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As filed with Securities and Exchange Commission on
April 30, 1997
Registration No. 33-88082
------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-6
POST-EFFECTIVE AMENDMENT NO. 2
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
Flexible Premium Adjustable
Variable Life Insurance Policies
Issued by
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus describes individual Flexible Premium Adjustable Variable
Life Insurance Policies (the "Policies") offered by New England Life Insurance
Company ("NELICO"), an indirect, wholly-owned subsidiary of Metropolitan Life
Insurance Company ("MetLife").
Each Policy provides premium flexibility together with two types of death
benefit guarantees as long as the total amount of premiums paid with interest,
less any partial surrenders with interest, at least equals certain minimum
amounts and there is no policy loan. (Policies issued in New York offer one
death benefit guarantee.)
You may choose between two death benefit options, one of which provides a
fixed death benefit equal to the Policy's face amount and one of which
provides a variable death benefit which may vary daily with the net investment
experience of one or more mutual fund portfolios. Under either of the death
benefit options, the minimum death benefit guarantee(s) will be available. The
cash value of the Policy generally will increase with the payment of each
premium but will vary daily with the investment experience of the mutual fund
portfolios. There is no guaranteed minimum cash value for investments in the
mutual fund portfolios.
You may cancel the Policy during the "right to return the Policy" period.
The first net premium for the Policy will be 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. Thereafter, the Policy's cash value will be invested according to your
instructions.
You may, within limits, allocate premiums to one or more of the 16
investment Sub-Accounts of NELICO's Variable Life Separate Account (the
"Variable Account") or to NELICO's Fixed Account, after certain deductions
have been made. Each Sub-Account of the Variable Account invests in the shares
of one of the Eligible Funds. The Eligible Funds are: the Back Bay Advisors
Money Market Series, the Back Bay Advisors Bond Income Series, the Capital
Growth Series, the Westpeak Stock Index Series, the Back Bay Advisors Managed
Series, the Westpeak Growth and Income Series, the Loomis Sayles 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"). The Series of the Zenith Fund are advised by affiliates of
NELICO. The VIP Fund and VIP Fund II are advised by Fidelity Management &
Research Company.
SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE OUT OF THE FIXED ACCOUNT.
It may not be advantageous to replace existing insurance with the Policy
described in this prospectus. (See "Charges and Expenses".)
- ----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THIS PROSPECTUS IS NOT VALID UNLESS ACCOMPANIED OR PRECEDED BY THE
CURRENT PROSPECTUSES OF THE NEW ENGLAND ZENITH FUND AND OF THE VARIABLE
INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II, WHICH ARE
ATTACHED AT THE END OF THIS PROSPECTUS. THESE PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
SHARES OF THE ZENITH FUND, THE VIP FUND AND THE VIP FUND II, AND INTERESTS
IN THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, A BANK, AND THE SHARES AND INTERESTS ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
MAY 1, 1997
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TABLE OF CONTENTS
<TABLE>
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GLOSSARY.................................................................. A-4
INTRODUCTION TO THE POLICIES.............................................. A-6
The Policies............................................................ A-6
Availability of the Policy.............................................. A-8
Policy Charges.......................................................... A-8
How the Policy Works.................................................... A-10
Receipt of Communications and Payments at NELICO's Home Office.......... A-11
NELICO.................................................................. A-11
POLICY VALUES AND BENEFITS................................................ A-12
Death Benefit........................................................... A-12
Minimum Guaranteed Death Benefit........................................ A-12
Adjustments to the Death Proceeds Payable............................... A-14
Change in Death Benefit Option.......................................... A-14
Extending the Maturity Date............................................. A-14
Cash Value.............................................................. A-14
Net Investment Experience............................................... A-15
Allocation of Net Premiums.............................................. A-15
Amount Provided for Investment under the Policy......................... A-15
Right to Return the Policy.............................................. A-16
CHARGES AND EXPENSES...................................................... A-16
Deductions from Premiums................................................ A-16
Surrender Charge........................................................ A-17
Monthly Deduction from Cash Value....................................... A-19
Charges Against the Eligible Funds and the Sub-Accounts of the Variable
Account................................................................ A-21
Group or Sponsored Arrangements......................................... A-22
PREMIUMS.................................................................. A-22
Flexible Premiums....................................................... A-22
Lapse and Reinstatement................................................. A-24
OTHER POLICY FEATURES..................................................... A-24
Increase in Face Amount................................................. A-24
Loan Provision.......................................................... A-25
Surrender............................................................... A-27
Partial Surrender....................................................... A-27
Reduction in Face Amount................................................ A-28
Acceleration of Death Benefit Rider..................................... A-28
Investment Options...................................................... A-28
Transfer Option......................................................... A-29
Substitution of Insured Person.......................................... A-29
Payment of Proceeds..................................................... A-29
24 Month Right.......................................................... A-30
Payment Options......................................................... A-31
Additional Benefits by Rider............................................ A-31
Policy Owner and Beneficiary............................................ A-32
THE VARIABLE ACCOUNT...................................................... A-32
Investments of the Variable Account..................................... A-33
Investment Management................................................... A-36
THE FIXED ACCOUNT......................................................... A-36
General Description..................................................... A-37
</TABLE>
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Values and Benefits..................................................... A-37
Policy Transactions..................................................... A-37
NELICO'S DISTRIBUTION AGREEMENT........................................... A-38
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY.......................... A-39
Misstatement of Age or Sex.............................................. A-39
Suicide................................................................. A-39
TAX CONSIDERATIONS........................................................ A-39
Policy Proceeds......................................................... A-39
Charge for NELICO's Income Taxes........................................ A-42
MANAGEMENT................................................................ A-43
VOTING RIGHTS............................................................. A-46
RIGHTS RESERVED BY NELICO................................................. A-46
TOLL-FREE NUMBERS......................................................... A-47
REPORTS................................................................... A-47
ADVERTISING PRACTICES..................................................... A-47
LEGAL MATTERS............................................................. A-47
REGISTRATION STATEMENT.................................................... A-48
EXPERTS................................................................... A-48
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET CASH VALUES
AND ACCUMULATED PREMIUMS................................................. A-49
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............................. A-59
APPENDIX C: LONG TERM MARKET TRENDS....................................... A-75
APPENDIX D: USES OF LIFE INSURANCE........................................ A-77
APPENDIX E: TAX INFORMATION............................................... A-78
FINANCIAL STATEMENTS...................................................... F-1
</TABLE>
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GLOSSARY
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
AGE. For purposes of this prospectus, the age of an insured refers to the
insured's age at his or her nearest birthday.
