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As filed with Securities and Exchange Commission on
April 30, 1997
Registration No. 33-64170
-----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 5
TO REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
NEW ENGLAND LIFE INSURANCE COMPANY
(Name of Depositor)
501 Boylston Street
Boston, Massachusetts 02117
(Address of depositor's principal executive offices)
-----------------------
MARIE C. SWIFT
Counsel
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
(Name and address of agent for service)
Copies to:
STEPHEN E. ROTH
Sutherland, Asbill & Brennan, L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
------------------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to Rule 24f-2, an indefinite amount of securities has been
registered under the Securities Act of 1933. A Rule 24f-2 Notice was filed on
February 25, 1997.
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NEW ENGLAND LIFE
INSURANCE COMPANY
Limited Payment Variable Life Insurance Policies
Issued by
New England 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 Life Insurance Company
("NELICO"), an indirect, wholly-owned subsidiary of Metropolitan Life
Insurance Company ("MetLife").
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
NELICO 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 NELICO's Variable Life Separate Account
(the "Variable Account") or to NELICO's Fixed Account, after certain
deductions have been made. Each sub-account of the Variable Account invests in
the shares of one of the Eligible Funds. The Eligible Funds are: the Back Bay
Advisors Money Market Series, the Back Bay Advisors Bond Income Series, the
Capital Growth Series, the Westpeak Stock Index Series, the Back Bay Advisors
Managed Series, the Westpeak Growth and Income Series, the Loomis Sayles
Avanti Growth Series, the Loomis Sayles Small Cap Series, the Alger Equity
Growth Series, the Loomis Sayles Balanced Series, the Davis Venture Value
Series and the Morgan Stanley International Magnum Equity Series of the New
England Zenith Fund (the "Zenith Fund"); the Equity-Income Portfolio, Overseas
Portfolio and High Income Portfolio of the Variable Insurance Products Fund
("VIP Fund"); and the Asset Manager Portfolio of the Variable Insurance
Products Fund II ("VIP Fund II").
SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE OUT OF THE FIXED ACCOUNT.
It may not be advantageous to replace existing insurance with the Policy
described in this prospectus. (See "Charges and Expenses".)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THIS PROSPECTUS IS NOT VALID UNLESS ACCOMPANIED OR PRECEDED BY THE
CURRENT PROSPECTUSES OF THE NEW ENGLAND ZENITH FUND AND OF THE VARIABLE
INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II, WHICH ARE
ATTACHED AT THE END OF THIS PROSPECTUS. THESE PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
SHARES OF THE ZENITH FUND, THE VIP FUND AND THE VIP FUND II, AND INTERESTS
IN THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, A BANK, AND THE SHARES AND INTERESTS ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
MAY 1, 1997
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TABLE OF CONTENTS
<TABLE>
<S> <C>
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 NELICO's Home Office.......... A-11
NELICO.................................................................. 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-21
PREMIUMS.................................................................. A-21
Scheduled Premiums...................................................... A-21
Unscheduled Payments.................................................... A-22
Special Premium Option.................................................. A-23
Automatic Premium Loan.................................................. A-24
Default and Lapse Options............................................... A-24
OTHER POLICY FEATURES..................................................... A-26
Loan Provision.......................................................... A-26
Surrender............................................................... A-27
Partial Surrender and Partial Withdrawal................................ A-27
Reduction in Face Amount................................................ A-29
Acceleration of Death Benefit Rider..................................... A-29
Investment Options...................................................... A-29
Transfer Option......................................................... A-30
Substitution of Insured Person.......................................... A-30
Payment of Proceeds..................................................... A-30
Exchange of Policy During First 24 Months............................... A-31
Payment Options......................................................... A-31
Additional Benefits by Rider............................................ A-32
Policy Owner and Beneficiary............................................ A-33
THE VARIABLE ACCOUNT...................................................... A-33
Investments of the Variable Account..................................... A-34
Investment Management................................................... A-37
THE FIXED ACCOUNT......................................................... A-38
General Description..................................................... A-38
Values and Benefits..................................................... A-39
Policy Transactions..................................................... A-39
</TABLE>
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<TABLE>
<S> <C>
NELICO'S DISTRIBUTION AGREEMENT........................................... A-40
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY.......................... A-40
Misstatement of Age or Sex.............................................. A-40
Suicide................................................................. A-40
TAX CONSIDERATIONS........................................................ A-41
Policy Proceeds......................................................... A-41
Charge for NELICO's Income Taxes........................................ A-44
MANAGEMENT................................................................ A-45
VOTING RIGHTS............................................................. A-48
RIGHTS RESERVED BY NELICO................................................. A-49
TOLL-FREE NUMBERS......................................................... A-49
REPORTS................................................................... A-49
ADVERTISING PRACTICES..................................................... A-49
LEGAL MATTERS............................................................. A-50
REGISTRATION STATEMENT.................................................... A-50
EXPERTS................................................................... A-50
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET CASH VALUES
AND ACCUMULATED SCHEDULED PREMIUMS....................................... A-52
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............................. A-62
APPENDIX C: LONG TERM MARKET TRENDS....................................... A-82
APPENDIX D: USES OF LIFE INSURANCE........................................ A-85
APPENDIX E: TAX INFORMATION............................................... A-87
FINANCIAL STATEMENTS...................................................... F-1
</TABLE>
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GLOSSARY
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
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".)
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 NELICO's
general account as a result of the loan. (See "Cash Value".)
COST OF INSURANCE CHARGE. This charge for providing insurance protection is
deducted on the Policy Date and on the first day of each policy month. The
cost of insurance for a policy month is equal to the amount at risk multiplied
by the cost of insurance rate for that month. Cost of insurance rates vary
monthly. (See "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 Growth and Income Series, the Loomis Sayles
Avanti Growth Series, the Loomis Sayles Small Cap Series, the Alger Equity
Growth Series, the Loomis Sayles Balanced Series, the Davis Venture Value
Series and the Morgan Stanley International Magnum 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 NELICO'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".)
INVESTMENT START DATE. This is the latest of the date NELICO 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 NELICO
assumes is that insureds
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may live for shorter periods of time than estimated. The expense risk NELICO
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. NELICO provides guarantees of principal
and interest with respect to the Fixed Account which is part of NELICO's
general account. Amounts in the Fixed Account are backed by NELICO's general
account, rather than the Variable Account. For a description of the Fixed
Account, see "The Fixed Account" which appears later in this prospectus.
THE POLICIES
The individual 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. NELICO 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. NELICO 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. NELICO provides guarantees of Fixed Account
principal and interest. SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE
FROM THE FIXED ACCOUNT. NELICO also reserves the right to restrict
transfers of cash value and allocations of premiums into the Fixed
Account. (See "The Fixed Account".)
--The cash value of the Policy will vary daily based on, among other things,
the net investment experience of the sub-accounts to which amounts have
been allocated and the amount of interest credited to any of the Policy's
cash value in the Fixed Account. (See "Cash Value", "Charges and
Expenses", "Premiums", "Loan Provision", and "Partial Surrender 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 NELICO's consent.
NELICO 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, NELICO 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 NELICO or an affiliate 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 NELICO are designed to
provide insurance protection. Although the underlying mutual fund portfolios
invest in securities similar to those in which mutual funds available directly
to the public invest, in many ways the Policies differ from mutual fund
investments. The main differences are:
--The Policy provides a death benefit based on NELICO's assumption of an
actuarially calculated risk.
--If 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 NELICO 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 NELICO's
underwriting and other criteria for issuance. The minimum face amount
available is $25,000 unless NELICO consents to a lower amount. The Policies
are not available to employee benefit plans qualified under Section 401 of the
Internal Revenue Code, except with NELICO's consent.
POLICY CHARGES
PREMIUM-BASED CHARGES. NELICO deducts the following charges:
--From 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
NELICO's Master Service Account arrangement), plus any extra premiums
for riders, substandard risk or automatic issue class;
(ii) a sales charge of 5.5%. NELICO 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. NELICO 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, NELICO 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 NELICO'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
- --------------------------------------------------------------------------------
Premium Payments
. Guaranteed not to increase
. Payable until the insured reaches age 65, or for 10 years, if later
- --------------------------------------------------------------------------------
[ARROW POINTING TO CHARGES FROM PREMIUM APPEARS HERE]
- --------------------------------------------------------------------------------
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%*)
- --------------------------------------------------------------------------------
[ARROW POINTING TO CASH VALUES APPEARS HERE]
- --------------------------------------------------------------------------------
Unscheduled Payments
. Sales Load (5.5%)
. State Premium Tax Charge (2.5%)
. Charge for Federal Taxes (1%)
- --------------------------------------------------------------------------------
[ARROW POINTING TO CASH VALUES APPEARS HERE]
- --------------------------------------------------------------------------------
Special Premium Option
. If used, charges for the Annual Admin. Charge and any riders or substandard
risk or automatic issue premium are deducted from cash value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Loans
. After the free look period, you may borrow up to 90% of the adjusted cash
value (100% in Alabama)
. The loan interest charge is 6%. Loaded funds are transferred 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
- --------------------------------------------------------------------------------
[ARROW POINTING TO SPECIAL PREMIUM OPTION APPEARS HERE]
[ARROW POINTING TO LOANS APPEARS HERE]
[ARROW POINTING TO RETIREMENT BENEFITS APPEARS HERE]
[ARROW POINTING TO DEATH BENEFITS APPEARS HERE]
[ARROW POINTING TO DAILY DEDUCTIONS FROM ASSETS APPEARS HERE]
[ARROW POINTING TO BEGINNING OF MONTH CHARGES APPEARS HERE]
[ARROW POINTING TO SURRENDER CHARGES APPEARS HERE]
[ARROW POINTING TO LIVING BENEFITS APPEARS HERE]
- --------------------------------------------------------------------------------
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 of $.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
. Consists 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 NELICO'S HOME OFFICE
NELICO will treat your request for a Policy transaction, or your submission
of a payment, as received at the Home 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.
NELICO
NELICO was organized as a stock life insurance company in Delaware in 1980
and is licensed to sell life insurance in all states, the District of Columbia
and Puerto Rico. Before August 30, 1996, NELICO was a wholly-owned subsidiary
of New England Mutual Life Insurance Company ("The New England"). Effective
August 30, 1996, The New England merged into MetLife, a mutual life insurance
company whose principal office is One Madison Avenue, New York, NY 10010. With
the merger, The New England's separate corporate existence ended, and MetLife
became the parent of NELICO. In connection with the merger, NELICO changed its
name from "New England Variable Life Insurance Company" to "New England Life
Insurance Company" and changed its domicile from the State of Delaware to the
Commonwealth of Massachusetts. NELICO's Home Office is now at 501 Boylston
Street, Boston, Massachusetts 02116. NELICO's mailing address is: P.O. Box
9116, Boston, Massachusetts 02117.
The following chart illustrates the relationship of NELICO, the Fixed
Account, the Variable Account and the Eligible Funds.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
NELICO
------------------------------------------------------------------------------------------------------------
(Insurance company subsidiary of MetLife)
Charges are deducted.
Net premiums and net unscheduled payments are allocated to the Policy Owner's choice of sub-
accounts in the Variable Account or to the Fixed Account.
Premiums --------------------------------------------------------------------------------------------------
and VARIABLE ACCOUNT
Unscheduled --------------------------------------------------------------------------------------------------
Payments <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[ARROW Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith
POINTING Fixed Capital Bond Money Man- Stock Growth Avanti Small Bal- Equity Venture
RIGHT Account Growth Income Market aged Index and Growth Cap anced Growth Value
APPEARS Sub- Sub- Sub- Sub- Sub- Income Sub- Sub- Sub- Sub- Sub-
HERE] Account Account Account Account Account Sub- 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
Magnum Account Account Account Sub-
Equity Account
Sub-
Account
--------------------------------------------------------------------------------------------------
Sub-accounts buy
shares of the [TWELVE ARROWS POINTING TO NEW ENGLAND ZENITH FUND APPEARS HERE]
Eligible Funds.
<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 Davis Morgan
Growth Advisors Advisors Advisors Stock Growth Sayles Sayles Sayles Equity Venture Stanley
Series Bond Money Managed Index and Avanti Small Bal- Growth Value Inter-
Income Market Series Series Income Growth Cap anced Series Series national
Series Series Series Series Series Series Magnum
Equity
Series
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
[THREE ARROWS [ARROW
POINTING TO POINTING TO
VIP FUND VIP FUND II
APPEARS HERE APPEARS HERE]
-------------------------------
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
NELICO'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 NELICO'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 NELICO's mortality and
expense risk, but in the future NELICO 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 NELICO'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.
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 NELICO 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 NELICO
first receives a premium payment for the Policy, the date Part II of the
Policy application is signed and the Policy Date. (For this purpose, receipt
of the premium payment means receipt by your registered representative, if the
payment is made with the application; otherwise, it means receipt by a NELICO
agency or, in the case of a Policy sold through MetLife Brokerage, receipt by
MetLife Brokerage at its Princeton, New Jersey office.)
A-13
<PAGE>
If you make a premium payment with the application, the Policy Date is
generally the later of the date Part II of the application is signed and
receipt of the premium payment. In that case the Policy Date and investment
start date are the same. The amount of premium paid with the application must
be at least 10% of the annual scheduled premium for the Policy or one monthly
scheduled premium. Only one premium payment may be made before the Policy is
issued. (A premium payment made before issue will be maintained by NELICO or
an affiliate in the general account, and will not earn interest prior to the
investment start date.) 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 NELICO
receives the premium for the Policy and the date when Part II of the
application is signed. The maximum amount of coverage provided is the lesser
of the amount of insurance applied for and $500,000 for standard 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 NELICO
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 NELICO.
If you choose to pay the initial premium upon delivery of the Policy, the
Policy will have a Policy Date which is generally five days after issue. The
investment start date will be the later of the Policy Date and the date the
premium is received. Monthly 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, NELICO may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
Backdating may be desirable, for example, so that you can purchase a
particular Policy face amount for 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, NELICO 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 NELICO
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, NELICO 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
NELICO mails the Notice of Withdrawal Right, whichever is latest. The Policy
may be returned to NELICO or your registered representative. Insurance
coverage ends as soon as the Policy is returned (as determined by its
postmark, if the
A-14
<PAGE>
Policy is mailed). If you choose to cancel the Policy, NELICO 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 NELICO.
CHARGES AND EXPENSES
DEDUCTIONS FROM PREMIUMS AND UNSCHEDULED PAYMENTS
NELICO 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.
NELICO 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
NELICO on the same insured (because the total coverage exceeds NELICO's
automatic issue limits), NELICO 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, as well as legal, actuarial, systems, mailing and
other overhead costs connected with NELICO's variable life insurance
operations.
SALES CHARGE. NELICO 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. NELICO currently intends to waive this
charge on basic scheduled premiums after the 15th policy year; however, NELICO
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 NELICO's actual sales expenses for that year.
Sales charges for Policies sold in certain group or sponsored arrangements
may be reduced. NELICO 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 that were issued by
The New England, NELICO or NELICO's affiliates and that meet certain premium,
cash value and/or face amount minimums, as currently published by NELICO.
NELICO's normal issuance criteria, including reinsurance and other
limitations, as well as certain other eligibility requirements, would also
apply in these situations. NELICO may waive underwriting requirements in these
situations. NELICO may also reduce the surrender charge on such policies. Your
registered representative can advise you regarding the availability of this
feature.
A-15
<PAGE>
STATE PREMIUM TAX CHARGE. NELICO 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.
FEDERAL PREMIUM TAX CHARGE. NELICO 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.
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>
NELICO 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 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.
A-16
<PAGE>
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>
- ----------
* 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, NELICO 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 NELICO 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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<PAGE>
"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
NELICO's expectations regarding future mortality and expense experience, lapse
rates and investment earnings. NELICO reviews the adequacy of its current cost
of insurance rates 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 NELICO'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.
NELICO 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,
NELICO has determined that Policies issued on an automatic issue basis may
present additional mortality cost to NELICO compared to underwritten Policies
issued in the smoker class. NELICO 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 NELICO'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 NELICO 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, NELICO 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. NELICO 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. NELICO charges the sub-accounts of the
Variable Account for the mortality and expense risks that NELICO assumes.
Currently, the charge is made daily at an annual rate of .60% of the sub-
accounts' assets. NELICO reserves the right to increase the charge, up to a
maximum annual rate of
A-19
<PAGE>
.90%. The mortality risk NELICO assumes is that insureds may live for shorter
periods of time than NELICO estimated. The expense risk is that NELICO's costs
of issuing and administering the Policies may be more than NELICO estimated.
CHARGES FOR INCOME TAXES. NELICO currently makes no charge for income taxes
against the Variable Account, but in the future NELICO may impose such a
charge, if appropriate. NELICO reserves the right to make a charge for any
taxes imposed on the Policies by any governmental body in the future. (See
"Charge for NELICO's Income Taxes".)
ELIGIBLE FUND EXPENSES. Charges for investment advisory fees and other
expenses are deducted from the assets of the Eligible Funds.
The Zenith Fund Series incur charges for advisory fees and certain other
expenses. The series (other than the Capital Growth Series) are advised by TNE
Advisers, Inc., an affiliate of NELICO. Under a voluntary expense cap by TNE
Advisers for each of the Back Bay Advisors Bond Income, Back Bay Advisors
Money Market, Back Bay Advisors Managed, Westpeak Stock Index, Westpeak Growth
and Income 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 up
until two years after the end of the fiscal year in which the expense was
incurred. The expense cap and expense deferral arrangement may be terminated
at any time.
The following table shows the annual operating expenses for each series,
based on actual expenses for 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 WESTPEAK LOOMIS LOOMIS
ADVISORS ADVISORS BAY WESTPEAK GROWTH SAYLES SAYLES
CAPITAL BOND MONEY ADVISORS STOCK AND AVANTI SMALL
GROWTH INCOME MARKET MANAGED INDEX INCOME GROWTH CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------- -------- -------- -------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .63% .40% .35% .50% .25% .70% .70% 1.00%
Other Expenses.......... .06% .12% .15% .12% .15% .15% .15% --
---- ---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses.............. .69% .52% .50% .62% .40% .85% .85% 1.00%
</TABLE>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
MORGAN
LOOMIS STANLEY DAVIS ALGER
SAYLES INTERNATIONAL VENTURE EQUITY
BALANCED MAGNUM VALUE GROWTH
SERIES EQUITY SERIES SERIES SERIES
-------- ------------- ------- ------
<S> <C> <C> <C> <C>
Management Fee........................... .70% .90% .75% .74%
Other Expenses........................... .15% .40% .15% .16%
---- ----- ---- ----
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.
A-20
<PAGE>
The Portfolios also bear certain other expenses. For the year ended December
31, 1996, 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% .07% .58%*
Overseas .76% .17% .93%*
High Income .59% .12% .71%
Asset Manager .64% .10% .74%*
</TABLE>
- ----------
* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. Had these
reductions been included, total annual expenses would have been .56% for
Equity-Income Portfolio, .92% for Overseas Portfolio and .73% for Asset
Manager Portfolio.
Affiliates of Fidelity Management & Research Company may compensate NELICO
or an affiliate for administrative, distribution, or other services relating
to these Portfolios of VIP Fund and VIP Fund II. Such compensation is based on
assets of the Portfolios attributable to the Policies and certain other
variable insurance products issued by NELICO and its affiliates.
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,
NELICO may waive or reduce one or more of the following charges: the sales
charge, Surrender Charge, charges for the cost of insurance (including
automatic issue premiums), mortality and expense risk charge, administrative
charges and/or 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.) NELICO will waive or reduce these charges according to its rules in
effect when the Policy application is approved. To qualify for a waiver or
reduction, 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. NELICO may
modify from time to time both the amounts of reductions and the criteria for
qualification. Reductions in or waiver of these charges will not be unfairly
discriminatory against any person, including the affected Policy Owners and
all other Policy Owners of Policies funded by the Variable Account.
The United States Supreme Court has held that certain insurance policies
providing values and benefits that vary with the sex of the insured may not be
used to fund certain employee benefit programs. Therefore, NELICO offers
Policies that do not vary based on the sex of the insured for use in
connection with certain employee benefit programs. NELICO recommends that any
employer proposing to offer the Policies to employees 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. NELICO 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
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<PAGE>
substitution of insured rider.) The scheduled premium amount will depend on
the Policy's face amount, the age, 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 NELICO'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 NELICO's Home 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; NELICO 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
NELICO's Home Office".)
You may make scheduled payments by check or money order. You may also choose
to have NELICO 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, or "MSA". Scheduled payments made
through MSA may be maintained by NELICO or an affiliate in the general account
pending their due date.)
Scheduled premiums are due at NELICO's Home Office or a NELICO agency on or
before their due dates. NELICO 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,
NELICO 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 that was issued by The New England,
NELICO or NELICO's affiliates and also to scheduled premiums under a Policy
issued to a home office employee of NELICO on the life of the employee, if the
employee has worked for NELICO and/or 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.) NELICO may
require satisfactory evidence of insurability before accepting the payment. In
addition, NELICO'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. NELICO 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".) NELICO 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 NELICO to include on your premium notice for the policy
anniversary a planned unscheduled payment amount in addition to the scheduled
premium, subject to NELICO's rules. Subject to NELICO's rules, you may choose
to have NELICO 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 NELICO 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".)
NELICO will allocate an unscheduled payment to your Policy's sub-accounts as
of the date the payment is received at NELICO's Home Office. (See "Receipt of
Communications and Payments at NELICO's Home Office".)
RULES FOR CREDITING PAYMENTS TO THE VARIABLE ACCOUNT. NELICO will treat
payments made under the Policy in the following way. Payments accompanied by a
premium notice, and payments received by NELICO 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 NELICO.
Payments made through the MSA arrangement may be maintained by NELICO or an
affiliate in the general account pending crediting. 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 NELICO 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 NELICO 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
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<PAGE>
deducted from the Policy's sub-accounts in proportion to the Policy's cash
value in each. (NELICO 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.)
If you have elected both the Special Premium Option and the automatic
premium loan feature, NELICO 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, NELICO 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, NELICO 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. If you surrender the Policy while the premium is in
default, the full Monthly Deduction and a prorated cost of insurance charge
will be deducted from the proceeds.
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 NELICO's Home 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.)
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<PAGE>
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
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 NELICO's consent. NELICO currently allows 12 sub-account
transfers per policy year.
A-25
<PAGE>
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, NELICO'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 NELICO.
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. NELICO will make the loan as of the
date when a loan request is received at NELICO's Home Office. (See "Receipt of
Communications and Payments at NELICO's Home Office".) You should contact
NELICO's Home Office or your registered representative 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.
- -------------------------------------------------------------------------------
EXAMPLE: Using the Policy illustrated on page A-54 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 4.56%). 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.......................................... $41,889 $39,242
(2) Cash Value Projected at a Constant Annual Rate of
Return of 4.5% to the
(a)11th Policy Anniversary........................... 42,940
(b)Next Premium Due Date............................. 39,468
(3) 90% of Amount Calculated in (2)...................... 38,646 35,521
(4) Amount Calculated in (3), Reduced by the Applicable
Surrender Charge..................................... 36,318 33,193
(5) Amount Calculated in (4), Discounted at an Annual
Rate of 6% Back to the 10th Policy Anniversary....... 34,262 32,703
- -------------------------------------------------------------------------------
</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.
A-26
<PAGE>
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), NELICO will notify you that the
Policy is going to terminate. (This situation is referred to as an "excess
policy loan".) NELICO 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 NELICO 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 NELICO'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 NELICO's
Home 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".) 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 NELICO'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-27
<PAGE>
- -------------------------------------------------------------------------------
EXAMPLE: Using the Policy illustrated on page A-55, 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........ $48,984 $96,563 $196,106
(2) Tabular Cash Value..... 81,461 81,461 81,461
(3) Maximum Withdrawal =
(1) - (2).............. 0 15,102 114,645
</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-
54, 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. $197,615
(2) Net
Single
Premium
per $1
at age
60...... .4627826819
(3) Face
Amount X
.4627826819. $99,492
(4) Maximum
Withdrawal
= (1) -
(3)..... $98,123
</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 NELICO 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-28
<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 NELICO's administrative procedures is received at
NELICO's Home Office. NELICO's administrative procedures can be determined by
contacting your registered representative or the Home 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 NELICO's minimum face amount
requirements for issue, except with NELICO's consent.
A face amount reduction will take effect as of the date when NELICO has
received a request at its Home Office meeting NELICO's administrative
requirements. You can determine NELICO's administrative requirements by
contacting your registered representative or the Home Office.
A death benefit reduction may cause a Policy to become a "modified endowment
contract". (See "Tax Considerations".)
ACCELERATION OF DEATH BENEFIT RIDER
NELICO may offer in the future a rider benefit that will allow you to
receive an accelerated payment of your Policy's death benefit. This advance
payment of the death benefit will be available where certain special needs
exist, as described briefly below. The right to exercise the rider will be
subject to certain conditions contained in the rider.
NELICO WILL MAKE THE ACCELERATED BENEFITS RIDER AVAILABLE TO YOU ONLY IF:
(1) YOUR STATE INSURANCE DEPARTMENT HAS APPROVED THE RIDER, AND (2) NELICO
BELIEVES THAT THE RIDER WILL MEET THE DEFINITION OF AN ACCELERATED DEATH
BENEFIT FOR FEDERAL INCOME TAX PURPOSES AND (3) THE AVAILABILITY OF THE RIDER
WILL NOT JEOPARDIZE THE QUALIFICATION OF THE POLICY AS LIFE INSURANCE UNDER
FEDERAL INCOME TAX LAW.
If the accelerated benefits rider is offered, it is expected to provide that
if the insured is diagnosed as terminally ill, as defined in the rider, you
may request an accelerated payment of the Policy's death benefit. The payment
may be subject to discounting and charges. Payment will be subject to evidence
satisfactory to NELICO.
