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Prospectus
[LOGO OF THE NEW ENGLAND
APPEARS HERE]
Zenith Life Executive 65
Offered by New England Variable Life
May 1, 1996
[ARTWORK APPEARS HERE]
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NEW ENGLAND VARIABLE LIFE
INSURANCE COMPANY
Limited Payment Variable Life Insurance Policies
Issued by
New England Variable Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus describes individual Limited Payment Variable Life Insurance
Policies (the "Policies") offered by New England Variable Life Insurance
Company ("NEVLICO"), 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.
Each Policy provides a guaranteed minimum death benefit equal to the
Policy's face amount, as long as required scheduled premiums are paid when due
and there is no "excess policy loan." (See "Loan Provision.") Scheduled
premium payments are generally required until the insured reaches age 65, or
for 10 years, if later. Under certain circumstances, however, you may skip a
scheduled premium payment. You may also make additional payments, subject to
certain restrictions.
You may choose either a fixed death benefit equal to the Policy's face
amount or a variable death benefit which may vary daily with the net
investment experience of one or more mutual fund portfolios. Under both death
benefit options, the minimum death benefit guarantee will apply. 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.
You may cancel the Policy during the "right to return the Policy" period.
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 your instructions.
You may allocate scheduled premiums and unscheduled payments to one or more
of the 16 investment sub-accounts of NEVLICO's Variable Life Separate Account
(the "Variable Account") or to 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
"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").
SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE OUT OF THE FIXED ACCOUNT.
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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, 1996
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TABLE OF CONTENTS
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GLOSSARY.................................................................. A-4
INTRODUCTION TO THE POLICIES.............................................. A-6
The Policies............................................................ A-6
Availability of the Policy.............................................. A-8
Policy Charges.......................................................... A-8
How the Policy Works.................................................... A-10
Receipt of Communications and Payments at NEVLICO's Administrative
Office................................................................. A-11
NEVLICO and The New England............................................. A-11
POLICY VALUES AND BENEFITS................................................ A-12
Death Benefit........................................................... A-12
Guaranteed Minimum Death Benefit........................................ A-12
Adjustments to the Death Proceeds Payable............................... A-12
Tabular Cash Value...................................................... A-12
Cash Value.............................................................. A-13
Net Investment Experience............................................... A-13
Allocation of Net Premiums.............................................. A-13
Amount Provided for Investment under the Policy......................... A-13
Right to Return the Policy.............................................. A-14
CHARGES AND EXPENSES...................................................... A-15
Deductions from Premiums and Unscheduled Payments....................... A-15
Surrender Charge........................................................ A-16
Deductions from Cash Value.............................................. A-18
Charges Against the Eligible Funds and the Sub-Accounts of the Variable
Account................................................................ A-19
Group or Sponsored Arrangements......................................... A-20
PREMIUMS.................................................................. A-20
Scheduled Premiums...................................................... A-20
Unscheduled Payments.................................................... A-21
Special Premium Option.................................................. A-22
Automatic Premium Loan.................................................. A-23
Default and Lapse Options............................................... A-23
OTHER POLICY FEATURES..................................................... A-25
Loan Provision.......................................................... A-25
Surrender............................................................... A-26
Partial Surrender and Partial Withdrawal................................ A-26
Reduction in Face Amount................................................ A-28
Acceleration of Death Benefit Rider..................................... A-28
Investment Options...................................................... A-28
Transfer Option......................................................... A-29
Substitution of Insured Person.......................................... A-29
Payment of Proceeds..................................................... A-29
Exchange of Policy During First 24 Months............................... A-30
Payment Options......................................................... A-30
Additional Benefits by Rider............................................ A-31
Policy Owner and Beneficiary............................................ A-32
THE VARIABLE ACCOUNT...................................................... A-32
Investments of the Variable Account..................................... A-33
Investment Management................................................... A-36
THE FIXED ACCOUNT......................................................... A-38
General Description..................................................... A-38
Values and Benefits..................................................... A-39
Policy Transactions..................................................... A-39
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NEVLICO'S DISTRIBUTION AND OTHER AGREEMENTS............................... A-40
LIMITS TO NEVLICO'S RIGHT TO CHALLENGE THE POLICY......................... A-40
Misstatement of Age or Sex.............................................. A-40
Suicide................................................................. A-41
TAX CONSIDERATIONS........................................................ A-41
Policy Proceeds......................................................... A-41
Charge for NEVLICO's Income Taxes....................................... A-44
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-79
APPENDIX D: USES OF LIFE INSURANCE........................................ A-82
APPENDIX E: TAX INFORMATION............................................... A-84
FINANCIAL STATEMENTS...................................................... A-85
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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".)
AGE 65. For purposes of this prospectus, "age 65" is determined based on the
age of the insured shown in your Policy.
AUTOMATIC PREMIUM LOAN OPTION. If you elect this option, the Policy's loan
value, if sufficient, will be used to pay a scheduled premium, if you have not
paid the scheduled premium 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 4.5% 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 an automatic issue Policy;
and (iii) the portion of the annual Policy administrative charge that is due
with 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 (i) the face amount of the
Policy or, if greater, (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 (i) the face amount of the
Policy plus any excess of the Policy's cash value over its "tabular cash
value" or, if greater, (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 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.
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. (See "Fixed Account".)
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".)
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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 when 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 from the value
of each sub-account's assets that come from the Policies. Currently the charge
is at an annual rate of .60% of the sub-accounts' assets, and is guaranteed
not to exceed .90% of the sub-accounts' assets. 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 you may obtain upon surrender of the Policy and
which is equal to the Policy's cash value reduced by any outstanding policy
loan and accrued interest; reduced by any applicable Surrender Charge; and
increased by the portion of any cost of insurance charge deducted for 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 Funds
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, state premium tax charge and federal 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, state premium tax charge and federal premium tax charge. (See
"Deductions From Premiums and Unscheduled Payments".)
POLICY DATE. If you make a premium payment 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 you choose to pay the initial premium upon
delivery of the Policy, the Policy will be issued with a Policy Date which is
generally five days after issue. (See "Amount Provided for Investment under
the Policy".)
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".)
PREMIUM PAYING PERIOD. The period from inception of the Policy until the
policy anniversary when the insured reaches age 65, or 10 years after the
Policy is issued, whichever is later.
SPECIAL PREMIUM OPTION. If you elect this option, you may not be required to
pay a scheduled premium or premiums under certain circumstances. (See "Special
Premium Option".)
TABULAR CASH VALUE. 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, no loans or other withdrawals of cash value, and no
reductions in face amount were made; (iii) the Policy's sub-accounts earned a
4.5% annual net rate of return; and (iv) maximum Policy charges were deducted
from the cash value. (See "Tabular Cash Value".)
YOU. When used in this prospectus, "you" refers to the Policy Owner.
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INTRODUCTION TO THE 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, see "The Fixed Account" which appears later in this
prospectus.
THE POLICIES
The individual Limited Payment Variable Life Insurance Policies offered by
this prospectus are designed to provide lifetime insurance coverage. They are
not offered primarily as an investment.
The following is a brief listing of the basic features of the Policy. These
and other features of the Policy are explained in detail throughout the
prospectus. You should be sure to read the prospectus for more complete
information.
--The Policy requires payment of a level scheduled premium until the insured
reaches age 65, or for 10 years after the policy is issued, whichever is
later. NEVLICO guarantees that no scheduled premiums will be due after
this period, and no premiums will be accepted after this period. (See
"Scheduled Premiums".)
--You may choose to make additional, unscheduled payments under the Policy
during the Premium Paying Period. NEVLICO can limit or prohibit
unscheduled payments in certain situations, including cases where the
insured is in a substandard risk class. (See "Unscheduled Payments" and
"Substitution of Insured Person".)
--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 Zenith 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. 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 in 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. You 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, each 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".)
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--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".)
--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 "right to return the Policy" 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 generally are not taxable to you. (See "Tax Considerations".)
--Loans, assignments and other pre-death distributions under the Policy may
have tax consequences depending primarily on the amount which you have
paid into the Policy but also on any "material change" in the terms or
benefits of the Policy or any death benefit reduction. If premium
payments, a death benefit reduction, or a material change in the terms or
benefits of the Policy cause it to become a "modified endowment contract",
then pre-death distributions will be includible 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 "right to return the Policy" period to
return the Policy for a refund. (See "Right to Return the Policy".)
--Within 24 months after a Policy's date of issue, you may exchange the
Policy, without evidence of insurability, for a comparable fixed-benefit
policy issued by The New England 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
limited payment life insurance. Like fixed-benefit life insurance, the
Policies provide for a guaranteed minimum death benefit, scheduled premiums, a
cash value, and loan privileges.
The Policies are different from traditional, fixed-benefit limited payment
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, to skip 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.
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-- In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from the premiums and values of
the Policy. These charges include various insurance, risk, administrative
and premium tax charges. (See "Charges and Expenses".)
-- The Variable Account, not the Policy Owner, owns the mutual fund shares.
-- Federal income tax liability on any earnings is deferred until you receive
a distribution from the Policy. Transfers from one underlying fund
portfolio to another are accomplished without tax liability under current
law.
-- Dividends and capital gains are automatically reinvested.
For a discussion of some of the uses of the Policies, see "Appendix D: Uses
of Life Insurance".
AVAILABILITY OF THE POLICY
Generally, a Policy may be issued to insureds from the age of one to 75,
and, if NEVLICO consents, to insureds from the age of 76 to 80 and below the
age of one. If the Policy is sold in a business situation, the minimum age
requirement is 15, and if the Policy is issued on an automatic issue basis,
the permitted issue ages are 20 through 70. All persons must meet NEVLICO's
underwriting and other criteria for issuance. The minimum face amount
available is $25,000 unless NEVLICO consents to a lower amount. The Policies
are not available to employee benefit plans qualified under Section 401 of the
Internal Revenue Code, except with NEVLICO's consent.
POLICY CHARGES
PREMIUM-BASED CHARGES. NEVLICO deducts the following charges:
-- From scheduled premiums
(i) an annual administrative charge ($55 for annual premium Policies, up to
a total of $57.75, or $14.4375 per quarter and $4.8125 per month, for
Policies that are billed on a quarterly or monthly basis or that use The
New England's Master Service Account arrangement), plus any extra
premiums for riders, substandard risk or automatic issue class;
(ii) a sales charge of 5.5%. NEVLICO currently intends to waive this charge
on scheduled premiums paid after the first 15 policy years;
(iii) a state premium tax charge of 2.5%;
(iv) a charge for federal taxes of 1%.
-- From unscheduled payments
(i) a sales charge of 5.5% in all policy years;
(ii) a state premium tax charge of 2.5%;
(iii) a charge for federal taxes of 1%.
SURRENDER CHARGE. During the first 15 policy years, a Surrender Charge will
apply if the Policy is totally or partially surrendered or lapses or the face
amount is reduced. The Surrender Charge includes:
-- a deferred administrative charge. This charge is $2.70 per $1,000 of face
amount in the first policy year, and then reduces monthly until it reaches
0 at the end of the 10th policy year;
-- a deferred sales charge. For insureds who were issue age 50 or less at
issue the maximum charge applies if you lapse or surrender the Policy, or
reduce its face amount, in policy years 3 through 10. The maximum charge
in those years is an amount equal to 43.5% of the Policy's basic scheduled
premiums in the first policy year plus 16.5% of the basic scheduled
premiums in the second policy year. The charge decreases on a monthly
basis beginning in policy year 11 until it reaches 0 at the end of policy
year 15. If you lapse or surrender the Policy, or reduce its face amount,
in the first 2 policy years, the maximum charge will be 23.5% of the first
year basic scheduled premiums plus 3.5% of the second year basic scheduled
premiums.
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For insureds who were above issue age 50, the Deferred Sales Charge
percentages are less than or equal to those described above, with the maximum
occurring in policy years 3 through 6 for insureds with an issue age up
through 65 and in policy years 2 through 4 for insureds with an issue age
above 65.
For insureds who were above issue age 50, the Surrender Charge period is 10
years.
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 deducts certain charges from the
cash value:
-- Monthly charge for the cost of insurance for the life of the Policy;
-- Monthly administrative charge, currently equal to $0.02 per $1,000 of face
amount (guaranteed not to exceed $0.04 per $1,000 of face amount) during
the premium paying period;
-- Monthly minimum death benefit guarantee charge of $0.01 per $1,000 of face
amount during the Premium Paying Period.
In addition, if you use the Special Premium Option to skip a scheduled
premium payment, NEVLICO will deduct from your cash value 91% of the portion
of the annual $55 administrative charge, and of any rider, substandard risk or
automatic issue premium, that was due with the skipped premium.
CHARGES DEDUCTED FROM THE VARIABLE ACCOUNT AND THE ZENITH FUND. The
following charges are deducted from the Variable Account and Eligible Fund
assets:
-- Daily charge against the sub-account assets for NEVLICO's mortality and
expense risk, currently equal to an annual rate of .60% (guaranteed not to
exceed .90%);
-- Daily charges against the Eligible Fund portfolios for investment advisory
services and fund operating expenses.
See "Charges and Expenses".
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HOW THE POLICY WORKS
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Premium Payments
. Guaranteed not to increase
. Payable until the insured reaches age 65, or for 10 years, if later
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Charges from Premium
. Any rider premiums
. Annual Admin. Charge-$55
. Substandard Risk Premium
. Automatic Issue Premium
. Sales Load (5.5%*) Company intends to waive after 15 policy yrs.
. State Premium Tax Charge (2.5%*)
. Charge for Federal Taxes (1%*)
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Unscheduled Payments
. Sales Load (5.5%)
. State Premium Tax Charge (2.5%)
. Charge for Federal Taxes (1%)
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Special Premium Option
. If used, charges for Annual Admin. Charge and any riders or
substandard risk or automatic issue premium are deducted from
cash value
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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 tranferred out of
the Eligible Funds into the General Account where they are credited
with not less than 4.5% 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% (guaranteed not to
exceed .90%) 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 for the life of the policy
. Minimum Death Benefit Guarantee Charge $.01 per $1000 face amount
monthly during the Premium Paying Period
. Admin. Charge $.02 (guaranteed not to exceed $.04) per $1000 face
amount monthly during the Premium Paying Period
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Surrender Charges
. Consist of Deferred Sales Charge and Deferred Administrative
Charge (see page A-16)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
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 fixed extended term insurance and
fixed or variable 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 Automatic Issue Premiums
A-10
<PAGE>
RECEIPT OF COMMUNICATIONS AND PAYMENTS AT NEVLICO'S ADMINISTRATIVE OFFICE
NEVLICO will treat your request for a Policy transaction, or your submission
of a payment, as received at the Administrative Office if it is received there
before the close of regular trading on the New York Stock Exchange on that day.
If it is received after that time, or if the New York Stock Exchange is not
open that day, then it will be treated as received on the next day when the New
York Stock Exchange is open.
NEVLICO AND THE NEW ENGLAND
NEVLICO was organized as a stock life insurance company in Delaware in 1980
and is licensed to sell life insurance in all states, the District of Columbia
and Puerto Rico. NEVLICO's Home Office 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, 1995, The New England
had over $16 billion of assets and over $62 billion of life insurance in force.
As of December 31, 1995, The New England and its affiliates had over $86
billion in assets under management.
As of December 31, 1995, the value of The New England's investment in NEVLICO
was $142.7 million. It is expected that The New England may from time to time
contribute additional amounts to NEVLICO; however, The New England is under no
obligation to do so, and its assets do not support the benefits under the
Policies. NEVLICO may reinsure a portion of a Policy's death benefit with The
New England.
The New England and MetLife have entered into an agreement to merge, with
MetLife to be the survivor of the merger. The merger is conditioned upon, among
other things, approval by the policyholders of The New England and MetLife and
receipt of certain regulatory approvals. If the merger is consummated, NEVLICO
will become an indirect wholly owned subsidiary of MetLife. NEVLICO is not
expected to be affected by the merger except to the extent that assets of The
New England may be transferred to NEVLICO in connection with consummation of
the merger.
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 are net unscheduled payments are allocated to
the Policy Owner's choice of sub-accounts in the Variable
Account or to the Fixed Account.
<TABLE>
<CAPTION>
Premiums --------------------------------------------------------------------------------------------------
and VARIABLE ACCOUNT
Unscheduled --------------------------------------------------------------------------------------------------
Payments <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith
Fixed Capital Bond Money Man- Stock Value Avanti Small Bal- Equity Venture
Account Growth Income Market aged Index Growth Growth Cap anced Growth Value
Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account Account Account Account Account
--------------------------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Zenith Equity- Over- High Asset
Inter- Income seas Income Man-
national Sub- Sub- Sub- ager
Equity Account Account Account Sub-
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.
A-11
<PAGE>
POLICY VALUES AND BENEFITS
DEATH BENEFIT
DEATH BENEFIT OPTIONS. When you apply for a Policy, you may choose between
two death benefit options. Once elected, the death benefit option under a
Policy may not be changed.
The Option 1 death benefit provides a death benefit equal to the face amount
of the Policy. Except as described below, the Option 1 death benefit is fixed.
The Option 2 death benefit provides a death benefit equal to the face amount
of the Policy plus the amount, if any, by which the Policy's cash value
exceeds its "tabular cash value". The Policy's tabular cash value is a
hypothetical value and is described in detail under "Tabular Cash Value"
below.
Generally, the Option 2 death benefit may exceed the face amount if the
Policy's sub-accounts (and the cash value in the Fixed Account) have earned
greater than a 4.5% net return, if you have paid more than the scheduled
premiums, or if less than the maximum charges were deducted.
In order to meet the Internal Revenue Code's definition of life insurance,
the Policies provide that the death benefit will not be less than the Policy's
cash value divided by the net single premium per dollar of death benefit at
the insured's attained age. This means that under both death benefit options,
if the cash value grows to certain levels the death benefit will be increased
to satisfy the tax law requirements. At that point, any payment you make into
the Policy will increase the death benefit by more than it increases the cash
value.
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 have been paid when
due or, under the Special Premium Option, are not required to be paid. (See
"Scheduled Premiums" and "Special Premium Option".) The death benefit will be
adjusted as described below before the proceeds are paid. However, if an
"excess policy loan" exists, the Policy may terminate even if all scheduled
premiums have been paid. (See "Loan Provision" for a definition of "excess
policy loan".)
ADJUSTMENTS TO THE DEATH PROCEEDS PAYABLE
The death proceeds actually paid to the beneficiary are equal to the death
benefit reduced by any outstanding loan and accrued loan interest and by the
portion of any unpaid scheduled premium for the period prior to the date of
death. The death proceeds will be increased by any rider benefits payable and
by the portion of any scheduled premium paid for a period beyond the date of
death.
The death proceeds may also be adjusted if the insured's age or sex was
misstated in the application, if death results from the insured's suicide
within two years (or less if provided by state law) from the Policy's date of
issue, or if limits on the death benefit are imposed by rider. (See "Limits to
NEVLICO's Right to Challenge the Policy".)
TABULAR CASH VALUE
The Policy's tabular cash value is a hypothetical value that is used to
determine the Option 2 death benefit, whether a scheduled premium payment can
be skipped under the Special Premium Option, and how much cash value is
available to be withdrawn from the Policy. (See "Death Benefit", "Special
Premium Option" and "Partial Surrender and Partial Withdrawal".) The tabular
cash value is the value the Policy would have if the cash value in the
Policy's sub-accounts (and cash value in the Fixed Account) earned a 4.5% net
return, all scheduled premiums were paid, no unscheduled payments, no loans or
other withdrawals of cash value, and no reductions in face amount were made,
and maximum Policy charges were deducted.
Your premium 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.
A-12
<PAGE>
CASH VALUE
Your Policy's cash value includes its cash value in the Variable Account, in
the Fixed Account and, if you have an outstanding policy loan, in NEVLICO's
general account as a result of the loan. The cash value reflects scheduled
premiums and unscheduled payments, the net investment experience of the
Policy's sub-accounts, interest credited on its cash value in the Fixed
Account and on amounts held in the general account as a result of a loan,
amounts deducted for Policy charges (including amounts deducted when you use
the Special Premium Option to skip a scheduled premium or any Surrender Charge
that applies if you reduce the Policy's face amount), and amounts withdrawn or
surrendered.
Your Policy's net cash value is the amount you will receive if you surrender
the Policy. The net cash value is the cash value reduced by any outstanding
policy loan (and accrued interest) and by any applicable surrender charge. The
net cash value is increased by the portion of any cost of insurance charge
deducted that applies to the period beyond the date of surrender. (See "Loan
Provision", "Surrender Charge" and "Monthly Charges for the Cost of
Insurance".)
The Policy's net cash value in the Variable Account may increase or decrease
daily depending on the net investment experience of the Policy's sub-accounts.
Unfavorable investment experience can reduce the net cash value to zero.
Because there is no guaranteed minimum cash value in the Variable Account, you
bear the entire investment risk with respect to the cash value. The premium
payment schedule you choose will also affect the Policy's net cash value.
NET INVESTMENT EXPERIENCE
The net investment experience of the Policy's sub-accounts will affect the
Policy's cash value and, in some circumstances, the death benefit. The net
investment experience of the sub-accounts is determined as of the close of
regular trading on the New York Stock Exchange on each day when the Exchange
is open for trading.
A sub-account's net investment experience for any period reflects the
investment experience of the underlying Eligible Fund shares for the same
period, reduced by the charges against the sub-account for that period.
(Currently the sub-accounts are charged only for NEVLICO's mortality and
expense risk, but in the future NEVLICO may impose a charge against the sub-
accounts for taxes if appropriate. See "Charges Against the Eligible Funds and
the Sub-Accounts of the Variable Account" and "Charge for NEVLICO's Income
Taxes".)
The investment experience of the Eligible Fund shares for any period is the
increase or decrease in their net asset value for the period, increased by the
amount of any dividends or capital gains distributions on the shares during
the period. Dividends and capital gains distributions on Eligible Fund shares
are reinvested in additional shares of the Fund and affect subsequent
investment experience.
A sub-account's net investment experience is referred to in the Policy as
"Actual Investment Return". Net investment experience at the monthly
equivalent of 4.5% 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 made during this initial period) 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 "Right to Return the Policy". For the definition of the
"investment start date", see "Amount Provided for Investment under a Policy".)
Thereafter, the cash value will be allocated to the sub-accounts and/or the
Fixed Account according to your instructions. Therefore, your selection of
accounts will not take effect until after the initial period, described above,
when the cash value is allocated to the Zenith Money Market Sub-Account.
AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY
INITIAL AMOUNT. An amount is first provided for investment under the Policy
as of the investment start date. That is the latest of: the date when 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 receipt by a NEVLICO agent or, if a broker-dealer
other than New England Securities is involved, by a NEVLICO agency.)
A-13
<PAGE>
If you make a premium payment with the application, the Policy Date will be
the later of the date Part II of the application is signed and receipt of the
premium payment. In that case the Policy Date and investment start date are
the same. The amount of premium paid with the application must be at least 10%
of the annual scheduled premium for the Policy or one monthly scheduled
premium. Only one premium payment may be made before the Policy is issued. 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.
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 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).
If a Policy is issued, monthly Policy charges, including cost of insurance
charges, will begin as of the Policy Date, even if the Policy's issuance was
delayed due to underwriting requirements, and will be in amounts based on the
face amount of the Policy issued, even if the temporary insurance coverage
received during the underwriting period was for a lesser amount. If NEVLICO
declines an application, it will refund the premium payment made and any
unscheduled payment made plus interest on the unscheduled payment at the rate
currently in use by NEVLICO.
If you choose to pay the initial premium upon delivery of the Policy, the
Policy will have a Policy Date which is generally five days after issue. The
investment start date will be the later of the Policy Date and the date the
premium is received. Monthly Policy charges will begin on the Policy Date.
Interest at a 4.5% 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, so that you can purchase a
particular Policy face amount for a lower premium, based on a younger
insurance age. Backdating in some cases may result in a Policy with a higher
Surrender Charge, if the backdating results in the Surrender Charge being
based on a lower age bracket, or may cause the insured to be treated as a
juvenile which could result in higher cost of insurance rates under the
Policy. For a backdated Policy, you 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 monthly Policy charges and interest at a 4.5%
net rate for the period between the Policy Date and the investment start date.
SUBSEQUENT AMOUNTS. Although your Policy's cash value reflects only the
scheduled premiums you have actually paid, on each premium due date NEVLICO
transfers to your Policy's sub-accounts the amount of the net scheduled
premium due, even if it has not yet been paid. Therefore, the amount provided
for investment on the premium due date includes the Policy's 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 use the Special
Premium Option to skip a scheduled premium or if you do not pay a required
scheduled premium and the Policy lapses, NEVLICO will withdraw the unpaid net
scheduled premium from the Variable Account, adjusted for the net investment
experience of the sub-accounts since the due date. (If you do not pay a
required scheduled premium, the Policy may lapse. (See "Default and Lapse
Options".)
The amount provided for investment in the Policy is adjusted as of each day
the New York Stock Exchange is open to reflect the net investment experience
of the sub-accounts for that day.
RIGHT TO RETURN THE POLICY
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). If you choose to cancel the Policy, NEVLICO will refund any scheduled
premium paid (or any other amount that is required by state insurance law and
permitted by the Securities and Exchange Commission) and any unscheduled
payments made, with interest on the unscheduled payments at the rate currently
in use by NEVLICO.
A-14
<PAGE>
CHARGES AND EXPENSES
DEDUCTIONS FROM PREMIUMS AND UNSCHEDULED PAYMENTS
NEVLICO deducts certain charges from your scheduled premiums and unscheduled
payments before allocating the net scheduled premiums and net unscheduled
payments to the Variable Account and Fixed Account.
NEVLICO deducts the following amounts from scheduled premiums to arrive at
the Policy's BASIC scheduled premium:
(i) charges for any rider benefits under your Policy;
(ii) extra premiums due if your Policy is in a substandard risk or automatic
issue class;
(iii) the portion of the annual Policy administrative charge that is due
with that scheduled premium payment. The total charge is $55 per year
for Policies that pay premiums once a year and increases as the
premium payment frequency increases. The amount of the charge for
other premium frequencies is as follows:
<TABLE>
<CAPTION>
AMOUNT AMOUNT
PAYMENT FREQUENCY PER PAYMENT PER YEAR
----------------- ----------- --------
<S> <C> <C>
Semi-annual............................................. $ 28.325 $56.65
Quarterly............................................... $14.4375 $57.75
Master Service Account.................................. $ 4.8125 $57.75
Monthly................................................. $ 4.8125 $57.75
</TABLE>
If an automatic issue Policy and an underwritten Policy are both issued by
NEVLICO on the same insured (because the total coverage exceeds NEVLICO's
automatic issue limits), NEVLICO will waive the annual Policy administrative
charge on the automatic issue Policy.
The charges described above are not deducted from unscheduled payments.