CASH VALUE. A Policy's cash value includes the amount of its cash value held
in the Variable Account, the amount held in the Fixed Account and, if there is
an outstanding policy loan, the amount of its cash value held in NELICO's
general account as a result of the loan. (See "Cash Value".)
COST OF INSURANCE CHARGE. This charge for providing insurance protection is
deducted on the Policy Date and on the first day of each policy month. The
cost of insurance for a policy month is equal to the amount at risk multiplied
by the cost of insurance rate for that month. Cost of insurance rates vary
monthly. (See "Monthly Deduction from Cash Value".)
DEATH BENEFIT OPTION 1. Death Benefit equals the greater of (i) the face
amount of the Policy and (ii) a percentage, determined in accordance with
federal income tax laws, of the Policy's cash value, including the pro rata
portion of any Monthly Deduction made for a period beyond the date of death.
(See "Death Benefit".)
DEATH BENEFIT OPTION 2. Death Benefit equals the greater of (i) the face
amount of the Policy plus the Policy's cash value and (ii) a percentage,
determined in accordance with federal income tax laws, of the Policy's cash
value, including the pro rata portion of any Monthly Deduction made for a
period beyond the date of death. (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, Overseas Portfolio and the High Income
Portfolio of the VIP Fund; and the Asset Manager Portfolio of VIP Fund II.
(See "The Variable Account".)
EXCESS POLICY LOAN. The situation when policy loans plus accrued interest
exceed the Policy's cash value less the applicable Surrender Charge. (See
"Loan Provision".)
FIXED ACCOUNT. The Fixed Account is a part of NELICO's general account to
which net premiums may be allocated. NELICO provides guarantees of principal
and interest with respect to amounts allocated to the Fixed Account. (See "The
Fixed Account".)
INVESTMENT START DATE. This is the latest of the date NELICO first receives
a premium payment for the Policy, the date Part II of the Policy application
is signed and the Policy Date. It is the date when an amount is first provided
for investment under the Policy. (See "Amount Provided for Investment under
the Policy".)
MATURITY DATE. The Policy anniversary on which the insured is (or would have
been) age 100, unless the extended maturity option has been added to the
Policy. (See "Extending the Maturity Date".)
MINIMUM GUARANTEED DEATH BENEFIT A. The Policy will not lapse, regardless of
whether the net cash value is sufficient to pay a Monthly Deduction, if the
total of: (1) premiums paid in each prior Policy year accumulated at a 4% rate
from the first day of the year of payment to the most recent Policy
anniversary, less partial surrenders accumulated at a 4% rate from the date of
surrender to the most recent Policy anniversary, plus (2) premiums paid less
partial surrenders in the current Policy year, is at least equal to: the
amount shown in the Table of Guaranteed Death Benefit A Premiums Accumulated
at 4% for the prior Policy year plus 1/12 of the Benefit A Premium for each
Policy month of the current year up to and including the month for which the
Monthly Deduction is being processed, and there is no outstanding Policy loan.
(For Policies issued in New Jersey, a Policy loan does not automatically
suspend the guarantee.) Generally, NELICO determines whether this benefit is
in effect on the first day of each Policy month. However, certain Policy
transactions could terminate this guarantee. This guarantee is not available
under Policies issued in New York. (See "Minimum Guaranteed Death Benefit".)
MINIMUM GUARANTEED DEATH BENEFIT B. The Policy will not lapse, regardless of
whether the net cash value is sufficient to pay a Monthly Deduction, if the
total of: (1) premiums paid in each prior Policy year accumulated at a 4% rate
from the first day of the year of payment to the most recent Policy
anniversary, less partial surrenders accumulated at a 4% rate from the date of
surrender to the most recent Policy anniversary, plus (2) premiums paid less
partial surrenders in the current Policy year, is at least equal to: the
amount shown in the Table of Guaranteed Death Benefit B Premiums Accumulated
at 4% for the prior Policy year plus 1/12 of the Benefit B Premium for each
Policy month of the current year up to and including the month for which the
Monthly Deduction is being processed, and there is no outstanding Policy loan.
(For Policies issued in New Jersey, a Policy
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loan does not automatically suspend the guarantee.) Generally, NELICO
determines whether this benefit is in effect on the first day of each Policy
month prior to the later of: the date when the insured attains age 80, and 20
years from the Policy Date, but no later than the Maturity Date. However,
certain Policy transactions could terminate this guarantee. (See "Minimum
Guaranteed Death Benefit".)
MINIMUM PREMIUM. Generally, the Minimum Premium is that amount which, if
timely paid, guarantees that the Policy will not lapse during the first three
Policy years even if the Policy's net cash value is insufficient to pay the
Monthly Deduction in any month. The Minimum Premium amount may be recalculated
following certain Policy transactions. In addition, no three-year Minimum
Premium death benefit guarantee will apply to the Policy following certain
other Policy transactions. (See "Premiums".)
MONTHLY DEDUCTION. The Monthly Deduction is the amount of charges deducted
from the Policy's cash value each month and includes the monthly cost of
insurance, the monthly cost of any benefits provided by riders, the monthly
policy fee, the monthly administrative charge and the monthly minimum death
benefit guarantee charge. (See "Monthly Deduction from Cash Value".)
MORTALITY AND EXPENSE RISK CHARGE. This charge is made daily from the value
of each Sub-Account's assets that come from the Policies. The charge is
currently at an annual rate of .75% 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 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 Surrender Charge that
would apply on surrender and by any outstanding policy loan and accrued
interest on the loan. (See "Cash Value".)
NET INVESTMENT EXPERIENCE. For any period, a Sub-Account's net investment
experience equals the investment experience of the underlying Eligible Fund's
shares for the same period, reduced by the amount of charges against the Sub-
Account for that period. (See "Net Investment Experience".)
PLANNED PREMIUM. The Planned Premium is the premium payment schedule you
choose in an effort to meet your future goals under the Policy. The Planned
Premium is a level amount that is subject to certain limits under the Policy.
Payments in addition to any Planned Premium are referred to in the Policy as
unscheduled payments and can be paid at any time, subject to certain limits.
(See "Premiums".)
PREMIUMS. Premiums include all payments under the Policy, whether a Planned
Premium or an unscheduled payment. (See "Premiums".)