See "Tax Considerations", below, for a discussion of the tax consequences
associated with the accelerated benefits rider.
INVESTMENT OPTIONS
You may allocate your Policy's 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-29
<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 NELICO receives your request. You may
request the change by telephone or by written request in a form satisfactory
to NELICO. (See "Receipt of Communications and Payments at NELICO's Home
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
NELICO's consent. NELICO 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 NELICO
receives the transfer request at its Home Office. (See "Receipt of
Communications and Payments at NELICO's Home 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 NELICO's Home Office or by
telephoning NELICO. To request a transfer or reallocation by telephone, you
should contact your registered representative or contact NELICO at 1-800-200-
2214. Requests for transfers (up to NELICO's current limit per policy year) or
reallocations by telephone will be automatically permitted. NELICO will use
reasonable procedures such as requiring certain identifying information from
the caller, tape recording the telephone instructions, and providing written
confirmation of the transaction, in order to confirm that instructions
communicated by telephone are genuine. Any telephone instructions reasonably
believed by NELICO to be genuine will be your responsibility, including losses
arising from any errors in the communication of instructions. As a result of
this policy, you will bear the risk of loss. If NELICO does not employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, it may be liable for any losses due to unauthorized or fraudulent
instructions.
SUBSTITUTION OF INSURED PERSON
Subject to state insurance department approval, NELICO 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 registered
representative can provide current information on the availability of the
rider. Since substituting the insured person may be a taxable event, you
should consult your tax advisor before substituting the insured person under
your Policy.
PAYMENT OF PROCEEDS
NELICO will ordinarily pay any net cash value, loan value or death benefit
proceeds from the sub-accounts within seven days after receipt at the Home
Office of a request, or proof of death of the insured, in a form satisfactory
to NELICO. (See "Receipt of Communications and Payments at NELICO's Home
Office".) However, NELICO may delay payment (except when a loan is made to pay
a premium to NELICO) or transfers from the sub-accounts: (i) if the New York
Stock Exchange is closed for other than weekends or holidays, or if trading on
the New York Stock Exchange is restricted, (ii) if the SEC determines that a
state of emergency exists that makes payments or sub-account transfers
impractical, or (iii) at any other time when the Eligible Funds or the
Variable Account have the legal right to suspend payment. NELICO may withhold
payment of surrender or loan proceeds to the extent that those proceeds are
derived from a Policy Owner's check, or from a Master Service Account premium
transaction, which has not yet cleared. In those cases, NELICO will process
the surrender or loan to the extent of policy values for which the Policy
Owner has made full payment. The balance of the surrender or loan proceeds
will be paid when the Policy Owner's check, or the Master Service Account
premium transaction, has cleared.
A-30
<PAGE>
NELICO may also delay payment if it considers whether to contest the Policy.
NELICO will pay interest on the death benefit proceeds from the date they
become payable to the date they are paid in one sum or, if a payment option
was selected, to the effective date of the option. (See "Payment Options".)
Death benefit proceeds may be paid pursuant to NELICO's Access Plus program.
If the Access Plus program is elected, an Access Plus account will be
established at State Street Bank & Trust Company at the time that death
benefit proceeds are payable. The Access Plus account provides convenient
access to proceeds, which are maintained in MetLife's general account, through
checkbook privileges with State Street. A beneficiary may elect to have death
benefit proceeds paid through the Access Plus program at any time prior to the
payment of death benefit proceeds.
Payments of 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, NELICO has the right to delay such payments for up to
six months from the date of the request. NELICO 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 NELICO or MetLife, as described below. 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 NELICO or MetLife
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 The New England, 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 NELICO (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 NELICO if such a policy was available on the
Policy Date of your variable life Policy.
The exchange will be effective on the date when NELICO receives written
notice at its Home Office in a form satisfactory to NELICO, the Policy and
payment to NELICO of any cost to exchange. (See "Receipt of Communications and
Payments at NELICO's Home 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 NELICO 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 options. The
selection of a payment option and the naming of a payee must be in written
form satisfactory to NELICO. You can make, change or revoke the selection
before the death of the insured. The payment options available are fixed
benefit options only; therefore, proceeds applied to an option will no longer
be affected by the
A-31
<PAGE>
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
NELICO for any year will be added to the monthly payments for that year.
(ii) LIFE INCOME. Proceeds are paid in equal monthly installments (i) during
the life of the payee, (ii) for the longer of the life of the payee or
10 years, or (iii) for the longer of the life of the payee or 20 years.
(iii) LIFE INCOME WITH REFUND. Proceeds are paid in equal monthly
installments during the life of the payee. At the payee's death, any
unpaid proceeds remaining are paid either in one sum or in equal
monthly installments until the total proceeds have been paid.
(iv) INTEREST. Proceeds are held for the life of the payee or another agreed
upon period. Interest of at least 3.5% a year is paid monthly or added
to the principal annually. At the death of the payee, or at the end of
the period agreed to, the balance of principal and any interest will be
paid in one sum.
(v) SPECIFIED AMOUNT OF INCOME. Proceeds plus accrued interest of at least
3.5% a year are paid in an amount and at a frequency elected until total
proceeds have been paid. Any amounts unpaid at the death of the payee
will be paid in one sum.
(vi) LIFE INCOME FOR TWO LIVES. Proceeds will be paid in equal monthly
installments (i) while either of two payees is living, (ii) for the
longer of the surviving payee or 10 years, or (iii) while the two
payees are living and, after the death of one payee, two-thirds of the
monthly amount for the life of the surviving payee will be paid.
NELICO's consent to use of an option is required if the installment payments
would be less than $20.
ADDITIONAL BENEFITS BY RIDER
A Policy can include additional benefits provided by rider to the Policy,
subject to NELICO's underwriting and issuance standards. These additional
benefits usually require an additional 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 registered representative 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;
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
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must also purchase the Waiver of Scheduled Premiums--Disability of Insured
Rider in order to purchase this rider. (NELICO 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 registered representative regarding the
availability of particular riders.
POLICY OWNER AND BENEFICIARY
The Policy Owner is named in the application but may be changed from time to
time. At the death of the Policy Owner, his or her estate will become the
Policy Owner unless a successor Policy Owner has been named. The Policy
Owner's rights (except 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 NELICO and must be dated and signed by the Policy Owner making the change.
The change will be subject to all payments made and actions taken by NELICO
under the Policy before the signed change form is received by NELICO at its
Home Office.
You may assign (transfer) your rights in the Policy to someone else. An
absolute assignment of the Policy is a change of Policy Owner and beneficiary
to the assignee. A collateral assignment of the Policy does not change the
Policy Owner or beneficiary, but their rights will be subject to the terms of
the assignment. Assignments will be subject to all payments made and actions
taken by NELICO under the Policy before a signed copy of the assignment form
is received at NELICO's Home Office. NELICO will not be responsible for
determining whether or not an assignment is valid. Changing the Policy Owner
or assigning the Policy may have tax consequences. (See "Tax Considerations"
below.)
THE VARIABLE ACCOUNT
The Variable Account was established as a separate investment account of
NELICO on January 31, 1983 under Delaware law and became subject to
Massachusetts law when NELICO changed its domicile to Massachusetts on August
30, 1996. The Variable Account is the funding vehicle for other NELICO
variable life insurance policies in addition to the Policies. The Variable
Account meets the definition of a "separate account" under Federal securities
laws. The Variable Account is registered with the Securities and Exchange
Commission (the "SEC") as a unit investment trust under the Investment Company
Act of 1940. Registration with the SEC does not involve supervision by the SEC
of the management or investment practices or policies of the Variable Account.
However, both NELICO and the Variable Account are subject to regulation by the
Massachusetts Insurance Commissioner and to the insurance laws and regulations
in every jurisdiction where the Policies are sold.
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Although the assets of the Variable Account are owned by NELICO, applicable
law provides that the portion of the Variable Account assets equal to the
reserves and other liabilities of the Variable Account may not be charged with
liabilities that arise out of any other business NELICO may conduct. NELICO
believes this means that the assets of the Variable Account equal to the
reserves and other liabilities of the Variable Account are not available to
meet the claims of NELICO's general creditors, and may only be used to support
the cash values under its variable life insurance policies issued by the
Variable Account. But NELICO may transfer to its general account assets which
exceed the reserves and other liabilities of the Variable Account. Before
making any such transfer, NELICO will consider any possible adverse impact the
transfer might have on the Variable Account.
Income and realized and unrealized capital gains and losses of the Variable
Account are credited to the Variable Account without regard to any of NELICO's
other income or capital gains and losses.
INVESTMENTS OF THE VARIABLE ACCOUNT
The Variable Account currently has 16 sub-accounts, each of which invests in
a series of an Eligible Fund. The sub-accounts of the Variable Account are:
--The Zenith Money Market Sub-Account, which invests in the Back Bay
Advisors Money Market Series of the Zenith Fund
--The Zenith Bond Income Sub-Account, which invests in the Back Bay Advisors
Bond Income Series of the Zenith Fund
--The Zenith Capital Growth Sub-Account, which invests in the Capital Growth
Series of the Zenith Fund
--The Zenith Stock Index Sub-Account, which invests in the Westpeak Stock
Index Series of the Zenith Fund
--The Zenith Managed Sub-Account, which invests in the Back Bay Advisors
Managed Series of the Zenith Fund
--The Zenith Growth and Income Sub-Account, which invests in the Westpeak
Growth and Income Series of the Zenith Fund
--The Zenith 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 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 Davis Venture
Value Series of the Zenith Fund
--The Zenith International Magnum Equity Sub-Account, which invests in the
Morgan Stanley International Magnum Equity Series of the Zenith Fund
--The Equity-Income Sub-Account, which invests in the Equity-Income
Portfolio of the VIP Fund
--The Overseas Sub-Account, which invests in the Overseas Portfolio of the
VIP Fund
--The High Income Sub-Account, which invests in the High Income Portfolio of
the VIP Fund
--The Asset Manager Sub-Account, which invests in the Asset Manager
Portfolio of VIP Fund II
The Zenith Fund is an open-end diversified management investment company,
more commonly known as a mutual fund. The Zenith Fund was established as an
investment vehicle for separate investment accounts of NELICO and of other
life insurance companies. Currently the Zenith Fund is the funding vehicle for
the Variable Account and for separate accounts of NELICO and MetLife that
issue variable annuity contracts.
The VIP Fund and VIP Fund II are open-end, diversified management investment
companies (mutual funds) that serve as the investment vehicles for variable
life insurance and variable annuity separate accounts of various insurance
companies. The VIP Fund and VIP Fund II were organized by Fidelity Management
& Research Company.
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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 Growth and Income Series' investment objective is long-
term total return (capital appreciation and dividend income) through
investment in equity securities. Emphasis will be given to both undervalued
securities ("value" style) and securities of companies with growth potential
("growth" style).
The Zenith Loomis Sayles 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 have market capitalization of less than $1 billion,
have better than average growth rates at below average price/earnings ratios,
and have strong balance sheets and cash flow.
The Zenith Loomis Sayles Balanced Series' investment objective is reasonable
long-term investment return from a combination of long-term capital
appreciation and moderate current income. The Series is "flexibly managed" in
that sometimes it invests more heavily in equity securities and at other times
it invests more heavily in fixed-income securities. The Series invests at
least 25% of its assets in fixed income senior securities and, under normal
market conditions, more than 50% of its assets in common stocks.
The Zenith Morgan Stanley International Magnum Equity Series' investment
objective is long-term capital appreciation through investment primarily in
equity securities of non-U.S. issuers, in accordance with the EAFE country
weightings determined by the Series' sub-adviser. Under normal circumstances
at least 65% of the total assets of the Series will be invested in equity
securities of issuers in at least three countries outside the United States.
The Zenith Davis Venture Value Series' investment objective is growth of
capital. The Series will primarily invest in domestic common stocks that the
Series' subadviser believes have capital growth potential due to factors such
as undervalued assets or earnings potential, product development and demand,
favorable operating ratios,
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<PAGE>
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. Foreign
investments involve greater risks than U.S. investments, including political
and economic risks and the risks of currency fluctuation.
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 Growth and Income,
Zenith Stock Index, Zenith International Magnum 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 have a long-term time horizon and/or are
willing to accept such risks of short term fluctuations in value. For a
demonstration of certain of these market trends, see Appendix C: Long Term
Market Trends. Historically, the investment performance of "small cap" stocks
over the long term has generally been superior to stocks of large
capitalization companies, although "small cap" stocks have been substantially
more volatile than "large cap" stocks. Historically, having a small percentage
of a portfolio invested in overseas stocks and the rest in domestic stocks has
produced a portfolio that has less, although still substantial, volatility
than a completely domestic portfolio. Equity investors should recognize that
overseas and "small cap" funds taken alone traditionally involve more risk
than most domestic stock funds.
The performance of various financial markets over shorter periods of time
has sometimes differed from their long term historical results. Short term
interest rates were very high in the late 1970's and early 1980's, but are now
lower. Long term bond values continue to fluctuate and could lose value if
interest rates rise. Common stock prices, which have risen substantially at
times, have also had periods of significant negative returns. Policy Owners
who seek somewhat greater protection against loss of principal in the short
term than that afforded by a stock fund may prefer the High Income Sub-Account
or the Zenith Bond Income Sub-Account. However, because the High Income
Portfolio invests in higher yielding, lower rated and unrated fixed income
securities (including bonds commonly referred to as "junk" bonds), it has a
higher degree of risk associated with it relative to more conservative fixed
income funds. Those who seek even greater safety of principal may select the
Zenith Money Market Sub-Account, although it is subject to possible rapid
changes in short term interest rates. Those who primarily seek safety of
principal should consider fixed life insurance as an alternative to variable
life insurance.
NELICO guarantees the principal invested in the Fixed Account, although this
guarantee is subject to NELICO's claims paying ability.
You may wish to consider diversifying your investments by allocating the
Policy's cash value among two or more sub-accounts.
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Policy Owners may also diversify by selecting the Zenith Managed Sub-
Account, Zenith Balanced Sub-Account or the Asset Manager Sub-Account, since
each generally invests its assets at most times in a combination of bonds,
stocks and short term instruments, in varying proportions depending upon the
investment adviser's evaluation of the economy and financial markets. The
Asset Manager Portfolio has the ability to invest its stock portfolio more
aggressively than the Back Bay Advisors Managed Series. You may also wish to
diversify your cash value by country. The Overseas Sub-Account and Zenith
International Magnum Equity Sub-Account allow you to participate primarily in
companies and economies outside the United States.
The selection of a Policy's sub-accounts is a matter of your own choice and
should depend on your willingness to accept investment risks, the other types
of investments you have and your own assessment of future economic and
financial market conditions.
INVESTMENT MANAGEMENT
The adviser and sub-adviser for each series of the Zenith Fund are listed in
the chart below. TNE Advisers, which is an indirect, wholly-owned subsidiary
of NELICO, CGM and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<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 Growth and Income 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.*
Morgan Stanley Interna- TNE Advisers, Inc. Morgan Stanley Asset Management,
tional Magnum Equity Inc.
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
</TABLE>
- --------
*An affiliate of NELICO
In the case of the Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series, Back Bay Advisors Managed Series, Westpeak Stock Index
Series, Westpeak Growth and Income Series, 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 served as investment adviser to
the Back Bay Advisors Money Market and Back Bay Advisors Bond Income Series
until September 10, 1986 when Back Bay Advisors assumed The New England's
responsibilities under the investment advisory agreements with those Series.
Back Bay Advisors served as investment adviser to the Westpeak Stock Index
Series until August 2, 1993, when Westpeak became the investment adviser. The
Capital Growth Series was managed by Loomis, Sayles until March 1, 1990, when
its Capital Growth Management Division was reorganized into CGM. The Morgan
Stanley International Magnum Equity Series' sub-adviser was Draycott Partners,
Ltd. until May 1, 1997, when Morgan Stanley Asset Management became the sub-
adviser. For more information about the Series' advisory agreements, see the
Zenith Fund prospectus attached at the end of this prospectus and the Zenith
Fund's Statement of Additional Information.
Fidelity Management & Research Company, the investment adviser for the VIP
Fund and VIP Fund II, is the original Fidelity company and was founded in
1946. It provides a number of mutual funds and other clients with
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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. NELICO 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 NELICO's general account. Because of exemptive and exclusionary provisions
in the Federal securities laws, interests in the Fixed Account have not been
registered under the Securities Act of 1933, and neither the Fixed Account nor
the general account has been registered as an investment company under the
Investment Company Act of 1940. Therefore, neither the Fixed Account, the
general account nor any interests therein are generally subject to the
provisions of these Acts, and NELICO has been advised that the staff of the
SEC does not review disclosures relating to the general account. Disclosures
regarding the Fixed Account may, however, be subject to certain generally
applicable provisions of the Federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
GENERAL DESCRIPTION
NELICO's general account includes all the assets owned by NELICO, other than
the assets in the Variable Account or in any other separate accounts that
NELICO may establish. NELICO has sole discretion over the investment of assets
in the general account, including the Fixed Account. Policy Owners who
allocate cash value to the Fixed Account will not share in the actual
investment experience of the Fixed Account. Instead, NELICO guarantees that
cash values in the Fixed Account will earn interest at an effective annual
rate of at least 4.5%. NELICO may from time to time credit interest at a
higher rate than 4.5%, but it is under no obligation to do so. NELICO declares
the current interest rate for the Fixed Account periodically. Your Policy cash
values that are in the Fixed Account will earn interest daily.
NELICO may vary the way in which it credits interest in the Fixed Account
from time to time. The following is a description of NELICO's current method
for crediting interest to cash value in the Fixed Account. All of your
Policy's cash value in the Fixed Account on a policy anniversary will earn
interest at the declared annual rate in effect on the anniversary. It will
earn interest at this rate until the next policy anniversary, when it will be
credited with the current rate declared by NELICO. (Although NELICO's current
practice is to credit your entire Fixed Account cash value on a policy
anniversary with the most recently declared annual rate until the next
anniversary, NELICO can select any portion, from 0% to 100%, of your Fixed
Account cash value on a policy anniversary to earn interest at the most
recently declared rate until the next policy anniversary.) Any net premiums 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 NELICO'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 NELICO 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 NELICO's most recently declared rate of interest as of the date
of the transfer until the next policy anniversary.
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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 NELICO's general account (but outside of the
Fixed Account) as a result of a policy loan.
The amount of the Policy's cash value in the Fixed Account will be taken
into account in the calculation of the Policy's death benefit in the same
manner as the cash value in the Variable Account. 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
NELICO reserves the right to restrict allocations to the Fixed Account if
the effective annual rate of interest that would apply to the amount allocated
is 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 IF NELICO 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 NELICO'S HOME OFFICE; HOWEVER,
YOU MAY REQUEST A TRANSFER FROM THE FIXED ACCOUNT WITHIN 30 DAYS AFTER A
POLICY ANNIVERSARY IF YOU HAVE NOT REQUESTED SUCH A TRANSFER IN THE 30 DAY
PERIOD BEFORE THE ANNIVERSARY. THE AMOUNT OF CASH VALUE WHICH MAY BE
TRANSFERRED FROM THE FIXED ACCOUNT IS LIMITED TO THE GREATER OF 25% OF THE
POLICY'S CASH VALUE IN THE FIXED ACCOUNT ON THE TRANSFER DATE OR THE AMOUNT OF
CASH VALUE TRANSFERRED FROM THE FIXED ACCOUNT IN THE PRECEDING POLICY YEAR.
Regardless of these limits, if a transfer of cash value from the Fixed Account
would reduce the remaining cash value in the Fixed Account below $100, you may
transfer the entire amount of cash value from the Fixed Account. The total
number of transfers among sub-accounts and from the sub-accounts to the Fixed
Account may not exceed four in one policy year without NELICO's consent.
NELICO currently allows 12 such transfers per policy year. Transfers out of
the Fixed Account will not be counted against this limit. NELICO reserves the
right to restrict transfers of cash value into the Fixed Account, if the
effective annual rate of interest that would apply to the amount transferred
is 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.
NELICO 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 NELICO will not be delayed.
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NELICO'S DISTRIBUTION AGREEMENT
NELICO sells the Policies through agents who are licensed by state insurance
officials to sell NELICO's variable life insurance policies. These agents are
also registered representatives of New England Securities Corporation ("New
England Securities"). New England Securities, a Massachusetts corporation
organized in 1968 and an indirect, wholly-owned subsidiary of NELICO, is
registered with the SEC as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc.
New England Securities, whose principal business address is 399 Boylston
Street, Boston, Massachusetts 02116, serves as the principal underwriter for
the Policies under a Distribution Agreement between NELICO and New England
Securities.
Under the Distribution Agreement, NELICO pays the following sales expenses:
general agent and agency manager's compensation, agents' training allowances,
deferred compensation and insurance benefits of agents, general agents and
agency managers and advertising expenses and all other expenses of
distributing the Policies.
NELICO 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. NELICO 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 NELICO 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.
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
Generally, NELICO can challenge the validity of your Policy or a rider to
your Policy during the insured's lifetime for two years from the date of
issue, based on misrepresentations made in the application. NELICO can
challenge the portion of the death benefit resulting from payment of an
underwritten 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, NELICO 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.
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
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<PAGE>
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 NELICO believes is the Federal income tax treatment of the Policies in
the most commonly occurring circumstances and does not reflect the effect of
Federal income taxes in all situations. In addition, there is no guarantee
that the Federal income tax laws and regulations or interpretation of them
will not change. Therefore, NELICO recommends that you consult your own tax
advisor for more complete information and advice.
DEFINITION OF LIFE INSURANCE. Section 7702 of the Internal Revenue Code
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, NELICO believes that the Policy qualifies as a life insurance
contract for federal income tax purposes. This means that:
. the death benefit should be fully 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.
NELICO thus reserves the right to make changes in the Policy if such changes
are deemed necessary to attempt to assure its qualification as a life
insurance contract for tax purposes.
TAXATION OF ACCELERATED BENEFITS RIDER. NELICO believes that payments
received under the accelerated benefits rider it makes available will qualify
as an accelerated death benefit under the Code. (See "Acceleration of Death
Benefit Rider" for more information regarding the rider.) Pursuant to the
recently enacted Health Insurance Portability and Accountability Act of 1996,
a payment that is treated as an accelerated death benefit for federal income
tax purposes should be fully excludable from the gross income of the
beneficiary, as long as the beneficiary is the insured under the Policy. If
such payments do not qualify as an accelerated death benefit, their tax
treatment would depend on whether or not the Policy is a modified endowment
contract. You should consult a qualified tax adviser about the consequences of
adding this rider to a Policy or requesting a payment under this rider.
TAX LAW EFFECTS ON CERTAIN PRE-DEATH DISTRIBUTIONS. Section 7702A of the
Code contains provisions affecting the tax treatment of any loan, assignment
or other pre-death distribution from a life insurance policy which is also a
"modified endowment contract" (defined below under "Modified Endowment
Contracts"). Whether a Policy will be classified as a modified endowment
contract will depend upon the amount and timing of payments made under the
Policy.
NON-MODIFIED ENDOWMENT CONTRACTS. For Policies not classified as modified
endowment contracts NELICO believes any policy loans received under such
Policies will be treated as indebtedness of the owner and will not be
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<PAGE>
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 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 NELICO's current understanding of the
Federal tax law. As is the case with any provision of the Internal Revenue
Code, there is no assurance that the Internal Revenue Service will agree with
NELICO's interpretation. NELICO will monitor any IRS announcements or rulings
concerning compliance with the 7-pay test.
MATERIAL CHANGES. If a "material change" in the benefits or other Policy
terms occurs under a Policy which has satisfied the 7-pay test, the Policy may
be treated as a new Policy entered into on the day on which the material
change occurred. The Policy will be retested under the 7-pay test, after
making certain adjustments to reflect the Policy's existing cash value. Any
increase in future benefits under the Policy 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 (or limit your reduction of benefits). 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 (including any unpaid interest) are considered distributions even
if the amount borrowed is retained by NELICO 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 NELICO
or its affiliates to the same Policy Owner during any calendar year 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 NELICO believes it complies
fully with such requirements.
In connection with the issuance of the diversification regulations, the
Treasury Department stated that it anticipates the issuance of additional
guidance prescribing the circumstances in which an owner's control of the
investments of a separate account may cause a Policy Owner, rather than the
insurance company, to be treated as the owner of the assets in the separate
account. If a Policy Owner is considered the owner of the assets of the
Separate Account, income and gains from the Account would be included in the
Owner's gross income.
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<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, NELICO does not know what standards will be set
forth in the additional guidance which the Treasury has stated it expects to
be issued. NELICO therefore reserves the right to modify the Policy as
necessary to attempt to prevent the Policy Owner from being considered the
owner of the assets of the Separate Account.
In the event that a Policy is owned by the trustee under a pension or profit
sharing plan, or similar deferred compensation arrangement, the Federal, state
and estate tax consequences of ownership or receipt of proceeds under the
Policy could differ from the principles stated herein. However, if ownership
of such Policy is transferred from the plan to a plan participant (upon
termination of employment, for example), the Policy will be subject to all of
the rules described above relating to Federal tax treatment, including the
rules regarding modified endowment contracts. Policies owned by the trustee
under the plans described above may be subject to restrictions under ERISA.
You should consult a qualified tax advisor regarding any applicable
requirements of ERISA.
If the Policy is 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 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.
NELICO believes that Policies subject to the provisions of the Puerto Rican
tax law will generally receive the same tax treatment, with certain
modifications, 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 NELICO'S INCOME TAXES
Under current Federal income tax law no tax is imposed on NELICO as a result
of the operations of the Variable Account. Thus, no charge is being made
currently to the Variable Account for company Federal income taxes, except for
the charge for federal taxes that is deducted from scheduled premiums and
unscheduled payments. NELICO reserves its rights to charge the Variable
Account for company Federal income taxes in the future.
