must equal at least 10% of the annual
scheduled premium for the Policy or one monthly scheduled premium, if you pay
premiums monthly. Only one premium payment may be made during the underwriting
period. In cases where a premium payment has been made, the amount provided
for investment on the investment start date is generally equal to the first
net scheduled premium plus any net unscheduled payment made as part of the
premium payment. (Special rules apply for payroll deduction plans.)
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. Coverage under the
temporary insurance agreement will begin on the later of the date when NEVLICO
receives the premium for the Policy and the date when Part II of the
application
A-14
<PAGE>
is signed. The maximum amount of coverage provided is the lesser of the amount
of insurance applied for and $500,000 for standard risks ($250,000 for
substandard risks and $50,000 for persons who are determined to be
uninsurable.) Special rules apply for payroll deduction plans.
If a Policy is issued and accepted, Monthly Deductions and cost of insurance
charges: (i) will begin on the Policy Date even if the Policy issuance was
delayed due to underwriting requirements; (ii) will be deducted at the
beginning of each policy month; and (iii) will be in amounts based on the face
amount of the Policy issued, regardless of the limitations on coverage under
the temporary insurance agreement. Upon declining an application, NEVLICO will
refund the premium payment made and any unscheduled payment made plus interest
on the unscheduled payment at a rate established by NEVLICO from time to time.
No premium payment may be submitted with an application for a Policy to be
used in connection with an employee benefit plan under Section 401(a) of the
Internal Revenue Code.
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. The investment start date will be the later of the Policy Date and the
date the premium is received. Cost of insurance deductions and Monthly
Deductions will begin on the Policy Date. Interest at a 5% net rate will be
credited to the Policy for the period, if any, between the Policy Date and the
investment start date. Insurance coverage will begin upon receipt of the
premium.
Under limited circumstances, NEVLICO 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, in order to purchase a particular
Policy face amount for a lower premium, based on a younger insurance age, or,
in the pension plan market, to give all Policies in the plan the same
anniversary date for purposes of pension plan servicing. Backdating in some
cases may result in a Policy with a higher surrender charge, or may cause the
insured to be treated as a juvenile which could result in higher cost of
insurance rates under the Policy than if the insured had been assigned to a
nonsmoker class at issue. For a backdated Policy, the Policy Owner must also
pay the scheduled premiums payable for the period between the Policy Date and
the investment start date. As of the investment start date, NEVLICO will
allocate to the Policy those net scheduled premiums, adjusted for accumulated
Monthly Deductions and cost of insurance charges and interest at a 5% net rate
for the period between the Policy Date and the investment start date.
SUBSEQUENT AMOUNTS. The Policy's cash value on any day reflects only those
net scheduled premium payments and unscheduled payments which have already
been made. However, on each premium due date NEVLICO transfers to the Policy's
sub-accounts the amount of the net scheduled premium, even if it has not yet
been paid. Therefore, on any premium due date, the amount provided for
investment is the sum of the net cash value on that date, calculated as if
premiums were paid to but not including that date, plus the net scheduled
premium due on that date. If you do not pay a scheduled premium and NEVLICO
determines its payment is not required, or if you fail to pay a required
scheduled premium and the Policy lapses, NEVLICO will withdraw from the
Variable Account the net scheduled premium which it advanced on the premium
due date, adjusted for the net investment experience of the Policy's sub-
accounts since that date. (See "Special Premium Option". For a description of
how unscheduled payments are allocated to the Variable Account, see
"Unscheduled Payments". If you do not pay a required scheduled premium, the
Policy may lapse. See "Default and Lapse Options".)
As of each day the New York Stock Exchange is open for trading, the amount
provided for investment in a Policy's sub-accounts will be adjusted to reflect
the net investment experience of those sub-accounts for that day.
"FREE LOOK" PROVISION
You may cancel the Policy within 45 days after the date Part 1 of the
application is signed, within 10 days (or more where required by applicable
state insurance law) after you receive the Policy or within 10 days after
NEVLICO mails the Notice of Withdrawal Right, whichever is latest. The Policy
may be returned to NEVLICO or its agent. Insurance coverage ends as soon as
the Policy is returned (as determined by its postmark, if the Policy is
mailed.) Within 7 days after receipt of the returned Policy at NEVLICO's
Principal Administrative Office, NEVLICO will refund any scheduled premium
paid (or such other amount that is required by state insurance law and
permitted by the Securities and Exchange Commission) and any unscheduled
payments made before cancellation plus interest on the unscheduled payments at
a rate established by NEVLICO from time to time. This provision is referred to
in the Policies as "Right to Return the Policy" and, in Policies issued in
Minnesota, as "Right to Cancel the Policy". (See "Receipt of Communications
and Payments at NEVLICO's Administrative Office" and see "Amount Provided for
Investment in a Policy's Sub-Accounts" for the definition of "investment start
date".)
A-15
<PAGE>
CHARGES AND EXPENSES
DEDUCTIONS FROM PREMIUMS AND UNSCHEDULED PAYMENTS
The amounts allocated to the Variable Account are net scheduled premiums,
which are equal to scheduled premiums less certain deductions, and net
unscheduled payments, which are equal to unscheduled payments less certain
deductions.
From each scheduled premium, the following amounts are deducted to arrive at
a basic scheduled premium: (i) charges for any supplementary benefits provided
by rider; (ii) any extra premiums paid for a Policy in a substandard risk
classification or for a Version 2 automatic issue Policy; and (iii) the
portion of the annual Policy administrative charge allocable to the premium.
For Policies under which scheduled premiums are paid annually, the annual
Policy administrative charge is $55 (or $45 for Version 1 automatic issue
Policies). This charge will be higher if premiums are paid more frequently
than annually. The amount of the charge will depend on the payment schedule
chosen, but will not exceed $58.41. If, on the same insured under a group or
sponsored arrangement, a Version 1 automatic issue Policy is issued and at the
same time a second Policy is issued on an underwritten basis because the total
amount of coverage applied for exceeds NEVLICO's automatic issue limits,
NEVLICO will waive the $45 annual Policy administrative charge on the
automatic issue Policy. The administrative expenses charged for include: (i)
premium billing and collection; (ii) processing claims, paying net cash values
upon surrender and making Policy changes; (iii) record keeping; (iv)
communicating with Policy Owners; and (v) other expenses, such as
communicating with agents regarding Policy Owner inquiries and other non-
sales-related matters and certain expenses associated with issuance of the
Policy. All of the administrative charges under the Policies have been
designed to cover actual costs and are not intended to produce a profit.
The net scheduled premium which is allocated to the Variable Account is
equal to the basic scheduled premium less the sales charge and the state
premium tax charge.
The net unscheduled payment allocated to the Variable Account equals the
unscheduled payment less the sales charge and the state premium tax charge. No
deductions from unscheduled payments are made for rider benefit charges,
charges for substandard risks or Version 2 automatic issue status or the
annual Policy administrative charge.
(1) SALES CHARGE. A charge for sales load will be deducted and will be equal
to 6% of each basic scheduled premium payment during the first 15 policy years
and 6% of each unscheduled payment made regardless of the policy year in which
such unscheduled payment is made.
There is also a Deferred Sales Charge which is deducted only upon surrender,
partial surrender or lapse during the first 15 policy years. (See "Surrender",
"Partial Surrender and Partial Withdrawal" and "Default and Lapse Options".)
The amount of the sales charge in a policy year is not necessarily related to
NEVLICO's actual sales expenses for that year. To the extent sales expenses
are not covered by the sales charge, they will be recovered from surplus and
other funds. Sales charges for Policies sold under certain group or sponsored
arrangements may be less than for other Policies. (See "Group or Sponsored
Arrangements".)
NEVLICO expects that revenues from the sales charge will fall short of
covering total distribution expenses. NEVLICO will realize a gain if the
minimum death benefit guarantee charge or the mortality and expense risk
charge is more than sufficient to cover its actual cost of such death benefit
and expense commitments. Any such excess may be used to cover distribution
costs.
NEVLICO will reduce or eliminate this sales charge, when you purchase a
Policy, on cash value transferred, as an unscheduled payment in the first
year, from life insurance policies issued by The New England that meet certain
premium, cash value and/or face amount minimums, as currently published by
NEVLICO. NEVLICO's normal issuance criteria, including underwriting,
reinsurance and other limitations, will also apply in these situations.
STATE PREMIUM TAX CHARGE. NEVLICO deducts 2% of each basic scheduled premium
and of each unscheduled payment to cover state premium taxes. These taxes vary
from state to state and the 2% rate reflects an average.
The stated premium tax rates in the jurisdictions where NEVLICO transacts
business range from .75% to 4.00%. However, because of the effect of
retaliatory tax law provisions, the actual premium tax rates imposed on
NEVLICO range from slightly less than 2.00% to 4.00%.
A-16
<PAGE>
EXAMPLE: The following chart shows the amount of the net scheduled premium
which will be allocated to the Variable Account at the start of each policy
year under a Policy with an annual scheduled premium of $2,000. This example
assumes that the Policy has no rider benefits, that the insured is not in a
substandard risk classification and that the Policy is not a Version 2
automatic issue Policy.
<TABLE>
<CAPTION>
BEGINNING OF AMOUNT OF NET
POLICY YEAR SCHEDULED PREMIUM
------------ -----------------
<S> <C>
1-15................................................... $1,789.40
Thereafter............................................. 1,906.10
</TABLE>
If the Policy Owner makes an unscheduled payment of $2,000, the amount of
the net unscheduled payment which will be allocated to the Variable Account is
$1,840, regardless of the policy year in which the unscheduled payment is
made.
SURRENDER CHARGE
During the first 15 policy years, a Surrender Charge will be deducted from
the cash value upon a full or partial surrender or upon lapse of the Policy.
The Surrender Charge consists of a Deferred Sales Charge and a Deferred
Administrative Charge. (Policies issued in certain states may be subject to
reduced Surrender Charges due to applicable insurance law requirements.)
DEFERRED SALES CHARGE. The Deferred Sales Charge is intended to compensate
NEVLICO partially for expenses incurred in connection with the sale of the
Policies.
The Deferred Sales Charge is based on the lesser of:
(i) the total payments made to the date of surrender or lapse; and
(ii) the Policy's total basic scheduled premiums up to the date of
surrender or lapse, whether or not you have paid each of those
premiums. (A basic scheduled premium is a scheduled premium less any
charges for rider benefits, substandard risk classification or Version
2 automatic issue status and less the portion of the annual Policy
administrative charge allocable to the premium.)
If you have not paid one or more scheduled premiums, the Deferred Sales
Charge percentages will be applied to the Policy's scheduled premiums that you
actually paid. However, any unscheduled payments that you made in that
situation, up to the amount of basic scheduled premiums that you did not pay,
will be treated as scheduled premiums in the calculation of the Deferred Sales
Charge. Once the amount of the applicable Deferred Sales Charge is calculated,
using the guidelines described above, it will be deducted from the Policy's
available cash value, regardless of whether that cash value is derived from
scheduled premiums, unscheduled payments or investment experience.
For Policies under which scheduled premiums are payable annually and which
cover insureds with an issue age of 53 or less, the maximum Deferred Sales
Charge is an amount equal to 24% of the basic scheduled premium for the first
policy year plus 4% of the basic scheduled premiums for policy years two
through ten. Therefore, if all scheduled premiums have been paid under such
Policies, the maximum Deferred Sales Charge is assessed upon surrender or
lapse during the tenth policy year. Thereafter, the maximum charge declines on
a monthly basis, beginning at the start of the eleventh policy year and
reaches 0% during the last month of the fifteenth policy year and thereafter.
A-17
<PAGE>
The following table shows the Deferred Sales Charge percentage which will
apply upon surrender, partial surrender or lapse in the years indicated under
Policies which cover insureds with an issue age of 53 or less and under which
scheduled premiums are paid annually.
<TABLE>
<CAPTION>
WHICH IS EQUAL TO THE
THE MAXIMUM DEFERRED FOLLOWING PERCENTAGE
SALES CHARGE IS THE OF THE TOTAL ANNUAL
FOR POLICIES WHICH FOLLOWING PERCENTAGE OF BASIC SCHEDULED
ARE SURRENDERED OR ONE ANNUAL PREMIUMS TO DATE OF
LAPSE DURING BASIC SCHEDULED PREMIUM SURRENDER OR LAPSE
------------------ ----------------------- ---------------------
<S> <C> <C> <C>
Entire policy year 1 24% 24.00%
2 28% 14.00%
3 32% 10.66%
4 36% 9.00%
5 40% 8.00%
6 44% 7.33%
7 48% 6.86%
8 52% 6.50%
9 56% 6.22%
10 60% 6.00%
Last month of policy
years 11 48% 4.36%
12 36% 3.00%
13 24% 1.85%
14 12% 0.86%
15 and thereafter 0% 0.00%
</TABLE>
For insureds with an issue age above 53, the percentages which will apply
will be less than or equal to those shown in the table above, with the maximum
percentage occurring in years one through seven for insureds with an issue age
up to 70 and during the first five policy years for insureds with an issue age
of 71 and above.
The rate of the Deferred Sales Charge is the same for Policies under which
scheduled premiums are paid annually and for those under which such premiums
are paid more frequently. Therefore, for Policies with premiums paid more
frequently than annually and covering insureds with an issue age of 53 or
less, the maximum Deferred Sales Charge is also 24% of the first year's basic
scheduled premiums plus 4% of the basic scheduled premiums for policy years
two through ten. If all scheduled premiums have been paid, this maximum charge
is assessed upon lapse or surrender at the end of the tenth year. Thereafter,
the maximum charge under such Policies declines uniformly on a monthly basis,
beginning at the start of the eleventh policy year, and reaches 0% during the
last month of the fifteenth policy year. Although the rate of the Deferred
Sales Charge is the same regardless of whether scheduled premiums are paid
annually or more frequently, for Policies which are surrendered or lapse at
the end of a given policy year, the dollar amount of the charge will be higher
for Policies with scheduled premiums paid more frequently than annually
because the total amount of the basic scheduled premiums is higher. (See
"Scheduled Premiums".)
In the case of a partial surrender, a proportionate amount of the Deferred
Sales Charge is deducted from the net cash value remaining after you have
received the amount requested.
DEFERRED ADMINISTRATIVE CHARGE. The Deferred Administrative Charge is to
compensate NEVLICO in part for expenses, other than sales expenses, incurred
in connection with the issuance of the Policy. Such expenses include medical
examinations, insurance underwriting costs and costs incurred in processing
applications and establishing Policy records. The charge is assessed in the
following amounts upon surrender, partial surrender or lapse of the Policy:
<TABLE>
<CAPTION>
DEFERRED ADMINISTRATIVE
FOR POLICIES WHICH ARE CHARGE PER $1,000
SURRENDERED OR LAPSE DURING OF FACE AMOUNT*
--------------------------- -----------------------
<S> <C> <C>
Entire Policy years 1-10 $5.00
Last month of Policy
years* 11 4.00
12 3.00
13 2.00
14 1.00
15 zero
</TABLE>
- --------
* The charge declines monthly in equal dollar amounts after the end of the
tenth policy year.
A-18
<PAGE>
The Deferred Administrative Charge has been established to recover actual
administrative costs and is not designed to produce a profit.
DEDUCTIONS FROM CASH VALUE
MONTHLY DEDUCTION. On the Policy Date and on the first day of each policy
month, NEVLICO will make a Monthly Deduction for that policy month from the
Policy's cash value. The Monthly Deduction consists of the following charges:
(i) An administrative charge of $0.015 per $1000 of the Policy's face
amount to cover annual administrative costs of the type also covered by
the annual Policy administrative charge;
(ii) During the first policy year, an administrative fee of $0.035 per
$1000 of the Policy's face amount to cover expenses related to
issuance of the Policy;
(iii) A minimum death benefit guarantee charge of $0.01 per $1000 of the
Policy's face amount. This charge is to compensate NEVLICO for the
risk it assumes by guaranteeing that, regardless of the investment
experience of the Policy's sub-accounts, the death benefit will not
be less than the face amount if all required scheduled premiums have
been paid when due and there is no outstanding policy loan. (See
"Adjustments to the Death Proceeds Payable".)
If a Policy loan exists and the Policy's net cash value is insufficient to
cover a Monthly Deduction, the difference will be treated as an excess policy
loan and the Policy may terminate. (See "Loan Provision".)
MONTHLY CHARGES FOR THE COST OF INSURANCE. The cost of 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. The amount at risk is the amount by which the death
benefit on the first day of the policy month, discounted at the monthly
equivalent of 5% per year, exceeds the cash value on the same day after the
Monthly Deduction has been processed. If a policy loan exists and the net cash
value is insufficient to cover the cost of insurance for a policy month, the
difference will be treated as an excess policy loan and the Policy may
terminate. (See "Loan Provision".)
The underwriting classes used in determining cost of insurance rates are:
automatic issue (for Version 1 automatic issue Policies), smoker, nonsmoker
and, for insureds from the age of 0 to 19, standard. Substandard Policies and
Version 2 automatic issue Policies are charged an additional premium rather
than a different cost of insurance rate. Cost of insurance rates for policies
issued from the age of 0 to 19 are based on the insured being in a standard
class until the policy anniversary on which he or she reaches age 20 and in
the smoker class thereafter, unless the insured supplies evidence satisfactory
to NEVLICO of his or her nonsmoker status at that time. (See "Premiums --
Scheduled Premiums".)
A fully underwritten Policy in a substandard class is not charged a rate in
excess of the same underwritten Policy in NEVLICO's standard class. That is
cost of insurance rates for the smoker substandard class are the same as for
the smoker standard class, and cost of insurance rates for the nonsmoker
substandard class are the same as for the nonsmoker standard class. (See
"Premiums" and "Guarantee of Premiums and Certain Charges".)
The cost of insurance rates for underwritten Policies will generally be more
favorable for a nonsmoker or female insured than for a male smoker insured.
Where required by state law, and for Policies sold in connection with certain
employer-sponsored benefit plans and fringe benefit programs, cost of
insurance charges (and Policy values and benefits) will not vary by the sex of
the insured.
NEVLICO may offer Policies on an automatic issue basis to certain group or
sponsored arrangements. If an eligible group or sponsored arrangement
purchases Policies on an automatic issue basis, the Policies will be issued up
to a predetermined face amount limit, with only minimum evidence of
insurability. Automatic 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,
NEVLICO has determined that the issuance of Policies on an automatic issue
basis may present additional mortality cost to NEVLICO relative to Policies
issued to individuals in the smoker class.
NEVLICO offers two versions of automatic issue Policies. For certain group
or sponsored arrangements, such as employer-sponsored benefit plans qualified
under Section 401 of the Internal Revenue Code, Version 1 automatic issue
Policies are available with automatic issue cost of insurance rates and
automatic issue premiums. Cost of insurance rates under Version 1
A-19
<PAGE>
automatic issue Policies do not vary depending on whether the insured is a
smoker or nonsmoker. (See "Premiums -- Scheduled Premiums"). For certain other
eligible group or sponsored arrangements, such as certain business insurance
arrangements and certain non-tax qualified employer-sponsored benefit plans,
NEVLICO offers Version 2 automatic issue Policies which have the same cost of
insurance rates and basic scheduled premiums as smoker and nonsmoker fully
underwritten Policies but require an additional premium. Generally, these
groups are expected to present lower mortality risk than other group or
sponsored arrangements. The amount of the additional premium charged on the
Version 2 automatic issue Policies will vary depending on the issue age of the
insured and the death benefit option chosen, and may also vary depending on
the size of the group and the total premium amount to be paid by the group.
The additional premium will be deducted from each scheduled premium in the
same manner as an additional premium charged on an underwritten substandard
risk policy before the net scheduled premium is allocated to the Variable
Account.
Eligible group or sponsored arrangements may elect to purchase Policies on a
simplified underwriting basis either as an alternative to automatic issue or
for amounts of insurance which exceed NEVLICO's automatic issue limits, but
may not elect automatic 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 and basic scheduled premiums as
smoker and nonsmoker fully underwritten Policies. Currently NEVLICO does not
intend to charge an additional premium for coverage issued on a simplified
underwriting basis unless the insured is in a substandard risk class.
Cost of insurance rates for underwritten risks are guaranteed never to be
higher than those based on the 1980 CSO Tables, with smoker/nonsmoker
modifications. Cost of insurance rates under Version 1 automatic issue
Policies are guaranteed never to be higher than 150% of those based on the
1980 CSO Tables. When a Policy is charged a cost of insurance rate in excess
of 100% of the 1980 CSO Tables, this means it is being charged as if the
insured is a substandard risk even if the insured is healthy. This is because,
with automatic issue, little underwriting is required from the members of the
group, and the group may include both healthy and unhealthy lives. The cost of
insurance rate charged reflects the probable mortality experience of automatic
issue policies as a whole.
The cost of insurance rates actually charged may be lower than the maximums
described above. The level of the rates charged will vary depending on the
insured's sex (if the Policy is sex-based), age and underwriting class.
NEVLICO's current cost of insurance rates range from 64% to 100% of the
relevant 1980 CSO Tables for underwritten Policies and from 114% to 150% of
the relevant 1980 CSO Tables for Version 1 automatic issue Policies. NEVLICO's
current rates for underwritten and automatic issue Policies reflect actual
mortality experience. NEVLICO reviews the adequacy of its current cost of
insurance rates annually 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.
NEVLICO generally intends to charge Version 1 automatic issue Policies
higher cost of insurance rates than it would charge a fully underwritten
Policy issued to an individual nonsmoker. Underwritten Policies issued to
individuals who are smokers, however, would be charged slightly lower, or in
some cases slightly higher, cost of insurance rates than Version 1 automatic
issue Policies covering the same person. This means that a nonsmoker (and, in
some cases, a smoker) may be able to obtain individual insurance coverage with
a lower cost of insurance rate than that paid under the group or sponsored
arrangement. Such individual coverage, however, would not qualify for any
beneficial tax treatment accorded group or sponsored arrangements and may not
benefit from employer contributions. Under Version 2 automatic issue Policies
with nonsmoker cost of insurance rates, the overall charges for insurance
protection, including the extra premium charged, are designed generally to be
lower than such charges under a Version 1 automatic issue Policy. When a
Version 2 automatic issue Policy is issued with smoker cost of insurance
rates, the overall charges for insurance protection may be slightly lower or,
in some cases, slightly higher than such charges under a comparable Version 1
automatic issue Policy. The overall charges for insurance protection under a
Version 2 automatic issue Policy will always be higher than under a comparable
underwritten Policy in the standard class.
The Internal Revenue Code requires the Secretary of the Treasury to issue
regulations specifying what constitutes a reasonable mortality charge under a
life insurance policy. Use of a reasonable mortality charge is one of the
factors considered in determining whether the policy qualifies as life
insurance under the Internal Revenue Code. (Other factors involve the
relationship of the net cash value to the death benefit based upon certain
assumptions regarding investment experience.)
Final regulations have not been issued but it is possible such regulations
may require the definition of life insurance to be met by use of mortality
charges lower than NEVLICO currently uses in calculating whether its Version I
Automatic Issue Policy qualifies as life insurance under the Code. If this
becomes the case NEVLICO intends to modify, as necessary to conform to the
A-20
<PAGE>
regulations, Policies issued on an automatic issue basis after the effective
date of the regulations. NEVLICO does not expect these regulations to have
adverse consequences for Policies issued before the date when final
regulations are issued. However, to the extent that the final regulations
adversely affect Policies that were issued before the final regulations are
issued, NEVLICO will, to the extent possible, modify those Policies to conform
to the regulations. Such modifications could eventually result in higher
deductions for cost of insurance charges under the Policies.
CHARGES FOR RIDERS, SUBSTANDARD RISK AND VERSION 2 AUTOMATIC ISSUE STATUS
AND ANNUAL POLICY ADMINISTRATIVE CHARGE IF PAYMENT OF A SCHEDULED PREMIUM IS
NOT REQUIRED. If you use the Special Premium Option to skip a scheduled
premium payment, NEVLICO will deduct from the Policy's cash value charges for
any rider benefits under the Policy and, if applicable to the Policy, for
substandard risk or Version 2 automatic issue status. (See "Special Premium
Option".) The amount deducted will equal 92% of the charges otherwise payable
for the riders or for the Policy's substandard risk classification or Version
2 automatic issue status. NEVLICO will also deduct from the cash value 92% of
the amount of the Policy's annual administrative charge which is allocable to
the unpaid premium. These charges are deducted from the Policy's sub-accounts
in proportion to the Policy's cash value then in each such sub-account.
CHARGES AGAINST THE ELIGIBLE FUNDS AND THE SUB-ACCOUNTS OF THE VARIABLE
ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. NEVLICO charges the sub-accounts of the
Variable Account for the mortality and expense risks NEVLICO assumes. The
charge is made daily at an annual rate of .60% of the value of each sub-
account's assets that come from the Policies. The mortality risk NEVLICO
assumes is that insureds may live for shorter periods of time than NEVLICO
estimated. The expense risk NEVLICO assumes is that NEVLICO's costs of issuing
and administering Policies may be more than NEVLICO estimated.
If all the money NEVLICO collects from this charge is not needed to cover
death benefits and expenses, the money will be contributed to NEVLICO's
general account. Conversely, even if the money NEVLICO collects is
insufficient, NEVLICO will provide for all death benefits and expenses.
CHARGES FOR INCOME TAXES. NEVLICO currently makes no charge for income taxes
against the Variable Account but in the future NEVLICO may impose such a
charge. (See "Charge for NEVLICO's Income Taxes".)
ELIGIBLE FUND EXPENSES. Charges for investment advisory fees and other
expenses are deducted from the assets of the Eligible Funds. (See "Investment
Management".)
GUARANTEE OF PREMIUMS AND CERTAIN CHARGES
NEVLICO guarantees that it will not increase the amount of the scheduled
premiums, charges deducted from scheduled premiums and unscheduled payments,
the Monthly Deduction and charges to the sub-accounts of the Variable Account
for mortality and expense risks.
The Monthly cost of insurance rates applicable to a Policy for a given year
will be determined by NEVLICO on each policy anniversary. The rates vary
monthly and are guaranteed not to be greater than those based on the 1980 CSO
Tables, with smoker/nonsmoker modifications for underwritten risks. Cost of
insurance rates under Version 1 automatic issue Policies are guaranteed never
to be higher than 150% of those based on the 1980 CSO Tables.
GROUP OR SPONSORED ARRANGEMENTS
Policies may be purchased under group or sponsored arrangements, as well as
on an individual basis. A "group arrangement" includes a program under which a
trustee, employer or similar entity purchases individual Policies covering a
group of individuals on a group basis. Examples of such arrangements are
employer-sponsored benefit plans which are qualified under Section 401 of the
Internal Revenue Code and deferred compensation plans. A "sponsored
arrangement" includes a program under which an employer permits group
solicitation of its employees or an association permits group solicitation of
its members for the purchase of Policies on an individual basis.
For Policies issued in connection with group or sponsored arrangements,
NEVLICO may waive or reduce one or more of the following charges: the sales
charge, Surrender Charge, charges for the cost of insurance (including
automatic issue premiums), mortality and expense risk charge, administrative
charges and/or state premium tax charge 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
A-21
<PAGE>
increased for these Policies.) NEVLICO will waive or reduce these charges in
accordance with its rules in effect as of the date an application for a Policy
is approved. To qualify for such a waiver or reduction, a group or sponsored
arrangement 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 group or sponsored arrangement, its stability as indicated
by its term of existence, the purposes for which Policies are purchased and
certain characteristics of its members. The amount of reduction and the
criteria for qualification will reflect the reduced sales effort resulting
from sales to qualifying groups and sponsored arrangements.
NEVLICO may modify from time to time on a uniform basis, both the amounts of
reductions and the criteria for qualification. Reductions in or waivers 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 United States Supreme Court has held that certain insurance policies,
the benefits under which vary based on sex, may not be used to fund certain
employer-sponsored benefit plans and fringe benefit programs. Therefore,
NEVLICO offers Policies which do not vary based on sex for use in connection
with certain employer-sponsored benefit plans and fringe benefit programs.
NEVLICO recommends that any employer proposing to offer the Policies to
employees under a group or sponsored arrangement consult his or her attorney
before doing so.
PREMIUMS
SCHEDULED PREMIUMS
Scheduled premiums for the Policy are payable until the insured reaches age
100. The amount of the scheduled premiums will depend on the face amount of
the Policy, the age, sex (if the Policy is sex-based) and underwriting class
of the insured, and the premium payment schedule you select. Where required by
state law, and for Policies sold in connection with certain employer-sponsored
benefit plans and fringe benefit programs, premiums (and Policy values and
benefits) will not be affected by the sex of the insured.
If all scheduled premiums are paid when due and there is no excess policy
loan, the Policy will not lapse and will retain its minimum death benefit
guarantee, even if unfavorable investment experience has reduced the cash
value to zero. (See "Loan Provision".) If you have elected the Special Premium
Option and its conditions are met, then even if you do not pay a particular
scheduled premium or premiums, the Policy will not lapse and will continue to
provide the minimum death benefit guarantee, provided there is no excess
policy loan. (See "Special Premium Option".)
The underwriting classes used for determining the level of scheduled
premiums are automatic issue (for Version 1 automatic issue Policies), smoker
standard, smoker substandard, nonsmoker standard, nonsmoker substandard and,
for insureds from the age of 0 to 19, standard and substandard. Premiums are
generally higher for males and smokers, and are generally lower for females
and nonsmokers. Premiums are also generally higher for Policies issued on
older insureds. Scheduled premiums include, where applicable, the additional
premiums which are charged for insureds in a substandard risk classification,
for Version 2 automatic issue Policies and for benefits provided by rider.
Premiums for Policies issued from the age 0 to 19 are based on the insured
being in a standard or substandard class until the policy anniversary on which
he or she reaches age 20 and in the smoker standard or smoker substandard
class thereafter, unless the insured supplies evidence satisfactory to NEVLICO
of his or her nonsmoker status at that time. A credit will be applied toward
the initial scheduled premium under a Policy converted from certain term
insurance issued by New England Mutual Life Insurance Company. A credit will
be applied toward scheduled premiums under a Policy issued to a home office
employee of The New England on the life of the employee, if the employee has
worked for The New England for at least one year.
You may elect to have The New England withdraw scheduled premiums from your
bank checking account or TNE Cash Management Trust account.
Scheduled premiums can be paid on an annual, semi-annual or quarterly
payment schedule, or, with NEVLICO's consent, on a monthly payment schedule.
When premiums are paid more frequently than annually, the total of premiums
paid for a policy year will be higher than one annual premium, reflecting a
charge for additional administrative expenses and the loss of interest. The
premium payment schedule you select will affect the amount of a Policy's cash
value and therefore may affect the amount of the death benefit. For example,
if you pay an annual premium at the beginning of the policy year, your policy
will experience a larger dollar amount of net investment experience (whether
favorable or unfavorable) by the end of the policy year than if you pay
quarterly premiums.
A-22
<PAGE>
You can change the schedule of premium payments at any time. A change to a
schedule of less frequent premium payments (e.g., from quarterly to annual)
will become effective after receipt of the request for change at NEVLICO's
Administrative Office as of the next premium due date under the new premium
payment schedule. Until then, you will continue paying premiums under the old
premium payment schedule; NEVLICO will not accept an advance payment of the
remaining scheduled premiums due under the old premium payment schedule or
allocate those scheduled premiums to the Variable Account prior to their due
dates under the old payment schedule, that is, you cannot pay the balance of
any premium mode. A change to a schedule of more frequent premium payments
(e.g., from annual to quarterly) will become effective after receipt of the
request for change at NEVLICO's Administrative Office as of the next premium
due date under the original premium payment schedule. (See "Receipt of
Communications and Payments at NEVLICO's Administrative Office".)
Scheduled premiums are payable at NEVLICO's Administrative Office or at any
NEVLICO agency on or before their due dates. Net scheduled premiums, after the
first, will be allocated to a Policy's sub-accounts on the premium due dates,
not when they are received. If you exercise the Special Premium Option or fail
to pay a required scheduled premium, NEVLICO will withdraw from the Variable
Account the net scheduled premium which it advanced on the premium due date,
adjusted for the net investment experience of the Policy's sub-accounts since
that date. (If you do not pay a required scheduled premium, the Policy may
lapse. See "Default and Lapse Options".)
You may elect an automatic premium loan option. Under this option, if you
have not paid a scheduled premium by the end of the grace period, the Policy's
loan value will be used to pay the scheduled premium to the next due date, if
possible, but at least to the next quarterly due date. However, no premium
will be paid if the Policy's loan value is not sufficient to pay a premium to
the next quarterly due date. Loan interest will be charged on automatic
premium loans from the due date of the premium. If at any time the Policy has
an excess policy loan, the Policy may terminate. (See "Loan Provision".) If
you have elected the Special Premium Option, NEVLICO will first determine
whether the Special Premium Option can be used to satisfy the premium payment
before attempting to pay the premium by means of an automatic premium loan.
UNSCHEDULED PAYMENTS
Except as described below, you may make unscheduled payments at any time
that the Policy is in force on a premium paying basis provided that the
unscheduled payment is at least $25 and, if required by NEVLICO, the insured
has submitted evidence of insurability satisfactory to NEVLICO. In addition,
NEVLICO's consent is required if, in order to satisfy tax law requirements,
the payment would increase the Policy's death benefit by more than it would
increase the cash value. Unscheduled payments may not be made while scheduled
premiums are being waived pursuant to a waiver of premium rider. (See
"Additional Benefits by Rider".) NEVLICO reserves the right to prohibit or
limit the amount of unscheduled payments under a Policy covering an insured in
a substandard risk classification or under a Version 2 automatic issue Policy.
You may plan to make a certain amount of unscheduled payments on each policy
anniversary. At your request and subject to NEVLICO's rules, NEVLICO will
include this amount of planned unscheduled payment on your premium notice for
premiums due on the policy anniversary. Subject to NEVLICO's rules, you may
elect to have The New England withdraw unscheduled payments from your bank
checking account or TNE Cash Management Trust account if you are using this
facility to make scheduled premium payments under the Policy. However, you are
required to pay only the scheduled premium in order to keep the Policy in
force on a premium paying basis. There may be cases where the total of all
premiums and payments made could cause the Policy to be a "modified endowment
contract". You could consider the potential tax consequences before planning a
series of unscheduled payments. (See "Tax Considerations".)
Each net unscheduled payment will be allocated to the Policy's sub-accounts
as of the date it is received at NEVLICO's Administrative Office. (See
"Receipt of Communications and Payments at NEVLICO's Administrative Office".)
A net unscheduled payment will increase the Policy's cash value on the date it
is allocated to the sub-accounts and may increase the Policy's death benefit.
(See "Death Benefit" and "Cash Value".)
RULES FOR CREDITING PAYMENTS TO THE VARIABLE ACCOUNT. NEVLICO has developed
the following crediting rules for scheduled premiums and other payments
received under a Policy. These rules apply in the case of annual, semi-annual
and quarterly payment frequencies.
Twenty-five days before a premium due date, NEVLICO will send you a premium
notice indicating the scheduled premium due, any policy loan interest due, and
the amount of any planned unscheduled payment. Payments accompanied by a
premium notice, and payments received by NEVLICO during the period from 25
days before the premium due date to 31 days after the
A-23
<PAGE>
due date, whether or not accompanied by a premium notice, will be applied
first to the payment of the scheduled premium due, next to pay any loan
interest due, and any balance will be applied to the Policy as an unscheduled
payment allocated (net of charges) to the Policy's sub-accounts as of the date
it was received. (However, any payment which is less than the amount of the
scheduled premium due will be treated as an unscheduled payment.) All other
payments will be treated as unscheduled payments.
If premiums are paid monthly, they will be credited as agreed by you and
NEVLICO. In addition, billing procedures may differ from those described above
for certain group or sponsored arrangements.
If the Policy has lapsed, and you made an unscheduled payment during the
grace period of the premium in default which is insufficient to pay the
premium due, the amount of the unscheduled payment will be refunded to you.
If a policy loan is outstanding, it may be more advantageous to repay the
loan than to make an unscheduled payment, because the unscheduled payment is
subject to sales and premium tax charges, and the loan repayment is not
subject to charges. (See "Loan Provision" and "Deductions from Premiums and
Unscheduled Payments".) A payment will not be treated as repayment of a policy
loan unless so designated by you.
SPECIAL PREMIUM OPTION
On the Policy application, or while the Policy is in force on a premium
paying basis, you may elect the Special Premium Option. After the first policy
year, this provision allows you not to pay a scheduled premium or premiums
under certain circumstances.