All of the administrative charges under the Policies cover the cost of
administering the Policies (such as the cost of processing Policy
transactions, issuing Policy Owner statements and reports, and record
keeping), as well as legal, actuarial, systems, mailing and other overhead
costs connected with NEVLICO's variable life insurance operations. These
charges have been designed to cover actual costs and are not intended to
produce a profit.
SALES CHARGE. NEVLICO deducts a sales charge from each scheduled premium and
unscheduled payment. The charge is 5.5% of each BASIC scheduled premium and
5.5% of each unscheduled payment. NEVLICO currently intends to waive this
charge on basic scheduled premiums after the 15th policy year; however,
NEVLICO retains the right not to waive the charge, or to reimpose it once it
has been waived. The sales charge will apply to all unscheduled payments.
During the first 15 policy years, if you surrender or lapse the Policy, take
a partial surrender or reduce the face amount, a Deferred Sales Charge will
also apply. (For insureds who were above issue age 50 at issue of the Policy,
the period when the Deferred Sales Charge applies is 10 years. See "Surrender
Charge" below.)
The sales charges under a Policy in a given policy year are not necessarily
related to NEVLICO's actual sales expenses for that year. NEVLICO expects that
total revenues from the sales charges will fall short of its total
distribution expenses, and the excess will be recovered from NEVLICO's surplus
and other revenues, including any profit realized from the minimum death
benefit guarantee charge or mortality and expense risk charge.
Sales charges for Policies sold in certain group or sponsored arrangements
may be reduced. NEVLICO may in the future reduce or eliminate the 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 reinsurance and other limitations, as well as certain
other eligibility requirements, would also apply in these situations. NEVLICO
may waive underwriting requirements in these situations. NEVLICO may also
reduce the surrender charge on such policies. Your NEVLICO agent can advise
you regarding the availability of this feature.
A-15
<PAGE>
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%.
FEDERAL PREMIUM TAX CHARGE. NEVLICO deducts 1% from each BASIC scheduled
premium and each unscheduled payment to recover a portion of its federal
income tax liability that is determined solely by the amount of life insurance
premiums it receives. The federal premium tax charge is a factor NEVLICO must
use when computing the maximum sales load chargeable under SEC rules.
EXAMPLE: The following chart shows the net amount that would be allocated to
the Variable Account under a Policy with no riders and which is not a
substandard or automatic issue Policy. The example assumes an annual scheduled
premium payment of $2,000 and unscheduled payment of $2,000.
<TABLE>
<CAPTION>
SCHEDULED NET SCHEDULED
PREMIUM PREMIUM
--------- -------------
<C> <C> <S>
$2,000 $2,000
-55 (administrative charge)
$1,945 (BASIC scheduled premium)
$1,945
-175.05 (9% X 1,945 = total sales and premium tax charges)
$1,769.95
</TABLE>
NEVLICO may waive the 5.5% sales charge on scheduled premiums paid after the
15th policy year. In that case, the net scheduled premium in this example
would be $1,945 -68.08 (3.5% x 1,945), or $1,876.92.
<TABLE>
<CAPTION>
NET
UNSCHEDULED UNSCHEDULED
PAYMENT PAYMENT
----------- -----------
<C> <C> <S>
$2,000 $2,000
-180 (9% X 2,000 = total sales and premium tax charges)
$1,820
</TABLE>
SURRENDER CHARGE
If a Policy is totally or partially surrendered or lapses, or the face
amount is reduced, during the first 15 policy years, a Surrender Charge will
be deducted from the cash value. (For insureds who are above issue age 50 at
issue of the Policy, the Surrender Charge period is 10 years.) The Surrender
Charge includes 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 based on the lesser of
the following amounts:
(i) the total payments (both scheduled premiums and unscheduled payments)
made to the date of the surrender, lapse or face amount reduction; and
(ii) the Policy's total BASIC scheduled premiums up to the date of the
surrender, lapse or face amount reduction, whether or not you have paid
each of those premiums. (A BASIC scheduled premium is a scheduled
premium reduced by any charges for riders, substandard risk or
automatic issue class and the portion of the annual Policy
administrative charge due with the scheduled premium.)
This means that if you have not paid one or more scheduled premiums, the
Deferred Sales Charge will be calculated based on the Policy's scheduled
premiums that you actually paid. However, any unscheduled payments that you
made in that situation will be counted as scheduled premiums, up to the amount
of the BASIC scheduled premiums that you did not pay, in the calculation of
the Deferred Sales Charge. Once the amount of the applicable
A-16
<PAGE>
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 with scheduled premiums that are paid once a year and which
cover insureds who are issue age 50 or less at issue, the maximum Deferred
Sales Charge will be paid if you lapse or surrender the Policy, or reduce its
face amount, in policy years three through ten. The Deferred Sales Charge in
those years will equal 43.5% of the first year basic scheduled premium, plus
16.5% of the basic scheduled premium for the second policy year. After the
tenth policy year, the maximum Deferred Sales Charge will decline on a monthly
basis until it reaches 0% in the last month of the fifteenth policy year. If
you surrender in the first two policy years, your maximum Deferred Sales
Charge will be 23.5% of the first year basic scheduled premium plus 3.5% of
the second year basic scheduled premium. Thus, the maximum Deferred Sales
Charge increases substantially in the third Policy year.
The table below shows the Deferred Sales Charge that will apply in the event
of a surrender, partial surrender, lapse or face amount reduction under
Policies covering insureds who are issue age 50 or less at issue and with
scheduled premiums that are paid on an annual frequency. The table shows what
the charge will be, expressed as a percentage of the total annual basic
scheduled premiums to date, if the lapse, surrender or face reduction occurs
at the end of each of the policy years shown.
<TABLE>
<CAPTION>
THE MAXIMUM DEFERRED SALES
CHARGE IS THE FOLLOWING
PERCENTAGE OF THE TOTAL
ANNUAL BASIC SCHEDULED
FOR POLICIES WHICH ARE PREMIUMS TO DATE OF
SURRENDERED, LAPSED SURRENDER, LAPSE OR FACE
OR REDUCED DURING AMOUNT REDUCTION
---------------------- --------------------------
<S> <C> <C>
Entire policy year 1 23.50%
2 13.50%
3 20.00%
4 15.00%
5 12.00%
6 10.00%
7 8.57%
8 7.50%
9 6.67%
10 6.00%
Last month of policy years 11 4.36%
12 3.00%
13 1.85%
14 0.86%
15 0.00%
</TABLE>
For insureds who are above issue age 50 at issue, the Deferred Sales Charge
percentages are less than or equal to those in the table above, with the
maximum charge occurring in policy years three through six for insureds with
an issue age up through 65 and in policy years two through four for insureds
with an issue age above 65.
The rate of the Deferred Sales Charge is the same regardless of whether you
pay premiums on an annual basis or more frequently. However, because the total
dollar amount or premiums paid is somewhat higher if you pay more frequently
than annually (e.g. semi-annually or quarterly), the dollar amount of the
Deferred Sales Charge will also be higher if you pay premiums more frequently
than annually.
In the case of a partial surrender or reduction in face amount, any Deferred
Sales Charge that applies will be deducted from the Policy's cash value in an
amount proportional to the amount of the Policy's face amount surrendered.
(See "Partial Surrender and Partial Withdrawal".)
A-17
<PAGE>
DEFERRED ADMINISTRATIVE CHARGE. The table below shows the Deferred
Administrative Charge that will be deducted if you totally or partially
surrender, lapse or reduce the face amount of the Policy.
<TABLE>
<CAPTION>
FOR POLICIES WHICH ARE DEFERRED ADMINISTRATIVE
SURRENDERED, LAPSED OR CHARGE PER $1,000 OF
REDUCED DURING FACE AMOUNT
---------------------- -----------------------
<S> <C> <C>
Entire Policy year 1 $2.70
Last Month of Policy years* 2 2.40
3 2.10
4 1.80
5 1.50
6 1.20
7 .90
8 .60
9 .30
10 zero
</TABLE>
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* The charge declines monthly in equal dollar amounts after the end of the
first policy year.
The applicable Deferred Administrative Charge 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.
DEDUCTIONS FROM CASH VALUE
MONTHLY DEDUCTION. On the first day of each policy month, starting with the
Policy Date, NEVLICO will make a deduction (the "Monthly Deduction") from your
cash value for these charges:
(i) an administrative charge, currently equal to $0.02 per $1,000 of Policy
face amount (guaranteed not to exceed $0.04 per $1,000 of face amount);
and
(ii) a minimum death benefit guarantee charge of $0.01 per $1,000 of Policy
face amount. This charge compensates NEVLICO for its guarantee that,
regardless of the investment experience of the Policy's sub-accounts,
the Policy's death benefit will never be less than the face amount,
provided that all required scheduled premiums have been paid when due.
(See "Adjustments to the Death Proceeds Payable".)
The Monthly Deduction will only apply during the Premium Paying Period, that
is, until the policy anniversary when the insured reaches age 65, or for 10
years after the Policy is issued, whichever is later.
If there is an outstanding loan under your Policy and the net cash value is
not large enough to cover the full amount of the Monthly Deduction in any
month, 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 under your Policy is deducted from your Policy's cash value at the
beginning of each policy month for the life of the Policy, beginning with the
Policy Date. The cost of insurance charge for a policy month is equal to the
"amount at risk" under the Policy, multiplied by the cost of insurance rate
for that policy month. The amount at risk is determined on the first day of
the policy month after all applicable monthly charges have been processed and
is the amount by which the death benefit (discounted at the monthly equivalent
of 4.5% per year) exceeds the Policy's cash value. The cost of insurance rate
for your Policy will change from month to month.
If a Policy loan is outstanding and your Policy's net cash value is not
large enough to cover the cost of insurance charge for a policy month, the
difference between the net cash value available and the cost of insurance
charge will be treated as an excess policy loan and the Policy may terminate.
(See "Loan Provision".)
The guaranteed cost of insurance rates for a Policy depend on the insured's
underwriting class, age on the first day of the Policy year and sex (if the
Policy is sex-based). The current cost of insurance rates for a given Policy
will also depend on the insured's age at issue of the Policy and on the
duration of the Policy. The rates are guaranteed not to be higher than rates
based on the 1980 Commissioners Standard Ordinary Mortality Tables (the
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"1980 CSO Tables"), with smoker/nonsmoker modifications. For Policies issued
on juvenile insureds (that is, insureds from the age of 0 to 19), the rates
are guaranteed not to be higher than rates based on the 1980 CSO Tables. The
rates actually used may be lower than these maximum rates, depending on
NEVLICO's expectations regarding future mortality and expense experience,
lapse rates and investment earnings. 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.
The underwriting classes used for determining cost of insurance rates are
smoker, nonsmoker and, for Policies issued on juvenile insureds (that is,
insureds from the age of 0 to 19), standard. Substandard Policies and
automatic issue Policies use the same cost of insurance rates as NEVLICO's
Policies that are in the smoker and nonsmoker class (or, if applicable,
standard class), but require an extra premium as part of the Policy's total
scheduled premium.
Cost of insurance rates are generally more favorable for nonsmoker than for
smoker insureds and generally more favorable for female than for male
insureds. Within a given underwriting class, cost of insurance rates are
generally more favorable for insureds with lower issue ages. Where required by
state law, and for Policies sold in connection with certain employee benefit
plans, cost of insurance rates (and Policy values and benefits) will not vary
based on the sex of the insured.
NEVLICO offers 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 minimal evidence of
insurability. Because only limited underwriting information is obtained,
NEVLICO has determined that Policies issued on an automatic issue basis may
present additional mortality cost to NEVLICO compared to underwritten Policies
issued in the smoker class. NEVLICO will charge an additional premium for
automatic issue Policies. The additional premium will be payable for 20 years,
or for the premium paying period, if less. The amount of the additional
premium will depend on the issue age of the insured, and may also depend on
the size of the group and the total premium to be paid by the group. The
additional premium will be deducted from the scheduled premium in the same
manner as under a substandard risk Policy before the net scheduled premium is
allocated to the Variable Account. Under automatic issue Policies, the overall
charges for insurance protection, including the extra premium, will be higher
than under a comparable underwritten Policy issued in the nonsmoker standard
or smoker standard class. This means that an insured may be able to obtain
individual, underwritten insurance coverage at a lower overall cost.
Eligible group or sponsored arrangements may choose 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 choose 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
issue basis unless the insured is in a substandard risk class.
CHARGES UNDER THE SPECIAL PREMIUM OPTION. If you use the Special Premium
Option to skip a scheduled premium payment, NEVLICO will deduct from the
Policy's cash value the amount of the Policy's annual administrative charge
that was due with the scheduled premium, as well as any premiums due for rider
benefits and substandard risk or automatic issue status. The amount deducted
for all of these charges will be 91% of the amount that was due with the
scheduled premium payment. (See "Special Premium Option".) These charges will
be deducted from the Policy's sub-accounts in proportion to the Policy's cash
value in each sub-account.
CHARGES FOR ADDITIONAL SERVICES. NEVLICO reserves the right to charge Policy
Owners a nominal fee, which will be billed directly to the Policy Owner, in
the event that a Policy re-issue or re-dating is requested.
CHARGES 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 that NEVLICO assumes.
Currently, the charge is made daily at an annual rate of .60% of the sub-
accounts' assets. NEVLICO reserves the right to increase the charge, up to a
maximum annual rate of
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.90%. The mortality risk NEVLICO assumes is that insureds may live for shorter
periods of time than NEVLICO estimated. The expense risk is that NEVLICO's
costs of issuing and administering the Policies may be more than NEVLICO
estimated. NEVLICO will not increase the mortality and expense risk charge
above its current rate without first obtaining any necessary regulatory
approval.
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, if appropriate. NEVLICO reserves the right to make a charge for any
taxes imposed on the Policies by any governmental body in the future. (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".)
GROUP OR SPONSORED ARRANGEMENTS
The Policies may be issued to 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. An example of such an arrangement is a
non-tax qualified deferred compensation plan. 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 the 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, monthly charge for the cost of insurance (including
automatic issue premiums), mortality and expense risk charge, administrative
charges and/or federal and state premium tax charges described in "Charges and
Expenses". (In addition, the interest rate credited on amounts taken from the
sub-accounts as a result of a Policy loan may be increased for these
Policies.) NEVLICO will waive or reduce these charges according to its rules
in effect when the Policy application is approved. To qualify for a waiver or
reduction, 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, the purposes for which the Policies are purchased and certain
characteristics of its members. The amount of reduction and the criteria for
qualification will reflect the reduced sales and administrative effort
resulting from sales to qualifying group or sponsored arrangements. NEVLICO
may modify from time to time both the amounts of reductions and the criteria
for qualification. Reductions in or waiver of these charges will not be
unfairly discriminatory against any person, including the affected Policy
Owners and all other Policy Owners of Policies funded by the Variable Account.
The United States Supreme Court has held that certain insurance policies
providing values and benefits that vary with the sex of the insured may not be
used to fund certain employee benefit programs. Therefore, NEVLICO offers
Policies that do not vary based on the sex of the insured for use in
connection with certain employee benefit programs. NEVLICO recommends that any
employer proposing to offer the Policies to employees under a group or
sponsored arrangement consult its attorney before doing so.
PREMIUMS
SCHEDULED PREMIUMS
Scheduled premium payments for the Policy are generally required until the
policy anniversary when the insured reaches age 65, or for 10 years after the
Policy is issued, whichever is later. NEVLICO guarantees that no premiums will
be due after this period. (See "Substitution of Insured Person" for an
explanation of when an unscheduled payment may be required after the Premium
Paying Period under Policies which exercise the substitution of insured
rider.) The scheduled premium amount will depend on the Policy's face amount,
the age,
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<PAGE>
sex (unless unisex rates apply) and underwriting class of the insured, the
premium payment schedule you select, and any rider benefit premiums.
The underwriting classes used for setting the scheduled premium amount are
smoker standard, smoker substandard, nonsmoker standard, nonsmoker
substandard, automatic issue and, for juvenile insureds, standard and
substandard. Scheduled premiums for substandard and automatic issue classes
reflect additional premiums that are charged for Policies in those categories.
Scheduled premiums are generally higher for males than for females and
generally higher for smokers than for nonsmokers. Scheduled premiums are also
generally higher for Policies issued on older insureds.
Scheduled premiums can be paid on an annual, semi-annual or quarterly
schedule or, with NEVLICO's consent, monthly. The premium payment schedule you
select will affect the total amount of premium you pay in a policy year. The
total premium paid is highest if you select the monthly frequency and lowest
if you select the annual frequency. The payment schedule will also affect the
Policy's cash value and tabular cash value and, therefore, may affect the
death benefit.
You can change your premium payment schedule at any time by sending your
request for change to NEVLICO's Administrative Office. If you change to a less
frequent payment schedule (e.g. from quarterly to annual), the change will go
into effect on the next premium due date under the new schedule. Until then,
you will continue to make payments under the old schedule; NEVLICO will not
accept an advance payment of the remaining scheduled premiums due for the
policy year under the old schedule, that is, you cannot pay the balance of any
---------------------------------
premium mode. If you change to a more frequent payment schedule (e.g. from
- -------------
annual to quarterly), the change will go into effect on the next premium due
date under the original schedule. (See "Receipt of Communications and Payments
at NEVLICO's Administrative Office".)
You may make scheduled payments by check or money order. You may also choose
to have The New England withdraw your scheduled premium payments from your
bank checking account or TNE Cash Management Trust account. (This service is
known as the Master Service Account arrangement.)
Scheduled premiums are due at NEVLICO's Administrative Office or a NEVLICO
agency on or before their due dates. NEVLICO will allocate net scheduled
premiums, after the first, to your Policy's sub-accounts on the premium due
dates, not when they are received. If you use the Special Premium Option to
skip a scheduled premium payment or if you miss a required scheduled premium
payment, however, NEVLICO will withdraw from the Variable Account the net
scheduled premium that it advanced, adjusted for the net investment experience
of the Policy's sub-accounts since the due date. (If you do not pay a required
scheduled premium, the Policy may lapse. See "Default and Lapse Options".)
A credit will be applied to the initial scheduled premium under a Policy
converted from certain term insurance issued by The New England and also to
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.
UNSCHEDULED PAYMENTS
Within the limits described below and as long as the Policy has not lapsed,
you may make unscheduled payments. Unscheduled payments may only be made
during the Premium Paying Period, that is, until the policy anniversary when
the insured reaches age 65, or for 10 years after the Policy is issued,
whichever is later. (See "Substitution of Insured Person" for an explanation
of when an unscheduled payment may be required after the Premium Paying Period
under Policies which exercise the substitution of insured rider.) NEVLICO may
require satisfactory evidence of insurability before accepting the payment. 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. NEVLICO will not accept an unscheduled
payment if the Policy's scheduled premiums are being waived under a waiver of
premium rider. (See "Additional Benefits by Rider".) NEVLICO also reserves the
right to prohibit or limit the amount of unscheduled payments under a Policy
covering a substandard risk insured or under an automatic issue Policy. An
unscheduled payment must be at least $10 if made pursuant to the Master
Service Account arrangement, and otherwise must be at least $25.
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<PAGE>
You may ask NEVLICO to include on your premium notice for the policy
anniversary a planned unscheduled payment amount in addition to the scheduled
premium, subject to NEVLICO's rules. Subject to NEVLICO's rules, you may
choose to have The New England withdraw unscheduled payments from your bank
checking account or TNE Cash Management Trust account (i.e. the Master Service
Account arrangement) if you are using this facility to pay scheduled premiums
under the Policy. If your policy has a level term insurance rider and you are
paying premiums on the annual mode or by means of the Master Service Account
arrangement, you may choose to have NEVLICO bill you (or deduct from your bank
checking account or TNE Cash Management Trust account) a single level amount
(the "Annual Level Billing Option") each year that is sufficient to cover the
scheduled premium due plus the increasing premium for the level term insurance
rider. Under the Annual Level Billing Option, a portion of the level billing
amount will be allocated to your Policy as an unscheduled payment. The amount
that is allocated as an unscheduled payment will decrease each year as the
cost of the level term insurance rider goes up. You may need to recalculate
your Annual Level Billing Amount as the premium for the level term insurance
rider increases. Under any of these billing options, the total of all premiums
and payments made could cause the Policy to become a "modified endowment
contract". You should consider the potential tax consequences before planning
a series of unscheduled payments. (See "Tax Considerations".)
NEVLICO will allocate an unscheduled payment to your Policy's sub-accounts
as of the date the payment is received at NEVLICO's Administrative Office.
(See "Receipt of Communications and Payments at NEVLICO's Administrative
Office".)
RULES FOR CREDITING PAYMENTS TO THE VARIABLE ACCOUNT. NEVLICO will treat
payments made under the Policy in the following way. 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 due date, whether or not
accompanied by a premium notice, will be applied first to payment of the
scheduled premium due, next to pay any loan interest due, and any balance will
be applied as an unscheduled payment 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 the Policy lapses and you made an unscheduled payment
during the grace period which was insufficient to pay the premium due, the
unscheduled payment will be refunded to you.
If you pay premiums monthly, including by means of the Master Service
Account arrangement, payments will be credited as agreed by you and NEVLICO.
Billing and crediting procedures for certain group or sponsored arrangements
may differ from those used for other Policy Owners.
If you have a policy loan, it may be more advantageous to repay the loan
than to make an unscheduled payment, because the unscheduled payment is
subject to sales and tax charges, whereas the loan repayment is not subject to
any 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
When you apply for a Policy, or at a later date while the Policy is not
lapsed, you may elect the Special Premium Option. This feature allows you to
skip a scheduled premium payment or payments after the first policy year,
under the following conditions.
If the scheduled premium has not been paid by the end of the grace period,
the Policy will not lapse if the Policy's cash value on the premium due date
(before NEVLICO advanced the net premium due) exceeded the tabular cash value
by at least the amount of the scheduled premium due, including any rider and
substandard risk or automatic issue premiums due. The Special Premium Option
may not be used, however, if, immediately afterward, the amount of any
outstanding policy loan plus accrued interest would exceed the Policy's loan
value.
If the Special Premium Option is used, it will reduce the Policy's cash
value (and loan value) because NEVLICO will deduct from the cash value, as of
the premium due date, 91% of the portion of the annual administrative charge,
and of any rider, substandard risk or automatic issue premiums, that were due.
These amounts will be deducted from the Policy's sub-accounts in proportion to
the Policy's cash value in each. (NEVLICO will also withdraw the net scheduled
premium that it advanced to the Policy, adjusted for the net investment
experience of the Policy's sub-accounts since the due date.)
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If you have elected both the Special Premium Option and the automatic
premium loan feature, 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 "Automatic Premium Loan".)
You may cancel the Special Premium Option and, generally, re-elect it at any
time. The Special Premium Option is not available to you, however, while you
are paying premiums by means of the Master Service Account arrangement.
AUTOMATIC PREMIUM LOAN
You may elect an automatic premium loan feature. Under this feature, if you
have not paid a required scheduled premium by the end of the grace period,
your Policy's available 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 loan will be made if the Policy's loan value is not
adequate to pay at least a quarterly premium. Interest on the loan will be
charged from the premium due date. Like other policy loans, an automatic
premium loan can result in an excess policy loan. (See "Loan Provision".) An
automatic premium loan will not be made if you have elected the Special
Premium Option and can skip the scheduled premium payment under that option.
DEFAULT AND LAPSE OPTIONS
If you have not paid a required scheduled premium by the due date, then the
premium is in default, but the Policy provides a 31 day grace period for
payment of the scheduled premium due. During the grace period insurance
coverage continues under your Policy, but if the insured dies before the
premium is paid, NEVLICO will deduct from the death proceeds the portion of
the unpaid premium for the period prior to the date of death.
For 60 days after the due date of a premium in default, NEVLICO will not
make the usual Monthly Deductions and cost of insurance deductions from the
Policy's cash value. If the premium in default is paid, these deductions will
be made retroactively.
There are three lapse options that may be available to you under your
Policy. They are: Fixed Extended Term Insurance, Fixed Paid-Up Insurance and
Variable Paid-Up Insurance.
Fixed Extended Term Insurance is fixed benefit life insurance for a limited
term with no further premiums due. The death benefit under this option will be
the same as the amount of your Policy's death benefit on the due date of the
premium in default. The term of the insurance coverage is determined by
applying the Policy's NET cash value as of the due date of the premium in
default (that is, the cash value reduced by any applicable Surrender Charge
and by any outstanding policy loan plus accrued interest), less any partial
surrenders or partial withdrawals made during the grace period. Policy loans
are not available under a Policy continued as Fixed Extended Term Insurance.
Fixed Extended Term Insurance is not available if your Policy is in a
substandard or automatic issue class.
If Fixed Extended Term Insurance is available under your Policy, it is the
lapse option which will automatically apply upon lapse unless you have elected
Fixed or Variable Paid-Up Insurance. Even if you have elected Fixed Extended
Term Insurance, however, if Fixed Paid-Up Insurance would provide a greater
death benefit, that is the lapse option which will apply.
Paid-Up Insurance is permanent life insurance with no further premiums due.
The amount of insurance provided is determined by applying the Policy's NET
cash value as of the due date of the premium in default (that is, the cash
value reduced by any applicable Surrender Charge, and by any outstanding
policy loan plus accrued interest), less any partial surrenders or partial
withdrawals made during the grace period, as a net single premium at the
current age of the insured. Loans are available under a Policy continued as
Paid-Up Insurance.
You may select a lapse option, or change your selection, by written request
to NEVLICO's Administrative Office at any time up to 60 days after the due
date of the premium in default. Certain conditions apply to the selection of
Variable Paid-Up Insurance. (See "Variable Paid-Up Insurance" below.)
VARIABLE PAID-UP INSURANCE. Variable Paid-Up Insurance is available as a
lapse option if the NET cash value of your Policy as of the due date of the
premium in default (that is, the cash value reduced by any applicable
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Surrender Charge and by any outstanding policy loan plus accrued interest)
less any partial surrenders or partial withdrawals made during the grace
period, is sufficient, when used as a net single premium at the insured's
current age, to purchase paid-up insurance with an initial face amount at
least equal to $5,000. If you have elected Variable Paid-Up Insurance and your
Policy's net cash value is not adequate to purchase this minimum amount of
insurance, then Fixed Paid-Up Insurance will be provided instead. Variable
Paid-Up Insurance is not available under Policies in a substandard or
automatic issue class.
The death benefit under Variable Paid-Up Insurance can vary monthly and the
cash value can vary daily, 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). The death benefit will never be less than the
initial amount of the Variable Paid-Up Insurance, however, if there is no
outstanding policy loan. There is no minimum guaranteed cash value for a
Policy continued as Variable Paid-Up Insurance.