Under current laws NELICO may incur state and local taxes (in addition to
premium taxes) in several states. At present these taxes are not significant
and, accordingly, NELICO is not currently making a charge for them. If they
increase, however, charges for such taxes attributable to the Variable Account
may be made.
A-44
<PAGE>
MANAGEMENT
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
DIRECTORS OF NELICO
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<C> <S>
Robert A. Shafto Chairman, President and Chief Executive
Officer of NELICO since 1996. Formerly,
Chairman, President and Chief Executive
Officer of The New England 1993-1996;
President and Chief Executive Officer, 1992
to 1993, President and Chief Operating
Officer, 1990 to 1992, of The New England.
Susan C. Crampton Director of NELICO since 1996; serves as
127 Tarbox Road Principal of The Vermont Partnership, a
Jericho, VT 05465 business consulting firm located in Jericho,
Vermont since 1989. Formerly, Director of The
New England 1989-1996.
Edward A. Fox Director of NELICO since 1996; Private
RR Box 67-15 Investor, Harborside, ME. Formerly, Director
Harborside, ME 04642 of The New England 1994-1996; Dean of The
Amos Tuck School of Business Administration
at Dartmouth College from 1990-1994.
George J. Goodman Director of NELICO since 1996; Author,
Adam Smith's Money World television journalist, and editor.
50th Floor Drill Capital
General Motors Building
767 Fifth Avenue
New York, NY 10153
Dr. Paul E. Gray Director of NELICO since 1996; Chairman of the
MIT Corporation of the Massachusetts Institute of
77 Massachusetts Avenue Technology (MIT) since 1990. Formerly,
Cambridge, MA 02139 Director of The New England 1973-1996.
Dr. Evelyn E. Handler Director of NELICO since 1996; Executive
California Academy of Sciences Director and Chief Executive Officer of the
Golden Gate Park California Academy of Sciences since 1994.
San Francisco, CA 94118 Formerly, Director of The New England 1987-
1996; Research Fellow and an Associate of the
Graduate School of Education at Harvard
University and a Senior Fellow at The
Carnegie Foundation for the Advancement of
Teaching, 1991-1994.
Philip K. Howard, Esq. Director of NELICO since 1996; Partner of the
Howard, Darby & Levin law firm of Howard, Darby & Levin in New York
1330 Avenue of the Americas City.
New York, NY 10019
Harry P. Kamen Director of NELICO since 1996; Chairman,
Metropolitan Life President, and Chief Executive Officer of
One Madison Avenue Metropolitan Life Insurance Company since
New York, NY 10010 1995. Formerly, Chairman and CEO of MetLife
1993-1995; Senior Executive Vice President
1991-1993.
Terence Lennon Director of NELICO since 1996; Senior Vice
Metropolitan Life President of Metropolitan Life Insurance
One Madison Avenue Company since 1994. Formerly, Assistant
New York, NY 10010 Deputy Superintendent and Chief Examiner of
the New York Insurance Department 1984-1994.
Bernard A. Leventhal Director of NELICO since 1996; Vice Chairman
Burlington Industries of the Board of Directors of Burlington
1345 Avenue of the Americas Industries, Inc. Formerly, President of the
New York, NY 10105 Burlington Menswear Division since 1978.
Corporate Group Vice President since 1985 and
Director since 1990.
Thomas J. May Director of NELICO since 1996; Chairman,
Boston Edison Company President and Chief Executive Officer of
800 Boylston Street Boston Edison Company since 1994. Formerly,
Boston, MA 02199 Director of The New England 1994-1996;
President and Chief Operating Officer of
Boston Edison Co., 1993-1994; Executive Vice
President 1990-1993.
</TABLE>
A-45
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<C> <S>
Stewart G. Nagler Director of NELICO since 1996. Senior Executive Vice
Metropolitan Life President and Chief Financial Officer of
One Madison Avenue Metropolitan Life Insurance Company since 1986.
New York, NY 10010
Rand N. Stowell Director of NELICO since 1996; President of United
United Timber Corp. Timber Corp. of Dixfield, Maine. Formerly, Director
P.O. Box 650 of The New England 1990-1996.
Pine Street
Dixfield, ME 04224
Alexander B. Trowbridge Director of NELICO since 1996; President of
Trowbridge Partners Inc. Trowbridge Partners, Inc. in Washington, D.C.
1317 F. Street, N.W., Formerly, Director of The New England 1983-1996.
Suite 500
Washington, D.C. 20004
EXECUTIVE OFFICERS OF NELICO
OTHER THAN DIRECTORS
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<C> <S>
Robert A. Shafto See Directors above.
David W. Allen Senior Vice President of NELICO since 1996.
Formerly, Senior Vice President 1994-1996; Vice
President 1990-1994 of The New England.
James P. Bossert Vice President and Controller of NELICO since 1996.
Formerly, Vice President and Controller 1993-1996;
Vice President 1991-1993 of The New England.
Thom A. Faria President, Career Agency System (a business unit of
NELICO) since 1996. Formerly, Executive Vice
President in 1996; Senior Vice President, 1993-
1996; Vice President, 1986-1993 of The New England.
Chester R. Frost Senior Vice President and Treasurer of NELICO since
1996. Formerly, Senior Vice President since 1980
and Treasurer since 1996 of The New England.
Anne M. Goggin Senior Vice President and Associate General Counsel
of NELICO since 1997. Formerly, Vice President and
Counsel of NELICO in 1996; Vice President and
Counsel 1994-1996 and Second Vice President and
Counsel 1988-1994 of The New England.
Edward C. Hall President, New England Services (a business unit of
NELICO) since 1996. Formerly, President, New
England Services (a business unit of The New
England) 1994-1996, Executive Vice President--
Client Services, 1988 to 1994, of The New England.
Daniel D. Jordan Second Vice President, Counsel and Secretary of
NELICO since 1996. Formerly, Counsel and Assistant
Secretary of The New England, 1985-1996.
Richard D. Keidan Senior Vice President of NELICO since 1996.
Formerly, Vice President of Metropolitan Life 1994-
1996 (Chief Marketing Officer of MetLife
Brokerage); Regional Sales and Marketing Manager of
Phoenix Home Life until 1994.
Alan C. Leland, Jr. Senior Vice President of NELICO since 1996.
Formerly, Vice President of The New England 1984-
1996.
Bruce C. Long President, New England Annuities (a business unit of
NELICO) since 1996. Formerly, President, New
England Annuities (a business unit of The New
England) 1994-1996; Senior Vice President, New
England Annuities in 1994; Vice President, Keyport
Life Insurance 1992-1994; General Director, John
Hancock Insurance 1990-1992.
</TABLE>
A-46
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<C> <S>
George J. Maloof Senior Vice President of NELICO since 1996. Formerly,
Vice President of The New England 1991-1996.
Eileen T. McCarthy Senior Vice President of NELICO since 1996. Formerly,
Senior Vice President 1995-1996; Vice President 1989-
1995 of The New England.
Thomas W. McConnell Senior Vice President of NELICO since 1996. Director,
Chief Executive Officer and President of New England
Securities Corporation since 1993. Formerly, National
Sales Manager of Alliance Fund Distributors in 1993;
National Sales Manager of Equitable Capital
Securities 1992-1993.
Thomas W. Moore Senior Vice President of NELICO since 1996. Formerly,
Vice President of The New England 1990-1996.
Robert W. Powell President, Life Brokerage (a business unit of NELICO)
since 1996. Formerly, Officer-In-Charge of MetLife
Brokerage (a subsidiary of Metropolitan Life
Insurance Company) 1994-1996; Marketing Vice
President 1988-1994.
Gregory A. Ross President, TNE Information Services (a business unit
of NELICO) since 1996. Formerly, President, TNE
Information Services (a business unit of The New
England) and Chief Information Officer of The New
England, 1994-1996; Senior Vice President and Chief
Information Officer 1993-1994; Vice President, 1991-
1993 of The New England. President of TNE Information
Services, Inc.
Robert E. Schneider Executive Vice President and Chief Financial Officer
of NELICO since 1996. Formerly, Director, Executive
Vice President and Chief Financial Officer, 1993 to
1996; Executive Vice President and Chief Financial
Officer, 1990-1993, of The New England.
John G. Small, Jr. Senior Vice President of NELICO since 1996. Formerly,
Senior Vice President of The New England 1990-1996.
Ellen D. Sullivan Senior Vice President and Associate General Counsel of
NELICO since 1997. Formerly, Vice President and
Counsel of NELICO in 1996; Vice President and Counsel
1994-1996 and Second Vice President and Counsel 1985-
1994 of The New England.
H. James Wilson Executive Vice President and General Counsel of NELICO
since 1996. Formerly, Executive Vice President and
General Counsel of The New England, 1993-1996; Senior
Vice President and General Counsel, 1992 to 1993,
Senior Vice President and Associate General Counsel,
1990 to 1992, of The New England.
John W. Wright President, New England Employee Benefits Group (a
business unit of NELICO) since 1996. Formerly,
President, New England Employee Benefits Group (a
business unit of The New England), 1993-1996; Senior
Vice President of New England Employee Benefits
Group, 1989-1993 of The New England.
Frederick K. Zimmermann Executive Vice President and Chief Investment Officer
of NELICO since 1996. Formerly, Executive Vice
President and Chief Investment Officer of The New
England 1993-1996; Senior Vice President--
Investments, 1989 to 1993, of The New England.
</TABLE>
The principal business address for each of the directors and executive
officers is the same as NELICO's except where indicated otherwise.
A-47
<PAGE>
VOTING RIGHTS
NELICO is the legal owner of the Eligible Fund shares held in the Variable
Account and has the right to vote those shares at meetings of the Eligible
Fund shareholders. However, to the extent required by applicable Federal
securities law, NELICO will give you, as Policy Owner, the right to instruct
NELICO how to vote the shares that are attributable to your Policy.
The Policy Owners who are entitled to give voting instructions and the
number of shares attributable to their Policies will be determined as of the
record date for the meeting. All Eligible Fund shares held in any sub-account
of the Variable Account, or in any other registered (or to the extent voting
privileges are granted by the issuing insurance company, unregistered)
separate account of NELICO or an affiliate, and for which timely instructions
are not received, will be voted in the same proportion as (i) the aggregate
cash value of policies giving instructions, respectively, to vote for,
against, or withhold votes on a proposition, bears to (ii) the total cash
value in that sub-account for all policies for which voting instructions are
received. No voting privileges apply 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 NELICO or
its affiliates will be voted in the same proportion as the total of (i) shares
for which voting instructions were received and (ii) 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 NELICO believes any Eligible Fund action is insufficient, NELICO
will consider taking other action to protect Policy Owners. There could,
however, be unavoidable delays or interruptions of operations of the Variable
Account that NELICO may be unable to remedy.
If required by state insurance authorities, NELICO may disregard voting
instructions if they would require that shares be voted to cause a change in
the investment objectives of the portfolios of the Eligible Funds or to
approve or disapprove an investment advisory or underwriting contract for a
portfolio. In addition, NELICO may disregard voting instructions in favor of
changes, initiated by a Policy Owner or an Eligible Fund's Board of Trustees,
in the investment policy, investment adviser or principal underwriter of the
Eligible Fund portfolio if NELICO (i) reasonably disapproves of the changes
and (ii) in the case of a change in investment policy or investment adviser,
makes a good faith determination that the proposed change is contrary to state
law or is prohibited by state regulatory authorities or that the change would
be inconsistent with a sub-account's investment objectives or would result in
the purchase of securities which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts of
NELICO or of an affiliated life insurance company, which separate accounts
have investment objectives similar to those of the sub-account. If NELICO does
disregard voting instructions, a summary of that action and the reasons for it
will be included in the next semiannual report to Policy Owners.
A-48
<PAGE>
RIGHTS RESERVED BY NELICO
NELICO and its affiliates may change the voting procedures described above,
and may vote Eligible Fund shares in their own right without instructions from
Policy Owners, if the applicable Federal securities laws or regulations or
interpretations of them change. NELICO also reserves the right: (1) to create
new investment accounts; (2) to combine any two or more separate investment
accounts including the Variable Account; (3) to make available additional sub-
accounts of the Variable Account investing in additional Eligible Fund
portfolios or in portfolios of other mutual funds; (4) to invest the assets of
the Variable Account in securities other than Eligible Fund shares or in
shares of a different series of the Eligible Funds as a substitute for such
shares already purchased or as the securities to be purchased in the future,
to withdraw the availability of a series of the Eligible Funds as an
investment option under the Policies, or to transfer assets to NELICO's
general account as permitted by applicable law; (5) to operate the Variable
Account as a management investment company under the Investment Company Act of
1940 or in any other form permitted by law; and (6) to deregister the Variable
Account under the Investment Company Act of 1940 if registration is no longer
required. NELICO will exercise these rights in accordance with applicable law,
including approval of Policy Owners if required. NELICO will notify you if
exercise of any of these rights would result in a material change in the
Variable Account or its investments.
TOLL-FREE NUMBERS
For information about historical values of the Variable Account sub-
accounts, call the toll-free number 1-800-333-2501.
For sub-account transfers, premium reallocations, or Statements of
Additional Information for the Eligible Funds, call the toll-free number 1-
800-200-2214.
You may also call our Client TeleService Center toll-free at 1-800-388-4000
to request current information about your Policy values, to change or update
Policy information such as your address, billing mode, beneficiary or
ownership, or to request Policy loans of less than $25,000. Requests must be
in writing if the Policy is owned by a corporation or a pension trust.
For all other types of Policy changes, please contact your registered
representative.
REPORTS
Annually (except while the Policy is under a fixed lapse option or a
settlement option), NELICO will send you a statement showing your Policy's
death benefit, cash value and any outstanding policy loan principal. NELICO
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
NELICO may from time to time receive endorsements of the Policies from
professional organizations. NELICO may refer to or use such endorsements in
advertisements or sales material for the Policies. NELICO may also pay the
professional organization making the endorsement for the use of its customer
or mailing lists in order to distribute promotional materials regarding the
Policies. An endorsement of the Policies by a third party is not necessarily
indicative of the future performance or results which may be obtained by
persons who purchase the Policies.
From time to time, articles discussing the Variable Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited 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,
A-49
<PAGE>
reprints or portions of reprints of such articles or rankings may be used by
NELICO as sales literature or advertising material and may include rankings
that indicate the names of other variable contract separate accounts and their
investment experience.
Articles and releases, developed by NELICO, the Eligible Funds and other
parties, about the Variable Account or the Eligible Funds regarding individual
Eligible Funds' and fund groups' asset levels and sales volumes, statistics
and analyses of industry sales volume and asset levels, and other
characteristics may appear in various publications. References to or reprints
of such articles may be used in promotional literature for the Policies or the
Variable Account. Such literature may refer to personnel of the advisers, who
have portfolio management responsibility, and their investment style. The
reference may allude to or include excerpts from articles appearing in the
media.
The advertising and sales literature for the Policies and the Variable
Account may refer to historical, current and prospective economic trends.
In addition, sales literature may be published concerning topics of general
investor interest for the benefit of registered representatives and
prospective Policy Owners. These materials may include, but are not limited
to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by H. James Wilson, General Counsel of NELICO. Sutherland,
Asbill & Brennan, L.L.P., 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 Separate Account of
New England Life Insurance Company ("NELICO") (formerly New England Variable
Life Insurance Company) and the consolidated financial statements of NELICO
and subsidiaries as of and for the year ended December 31, 1996 included in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein (whose reports express
unqualified opinions and, with respect to NELICO, includes an explanatory
paragraph referring to the change in the basis of accounting and the change in
corporate organization), and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. The adjustments that were applied to restate the 1995 and 1994
financial statements to reflect the effects of the changes for adoption of
generally accepted accounting principles and the changes in corporate
organization have also been audited by Deloitte & Touche LLP.
The statutory balance sheets of New England Variable Life Insurance Company
and New England Pension and Annuity Company as of December 31, 1995, and the
related statutory statements of operations, surplus, and cash flows for each
of the two years in the period ended December 31, 1995 (not included herein),
have been incorporated herein in reliance on the reports (which reports
include adverse opinions as to generally accepted accounting principles and
unqualified opinions as to statutory accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware) of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing. The statutory balance sheet of Exeter
Reassurance Company, Ltd. as at December 31, 1995, and the related statutory
statements of income, capital and surplus, and cash flows for the year then
ended (not included herein), have been incorporated herein in reliance on the
report
A-50
<PAGE>
(which report includes an adverse opinion as to generally accepted accounting
principles and an unqualified opinion as to conformity with The Insurance Act
1978, amendments thereto and related regulations) of Coopers & Lybrand,
chartered accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated statement of financial condition of New England Securities
Corporation as of December 31, 1995, and the related consolidated statements
of operations, shareholder's equity, and cash flows for the year then ended
(not included herein); the balance sheet of TNE Advisers, Inc. as of December
31, 1995, and the related statements of operations, changes in shareholder's
equity (deficit), and cash flows for the year ended December 31, 1995 and for
the period August 26, 1994 (commencement of operations) through December 31,
1994 (not included herein), have been incorporated herein in reliance on the
reports of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing. The balance
sheet of Newbury Insurance Company, Limited as of December 31, 1995, and the
related statements of earnings and retained earnings, and cash flows for the
years ended December 31, 1995 and 1994 (not included herein), have been
incorporated herein in reliance on the reports of Coopers & Lybrand, chartered
accountants, given on the authority of that firm as experts in accounting and
auditing.
The statements of operations and changes in net assets of New England
Variable Life Separate Account for the periods ended December 31, 1995 and
1994, have been incorporated herein in reliance on the reports of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Rodney
J. Chandler, F.S.A., M.A.A.A., Second Vice President and Actuary of NELICO, as
stated in his opinion filed as an exhibit to the Registration Statement.
A-51
<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. 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 NELICO 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: (i) deductions 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 and a minimum death
benefit guarantee charge) and a charge for the cost of insurance from the cash
value on the first day of each policy month. The net cash values reflect a
surrender charge 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 illustrations are based on an average of the
investment advisory fees and operating expenses incurred by the Eligible
Funds, at an annual rate of .77% 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".)
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 -
1.36%, 4.56% and 10.48%, respectively, based on NELICO's current charge for
mortality and expense risks, and -1.66%, 4.24% and 10.15%, respectively, based
on NELICO'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 NELICO's Income
Taxes".)
A-52
<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.
NELICO 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, NELICO will also furnish upon
request an illustration for a Policy which is not affected by the sex of the
insured.