If you have elected this provision and, after the first policy year, you
have not paid a scheduled premium by the end of the grace period for that
premium, payment of the premium will not be required if (i) the Policy's cash
value on the premium due date exceeded its tabular cash value on the same date
by the amount of the scheduled premium, including any substandard risk (or
Version 2 automatic issue) and rider premiums due, and (ii) immediately after
the Special Premium Option is used, the amount of any policy loan outstanding
plus accrued interest will not exceed the Policy's loan value. (See "Death
Benefit" for the definition of "tabular cash value" and see "Loan Provision".)
Use of the Special Premium Option will reduce the Policy's cash value, and
therefore the Policy's loan value, in the following manner. If NEVLICO
determines that a scheduled premium payment is not required, it will deduct
from the Policy's sub-accounts an amount to pay for any rider and substandard
risk or Version 2 automatic issue premiums and the portion of the Policy's
annual administrative charge due on that premium due date. The amount deducted
to cover these items will be 92% of the rider, substandard risk and automatic
issue extra premiums and administrative charge otherwise payable. This amount
will be deducted as of the premium due date and will be deducted in the same
proportion as the Policy's cash value is allocated to the sub-accounts.
If you have elected both the Special Premium Option and the automatic
premium loan provision, NEVLICO will first determine whether the Special
Premium Option can be used to satisfy the premium payment before attempting to
pay the premium by means of an automatic premium loan. (See "Scheduled
Premiums".)
You can cancel the Special Premium Option after it has been elected and,
generally, can elect it at any time. The Special Premium Option is not
available to Policies, however, for any period during which scheduled premiums
are paid monthly pursuant to a Policy Owner's election to have The New England
withdraw premium payments from his or her bank checking account or TNE Cash
Management Trust account.
DEFAULT AND LAPSE OPTIONS
A required scheduled premium which is unpaid as of its due date is in
default, but the Policy provides a 31-day grace period for the payment of each
scheduled premium after the first. The insurance continues in full force
during the grace period but, if the insured dies during the grace period, a
prorated portion of the unpaid scheduled premium will be deducted from the
amount otherwise payable.
For 60 days after the due date of a Policy's premium in default, NEVLICO
will not make the usual Monthly Deductions and cost of insurance deductions
from the Policy's cash value. Therefore, during this period, such Policy's
cash value will not be less than its cash value on the premium due date,
adjusted for the net investment experience of the Policy's sub-accounts and
for
A-24
<PAGE>
interest credited on any cash value in the Fixed Account from the premium due
date to the date of calculation. If the premium in default is paid,
retroactive Monthly Deductions and cost of insurance deductions will be made.
Upon lapse of a Policy which is in a standard risk classification (and is
not used in connection with an employee benefit plan under Section 401 of the
Internal Revenue Code or issued on an automatic issue basis), any net cash
values, reduced by the amount of any partial surrenders or partial withdrawals
made during the grace period, will automatically be applied as of the due date
of the premium in default as Fixed Extended Term Insurance unless you elect
Fixed or Variable Paid-Up Insurance. Fixed Extended Term Insurance is fixed
benefit life insurance for a limited term with no further premiums due. Paid-
Up Insurance is permanent life insurance with no further premiums due.
You can make or change your election of a lapse option by a written request
at NEVLICO's Administrative Office within 60 days after the due date of the
premium in default. (See "Receipt of Communications and Payments at NEVLICO's
Administrative Office".)
Unless you have elected and qualify for Variable Paid-Up Insurance, (i) if
the Fixed Paid-Up Insurance Option will provide a death benefit equal to or
greater than the amount of Fixed Extended Term Insurance available for such
Policy, the Fixed Paid-Up Insurance Option will be used, and (ii) if the
insured dies after the end of the grace period but within 60 days after the
due date of the premium in default, the fixed benefit lapse option which will
provide the larger death benefit will be used.
Fixed Extended Term Insurance is not available if the Policy is in a
substandard risk classification, is used in connection with an employee
benefit plan under Section 401 of the Internal Revenue Code, or is issued on
an automatic issue basis.
Fixed Paid-Up Insurance and Fixed Extended Term Insurance will be provided
by using the Policy's net cash value (that is, its cash value less any
outstanding policy loan and accrued interest and less any Surrender Charge
assessed upon lapse) on the due date of the premium in default, reduced by the
amount of any partial surrenders or partial withdrawals made during the grace
period, as a net single premium at the age of the insured on that due date.
The amount of Fixed Extended Term Insurance will equal the death benefit of
the Policy on the due date of the premium in default. If the Policy is
continued as Fixed Paid-Up or Fixed Extended Term Insurance, the cash value on
any date will equal the net single premium which would be required to provide
the insurance at the age of the insured on that date. For 31 days after each
policy anniversary, the cash value of such a policy will not be less than the
cash value on that anniversary. Policy loans are available under Policies
continued as Fixed Paid-Up Insurance but not under Policies continued as Fixed
Extended Term Insurance.
VARIABLE PAID-UP INSURANCE. Variable Paid-Up Insurance is available as a
lapse option if, as of the due date of the premium in default, the Policy's
net cash value, (that is its cash value less any outstanding policy loan and
accrued interest and less any Surrender Charge assessed upon lapse), reduced
by any partial surrenders and partial withdrawals made during the grace
period, is sufficient, when applied as a net single premium at the attained
age of the insured, to purchase Variable Paid-Up Insurance with an initial
amount of at least $5,000. If the net cash value is insufficient to purchase
the minimum required initial amount of Variable Paid-Up Insurance, Fixed Paid-
Up Insurance will be provided. Variable Paid-Up Insurance will not be made
available to Policies in a substandard risk classification or to Version 2
Automatic Issue Policies.
Variable Paid-Up Insurance is permanent life insurance with no further
premiums due. The death benefit can vary monthly and the cash value can vary
daily, in each case depending on the net investment experience of the Policy's
sub-accounts (and on the interest earned on any of the Policy's cash value in
the Fixed Account). Regardless of investment experience, however, the death
benefit provided will never be less than the initial amount of the Variable
Paid-Up Insurance, if there is no outstanding policy loan.
The death benefit under Variable Paid-Up Insurance will equal the greater of
the Variable Death Benefit and the initial amount of the Variable Paid-Up
Insurance, less any outstanding policy loans and accrued interest. The
Variable Death Benefit in the first policy month under the lapse option equals
the initial amount of the Variable Paid-up Insurance. Thereafter the Variable
Death Benefit may change depending on the net investment experience of the
Policy's sub-accounts and on the sex (if the Policy is sex-based), age and
underwriting class of the insured.
If, for a policy month, the net investment experience of the Policy's sub-
accounts (and the net interest earned on any of the Policy's cash value in the
Fixed Account), plus any cost of insurance adjustment for the Policy, is
greater than it would have been at the monthly equivalent of 5% per year (a
"positive net investment factor"), the Variable Death Benefit will increase.
If the net investment experience of the Policy's sub-accounts (and the net
interest earned on any of the Policy's cash value in the Fixed Account), plus
any cost of insurance adjustment, is less than it would have been at the
monthly equivalent of 5% per year (a
A-25
<PAGE>
"negative investment factor"), the Variable Death Benefit will decrease. The
cost of insurance adjustment for a Policy, if any, is equal to the difference
between the maximum guaranteed cost of insurance and the actual cost of
insurance for the Policy. The amount of this difference will vary with the sex
(if the Policy is sex-based), age and underwriting class of the insured.
A Policy's Variable Death Benefit under Variable Paid-Up Insurance is
determined monthly as of the Policy's "Monthly Valuation Date". Once
determined, the Variable Death Benefit for a Policy remains the same for that
policy month. The Policy Owner foregoes any increase and avoids any decrease
in the Variable Death Benefit until the next Monthly Valuation Date.
The Variable Death Benefit for a Policy is cumulative. Increases and
decreases in the Variable Death Benefit are carried into each succeeding
policy month. The Variable Death Benefit for a Policy can be higher or lower
than the initial amount of insurance under the Variable Paid-Up Insurance
Option. If the Variable Death Benefit is higher than the initial amount of
insurance, a subsequent positive net investment factor will produce a larger
Variable Death Benefit. If the Variable Death Benefit is lower than the
initial amount, subsequent positive net investment factors must first offset
the amount by which the Variable Death Benefit is lower than the initial
amount; the Variable Death Benefit will then become higher than the initial
amount of insurance if the Policy's sub-accounts experience further positive
net investment factors.
The initial cash value of a Policy continued as Variable Paid-Up Insurance
is its NET cash value as of the due date of the premium in default, reduced by
any partial surrenders or partial withdrawals made during the grace period.
Thereafter, the cash value is determined in the same manner as it is prior to
lapse, except that the charge for the cost of insurance is deducted at the end
of the policy month rather than at the beginning, and there is no Monthly
Deduction. Since there are no Monthly Deductions, generally the cost of
insurance rates actually charged under a Policy continued as Variable Paid-Up
Insurance are somewhat higher than they are under the Policy prior to lapse.
The net cash value of a Policy continued as Variable Paid-Up Insurance,
which is the amount you may obtain upon surrender of the Policy, is its cash
value minus any outstanding policy loan and accrued interest and minus a
prorated charge for the cost of insurance to the date of surrender, if it is
other than the last day of the policy month. No partial withdrawals, premium
payments or unscheduled payments may be made under a Policy continued as
Variable Paid-Up Insurance.
The net cash value of a Policy may increase or decrease between Valuation
Dates, depending on the net investment experience of the Policy's sub-
accounts. There is no guaranteed minimum cash value for a Policy continued as
Variable Paid-Up Insurance.
The amount available to be borrowed at any time under a Policy continued as
Variable Paid-Up Insurance is determined in the same manner as it is prior to
lapse. If an excess policy loan exists under a Policy continued as Variable
Paid-Up Insurance, the Policy may terminate. (See "Loan Provision.") You may
transfer the amount provided for investment among the Policy's sub-accounts up
to four times in a policy year without NEVLICO's consent.
REINSTATEMENT. If your Policy has lapsed, it may be reinstated within 7
years after the date of default. If more than 7 years have passed, or if you
have surrendered the Policy, NEVLICO's consent is required to reinstate.
Reinstatement in all cases is subject to payment of certain charges described
in the Policy and generally will require evidence of insurability that is
satisfactory to NEVLICO.
OTHER POLICY FEATURES
LOAN PROVISION
You may borrow all or part of the Policy's "loan value" at any time after
the end of the "free look" period. The Policy will be security for the policy
loan. The amount available to be borrowed at any time is equal to the loan
value less any outstanding policy loan and accrued interest. NEVLICO will make
a policy loan as of the policy loan date -- the date as of which a loan
request is received at NEVLICO's Administrative Office. (See "Receipt of
Communications and Payments at NEVLICO's Administrative Office".) You should
contact NEVLICO's Administrative Office or a NEVLICO agent for information
regarding NEVLICO's administrative procedures for requesting a policy loan.
Policy loans may not be made if the Policy is being continued as Fixed
Extended Term Insurance.
The Policy's loan value is equal to: 90% (or more if required by applicable
state insurance law) of the Policy's cash value as of the date of receipt of
the loan request at NEVLICO's Administrative Office, projected (assuming a
constant annual rate of return of 5%) to the next policy anniversary or, if
earlier, to the next premium due date; MINUS ANY APPLICABLE SURRENDER CHARGE
-------------------------------------
A-26
<PAGE>
ON THE NEXT LOAN INTEREST DUE DATE OR, IF GREATER, ON THE DATE THE LOAN IS
- --------------------------------------------------------------------------
MADE; and discounted at the interest rate (6%) charged on the policy loan. A
- -----
fixed loan interest rate of 6% per year is charged on policy loans. Interest
accrues daily, and is due on policy anniversaries. Any interest remaining
unpaid when due will be added to the outstanding policy loan. (See "Payment of
Proceeds".)
If a policy loan is outstanding, it may be more advantageous to repay the
loan than to make an unscheduled payment, because the unscheduled payment is
subject to sales and premium tax charges, and the loan repayment is not
subject to charges. (See "Loan Provision" and "Deductions from Premiums and
Unscheduled Payments".)
EXAMPLE: Using the Policy illustrated on page A-51, assume that the Policy's
premiums have been paid when due and that the Policy's sub-accounts have
earned a constant 6% hypothetical gross annual rate of return (equal to a
constant net annual rate of return of 4.55%). After the premium payment on the
10th policy anniversary, the maximum amount that could be borrowed would be
determined as follows under (i) and annual premium payment schedule and (ii) a
quarterly premium payment schedule:
<TABLE>
<CAPTION>
ANNUAL QUARTERLY
------- ---------
<C> <S> <C> <C>
Cash Value after Premium Payment on 10th Policy
(1) Anniversary....................................... $19,391 $18,071
Cash Value Projected at a Constant Annual Rate of
(2) Return of 5% to the
(a) 11th Policy Anniversary........................ 19,774
(b) Next Premium Due Date.......................... 18,148
(3) 90% of Amount Calculated in (2).................... 17,797 16,333
Amount Calculated in (3), Reduced by the Applicable
(4) Surrender Charge.................................. 15,784 14,320
(5) Amount Calculated in (4), Discounted at an Annual
Rate of 6%
Back to the 10th Policy Anniversary............... 14,890 14,108
</TABLE>
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 Sections 401(a) and 401(k) 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.
EFFECT OF POLICY LOAN. The Policy's cash value in the sub-accounts is
reduced by the amount of a policy loan, as of the date of the policy loan.
Repayment of the policy loan causes the cash value in the sub-accounts to
increase by the amount of the repayment. (See "Receipt of Communications and
Payments at NEVLICO's Administrative Office".) NEVLICO attributes a policy
loan to the Policy's sub-accounts in proportion to the cash value then in each
such sub-account, unless you request otherwise. Similarly, NEVLICO allocates a
policy loan repayment to the Policy's sub-accounts in proportion to the cash
value then in each, unless you request otherwise.
The amount removed from the Policy's sub-accounts as a result of a policy
loan will earn interest at 5%, which will be credited to the Policy's sub-
accounts annually in proportion to the Policy's cash value in each sub-account
as of the date of crediting.
The amount removed from the Policy's sub-accounts as a result of a policy
loan is not affected by the investment experience of those sub-accounts from
which the amount provided for investment was withdrawn. Therefore, the death
benefit and the net cash value can be permanently affected by the existence of
any policy loan, whether or not repaid in whole or in part. The amount of any
outstanding policy loan, plus interest accrued thereon, is subtracted from the
amount otherwise payable when the Policy proceeds become payable.
If policy loans plus accrued interest exceed the Policy's cash value less
the applicable Surrender Charge on the next loan interest due date (or, if
greater, on the date the calculation is made), NEVLICO will notify you of
pending termination. (This situation is referred to as an "excess policy
loan". NEVLICO tests for an excess Policy loan on each monthly processing date
and any time a loan-related transaction is made.) The Policy will terminate 31
days after such notice has been mailed, unless NEVLICO has received sufficient
repayment to eliminate the excess policy loan. (See "Default and Lapse
Options" and "Receipt
A-27
<PAGE>
of Communications and Payments at NEVLICO's Administrative Office".) If the
insured dies after notice but before expiration of the 31-day period, NEVLICO
will pay the beneficiary the death proceeds. If the Policy lapses with a loan
outstanding, adverse tax consequences may result. (See "Tax Considerations"
below.)
SURRENDER
You may surrender a Policy for its net cash value at any time while the
insured is living by a signed written request conforming to NEVLICO's
administrative procedures. The net cash value of the surrendered Policy will
be determined as of the date on which a surrender request is received at
NEVLICO's Administrative Office. The net cash value equals the cash value
reduced by any policy loan and accrued interest and by any applicable
Surrender Charge. (See "Surrender Charge.") In the case of a Policy continued
as Variable Paid-Up Insurance, the net cash value available upon surrender is
also reduced by a prorated charge for the cost of insurance to the date of
surrender, if it is other than the last day of the policy month. The net cash
value will be paid unless you elect in writing to apply all or part of the net
cash value to a payment option. (See "Payment Options.") Upon surrender, the
Policy will terminate. A surrender may result in adverse tax consequences.
(See "Tax Considerations" below.)
PARTIAL SURRENDER AND PARTIAL WITHDRAWAL
You may make a partial surrender of the Policy to receive a portion of its
net cash value. A partial surrender will reduce the Policy's cash value by the
amount of the net cash value requested to be surrendered and by the amount of
any Surrender Charge assessed as a result of the partial surrender. A partial
surrender will cause a proportionate reduction in a Policy's face amount,
tabular cash value, death benefit and basic scheduled premium. No partial
surrender may reduce the face amount below the Policy's required minimum
except with NEVLICO's consent. Any Surrender Charge applied will reduce any
remaining Surrender Charge under your Policy.
Under a Policy which has the Option 2 death benefit you may make a partial
withdrawal of the amount by which the Policy's cash value exceeds its tabular
cash value. If there is a policy loan outstanding, the amount of the partial
withdrawal will be further limited to prevent the policy loan plus accrued
interest from exceeding the Policy's loan value. (See "Loan Provision".) A
partial withdrawal will reduce the Policy's Option 2 death benefit and cash
value but will not affect its face amount or scheduled premium level. No
Surrender Charge will be assessed against amounts withdrawn.
If you make a request to receive a portion of the cash value under a Policy
with an Option 2 death benefit, unless you specify that the transaction be
processed exclusively as a partial surrender, NEVLICO will first treat the
transaction as a partial withdrawal of any excess of the cash value over the
tabular cash value and will provide any balance of cash value requested by
means of a partial surrender.
Under a Policy with the Option 1 death benefit, you may make a partial
withdrawal only if the death benefit has increased above the face amount in
order to satisfy Federal tax law requirements. Such a withdrawal may be in an
amount equal to the cash value, minus the face amount multiplied by the net
single premium per $1 of death benefit at the insured's attained age. If there
is a policy loan outstanding, the amount of the partial withdrawal will also
be limited to prevent the policy loan plus accrued interest from exceeding the
Policy's loan value. (See "Loan Provision".) A partial withdrawal under a
Policy with an Option 1 death benefit will reduce the Policy's death benefit
(but not below the face amount) and cash value but will not reduce its face
amount or affect its scheduled premium level. No Surrender Charge will be
assessed against the amount withdrawn.
No more than four partial surrenders and partial withdrawals in total may be
made in any one policy year without the consent of NEVLICO. Amounts withdrawn
may not be repaid except as scheduled premium payments or unscheduled
payments, which are subject to the charges described under "Deductions From
Premiums and Unscheduled Payments."
A partial withdrawal or partial surrender (and any applicable Surrender
Charge) will reduce proportionately the cash value in each of the Policy's
sub-accounts unless you request otherwise. The amount of each partial
surrender and partial withdrawal made during the grace period of a premium in
default will be subtracted from the net cash value used to determine the value
of the Policy upon lapse. (See "Default and Lapse Options".)
The net cash value paid upon partial surrender or partial withdrawal will be
determined as of the date on which a request conforming to NEVLICO's
administrative procedures is received at NEVLICO's Administrative Office.
NEVLICO's administrative procedures can be determined by contacting a NEVLICO
agent or the Administrative Office.
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A Policy Owner contemplating a partial withdrawal or surrender transaction
should consult his or her tax advisor as to the tax consequences of the
transaction. A death benefit reduction may cause a Policy to become a
"modified endowment contract". (See "Tax Considerations".)
ACCELERATION OF DEATH BENEFIT RIDER
NEVLICO intends to 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.
NEVLICO WILL MAKE THE ACCELERATED BENEFITS RIDER AVAILABLE TO YOU ONLY IF:
(1) YOUR STATE INSURANCE DEPARTMENT HAS APPROVED THE RIDER, (2) THE FEDERAL
INCOME TAX TREATMENT OF THE RIDER HAS BEEN CLARIFIED AND (3) THE AVAILABILITY
OF THE RIDER WILL NOT JEOPARDIZE THE QUALIFICATION OF THE POLICY AS LIFE
INSURANCE UNDER FEDERAL INCOME TAX LAW. HOWEVER, NEVLICO MAY DETERMINE NOT TO
OFFER THE BENEFIT, OR MAY OFFER A SUBSTANTIALLY DIFFERENT BENEFIT, TO THE
EXTENT THAT NEVLICO DEEMS ADVISABLE IN LIGHT OF FUTURE CLARIFICATION OR
INTERPRETATION OF APPLICABLE 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 NEVLICO.
INVESTMENT OPTIONS
You have the option to allocate net scheduled premiums and net unscheduled
payments among the sub-accounts of the Variable Account in any combination.
Any portion of a net scheduled premium and net unscheduled payment allocated
to one of the Policy's sub-accounts must be at least 10% of such premium or
payment. Percentages allocated must be in whole numbers. Your Policy's cash
value may be distributed among no more than ten accounts (including the Fixed
Account) at any one time.
You must make the initial election when you apply for the Policy. You may
change the election at any time thereafter. The reallocation will be effective
as to any net scheduled premiums due and net unscheduled payments applied
after the date of receipt at NEVLICO's Administrative Office of written notice
signed by you of the change of election in a form satisfactory to NEVLICO.
(See "Receipt of Communications and Payments at NEVLICO's Administrative
Office.") You may also request a reallocation of future net premiums and net
unscheduled payments by telephone. See "Transfer Option" below for information
on how to request a transfer or reallocation by telephone.
TRANSFER OPTION
You may redistribute the amount provided for investment in the Policy's sub-
accounts up to four times in a policy year without NEVLICO's consent. NEVLICO
currently allows 12 sub-account transfers per policy year. All sub-account
transfer requests made at the same time will be treated as a single
redistribution and will be effective at relative net asset values as of the
date of receipt of the transfer request at NEVLICO's Administrative Office.
(See "Receipt of Communications and Payments at NEVLICO's Administrative
Office." For special rules regarding transfers involving the Fixed Account,
see "The Fixed Account".) Your Policy's cash value may be distributed among no
more than ten accounts (including the Fixed Account) at any one time.
You may request a sub-account transfer or reallocation of future premiums by
written request (which may be telecopied) to NEVLICO's Administrative Office
or by telephoning The New England. To request a transfer or reallocation by
telephone, you should contact your registered representative or contact The
New England at 1-800-200-2214. Requests for transfers (up to NEVLICO's current
limit per policy year) or reallocations by telephone will be automatically
permitted. NEVLICO and The New England will use reasonable procedures such as
requiring certain identifying information from the caller, tape recording the
telephone instructions, and providing written confirmation of the transaction,
in order to confirm that instructions communicated by telephone are genuine.
Any telephone instructions reasonably believed by The New England and NEVLICO
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 NEVLICO and The New England do not employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, they may be liable for any losses due to unauthorized or
fraudulent instructions.
For Policies issued in New York, transfers may be made by written request
only. The New York Insurance Department does not currently allow transfer
requests to be made by telephone.
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<PAGE>
SUBSTITUTION OF INSURED PERSON
NEVLICO intends in the future to offer a rider benefit under certain
Policies 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 and may also result in a cost or credit to you. This
rider may not be approved in every state and therefore may not be available in
every state. Your NEVLICO agent 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
NEVLICO will ordinarily pay any net cash value, policy loan or death benefit
proceeds from the sub-accounts within 7 days after receipt at NEVLICO's
Administrative Office of a request, or proof of death of the insured in the
case of a death benefit payment, in a form satisfactory to NEVLICO. (See
"Receipt of Communications and Payments at NEVLICO's Administrative Office"
and "Limits to NEVLICO's Right to Challenge the Policy".) However, NEVLICO may
delay payment or transfers from the sub-accounts: (i) when 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) when the Securities and Exchange
Commission determines that a state of emergency exists which may make payments
or transfers impractical or (iii) at any other time when the Eligible Funds or
the Variable Account may, under applicable laws and regulations, suspend
payment. NEVLICO may withhold payment of surrender or loan proceeds to the
extent that those proceeds are derived from a Policy Owner's check, or from a
Master Service Account premium transaction, which has not yet cleared. In
those cases, NEVLICO 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, or
the Master Service Account premium transaction, has cleared. NEVLICO may also
delay payment if it considers whether to contest the Policy. NEVLICO 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 NEVLICO'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 NEVLICO'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 net cash value, or of any loan value available, under a fixed-
benefit lapse option or from cash value in the Fixed Account will normally be
paid promptly. However, NEVLICO has the right to delay such payments for up to
six months from the date of the request. NEVLICO will pay interest in
accordance with state insurance law requirements on payments that are delayed.
EXCHANGE OF POLICY DURING FIRST 24 MONTHS
At any time during the first 24 months after the date of issue shown in the
Policy while the Policy is in force on a premium paying basis, you may
exchange the Policy without evidence of insurability for a fixed-benefit life
insurance policy. If you exercise this option, you will have to make up any
investment loss experienced under the variable life insurance policy. The
fixed-benefit policy will have guaranteed values which do not vary based on
the investment experience of a separate account. The new policy will have the
same face amount, Policy Date, issue age and risk classification for the
insured as the variable life insurance policy, but will be issued by New
England Mutual Life Insurance Company. For Policies issued in New York, you
have the option of exchanging for a new policy with a face amount equal to the
current death benefit of the exchanged Policy. Premiums for the new policy
will be based on the premium rates for comparable fixed-benefit life insurance
policies issued by The New England which were in effect on the Policy Date of
the original policy. 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 of receipt of written notice at
NEVLICO's Administrative Office in a form satisfactory to NEVLICO, the Policy
and payment to NEVLICO of any cost to exchange. (See "Receipt of
Communications and Payments at NEVLICO's Administrative Office".)
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The cost to exchange will reflect any differences in the premiums and cash
values under the Policy and the new fixed-benefit policy. Therefore, you will
bear the investment risk with respect to any such differences. For this
purpose, cash value of a Policy is determined as of the effective date of the
exchange. Any outstanding policy loan must be repaid on or before the
effective date of the exchange.
For a Policy issued in connection with certain group or sponsored
arrangements, you may in the future have the additional option of exchanging
at any time during the first 36 months after the date of issue shown in the
Policy, while the Policy is in force on a premium-paying basis, to a fixed-
benefit term life insurance policy issued by New England Mutual Life Insurance
Company. The terms and conditions applicable to the 24 month exchange
privilege will also be applicable to this exchange privilege. If your Policy
has this feature, upon surrender of the Policy in the first 36 months, you
will receive the greater of the Policy's net cash value and the value which
you would receive upon exercise of the exchange to term insurance option.
PAYMENT OPTIONS
The death benefit or net cash value proceeds of a Policy will be paid in a
lump sum, unless the Policy Owner or payee chooses to apply all or part of the
proceeds under one of the payment options described below. A combination of
payment options can be issued. The selection of a payment option and the
naming of a payee must be in written form satisfactory to NEVLICO. You can
make, change or revoke the selection before the death of the insured. Proceeds
applied under a payment option will no longer be affected by the investment
experience of the Variable Account. The guaranteed mortality assumption used
in determining payments under an option 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 employer-sponsored benefit plans and fringe
benefit programs, such mortality assumption will vary based on sex. See "Group
or Sponsored Arrangements".) Once payments under an option begin, withdrawal
rights may be restricted.
(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
NEVLICO 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, but not after the death 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. If, at the death of the
payee, unpaid proceeds remain, they 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, at a rate of not less than 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 accrued interest will be paid in one sum.
(v) SPECIFIED AMOUNT OF INCOME. Proceeds plus interest accrued thereon at a
rate of not less than 3.5% annually, are paid in an amount elected at
the frequency elected until total proceeds have been paid. Any of such
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 life 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.
If installments under an option would be less than $20, proceeds can be
applied to an option only with the consent of NEVLICO.
ADDITIONAL BENEFITS BY RIDER
A Policy can include additional benefits that NEVLICO approves based on
NEVLICO's standards for issuing insurance and classifying risks. An additional
benefit usually requires an additional premium. An additional benefit is
provided by a rider that is subject to the terms of the Policy. However, rider
benefits are not subject to variation based on the net investment experience
of a Policy's sub-accounts.
There may be circumstances in which it will be to your economic advantage to
include a significant portion or percentage of your insurance coverage under a
term rider. In many other circumstances, it may be in your interest to obtain
a Policy without
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<PAGE>
term rider coverage. These circumstances depend on many factors, including the
premium levels and amount and duration of coverage you choose, as well as the
age, sex and risk classification of the insured.
Reductions in or elimination of term rider coverage does not trigger the
imposition of a surrender charge, and use of a term rider generally reduces
sales compensation. Your NEVLICO agent can provide you more information on the
uses of term rider coverage.
The following riders are available:
LEVEL TERM INSURANCE, which provides term insurance;
ACCIDENTAL DEATH BENEFIT, which provides additional insurance if death
results from accidental bodily injury;
OPTIONS TO PURCHASE ADDITIONAL LIFE INSURANCE, which provides the right
to purchase additional insurance on the life of the insured, without proof
of insurability;
WAIVER OF SCHEDULED PREMIUMS -- DISABILITY OF INSURED, which provides for
waiver of scheduled premiums for the total disability of the insured;
WAIVER OF SCHEDULED PREMIUMS -- DISABILITY OF APPLICANT, which provides
for waiver of scheduled premiums for the total disability of the person
named in the rider;
WAIVER OF SCHEDULED PREMIUMS -- DEATH OF APPLICANT, which provides for
waiver of scheduled premiums for a limited period upon the death of the
person named in the rider;
WAIVER OF SCHEDULED PREMIUMS -- DEATH OR DISABILITY OF APPLICANT, which
provides for waiver of scheduled premiums for a limited period upon the
death or disability of the person named in the rider;
TEMPORARY TERM INSURANCE, which provides for insurance from the date of
issue to the Policy Date;
CHILDREN'S INSURANCE, which provides insurance on the life of the
insured's children.
Certain riders are available only for sex based Policies. NEVLICO may from
time to time discontinue the availability of certain riders or make available
riders in addition to those listed above. You should consult your agent
regarding the availability of particular riders.
POLICY OWNER AND BENEFICIARY
The Policy Owner is named in the application for the Policy; however, the
Policy Owner can be changed from time to time. The new Policy Owner will
succeed to all of the rights of the former Policy Owner, including the right
to make a further change of Policy Owner. At the death of the Policy Owner,
his or her estate will be the Policy Owner, unless a successor Policy Owner
has been named. The rights of the Policy Owner (except for rights to payment
of benefits) will terminate at the death of the insured, except for rights to
payment of benefits.
The beneficiary is named in the application for the Policy; however, the
beneficiary can be changed from time to time before the death of the insured.
The beneficiary has no rights in the Policy until the death of the insured. An
individual must survive the insured to qualify as beneficiary; if none
survives, the proceeds will be paid to the Policy Owner.
A change of Policy Owner or beneficiary must be in written form satisfactory
to NEVLICO and must be dated and signed by the Policy Owner. The change will
be subject to all payments made and actions taken by NEVLICO under the Policy
before the signed change form is received by NEVLICO at its Administrative
Office.
An absolute assignment of the Policy by the Policy Owner is a change of
Policy Owner and beneficiary to the assignee. A collateral assignment of the
Policy by the Policy Owner is not a change of Policy Owner or beneficiary;
however, their rights will be subject to the terms of the assignment.
Assignments will be subject to all payments made and actions taken by NEVLICO
before a signed copy of the assignment form is received by the Company at its
Administrative Office. NEVLICO 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.)
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THE VARIABLE ACCOUNT
The Variable Account was established as a separate investment account of
NEVLICO on January 31, 1983 by NEVLICO's Board of Directors in accordance with
the provisions of Section 2932 of the Delaware Insurance Code. The Variable
Account acts as the funding vehicle for certain variable life insurance
policies issued by NEVLICO in addition to the Policies. The Variable Account
meets the definition of a "separate account" under Federal securities laws.
The Variable Account is registered with the SEC under the Investment Company
Act of 1940 as a unit investment trust. A unit investment trust is a type of
investment company which invests its assets in specified securities, such as
the shares of one or more investment companies, rather than in a portfolio of
unspecified securities. Registration under the Investment Company Act of 1940
does not involve supervision by the SEC of the management or investment
practices or policies of the Variable Account or of NEVLICO. Under Delaware
law, however, both NEVLICO and the Variable Account are subject to regulation
by the Delaware Insurance Commissioner. NEVLICO and its variable life
insurance operations, including the investment of assets held by the Variable
Account, are also subject to the insurance laws and regulations of all
jurisdictions in which NEVLICO is authorized to do business.
Although the assets of the Variable Account are owned by NEVLICO, 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 NEVLICO may conduct. NEVLICO
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 NEVLICO'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 NEVLICO may transfer to its general account assets
which exceed the reserves and other liabilities of the Variable Account.
Before making any such transfer, NEVLICO 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
NEVLICO's other income or realized and unrealized capital gains and losses.
NEVLICO may accumulate in the Variable Account the charge for expense and
mortality risks, mortality gains and losses and investment results applicable
to those assets that are in excess of net assets supporting the Policies.
INVESTMENTS OF THE VARIABLE ACCOUNT
The Variable Account currently has 16 investment sub-accounts, each of which
invests in the shares of an Eligible Fund. The sub-accounts of the Variable
Account are:
-- The Zenith Money Market Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Back Bay Advisors Money Market
Series of the New England Zenith Fund.
-- The Zenith Bond Income Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Back Bay Advisors Bond Income
Series of the New England Zenith Fund.
-- The Zenith Capital Growth Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Capital Growth Series of the New
England Zenith Fund.
-- The Zenith Stock Index Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Westpeak Stock Index Series of the
New England Zenith Fund.
-- The Zenith Managed Sub-Account -- Amounts credited to this sub-account
are invested in shares of the Back Bay Advisors Managed Series of the
New England Zenith Fund.
-- The Zenith Value Growth Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Westpeak Value Growth Series of
the New England Zenith Fund.
-- The Zenith Avanti Growth Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Loomis Sayles Avanti Growth Series
of the New England Zenith Fund.
-- The Zenith Small Cap Sub-Account -- Amounts credited to this sub-account
are invested in shares of the Loomis Sayles Small Cap Series of the New
England Zenith Fund.
-- The Equity-Income Sub-Account -- Amounts credited to this sub-account
are invested in shares of the Equity-Income Portfolio of the VIP Fund.
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-- The Overseas Sub-Account -- Amounts credited to this sub-account are
invested in shares of the Overseas Portfolio of the VIP Fund.
-- The High Income Sub-Account -- Amounts credited to this sub-account are
invested in shares of the High Income Portfolio of the VIP Fund.
-- The Asset Manager Sub-Account -- Amounts credit to this sub-account are
invested in shares of the Asset Manager Portfolio of the VIP Fund II.
-- The Zenith Equity Growth Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Alger Equity Growth Series of the
New England Zenith Fund.*
-- The Zenith Balanced Sub-Account -- Amounts credited to this sub-account
are invested in shares of the Loomis Sayles Balanced Series of the New
England Zenith Fund.*
-- The Zenith Value Sub-Account -- Amounts credited to this sub-account are
invested in shares of the Venture Value Series of the New England Zenith
Fund.*
-- The Zenith International Equity Sub-Account -- Amounts credited to this
sub-account are invested in shares of the Draycott International Equity
Series of the New England Zenith Fund.*
- --------
* Availability of these sub-accounts is subject to any necessary state
insurance department approvals.
The New England Zenith fund is an open-end, diversified management company
organized by The New England for the purpose of providing a vehicle for the
investment of assets held in various separate investment accounts, including
the Variable Account, established by NEVLICO or by other life insurance
companies, to the extent legally permissible.
The VIP Fund and VIP Fund II are open-end, diversified management investment
companies 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.
For each day when the New York Stock Exchange is open for trading, the
Variable Account purchases or redeems shares of the Eligible Fund portfolios
based on, among other things, the amount of net premiums and net unscheduled
payments invested in the Variable Account, transfers among sub-accounts of the
Variable Account, policy loans, policy loan repayments, surrender and
withdrawal payments and death benefit payments to be effected on that day.
Such purchases and redemptions are effected at the net asset value per share
for each Eligible Fund portfolio determined as of the close of regular trading
on the New York Stock Exchange on that same day.
The investment objectives of the Eligible Funds' portfolios currently
available to Policy Owners through each corresponding sub-account are set
forth below. There is, of course, no assurance that these objectives will be
met. A full description of the Eligible Funds, their investment objectives,
policies and restrictions, their expenses and other aspects of their
operation, as well as a full description of risks related to investment in the
Eligible Funds, is contained in the attached Eligible Fund prospectuses, which
should be read and retained together with this prospectus, as well as in the
New England Zenith Fund's Statement of Additional Information which may be
obtained free of charge from New England Securities, and in the Statement of
Additional Information for the VIP Fund and VIP Fund II which may be obtained
free of charge from Fidelity Distributors Corporation.