The death benefit provided under Variable Paid-Up Insurance is predetermined
at the end of each policy month for the following policy month. The death
benefit is the greater of the initial face amount of Variable Paid-Up
Insurance and the Variable Death Benefit. The Variable Death Benefit can
increase or decrease at the end of each policy month, depending on how the
Policy's actual investment experience for the month (plus any cost of
insurance adjustment) compares to investment experience at the monthly
equivalent of 4.5% per year. If the actual 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 greater
than the monthly equivalent of 4.5% per year, the Variable Death Benefit will
increase. If it is less, the Variable Death Benefit will decrease. The change
in the Variable Death Benefit will equal this difference between the actual
return (plus any cost of insurance adjustment) and the assumed return, divided
by the net single premium per dollar of death benefit at the current age of
the insured. The cost of insurance adjustment reflects any difference between
the actual and the guaranteed maximum cost of insurance charges under the
Policy. Thus, changes in the Variable Death Benefit will depend on the age,
sex (unless the Policy is unisex) and underwriting class of the insured as
well as on net investment experience.
Although the death benefit provided by Variable Paid-Up Insurance will not
be less than the initial amount of insurance under the option regardless of
investment experience, the Variable Death Benefit can be higher or lower than
the initial amount. Changes in the Variable Death Benefit are carried forward
to succeeding policy months, so that if investment experience has reduced the
Variable Death Benefit below the initial amount of Variable Paid-Up Insurance,
subsequent favorable investment experience must first restore the Variable
Death Benefit to the initial amount before it can cause the Variable Death
Benefit to exceed the initial amount of Variable Paid-Up Insurance.
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.
Cost of insurance rates under a Policy continued as Variable Paid-Up Insurance
depend on the insured's underwriting class, attained age and sex (if the
Policy is sex-based).
No partial withdrawals, premium payments or unscheduled payments may be made
under a Policy continued as Variable Paid-Up Insurance. You may surrender the
Policy for its net cash value, which is its cash value reduced by any
outstanding loan (and accrued interest) and by a prorated charge for the cost
of insurance, if the surrender occurs on a day other than the last day of the
policy month. The amount available for a policy loan under a Policy continued
as Variable Paid-Up Insurance is determined in the same way as prior to lapse.
An excess policy loan may cause a Policy continued as Variable Paid-Up
Insurance to lapse. (See "Loan Provision".) You may transfer the cash value of
a Variable Paid-Up Insurance Policy among the sub-accounts up to four times in
a policy year without NEVLICO's consent. NEVLICO currently allows 12 sub-
account transfers per policy year.
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.
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OTHER POLICY FEATURES
LOAN PROVISION
You may borrow all or part of the Policy's "loan value" at any time after
the Right to Return the Policy period. NEVLICO will make the loan as of the
date when 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 the procedures to follow for requesting a loan. Policy
loans are not available under a Policy continued as Fixed Extended Term
Insurance.
The Policy's loan value is equal to 90% of the Policy's cash value,
projected at a 4.5% annual rate to the next policy anniversary (or to the next
premium due date, if earlier); less the Surrender Charge on the next loan
interest due date or, if greater, on the date the loan was made; and
discounted at the loan interest rate (6%). If required by state law, the
Policy's loan value may be a greater percentage of the cash value, as
described in your Policy. The amount of loan value available to be borrowed at
any time is reduced by the amount of any outstanding policy loan plus accrued
interest.
The example below illustrates how the loan value is determined.
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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) an annual premium payment schedule and (ii) a
quarterly premium payment schedule:
<TABLE>
<CAPTION>
ANNUAL QUARTERLY
------- ---------
<S> <C> <C>
(1) Cash Value after Premium Payment on 10th Policy
Anniversary.......................................... $41,867 $39,219
(2) Cash Value Projected at a Constant Annual Rate of
Return of 4.5% to the
(a)11th Policy Anniversary............................ 42,917
(b)Next Premium Due Date.............................. 39,445
(3) 90% of Amount Calculated in (2)...................... 38,625 35,501
(4) Amount Calculated in (3), Reduced by the Applicable
Surrender Charge..................................... 36,297 33,173
(5) Amount Calculated in (4), Discounted at an Annual
Rate of 6% Back to the 10th Policy Anniversary....... 34,243 32,682
- -------------------------------------------------------------------------------
</TABLE>
A policy loan reduces the Policy's cash value in the sub-accounts by the
amount of the loan. A loan repayment increases the cash value in the sub-
accounts by the amount of the repayment. Unless you request otherwise, policy
loans and loan repayments are attributed to the sub-accounts in proportion to
the cash value in each.
The interest rate charged on policy loans is an effective rate of 6% per
year (using simple interest during the year) and is due on the policy
anniversary. If not paid, the interest accrued on the loan is added to the
loan, and an amount equal to the unpaid interest is deducted from the Policy's
cash value in the sub-accounts. The amount taken from the Policy's sub-
accounts as a result of the loan will earn interest (compounded daily) at an
effective rate of not less than 4.5% per year. The rate currently credited is
4.75% per year. This interest earned is credited to the Policy's sub-accounts
annually, in proportion to the cash value in each.
The amount taken from the Policy's sub-accounts as a result of a loan does
not participate in the investment experience of the sub-accounts. Therefore,
the death benefit and cash value of the Policy can be permanently affected by
a policy loan, even if it is repaid. In addition, any proceeds payable under a
Policy are reduced by the amount of any outstanding loan plus accrued
interest.
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 "Deductions from Premiums and Unscheduled Payments".)
If policy loans plus accrued interest exceed the Policy's cash value less
the Surrender Charge on the next policy loan interest due date (or, if
greater, on the date the calculation is made), NEVLICO will notify you that
the
A-25
<PAGE>
Policy is going to terminate. (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 without value 31 days after the notice is mailed unless the
excess amount is paid to NEVLICO within that time. (See "Default and Lapse
Options".) If the Policy lapses with a loan outstanding, adverse tax
consequences may result. (See "Tax Considerations" below.)
Department of Labor ("DOL") regulations set forth requirements for
participant loans under retirement plans subject to the Employee Retirement
Income Security Act of 1974 ("ERISA"). Generally, the DOL regulations will
apply to plans that qualify under 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.
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 when 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".) If the Policy is continued as Variable Paid-Up Insurance,
the net cash value is also reduced by a prorated charge for the cost of
insurance due to the date of surrender. You may elect in writing to have all
or part of the net cash value applied to a payment option. (See "Payment
Options".) A surrender may result in adverse tax consequences. (See "Tax
Considerations" below.)
PARTIAL SURRENDER 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 cause a proportionate reduction in
the 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 that applies to a partial surrender will be deducted
from the Policy's cash value in an amount proportional to the amount of the
Policy's face amount surrendered. The Surrender Charge applied will reduce any
remaining Surrender Charge under your Policy.
If your Policy 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 apply.
A-26
<PAGE>
- -------------------------------------------------------------------------------
EXAMPLE: Using the Policy illustrated on page A-52, assume that the Policy's
premiums have been paid when due and that the Policy's sub-accounts have
earned constant hypothetical gross annual rates of return of 0%, 6% and 12%.
These hypothetical rates are illustrative only and may not reflect the rates
of return you would realize under the Policy. Before the premium payment on
the 20th policy anniversary, the maximum amount that can be withdrawn is as
follows:
<TABLE>
<CAPTION>
AT HYPOTHETICAL AT HYPOTHETICAL AT HYPOTHETICAL
0% RETURN 6% RETURN 12% RETURN
--------------- --------------- ---------------
<S> <C> <C> <C>
(1) Cash Value at the 20th
anniversary, before
premium payment........ $48,931 $96,451 $195,628
(2) Tabular Cash Value..... 81,461 81,461 81,461
(3) Maximum Withdrawal =
(1) - (2).............. 0 14,990 114,167
</TABLE>
The death benefit immediately after the withdrawal is temporarily reduced to
the initial face amount. However, the death benefit will increase above the
face amount if the cash value exceeds the tabular value after the premium
payment due on the 20th policy anniversary is paid and monthly charges are
deducted.
- -------------------------------------------------------------------------------
If you have a Policy with the Option 2 death benefit and you request a
portion of the cash value, unless you specify that you wish a partial
surrender only, the request will be treated as a partial withdrawal first. Any
portion of the cash value requested that cannot be provided by means of a
partial withdrawal will be supplied by means of a partial surrender. In this
way your Surrender Charge costs will be minimized.
If you have 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 to
satisfy tax law requirements. The amount you may withdraw is limited to the
cash value, less the face amount multiplied by the net single premium per $1
of death benefit at the insured's current age. If there is a policy loan
outstanding, 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 the 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. A partial withdrawal under a Policy with the Option 1 death
benefit will always reduce the death benefit by more than the cash value is
reduced. No Surrender Charge will apply.
- -------------------------------------------------------------------------------
EXAMPLE: Using the Policy with $214,986 face amount 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 constant hypothetical gross annual rates of
return of 0%, 6% and 12%. These hypothetical rates are illustrative only and
may not reflect the rates of return you would realize under the policy. The
amount available for withdrawal is calculated as of the 20th policy
anniversary.
At the hypothetical 0% and 6% returns, no portion of the cash value may be
withdrawn.
At the hypothetical 12% return, before the premium payment on the 20th
policy anniversary, the maximum amount that can be withdrawn is as follows:
<TABLE>
<S> <C>
(1) Cash Value at the 20th anniversary, before premium payment........ $197,133
(2) Net Single Premium per $1 at age 60............................... .4627826819
(3) Face Amount X .4627826819......................................... $99,492
(4) Maximum Withdrawal = (1) - (3).................................... $97,641
</TABLE>
The death benefit immediately after the withdrawal is temporarily reduced to
the initial face amount. However, the premium payment due on the 20th policy
anniversary increases the death benefit above the face amount in order to
satisfy Federal tax law requirements.
- -------------------------------------------------------------------------------
The total number of partial surrenders and partial withdrawals you may make
in one policy year is limited to four, unless NEVLICO consents to more. You
---
should be aware that amounts withdrawn may not be reinvested in the Policy
- --------------------------------------------------------------------------
except as scheduled premiums or unscheduled payments, which are subject to the
- ------------------------------------------------------------------------------
charges described under "Deductions From Premiums and Unscheduled Payments",
- ----------------------------------------------------------------------------
and which can only be made during the Premium Paying Period under the Policy.
- -----------------------------------------------------------------------------
A-27
<PAGE>
A partial withdrawal or partial surrender will reduce the Policy's cash
value in the sub-accounts in proportion to the amount of cash value in each,
unless you request otherwise. The amount of net cash value paid upon partial
surrender or partial withdrawal will be determined as of the date when 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.
A death benefit reduction may cause a Policy to become a "modified endowment
contract". If you are contemplating a partial surrender or partial withdrawal,
you should consult your tax advisor regarding the tax consequences of the
transaction. (See "Tax Considerations".)
REDUCTION IN FACE AMOUNT
The Policies offer a feature (in states where it has been approved by the
state insurance department) that allows you to reduce the face amount of your
Policy without receiving a distribution of any of the Policy's cash value.
This feature differs from a partial surrender in that a partial surrender
causes part of the Policy's cash value to be distributed to you.
If you decrease the face amount of your Policy, the premiums and tabular
cash value will also be decreased. Your Policy's actual cash value will not be
reduced except by the amount of any applicable Surrender Charge. Generally,
the Policy's death benefit will be decreased. However, if the death benefit at
the time you elect a face amount reduction is being determined by dividing the
cash value by the net single premium per dollar of death benefit, the death
benefit will not be decreased unless a Surrender Charge was deducted from the
cash value in connection with the face amount reduction. Any rider benefits
attached to the Policy may also have to be decreased. The face amount
remaining after a reduction will have to meet NEVLICO's minimum face amount
requirements for issue, except with NEVLICO's consent.
A face amount reduction will take effect as of the date when NEVLICO has
received a request at its Administrative Office meeting NEVLICO's
administrative requirements. You can determine NEVLICO's administrative
requirements by contacting a NEVLICO agent or the Administrative Office.
A death benefit reduction may cause a Policy to become a "modified endowment
contract". (See "Tax Considerations".)
ACCELERATION OF DEATH BENEFIT RIDER
NEVLICO may offer in the future a rider benefit that will allow you to
receive an accelerated payment of your Policy's death benefit. This advance
payment of the death benefit will be available where certain special needs
exist, as described briefly below. The right to exercise the rider will be
subject to certain conditions contained in the rider.
NEVLICO WILL MAKE THE ACCELERATED BENEFITS RIDER AVAILABLE TO YOU ONLY IF:
- ----------------------------------------------------------------------------
(1) YOUR STATE INSURANCE DEPARTMENT HAS APPROVED THE RIDER, AND (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 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.
A-28
<PAGE>
You will 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.")
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".)
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.
SUBSTITUTION OF INSURED PERSON
Subject to state insurance department approval, NEVLICO offers 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. If there is an increase in the Policy's tabular cash value as a
result of substituting the insured, you may be required to make an unscheduled
payment, which will be accepted even if the Policy is beyond the Premium
Paying Period. The rider permits substitution of the insured for those
Policies which have the rider. 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, 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".) However, NEVLICO may delay payment (except
when a loan is made to pay a premium to NEVLICO) 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
A-29
<PAGE>
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
During the first 24 months after the issue date of the Policy, if the Policy
has not lapsed, you may exchange it for a comparable fixed-benefit life
insurance policy issued by The New England. If you exercise this option, you
will have to make up any investment loss you had under the variable life
insurance policy.
The exchange will be made without evidence of insurability. The new policy
will have the same face amount, policy date, issue age and risk classification
for the insured as the variable life Policy had. For Policies issued in New
York, you have the option of exchanging for a new, fixed-benefit policy with a
face amount equal to the current death benefit of the exchanged Variable Life
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.
Following the merger of MetLife and NEVLICO, depending on state insurance
regulatory approvals and requirements, your Policy may be issued or amended
with an endorsement providing for an exchange right to a fixed benefit policy
issued by NEVLICO (if such a policy was available on the Policy Date of your
variable life Policy), or otherwise, to a fixed benefit policy issued by
MetLife. If your Policy does not have such an endorsement, the exchange right
will be to a fixed benefit policy issued by MetLife or, at your option, to a
fixed benefit policy issued by NEVLICO if such a policy was available on the
Policy Date of your variable life Policy.
The exchange will be effective on the date when NEVLICO receives written
notice at its 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".) The cost to
exchange will reflect any differences in premiums and cash values between the
two policies. Any policy loan outstanding 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 (if approved in your state) have the additional option
of exchanging at any time during the first 36 months after the Policy's issue
date, if the Policy has not lapsed, to a fixed-benefit term life insurance
policy issued by NEVLICO or an affiliate. The terms and conditions applicable
to the 24 month exchange option will also be applicable to this option. 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 Policy's death benefit and net cash value will be paid in one sum,
unless the Policy Owner or payee chooses to put all or part of the proceeds
under a payment option. You can choose a combination of payment
A-30
<PAGE>
options. 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. The payment options available are
fixed benefit options only; therefore, proceeds applied to an option will no
longer be affected by the investment experience of the Variable Account. The
guaranteed mortality assumptions used in determining payment levels under the
options will not vary based on sex. (For Policies issued in New York and
Oregon, however, and which are not issued for use in connection with certain
employee benefit plans and fringe benefit programs, the mortality assumptions
will vary based on sex. See "Group or Sponsored Arrangements".) Once payments
under an option begin, withdrawal rights may be restricted.
The following payment options are available:
(i) INCOME FOR A SPECIFIED NUMBER OF YEARS. Proceeds are paid in equal
monthly installments for up to 30 years, with interest at a rate not
less than 3.5% a year, compounded yearly. Additional interest paid by
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, (ii) for the longer of the life of the payee or
10 years, or (iii) for the longer of the life of the payee or 20 years.
(iii) LIFE INCOME WITH REFUND. Proceeds are paid in equal monthly
installments during the life of the payee. At the payee's death, any
unpaid proceeds remaining are paid either in one sum or in equal
monthly installments until the total proceeds have been paid.
(iv) INTEREST. Proceeds are held for the life of the payee or another agreed
upon period. Interest of at least 3.5% a year is paid monthly or added
to the principal annually. At the death of the payee, or at the end of
the period agreed to, the balance of principal and any interest will be
paid in one sum.
(v) SPECIFIED AMOUNT OF INCOME. Proceeds plus accrued interest of at least
3.5% a year are paid in an amount and at a frequency elected until total
proceeds have been paid. Any amounts unpaid at the death of the payee
will be paid in one sum.
(vi) LIFE INCOME FOR TWO LIVES. Proceeds will be paid in equal monthly
installments (i) while either of two payees is living, (ii) for the
longer of the surviving payee or 10 years, or (iii) while the two
payees are living and, after the death of one payee, two-thirds of the
monthly amount for the life of the surviving payee will be paid.
NEVLICO's consent to use of an option is required if the installment
payments would be less than $20.
ADDITIONAL BENEFITS BY RIDER
A Policy can include additional benefits provided by rider to the Policy,
subject to NEVLICO's underwriting and issuance standards. These additional
benefits usually require an additional premium. The rider benefits available
with the Policies provide fixed benefits that do not vary with the investment
experience of the Variable Account.
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 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;
A-31
<PAGE>
OPTION TO PURCHASE ADDITIONAL LIFE INSURANCE, which provides the right to
purchase additional insurance on the life of the insured at certain times,
without proof of insurability;
GUARANTEED INCOME BENEFIT RIDER, which provides a monthly income payment
(subject to a $1,000 maximum) directly to the Policy Owner in the event of
the total disability of the insured. The Policy Owner must also purchase the
Waiver of Scheduled Premiums--Disability of Insured Rider in order to
purchase this rider. (NEVLICO plans to make this rider available in the
future. Availability of the rider is also subject to state insurance
department approval);
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 applicant;
WAIVER OF SCHEDULED PREMIUMS-DEATH OF APPLICANT, which provides for waiver
of scheduled premiums for a limited period upon the death of the applicant;
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 applicant;
TEMPORARY TERM INSURANCE, which provides for term insurance from the date
of issue to the Policy Date;
CHILDREN'S INSURANCE, which provides for insurance on the life of the
insured's children for a defined period.
Certain riders are available only for sex based Policies. Not all riders may
be available to you and riders in addition to those listed above may be made
available. You should consult your agent regarding the availability of
particular riders.
POLICY OWNER AND BENEFICIARY
The Policy Owner is named in the application but may be changed from time to
time. At the death of the Policy Owner, his or her estate will become the
Policy Owner unless a successor Policy Owner has been named. The Policy
Owner's rights (except his right to payment of benefits) as such terminate
when the insured dies.
The beneficiary is also named in the application. The beneficiary of the
Policy may be changed at any time before the death of the insured. The
beneficiary has no rights under the Policy until the death of the insured and
must survive the insured in order to receive the death proceeds. If no named
beneficiary survives the insured, the proceeds will be paid to the Policy
Owner.
A change of Policy Owner or beneficiary must be in written form satisfactory
to NEVLICO and must be dated and signed by the Policy Owner making the change.
The change will be subject to all payments made and actions taken by NEVLICO
under the Policy before the signed change form is received by NEVLICO at its
Administrative Office.
You may assign (transfer) your rights in the Policy to someone else. An
absolute assignment of the Policy is a change of Policy Owner and beneficiary
to the assignee. A collateral assignment of the Policy does not change the
Policy Owner or beneficiary, but their rights will be subject to the terms of
the assignment. Assignments will be subject to all payments made and actions
taken by NEVLICO under the Policy before a signed copy of the assignment form
is received at NEVLICO's 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.)
THE VARIABLE ACCOUNT
The Variable Account was established as a separate investment account of
NEVLICO on January 31, 1983 under Delaware Insurance Law. The Variable Account
is the funding vehicle for other NEVLICO variable life insurance policies in
addition to the Policies. The Variable Account meets the definition of a
"separate account"
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<PAGE>
under Federal securities laws. The Variable Account is a type of investment
company called a unit investment trust and is registered with the Securities
and Exchange Commission (the "SEC") under the Investment Company Act of 1940.
Registration with the SEC does not involve supervision by the SEC of the
management or investment practices or policies of the Variable Account.
However, both NEVLICO and the Variable Account are subject to regulation by
the Delaware Insurance Commissioner and to the insurance laws and regulations
in every jurisdiction where the Policies are sold.
Although the assets of the Variable Account are owned by 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 capital gains and losses.
INVESTMENTS OF THE VARIABLE ACCOUNT
The Variable Account currently has 16 sub-accounts, each of which invests in
a series of an Eligible Fund. The sub-accounts of the Variable Account are:
--The Zenith Money Market Sub-Account, which invests in the Back Bay
Advisors Money Market Series of the Zenith Fund
--The Zenith Bond Income Sub-Account, which invests in the Back Bay Advisors
Bond Income Series of the Zenith Fund
--The Zenith Capital Growth Sub-Account, which invests in the Capital Growth
Series of the Zenith Fund
--The Zenith Stock Index Sub-Account, which invests in the Westpeak Stock
Index Series of the Zenith Fund
--The Zenith Managed Sub-Account, which invests in the Back Bay Advisors
Managed Series of the Zenith Fund
--The Zenith 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 VIP Fund
--The Overseas Sub-Account, which invests in the Overseas Portfolio of the
VIP Fund
--The High Income Sub-Account, which invests in the High Income Portfolio of
the VIP Fund
--The Asset Manager Sub-Account, which invests in the Asset Manager
Portfolio of VIP Fund II
--The Zenith 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 Venture 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
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<PAGE>
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.
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
the highest possible level of current income consistent with preservation of
capital through investment in a managed portfolio of high quality money market
instruments. Money market funds are neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Series will maintain a
stable net asset value of $100 per share.
The Zenith Back Bay Advisors Bond Income Series' investment objective is to
provide a high level of current income consistent with protection of capital
and moderate investment risk through investment primarily in U.S. Government
and corporate bonds.
The Zenith Capital Growth Series' investment objective is long-term growth
of capital through investment primarily in equity securities of companies
whose earnings are expected to grow at a faster rate than the U.S. economy.
The Zenith Westpeak Stock Index Series' investment objective is to provide
investment results that correspond to the composite price and yield
performance of United States publicly traded common stocks. The Series
currently seeks to achieve its objective by attempting to duplicate the
composite price and yield performance of the Standard & Poor's 500 Composite
Stock Price Index.
The Zenith Back Bay Advisors Managed Series' investment objective is to
provide a favorable total investment return through investment in a
diversified portfolio of common stocks and fixed income securities.
The Zenith Westpeak 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 stocks or their equivalent. The
Series invests primarily in stocks of small cap companies with good earnings
growth potential that Loomis Sayles believes are undervalued by the market.
Typically, such companies range in size from $100 million to $500 million in
market capitalization, have better than average growth rates at below average
price/earnings ratios, and have strong balance sheets and cash flow.
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
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<PAGE>
managed" in that sometimes it invests more heavily in equity securities and at
other times it invests more heavily in fixed-income securities. The Series
invests at least 25% of its assets in fixed income senior securities and,
under normal market conditions, more than 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,
primarily through investment in international equity securities. Normally the
series will invest at least 65% of its total assets in equity securities of
issuers headquartered outside the U.S., and substantially all of its assets
(other than cash and short-term investments) in such equity securities or
equity securities of issuers that derive 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 that the Series'
subadviser believes have capital growth potential due to factors such as
undervalued assets or earnings potential, product development and demand,
favorable operating ratios, resources for expansion, management abilities,
reasonableness of market price, and favorable overall business prospects. The
Series will generally invest predominantly in equity securities of companies
with market capitalizations of at least $250 million.
The Zenith Alger Equity Growth Series' investment objective is to seek long-
term capital appreciation. The Series' assets will be invested primarily in a
diversified, actively managed portfolio of equity securities, primarily of
companies having a total market capitalization of $1 billion or greater.
The VIP Fund Equity-Income Portfolio's investment objective is to seek
reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the 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 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.
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 Venture Value, Zenith Value Growth,
Zenith Stock Index, Zenith International Equity or Zenith Small Cap Sub-
Accounts, or the Equity-Income or Overseas Sub-Account, 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 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
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<PAGE>
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.
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. Davis Selected 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
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<PAGE>
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 Zenith Fund Series incur charges for advisory fees and certain other
expenses. Under a voluntary expense cap by TNE Advisers for each of the Back
Bay Advisors Bond Income, Back Bay Advisors Money Market, Back Bay Advisors
Managed, Westpeak Stock Index, 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 Series (other than
the Capital Growth Series) TNE Advisers, under a voluntary expense deferral
arrangement, will bear those expenses (other than the management fee) which
exceed a certain limit in the year in which they are incurred and will charge
those expenses to the series in a future year when actual expenses of the
series are below the limit. 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 anticipated expenses for 1996, after giving effect to the applicable
expense cap or expense deferral arrangement.
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER ANY EXPENSE CAP)
<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.......... .64% .40% .35% .50% .25% .70% .70% 1.00%
Other Expenses.......... .06% .15% .15% .14% .15% .15% .15% --
---- ---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses.............. .70% .55% .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% .75%
Other Expenses........................... .15% .40% .15% .15%
---- ----- ---- ----
Total Series Operating Expenses......... .85% 1.30% .90% .90%
</TABLE>
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, 1995, the total operating expenses incurred by the Portfolios, as a
percentage of Portfolio average net assets, were as follows:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
Equity-Income .51% .10% .61%
Overseas .76% .15% .91%
High Income .60% .11% .71%
Asset Manager .71% .08% .79%*
</TABLE>
- ----------
* A portion of the brokerage commissions the portfolio paid was used to reduce
its other expenses for the year ended December 31, 1995. Without this
reduction total operating expenses would have been .81% for the Asset
Manager Portfolio.
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<PAGE>
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. For more information regarding the Equity-Income,
Overseas, High Income, and Asset Manager Portfolios and Fidelity Management &
Research Company, see the prospectus for the VIP Fund and VIP Fund II attached
at the end of this prospectus and their Statement of Additional Information.
THE FIXED ACCOUNT
A Fixed Account option is available under the Policy in states where it has
been approved by the state insurance department. The Fixed Account may not be
approved by every state insurance department and therefore it may not be
available in every state. NEVLICO is not currently seeking approval of the
Fixed Account in New York.
You may allocate net premiums and net unscheduled payments for your Policy,
and may transfer your Policy's cash value, to the Fixed Account, which is part
of NEVLICO's general account. Because of exemptive and exclusionary provisions
in the Federal securities laws, interests in the Fixed Account have not been
registered under the Securities Act of 1933, and neither the Fixed Account nor
the general account has been registered as an investment company under the
Investment Company Act of 1940. Therefore, neither the Fixed Account, the
general account nor any interests therein are generally subject to the
provisions of these Acts, and 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 includes all the assets owned by NEVLICO, other
than the assets in the Variable Account or in any other separate accounts that
NEVLICO may establish. NEVLICO has sole discretion over the investment of
assets in the general account, including the Fixed Account. Policy Owners who
allocate cash value to the Fixed Account will not share in the actual
investment experience of the Fixed Account. Instead, NEVLICO guarantees that
cash values in the Fixed Account will earn interest at an effective annual
rate of at least 4.5%. NEVLICO may from time to time credit interest at a
higher rate than 4.5%, but it is under no obligation to do so. NEVLICO
declares the current interest rate for the Fixed Account periodically. Your
Policy cash values that are in the Fixed Account will earn interest daily.