A-53
<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 $ 1,477 $ 1,672 $ 1,867 $ 2,984 $ 3,179 $ 3,374 -63.08% -58.21% -53.33%
2 8,610 214,986 214,986 214,986 4,337 4,913 5,512 5,918 6,494 7,093 -34.49 -28.42 -22.41
3 13,240 214,986 214,986 214,986 5,984 7,133 8,376 8,803 9,951 11,194 -30.96 -23.85 -16.93
4 18,102 214,986 214,986 214,986 8,879 10,798 12,959 11,633 13,552 15,713 -22.21 -15.12 -8.26
5 23,208 214,986 214,986 214,986 11,720 14,615 18,007 14,410 17,305 20,696 -17.31 -10.28 -3.48
6 28,568 214,986 214,986 214,986 14,502 18,584 23,561 17,127 21,209 26,186 -14.25 -7.27 -.53
7 34,196 214,986 214,986 214,986 17,208 22,696 29,660 19,768 25,257 32,221 -12.20 -5.25 1.44
8 40,106 214,986 214,986 214,986 19,834 26,954 36,363 22,330 29,450 38,859 -10.76 -3.83 2.83
9 46,311 214,986 214,986 214,986 22,382 31,366 43,734 24,813 33,797 46,166 -9.69 -2.77 3.87
10 52,827 214,986 214,986 214,986 24,843 35,932 51,844 27,210 38,299 54,211 -8.89 -1.96 4.67
15 90,630 214,986 214,986 265,937 38,259 63,793 108,787 38,259 63,793 108,787 -5.87 .76 7.13
20 138,877 214,986 214,986 411,609 48,984 96,892 197,615 48,984 96,892 197,615 -4.95 1.79 8.00
25 200,453 214,986 247,026 604,663 56,516 136,754 336,284 56,516 136,754 336,284 -4.74 2.33 8.40
30 255,835 214,986 257,374 829,710 40,593 162,314 525,668 40,593 162,314 525,668 -5.28 2.63 8.62
<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 17.14
20 8.70 8.70 13.93
25 5.47 6.40 12.07
30 4.10 5.03 10.85
</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 NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-54
<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 $ 1,477 $ 1,672 $ 1,867 $ 2,984 $ 3,179 $ 3,374 -63.08% -58.21% -53.34%
2 8,610 214,986 215,121 215,684 4,337 4,912 5,511 5,918 6,494 7,092 -34.49 -28.42 -22.42
3 13,240 214,986 215,227 216,411 5,984 7,132 8,372 8,803 9,950 11,190 -30.96 -23.85 -16.95
4 18,102 214,986 215,360 217,433 8,879 10,797 12,949 11,633 13,551 15,703 -22.21 -15.13 -8.29
5 23,208 214,986 215,520 218,787 11,720 14,612 17,986 14,410 17,302 20,676 -17.31 -10.29 -3.52
6 28,568 214,986 215,708 220,515 14,502 18,579 23,524 17,127 21,204 26,149 -14.25 -7.27 -.57
7 34,196 214,986 215,911 222,649 17,208 22,689 29,599 19,768 25,249 32,159 -12.20 -5.26 1.39
8 40,106 214,986 216,127 225,235 19,834 26,943 36,263 22,330 29,439 38,758 -10.76 -3.84 2.77
9 46,311 214,986 216,358 228,332 22,382 31,349 43,578 24,813 33,780 46,010 -9.69 -2.78 3.80
10 52,827 214,986 216,604 231,998 24,843 35,908 51,607 27,210 38,275 53,974 -8.89 -1.97 4.58
15 90,630 214,986 218,615 263,615 38,259 63,699 107,837 38,259 63,699 107,837 -5.87 .74 7.03
20 138,877 214,986 224,279 408,466 48,984 96,563 196,106 48,984 96,563 196,106 -4.95 1.76 7.93
25 200,453 214,986 246,010 600,385 56,516 136,192 333,905 56,516 136,192 333,905 -4.74 2.30 8.36
30 255,835 214,986 256,316 823,840 40,593 161,647 521,949 40,593 161,647 521,949 -5.28 2.61 8.58
<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% 5,276.02% 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 53.97
8 42.54 42.66 43.62
9 35.06 35.18 36.26
10 29.47 29.60 30.80
15 14.80 14.99 17.04
20 8.70 9.04 13.87
25 5.47 6.37 12.03
30 4.10 5.01 10.81
</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 NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-55
<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 $ 1,416 $ 1,608 $ 1,801 $ 2,923 $ 3,116 $ 3,309 -64.61% -59.79% -54.96%
2 8,610 214,986 214,986 214,986 4,186 4,752 5,342 5,767 6,333 6,923 -36.13 -30.09 -24.09
3 13,240 214,986 214,986 214,986 5,716 6,838 8,056 8,534 9,657 10,874 -32.75 -25.60 -18.64
4 18,102 214,986 214,986 214,986 8,466 10,333 12,440 11,220 13,087 15,194 -23.89 -16.74 -9.82
5 23,208 214,986 214,986 214,986 11,138 13,942 17,233 13,828 16,631 19,923 -18.91 -11.80 -4.92
6 28,568 214,986 214,986 214,986 13,725 17,662 22,472 16,350 20,287 25,097 -15.79 -8.70 -1.88
7 34,196 214,986 214,986 214,986 16,227 21,497 28,203 18,787 24,057 30,763 -13.68 -6.61 .18
8 40,106 214,986 214,986 214,986 18,640 25,450 34,475 21,136 27,946 36,971 -12.18 -5.11 1.65
9 46,311 214,986 214,986 214,986 20,965 29,526 41,348 23,397 31,957 43,780 -11.06 -3.99 2.76
10 52,827 214,986 214,986 214,986 23,197 33,725 48,883 25,564 36,092 51,250 -10.21 -3.13 3.62
15 90,630 214,986 214,986 247,021 34,777 58,652 101,024 34,777 58,652 101,024 -7.19 -.28 6.27
20 138,877 214,986 214,986 368,232 40,389 84,362 176,746 40,389 84,362 176,746 -7.09 .50 7.06
25 200,453 214,986 214,986 519,196 40,624 113,638 288,679 40,624 113,638 288,679 -7.91 .97 7.42
30 255,835 214,986 214,986 675,611 13,583 126,148 427,930 13,583 126,148 427,930 -12.64 1.28 7.60
<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 16.33
20 8.70 8.70 13.05
25 5.47 5.47 11.14
30 4.10 4.10 9.85
</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 NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-56
<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 $ 1,416 $ 1,608 $ 1,801 $ 2,923 $ 3,116 $ 3,309 -64.61% -59.79% -54.97%
2 8,610 214,986 214,986 215,517 4,186 4,752 5,340 5,767 6,333 6,922 -36.13 -30.09 -24.10
3 13,240 214,986 214,986 216,097 5,716 6,838 8,052 8,534 9,657 10,871 -32.75 -25.60 -18.66
4 18,102 214,986 214,986 216,923 8,466 10,333 12,932 11,220 13,087 15,186 -23.89 -16.74 -9.84
5 23,208 214,986 214,986 218,028 11,138 13,942 17,216 13,828 16,631 19,905 -18.91 -11.80 -4.96
6 28,568 214,986 214,986 219,446 13,725 17,662 22,440 16,350 20,287 25,065 -15.79 -8.70 -1.92
7 34,196 214,986 214,986 221,125 16,227 21,497 28,146 18,787 24,057 30,707 -13.68 -6.61 .13
8 40,106 214,986 214,986 223,380 18,640 25,450 34,383 21,136 27,946 36,879 -12.18 -5.11 1.59
9 46,311 214,986 214,986 225,987 20,965 29,526 41,203 23,397 31,957 43,634 -11.06 -3.99 2.69
10 52,827 214,986 214,986 229,089 23,197 33,725 48,661 25,564 36,092 51,028 -10.21 -3.13 3.53
15 90,630 214,986 214,986 254,277 34,777 58,652 99,926 34,777 58,652 99,926 -7.19 -.28 6.15
20 138,877 214,986 214,986 364,739 40,389 84,362 175,069 40,389 84,362 175,069 -7.09 .50 6.98
25 200,453 214,986 214,986 514,652 40,624 113,638 216,152 40,624 113,638 286,152 -7.91 .97 7.36
30 255,835 214,986 214,986 669,697 13,583 126,148 424,185 13,583 126,148 424,185 -12.64 1.28 7.55
<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%
2 584.82 584.82 585.73
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 43.43
9 35.06 35.06 36.05
10 29.47 29.47 30.58
15 14.80 14.80 16.65
20 8.70 8.70 12.98
25 5.47 5.47 11.08
30 4.10 4.10 9.81
</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 NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-57
<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 $ 3,406 -55.28% -50.38% -45.47%
2 8,610 110,165 110,165 110,165 4,630 5,210 5,814 5,959 6,539 7,143 -31.36 -25.40 -19.48
3 13,241 110,165 110,165 110,165 6,235 7,393 8,647 8,834 9,191 11,245 -29.34 -22.34 -15.51
4 18,103 110,165 110,165 110,165 9,068 11,003 13,184 11,633 13,569 15,749 -21.46 -14.43 -7.60
5 23,208 110,165 110,165 110,165 11,819 14,738 18,161 14,351 17,270 20,694 -17.05 -10.01 -3.20
6 28,568 110,165 110,165 110,165 14,485 18,603 23,631 16,984 21,102 26,130 -14.28 -7.24 -.44
7 34,197 110,165 110,165 110,165 17,065 22,604 29,648 19,531 25,070 32,114 -12.41 -5.35 1.43
8 40,106 110,165 110,165 110,165 19,557 26,749 36,281 21,990 29,182 38,714 -11.08 -4.00 2.78
9 46,312 110,165 110,165 110,165 21,960 31,048 43,608 24,360 33,449 46,008 -10.09 -2.98 3.81
10 52,827 110,165 110,165 112,633 24,269 35,509 51,709 26,636 37,876 54,076 -9.33 -2.18 4.62
15 90,630 110,165 114,951 193,122 37,453 63,657 107,405 37,453 63,637 107,405 -6.16 .73 6.98
20 115,670 110,165 119,844 265,172 29,443 75,580 168,002 29,443 75,580 168,002 -5.55 1.77 7.81
<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 18.25
15 7.28 7.77 13.62
20 4.63 5.27 11.22
</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 NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-58
<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 $110,227 $110,406 $ 1,789 $ 1,985 $ 2,181 $ 3,013 $ 3,209 $ 3,405 -55.28% -50.38% -45.48%
2 8,610 110,165 110,297 110,864 4,630 5,209 5,811 5,959 6,539 7,140 -31.36 -25.41 -19.51
3 13,241 110,165 110,377 111,567 6,235 7,391 8,637 8,834 9,990 11,235 -29.34 -22.35 -15.56
4 18,103 110,165 110,466 112,547 9,068 11,000 13,161 11,633 13,565 15,726 -21.46 -14.44 -7.66
5 23,208 110,165 110,561 113,837 11,819 14,732 18,115 14,351 17,265 20,647 -17.05 -10.02 -3.28
6 28,568 110,165 110,664 115,476 14,485 18,594 23,543 16,984 21,093 26,043 -14.28 -7.25 -.55
7 34,197 110,165 110,774 117,510 17,065 22,589 29,496 19,531 25,055 31,962 -12.41 -5.37 1.30
8 40,106 110,165 110,891 119,984 19,557 26,727 36,030 21,990 29,160 38,463 -11.08 -4.02 2.63
9 46,312 110,165 111,017 122,955 21,960 31,017 43,209 24,360 33,417 45,609 -10.09 -3.00 3.63
10 52,827 110,165 111,149 126,481 24,269 35,466 51,100 26,636 37,833 53,467 -9.33 -2.20 4.41
15 90,630 110,165 114,705 191,220 37,453 63,501 106,347 37,453 63,501 106,347 -6.16 .71 6.87
20 115,670 110,165 119,589 262,562 29,443 75,419 166,347 29,443 75,419 166,347 -5.55 1.75 7.73
<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% 2,655.66% 2,660.15%
2 377.17 377.49 378.83
3 162.27 162.46 163.57
4 94.81 94.98 96.10
5 63.55 63.70 64.93
6 45.97 46.12 47.50
7 34.88 35.03 36.59
8 27.34 27.48 29.25
9 21.92 22.07 24.06
10 17.87 18.02 20.26
15 7.28 7.74 13.51
20 4.63 5.25 11.15
</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 NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-59
<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 $ 2,109 $ 2,945 $ 3,139 $ 3,333 -56.98% -52.14% -47.29%
2 8,610 110,165 110,165 110,165 4,481 5,051 5,645 5,811 6,380 6,974 -32.94 -27.01 -21.11
3 13,241 110,165 110,165 110,165 5,994 7,126 8,355 8,592 9,725 10,953 -30.90 -23.88 -17.04
4 18,103 110,165 110,165 110,165 8,723 10,609 12,739 11,288 13,175 15,304 -22.84 -15.78 -8.91
5 23,208 110,165 110,165 110,165 11,361 14,198 17,532 13,893 16,731 20,065 -18.29 -11.21 -4.36
6 28,568 110,165 110,165 110,165 13,906 17,897 22,780 16,405 20,396 25,279 -15.42 -8.33 -1.49
7 34,197 110,165 110,165 110,165 16,355 21,710 28,532 18,822 24,176 30,999 -13.48 -6.37 .47
8 40,106 110,165 110,165 110,165 18,710 25,644 34,853 21,143 28,077 37,286 -12.09 -4.94 1.89
9 46,312 110,165 110,165 110,165 20,967 29,707 41,810 23,367 32,107 44,210 -11.06 -3.87 2.98
10 52,827 110,165 110,165 110,165 23,122 33,904 49,483 25,489 36,271 51,850 -10.27 -3.03 3.83
15 90,630 110,165 110,165 181,338 34,340 59,425 100,826 34,340 59,425 100,826 -7.37 -.12 6.25
20 115,670 110,165 110,165 235,969 21,153 66,318 149,462 21,153 66,318 149,462 -8.18 .77 6.93
<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 12.92
20 4.63 4.63 10.35
</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 NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-60
<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 $110,335 $ 1,721 $ 1,914 $ 2,108 $ 2,945 $ 3,139 $ 3,333 -56.98% -52.14% -47.30%
2 8,610 110,165 110,165 110,699 4,481 5,051 5,642 5,811 6,380 6,972 -32.94 -27.01 -21.14
3 13,241 110,165 110,165 111,282 5,994 7,126 8,347 8,592 9,725 10,945 -30.90 -23.88 -17.08
4 18,103 110,165 110,165 112,113 8,723 10,609 12,720 11,288 13,175 15,285 -22.84 -15.78 -8.97
5 23,208 110,165 110,165 113,224 11,361 14,198 17,492 13,893 16,731 20,024 -18.29 -11.21 -4.43
6 28,568 110,165 110,165 114,649 13,906 17,897 22,703 16,405 20,396 25,203 -15.42 -8.33 -1.58
7 34,197 110,165 110,165 116,428 16,355 21,710 28,398 18,822 24,176 30,864 -13.48 -6.37 .35
8 40,106 110,165 110,165 118,604 18,710 25,644 34,629 21,143 28,077 37,062 -12.09 -4.94 1.75
9 46,312 110,165 110,165 121,224 20,967 29,707 41,453 23,367 32,107 43,853 -11.06 -3.87 2.81
10 52,827 110,165 110,165 124,342 23,122 33,904 48,930 25,489 36,271 51,297 -10.27 -3.03 3.63
15 90,630 110,165 110,165 179,545 34,340 59,425 99,829 34,340 59,425 99,829 -7.37 -.12 6.13
20 115,670 110,165 110,165 233,636 21,153 66,318 147,984 21,153 66,318 147,984 -8.18 .77 6.86
<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% 2,658.37%
2 377.17 377.17 378.44
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 28.99
9 21.92 21.92 23.78
10 17.87 17.87 19.96
15 7.28 7.28 12.81
20 4.63 4.63 10.28
</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 NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-61
<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 Growth and Income 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-62
<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-
12/31/96 12/31/96
------------------ TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/95 12/31/96 RETURN ANNUAL
- ----------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
Capital Growth*. 37.21% 20.34% 1,391.81% 22.44%
Bond Income..... 20.47 3.98 246.43 9.75
Money Market.... 5.07 4.50 116.55 5.96
<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-
12/31/96 12/31/96
------------------ TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/95 12/31/96 RETURN ANNUAL
- ----------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
Stock Index......................................... 36.10% 21.73% 213.08% 12.53%
Managed............................................. 30.48 14.34 167.21 10.70
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------
4/30/93- 4/30/93-
FOR ONE YEAR ENDING 12/31/96 12/31/96
4/30/93- -------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income........ 13.78% -1.80% 35.65% 17.38% 77.93% 16.99%
Avanti Growth............ 14.28 -.87 29.57 16.90 71.60 15.84
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------
5/2/94- 5/2/94-
FOR ONE YEAR ENDING 12/31/96 12/31/96
5/2/94- -------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 RETURN ANNUAL
- ----------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Small Cap.................. -3.61% 28.08% 29.90% 60.36% 19.37%
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------
10/31/94- 10/31/94-
FOR ONE YEAR ENDING 12/31/96 12/31/96
10/31/94- -------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 RETURN ANNUAL
- ----------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Equity Growth.............. -4.29% 47.81% 12.49% 59.14% 23.89%
Balanced................... -.20 24.05 16.21 43.87 18.26
Venture Value.............. -3.60 38.45 25.08 66.95 26.66
International Magnum Equi-
ty**...................... 2.50 5.60 6.03 14.77 6.56
</TABLE>
* Rates of return reflect the Capital Growth Series' former investment
advisory fee of .50% of average daily net assets for the period through
December 31, 1987 and its current advisory fee schedule thereafter.
** The Morgan Stanley International Magnum Equity Series' sub-adviser was
Draycott Partners until May 1, 1997, when Morgan Stanley Asset Management
became the sub-adviser.
SUB-ACCOUNTS INVESTING IN VARIABLE INSURANCE PRODUCTS FUND
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
10/9/86- -----------------------------------------------------------------------------------------
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<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% 13.59%
<CAPTION>
10/9/86- 10/9/86-
12/31/96 12/31/96
TOTAL EFFECTIVE
SUB-ACCOUNT RETURN ANNUAL
- ----------- -------- ---------
<S> <C> <C>
Equity-Income............ 241.39% 12.75%
- ---------
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
1/28/87- --------------------------------------------------------------------------------
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 12/31/95 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas.......................... -5.90% 7.48% 25.53% -2.26% 7.79% -11.12% 36.53% 1.12% 9.02% 12.53%
<CAPTION>
1/28/87- 1/28/87-
12/31/96 12/31/96
TOTAL EFFECTIVE
SUB-ACCOUNT RETURN ANNUAL
- ----------- -------- ---------
<S> <C> <C>
Overseas.......................... 100.24% 7.25%
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
9/19/85- --------------------------------------------------------------------------------------------------
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<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% 13.35%
<CAPTION>
9/19/85- 9/19/85-
12/31/96 12/31/96
TOTAL EFFECTIVE
SUB-ACCOUNT RETURN ANNUAL
- ----------- -------- ---------
<S> <C> <C>
High Income..... 235.91% 11.34%
<CAPTION>
SUB-ACCOUNT INVESTING IN VARIABLE INSURANCE PRODUCTS FUND II
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------
FOR ONE YEAR ENDING
9/6/89- --------------------------------------------------------------
SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager....................................... .62% 6.08% 21.83% 11.04% 20.51% -6.65% 16.26% 13.91%
<CAPTION>
9/6/89- 9/6/89-
12/31/96 12/31/96
TOTAL EFFECTIVE
SUB-ACCOUNT RETURN ANNUAL
- ----------- -------- ---------
<S> <C> <C>
Asset Manager....................................... 115.11% 11.03%
</TABLE>
A-63
<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
Magnum Equity, Zenith Venture Value, and Zenith Equity Growth Sub-Accounts;
October 9 in the case of the Equity-Income Sub-Account; January 28 in the case
of the Overseas Sub-Account; April 30 in the case of the Zenith Growth and
Income and Zenith 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
Magnum Equity, Zenith Venture Value, and Zenith Equity Growth Sub-Accounts;
October 9 in the case of the Equity-Income Sub-Account; January 28 in the case
of the Overseas Sub-Account; April 30 in the case of the Zenith Growth and
Income and Zenith 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
NELICO'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
December 31, 1996....... 56,000 214,986 505,008 189,197 188,448 16.31 28.69
</TABLE>
A-64
<PAGE>
<TABLE>
ZENITH BOND 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>
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
December 31, 1996....... 56,000 214,986 214,986 81,754 81,005 5.22 17.98
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
December 31, 1996....... 56,000 214,986 214,986 59,971 59,221 .81 17.98
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
December 31, 1996....... 40,000 214,986 214,986 66,559 64,171 8.94 31.03
</TABLE>
A-65
<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
December 31, 1996....... 40,000 214,986 214,986 57,505 55,117 6.10 31.03
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
December 31, 1996....... 16,000 214,986 214,986 17,729 14,959 -3.08 161.08
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
December 31, 1996....... 16,000 214,986 214,986 18,319 15,549 -1.31 161.08
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%
December 31, 1996....... 12,000 214,986 214,986 13,360 10,520 -7.72 302.84
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%
December 31, 1996....... 12,000 214,986 214,986 11,824 8,957 -23.78 477.27
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%
December 31, 1996....... 12,000 214,986 214,986 11,730 8,863 -24.59 477.27
</TABLE>
A-66
<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%
December 31, 1996....... 12,000 214,986 214,986 12,840 9,973 -15.33 477.27
ZENITH INTERNATIONAL MAGNUM 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%
December 31, 1996....... 12,000 214,986 214,986 10,444 7,578 -36.30 477.27
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
December 31, 1996....... 44,000 214,986 214,986 74,170 71,921 9.07 28.32
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
December 31, 1996....... 40,000 214,986 214,986 48,022 45,655 2.42 29.82
</TABLE>
A-67
<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
December 31, 1996....... 48,000 214,986 214,986 75,160 73,424 7.11 23.91
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
December 31, 1996....... 32,000 214,986 214,986 38,032 35,493 2.70 48.89
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
December 31, 1996....... 56,000 110,165 360,762 185,272 184,523 16.04 24.49
</TABLE>
A-68
<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
December 31, 1996....... 56,000 110,165 154,224 81,256 80,506 5.13 13.74
</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
December 31, 1996....... 56,000 110,165 113,427 59,848 59,098 0.78 9.74
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
December 31, 1996....... 40,000 110,165 143,478 66,299 63,921 8.87 23.66
</TABLE>
A-69
<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
December 31, 1996....... 40,000 110,165 123,744 57,301 54,923 6.04 20.97
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
December 31, 1996....... 16,000 110,165 110,165 17,788 15,215 -2.31 109.86
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
December 31, 1996....... 16,000 110,165 110,165 18,379 15,806 -.56 109.86
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%
December 31, 1996....... 12,000 110,165 110,165 13,429 10,820 -6.10 202.55
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%
December 31, 1996....... 12,000 110,165 110,165 11,885 9,262 -21.18 308.47
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%
December 31, 1996....... 12,000 110,165 110,165 11,788 9,165 -22.00 308.47
</TABLE>
A-70
<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%
December 31, 1996....... 12,000 110,165 110,165 12,907 10,284 -12.86 308.47
ZENITH INTERNATIONAL MAGNUM 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%
December 31, 1996....... 12,000 110,165 110,165 10,491 7,868 -33.55 308.47
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
December 31, 1996....... 44,000 110,165 155,135 73,670 71,422 8.95 22.52
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
December 31, 1996....... 40,000 110,165 110,165 47,711 45,344 2.30 18.09
</TABLE>
A-71
<PAGE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 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
December 31, 1996....... 48,000 110,165 149,494 74,650 72,914 7.00 18.32
</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
December 31, 1996....... 32,000 110,165 110,165 37,927 35,472 2.69 31.54
</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-72
<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
Magnum Equity, Zenith Venture Value and Zenith Equity Growth Sub-Accounts;
October 9 in the case of the Equity-Income Sub-Account; January 28 in the case
of the Overseas Sub-Account; April 30 in the case of the Zenith Growth and
Income and Zenith 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
Magnum Equity, Zenith Venture Value and Zenith Equity Growth Sub-Accounts;
October 9 in the case of the Equity-Income Sub-Account; January 28 in the case
of the Overseas Sub-Account; April 30 in the case of the Zenith Growth and
Income and Zenith 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
NELICO'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
December 31, 1996....... 56,000 214,986 501,805 187,997 187,248 16.23 28.61
</TABLE>
A-73
<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
December 31, 1996....... 56,000 214,986 241,984 81,088 80,339 5.10 19.47
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
December 31, 1996....... 56,000 214,986 220,575 59,784 59,034 .77 18.30
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
December 31, 1996....... 40,000 214,986 246,249 66,249 63,861 8.85 33.52
</TABLE>
A-74
<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
December 31, 1996....... 40,000 214,986 236,986 57,286 54,897 6.03 32.82
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
December 31, 1996....... 16,000 214,986 219,677 17,712 14,942 -3.13 162.88
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
December 31, 1996....... 16,000 214,986 220,376 18,302 15,532 -1.36 163.15
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%
December 31, 1996....... 12,000 214,986 218,212 13,353 10,513 -7.75 305.36
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%
December 31, 1996....... 12,000 214,986 216,951 11,818 8,951 -23.83 479.94
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%
December 31, 1996....... 12,000 214,986 216,859 11,726 8,859 -24.62 479.81
</TABLE>
A-75
<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%
December 31, 1996....... 12,000 214,986 217,966 12,833 9,966 -15.38 481.31
ZENITH INTERNATIONAL MAGNUM 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%
December 31, 1996....... 12,000 214,986 215,576 10,443 7,576 -36.32 478.07
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
December 31, 1996....... 44,000 214,986 249,250 73,789 71,541 8.98 30.69
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
December 31, 1996....... 40,000 214,986 226,085 47,894 45,527 2.37 30.71
</TABLE>
A-76
<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
December 31, 1996....... 48,000 214,986 244,389 74,705 72,969 7.01 25.87
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
December 31, 1996....... 32,000 214,986 225,331 37,948 35,409 2.64 50.14
</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
December 31, 1996....... 56,000 110,165 358,107 183,909 183,159 15.95 24.39
</TABLE>
A-77
<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
December 31, 1996....... 56,000 110,165 152,599 80,400 79,650 4.98 13.61
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
December 31, 1996....... 56,000 110,165 114,877 59,414 58,665 .68 9.91
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
December 31, 1996....... 40,000 110,165 142,134 65,679 63,301 8.69 23.49
</TABLE>
A-78
<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
December 31, 1996....... 40,000 110,165 131,455 56,767 54,389 5.85 22.07
ZENITH AVANTI GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 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
December 31, 1996....... 16,000 110,165 114,811 17,750 15,176 -2.42 112.79
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
December 31, 1996....... 16,000 110,165 115,511 18,341 15,767 -.67 113.22
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%
December 31, 1996....... 12,000 110,165 113,389 13,414 10,805 -6.18 206.39
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%
December 31, 1996....... 12,000 110,165 112,131 11,872 9,249 -21.29 312.31
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%
December 31, 1996....... 12,000 110,165 112,038 11,779 9,156 -22.08 312.13
</TABLE>
A-79
<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%
December 31, 1996....... 12,000 110,165 113,152 12,892 10,269 -12.97 314.29
ZENITH INTERNATIONAL MAGNUM 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%
December 31, 1996....... 12,000 110,165 110,747 10,488 7,865 -33.58 309.61
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
December 31, 1996....... 44,000 110,165 153,887 73,077 70,829 8.80 22.38
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
December 31, 1996....... 40,000 110,165 120,567 47,387 45,020 2.17 19.67
</TABLE>
A-80
<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
December 31, 1996....... 48,000 110,165 148,070 73,939 72,203 6.84 18.17
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
December 31, 1996....... 32,000 110,165 120,152 37,720 35,265 2.53 33.75
</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-81
<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 52 20-year time periods beginning in 1926 and ending in 1996 (i.e.
1926-1945, 1927-1946, and so on through 1977-1996):
--The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 49 of the 52 periods.
--The average annual return of common stocks surpassed that of U.S. Treasury
bills in each of the 52 periods.
--Common stock average annual returns exceeded the average annual rate of
inflation in each of the 52 periods.
Over the 42 30-year time periods beginning in 1926 and ending in 1996, 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 42
periods.
From 1926 through 1996 the average annual return for common stocks was
10.7%, compared to 5.6% 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 1997 Yearbook (TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
A-82
<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 1996.
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.......................... 28% 4% 11% 7% 11% 38%
5 years......................... 10% 15% 15% 31% 19% 9%
10 years........................ 3% 10% 34% 24% 26% 2%
20 years........................ 0% 6% 32% 56% 6% 0%
</TABLE>
- --------
Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook (TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
A-83
<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-84
<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-85
<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-86
<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 TREATMENT OF LIFE INSURANCE PRODUCTS AND
OTHER RETIREMENT SAVINGS PLANS
<TABLE>
<CAPTION>
CASH-VALUE
LIFE NON-QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
---------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as 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-87
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT ACCOUNTANTS
To the Policy Owners and Board of Directors of New England Life Insurance
Company:
We have audited the accompanying statement of assets and liabilities of the
New England Variable Life Separate Account (comprised of Capital Growth Sub-
Account, Bond Income Sub-Account, Money Market Sub-Account, Stock Index Sub-
Account, Managed Sub-Account, Avanti Growth Sub-Account, Growth and Income
Sub-Account (formerly Value Growth Sub-Account), Small Cap Sub-Account, U.S.
Government Sub-Account, Balanced Sub-Account, Equity Growth Sub-Account,
International Equity Sub-Account, Venture Value Sub-Account, Bond
Opportunities Sub-Account, Equity-Income Sub-Account, Overseas Sub-Account,
High Income Sub-Account and Asset Manager Sub-Account) of New England Life
Insurance Company (formerly New England Variable Life Insurance Company) as of
December 31, 1996, and the related statements of operations and changes in net
assets for the year then ended for all Sub-Accounts, except for U.S.
Government Sub-Account and Bond Opportunities Sub-Account which are for the
period July 1, 1996 (Commencement of Operations) through December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. The financial statements of New England Variable Life
Separate Account for the years ended December 31, 1995 and 1994 were audited
by other auditors whose report, dated February 6, 1996, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the respective aforementioned
sub-accounts comprising the New England Variable Life Separate Account of New
England Life Insurance Company as of December 31, 1996, and the results of
their operations and changes in their net assets for the period then ended, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 18, 1997
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Policy Owners and Board of Directors of New England Variable Life
Separate Account of New England Variable Life Insurance Company:
We have audited the statements of operations and changes in net assets of New
England Variable Life Separate Account, comprised of Capital Growth Sub-
Account, Bond Income Sub-Account, Money Market Sub-Account, Stock Index Sub-
Account, Managed Sub-Account, Avanti Growth Sub-Account, Value Growth Sub-
Account, Small Cap Sub-Account, Equity-Income Sub-Account, Overseas Sub-
Account, High Income Sub-Account and Asset Manager Sub-Account for each of the
periods ended December 31, 1995 and 1994, and also comprised of the Balanced
Sub-Account, Equity Growth Sub-Account, International Equity Sub-Account, and
Venture Value Sub-Account for the period May 1, 1995 (commencement of
operations) through December 31, 1995, of New England Variable Life Insurance
Company. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 statements of operation and
changes in net assets are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of operation and changes in net assets. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statements
of operation and changes in net assets. We believe that our audits of the
statements of operation and changes in net assets provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and changes in net assets of
the respective aforementioned sub-accounts comprising New England Variable
Life Separate Account of New England Variable Life Insurance Company for each
of the aforementioned periods ending December 31, 1995 and 1994, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1996
F-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-3
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2)......................... $583,330,618 $36,866,420 $32,121,040 $35,364,494 $31,136,621 $26,636,623 $20,118,907
<CAPTION>
SHARES COST
--------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth
Series......... 1,365,890 $445,321,213
Back Bay
Advisors Bond
Income Series.. 349,015 36,825,901
Back Bay
Advisors Money
Market Series.. 321,210 32,121,040
Westpeak Stock
Index Series... 295,640 27,731,481
Back Bay
Advisors
Managed Series. 182,770 24,998,992
Loomis Sayles
Avanti Growth
Series......... 168,672 21,813,307
Westpeak Growth
and Income
Series......... 132,562 17,011,817
Loomis Sayles
Small Cap
Series......... 173,260 21,938,318
Salomon Bros.
U.S. Government
Series......... 4,330 47,709
Loomis Sayles
Balanced
Series......... 277,182 3,519,191
Alger Equity
Growth Series.. 1,694,286 24,312,591
Draycott
International
Equity Series.. 441,122 4,844,072
Davis Venture
Value Series... 1,191,836 16,778,624
Salomon Bros.