The Zenith Money Market Sub-Account invests in shares of the New England
Zenith Fund's Back Bay Advisors Money Market Series. Its investment objective
is to provide the highest possible level of current income consistent with
preservation of capital. The Money Market Series seeks to achieve its
objective 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 Bond Income Sub-Account invests in shares of the New England
Zenith Fund's Back Bay Advisors Bond Income Series. Its investment objective
is to provide a high level of current income consistent with protection of
capital and moderate investment risk. The Bond Income Series seeks to achieve
its objective through investment primarily in an investment quality bond
portfolio.
The Zenith Capital Growth Sub-Account invests in shares of the New England
Zenith Fund's Capital Growth Series. Its investment objective is long-term
growth of capital through investment primarily in equity securities.
The Zenith Stock Index Sub-Account invests in shares of the New England
Zenith Fund's Westpeak Stock Index Series. Its investment objective is to
provide investment results that correspond to the composite price and yield
performance of United
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States publicly traded common stocks. The Stock Index 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.
The Zenith Managed Sub-Account invests in shares of the New England Zenith
Fund's Back Bay Advisors Managed Series. Its investment objective is to
provide a favorable total investment return through investment in a
diversified portfolio. The Managed Series' portfolio is expected to include
(i) common stocks, (ii) notes and bonds and (iii) money market instruments.
The Zenith Value Growth Sub-Account invests in shares of the New England
Zenith Fund's Westpeak Value Growth Series. Its 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 Avanti Growth Sub-Account invests in shares of the New England
Zenith Fund's Loomis Sayles Avanti Growth Series. Its investment objective is
long-term growth of capital. The Series normally will invest primarily in
equity securities of companies with medium and large capitalization
(capitalization of $1 billion to $5 billion and over $5 billion, respectively)
but will also invest a portion of its assets in equity securities of companies
with relatively small market capitalization (under $1 billion).
The Zenith Small Cap Sub-Account invests in shares of the New England Zenith
Fund's Loomis Sayles Small Cap Series. Its investment objective is long-term
capital growth from investments in common stock or their equivalent. The
Series will normally invest at least 65% of its total assets in companies with
market capitalization of less than $500 million.
The Zenith Balanced Sub-Account invests in shares of the New England Zenith
Fund's Loomis Sayles Balanced Series. Its 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. Under normal conditions,
the Series will invest at least 25% of its assets in bonds and at least 50% of
its assets in common stocks.
The Zenith International Equity Sub-Account invests in shares of the New
England Zenith Fund's Draycott International Equity Series. Its investment
objective is to seek total return from long-term growth of capital and
dividend income. The series will invest primarily in common stocks of issuers
either headquartered outside the U.S. or deriving a substantial part of their
revenues from countries outside of the U.S.
The Zenith Value Sub-Account invests in shares of the New England Zenith
Fund's Venture Value Series. Its investment objective is growth of capital.
The Series will primarily invest in domestic common stocks (and securities
convertible into common stock) 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 Equity Growth Sub-Account invests in shares of the New England
Zenith Fund's Alger Equity Growth Series. Its 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, with a
majority of issuers having a total market capitalization of $1 billion or
greater.
The Equity-Income Sub-Account invests in shares of the VIP Fund's Equity-
Income Portfolio. Its investment objective is to seek reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the Equity-Income Portfolio will also consider the potential for
capital appreciation.
The Overseas Sub-Account invests in shares of the VIP Fund's Overseas
Portfolio. Its investment objective is long-term growth of capital primarily
through investments in foreign securities. The Overseas Portfolio provides a
means for investors to diversify their own portfolios by participating in
companies and economies outside of the United States.
The High Income Sub-Account invests in shares of the VIP Fund's High Income
Portfolio. Its 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. High-yielding, lower-
rated debt securities present higher risks of untimely interest and principal
payments, default and price volatility than higher-rated securities, and may
present problems of liquidity and valuation.
The Asset Manager Sub-Account invests in shares of the VIP Fund II Asset
Manager Portfolio. Its investment objective is to seek high total return with
reduced risk over the long-term by allocating its assets among domestic and
foreign stocks, bonds and short-term fixed-income instruments.
A-35
<PAGE>
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 Avanti
Growth, Zenith Equity Growth, Zenith Value, Zenith Value Growth, Zenith Stock
Index, Zenith International 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
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. 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 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 common stock
prices, which have risen substantially at times, have also had periods of
volatility. 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.
NEVLICO guarantees the principal invested in the Fixed Account, although
this guarantee is subject to NEVLICO'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 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.
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<PAGE>
INVESTMENT MANAGEMENT
The adviser and sub-adviser for each series of the Zenith Fund are listed in
the chart below. TNE Advisers, which is a subsidiary of The New England, and
each of the sub-advisers are registered with the SEC as investment advisers
under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------- -----------
<S> <C> <C>
Capital Growth Capital Growth Management
Limited
Partnership ("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 Man- TNE Advisers, Inc. Back Bay Advisors, L.P.**
aged
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors,
L.P.**
Westpeak Value Growth TNE Advisers, Inc. Westpeak Investment Advisors,
L.P.**
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.**
Draycott International TNE Advisers, Inc. Draycott Partners, Ltd.**
Equity
Venture Value TNE Advisers, Inc. Selected/Venture Advisers, L.P.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
</TABLE>
- --------
*An affiliate of The New England
**An indirect subsidiary of The New England
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 Value Growth Series, Loomis Sayles Avanti Growth 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-
adviser, except as follows. The New England itself 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 The New
England'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 New England Zenith Fund Series incur charges for advisory fees and
certain other expenses. Under a voluntary expense cap by TNE Advisers for each
of the Capital Growth, Back Bay Advisors Bond Income, Back Bay Advisors Money
Market, Back Bay Advisors Managed, Westpeak Stock Index, Westpeak Value Growth
and Loomis Sayles Avanti Growth 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 New England
Zenith Fund 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. 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 incurred for 1994, after giving effect to the
applicable expense cap or expense deferral arrangement.
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE CAP)
<TABLE>
<CAPTION>
BACK BACK
BAY BAY BACK LOOMIS LOOMIS
ADVISORS ADVISORS BAY WESTPEAK WESTPEAK SAYLES SAYLES
CAPITAL BOND MONEY ADVISORS STOCK VALUE AVANTI SMALL
GROWTH INCOME MARKET MANAGED INDEX GROWTH GROWTH CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------- -------- -------- -------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .65% .40% .35% .50% .25% .70% .70% 1.00%
Other Expenses.......... .05% .14% .15% .14% .15% .15% .15% --
---- ---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses.............. .70% .54% .50% .64% .40% .85% .85% 1.00%
</TABLE>
A-37
<PAGE>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
LOOMIS ALGER
SAYLES DRAYCOTT VENTURE EQUITY
BALANCED INTERNATIONAL VALUE GROWTH
SERIES EQUITY SERIES SERIES SERIES
-------- ------------- ------- ------
<S> <C> <C> <C> <C>
Management Fee........................... .70% .90% .75% .70%
Other Expenses........................... .15% .40% .15% .15%
---- ----- ---- ----
Total Series Operating Expenses......... .85% 1.30% .90% .85%
</TABLE>
For a discussion of other provisions of the advisory agreements, see the New
England Zenith Fund prospectus attached at the end of this prospectus and the
New England Zenith Fund's Statement of Additional Information.
The investment adviser for the VIP Fund and VIP II Fund 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, 1994, the total operating expenses of the Portfolios, as a percentage of
Portfolio average net assets, were as follows:
<TABLE>
<CAPTION>
TOTAL
PORTFOLIO MANAGEMENT FEES OTHER EXPENSES ANNUAL EXPENSES
--------- --------------- -------------- ---------------
<S> <C> <C> <C>
Equity-Income .52% .06% .58%*
Overseas .77% .15% .92%
High Income .61% .10% .71%
Asset Manager .72% .08% .80%*
</TABLE>
- --------
* A portion of the brokerage commissions the portfolio paid was used to reduce
its expenses. Without this reduction total operating expenses would have
been .60% for the Equity-Income Portfolio and .81% for the Asset Manager
Portfolio.
Fidelity Management & Research Company 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. As of December 31, 1994, it advised funds having
more than 22 million shareholder accounts with a total value of more than $250
billion. 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 option may
not be approved by every state insurance department and thus may not be
available in every state. As of the date of this prospectus the Fixed Account
has not received approval in New Jersey, New York and Pennsylvania. NEVLICO is
not currently seeking approval of the Fixed Account in any of those states.
You may allocate net premiums and net unscheduled payments and may transfer
cash value to the Fixed Account, which is part of NEVLICO's general account.
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933, and neither
the Fixed Account nor the general account has been registered as an investment
company under the Investment Company Act of 1940. Therefore, neither the
general account, the Fixed Account nor any interests therein are generally
subject to the provisions of these Acts, and NEVLICO 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
NEVLICO's general account consists of all assets owned by NEVLICO other than
those in the Variable Account and any other separate accounts which NEVLICO
may establish. NEVLICO has sole discretion over the investment of assets in
the general account, including those in the Fixed Account. Policy Owners do
not share in the actual investment experience of the assets in the Fixed
Account. Instead, NEVLICO guarantees that cash value in the Fixed Account will
accrue interest at an effective
A-38
<PAGE>
annual net rate of at least 5%. NEVLICO is not obligated to credit interest at
a rate higher than 5%, although in its sole discretion it may do so. NEVLICO
declares the current interest rate for the Fixed Account periodically. Cash
value in the Fixed Account will earn interest daily.
NEVLICO's current method of crediting interest is as follows, although
NEVLICO may modify this method in the future. All cash value of a Policy in
the Fixed Account on a policy anniversary will earn interest at the declared
annual rate in effect on the anniversary. The cash value will earn interest at
this rate until the next policy anniversary, when it will be credited with the
current rate declared by NEVLICO. (Although NEVLICO currently credits your
entire Fixed Account cash value on a policy anniversary with the most recently
declared annual rate until the next anniversary, NEVLICO has the right to
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 or net unscheduled payments
allocated or any portion of the cash value transferred to the Fixed Account on
a date other than a policy anniversary will earn interest at NEVLICO's most
recently declared rate until the next policy anniversary. 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.
If you select the Fixed Account on the application, the Policy's cash value
will not be allocated to the Fixed Account until the later of 45 days after
the date Part 1 of the application is signed or 10 days after NEVLICO mails
the Notice of Withdrawal Right. Until then, the net scheduled premium and any
net unscheduled payment will be allocated to the Money Market Sub-Account.
(See "Allocation of Net Premiums" and "Free Look Provision".) The cash value
transferred from the Money Market Sub-Account to the Fixed Account will be
credited with NEVLICO's most recently declared rate of interest as of the date
of the transfer until the next policy anniversary.
VALUES AND BENEFITS
The Policy's cash value in the Fixed Account will reflect the amount and
frequency of net premiums and net unscheduled payments allocated to the Fixed
Account, the amount of net interest credited to the cash value in the Fixed
Account, any loans made against the Fixed Account cash value, any charges
deducted from cash value in the Fixed Account, any transfer to or from the
Variable Account and any partial surrenders or partial withdrawals from the
Fixed Account cash value. 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. (See "Deductions from Cash
Value".) 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 NEVLICO's general account (but outside 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. The Policy's "tabular cash
value" (a concept which is used in connection with the Option 2 death benefit,
partial withdrawal and Special Premium Option features of the Policy) will be
based on the assumption that the Policy's sub-accounts earned, and the Fixed
Account credited, a 5% annual net rate of return. (See "Death Benefit".)
POLICY TRANSACTIONS
NEVLICO 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 4.5%. Otherwise, allocations of net premiums and net unscheduled payments
to the Fixed Account are subject to the same percentage requirements as are
allocations 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 as are amounts in the Variable Account with
respect to transfers, loans, surrenders and partial withdrawals. (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 EFFECTED ONLY IF NEVLICO RECEIVES THE TRANSFER REQUEST NO MORE
THAN 30 DAYS BEFORE THE POLICY ANNIVERSARY, AND THE TRANSFER WILL BE EFFECTED
AS OF THE DATE THE TRANSFER REQUEST IS RECEIVED AT NEVLICO'S PRINCIPAL
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
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<PAGE>
transfer of cash value from the Fixed Account would reduce the remaining cash
value in the Fixed Account below $100, you may elect to 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 NEVLICO's consent. NEVLICO currently
allows 12 such transfers per policy year. Transfers out of the Fixed Account
will not be counted against this limit. NEVLICO reserves the right to restrict
transfers of cash value into the Fixed Account.
Unless you request otherwise, a policy loan will reduce the Policy's cash
value in the sub-accounts and not the cash value allocated to the Fixed
Account. In the event that the cash value in the Policy's sub-accounts is
insufficient to provide the amount of the loan, 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 5%, 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 date it is credited.
Unless you request otherwise, partial surrenders and partial withdrawals
will be taken only from the Policy's sub-accounts and not the Fixed Account.
In the event that the cash value in the Policy's sub-accounts is insufficient
to provide the full amount requested, the balance of the partial surrender or
partial withdrawal will be taken from the Fixed Account.
NEVLICO reserves the right to delay transfers, withdrawals, surrenders and
policy loans from the Fixed Account for up to six months. Loans to pay
premiums on policies issued by NEVLICO will not be delayed.
DISTRIBUTION AGREEMENT AND OTHER CONTRACTUAL ARRANGEMENTS
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell NEVLICO's variable life insurance policies
and who are also registered representatives of New England Securities. New
England Securities, a Massachusetts corporation organized in 1968, is
registered with the SEC under the Securities Exchange Act of 1934 as a broker-
dealer 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, acts as the principal underwriter of the
Policies under a Distribution Agreement between NEVLICO and New England
Securities.
Under the Distribution Agreement, NEVLICO will pay the following sales
expenses: general agent and agency manager's compensation, agents' training
allowances, agency expense allowances, deferred compensation and insurance
benefits of agents, general agents and agency managers and advertising
expenses and all other expenses of distributing the Policies.
Also, commissions will be paid by NEVLICO to the agent involved in the sale
of a Policy generally as follows: agents receive the equivalent of not more
than 50% of the scheduled premium paid in the first policy year; in the second
through sixth policy years, agents receive not more than 8% of the scheduled
premium paid for a given year; in the seventh through tenth policy years,
agents receive not more than 4% of the scheduled premium paid for a given
year; in the subsequent years agents receive not more than 2% of the scheduled
premium paid for a given year. Agents receive a commission of 3% of each
unscheduled payment made. The amount of commissions for extra premiums for a
Policy covering an insured in a substandard risk classification will be
determined by NEVLICO's rules and practices current at the time such extra
premiums are charged. Additional commissions are paid based on premiums paid
for benefits purchased by rider. NEVLICO may recapture up to 50% of first year
commissions paid to the agent if the Policy is not continued after the first
policy anniversary. Agents with fewer than 4 years of service may be
compensated differently. Agents who meet certain productivity and persistency
standards in selling policies issued by NEVLICO and The New England may be
eligible for additional compensation. Non-cash forms of compensation may also
be paid. Sales expenses in any year are not equal to the deduction for sales
load in that year.
New England Securities distributes mutual funds, variable annuity contracts
and variable life insurance policies. New England Securities is principal
underwriter for New England 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 and 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 will not exceed 50% of the scheduled
premium in the first policy year, 8% in the second through fifth policy years,
5% in the sixth through tenth policy years, 2% in the eleventh through
twentieth policy years, and 3% of unscheduled payments. 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.
A-40
<PAGE>
Under a Services Agreement between NEVLICO, The New England and New England
Securities, The New England performs underwriting, issuance and other
administrative services for the Policy. Pursuant to the Services Agreement,
for the year ending December 31, 1994, The New England was paid $39.6 million.
LIMITS TO NEVLICO'S RIGHT TO CHALLENGE THE POLICY
Generally NEVLICO has the right to challenge the validity of a Policy or
rider for misrepresentations made in the application. However, NEVLICO cannot
make such a challenge to the death benefit of a Policy or rider which has been
in force during the life of the insured for 2 years from the date of issue,
or, with respect to the portion of the death benefit resulting from an
underwritten unscheduled payment, for 2 years (during the life of the insured)
from the date the unscheduled payment is received.
MISSTATEMENT OF AGE OR SEX
If the insured's age or sex is misstated in the Policy application, the
Policy's cash value and death benefit will be what the premiums paid and
unscheduled payments made would have purchased based on the insured's true age
and, if the Policy is sex-based, on the insured's true sex.
SUICIDE
If the insured commits suicide within two years from the Policy's date of
issue (or less as required by the applicable state law), the death benefit
will be limited to the sum of all scheduled premiums actually paid and
unscheduled payments made, minus any outstanding policy loan and accrued
interest, and minus the amount of each partial withdrawal and partial
surrender made (or such greater amount required by state law).
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 represents
what NEVLICO believes to be 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. Furthermore, there is no guarantee
that the Federal income tax laws and regulations or interpretation of them
will not change. Therefore, NEVLICO recommends that you consult your own tax
advisors for more complete information and advice.
DEFINITION OF LIFE INSURANCE. Section 7702 of the Internal Revenue 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 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 create some uncertainty about the application of Section 7702 to the
Policy.
Nevertheless, NEVLICO believes that the Policy qualifies as a life insurance
contract for federal tax purposes. This means that:
. the death benefit should be fully excludable 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.
NEVLICO 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.
A-41
<PAGE>
TAXATION OF ACCELERATED BENEFITS RIDER. NEVLICO believes that payments
received under an accelerated benefits rider may be treated as distributions
from the Policy under current law and, in addition, under regulations proposed
December 15, 1992, as distributions, death benefits, or health, accident or
disability benefits, depending on the circumstances, if the regulations are
adopted as proposed. (See "Acceleration of Death Benefit Rider" for more
information regarding the rider.) If such payments are distributions, their
tax treatment would depend on whether or not the Policy is a modified
endowment contract.
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. With certain exceptions discussed below, a Policy will not have the
potential to be classified as a modified endowment contract unless it was
issued on or after June 21, 1988.
NON-MODIFIED ENDOWMENT CONTRACTS. For Policies not classified as modified
endowment contracts NEVLICO believes any policy loans received under such
Policies will be treated as indebtedness of the 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 the 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 Internal Revenue Code does provide,
however, that in certain situations in the first 15 years of the Policy
partial surrenders may be taxable, in whole or part, if the net cash surrender
value is greater than the total investment in the Policy less the previous
untaxed distributions. This may be the case even if the amount of the partial
surrender is less than the investment in the Policy. The exercise of an
accelerated benefits rider, in whole or in part, may be treated as a surrender
or partial surrender.
MODIFIED ENDOWMENT CONTRACTS. A modified endowment contract is a life
insurance contract issued on or after June 21, 1988, which fails to satisfy a
"7-pay test". In general, a Policy will fail to satisfy the 7-pay test if the
cumulative amount (both scheduled premiums and unscheduled payments) 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
had 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 above a 5% net rate of return 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. A term
rider on the insured issued in New York could cause the Policy to be treated
less favorably for purposes of the 7-pay test. If there is a reduction in the
Policy's future benefits (for example, as a result of a partial surrender or
partial exercise of the accelerated benefits rider, or because you allow the
Policy to lapse to Paid-Up Insurance) during the first seven policy years the
7-pay test will be applied as if the Policy had originally been issued at the
reduced face amount. Any Policy received in exchange for a modified endowment
contract will also be a modified endowment contract.
Your agent can provide you with information about the maximum amount of
scheduled premiums and unscheduled payments which you can make under the
Policy during the first seven policy years and still satisfy the 7-pay test.
This information will be based upon NEVLICO'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
NEVLICO's interpretation. NEVLICO 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 may constitute a material change
unless the increase is due to the payment of
A-42
<PAGE>
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.
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. This may be the case even if no unscheduled payments have been made for
- ------------------------------------------------------------------------------
the Policy. The point at which you may be required to limit the payment of
- -----------
scheduled premiums will depend upon the issue age, sex and underwriting class
of the insured, investment experience and the amount of any previous
unscheduled payments. You may limit payment of scheduled premiums by use of
the Special Premium Option, in those situations where it is applicable, or by
allowing the Policy to lapse to paid-up insurance. (See "Special Premium
Option" and "Default and Lapse Options".)
Regardless of when it was issued, if a Policy described in this prospectus
is exchanged on or after June 21, 1988 for another life insurance policy,
including a fixed-benefit policy pursuant to the twenty-four month exchange
right, the new insurance policy should be reviewed to determine how the rules
regarding modified endowment contracts may apply to the new policy. (See
"Exchange of Policy During First 24 Months".)
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 are considered distributions even if the amount borrowed is
retained by NEVLICO as a premium. 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 in the Policy to taxation.
(d) A partial surrender to pay premiums is not a transaction specifically
addressed and may or may not be treated as a taxable distribution.
(e) For purposes of determining the amount of the distribution which is
includible in gross income, all modified endowment contracts issued by
NEVLICO or its affiliates to the same Policy Owner during any 12 month
period shall be treated as one modified endowment contract.
(f) Payments under the accelerated benefits rider may be treated as
distributions that are subject to taxation under these rules if the
payments are from a Policy that is a 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).
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 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.
A-43
<PAGE>
EFFECTIVE DATE. As explained above, the rules regarding modified endowment
contracts apply only to Policies issued on or after June 21, 1988. For this
purpose, the following Policies, even if issued before June 21, 1988, will be
considered issued on or after June 21, 1988:
(a) a Policy under which, after June 20, 1988, the death benefit is
increased or an additional benefit (e.g. a Policy rider) is added if,
prior to June 21, 1988, the Policy Owner did not have the right to
obtain such increase or addition without submitting additional evidence
of insurability;
(b) a Policy issued after June 20, 1988, upon conversion of a term life
policy; and,
(c) in certain cases, a Policy under which the death benefit payable as of
October 20, 1988, increases by more than $150,000.
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.
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. Regulations specifying the
diversification requirements have been issued by the Department of Treasury,
and NEVLICO 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 regulations or
rulings 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. To date, no such regulations or guidance has been issued. 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, NEVLICO does not know what standards will be
set forth in the regulations or rulings which the Treasury has stated it
expects to be issued. NEVLICO 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 a 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 purchased as part of a pension or profit-sharing plan
qualified under Section 401(a) 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 sum of $5,000 plus 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-44
<PAGE>
The Policies may be used in various arrangements, including nonqualified
deferred compensation or salary continuation plans, split dollar insurance
plans, executive bonus 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.
NEVLICO believes that Policies subject to the provisions of the Puerto Rican
tax law will generally receive the same tax treatment as that described above
for Policies subject to the Internal Revenue Code. 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.
CHARGE FOR NEVLICO'S INCOME TAXES
Under current Federal income tax law no tax is imposed on NEVLICO 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.
NEVLICO reserves its rights to charge the Variable Account for company Federal
income taxes in the future.
Under current laws NEVLICO may incur state and local taxes (in addition to
premium taxes) in several states. At present these taxes are not significant
and, accordingly, NEVLICO 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 NEVLICO and their principal business
experience during the past five years are as follows:
DIRECTORS OF NEVLICO
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING
NAME THE PAST FIVE YEARS
---- ------------------------------------
<C> <S>
Edward C. Hall Executive Vice President--Clients Services of The New
England since 1988; Vice President--Administration of
NEVLICO
Kernan F. King Director, Executive Vice President and Chief Marketing
Officer of The New England since 1992; formerly,
Director, Executive Vice President--Administration
and General Counsel, 1990 to 1992, of The New England
Robert E. Schneider Director, Executive Vice President and Chief Financial
Officer of The New England since 1993; formerly,
Executive Vice President and Chief Financial Officer,
1990 to 1993, Senior Vice President, 1985 to 1990, of
The New England
Robert A. Shafto Chairman, President and Chief Executive Officer since
1993; formerly, President and Chief Executive
Officer, 1992 to 1993, President and Chief Operating
Officer, 1990 to 1992, of The New England; Chairman,
President and Chief Executive Officer of NEVLICO
Daniel J. Toran Executive Vice President of The New England since
1991; formerly, Senior Vice President--Agencies, 1986
to 1991, of The New England
H. James Wilson Executive Vice President and General Counsel of The
New England since 1993; formerly, Senior Vice
President and General Counsel, 1992 to 1993, Senior
Vice President and Associate General Counsel, 1990 to
1992, of The New England; General Counsel and
Secretary of NEVLICO
Frederick K. Zimmermann Executive Vice President and Chief Investment Officer
of The New England since 1993; formerly, Senior Vice
President--Investments, 1989 to 1993, of The New
England; Vice President--Investments of NEVLICO
</TABLE>
A-45
<PAGE>
EXECUTIVE OFFICERS OF NEVLICO
OTHER THAN DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING
NAME THE PAST FIVE YEARS
---- ------------------------------------
<C> <S>
Rodney J. Chandler Second Vice President and Actuary of The New England
since 1990; Chief Actuary of NEVLICO
Chester R. Frost Senior Vice President of The New England since 1984;
Vice President--Controller of NEVLICO
John F. Guthrie Vice President of The New England since 1983; Vice
President--Portfolio Strategy of NEVLICO
John G. Small Senior Vice President of The New England since 1990;
Vice President and Chief Underwriter of NEVLICO
Phillip G. Sullivan Second Vice President and Medical Director of The New
England since 1974; Vice President and Medical
Director of NEVLICO
Newton H. Thompson Second Vice President and Treasurer of The New England
since 1993; formerly, Second Vice President and
Assistant Treasurer, 1991 to 1992, and Assistant Vice
President and Assistant Treasurer, 1989 to 1991, of
The New England; Vice President and Treasurer of
NEVLICO
H. James Wilson See Directors above
Frederick K. Zimmermann See Directors above
</TABLE>
The principal business address for each of the Directors and Executive
Officers is the same as NEVLICO's.
VOTING RIGHTS
NEVLICO is the legal owner of all Variable Account assets, which consist
primarily of the Eligible Fund shares held in the investment sub-accounts of
the Variable Account. As such, NEVLICO is the legal owner of such shares with
the corresponding right to vote them. However, in accordance with NEVLICO's
view of the present applicable law, the Policy Owner will be permitted to give
instructions as to how shares of each Eligible Fund portfolio in which such
Policy Owner has an interest through the Policy's sub-accounts should be voted
at meetings of shareholders.
Those Policy Owners permitted to give instructions and the number of shares
for which instructions may be given will be determined as of the record date
for the meeting. All Eligible Fund shares held in any sub-account of the
Variable Account or any other registered (or, to the extent granted by the
issuing insurance company, unregistered) separate account of NEVLICO or any
affiliate that are or are not attributable to life insurance policies
(including the Policies) or annuity contracts and for which no timely
instructions are received will be voted for, against, or withheld from voting
on any proposition in the same proportion as (i) the aggregate record date
cash value held in such sub-account for policies or contracts giving
instructions, respectively, to vote for, against, or withhold, votes on such
proposition, bears to (ii) the aggregate record date cash value held in that
sub-account for all policies or contracts for which voting instructions are
received. Owners of Policies continued in effect under fixed lapse options or
under settlement options will not be permitted to give voting instructions. No
voting privileges apply with respect to any cash value held in NEVLICO's
general account as a result of a policy loan.
All New England Zenith Fund shares held by the general investment account
(or any unregistered separate account for which voting privileges were not
extended) of NEVLICO or its affiliates will be voted in the same proportion as
the aggregate of (i) the shares for which voting instructions are received and
(ii) the shares that are voted in proportion to such voting instructions.
Pursuant to conditions imposed in connection with regulatory relief granted
by the SEC, the Eligible Funds' Boards of Trustees have an obligation 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, for example
changes in state insurance law or Federal income tax law, changes in
investment management of any portfolio of the Eligible Funds, or differences
between voting instructions given by variable life and variable annuity
contract owners. The Board of Trustees will have an obligation to determine
what action should be taken, including the removal of the affected sub-
account(s) from the Eligible Fund(s), if necessary. If NEVLICO believes any
Eligible Fund action is insufficient, NEVLICO will consider taking other
action to protect Policy Owners. There could, however, be unavoidable delays
or interruptions of operations of the Variable Account that NEVLICO may be
unable to remedy.
A-46
<PAGE>
NEVLICO may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the investment objectives of the portfolios
of the Eligible Funds or to approve or disapprove an investment advisory or
underwriting contract for such portfolio. In addition, NEVLICO itself may
disregard voting instructions in favor of changes initiated by a Policy Owner
or an Eligible Fund's Boards of Trustees in the investment policy, investment
adviser or principal underwriter of the Eligible Fund portfolio if NEVLICO (i)
reasonably disapproves of such 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 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 NEVLICO or of an affiliated life
insurance company, which separate accounts have investment objectives similar
to those of the sub-account. In the event NEVLICO does disregard voting
instructions, a summary of that action and the reasons for such action will be
included in the next semiannual report to Policy Owners.
RIGHTS RESERVED BY NEVLICO
The voting procedures described in this prospectus are based on NEVLICO's
and The New England's current understanding of requirements under applicable
Federal securities laws or regulations or interpretations of such laws or
regulations. In the future, if the Federal securities laws or regulations or
interpretations of them change so that NEVLICO or The New England are
permitted to vote any Eligible Fund shares in their own right, NEVLICO or The
New England may elect to do so. NEVLICO also reserves the right, subject to
compliance with applicable law, including approval of Policy Owners if so
required, (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 NEVLICO'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 in
the event such registration is no longer required. Policy Owner approval would
probably not be required for NEVLICO to exercise most of these rights.
However, NEVLICO will notify a Policy Owner if any such exercise of rights
were to result in a material change in the Variable Account or its
investments, although notice may not be legally required in all cases. Except
as set forth above and as required by Federal or state law or regulation,
NEVLICO will not take any action adversely affecting the rights of Policy
Owners without their consent.
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 or premium reallocations, call the toll-free
number 1-800-200-2214. (This number is not available for sub-account transfers
under Policies issued in New York.)
REPORTS
Annually (except while the Policy is continued in effect under a fixed lapse
option or a settlement option), NEVLICO will send you a statement setting
forth the death benefit, cash value of the Policy and any outstanding policy
loan principal. NEVLICO will also send confirmation of significant financial
activities, such as policy loans, reallocations among sub-accounts, lapses and
surrenders, when the transactions occur.
You will be sent semiannual reports containing the financial statements of
the Variable Account and Eligible Funds.
ADVERTISING PRACTICES
NEVLICO may from time to time receive endorsements of the Zenith Life Plus
Policies from various professional organizations. NEVLICO may refer to or use
such endorsements in advertisements or sales material promoting the Policies.
NEVLICO may also pay the professional organization making the endorsement for
the use of its customer or mailing lists in order
A-47
<PAGE>
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 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 or reprints of such articles or rankings
may be used by NEVLICO 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 NEVLICO, 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.
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 NEVLICO.
Sutherland, Asbill & Brennan, Washington, D.C., has provided advice on certain
matters relating to the 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 Insurance Company and
of the Variable Account have been audited by Coopers & Lybrand, independent
auditors, as stated in their opinions appearing herein and have been so
included in reliance upon their authority 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., Chief Actuary of NEVLICO, as stated in his
opinion filed as an exhibit to the Registration Statement.
A-48
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS,
CASH VALUES, NET CASH VALUES AND ACCUMULATED SCHEDULED PREMIUMS
The tables in Appendix A illustrate the way the Policies operate. They show
how the death benefit, net cash value 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 equivalent to constant after tax annual rates of 0%, 6%
and 12%. The tables are based on annual scheduled premiums of $2,000 for males
aged 35 and 45. The males aged 35 and 45 are assumed to be in the nonsmoker
standard risk classification (on a non-automatic issue basis). Values are
first given based on current mortality charges and then based on guaranteed
mortality charges. In addition, each illustration is given first for a Policy
with an Option 1 death benefit and then for a Policy with an Option 2 death
benefit. 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 NEVLICO or other companies. These
tables may not provide a useful comparison for Version 1 automatic issue
Policies, which are based on different cost of insurance rates. For examples
of Policy illustrations based on Version 1 automatic issue rates, see Appendix
D. (Substandard risk Policies and Version 2 automatic issue Policies have the
same basic scheduled premiums and cost of insurance rates as standard risk
Policies but require an additional premium.)
Death benefits, net cash values 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
scheduled premiums were paid at other than annual intervals, or if unscheduled
payments were made. 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 were made during the period of time illustrated, if the
insured were female or in the smoker standard risk classification, or if the
Policies were issued at unisex rates.
The death benefits, net cash values and cash values shown in the tables
reflect the fact that: (i) deductions have been made from annual premiums for
the annual administrative charge, sales charge and state premium tax charge:
and (ii) a monthly deduction (consisting of an administrative charge, a first
year administrative fee and a minimum death benefit guarantee charge) and a
charge for the cost of insurance are deducted from the cash value on the first
day of each policy month. The net cash values shown in the tables reflect the
fact that a surrender charge (consisting of a deferred sales charge and a
deferred administrative charge) is deducted from the cash value upon surrender
or lapse during the first 15 policy years. The death benefits, net cash
values, and cash values also reflect a daily charge assessed against the
Variable Account for mortality and expense risks equivalent to an annual
charge of .60% of the average daily value of the assets in the Variable
Account attributable to the Policies. (See "Charges and Expenses".) The
amounts shown in the table also reflect an average of the investment advisory
fees and operating expenses incurred by the Eligible Funds, at an annual rate
of .775% 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 New England Zenith Fund under which TNE Advisers bears
operating expenses of the New England Zenith Fund that exceed certain amounts.
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" and "Investment Management".)
Taking account of the charges for expense and mortality risks in the
Variable Account and 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 -
1.37%, 4.55% and 10.47%, respectively. (See "Net Investment Experience".)
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 NEVLICO'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.
A-49
<PAGE>
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.
NEVLICO will furnish upon request an illustration reflecting the proposed
insured's age, sex, underwriting classification, and the face amount or
scheduled premium amount requested. Where applicable, NEVLICO will also
furnish upon request an illustration for a Policy which is not affected by the
sex of the insured.