NEVLICO may vary the way in which it credits interest in the Fixed Account
from time to time. The following is a description of NEVLICO's current method
for crediting interest to cash value in the Fixed Account. All of your
Policy's cash value in the Fixed Account on a policy anniversary will earn
interest at the declared annual rate in effect on the anniversary. It will
earn interest at this rate until the next policy anniversary, when it will be
credited with the current rate declared by NEVLICO. (Although NEVLICO's
current practice is to credit your entire Fixed Account cash value on a policy
anniversary with the most recently declared annual rate until the next
anniversary, NEVLICO can select any portion, from 0% to 100%, of your Fixed
Account cash value on a policy anniversary to earn interest at the most
recently declared rate until the next policy anniversary.) Any net premiums or
net unscheduled payments allocated or any portion of your Policy's 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, your 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 "Right to Return the Policy".) 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.
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<PAGE>
VALUES AND BENEFITS
The Policy's cash value in the Fixed Account reflects the net premiums and
net unscheduled payments allocated to the Fixed Account, net interest credited
to cash value in the Fixed Account, any loans, partial surrenders or partial
withdrawals made from the Fixed Account cash value, charges deducted, and any
transfers of cash value to or from the Variable Account. Charges will be
deducted from the Policy's cash value in the Fixed Account and in the Policy's
sub-accounts in proportion to the amount of the Policy's cash value in each.
(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 of
the Fixed Account) as a result of a policy loan.
The amount of the Policy's cash value in the Fixed Account will be taken
into account in the calculation of the Policy's death benefit in the same
manner as the cash value in the Variable Account. The Policy's tabular cash
value will be calculated based on the assumption that the Policy's sub-
accounts earned, and the Fixed Account credited, a 4.5% annual net rate of
return. (See "Death Benefit" and "Tabular Cash Value".)
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 that
apply to the Variable Account. (See "Allocations of Net Premiums".)
Except as described below, amounts in the Fixed Account are subject to the
same rights and limitations regarding transfers, loans, surrenders and partial
withdrawals that apply to amounts in the Variable Account. (See "Other Policy
Features".) The following special rules apply to transactions involving
amounts in the Fixed Account.
TRANSFERS OF AMOUNTS FROM THE FIXED ACCOUNT TO THE VARIABLE ACCOUNT WILL BE
ALLOWED ONLY ONCE IN EACH POLICY YEAR. A TRANSFER OF CASH VALUE FROM THE FIXED
ACCOUNT WILL BE PROCESSED ONLY IF 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
ADMINISTRATIVE OFFICE. THE AMOUNT OF CASH VALUE WHICH MAY BE TRANSFERRED FROM
THE FIXED ACCOUNT IS LIMITED TO THE GREATER OF 25% OF THE POLICY'S CASH VALUE
IN THE FIXED ACCOUNT ON THE TRANSFER DATE OR THE AMOUNT OF CASH VALUE
TRANSFERRED FROM THE FIXED ACCOUNT IN THE PRECEDING POLICY YEAR. Regardless of
these limits, if a transfer of cash value from the Fixed Account would reduce
the remaining cash value in the Fixed Account below $100, you may transfer the
entire amount of cash value from the Fixed Account. The total number of
transfers among sub-accounts and from the sub-accounts to the Fixed Account
may not exceed four in one policy year without 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, if the effective
annual rate of interest that would apply to the amount transferred is 4.5%.
Unless you request otherwise, a policy loan will reduce the Policy's cash
value in the sub-accounts and not the cash value in the Fixed Account. If
there is not enough cash value in the Policy's sub-accounts to provide the
amount of the loan, however, the balance of the loan will be taken from the
cash value in the Fixed Account. All loan repayments will be allocated first
to the outstanding loan balance attributable to the Fixed Account. The amount
removed from the Policy's sub-accounts and the Fixed Account as a result of a
loan will earn interest at not less than 4.5% per year (currently 4.75% per
year), which will be credited annually to the Policy's cash value in the sub-
accounts and the Fixed Account in proportion to the Policy's cash value in
each on the day it is credited.
Unless you request otherwise, partial surrenders and partial withdrawals
will be taken only from the Policy's sub-accounts and not the Fixed Account.
If there is not enough cash value in the Policy's sub-accounts to provide the
full amount requested, the balance of the partial surrender or partial
withdrawal will be taken from the Fixed Account.
NEVLICO has 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.
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<PAGE>
NEVLICO'S DISTRIBUTION AND OTHER AGREEMENTS
NEVLICO sells the Policies through agents who are licensed by state
insurance officials to sell NEVLICO's variable life insurance policies. These
agents are also registered representatives of New England Securities. New
England Securities, a Massachusetts corporation organized in 1968, is
registered with the SEC as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc.
New England Securities, whose principal business address is 399 Boylston
Street, Boston, Massachusetts 02116, serves as the principal underwriter for
the Policies under a Distribution Agreement between NEVLICO and New England
Securities.
Under the Distribution Agreement, NEVLICO pays the following sales expenses:
general agent and agency manager's compensation, agents' training allowances,
deferred compensation and insurance benefits of agents, general agents and
agency managers and advertising expenses and all other expenses of
distributing the Policies.
NEVLICO pays the following commissions and/or service fees to the selling
agent: a maximum of 25% of the scheduled premium paid in the first policy
year; 5% of scheduled premiums in policy years two through ten and 2% of
scheduled premiums paid thereafter. Agents receive a commission of 3% of each
unscheduled payment. NEVLICO pays commissions for substandard risk and rider
premiums, based on its rules in effect at the time of payment. Agents with
fewer than four 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. It is the principal underwriter for the
Zenith Fund; The New England Variable Account; New England Retirement
Investment Account; New England Variable Annuity Separate Account; and New
England Variable Annuity Fund I. New England Securities also sells interests
in various investment partnerships.
New England Securities may enter into selling agreements with other broker-
dealers registered under the Securities Exchange Act of 1934 whose
representatives are authorized by applicable law to sell variable life
insurance policies. Under the agreements with those broker-dealers, the
commission paid to the broker-dealer will not exceed 25% of the scheduled
premium in the first policy year, 5.5% in the second through fifth policy
years, 3.5% in the sixth through tenth policy years, 2% in the eleventh
through twentieth policy years, and 3% of all 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.
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 Policies. NEVLICO paid The New England
approximately $49.4 million in 1995 for services provided under this
agreement.
LIMITS TO NEVLICO'S RIGHT TO CHALLENGE THE POLICY
Generally, NEVLICO can challenge the validity of your Policy or a rider to
your Policy during the insured's lifetime for two years from the date of
issue, based on misrepresentations made in the application. NEVLICO can
challenge the portion of the death benefit resulting from payment of an
underwritten unscheduled payment for two years during the insured's lifetime
from the date the unscheduled payment was received. However, if the insured
dies within two years of the date of issue, NEVLICO can challenge all or part
of the Policy at any time with respect to misrepresentations in the
application.
MISSTATEMENT OF AGE OR SEX
If the insured's age or sex is misstated in the 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 correct age and, if
the Policy is sex-based, on the insured's correct sex.
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<PAGE>
SUICIDE
If the insured commits suicide within two years from the Policy's date of
issue (or less if required by state law), the death benefit will be limited to
the scheduled premiums paid and unscheduled payments made, reduced by any
outstanding policy loan plus interest and by any partial withdrawals or
partial surrenders 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 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.
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 the 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.
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<PAGE>
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 cash value is
greater than the total investment in the Policy. In this case, an amount may
be taxable even if the amount of the partial surrender is less than the
investment in the Policy. 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
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 4.5% 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 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
if the increase is not due to the payment of premiums necessary to fund the
Policy's lowest death benefit payable in the first seven policy years, or the
crediting of interest or other earnings with respect to such premiums. A
material change would also occur if certain 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".)
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<PAGE>
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".)
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 that
accrues in the Policy to taxation.
(d) For purposes of determining the amount of the distribution which is
includible in gross income, all modified endowment contracts issued by NEVLICO
or its affiliates to the same Policy Owner during any 12 month period must be
treated as one modified endowment contract.
(e) 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) or for the
joint lives (or life expectancies) of you and your beneficiary.
If a Policy becomes a modified endowment contract, distributions made during
the policy year in which it becomes a modified endowment contract,
distributions in any subsequent policy year and distributions within two years
before the Policy becomes a modified endowment contract will be subject to the
tax treatment described above. This means that a distribution from a Policy
that is not a modified endowment contract could later become taxable as a
distribution from a modified endowment 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 plus the cost of insurance protection
for the year. 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 additional
guidance prescribing the circumstances in which an owner's control of the
investments of a separate account may cause a Policy Owner, rather than the
insurance company, to be treated as the owner of the assets in the separate
account. If a Policy Owner is considered the owner of the assets of the
Separate Account, income and gains from the Account would be included in the
Owner's gross income.
A-43
<PAGE>
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 additional guidance 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 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 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.
The Policies may be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus plans, tax exempt and nonexempt welfare benefit plans,
retiree medical benefit plans and others. The tax consequences of such plans
may vary depending on the particular facts and circumstances of each
individual arrangement. Therefore, if you are contemplating the use of the
Policies in any arrangement the value of which depends in part on its tax
consequences, you should be sure to consult a qualified tax advisor regarding
the tax attributes of the particular arrangement and the suitability of this
product for the arrangement.
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,
except for the charge for federal taxes that is deducted from scheduled
premiums and unscheduled payments. 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.
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<PAGE>
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
---- ------------------------------------
<C> <S>
Chester R. Frost Senior Vice President and Treasurer of The New England since 1996;
formerly, Senior Vice President, 1984 to 1996, of The New England;
Vice President--Controller and Treasurer of NEVLICO
Edward C. Hall President--New England Services (a business unit of The New
England) since 1994; formerly, Executive Vice President--Client
Services of The New England, 1988 to 1994; Vice President--
Administration of NEVLICO
Kernan F. King Director of The New England and President--New England Life (a
business unit of The New England) since 1994; formerly, Director,
Executive Vice President and Chief Marketing Officer, 1992 to
1994, 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, of The New England
Robert A. Shafto Chairman, President and Chief Executive Officer of The New England
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
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. Executive Vice President and Chief Investment Officer of The New
Zimmermann 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
---- ------------------------------------
<C> <S>
William A. Campagna Vice President--Broker/Dealer Distribution of The New England since
1995; formerly Senior Vice President of Insurance Products of
Putnam Investments, 1993 to 1995; Vice President--Product Manager
of Putnam Investments, 1992 to 1993; Vice President--Insurance
Products of Merrill Lynch & Co., 1987 to 1992; Vice President--
Broker/Dealer Distribution of NEVLICO
Rodney J. Chandler Second Vice President and Actuary of The New England since 1990;
Chief Actuary of NEVLICO
Chester R. Frost See Directors above
John F. Guthrie Vice President of The New England since 1983; Vice President--
Portfolio Strategy of NEVLICO
Kenneth J. Schweiger Vice President--Bank Distribution of The New England since 1995;
formerly Regional Vice President of Annuity Sales & New Business
Development of Keyport Life Insurance Company, 1990 to 1995; Vice
President--Bank Distribution 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
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.
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<PAGE>
VOTING RIGHTS
NEVLICO is the legal owner of the Eligible Fund shares held in the Variable
Account and has the right to vote those shares at meetings of the Eligible
Fund shareholders. However, to the extent required by applicable Federal
securities law, NEVLICO will give you, as Policy Owner, the right to instruct
NEVLICO how to vote the shares that are attributable to your Policy.
The Policy Owners who are entitled to give voting instructions and the
number of shares attributable to their Policies will be determined as of the
record date for the meeting. All Eligible Fund shares held in any sub-account
of the Variable Account, or in any other registered (or to the extent voting
privileges are granted by the issuing insurance company, unregistered)
separate account of NEVLICO or an affiliate, and for which timely instructions
are not received, will be voted in the same proportion as (i) the aggregate
cash value of policies giving instructions, respectively, to vote for,
against, or withhold votes on a proposition, bears to (ii) the total cash
value in that sub-account for all policies for which voting instructions are
received. No voting privileges apply to Policies continued under a fixed-
benefit lapse option or with respect to cash value removed from the Variable
Account as a result of a policy loan.
All Zenith Fund shares held by the general account (or any unregistered
separate account for which voting privileges were not extended) of NEVLICO or
its affiliates will be voted in the same proportion as the total of (i) shares
for which voting instructions were received and (ii) the shares that are voted
in proportion to such voting instructions.
The SEC requires the Eligible Fund Boards of Trustees to monitor events to
identify conflicts that may arise from the sale of Eligible Fund shares to
variable life and variable annuity separate accounts of affiliated and, if
applicable, unaffiliated insurance companies. Conflicts could arise as a
result of changes in state insurance law or Federal income tax law, changes in
investment management of any portfolio of the Eligible Funds, or differences
in voting instructions given by variable life and variable annuity contract
owners, for example. If there is a material conflict, the Board of Trustees
will have an obligation to determine what action should be taken, including
the removal of the affected sub-accounts from the Eligible Fund(s), if
necessary. If 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.
If required by state insurance authorities, NEVLICO may disregard voting
instructions if they would require that shares be voted to cause a change in
the investment objectives of the portfolios of the Eligible Funds or to
approve or disapprove an investment advisory or underwriting contract for a
portfolio. In addition, NEVLICO may disregard voting instructions in favor of
changes, initiated by a Policy Owner or an Eligible Fund's Board of Trustees,
in the investment policy, investment adviser or principal underwriter of the
Eligible Fund portfolio if NEVLICO (i) reasonably disapproves of the changes
and (ii) in the case of a change in investment policy or investment adviser,
makes a good faith determination that the proposed change is contrary to state
law or is prohibited by state regulatory authorities or that the change would
be inconsistent with a sub-account's investment objectives or would result in
the purchase of securities which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts of
NEVLICO or of an affiliated life insurance company, which separate accounts
have investment objectives similar to those of the sub-account. If NEVLICO
does disregard voting instructions, a summary of that action and the reasons
for it will be included in the next semiannual report to Policy Owners.
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<PAGE>
RIGHTS RESERVED BY NEVLICO
NEVLICO and The New England may change the voting procedures described
above, and may vote Eligible Fund shares in their own right without
instructions from Policy Owners, if the applicable Federal securities laws or
regulations or interpretations of them change. NEVLICO also reserves the
right: (1) to create new investment accounts; (2) to combine any two or more
separate investment accounts including the Variable Account; (3) to make
available additional sub-accounts of the Variable Account investing in
additional Eligible Fund portfolios or in portfolios of other mutual funds;
(4) to invest the assets of the Variable Account in securities other than
Eligible Fund shares or in shares of a different series of the Eligible Funds
as a substitute for such shares already purchased or as the securities to be
purchased in the future, to withdraw the availability of a series of the
Eligible Funds as an investment option under the Policies, or to transfer
assets to 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 if
registration is no longer required. NEVLICO will exercise these rights in
accordance with applicable law, including approval of Policy Owners if
required. NEVLICO will notify you if exercise of any of these rights would
result in a material change in the Variable Account or its investments.
TOLL-FREE NUMBERS
For information about historical values of the Variable Account sub-
accounts, call the toll-free number 1-800-333-2501.
For sub-account transfers or premium reallocations, call the toll-free
number 1-800-200-2214.
REPORTS
Annually (except while the Policy is under a fixed lapse option or a
settlement option), NEVLICO will send you a statement showing your Policy's
death benefit, cash value and any outstanding policy loan principal. NEVLICO
will also confirm policy loans, sub-account transfers, lapses, surrenders and
other policy transactions when they occur.
You will be sent semiannual reports containing the financial statements of
the Variable Account and the Eligible Funds.
ADVERTISING PRACTICES
NEVLICO may from time to time receive endorsements of the Policies from
professional organizations. NEVLICO may refer to or use such endorsements in
advertisements or sales material for the Policies. NEVLICO may also pay the
professional organization making the endorsement for the use of its customer
or mailing lists in order to distribute promotional materials regarding the
Policies. An endorsement of the Policies by a third party is not necessarily
indicative of the future performance or results which may be obtained by
persons who purchase the Policies.
From time to time, articles discussing the Variable Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited to Lipper Analytical Services, Inc. and
Morningstar, Inc.) may publish their own rankings or performance reviews of
variable contract separate accounts, including the Variable Account.
References to, reprints or portions of reprints of such articles or rankings
may be used by 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
A-47
<PAGE>
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 included in this prospectus, have been included herein
in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
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.
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<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 equal to constant after tax annual rates of 0%, 6% and
12%. The tables are based on annual scheduled premiums of $4,000 for males
aged 40 and 50. The males aged 40 and 50 are assumed to be in the nonsmoker
standard risk classification. Values are first given based on current
mortality and other Policy charges and then based on guaranteed mortality and
other Policy 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. (Substandard risk Policies and 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 and federal 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, face reduction 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% (on a current basis) and .90% (on
a guaranteed basis) 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 .78% of the average daily net assets of the Eligible Funds. This average
reflects voluntary expense cap and expense deferral arrangements between TNE
Advisers and the Zenith Fund under which TNE Advisers bears operating expenses
of the Zenith Fund Series (other than the Capital Growth Series) that exceed
certain amounts. 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 mortality and expense 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 10.46%, respectively, based on NEVLICO's current charge for
mortality and expense risks, and -1.67%, 4.23% and 10.13%, respectively, based
on NEVLICO's guaranteed maximum charge for mortality and expense risks. (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".)
A-49
<PAGE>
The second column of each table shows the amount which would accumulate if
an amount equal to the annual premium were invested to earn interest, after
taxes, of 5% per year, compounded annually.
The internal rate of return on net cash value is equivalent to an interest
rate (after taxes) at which an amount equal to the illustrated premiums could
have been invested outside the Policy to arrive at the net cash value of the
Policy. The internal rate of return on the death benefit is equivalent to an
interest rate (after taxes) at which an amount equal to the illustrated
premiums could have been invested outside the Policy to arrive at the death
benefit of the Policy. The internal rate of return is compounded annually, and
the premiums are assumed to be paid at the beginning of each policy year.
NEVLICO will furnish upon request an illustration reflecting the proposed
insured's age, sex, underwriting classification, and the face amount or
scheduled premium 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 40
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$214,986 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
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 $ 4,200 $214,986 $214,986 $214,986 $ 1,476 $ 1,671 $ 1,866 $ 2,984 $ 3,179 $ 3,374 -63.09% -58.22% -53.35%
2 8,610 214,986 214,986 214,986 4,336 4,912 5,510 5,917 6,493 7,091 -34.50 -28.43 -22.43
3 13,240 214,986 214,986 214,986 5,982 7,131 8,372 8,801 9,949 11,190 -30.97 -23.86 -16.95
4 18,102 214,986 214,986 214,986 8,876 10,795 12,952 11,630 13,549 15,706 -22.23 -15.14 -8.28
5 23,208 214,986 214,986 214,986 11,716 14,610 17,994 14,405 17,300 20,684 -17.32 -10.29 -3.50
6 28,568 214,986 214,986 214,986 14,496 18,577 23,542 17,121 21,202 26,167 -14.26 -7.28 -.55
7 34,196 214,986 214,986 214,986 17,200 22,686 29,634 19,760 25,246 32,195 -12.21 -5.26 1.42
8 40,106 214,986 214,986 214,986 19,824 26,940 36,326 22,320 29,436 38,822 -10.77 -3.84 2.81
9 46,311 214,986 214,986 214,986 22,369 31,348 43,685 24,800 33,780 46,117 -9.70 -2.78 3.85
10 52,827 214,986 214,986 214,986 24,827 35,910 51,780 27,194 38,277 54,147 -8.90 -1.97 4.64
15 90,630 214,986 214,986 265,462 38,227 63,736 108,591 38,227 63,736 108,591 -5.88 .75 7.11
20 138,877 214,986 214,986 410,611 48,931 96,776 197,133 48,931 96,776 197,133 -4.96 1.78 7.98
25 200,453 214,986 246,660 602,774 56,436 136,551 335,228 56,436 136,551 335,228 -4.75 2.32 8.38
30 255,835 214,986 256,870 826,370 40,488 161,995 523,544 40,488 161,995 523,544 -5.30 2.62 8.60
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 5,274.68% 5,274.68% 5,274.68%
2 584.82 584.82 584.82
3 238.78 238.78 238.78
4 138.18 138.18 138.18
5 93.22 93.22 93.22
6 68.44 68.44 68.44
7 52.99 52.99 52.99
8 42.54 42.54 42.54
9 35.06 35.06 35.06
10 29.47 29.47 29.47
15 14.80 14.80 17.12
20 8.70 8.70 13.91
25 5.47 6.39 12.06
30 4.10 5.02 10.83
</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-51
<PAGE>
MALE ISSUE AGE 40
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$214,986 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
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 $ 4,200 $214,986 $215,040 $215,219 $ 1,476 $ 1,671 $ 1,866 $ 2,984 $ 3,179 $ 3,373 -63.09% -58.22% -53.35%
2 8,610 214,986 215,120 215,682 4,336 4,911 5,509 5,917 6,493 7,090 -34.50 -28.43 -22.44
3 13,240 214,986 215,225 216,407 5,982 7,130 8,367 8,801 9,948 11,186 -30.97 -23.86 -16.98
4 18,102 214,986 215,356 217,425 8,876 10,793 12,942 11,630 13,547 15,696 -22.23 -15.14 -8.31
5 23,208 214,986 215,515 218,775 11,716 14,607 17,974 14,405 17,297 20,664 -17.32 -10.30 -3.54
6 28,568 214,986 215,701 220,497 14,496 18,572 23,506 17,121 21,197 26,131 -14.26 -7.28 -.59
7 34,196 214,986 215,901 222,623 17,200 22,678 29,573 19,760 25,239 32,133 -12.21 -5.27 1.37
8 40,106 214,986 216,113 225,200 19,824 26,929 36,227 22,320 29,425 38,722 -10.77 -3.85 2.75
9 46,311 214,986 216,341 228,285 22,369 31,331 43,530 24,800 33,763 45,961 -9.70 -2.79 3.78
10 52,827 214,986 216,582 231,937 24,827 35,886 51,544 27,194 38,253 53,911 -8.90 -1.98 4.56
15 90,630 214,986 218,560 263,142 38,227 63,643 107,642 38,227 63,643 107,642 -5.88 .73 7.01
20 138,877 214,986 224,168 407,475 48,931 96,451 195,628 48,931 96,451 195,628 -4.96 1.75 7.91
25 200,453 214,986 245,652 598,509 56,436 135,993 332,856 56,436 135,993 332,856 -4.75 2.29 8.34
30 255,835 214,986 255,820 820,523 40,488 161,333 519,839 40,488 161,333 519,839 -5.30 2.60 8.56
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 5,274.68% 5,276.00% 5,280.48%
2 584.82 585.05 586.01
3 238.78 238.92 239.62
4 138.18 138.30 138.97
5 93.22 93.33 94.04
6 68.44 68.56 69.33
7 52.99 53.11 53.96
8 42.54 42.66 43.62
9 35.06 35.18 36.25
10 29.47 29.60 30.79
15 14.80 14.98 17.02
20 8.70 9.04 13.85
25 5.47 6.36 12.01
30 4.10 5.00 10.79
</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 40
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$214,986 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