Bond
Opportunities
Series......... 2,345 28,407
VIP Equity-
Income Series.. 3,994,844 67,601,587
VIP Overseas
Series......... 3,251,652 51,758,903
VIP High Income
Series......... 370,017 4,270,016
VIP II Asset
Manager Series. 244,107 3,585,079
Amount due and accrued (payable) from
policy-related transactions, net....... 378,429 37,297 1,495,891 73,267 36,326 69,074 23,180
Dividends receivable.................... -- -- 135,927 -- -- -- --
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total Assets......................... 583,709,047 36,903,717 33,752,858 35,437,761 31,172,947 26,705,697 20,142,087
LIABILITIES
Due New England Life Insurance Company.. 58,709,427 4,152,861 3,940,579 4,110,599 2,587,943 4,214,337 2,970,391
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities.................... 58,709,427 4,152,861 3,940,579 4,110,599 2,587,943 4,214,337 2,970,391
------------ ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES................................ $524,999,620 $32,750,856 $29,812,279 $31,327,162 $28,585,004 $22,491,360 $17,171,696
============ =========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- -------------------------------------------------------------------------- ------------- -----------------------------------
SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------- ----------- ----------- ----------- ------------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$24,997,883 $46,890 $3,755,816 $26,396,980 $4,980,263 $19,176,647 $27,254 $84,011,576 $61,261,119 $4,632,616
49,863 (56) 446 33,786 (6,452) 90,311 -- 39,225 91,476 388
-- -- -- -- -- -- -- -- -- --
- ----------- ------- ---------- ----------- ---------- ----------- ------- ----------- ----------- ----------
25,047,746 46,834 3,756,262 26,430,766 4,973,811 19,266,958 27,254 84,050,801 61,352,595 4,633,004
3,525,015 797 522,853 4,360,484 735,836 2,604,988 486 11,691,229 9,943,254 534,363
- ----------- ------- ---------- ----------- ---------- ----------- ------- ----------- ----------- ----------
3,525,015 797 522,853 4,360,484 735,836 2,604,988 486 11,691,229 9,943,254 534,363
- ----------- ------- ---------- ----------- ---------- ----------- ------- ----------- ----------- ----------
$21,522,731 $46,037 $3,233,409 $22,070,282 $4,237,975 $16,661,970 $26,768 $72,359,572 $51,409,341 $4,098,641
=========== ======= ========== =========== ========== =========== ======= =========== =========== ==========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ------------ --------------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
- ------------ --------------
<S> <C>
$4,132,726 $ 998,994,493
(5,236) 2,407,215
-- 135,927
- ------------ --------------
4,127,490 1,001,537,635
547,395 115,152,837
- ------------ --------------
547,395 115,152,837
- ------------ --------------
$3,580,095 $ 886,384,798
============ ==============
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends............... $32,991,113 $2,579,133 $1,306,712 $ 841,454 $2,942,415 $1,494,679 $1,804,344
EXPENSE
Mortality and expense
risk charge (Note 3)... 2,981,244 192,456 160,903 168,590 158,607 137,775 100,738
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment income
(loss)................. 30,009,869 2,386,677 1,145,809 672,864 2,783,808 1,356,904 1,703,606
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period.... 71,963,590 997,195 -- 2,853,587 5,216,548 2,881,100 2,105,777
End of period.......... 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net change in unrealized
appreciation
(depreciation)......... 66,045,815 (956,676) -- 4,779,426 921,081 1,942,216 1,001,313
Net realized gain (loss)
on investments......... 985,421 299 -- 1,808 69,775 27,429 18,964
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments......... 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277
----------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $97,041,105 $1,430,300 $1,145,809 $5,454,098 $3,774,664 $3,326,549 $2,723,883
=========== ========== ========== ========== ========== ========== ==========
</TABLE>
* For the period July 1, 1996 (Commencement of Operations) through December 31,
1996.
See Notes to Financial Statements
F-6
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
------------------------------------------------------------------------------------------------------------------------------
SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------ ----------- ----------- ------------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,624,708 $ 702 $104,939 $ 44,863 $ 71,347 $ 444,012 $ 1,218 $ 2,662,990 $1,164,550 $199,463
90,146 28 11,713 104,685 19,385 64,656 40 428,473 325,346 19,551
---------- ----- -------- ---------- -------- ---------- ------- ----------- ---------- --------
1,534,562 674 93,226 (59,822) 51,962 379,356 1,178 2,234,517 839,204 179,912
768,552 -- 3,769 65,901 24,089 171,931 -- 9,642,454 4,022,725 167,043
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600
---------- ----- -------- ---------- -------- ---------- ------- ----------- ---------- --------
2,291,013 (819) 232,856 2,018,488 112,102 2,226,092 (1,153) 6,767,535 5,479,491 195,557
31,570 -- 2,318 11,723 159 4,907 -- 27,750 44,049 1,942
---------- ----- -------- ---------- -------- ---------- ------- ----------- ---------- --------
2,322,583 (819) 235,174 2,030,211 112,261 2,230,999 (1,153) 6,795,285 5,523,540 197,499
---------- ----- -------- ---------- -------- ---------- ------- ----------- ---------- --------
$3,857,145 $(145) $328,400 $1,970,389 $164,223 $2,610,355 $ 25 $ 9,029,802 $6,362,744 $377,411
========== ===== ======== ========== ======== ========== ======= =========== ========== ========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------- ------------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
- ----------- ------------
<S> <C>
$174,907 $ 50,453,549
20,483 4,984,819
- ----------- ------------
154,424 45,468,730
269,255 101,153,516
547,647 194,486,245
- ----------- ------------
278,392 93,332,729
4,122 1,232,236
- ----------- ------------
282,514 94,564,965
- ----------- ------------
$436,938 $140,033,695
=========== ============
</TABLE>
See Notes to Financial Statements
F-7
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND 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
F-8
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
------------------------------------------------------------------------------ ----------------------------------- -----------
GROWTH
AND SMALL EQUITY INTERNATIONAL VENTURE EQUITY- HIGH ASSET
INCOME 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
F-9
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT*
------------ ---------- -------- ---------- --------- ------- ------- --------
<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
F-10
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-11
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment income
(loss)................. $ 30,009,869 $ 2,386,677 $ 1,145,809 $ 672,864 $ 2,783,808 $ 1,356,904 $ 1,703,606
Net realized and
unrealized gain (loss)
on investments......... 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ 97,041,105 1,430,300 1,145,809 5,454,098 3,774,664 3,326,549 2,723,883
FROM POLICY-RELATED
TRANSACTIONS
Net premiums transferred
from New England Life
Insurance Company (Note
4)..................... 111,194,198 8,517,031 79,806,482 6,566,717 5,631,293 7,140,375 5,201,936
Net transfers (to) from
other sub-accounts..... (1,541,352) 1,894,963 (61,482,739) 5,875,439 1,412,522 2,859,556 2,274,270
Net transfers to New
England Life Insurance
Company................ (76,528,987) (5,770,575) (9,089,129) (5,144,242) (4,232,475) (5,172,577) (3,338,871)
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase in net
assets resulting from
policy related
transactions........... 33,123,859 4,641,419 9,234,614 7,297,914 2,811,340 4,827,354 4,137,335
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase in net
assets................. 130,164,964 6,071,719 10,380,423 12,752,012 6,586,004 8,153,903 6,861,218
NET ASSETS, AT BEGINNING
OF THE PERIOD.......... 394,834,656 26,679,137 19,431,856 18,575,150 21,999,000 14,337,457 10,310,478
------------ ----------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT END OF
THE PERIOD............. $524,999,620 $32,750,856 $ 29,812,279 $31,327,162 $28,585,004 $22,491,360 $17,171,696
============ =========== ============ =========== =========== =========== ===========
</TABLE>
* For the period July 1, 1996 (Commencement of Operations) through December 31,
1996.
See Notes to Financial Statements
F-12
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
- ----------- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$1,534,562 $ 674 $ 93,226 $ (59,822) $ 51,962 $ 379,356 $ 1,178
2,322,583 (819) 235,174 2,030,211 112,261 2,230,999 (1,153)
- ----------- ------- ---------- ----------- ----------- ----------- -------
3,857,145 (145) 328,400 1,970,389 164,223 2,610,355 25
5,440,860 -- 811,932 9,286,073 1,454,605 4,876,053 --
10,060,122 46,951 2,383,695 11,496,667 2,908,047 9,510,686 27,190
(4,380,392) (769) (708,829) (6,395,345) (1,242,748) (3,721,564) (447)
- ----------- ------- ---------- ----------- ----------- ----------- -------
11,120,590 46,182 2,486,798 14,387,395 3,119,904 10,665,175 26,743
- ----------- ------- ---------- ----------- ----------- ----------- -------
14,977,735 46,037 2,815,198 16,357,784 3,284,127 13,275,530 26,768
6,544,996 -- 418,211 5,712,498 953,848 3,386,440 --
- ----------- ------- ---------- ----------- ----------- ----------- -------
$21,522,731 $46,037 $3,233,409 $22,070,282 $ 4,237,975 $16,661,970 $26,768
=========== ======= ========== =========== =========== =========== =======
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------- ------------ --------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
- ------------- ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
$ 2,234,517 $ 839,204 $ 179,912 $ 154,424 $ 45,468,730
6,795,285 5,523,540 197,499 282,514 94,564,965
- ------------- ------------- ------------ ------------ --------------
9,029,802 6,362,744 377,411 436,938 140,033,695
20,426,731 17,135,189 970,763 1,258,847 285,719,085
9,029,810 1,051,463 1,631,762 560,948 --
(13,479,623) (11,522,274) (623,788) (649,631) (152,002,266)
- ------------- ------------- ------------ ------------ --------------
15,976,918 6,664,378 1,978,737 1,170,164 133,716,819
- ------------- ------------- ------------ ------------ --------------
25,006,720 13,027,122 2,356,148 1,607,102 273,750,514
47,352,852 38,382,219 1,742,493 1,972,993 612,634,284
- ------------- ------------- ------------ ------------ --------------
$ 72,359,572 $ 51,409,341 $4,098,641 $3,580,095 $ 886,384,798
============= ============= ============ ============ ==============
</TABLE>
See Notes to Financial Statements
F-13
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<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 OPERATING
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
resulting from
operations............ 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 Life
Insurance Company (Note
4)..................... 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 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
resulting 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
F-14
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ------------------------------------------------------------------------------- -------------------------------------
GROWTH
AND SMALL EQUITY INTERNATIONAL VENTURE EQUITY- HIGH
INCOME CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME
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>
$ 554,063 $ 340,269 $ 16,795 $ 183,750 $ 10,295 $ 79,465 $ 2,050,693 $ 42,267 $ 1,773
2,113,352 765,215 3,992 66,138 24,055 172,134 9,553,884 3,794,109 169,647
- ----------- ----------- -------- ----------- --------- ---------- ----------- ----------- ----------
2,667,415 1,105,484 20,787 249,888 34,350 251,599 11,604,577 3,836,376 171,420
3,473,273 2,237,626 81,978 1,048,361 241,835 625,044 13,985,879 17,076,602 395,370
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
(2,568,808) (1,803,085) (94,428) (1,321,495) (271,101) (718,702) (9,853,532) (8,392,295) (358,576)
- ----------- ----------- -------- ----------- --------- ---------- ----------- ----------- ----------
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
- ----------- ----------- -------- ----------- --------- ---------- ----------- ----------- ----------
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
4,092,981 190,830 -- -- -- -- 19,132,167 27,868,832 30,422
- ----------- ----------- -------- ----------- --------- ---------- ----------- ----------- ----------
$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
=========== =========== ======== =========== ========= ========== =========== =========== ==========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ------------ --------------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
- ------------ --------------
<S> <C>
$ 2,359 $ 64,061,749
275,419 95,415,706
- ------------ --------------
277,778 159,477,455
696,227 202,985,540
1,507,606 --
(709,312) (115,320,001)
- ------------ --------------
1,494,521 87,665,539
- ------------ --------------
1,772,299 247,142,994
200,694 365,491,290
- ------------ --------------
$1,972,993 $ 612,634,284
============ ==============
</TABLE>
See Notes to Financial Statements
F-15
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------
CAPITAL BOND STOCK GROWTH SMALL
GROWTH INCOME MONEY INDEX AVANTI AND CAP
SUB- SUB- MARKET SUB- MANAGED GROWTH INCOME SUB-
ACCOUNT ACCOUNT SUB- ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ACCOUNT*
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
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
resulting from
operations...... (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 Life
Insurance Company
(Note 4)......... 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 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 resulting
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 OPERATING
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
resulting from
operations...... 650,232 (503,803) 207 (1,537) (24,408,254)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England Life
Insurance Company
(Note 4)......... 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 Life
Insurance
Company.......... (4,905,512) (8,836,370) (5,935) (30,973) (89,600,956)
------------ ------------ --------- ---------- -------------
Increase in net
assets resulting
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
F-16
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS. New England Variable Life Separate Account (the
"Account") of New England Life Insurance Company ("NELICO"), formerly New
England Variable Life Insurance Company ("NEVLICO"), was established by
NELICO's Board of Directors on January 31, 1983 in accordance with the
regulations of the Delaware Insurance Department and is now operating in
accordance with the regulations of the Commonwealth of Massachusetts Division
of Insurance. The Account is registered as a unit investment trust under the
Investment Company Act of 1940. The assets of the Account are owned by NELICO.
The net assets of the Account are restricted from use in the ordinary business
of NELICO.
Effective with the merger on August 30, 1996 of New England Mutual Life
Insurance Company ("NEMLICO") and Metropolitan Life Insurance Company ("MLI"),
NEMLICO ceased to exist, with MLI the surviving company of the merger. NELICO
then became an indirect wholly-owned subsidiary of MLI.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. SUB-ACCOUNTS. The Account has eighteen investment sub-accounts each of
which invest in the shares of one portfolio of the New England Zenith Fund
("Zenith Fund"), the Variable Insurance Products Fund or the Variable
Insurance Products Fund II. The portfolios of the Zenith Fund, the Variable
Insurance Products Fund and the Variable Insurance Products Fund II in which
the sub-accounts invest are referred to herein as the "Eligible Funds". The
Zenith Fund, the Variable Insurance Products Fund and the Variable Insurance
Products Fund II are diversified, open-end management investment companies.
The Account purchases or redeems shares of the eighteen Eligible Funds based
on the amount of net premiums invested in the Account, transfers among the
sub-accounts, policy loans, surrender payments, and death benefit payments.
The values of the shares of the Eligible Funds are determined as of the close
of the New York Stock Exchange (normally 4:00 p.m. EST) on each day the
Exchange is open for trading. Realized gains and losses on the sale of
Eligible Funds' shares are computed on the basis of identified cost on the
trade date. Income from dividends is recorded on the ex-dividend date. Charges
for investment advisory fees and other expenses are reflected in the carrying
value of the assets of the Eligible Funds.
3. MORTALITY AND EXPENSE RISK CHARGES. NELICO charges the Account for the
mortality and expense risk NELICO assumes. The mortality risk assumed by
NELICO is the risk that insureds may live for shorter periods of time than
NELICO estimated when setting its cost of insurance charges. The expense risk
assumed by NELICO is the risk that the deductions for sales and administrative
charges may prove insufficient to cover actual cost. If these deductions are
insufficient to cover the cost of the mortality and expense risk assumed by
NELICO, NELICO absorbs the resulting losses and makes sufficient transfers to
the Fund from its general assets. Conversely, if those deductions are more
than sufficient after the establishment of any contingency reserves deemed
prudent or required by law, the excess is retained by NELICO. Currently, the
charges are made daily at an annual rate of .35% of the Account assets
attributable to fixed premium ("Zenith Life") variable policies, .45% of the
Account assets attributable to single premium ("Zenith Life One") variable
life policies, .60% of the Account assets attributable to variable ordinary
("Zenith Life Plus" 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 Account assets attributable to flexible
premium ("Zenith Flexible Life") variable policies. For the modified single
premium ("American Gateway") variable life policies mortality and expense risk
charges are not charged against the sub-account assets but are deducted from
the policy cash values monthly at an annual rate of .90%.
4. NET PREMIUM TRANSFERS AND DEDUCTIONS FROM CASH VALUE. Certain deductions
are made from each premium payment paid to NELICO to arrive at a net premium
that is transferred to the Account. Certain deductions are made from cash
values in the sub-accounts. These deductions, depending on the policy, could
include sales loads,
F-17
<PAGE>
administrative charges, premium tax charges, risk charges, cost of insurance
charges, and charges for rider benefits and special risk charges.
5. FEDERAL INCOME TAXES. For federal income tax purposes the Account's
operations are included with those of NELICO. NELICO intends to make
appropriate charges against the Account in the future if and when tax
liabilities arise.
6. INVESTMENT ADVISERS. The adviser and sub-adviser for each series of the
Zenith Fund are listed in the chart below. TNE Advisers, Inc. which is a
subsidiary of NELICO, and each of the sub-advisers are registered with the SEC
as investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------------------------- ---------------------------------------
<S> <C> <C>
Capital Growth Capital Growth
Management, L.P. ("CGM")*
Back Bay Advisors Money TNE Advisers, Inc.** Back Bay Advisors, L.P.*
Market
Back Bay Advisors Bond TNE Advisers, Inc.** Back Bay Advisors, L.P.*
Income
Back Bay Advisors TNE Advisers, Inc.** Back Bay Advisors, L.P.*
Managed
Westpeak Stock Index TNE Advisers, Inc.** Westpeak Investment Advisors, L.P.*
Westpeak Growth and TNE Advisers, Inc.** Westpeak Investment Advisors, L.P.*
Income
Loomis Sayles Avanti TNE Advisers, Inc.** Loomis, Sayles & Company, L.P.*
Growth
Loomis Sayles Small Cap TNE Advisers, Inc.** Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc.** Loomis, Sayles & Company, L.P.*
Draycott International TNE Advisers, Inc.** Draycott Partners, Ltd.
Equity
Davis Venture Value TNE Advisers, Inc.** Davis Selected Advisers, Inc.
Alger Equity Growth TNE Advisers, Inc.** Fred Alger Management, Inc.
Salomon Brothers U.S. TNE Advisers, Inc.** Salomon Brothers Asset Management, Inc.
Government
Salomon Brothers TNE Advisers, Inc.** Salomon Brothers Asset Management, Inc.
Strategic Bond
Opportunities
</TABLE>
* An affiliate of NELICO
** A subsidiary of NELICO
In the case of the Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series, Back Bay Advisors Managed Series, Westpeak Stock Index
Series, Westpeak Growth and Income Series, 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. NEMLICO, the former parent of NELICO, 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 its 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.
On January 22, 1997, the Board of Trustees of New England Zenith Fund approved
a new subadvisory agreement relating to the Draycott International Equity
Series between TNE Advisers, Inc. and Morgan Stanley Asset Management Inc.
("MSAM"). This new agreement, is expected to become effective May 1, 1997
(subject to shareholder approval, if necessary). Under this new agreement MSAM
would become subadviser of the Series, succeeding Draycott Partners, Ltd. and
would be responsible for the day to day management of the Series. The new name
of the Series will be Morgan Stanley International Magnum Equity Series.
F-18
<PAGE>
7. INVESTMENT PURCHASES AND SALES. The following table shows the aggregate cost
of Eligible Fund shares purchased and proceeds from the sales of Eligible Fund
shares for each sub-account for the year ended December 31, 1996:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth Series $192,435,910 $125,337,191
Back Bay Advisors Money Market Series 98,065,488 87,200,674
Back Bay Advisors Bond Income Series 18,719,861 11,239,097
Back Bay Advisors Managed Series 13,159,539 7,382,329
Westpeak Stock Index Series 16,840,737 7,613,106
Westpeak Growth and Income Series 11,290,092 4,514,904
Loomis Sayles Avanti Growth Series 14,804,586 7,554,161
Loomis Sayles Small Cap Series 20,487,120 6,016,762
Loomis Sayles Balanced Series 3,720,239 699,768
Draycott International Equity Series 5,234,589 1,560,413
Davis Venture Value Series 16,761,770 3,814,839
Alger Equity Growth Series 25,051,802 7,538,044
Salomon Brothers U.S. Government Series* 47,709 --
Salomon Brothers Strategic Bond Opportunities
Series* 28,407 --
VIP Equity-Income Series 40,788,600 18,781,619
VIP Overseas Series 29,417,696 19,661,090
VIP High Income Series 3,849,778 1,456,754
VIP II Asset Manager Series 2,822,409 1,496,363
</TABLE>
* For the period July 1, 1996 (Commencement of Operations of the sub-account)
through December 31, 1996.
F-19
<PAGE>
8. NET INVESTMENT RETURNS. The following table shows the net investment return
of the sub-account for each type of variable life insurance policy investing
in the Account. The net investment return reflects the appropriate mortality
and expense risk charge against sub-account assets, where applicable, for each
type of variable life insurance policy shown (in the case of the American
Gateway Series, the mortality and expense risk charge is deducted monthly from
cash values rather than daily from sub-account assets and, therefore, does not
impact sub-account net investment returns). These figures do not reflect
charges deducted from premiums and the cash values of the policies. Such
charges will affect the actual cash values and benefits of the policies.
Certain amounts have been restated to conform with the current calculation of
net investment return to provide greater comparability with industry
convention.