A-50
<PAGE>
MALE ISSUE AGE 35
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$176,018 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF 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% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $176,018 $176,018 $176,018 $ 1 $ 93 $ 186 $ 1,347 $ 1,440 $ 1,533 -99.97% -95.34% -90.70%
2 4,305 176,018 176,018 176,018 1,314 1,585 1,868 2,738 3,010 3,293 -54.77 -47.90 -41.19
3 6,620 176,018 176,018 176,018 2,591 3,132 3,718 4,094 4,635 5,220 -36.46 -29.15 -21.09
4 9,051 176,018 176,018 176,018 3,833 4,735 5,752 5,413 6,316 7,332 -27.35 -19.91 -12.77
5 11,604 176,018 176,018 176,018 5,035 6,395 7,987 6,693 8,053 9,646 -22.05 -14.55 -7.40
6 14,284 176,018 176,018 176,018 6,198 8,111 10,445 7,934 9,847 12,180 -18.64 -11.10 -3.95
7 17,098 176,018 176,018 176,018 7,317 9,883 13,143 9,131 11,697 14,957 -16.29 -8.72 -1.58
8 20,053 176,018 176,018 176,018 8,393 11,715 16,109 10,284 13,606 18,001 -14.59 -6.98 0.15
9 23,156 176,018 176,018 176,018 9,422 13,604 19,369 11,391 15,573 21,338 -13.32 -5.66 1.46
10 26,414 176,018 176,018 176,018 10,404 15,554 22,955 12,451 17,601 25,002 -12.33 -4.63 2.49
15 45,315 176,018 176,018 176,018 16,935 28,638 49,501 16,935 28,638 49,501 -7.56 -0.58 6.04
20 69,439 176,018 176,018 237,458 20,222 41,789 89,055 20,222 41,786 89,055 -7.07 0.41 7.13
25 100,227 176,018 176,018 333,104 20,616 56,119 148,843 20,616 56,119 148,843 -7.76 0.88 7.62
30 139,522 176,018 176,018 457,175 18,028 72,340 239,940 18,028 72,340 239,940 -9.54 1.18 7.90
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 8,700.91% 8,700.91% 8,700.91%
2 789.46 789.46 789.46
3 306.92 306.92 306.92
4 174.74 174.74 174.74
5 117.36 117.36 117.36
6 86.26 86.26 86.26
7 67.07 67.07 67.07
8 54.18 54.18 54.18
9 44.98 44.98 44.98
10 38.14 38.14 38.14
15 20.20 20.20 20.20
20 12.69 12.69 15.06
25 8.70 8.70 12.67
30 6.26 6.26 11.17
</TABLE>
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, CASH
VALUE AND NET 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 NEVLICO 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
<PAGE>
MALE ISSUE AGE 35
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$176,018 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF 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% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $176,018 $176,018 $176,097 $ 1 $ 93 $ 186 $ 1,347 $ 1,440 $ 1,533 -99.97% -95.34% -90.71%
2 4,305 176,018 176,018 176,264 1,314 1,585 1,867 2,738 3,010 3,292 -54.77 -47.90 -41.20
3 6,620 176,018 176,018 176,535 2,591 3,132 3,716 4,094 4,635 5,219 -36.46 -29.15 -22.11
4 9,051 176,018 176,018 176,924 3,833 4,735 5,749 5,413 6,316 7,329 -27.35 -19.91 -12.79
5 11,604 176,018 176,018 177,446 5,035 6,395 7,982 6,693 8,053 9,640 -22.05 -14.55 -7.42
6 14,284 176,018 176,018 178,119 6,198 8,111 10,434 7,934 9,847 12,170 -18.64 -11.10 -3.98
7 17,098 176,018 176,018 178,962 7,317 9,883 13,124 9,131 11,697 14,938 -16.29 -8.72 -1.61
8 20,053 176,018 176,018 179,997 8,393 11,715 16,079 10,284 13,606 17,971 -14.59 -6.98 0.11
9 23,156 176,018 176,018 181,248 9,422 13,604 19,322 11,391 15,573 21,291 -13.32 -5.66 1.41
10 26,414 176,018 176,018 182,741 10,404 15,554 22,883 12,451 17,601 24,930 -12.33 -4.63 2.43
15 45,315 176,018 176,018 194,975 16,935 28,638 49,076 16,935 28,638 49,076 -7.56 -0.58 5.94
20 69,439 176,018 176,018 234,741 20,222 41,789 88,036 20,222 41,789 88,036 -7.07 0.41 7.03
25 100,227 176,018 176,018 329,602 20,616 56,119 147,278 20,616 56,119 147,278 -7.76 0.88 7.55
30 139,522 176,018 176,018 452,611 18,028 72,340 237,544 18,028 72,340 237,544 -9.54 1.18 7.85
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 8,700.91% 8,700.91% 8,704.86%
2 789.46 789.46 790.12
3 306.92 306.92 307.36
4 174.74 174.74 175.14
5 117.36 117.36 117.78
6 86.26 86.26 86.71
7 67.07 67.07 67.56
8 54.18 54.18 54.71
9 44.98 44.98 45.58
10 38.14 38.14 38.80
15 20.20 20.20 21.31
20 12.69 12.69 14.97
25 8.70 8.70 12.60
30 6.26 6.26 11.12
</TABLE>
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, CASH
VALUE AND NET 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 NEVLICO 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
<PAGE>
MALE ISSUE AGE 35
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$176,018 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF 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% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $176,018 $176,018 $176,018 $ 1 $ 93 $ 186 $ 1,347 $1,440 $ 1,533 -99.97% -95.34% -90.70%
2 4,305 176,018 176,018 176,018 1,314 1,585 1,868 2,738 3,010 3,293 -54.77 -47.90 -41.19
3 6,620 176,018 176,018 176,018 2,591 3,132 3,718 4,094 4,635 5,220 -36.46 -29.15 -22.09
4 9,051 176,018 176,018 176,018 3,833 4,735 5,752 5,413 6,316 7,332 -27.35 -19.91 -12.77
5 11,604 176,018 176,018 176,018 5,035 6,395 7,987 6,693 8,053 9,646 -22.05 -14.55 -7.40
6 14,284 176,018 176,018 176,018 6,198 8,111 10,445 7,934 9,847 12,180 -18.64 -11.10 -3.95
7 17,098 176,018 176,018 176,018 7,317 9,883 13,143 9,131 11,697 14,957 -16.29 -8.72 -1.58
8 20,053 176,018 176,018 176,018 8,393 11,715 16,109 10,284 13,606 18,001 -14.59 -6.98 0.15
9 23,156 176,018 176,018 176,018 9,422 13,604 19,369 11,391 15,573 21,338 -13.32 -5.66 1.46
10 26,414 176,018 176,018 176,018 10,404 15,554 22,955 12,451 17,601 25,002 -12.33 -4.63 2.49
15 45,315 176,018 176,018 176,018 16,935 28,638 49,501 16,935 28,638 49,501 -7.56 -0.58 6.04
20 69,439 176,018 176,018 237,458 20,222 41,789 89,055 20,222 41,789 89,055 -7.07 0.41 7.13
25 100,227 176,018 176,018 333,104 20.616 56,119 148,843 20,616 56,119 148,843 -7.76 0.88 7.62
30 139,522 176,018 176,018 452,170 16.264 71,039 237,313 16,264 71,039 237,313 -10.61 1.07 7.84
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 8,700.91% 8,700.91% 8,700.91%
2 789.46 789.46 789.46
3 306.92 306.92 306.92
4 174.74 174.74 174.74
5 117.36 117.36 117.36
6 86.26 86.26 86.26
7 67.07 67.07 67.07
8 54.18 54.18 54.18
9 44.98 44.98 44.98
10 38.14 38.14 38.14
15 20.20 20.20 20.20
20 12.69 12.69 15.06
25 8.70 8.70 12.67
30 6.26 6.26 11.12
</TABLE>
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, CASH
VALUE AND NET 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 NEVLICO 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
<PAGE>
MALE ISSUE AGE 35
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$176,018 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF 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% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $176,018 $176,018 $176,097 $ 1 $ 93 $ 186 $ 1,347 $ 1,440 $ 1,533 -99.97% -95.34% -90.71%
2 4,305 176,018 176,018 176,264 1,314 1,585 1,867 2,738 3,010 3,292 -54.77 -47.90 -41.20
3 6,620 176,018 176,018 176,535 2,591 3,132 3,716 4,094 4,635 5,219 -36.46 -29.15 -22.11
4 9,051 176,018 176,018 176,924 3,833 4,735 5,749 5,413 6,316 7,329 -27.35 -19.91 -12.79
5 11,604 176,018 176,018 177,446 5,035 6,395 7,982 6,693 8,053 9,640 -22.05 -14.55 -7.42
6 14,284 176,018 176,018 178,119 6,198 8,111 10,434 7,934 9,847 12,170 -18.64 -11.10 -3.98
7 17,098 176,018 176,018 178,962 7,317 9,883 13,124 9,131 11,697 14,938 -16.29 -8.72 -1.61
8 20,053 176,018 176,018 179,997 8,393 11,715 16,079 10,284 13,606 17,971 -14.59 -6.98 0.11
9 23,156 176,018 176,018 181,248 9,422 13,604 19,322 11,391 15,573 21,291 -13.32 -5.66 1.41
10 26,414 176,018 176,018 182,741 10,404 15,554 22,883 12,451 17,601 24,930 -12.33 -4.63 2.43
15 45,315 176,018 176,018 194,975 16,935 28,638 49,076 16,935 28,638 49,076 -7.56 -0.58 5.94
20 69,439 176,018 176,018 234,741 20,222 41,789 88,036 20,222 41,789 88,036 -7.07 0.41 7.03
25 100,227 176,018 176,018 329,602 20,616 56,119 147,278 20,616 56,119 147,278 -7.76 0.88 7.55
30 139,522 176,018 176,018 447,656 16,264 71,039 234,944 16,264 71,039 234,944 -10.61 1.07 7.79
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 8,700.91% 8,700.91% 8,704.86%
2 789.46 789.46 790.12
3 306.92 306.92 307.36
4 174.74 174.74 175.14
5 117.36 117.36 117.78
6 86.26 86.26 86.71
7 67.07 67.07 67.56
8 54.18 54.18 54.71
9 44.98 44.98 45.58
10 38.14 38.14 38.80
15 20.20 20.20 21.31
20 12.69 12.69 14.97
25 8.70 8.70 12.60
30 6.26 6.26 11.07
</TABLE>
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, CASH
VALUE AND NET 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 NEVLICO 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
<PAGE>
MALE ISSUE AGE 45
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$110,889 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF 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% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $110,889 $110,889 $110,889 $ 305 $ 397 $ 489 $ 1,326 $ 1,418 $ 1,510 -84.75% -80.15% -75.54%
2 4,305 110,889 110,889 110,889 1,557 1,825 2,104 2,656 2,924 3,203 -48.59 -42.19 -35.89
3 6,620 110,889 110,889 110,889 2,765 3,295 3,870 3,941 4,472 5,047 -34.02 -27.11 -20.37
4 9,051 110,889 110,889 110,889 3,927 4,809 5,804 5,182 6,064 7,058 -26.51 -19.35 -12.43
5 11,604 110,889 110,889 110,889 5,042 6,365 7,919 6,374 7,698 9,252 -22.01 -14.70 -7.68
6 14,284 110,889 110,889 110,889 6,107 7,965 10,237 7,517 9,375 11,647 -19.05 -11.61 -4.52
7 17,098 110,889 110,889 110,889 7,118 9,605 12,772 8,606 11,093 14,260 -16.99 -9.43 -2.29
8 20,053 110,889 110,889 110,889 8,068 11,281 15,546 9,634 12,846 17,112 -15.50 -7.83 -0.64
9 23,156 110,889 110,889 110,889 8,954 12,991 18,582 10,597 14,634 20,226 -14.40 -6.60 0.64
10 26,413 110,889 110,889 110,889 9,767 14,730 21,904 11,488 16,451 23,626 -13.59 -5.65 1.65
15 45,315 110,889 110,889 110,889 14,674 25,889 46,189 14,674 25,889 46,189 -9.62 -1.87 5.23
20 69,438 110,889 110,889 157,948 16,565 37,136 82,896 16,565 37,136 82,896 -9.43 -0.71 6.52
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 5,444.49% 5,444.49% 5,444.49%
2 596.29 596.29 596.29
3 242.76 242.76 242.76
4 140.36 140.36 140.36
5 94.68 94.68 94.68
6 69.53 69.53 69.53
7 53.86 53.86 53.86
8 43.26 43.26 43.26
9 35.68 35.68 35.68
10 30.01 30.01 30.01
15 15.15 15.15 15.15
20 8.95 8.95 11.83
</TABLE>
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, CASH
VALUE AND NET 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 NEVLICO 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-55
<PAGE>
MALE ISSUE AGE 45
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$110,889 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF 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% 0% 6% 12%
- ------ ----------- -------- -------- -------- ------ ------ ------- ------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $110,889 $110,889 $110,967 $ 305 $ 397 $ 489 $ 1,326 $ 1,418 $ 1,510 -84.75% -80.15% -75.55%
2 4,305 110,889 110,889 111,132 1,557 1,825 2,103 2,656 2,924 3,202 -48.59 -42.19 -35.91
3 6,620 110,889 110,889 111,396 2,765 3,295 3,868 3,941 4,472 5,045 -34.02 -27.11 -20.40
4 9,051 110,889 110,889 111,773 3,927 4,809 5,798 5,182 6,064 7,053 -26.51 -19.35 -12.47
5 11,604 110,889 110,889 112,277 5,042 6,365 7,907 6,374 7,698 9,240 -22.01 -14.70 -7.73
6 14,284 110,889 110,889 112,924 6,107 7,965 10,214 7,517 9,375 11,625 -19.05 -11.61 -4.59
7 17,098 110,889 110,889 113,732 7,118 9,605 12,734 8,606 11,093 14,222 -16.99 -9.43 -2.37
8 20,053 110,889 110,889 114,720 8,068 11,281 15,483 9,634 12,846 17,048 -15.50 -7.83 -0.73
9 23,156 110,889 110,889 115,910 8,954 12,991 18,481 10,597 14,634 20,125 -14.40 -6.60 0.53
10 26,413 110,889 110,889 117,325 9,767 14,730 21,749 11,488 16,451 23,470 -13.59 -5.65 1.52
15 45,315 110,889 110,889 128,779 14,674 25,889 45,200 14,674 25,889 45,200 -9.62 -1.87 4.97
20 69,438 110,889 110,889 153,133 16,565 37,136 80,369 16,565 37,136 80,369 -9.43 -0.71 6.26
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- ---------- ---------- ----------
<S> <C> <C> <C>
1 5,444.49% 5,444.49% 5,448.40%
2 596.29 596.29 597.10
3 242.76 242.76 243.35
4 140.36 140.36 140.92
5 94.68 94.68 95.27
6 69.53 69.53 70.17
7 53.86 53.86 54.56
8 43.26 43.26 44.05
9 35.68 35.68 36.56
10 30.01 30.01 31.00
15 15.15 15.15 16.79
20 8.95 8.95 11.58
</TABLE>
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, CASH
VALUE AND NET 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 NEVLICO 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-56
<PAGE>
MALE ISSUE AGE 45
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$110,889 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF 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% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $110,889 $110,889 $110,889 $ 305 $ 397 $ 489 $1,326 $1,418 $ 1,510 -84.75% -80.15% -75.54%
2 4,305 110,889 110,889 110,889 1,557 1,825 2,104 2,656 2,924 3,203 -48.59 -42.19 -35.89
3 6,620 110,889 110,889 110,889 2,765 3,295 3,870 3,941 4,472 5,047 -34.02 -27.11 -20.37
4 9,051 110,889 110,889 110,889 3,927 4,809 5,804 5,182 6,064 7,058 -26.51 -19.35 -12.43
5 11,604 110,889 110,889 110,889 5,042 6,365 7,919 6,374 7,698 9,252 -22.01 -14.70 -7.68
6 14,284 110,889 110,889 110,889 6,107 7,965 10,237 7,517 9,375 11,647 -19.05 -11.61 -4.52
7 17,098 110,889 110,889 110,889 7,118 9,605 12,772 8,606 11,093 14,260 -16.99 -9.43 -2.29
8 20,053 110,889 110,889 110,889 8,068 11,281 15,546 9,634 12,846 17,112 -15.50 -7.83 -0.64
9 23,156 110,889 110,889 110,889 8,954 12,991 18,582 10,597 14,634 20,226 -14.40 -6.60 0.64
10 26,413 110,889 110,889 110,889 9,767 14,730 21,904 11,488 16,451 23,626 -13.59 -5.65 1.65
15 45,315 110,889 110,889 110,889 14,674 25,889 46,189 14,674 25,889 46,189 -9.62 -1.87 5.23
20 69,438 110,889 110,889 156,241 15,507 36,215 82,000 15,507 36,215 82,000 -10.24 -.96 6.43
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 5,444.49% 5,444.49% 5,444.49%
2 596.29 596.29 596.29
3 242.76 242.76 242.76
4 140.36 140.36 140.36
5 94.68 94.68 94.68
6 69.53 69.53 69.53
7 53.86 53.86 53.86
8 43.26 43.26 43.26
9 35.68 35.68 35.68
10 30.01 30.01 30.01
15 15.15 15.15 15.15
20 8.95 8.95 11.74
</TABLE>
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, CASH
VALUE AND NET 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 NEVLICO 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-57
<PAGE>
MALE ISSUE AGE 45
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$110,889 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF 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% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $110,889 $110,889 $110,967 $ 305 $ 397 $ 489 $ 1,326 $ 1,418 $ 1,510 -84.75% -80.15% -75.55%
2 4,305 110,889 110,889 111,132 1,557 1,825 2,103 2,656 2,924 3,202 -48.59 -42.19 -35.91
3 6,620 110,889 110,889 111,396 2,765 3,295 3,868 3,941 4,472 5,045 -34.02 -27.11 -20.40
4 9,051 110,889 110,889 111,773 3,927 4,809 5,798 5,182 6,064 7,053 -26.51 -19.35 -12.47
5 11,604 110,889 110,889 112,277 5,042 6,365 7,907 6,374 7,698 9,240 -22.01 -14.70 -7.73
6 14,284 110,889 110,889 112,924 6,107 7,965 10,214 7,517 9,375 11,625 -19.05 -11.61 -4.59
7 17,098 110,889 110,889 113,732 7,118 9,605 12,734 8,606 11,093 14,222 -16.99 -9.43 -2.37
8 20,053 110,889 110,889 114,720 8,068 11,281 15,483 9,634 12,846 17,048 -15.50 -7.83 -0.73
9 23,156 110,889 110,889 115,910 8,954 12,991 18,481 10,597 14,634 20,125 -14.40 -6.60 0.53
10 26,413 110,889 110,889 117,325 9,767 14,730 21,749 11,488 16,451 23,470 -13.59 -5.65 1.52
15 45,315 110,889 110,889 128,779 14,674 25,889 45,200 14,674 25,889 45,200 -9.62 -1.87 4.97
20 69,438 110,889 110,889 151,337 15,507 36,215 79,427 15,507 36,215 79,427 -10.24 -.96 6.16
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 5,444.49% 5,444.49% 5,448.40%
2 596.29 596.29 597.10
3 242.76 242.76 243.35
4 140.36 140.36 140.92
5 94.68 94.68 95.27
6 69.53 69.53 70.17
7 53.86 53.86 54.56
8 43.26 43.26 44.05
9 35.68 35.68 36.56
10 30.01 30.01 31.00
15 15.15 15.15 16.79
20 8.95 8.95 11.48
</TABLE>
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, CASH
VALUE AND NET 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 NEVLICO 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-58
<PAGE>
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 June 1988. The New England Zenith Fund
and the Variable Account commenced operations on August 26, 1983. The Westpeak
Stock Index and Back Bay Advisors Managed Series of the New England Zenith
Fund commenced operations on May 1, 1987. The Westpeak Value Growth Series and
Loomis Sayles Avanti Growth Series of the New England Zenith Fund commenced
operations on April 30, 1993. The Loomis Sayles Small Cap Series commenced
operations on May 2, 1994 and was made available under the Policies on
December 19, 1994. The remaining New England Zenith Fund Series commenced
operations on October 31, 1994 and were made available under the Policies on
May 1, 1995. The Equity-Income Portfolio and Overseas Portfolio of the VIP
Fund commenced operations on October 9, 1986 and January 28, 1987,
respectively. They were first made available as investment options under the
Policies on April 30, 1993. The High Income Portfolio of the VIP Fund and the
Asset Manager Portfolio of VIP Fund II commenced operations on September 19,
1985 and September 6, 1989, respectively, and were added as investment options
on December 19, 1994. The illustrations are based on the actual investment
experience of the relevant Eligible Funds for the periods shown (and reflect
actual charges and expenses incurred by the Eligible Funds), and reflect a
charge for mortality and expense risks against the Variable Account's assets
at an annual rate of .60%. The illustrations assume that annual scheduled
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
chosen by Policy Owners will affect the values and benefits of their Policies.
Many factors in addition to investment experience will affect the actual
values and benefits of a particular Policy. For instance, these investment
experience figures do not reflect the charges deducted from premiums and
monthly deductions from the cash value. (See "Charges Assessed in Connection
with the Policy", "Cost of Insurance Charges" and "Charges and Expenses".)
NET RATES OF RETURN
The annual net rate of return 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.
SUB-ACCOUNTS INVESTING IN NEW ENGLAND ZENITH FUND
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
8/26/83- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/83 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth*. 8.64% -.96% 67.09% 94.04% 51.79% -9.36% 30.80% -4.64% 53.06% -6.61% 14.28% -8.30%
Bond Income..... 2.83% 12.10 18.05 14.15 1.65 7.63 11.68 7.48 17.25 7.53 11.94 -4.16
Money Market.... 3.08% 9.96 7.61 6.16 5.89 6.94 8.58 7.50 5.58 3.18 2.36 3.39
<CAPTION>
8/26/83- 8/28/83-
12/31/94 12/31/94
TOTAL EFFECTIVE
SUB-ACCOUNT RETURN ANNUAL
- ----------- -------- ---------
<S> <C> <C>
Capital Growth*. 796.88% 21.33%
Bond Income..... 175.92 9.36
Money Market.... 97.31 6.17
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------------------------------------------- 5/1/87- 5/1/87-
FOR ONE YEAR ENDING 12/31/94 12/31/94
5/1/87- -------------------------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. -12.55% 14.67% 32.72% -6.33% 29.65% 6.65% 9.07% 0.45% 88.86% 8.64%
Managed................. -1.06% 8.43 19.83 1.72 19.45 6.06 9.99 -1.78 78.98 7.89
</TABLE>
A-59
<PAGE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN 4/30/93- 4/30/93-
---------------------------- 12/31/94 12/31/94
4/30/93 FOR ONE YEAR ENDING TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/93 12/31/94 RETURN ANNUAL
- ----------- -------- ------------------- -------- ---------
<S> <C> <C> <C> <C>
Value Growth.................... 13.78% -2.11% 11.38% 6.67%
Avanti Growth................... 14.28 -1.94 12.05 7.05
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN 5/2/94- 5/2/94-
---------------------------- 12/31/94 12/31/94
5/2/94- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 RETURN ANNUAL
- ----------- ---------------- -------- ---------
<S> <C> <C> <C> <C>
Small Cap........................ -4.40% -4.40% --
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN 10/31/94- 10/31/94-
---------------------------- 12/31/94 12/31/94
10/31/94- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 RETURN ANNUAL
- ----------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
Equity Growth.................. -5.60% -5.60% --
Balanced....................... -.30 -.30 --
Value.......................... -3.30 -3.30 --
International Equity........... 2.09 2.09 --
</TABLE>
- --------
* 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.
SUB-ACCOUNTS INVESTING IN VARIABLE INSURANCE PRODUCTS FUND
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------------------- 10/9/86- 10/9/86-
FOR ONE YEAR ENDING 12/31/94 12/31/94
10/9/86- ----------------------------------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income..... .06% -3.08% 17.46% 18.82% -16.81% 31.07% 16.39% 17.59% 6.28% 123.50% 10.27%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------------------------------------------- 1/28/87- 1/28/87-
FOR ONE YEAR ENDING 12/31/94 12/31/94
1/28/87- -------------------------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas................ -5.90% 10.75% 23.23% -1.79% 7.79% -11.12% 36.53% 0.59% 62.37% 6.31%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------------------------------------------------------------- 9/19/85- 9/19/85-
FOR ONE YEAR ENDING 12/31/94 12/31/94
9/19/85- -------------------------------------------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income..... 6.20% 16.98% 0.61% 10.85% -4.65% -2.81% 34.27% 22.43% 19.68% -2.05% 147.42% 10.25%
</TABLE>
SUB-ACCOUNT INVESTING IN VARIABLE INSURANCE PRODUCTS FUND II
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------------------------- 9/6/89- 9/6/89-
FOR ONE YEAR ENDING 12/31/94 12/31/94
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 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager........... 1.12% 5.56% 21.83% 11.04% 20.51% -7.00% 61.83% 9.48%
</TABLE>
POLICY PERFORMANCE
The material below assumes, in the first example, a Policy with an Option 1
death benefit was issued with a $176,018 face amount and annual premiums of
$2,000, paid on August 26 of each year (May 1 in the case of the Zenith Stock
Index and Managed Sub-Accounts; May 2 in the case of the Zenith Small Cap Sub-
Account; October 31 in the case of the Zenith Balanced, Zenith International
Equity, Zenith 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 Value Growth and Zenith Avanti
Growth 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 nonsmoker
standard risk, age 35. The second example assumes a Policy was issued with a
$197,864 face amount and annual premiums of $2,000, paid on August 26 of each
year (May 1 in the case of the Zenith Stock Index and Managed Sub-Accounts;
May 2 in the case of the Zenith Small Cap Sub-Account; October 31 in the case
of the Zenith Balanced, Zenith International Equity, Zenith 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 Value Growth and Zenith Avanti Growth 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 female nonsmoker standard risk,
age 35. 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 also reflect all charges applicable to the Policy, including cost
of insurance charges based on NEVLICO's current rates. (See Appendix A for the
definition of the internal rate of return.)
A-60
<PAGE>
MALE NONSMOKER STANDARD RISK, AGE 35
OPTION 1--FIXED DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1983....... 2,000 176,018 176,018 1,767 420 -98.87% --
December 31, 1984....... 4,000 176,018 176,018 3,125 1,700 -70.31 2,596.84%
December 31, 1985....... 6,000 176,018 176,018 6,938 5,435 -7.20 526.27
December 31, 1986....... 8,000 176,018 176,018 14,826 13,245 28.61 244.56
December 31, 1987....... 10,000 176,018 176,018 23,555 21,897 34.57 149.53
December 31, 1988....... 12,000 176,018 176,018 22,775 21,039 19.80 104.22
December 31, 1989....... 14,000 176,018 176,018 30,987 29,174 21.72 78.34
December 31, 1990....... 16,000 176,018 176,018 30,877 28,986 15.14 61.82
December 31, 1991....... 18,000 176,018 199,689 48,770 46,801 21.18 53.35
December 31, 1992....... 20,000 176,018 187,012 47,028 44,981 16.03 43.42
December 31, 1993....... 22,000 176,018 214,155 55,065 53,189 15.68 39.38
December 31, 1994....... 24,000 176,018 194,787 51,603 50,136 11.98 32.72
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1983....... 2,000 176,018 176,018 1,663 316 -- --
December 31, 1984....... 4,000 176,018 176,018 3,373 1,949 -62.69% 2,596.84%
December 31, 1985....... 6,000 176,018 176,018 5,485 3,983 -28.17 526.27
December 31, 1986....... 8,000 176,018 176,018 7,702 6,121 -14.16 244.56
December 31, 1987....... 10,000 176,018 176,018 9,241 7,583 -11.70 149.53
December 31, 1988....... 12,000 176,018 176,018 11,358 9,622 -7.77 104.22
December 31, 1989....... 14,000 176,018 176,018 14,069 12,256 -3.99 78.34
December 31, 1990....... 16,000 176,018 176,018 16,520 14,629 -2.34 61.82
December 31, 1991....... 18,000 176,018 176,018 20,788 18,819 1.02 50.46
December 31, 1992....... 20,000 176,018 176,018 23,636 21,589 1.57 42.23
December 31, 1993....... 22,000 176,018 176,018 27,711 25,834 2.97 36.02
December 31, 1994....... 24,000 176,018 176,018 27,773 26,306 1.56 31.18
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1983....... 2,000 176,018 176,018 1,667 320 -- --
December 31, 1984....... 4,000 176,018 176,018 3,270 1,845 -65.88% 2,596.84%
December 31, 1985....... 6,000 176,018 176,018 4,976 3,473 -36.63 526.27
December 31, 1986....... 8,000 176,018 176,018 6,714 5,133 -23.15 244.56
December 31, 1987....... 10,000 176,018 176,018 8,528 6,870 -15.84 149.53
December 31, 1988....... 12,000 176,018 176,018 10,524 8,788 -10.98 104.22
December 31, 1989....... 14,000 176,018 176,018 12,807 10,993 -7.28 78.34
December 31, 1990....... 16,000 176,018 176,018 15,122 13,230 -4.99 61.82
December 31, 1991....... 18,000 176,018 176,018 17,284 15,315 -3.76 50.46
December 31, 1992....... 20,000 176,018 176,018 19,114 17,067 -3.31 42.23
December 31, 1993....... 22,000 176,018 176,018 20,816 18,939 -2.84 36.02
December 31, 1994....... 24,000 176,018 176,018 22,746 21,279 -2.08 31.18
</TABLE>
A-61
<PAGE>
ZENITH STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1987....... 2,000 176,018 176,018 1,322 83 -- --
December 31, 1988....... 4,000 176,018 176,018 3,037 1,612 -57.40% 1,304.55%
December 31, 1989....... 6,000 176,018 176,018 5,728 4,225 -19.73 393.40
December 31, 1990....... 8,000 176,018 176,018 6,784 5,204 -19.03 205.08
December 31, 1991....... 10,000 176,018 176,018 10,336 8,678 -5.28 131.98
December 31, 1992....... 12,000 176,018 176,018 12,492 10,756 -3.45 94.63
December 31, 1993....... 14,000 176,018 176,018 15,075 13,262 -1.48 72.41
December 31, 1994....... 16,000 176,018 176,018 16,515 14,624 -2.16 57.84
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1987....... 2,000 176,018 176,018 1,500 153 -97.86% --
December 31, 1988....... 4,000 176,018 176,018 3,123 1,698 -55.06 1,304.55%
December 31, 1989....... 6,000 176,018 176,018 5,362 3,860 -24.42 393.40
December 31, 1990....... 8,000 176,018 176,018 6,968 5,388 -17.55 205.08
December 31, 1991....... 10,000 176,018 176,018 9,865 8,206 -7.34 131.98
December 31, 1992....... 12,000 176,018 176,018 11,953 10,217 -5.07 94.63
December 31, 1993....... 14,000 176,018 176,018 14,572 12,758 -2.54 72.41
December 31, 1994....... 16,000 176,018 176,018 15,673 13,782 -3.60 57.84
ZENITH AVANTI GROWTH SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1993....... 2,000 176,018 176,018 1,711 365 -92.08% --
December 31, 1994....... 4,000 176,018 176,018 3,134 1,709 -54.67 1,298.23%
ZENITH VALUE GROWTH SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1993....... 2,000 176,018 176,018 1,703 356 -92.36% --
December 31, 1994....... 4,000 176,018 176,018 3,101 1,676 -55.56 1,298.23%
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1994....... 2,000 176,018 176,018 1,438 92 -100.00% --
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1994....... 2,000 176,018 176,018 1,586 240 -100.00% --
</TABLE>
A-62
<PAGE>
ZENITH BALANCED SUB-ACCOUNT
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1994....... 2,000 176,018 176,018 1,679 332 -100.00% --
ZENITH VALUE SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1994....... 2,000 176,018 176,018 1,626 279 -100.00% --
ZENITH INTERNATIONAL EQUITY SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1994....... 2,000 176,018 176,018 1,720 374 -100.00% --
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1986....... 2,000 176,018 176,018 1,687 340 -- --
December 31, 1987....... 4,000 176,018 176,018 2,781 1,357 -88.68% 3,658.16%
December 31, 1988....... 6,000 176,018 176,018 4,765 3,262 -44.44 597.26
December 31, 1989....... 8,000 176,018 176,018 6,975 5,395 -22.16 263.01
December 31, 1990....... 10,000 176,018 176,018 7,347 5,689 -25.21 157.23
December 31, 1991....... 12,000 176,018 176,018 11,057 9,321 -9.31 108.29
December 31, 1992....... 14,000 176,018 176,018 14,349 12,535 -3.44 80.80
December 31, 1993....... 16,000 176,018 176,018 18,190 16,298 .49 63.45
December 31, 1994....... 18,000 176,018 176,018 20,622 18,652 .84 51.61
OVERSEAS SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1987....... 2,000 176,018 176,018 1,294 18 -- --
December 31, 1988....... 4,000 176,018 176,018 3,040 1,616 -49.16% 874.98%
December 31, 1989....... 6,000 176,018 176,018 5,466 3,964 -20.09 323.81
December 31, 1990....... 8,000 176,018 176,018 6,765 5,185 -17.14 181.02
December 31, 1991....... 10,000 176,018 176,018 8,768 7,110 -11.46 120.48
December 31, 1992....... 12,000 176,018 176,018 8,953 7,217 -14.72 88.08
December 31, 1993....... 14,000 176,018 176,018 14,067 12,253 -3.40 68.24
December 31, 1994....... 16,000 176,018 176,018 15,430 13,538 -3.79 54.99
</TABLE>
A-63
<PAGE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1985....... 2,000 176,018 176,018 1,754 407 -- --
December 31, 1986....... 4,000 176,018 176,018 3,501 2,077 -62.77% 3,107.49%
December 31, 1987....... 6,000 176,018 176,018 4,927 3,425 -39.43 563.12
December 31, 1988....... 8,000 176,018 176,018 6,891 5,311 -22.27 254.34
December 31, 1989....... 10,000 176,018 176,018 7,891 6,232 -20.56 153.65
December 31, 1990....... 12,000 176,018 176,018 9,021 7,285 -18.14 106.41
December 31, 1991....... 14,000 176,018 176,018 13,499 11,685 -5.54 79.66
December 31, 1992....... 16,000 176,018 176,018 17,847 15,955 -.07 62.70
December 31, 1993....... 18,000 176,018 176,018 22,727 20,758 3.30 51.08
December 31, 1994....... 20,000 176,018 176,018 23,533 21,486 1.49 42.69
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1989....... 2,000 176,018 176,018 1,668 321 -- --
December 31, 1990....... 4,000 176,018 176,018 3,238 1,814 -68.76% 2,813.78%
December 31, 1991....... 6,000 176,018 176,018 5,415 3,913 -29.97 542.64
December 31, 1992....... 8,000 176,018 176,018 7,469 5,889 -16.44 248.96
December 31, 1993....... 10,000 176,018 176,018 10,479 8,821 -5.40 151.39
December 31, 1994....... 12,000 176,018 176,018 11,058 9,322 -8.99 105.21
</TABLE>
A-64
<PAGE>
FEMALE NONSMOKER STANDARD RISK, AGE 35
OPTION 1--FIXED DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $2,000 $197,864 $197,864 $1,755 $ 299 -- --
December 31, 1983....... 2,000 197,864 197,864 1,772 316 -- --
December 31, 1984....... 4,000 197,864 197,864 3,145 1,611 -72.98% 2,848.04%
December 31, 1985....... 6,000 197,864 197,864 6,989 5,377 -7.97 560.87
December 31, 1986....... 8,000 197,864 197,864 14,928 13,239 28.58 258.37
December 31, 1987....... 10,000 197,864 197,864 23,704 21,936 34.66 157.45
December 31, 1988....... 12,000 197,864 197,864 22,896 21,050 19.81 109.61
December 31, 1989....... 14,000 197,864 197,864 31,121 29,198 21.75 82.38
December 31, 1990....... 16,000 197,864 197,864 30,979 28,978 15.14 65.04
December 31, 1991....... 18,000 197,864 230,371 48,882 46,803 21.19 56.66
December 31, 1992....... 20,000 197,864 215,711 47,085 44,929 16.01 46.22
December 31, 1993....... 22,000 197,864 246,992 55,079 53,102 15.65 41.84
December 31, 1994....... 24,000 197,864 224,664 51,577 50,031 11.94 34.90
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $2,000 $197,864 $197,864 $1,755 $ 299 -- --
December 31, 1983....... 2,000 197,864 197,864 1,668 212 -- --
December 31, 1984....... 4,000 197,864 197,864 3,395 1,861 -65.40% 2,848.04%
December 31, 1985....... 6,000 197,864 197,864 5,525 3,913 -29.29 560.87
December 31, 1986....... 8,000 197,864 197,864 7,750 6,061 -14.68 258.37
December 31, 1987....... 10,000 197,864 197,864 9,287 7,520 -12.05 157.45
December 31, 1988....... 12,000 197,864 197,864 11,396 9,550 -8.03 109.61
December 31, 1989....... 14,000 197,864 197,864 14,091 12,168 -4.21 82.38
December 31, 1990....... 16,000 197,864 197,864 16,519 14,518 -2.54 65.04
December 31, 1991....... 18,000 197,864 197,864 20,757 18,679 0.85 53.14
December 31, 1992....... 20,000 197,864 197,864 23,575 21,419 1.41 44.52
December 31, 1993....... 22,000 197,864 197,864 27,617 25,641 2.83 38.02
December 31, 1994....... 24,000 197,864 197,864 27,671 26,125 1.44 32.96
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $2,000 $197,864 $197,864 $1,755 $ 299 -- --
December 31, 1983....... 2,000 197,864 197,864 1,672 216 -- --
December 31, 1984....... 4,000 197,864 197,864 3,291 1,757 -68.59% 2,848.04%
December 31, 1985....... 6,000 197,864 197,864 5,012 3,400 -37.91 560.87
December 31, 1986....... 8,000 197,864 197,864 6,755 5,066 -23.82 258.37
December 31, 1987....... 10,000 197,864 197,864 8,569 6,801 -16.26 157.45
December 31, 1988....... 12,000 197,864 197,864 10,556 8,711 -11.29 109.61
December 31, 1989....... 14,000 197,864 197,864 12,822 10,899 -7.55 82.38
December 31, 1990....... 16,000 197,864 197,864 15,114 13,113 -5.23 65.04
December 31, 1991....... 18,000 197,864 197,864 17,249 15,170 -3.98 53.14
December 31, 1992....... 20,000 197,864 197,864 19,052 16,896 -3.52 44.52
December 31, 1993....... 22,000 197,864 197,864 20,730 18,753 -3.03 38.02
December 31, 1994....... 24,000 197,864 197,864 22,646 21,100 -2.23 32.96
</TABLE>
A-65
<PAGE>
ZENITH STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $197,864 $197,864 $ 1,755 $ 299 -- --
December 31, 1987....... 2,000 197,864 197,864 1,329 83 -- --
December 31, 1988....... 4,000 197,864 197,864 3,062 1,528 -59.72% 1,410.81%
December 31, 1989....... 6,000 197,864 197,864 5,773 4,161 -20.54 417.58
December 31, 1990....... 8,000 197,864 197,864 6,828 5,139 -19.56 216.31
December 31, 1991....... 10,000 197,864 197,864 10,387 8,620 -5.53 138.86
December 31, 1992....... 12,000 197,864 197,864 12,531 10,686 -3.65 99.49
December 31, 1993....... 14,000 197,864 197,864 15,097 13,174 -1.66 76.13
December 31, 1994....... 16,000 197,864 197,864 16,512 14,511 -2.35 60.85
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $197,864 $197,864 $ 1,755 $ 299 -- --
December 31, 1987....... 2,000 197,864 197,864 1,508 52 -- --
December 31, 1988....... 4,000 197,864 197,864 3,148 1,614 -57.35% 1,410.81%
December 31, 1989....... 6,000 197,864 197,864 5,404 3,792 -25.32 417.58
December 31, 1990....... 8,000 197,864 197,864 7,012 5,322 -18.07 216.31
December 31, 1991....... 10,000 197,864 197,864 9,911 8,144 -7.62 138.86
December 31, 1992....... 12,000 197,864 197,864 11,988 10,143 -5.30 99.49
December 31, 1993....... 14,000 197,864 197,864 14,589 12,666 -2.73 76.13
December 31, 1994....... 16,000 197,864 197,864 15,665 13,665 -3.81 60.85
ZENITH AVANTI GROWTH SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $197,864 $197,864 $ 1,755 $ 299 -- --
December 31, 1993....... 2,000 197,864 197,864 1,721 265 -95.07% --
December 31, 1994....... 4,000 197,864 197,864 3,159 1,625 -56.94 1,403.84%
ZENITH VALUE GROWTH SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $197,864 $197,864 $ 1,755 $ 299 -- --
December 31, 1993....... 2,000 197,864 197,864 1,713 256 -95.31 --
December 31, 1994....... 4,000 197,864 197,864 3,127 1,593 -57.83 1,403.84%
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 2,000 $197,864 $197,864 $ 1,755 $ 299 -- --
December 31, 1994....... 2,000 197,864 197,864 1,446 10 -100.00% --
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $197,864 $197,864 $ 1,755 $ 299 -- --
December 31, 1994....... 2,000 197,864 197,864 1,589 133 -100.00% --
</TABLE>
A-66
<PAGE>
ZENITH BALANCED SUB-ACCOUNT
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $197,864 $197,864 $ 1,755 $ 299 -- --
December 31, 1994....... 2,000 197,864 197,864 1,682 226 -100.00% --
ZENITH VALUE SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $197,864 $197,864 $ 1,755 $ 299 -- --
December 31, 1994....... 2,000 197,864 197,864 1,629 173 -100.00% --
ZENITH INTERNATIONAL EQUITY SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $197,864 $197,864 $ 1,755 $ 299 -- --
December 31, 1994....... 2,000 197,864 197,864 1,724 267 -100.00% --
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 2,000 $197,864 $197,864 $ 1,755 $ 299 -- --
December 31, 1986....... 2,000 197,864 197,864 1,690 234 -- --
December 31, 1987....... 4,000 197,864 197,864 2,796 1,262 -90.97% 4,042.12%
December 31, 1988....... 6,000 197,864 197,864 4,798 3,187 -45.95 637.74
December 31, 1989....... 8,000 197,864 197,864 7,021 5,331 -22.82 278.07
December 31, 1990....... 10,000 197,864 197,864 7,383 5,615 -25.79 165.61
December 31, 1991....... 12,000 197,864 197,864 11,092 9,247 -9.61 113.91
December 31, 1992....... 14,000 197,864 197,864 14,370 12,447 -3.66 84.97
December 31, 1993....... 16,000 197,864 197,864 18,190 16,189 .31 66.76
December 31, 1994....... 18,000 197,864 197,864 20,594 18,516 .67 54.35
OVERSEAS SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 2,000 $197,864 $197,864 $ 1,755 $ 299 -- --
December 31, 1987....... 2,000 197,864 197,864 1,306 18 -- --
December 31, 1988....... 4,000 197,864 197,864 3,071 1,537 -51.12% 939.24%
December 31, 1989....... 6,000 197,864 197,864 5,512 3,900 -20.81 342.86
December 31, 1990....... 8,000 197,864 197,864 6,810 5,120 -17.62 190.73
December 31, 1991....... 10,000 197,864 197,864 8,808 7,041 -11.79 126.70
December 31, 1992....... 12,000 197,864 197,864 8,972 7,127 -15.08 92.58
December 31, 1993....... 14,000 197,864 197,864 14,069 12,146 -3.62 71.75
December 31, 1994....... 16,000 197,864 197,864 15,407 13,406 -4.02 57.85
</TABLE>
A-67
<PAGE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE NET OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $2,000 $197,864 $197,864 $1,755 $ 299 -- --
December 31, 1985....... 2,000 197,864 197,864 1,758 302 -- --
December 31, 1986....... 4,000 197,864 197,864 3,521 1,987 -65.65% 3,421.33%
December 31, 1987....... 6,000 197,864 197,864 4,961 3,349 -40.83 600.75
December 31, 1988....... 8,000 197,864 197,864 6,932 5,243 -22.95 268.80
December 31, 1989....... 10,000 197,864 197,864 7,927 6,160 -21.06 161.81
December 31, 1990....... 12,000 197,864 197,864 9,046 7,201 -18.57 111.92
December 31, 1991....... 14,000 197,864 197,864 13,512 11,589 -5.80 83.78
December 31, 1992....... 16,000 197,864 197,864 17,838 15,837 -.27 65.97
December 31, 1993....... 18,000 197,864 197,864 22,688 20,609 3.13 53.79
December 31, 1994....... 20,000 197,864 197,864 23,468 21,312 1.32 45.00
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE NET OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $2,000 $197,864 $197,864 $1,755 $ 299 -- --
December 31, 1989....... 2,000 197,864 197,864 1,672 216 -- --
December 31, 1990....... 4,000 197,864 197,864 3,257 1,724 -71.53% 3,091.28%
December 31, 1991....... 6,000 197,864 197,864 5,453 3,842 -31.14 578.58
December 31, 1992....... 8,000 197,864 197,864 7,516 5,827 -16.99 263.06
December 31, 1993....... 10,000 197,864 197,864 10,532 8,765 -5.67 159.42
December 31, 1994....... 12,000 197,864 197,864 11,097 9,252 -9.26 110.66
</TABLE>
- --------
* 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.