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 $ 4,200 $214,986 $214,986 $214,986 $ 1,415 $ 1,608 $ 1,801 $ 2,923 $ 3,115 $ 3,308 -64.62% -59.80% -54.98%
2 8,610 214,986 214,986 214,986 4,185 4,751 5,340 5,766 6,332 6,921 -36.14 -30.10 -24.11
3 13,240 214,986 214,986 214,986 5,714 6,836 8,052 8,533 9,655 10,870 -32.76 -25.61 -18.67
4 18,102 214,986 214,986 214,986 8,463 10,330 12,433 11,217 13,084 15,187 -23.91 -16.75 -9.84
5 23,208 214,986 214,986 214,986 11,134 13,936 17,221 13,823 16,626 19,911 -18.92 -11.81 -4.95
6 28,568 214,986 214,986 214,986 13,719 17,654 22,454 16,344 20,279 25,079 -15.80 -8.72 -1.90
7 34,196 214,986 214,986 214,986 16,219 21,487 28,177 18,779 24,047 30,738 -13.69 -6.62 .16
8 40,106 214,986 214,986 214,986 18,630 25,437 34,440 21,126 27,933 36,936 -12.19 -5.13 1.63
9 46,311 214,986 214,986 214,986 20,953 29,509 41,302 23,385 31,940 43,733 -11.07 -4.01 2.74
10 52,827 214,986 214,986 214,986 23,182 33,704 48,822 25,549 36,071 51,189 -10.22 -3.14 3.59
15 90,630 214,986 214,986 246,575 34,747 58,598 100,840 34,747 58,598 100,840 -7.20 -.30 6.25
20 138,877 214,986 214,986 367,334 40,340 84,254 176,312 40,340 84,254 176,312 -7.10 .49 7.04
25 200,453 214,986 214,986 517,571 40,554 113,439 287,772 40,554 113,439 287,772 -7.93 .96 7.40
30 255,835 214,986 214,986 672,886 13,494 125,799 426,198 13,494 125,799 426,198 -12.69 1.26 7.58
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 5,274.68% 5,274.68% 5,274.68%
2 584.82 584.82 584.82
3 238.78 238.78 238.78
4 138.18 138.18 138.18
5 93.22 93.22 93.22
6 68.44 68.44 68.44
7 52.99 52.99 52.99
8 42.54 42.54 42.54
9 35.06 35.06 35.06
10 29.47 29.47 29.47
15 14.80 14.80 16.31
20 8.70 8.70 13.03
25 5.47 5.47 11.12
30 4.10 4.10 9.83
</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-53
<PAGE>
MALE ISSUE AGE 40
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$214,986 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
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 $ 4,200 $214,986 $214,986 $215,155 $ 1,415 $ 1,608 $ 1,801 $ 2,923 $ 3,115 $ 3,308 -64.62% -59.80% -54.99%
2 8,610 214,986 214,986 215,515 4,185 4,751 5,338 5,766 6,332 6,920 -36.14 -30.10 -24.12
3 13,240 214,986 214,986 216,093 5,714 6,836 8,048 8,533 9,655 10,866 -32.76 -25.61 -18.69
4 18,102 214,986 214,986 216,916 8,463 10,330 12,424 11,217 13,084 15,178 -23.91 -16.75 -9.87
5 23,208 214,986 214,986 218,016 11,134 13,936 17,204 13,823 16,626 19,893 -18.92 -11.81 -4.98
6 28,568 214,986 214,986 219,428 13,719 17,654 22,422 16,344 20,279 25,047 -15.80 -8.72 -1.94
7 34,196 214,986 214,986 221,191 16,219 21,487 28,121 18,779 24,047 30,681 -13.69 -6.62 .11
8 40,106 214,986 214,986 223,346 18,630 25,437 34,348 21,126 27,933 36,844 -12.19 -5.13 1.57
9 46,311 214,986 214,986 225,942 20,953 29,509 41,157 23,385 31,940 43,588 -11.07 -4.01 2.67
10 52,827 214,986 214,986 229,030 23,182 33,704 48,601 25,549 36,071 50,968 -10.22 -3.14 3.51
15 90,630 214,986 214,986 254,097 34,747 58,598 99,743 34,747 58,598 99,743 -7.20 -.30 6.12
20 138,877 214,986 214,986 363,846 40,340 84,254 174,638 40,340 84,254 174,638 -7.10 .49 6.96
25 200,453 214,986 214,986 513,037 40,554 113,439 285,251 40,554 113,439 285,251 -7.93 .96 7.34
30 255,835 214,986 214,986 666,991 13,494 125,799 422,464 13,494 125,799 422,464 -12.69 1.26 7.53
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 5,274.68% 5,274.68% 5,278.89%
2 584.82 584.82 585.72
3 238.78 238.78 239.43
4 138.18 138.18 138.80
5 93.22 93.22 93.88
6 68.44 68.44 69.16
7 52.99 52.99 53.78
8 42.54 42.54 43.42
9 35.06 35.06 36.05
10 29.47 29.47 30.57
15 14.80 14.80 16.64
20 8.70 8.70 12.96
25 5.47 5.47 11.06
30 4.10 4.10 9.79
</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 50
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$110,165 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
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 $ 4,200 $110,165 $110,165 $110,165 $ 1,789 $ 1,985 $ 2,181 $ 3,013 $ 3,209 $ 3,405 -55.28% -50.38% -45.48%
2 8,610 110,165 110,165 110,165 4,629 5,209 5,812 5,958 6,538 7,141 -31.37 -25.41 -19.50
3 13,241 110,165 110,165 110,165 6,233 7,391 8,642 8,832 9,989 11,241 -29.35 -22.35 -15.54
4 18,103 110,165 110,165 110,165 9,065 11,000 13,176 11,630 13,565 15,741 -21.48 -14.44 -7.62
5 23,208 110,165 110,165 110,165 11,814 14,733 18,149 14,346 17,265 20,681 -17.06 -10.02 -3.22
6 28,568 110,165 110,165 110,165 14,479 18,596 23,612 16,978 21,095 26,111 -14.29 -7.25 -.47
7 34,197 110,165 110,165 110,165 17,057 22,593 29,621 19,523 25,060 32,087 -12.42 -5.37 1.41
8 40,106 110,165 110,165 110,165 19,546 26,735 36,244 21,979 29,168 38,677 -11.09 -4.01 2.76
9 46,312 110,165 110,165 110,165 21,947 31,030 43,558 24,347 33,431 45,958 -10.10 -2.99 3.79
10 52,827 110,165 110,165 112,500 24,254 35,487 51,644 26,621 37,854 54,011 -9.35 -2.19 4.60
15 90,630 110,165 114,848 192,783 37,420 63,580 107,215 37,420 63,580 107,215 -6.17 .72 6.96
20 115,670 110,165 119,680 264,468 29,393 75,476 167,553 29,393 75,476 167,553 -5.56 1.76 7.79
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 2,654.12% 2,654.12% 2,654.12%
2 377.17 377.17 377.17
3 162.27 162.27 162.27
4 94.81 94.81 94.81
5 63.55 63.55 63.55
6 45.97 45.97 45.97
7 34.88 34.88 34.88
8 27.34 27.34 27.34
9 21.92 21.92 21.92
10 17.87 17.87 18.23
15 7.28 7.76 13.60
20 4.63 5.26 11.20
</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 50
$4,000 ANNUAL PREMIUM FOR NON-SMOKER
STANDARD UNDERWRITING RISK
$110,165 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
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 $ 4,200 $110,165 $110,226 $110,406 $ 1,789 $ 1,984 $ 2,180 $ 3,013 $ 3,209 $ 3,405 -55.28% -50.39% -45.50%
2 8,610 110,165 110,296 110,862 4,629 5,208 5,809 5,958 6,538 7,138 -31.37 -25.42 -19.53
3 13,241 110,165 110,375 111,562 6,233 7,389 8,633 8,832 9,988 11,231 -29.35 -22.36 -15.59
4 18,103 110,165 110,462 112,539 9,065 10,997 13,153 11,630 13,562 15,718 -21.48 -14.45 -7.69
5 23,208 110,165 110,556 113,825 11,814 14,727 18,102 14,346 17,259 20,635 -17.06 -10.03 -3.30
6 28,568 110,165 110,656 115,458 14,479 18,586 23,525 16,978 21,085 26,024 -14.29 -7.26 -.57
7 34,197 110,165 110,764 117,484 17,057 22,579 29,470 19,523 25,045 31,936 -12.42 -5.38 1.28
8 40,106 110,165 110,878 119,949 19,546 26,713 35,994 21,979 29,147 38,427 -11.09 -4.03 2.61
9 46,312 110,165 110,999 122,908 21,947 31,000 43,161 24,347 33,400 45,561 -10.10 -3.01 3.61
10 52,827 110,165 111,127 126,420 24,253 35,444 51,038 26,621 37,811 53,405 -9.35 -2.21 4.39
15 90,630 110,165 114,608 190,886 37,420 63,447 106,160 37,420 63,447 106,160 -6.17 .70 6.85
20 115,670 110,165 119,430 261,866 29,393 75,318 165,904 29,393 75,318 165,904 -5.56 1.74 7.71
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 2,654.12% 2,655.65% 2,660.14%
2 377.17 377.48 378.82
3 162.27 162.46 163.56
4 94.81 94.98 96.10
5 63.55 63.70 64.93
6 45.97 46.11 47.49
7 34.88 35.03 36.58
8 27.34 27.48 29.24
9 21.92 22.06 24.05
10 17.87 18.02 20.25
15 7.28 7.73 13.49
20 4.63 5.24 11.13
</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 50
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$110,165 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
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 $ 4,200 $110,165 $110,165 $110,165 $ 1,721 $ 1,914 $ 2,108 $ 2,945 $ 3,139 $ 3,332 -56.99% -52.15% -47.30%
2 8,610 110,165 110,165 110,165 4,480 5,050 5,643 5,810 6,379 6,972 -32.95 -27.02 -21.13
3 13,241 110,165 110,165 110,165 5,992 7,124 8,351 8,590 9,723 10,949 -30.91 -23.89 -17.06
4 18,103 110,165 110,165 110,165 8,720 10,606 12,731 11,285 13,171 15,297 -22.86 -15.79 -8.93
5 23,208 110,165 110,165 110,165 11,356 14,193 17,520 13,888 16,725 20,052 -18.30 -11.22 -4.38
6 28,568 110,165 110,165 110,165 13,900 17,890 22,761 16,399 20,389 25,261 -15.44 -8.34 -1.51
7 34,197 110,165 110,165 110,165 16,347 21,699 28,507 18,813 24,166 30,973 -13.49 -6.38 .45
8 40,106 110,165 110,165 110,165 18,699 25,630 34,817 21,132 28,063 37,250 -12.10 -4.96 1.87
9 46,312 110,165 110,165 110,165 20,954 29,689 41,762 23,354 32,089 44,162 -11.07 -3.88 2.96
10 52,827 110,165 110,165 110,165 23,107 33,882 49,420 25,474 36,249 51,787 -10.28 -3.04 3.81
15 90,630 110,165 110,165 181,020 34,309 59,369 100,648 34,309 59,369 100,648 -7.38 -.13 6.23
20 115,670 110,165 110,165 235,340 21,105 66,204 149,062 21,105 66,204 149,062 -8.20 .76 6.91
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY ---------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 2,654.12% 2,654.12% 2,654.12%
2 377.17 377.17 377.17
3 162.27 162.27 162.27
4 94.81 94.81 94.81
5 63.55 63.55 63.55
6 45.97 45.97 45.97
7 34.88 34.88 34.88
8 27.34 27.34 27.34
9 21.92 21.92 21.92
10 17.87 17.87 17.87
15 7.28 7.28 12.90
20 4.63 4.63 10.33
</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 50
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$110,165 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
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 $ 4,200 $110,165 $110,165 $110,334 $ 1,721 $ 1,914 $ 2,107 $ 2,945 $ 3,139 $ 3,332 -56.99% -52.15% -47.31%
2 8,610 110,165 110,165 110,697 4,480 5,050 5,640 5,810 6,379 6,970 -32.95 -27.02 -21.16
3 13,241 110,165 110,165 111,278 5,992 7,124 8,343 8,590 9,723 10,941 -30.91 -23.89 -17.11
4 18,103 110,165 110,165 112,106 8,720 10,606 12,712 11,285 13,171 15,278 -22.86 -15.79 -8.99
5 23,208 110,165 110,165 113,212 11,356 14,193 17,480 13,888 16,725 20,012 -18.30 -11.22 -4.46
6 28,568 110,165 110,165 114,632 13,900 17,890 22,686 16,399 20,389 25,185 -15.44 -8.34 -1.61
7 34,197 110,165 110,165 116,404 16,347 21,699 28,373 18,813 24,166 30,839 -13.49 -6.38 .33
8 40,106 110,165 110,165 118,570 18,699 25,630 34,594 21,132 28,063 37,027 -12.10 -4.96 1.73
9 46,312 110,165 110,165 121,179 20,954 29,689 41,406 23,354 32,089 43,806 -11.07 -3.88 2.79
10 52,827 110,165 110,165 124,283 23,107 33,882 48,870 25,474 36,249 51,237 -10.28 -3.04 3.61
15 90,630 110,165 110,165 179,232 34,309 59,369 99,654 34,309 59,369 99,654 -7.38 -.13 6.11
20 115,670 110,165 110,165 233,016 21,105 66,204 147,590 21,105 66,204 147,590 -8.20 .76 6.84
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 2,654.12% 2,654.12% 2,658.35%
2 377.17 377.17 378.43
3 162.27 162.27 163.30
4 94.81 94.81 95.87
5 63.55 63.55 64.70
6 45.97 45.97 47.26
7 34.88 34.88 36.34
8 27.34 27.34 28.98
9 21.92 21.92 23.78
10 17.87 17.87 19.96
15 7.28 7.28 12.79
20 4.63 4.63 10.26
</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 November, 1993. The Zenith Fund and
the Variable Account commenced operations on August 26, 1983. The Westpeak
Stock Index and Back Bay Advisors Managed Series of the Zenith Fund commenced
operations on May 1, 1987. The Westpeak Value Growth Series and Loomis Sayles
Avanti Growth Series of the 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
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 the 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
you choose will affect the values and benefits of your Policy.
Many factors in addition to investment experience will affect the actual
values and benefits of your Policy. For instance, these investment experience
figures do not reflect the charges deducted from premiums and monthly
deductions from the cash value. (See "Charges and Expenses".)
NET RATES OF RETURN
The annual net rate 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.
A-59
<PAGE>
SUB-ACCOUNT INVESTING IN 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% -9.34% 29.98% -4.06% 53.06% -6.61% 14.28% -7.62%
Bond Income..... 2.83% 12.10 18.05 14.15 1.65 7.72 11.63 7.44 17.25 7.53 11.94 -3.94
Money Market.... 3.08% 9.96 7.61 6.16 5.89 6.87 8.60 7.54 5.58 3.18 2.36 3.35
<CAPTION>
- ---------
8/26/83- 8/26/83-
12/31/95 12/31/95
- --------- TOTAL EFFECTIVE
12/31/95 RETURN ANNUAL
- --------- --------- ---------
<S> <C> <C>
37.21% 1,139.63% 22.63%
20.47 233.17 10.24
5.07 107.24 6.08
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------
FOR ONE YEAR ENDING
5/1/87- -----------------------------------------------------------------
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% 15.65% 29.37% -4.72% 29.65% 6.65% 9.07% 0.51%
Managed............................................. -1.06 8.83 18.37 2.59 19.45 6.06 9.99 -1.70
<CAPTION>
- ---------
5/1/87- 5/1/87-
12/31/95 12/31/95
- --------- TOTAL EFFECTIVE
12/31/95 RETURN ANNUAL
- --------- --------- ---------
<S> <C> <C>
36.10% 157.20% 11.52%
30.48 133.71 10.30
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------------------
4/30/93- 4/30/93-
FOR ONE YEAR ENDING 12/31/95 12/31/95
4/30/93- ------------------------------------ TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 RETURN ANNUAL
- ----------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Value Growth..................................................... 13.78% -1.80% 35.65% 51.57% 16.90%
Avanti Growth.................................................... 14.28 -.87 29.57 46.79 15.50
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------------
5/2/94- 5/2/94-
FOR ONE YEAR ENDING 12/31/95 12/31/95
5/2/94- -------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 RETURN ANNUAL
- ----------- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Small Cap................................................................... -3.61% 28.08% 23.45% 13.54%
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------------
10/31/94- 10/31/94-
FOR ONE YEAR ENDING 12/31/95 12/31/95
10/31/94- -------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 RETURN ANNUAL
- ----------- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Equity Growth............................................................... -4.29% 47.81% 41.46% 34.82%
Balanced.................................................................... -.20 24.05 23.80 20.19
Venture Value............................................................... -3.60 38.45 33.47 28.24
International Equity........................................................ 2.50 5.60 8.24 7.06
- ---------
* 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.
<CAPTION>
SUB-ACCOUNTS INVESTING IN VARIABLE INSURANCE PRODUCTS FUND
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------
10/9/86-
FOR ONE YEAR ENDING 12/31/95
10/9/86- -------------------------------------------------------------------------------- TOTAL
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 12/31/95 RETURN
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............ .06% -3.08% 21.98% 16.64% -15.80% 31.07% 16.39% 17.59% 6.43% 34.29% 200.54%
<CAPTION>
10/9/86-
12/31/95
EFFECTIVE
SUB-ACCOUNT ANNUAL
- ----------- ---------
<S> <C>
Equity-Income............ 12.67%
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------
1/28/87-
FOR ONE YEAR ENDING 12/31/95
1/28/87- ----------------------------------------------------------------------- TOTAL
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 12/31/95 RETURN
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>Overseas.......................... -5.90% 7.48% 25.53% -2.26% 7.79% -11.12% 36.53% 1.12% 9.02% 77.94%
1/28/87-
12/31/95
EFFECTIVE
SUB-ACCOUNT ANNUAL
- ----------- ---------
<S> <C>
Overseas.......................... 6.88%
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------------------------
9/19/85-
FOR ONE YEAR ENDING 12/31/95
9/19/85- ----------------------------------------------------------------------------------------- TOTAL
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 12/31/95 RETURN
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income..... 6.20% 16.98% 0.61% 10.97% -4.75% -2.82% 34.27% 22.43% 19.68% -2.13% 19.88% 196.36%
<CAPTION>
9/19/85-
12/31/95
EFFECTIVE
SUB-ACCOUNT ANNUAL
- ----------- ---------
<S> <C>
High Income..... 11.15%
SUB-ACCOUNT INVESTING IN VARIABLE INSURANCE PRODUCTS FUND II
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------
9/6/89-
FOR ONE YEAR ENDING 12/31/95
9/6/89- ----------------------------------------------------- TOTAL
SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 RETURN
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager....................................... .62% 6.08% 21.83% 11.04% 20.51% -6.65% 16.26% 88.84%
<CAPTION>
9/6/89-
12/31/95
EFFECTIVE
SUB-ACCOUNT ANNUAL
- ----------- ---------
<S> <C>
Asset Manager....................................... 10.60%
</TABLE>
A-60
<PAGE>
POLICY PERFORMANCE
The material below assumes, in the first example, a Policy with an Option 1
death benefit was issued with a $214,986 face amount and annual premiums of
$4,000, 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 Venture Value, and Zenith Equity Growth Sub-Accounts; October 9
in the case of the Equity-Income Sub-Account; January 28 in the case of the
Overseas Sub-Account; April 30 in the case of the Zenith 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 40. The second example assumes a Policy was
issued with a $110,165 face amount and annual premiums of $4,000, 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 Venture Value, and Zenith Equity Growth Sub-Accounts; October 9 in the
case of the Equity-Income Sub-Account; January 28 in the case of the Overseas
Sub-Account; April 30 in the case of the Zenith 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 50. 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.)
MALE NONSMOKER STANDARD RISK, AGE 40
OPTION 1--FIXED DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1983....... 4,000 214,986 214,986 3,664 2,157 -83.06% --
December 31, 1984....... 8,000 214,986 214,986 6,634 5,016 -45.31 1,748.07%
December 31, 1985....... 12,000 214,986 214,986 14,732 11,876 -0.77 397.72
December 31, 1986....... 16,000 214,986 214,986 31,555 28,764 33.56 191.12
December 31, 1987....... 20,000 214,986 214,986 50,228 47,501 38.34 118.15
December 31, 1988....... 24,000 214,986 214,986 48,635 45,972 22.95 82.52
December 31, 1989....... 28,000 214,986 214,986 66,297 63,699 24.33 61.87
December 31, 1990....... 32,000 214,986 214,986 66,146 63,613 17.48 48.58
December 31, 1991....... 36,000 214,986 315,493 104,476 102,007 23.06 47.97
December 31, 1992....... 40,000 214,986 296,564 100,670 98,265 17.73 38.90
December 31, 1993....... 44,000 214,986 341,006 117,831 115,661 17.11 35.47
December 31, 1994....... 48,000 214,986 311,482 110,391 108,695 13.24 29.32
December 31, 1995....... 52,000 214,986 415,604 155,566 154,343 15.95 29.60
</TABLE>
A-61
<PAGE>
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1983....... 4,000 214,986 214,986 3,456 1,948 -87.35% --
December 31, 1984....... 8,000 214,986 214,986 7,149 5,530 -37.33 1,748.07%
December 31, 1985....... 12,000 214,986 214,986 11,627 8,771 -21.94 397.72
December 31, 1986....... 16,000 214,986 214,986 16,353 13,561 -8.82 191.12
December 31, 1987....... 20,000 214,986 214,986 19,665 16,938 -7.04 118.15
December 31, 1988....... 24,000 214,986 214,986 24,236 21,573 -3.75 82.52
December 31, 1989....... 28,000 214,986 214,986 30,111 27,513 -0.52 61.87
December 31, 1990....... 32,000 214,986 214,986 35,454 32,920 0.74 48.58
December 31, 1991....... 36,000 214,986 214,986 44,732 42,263 3.66 39.38
December 31, 1992....... 40,000 214,986 214,986 50,997 48,593 3.96 32.69
December 31, 1993....... 44,000 214,986 214,986 59,945 57,775 4.99 27.63
December 31, 1994....... 48,000 214,986 214,986 60,242 58,546 3.34 23.69
December 31, 1995....... 52,000 214,986 214,986 75,713 74,490 5.49 20.54
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1983....... 4,000 214,986 214,986 3,463 1,956 -87.21% --
December 31, 1984....... 8,000 214,986 214,986 6,931 5,312 -40.71 1,748.07%
December 31, 1985....... 12,000 214,986 214,986 10,545 7,689 -30.39 397.72
December 31, 1986....... 16,000 214,986 214,986 14,252 11,460 -17.56 191.12
December 31, 1987....... 20,000 214,986 214,986 18,148 15,421 -11.00 118.15
December 31, 1988....... 24,000 214,986 214,986 22,464 19,801 -6.76 82.52
December 31, 1989....... 28,000 214,986 214,986 27,423 24,825 -3.61 61.87
December 31, 1990....... 32,000 214,986 214,986 32,473 29,940 -1.74 48.58
December 31, 1991....... 36,000 214,986 214,986 37,221 34,751 -0.81 39.38
December 31, 1992....... 40,000 214,986 214,986 41,280 38,876 -0.59 32.69
December 31, 1993....... 44,000 214,986 214,986 45,086 42,916 -0.47 27.63
December 31, 1994....... 48,000 214,986 214,986 49,418 47,722 -0.10 23.69
December 31, 1995....... 52,000 214,986 214,986 54,706 53,483 .44 20.54
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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............. $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1987....... 4,000 214,986 214,986 2,816 1,308 -81.21% --
December 31, 1988....... 8,000 214,986 214,986 6,485 4,882 -35.82 930.30%
December 31, 1989....... 12,000 214,986 214,986 12,199 9,359 -14.25 302.19
December 31, 1990....... 16,000 214,986 214,986 14,459 11,684 -14.07 161.30
December 31, 1991....... 20,000 214,986 214,986 22,076 19,365 -1.21 104.58
December 31, 1992....... 24,000 214,986 214,986 26,743 24,097 0.13 75.01
December 31, 1993....... 28,000 214,986 214,986 32,350 29,768 1.67 57.20
December 31, 1994....... 32,000 214,986 214,986 35,524 33,007 0.74 45.43
December 31, 1995....... 36,000 214,986 214,986 52,327 49,874 6.89 37.14
</TABLE>
A-62
<PAGE>
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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............. $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1987....... 4,000 214,986 214,986 3,191 1,684 -72.59% --
December 31, 1988....... 8,000 214,986 214,986 6,664 5,061 -33.61 930.30%
December 31, 1989....... 12,000 214,986 214,986 11,415 8,575 -18.96 302.19
December 31, 1990....... 16,000 214,986 214,986 14,841 12,065 -12.67 161.30
December 31, 1991....... 20,000 214,986 214,986 21,054 18,343 -3.23 104.58
December 31, 1992....... 24,000 214,986 214,986 25,573 22,927 -1.44 75.01
December 31, 1993....... 28,000 214,986 214,986 31,253 28,671 0.65 57.20
December 31, 1994....... 32,000 214,986 214,986 33,702 31,184 -0.62 45.43
December 31, 1995....... 36,000 214,986 214,986 47,715 45,262 4.86 37.14
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.......... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1993....... 4,000 214,986 214,986 3,658 2,151 -60.33% --
December 31, 1994....... 8,000 214,986 214,986 6,689 5,092 -33.17 926.15%
December 31, 1995....... 12,000 214,986 214,986 12,427 9,593 -12.87 301.55
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.......... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1993....... 4,000 214,986 214,986 3,641 2,133 -60.80% --
December 31, 1994....... 8,000 214,986 214,986 6,623 5,025 -33.98 926.15%
December 31, 1995....... 12,000 214,986 214,986 12,755 9,920 -11.01 301.55
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............. $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,069 1,562 -75.66% --
December 31, 1995....... 8,000 214,986 214,986 7,626 6,023 -22.13 934.48%
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........ $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,252 1,744 -100.00% --
December 31, 1995....... 8,000 214,986 214,986 7,767 6,138 -35.07% 2,852.46%
ZENITH BALANCED 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........ $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,439 1,931 -98.72% --
December 31, 1995....... 8,000 214,986 214,986 7,429 5,799 -41.45 2,852.46%
</TABLE>
A-63
<PAGE>
ZENITH VENTURE VALUE 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........ $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,333 1,825 -100.00% --
December 31, 1995....... 8,000 214,986 214,986 7,759 6,129 -34.24 2,852.46%
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........ $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,523 2,016 -98.34% --
December 31, 1995....... 8,000 214,986 214,986 6,967 5,337 -50.12 2,852.46%
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1986....... 4,000 214,986 214,986 3,455 1,947 -95.78% --
December 31, 1987....... 8,000 214,986 214,986 5,864 4,234 -65.32 2,387.88%
December 31, 1988....... 12,000 214,986 214,986 10,064 7,198 -37.95 447.96
December 31, 1989....... 16,000 214,986 214,986 14,779 11,977 -16.41 204.96
December 31, 1990....... 20,000 214,986 214,986 15,580 12,842 -19.79 124.10
December 31, 1991....... 24,000 214,986 214,986 23,533 20,859 -5.15 85.71
December 31, 1992....... 28,000 214,986 214,986 30,631 28,023 0.03 63.81
December 31, 1993....... 32,000 214,986 214,986 38,948 36,403 3.44 49.87
December 31, 1994....... 36,000 214,986 214,986 44,276 41,796 3.50 40.29
December 31, 1995....... 40,000 214,986 214,986 62,890 60,475 8.51 33.36
OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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........ $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1987....... 4,000 214,986 214,986 2,859 1,351 -69.13% --
December 31, 1988....... 8,000 214,986 214,986 6,543 4,962 -29.25 643.33%
December 31, 1989....... 12,000 214,986 214,986 11,709 8,891 -14.82 251.25
December 31, 1990....... 16,000 214,986 214,986 14,489 11,735 -12.40 142.98
December 31, 1991....... 20,000 214,986 214,986 18,805 16,116 -7.30 95.64
December 31, 1992....... 24,000 214,986 214,986 19,264 16,639 -10.63 69.87
December 31, 1993....... 28,000 214,986 214,986 30,296 27,736 -0.24 53.91
December 31, 1994....... 32,000 214,986 214,986 33,312 30,816 -0.85 43.18
December 31, 1995....... 36,000 214,986 214,986 40,085 37,653 0.91 35.52
</TABLE>
A-64
<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...... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1985....... 4,000 214,986 214,986 3,617 2,110 -89.64% --
December 31, 1986....... 8,000 214,986 214,986 7,397 5,773 -36.17 2,058.68%
December 31, 1987....... 12,000 214,986 214,986 10,415 7,553 -33.14 423.86
December 31, 1988....... 16,000 214,986 214,986 14,597 11,800 -16.68 198.45
December 31, 1989....... 20,000 214,986 214,986 16,760 14,028 -15.44 121.33
December 31, 1990....... 24,000 214,986 214,986 19,231 16,563 -13.42 84.23
December 31, 1991....... 28,000 214,986 214,986 28,886 26,282 -1.93 62.92
December 31, 1992....... 32,000 214,986 214,986 38,300 35,761 2.92 49.27
December 31, 1993....... 36,000 214,986 214,986 48,897 46,422 5.85 39.87
December 31, 1994....... 40,000 214,986 214,986 50,754 48,344 3.91 33.05
December 31, 1995....... 44,000 214,986 214,986 63,875 61,666 6.23 27.91
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....... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1989....... 4,000 214,986 214,986 3,442 1,934 -89.83% --
December 31, 1990....... 8,000 214,986 214,986 6,848 5,224 -43.46 1,880.71%
December 31, 1991....... 12,000 214,986 214,986 11,460 8,599 -23.77 409.35
December 31, 1992....... 16,000 214,986 214,986 15,838 13,041 -11.06 194.42
December 31, 1993....... 20,000 214,986 214,986 22,276 19,544 -0.99 119.59
December 31, 1994....... 24,000 214,986 214,986 23,573 20,905 -4.91 83.30
December 31, 1995....... 28,000 214,986 214,986 30,635 28,032 .03 62.35
MALE NONSMOKER STANDARD RISK, AGE 50
OPTION 1--FIXED DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1983....... 4,000 110,165 110,165 3,677 2,453 -75.48% --
December 31, 1984....... 8,000 110,165 110,165 6,672 5,323 -40.54 996.91%
December 31, 1985....... 12,000 110,165 110,165 14,809 12,191 1.18 260.78
December 31, 1986....... 16,000 110,165 110,165 31,740 29,155 34.38 129.41
December 31, 1987....... 20,000 110,165 125,112 50,485 47,934 38.76 87.05
December 31, 1988....... 24,000 110,165 118,316 48,888 46,370 23.26 58.20
December 31, 1989....... 28,000 110,165 152,051 66,489 64,004 24.47 50.81
December 31, 1990....... 32,000 110,165 150,281 66,135 63,683 17.51 39.26
December 31, 1991....... 36,000 110,165 224,315 104,081 101,662 22.98 40.33
December 31, 1992....... 40,000 110,165 210,881 99,913 97,527 17.58 32.32
December 31, 1993....... 44,000 110,165 242,534 116,487 114,318 16.91 29.68
December 31, 1994....... 48,000 110,165 221,709 108,739 107,043 13.00 24.16
December 31, 1995....... 52,000 110,165 296,279 152,766 151,543 15.69 24.96
</TABLE>
A-65
<PAGE>
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1983....... 4,000 110,165 110,165 3,469 2,244 -81.01% --
December 31, 1984....... 8,000 110,165 110,165 7,188 5,840 -32.56 996.91%
December 31, 1985....... 12,000 110,165 110,165 11,682 9,065 -19.75 260.78
December 31, 1986....... 16,000 110,165 110,165 16,409 13,824 -7.81 129.41
December 31, 1987....... 20,000 110,165 110,165 19,696 17,144 -6.53 80.18
December 31, 1988....... 24,000 110,165 110,165 24,223 21,705 -3.53 55.41
December 31, 1989....... 28,000 110,165 110,165 30,045 27,559 -0.47 40.82
December 31, 1990....... 32,000 110,165 110,165 35,336 32,884 0.71 31.33
December 31, 1991....... 36,000 110,165 110,165 44,571 42,152 3.60 24.73