FIXED PREMIUM ("ZENITH LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
------------------------------------------------------------------------------------------
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- 1/1/96-
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 52.17% (9.11%) 30.30% (3.82%) 53.45% (6.38%) 14.57% (7.39%) 37.55% 20.65%
Bond Income............. 1.91% 7.99% 11.91% 7.71% 17.55% 7.80% 12.22% (3.70%) 20.78% 4.24%
Money Market............ 6.16% 7.14% 8.87% 7.81% 5.84% 3.43% 2.61% 3.61% 5.33% 4.76%
<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- 1/1/96-
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <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% 22.04%
Managed................. (0.89%) 9.10% 18.67% 2.85% 19.75% 6.33% 10.26% (1.46%) 30.81% 14.62%
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Avanti Growth................................................................. 14.47% (0.62%) 29.90% 17.20%
Growth and Income............................................................. 13.97% (1.55%) 35.99% 17.68%
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity-Income................................................................. 9.29% 6.69% 34.62% 13.88%
Overseas...................................................................... 14.57% 1.37% 9.30% 12.82%
<CAPTION>
5/2/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- --------
<S> <C> <C> <C>
Small Cap.............................................................................. (3.45%) 28.40% 30.22%
<CAPTION>
8/31/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- --------
<S> <C> <C> <C>
High Income............................................................................ (0.58%) 20.18% 13.63%
Asset Manager.......................................................................... (4.41%) 16.55% 14.20%
<CAPTION>
5/1/95- 1/1/96-
SUB-ACCOUNT 12/31/95 12/31/96
- ----------- -------- --------
<S> <C> <C>
Equity Growth................................................................................... 24.84% 12.78%
Balanced........................................................................................ 13.75% 16.50%
International Equity............................................................................ 3.85% 6.30%
Venture Value................................................................................... 21.64% 25.40%
</TABLE>
F-20
<PAGE>
SINGLE PREMIUM ("ZENITH LIFE ONE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
------------------------------------------------------------------------------------------
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- 1/1/96-
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 52.02% (9.20%) 30.17% (3.91%) 53.29% (6.47%) 14.46% (7.38%) 37.41% 20.53%
Bond Income............. 1.81% 7.88% 11.79% 7.60% 17.43% 7.69% 12.10% (3.80%) 20.66% 4.14%
Money Market............ 6.05% 7.03% 8.77% 7.71% 5.74% 3.33% 2.51% 3.35% 5.23% 4.65%
<CAPTION>
5/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96-
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <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% 21.91%
Managed................. (0.96%) 8.99% 18.55% 2.75% 19.63% 6.22% 10.15% (1.56%) 30.67% 14.51%
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Avanti Growth................................................................. 14.39% (0.72%) 29.77% 17.08%
Growth and Income............................................................. 13.90% (1.65%) 35.85% 17.56%
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity-Income................................................................. 9.22% 6.59% 34.49% 13.77%
Overseas...................................................................... 14.49% 1.27% 9.19% 12.70%
<CAPTION>
5/2/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- --------
<S> <C> <C> <C>
Small Cap.............................................................................. (3.52%) 28.27% 30.09%
<CAPTION>
8/31/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- --------
<S> <C> <C> <C>
High Income............................................................................ (0.61%) 20.06% 13.52%
Asset Manager.......................................................................... (4.45%) 16.43% 14.09%
<CAPTION>
5/1/95- 1/1/96-
SUB-ACCOUNT 12/31/95 12/31/96
- ----------- -------- --------
<S> <C> <C>
Equity Growth................................................................................... 24.76% 12.66%
Balanced........................................................................................ 13.67% 16.39%
International Equity............................................................................ 3.79% 6.19%
Venture Value................................................................................... 21.56% 25.27%
</TABLE>
F-21
<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
------------------------------------------------------------------------------------------
1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96-
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 51.79% (9.34%) 29.98% (4.06%) 53.06% (6.61%) 14.28% (7.62%) 37.21% 20.34%
Bond Income............. 1.65% 7.72% 11.63% 7.44% 17.25% 7.53% 11.94% (3.94%) 20.47% 3.98%
Money Market............ 5.89% 6.87% 8.60% 7.54% 5.58% 3.18% 2.36% 3.35% 5.07% 4.50%
<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- 1/1/96-
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <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% 21.73%
Managed................. (1.06%) 8.83% 18.37% 2.59% 19.45% 6.06% 9.99% (1.70%) 30.48% 14.34%
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Avanti Growth................................................................. 14.28% (0.87%) 29.57% 16.90%
Growth and Income............................................................. 13.78% (1.80%) 35.65% 17.38%
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity-Income................................................................. 9.11% 6.43% 34.29% 13.59%
Overseas...................................................................... 14.38% 1.12% 9.02% 12.53%
<CAPTION>
5/2/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- --------
<S> <C> <C> <C>
Small Cap.............................................................................. (3.61%) 28.08% 29.90%
<CAPTION>
8/31/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- --------
<S> <C> <C> <C>
High Income............................................................................ (0.66%) 19.88% 13.35%
Asset Manager.......................................................................... (4.49%) 16.26% 13.91%
<CAPTION>
5/1/95- 1/1/96-
SUB-ACCOUNT 12/31/95 12/31/96
- ----------- -------- --------
<S> <C> <C>
Equity Growth................................................................................... 24.64% 12.49%
Balanced........................................................................................ 13.56% 16.21%
International Equity............................................................................ 3.68% 6.03%
Venture Value................................................................................... 21.44% 25.08%
</TABLE>
F-22
<PAGE>
VARIABLE SURVIVORSHIP ("ZENITH SURVIVORSHIP LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
------------------------------------------------------------------------------------------
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- 1/1/96-
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 51.34% (9.61%) 29.59% (4.35%) 52.61% (6.90%) 13.94% (7.90%) 36.80% 19.98%
Bond Income............. 1.35% 7.40% 11.29% 7.11% 16.90% 7.21% 11.60% (4.23%) 20.12% 3.67%
Money Market............ 5.57% 6.55% 8.28% 7.22% 5.26% 2.87% 2.05% 3.04% 4.75% 4.18%
<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- 1/1/96-
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <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% 21.36%
Managed................. (1.26%) 8.50% 18.02% 2.28% 19.10% 5.74% 9.69% (2.00%) 30.09% 13.99%
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Avanti Growth................................................................. 14.05% (1.16%) 29.19% 16.55%
Growth and Income............................................................. 13.55% (2.09%) 35.25% 17.03%
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity-Income................................................................. 8.89% 6.11% 33.89% 13.25%
Overseas...................................................................... 14.15% 0.82% 8.70% 12.19%
<CAPTION>
5/2/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- --------
<S> <C> <C> <C>
Small Cap.............................................................................. (3.80%) 27.69% 29.50%
<CAPTION>
8/31/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- --------
<S> <C> <C> <C>
High Income............................................................................ (0.76%) 19.53% 13.00%
Asset Manager.......................................................................... (4.59%) 15.91% 13.57%
<CAPTION>
5/1/95- 1/1/96-
SUB-ACCOUNT 12/31/95 12/31/96
- ----------- -------- --------
<S> <C> <C>
Equity Growth................................................................................... 24.39% 12.15%
Balanced........................................................................................ 13.33% 15.86%
International Equity............................................................................ 3.48% 5.71%
Venture Value................................................................................... 21.20% 24.71%
</TABLE>
F-23
<PAGE>
FLEXIBLE PREMIUM ("ZENITH FLEXIBLE LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
------------------------------------------------------------------------------------------
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- 1/1/96-
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 51.56% (9.47%) 31.88% (5.73%) 52.83% (6.75%) 14.11% (7.76%) 37.00% 20.16%
Bond Income............. 1.50% 7.56% 11.46% 7.28% 17.08% 7.37% 11.77% (4.08%) 20.29% 3.82%
Money Market............ 5.73% 6.71% 8.44% 7.38% 5.42% 3.02% 2.20% 3.20% 4.91% 4.34%
<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- 1/1/96-
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <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% 21.55%
Managed................. (1.15%) 8.67% 18.20% 2.44% 19.28% 5.90% 9.82% (1.85%) 30.28% 14.16%
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Avanti Growth................................................................. 14.16% (1.01%) 29.38% 16.72%
Growth and Income............................................................. 13.67% (1.94%) 35.45% 17.21%
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity-Income................................................................. 9.00% 6.27% 34.09% 13.42%
Overseas...................................................................... 14.26% 0.97% 8.86% 12.36%
<CAPTION>
5/2/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- --------
<S> <C> <C> <C>
Small Cap.............................................................................. (3.71%) 27.88% 29.70%
<CAPTION>
8/31/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- --------
<S> <C> <C> <C>
High Income............................................................................ (0.71%) 19.71% 13.17%
Asset Manager.......................................................................... (4.54%) 16.08% 13.74%
<CAPTION>
5/1/95- 1/1/96-
SUB-ACCOUNT 12/31/95 12/31/96
- ----------- -------- --------
<S> <C> <C>
Equity Growth................................................................................... 24.51% 12.32%
Balanced........................................................................................ 13.44% 16.03%
International Equity............................................................................ 3.58% 5.87%
Venture Value................................................................................... 21.32% 24.89%
</TABLE>
F-24
<PAGE>
MODIFIED SINGLE PREMIUM ("AMERICAN GATEWAY") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-------------------------------------------------------------------------------------------
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- 1/1/96-
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income............. 2.27% 8.37% 12.30% 8.09% 17.96% 8.18% 12.61% (3.36%) 21.20% 4.61%
Money Market............ 6.53% 7.52% 9.25% 8.19% 6.21% 3.80% 2.97% 3.97% 5.70% 5.13%
<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- 1/1/96-
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 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (12.20%) 16.34% 30.15% (4.14%) 30.43% 7.30% 9.72% 1.12% 36.92% 22.47%
Managed................. (0.66%) 9.48% 19.08% 3.21% 20.17% 6.70% 10.65% (1.11%) 31.26% 15.03%
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
Avanti Growth................................................................. 14.74% (0.27%) 30.35% 17.61%
Growth and Income............................................................. 14.24% (1.21%) 36.47% 18.10%
<CAPTION>
5/2/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96
- ----------- --------- -------- --------
<S> <C> <C> <C>
Small Cap.............................................................................. (3.23%) 28.84% 30.68%
<CAPTION>
10/31/94- 1/1/95- 1/1/96-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96
- ----------- --------- -------- --------
<S> <C> <C> <C>
Equity Growth.......................................................................... (4.20%) 48.69% 13.17%
Balanced............................................................................... (0.10%) 24.79% 16.91%
International Equity................................................................... 2.60% 6.23% 6.67%
Venture Value.......................................................................... (3.50%) 39.28% 25.84%
U.S. Government........................................................................ 0.60% 15.02% 3.31%
Strategic Bond Opportunities........................................................... (1.40%) 19.38% 14.36%
</TABLE>
The net investment return of a sub-account is calculated by taking the
difference between the sub-account's ending value and the beginning value for
the period and dividing it by the beginning value for the period.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
New England Life Insurance Company:
We have audited the accompanying consolidated balance sheet of New England
Life Insurance Company (formally New England Variable Life Insurance Company)
and subsidiaries as of December 31, 1996, and the related consolidated
statement of earnings, equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1996 consolidated financial statements present fairly, in
all material respects, the financial position of the New England Life
Insurance Company and subsidiaries as of December 31, 1996 and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
In 1996, as discussed in Note 1 to the financial statements, the Company (1)
has adopted all applicable generally accepted accounting principles as
required for mutual life insurance enterprises (or wholly-owned stock life
insurance company subsidiaries of mutual life insurance enterprises) by
Interpretation No. 40, Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises, and Statement of
Financial Accounting Standards No. 120, Accounting and Reporting by Mutual
Life Insurance Enterprises and by Insurance Enterprises for Certain Long
Duration Participating Policies; and (2) has reflected the effects of the
changes in corporate organization.
The consolidated balance sheet of the Company and subsidiaries as of December
31, 1995 and the related consolidated statements of earnings, equity, and cash
flows for the periods ended December 31, 1995 and 1994 present the combination
of the individual financial statements of New England Variable Life Insurance
Company and other entities listed in Note 1. Such individual financial
statements were audited by other auditors before the applicable effects of the
changes described in the paragraph above and their reports on the financial
statements of each of the insurance entities listed in Note 1 expressed an
adverse opinion as to the conformity with generally accepted accounting
principles and an unqualified opinion as to conformity with statutory
principles and their reports on the financial statements of each of the other
entities expressed an unqualified opinion. We have audited the adjustments
that were applied to restate the 1995 and 1994 financial statements to reflect
the effects of the changes for the adoption of generally accepted accounting
principles and the changes in corporate organization as described in Note 1.
In our opinion, such adjustments are appropriate and have been properly
applied.
Deloitte & Touche LLP
February 18, 1997
Boston, Massachusetts
F-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
NOTES 1996 1995
----- -------------- --------------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed Maturities:
Available for Sale, at Estimated Fair
Value................................... 2,11 $ 524,284,643 $ 575,834,866
Held to Maturity, at Amortized Cost...... 29,666,318 36,550,618
Mortgage Loans on Real Estate............ 2,11 -- 2,210,153
Policy Loans............................. 11 76,262,779 58,210,498
Real Estate.............................. 1,701,981 --
Short-Term Investments................... 11 156,559,460 20,828,254
Other Invested Assets.................... 12,956,434 206,000
-------------- --------------
Total Investments........................ 801,431,615 693,840,389
Cash and Cash Equivalents................ 11 49,147,342 35,129,015
Deferred Policy Acquisition Costs........ 434,636,666 353,809,245
Accrued Investment Income................ 13,712,748 14,621,811
Premiums and Other Receivables........... 4 5,941,433 10,311,027
Other Assets............................. 95,106,160 11,148,103
Separate Account Assets.................. 1,206,959,498 748,184,716
-------------- --------------
Total Assets........................... $2,606,935,462 $1,867,044,306
============== ==============
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits..................... 4 $ 464,888,914 $ 446,687,020
Policyholder Account Balances.............. 4,11 181,594,090 138,831,391
Other Policyholder Funds................... 11 2,071,162 2,353,586
Policyholder Dividends Payable............. 9,018,002 7,346,500
Short and Long-Term Debt................... 8,11 84,056,337 79,347,546
Income Taxes Payable: 5
Current.................................. 6,272,302 9,179,749
Deferred................................. 39,463,081 54,981,645
Other Liabilities.......................... 62,190,384 25,629,031
Separate Account Liabilities............... 1,206,959,498 748,184,716
-------------- --------------
Total Liabilities...................... 2,056,513,770 1,512,541,184
-------------- --------------
Commitments and Contingencies (Notes 2, 4,
8 and 9)..................................
EQUITY
Common Stock............................... 2,500,000 2,500,000
Contributed Capital........................ 497,945,598 289,099,450
Retained Earnings.......................... 46,248,721 36,547,252
Net Unrealized Investment Gains............ 3 3,727,373 26,356,420
-------------- --------------
Total Equity........................... 550,421,692 354,503,122
-------------- --------------
Total Liabilities and Equity............... $2,606,935,462 $1,867,044,306
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
NOTES 1996 1995 1994
----- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Premiums, net.................... 4 $ 37,410,040 $ 38,565,735 $206,099,650
Universal Life and Investment-
Type Product Policy Fee Income.. 101,755,632 79,371,437 63,349,660
Net Investment Income............ 3 49,628,343 41,815,075 4,069,355
Investment Gains (Losses), Net... 3 15,979,267 21,979,906 (64,081)
Commissions, Fees and Other In-
come............................ 44,929,609 34,554,617 264,883,323
------------ ------------ ------------
Total Revenues................... 249,702,891 216,286,770 538,337,907
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits, net....... 4 65,520,519 55,810,172 435,150,792
Interest Credited to Policyholder
Account Balances................ 5,557,652 2,564,651 904,003
Policyholder Dividends........... 14,829,641 13,953,664 7,232,042
Other Operating Costs and Ex-
penses.......................... 151,043,021 110,890,061 83,725,839
------------ ------------ ------------
Total Benefits and Other Deduc-
tions........................... 236,950,833 183,218,548 527,012,676
------------ ------------ ------------
Earnings from Continuing
Operations before Income Taxes.. 12,752,058 33,068,222 11,325,231
Income Taxes..................... 5 3,050,589 12,302,605 4,188,483
------------ ------------ ------------
NET EARNINGS..................... $ 9,701,469 $ 20,765,617 $ 7,136,748
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NET
COMMON UNREALIZED
STOCK & INVESTMENT
CONTRIBUTED RETAINED GAINS
CAPITAL EARNINGS (LOSSES) TOTAL
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCES AT JANUARY 1,
1994..................... $175,028,227 $ 8,644,887 $ 104,801 $183,777,915
Net Earnings.............. 7,136,748 7,136,748
Change in Net Unrealized
Investment Gains
(Losses)................. (774,432) (774,432)
Contributed Capital....... 53,028,000 53,028,000
------------ ----------- ------------ ------------
BALANCES AT DECEMBER 31,
1994..................... 228,056,227 15,781,635 (669,631) 243,168,231
Net Earnings.............. 20,765,617 20,765,617
Change in Net Unrealized
Investment Gains
(Losses)................. 27,026,051 27,026,051
Contributed Capital....... 63,543,223 63,543,223
------------ ----------- ------------ ------------
BALANCES AT DECEMBER 31,
1995..................... 291,599,450 36,547,252 26,356,420 354,503,122
Net Earnings.............. 9,701,469 9,701,469
Change in Net Unrealized
Investment Gains
(Losses)................. (22,629,047) (22,629,047)
Contributed Capital....... 208,846,148 208,846,148
------------ ----------- ------------ ------------
BALANCES AT DECEMBER 31,
1996..................... $500,445,598 $46,248,721 $ 3,727,373 $550,421,692
============ =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
NET CASH USED IN OPERATING
ACTIVITIES....................... $ (85,673,871) $(111,833,907) $ (46,062,592)
------------- ------------- -------------
Cash Flows from Investing
Activities:
Sales, Maturities and Repayments
of:
Available for Sale Fixed
Maturities................... 276,420,158 538,296,916 13,480,392
Held to Maturity Fixed
Maturities................... 10,519,220 625,000 --
Mortgage Loans on Real Estate. 2,210,152 11,789 8,000
Purchases of:
Available for Sale Fixed
Maturities................... (259,713,146) (983,517,566) (121,490,180)
Real Estate................... (480,007) -- --
Fixed Asset Property and
Equipment.................... (3,786,192) -- --
Other Assets.................. (11,024,000) (15,000) (32,000)
Net Change in Short-Term
Investments.................... (135,731,206) 379,325,026 13,737,203
Net Change in Policy Loans...... (18,052,280) (14,243,155) (13,293,625)
Other, Net...................... 66,820 (114,000) 2,255,589
------------- ------------- -------------
NET CASH USED IN INVESTING
ACTIVITIES....................... (139,570,481) (79,630,990) (105,334,621)
------------- ------------- -------------
Cash Flows from Financing
Activities:
Common Stock....................
Capital Contributions........... 159,162,170 9,515,000 52,698,000
Borrowed Money.................. 25,000,000 50,000,000
Policyholder Account Balances:
Deposits...................... 482,551,966 281,761,424 201,732,909
Withdrawals................... (364,932,882) (148,402,748) (108,766,575)
Financial Reinsurance
Receivables.................... (37,518,575) -- --
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES....................... 239,262,679 167,873,676 195,664,334
------------- ------------- -------------
Change in Cash and Cash
Equivalents...................... 14,018,327 (23,591,221) 44,267,121
Cash and Cash Equivalents,
Beginning of Year................ 35,129,015 58,720,236 14,453,115
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF
YEAR............................. $ 49,147,342 $ 35,129,015 $ 58,720,236
============= ============= =============
Supplemental Cash Flow
Information:
Interest Paid................... $ 1,523,134 $ 1,277,033 $ --
============= ============= =============
Income Taxes Paid............... $ 4,720,928 $ 6,764,653 $ 132,000
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
NET EARNINGS..................... $ 9,701,469 $ 20,765,617 $ 7,136,748
Adjustments to Reconcile Net
Earnings to Net Cash Provided by
(Used in) Operating Activities:
Change in Deferred Policy
Acquisition Costs, Net........ (68,626,162) (45,823,425) (128,219,002)
Change in Accrued Investment
Income........................ 909,063 (11,507,438) (87,020)
Change in Premiums and Other
Receivables................... 4,369,594 (4,072,681) (1,494,680)
Investment (Gains) Losses, Net. (15,979,267) (21,979,906) 64,081
Depreciation and Amortization
Expenses...................... 4,119,881 5,724,945 99,912
Change in Transfer to Separate
Account....................... (2,242,885) 1,412,264 105,477
Interest Credited to
Policyholder Account Balances. 5,557,652 2,564,651 904,003
Universal Life and Investment-
Type Product Policy Fee
Income........................ (101,755,632) (79,371,437) (63,349,660)
Change in Future Policy
Benefits...................... 18,201,894 14,538,593 125,898,745
Change in Other Policyholder
Funds......................... (282,879) 1,789,475 156,400
Change in Policyholder
Dividends Payable............. 1,671,502 114,458 7,232,042
Change in Income Taxes Payable. (6,633,789) 10,210,526 10,337,032
Other, Net..................... 65,315,688 (6,199,549) (4,846,670)
------------- ------------- -------------
NET CASH USED IN OPERATING
ACTIVITIES...................... $ (85,673,871) $(111,833,907) $ (46,062,592)
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
New England Life Insurance Company and its subsidiaries (the "Company") is a
wholly-owned stock life insurance subsidiary of Metropolitan Life Insurance
Company (MetLife). The Company principally provides variable life insurance
and variable annuity products through a network of general agencies located
throughout the United States.
Prior to the merger of New England Mutual Life Insurance Company (NEMLICO)
with MetLife on August 31, 1996, New England Life Insurance Company (NELICO),
formerly known as New England Variable Life Insurance Company (NEVLICO), was a
subsidiary of NEMLICO. NEMLICO was merged directly into MetLife and ceased to
exist as a separate mutual life insurance company. In conjunction with the
merger, NEVLICO became a subsidiary of MetLife and changed its name to New
England Life Insurance Company. NELICO has continued after the merger to
conduct its existing businesses and is also administering the business
activities for the former parent NEMLICO. (Note 13)
NELICO is headquartered in Boston, Massachusetts and became a Massachusetts
chartered company through a legal process known as redomestication. Prior to
the merger, NEVLICO was organized under Delaware law. The capital structure of
NELICO continues in the same form subsequent to the merger with common stock
authorized at 50,000 shares and 20,000 shares issued and outstanding with a
par value of $125 per share. MetLife made an additional statutory capital
contribution to NELICO at the merger date totaling $208,003,770 consisting of
$128,412,170 of cash and $79,591,600 of bonds, real estate, mortgages, common
stock of affiliates and furniture and equipment. Prior to the merger, NELICO
received a capital contribution from NEMLICO for $20,000,000 in cash. The
total contributed capital for 1996 equaled $228,003,770.
Certain companies that were subsidiaries of NEMLICO became subsidiaries of
NELICO as of the merger. The principal subsidiaries of which NELICO owns 100%
of the outstanding common stock are Exeter Reassurance Company, Ltd., New
England Pension and Annuity Company and Newbury Insurance Company Limited for
insurance operations and New England Securities Corporation and TNE Advisers,
Inc. for other operations. The principal business activities of the
subsidiaries are disclosed below.
Exeter Reassurance Company, Ltd., (Exeter) was incorporated in Bermuda on
November 15, 1994, and registered as an insurer under The Insurance Act 1978
(Bermuda). Exeter engages in financial reinsurance of life insurance and
annuity policies.
New England Pension and Annuity Company (NEPA) was incorporated under the laws
of the State of Delaware on September 12, 1980. NEPA holds licenses in 20
states, but is currently not actively engaged in the sale or distribution of
insurance products.
New England Securities Corporation (NES), a National Association of Securities
Dealers ("NASD") registered broker/dealer, conducts business as a wholesale
distributor of investment products through the sales force of NELICO.
Established in 1968, NES offers a range of investment products including
mutual funds, investment partnerships, and individual securities. In 1994, NES
became a Registered Investment Advisor with the Securities and Exchange
Commission ("SEC") and now offers individually managed portfolios. NES is the
national distributor for variable annuity and variable life products issued by
NELICO. NES is the sole owner of Hereford Insurance Agency, Inc.
Newbury Insurance Company, Limited (Newbury) was incorporated in Bermuda on
May 1, 1987, and is registered as a Class 2 insurer under The Insurance Act
1978 (Bermuda). Newbury provides professional liability and personal injury
coverage to the agents of NELICO through a facultative reinsurance agreement
with Lexington Insurance Company. The policy applies to claims made during the
policy period or during the discovery period with limits of $1,000,000 each
claim, $1,000,000 annual aggregate each insured, $3,500,000 and $3,000,000
annual aggregate all insured in 1996 and 1995 respectively.
F-32
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
TNE Advisers, Inc. was incorporated on August 26, 1994, and is registered as
an investment adviser with the SEC, under the Investment Advisers Act of 1940.
TNE Advisers, Inc. was organized to serve as an investment adviser to certain
mutual funds of the New England Zenith Fund and does not intend to engage in
any business activities other than providing investment management and
administrative services.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"), and include
the accounts of NELICO and its subsidiaries in which NELICO has control and a
majority economic interest. The consolidated financial statements have been
prepared as though the current reporting entity had always existed.
Significant intercompany transactions and balances have been eliminated in
consolidation.
Prior to 1996, NELICO, as a wholly owned stock life insurance subsidiary of a
mutual life insurance company, prepared its financial statements in conformity
with accounting practices prescribed or permitted by the Insurance Department
of the State of Delaware (statutory financial statements), which accounting
practices were considered to be GAAP. In 1996, NELICO adopted Interpretation
No. 40, Applicability of Generally Accepted Accounting Principles to Mutual
Life Insurance and Other Enterprises (the "Interpretation") and Statement of
Financial Accounting Standards ("SFAS") No. 120, Accounting and Reporting by
Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long Duration Participating Policies (the "Standard"), of the Financial
Accounting Standards Board ("FASB"). The Interpretation and Standard required
mutual life insurance companies to adopt all standards promulgated by the FASB
in their general purpose financial statements. The financial statements of
NELICO for 1995 and 1994 have been retroactively restated to reflect the
adoption of all applicable authoritative GAAP pronouncements. The cumulative
effect of such adoption as of January 1, 1994 has been reflected in an
adjustment of equity at January 1, 1994 (see Note 12).
As of December 31, 1993, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", which expanded the use of fair value accounting for those
securities that a company does not have positive intent and ability to hold to
maturity. Implementation of SFAS No. 115 increased consolidated equity by
$104,801, net of deferred income taxes and adjustments of deferred policy
acquisition costs and future policy benefits.
VALUATION OF INVESTMENTS
Fixed maturity securities for which the Company has the positive intent and
ability to hold to maturity are stated principally at amortized cost and
include bonds and redeemable preferred stock. All other fixed maturity
securities are classified as available for sale and are reported at estimated
fair market value. Unrealized holding gains and losses on fixed maturity
securities available for sale are reported as a separate component of equity.
Such amounts are net of related deferred income taxes and adjustments of
deferred policy acquisition costs and future policy benefits relating to
unrealized gains on available for sale securities. Amortized cost of fixed
maturity securities is adjusted for impairments in value deemed to be other
than temporary. All securities are recorded on a trade date basis.
The Company's mortgage loan on real estate was carried at outstanding
principal balance. Mortgage loans are considered impaired when, based on
current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contract terms of the loan
agreement. The mortgage loan was in good standing at December 31, 1995 and no
allowance for loss was required.
Real estate is considered held for sale by management and is reported at the
lower of cost or estimated fair market value less allowances for the estimated
cost of sales. No impairment allowance is required on the property.
F-33
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Policy loans are stated at unpaid principal balances.
Short-term investments are stated at amortized cost which approximates fair
value.
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less. These are carried at cost, which approximates fair value.
INVESTMENT RESULTS
Realized investment gains and losses are determined by specific identification
and are presented as a component of revenues.
PROPERTY AND EQUIPMENT
Property and equipment and leasehold improvements are included in other assets
and are stated at cost, less accumulated depreciation and amortization.
Depreciation, including charges relating to capitalized leases, is provided
using the straight line method over the estimated useful lives of the assets
which generally range from 4 to 15 years or the term of the lease, if shorter.
Amortization of leasehold improvements is provided using the straight line
method over the lesser of the term of the leases or the estimated useful life
of the improvements.
Accumulated depreciation and amortization on property and equipment and
leasehold improvements was $3,117,743 and $0 at December 31, 1996 and 1995,
respectively. Related depreciation and amortization expense was $3,117,743, $0
and $0 for the years ended December 31, 1996, 1995 and 1994, respectively.
RECOGNITION OF INCOME AND EXPENSES
Premiums from traditional life policies are recognized generally as income
when due. Benefits and expenses are matched with such income so as to result
in the recognition of profits over the life of the contract. This match is
accomplished by means of the provision for liabilities for future policy
benefits and the deferral and subsequent amortization of policy acquisition
costs.
Reinsurance allowances for individual non-medical health contracts are
recognized as income when due.
Premiums from variable life, universal life and investment-type contracts are
reported as deposits to policyholder account balances. Revenues from these
contracts consist of amounts assessed during the period against policyholder
account balances for mortality charges, policy administration charges and
surrender charges. Policy benefits and claims that are charged to expense
include benefit claims incurred in the period in excess of related
policyholder account balances and interest credited to policyholder account
balances.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, agency and
policy issue expenses, all of which vary with and are primarily related to the
production of new business, have been deferred. Deferred policy acquisition
costs are subject to recoverability testing at the time of policy issue and
loss recognition testing at the end of each accounting period.
Deferred policy acquisition costs are amortized over a period up to 40 years
for traditional life, variable life, universal life products and for
investment-type products as a constant percentage of estimated gross margins
or profits arising principally from surrender charges and interest, mortality
and expense margins based on historical and anticipated future experience,
updated regularly. The effects of revisions to experience on previous
amortization of deferred policy acquisition costs are reflected in earnings in
the period estimated gross margins or profits are revised.
F-34
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
For non-medical health insurance contracts, deferred policy acquisition costs
are amortized over the life of the contracts (generally between 10 and 30
years) in proportion to anticipated reinsurance allowances.
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life insurance
policies are equal to the aggregate of net level premium reserve for death and
endowment policy benefits and the liability for terminal dividends. The net
level premium reserve is calculated based on the dividend fund interest rate
and mortality rates guaranteed in calculating the cash surrender values
described in such contracts. Interest rates used in establishing future policy
benefit liabilities range from 4 percent to 5 percent for life insurance
policies.