The material below assumes, in the first example, a Policy with an Option 2
death benefit was issued with a $176,018 face amount and annual premiums of
$2,000, paid on August 26 of each year (May 1 in the case of the Zenith Stock
Index and Managed Sub-Accounts; May 2 in the case of the Zenith Small Cap Sub-
Account; October 31 in the case of the Zenith Balanced, Zenith International
Equity, Zenith 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 Value Growth and Zenith Avanti
Growth 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 nonsmoker
standard risk, age 35. The second example assumes a Policy was issued with a
$197,864 face amount and annual premiums of $2,000, paid on August 26 of each
year (May 1 in the case of the Zenith Stock Index and Managed Sub-Accounts;
May 2 in the case of the Zenith Small Cap Sub-Account; October 31 in the case
of the Zenith Balanced, Zenith International Equity, Zenith 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 Value Growth and Zenith Avanti Growth 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 female nonsmoker standard risk,
age 35. 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 also reflect all charges applicable to the Policy, including cost
of insurance charges based on NEVLICO's current rates. (See Appendix A for the
definition of the internal rate of return.)
A-68
<PAGE>
MALE NONSMOKER STANDARD RISK, AGE 35
OPTION 2--VARIABLE DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1983....... 2,000 176,018 176,152 1,767 420 -98.87% --
December 31, 1984....... 4,000 176,018 176,028 3,124 1,700 -70.32 2,596.96%
December 31, 1985....... 6,000 176,018 178,015 6,935 5,433 -7.23 529.53
December 31, 1986....... 8,000 176,018 184,642 14,807 13,227 28.53 250.15
December 31, 1987....... 10,000 176,018 191,043 23,495 21,837 34.45 155.05
December 31, 1988....... 12,000 176,018 188,668 22,692 20,956 19.65 107.41
December 31, 1989....... 14,000 176,018 194,186 30,834 29,021 21.57 81.73
December 31, 1990....... 16,000 176,018 192,894 30,686 28,795 14.98 64.34
December 31, 1991....... 18,000 176,018 207,558 48,406 46,437 21.01 54.24
December 31, 1992....... 20,000 176,018 204,225 46,624 44,577 15.86 45.14
December 31, 1993....... 22,000 176,018 212,263 54,579 52,703 15.52 39.23
December 31, 1994....... 24,000 176,018 205,678 51,138 49,671 11.83 33.55
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1983....... 2,000 176,018 176,048 1,663 316 -- --
December 31, 1984....... 4,000 176,018 176,254 3,373 1,949 -62.69% 2,599.60%
December 31, 1985....... 6,000 176,018 176,748 5,484 3,982 -28.18 527.46
December 31, 1986....... 8,000 176,018 177,340 7,698 6,118 -14.19 245.43
December 31, 1987....... 10,000 176,018 177,073 9,235 7,577 -11.73 149.93
December 31, 1988....... 12,000 176,018 177,451 11,349 9,613 -7.80 104.59
December 31, 1989....... 14,000 176,018 178,232 14,054 12,241 -4.03 78.77
December 31, 1990....... 16,000 176,018 178,738 16,498 14,607 -2.38 62.24
December 31, 1991....... 18,000 176,018 180,860 20,752 18,782 0.98 51.08
December 31, 1992....... 20,000 176,018 181,793 23,581 21,534 1.52 42.86
December 31, 1993....... 22,000 176,018 183,785 27,625 25,748 2.91 36.76
December 31, 1994....... 24,000 176,018 181,675 27,669 26,202 1.49 31.66
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1983....... 2,000 176,018 176,040 1,667 320 -- --
December 31, 1984....... 4,000 176,018 176,144 3,270 1,845 -65.89% 2,598.32%
December 31, 1985....... 6,000 176,018 176,246 4,975 3,473 -36.63 526.64
December 31, 1986....... 8,000 176,018 176,317 6,713 5,132 -23.16 244.76
December 31, 1987....... 10,000 176,018 176,400 8,526 6,868 -15.85 149.67
December 31, 1988....... 12,000 176,018 176,587 10,521 8,785 -10.99 104.37
December 31, 1989....... 14,000 176,018 177,002 12,802 10,988 -7.30 78.53
December 31, 1990....... 16,000 176,018 177,386 15,113 13,222 -5.01 62.03
December 31, 1991....... 18,000 176,018 177,546 17,270 15,301 -3.78 50.66
December 31, 1992....... 20,000 176,018 177,306 19,096 17,049 -3.33 42.37
December 31, 1993....... 22,000 176,018 176,856 20,794 18,917 -2.86 36.10
December 31, 1994....... 24,000 176,018 176,548 22,721 21,254 -2.10 31.23
</TABLE>
A-69
<PAGE>
ZENITH STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1987....... 2,000 176,018 176,018 1,322 83 -- --
December 31, 1988....... 4,000 176,018 176,018 3,037 1,612 -57.40% 1,304.55%
December 31, 1989....... 6,000 176,018 176,887 5,727 4,224 -19.74 394.39
December 31, 1990....... 8,000 176,018 176,288 6,782 5,202 -19.04 205.23
December 31, 1991....... 10,000 176,018 177,329 10,330 8,672 -5.30 132.41
December 31, 1992....... 12,000 176,018 178,391 12,481 10,745 -3.48 95.18
December 31, 1993....... 14,000 176,018 179,083 15,056 13,243 -1.52 72.95
December 31, 1994....... 16,000 176,018 178,352 16,488 14,597 -2.21 58.17
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1987....... 2,000 176,018 176,018 1,500 153 -97.86% --
December 31, 1988....... 4,000 176,018 176,041 3,123 1,698 -55.06 1,304.66%
December 31, 1989....... 6,000 176,018 176,613 5,362 3,859 -24.42 394.08
December 31, 1990....... 8,000 176,018 176,484 6,966 5,386 -17.56 205.33
December 31, 1991....... 10,000 176,018 177,144 9,860 8,202 -7.36 132.35
December 31, 1992....... 12,000 176,018 177,803 11,945 10,209 -5.09 95.05
December 31, 1993....... 14,000 176,018 178,692 14,556 12,743 -2.57 72.88
December 31, 1994....... 16,000 176,018 177,621 15,653 13,762 -3.63 58.07
ZENITH AVANTI GROWTH SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1993....... 2,000 176,018 176,202 1,711 364 -92.09% --
December 31, 1994....... 4,000 176,018 176,115 3,133 1,709 -54.68 1,298.70%
ZENITH VALUE GROWTH SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1993....... 2,000 176,018 176,197 1,703 356 -92.36% --
December 31, 1994....... 4,000 176,018 176,058 3,101 1,676 -55.57 1,298.42%
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1994....... 2,000 176,018 176,018 1,438 92 -100.00% --
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1994....... 2,000 176,018 176,018 1,586 240 -100.00% --
</TABLE>
A-70
<PAGE>
ZENITH BALANCED SUB-ACCOUNT
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1994....... 2,000 176,018 176,018 1,679 332 -100.00% --
ZENITH VALUE SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1994....... 2,000 176,018 176,018 1,626 279 -100.00% --
ZENITH INTERNATIONAL EQUITY SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1994....... 2,000 176,018 176,040 1,720 374 -100.00% --
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1986....... 2,000 176,018 176,063 1,687 340 -- --
December 31, 1987....... 4,000 176,018 176,018 2,781 1,356 -88.69% 3,658.16%
December 31, 1988....... 6,000 176,018 176,053 4,764 3,262 -44.45 597.33
December 31, 1989....... 8,000 176,018 176,454 6,974 5,394 -22.18 263.33
December 31, 1990....... 10,000 176,018 176,018 7,346 5,688 -25.22 157.23
December 31, 1991....... 12,000 176,018 176,320 11,054 9,318 -9.32 108.37
December 31, 1992....... 14,000 176,018 178,287 14,342 12,529 -3.46 81.25
December 31, 1993....... 16,000 176,018 180,250 18,171 16,280 .46 64.12
December 31, 1994....... 18,000 176,018 180,486 20,589 18,620 .80 52.19
OVERSEAS SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 2,000 $176,018 $176,018 $ 1,754 $ 408 -- --
December 31, 1987....... 2,000 176,018 176,018 1,294 18 -- --
December 31, 1988....... 4,000 176,018 176,018 3,040 1,616 -49.16% 874.98%
December 31, 1989....... 6,000 176,018 176,843 5,466 3,963 -20.09 324.55
December 31, 1990....... 8,000 176,018 176,419 6,763 5,183 -17.16 181.21
December 31, 1991....... 10,000 176,018 176,597 8,765 7,107 -11.48 120.65
December 31, 1992....... 12,000 176,018 176,018 8,949 7,213 -14.74 88.08
December 31, 1993....... 14,000 176,018 178,216 14,059 12,245 -3.42 68.61
December 31, 1994....... 16,000 176,018 177,692 15,416 13,525 -3.81 55.22
</TABLE>
A-71
<PAGE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $2,000 $176,018 $176,018 $1,754 $ 408 -- --
December 31, 1985....... 2,000 176,018 176,075 1,754 407 -- --
December 31, 1986....... 4,000 176,018 176,325 3,501 2,076 -62.78% 3,111.97%
December 31, 1987....... 6,000 176,018 176,098 4,926 3,424 -39.44 563.26
December 31, 1988....... 8,000 176,018 176,446 6,889 5,309 -22.29 254.63
December 31, 1989....... 10,000 176,018 176,018 7,888 6,230 -20.57 153.65
December 31, 1990....... 12,000 176,018 176,018 9,019 7,283 -18.15 106.41
December 31, 1991....... 14,000 176,018 177,598 13,494 11,680 -5.56 79.98
December 31, 1992....... 16,000 176,018 180,022 17,831 15,940 -.10 63.32
December 31, 1993....... 18,000 176,018 182,891 22,692 20,723 3.26 51.97
December 31, 1994....... 20,000 176,018 181,531 23,481 21,433 1.44 43.30
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $2,000 $176,018 $176,018 $1,754 $ 408 -- --
December 31, 1989....... 2,000 176,018 176,018 1,668 321 -- --
December 31, 1990....... 4,000 176,018 176,065 3,238 1,814 -68.76% 2,814.37%
December 31, 1991....... 6,000 176,018 176,469 5,414 3,912 -29.98 543.40
December 31, 1992....... 8,000 176,018 177,017 7,467 5,887 -16.46 249.63
December 31, 1993....... 10,000 176,018 178,116 10,472 8,814 -5.43 152.19
December 31, 1994....... 12,000 176,018 177,421 11,048 9,313 -9.03 105.58
</TABLE>
A-72
<PAGE>
FEMALE NONSMOKER STANDARD RISK, AGE 35
OPTION 2--VARIABLE DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1983....... 2,000 197,864 198,007 1,772 316 -- --
December 31, 1984....... 4,000 197,864 197,907 3,145 1,611 -72.98% 2,848.51%
December 31, 1985....... 6,000 197,864 199,929 6,987 5,375 -7.99 564.03
December 31, 1986....... 8,000 197,864 206,622 14,912 13,223 28.51 263.61
December 31, 1987....... 10,000 197,864 213,082 23,650 21,883 34.54 162.56
December 31, 1988....... 12,000 197,864 210,701 22,821 20,976 19.69 112.55
December 31, 1989....... 14,000 197,864 216,256 30,983 29,060 21.61 85.49
December 31, 1990....... 16,000 197,864 214,967 30,806 28,805 14.99 67.35
December 31, 1991....... 18,000 197,864 229,692 48,558 46,479 21.03 56.59
December 31, 1992....... 20,000 197,864 226,357 46,739 44,583 15.86 47.17
December 31, 1993....... 22,000 197,864 245,178 54,674 52,698 15.52 41.71
December 31, 1994....... 24,000 197,864 227,826 51,205 49,659 11.83 35.12
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1983....... 2,000 197,864 197,903 1,668 212 -- --
December 31, 1984....... 4,000 197,864 198,133 3,395 1,861 -65.40% 2,851.09%
December 31, 1985....... 6,000 197,864 198,652 5,524 3,912 -29.30 562.08
December 31, 1986....... 8,000 197,864 199,263 7,747 6,058 -14.70 259.22
December 31, 1987....... 10,000 197,864 199,006 9,282 7,514 -12.08 157.84
December 31, 1988....... 12,000 197,864 199,392 11,387 9,542 -8.07 109.97
December 31, 1989....... 14,000 197,864 200,181 14,077 12,154 -4.24 82.79
December 31, 1990....... 16,000 197,864 200,691 16,498 14,497 -2.58 65.44
December 31, 1991....... 18,000 197,864 202,816 20,723 18,644 0.81 53.71
December 31, 1992....... 20,000 197,864 203,754 23,523 21,367 1.36 45.10
December 31, 1993....... 22,000 197,864 205,748 27,537 25,560 2.77 38.69
December 31, 1994....... 24,000 197,864 203,661 27,574 26,029 1.38 33.40
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1983....... 2,000 197,864 197,895 1,672 216 -- --
December 31, 1984....... 4,000 197,864 198,023 3,290 1,757 -68.59% 2,849.84%
December 31, 1985....... 6,000 197,864 198,146 5,011 3,399 -37.91 561.30
December 31, 1986....... 8,000 197,864 198,232 6,754 5,065 -23.83 258.60
December 31, 1987....... 10,000 197,864 198,327 8,567 6,800 -16.27 157.61
December 31, 1988....... 12,000 197,864 198,522 10,553 8,707 -11.30 109.77
December 31, 1989....... 14,000 197,864 198,942 12,817 10,894 -7.56 82.57
December 31, 1990....... 16,000 197,864 199,331 15,105 13,104 -5.24 65.25
December 31, 1991....... 18,000 197,864 199,497 17,235 15,157 -4.00 53.33
December 31, 1992....... 20,000 197,864 199,263 19,034 16,878 -3.55 44.66
December 31, 1993....... 22,000 197,864 198,821 20,708 18,731 -3.05 38.10
December 31, 1994....... 24,000 197,864 198,528 22,620 21,075 -2.25 33.01
</TABLE>
A-73
<PAGE>
ZENITH STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $197,864 $197,864 $ 1,755 $ 299 -- --
December 31, 1987....... 2,000 197,864 197,864 1,329 83 -- --
December 31, 1988....... 4,000 197,864 197,864 3,062 1,528 -59.72% 1,410.81%
December 31, 1989....... 6,000 197,864 198,796 5,772 4,160 -20.55 418.57
December 31, 1990....... 8,000 197,864 198,207 6,826 5,137 -19.58 216.48
December 31, 1991....... 10,000 197,864 199,266 10,382 8,614 -5.55 139.28
December 31, 1992....... 12,000 197,864 200,340 12,521 10,676 -3.69 100.02
December 31, 1993....... 14,000 197,864 201,037 15,079 13,156 -1.70 76.65
December 31, 1994....... 16,000 197,864 200,312 16,486 14,486 -2.39 61.17
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1987....... 2,000 197,864 197,864 1,508 52 -- --
December 31, 1988....... 4,000 197,864 197,924 3,148 1,614 -57.35% 1,411.09%
December 31, 1989....... 6,000 197,864 198,520 5,403 3,791 -25.33 418.28
December 31, 1990....... 8,000 197,864 198,404 7,010 5,321 -18.08 216.58
December 31, 1991....... 10,000 197,864 199,079 9,907 8,140 -7.64 139.23
December 31, 1992....... 12,000 197,864 199,746 11,980 10,135 -5.32 99.89
December 31, 1993....... 14,000 197,864 200,642 14,574 12,651 -2.77 76.58
December 31, 1994....... 16,000 197,864 199,575 15,646 13,645 -3.84 61.08
ZENITH AVANTI GROWTH SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 1993........... 2,000 197,864 198,065 1,721 265 -95.08% --
December 31, 1994....... 4,000 197,864 198,000 3,159 1,625 -56.95 1,404.48%
ZENITH VALUE GROWTH SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1993....... 2,000 197,864 198,060 1,712 256 -95.31% --
December 31, 1994....... 4,000 197,864 197,943 3,126 1,592 -57.84 1,404.21%
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1994....... 2,000 197,864 197,864 1,446 10 -100.00% --
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1994....... 2,000 197,864 197,864 1,589 133 -100.00% --
</TABLE>
A-74
<PAGE>
ZENITH BALANCED SUB-ACCOUNT
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1994....... 2,000 197,864 197,864 1,682 226 -100.00% --
ZENITH VALUE SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1994....... 2,000 197,864 197,864 1,629 173 -100.00% --
ZENITH INTERNATIONAL EQUITY SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1994....... 2,000 197,864 197,891 1,724 267 -100.00% --
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1986....... 2,000 197,864 197,914 1,690 234 -- --
December 31, 1987....... 4,000 197,864 197,864 2,796 1,262 -90.97% 4,042.12%
December 31, 1988....... 6,000 197,864 197,950 4,798 3,186 -45.96 637.89
December 31, 1989....... 8,000 197,864 198,370 7,019 5,330 -22.83 278.40
December 31, 1990....... 10,000 197,864 197,864 7,381 5,614 -25.80 165.61
December 31, 1991....... 12,000 197,864 198,253 11,089 9,244 -9.62 114.00
December 31, 1992....... 14,000 197,864 200,230 14,363 12,440 -3.68 85.40
December 31, 1993....... 16,000 197,864 202,199 18,172 16,171 .29 67.37
December 31, 1994....... 18,000 197,864 202,441 20,563 18,485 .63 54.88
OVERSEAS SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1987....... 2,000 197,864 197,864 1,306 18 -- --
December 31, 1988....... 4,000 197,864 197,864 3,071 1,537 -51.13% 939.24%
December 31, 1989....... 6,000 197,864 198,758 5,511 3,900 -20.82 343.61
December 31, 1990....... 8,000 197,864 198,343 6,808 5,118 -17.63 190.93
December 31, 1991....... 10,000 197,864 198,532 8,805 7,037 -11.80 126.88
December 31, 1992....... 12,000 197,864 197,864 8,969 7,124 -15.10 92.58
December 31, 1993....... 14,000 197,864 200,160 14,062 12,139 -3.64 72.10
December 31, 1994....... 16,000 197,864 199,641 15,394 13,393 -4.04 58.07
</TABLE>
A-75
<PAGE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1985....... 2,000 197,864 197,929 1,758 302 -- --
December 31, 1986....... 4,000 197,864 198,203 3,521 1,987 -65.66% 3,426.13%
December 31, 1987....... 6,000 197,864 197,995 4,960 3,348 -40.85 600.96
December 31, 1988....... 8,000 197,864 198,360 6,931 5,241 -22.97 269.12
December 31, 1989....... 10,000 197,864 197,864 7,925 6,158 -21.08 161.81
December 31, 1990....... 12,000 197,864 197,864 9,044 7,199 -18.58 111.92
December 31, 1991....... 14,000 197,864 199,535 13,507 11,584 -5.81 84.08
December 31, 1992....... 16,000 197,864 201,965 17,823 15,823 -.29 66.54
December 31, 1993....... 18,000 197,864 204,836 22,654 20,576 3.10 54.60
December 31, 1994....... 20,000 197,864 203,486 23,418 21,262 1.27 45.56
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
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
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 2,000 $197,864 $197,866 $ 1,755 $ 299 -- --
December 31, 1989....... 2,000 197,864 197,864 1,672 216 -- --
December 31, 1990....... 4,000 197,864 197,941 3,257 1,724 -71.53% 3,092.25%
December 31, 1991....... 6,000 197,864 198,369 5,453 3,841 -31.16 579.38
December 31, 1992....... 8,000 197,864 198,936 7,514 5,824 -17.01 263.73
December 31, 1993....... 10,000 197,864 200,054 10,526 8,759 -5.70 160.19
December 31, 1994....... 12,000 197,864 199,364 11,088 9,243 -9.29 111.01
</TABLE>
- --------
* 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.
A-76
<PAGE>
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 50 20-year time periods beginning in 1926 and ending in 1994 (i.e.
1926-1945, 1927-1946, and so on through
1975-1994):
--The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 47 of the 50 periods.
--The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 50 periods.
--Common stock average annual returns exceeded the average annual rate of
inflation in each of the 50 periods.
--Over the 40 30-year time periods beginning in 1926 and ending in 1994,
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 40 periods.
From 1926 through 1994 the average annual return for common stocks was
10.2%, compared to 5.4% for high grade, long-term corporate bonds, 3.7% for
U.S. Treasury bills and 3.1% for the Consumer Price Index.
----------------
- --------
* Source: Stocks, Bonds, Bills and Inflation 1995 Yearbook(TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
A-77
<PAGE>
SUMMARY TABLE: HISTORIC S&P 500 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,
ten-year and twenty-year periods beginning in 1926 and ending in 1994.
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:
<TABLE>
<CAPTION>
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
------- -------- ------- ----------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
1 year 29% 4% 12% 7% 12% 36%
5 years 11% 15% 16% 33% 17% 9%
10 years 3% 12% 36% 22% 25% 2%
20 years 0% 6% 34% 54% 6% 0%
</TABLE>
- --------
Source: Stocks, Bonds, Bills and Inflation 1995 Yearbook(TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
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-78
<PAGE>
APPENDIX D
USES OF LIFE INSURANCE
The following are examples of ways in which the Policy can be used to
address certain financial objectives.
FAMILY INCOME PROTECTION
Life insurance may be purchased on the lives of the family income earners to
provide a death benefit to cover final expenses, and continue the current
income to the family. The amount of insurance purchased should be an amount
which will provide a death benefit that when invested outside the policy at a
reasonable interest rate, will generate enough money to replace the
individual's income.
ESTATE PROTECTION
Life insurance may be purchased by a trust on the life of the person whose
estate will incur federal estate taxes upon the person's death. The amount of
insurance purchased would equal the amount of the estimated estate tax
liability. Upon the insured's death, the trustee could make the death proceeds
available to the estate for the payment of estate tax costs.
EDUCATION FUNDING
Life insurance may be purchased on the life of the parent(s) or primary
person funding an education. The amount of insurance purchased should equal
the total education cost projected at a reasonable inflation rate.
In the event of death, the guaranteed death benefit is available to help pay
the education costs. If the insured lives through the education years, the
cash value accumulations may be accessed to help offset the remaining
education costs. Any cash value loans or surrenders will reduce the policy
death benefit.
MORTGAGE PROTECTION
Life insurance may be purchased on the life of the person responsible for
making mortgage payments. The amount of insurance purchased should equal the
mortgage amount. In the event of the insured's death, the guaranteed death
benefit can be used to offset the remaining mortgage balance.
During the insured's lifetime, the cash value accumulations may be accessed
late in the mortgage term to help make the remaining mortgage payments. Any
cash value loans or surrenders will reduce the policy death benefit.
KEY PERSON PROTECTION
Life insurance may be purchased by the business on the life of the key
person in an amount equal to the key person's value, considering salary,
benefits, and contribution to business profits. Upon the key person's death,
the business uses the death benefit to ease the interruption of business
operations and/or to provide a replacement fund for hiring a new executive.
BUSINESS CONTINUATION PROTECTION
Life insurance may be purchased on the life of each business owner in an
amount equal to the value of each owner's business interest. In the event of
death, the guaranteed death benefit may provide the funds needed to carry out
the purchase of the deceased's business interest by the business, or surviving
owners, from the deceased owner's heirs.
RETIREMENT INCOME
Life insurance may be purchased on the life of a family income earner during
his or her working life. If the insured lives to retirement, the cash value
accumulations may be accessed to provide retirement payments. In the event of
the insured's death, the proceeds may be used to provide retirement income to
his or her spouse. Any cash value loans or surrenders will reduce the policy
death benefit.
If you wish to access your Policy's cash value, through loans, surrenders or
withdrawals, you should consult your tax advisor about possible tax
consequences.
A-79
<PAGE>
APPENDIX E
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
<TABLE>
<CAPTION>
CASH-VALUE
LIFE NON-QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
---------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Annual Contribution Limits........ No No Yes Yes
Income Eligibility Limits......... No No Yes** No
Borrowing Treated as No* Yes Loans not Yes,
Distributions.................... allowed beyond
$50,000
Income Ordering Rules (Income
included in First Distribution).. No* Yes Yes Yes
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
</TABLE>
- --------
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
your own tax advisor for more complete information.
A-80
<PAGE>
APPENDIX F
POLICY ILLUSTRATIONS BASED ON VERSION 1 AUTOMATIC
ISSUE COST OF INSURANCE RATES
ISSUE AGE 35
$2,000 ANNUAL PREMIUM
$135,294 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
CASH VALUE
DEATH BENEFIT NET CASH VALUE ASSUMING
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL HYPOTHETICAL
GROSS ANNUAL RATE OF GROSS ANNUAL RATE OF GROSS ANNUAL RATE OF
END OF RETURN OF RETURN OF RETURN OF
POLICY --------------------- ---------------------- --------------------
YEAR 0% 8% 0% 8% 0% 8%
- ------ -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
1 $ 135,294 $ 135,294 $ 130 $ 251 $ 1,276 $ 1,397
2 135,294 135,294 1,347 1,700 2,571 2,924
3 135,294 135,294 2,519 3,221 3,822 4,524
4 135,294 135,294 3,646 4,819 5,026 6,199
5 135,294 135,294 4,720 6,491 6,178 7,950
6 135,294 135,294 5,740 8,242 7,277 9,779
7 135,294 135,294 6,702 10,071 8,317 11,686
8 135,294 135,294 7,605 11,984 9,298 13,678
9 135,294 135,294 8,446 13,985 10,217 15,756
10 135,294 135,294 9,222 16,077 11,071 17,927
15 135,294 135,294 14,280 30,347 14,280 30,347
20 135,294 135,294 16,057 46,919 16,057 46,919
30 135,294 160,420 6,672 94,989 6,672 94,989
35 135,294 188,306 0 125,703 0 125,703
</TABLE>
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, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0% AND 8% 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 NEVLICO OR THE NEW ENGLAND ZENITH FUND THAT
THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-81
<PAGE>
POLICY ILLUSTRATIONS BASED ON VERSION 1 AUTOMATIC
ISSUE COST OF INSURANCE RATES (CONTINUED)
ISSUE AGE 35
$2,000 ANNUAL PREMIUM
$135,294 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
CASH VALUE
ASSUMING
DEATH BENEFIT NET CASH VALUE HYPOTHETICAL
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL GROSS ANNUAL RATE
GROSS ANNUAL RATE OF GROSS ANNUAL RATE OF OF
END OF RETURN OF RETURN OF RETURN OF
POLICY ------------------------ ------------------------- -------------------
YEAR 0% 8% 0% 8% 0% 8%
- ------ -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
1 $ 135,294 $ 135,294 $ 130 $ 251 $ 1,276 $ 1,397
2 135,294 135,294 1,347 1,700 2,571 2,924
3 135,294 135,294 2,519 3,221 3,822 4,524
4 135,294 135,294 3,646 4,819 5,026 6,199
5 135,294 135,294 4,720 6,491 6,178 7,950
6 135,294 135,294 5,740 8,242 7,277 9,779
7 135,294 135,294 6,702 10,071 8,317 11,686
8 135,294 135,294 7,605 11,984 9,298 13,678
9 135,294 135,294 8,446 13,985 10,217 15,756
10 135,294 135,294 9,222 16,077 11,071 17,927
15 135,294 135,294 14,280 30,347 14,280 30,347
20 135,294 135,294 15,766 46,650 15,766 46,650
30 135,294 158,409 5,561 93,798 5,561 93,798
35 135,294 186,143 0 124,259 0 124,259
</TABLE>
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, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0% AND 8% 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 NEVLICO OR THE NEW ENGLAND ZENITH FUND THAT
THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-82
<PAGE>
POLICY ILLUSTRATIONS BASED ON VERSION 1 AUTOMATIC
ISSUE COST OF INSURANCE RATES--(CONTINUED)
ISSUE AGE 45
$2,000 ANNUAL PREMIUM
$82,350 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
GROSS ANNUAL RATE OF GROSS ANNUAL RATE OF GROSS ANNUAL RATE OF
END OF RETURN OF RETURN OF RETURN OF
POLICY --------------------- --------------------- ---------------------
YEAR 0% 8% 0% 8% 0% 8%
- ------ -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
1 $ 82,350 $ 82,350 $ 311 $ 429 $ 1,192 $ 1,309
2 82,350 82,350 1,409 1,747 2,368 2,706
3 82,350 82,350 2,455 3,122 3,492 4,159
4 82,350 82,350 3,449 4,557 4,565 5,673
5 82,350 82,350 4,388 6,054 5,582 7,248
6 82,350 82,350 5,282 7,629 6,554 8,901
7 82,350 82,350 6,120 9,275 7,470 10,625
8 82,350 82,350 6,906 11,005 8,335 12,434
9 82,350 82,350 7,626 12,812 9,132 14,318
10 82,350 82,350 8,263 14,688 9,848 16,272
15 82,350 82,350 12,087 27,340 12,087 27,340
20 82,350 82,350 11,469 41,758 11,469 41,758
25 82,350 90,913 4,847 60,689 4,847 60,689
</TABLE>
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, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0% AND 8% 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 NEVLICO OR THE NEW ENGLAND ZENITH FUND THAT
THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-83
<PAGE>
POLICY ILLUSTRATIONS BASED ON VERSION 1 AUTOMATIC
ISSUE COST OF INSURANCE RATES--(CONTINUED)
ISSUE AGE 45
$2,000 ANNUAL PREMIUM
$82,350 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
GROSS ANNUAL RATE OF GROSS ANNUAL RATE OF GROSS ANNUAL RATE OF
END 0F RETURN OF RETURN OF RETURN OF
POLICY --------------------- --------------------- ---------------------
YEAR 0% 8% 0% 8% 0% 8%
- ------ -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
1 $ 82,350 $ 82,350 $ 311 $ 429 $ 1,192 $ 1,309
2 82,350 82,350 1,409 1,747 2,368 2,706
3 82,350 82,350 2,455 3,122 3,492 4,159
4 82,350 82,350 3,449 4,557 4,565 5,673
5 82,350 82,350 4,388 6,054 5,582 7,248
6 82,350 82,350 5,269 7,615 6,541 8,887
7 82,350 82,350 6,085 9,238 7,435 10,589
8 82,350 82,350 6,831 10,926 8,260 12,355
9 82,350 82,350 7,500 12,677 9,007 14,183
10 82,350 82,350 8,084 14,491 9,669 16,075
15 82,350 82,350 11,554 26,676 11,554 26,676
20 82,350 82,350 10,807 40,621 10,807 40,621
25 82,350 88,420 4,082 59,024 4,082 59,024
</TABLE>
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, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0% AND 8% 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 NEVLICO OR THE NEW ENGLAND ZENITH FUND THAT
THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-84
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT ACCOUNTANTS
To the Policy Owners and Board of Directors of New England Variable Life
Insurance Company:
We have audited the accompanying statement of assets and liabilities 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, Value Growth Sub-
Account, Small Cap Sub-Account, Equity-Income Sub-Account, Overseas Sub-
Account, High Income Sub-Account, and Asset Manager Sub-Account) of New
England Variable Life Insurance Company as of December 31, 1994, and the
related statements of operations and changes in net assets for each of the
periods indicated therein. 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. Our
procedures included confirmation of investments held by the custodian as of
December 31, 1994. 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 New England Variable Life Separate Account of New
England Variable Life Insurance Company as of December 31, 1994, and the
results of their operations and changes in their net assets for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 3, 1995
A-85
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI
GROWTH INCOME MARKET INDEX MANAGED GROWTH
SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund and
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
market value (Note 2).................... $304,826,810 $20,250,408 $18,328,233 $11,767,226 $16,974,440 $8,143,351
<CAPTION>
SUB-ACCOUNT SHARES COST
- ----------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth... 976,070 $ 294,934,737
Bond Income...... 211,980 22,279,301
Money Market..... 183,282 18,328,233
Stock Index...... 156,209 13,412,970
Managed.......... 130,272 16,271,198
Avanti Growth.... 72,212 7,937,671
Value Growth..... 47,081 5,131,286
Small Cap........ 2,276 215,214
Equity-Income.... 1,503,462 22,928,486
Overseas......... 2,206,564 34,315,959
High Income...... 3,379 36,150
Asset Manager.... 16,410 227,797
Amount due and accrued from policy-related
transactions............................. 184,202 6,345 1,007,405 3,223 (4,968) 28,694
Dividends receivable...................... -- -- 82,924 -- -- --
------------ ----------- ----------- ----------- ----------- ----------
Total Assets............................ 305,011,012 20,256,753 19,418,562 11,770,449 16,969,472 8,172,045
LIABILITIES
Due New England Variable Life Insurance
Company.................................. 55,516,275 3,506,622 2,537,819 2,091,485 2,209,894 1,760,834
------------ ----------- ----------- ----------- ----------- ----------
Total liabilities....................... 55,516,275 3,506,622 2,537,819 2,091,485 2,209,894 1,760,834
------------ ----------- ----------- ----------- ----------- ----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES................................. $249,494,737 $16,750,131 $16,880,743 $ 9,678,964 $14,759,578 $6,411,211
============ =========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
NEW ENGLAND ZENITH FUND PRODUCTS FUND FUND II
-------------------- ----------------------------------- --------- ------------
VALUE SMALL EQUITY- HIGH ASSET
GROWTH CAP INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
---------- -------- ----------- ----------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund and
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
market value (Note 2).................... $5,133,204 $219,876 $23,078,145 $34,576,854 $36,363 $226,294 $443,561,204
<CAPTION>
SUB-ACCOUNT
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth...