POLICY DATE. If you make a premium payment with the application, the Policy
Date is generally the later of the date Part II of the application was signed
and receipt of the premium payment. If you choose to pay the initial premium
upon delivery of the Policy, the Policy will be issued with a Policy Date
which is generally five days after issue. (See "Amount Provided for Investment
under the Policy".)
TABLE OF GUARANTEED DEATH BENEFIT A PREMIUMS ACCUMULATED AT 4%. The Table of
Guaranteed Death Benefit A Premiums Accumulated at 4%, which appears in the
Policy, is a measurement used to determine if the Minimum Guaranteed Death
Benefit A is in effect. This Table assumes the Guaranteed Death Benefit A
Premium that appears in the Policy is paid on the first day of each Policy
year. The Table shows the value of those premiums accumulated at 4% per year.
This Table is not applicable to Policies issued in New York. (See "Minimum
Guaranteed Death Benefit".)
TABLE OF GUARANTEED DEATH BENEFIT B PREMIUMS ACCUMULATED AT 4%. The Table of
Guaranteed Death Benefit B Premiums Accumulated at 4%, which appears in the
Policy, is a measurement used to determine if the Minimum Guaranteed Death
Benefit B is in effect. This Table assumes the Guaranteed Death Benefit B
Premium that appears in the Policy is paid on the first day of each Policy
year. The Table shows the value of those premiums accumulated at 4% per year.
(See "Minimum Guaranteed Death Benefit".)
TARGET PREMIUM. The Target Premium is used to determine the amount of
Deferred Sales Charge that may apply in the event of a surrender, partial
surrender, lapse or face amount reduction. It varies by issue age, sex and
underwriting class of the insured and the Policy's face amount. The Target
Premium is less than or equal to 75% of the annual premium necessary to
maintain a fixed benefit whole life insurance Policy for the same face amount
on the life of the insured. The annual whole life premium is calculated using
an assumed interest rate of 4%, guaranteed cost of insurance charges and the
current level of other Policy charges. (See "Surrender Charge".)
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 premiums are allocated to
the Variable Account. If the Fixed Account is available in your state, you may
choose to allocate or transfer all or part of your funds to that account.
NELICO provides guarantees of principal and interest with respect to the Fixed
Account which is part of NELICO's general account. Amounts in the Fixed
Account are backed by NELICO's general account, rather than the Variable
Account. For a description of the Fixed Account, see "The Fixed Account" which
appears later in this prospectus.
THE POLICIES
The individual Flexible Premium Adjustable Variable Life Insurance Policies
offered by this prospectus are designed to provide lifetime insurance
coverage. They are not offered primarily as an investment.
The following is a brief listing of the basic features of the Policy. These
and other features of the Policy are explained in detail throughout the
prospectus. You should be sure to read the entire prospectus for more complete
information.
--You may choose to make premium payments under the Policy based on a
schedule you determine, subject to certain limits. NELICO can limit or
prohibit unscheduled payments in certain situations, including cases where
the insured is in a substandard risk class. (See "Premiums".)
--Net premiums are invested according to your instructions in one or more of
the Sub-Accounts of the Variable Account corresponding to mutual fund
portfolios, or the Fixed Account, after an initial period in the Zenith
Back Bay Advisors 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".)
--The portion of the cash value which you invest in the Sub-Accounts is not
guaranteed. You bear the investment risk on this portion of the cash
value. (See "Cash Value".)
--You may choose between two death benefit options under the Policy. The
level option provides a death benefit equal to the Policy's face amount.
The variable option provides a death benefit equal to the face amount plus
any cash value, which varies with the net investment experience of the
Sub-Accounts to which amounts have been allocated and the rate of interest
credited on any cash value in the Fixed Account. Under either of these
options the death benefit could be increased to satisfy tax law
requirements if the cash value reaches certain levels. (See "Death
Benefit".)
--You may increase (after the first Policy year) or decrease the Policy's
face amount. The increase or decrease will be reflected in the Policy's
charges. (See "Increase in Face Amount" and "Reduction in Face Amount".)
--Regardless of investment experience, each form of death benefit is
guaranteed not to be less than the Policy's face amount, as long as the
total amount of premiums paid, with interest, less any partial surrenders,
with interest, at least equals certain minimum amounts and there is no
outstanding Policy loan. (See "Death Benefit" and "Minimum Guaranteed
Death Benefit".)
--Unless the extended maturity option has been added to the Policy, if the
insured is alive and the Policy is in force on the Maturity Date, the
Policy will then terminate. The net cash value as of the Maturity Date
will be paid to you. (See "Extending the Maturity Date".)
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--You may change your allocation of future net premiums 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 (twelve times per policy
year for Policies issued in New York) without NELICO's consent. NELICO
currently allows 12 transfers per policy year in all states. Transfers and
allocations involving the Fixed Account are subject to certain limits.
(See "Transfer Option" and "The Fixed Account--Policy Transactions".)
--A loan privilege is available under the Policy. A partial surrender
feature is also available. (See "Loan Provision" and "Partial Surrender".)
--Death benefits paid to the beneficiary under the Policy generally are not
subject to Federal income tax. Under current law, undistributed increases
in cash value generally are not taxable to you. (See "Tax
Considerations".)
--Loans, assignments and other pre-death distributions under the Policy may
have tax consequences depending primarily on the amount which you have
paid into the Policy but also on any "material change" in the terms or
benefits of the Policy or any death benefit reduction. If premium
payments, a death benefit reduction, or a material change in the terms or
benefits of the Policy cause it to become a "modified endowment contract",
then pre-death distributions (including loans) will be included in income
on an income first basis, and a 10% penalty tax may be imposed on income
distributed before the Policy Owner attains age 59 1/2. Tax considerations
may therefore influence the amount and timing of premium payments and
certain Policy transactions which you choose to make. (See "Tax
Considerations".)
--If the Policy is not a modified endowment contract, NELICO believes that
loans under the Policy 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. You also have the right for a limited
period to cancel an increase in the Policy's face amount which you have
requested. (See "Right to Return the Policy".)
--Within 24 months after a Policy's date of issue or the effective date of a
face amount increase, you may exercise the Policy's 24 Month Right, which
will result in the allocation of all or part of your Policy's cash value
and future premiums to the Fixed Account. The purpose of the 24 Month
Right is to provide you with fixed Policy values and benefits. (See "24
Month Right" for a description of this provision generally and for a
description of the variation which applies to Policies issued in Maryland
and New Jersey.)