Policyholder account balances for variable life, universal life and
investment-type contracts are equal to the policy account values. The policy
account values represent an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
Benefit liabilities for non-medical health insurance are calculated as the net
GAAP liability plus the unamortized deferred acquisition costs. Benefit
liabilities for disabled lives are estimated using the present value of
benefits method and experience assumptions as to claim terminations, expenses
and interest.
INCOME TAXES
NELICO files a consolidated Federal Income Tax return with Exeter Reassurance
Company, Ltd. The future tax consequences of temporary differences between
financial reporting and tax basis of assets and liabilities are measured as of
the balance sheet dates and are recorded as deferred tax assets or
liabilities.
SEPARATE ACCOUNT OPERATIONS
Separate Accounts are established in conformity with the state insurance laws
and are generally not chargeable with liabilities that arise from any other
business of the Company. Separate Account assets are subject to general
account claims only to the extent the value of such assets exceed the Separate
Account liabilities.
Investments held in the Separate Accounts (stated at estimated fair market
value) and liabilities of the Separate Accounts (including participants'
corresponding equity in the Separate Accounts) are reported separately as
assets and liabilities. Deposits to Separate Accounts are reported as
increases in Separate Account liabilities and are not reported in revenues.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues.
POLICYHOLDER DIVIDENDS
The amount of policyholder dividends to be paid is determined annually by the
Board of Directors. The aggregate amount of policyholder dividends is related
to actual interest, mortality, morbidity and expense experience for the year
and management's judgment as to the appropriate level of statutory surplus to
be retained by the Company.
CONSOLIDATED STATEMENTS OF CASH FLOWS--NON CASH TRANSACTIONS
For the years ended December 31, 1996 and 1995, respectively, the Company
received capital contributions in the form of transfer of assets of
$49,683,978 and $54,028,223. In 1994, $296,815,969 of bonds were received in
support of the coinsurance treaty with NEMLICO.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-35
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
2. INVESTMENTS
DEBT SECURITIES
The carrying value, gross unrealized gain (loss) and estimated fair value of
fixed securities, by category, as of December 31, 1996 and 1995 are shown
below.
HELD TO MATURITY SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
ESTIMATED ---------------------- AMORTIZED
FAIR VALUE GAIN LOSS COST
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
1996
Fixed Maturities:
Bonds:
U.S. Treasury Securities and
obligations of
U.S. government
corporations and agencies.. $ 7,344,149 $ 51,289 $ 6,095 $ 7,298,955
States and political subdi-
visions.................... 517,770 38,031 479,739
Corporate................... 22,648,666 860,180 99,138 21,887,624
------------ ----------- ---------- ------------
Total Fixed Maturities........ $ 30,510,585 $ 949,500 $ 105,233 $ 29,666,318
============ =========== ========== ============
HELD TO MATURITY SECURITIES
<CAPTION>
GROSS UNREALIZED
ESTIMATED ---------------------- AMORTIZED
FAIR VALUE GAIN LOSS COST
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
1995
Fixed Maturities:
Bonds:
U.S. Treasury Securities and
obligations of
U.S. government
corporations and agencies.. $ 9,695,983 $ 179,024 $ $ 9,516,959
States and political subdi-
visions.................... 530,650 60,604 470,046
Corporate................... 26,599,841 257,222 170,994 26,513,613
Other....................... 50,000 50,000
------------ ----------- ---------- ------------
Total Fixed Maturities........ $ 36,876,474 $ 496,850 $ 170,994 $ 36,550,618
============ =========== ========== ============
AVAILABLE FOR SALE SECURITIES
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
1996
Fixed Maturities:
Bonds:
U.S. Treasury Securities and
obligations of
U.S. government
corporations and agencies.. $ 5,464,659 $ 46,737 $ 24,580 $ 5,486,816
Foreign governments......... 1,577,439 1,147 57,272 1,521,314
Corporate................... 505,682,553 18,637,259 7,092,856 517,226,956
Mortgage-backed securities.. 48,759 798 49,557
------------ ----------- ---------- ------------
Total Fixed Maturities........ $512,773,410 $18,685,941 $7,174,708 $524,284,643
============ =========== ========== ============
</TABLE>
F-36
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
AVAILABLE FOR SALE SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED -------------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
------------ ----------- -------- ------------
<S> <C> <C> <C> <C>
1995
Fixed Maturities:
Bonds:
U.S. Treasury Securities and
obligations of
U.S. government corporations
and agencies................. $ 1,991,186 $ 746 $ 1,135 $ 1,990,797
Foreign governments........... 3,017,691 178,111 3,195,802
Corporate..................... 512,320,546 58,440,764 183,844 570,577,466
Mortgage-backed securities.... 69,877 924 70,801
------------ ----------- -------- ------------
Total Fixed Maturities.......... $517,399,300 $58,620,545 $184,979 $575,834,866
============ =========== ======== ============
</TABLE>
Included in net unrealized appreciation (deprection) of investments are
unrealized gains on foreign currency investments as well as unrealized gains
on the associated forward foreign exchange contracts. Unrealized appreciation
(depreciation) of investments consists of the following:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Net unrealized gains on investments....................... $ 8,213 $372,881
Unrealized gains (losses) on the maturity of forward con-
tracts................................................... 13,665 (76,214)
------- --------
$21,878 $296,667
======= ========
</TABLE>
The estimated fair value and amortized cost of bonds classified as held to
maturity, by contractual maturity, at December 31, 1996 are shown below.
<TABLE>
<CAPTION>
ESTIMATED AMORTIZED
FAIR VALUE COST
----------- -----------
<S> <C> <C>
Due in one year or less............................. $ 3,792,488 $ 3,783,539
Due after one year through five years............... 8,714,767 8,791,593
Due after five years through ten years.............. 17,503,330 16,591,186
Due after ten years................................. 500,000 500,000
----------- -----------
Total............................................. $30,510,585 $29,666,318
=========== ===========
</TABLE>
The amortized cost and estimated fair value of bonds classified as available
for sale, by contractual maturity, at December 31, 1996 are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
------------ ------------
<S> <C> <C>
Due in one year or less........................... $ $
Due after one year through five years............. 23,380,259 23,820,548
Due after five years through ten years............ 51,941,867 51,169,921
Due after ten years............................... 437,402,525 449,244,617
------------ ------------
Subtotal........................................ 512,724,651 524,235,086
Mortgage-backed securities........................ 48,759 49,557
------------ ------------
Total......................................... $512,773,410 $524,284,643
============ ============
</TABLE>
Bonds not due at a single maturity date have been included in the above tables
in the year of final maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without prepayment penalties.
F-37
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ASSETS HELD IN TRUST FOR THE BENEFIT OF OTHER PARTIES
Exeter has deposited in a trust for the benefit of MetLife certain assets for
the purpose of allowing MetLife to record a reserve credit as permitted by
regulations of the State of New York. Under the terms of the Trust Agreement
MetLife enjoys broad powers to withdraw funds from the trust for the payment
of policyholder claims incurred by Exeter under its reinsurance treaty and to
direct the investment of funds held in the trust. The Trust Agreement limits
the types of investments that may be held in trust to cash and certificates of
deposit, U.S. Government bonds and notes and publicly traded securities of
U.S. companies having a National Association of Insurance Commissioners (NAIC)
rating of 1. At December 31, 1996, the trust held $786,828 of cash and
$468,847,351 of bonds and short-term investments, and at December 31, 1995
$487,268,195 of bonds and short-term investments.
MORTGAGE LOANS
As of December 31, 1995 the mortgage loan investment was collateralized by
industrial property in Baltimore, Maryland.
ASSETS ON DEPOSIT
As of December 31, 1996 and 1995, the Company had assets on deposit with
regulatory agencies of $5,884,253 and $6,486,794, respectively.
3. INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of investment income are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Fixed maturities......................... $44,629,921 $39,264,322 $1,597,939
Mortgage loans on real estate............ 110,037 233,974 235,138
Real estate.............................. 55,149
Policy loans............................. 3,734,183 2,831,097 1,996,359
Cash, cash equivalents and short-term in-
vestments............................... 3,656,448 1,173,815 597,425
Other investment income.................. 37,135
----------- ----------- ----------
Gross investment income.................. 52,222,873 43,503,208 4,426,861
Investment expenses...................... 2,594,530 1,688,133 357,506
----------- ----------- ----------
Investment income, net................... $49,628,343 $41,815,075 $4,069,355
=========== =========== ==========
</TABLE>
Investment gains (losses) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- --------
<S> <C> <C> <C>
Fixed maturities......................... $15,467,124 $21,981,201 $(64,090)
Other.................................... 512,143 (1,295) 9
----------- ----------- --------
Investment gains (losses), net........... $15,979,267 $21,979,906 $(64,081)
=========== =========== ========
</TABLE>
Proceeds from the sales of bonds classified as available for sale during 1996,
1995 and 1994 were $275,008,306, $518,416,727 and $13,127,940 respectively.
During 1996, 1995 and 1994, respectively, gross gains of $19,109,340,
$22,557,997 and $77,319, and gross losses of $3,878,497, $576,796, and
$141,409 were realized on those sales.
F-38
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Proceeds from the call of direct issue bonds classified as held to maturity
during 1996, 1995 and 1994 were $5,290,796, $0, and $0, respectively. During
1996, 1995 and 1994, respectively, gross gains of $236,280, $0 and $0, and
gross losses of $0, $0, and $0 were realized due to prepayment premiums
received. There were no sales of fixed maturities classified as held to
maturity.
The unrealized investment gains (losses), which are included in the
consolidated balance sheets as a component of equity and the changes for the
corresponding years are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ---------
<S> <C> <C> <C>
Year ended December 31
Balance, beginning of year.......... $ 26,356,420 $ (669,631) $ 104,801
Change in unrealized investment
gains (losses)................... (46,851,102) 58,946,561 --
Effect of adopting SFAS No. 115... -- -- (931,481)
Change in unrealized investment
gains (losses) attributable to:
Deferred policy acquisition cost
allowances..................... 12,210,988 (17,883,703) 98,294
Deferred income tax (expense)
benefit........................ 12,011,067 (14,036,807) 58,755
------------ ------------ ---------
Balance, end of year................ $ 3,727,373 $ 26,356,420 $(669,631)
------------ ------------ ---------
December 31
Balance, end of year, comprises:
Unrealized investment gains (loss-
es) on:
Fixed maturities.................. $11,524,866 $ 58,369,351 $(574,586)
Other............................. (4,327) 2,290 (334)
------------ ------------ ---------
11,520,539 58,371,641 (574,920)
Amounts of unrealized investment
gains (loss)
attributable to:
Deferred policy acquisition cost
allowances....................... (5,755,640) (17,966,628) (82,925)
Deferred income taxes............. (2,037,526) (14,048,593) (11,786)
------------ ------------ ---------
Balance, end of year................ $ 3,727,373 $ 26,356,420 $(669,631)
============ ============ =========
</TABLE>
Net unrealized investment gains at December 31, 1996, before deferred Federal
income tax, reflects gross unrealized gains of $18,685,941 and gross
unrealized losses of $7,174,708.
4. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
In the normal course of business, the Company assumes and cedes reinsurance
with other insurance companies. The accompanying consolidated statements of
earnings are presented net of reinsurance ceded.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
Direct premiums................... $ 2,681,689 $ 2,794,103 $ 329,113
Reinsurance assumed............... 67,482,752 69,329,831 402,121,966
Reinsurance ceded................. (32,754,401) (33,558,199) (196,351,429)
------------ ------------ -------------
Net premiums earned............... $ 37,410,040 $ 38,565,735 $ 206,099,650
============ ============ =============
</TABLE>
F-39
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Policyholder benefits in the accompanying consolidated statements of earnings
are presented net of reinsurance recoveries of $23,961,773, $22,577,080 and
$4,948,808 for the years ended December 31, 1996, 1995 and 1994, respectively.
Premiums and other receivables in the accompanying consolidated balance sheets
include reinsurance recoveries of $0.2 million and $0 million at December 31,
1996 and 1995, respectively.
A contingent liability exists with respect to reinsurance ceded should the
reinsurers be unable to meet their obligations.
5. INCOME TAXES
Income tax expense for U.S. operations has been calculated in accordance with
the provisions of the Internal Revenue Code, as amended.
NELICO and its eligible subsidiary file a consolidated U.S. income tax return
and other subsidiaries file separate income tax returns as required. The
Company uses the liability method of accounting for income taxes. Income tax
provisions are based on income reported for financial statement purposes.
Deferred income taxes arise from the recognition of temporary differences
between income determined for financial reporting purposes and income tax
purposes.
A summary of income tax expense (benefit) in the consolidated statements of
earnings is shown below:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
1996
Federal............................... $ 5,333,391 $(1,531,395) $ 3,801,996
State and Local....................... (751,407) (751,407)
----------- ----------- -----------
Total................................. $ 5,333,391 $(2,282,802) $ 3,050,589
=========== =========== ===========
1995
Federal............................... $ 5,503,644 $ 6,354,610 $11,858,254
State and Local....................... 444,351 444,351
----------- ----------- -----------
Total................................. $ 5,503,644 $ 6,798,961 $12,302,605
=========== =========== ===========
1994
Federal............................... $(1,960,017) $ 5,557,870 $ 3,597,853
State and Local....................... 590,630 590,630
----------- ----------- -----------
Total................................. $(1,960,017) $ 6,148,500 $ 4,188,483
=========== =========== ===========
</TABLE>
Reconciliations of the differences between income taxes computed at the
federal statutory tax rates and consolidated provisions for income taxes are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Income before taxes................. $ 12,752,058 $33,068,222 $11,325,231
Income tax rate..................... 35% 35% 35%
------------ ----------- -----------
Expected income tax expense at
federal statutory
income tax rate.................... 4,463,220 11,573,878 3,963,831
Tax effect of:
Change in valuation allowance..... (13,948,000) (413,000) (402,850)
NOL benefit write-off............. 13,012,000 -- --
State and local income taxes...... (488,415) 288,828 383,910
Tax credits.......................
Other, net........................ 11,784 852,899 243,592
------------ ----------- -----------
Income Tax Expense (Benefit)........ $ 3,050,589 $12,302,605 $ 4,188,483
============ =========== ===========
</TABLE>
F-40
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The deferred tax asset or liability recorded represents the net temporary
differences between the tax bases of assets and liabilities and their amounts
for financial reporting. The components of the net deferred tax asset or
liability at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities.................... $ 83,303,973 $ 69,491,980
Net operating loss carryforward............. 12,547,940 13,012,000
Other....................................... 14,690,260 9,890,697
------------- -------------
Total gross assets............................ 110,542,173 92,394,677
Less valuation allowance.................... (13,948,000)
------------- -------------
Asset, net of valuation allowance............. 110,542,173 78,446,677
------------- -------------
Deferred tax liabilities
Investments................................. (2,526,047) (7,185,868)
Deferred policy acquisition costs........... (132,964,603) (106,477,179)
Net unrealized capital gains................ (2,037,526) (14,048,593)
Other....................................... (12,477,078) (5,716,682)
------------- -------------
Total gross liabilities....................... (150,005,254) (133,428,322)
------------- -------------
Net deferred tax liability.................... $ (39,463,081) $ (54,981,645)
============= =============
</TABLE>
The sources of the deferred tax expense (benefit) and their tax effects are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Policyholder liabilities............ $(17,818,264) $(4,109,738) $(25,551,114)
Net operating loss carryforward..... 464,060
Deferred policy acquisition costs... 21,827,603 13,877,584 32,756,212
Other, net.......................... (6,756,201) (2,968,885) (1,056,598)
------------ ----------- ------------
Total............................... $ (2,282,802) $ 6,798,961 $ 6,148,500
============ =========== ============
</TABLE>
6. EMPLOYEE BENEFIT PLANS
The Home Office Retirement Plan and related Select Employees' Supplemental
Retirement Plan (together the "Plan") cover substantially all of the Company's
employees. Retirement benefits are based primarily on years of service and the
employee's average salary. The Company's funding policy is to contribute
annually an amount that can be deducted for federal income tax purposes using
a different actuarial cost method and different assumptions from those used
for financial reporting purposes. The net pension cost charged to income in
1996, 1995, and 1994 was $159,000, $150,000, and $145,000, respectively. These
amounts are not representative of the net pension cost that can be expected to
be charged to income in future years, because substantially all the Company's
employees were employed by NEMLICO prior to the merger, and, correspondingly,
substantially all net pension cost was incurred by NEMLICO. The amounts of net
periodic pension cost disclosed below are more indicative of the net pension
cost that will be incurred in future years.
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Service cost...................... $ 5,761,000 $ 4,797,000 $ 6,575,000
Interest cost on projected benefit
obligation....................... 12,489,000 11,012,000 10,590,000
Actual return on assets........... (15,468,000) (21,221,000) 2,121,000
Net amortization and deferrals.... 6,009,000 13,059,000 (10,002,000)
------------ ------------ ------------
Net periodic pension cost......... $ 8,791,000 $ 7,647,000 $ 9,284,000
============ ============ ============
</TABLE>
The assumed long-term rate of return on assets used in determining the net
periodic pension cost was 8.5 percent.
F-41
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The following information for the plan includes amounts relating to NEMLICO.
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Actuarial present value of accumulated plan ben-
efits.......................................... $133,000,000 $119,000,000
============ ============
Projected benefit obligation.................... 182,000,000 168,000,000
============ ============
Net assets available for plan benefits.......... 130,992,000 116,000,000
============ ============
Unrecognized prior service cost................. 224,000 3,954,000
============ ============
Unrecognized net (loss) from past experience
difference from that assumed................... (37,327,000) (47,300,000)
============ ============
Unamortized transition gains.................... $ 4,015,000 $ 5,185,000
============ ============
</TABLE>
The weighted average discount rate was 7.5%, 8.0% and 7.5% in 1996, 1995 and
1994, respectively. The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit was 5.0% for
1996, 1995 and 1994. Plan assets consist of bonds, stocks, real estate, and
insurance contracts and have an assumed long-term rate of return of 8.5% for
1996, 1995 and 1994.
OTHER POSTRETIREMENT BENEFITS
In addition to pension benefits, the Company provides certain health care and
life insurance benefits for retired employees. Substantially all employees may
become eligible for these benefits if they reach retirement age while working
for the Company.
The following sets forth the plan's fiscal year end funded status reconciled
with amounts reported in the financial statements of MetLife. Subsequent to
the merger, substantially all employees covered by the plan are employed by
the Company. Accordingly, in future years these disclosures will reconcile to
amounts reported on the Company's balance sheet and income statement.
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................... $28,566,000 $31,696,000
Fully eligible active plan participants........... 5,482,000 7,075,000
All other actives................................. 11,098,000 14,200,000
----------- -----------
Total............................................... 45,146,000 52,971,000
plus: unrecognized net gain......................... 19,997,000 12,654,000
----------- -----------
Accrued postretirement benefit liability............ $65,143,000 $65,625,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
The components of net postretirement
benefit cost were:
Service cost...................... $ 876,000 $ 876,000 $1,070,000
Interest cost..................... 3,183,000 3,768,000 3,926,000
Amortization of gain.............. (1,155,000) (1,043,000) (922,000)
----------- ----------- ----------
Net periodic postretirement benefit
cost............................... $ 2,904,000 $ 3,601,000 $4,074,000
=========== =========== ==========
</TABLE>
Net periodic postretirement benefit costs for the years ended December 31,
1996 and 1995, includes the cost of benefits earned by active employees,
interest cost, gains and losses arising from differences between actuarial
assumptions and actual experience, and amortization of the transition
obligation. The discount rate used to determine the net periodic
postretirement benefit cost was 7.25%, 8.5% and 8.0% for 1996, 1995 and 1994,
respectively. The Company made contributions to the plan of $3,386,000 in
1996, $3,700,000 in 1995 and $3,579,000 in 1994, as claims were incurred.
F-42
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.50% and 7.25% as of December 31, 1996 and 1995 respectively.
The health care cost trend rate was 8.2% graded to 5.0% over 8 years for 1996,
and 8.6% graded to 5.5% over 8 years for 1995. The health care cost trend rate
assumption has a minimal impact on the amounts reported, since the Company has
capped its contributions at 200% of 1993 levels.
7. LEASES
LEASE EXPENSE
The Company has entered into various lease agreements for office space, data
processing and other equipment. Future gross minimum rental payments under
non-cancelable leases for 1997 and the succeeding four years are $10,942,951,
$10,690,820, $10,919,215, $9,269,160 and $8,686,613, respectively, and
$51,208,079 thereafter. Minimum future sub-lease rental income on these
noncancelable leases is $3,202,010, $3,336,379, $3,336,379, $3,336,379 and
$3,336,379 for 1997 and the succeeding four years, respectively, and
$16,518,626 thereafter.
8. DEBT
In 1995, the Company borrowed $25,000,000 from a bank, bearing interest at a
variable rate, equal to the greater of the bank's base rate or money market
rates plus .6% per annum payable monthly, 5.7% at December 31, 1996 and 5.8%
at December 31, 1995. The loan is collateralized by sales loads and surrender
charges collected on a defined block of variable life insurance policies
issued by the Company. Repayment is structured in a manner to result in
repayment over a term of five years. The carrying value of the loan
approximates its fair value.
Exeter privately placed $75,118,152 aggregate principal amount, subordinated
notes payable (the "Notes"), on December 30, 1994 which are due December 30,
2004, with no interest payments for the first five years and semiannual
interest payments thereafter. The Notes have been discounted to yield 8.45%
for the first five years and pay interest at 8.845% thereafter. The Notes are
expressly subordinated in right of payment to the insurance liabilities of
Exeter. The Notes are not subject to redemption by Exeter or through the
operation of a sinking fund prior to maturity. Proceeds of the issuance of the
Notes, net of discount, amounted to $50,000,000. The issue costs of the Notes
of $130,000 were deducted from Notes, net of discount, to arrive at net
subordinated notes payable of $49,870,000. The issue cost will be amortized
over the life of the Notes. The Notes are held by MetLife, and the carrying
value of the loan approximates its fair value.
9. CONTINGENCIES
The Company has no contingent liabilities which might materially affect the
financial position of the Company or the results of its operations. There are
no pending legal proceedings which are beyond the ordinary course of business
which could have a material financial effect.
10. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Compensation costs................ $ 36,172,270 $ 23,629,621 $ 18,807,641
Commissions....................... 51,616,356 37,476,445 37,220,361
Debt expense...................... 6,261,153 5,658,756 --
Amortization of policy acquisition
costs............................ 29,390,090 32,664,723 23,130,743
Capitalization of policy
acquisition costs................ (98,016,252) (65,850,148) (63,779,884)
Rent expense, net of sub-lease
income of
$119,272, $0 and $0.............. 3,060,243 1,609,487 1,288,197
Other............................. 122,559,161 75,701,177 67,058,781
------------ ------------ ------------
Total............................. $151,043,021 $110,890,061 $ 83,725,839
============ ============ ============
</TABLE>
F-43
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
11. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments presented below have
been determined by the Company using market information available as of
December 31, 1996 and 1995 and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value for financial instruments for which there
are no available market value quotations.
The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
DECEMBER 31, 1996: VALUE FAIR VALUE
- ------------------ ------------ ------------
<S> <C> <C>
Assets
Fixed Maturities................................... $553,950,961 $554,795,228
Policy loans....................................... 76,262,779 76,262,779
Short-term investments............................. 156,559,460 156,559,460
Cash and cash equivalents.......................... 49,147,342 49,147,342
Separate Account Assets............................ 192,632,348 192,632,348
Liabilities
Policyholder account balances...................... 6,269,574 6,031,664
Other policyholder funds........................... 2,071,162 2,071,162
Short and long-term debt........................... 84,056,337 84,056,337
Separate Account Balances.......................... 208,269,567 192,632,348
<CAPTION>
CARRYING ESTIMATED
DECEMBER 31, 1995: VALUE FAIR VALUE
- ------------------ ------------ ------------
<S> <C> <C>
Assets
Fixed Maturities................................... $612,385,484 $612,711,339
Mortgage loans..................................... 2,210,153 2,210,153
Policy loans....................................... 58,210,498 58,210,498
Short-term investments............................. 20,828,254 20,828,254
Cash and cash equivalents.......................... 35,129,015 35,129,015
Separate Account Assets............................ 39,701,263 39,701,263
Liabilities
Policyholder account balances...................... 2,582,913 2,382,538
Other policyholder funds........................... 2,353,586 2,353,586
Short and long-term debt........................... 79,347,546 79,347,546
Separate Account Balances.......................... 42,297,885 39,701,263
</TABLE>
For bonds that are publicly traded, estimated fair value was obtained from an
independent market pricing service. Publicly traded bonds represented
approximately 96 percent of the carrying value and estimated fair value of the
total bonds as of December 31, 1996 and 71 percent of the carrying value and
estimated fair value of the total bonds as of December 31, 1995. For all other
bonds, estimated fair value was determined by management, based primarily on
interest rates, maturity, credit quality and average life. Estimated fair
values of mortgage loans were generally based on discounted projected cash
flows using interest rates offered for loans to borrowers with comparable
credit ratings and for the same maturities. Estimated fair values of policy
loans were based on discounted projected cash flows using U.S. Treasury rates
to approximate interest rates and Company experience to project patterns of
loan accrual and repayment. For cash and cash equivalents and short-term
investments, the carrying amount is a reasonable estimate of fair value.
F-44
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The fair values for policyholder account balances are estimated using
discounted projected cash flows, based on interest rates being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued. Other policyholder funds include liabilities without
defined durations such as policy proceeds and dividends left with the Company.
The estimated fair value of such liabilities, which generally are of short
duration or have periodic adjustments of interest rates, approximates their
carrying value.
The estimated fair value of short and long-term debt was determined using
rates currently available to the Company for debt with similar terms and
remaining maturities.