Bond Income......
Money Market.....
Stock Index......
Managed..........
Avanti Growth....
Value Growth.....
Small Cap........
Equity-Income....
Overseas.........
High Income......
Asset Manager....
Amount due and accrued from policy-related
transactions............................. 12,591 16,120 72,148 65,247 -- 5,412 1,396,419
Dividends receivable...................... -- -- -- -- -- -- 82,924
---------- -------- ----------- ----------- ------- -------- ------------
Total Assets............................ 5,145,795 235,996 23,150,293 34,642,101 36,363 231,706 445,040,547
LIABILITIES
Due New England Variable Life Insurance
Company.................................. 1,052,814 45,166 4,018,126 6,773,269 5,941 31,012 79,549,257
---------- -------- ----------- ----------- ------- -------- ------------
Total liabilities....................... 1,052,814 45,166 4,018,126 6,773,269 5,941 31,012 79,549,257
---------- -------- ----------- ----------- ------- -------- ------------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES................................. $4,092,981 $190,830 $19,132,167 $27,868,832 $30,422 $200,694 $365,491,290
========== ======== =========== =========== ======= ======== ============
</TABLE>
See Notes to Financial Statements
A-86
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI VALUE SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH CAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Dividends....... $ 13,519,083 $ 1,399,070 $691,932 $ 307,159 $ 678,949 $ 43,109 $ 89,817 $ 327
EXPENSE
Mortality and
expense risk
charge (Note
3)............. 1,637,278 107,252 93,830 59,230 86,049 31,737 18,214 28
------------ ----------- -------- ----------- ---------- -------- -------- ------
Net investment
income (loss).. 11,881,805 1,291,818 598,102 247,929 592,900 11,372 71,603 299
NET REALIZED AND
UNREALIZED GAIN
ON INVESTMENTS
Net unrealized
appreciation
(depreciation)
on investments:
Beginning of
period......... 46,100,393 41,284 -- (1,457,732) 1,602,795 143,154 67,310 --
End of period... 9,892,073 (2,028,893) -- (1,645,744) 703,242 205,680 1,918 4,662
------------ ----------- -------- ----------- ---------- -------- -------- ------
Net change in
unrealized
appreciation
(depreciation). (36,208,320) (2,070,177) -- (188,012) (899,553) 62,526 (65,392) 4,662
Net realized
gain (loss) on
investments.... 67,810 1,763 -- 6,200 37,994 542 776 --
------------ ----------- -------- ----------- ---------- -------- -------- ------
Net realized and
unrealized gain
(loss) on
investments.... (36,140,510) (2,068,414) -- (181,812) (861,559) 63,068 (64,616) 4,662
------------ ----------- -------- ----------- ---------- -------- -------- ------
NET INCREASE
(DECREASE) IN
NET ASSETS
RESULTING FROM
OPERATIONS..... $(24,258,705) $ (776,596) $598,102 $ 66,117 $ (268,659) $ 74,440 $ 6,987 $4,961
============ =========== ======== =========== ========== ======== ======== ======
<CAPTION>
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
----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Income
Dividends....... $670,101 $ 69,390 $ -- $ -- $ 17,468,937
EXPENSE
Mortality and
expense risk
charge (Note
3)............. 75,586 133,276 6 34 2,242,520
----------- ----------- ------------- ------------- -------------
Net investment
income (loss).. 594,515 (63,886) (6) (34) 15,226,417
NET REALIZED AND
UNREALIZED GAIN
ON INVESTMENTS
Net unrealized
appreciation
(depreciation)
on investments:
Beginning of
period......... 93,013 700,341 -- -- 47,290,558
End of period... 149,659 260,895 213 (1,503) 7,542,202
----------- ----------- ------------- ------------- -------------
Net change in
unrealized
appreciation
(depreciation). 56,646 (439,446) 213 (1,503) (39,748,356)
Net realized
gain (loss) on
investments.... (929) (471) -- -- 113,685
----------- ----------- ------------- ------------- -------------
Net realized and
unrealized gain
(loss) on
investments.... 55,717 (439,917) 213 (1,503) (39,634,671)
----------- ----------- ------------- ------------- -------------
NET INCREASE
(DECREASE) IN
NET ASSETS
RESULTING FROM
OPERATIONS..... $650,232 $(503,803) $207 $(1,537) $(24,408,254)
=========== =========== ============= ============= =============
</TABLE>
* For the period May 2, 1994 (Commencement of Operations) through December 31,
1994.
**For the period December 19, 1994 (Commencement of Operations) through
December 31, 1994.
See Notes to Financial Statements
A-87
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
---------------------------------------------------------------------------------------
CAPITAL MONEY STOCK AVANTI
GROWTH BOND INCOME MARKET INDEX MANAGED GROWTH VALUE GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT*
----------- ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends........................ $14,407,828 $1,721,493 $415,332 $ 286,517 $ 778,823 $ 31,181 $31,108
EXPENSE
Mortality and expense risk charge
(Note 3)........................ 1,317,363 89,763 74,167 40,270 73,721 5,506 3,166
----------- ---------- -------- ---------- ---------- -------- -------
Net investment income (loss)..... 13,090,465 1,631,730 341,165 246,247 705,102 25,675 27,942
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net unrealized appreciation
(depreciation) on investments:
Beginning of period............. 26,130,492 (62,020) -- (1,863,474) 1,105,911 -- --
End of period................... 46,100,393 41,284 -- (1,457,732) 1,602,795 143,154 67,310
----------- ---------- -------- ---------- ---------- -------- -------
Net change in unrealized
appreciation.................... 19,969,901 103,304 -- 405,742 496,884 143,154 67,310
Net realized gain (loss) on
investments..................... 436,493 84,686 -- (4,995) 93,335 (88) 64
----------- ---------- -------- ---------- ---------- -------- -------
Net realized and unrealized gain
on investments.................. 20,406,394 187,990 -- 400,747 590,219 143,066 67,374
----------- ---------- -------- ---------- ---------- -------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $33,496,859 $1,819,720 $341,165 $ 646,994 $1,295,321 $168,741 $95,316
=========== ========== ======== ========== ========== ======== =======
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
-------------------------- -----------
EQUITY-INCOME OVERSEAS
SUB-ACCOUNT* SUB-ACCOUNT* TOTAL
------------- ------------ -----------
<S> <C> <C> <C>
INCOME
Dividends........................ $ 46,757 $ -- $17,719,039
EXPENSE
Mortality and expense risk charge
(Note 3)........................ 7,615 17,666 1,629,237
-------- -------- -----------
Net investment income (loss)..... 39,142 (17,666 ) 16,089,802
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net unrealized appreciation
(depreciation) on investments:
Beginning of period............. -- -- 25,310,909
End of period................... 93,013 700,341 47,290,558
-------- -------- -----------
Net change in unrealized
appreciation.................... 93,013 700,341 21,979,649
Net realized gain (loss) on
investments..................... (59) 729 610,165
-------- -------- -----------
Net realized and unrealized gain
on investments.................. 92,954 701,070 22,589,814
-------- -------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $132,096 $683,404 $38,679,616
======== ======== ===========
</TABLE>
* For the period April 30, 1993 (Commencement of Operations) through December
31, 1993.
See Notes to Financial Statements
A-88
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
--------------------------------------------------------------- -----------
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME
Dividends............... $ 2,544,247 $1,038,401 $541,442 $2,971,910 $ 521,129 $ 7,617,129
EXPENSE
Mortality and expense
risk charge (Note 3)... 872,975 57,034 75,654 24,160 51,418 1,081,241
------------ ---------- -------- ---------- --------- -----------
Net investment income... 1,671,272 981,367 465,788 2,947,750 469,711 6,535,888
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation ) on
investments:
Beginning of period.... 36,250,872 132,914 -- 767,700 1,283,603 38,435,089
End of period.......... 26,130,492 (62,020) -- (1,863,474) 1,105,911 25,310,909
------------ ---------- -------- ---------- --------- -----------
Net change in unrealized
depreciation........... (10,120,380) (194,934) -- (2,631,174) (177,692) (13,124,180)
Net realized gain on
investments............ 3,522 45,768 -- 14,077 350,133 413,500
------------ ---------- -------- ---------- --------- -----------
Net realized and
unrealized gain (loss)
on investments......... (10,116,858) (149,166) -- (2,617,097) 172,441 (12,710,680)
------------ ---------- -------- ---------- --------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $ (8,445,586) $ 832,201 $465,788 $ 330,653 $ 642,152 $(6,174,792)
============ ========== ======== ========== ========= ===========
</TABLE>
See Notes to Financial Statements
A-89
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI VALUE SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT*
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss)... $ 11,881,805 $ 1,291,818 $ 598,102 $ 247,929 $ 592,900 $ 11,372 $ 71,603 $ 299
Net realized and
unrealized gain
(loss) on
investments..... (36,140,510) (2,068,414) -- (181,812) (861,559) 63,068 (64,616) 4,662
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
Increase
(decrease) in
net assets
derived from
investment
activities..... (24,258,705) (776,596) 598,102 66,117 (268,659) 74,440 6,987 4,961
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from
New England
Variable Life
Insurance
Company......... 101,802,783 6,362,705 39,544,492 3,600,140 4,112,835 3,173,029 1,762,484 4,323
Net transfers
(to) from other
sub-accounts.... (1,234,289) (822,617) (29,858,294) 718,688 (186,357) 2,527,486 2,012,595 226,677
Net transfers to
New England
Variable Life
Insurance
Company......... (56,761,722) (4,458,223) (6,161,941) (2,075,140) (3,102,454) (2,027,427) (1,190,128) (45,131)
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
Increase in net
assets derived
from policy-
related
transactions.... 43,806,772 1,081,865 3,524,257 2,243,688 824,024 3,673,088 2,584,951 185,869
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
Net increase in
net assets...... 19,548,067 305,269 4,122,359 2,309,805 555,365 3,747,528 2,591,938 190,830
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 229,946,670 16,444,862 12,758,384 7,369,159 14,204,213 2,663,683 1,501,043 --
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
NET ASSETS, AT
END OF THE
PERIOD.......... $249,494,737 $16,750,131 $ 16,880,743 $ 9,678,964 $14,759,578 $ 6,411,211 $ 4,092,981 $190,830
============ =========== ============ =========== =========== =========== =========== ========
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
----------------------------------- ---------- -------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT** ACCOUNT** TOTAL
------------ ------------ --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss)... $ 594,515 $ (63,886) $ (6) $ (34) $ 15,226,417
Net realized and
unrealized gain
(loss) on
investments..... 55,717 (439,917) 213 (1,503) (39,634,671)
------------ ------------ --------- ---------- -------------
Increase
(decrease) in
net assets
derived from
investment
activities..... 650,232 (503,803) 207 (1,537) (24,408,254)
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from
New England
Variable Life
Insurance
Company......... 9,237,234 11,268,285 102 8,495 180,876,907
Net transfers
(to) from other
sub-accounts.... 9,868,299 16,487,055 36,048 224,709 --
Net transfers to
New England
Variable Life
Insurance
Company......... (4,905,512) (8,836,370) (5,935) (30,973) (89,600,956)
------------ ------------ --------- ---------- -------------
Increase in net
assets derived
from policy-
related
transactions.... 14,200,021 18,918,970 30,215 202,231 91,275,951
------------ ------------ --------- ---------- -------------
Net increase in
net assets...... 14,850,253 18,415,167 30,422 200,694 66,867,697
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 4,281,914 9,453,665 -- -- 298,623,593
------------ ------------ --------- ---------- -------------
NET ASSETS, AT
END OF THE
PERIOD.......... $19,132,167 $27,868,832 $30,422 $200,694 $365,491,290
============ ============ ========= ========== =============
</TABLE>
* For the period May 2, 1994 (Commencement of Operations) through December 31,
1994.
** For the period December 19, 1994 (Commencement of Operations) through
December 31, 1994.
See Notes to Financial Statements
A-90
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI VALUE
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT*
------------ ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss).. $ 13,090,465 $ 1,631,730 $ 341,165 $ 246,247 $ 705,102 $ 25,675 $ 27,942
Net realized and
unrealized gain
on investments. 20,406,394 187,990 -- 400,747 590,219 143,066 67,374
------------ ----------- ----------- ---------- ----------- ---------- ----------
Increase in net
assets derived
from investment
activities..... 33,496,859 1,819,720 341,165 646,994 1,295,321 168,741 95,316
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England
Variable Life
Insurance
Company........ 88,880,791 5,429,522 27,439,024 2,696,124 3,325,220 579,106 252,321
Net transfers
(to) from other
sub-accounts... (185,104) 1,155,530 (22,054,415) 1,088,665 1,967,320 2,787,043 1,529,391
Net transfers to
New England
Variable Life
Insurance
Company........ (41,091,866) (2,588,466) (5,031,875) (1,483,033) (1,785,088) (871,207) (375,985)
------------ ----------- ----------- ---------- ----------- ---------- ----------
Increase in net
assets derived
from policy-
related
transactions... 47,603,821 3,996,586 352,734 2,301,756 3,507,452 2,494,942 1,405,727
------------ ----------- ----------- ---------- ----------- ---------- ----------
Net increase in
net assets..... 81,100,680 5,816,306 693,899 2,948,750 4,802,773 2,663,683 1,501,043
NET ASSETS, AT
BEGINNING OF
THE PERIOD..... 148,845,990 10,628,556 12,064,485 4,420,409 9,401,440 -- --
------------ ----------- ----------- ---------- ----------- ---------- ----------
NET ASSETS, AT
END OF THE
PERIOD......... $229,946,670 $16,444,862 $12,758,384 $7,369,159 $14,204,213 $2,663,683 $1,501,043
============ =========== =========== ========== =========== ========== ==========
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
-------------------------- -------------
EQUITY-INCOME OVERSEAS
SUB-ACCOUNT* SUB-ACCOUNT* TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss).. $ 39,142 $ (17,666) $ 16,089,802
Net realized and
unrealized gain
on investments. 92,954 701,070 22,589,814
------------- ------------ -------------
Increase in net
assets derived
from investment
activities..... 132,096 683,404 38,679,616
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England
Variable Life
Insurance
Company........ 964,191 1,568,988 131,135,287
Net transfers
(to) from other
sub-accounts... 4,320,708 9,390,862 --
Net transfers to
New England
Variable Life
Insurance
Company........ (1,135,081) (2,189,589) (56,552,190)
------------- ------------ -------------
Increase in net
assets derived
from policy-
related
transactions... 4,149,818 8,770,261 74,583,097
------------- ------------ -------------
Net increase in
net assets..... 4,281,914 9,453,665 113,262,713
NET ASSETS, AT
BEGINNING OF
THE PERIOD..... -- -- 185,360,880
------------- ------------ -------------
NET ASSETS, AT
END OF THE
PERIOD......... $4,281,914 $9,453,665 $298,623,593
============= ============ =============
</TABLE>
* For the period April 30, 1993 (Commencement of Operations) through December
31, 1993.
See Notes to Financial Statements
A-91
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
----------------------------------------------------------------- ------------
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment income.. $ 1,671,272 $ 981,367 $ 465,788 $ 2,947,750 $ 469,711 $ 6,535,888
Net realized and
unrealized gain (loss)
on investments........ (10,116,858) (149,166) -- (2,617,097) 172,441 (12,710,680)
------------ ----------- ------------ ----------- ----------- ------------
Increase (decrease) in
net assets derived
from investment
activities........... (8,445,586) 832,201 465,788 330,653 642,152 (6,174,792)
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from New
England Variable Life
Insurance Company..... 67,808,576 3,248,052 24,616,186 1,485,555 2,274,457 99,432,826
Net transfers (to) from
other sub-accounts.... 16,957,727 1,845,009 (19,527,266) 849,096 (124,566) --
Net transfers to New
England Variable Life
Insurance Company..... (50,969,349) (2,798,256) (4,457,696) (1,217,417) (1,765,986) (61,208,704)
------------ ----------- ------------ ----------- ----------- ------------
Increase in net assets
derived from policy-
related transactions.. 33,796,954 2,294,805 631,224 1,117,234 383,905 38,224,122
------------ ----------- ------------ ----------- ----------- ------------
Net increase in net
assets................ 25,351,368 3,127,006 1,097,012 1,447,887 1,026,057 32,049,330
NET ASSETS, AT
BEGINNING OF THE
PERIOD................ 123,494,622 7,501,550 10,967,473 2,972,522 8,375,383 153,311,550
------------ ----------- ------------ ----------- ----------- ------------
NET ASSETS, AT END OF
THE PERIOD............ $148,845,990 $10,628,556 $ 12,064,485 $ 4,420,409 $ 9,401,440 $185,360,880
============ =========== ============ =========== =========== ============
</TABLE>
See Notes to Financial Statements
A-92
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. New England Variable Life Separate Account (the "Account") of New England
Variable Life Insurance Company ("NEVLICO"), was established by NEVLICO's
Board of Directors on January 31, 1983 in accordance with the regulations of
the Delaware Insurance Department. NEVLICO is a wholly-owned subsidiary of New
England Mutual Life Insurance Company ("The New England"). The Account is
registered as a unit investment trust under the Investment Company Act of
1940. The assets of the Account are owned by NEVLICO. However, that portion of
the Account assets equal to the reserves and other liabilities of the Account
may not be charged with liabilities that arise out of any other business
NEVLICO may conduct.
2. The Account has twelve investment sub-accounts each of which invests in the
shares of one portfolio of 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
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 Variable Insurance Products Fund II are
diversified, open-end management investment companies. The Account purchases
or redeems shares of the twelve 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. Boston time) on each day the Exchange is
open for trading. Realized gains and losses on the sale of the Eligible Funds'
shares are computed on the basis of identified cost on the trade date. Income
from dividends is recorded on the ex-dividend date.
3. Certain deductions are made from each premium payment paid to NEVLICO to
arrive at a net premium that is transferred to the Account, and certain
deductions are made from the variable life insurance policies' cash value.
These deductions include sales load, administrative expenses, a risk charge,
premium taxes and the cost of providing insurance protection. Charges for
investment advisory fees and other expenses are deducted from the assets of
the Eligible Funds.
NEVLICO charges the Account for mortality and expense risks NEVLICO assumes.
Currently, the charges are made daily at an effective annual rate of .35% of
the Account assets attributable to fixed premium variable life policies, .45%
of the Account assets attributable to single premium variable life policies,
.60% of the Account assets attributable to variable ordinary life policies and
limited payment variable life policies, and .90% of the Account assets
attributable to variable survivorship life policies.
4. For federal income tax purposes the Account's operations are included with
those of NEVLICO. NEVLICO intends to make appropriate charges against the
Account in the future if and when tax liabilities arise.
5. The Back Bay Advisors Bond Income, Back Bay Advisors Money Market and Back
Bay Advisors Managed Series of the Zenith Fund receive investment advice from
Back Bay Advisors, L.P. ("Back Bay Advisors"), an indirect subsidiary of The
New England. Capital Growth Management Limited Partnership ("CGM") serves as
investment adviser to the Capital Growth Series. Loomis, Sayles serves as
investment adviser to the Loomis Sayles Avanti Growth Series and the Loomis
Sayles Small Cap Series, and Westpeak Investment Advisers, L.P. ("Westpeak")
serves as investment adviser to the Westpeak Stock Index Series and the
Westpeak Value Growth Series. Back Bay Advisors served as investment adviser
to the Westpeak Stock Index Series until August 2, 1993, when Westpeak became
the investment adviser pursuant to an advisory agreement that was approved by
shareholders of the Westpeak Stock Index Series on July 14, 1993. Loomis,
Sayles, Westpeak, and CGM are indirect subsidiaries of The New England. The
Equity-Income, Overseas, and High Income Portfolios of the Variable Insurance
Products Fund and the Asset Manager Portfolio of the Variable Insurance
Products Fund II receive investment advice from Fidelity Management & Research
Company.
A-93
<PAGE>
6. The following table shows the aggregate cost of shares purchased and
proceeds from sales of each sub-account as of December 31, 1994:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth..................................... $164,839,394 $104,764,194
Bond Income........................................ 12,808,505 9,812,380
Money Market....................................... 55,266,374 50,824,342
Stock Index........................................ 6,625,186 3,854,139
Managed............................................ 8,429,317 6,603,077
Avanti Growth...................................... 7,196,134 2,478,839
Value Growth....................................... 4,869,047 1,506,335
Small Cap.......................................... 231,338 5
Fidelity Equity-Income............................. 24,975,998 7,189,332
Fidelity Overseas.................................. 32,894,034 9,110,672
Fidelity High Income............................... 36,150 --
Fidelity Asset Manager............................. 245,398 6,777
</TABLE>
7. The following tables show the net investment return of the sub-accounts 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 for each type of variable life insurance policy
shown. These figures do not reflect charges deducted from premiums and cash
values of the policies. Such charges will affect the actual cash values and
benefits of the policies. Certain amounts in 1988, 1989, and 1990 have been
recalculated to conform with the current presentation.
FIXED PREMIUM ("ZENITH LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89 - 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 67.51% 94.53% 52.17% -9.11% 30.30% -3.82% 53.45% -6.38% 14.57% -8.06%
Bond Income............. 18.34% 14.43% 1.91% 7.99% 11.91% 7.71% 17.55% 7.80% 12.22% -3.91%
Money Market............ 7.88% 6.43% 6.16% 7.14% 8.87% 7.81% 5.84% 3.43% 2.61% 3.65%
<CAPTION>
5/1/87- 1/1/88- 1/1/89 - 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock-Index............................... -12.40% 15.93% 29.70% -4.48% 29.98% 6.92% 9.34% 0.71%
Managed................................... -.89% 9.10% 18.67% 2.85% 19.75% 6.33% 10.26% -1.53%
<CAPTION>
4/30/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Avanti Growth................................................................................... 14.47% -1.70%
Value Growth.................................................................................... 13.97% -1.86%
<CAPTION>
1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Fidelity Equity-Income.......................................................................... 17.88% 6.55%
Fidelity Overseas............................................................................... 36.87% 0.85%
<CAPTION>
5/2/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Small Cap................................................................................................ -4.23%
<CAPTION>
1/1/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Fidelity High Income..................................................................................... -1.80%
Fidelity Asset Manager................................................................................... -6.76%
</TABLE>
A-94
<PAGE>
SINGLE PREMIUM ("ZENITH LIFE ONE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 67.34% 94.33% 52.02% -9.20% 30.17% -3.91% 53.29% -6.47% 14.46% -8.16%
Bond Income............. 18.23% 14.32% 1.81% 7.88% 11.79% 7.60% 17.43% 7.69% 12.10% -4.01%
Money Market............ 7.78% 6.32% 6.05% 7.03% 8.77% 7.71% 5.74% 3.33% 2.51% 3.54%
<CAPTION>
5/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............................... -12.46% 15.82% 29.57% -4.58% 29.85% 6.81% 9.23% 0.60%
Managed................................... -.96% 8.99% 18.55% 2.75% 19.63% 6.22% 10.15% -1.63%
<CAPTION>
4/30/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Avanti Growth................................................................................... 14.39% -1.80%
Value Growth.................................................................................... 13.90% -1.96%
<CAPTION>
1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Fidelity Equity-Income.......................................................................... 17.76% 6.44%
Fidelity Overseas............................................................................... 36.74% 0.75%
<CAPTION>
5/2/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Small Cap................................................................................................ -4.30%
<CAPTION>
1/1/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Fidelity High Income..................................................................................... -1.90%
Fidelity Asset Manager................................................................................... -6.85%
</TABLE>
VARIABLE ORDINARY ("ZENITH LIFE PLUS" AND "ZENITH LIFE PLUS II") AND LIMITED
PAYMENT ("ZENITH LIFE EXECUTIVE 65") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 67.09% 94.04% 51.79% -9.36% 30.80% -4.64% 53.06% -6.61% 14.28% -8.30%
Bond Income............. 18.05% 14.15% 1.65% 7.63% 11.68% 7.48% 17.25% 7.53% 11.94% -4.16%
Money Market............ 7.61% 6.16% 5.89% 6.94% 8.58% 7.50% 5.58% 3.18% 2.36% 3.39%
<CAPTION>
5/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............................... -12.55% 14.67% 32.72% -6.33% 29.65% 6.65% 9.07% 0.45%
Managed................................... -1.06% 8.43% 19.83% 1.72% 19.45% 6.06% 9.99% -1.78%
<CAPTION>
4/30/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Avanti Growth................................................................................... 14.28% -1.94%
Value Growth.................................................................................... 13.78% -2.11%
<CAPTION>
1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Fidelity Equity-Income.......................................................................... 17.59% 6.28%
Fidelity Overseas............................................................................... 36.53% 0.59%
<CAPTION>
5/2/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Small Cap................................................................................................ -4.40%
<CAPTION>
1/1/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Fidelity High Income..................................................................................... -2.05%
Fidelity Asset Manager................................................................................... -7.00%
</TABLE>
A-95
<PAGE>
VARIABLE ORDINARY ("ZENITH SURVIVORSHIP LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 66.59% 93.46% 51.34% -9.63% 30.41% -4.92% 52.61% -6.90% 13.94% -8.57%
Bond Income............. 17.70% 13.81% 1.35% 7.30% 11.34% 7.16% 16.90% 7.21% 11.60% -4.45%
Money Market............ 7.29% 5.85% 5.57% 6.62% 8.25% 7.18% 5.26% 2.87% 2.05% 3.08%
<CAPTION>
5/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............................... -12.73% 14.32% 32.33% -6.61% 29.27% 6.33% 8.74% 0.15%
Managed................................... -1.26% 8.10% 19.47% 1.42% 19.10% 5.74% 9.69% -2.07%
<CAPTION>
4/30/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Avanti Growth................................................................................... 14.05% -2.24%
Value Growth.................................................................................... 13.55% -2.40%
<CAPTION>
1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Fidelity Equity-Income.......................................................................... 17.23% 5.96%
Fidelity Overseas............................................................................... 36.12% 0.29%
<CAPTION>
5/2/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Small Cap................................................................................................ -4.59%
<CAPTION>
1/1/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Fidelity High Income..................................................................................... -2.34%
Fidelity Asset Manager................................................................................... -7.28%
</TABLE>
The net investment return of a sub-account is calculated by taking the
difference between the sub-account's ending value and beginning value for the
period and dividing it by the beginning value for the period.
A-96
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of New England Variable Life
Insurance Company:
We have audited the accompanying balance sheets of New England Variable Life
Insurance Company (a wholly-owned subsidiary of New England Mutual Life
Insurance Company) as of December 31, 1994 and 1993, and the related
statements of operations, surplus, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New England Variable Life
Insurance Company as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Insurance Department of
the State of Delaware, which are considered generally accepted accounting
principles for wholly-owned stock life insurance subsidiaries of mutual life
insurance companies.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 24, 1995
A-97
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
---- ----
<S> <C> <C>
Bonds.............................................. $ 7,828,833 $ 7,987,043
Mortgage loan...................................... 2,221,942 2,230,000
Policy loans....................................... 43,967,343 30,673,718
Cash and short-term investments.................... 10,669,045 21,282,674
Accrued investment income.......................... 1,377,286 1,061,822
Premiums deferred and uncollected.................. 6,892,888 5,452,658
Due from separate account, net..................... 79,549,258 63,855,885
Due from New England Mutual Life Insurance Company. 1,889,855 475,007
Other assets....................................... 814,991 1,636,853
Separate account assets............................ 445,040,547 362,479,478
------------ ------------
Total assets................................... $600,251,988 $497,135,138
============ ============
LIABILITIES AND SURPLUS
Policy reserves.................................... $ 44,648,304 $ 26,905,146
Due New England Mutual Life Insurance Company...... 3,219,350 7,917,908
Federal income taxes............................... 4,611,653 1,644,852
Accrued expenses................................... 4,746,096 2,866,665
Other liabilities.................................. 1,120,620 735,987
Separate account liabilities....................... 445,040,547 362,479,478
------------ ------------
Total liabilities.............................. 503,386,570 402,550,036
Surplus:
Common stock (shares authorized: 50,000; issued
and outstanding:
20,000; par value $125)......................... 2,500,000 2,500,000
Paid-in capital in excess of par value........... 117,709,808 107,709,808
Unassigned surplus............................... (23,481,592) (15,831,154)
Asset valuation reserve........................ 137,202 206,448
------------ ------------
Total surplus.................................. 96,865,418 94,585,102
------------ ------------
Total liabilities and surplus.................. $600,251,988 $497,135,138
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-98
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Income:
Premiums......................................... $201,732,909 $146,137,792
Investment income................................ 3,093,024 2,724,046
------------ ------------
204,825,933 148,861,838
Expenses:
Death and other benefits......................... 23,345,664 18,207,816
Increase in policy reserves...................... 17,743,158 5,573,679
Commissions...................................... 37,220,361 29,849,384
Net transfers to separate account................ 87,853,704 58,823,455
General and administrative....................... 43,395,223 31,727,803
------------ ------------
209,558,110 144,182,137
------------ ------------
Income (loss) before provision for taxes........... (4,732,177) 4,679,701
Provision for income taxes......................... 2,968,375 5,066,507
------------ ------------
Net loss from operations before realized capital
losses............................................ (7,700,552) (386,806)
Net realized investment gains (losses) less capital
gains tax of $0 in 1994 and $4,916 in 1993........ 9 (5,780)
------------ ------------
Net loss........................................... $ (7,700,543) $ (392,586)
============ ============
STATEMENTS OF SURPLUS
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Surplus, beginning of year......................... $ 94,585,102 $ 69,988,844
Net loss........................................... (7,700,543) (392,586)
Change in non-admitted assets...................... (19,141) (11,156)
Paid-in capital.................................... 10,000,000 25,000,000
------------ ------------
Surplus, end of year............................... $ 96,865,418 $ 94,585,102
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-99
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Insurance premiums and other considerations..... $ 199,670,506 $143,259,367
Investment income............................... 2,773,220 2,479,596
Benefits........................................ (23,510,882) (18,036,117)
Expenses and taxes.............................. (80,900,670) (62,011,687)
Net transfers to separate account............... (103,547,077) (72,721,602)
Net increase in policy loans.................... (13,293,625) (9,308,284)
Other disbursements, net........................ (1,972,032) (2,914,732)
------------- ------------
Net cash flows used in operating activities... (20,780,560) (19,253,459)
Cash flows from investing activities:
Proceeds of long-term investments sold, matured
or repaid (net of tax)......................... 166,942 576,687
Cost of long-term investments acquired.......... (11) (922)
------------- ------------
Net cash flows from investing activities...... 166,931 575,765
Cash flows from financing activities:
Paid-in capital................................. 10,000,000 25,000,000
------------- ------------
Net cash flows.................................... (10,613,629) 6,322,306
Cash and short-term investments, beginning of
year............................................. 21,282,674 14,960,368
------------- ------------
Cash and short-term investments, end of year...... $ 10,669,045 $ 21,282,674
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-100
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL:
New England Variable Life Insurance Company (the "Company") is a wholly-
owned stock life insurance subsidiary of New England Mutual Life Insurance
Company ("The New England"). The Company is authorized to transact variable
life insurance business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The Company prepares its statutory financial statements, except as to form,
in accordance with accounting practices prescribed or permitted by the
Insurance Department of the State of Delaware, which are currently considered
generally accepted accounting principles (GAAP) for wholly-owned stock life
insurance subsidiaries of a mutual life insurance company. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as state laws,
regulations, and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed.
The Financial Accounting Standards Board (FASB) issued Interpretation No.
40, Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises, and Statement of Financial Accounting
Standards No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts. The American Institute of Certified Public
Accountants issued Statement of Position 95-1, Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises. Neither of these
groups has a role in establishing regulatory accounting practices. These
pronouncements will require stock life subsidiaries of a mutual life insurance
company parent to modify their financial statements in order for them to
continue to be in accordance with generally accepted accounting principles,
effective for 1996 financial statements. The manner in which policy reserves,
new business acquisition costs, asset valuations and the related tax effects
are recorded will change. Management has not determined the impact of such
changes on its financial statements.
Certain amounts from the 1993 financial statements have been reclassified to
conform with the 1994 presentation.
INVESTED ASSETS
Carrying values of bonds have been determined in accordance with methods and
values adopted by the National Association of Insurance Commissioners. Bonds
are carried primarily at amortized cost.
The Company's mortgage loans on real estate are carried at outstanding
principal balance or amortized cost. The estimated fair value of these loans
is determined using an internal matrix based on market rates and a credit
rating system. The Company establishes investment valuation reserves equal to
the amount by which the admitted value of each mortgage loan that has been
modified, is delinquent 90 days or more, or is in the process of modification,
exceeds the estimated fair value of its underlying collateral. These
investment valuation reserves are adjusted annually based on current
valuations.
Policy loans are carried at the aggregate of the unpaid balances. Policy
loans are an integral part of insurance products and have no maturity dates.
Consequently, it is not practicable to value these instruments.
Short term investments are carried principally at cost, which approximates
fair value, and include securities with a maturity date at purchase of less
than one year.
Realized gains and losses on the sales of investments are determined on the
specific identification method. See Note 3 for accounting treatment of
realized gains and losses attributable to interest rate changes. Unrealized
gains and losses are accounted for as direct increases or decreases in
surplus.
A-101
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPARATE ACCOUNT
Assets and liabilities held in the separate account are included as separate
captions on the balance sheet. The statements of operations include the
general account business and the net transfers to the separate account. The
separate account's net transfers, investment income, realized and unrealized
capital gains and losses, and investment expenses are offset by corresponding
increases or decreases in reserves required to provide for future payments to
policyholders. These assets consist principally of investments in mutual funds
and are carried at fair value.