In many respects the Policies are similar to fixed-benefit universal life
insurance. Like universal life insurance, the Policies offer death benefits
and provide flexible premiums, a cash value, and loan privileges.
The Policies are different from fixed-benefit universal life insurance in
that the death benefit may, and the cash value will, vary to reflect the
investment experience of the selected Sub-Accounts of the Variable Account.
The variable universal life insurance policies offered by NELICO are
designed to provide insurance protection. Although the underlying mutual fund
portfolios invest in securities similar to those in which mutual funds
available directly to the public invest, in many ways the Policies differ from
mutual fund investments. The main differences are:
--The Policy provides a death benefit based on NELICO's assumption of an
actuarially calculated risk.
--If the net cash value is not sufficient to pay a Monthly Deduction, the
Policy may lapse with no value unless additional premiums are paid. If the
Policy lapses when Policy loans are outstanding, adverse tax consequences
may result.
--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.
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--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, the Policies may be issued on the lives of insureds from the age
of one to 80 on an underwritten basis, and on the lives of insureds from the
age of 20 to 70 on an automatic issue basis. (Automatic issue Policies are not
available in New Jersey.) With NELICO's consent, the Policies may be issued on
the lives of insureds less than the age of one. All persons must meet NELICO's
underwriting and other criteria for issuance. Generally, the minimum face
amount available is $250,000 unless NELICO consents to a lower amount.
However, the minimum face amount available is $50,000 in business situations
(situations in which two or more Policies, on more than one life, are totally
or partially funded, directly or indirectly, by an employer) where either (1)
the average face amount is at least $250,000 or (2) the Policies are issued on
the lives of at least 25 persons and the average face amount is at least
$150,000. The Policies are not available to employee benefit plans qualified
under Section 401 of the Internal Revenue Code, except with NELICO's consent.
POLICY CHARGES
PREMIUM-BASED CHARGES. NELICO deducts the following charges from premiums:
--A maximum sales charge of 4%. NELICO currently intends to waive this
charge on premiums paid after the first 20 policy years. (If you increase
your Policy's face amount, NELICO currently intends to waive this charge
on the portion of premiums attributable to the face amount increase after
20 years from the date of the increase.) A 3% sales charge will apply to
certain larger Policies and to Policies sold in certain larger business
situations;
--A state premium tax charge of 2.5%;
--A charge for federal taxes of 1%.
SURRENDER CHARGE. The Surrender Charge includes:
--A deferred sales charge. This charge applies to a lapse, total or partial
surrender or reduction in face amount during Policy years one through
eleven. The maximum Deferred Sales Charge is imposed for Policies which
cover insureds whose issue age is 55 or less at issue, if you lapse or
surrender the Policy, or reduce its face amount, in Policy years three
through five. The maximum Deferred Sales Charge in those years equals 45%
of one Target Premium plus 13.5% of a second Target Premium and 13.5% of a
third Target Premium. After the fifth Policy year, the maximum Deferred
Sales Charge declines on a monthly basis until it reaches 0% in the last
month of the eleventh Policy year. If you lapse or surrender the Policy,
or reduce its face amount, in the first two Policy years, the maximum
Deferred Sales Charge in the first Policy year will be 25% of one Target
Premium and in the second Policy year will be 25% of one Target Premium
plus 5% of a second Target Premium.
--A deferred administrative charge. This charge applies to a lapse, total or
partial surrender or reduction in face amount during Policy years one
through eleven. This charge is $2.50 per $1,000 of face amount for the
first Policy year, and then reduces monthly until it reaches 0 at the end
of the 11th Policy year. The charge will be less if the issue age is
greater than 65.
--If you increase your Policy's face amount, a new Surrender Charge period
and a separate Target Premium amount will apply to the portion of the
Policy resulting from the face amount increase, starting with the date of
the increase.
The Surrender Charge is deducted from the Policy's available cash value,
regardless of whether that cash value is derived from premiums or investment
experience.
MONTHLY DEDUCTION FROM CASH VALUE. NELICO deducts certain charges from the
cash value:
--Monthly charge for the cost of insurance and for any benefits provided by
rider;
--Monthly administrative charge, currently equal to $0.06 per $1,000 of face
amount for the first Policy year and $0.02 per $1,000 thereafter
(guaranteed not to exceed $0.08 per $1,000 of face amount in the first
Policy year and $0.04 per
A-8
<PAGE>
$1,000 thereafter). On a current basis, NELICO intends not to charge more
than $40 per month for the monthly administrative charge in Policy years
two and after. For certain larger Policies and Policies sold in certain
larger business situations the monthly administrative charge for the first
Policy year currently equals $0.05 per $1,000 of face amount rather than
$0.06;
--Monthly minimum death benefit guarantee charge of $0.01 per $1,000 of face
amount;
--Monthly policy fee, currently equal to $4.50 per month (guaranteed not to
exceed $7.00 per month).
CHARGE FOR FACE AMOUNT INCREASES. If you increase your Policy's face amount
and medical underwriting is required for the increase, a charge of $2.50 per
$1,000 of face amount increase will be deducted from your Policy's cash value
on the date the increase takes effect. NELICO currently limits this charge to
a maximum of $200.
CHARGES DEDUCTED FROM THE VARIABLE ACCOUNT AND THE ELIGIBLE FUNDS. 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 .75% (guaranteed not to
exceed .90%);
--Daily charges against the Eligible Fund portfolios for investment advisory
services and fund operating expenses.
Currently, no charge is made to the Variable Account for federal income
taxes that may be attributable to the Variable Account. NELICO may, however,
impose such a charge in the future.
See "Charges and Expenses" and "Other Policy Features--Increase in Face
Amount".