12. STATUTORY FINANCIAL INFORMATION
The Interpretation and Standard required life insurance companies to adopt all
standards promulgated by the FASB in their general purpose financial
statements. The effect of all adjustments of initially applying the
Interpretation and Standard has been presented as an adjustment to the 1994
opening balance of equity. The components of such adjustments are as follows:
<TABLE>
<S> <C>
JANUARY 1, 1994:
NELICO Historical.............................................. $ 94,378,654
Other Subsidiaries Combined Historical......................... 13,965,944
------------
108,344,598
Adjustments to GAAP for life insurance companies:
Future policy benefits and policyholder account balances..... (92,581,713)
Deferred policy acquisition costs............................ 197,723,446
Deferred federal income taxes................................ (28,204,895)
Valuation of investments..................................... 116,100
Statutory investment valuation reserves...................... 206,448
Statutory interest maintenance reserve....................... 75,672
Other, net................................................... (1,901,741)
------------
Equity......................................................... $183,777,915
============
</TABLE>
The following reconciles statutory net income and statutory surplus and
reflects the corporate reorganization described in Note 1 determined in
accordance with accounting practices prescribed or permitted by insurance
regulatory authorities with net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Statutory net income (loss)........ $(46,020,586) $ 374,833 $(56,208,918)
Adjustments to GAAP for life
insurance companies:
Future policy benefits and
policyholders account balances.. (41,173,515) (9,616,060) (51,901,361)
Deferred policy acquisition
costs........................... 68,626,162 45,823,425 128,219,002
Deferred Federal Income taxes.... 2,282,802 (6,798,961) (6,148,500)
Statutory interest maintenance
reserve......................... 231,011 (744) (221)
Other, net....................... 25,755,595 (9,016,876) (6,823,254)
------------ ----------- ------------
Net GAAP Earnings.................. $ 9,701,469 $20,765,617 $ 7,136,748
============ =========== ============
</TABLE>
F-45
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Statutory surplus.............. $ 355,853,248 $ 203,373,628 $ 142,727,150
Adjustments to GAAP for life
insurance companies:
Future policy benefits and
policyholders account
balances.................... (195,272,649) (154,099,134) (144,483,074)
Deferred policy acquisition
costs....................... 434,636,395 353,809,245 325,859,523
Deferred Federal Income tax-
es.......................... (40,185,081) (55,200,949) (34,365,181)
Valuation of investments..... 11,502,988 58,062,684 114,109
Statutory interest mainte-
nance reserve............... 305,720 74,707 75,451
Statutory investment valua-
tion reserves............... 3,334,658 372,954 137,202
Surplus notes................ (58,910,797) (54,210,173) (49,870,000)
Receivables from reinsurance
transactions................ 26,029,575 -- --
Other, net................... 13,127,635 2,320,160 2,973,051
------------- ------------- -------------
GAAP Equity.................... $ 550,421,692 $ 354,503,122 $ 243,168,231
============= ============= =============
</TABLE>
13. RELATED PARTY TRANSACTIONS
Prior to the merger NELICO operated under a service agreement with its parent
NEMLICO to receive all executive, legal, clerical and other personnel
services. Subsequent to the merger, the Company has entered into a Service
Agreement to provide all administrative, accounting, legal and similar
services to MetLife for certain Administered Contracts, which are life
insurance and annuity contracts issued by NEMLICO prior to the merger of
NEMLICO and MetLife and those policies and contracts defined in the Service
Agreement as Transition Policies which were sold by the Company's field force
post-merger.
The Company charged MetLife $88,043,274 including accruals for administrative
services on NEMLICO administered contracts for the period of September 1, 1996
through December 31, 1996. Prior to the merger, the Company paid $62,643,521
to NEMLICO for administrative services on variable-life and variable-annuity
contracts for the period of January 1, 1996 through August 31, 1996. In 1995,
the Company paid $50,875,006 to NEMLICO for administrative services. These
services were charged based upon direct costs incurred. Service fees are
recorded by NELICO as a reduction in operating expenses.
In 1996, MetLife made a non-cash capital contribution to the Company of common
stock of affiliated companies consisting of Exeter, NEPA, NES, Newbury, Omega
Reinsurance Corp., TNE Advisers Inc., and TNE Information Services Inc. with a
total estimated statutory fair value of $29,557,626. MetLife also made non-
cash capital contributions of home-office properties of $10,301,481, socially-
responsible investments with a book value of $11,916,278, furniture, equipment
and leasehold improvements of $27,816,216 and a cash contribution of
$128,412,170. Prior to the merger, NEMLICO made a cash contribution to NELICO
of $20,000,000.
In 1995, NEMLICO made a non-cash capital contribution to NELICO of publicly-
traded debt securities and private-placement obligations with an estimated
fair value of $54,028,223. NELICO received cash contributions from NEMLICO of
$8,215,000 and $11,648,000 in 1995 and 1994, respectively.
The Company entered into a lease agreement with MetLife on August 30, 1996 for
the home-office building which it occupies on 501 Boylston Street in Boston,
Massachusetts. The Company paid $780,160 for lease payments to MetLife for
1996.
Commissions earned by NES from sales of New England Funds (NEF) shares, a
subsidiary of MetLife, amounted to $14,791,000 in 1996. Included in accrued
income at December 31, 1996, were amounts receivable for assets-based
F-46
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
commissions from NEF totaling $226,000. In 1996, NES earned asset based income
of $7,605,000 on average assets of approximately $3.5 billion under management
with NEF.
Exeter has a privately-placed subordinated notes payable to MetLife for
$58,910,797 at December 31, 1996 and $54,210,173 at December 31, 1995.
On June 21, 1996, NEMLICO purchased a mortgage from NELICO for $2,216,703
which included principal of $2,203,774, and interest of $12,929.
Stockholder dividends or other distributions proposed to be paid by NELICO
must be approved by the Massachusetts Commissioner of Insurance if such
dividends or distributions, together with other dividends or distributions
made within the preceding 12 months, exceeds the greater of (1) 10% of
NELICO's statutory surplus as regards policyholders as of the previous
December 31, or (2) NELICO's statutory net gain from operations for the 12
month period ending the previous December 31.
Of the statutory profits earned by NELICO on participating policies and
contracts, the portion which shall inure to the benefit of NELICO's
stockholder shall not exceed the larger of (1) 10% of such statutory profits,
or (2) fifty cents per year per thousand dollars of participating life
insurance other than group term insurance in force at the end of the year.
F-47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
New England Variable Life Insurance Company:
We have audited the statutory balance sheet of New England Variable Life
Insurance Company (a wholly-owned subsidiary of New England Mutual Life
Insurance Company) as of December 31, 1995, and the related statutory
statements of operations, surplus, and cash flows for each of the two years in
the period ended December 31, 1995. These statutory financial statements (not
presented separately herein) are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described more fully in Note 1 to the aforementioned financial statements,
the Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware
(SAP), which practices after 1996 (upon issuance of 1996 financial statements)
differ from generally accepted accounting principles (GAAP).
In our report dated March 8, 1996, we expressed our opinion that the 1995 and
1994 financial statements, prepared using SAP, presented fairly, in all
material respects the financial position of New England Variable Life
Insurance Company as of December 31, 1995, and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1995 in conformity with GAAP. As described in Note 1 to the financial
statements, financial statements of wholly-owned subsidiaries of mutual life
insurance enterprises prepared in accordance with SAP are no longer considered
to be presented in conformity with GAAP. Accordingly, our present opinion on
the 1995 and 1994 financial statements is different from that expressed in our
previous report.
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above (and not
included herein) do not present fairly, in conformity with GAAP, the financial
position of New England Variable Life Insurance Company as of December 31,
1995, or the results of its operations or its cash flows for each of the two
years in the period ended December 31, 1995.
In our opinion, the statutory financial statements referred to above (and not
included herein) present fairly, in all material respects, the financial
condition of New England Variable Life Insurance Company as of December 31,
1995, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1995, on the basis of accounting
practices prescribed or permitted by the Insurance Department of the State of
Delaware.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 6, 1996, except for the
information in the penultimate
paragraph under "Basis of
Presentation and Principles of
Consolidation" of Note 1, for which
the date is February 18, 1997
F-48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
New England Pension and Annuity Company:
We have audited the statutory balance sheet of New England Pension and Annuity
Company (a wholly-owned subsidiary of New England Mutual Life Insurance
Company) as of December 31, 1995, and the related statutory statements of
operations and surplus, and cash flows for each of the two years in the period
ended December 31, 1995. These statutory financial statements (not presented
separately herein) are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described more fully in Note 1 to the aforementioned financial statements,
the Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware
(SAP), which practices after 1996 (upon issuance of 1996 financial statements)
differ from generally accepted accounting principles (GAAP).
In our report dated March 8, 1996, we expressed our opinion that the 1995 and
1994 financial statements, prepared using SAP, presented fairly, in all
material respects the financial position of New England Pension and Annuity
Company as of December 31, 1995, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1995 in
conformity with GAAP. As described in Note 1 to the financial statements,
financial statements of wholly-owned subsidiaries of mutual life insurance
enterprises prepared in accordance with SAP are no longer considered to be
presented in conformity with GAAP. Accordingly, our present opinion on the
1995 and 1994 financial statements is different from that expressed in our
previous report.
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above (and not
included herein) do not present fairly, in conformity with GAAP, the financial
position of New England Pension and Annuity Company as of December 31, 1995,
or the results of its operations or its cash flows for each of the two years
in the period ended December 31, 1995.
In our opinion, the statutory financial statements referred to above (and not
included herein) present fairly, in all material respects, the financial
condition of New England Pension and Annuity Company as of December 31, 1995,
and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 1995, on the basis of accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 6, 1996, except for the
information in the penultimate
paragraph under "Basis of Presentation
and Principles of Consolidation" of
Note 1, for which the date is February
18, 1997
F-49
<PAGE>
April 23, 1996
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholder of
Exeter Reassurance Company, Ltd.
We have audited the statutory balance sheet of Exeter Reassurance Company,
Ltd. (a wholly-owned subsidiary of New England Mutual Life Insurance Company)
as of December 31, 1995 and the related statutory statements of operations and
surplus, and cash flows for the year then ended. These statutory financial
statements (not presented separately herein) are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The statutory financial statements have been prepared in conformity with The
Insurance Act 1978, amendments thereto and related regulations and are not
intended to be presented in conformity with accounting principles generally
accepted in the United States of America ("U.S. GAAP").
In our opinion, because of the effects of the matter discussed in the
preceding paragraph, the financial statements referred to above (and not
included herein) do not present fairly in conformity with U.S. GAAP, the
financial position of Exeter Reassurance Company, Ltd. as of December 31,
1995, or the results of its operations or its cash flows for the year then
ended. In our opinion, the statutory financial statements referred to above
(and not included herein) present fairly, in all material respects, the
financial condition of Exeter Reassurance Company, Ltd. as of December 31,
1995, and the results of its operations and its cash flows for the year then
ended in conformity with the Insurance Act 1978, amendments thereto and
related regulations.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
F-50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
New England Securities Corporation:
We have audited the consolidated statement of financial condition of New
England Securities Corporation as of December 31, 1995, and the related
consolidated statements of operations, shareholder's equity, and cash flows
for the year then ended. These financial statements (not presented separately
herein) are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above (and not included
herein) present fairly, in all material respects, the consolidated financial
position of New England Securities Corporation as of December 31, 1995, and
the consolidated results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 9, 1996
F-51
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
TNE Advisers, Inc.:
We have audited the balance sheet of TNE Advisers, Inc. as of December 31,
1995, and the related statements of operations, changes in shareholder's
equity (deficit), and cash flows for the year ended December 31, 1995, and for
the period August 26, 1994 (commencement of operations) through December 31,
1994. These financial statements (not presented separately herein) are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above (and not included
herein) present fairly, in all material respects, the financial position of
TNE Advisers, Inc. as of December 31, 1995, and the results of its operations
and its cash flows for the year ended December 31, 1995, and for the period
August 26, 1994 (commencement of operations) through December 31, 1994, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 29, 1996
F-52
<PAGE>
March 14, 1996
INDEPENDENT AUDITORS' REPORT
To The Shareholders of
Newbury Insurance Company, Limited
We have audited the accompanying balance sheets of Newbury Insurance Company,
Limited as of December 31, 1995, and the related statements of earnings and
retained earnings and cash flows for each of the two years in the period ended
December 31, 1995 (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
Except as discussed in the following paragraph, we conducted our audits in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The provision for losses incurred but not reported is calculated in the manner
described in note 3(b). We have not reviewed the underlying information used
in the calculation of the provision and therefore we have been unable to
determine whether the provisions for the years ended December 31, 1995 and
1994 are adequate, deficient or excessive.
In our opinion, except for the effects of such adjustments, if any, that might
have been determined to be necessary had we been able to assess fully the
matter described in the preceding paragraph, the financial statements referred
to above (and not included herein) present fairly, in all material respects,
the financial position of Newbury Insurance Company, Limited as of December
31, 1995, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1995 and 1994, in conformity with
accounting principles generally accepted in the United States of America.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
F-53
<PAGE>
Part II
RULE 484 UNDERTAKING
Section 9 of NELICO's By-Laws provides that NELICO shall, to the extent
legally permissible, indemnify its directors and officers against liabilities
and expenses relating to lawsuits and proceedings based on such persons' roles
as directors or officers. However, Section 9 further provides that no such
indemnification shall be made with respect to any matter as to which a director
or officer is adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the corporation. Section 9
also provides that in the event a matter is disposed of by a settlement payment
by a director or officer, indemnification will be provided only if the
settlement is approved as in the best interest of the corporation by (a)
disinterested majority of the directors then in office, (b) a majority of the
disinterested directors then in office, or (c) the holders of a majority of
outstanding voting stock (exclusive of any stock owned by any interested
director or officer).
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
NELICO pursuant to the foregoing provisions, or otherwise, NELICO has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification may be against public policy as expressed in The Act and may be,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by NELICO of expenses incurred or paid by a
director, officer, or controlling person of NELICO in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered. NELICO
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
REPRESENTATIONS
New England Life Insurance Company hereby represents that the fees and
charges deducted under the limited payment variable life insurance policies
described in this registration statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by New England Life Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and
documents:
The facing sheet.
A reconciliation and tie-in of the information shown in the prospectus
with the items of Form N-8B-2.@@
The prospectus consisting of 140 pages.
The undertaking to file reports.@
The undertaking pursuant to Rule 484(b) under the Securities Act of
1933.
The signatures.
Written consents of the following persons:
H. James Wilson, Esq. (see Exhibit 3(i) below)
Rodney J. Chandler, F.S.A., M.A.A.A.
(see Exhibit 3(ii) below)
Sutherland, Asbill & Brennan, L.L.P.
(see Exhibit 6 below)
Independent Auditors (see Exhibit 11 below)
The following exhibits:
1.A. (1) January 31, 1983 resolution of the Board of
Directors of NEVLICO**
II - 1
<PAGE>
(2) None
(3) (a) Distribution Agreement between NEVLICO and NELESCO*
(b)(i) Form of Contract between NEVLICO and its General Agents+++
(ii) Form of contract between NEVLICO and its Agents+++
(c) Commission Schedule for Policies@@
(d) Form of contract among NES, TNE, NEVLICO and other
broker dealers++
(4) None
(5) (a) Specimen of Policy, including Applications@
(b) Consolidated Application+++
(c) Riders to Policy+++
(d) Business Marketing Application++++
(e) Substitution of Insured Rider++++
(f) Level Term Rider@
(g) Convert to Term Rider@@
(h) Acceleration of Benefits Rider ####
(6) (a) Amended and restated Articles of Incorporation and amended
and restated By-Laws of NELICO###
(7) None
(8) None
(9) None
2. See Exhibit 1.A.(5)
3. (i) Opinion and Consent of H. James Wilson, Esquire@@
(ii) Opinion and Consent of Rodney J. Chandler, F.S.A., M.A.A.A.
4. None
5. Inapplicable
6. Consent of Sutherland, Asbill & Brennan, L.L.P.
7. Powers of Attorney ###
8. Notice of Withdrawal Right for Policies@@
9. Inapplicable
10. Inapplicable
11. Consents of Independent Auditors
12. Schedule for computation of performance quotations+
II - 2
<PAGE>
13. Consolidated memorandum describing certain procedures,
filed pursuant to Rule 6e-2(b)12(ii) and
Rule 6e-3(T)(b)(12)(iii)#
14. Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and New England
Variable Life Insurance Company@
(ii) Amendment No. 1 to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors
Corporation and New England Variable Life Insurance
Company##
(iii) Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and New
England Variable Life Insurance Company##
27. Financial Data Schedule
-----------
* Incorporated herein by reference to Pre-Effective Amendment No. 1 to
the Variable Account's Form S-6 Registration Statement, File No.
2-82838, filed July 28, 1983.
** Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 2-82838, filed April 4, 1983.
+ Incorporated herein by reference to Post-Effective Amendment No. 2 to
the Variable Account's Form S-6 Registration Statement, File No.
33-19540, filed April 28, 1989.
++ Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 33-52050, filed September 16, 1992.
+++ Incorporated herein by reference to Pre-Effective Amendment No. 1 to
the Variable Account's Form S-6 Registration Statement, File No.
33-52050, filed January 12, 1993.
II - 3
<PAGE>
++++Incorporated herein by reference to Post-Effective Amendment No. 1 to
the Variable Account's Form S-6 Registration Statement, File No.
33-52050, filed on February 23, 1993.
@ Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 33-64170, filed June 9, 1993.
@@ Incorporated herein by reference to Pre-Effective Amendment No. 1 to
the Variable Account's Form S-6 Registration Statement, File No.
33-64170, filed October 26, 1993.
# Incorporated herein by reference to Post-Effective Amendment No. 6 to
the Variable Account's Form S-6 Registration Statement, File No. \
33-52050, filed April 28, 1995.
## Incorporated herein by reference to Pre-Effective Amendment No. 1 to
the Variable Account's Form S-6 Registration Statement, File No.
33-88082, filed June 22, 1995.
### Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 333-21767, filed February 13, 1997.
#### Incorporated herein by reference to Post-Effective Amendment No. 8 to the
Variable Account's Form S-6 Registration Statement, File No.
33-52050, filed April 30, 1997.
II - 4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, New England Variable Life Separate Account, certifies that it meets
all of the requirements for effectiveness of this amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to the Registration Statement to be signed on its behalf
by the undersigned thereunto duly authorized, and its seal to be hereunto
affixed and attested, all in the city of Boston, and the Commonwealth of
Massachusetts, on the 29th day of April, 1997.
New England Variable Life Separate
Account
(Registrant)
By: New England Life Insurance
Company
(Depositor)
By: /s/ Chester R. Frost
----------------------------
Chester R. Frost
Senior Vice President and
Treasurer
Attest:
/s/Marie C. Swift
- -------------------
Marie C. Swift
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, New England
Life Insurance Company certifies that it meets all of the requirements for
effectiveness of this amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the city of Boston, and the Commonwealth of Massachusetts, on the 29th day of
April, 1997.
New England Life Insurance Company
(Seal)
Attest: /s/Marie C. Swift By: /s/ Chester R. Frost
------------------- -----------------------
Marie C. Swift Chester R. Frost
Senior Vice President and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on April 29, 1997.
<TABLE>
<S> <C>
*
- ---------------------- Chairman, President and
Robert A. Shafto Chief Executive Officer
*
- ---------------------- Director
Susan C. Crampton
* Senior Vice President and Treasurer,
- ---------------------- Chief Accounting Officer
Chester R. Frost
*
- ---------------------- Director
Edward A. Fox
*
- ---------------------- Director
George J. Goodman
*
- ---------------------- Director
Paul E. Gray
*
- ---------------------- Director
Evelyn E. Handler
*
- ---------------------- Director
Philip K. Howard
*
- ---------------------- Director
Harry P. Kamen
*
- ----------------------- Director
Terence Lennon
</TABLE>
<PAGE>
<TABLE>
<S> <C>
* Director
- ----------------------
Bernard A. Leventhal
* Director
- ----------------------
Thomas J. May
* Director
- ----------------------
Stewart G. Nagler
* Executive Vice President and
- ----------------------
Robert E. Schneider Chief Financial Officer
* Director
- ----------------------
Rand N. Stowell
* Director
- -----------------------
Alexander B. Trowbridge
</TABLE>
By: /s/ Anne M. Goggin
---------------------
Anne M. Goggin, Esq.
Attorney-in-fact
* Executed by Anne M. Goggin, Esquire on behalf of those indicated
pursuant to powers of attorney filed with the Variable Account's Form
S-6 Registration Statement, File No. 333-21767, on February 13, 1997.
<PAGE>
EXHIBIT LIST
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Title Page*
- ------ ----- -----
<S> <C> <C>
3. (ii) Opinion and Consent of Rodney J.
Chandler, F.S.A., M.A.A.A.
6. Consent of Sutherland, Asbill &
Brennan, L.L.P.
11. Consents of the Independent Auditors
27. Financial Data Schedule
</TABLE>
- -----------
* Page numbers inserted on manually-signed copy only.
<PAGE>
Exhibit 3(ii)
April 28, 1997
New England Life Insurance Company
501 Boylston Street
Boston, MA 02117
Gentlemen:
In my capacity as Second Vice President and Actuary of New England Life
Insurance Company (the "Company"), I have provided actuarial advice concerning:
The preparation of Post-Effective Amendment No. 5 to the registration
statement on Form S-6 (File No. 33-64170) filed by New England Variable
Life Separate Account and the Company with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to variable
life insurance policies (the "Registration Statement"); and
The preparation of policy forms for the variable life insurance
policies described in the Registration Statement (the "Policies").
It is my professional opinion that:
1. The illustrations of death benefits, net cash values, accumulated
premiums, internal rates of return on net cash values and internal
rates of return on death benefits shown in Appendix A of the
Prospectus, based on the assumptions stated in the illustrations, are
consistent with the provisions of the Policies. The rate structure of
the Policies has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear to
be correspondingly more favorable to prospective purchasers of Policies
for males aged 40 or 50 in the underwriting class illustrated than to
prospective purchasers of Policies for males at other ages or for
females. Insureds in other underwriting classes may have higher cost of
insurance charges and premiums.
2. The information contained in the description of historical investment
experience in Appendix B, based on the assumptions stated in the
Appendix, is consistent with the provisions of the Policies.
3. The illustration of net scheduled premiums and net unscheduled payments
shown under the heading "Charges and Expenses-Deductions from Premiums
and Unscheduled Payments" in the Prospectus contains the net scheduled
premium and net unscheduled payment amounts allocated to the Variable
Account for scheduled premiums and
<PAGE>
Page 2
April 28, 1997
unscheduled payments of $2,000 each under a Policy with no riders and
covering an insured who is not in a substandard risk or automatic issue
classification.
4. The information contained in the example of how the maximum loanable
amount is determined under the heading "Other Policy Features-Loan
Provision" in the Prospectus is consistent with the Provisions of the
Policies.
5. The information contained in the examples of how the maximum amount of
cash available for withdrawal is determined, under the heading "Partial
Surrender and Partial Withdrawal" in the Prospectus, is consistent with
the provisions of the Policies.
I hereby consent to the filing of this opinion as an Exhibit to this
Post-Effective Amendment to the Registration Statement and to the use of my name
under the heading "Experts" in the Prospectus.
Sincerely,
Rodney J. Chandler, F.S.A., M.A.A.A.
Second Vice President and Actuary
<PAGE>
Exhibit 6
Sutherland, Asbill & Brennan, L.L.P.
CONSENT OF SUTHERLAND, ASBILL & BRENNAN, L.L.P.
We consent to the reference to our firm under the heading "Legal
Matters" in the prospectus included in Post-Effective Amendment No. 5 to the
Registration Statement on Form S-6 for certain variable life insurance policies
issued through New England Variable Life Separate Account of New England Life
Insurance Company (File No. 33-64170). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
Washington, D.C.
April 28, 1997
<PAGE>
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 5 to the Registration
Statement No. 33-64170 of New England Variable Life Separate Account (the
"Separate Account") of New England Life Insurance Company (the "Company") of our
reports dated February 18, 1997, on the financial statements of the Separate
Account and the Company for the year ended December 31, 1996, appearing the
Prospectus, which is part of such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Boston, Massachusetts
April 28, 1997
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 5 to the
Registration Statement on Form S-6 (File No. 64170) of our reports, which
include adverse opinions as to generally accepted accounting principles and
unqualified opinions as to statutory accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, dated March 8,
1996, except as to the information in the penultimate paragraph under "Basis of
Presentation and Principles of Consolidation" of Note 1, for which the date is
February 18, 1997, on our audits of the statutory financial statements of New
England Variable Life Insurance Company and New England Pension and Annuity
Company, and our reports dated February 6, 1996, on our audits of New England
Variable Annuity Separate Account and New England Variable Life Separate Account
of New England Variable Life Insurance Company. We also consent to the inclusion
in this Registration Statement, which include an adverse opinion as to generally
accepted accounting principles and an unqualified opinion as to conformity with
The Insurance Act 1978, dated April 23, 1996, except as to the information in
the penultimate paragraph under "Basis of Presentation and Principles of
Consolidation" of Note 1, for which the date is February 18, 1997, on our audit
of the statutory financial statements of Exeter Reassurance Company, Ltd., and
our report dated February 9, 1996, on our audit of New England Securities
Corporation, and our report dated February 29, 1996, on our audit of TNE
Advisers, Inc., and our report dated March 14, 1996, on our audit of Newbury
Insurance Company, Limited. We also consent to the reference to our Firm under
the caption "Experts" in this Post-Effective Amendment.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 804,508,248
<INVESTMENTS-AT-VALUE> 998,994,493
<RECEIVABLES> 2,543,142
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,001,537,635
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 115,152,837
<TOTAL-LIABILITIES> 115,152,837
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 886,384,798
<DIVIDEND-INCOME> 50,453,549
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 4,984,819
<NET-INVESTMENT-INCOME> 45,468,730
<REALIZED-GAINS-CURRENT> 1,232,236
<APPREC-INCREASE-CURRENT> 93,332,729
<NET-CHANGE-FROM-OPS> 140,033,695
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 273,750,514
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