VARIABLE LIFE RESERVES
Reserves for variable life insurance policies are developed using the 1958
and 1980 Commissioners' Standard Ordinary Mortality Tables on the Net Level
Premium Method, the Net Single Premium Method, or the Modified Full
Preliminary Term Method with assumed interest rates ranging from 4% to 5%.
DUE FROM SEPARATE ACCOUNT, NET
The Company records as a receivable amounts that are due from the separate
account for policy charges (including cost of insurance charges,
administrative charges and minimum death benefit charges), and amounts held
for policy account values in excess of the statutory reserve.
Amounts held in excess of the reserve cannot be transferred unless the
policy is terminated or the policy account value is withdrawn.
Actual transfers from the separate account to the general account for the
policy charges are made on a periodic basis to reduce this receivable. The
components of the amount due from the separate account, net as of December 31,
1994 and December 31, 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Account values in excess of reserves................ $75,718,686 $60,722,683
Policy charges...................................... 3,830,572 3,133,202
----------- -----------
Total............................................. $79,549,258 $63,855,885
=========== ===========
</TABLE>
RECOGNITION OF PREMIUM REVENUE AND RELATED EXPENSES
Variable life premium revenue is recognized during the premium paying
period. Commissions and other expenses in connection with acquiring new
business are charged to current operations as incurred.
FEDERAL INCOME TAXES
The Company's federal income tax return is consolidated with The New
England. The method of allocation between the companies is subject to a tax
sharing agreement, and allocation is based upon separate return calculations
with current credit for net losses. Net operating loss carryforwards to the
extent not previously reimbursed will be utilized as a deduction before
determining the tax liability to The New England.
3. INVESTMENT RESERVES AND INTEREST MAINTENANCE RESERVE:
The Asset Valuation Reserve (AVR) is designed to mitigate the effect of
valuation and credit-related losses on unassigned surplus. The AVR covers all
invested asset classes with risk of loss, including bonds, common stock,
mortgage loans and real estate. This balance has been classified under the
surplus caption within the balance sheet. This presentation differs from the
Company's statutory filing, however, in management's opinion, it is consistent
with industry practice which considers such reserves part of surplus.
A-102
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The Interest Maintenance Reserve (IMR) accumulates realized capital gains
and losses on the sale of all types of fixed income securities which result
from changes in the overall level of interest rates. These gains are amortized
into operating income over the remaining life of each investment sold. The IMR
is included in Other liabilities and amounted to $75,451 and $75,672 as of
December 31, 1994 and 1993, respectively. The amortization of the IMR into net
income net of federal income tax for 1994 and 1993, respectively, was $2,702
and $1,888.
4. INVESTMENTS:
The carrying value and estimated fair values of debt securities in the
general account are as follows:
<TABLE>
<CAPTION>
1994
GROSS UNREALIZED ESTIMATED
CARRYING ------------------ FAIR
VALUE GAINS LOSSES VALUE
-------- ----- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government
corporations and agencies.............. $4,191 $ 62 $ (60) $4,193
Corporate securities.................... 3,546 125 (7) 3,664
Mortgage-backed securities.............. 92 0 (3) 89
------ -------- -------- ------
Total................................... $7,829 $ 187 $ (70) $7,946
====== ======== ======== ======
<CAPTION>
1993
GROSS UNREALIZED ESTIMATED
CARRYING ------------------ FAIR
VALUE GAINS LOSSES VALUE
-------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government
corporations and agencies.............. $3,727 $ 220 $ 0 $3,947
Corporate securities.................... 4,112 469 (1) 4,580
Mortgage-backed securities.............. 148 3 0 151
------ -------- -------- ------
Total................................... $7,987 $ 692 $ (1) $8,678
====== ======== ======== ======
</TABLE>
Publicly traded debt securities are valued based upon quoted market prices.
The fair values of private placement obligations are determined using an
internal matrix based on market interest rates, the credit rating of the
specific security, and public prices of similar securities.
The carrying value and estimated fair value of debt securities at December
31, 1994, by contractual maturity, are shown below. Stated maturities may
differ from contractual maturities because some borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Due in 1 year or less........................................ $ 426 $ 426
Due after 1 year through 5 years............................. 5,195 5,142
Due after 5 years through 10 years........................... 467 524
Due after 10 years........................................... 1,649 1,765
Mortgage-backed securities................................... 92 89
------ ------
Total........................................................ $7,829 $7,946
====== ======
</TABLE>
Gross realized gains from sale of debt securities were $3,817 and $44,496,
and gross realized losses were $0 and $770 in 1994 and 1993, respectively. Net
realized gains of $2,481 and $28,422 in 1994 and 1993, respectively, were
transferred to the IMR.
A-103
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The carrying value of the mortgage loan was $2,221,942 and $2,230,000 and
estimated fair value of the mortgage loan was $2,240,539 and $2,371,315 at
December 31, 1994 and December 31, 1993, respectively.
5. RELATED-PARTY TRANSACTIONS:
Under the terms of a service agreement, The New England furnishes all
executive, legal, clerical, and other personnel services to the Company. The
fees for such services amounted to $40,071,822 in 1994 and $29,059,452 in
1993.
All of the officers and directors of the Company are officers of The New
England.
On June 22, 1994 and June 30, 1993, The New England contributed $10,000,000
and $25,000,000 of capital to the Company, respectively.
6. FEDERAL INCOME TAXES:
Federal income taxes are provided on the basis of amounts estimated to be
payable under the Internal Revenue Code. The Company files a consolidated
federal income tax return with The New England.
Below is a reconciliation of income before federal income taxes to taxable
gain from operations:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
----------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Operating gain (loss) before federal income taxes............. $(4,732) $ 4,680
Deferred acquisition costs.................................... 11,035 8,660
Nontaxable income............................................. (25) (38)
Expense-related differences................................... 3,816 3,971
Other income-related differences.............................. (1,614) (2,797)
------- -------
Taxable gain from operations.................................. $ 8,480 $14,476
------- -------
Federal income taxes at 35%................................... $ 2,968 $ 5,067
======= =======
</TABLE>
The Internal Revenue Service has completed its examination of the Company's
income tax returns through 1989 and is currently examining the income tax
returns for 1990 to 1991. The New England is contesting certain issues since
1976. The outcome of these proceedings is not currently determinable but, in
the opinion of management, would not have a materially adverse effect on the
financial statements.
7. REINSURANCE:
The Company's practice on individual products is to retain not more than
$75,000 of risk on any person, excluding accidental death benefits. Total
individual life premiums ceded were $13.8 million and $9.8 million at December
31, 1994 and 1993, respectively. In 1994, $9.5 million of the $13.8 million
premiums were ceded to The New England, and in 1993, $7.6 million of the $9.8
million premiums were ceded to The New England.
The individual life insurance in force ceded was $9.7 billion and $7.0
billion at December 31, 1994 and 1993, respectively.
The Company is contingently liable with respect to ceded insurance should
any reinsurer be unable to meet the obligations assumed by it.
A-104
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
ZENITH LIFE PLUS
VARIABLE ORDINARY LIFE INSURANCE POLICIES
SUPPLEMENT DATED MAY 1, 1995 TO
PROSPECTUS DATED MAY 1, 1994
INTRODUCTION
This supplement updates certain information contained in the prospectus
dated May 1, 1994, for Zenith Life Plus Policies (the "Policies"). You should
read and retain this supplement with your prospectus and Policy. A complete
prospectus dated May 1, 1995 is available free of charge upon written request
to New England Variable Life Insurance Company ("NEVLICO").
NEVLICO is a wholly-owned subsidiary of New England Mutual Life Insurance
Company. NEVLICO's Principal Administrative Office is 501 Boylston Street,
Boston, Massachusetts 02116.
THIS SUPPLEMENT IS NOT VALID UNLESS ACCOMPANIED OR PRECEDED BY THE CURRENT
PROSPECTUS 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 SUPPLEMENT. THE SUPPLEMENT AND PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES ARE OFFERED FOR SALE IN THE COMMONWEALTH OF PUERTO RICO
PURSUANT TO REGISTRATION WITH THE SECURITIES OFFICE OF THE DEPARTMENT OF THE
TREASURY, BUT SUCH REGISTRATION DOES NOT CONSTITUTE A FINDING THAT THIS
PROSPECTUS IS TRUE, COMPLETE, AND NOT MISLEADING, NOR HAS THE SECURITIES
OFFICE OF THE DEPARTMENT OF THE TREASURY PASSED IN ANY WAY UPON THE MERITS OF,
RECOMMENDED, OR GIVEN APPROVAL TO SUCH SECURITIES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
GLOSSARY
ACCOUNT
A sub-account of the Variable Account or The Fixed Account.
NEVLICO AND THE NEW ENGLAND
NEVLICO's mailing address is: P.O. Box 9116, Boston, Massachusetts 02117.
INVESTMENTS OF THE VARIABLE ACCOUNT
The Variable Account currently has 16 sub-accounts, each of which invests in
the shares 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 New England Zenith Fund (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 Value Growth Sub-Account, which invests in the Westpeak Value
Growth Series of the Zenith Fund
-- The Zenith Avanti Growth Sub-Account, which invests in the Loomis Sayles
Avanti Growth Series of the Zenith Fund
-- The Zenith Small Cap Sub-Account, which invests in the Loomis Sayles
Small Cap Series of the Zenith Fund
-- The Equity-Income Sub-Account, which invests in the Equity-Income
Portfolio of the Variable Insurance Products Fund (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 the Variable Insurance Products Fund II (the "VIP Fund II")
-- The Zenith Equity Growth Sub-Account, which invests in the Alger Equity
Growth Series of the Zenith Fund*
-- The Zenith Balanced Sub-Account, which invests in the Loomis Sayles
Balanced Series of the Zenith Fund*
-- The Zenith Value Sub-Account, which invests in the Venture Value Series
of the Zenith Fund*
-- The Zenith International Equity Sub-Account, which invests in the
Draycott International Equity Series of the Zenith Fund*
* Availability of these Sub-accounts is subject to any necessary state
insurance department approvals.
The Zenith Fund is an open-end diversified management investment company,
more commonly known as a mutual fund. The Zenith Fund was established by The
New England as an investment vehicle for separate investment accounts of
NEVLICO and of other life insurance companies. Currently the Zenith Fund is
the funding vehicle for the Variable Account and for separate accounts of The
New England and NEVLICO 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.
2
<PAGE>
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 the 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 Zenith Back Bay Advisors Money Market Series' investment objective is to
provide the highest possible level of current income consistent with
preservation of capital. The Series seeks to achieve its objective 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 preservation of capital
and moderate investment risk. The Series seeks to achieve its objective
through investment primarily in an investment quality bond portfolio.
The Zenith Capital Growth Series' investment objective is long-term growth
of capital though investment primarily in equity securities.
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.
The Zenith Back Bay Advisors Managed Series' investment objective is to
provide a favorable total investment return through investment in a
diversified portfolio. The Series' portfolio is expected to include (i) common
stocks, (ii) notes and bonds and (iii) money market instruments.
The Zenith Westpeak Value Growth 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 Avanti Growth Series' investment objective is long-
term growth of capital. The Series normally will invest primarily in equity
securities of companies with medium and large capitalization (capitalization
of $1 billion to $5 billion and over $5 billion, respectively), but will also
invest a portion of its assets in equity securities of companies with
relatively small market capitalization (under $1 billion).
The Zenith Loomis Sayles Small Cap Series' investment objective is long-term
capital growth from investments in common stock or their equivalent. The
Series will normally invest at least 65% of its total assets in companies with
market capitalization of less than $500 million.
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. Under normal conditions,
the series will invest at least 25% of its assets in bonds and at least 50% of
its assets in common stocks.
The Zenith Draycott International Equity Series' investment objective is to
seek total return from long-term growth of capital and dividend income. The
series will invest primarily in common stocks of issuers either headquartered
outside the U.S. or deriving a substantial part of their revenues from
countries outside of the U.S.
The Zenith Venture Value Series' investment objective is growth of capital.
The Series will primarily invest in domestic common stocks (and securities
convertible into common stock) that 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, with a majority
of issuers having a total market capitalization of $1 billion or greater.
3
<PAGE>
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 Equity-Income Portfolio will
also consider the potential for capital appreciation.
The VIP Fund Overseas Portfolio's investment objective is long-term growth
of capital primarily through investments in foreign securities. The Overseas
Portfolio provides a means for investors to diversify their own portfolio 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.
High-yielding, lower-rated debt securities present higher risks of untimely
interest and principal payments, default and price volatility than higher-
rated securities, and may present problems of liquidity and valuation.
The VIP Fund II Asset Manager Portfolio's investment objective is to seek
high total return with reduced risk over the long-term by allocating its
assets among domestic and foreign stocks, bonds and short-term fixed-income
instruments.
INVESTMENT MANAGEMENT
The adviser and sub-adviser for each series of the Zenith Fund are listed in
the chart below. TNE Advisers, which is a subsidiary of The New England, and
each of the sub-advisers are registered with the SEC as investment advisers
under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------- -----------
<S> <C> <C>
Capital Growth Capital Growth Management
Limited Partnership ("CGM")*
Back Bay Advisors Money Mar-
ket TNE Advisers, Inc. Back Bay Advisors, L.P.**
Back Bay Advisors Bond In-
come 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 Value Growth TNE Advisers, Inc. Westpeak Investment Advisors, L.P.**
Loomis Sayles Avanti Growth TNE Advisers, Inc. Loomis, Sayles & Company, L.P.**
Loomis Sayles Small Cap TNE Advisers, Inc Loomis, Sayles & Company, L.P.**
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.**
Draycott International Eq-
uity TNE Advisers, Inc. Draycott Partners, Ltd.**
Venture Value TNE Advisers, Inc. Selected/Venture Advisers, L.P.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
</TABLE>
* An affiliate of The New England
** An indirect subsidiary of The New England
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 Value Growth Series, Loomis Sayles Avanti Growth 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-
adviser, except as follows. The New England itself served as investment
adviser to the Money Market and Bond Income Series until September 10, 1986
when Back Bay Advisors assumed The New England's responsibilities under the
investment advisory agreements with those Series. Back Bay Advisors served as
investment adviser to the 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 Zenith Fund Series incur charges for advisory fees and certain other
expenses. Under a voluntary expense cap by TNE Advisers for each of the
Capital Growth, Back Bay Advisors Bond Income, Back Bay Advisors Money Market,
Back Bay Advisors Managed, Westpeak Stock Index, Westpeak Value Growth and
Loomis Sayles Avanti Growth 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
4
<PAGE>
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. 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 incurred for 1994, after giving effect to the
applicable expense cap or expense deferral arrangement.
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE CAP)
<TABLE>
<CAPTION>
BACK BACK
BAY BAY BACK LOOMIS LOOMIS
ADVISORS ADVISORS BAY WESTPEAK WESTPEAK SAYLES SAYLES
CAPITAL BOND MONEY ADVISORS STOCK VALUE AVANTI SMALL
GROWTH INCOME MARKET MANAGED INDEX GROWTH GROWTH CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------- -------- -------- -------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .65% .40% .35% .50% .25% .70% .70% 1.00%
Other Expenses.......... .05% .14% .15% .14% .15% .15% .15% --
---- ---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses.............. .70% .54% .50% .64% .40% .85% .85% 1.00%
</TABLE>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
LOOMIS ALGER
SAYLES DRAYCOTT VENTURE EQUITY
BALANCED INTERNATIONAL VALUE GROWTH
SERIES EQUITY SERIES SERIES SERIES
-------- ------------- ------- ------
<S> <C> <C> <C> <C>
Management Fee........................... .70% .90% .75% .70%
Other Expenses........................... .15% .40% .15% .15%
---- ----- ---- ----
Total Series Operating Expenses......... .85% 1.30% .90% .85%
</TABLE>
For more information about the Series' advisory agreements, see the Zenith
Fund prospectus attached at the end of the prospectus and the Zenith Fund's
Statement of Additional Information.
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, 1994, the total operating expenses
of the Portfolios, as a percentage of Portfolio average net assets, were as
follows:
<TABLE>
<CAPTION>
TOTAL
PORTFOLIO MANAGEMENT FEES OTHER EXPENSES ANNUAL EXPENSES
--------- --------------- -------------- ---------------
<S> <C> <C> <C>
Equity-Income .52% .06% .58%*
Overseas .77% .15% .92%
High Income .61% .10% .71%
Asset Manager .72% .08% .80%*
</TABLE>
- --------
* A portion of the brokerage commissions the portfolio paid was used to reduce
its expenses. Without this reduction total operating expenses would have
been .60% for the Equity-Income Portfolio and .81% for the Asset Manager
Portfolio.
Fidelity Management & Research Company 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. As of December 31, 1994, it advised funds having
more than 22 million shareholder accounts with a total value of more than $250
billion. 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.
5
<PAGE>
INVESTMENT OPTIONS
You may allocate your Policy's scheduled premiums and unscheduled payments
among the sub-accounts of the Variable Account in any combination. A minimum
of 10% of the premium or payment must be allocated to each sub-account
selected. Percentages allocated must be in whole numbers. Your Policy's cash
value may be distributed among no more than ten accounts (including the Fixed
Account) at any one time.
You make the initial allocation when you apply for a Policy. You may change
the allocation of future premiums and payments at any time thereafter. The
change will be effective for scheduled premiums due and unscheduled payments
applied after the date when NEVLICO receives your request. You may request the
change by telephone or by written request in a form satisfactory to NEVLICO.
(See "Receipt of Communications and Payments at NEVLICO's Administrative
Office" in the prospectus.)
See "Transfer Option" below for information on how to request a transfer or
reallocation by telephone.
TRANSFER OPTION
After the Right to Return the Policy period, you may transfer your Policy's
cash value between sub-accounts up to four times in a policy year without
NEVLICO's consent. NEVLICO currently allows 12 sub-account transfers per
policy year. 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 NEVLICO receives the transfer request at its Administrative Office. (See
"Receipt of Communications and Payments at NEVLICO's Administrative Office" in
the prospectus.) For special rules regarding transfers involving the Fixed
Account, see "The Fixed Account" in the prospectus. Your Policy's cash value
may be distributed among no more than ten accounts (including the Fixed
Account) at any one time.
You may request a sub-account transfer or reallocation of future premiums by
written request (which may be telecopied) to NEVLICO's Administrative Office
or by telephoning The New England. To request a transfer or reallocation by
telephone, you should contact your registered representative or contact The
New England at 1-800-200-2214. Requests for transfers (up to NEVLICO's current
limit per policy year) or reallocations by telephone will be automatically
permitted. NEVLICO and The New England will use reasonable procedures such as
requiring certain identifying information from the caller, tape recording the
telephone instructions, and providing written confirmation of the transaction,
in order to confirm that instructions communicated by telephone are genuine.
Any telephone instructions reasonably believed by The New England and NEVLICO
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 NEVLICO and The New England do not employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, they may be liable for any losses due to unauthorized or
fraudulent instructions.
For Policies issued in New York, transfers may be made by written request
only. The New York Insurance Department does not currently allow transfer
requests to be made by telephone.
PAYMENT OF PROCEEDS
NEVLICO will ordinarily pay any net cash value, loan value or death benefit
proceeds 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 NEVLICO. (See "Receipt of Communications and Payments at
NEVLICO's Administrative Office" in the prospectus.) However, NEVLICO may
delay payment 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. NEVLICO may withhold payment of
surrender or loan proceeds to the extent that those proceeds are derived from
a Policy Owner's check, or from a Master Service Account premium transaction,
which has not yet cleared. In those cases, NEVLICO 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, or the Master Service Account premium transaction,
has cleared. NEVLICO may also delay payment if it considers whether to contest
the Policy. NEVLICO 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" in the prospectus.)
Death benefit proceeds may be paid pursuant to NEVLICO'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 NEVLICO'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.
6
<PAGE>
Payments of net cash value, or of any loan value available, under a fixed-
benefit lapse option or from cash value in the Fixed Account will normally be
paid promptly. However, NEVLICO has the right to delay such payments for up to
six months from the date of the request. NEVLICO will pay interest in
accordance with state insurance law requirements on payments that are delayed.
STATE PREMIUM TAX CHARGE
NEVLICO deducts 2.5% from each basic scheduled premium and each unscheduled
payment to cover state premium taxes and administrative expenses. These taxes
vary from state to state and the 2.5% rate reflects an average. Administrative
expenses covered by this charge include those related to premium tax and
certain other state filings. This charge is not intended to produce a profit.
The stated premium tax rates in the jurisdictions where NEVLICO transacts
business range from .75% to 4.00%. However, because of the effect of
retaliatory tax law provisions, the actual premium tax rates imposed on
NEVLICO range from slightly less than 2.00% to 4.00%.
MONTHLY CHARGES FOR THE COST OF INSURANCE
NEVLICO reviews the adequacy of its current cost of insurance rates annually
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.
UNSCHEDULED PAYMENTS
Except as described below, you may make unscheduled payments at any time
that the Policy is in force on a premium paying basis provided that the
unscheduled payment is at least $25 and, if required by NEVLICO, the insured
has submitted evidence of insurability satisfactory to NEVLICO. In addition,
NEVLICO's consent is required if, in order to satisfy tax law requirements,
the payment would increase the Policy's death benefit by more than it would
increase the cash value. Unscheduled payments may not be made while scheduled
premiums are being waived pursuant to a waiver of premium rider. (See
"Additional Benefits by Rider" in the prospectus.) NEVLICO reserves the right
to prohibit or limit the amount of unscheduled payments under a Policy
covering an insured in a substandard risk classification or under a Version 2
automatic issue Policy.
You may plan to make a certain amount of unscheduled payments on each policy
anniversary. At your request and subject to NEVLICO's rules, NEVLICO will
include this amount of planned unscheduled payment on your premium notice for
premiums due on the policy anniversary. Subject to NEVLICO's rules, you may
elect to have The New England withdraw unscheduled payments from your bank
checking account or TNE Cash Management Trust account if you are using this
facility to make scheduled premium payments under the Policy. However, you are
required to pay only the scheduled premium in order to keep the Policy in
force on a premium paying basis. There may be cases where the total of all
premiums and payments made could cause the Policy to be a "modified endowment
contract". You could consider the potential tax consequences before planning a
series of unscheduled payments. (See "Tax Considerations".)
SUBSTITUTION OF INSURED PERSON
NEVLICO intends in the future to offer a rider benefit under certain
Policies 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 and may also result in a cost or credit to you. This
rider may not be approved in every state and therefore may not be available in
every state. Your NEVLICO agent 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.
DEFAULT AND LAPSE OPTIONS
Variable Paid-Up Insurance. No partial withdrawals, premium payments or
unscheduled payments may be made under a Policy continued as Variable Paid-up
Insurance.
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 NEVLICO 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, NEVLICO recommends that you consult your own tax
advisor for more complete information and advice.
7
<PAGE>
DEFINITION OF LIFE INSURANCE. Section 7702 of the Internal Revenue 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 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 create some uncertainty about the application of Section 7702 to the
Policy.
Nevertheless, NEVLICO believes that the Policy qualifies as a life insurance
contract for federal tax purposes. This means that:
. the death benefit should be fully excludable 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.
NEVLICO 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. NEVLICO believes that payments
received under an accelerated benefits rider may be treated as distributions
from the Policy under current law and, in addition, under regulations proposed
December 15, 1992, as distributions, death benefits, or health, accident or
disability benefits, depending on the circumstances, if the regulations are
adopted as proposed. (See "Acceleration of Death Benefit Rider" in the
prospectus for more information regarding the rider.) If such payments are
distributions, their tax treatment would depend on whether or not the Policy
is a modified endowment contract.
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 NEVLICO believes any policy loans received under such
Policies will be treated as indebtedness of the 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 Internal Revenue 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 net cash
surrender value is greater than the total investment in the Policy less the
previous untaxed distributions. This may be the case even if the amount of the
partial surrender is less than the investment in the Policy. The exercise of
an accelerated benefits rider, in whole or in part may be treated as a
surrender or partial surrender.
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 (both scheduled
premiums and unscheduled payments) paid under the Policy at any time during
the first seven policy years exceeds the sum of the net level premiums that
8
<PAGE>
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 above a 5% net rate
of return 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. A term rider on the insured issued in New
York could cause the Policy to be treated less favorably for purposes of the
7-pay test. If there is a reduction in the Policy's future benefits (for
example, as a result of a partial surrender, face amount reduction or partial
exercise of the accelerated benefits rider, or because you allow the Policy to
lapse to Paid-Up Insurance) during the first seven policy years the 7 pay test
will be applied as if the Policy had originally been issued at the reduced
face amount. Any Policy received in exchange for a modified endowment contract
will also be a modified endowment contract.
Your agent can provide you with information about the maximum amount of
scheduled premiums and unscheduled payments 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 NEVLICO'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
NEVLICO's interpretation. NEVLICO 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 may constitute a material change
unless the increase is 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 there were a substitution of the insured
person or if certain other 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. This may be the case, when the insured reaches very high ages, even if
no unscheduled payments have been made for the Policy. The point at which you
may have to limit the payment of scheduled premiums will depend upon the issue
age, sex and underwriting class of the insured, investment experience and the
amount of your previous unscheduled payments. You may limit payment of
scheduled premiums by use of the Special Premium Option, in those situations
where it is applicable, or by allowing the Policy to lapse to paid-up
insurance. (See "Special Premium Option" and "Default and Lapse Options" in
the prospectus.)
If you exchange your policy for another life insurance policy, including a
fixed-benefit policy pursuant to the 24 month exchange right, the new
insurance policy should be reviewed to determine how the rules regarding
modified endowment contracts may apply to the new policy. (See "Exchange of
Policy During First 24 Months" in the prospectus.)
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 are considered distributions even if the amount borrowed is
retained by NEVLICO as a premium. 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 in the Policy to taxation.
(d) A partial surrender to pay premiums is not a transaction specifically
addressed and may or may not be treated as a taxable distribution.
(e) For purposes of determining the amount of the distribution which is
includible in gross income, all modified endowment contracts issued by
NEVLICO or its affiliates to the same Policy Owner during any 12 month
period must be treated as one modified endowment contract.
(f) Payments under the accelerated benefits rider may be treated as
distributions that are subject to taxation under these rules if the
payments are from a Policy that is a modified endowment contract.
9
<PAGE>
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).
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 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.
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.
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. Regulations specifying the
diversification requirements have been issued by the Department of Treasury,
and NEVLICO 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 regulations or
rulings 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. To date, no such regulations or guidance has been issued. 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, NEVLICO does not know what standards will be
set forth in the regulations or rulings which the Treasury has stated it
expects to be issued. NEVLICO 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.
The Policies may be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus 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.
NEVLICO believes that Policies subject to the provisions of the Puerto Rican
tax law will generally receive the same tax treatment as that described above
for Policies subject to the Internal Revenue Code. 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.
CHARGE FOR NEVLICO'S INCOME TAXES
Under current Federal income tax law no tax is imposed on NEVLICO 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.
NEVLICO reserves it rights to charge the Variable Account for company Federal
income taxes in the future.
10
<PAGE>
Under current laws NEVLICO may incur state and local taxes (in addition to
premium taxes) in several states. At present these taxes are not significant
and, accordingly, NEVLICO 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 NEVLICO and their principal business
experience during the past five years are:
DIRECTORS OF NEVLICO
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING
NAME THE PAST FIVE YEARS
- ---- ------------------------------------
<S> <C>
Edward C. Hall Executive Vice President -- Client Services of The New England since
1988; Vice President -- Administration of NEVLICO
Keman F. King Director, Executive Vice President and Chief Marketing Officer of The
New England since 1992; formerly, Director, Executive Vice
President -- Administration and General Counsel, 1990 to 1992, of
The New England
Robert E. Schneider Director, Executive Vice President and Chief Financial Officer of The
New England since 1993; formerly, Executive Vice President and Chief
Financial Officer, 1990 to 1993, Senior Vice President, 1985 to
1990, of The New England
Robert A. Shafto Chairman, President and Chief Executive Officer since 1993; formerly,
President and Chief Executive Officer, 1992 to 1993, President and
Chief Operating Officer, 1990 to 1992, of The New England; Chairman,
President and Chief Executive Officer of NEVLICO
Daniel J. Toran Executive Vice President of The New England since 1991; formerly,
Senior Vice President -- Agencies 1986 to 1991, of The New England
H. James Wilson Executive Vice President and General Counsel of The New England since
1993; formerly, Senior Vice President and General Counsel, 1992 to
1993, Senior Vice President and Associate General Counsel, 1990 to
1992, of The New England; General Counsel and Secretary of NEVLICO.
Frederick K. Zimmermann Executive Vice President and Chief Investment Officer of The New
England since 1993, formerly, Senior Vice President -- Investments,
1989 to 1993, of The New England; Vice President -- Investments of
NEVLICO
EXECUTIVE OFFICERS OF NEVLICO
OTHER THAN DIRECTORS
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING
NAME THE PAST FIVE YEARS
- ---- ------------------------------------
<S> <C>
Rodney J. Chandler Second Vice President and Actuary of The New England since 1990;
Chief Actuary of NEVLICO
Chester R. Frost Senior Vice President of The New England since 1984; Vice
President -- Controller of NEVLICO
John F. Guthrie Vice President of The New England since 1983; Vice President --
Portfolio Strategy of NEVLICO
John G. Small Senior Vice President of The New England since 1990; Vice President
and Chief Underwriter of NEVLICO
Phillip G. Sullivan Second Vice President and Medical Director of The New England since
1974; Vice President and Medical Director of NEVLICO
Newton H. Thompson Second Vice President and Treasurer of The New England since 1993;
formerly, Second Vice President and Assistant Treasurer, 1991 to
1992, and Assistant Vice President and Assistant Treasurer, 1989 to
1991, of The New England; Vice President and Treasurer of NEVLICO
H. James Wilson See Directors above
Frederick K. Zimmermann See Directors above
</TABLE>
The principal business address for each of the directors and executive
officers is the same as NEVLICO's.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by H. James Wilson, General Counsel of NEVLICO.
Sutherland, Asbill & Brennan, Washington, D.C. has provided advice on certain
matters relating to the Federal securities laws.
EXPERTS
The financial statements of New England Variable Life Insurance Company and
of New England Variable Life Separate Account have been audited by Coopers &
Lybrand, independent auditors, as stated in their opinions appearing herein
and have been so included in reliance upon their authority as experts in
accounting and auditing.
11
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT ACCOUNTANTS
To the Policy Owners and Board of Directors of New England Variable Life
Insurance Company:
We have audited the accompanying statement of assets and liabilities 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, Value Growth Sub-
Account, Small Cap Sub-Account, Equity-Income Sub-Account, Overseas Sub-
Account, High Income Sub-Account, and Asset Manager Sub-Account) of New
England Variable Life Insurance Company as of December 31, 1994, and the
related statements of operations and changes in net assets for each of the
periods indicated therein. 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. Our
procedures included confirmation of investments held by the custodian as of
December 31, 1994. 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 New England Variable Life Separate Account of New
England Variable Life Insurance Company as of December 31, 1994, and the
results of their operations and changes in their net assets for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 3, 1995
12
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
New England Zenith Fund
-----------------------------------------------------------------
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund and
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
market value (Note 2).................... $304,826,810 $20,250,408 $18,328,233 $11,767,226 $16,974,440
<CAPTION>
SUB-ACCOUNT SHARES COST
- ----------------- ------------------------
<S> <C> <C>
Capital Growth... 976,070 $ 294,934,737
Bond Income...... 211,980 22,279,301
Money Market..... 183,282 18,328,233
Stock Index...... 156,209 13,412,970
Managed.......... 130,272 16,271,198
Avanti Growth.... 72,212 7,937,671
Value Growth..... 47,081 5,131,286
Small Cap........ 2,276 215,214
Equity-Income.... 1,503,462 22,928,486
Overseas......... 2,206,564 34,315,959
High Income...... 3,379 36,150
Asset Manager.... 16,410 227,797
Amount due and accrued from policy-related
transactions............................. 184,202 6,345 1,007,405 3,223 (4,968)
Dividends receivable...................... -- -- 82,924 -- --
----------- ---------- ---------- ---------- ----------
Total Assets............................ 305,011,012 20,256,753 19,418,562 11,770,449 16,969,472
LIABILITIES
Due New England Variable Life Insurance
Company.................................. 55,516,275 3,506,622 2,537,819 2,091,485 2,209,894
Total liabilities....................... 55,516,275 3,506,622 2,537,819 2,091,485 2,209,894
----------- ----------- ----------- ---------- ----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES................................. $249,494,737 $16,750,131 $16,880,743 $ 9,678,964 $14,759,578
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AVANTI VALUE SMALL
GROWTH GROWTH CAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund and
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
market value (Note 2).................... $8,143,351 $5,133,204 $219,876
Amount due and accrued from policy-related
transactions............................. 28,694 12,591 16,120
Dividends receivable...................... -- -- --
--------- --------- -------
Total Assets............................ 8,172,045 5,145,795 235,996
LIABILITIES
Due New England Variable Life Insurance
Company.................................. 1,760,834 1,052,814 45,166
--------- --------- -------
Total liabilities....................... 1,760,834 1,052,814 45,166
--------- --------- -------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES................................. $6,411,211 $4,092,981 $190,830
========= ========== ========
</TABLE>
<TABLE>
<CAPTION>
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
------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund and
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
market value (Note 2).................... $23,078,145 $34,576,854 $36,363 $226,294 $443,561,204
Amount due and accrued from policy-related
transactions............................. 72,148 65,247 -- 5,412 1,396,419
Dividends receivable...................... -- -- -- -- 82,924
---------- ---------- ------ -------- -----------
Total Assets............................ 23,150,293 34,642,101 36,363 231,706 445,040,547
LIABILITIES
Due New England Variable Life Insurance
Company.................................. 4,018,126 6,773,269 5,941 31,012 79,549,257
---------- ---------- ------ ------- -----------
Total liabilities....................... 4,018,126 6,773,269 5,941 31,012 79,549,257
---------- ---------- ------ -------- -----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES................................. $19,132,167 $27,868,832 $30,422 $200,694 $365,491,290
=========== =========== ======= ======== ============
</TABLE>
See Notes to Financial Statements
13
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI VALUE SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH CAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Dividends....... $ 13,519,083 $ 1,399,070 $691,932 $ 307,159 $ 678,949 $ 43,109 $ 89,817 $ 327
EXPENSE
Mortality and
expense risk
charge (Note
3)............. 1,637,278 107,252 93,830 59,230 86,049 31,737 18,214 28
------------ ----------- -------- ----------- ---------- -------- -------- ------
Net investment
income (loss).. 11,881,805 1,291,818 598,102 247,929 592,900 11,372 71,603 299
NET REALIZED AND
UNREALIZED GAIN
ON INVESTMENTS
Net unrealized
appreciation
(depreciation)
on investments:
Beginning of
period......... 46,100,393 41,284 -- (1,457,732) 1,602,795 143,154 67,310 --
End of period... 9,892,073 (2,028,893) -- (1,645,744) 703,242 205,680 1,918 4,662
------------ ----------- -------- ----------- ---------- -------- -------- ------
Net change in
unrealized
appreciation
(depreciation). (36,208,320) (2,070,177) -- (188,012) (899,553) 62,526 (65,392) 4,662
Net realized
gain (loss) on
investments.... 67,810 1,763 -- 6,200 37,994 542 776 --
------------ ----------- -------- ----------- ---------- -------- -------- ------
Net realized and
unrealized gain
(loss) on
investments.... (36,140,510) (2,068,414) -- (181,812) (861,559) 63,068 (64,616) 4,662
------------ ----------- -------- ----------- ---------- -------- -------- ------
NET INCREASE
(DECREASE) IN
NET ASSETS
RESULTING FROM
OPERATIONS..... $(24,258,705) $ (776,596) $598,102 $ 66,117 $ (268,659) $ 74,440 $ 6,987 $4,961
============ =========== ======== =========== ========== ======== ======== ======
<CAPTION>
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
----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Income
Dividends....... $670,101 $ 69,390 $ -- $ -- $ 17,468,937
EXPENSE
Mortality and
expense risk
charge (Note
3)............. 75,586 133,276 6 34 2,242,520
----------- ----------- ------------- ------------- -------------
Net investment
income (loss).. 594,515 (63,886) (6) (34) 15,226,417
NET REALIZED AND
UNREALIZED GAIN
ON INVESTMENTS
Net unrealized
appreciation
(depreciation)
on investments:
Beginning of
period......... 93,013 700,341 -- -- 47,290,558
End of period... 149,659 260,895 213 (1,503) 7,542,202
----------- ----------- ------------- ------------- -------------
Net change in
unrealized
appreciation
(depreciation). 56,646 (439,446) 213 (1,503) (39,748,356)
Net realized
gain (loss) on
investments.... (929) (471) -- -- 113,685
----------- ----------- ------------- ------------- -------------
Net realized and
unrealized gain
(loss) on
investments.... 55,717 (439,917) 213 (1,503) (39,634,671)
----------- ----------- ------------- ------------- -------------
NET INCREASE
(DECREASE) IN
NET ASSETS
RESULTING FROM
OPERATIONS..... $650,232 $(503,803) $207 $(1,537) $(24,408,254)
=========== =========== ============= ============= =============
</TABLE>
*For the period May 2, 1994 (Commencement of Operations) through December 31,
1994.