A-9
<PAGE>
HOW THE POLICY WORKS
- --------------------------------------------------------------------------------
Premium Payments
. Flexible
. Planned premium options
-Minimum premium (in first three Policy years)
-Guaranteed Death Benefit B Premium (to age 80)
-Guaranteed Death Benefit A Premium (to age 100)(not available under Policies
issued in New York)
- --------------------------------------------------------------------------------
[ARROW POINTING TO CHARGES FROM PREMIUM PAYMENTS APPEARS HERE]
- --------------------------------------------------------------------------------
Charges from Premium Payments
. Sales Load: 4% (3% for certain larger Policies and Policies sold in certain
business situations). NELICO intends to waive after 20 policy yrs. and after
20 years for premiums relating to a face amount increase
. State Premium Tax Charge: 2.5%
. Charge for Federal Taxes: 1%
- --------------------------------------------------------------------------------
[ARROW POINTING TO CASH VALUES APPEARS HERE]
- --------------------------------------------------------------------------------
Loans
. After the free look period, you may borrow a portion of your cash value
. Loan interest charge is 5.5%. Loaned funds are transferred out of the Eligible
Funds into the General Account where they are credited with not less than 4.0%
interest
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Retirement Benefits
. Fixed settlement options are available for policy proceeds
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash Values
. Net premium payments invested in your choice of Eligible Fund investments or
the Fixed Account (after an initial period in the Zenith Money Market Sub-
Account)
. The cash value reflects investment experience, interest, premium payments,
policy charges and any distributions from the Policy
. The cash value invested in mutual funds is not guaranteed
. Any earnings are accumulated free of any current income taxes
. You may change the allocation of future net premiums at any time. You may
currently transfer funds among investment options (and to the Fixed Account)
up to 12 times per policy year, after the free look period.
Transfers from (and, in certain circumstances, to) the Fixed Account are
limited as to timing, frequency and amount
. Your cash value may be allocated among a maximum of ten accounts at any one
time
- --------------------------------------------------------------------------------
[ARROW POINTING TO LOANS APPEARS HERE]
[ARROW POINTING TO RETIREMENT BENEFITS APPEARS HERE]
[ARROW POINTING TO DEATH BENEFIT 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 if Death Benefit Guarantee
is in effect
. Income tax free to named beneficiary
. Face amount may be increased, subject to a processing fee of $2.50 per $1,000
face amount and any necessary underwriting
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Daily Deductions from Assets
. Mortality and expense risk charges of .75% (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 (reflecting any substantial risk or automatic
issue rating) is deducted from the cash value each month
. Any Rider Charges
. Policy Fee: $4.50 (not to exceed $7.00) per month
. Minimum Death Benefit Guarantee Charge: $.01 per $1000 face amount monthly
. Administrative Charge: $.06 (guaranteed not to exceed $.08) per $1,000 face
amount monthly (first year) and $.02 (guaranteed not to exceed $.04) per $1000
face amount monthly (after first year).
For certain larger Policies and Policies sold in certain business situations
charge is currently $.05 per $1,000 in first year.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Surrender Charges
. Consist of Deferred Sales Charge and Deferred Administrative Charge (see page
A-17)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Living Benefits
. If policyholder has elected and qualified for benefits for disability and
becomes totally disabled, company will waive monthly charges during the period
of disability up to certain limits.
. Policy may be surrendered at any time for its cash surrender value
. Deferred income taxes, including taxes on amounts borrowed, become payable
upon surrender
. Grace period for lapsing with no value is 62 days from the first date in which
Monthly Deduction was not paid due to insufficient cash value
. Subject to NELICO's rules, a lapsed Policy may be reinstated within seven
years of date of lapse if it has not been surrendered
- --------------------------------------------------------------------------------
A-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 NEVLICO, 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
If the insured dies before the Maturity Date, NELICO will pay a death
benefit to the beneficiary.
DEATH BENEFIT OPTIONS. When you apply for a Policy, you may choose between
two death benefit options.
The Option 1 (Face Amount) death benefit provides a death benefit equal to
the face amount of the Policy. The Option 1 death benefit is fixed, subject to
increases required by the Internal Revenue Code.
The Option 2 (Face Amount Plus Cash Value) death benefit provides a death
benefit equal to the face amount of the Policy plus the amount, if any, of the
Policy's cash value. The Option 2 death benefit is also subject to increases
required by the Internal Revenue Code.
In order to meet the Internal Revenue Code's definition of life insurance,
the Policies provide that the death benefit will not be less than a percentage
of the Policy's cash value, including the pro rata portion of any Monthly
Deduction made for a period beyond the date of death, as set forth in Table I
below. This means that, if the cash value grows to certain levels, the death
benefit will be increased to satisfy the tax law requirements. At that point,
any payment you make into the Policy will increase the death benefit by more
than it increases the cash value. (See "Premiums".)
TABLE I
<TABLE>
<CAPTION>
AGE OF AGE OF
INSURED AT START OF PERCENTAGE OF INSURED AT START OF PERCENTAGE OF
THE POLICY YEAR CASH VALUE* THE POLICY YEAR CASH VALUE*
------------------- ------------- ------------------- -------------
<S> <C> <C> <C>
0 through 40 250 61 128
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75 through 90 105
55 150 91 104
56 146 92 103
57 142 93 102
58 138 94 through 99 101
59 134 100 100
60 130
</TABLE>
- ----------
* including the pro rata portion of any Monthly Deduction made for a period
beyond the date of death.
MINIMUM GUARANTEED DEATH BENEFIT
The Policy provides two Minimum Guaranteed Death Benefits. (One of these,
Minimum Guaranteed Death Benefit A, is not available under Policies issued in
New York.) If either Minimum Guaranteed Death Benefit is in effect, as
determined on the first day of each Policy month, the Policy will not lapse
even if the net cash value is insufficient to cover the Monthly Deduction due
for that month. The death benefit will be adjusted as described below before
the proceeds are paid.
If premiums are paid in certain amounts, then a Minimum Guaranteed Death
Benefit may be in effect unless you make certain Policy transactions. These
premiums are shown in Section 1 of your Policy and also appear in your
personalized
A-12
<PAGE>
illustration. See Appendix A. Generally, if you pay premiums in the amount
specified for a Minimum Guaranteed Death Benefit each year, that Minimum
Guaranteed Death Benefit will apply to your Policy in accordance with its
terms. (For this purpose, a premium paid within 20 days prior to a Policy
anniversary is treated as if paid in the next Policy year.) If you do not pay
one of these premiums in a Policy year, or if you make certain Policy
transactions, you could lose the Minimum Guaranteed Death Benefit on either a
temporary or permanent basis.
For example, no Minimum Guaranteed Death Benefit will apply to your Policy
while a Policy loan is outstanding, regardless of your premium payments.
However, if the total premiums you have paid, adjusted for interest and any
partial surrenders, as described below under "Minimum Guaranteed Death Benefit
A" and "Minimum Guaranteed Death Benefit B", are sufficient, the applicable
Minimum Guaranteed Death Benefit will apply to the Policy once the loan is
repaid. (Under Policies issued in New Jersey, a Minimum Guaranteed Death
Benefit may apply while a Policy loan is outstanding. For those Policies, the
amount of the loan plus accrued interest is subtracted from premiums paid in
the current Policy year when NELICO applies the Minimum Guaranteed Death
Benefit tests described below under "Minimum Guaranteed Death Benefit A" and
"Minimum Guaranteed Death Benefit B".)