December 31, 1992....... 40,000 110,165 110,165 50,843 48,456 3.91 19.92
December 31, 1993....... 44,000 110,165 124,329 59,755 57,585 4.93 18.34
December 31, 1994....... 48,000 110,165 121,504 60,055 58,359 3.29 14.96
December 31, 1995....... 52,000 110,165 146,267 75,399 74,176 5.43 15.19
</TABLE>
ZENITH MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1983....... 4,000 110,165 110,165 3,476 2,252 -80.82% --
December 31, 1984....... 8,000 110,165 110,165 6,970 5,621 -35.93 996.91%
December 31, 1985....... 12,000 110,165 110,165 10,593 7,976 -28.09 260.78
December 31, 1986....... 16,000 110,165 110,165 14,290 11,706 -16.47 129.41
December 31, 1987....... 20,000 110,165 110,165 18,156 15,604 -10.50 80.18
December 31, 1988....... 24,000 110,165 110,165 22,417 19,899 -6.59 55.41
December 31, 1989....... 28,000 110,165 110,165 27,308 24,823 -3.61 40.82
December 31, 1990....... 32,000 110,165 110,165 32,292 29,840 -1.82 31.33
December 31, 1991....... 36,000 110,165 110,165 36,982 34,563 -0.94 24.73
December 31, 1992....... 40,000 110,165 110,165 40,997 38,610 -0.73 19.92
December 31, 1993....... 44,000 110,165 110,165 44,771 42,602 -0.61 16.28
December 31, 1994....... 48,000 110,165 110,165 49,114 47,418 -0.21 13.45
December 31, 1995....... 52,000 110,165 110,165 54,478 53,255 0.37 11.19
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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............. $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1987....... 4,000 110,165 110,165 2,833 1,608 -74.41% --
December 31, 1988....... 8,000 110,165 110,165 6,524 5,184 -32.11 571.27%
December 31, 1989....... 12,000 110,165 110,165 12,255 9,645 -12.59 202.15
December 31, 1990....... 16,000 110,165 110,165 14,497 11,921 -13.19 110.00
December 31, 1991....... 20,000 110,165 110,165 22,090 19,547 -0.86 71.14
December 31, 1992....... 24,000 110,165 110,165 26,714 24,204 0.27 50.37
December 31, 1993....... 28,000 110,165 110,165 32,276 29,799 1.70 37.69
December 31, 1994....... 32,000 110,165 110,165 35,415 32,971 0.72 29.24
December 31, 1995....... 36,000 110,165 114,065 52,179 49,768 6.85 23.99
</TABLE>
A-66
<PAGE>
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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............. $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1987....... 4,000 110,165 110,165 3,211 1,986 -64.91% --
December 31, 1988....... 8,000 110,165 110,165 6,705 5,364 -29.92 571.27%
December 31, 1989....... 12,000 110,165 110,165 11,466 8,857 -17.24 202.15
December 31, 1990....... 16,000 110,165 110,165 14,876 12,300 -11.82 110.00
December 31, 1991....... 20,000 110,165 110,165 21,061 18,517 -2.88 71.14
December 31, 1992....... 24,000 110,165 110,165 25,530 23,020 -1.32 50.37
December 31, 1993....... 28,000 110,165 110,165 31,161 28,684 0.66 37.69
December 31, 1994....... 32,000 110,165 110,165 33,566 31,122 -0.67 29.24
December 31, 1995....... 36,000 110,165 110,165 47,520 45,109 4.79 23.27
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.......... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1993....... 4,000 110,165 110,165 3,682 2,458 -51.60% --
December 31, 1994....... 8,000 110,165 110,165 6,731 5,393 -29.51 569.00%
December 31, 1995....... 12,000 110,165 110,165 12,486 9,879 -11.24 201.75
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.......... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1993....... 4,000 110,165 110,165 3,665 2,440 -52.11% --
December 31, 1994....... 8,000 110,165 110,165 6,664 5,326 -30.31 569.00%
December 31, 1995....... 12,000 110,165 110,165 12,815 10,208 -9.40 201.75
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............. $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,088 1,864 -68.24% --
December 31, 1995....... 8,000 110,165 110,165 7,674 6,333 -18.53 573.55%
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........ $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,259 2,035 -98.25% --
December 31, 1995....... 8,000 110,165 110,165 7,810 6,456 -29.07 1,527.81%
ZENITH BALANCED 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........ $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,446 2,222 -97.04% --
December 31, 1995....... 8,000 110,165 110,165 7,468 6,113 -35.53 1,527.81%
</TABLE>
A-67
<PAGE>
ZENITH VENTURE VALUE 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........ $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,340 2,115 -97.79% --
December 31, 1995....... 8,000 110,165 110,165 7,800 6,446 -29.26 1,527.81%
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........ $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,531 2,306 -96.29% --
December 31, 1995....... 8,000 110,165 110,165 7,002 5,648 -44.30 1,527.81%
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1986....... 4,000 110,165 110,165 3,462 2,238 -92.23% --
December 31, 1987....... 8,000 110,165 110,165 5,893 4,539 -60.13 1,309.09%
December 31, 1988....... 12,000 110,165 110,165 10,109 7,486 -35.28 291.01
December 31, 1989....... 16,000 110,165 110,165 14,824 12,234 -15.23 138.35
December 31, 1990....... 20,000 110,165 110,165 15,586 13,029 -19.14 84.14
December 31, 1991....... 24,000 110,165 110,165 23,482 20,958 -4.98 57.55
December 31, 1992....... 28,000 110,165 110,165 30,514 28,023 0.03 42.12
December 31, 1993....... 32,000 110,165 110,165 38,779 36,321 3.38 32.18
December 31, 1994....... 36,000 110,165 110,165 44,089 41,664 3.42 25.32
December 31, 1995....... 40,000 110,165 135,672 62,624 60,232 8.43 24.40
OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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........ $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1987....... 4,000 110,165 110,165 2,886 1,662 -61.38% --
December 31, 1988....... 8,000 110,165 110,165 6,587 5,257 -26.14 410.91%
December 31, 1989....... 12,000 110,165 110,165 11,757 9,158 -13.42 170.18
December 31, 1990....... 16,000 110,165 110,165 14,518 11,952 -11.69 97.98
December 31, 1991....... 20,000 110,165 110,165 18,788 16,256 -7.01 65.17
December 31, 1992....... 24,000 110,165 110,165 19,186 16,687 -10.55 46.93
December 31, 1993....... 28,000 110,165 110,165 30,119 27,653 -0.32 35.50
December 31, 1994....... 32,000 110,165 110,165 33,096 30,663 -0.97 27.76
December 31, 1995....... 36,000 110,165 110,165 39,807 37,407 0.78 22.22
</TABLE>
A-68
<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...... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1985....... 4,000 110,165 110,165 3,628 2,403 -83.56% --
December 31, 1986....... 8,000 110,165 110,165 7,437 6,085 -31.04 1,150.26%
December 31, 1987....... 12,000 110,165 110,165 10,463 7,843 -30.66 276.55
December 31, 1988....... 16,000 110,165 110,165 14,640 12,053 -15.54 134.15
December 31, 1989....... 20,000 110,165 110,165 16,771 14,217 -14.86 82.30
December 31, 1990....... 24,000 110,165 110,165 19,179 16,658 -13.21 56.56
December 31, 1991....... 28,000 110,165 110,165 28,744 26,256 -1.96 41.52
December 31, 1992....... 32,000 110,165 110,165 38,094 35,638 2.83 31.79
December 31, 1993....... 36,000 110,165 110,165 48,655 46,233 5.76 25.05
December 31, 1994....... 40,000 110,165 110,165 50,548 48,158 3.83 20.15
December 31, 1995....... 44,000 110,165 134,323 63,589 61,380 6.15 19.86
</TABLE>
ASSET MANAGER 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 6, 1989....... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1989....... 4,000 110,165 110,165 3,452 2,227 -84.15% --
December 31, 1990....... 8,000 110,165 110,165 6,884 5,532 -38.55 1,062.85%
December 31, 1991....... 12,000 110,165 110,165 11,514 8,894 -21.50 267.81
December 31, 1992....... 16,000 110,165 110,165 15,890 13,303 -10.00 131.55
December 31, 1993....... 20,000 110,165 110,165 22,317 19,762 -0.52 81.14
December 31, 1994....... 24,000 110,165 110,165 23,572 21,051 -4.66 55.93
December 31, 1995....... 28,000 110,165 110,165 30,578 28,090 0.10 41.13
</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-69
<PAGE>
The material below assumes, in the first example, a Policy with an Option 2
death benefit was issued with a $214,986 face amount and annual premiums of
$4,000, 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 Venture Value and Zenith Equity Growth Sub-Accounts; October 9
in the case of the Equity-Income Sub-Account; January 28 in the case of the
Overseas Sub-Account; April 30 in the case of the Zenith 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 40. The second example assumes a Policy was
issued with a $110,165 face amount and annual premiums of $4,000, 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 Venture Value and Zenith Equity Growth Sub-Accounts; October 9 in the
case of the Equity-Income Sub-Account; January 28 in the case of the Overseas
Sub-Account; April 30 in the case of the Zenith 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 50. 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.)
MALE NONSMOKER STANDARD RISK, AGE 40
OPTION 2--VARIABLE DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1983....... 4,000 214,986 215,283 3,664 2,156 -83.06% --
December 31, 1984....... 8,000 214,986 215,130 6,634 5,015 -45.32 1,749.02%
December 31, 1985....... 12,000 214,986 219,482 14,725 11,869 -0.81 402.60
December 31, 1986....... 16,000 214,986 233,769 31,502 28,710 33.45 199.68
December 31, 1987....... 20,000 214,986 247,642 50,064 47,337 38.18 126.83
December 31, 1988....... 24,000 214,986 242,839 48,408 45,746 22.78 87.74
December 31, 1989....... 28,000 214,986 254,950 65,901 63,302 24.14 67.47
December 31, 1990....... 32,000 214,986 252,520 65,670 63,136 17.29 52.84
December 31, 1991....... 36,000 214,986 313,181 103,711 101,241 22.89 47.81
December 31, 1992....... 40,000 214,986 294,471 99,959 97,554 17.59 38.76
December 31, 1993....... 44,000 214,986 338,674 117,025 114,855 16.99 35.36
December 31, 1994....... 48,000 214,986 309,414 109,658 107,962 13.13 29.22
December 31, 1995....... 52,000 214,986 412,910 154,557 153,334 15.85 29.51
</TABLE>
A-70
<PAGE>
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1983....... 4,000 214,986 215,075 3,456 1,948 -87.35% --
December 31, 1984....... 8,000 214,986 215,595 7,148 5,530 -37.34 1,752.10%
December 31, 1985....... 12,000 214,986 216,771 11,623 8,767 -21.96 399.66
December 31, 1986....... 16,000 214,986 218,198 16,342 13,550 -8.87 192.62
December 31, 1987....... 20,000 214,986 217,843 19,646 16,919 -7.09 118.95
December 31, 1988....... 24,000 214,986 218,903 24,205 21,543 -3.80 83.29
December 31, 1989....... 28,000 214,986 220,877 30,062 27,463 -0.58 62.75
December 31, 1990....... 32,000 214,986 222,299 35,380 32,847 0.68 49.46
December 31, 1991....... 36,000 214,986 227,234 44,611 42,142 3.59 40.62
December 31, 1992....... 40,000 214,986 229,668 50,815 48,410 3.89 33.96
December 31, 1993....... 44,000 214,986 234,427 59,663 57,493 4.90 29.10
December 31, 1994....... 48,000 214,986 230,370 59,898 58,202 3.24 24.74
December 31, 1995....... 52,000 214,986 240,250 75,190 73,967 5.39 22.07
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1983....... 4,000 214,986 215,057 3,463 1,956 -87.21% --
December 31, 1984....... 8,000 214,986 215,364 6,930 5,312 -40.71 1,750.57%
December 31, 1985....... 12,000 214,986 215,706 10,543 7,687 -30.41 398.50
December 31, 1986....... 16,000 214,986 216,024 14,248 11,456 -17.58 191.60
December 31, 1987....... 20,000 214,986 216,413 18,141 15,413 -11.02 118.55
December 31, 1988....... 24,000 214,986 217,071 22,450 19,788 -6.79 82.93
December 31, 1989....... 28,000 214,986 218,262 27,400 24,802 -3.64 62.37
December 31, 1990....... 32,000 214,986 219,426 32,436 29,902 -1.77 49.12
December 31, 1991....... 36,000 214,986 220,149 37,164 34,694 -0.85 39.91
December 31, 1992....... 40,000 214,986 220,050 41,202 38,797 -0.63 33.14
December 31, 1993....... 44,000 214,986 219,538 44,985 42,815 -0.51 27.99
December 31, 1994....... 48,000 214,986 219,378 49,294 47,597 -0.14 24.00
December 31, 1995....... 52,000 214,986 220,053 54,552 53,329 0.40 20.86
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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............. $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1987....... 4,000 214,986 214,986 2,815 1,308 -81.22% --
December 31, 1988....... 8,000 214,986 214,986 6,485 4,882 -35.82 930.30%
December 31, 1989....... 12,000 214,986 217,106 12,195 9,356 -14.27 303.85
December 31, 1990....... 16,000 214,986 216,007 14,452 11,677 -14.09 161.69
December 31, 1991....... 20,000 214,986 218,453 22,057 19,346 -1.24 105.43
December 31, 1992....... 24,000 214,986 220,994 26,708 24,061 0.08 76.07
December 31, 1993....... 28,000 214,986 222,780 32,288 29,706 1.61 58.27
December 31, 1994....... 32,000 214,986 221,556 35,438 32,920 0.68 46.17
December 31, 1995....... 36,000 214,986 234,948 52,155 49,702 6.82 39.01
</TABLE>
A-71
<PAGE>
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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............. $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1987....... 4,000 214,986 214,986 3,191 1,684 -72.59% --
December 31, 1988....... 8,000 214,986 215,168 6,664 5,061 -33.61 930.85%
December 31, 1989....... 12,000 214,986 216,517 11,412 8,572 -18.97 303.39
December 31, 1990....... 16,000 214,986 216,416 14,834 12,059 -12.69 161.85
December 31, 1991....... 20,000 214,986 218,047 21,039 18,329 -3.26 105.33
December 31, 1992....... 24,000 214,986 219,719 25,545 22,899 -1.48 75.85
December 31, 1993....... 28,000 214,986 221,929 31,203 28,621 0.60 58.15
December 31, 1994....... 32,000 214,986 219,974 33,633 31,115 -0.67 46.00
December 31, 1995....... 36,000 214,986 230,351 47,585 45,132 4.80 38.60
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.......... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1993....... 4,000 214,986 215,414 3,658 2,150 -60.34% --
December 31, 1994....... 8,000 214,986 215,322 6,688 5,091 -33.18 927.16%
December 31, 1995....... 12,000 214,986 217,674 12,421 9,587 -12.90 303.65
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.......... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1993....... 4,000 214,986 215,405 3,640 2,133 -60.82% --
December 31, 1994....... 8,000 214,986 215,204 6,622 5,024 -33.99 926.80%
December 31, 1995....... 12,000 214,986 218,001 12,749 9,914 -11.04 303.90
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............. $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,069 1,562 -75.66% --
December 31, 1995....... 8,000 214,986 215,926 7,625 6,023 -22.14 937.35%
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........ $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,252 1,744 -- --
December 31, 1995....... 8,000 214,986 216,149 7,765 6,136 -35.11% 2,866.52%
ZENITH BALANCED 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........ $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,439 1,931 -98.72% --
December 31, 1995....... 8,000 214,986 215,811 7,428 5,798 -41.47 2,862.44%
</TABLE>
A-72
<PAGE>
ZENITH VENTURE VALUE 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........ $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,333 1,825 -- --
December 31, 1995....... 8,000 214,986 216,140 7,757 6,128 -35.26% 2,866.43%
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........ $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 215,046 3,523 2,016 -98.34% --
December 31, 1995....... 8,000 214,986 215,350 6,966 5,337 -50.13 2,856.86%
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1986....... 4,000 214,986 215,093 3,455 1,947 -95.78% --
December 31, 1987....... 8,000 214,986 214,986 5,863 4,233 -65.34 2,387.88%
December 31, 1988....... 12,000 214,986 215,273 10,063 7,196 -37.96 448.32
December 31, 1989....... 16,000 214,986 216,293 14,774 11,971 -16.43 205.62
December 31, 1990....... 20,000 214,986 214,986 15,575 12,837 -19.80 124.10
December 31, 1991....... 24,000 214,986 216,443 23,522 20,848 -5.17 86.00
December 31, 1992....... 28,000 214,986 220,923 30,605 27,997 0.00 64.73
December 31, 1993....... 32,000 214,986 225,457 38,886 36,342 3.39 51.15
December 31, 1994....... 36,000 214,986 226,335 44,169 41,689 3.44 41.46
December 31, 1995....... 40,000 214,986 242,115 62,665 60,249 8.43 35.69
OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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........ $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1987....... 4,000 214,986 214,986 2,859 1,351 -69.14% --
December 31, 1988....... 8,000 214,986 215,048 6,543 4,962 -29.26 643.45%
December 31, 1989....... 12,000 214,986 217,058 11,707 8,888 -14.83 252.55
December 31, 1990....... 16,000 214,986 216,342 14,482 11,728 -12.43 143.44
December 31, 1991....... 20,000 214,986 216,960 18,793 16,103 -7.33 96.08
December 31, 1992....... 24,000 214,986 214,986 19,250 16,625 -10.65 69.87
December 31, 1993....... 28,000 214,986 221,042 30,266 27,706 -0.27 54.70
December 31, 1994....... 32,000 214,986 220,274 33,260 30,764 -0.89 43.75
December 31, 1995....... 36,000 214,986 222,385 40,005 37,573 0.87 36.20
</TABLE>
A-73
<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...... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1985....... 4,000 214,986 215,125 3,617 2,109 -89.64% --
December 31, 1986....... 8,000 214,986 215,730 7,396 5,772 -36.19 2,064.71%
December 31, 1987....... 12,000 214,986 215,370 10,412 7,550 -33.17 424.31
December 31, 1988....... 16,000 214,986 216,271 14,591 11,794 -16.71 199.08
December 31, 1989....... 20,000 214,986 214,986 16,751 14,019 -15.46 121.33
December 31, 1990....... 24,000 214,986 214,986 19,223 16,555 -13.44 84.23
December 31, 1991....... 28,000 214,986 219,523 28,867 26,263 -1.96 63.61
December 31, 1992....... 32,000 214,986 225,060 38,248 35,709 2.88 50.50
December 31, 1993....... 36,000 214,986 231,597 48,782 46,308 5.80 41.55
December 31, 1994....... 40,000 214,986 229,084 50,583 48,173 3.84 34.29
December 31, 1995....... 44,000 214,986 239,237 63,584 61,375 6.15 29.74
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....... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1989....... 4,000 214,986 214,987 3,442 1,934 -89.83% --
December 31, 1990....... 8,000 214,986 215,186 6,848 5,224 -43.46 1,882.16%
December 31, 1991....... 12,000 214,986 216,167 11,458 8,596 -23.79 410.68
December 31, 1992....... 16,000 214,986 217,493 15,829 13,032 -11.10 195.62
December 31, 1993....... 20,000 214,986 220,041 22,255 19,523 -1.04 121.02
December 31, 1994....... 24,000 214,986 218,817 23,542 20,874 -4.96 84.06
December 31, 1995....... 28,000 214,986 221,670 30,585 27,981 -0.02 63.35
</TABLE>
MALE NONSMOKER STANDARD RISK, AGE 50
OPTION 2--VARIABLE DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1983....... 4,000 110,165 110,465 3,677 2,452 -75.50% --
December 31, 1984....... 8,000 110,165 110,313 6,671 5,322 -40.55 998.07%
December 31, 1985....... 12,000 110,165 114,672 14,794 12,177 1.09 267.96
December 31, 1986....... 16,000 110,165 128,990 31,618 29,034 34.13 142.97
December 31, 1987....... 20,000 110,165 142,862 50,200 47,649 38.48 94.38
December 31, 1988....... 24,000 110,165 137,976 48,472 45,954 22.94 64.28
December 31, 1989....... 28,000 110,165 150,662 65,881 63,396 24.18 50.52
December 31, 1990....... 32,000 110,165 148,946 65,547 63,095 17.27 39.03
December 31, 1991....... 36,000 110,165 222,398 103,192 100,773 22.79 40.14
December 31, 1992....... 40,000 110,165 209,150 99,093 96,706 17.42 32.17
December 31, 1993....... 44,000 110,165 240,605 115,561 113,392 16.77 29.54
December 31, 1994....... 48,000 110,165 219,999 107,901 106,204 12.88 24.04
December 31, 1995....... 52,000 110,165 294,049 151,616 150,393 15.58 24.85
</TABLE>
A-74
<PAGE>
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1983....... 4,000 110,165 110,256 3,469 2,244 -81.01% --
December 31, 1984....... 8,000 110,165 110,780 7,187 5,838 -32.58 1,001.75%
December 31, 1985....... 12,000 110,165 111,945 11,675 9,057 -19.81 263.63
December 31, 1986....... 16,000 110,165 113,344 16,385 13,800 -7.90 131.81
December 31, 1987....... 20,000 110,165 112,935 19,653 17,101 -6.64 81.51
December 31, 1988....... 24,000 110,165 113,922 24,152 21,633 -3.65 56.72
December 31, 1989....... 28,000 110,165 115,804 29,926 27,440 -0.60 42.35
December 31, 1990....... 32,000 110,165 117,125 35,155 32,703 0.56 32.88
December 31, 1991....... 36,000 110,165 121,927 44,267 41,848 3.43 26.94
December 31, 1992....... 40,000 110,165 124,235 50,376 47,989 3.71 22.22
December 31, 1993....... 44,000 110,165 128,844 59,116 56,946 4.73 18.95
December 31, 1994....... 48,000 110,165 124,742 59,368 57,672 3.09 15.37
December 31, 1995....... 52,000 110,165 144,652 74,567 73,344 5.26 15.04
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1983....... 4,000 110,165 110,239 3,476 2,252 -80.82% --
December 31, 1984....... 8,000 110,165 110,548 6,969 5,620 -35.95 999.92%
December 31, 1985....... 12,000 110,165 110,874 10,589 7,972 -28.12 261.92
December 31, 1986....... 16,000 110,165 111,160 14,281 11,696 -16.52 130.17
December 31, 1987....... 20,000 110,165 111,496 18,138 15,587 -10.55 80.83
December 31, 1988....... 24,000 110,165 112,081 22,387 19,868 -6.64 56.08
December 31, 1989....... 28,000 110,165 113,180 27,255 24,770 -3.68 41.64
December 31, 1990....... 32,000 110,165 114,243 32,203 29,750 -1.90 32.25
December 31, 1991....... 36,000 110,165 114,862 36,844 34,424 -1.03 25.64
December 31, 1992....... 40,000 110,165 114,658 40,804 38,418 -0.84 20.68
December 31, 1993....... 44,000 110,165 114,042 44,524 42,354 -0.72 16.87
December 31, 1994....... 48,000 110,165 113,799 48,810 47,114 -0.32 13.95
December 31, 1995....... 52,000 110,165 114,416 54,105 52,882 0.26 11.73
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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............. $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1987....... 4,000 110,165 110,165 2,832 1,608 -74.42% --
December 31, 1988....... 8,000 110,165 110,165 6,524 5,183 -32.12 571.27%
December 31, 1989....... 12,000 110,165 112,273 12,247 9,638 -12.63 204.66
December 31, 1990....... 16,000 110,165 111,132 14,481 11,904 -13.25 110.62
December 31, 1991....... 20,000 110,165 113,526 22,046 19,503 -0.94 72.56
December 31, 1992....... 24,000 110,165 115,986 26,629 24,118 0.16 52.20
December 31, 1993....... 28,000 110,165 117,679 32,125 29,648 1.56 39.57
December 31, 1994....... 32,000 110,165 116,370 35,199 32,755 0.56 30.55
December 31, 1995....... 36,000 110,165 129,564 51,743 49,332 6.66 26.61
</TABLE>
A-75
<PAGE>
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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............. $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1987....... 4,000 110,165 110,165 3,210 1,986 -64.92% --
December 31, 1988....... 8,000 110,165 110,348 6,704 5,363 -29.93 571.99%
December 31, 1989....... 12,000 110,165 111,682 11,460 8,851 -17.27 203.96
December 31, 1990....... 16,000 110,165 111,542 14,863 12,286 -11.87 110.88
December 31, 1991....... 20,000 110,165 113,117 21,026 18,483 -2.95 72.39
December 31, 1992....... 24,000 110,165 114,709 25,463 22,953 -1.41 51.81
December 31, 1993....... 28,000 110,165 116,824 31,036 28,559 0.54 39.36
December 31, 1994....... 32,000 110,165 114,787 33,395 30,951 -0.80 30.22
December 31, 1995....... 36,000 110,165 124,984 47,190 44,778 4.63 25.87
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.......... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1993....... 4,000 110,165 110,599 3,681 2,457 -51.62% --
December 31, 1994....... 8,000 110,165 110,501 6,728 5,391 -29.54 570.32%
December 31, 1995....... 12,000 110,165 112,841 12,472 9,866 -11.31 204.93
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.......... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1993....... 4,000 110,165 110,590 3,664 2,439 -52.13% --
December 31, 1994....... 8,000 110,165 110,382 6,662 5,324 -30.34 569.86%
December 31, 1995....... 12,000 110,165 113,170 12,802 10,195 -9.47 205.32
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............. $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,088 1,864 -68.24% --
December 31, 1995....... 8,000 110,165 111,111 7,672 6,331 -18.55 577.31%
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........ $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,259 2,035 -98.25% --
December 31, 1995....... 8,000 110,165 111,339 7,806 6,452 -29.15 1,543.44%
ZENITH BALANCED 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........ $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,446 2,222 -97.04% --
December 31, 1995....... 8,000 110,165 110,999 7,466 6,111 -35.57 1,538.91%
</TABLE>
A-76
<PAGE>
ZENITH VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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........ $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,340 2,115 -97.79% --
December 31, 1995....... 8,000 110,165 111,330 7,797 6,443 -29.32 1,543.31%
ZENITH INTERNATIONAL EQUITY SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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........ $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,227 3,531 2,306 -96.29% --
December 31, 1995....... 8,000 110,165 110,534 7,001 5,647 -44.31 1,532.73%
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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......... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1986....... 4,000 110,165 110,273 3,462 2,237 -92.23% --
December 31, 1987....... 8,000 110,165 110,165 5,892 4,537 -60.16 1,309.09%
December 31, 1988....... 12,000 110,165 110,443 10,106 7,483 -35.30 291.52
December 31, 1989....... 16,000 110,165 111,438 14,813 12,223 -15.28 139.39
December 31, 1990....... 20,000 110,165 110,165 15,574 13,017 -19.18 84.14
December 31, 1991....... 24,000 110,165 111,458 23,458 20,934 -5.02 58.02
December 31, 1992....... 28,000 110,165 115,837 30,452 27,961 -0.04 43.70
December 31, 1993....... 32,000 110,165 120,253 38,626 36,169 3.26 34.46
December 31, 1994....... 36,000 110,165 121,028 43,818 41,393 3.27 27.41
December 31, 1995....... 40,000 110,165 136,569 62,111 59,720 8.25 24.53
OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM 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........ $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1987....... 4,000 110,165 110,165 2,886 1,661 -61.40% --
December 31, 1988....... 8,000 110,165 110,221 6,586 5,256 -26.15 411.06%
December 31, 1989....... 12,000 110,165 112,214 11,751 9,153 -13.45 172.18
December 31, 1990....... 16,000 110,165 111,452 14,501 11,935 -11.75 98.70
December 31, 1991....... 20,000 110,165 112,005 18,759 16,227 -7.07 65.89
December 31, 1992....... 24,000 110,165 110,165 19,153 16,653 -10.60 46.93
December 31, 1993....... 28,000 110,165 115,880 30,048 27,582 -0.38 36.86
December 31, 1994....... 32,000 110,165 115,023 32,969 30,536 -1.06 28.74
December 31, 1995....... 36,000 110,165 117,012 39,609 37,209 0.67 23.41
</TABLE>
A-77
<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...... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1985....... 4,000 110,165 110,306 3,628 2,403 -83.56% --
December 31, 1986....... 8,000 110,165 110,915 7,434 6,083 -31.08 1,157.31%
December 31, 1987....... 12,000 110,165 110,538 10,456 7,836 -30.72 277.20
December 31, 1988....... 16,000 110,165 111,410 14,626 12,039 -15.60 135.14
December 31, 1989....... 20,000 110,165 110,165 16,752 14,198 -14.91 82.30
December 31, 1990....... 24,000 110,165 110,165 19,160 16,639 -13.25 56.56
December 31, 1991....... 28,000 110,165 114,421 28,700 26,212 -2.02 42.70
December 31, 1992....... 32,000 110,165 119,830 37,965 35,510 2.74 33.95
December 31, 1993....... 36,000 110,165 126,216 48,365 45,943 5.62 28.05
December 31, 1994....... 40,000 110,165 123,621 50,108 47,719 3.64 22.37
December 31, 1995....... 44,000 110,165 133,566 62,955 60,746 5.96 19.77
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....... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1989....... 4,000 110,165 110,168 3,452 2,227 -84.15% --
December 31, 1990....... 8,000 110,165 110,369 6,884 5,532 -38.55 1,064.85
December 31, 1991....... 12,000 110,165 111,341 11,509 8,888 -21.54 269.76
December 31, 1992....... 16,000 110,165 112,639 15,871 13,284 -10.08 133.46
December 31, 1993....... 20,000 110,165 115,141 22,269 19,714 -0.62 83.54
December 31, 1994....... 24,000 110,165 113,847 23,498 20,977 -4.78 57.23
December 31, 1995....... 28,000 110,165 116,603 30,455 27,967 -0.04 42.89
</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-78
<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 51 20-year time periods beginning in 1926 and ending in 1995 (i.e.