**For the period December 19, 1994 (Commencement of Operations) through
December 31, 1994.
See Notes to Financial Statements
14
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
---------------------------------------------------------------------------------------
CAPITAL MONEY STOCK AVANTI
GROWTH BOND INCOME MARKET INDEX MANAGED GROWTH VALUE GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT*
----------- ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends........................ $14,407,828 $1,721,493 $415,332 $ 286,517 $ 778,823 $ 31,181 $31,108
EXPENSE
Mortality and expense risk charge
(Note 3)........................ 1,317,363 89,763 74,167 40,270 73,721 5,506 3,166
----------- ---------- -------- ---------- ---------- -------- -------
Net investment income (loss)..... 13,090,465 1,631,730 341,165 246,247 705,102 25,675 27,942
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net unrealized appreciation
(depreciation) on investments:
Beginning of period............. 26,130,492 (62,020) -- (1,863,474) 1,105,911 -- --
End of period................... 46,100,393 41,284 -- (1,457,732) 1,602,795 143,154 67,310
----------- ---------- -------- ---------- ---------- -------- -------
Net change in unrealized
appreciation.................... 19,969,901 103,304 -- 405,742 496,884 143,154 67,310
Net realized gain (loss) on
investments..................... 436,493 84,686 -- (4,995) 93,335 (88) 64
----------- ---------- -------- ---------- ---------- -------- -------
Net realized and unrealized gain
on investments.................. 20,406,394 187,990 -- 400,747 590,219 143,066 67,374
----------- ---------- -------- ---------- ---------- -------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $33,496,859 $1,819,720 $341,165 $ 646,994 $1,295,321 $168,741 $95,316
=========== ========== ======== ========== ========== ======== =======
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
-------------------------- -----------
EQUITY-INCOME OVERSEAS
SUB-ACCOUNT* SUB-ACCOUNT* TOTAL
------------- ------------ -----------
<S> <C> <C> <C>
INCOME
Dividends........................ $ 46,757 $ -- $17,719,039
EXPENSE
Mortality and expense risk charge
(Note 3)........................ 7,615 17,666 1,629,237
--------- -------- -----------
Net investment income (loss)..... 39,142 (17,666 ) 16,089,802
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net unrealized appreciation
(depreciation) on investments:
Beginning of period............. -- -- 25,310,909
End of period................... 93,013 700,341 47,290,558
--------- -------- -----------
Net change in unrealized
appreciation.................... 93,013 700,341 21,979,649
Net realized gain (loss) on
investments..................... (59) 729 610,165
--------- -------- -----------
Net realized and unrealized gain
on investments.................. 92,954 701,070 22,589,814
--------- -------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $132,096 $683,404 $38,679,616
========= ======== ===========
</TABLE>
* For the period April 30, 1993 (Commencement of Operations) through December
31, 1993.
See Notes to Financial Statements
15
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
--------------------------------------------------------------- -----------
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME
Dividends............... $ 2,544,247 $1,038,401 $541,442 $2,971,910 $ 521,129 $ 7,617,129
EXPENSE
Mortality and expense
risk charge (Note 3)... 872,975 57,034 75,654 24,160 51,418 1,081,241
------------ ---------- -------- ---------- --------- -----------
Net investment income... 1,671,272 981,367 465,788 2,947,750 469,711 6,535,888
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation ) on
investments:
Beginning of period.... 36,250,872 132,914 -- 767,700 1,283,603 38,435,089
End of period.......... 26,130,492 (62,020) -- (1,863,474) 1,105,911 25,310,909
------------ ---------- -------- ---------- --------- -----------
Net change in unrealized
depreciation........... (10,120,380) (194,934) -- (2,631,174) (177,692) (13,124,180)
Net realized gain on
investments............ 3,522 45,768 -- 14,077 350,133 413,500
------------ ---------- -------- ---------- --------- -----------
Net realized and
unrealized gain (loss)
on investments......... (10,116,858) (149,166) -- (2,617,097) 172,441 (12,710,680)
------------ ---------- -------- ---------- --------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $ (8,445,586) $ 832,201 $465,788 $ 330,653 $ 642,152 $(6,174,792)
============ ========== ======== ========== ========= ===========
</TABLE>
See Notes to Financial Statements
16
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI VALUE SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT*
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss)... $ 11,881,805 $ 1,291,818 $ 598,102 $ 247,929 $ 592,900 $ 11,372 $ 71,603 $ 299
Net realized and
unrealized gain
(loss) on
investments..... (36,140,510) (2,068,414) -- (181,812) (861,559) 63,068 (64,616) 4,662
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
Increase
(decrease) in
net assets
derived from
investment
activities..... (24,258,705) (776,596) 598,102 66,117 (268,659) 74,440 6,987 4,961
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from
New England
Variable Life
Insurance
Company......... 101,802,783 6,362,705 39,544,492 3,600,140 4,112,835 3,173,029 1,762,484 4,323
Net transfers
(to) from other
sub-accounts.... (1,234,289) (822,617) (29,858,294) 718,688 (186,357) 2,527,486 2,012,595 226,677
Net transfers to
New England
Variable Life
Insurance
Company......... (56,761,722) (4,458,223) (6,161,941) (2,075,140) (3,102,454) (2,027,427) (1,190,128) (45,131)
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
Increase in net
assets derived
from policy-
related
transactions.... 43,806,772 1,081,865 3,524,257 2,243,688 824,024 3,673,088 2,584,951 185,869
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
Net increase in
net assets...... 19,548,067 305,269 4,122,359 2,309,805 555,365 3,747,528 2,591,938 190,830
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 229,946,670 16,444,862 12,758,384 7,369,159 14,204,213 2,663,683 1,501,043 --
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
NET ASSETS, AT
END OF THE
PERIOD.......... $249,494,737 $16,750,131 $ 16,880,743 $ 9,678,964 $14,759,578 $ 6,411,211 $ 4,092,981 $190,830
============ =========== ============ =========== =========== =========== =========== ========
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
----------------------------------- ---------- -------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT** ACCOUNT** TOTAL
------------ ------------ --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss)... $ 594,515 $ (63,886) $ (6) $ (34) $ 15,226,417
Net realized and
unrealized gain
(loss) on
investments..... 55,717 (439,917) 213 (1,503) (39,634,671)
------------ ------------ --------- ---------- -------------
Increase
(decrease) in
net assets
derived from
investment
activities..... 650,232 (503,803) 207 (1,537) (24,408,254)
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from
New England
Variable Life
Insurance
Company......... 9,237,234 11,268,285 102 8,495 180,876,907
Net transfers
(to) from other
sub-accounts.... 9,868,299 16,487,055 36,048 224,709 --
Net transfers to
New England
Variable Life
Insurance
Company......... (4,905,512) (8,836,370) (5,935) (30,973) (89,600,956)
------------ ------------ --------- ---------- -------------
Increase in net
assets derived
from policy-
related
transactions.... 14,200,021 18,918,970 30,215 202,231 91,275,951
------------ ------------ --------- ---------- -------------
Net increase in
net assets...... 14,850,253 18,415,167 30,422 200,694 66,867,697
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 4,281,914 9,453,665 -- -- 298,623,593
------------ ------------ --------- ---------- -------------
NET ASSETS, AT
END OF THE
PERIOD.......... $19,132,167 $27,868,832 $30,422 $200,694 $365,491,290
============ ============ ========= ========== =============
</TABLE>
*For the period May 2, 1994 (Commencement of Operations) through December 31,
1994.
**For the period December 19, 1994 (Commencement of Operations) through
December 31, 1994.
See Notes to Financial Statements
17
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI VALUE
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT*
------------ ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss).. $ 13,090,465 $ 1,631,730 $ 341,165 $ 246,247 $ 705,102 $ 25,675 $ 27,942
Net realized and
unrealized gain
on investments. 20,406,394 187,990 -- 400,747 590,219 143,066 67,374
------------ ----------- ----------- ---------- ----------- ---------- ----------
Increase in net
assets derived
from investment
activities..... 33,496,859 1,819,720 341,165 646,994 1,295,321 168,741 95,316
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England
Variable Life
Insurance
Company........ 88,880,791 5,429,522 27,439,024 2,696,124 3,325,220 579,106 252,321
Net transfers
(to) from other
sub-accounts... (185,104) 1,155,530 (22,054,415) 1,088,665 1,967,320 2,787,043 1,529,391
Net transfers to
New England
Variable Life
Insurance
Company........ (41,091,866) (2,588,466) (5,031,875) (1,483,033) (1,785,088) (871,207) (375,985)
------------ ----------- ----------- ---------- ----------- ---------- ----------
Increase in net
assets derived
from policy-
related
transactions... 47,603,821 3,996,586 352,734 2,301,756 3,507,452 2,494,942 1,405,727
------------ ----------- ----------- ---------- ----------- ---------- ----------
Net increase in
net assets..... 81,100,680 5,816,306 693,899 2,948,750 4,802,773 2,663,683 1,501,043
NET ASSETS, AT
BEGINNING OF
THE PERIOD..... 148,845,990 10,628,556 12,064,485 4,420,409 9,401,440 -- --
------------ ----------- ----------- ---------- ----------- ---------- ----------
NET ASSETS, AT
END OF THE
PERIOD......... $229,946,670 $16,444,862 $12,758,384 $7,369,159 $14,204,213 $2,663,683 $1,501,043
============ =========== =========== ========== =========== ========== ==========
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
-------------------------- -------------
EQUITY-INCOME OVERSEAS
SUB-ACCOUNT* SUB-ACCOUNT* TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss).. $ 39,142 $ (17,666) $ 16,089,802
Net realized and
unrealized gain
on investments. 92,954 701,070 22,589,814
------------- ------------ -------------
Increase in net
assets derived
from investment
activities..... 132,096 683,404 38,679,616
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England
Variable Life
Insurance
Company........ 964,191 1,568,988 131,135,287
Net transfers
(to) from other
sub-accounts... 4,320,708 9,390,862 --
Net transfers to
New England
Variable Life
Insurance
Company........ (1,135,081) (2,189,589) (56,552,190)
------------- ------------ -------------
Increase in net
assets derived
from policy-
related
transactions... 4,149,818 8,770,261 74,583,097
------------- ------------ -------------
Net increase in
net assets..... 4,281,914 9,453,665 113,262,713
NET ASSETS, AT
BEGINNING OF
THE PERIOD..... -- -- 185,360,880
------------- ------------ -------------
NET ASSETS, AT
END OF THE
PERIOD......... $4,281,914 $9,453,665 $298,623,593
============= ============ =============
</TABLE>
* For the period April 30, 1993 (Commencement of Operations) through December
31, 1993.
See Notes to Financial Statements
18
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
----------------------------------------------------------------- ------------
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment income.. $ 1,671,272 $ 981,367 $ 465,788 $ 2,947,750 $ 469,711 $ 6,535,888
Net realized and
unrealized gain (loss)
on investments........ (10,116,858) (149,166) -- (2,617,097) 172,441 (12,710,680)
------------ ----------- ------------ ----------- ----------- ------------
Increase (decrease) in
net assets derived
from investment
activities........... (8,445,586) 832,201 465,788 330,653 642,152 (6,174,792)
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from New
England Variable Life
Insurance Company..... 67,808,576 3,248,052 24,616,186 1,485,555 2,274,457 99,432,826
Net transfers (to) from
other sub-accounts.... 16,957,727 1,845,009 (19,527,266) 849,096 (124,566) --
Net transfers to New
England Variable Life
Insurance Company..... (50,969,349) (2,798,256) (4,457,696) (1,217,417) (1,765,986) (61,208,704)
------------ ----------- ------------ ----------- ----------- ------------
Increase in net assets
derived from policy-
related transactions.. 33,796,954 2,294,805 631,224 1,117,234 383,905 38,224,122
------------ ----------- ------------ ----------- ----------- ------------
Net increase in net
assets................ 25,351,368 3,127,006 1,097,012 1,447,887 1,026,057 32,049,330
NET ASSETS, AT
BEGINNING OF THE
PERIOD................ 123,494,622 7,501,550 10,967,473 2,972,522 8,375,383 153,311,550
------------ ----------- ------------ ----------- ----------- ------------
NET ASSETS, AT END OF
THE PERIOD............ $148,845,990 $10,628,556 $ 12,064,485 $ 4,420,409 $ 9,401,440 $185,360,880
============ =========== ============ =========== =========== ============
</TABLE>
See Notes to Financial Statements
19
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. New England Variable Life Separate Account (the "Account") of New England
Variable Life Insurance Company ("NEVLICO"), was established by NEVLICO's
Board of Directors on January 31, 1983 in accordance with the regulations of
the Delaware Insurance Department. NEVLICO is a wholly-owned subsidiary of New
England Mutual Life Insurance Company ("The New England"). The Account is
registered as a unit investment trust under the Investment Company Act of
1940. The assets of the Account are owned by NEVLICO. However, that portion of
the Account assets equal to the reserves and other liabilities of the Account
may not be charged with liabilities that arise out of any other business
NEVLICO may conduct.
2. The Account has twelve investment sub-accounts each of which invests in the
shares of one portfolio of 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
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 Variable Insurance Products Fund II are
diversified, open-end management investment companies. The Account purchases
or redeems shares of the twelve 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. Boston time) on each day the Exchange is
open for trading. Realized gains and losses on the sale of the Eligible Funds'
shares are computed on the basis of identified cost on the trade date. Income
from dividends is recorded on the ex-dividend date.
3. Certain deductions are made from each premium payment paid to NEVLICO to
arrive at a net premium that is transferred to the Account, and certain
deductions are made from the variable life insurance policies' cash value.
These deductions include sales load, administrative expenses, a risk charge,
premium taxes and the cost of providing insurance protection. Charges for
investment advisory fees and other expenses are deducted from the assets of
the Eligible Funds.
NEVLICO charges the Account for mortality and expense risks NEVLICO assumes.
Currently, the charges are made daily at an effective annual rate of .35% of
the Account assets attributable to fixed premium variable life policies, .45%
of the Account assets attributable to single premium variable life policies,
.60% of the Account assets attributable to variable ordinary life policies and
limited payment variable life policies, and .90% of the Account assets
attributable to variable survivorship life policies.
4. For federal income tax purposes the Account's operations are included with
those of NEVLICO. NEVLICO intends to make appropriate charges against the
Account in the future if and when tax liabilities arise.
5. The Back Bay Advisors Bond Income, Back Bay Advisors Money Market and Back
Bay Advisors Managed Series of the Zenith Fund receive investment advice from
Back Bay Advisors, L.P. ("Back Bay Advisors"), an indirect subsidiary of The
New England. Capital Growth Management Limited Partnership ("CGM") serves as
investment adviser to the Capital Growth Series. Loomis, Sayles serves as
investment adviser to the Loomis Sayles Avanti Growth Series and the Loomis
Sayles Small Cap Series, and Westpeak Investment Advisers, L.P. ("Westpeak")
serves as investment adviser to the Westpeak Stock Index Series and the
Westpeak Value Growth Series. Back Bay Advisors served as investment adviser
to the Westpeak Stock Index Series until August 2, 1993, when Westpeak became
the investment adviser pursuant to an advisory agreement that was approved by
shareholders of the Westpeak Stock Index Series on July 14, 1993. Loomis,
Sayles, Westpeak, and CGM are indirect subsidiaries of The New England. The
Equity-Income, Overseas, and High Income Portfolios of the Variable Insurance
Products Fund and the Asset Manager Portfolio of the Variable Insurance
Products Fund II receive investment advice from Fidelity Management & Research
Company.
20
<PAGE>
6. The following table shows the aggregate cost of shares purchased and
proceeds from sales of each sub-account as of December 31, 1994:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth..................................... $164,839,394 $104,764,194
Bond Income........................................ 12,808,505 9,812,380
Money Market....................................... 55,266,374 50,824,342
Stock Index........................................ 6,625,186 3,854,139
Managed............................................ 8,429,317 6,603,077
Avanti Growth...................................... 7,196,134 2,478,839
Value Growth....................................... 4,869,047 1,506,335
Small Cap.......................................... 231,338 5
Fidelity Equity-Income............................. 24,975,998 7,189,332
Fidelity Overseas.................................. 32,894,034 9,110,672
Fidelity High Income............................... 36,150 --
Fidelity Asset Manager............................. 245,398 6,777
</TABLE>
7. The following tables show the net investment return of the sub-accounts 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 for each type of variable life insurance policy
shown. These figures do not reflect charges deducted from premiums and cash
values of the policies. Such charges will affect the actual cash values and
benefits of the policies. Certain amounts in 1988, 1989, and 1990 have been
recalculated to conform with the current presentation.
FIXED PREMIUM ("ZENITH LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89 - 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 67.51% 94.53% 52.17% -9.11% 30.30% -3.82% 53.45% -6.38% 14.57% -8.06%
Bond Income............. 18.34% 14.43% 1.91% 7.99% 11.91% 7.71% 17.55% 7.80% 12.22% -3.91%
Money Market............ 7.88% 6.43% 6.16% 7.14% 8.87% 7.81% 5.84% 3.43% 2.61% 3.65%
<CAPTION>
5/1/87- 1/1/88- 1/1/89 - 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock-Index............................... -12.40% 15.93% 29.70% -4.48% 29.98% 6.92% 9.34% 0.71%
Managed................................... -.89% 9.10% 18.67% 2.85% 19.75% 6.33% 10.26% -1.53%
<CAPTION>
4/30/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Avanti Growth................................................................................... 14.47% -1.70%
Value Growth.................................................................................... 13.97% -1.86%
<CAPTION>
1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Fidelity Equity-Income.......................................................................... 17.88% 6.55%
Fidelity Overseas............................................................................... 36.87% 0.85%
<CAPTION>
5/2/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Small Cap................................................................................................ -4.23%
<CAPTION>
1/1/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Fidelity High Income..................................................................................... -1.80%
Fidelity Asset Manager................................................................................... -6.76%
</TABLE>
21
<PAGE>
SINGLE PREMIUM ("ZENITH LIFE ONE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 67.34% 94.33% 52.02% -9.20% 30.17% -3.91% 53.29% -6.47% 14.46% -8.16%
Bond Income............. 18.23% 14.32% 1.81% 7.88% 11.79% 7.60% 17.43% 7.69% 12.10% -4.01%
Money Market............ 7.78% 6.32% 6.05% 7.03% 8.77% 7.71% 5.74% 3.33% 2.51% 3.54%
<CAPTION>
5/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............................... -12.46% 15.82% 29.57% -4.58% 29.85% 6.81% 9.23% 0.60%
Managed................................... -.96% 8.99% 18.55% 2.75% 19.63% 6.22% 10.15% -1.63%
<CAPTION>
4/30/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Avanti Growth................................................................................... 14.39% -1.80%
Value Growth.................................................................................... 13.90% -1.96%
<CAPTION>
1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Fidelity Equity-Income.......................................................................... 17.76% 6.44%
Fidelity Overseas............................................................................... 36.74% 0.75%
<CAPTION>
5/2/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Small Cap................................................................................................ -4.30%
<CAPTION>
1/1/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Fidelity High Income..................................................................................... -1.90%
Fidelity Asset Manager................................................................................... -6.85%
</TABLE>
VARIABLE ORDINARY ("ZENITH LIFE PLUS" AND "ZENITH LIFE PLUS II") AND LIMITED
PAYMENT ("ZENITH LIFE EXECUTIVE 65") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 67.09% 94.04% 51.79% -9.36% 30.80% -4.64% 53.06% -6.61% 14.28% -8.30%
Bond Income............. 18.05% 14.15% 1.65% 7.63% 11.68% 7.48% 17.25% 7.53% 11.94% -4.16%
Money Market............ 7.61% 6.16% 5.89% 6.94% 8.58% 7.50% 5.58% 3.18% 2.36% 3.39%
<CAPTION>
5/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............................... -12.55% 14.67% 32.72% -6.33% 29.65% 6.65% 9.07% 0.45%
Managed................................... -1.06% 8.43% 19.83% 1.72% 19.45% 6.06% 9.99% -1.78%
<CAPTION>
4/30/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Avanti Growth................................................................................... 14.28% -1.94%
Value Growth.................................................................................... 13.78% -2.11%
<CAPTION>
1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Fidelity Equity-Income.......................................................................... 17.59% 6.28%
Fidelity Overseas............................................................................... 36.53% 0.59%
<CAPTION>
5/2/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Small Cap................................................................................................ -4.40%
<CAPTION>
1/1/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Fidelity High Income..................................................................................... -2.05%
Fidelity Asset Manager................................................................................... -7.00%
</TABLE>
22
<PAGE>
VARIABLE ORDINARY ("ZENITH SURVIVORSHIP LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 66.59% 93.46% 51.34% -9.63% 30.41% -4.92% 52.61% -6.90% 13.94% -8.57%
Bond Income............. 17.70% 13.81% 1.35% 7.30% 11.34% 7.16% 16.90% 7.21% 11.60% -4.45%
Money Market............ 7.29% 5.85% 5.57% 6.62% 8.25% 7.18% 5.26% 2.87% 2.05% 3.08%
<CAPTION>
5/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............................... -12.73% 14.32% 32.33% -6.61% 29.27% 6.33% 8.74% 0.15%
Managed................................... -1.26% 8.10% 19.47% 1.42% 19.10% 5.74% 9.69% -2.07%
<CAPTION>
4/30/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Avanti Growth................................................................................... 14.05% -2.24%
Value Growth.................................................................................... 13.55% -2.40%
<CAPTION>
1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Fidelity Equity-Income.......................................................................... 17.23% 5.96%
Fidelity Overseas............................................................................... 36.12% 0.29%
<CAPTION>
5/2/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Small Cap................................................................................................ -4.59%
<CAPTION>
1/1/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Fidelity High Income..................................................................................... -2.34%
Fidelity Asset Manager................................................................................... -7.28%
</TABLE>
The net investment return of a sub-account is calculated by taking the
difference between the sub-account's ending value and beginning value for the
period and dividing it by the beginning value for the period.
23
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of New England Variable Life
Insurance Company:
We have audited the accompanying balance sheets of New England Variable Life
Insurance Company (a wholly-owned subsidiary of New England Mutual Life
Insurance Company) as of December 31, 1994 and 1993, and the related
statements of operations, surplus, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New England Variable Life
Insurance Company as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Insurance Department of
the State of Delaware, which are considered generally accepted accounting
principles for wholly-owned stock life insurance subsidiaries of mutual life
insurance companies.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 24, 1995
24
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
---- ----
<S> <C> <C>
Bonds.............................................. $ 7,828,833 $ 7,987,043
Mortgage loan...................................... 2,221,942 2,230,000
Policy loans....................................... 43,967,343 30,673,718
Cash and short-term investments.................... 10,669,045 21,282,674
Accrued investment income.......................... 1,377,286 1,061,822
Premiums deferred and uncollected.................. 6,892,888 5,452,658
Due from separate account, net..................... 79,549,258 63,855,885
Due from New England Mutual Life Insurance Company. 1,889,855 475,007
Other assets....................................... 814,991 1,636,853
Separate account assets............................ 445,040,547 362,479,478
------------ ------------
Total assets................................... $600,251,988 $497,135,138
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SURPLUS
<S> <C> <C>
Policy reserves.................................... $ 44,648,304 $ 26,905,146
Due New England Mutual Life Insurance Company...... 3,219,350 7,917,908
Federal income taxes............................... 4,611,653 1,644,852
Accrued expenses................................... 4,746,096 2,866,665
Other liabilities.................................. 1,120,620 735,987
Separate account liabilities....................... 445,040,547 362,479,478
------------ ------------
Total liabilities.............................. 503,386,570 402,550,036
Surplus:
Common stock (shares authorized: 50,000; issued
and outstanding:
20,000; par value $125)......................... 2,500,000 2,500,000
Paid-in capital in excess of par value........... 117,709,808 107,709,808
Unassigned surplus............................... (23,481,592) (15,831,154)
Asset valuation reserve........................ 137,202 206,448
------------ ------------
Total surplus.................................. 96,865,418 94,585,102
------------ ------------
Total liabilities and surplus.................. $600,251,988 $497,135,138
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Income:
Premiums......................................... $201,732,909 $146,137,792
Investment income................................ 3,093,024 2,724,046
------------ ------------
204,825,933 148,861,838
Expenses:
Death and other benefits......................... 23,345,664 18,207,816
Increase in policy reserves...................... 17,743,158 5,573,679
Commissions...................................... 37,220,361 29,849,384
Net transfers to separate account................ 87,853,704 58,823,455
General and administrative....................... 43,395,223 31,727,803
------------ ------------
209,558,110 144,182,137
------------ ------------
Income (loss) before provision for taxes........... (4,732,177) 4,679,701
Provision for income taxes......................... 2,968,375 5,066,507
------------ ------------
Net loss from operations before realized capital
losses............................................ (7,700,552) (386,806)
Net realized investment gains (losses) less capital
gains tax of $0 in 1994 and $4,916 in 1993........ 9 (5,780)
------------ ------------
Net loss........................................... $ (7,700,543) $ (392,586)
============ ============
STATEMENTS OF SURPLUS
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Surplus, beginning of year......................... $ 94,585,102 $ 69,988,844
Net loss........................................... (7,700,543) (392,586)
Change in non-admitted assets...................... (19,141) (11,156)
Paid-in capital.................................... 10,000,000 25,000,000
------------ ------------
Surplus, end of year............................... $ 96,865,418 $ 94,585,102
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Insurance premiums and other considerations..... $ 199,670,506 $143,259,367
Investment income............................... 2,773,220 2,479,596
Benefits........................................ (23,510,882) (18,036,117)
Expenses and taxes.............................. (80,900,670) (62,011,687)
Net transfers to separate account............... (103,547,077) (72,721,602)
Net increase in policy loans.................... (13,293,625) (9,308,284)
Other disbursements, net........................ (1,972,032) (2,914,732)
------------- ------------
Net cash flows used in operating activities... (20,780,560) (19,253,459)
Cash flows from investing activities:
Proceeds of long-term investments sold, matured
or repaid (net of tax)......................... 166,942 576,687
Cost of long-term investments acquired.......... (11) (922)
------------- ------------
Net cash flows from investing activities...... 166,931 575,765
Cash flows from financing activities:
Paid-in capital................................. 10,000,000 25,000,000
------------- ------------
Net cash flows.................................... (10,613,629) 6,322,306
Cash and short-term investments, beginning of
year............................................. 21,282,674 14,960,368
------------- ------------
Cash and short-term investments, end of year...... $ 10,669,045 $ 21,282,674
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL:
New England Variable Life Insurance Company (the "Company") is a wholly-
owned stock life insurance subsidiary of New England Mutual Life Insurance
Company ("The New England"). The Company is authorized to transact variable
life insurance business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The Company prepares its statutory financial statements, except as to form,
in accordance with accounting practices prescribed or permitted by the
Insurance Department of the State of Delaware, which are currently considered
generally accepted accounting principles (GAAP) for wholly-owned stock life
insurance subsidiaries of a mutual life insurance company. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as state laws,
regulations, and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed.
The Financial Accounting Standards Board (FASB) issued Interpretation No.
40, Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises, and Statement of Financial Accounting
Standards No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts. The American Institute of Certified Public
Accountants issued Statement of Position 95-1, Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises. Neither of these
groups has a role in establishing regulatory accounting practices. These
pronouncements will require stock life subsidiaries of a mutual life insurance
company parent to modify their financial statements in order for them to
continue to be in accordance with generally accepted accounting principles,
effective for 1996 financial statements. The manner in which policy reserves,
new business acquisition costs, asset valuations and the related tax effects
are recorded will change. Management has not determined the impact of such
changes on its financial statements.
Certain amounts from the 1993 financial statements have been reclassified to
conform with the 1994 presentation.
INVESTED ASSETS
Carrying values of bonds have been determined in accordance with methods and
values adopted by the National Association of Insurance Commissioners. Bonds
are carried primarily at amortized cost.
The Company's mortgage loans on real estate are carried at outstanding
principal balance or amortized cost. The estimated fair value of these loans
is determined using an internal matrix based on market rates and a credit
rating system. The Company establishes investment valuation reserves equal to
the amount by which the admitted value of each mortgage loan that has been
modified, is delinquent 90 days or more, or is in the process of modification,
exceeds the estimated fair value of its underlying collateral. These
investment valuation reserves are adjusted annually based on current
valuations.
Policy loans are carried at the aggregate of the unpaid balances. Policy
loans are an integral part of insurance products and have no maturity dates.
Consequently, it is not practicable to value these instruments.
Short term investments are carried principally at cost, which approximates
fair value, and include securities with a maturity date at purchase of less
than one year.
Realized gains and losses on the sales of investments are determined on the
specific identification method. See Note 3 for accounting treatment of
realized gains and losses attributable to interest rate changes. Unrealized
gains and losses are accounted for as direct increases or decreases in
surplus.
28
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPARATE ACCOUNT
Assets and liabilities held in the separate account are included as separate
captions on the balance sheet. The statements of operations include the
general account business and the net transfers to the separate account. The
separate account's net transfers, investment income, realized and unrealized
capital gains and losses, and investment expenses are offset by corresponding
increases or decreases in reserves required to provide for future payments to
policyholders. These assets consist principally of investments in mutual funds
and are carried at fair value.
VARIABLE LIFE RESERVES
Reserves for variable life insurance policies are developed using the 1958
and 1980 Commissioners' Standard Ordinary Mortality Tables on the Net Level
Premium Method, the Net Single Premium Method, or the Modified Full
Preliminary Term Method with assumed interest rates ranging from 4% to 5%.
DUE FROM SEPARATE ACCOUNT, NET
The Company records as a receivable amounts that are due from the separate
account for policy charges (including cost of insurance charges,
administrative charges and minimum death benefit charges), and amounts held
for policy account values in excess of the statutory reserve.
Amounts held in excess of the reserve cannot be transferred unless the
policy is terminated or the policy account value is withdrawn.
Actual transfers from the separate account to the general account for the
policy charges are made on a periodic basis to reduce this receivable. The
components of the amount due from the separate account, net as of December 31,
1994 and December 31, 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Account values in excess of reserves................ $75,718,686 $60,722,683
Policy charges...................................... 3,830,572 3,133,202
----------- -----------
Total............................................. $79,549,258 $63,855,885
=========== ===========
</TABLE>
RECOGNITION OF PREMIUM REVENUE AND RELATED EXPENSES
Variable life premium revenue is recognized during the premium paying
period. Commissions and other expenses in connection with acquiring new
business are charged to current operations as incurred.
FEDERAL INCOME TAXES
The Company's federal income tax return is consolidated with The New
England. The method of allocation between the companies is subject to a tax
sharing agreement, and allocation is based upon separate return calculations
with current credit for net losses. Net operating loss carryforwards to the
extent not previously reimbursed will be utilized as a deduction before
determining the tax liability to The New England.
3. INVESTMENT RESERVES AND INTEREST MAINTENANCE RESERVE:
The Asset Valuation Reserve (AVR) is designed to mitigate the effect of
valuation and credit-related losses on unassigned surplus. The AVR covers all
invested asset classes with risk of loss, including bonds, common stock,
mortgage loans and real estate. This balance has been classified under the
surplus caption within the balance sheet. This presentation differs from the
Company's statutory filing, however, in management's opinion, it is consistent
with industry practice which considers such reserves part of surplus.
29
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The Interest Maintenance Reserve (IMR) accumulates realized capital gains
and losses on the sale of all types of fixed income securities which result
from changes in the overall level of interest rates. These gains are amortized
into operating income over the remaining life of each investment sold. The IMR
is included in Other liabilities and amounted to $75,451 and $75,672 as of
December 31, 1994 and 1993, respectively. The amortization of the IMR into net
income net of federal income tax for 1994 and 1993, respectively, was $2,702
and $1,888.
4. INVESTMENTS:
The carrying value and estimated fair values of debt securities in the
general account are as follows:
<TABLE>
<CAPTION>
1994
GROSS UNREALIZED ESTIMATED
CARRYING ------------------ FAIR
VALUE GAINS LOSSES VALUE
-------- ----- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government
corporations and agencies.............. $4,191 $ 62 $ (60) $4,193
Corporate securities.................... 3,546 125 (7) 3,664
Mortgage-backed securities.............. 92 0 (3) 89
------ -------- -------- ------
Total................................... $7,829 $ 187 $ (70) $7,946
====== ======== ======== ======
<CAPTION>
1993
GROSS UNREALIZED ESTIMATED
CARRYING ------------------ FAIR
VALUE GAINS LOSSES VALUE
-------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government
corporations and agencies.............. $3,727 $ 220 $ 0 $3,947
Corporate securities.................... 4,112 469 (1) 4,580
Mortgage-backed securities.............. 148 3 0 151
------ -------- -------- ------
Total................................... $7,987 $ 692 $ (1) $8,678
====== ======== ======== ======
</TABLE>
Publicly traded debt securities are valued based upon quoted market prices.
The fair values of private placement obligations are determined using an
internal matrix based on market interest rates, the credit rating of the
specific security, and public prices of similar securities.
The carrying value and estimated fair value of debt securities at December
31, 1994, by contractual maturity, are shown below. Stated maturities may
differ from contractual maturities because some borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Due in 1 year or less........................................ $ 426 $ 426
Due after 1 year through 5 years............................. 5,195 5,142
Due after 5 years through 10 years........................... 467 524
Due after 10 years........................................... 1,649 1,765
Mortgage-backed securities................................... 92 89
------ ------
Total........................................................ $7,829 $7,946
====== ======
</TABLE>
Gross realized gains from sale of debt securities were $3,817 and $44,496,
and gross realized losses were $0 and $770 in 1994 and 1993, respectively. Net
realized gains of $2,481 and $28,422 in 1994 and 1993, respectively, were
transferred to the IMR.
30
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The carrying value of the mortgage loan was $2,221,942 and $2,230,000 and
estimated fair value of the mortgage loan was $2,240,539 and $2,371,315 at
December 31, 1994 and December 31, 1993, respectively.
5. RELATED-PARTY TRANSACTIONS:
Under the terms of a service agreement, The New England furnishes all
executive, legal, clerical, and other personnel services to the Company. The
fees for such services amounted to $40,071,822 in 1994 and $29,059,452 in
1993.
All of the officers and directors of the Company are officers of The New
England.
On June 22, 1994 and June 30, 1993, The New England contributed $10,000,000
and $25,000,000 of capital to the Company, respectively.
6. FEDERAL INCOME TAXES:
Federal income taxes are provided on the basis of amounts estimated to be
payable under the Internal Revenue Code. The Company files a consolidated
federal income tax return with The New England.
Below is a reconciliation of income before federal income taxes to taxable
gain from operations:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
----------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Operating gain (loss) before federal income taxes............. $(4,732) $ 4,680
Deferred acquisition costs.................................... 11,035 8,660
Nontaxable income............................................. (25) (38)
Expense-related differences................................... 3,816 3,971
Other income-related differences.............................. (1,614) (2,797)
------- -------
Taxable gain from operations.................................. $ 8,480 $14,476
------- -------
Federal income taxes at 35%................................... $ 2,968 $ 5,067
======= =======
</TABLE>
The Internal Revenue Service has completed its examination of the Company's
income tax returns through 1989 and is currently examining the income tax
returns for 1990 to 1991. The New England is contesting certain issues since
1976. The outcome of these proceedings is not currently determinable but, in
the opinion of management, would not have a materially adverse effect on the
financial statements.
7. REINSURANCE:
The Company's practice on individual products is to retain not more than
$75,000 of risk on any person, excluding accidental death benefits. Total
individual life premiums ceded were $13.8 million and $9.8 million at December
31, 1994 and 1993, respectively. In 1994, $9.5 million of the $13.8 million
premiums were ceded to The New England, and in 1993, $7.6 million of the $9.8
million premiums were ceded to The New England.
The individual life insurance in force ceded was $9.7 billion and $7.0
billion at December 31, 1994 and 1993, respectively.
The Company is contingently liable with respect to ceded insurance should
any reinsurer be unable to meet the obligations assumed by it.
31