In addition, if you reduce the Policy's face amount or make a partial
surrender which reduces the face amount, or reduce or delete a rider benefit
from your Policy, or if your Policy's rating classification is improved, you
may lose the death benefit guarantee. Whether a guarantee still applies will
depend on the total premiums you have paid and the amount you have withdrawn
from the Policy by means of partial surrenders, as described below under
"Minimum Guaranteed Death Benefit A" and "Minimum Guaranteed Death Benefit B".
The applicable minimum death benefit premiums shown in Section 1 of your
Policy will be recalculated following each of these transactions and also
following an increase in the Policy's face amount or in the amount of coverage
provided by riders. (See "Premiums" below.) Federal tax law limits the amount
of premiums that can be paid into the Policy, and if, following one of these
transactions, the Federal tax law limits the minimum death benefit premium for
your Policy to an amount less than zero, your Policy will lose its death
benefit guarantee permanently.
If you do not pay a minimum death benefit premium in a Policy year, a
Minimum Guaranteed Death Benefit may still apply to your Policy, depending on
the total premiums paid and partial surrenders made, as described below under
"Minimum Guaranteed Death Benefit A" and "Minimum Guaranteed Death Benefit B".
However, once a death benefit guarantee is lost due to insufficient premium
payments, Federal tax law limits may prevent you from paying sufficient
premiums in future Policy years to regain the guarantee. Although it may be
possible to regain the Guaranteed Minimum Death Benefit B, it is unlikely that
Federal tax law limits will permit you to pay sufficient premiums in future
years to regain the Guaranteed Minimum Death Benefit A.
MINIMUM GUARANTEED DEATH BENEFIT A. NELICO will determine if Minimum
Guaranteed Death Benefit A is in effect on the first day of each Policy month
the Policy is in force, until the Maturity Date. This Benefit is in effect if
the total of: (1) premiums paid under the Policy in each prior Policy year
accumulated at a 4% rate from the first day of the year of payment to the most
recent Policy anniversary, less partial surrenders accumulated at a 4% rate
from the date of surrender to the most recent Policy anniversary, plus (2)
premiums paid less partial surrenders in the current Policy year, is at least
equal to: the applicable amount shown in the Table of Guaranteed Death Benefit
A Premiums Accumulated at 4% for the prior Policy year plus 1/12 of the
Benefit A Premium for each Policy month of the current policy year up to and
including the month for which the Monthly Deduction is being processed, and
there is no outstanding Policy loan. (See the discussion above for the special
rule regarding loans under Policies issued in New Jersey.) For these purposes,
premiums paid within 20 days prior to a Policy anniversary are treated as if
paid in the next Policy year.
The Table of Guaranteed Death Benefit A Premiums Accumulated at 4% assumes
that the Guaranteed Death Benefit A Premium that appears in your Policy is
paid on the first day of each Policy year and accumulates at a 4% rate per
year.
The Minimum Guaranteed Death Benefit A is not available under Policies
issued in New York.
MINIMUM GUARANTEED DEATH BENEFIT B. NELICO will determine if Minimum
Guaranteed Death Benefit B is in effect on the first day of each Policy month
the Policy is in force, until the later of: the date the insured attains age
80, or 20 years from the Policy Date, but no later than the Maturity Date of
the Policy. This Benefit is in effect if the total of: (1) premiums paid under
the Policy in each prior Policy year accumulated at a 4% rate from the first
day of the year of payment to the most recent Policy anniversary, less partial
surrenders accumulated at a 4% rate from the date of surrender to the most
recent Policy anniversary, plus (2) premiums paid less partial surrenders in
the current Policy year, is at least equal to: the amount shown in the Table
of Guaranteed Death Benefit B Premiums Accumulated at 4% for the prior Policy
year plus 1/12 of the Benefit B Premium for each Policy month of the current
Policy year up to and including the month for which the Monthly Deduction is
being processed, and there is no outstanding Policy loan. (See the discussion
above for the special rule regarding loans under Policies issued in New
Jersey.) For these purposes, premiums paid within 20 days prior to a Policy
anniversary are treated as if paid in the next Policy year.
A-13
<PAGE>
The Table of Guaranteed Death Benefit B Premiums Accumulated at 4% assumes
that the Guaranteed Death Benefit B Premium that appears in your Policy is
paid on the first day of each Policy year and accumulates at a 4% rate per
year.
The Minimum Guaranteed Death Benefit B is referred to as the "No Lapse
Guarantee Death Benefit" under Policies issued in New York.
ADJUSTMENTS TO THE DEATH PROCEEDS PAYABLE
The death proceeds actually paid to the beneficiary are equal to the death
benefit in effect on the date of the insured's death reduced by any
outstanding loan and accrued loan interest as of that date and by the portion
of any unpaid Monthly Deduction for the period prior to that date. The death
proceeds will be increased (1) by any rider benefits payable and (2) by any
portion of a Monthly Deduction made for a period beyond the date of death,
unless this amount was already included in the death benefit calculation as a
result of Federal tax law requirements (see "Death Benefit Options" above).
The death proceeds may also be adjusted if the insured's age or sex was
misstated in the application, if death results from the insured's suicide
within two years (or less if provided by state law) from the Policy's date of
issue or within two years (or less if provided by state law) from an increase
in the Policy's face amount, or if limits on the death benefit are imposed by
rider. (See "Limits to NELICO's Right to Challenge the Policy".)
CHANGE IN DEATH BENEFIT OPTION
At any time after the first Policy year, you may change your death benefit
option by sending your written request for change to NELICO's Home Office. The
request will be effective on the date it is received at NELICO's Home Office.
A change in death benefit option may result in tax consequences to you. (See
"Tax Considerations".)
If you change from Option 1 (Face Amount) to Option 2 (Face Amount Plus Cash
Value), the Policy's face amount will be reduced by the amount necessary for
the death benefit to be the same immediately before and after the change. The
face amount reduction will apply to the Policy's initial face amount and any
prior increases in face amount on a pro rata basis. A face amount reduction
below $250,000 is permitted only with NELICO's consent; however, special rules
apply for certain business situations. Any rider benefits under the Policy may
also have to be decreased. In some circumstances a partial surrender of cash
value may be necessary in order to comply with Federal tax law limits on the
amount of premiums that can be paid into the Policy. No Surrender Charge will
be assessed in connection with a face amount reduction or partial surrender
resulting from a change from Option 1 to Option 2.