1926-1945, 1927-1946, and so on through 1976-1995):
--The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 48 of the 51 periods.
--The average annual return of common stocks surpassed that of U.S. Treasury
bills in each of the 51 periods.
--Common stock average annual returns exceeded the average annual rate of
inflation in each of the 51 periods.
Over the 41 30-year time periods beginning in 1926 and ending in 1995, 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 41
periods.
From 1926 through 1995 the average annual return for common stocks was
10.5%, compared to 5.7% 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 1996 Yearbook (TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
A-79
<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 1995.
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
0- 5.01- 10.01- 15.01- THAN
HOLDING NEGATIVE 5.00% 10.00% 15.00% 20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
------- -------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
1 year.......................... 29% 4% 11% 7% 11% 37%
5 years......................... 11% 15% 15% 32% 18% 9%
10 years........................ 3% 10% 34% 25% 25% 2%
20 years........................ 0% 6% 33% 55% 6% 0%
</TABLE>
- --------
Source: Stocks, Bonds, Bills and Inflation 1996 Yearbook (TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
A-80
<PAGE>
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-81
<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.
DEFERRED COMPENSATION PLANS
Life insurance may be purchased by the business on the life of an executive
in order to informally fund a nonqualified deferred compensation plan. The
cash value accumulations may be accessed through withdrawals, loans and
surrenders when the benefits become due and payable. The insurance policy's
death proceeds may be used by the business to recover its costs for the
benefits paid to the executive.
A-82
<PAGE>
SPLIT DOLLAR PLANS
Life insurance may be purchased by the business on the life of an employee.
The arrangement splits the death benefit proceeds, the living benefits and
possibly the premium cost between the business and the employee. The
arrangement brings together the needs of the employee for insurance protection
and the premium paying ability of the employer.
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.
Because the Policy provides a death benefit and for the accumulation of cash
value, the Policy can be used for various individual and business planning
purposes. Purchasing the Policy in part for such purposes entails certain
risks, particularly if the Policy's cash value, as opposed to its death
benefit, will be the principal Policy feature used for such planning purposes.
If the investment performance of the Sub-Accounts to which cash value is
allocated is poorer than expected, or if sufficient premiums are not paid or
cash values maintained, the Policy may lapse or may not accumulate sufficient
cash value or net cash value to fund the purpose for which the Policy was
purchased. Because the Policy is designed to provide benefits on a long-term
basis, before purchasing a Policy for a specialized purpose, a purchaser
should consider whether the long-term nature of the Policy is consistent with
the purpose for which it is being considered. 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. (See "Tax
Considerations".)
A-83
<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
COMPARISION OF TAX TRETMENT 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 Distribu-
tions No* Yes Loans not Yes,
allowed beyond
$50,000
Income Ordering Rules (Income
included in First Distribu-
tion) 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
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-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 the New England Variable Life
Insurance Company:
We have audited the accompanying statement of assets and liabilities of the
New England Variable Life Separate Account (comprised of Capital Growth Sub-
Account, Bond Income Sub-Account, Money Market Sub-Account, Stock Index Sub-
Account, Managed Sub-Account, Avanti Growth Sub-Account, Value Growth Sub-
Account, Small Cap Sub-Account, Balanced Sub-Account, Equity Growth Sub-
Account, International Equity Sub-Account, Venture Value 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, 1995, 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 also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the respective aforementioned
sub-accounts comprising the New England Variable Life Separate Account of the
New England Variable Life Insurance Company as of December 31, 1995, and the
results of their operations and changes in their net assets for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1996
A-85
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI
GROWTH INCOME MARKET INDEX MANAGED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at market
value (Note 2)............................... $450,186,084 $30,342,331 $21,256,226 $21,357,438 $24,438,331 $17,443,981
<CAPTION>
SUB-ACCOUNT SHARES COST
- ----------------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth......... 1,201,682 $378,222,494
Bond Income............ 279,215 29,345,136
Money Market........... 212,562 21,256,226
Stock Index............ 213,382 18,503,851
Managed................ 149,452 19,221,783
Avanti Growth.......... 122,465 14,562,881
Value Growth........... 87,343 10,236,629
Small Cap.............. 69,343 7,467,960
Balanced............... 42,049 498,720
Equity Growth.......... 497,442 6,798,833
International Equity... 111,068 1,169,896
Venture Value.......... 305,620 3,831,693
Equity-Income.......... 2,866,479 45,594,606
Overseas............... 2,699,415 42,002,297
High Income............ 169,629 1,876,992
Asset Manager.......... 160,120 2,259,033
Amount due and accrued from policy-related
transactions................................. (47,335) 15,247 1,541,106 785 (4,041) 4,831
Dividends receivable.......................... -- -- 96,763 -- -- --
------------ ----------- ----------- ----------- ----------- -----------
Total assets............................... 450,138,749 30,357,578 22,894,095 21,358,223 24,434,290 17,448,812
LIABILITIES
Due New England Variable Life Insurance
Company...................................... 55,304,093 3,678,441 3,462,239 2,783,073 2,435,290 3,111,355
------------ ----------- ----------- ----------- ----------- -----------
Total liabilities.......................... 55,304,093 3,678,441 3,462,239 2,783,073 2,435,290 3,111,355
------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES..................................... $394,834,656 $26,679,137 $19,431,856 $18,575,150 $21,999,000 $14,337,457
============ =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
A-86
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- -------------------------------------------------------------------------- ----------------------------------- -----------
VALUE SMALL EQUITY INTERNATIONAL VENTURE EQUITY- HIGH ASSET
GROWTH CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$12,342,406 $8,236,512 $502,489 $6,864,734 $1,193,985 $4,003,624 $55,237,060 $46,025,022 $2,044,035 $2,528,288
2,518 4,782 569 44,168 12,311 25,838 15,623 2,545 437 789
-- -- -- -- -- -- -- -- -- --
- ----------- ---------- -------- ---------- ---------- ---------- ----------- ----------- ---------- ----------
12,344,924 8,241,294 503,058 6,908,902 1,206,296 4,029,462 55,252,683 46,027,567 2,044,472 2,529,077
2,034,446 1,696,298 84,847 1,196,404 252,448 643,022 7,899,831 7,645,348 301,979 556,084
- ----------- ---------- -------- ---------- ---------- ---------- ----------- ----------- ---------- ----------
2,034,446 1,696,298 84,847 1,196,404 252,448 643,022 7,899,831 7,645,348 301,979 556,084
- ----------- ---------- -------- ---------- ---------- ---------- ----------- ----------- ---------- ----------
$10,310,478 $6,544,996 $418,211 $5,712,498 $ 953,848 $3,386,440 $47,352,852 $38,382,219 $1,742,493 $1,972,993
=========== ========== ======== ========== ========== ========== =========== =========== ========== ==========
<CAPTION>
- ------------
TOTAL
- ------------
<S>
$704,002,546
1,620,173
96,763
- ------------
705,719,482
93,085,198
- ------------
93,085,198
- ------------
$612,634,284
============
</TABLE>
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, 1995
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI
GROWTH INCOME MARKET INDEX MANAGED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME
Dividends ........................ $ 58,318,276 $1,844,411 $1,109,838 $ 627,118 $1,061,289 $ 535,217
EXPENSE
Mortality and expense risk charge
(Note 3) ........................ 2,173,846 143,873 112,033 95,240 113,501 77,636
------------ ---------- ---------- ---------- ---------- ----------
Net investment income............. 56,144,430 1,700,538 997,805 531,878 947,788 457,581
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized appreciation
(depreciation) on investments:
Beginning of period ............. 9,892,073 (2,028,893) -- (1,645,744) 703,242 205,680
End of period ................... 71,963,590 997,195 -- 2,853,587 5,216,548 2,881,100
------------ ---------- ---------- ---------- ---------- ----------
Net change in unrealized
appreciation (depreciation)...... 62,071,517 3,026,088 -- 4,499,331 4,513,306 2,675,420
Net realized gain (loss) on
investments ..................... 1,613,390 7,382 -- 7,637 42,457 21,233
------------ ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain
on investments .................. 63,684,907 3,033,470 -- 4,506,968 4,555,763 2,696,653
------------ ---------- ---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ....... $119,829,337 $4,734,008 $ 997,805 $5,038,846 $5,503,551 $3,154,234
============ ========== ========== ========== ========== ==========
</TABLE>
* For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
See Notes to Financial Statements
A-88
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
----------------------------------------------------------------------------------------------------------------- -----------
VALUE SMALL EQUITY INTERNATIONAL VENTURE EQUITY- HIGH ASSET
GROWTH CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------ ------------ ------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 606,696 $ 365,015 $17,538 $195,436 $12,460 $ 86,716 $ 2,284,557 $ 282,520 $ 8,412 $ 11,896
52,633 24,746 743 11,686 2,165 7,251 233,864 240,253 6,639 9,537
---------- ---------- ------- -------- ------- -------- ----------- ---------- -------- --------
554,063 340,269 16,795 183,750 10,295 79,465 2,050,693 42,267 1,773 2,359
1,918 4,662 -- -- -- -- 149,659 260,895 213 (1,503)
2,105,777 768,552 3,769 65,901 24,089 171,931 9,642,454 4,022,725 167,043 269,255
---------- ---------- ------- -------- ------- -------- ----------- ---------- -------- --------
2,103,859 763,890 3,769 65,901 24,089 171,931 9,492,795 3,761,830 166,830 270,758
9,493 1,325 223 237 (34) 203 61,089 32,279 2,817 4,661
---------- ---------- ------- -------- ------- -------- ----------- ---------- -------- --------
2,113,352 765,215 3,992 66,138 24,055 172,134 9,553,884 3,794,109 169,647 275,419
---------- ---------- ------- -------- ------- -------- ----------- ---------- -------- --------
$2,667,415 $1,105,484 $20,787 $249,888 $34,350 $251,599 $11,604,577 $3,836,376 $171,420 $277,778
========== ========== ======= ======== ======= ======== =========== ========== ======== ========
<CAPTION>
- ------------
TOTAL
- ------------
<S>
$ 67,367,395
3,305,646
- ------------
64,061,749
7,542,202
101,153,516
- ------------
93,611,314
1,804,392
- ------------
95,415,706
- ------------
$159,477,455
============
</TABLE>
See Notes to Financial Statements
A-89
<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 MONEY AVANTI VALUE SMALL
GROWTH BOND MARKET STOCK MANAGED GROWTH GROWTH CAP
SUB- INCOME SUB- INDEX SUB- SUB- SUB- SUB-
ACCOUNT SUB-ACCOUNT ACCOUNT SUB-ACCOUNT ACCOUNT ACCOUNT ACCOUNT 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- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT** 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 August 31, 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 OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
NEW ENGLAND ZENITH FUND PRODUCTS FUND
-------------------------------------------------------------------------- ------------------ -----------
BOND MONEY STOCK AVANTI VALUE EQUITY-
CAPITAL INCOME MARKET INDEX MANAGED GROWTH GROWTH INCOME OVERSEAS
GROWTH SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
SUB-ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT* ACCOUNT* ACCOUNT* ACCOUNT* TOTAL
----------- ---------- -------- ---------- ---------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <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 $ 46,757 $-- $17,719,039
EXPENSE
Mortality and
expense risk
charge (Note 3). 1,317,363 89,763 74,167 40,270 73,721 5,506 3,166 7,615 17,666 1,629,237
----------- ---------- -------- ---------- ---------- -------- ------- -------- -------- -----------
Net investment
income (loss)... 13,090,465 1,631,730 341,165 246,247 705,102 25,675 27,942 39,142 (17,666) 16,089,802
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 -- -- -- -- 25,310,909
End of period... 46,100,393 41,284 -- (1,457,732) 1,602,795 143,154 67,310 93,013 700,341 47,290,558
----------- ---------- -------- ---------- ---------- -------- ------- -------- -------- -----------
Net change in
unrealized
appreciation.... 19,969,901 103,304 -- 405,742 496,884 143,154 67,310 93,013 700,341 21,979,649
Net realized gain
(loss) on
investments..... 436,493 84,686 -- (4,995) 93,335 (88) 64 (59) 729 610,165
----------- ---------- -------- ---------- ---------- -------- ------- -------- -------- -----------
Net realized and
unrealized gain
on investments.. 20,406,394 187,990 -- 400,747 590,219 143,066 67,374 92,954 701,070 22,589,814
----------- ---------- -------- ---------- ---------- -------- ------- -------- -------- -----------
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 $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-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, 1995
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI
GROWTH INCOME MARKET INDEX MANAGED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment income.. $ 56,144,430 $ 1,700,538 $ 997,805 $ 531,878 $ 947,788 $ 457,581
Net realized and
unrealized gain on
investments........... 63,684,907 3,033,470 -- 4,506,968 4,555,763 2,696,653
------------ ----------- ------------ ----------- ----------- -----------
Increase in net
assets derived from
investment
activities......... 119,829,337 4,734,008 997,805 5,038,846 5,503,551 3,154,234
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from New
England Variable Life
Insurance Company..... 100,611,223 7,330,838 40,457,027 4,559,195 4,757,562 5,407,500
Net transfers (to) from
other sub-accounts.... (7,820,362) 2,481,090 (32,083,917) 2,734,513 286,111 3,131,998
Net transfers to New
England Variable Life
Insurance Company..... (67,280,279) (4,616,930) (6,819,802) (3,436,368) (3,307,802) (3,767,486)
------------ ----------- ------------ ----------- ----------- -----------
Increase in net assets
derived from policy
related transactions.. 25,510,582 5,194,998 1,553,308 3,857,340 1,735,871 4,772,012
------------ ----------- ------------ ----------- ----------- -----------
Net increase in net
assets................ 145,339,919 9,929,006 2,551,113 8,896,186 7,239,422 7,926,246
NET ASSETS, AT
BEGINNING OF THE
PERIOD ............... 249,494,737 16,750,131 16,880,743 9,678,964 14,759,578 6,411,211
------------ ----------- ------------ ----------- ----------- -----------
NET ASSETS, AT END OF
THE PERIOD ........... $394,834,656 $26,679,137 $ 19,431,856 $18,575,150 $21,999,000 $14,337,457
============ =========== ============ =========== =========== ===========
</TABLE>
* For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
See Notes to Financial Statements
A-92
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ------------------------------------------------------------------------------ ------------------------------------- -----------
VALUE SMALL EQUITY INTERNATIONAL VENTURE EQUITY- HIGH ASSET
GROWTH CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------- ----------- ------------ ------------ ------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 554,063 $ 340,269 $ 16,795 $ 183,750 $ 10,295 $ 79,465 $ 2,050,693 $ 42,267 $ 1,773 $ 2,359
2,113,352 765,215 3,992 66,138 24,055 172,134 9,553,884 3,794,109 169,647 275,419
- ----------- ---------- -------- ---------- -------- ---------- ----------- ----------- ---------- ----------
2,667,415 1,105,484 20,787 249,888 34,350 251,599 11,604,577 3,836,376 171,420 277,778
3,473,273 2,237,626 81,978 1,048,361 241,835 625,044 13,985,879 17,076,602 395,370 696,227
2,645,617 4,814,141 409,874 5,735,744 948,764 3,228,499 12,483,761 (2,007,296) 1,503,857 1,507,606
(2,568,808) (1,803,085) (94,428) (1,321,495) (271,101) (718,702) (9,853,532) (8,392,295) (358,576) (709,312)
- ----------- ---------- -------- ---------- -------- ---------- ----------- ----------- ---------- ----------
3,550,082 5,248,682 397,424 5,462,610 919,498 3,134,841 16,616,108 6,677,011 1,540,651 1,494,521
- ----------- ---------- -------- ---------- -------- ---------- ----------- ----------- ---------- ----------
6,217,497 6,354,166 418,211 5,712,498 953,848 3,386,440 28,220,685 10,513,387 1,712,071 1,772,299
4,092,981 190,830 -- -- -- -- 19,132,167 27,868,832 30,422 200,694
- ----------- ---------- -------- ---------- -------- ---------- ----------- ----------- ---------- ----------
$10,310,478 $6,544,996 $418,211 $5,712,498 $953,848 $3,386,440 $47,352,852 $38,382,219 $1,742,493 $1,972,993
=========== ========== ======== ========== ======== ========== =========== =========== ========== ==========
<CAPTION>
- --------------
TOTAL
- --------------
<S>
$ 64,061,749
95,415,706
- --------------
159,477,455
202,985,540
--
(115,320,001)
- --------------
87,665,539
- --------------
247,142,994
365,491,290
- --------------
$ 612,634,284
==============
</TABLE>
See Notes to Financial Statements
A-93
<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 STOCK AVANTI VALUE SMALL
GROWTH BOND MONEY INDEX GROWTH GROWTH CAP
SUB- INCOME MARKET SUB- MANAGED SUB- SUB- SUB-
ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ACCOUNT SUB-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
----------------------------------- ---------- -------------
HIGH ASSET
EQUITY- INCOME MANAGER
INCOME OVERSEAS SUB- SUB-
SUB-ACCOUNT SUB-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 August 31, 1994 (Commencement of Operations) through
December 31, 1994.
See Notes to Financial Statements
A-94
<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,
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,
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-95
<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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. The Account has sixteen investment sub-accounts each of which invests in
the shares of one portfolio of the New England Zenith Fund ("Zenith Fund"),
the Variable Insurance Products Fund or the Variable Insurance Products Fund
II. The portfolios of the Zenith Fund, the Variable Insurance Products Fund
and Variable Insurance Products Fund II in which the sub-accounts invest are
referred to herein as the "Eligible Funds". The Zenith Fund, the Variable
Insurance Products Fund and the Variable Insurance Products Fund II are
diversified, open-end management investment companies. The Account purchases
or redeems shares of the sixteen Eligible Funds based on the amount of net
premiums invested in the Account, transfers among the sub-accounts, policy
loans, surrender payments, and death benefit payments. The values of the
shares of the Eligible Funds are determined as of the close of the New York
Stock Exchange (normally 4:00 p.m. EST) on each day the Exchange is open for
trading. Realized gains and losses on the sale of 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,
state 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 annual rate of .35% of the Account
assets attributable to fixed premium ("Zenith Life") variable life policies,
.45% of the Account assets attributable to single premium ("Zenith Life One")
variable life policies, .60% of the Account assets attributable to variable
ordinary ("Zenith Life Plus" and "Zenith Life Plus II") life policies and
limited payment ("Zenith Life Executive 65") variable life policies, .90% of
the Account assets attributable to variable survivorship ("Zenith Survivorship
Life") life policies, and .75% of the Accounts assets attributable to flexible
premium ("Zenith Flexible Life") variable 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 adviser and sub-adviser for each series of the Zenith Fund are listed
in the chart below. TNE Advisers, Inc. which is a subsidiary of The New
England, and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
A-96
<PAGE>
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------------------------- ------------------------------------
<S> <C> <C>
Capital Growth.................... Capital Growth
Management, L.P. ("CGM")*
Back Bay Advisors Money Market.... TNE Advisers, Inc. Back Bay Advisors, L.P.**
Back Bay Advisors Bond Income.... TNE Advisers, Inc. Back Bay Advisors, L.P.**
Back Bay Advisors Managed......... TNE Advisers, Inc. Back Bay Advisors, L.P.**
Westpeak Stock Index.............. TNE Advisers, Inc. Westpeak Investment Advisors, L.P.**
Westpeak Value Growth............. TNE Advisers, Inc. Westpeak Investment Advisors, L.P.**
Loomis Sayles Avanti Growth....... TNE Advisers, Inc. Loomis, Sayles & Company, L.P.**
Loomis Sayles Small Cap........... TNE Advisers, Inc. Loomis, Sayles & Company, L.P.**
Loomis Sayles Balanced............ TNE Advisers, Inc. Loomis, Sayles & Company, L.P.**
Draycott International Equity..... TNE Advisers, Inc. Draycott Partners, Ltd.
Venture Value..................... TNE Advisers, Inc. Davis Selected Advisers, Inc.
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 Series 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 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.
6. The following table shows the aggregate cost of shares purchased and
proceeds from sales of each sub-account for the year ended December 31, 1995:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth..................................... $200,281,232 $116,993,476
Bond Income........................................ 16,076,440 9,010,606
Money Market....................................... 51,706,425 48,778,431
Stock Index........................................ 10,217,009 5,126,128
Managed............................................ 9,702,729 6,752,145
Avanti Growth...................................... 11,720,650 5,095,439
Value Growth....................................... 8,339,177 3,233,834
Small Cap.......................................... 8,289,292 1,036,546
Balanced*.......................................... 543,509 44,789
Equity Growth*..................................... 7,457,885 659,051
International Equity*.............................. 1,311,245 141,349
Venture Value*..................................... 4,190,213 358,520
Equity-Income...................................... 35,035,388 12,369,269
Overseas........................................... 29,153,622 21,467,284
High Income........................................ 2,512,442 671,600
Asset Manager...................................... 2,693,521 662,285
</TABLE>
*For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
A-97
<PAGE>
7. The following table shows the net investment return of the sub-account for
each type of variable life insurance policy investing in the Account. The net
investment return reflects the appropriate mortality and expense risk charge
against sub-account assets 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 have been restated to conform with
the current calculation of net investment return to provide greater
comparability with industry convention.