If you change from Option 2 (Face Amount Plus Cash Value) to Option 1 (Face
Amount), the Policy's face amount will be increased, if necessary, for the
death benefit to be the same immediately before and after the change. The
resulting increase in face amount will be applied to the Policy's initial face
amount and any prior increase in face amount on a pro rata basis.
EXTENDING THE MATURITY DATE
Subject to state availability, you may extend the original maturity of your
Policy by adding an extended maturity endorsement to the Policy at issue, or
any time thereafter prior to the death of the insured or the policy
anniversary on which the insured is age 100, whichever is earlier. If the
extended maturity rider is added to the Policy, the Policy will not mature
until the date of the insured's death (the "Extended Maturity Date"). In
addition, on and after the original Maturity Date, the death benefit will
equal the greater of the cash value on the original Maturity Date and the
Minimum Guaranteed Death Benefit, if the Minimum Guaranteed Death Benefit is
in effect on the original Maturity Date; otherwise, the death benefit on and
after the original Maturity Date will equal the cash value on the original
Maturity Date. No cost of insurance charges will be deducted after the
original Maturity Date. All riders attached to the Policy and in effect on the
original Maturity Date, other than the extended maturity endorsement, will
terminate on the original Maturity Date.
The tax consequences associated with extending the Maturity Date beyond age
100 are unclear and a tax advisor should be consulted before effecting such an
extension. For more information about the extended maturity option, contact
your registered representative or NELICO.
CASH VALUE
Your Policy's cash value includes its cash value in the Variable Account, in
the Fixed Account and, if you have an outstanding policy loan, in NELICO's
general account as a result of the loan. The cash value reflects net premium
payments, the net investment experience of the Policy's Sub-Accounts, interest
credited on its cash value in the Fixed Account and on
A-14
<PAGE>
amounts held in the general account as a result of a loan, the death benefit
option chosen, amounts deducted for Policy charges (including Monthly
Deductions and any Surrender Charge that applies if you reduce the Policy's
face amount or make a partial surrender), amounts surrendered and transfers
among the Policy's Sub-Accounts and the Fixed Account.
Your Policy's net cash value is the amount you will receive if you surrender
the Policy. The net cash value is the cash value reduced by any outstanding
policy loan (and accrued interest) 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. If you
surrender the Policy during the grace period, the net cash value you receive
is reduced by an amount to cover the Monthly Deduction to the date of
surrender. (See "Loan Provision", "Surrender Charge" and "Monthly Deduction
from Cash Value".)
The Policy's 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 Eligible Fund and affect subsequent
investment experience.
ALLOCATION OF NET PREMIUMS
As of the "investment start date", the net premium 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. (See "Right to Return the Policy". For the definition of the
"investment start date", see "Amount Provided for Investment under the
Policy".) Thereafter, the cash value (which will reflect at least one Monthly
Deduction) is allocated to the Sub-Accounts and/or the Fixed Account according
to your instructions. (See "Investment Options" and "Monthly Deduction from
Cash Value".) Therefore, your selection of accounts does not take effect until
after the initial period described above, when the cash value is allocated to
the Zenith Money Market Sub-Account. If the face amount of the Policy is
increased, the portion of net premiums attributable to the increase will be
allocated among accounts in accordance with your current allocation
instructions. Allocations can be made to a maximum of ten accounts (including
the Fixed Account) at any one time.
AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY
An amount is first invested 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.)
If you make a premium payment with the application, the Policy Date is
generally the later of the date Part II of the application is signed and
receipt of the premium payment. In that case, the Policy Date and investment
start date are the same. The amount of premium paid with the application must
be at least 10% of the annual Planned Premium for the Policy. Only one premium
payment may be made before the Policy is issued. (A premium payment made
before issue will be maintained by NELICO or an affiliate in the general
account, and will not earn interest until the investment start date.)
A-15
<PAGE>
If you make a premium payment with the application, the insured will be
covered under a temporary insurance agreement for a limited period that is
described in the temporary insurance agreement form. Generally, coverage under
the temporary insurance agreement begins on the later of the date when NELICO
receives the premium for the Policy and the date when Part II of the
application is signed. The maximum amount of coverage provided is the lesser
of the amount of insurance applied for and $500,000 for standard and preferred
risks ($250,000 for substandard risks and $50,000 for persons who are
determined to be uninsurable). There may be variations to these provisions
required by state law.
If a Policy is issued, Monthly Deductions, including cost of insurance
charges, begin as of the Policy Date, even if the Policy's issuance was
delayed due to underwriting requirements; and will be in amounts based on the
face amount of the Policy issued, even if the temporary insurance coverage
received during the underwriting period was for a lesser amount. If NELICO
declines an application, it will refund the premium payment made plus interest
at the rate currently in use by NELICO.
If you choose to pay the initial premium upon delivery of the Policy, the
Policy will have a Policy Date which is generally five days after issue. The
investment start date will be the later of the Policy Date and the date the
premium is received. Monthly Deductions will begin on the Policy Date.
Interest at a 4% net rate will be credited on the applicable net Minimum
Premium for the period, if any, between the Policy Date and the investment
start date. Insurance coverage under the Policy will begin upon receipt of the
portion of the Minimum Premium due for the first quarter (or, upon receipt of
the number of monthly payments due under NELICO's Master Service Account
arrangement.)
Under limited circumstances, NELICO may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
Backdating may be desirable, for example, so that you can purchase a
particular Policy face amount for lower cost of insurance rates, based on a
younger insurance age. 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. (See "Surrender Charge".) For a backdated
Policy, you must also pay the Minimum Premium payable for the period between
the Policy Date and the investment start date. As of the investment start
date, NELICO will allocate to the Policy those net premiums, adjusted for
monthly Policy charges and interest at a 4% net rate, for the period between
the Policy Date and the investment start date.
The amount provided for investment in the Policy is adjusted as of each day
the New York Stock Exchange is open to reflect the 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 its agent. Insurance coverage ends as soon as the
Policy is returned (as determined by its postmark, if the Policy is mailed).
If you choose to cancel the Policy, NELICO will refund any premiums paid (or
any other amount that is required by state insurance law and permitted by the
Securities and Exchange Commission) with interest at the rate currently in use
by NELICO.