FIXED PREMIUM ("ZENITH LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
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- 1/1/95-
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 12/31/95
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 94.53% 52.17% (9.11)% 30.30% (3.82)% 53.45% (6.38)% 14.57% (7.39)% 37.55%
Bond Income............. 14.43% 1.91% 7.99 % 11.91% 7.71 % 17.55% 7.80 % 12.22% (3.70)% 20.78%
Money Market............ 6.43% 6.16% 7.14 % 8.87% 7.81 % 5.84% 3.43 % 2.61% 3.61 % 5.33%
<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- 1/1/95-
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 12/31/95
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index...................... (12.40)% 15.93% 29.70% (4.48)% 29.98% 6.92% 9.34% 0.76 % 36.44%
Managed.......................... (.89)% 9.10% 18.67% 2.85 % 19.75% 6.33% 10.26% (1.46)% 30.81%
<CAPTION>
4/30/93- 1/1/94- 1/1/95-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95
- ----------- -------- -------- --------
<S> <C> <C> <C>
Avanti Growth.......................................................................... 14.47% (0.62)% 29.90%
Value Growth........................................................................... 13.97% (1.55)% 35.99%
<CAPTION>
4/30/93- 1/1/94- 1/1/95-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95
- ----------- -------- -------- --------
<S> <C> <C> <C>
Equity-Income.......................................................................... 9.29% 6.69% 34.62%
Overseas............................................................................... 14.57% 1.37% 9.30%
<CAPTION>
5/2/94- 1/1/95-
SUB-ACCOUNT 12/31/94 12/31/95
- ----------- -------- --------
<S> <C> <C>
Small Cap....................................................................................... (3.45)% 28.40%
<CAPTION>
8/31/94- 1/1/95-
SUB-ACCOUNT 12/31/94 12/31/95
- ----------- -------- --------
<S> <C> <C>
High Income..................................................................................... (0.58)% 20.18%
Asset Manager................................................................................... (4.41)% 16.55%
<CAPTION>
5/1/95-
SUB-ACCOUNT 12/31/95
- ----------- --------
<S> <C>
Equity Growth............................................................................................ 24.84%
Balanced................................................................................................. 13.75%
International Equity..................................................................................... 3.85%
Venture Value............................................................................................ 21.64%
</TABLE>
A-98
<PAGE>
SINGLE PREMIUM ("ZENITH LIFE ONE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
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- 1/1/95-
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 12/31/95
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 94.33% 52.02% (9.20%) 30.17% (3.91%) 53.29% (6.47%) 14.46% (7.38%) 37.41%
Bond Income............. 14.32% 1.81% 7.88% 11.79% 7.60% 17.43% 7.69% 12.10% (3.80%) 20.66%
Money Market............ 6.32% 6.05% 7.03% 8.77% 7.71% 5.74% 3.33% 2.51% 3.35% 5.23%
<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- 1/1/95-
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 12/31/95
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index...................... (12.46%) 15.82% 29.57% (4.58%) 29.85% 6.81% 9.23% 0.66% 36.30%
Managed.......................... (.96%) 8.99% 18.55% 2.75% 19.63% 6.22% 10.15% (1.56%) 30.67%
<CAPTION>
4/30/93- 1/1/94- 1/1/95-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95
- ----------- -------- -------- --------
<S> <C> <C> <C>
Avanti Growth.......................................................................... 14.39% (0.72%) 29.77%
Value Growth........................................................................... 13.90% (1.65%) 35.85%
<CAPTION>
4/30/93- 1/1/94- 1/1/95-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95
- ----------- -------- -------- --------
<S> <C> <C> <C>
Equity-Income.......................................................................... 9.22% 6.59% 34.49%
Overseas............................................................................... 14.49% 1.27% 9.19%
<CAPTION>
5/2/94- 1/1/95-
SUB-ACCOUNT 12/31/94 12/31/95
- ----------- -------- --------
<S> <C> <C>
Small Cap....................................................................................... (3.52%) 28.27%
<CAPTION>
8/31/94- 1/1/95-
SUB-ACCOUNT 12/31/94 12/31/95
- ----------- -------- --------
<S> <C> <C>
High Income..................................................................................... (0.61%) 20.06%
Asset Manager................................................................................... (4.45%) 16.43%
<CAPTION>
5/1/95-
SUB-ACCOUNT 12/31/95
- ----------- --------
<S> <C>
Equity Growth............................................................................................ 24.76%
Balanced................................................................................................. 13.67%
International Equity..................................................................................... 3.79%
Venture Value............................................................................................ 21.56%
</TABLE>
A-99
<PAGE>
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
----------------------------------------------------------------------------------------------
1/1/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95-
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 12/31/95
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 94.04% 51.79% (9.34)% 29.98% (4.06)% 53.06% (6.61)% 14.28% (7.62)% 37.21%
Bond Income............. 14.15% 1.65% 7.72% 11.63% 7.44% 17.25% 7.53% 11.94% (3.94)% 20.47%
Money Market............ 6.16% 5.89% 6.87% 8.60% 7.54% 5.58% 3.18% 2.36% 3.35% 5.07%
<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- 1/1/95-
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 12/31/95
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index...................... (12.55)% 15.65% 29.37% (4.72)% 29.65% 6.65% 9.07% 0.51% 36.10%
Managed.......................... (1.06)% 8.83% 18.37% 2.59% 19.45% 6.06% 9.99% (1.70)% 30.48%
<CAPTION>
4/30/93- 1/1/94- 1/1/95-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95
- ----------- -------- -------- --------
<S> <C> <C> <C>
Avanti Growth.......................................................................... 14.28% (0.87)% 29.57%
Value Growth........................................................................... 13.78% (1.80)% 35.65%
<CAPTION>
4/30/93- 1/1/94- 1/1/95-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95
- ----------- -------- -------- --------
<S> <C> <C> <C>
Equity-Income.......................................................................... 9.11% 6.43% 34.29%
Overseas............................................................................... 14.38% 1.12% 9.02%
<CAPTION>
5/2/94- 1/1/95-
SUB-ACCOUNT 12/31/94 12/31/95
- ----------- -------- --------
<S> <C> <C>
Small Cap....................................................................................... (3.61)% 28.08%
<CAPTION>
8/31/94- 1/1/95-
SUB-ACCOUNT 12/31/94 12/31/95
- ----------- -------- --------
<S> <C> <C>
High Income..................................................................................... (0.66)% 19.88%
Asset Manager................................................................................... (4.49)% 16.26%
<CAPTION>
5/1/95-
SUB-ACCOUNT 12/31/95
- ----------- --------
<S> <C>
Equity Growth............................................................................................ 24.64%
Balanced................................................................................................. 13.56%
International Equity..................................................................................... 3.68%
Venture Value............................................................................................ 21.44%
</TABLE>
A-100
<PAGE>
VARIABLE SURVIVORSHIP ("ZENITH SURVIVORSHIP LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
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- 1/1/95-
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 12/31/95
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 93.46% 51.34% (9.61)% 29.59% (4.35)% 52.61% (6.90)% 13.94% (7.90)% 36.80%
Bond Income............. 13.81% 1.35% 7.40% 11.29% 7.11% 16.90% 7.21% 11.60% (4.23)% 20.12%
Money Market............ 5.85% 5.57% 6.55% 8.28% 7.22% 5.26% 2.87% 2.05% 3.04% 4.75%
<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- 1/1/95-
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 12/31/95
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index...................... (12.73)% 15.30% 28.99% (5.01)% 29.27% 6.33% 8.74% 0.21% 35.69%
Managed.......................... (1.26)% 8.50% 18.02% 2.28% 19.10% 5.74% 9.69% (2.00)% 30.09%
<CAPTION>
4/30/93- 1/1/94- 1/1/95-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95
- ----------- -------- -------- --------
<S> <C> <C> <C>
Avanti Growth.......................................................................... 14.05% (1.16)% 29.19%
Value Growth........................................................................... 13.55% (2.09)% 35.25%
<CAPTION>
4/30/93- 1/1/94- 1/1/95-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95
- ----------- -------- -------- --------
<S> <C> <C> <C>
Equity-Income.......................................................................... 8.89% 6.11% 33.89%
Overseas............................................................................... 14.15% 0.82% 8.70%
<CAPTION>
5/2/94- 1/1/95-
SUB-ACCOUNT 12/31/94 12/31/95
- ----------- -------- --------
<S> <C> <C>
Small Cap....................................................................................... (3.80)% 27.69%
<CAPTION>
8/31/94- 1/1/95-
SUB-ACCOUNT 12/31/94 12/31/95
- ----------- -------- --------
<S> <C> <C>
High Income..................................................................................... (0.76)% 19.53%
Asset Manager................................................................................... (4.59)% 15.91%
</TABLE>
A-101
<PAGE>
FLEXIBLE PREMIUM ("ZENITH FLEXIBLE LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
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- 1/1/95-
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 12/31/95
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 93.75% 51.56% (9.47)% 31.88% (5.73)% 52.83% (6.75)% 14.11% (7.76)% 37.00%
Bond Income............. 13.98% 1.50% 7.56% 11.46% 7.28% 17.08% 7.37% 11.77% (4.08)% 20.29%
Money Market............ 6.01% 5.73% 6.71% 8.44% 7.38% 5.42% 3.02% 2.20% 3.20% 4.91%
<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- 1/1/95-
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 12/31/95
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock-Index...................... (13.06)% 15.47% 29.18% (4.86)% 29.46% 6.49% 8.90% 0.36% 35.90%
Managed.......................... (1.15)% 8.67% 18.20% 2.44% 19.28% 5.90% 9.82% (1.85)% 30.28%
<CAPTION>
4/30/93- 1/1/94- 1/1/95-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95
- ----------- -------- -------- --------
<S> <C> <C> <C>
Avanti Growth.......................................................................... 14.16% (1.01)% 29.38%
Value Growth........................................................................... 13.67% (1.94)% 35.45%
<CAPTION>
4/30/93- 1/1/94- 1/1/95-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95
- ----------- -------- -------- --------
<S> <C> <C> <C>
Equity-Income.......................................................................... 9.00% 6.27% 34.09%
Overseas............................................................................... 14.26% 0.97% 8.86%
<CAPTION>
5/2/94- 1/1/95-
SUB-ACCOUNT 12/31/94 12/31/95
- ----------- -------- --------
<S> <C> <C>
Small Cap....................................................................................... (3.71)% 27.88%
<CAPTION>
8/31/94- 1/1/95-
SUB-ACCOUNT 12/31/94 12/31/95
- ----------- -------- --------
<S> <C> <C>
High Income..................................................................................... (0.71)% 19.71%
Asset Manager................................................................................... (4.54)% 16.08%
<CAPTION>
5/1/95-
SUB-ACCOUNT 12/31/95
- ----------- --------
<S> <C>
Equity Growth............................................................................................ 24.51%
Balanced................................................................................................. 13.44%
International Equity..................................................................................... 3.58%
Venture Value............................................................................................ 21.32%
</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-102
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholder of
New England Variable Life Insurance
Company:
We have audited the accompanying balance sheets of New England Variable Life
Insurance Company (a wholly-owned subsidiary of New England Mutual Life
Insurance Company) as of December 31, 1995 and 1994, and the related
statements of operations, surplus, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of New England Variable Life
Insurance Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with the
accounting practices prescribed or permitted by the Insurance Department of
the State of Delaware, which are considered generally accepted accounting
principles for wholly-owned stock life insurance subsidiaries of mutual life
insurance companies.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 8, 1996
A-103
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
-------------- ------------
<S> <C> <C>
Bonds........................................... $ 60,779,522 $ 7,828,833
Mortgage loan................................... 2,210,153 2,221,942
Policy loans.................................... 58,210,498 43,967,343
Cash and short-term investments................. 32,416,437 10,669,045
Accrued investment income....................... 3,102,970 1,377,286
Premiums deferred and uncollected............... 8,897,630 6,892,888
Due from separate account, net.................. 95,638,637 79,549,258
Due from New England Mutual Life Insurance Com-
pany........................................... 4,706,831 1,889,855
Other assets.................................... 554,844 814,991
Separate account assets......................... 748,184,716 445,040,547
-------------- ------------
Total assets................................ $1,014,702,238 $600,251,988
============== ============
LIABILITIES AND SURPLUS
Policy reserves................................. $ 79,511,870 $ 44,648,304
Due to New England Mutual Life Insurance Compa-
ny............................................. 6,239,406 3,219,350
Borrowed money and accrued interest............. 25,137,373 --
Income taxes payable............................ 5,487,501 4,611,653
Accrued expenses................................ 6,663,644 4,746,096
Asset valuation reserve......................... 372,954 137,202
Other liabilities............................... 4,767,424 1,120,620
Separate account liabilities.................... 748,184,716 445,040,547
-------------- ------------
Total liabilities........................... 876,364,888 503,523,772
Surplus:
Common stock (shares authorized: 50,000; issued
and outstanding:
20,000; par value $125)........................ 2,500,000 2,500,000
Paid-in capital in excess of par value.......... 171,738,031 117,709,808
Unassigned surplus.............................. (35,900,681) (23,481,592)
-------------- ------------
Total surplus............................... 138,337,350 96,728,216
-------------- ------------
Total liabilities and surplus............. $1,014,702,238 $600,251,988
============== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-104
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Income:
Premiums......................................... $279,517,998 $201,732,909
Net investment income............................ 3,250,606 3,093,033
Considerations for supplementary contracts....... 2,243,426 --
------------ ------------
285,012,030 204,825,942
Expenses:
Death and other benefits......................... 41,689,601 23,345,664
Increase in policy reserves...................... 34,863,564 17,743,158
Commissions...................................... 40,691,028 37,220,361
Net transfers to separate account................ 120,149,836 87,853,704
General and administrative....................... 54,105,390 43,395,223
------------ ------------
291,499,419 209,558,110
------------ ------------
Loss from operations before provision for income
taxes............................................. (6,487,389) (4,732,168)
Provision for income taxes......................... 5,516,062 2,968,375
------------ ------------
Net loss........................................... $(12,003,451) $ (7,700,543)
============ ============
</TABLE>
STATEMENTS OF SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Surplus, beginning of year.......................... $ 96,728,216 $94,378,654
Net loss............................................ (12,003,451) (7,700,543)
Change in non-admitted assets....................... (179,886) (19,141)
Change in asset valuation reserve................... (235,752) 69,246
Capital contribution from New England Mutual Life
Insurance Company.................................. 54,028,223 10,000,000
------------ -----------
Surplus, end of year................................ $138,337,350 $96,728,216
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-105
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Premiums and other considerations.............. $ 277,077,189 $ 199,670,506
Net investment income.......................... 1,719,860 2,773,220
Benefits....................................... (39,541,592) (23,510,882)
Expenses and taxes............................. (95,265,433) (80,900,670)
Net transfers to separate account.............. (136,239,215) (103,547,077)
Net increase in policy loans................... (14,243,155) (13,293,625)
Other income and disbursements, net............ 2,191,111 (1,972,032)
------------- -------------
Net cash flows used in operating activities.. (4,301,235) (20,780,560)
Cash flows from investing activities:
Proceeds from investments sold, matured or
repaid........................................ 715,484 166,942
Cost of investments acquired................... 333,143 (11)
------------- -------------
Net cash flows from investing activities..... 1,048,627 166,931
Cash flows from financing activities:
Capital contribution from New England Mutual
Life Insurance Company........................ -- 10,000,000
Borrowed money................................. 25,000,000 --
------------- -------------
Net cash flows from financing activities..... 25,000,000 10,000,000
Net cash flows................................... 21,747,392 (10,613,629)
Cash and short-term investments, beginning of
year............................................ 10,669,045 21,282,674
------------- -------------
Cash and short-term investments, end of year..... $ 32,416,437 $ 10,669,045
============= =============
Non-cash financing activities:
Capital contribution from New England Mutual
Life Insurance Company........................ $ 54,028,223 $ --
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-106
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
New England Variable Life Insurance Company (the "Company") is a wholly-
owned stock life insurance subsidiary of New England Mutual Life Insurance
Company (The New England). The Company sells variable life insurance and
variable annuity products through a network of general agencies located
throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The Company prepares its statutory financial statements, except as to form,
in accordance with accounting practices prescribed or permitted by the
Insurance Department of the State of Delaware. Prescribed statutory accounting
practices include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations, and
general administrative rules. Permitted accounting practices encompass all
accounting practices not so prescribed. Permitted and prescribed statutory
accounting practices are currently considered generally accepted accounting
principles (GAAP) for wholly-owned stock life insurance subsidiaries of a
mutual life insurance company.
The Financial Accounting Standards Board issued Interpretation No. 40,
Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises, and Statement of Financial Accounting
Standards No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts. The American Institute of Certified Public
Accountants issued Statement of Position 95-1, Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises. Neither of these
groups has a role in establishing regulatory accounting practices. These
pronouncements will require stock life subsidiaries of a mutual life insurance
company parent to modify their financial statements in order for them to
continue to be in accordance with generally accepted accounting principles,
effective for the Company's 1996 financial statements. The manner in which
policy reserves, new business acquisition costs, asset valuations and the
related tax effects are recorded will change. Management has not determined
the impact of such changes on its financial statements.
Certain amounts from the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in accordance with permitted and
prescribed statutory accounting practices requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
INVESTED ASSETS
Carrying values of bonds have been determined in accordance with methods and
values adopted by the National Association of Insurance Commissioners. Bonds
are carried at amortized cost.
The Company's mortgage loan on real estate is carried at outstanding
principal balance. The estimated fair value of this loan is determined using
an internal matrix based on market rates and a credit rating system.
Policy loans are carried at the aggregate of the unpaid balances. Policy
loans are an integral part of insurance products and have no maturity dates.
Consequently, it is not practicable to value these instruments.
A-107
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Short-term investments are carried principally at cost, which approximates
fair value, and include securities with a maturity date at purchase of less
than one year.
Investment income is recognized on the accrual basis. Realized gains and
losses on the sales of investments are determined on the specific
identification method. Unrealized gains and losses are accounted for as direct
increases or decreases in surplus.
SEPARATE ACCOUNT
Separate account assets represent managed funds held for the benefit of
variable life and variable annuity policyholders and are reported at fair
value. Since the policyholders receive the full benefit and bear the full risk
of the separate account investments, the investment results are reflected in
the liabilities related to the separate account. The statements of operations
include the general account business and the net transfers to the separate
account.
VARIABLE LIFE RESERVES
Reserves for variable life insurance policies are developed using the 1958
and 1980 Commissioners' Standard Ordinary Mortality Table on the Net Level
Premium Method, the Net Single Premium Method, or the Modified Full
Preliminary Term Method with assumed interest rates ranging from 4% to 5%.
DUE FROM SEPARATE ACCOUNT, NET
The Company records as a receivable amounts that are due from the separate
account for policy charges (including cost of insurance charges,
administrative charges and minimum death benefit charges), and amounts held
for policy account values in excess of the statutory reserve.
Amounts held in excess of the reserve cannot be transferred unless the
policy is terminated or the policy account value is withdrawn.
Actual transfers from the separate account to the general account for the
policy charges are made on a periodic basis to reduce this receivable. The
components of the amount due from the separate account, net as of December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Account values in excess of reserves................... $93,318,010 $75,718,686
Policy charges......................................... 2,320,627 3,830,572
----------- -----------
Total.............................................. $95,638,637 $79,549,258
=========== ===========
</TABLE>
RECOGNITION OF PREMIUM REVENUE AND RELATED EXPENSES
Variable life premium revenue is recognized during the premium paying
period. Annuity considerations and deposits are recognized as revenue when
received. Commissions and other expenses in connection with acquiring new
business are charged to current operations as incurred.
FEDERAL INCOME TAXES
The Company's federal income tax return is consolidated with The New
England. The method of allocation between the companies is subject to a tax
sharing agreement, and allocation is based upon separate return calculations
with current credit for net losses. Net operating loss carryforwards to the
extent not previously reimbursed will be utilized as a deduction before
determining the tax liability to The New England.
A-108
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
3. INVESTMENT RESERVES AND INTEREST MAINTENANCE RESERVE:
The Asset Valuation Reserve (AVR) is designed to mitigate the effect of
valuation and credit-related losses on unassigned surplus. The AVR covers all
invested asset classes with risk of loss, including bonds and mortgage loans.
The Interest Maintenance Reserve (IMR) accumulates realized capital gains
and losses on the sale of all types of fixed income securities which result
from changes in the overall level of interest rates. These gains are amortized
into operating income over the remaining life of each investment sold. The IMR
amounted to $74,707 and $75,451 as of December 31, 1995 and 1994,
respectively. The amortization of the IMR into net income net of federal
income tax for 1995 and 1994 was $3,117 and $2,702, respectively.
4. INVESTMENTS:
The carrying value and estimated fair values of debt securities excluding
separate account assets are as follows:
<TABLE>
<CAPTION>
1995
GROSS UNREALIZED
CARRYING ----------------- ESTIMATED
VALUE GAINS LOSSES FAIR VALUE
-------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies............ $ 3,847 $ 61 $ -- $ 3,908
Corporate securities.................. 56,393 1,353 (355) 57,391
Mortgage-backed securities............ 70 1 -- 71
Other................................. 470 61 -- 531
------- -------- ------- -------
Totals................................ $60,780 $ 1,476 $ (355) $61,901
======= ======== ======= =======
<CAPTION>
1994
GROSS UNREALIZED
CARRYING ----------------- ESTIMATED
VALUE GAINS LOSSES FAIR VALUE
-------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies............ $ 4,191 $ 62 $ (60) $ 4,193
Corporate securities.................. 3,546 125 (7) 3,664
Mortgage-backed securities............ 92 -- (3) 89
------- -------- ------- -------
Totals................................ $ 7,829 $ 187 $ (70) $ 7,946
======= ======== ======= =======
</TABLE>
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.
A-109
<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 and estimated fair value of debt securities at December
31, 1995, by contractual maturity, are shown below. Stated maturities may
differ from contractual maturities because some borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Due in 1 year or less........................................ $ 4,775 $ 4,826
Due after 1 year through 5 years............................. 27,217 27,911
Due after 5 years through 10 years........................... 27,119 27,267
Due after 10 years........................................... 1,599 1,826
Mortgage-backed securities................................... 70 71
------- -------
Totals....................................................... $60,780 $61,901
======= =======
</TABLE>
Gross realized gains from sale of debt securities were $3,651 and $3,817 in
1995 and 1994, respectively. There were no gross realized losses in 1995 and
1994. Net realized gains of $2,373 and $2,481 in 1995 and 1994, respectively,
were transferred to the IMR.
There are no significant concentrations of bonds by issuer or by industry.
The estimated fair value of the Company's mortgage loan was $2,210,000 and
$2,241,000 at December 31, 1995 and 1994, respectively.
Components of Net Investment Income are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Debt securities.................................................. $ 897 $ 619
Short-term investments........................................... 1,140 597
Mortgage loans................................................... 234 235
Policy loans..................................................... 2,832 1,996
------ ------
Total investment income........................................ 5,103 3,447
Investment expenses including interest of $1,160,000 on borrowed
money (see Note 5).............................................. 1,852 354
------ ------
Net investment income............................................ $3,251 $3,093
====== ======
</TABLE>
5. BORROWED MONEY
In 1995, the Company borrowed $25,000,000 from a bank, bearing interest at a
variable rate, equal to the greater of the bank's base rate or money market
rates plus .6% per annum payable monthly (5.8% at December 31, 1995). The loan
is collateralized by sales loads and surrender charges collected on a defined
block of variable life insurance policies issued by the Company. Repayment is
structured in a manner to result in repayment over a term of five years. The
carrying value of the loan approximates its fair value.
6. RELATED PARTY TRANSACTIONS:
Under the terms of a service agreement, The New England furnishes all
executive, legal, clerical, and other personnel services to the Company. The
fees for such services amounted to $50,875,006 and $40,071,822 in 1995 and
1994, respectively.
A-110
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
All of the officers and directors of the Company are officers of The New
England.
In 1995, The New England made a noncash capital contribution to the Company
of publicly traded debt securities and private placement obligations with an
estimated fair value of $54,028,223. In 1994, The New England made a cash
capital contribution of $10,000,000.
The Company also reinsures certain risks with The New England. (See Note 8).
7. FEDERAL INCOME TAXES:
Federal income taxes are provided on the basis of amounts estimated to be
payable under the Internal Revenue Code. The Company files a consolidated
federal income tax return with The New England.
Below is a reconciliation of income before federal income taxes to taxable
gain from operations.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
----------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Operating loss before federal income taxes................... $(6,487) $(4,732)
Deferred acquisition costs................................... 13,451 11,035
Expense related differences.................................. 11,030 3,816
Other income related differences............................. (2,234) (1,639)
------- -------
Taxable gain from operations................................. 15,760 8,480
------- -------
Federal income taxes @ 35%................................... $ 5,516 $ 2,968
======= =======
</TABLE>
The Internal Revenue Service has completed its examination of the Company's
income tax returns through 1991 and is currently examining the income tax
returns for 1992 to 1993. The New England is contesting certain issues since
1976. The outcome of these proceedings is not currently determinable but, in
the opinion of management, would not have a materially adverse effect on the
financial statements.
8. REINSURANCE:
The Company's practice on individual products is to retain not more than
$250,000 of risk on any person, excluding accidental death benefits. Prior to
January 1, 1995, this retention limit had been $75,000 of risk on any person
excluding accidental death benefits. Total individual life premiums ceded were
$6.3 million and $13.8 million at December 31, 1995 and 1994, respectively. In
1995, $1.3 million of the $6.3 million premiums ceded were ceded to The New
England, and in 1994, $9.5 million of the $13.8 million premiums ceded were
ceded to The New England.
The individual life insurance inforce ceded was $4.0 billion and $9.7
billion at December 31, 1995 and 1994, respectively.
The Company is contingently liable with respect to ceded insurance should
any reinsurer be unable to meet the obligations assumed by it.
9. SUBSEQUENT EVENTS:
The New England and Metropolitan Life Insurance Company (MetLife) have
entered into a definitive agreement, effective as of August 16, 1995, pursuant
to which The New England would be merged with and into MetLife. The closing of
the merger is subject to various conditions, including but not limited to the
obtaining of various regulatory approvals and the necessary approvals of the
policyholders of both companies. It is currently anticipated that the merger
will be consummated no later than the third quarter of 1996.
A-111
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MA 02116
RECEIPT
This is to acknowledge receipt of a Zenith Life Executive 65 Prospectus
dated May 1, 1996. This Variable Life Policy is offered by New England
Variable Life Insurance Company.
_____________________________________ _____________________________________
(Date) (Client's Signature)
<PAGE>
- --------------------------------------------------------------------------------
New England Variable Life Insurance Company
a subsidiary of New England Mutual Life Insurance Company
501 Boylston Street, Boston, Massachusetts 02116-3700 VL-79-96