You may cancel an increase in face amount which you have requested within 45
days after the date Part 1 of the application for the increased coverage is
signed, within 10 days (or more where required by state law) after you receive
the adjusted Policy, or within 10 days after NELICO mails the Notice of
Withdrawal Right for the face amount increase, whichever is latest. You may
return the face amount increase to NELICO or your registered representative.
The face amount increase will be canceled from its beginning and any Monthly
Deduction and Face Amount Increase Administrative Charge deducted in
connection with the face amount increase will be returned to your cash value.
CHARGES AND EXPENSES
DEDUCTIONS FROM PREMIUMS
SALES CHARGE. NELICO deducts 4% from each premium (whether a Planned Premium
or an unscheduled payment) as a sales charge. NELICO intends to waive this
charge on premiums after the 20th policy year and on the portion of premiums
attributable to a face amount increase after 20 years from the effective date
of the increase. The Policy does not, however, guarantee this waiver. In
addition, NELICO reserves the right to reimpose the sales charge after it has
been waived. For Policies that are not used in a business situation and which
have a face amount of at least $500,000, the sales charge deducted from
premiums will be 3% rather than 4%. In addition, for Policies used in a
business situation (a situation in which two or more
A-16
<PAGE>
Policies, on more than one life, are totally or partially funded, directly or
indirectly, by an employer) where either (1) the average face amount is
$500,000 or (2) the Policies are issued on the lives of at least 25 persons
and the average face amount is at least $250,000, the sales charge deducted
from premiums will be 3% rather than 4%.
During the first 11 Policy years, if you surrender or lapse the Policy,
reduce the face amount or make a partial surrender that reduces the face
amount, a Deferred Sales Charge also applies. (For insureds whose issue age is
56 to 65 at issue of the Policy, the period when the Deferred Sales Charge
applies is 10 years, for insureds whose issue age is 66 to 75, 9 years, and
for insureds whose issue age is 76 to 80, 5 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 reduce or eliminate the sales charge, when you
purchase a Policy, on cash value transferred in the first year, from life
insurance policies that were issued by 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,
however, 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.
STATE PREMIUM TAX CHARGE. NELICO deducts 2.5% from each premium to cover
state premium taxes and administrative expenses. Premium taxes vary from state
to state and the 2.5% charge 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 premium to recover a
portion of that part of NELICO's 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, assuming a premium payment of $2,000.
<TABLE>
<CAPTION>
NET
PREMIUM PREMIUM
------- -------
<C> <C> <S>
$2,000 $1,850 (7.5% X 2,000 = total sales and premium tax charge)
</TABLE>
NELICO may waive the 4% sales charge on premiums paid after the 20th Policy
year. In that case, the net premium in this example would be $2,000 - $70
(3.5% X 2,000), or $1,930.)
SURRENDER CHARGE
If, during the first eleven policy years, a Policy is totally surrendered or
lapses, the face amount is reduced, or a partial surrender reduces the face
amount, NELICO deducts a Surrender Charge from the cash value. (For insureds
whose issue age is 66 to 75 at issue of the Policy, the Surrender Charge
period is nine years, and for insureds whose issue age is 76 to 80, five
years.) The Surrender Charge includes a Deferred Sales Charge and a Deferred
Administrative Charge. The maximum Surrender Charge is set forth in your
Policy.
A new Surrender Charge period and a separate Target Premium will apply to
each portion of the Policy resulting from a face amount increase, starting
with the effective date of the increase.
Any Surrender Charge deducted upon lapse is credited back to the Policy's
cash value upon reinstatement. The Surrender Charge on the date of
reinstatement will be the same as it was on the date of lapse. For purposes of
determining the Surrender Charge on any date after reinstatement, the period
the Policy was lapsed will not count.
DEFERRED SALES CHARGE. The Deferred Sales Charge is based on a percentage of
the Target Premium. The Target Premium is used to determine the amount of the
Deferred Sales Charge and is less than or equal to 75% of the annual premium
necessary to maintain a fixed benefit whole life insurance policy for the same
face amount on the life of the insured. The annual whole life premium on which
the Target Premium is based is calculated using an assumed interest rate of
4%, guaranteed cost of insurance charges and the current level of other Policy
charges. The Target Premium varies by issue age, sex and underwriting class of
the insured and the Policy's face amount. (For purposes of determining the
Target Premium, all non-smoker underwriting classes use the nonsmoker
aggregate or nonsmoker substandard classes, as applicable. See "Monthly
Charges for the Cost of Insurance" below.) If you increase the Policy's face
amount, a separate Target Premium amount will apply to the face amount
increase, based on the insured's age and underwriting class at the time of the
increase.
A-17
<PAGE>
For Policies which cover insureds whose issue age is 55 or less at issue,
the greatest Deferred Sales Charge is paid if you lapse or surrender, or
reduce the face amount, in Policy years three through five. The Deferred Sales
Charge in these years equals 45% of actual premiums paid up to one Target
Premium, plus 13.5% of additional premiums paid in excess of one Target
Premium up to a second Target Premium, plus 13.5% of additional premiums paid
in excess of two Target Premiums up to a third Target Premium. After the fifth
Policy year, the maximum Deferred Sales Charge declines on a monthly basis
until it reaches 0% in the last month of the eleventh Policy year.
The Deferred Sales Charge that applies during the first Policy year is equal
to 25% of premiums paid up to one Target Premium. The Deferred Sales Charge
during the second Policy year is equal to 25% of premiums paid up to one
Target Premium plus 5% of additional premiums paid up to a second Target
Premium. As described above, after the second Policy year, the maximum
Deferred Sales Charge increases substantially.
The table below shows the maximum Deferred Sales Charge that applies to
Policies covering insureds whose issue age is 55 or less at issue, and assumes
that one Target Premium per year is paid under the Policy. The table shows the
charge, expressed as a percentage of total Target Premiums paid to date, if
the lapse, surrender or face reduction occurs at the end of each of the Policy
years shown. During Policy years six through eleven, the Deferred Sales Charge
declines on a monthly basis.
<TABLE>
<CAPTION>
THE MAXIMUM DEFERRED
SALES CHARGE IS THE FOLLOWING
PERCENTAGE OF TOTAL TARGET
FOR POLICIES WHICH ARE PREMIUMS PAID TO DATE OF
SURRENDERED, LAPSED OR SURRENDER, LAPSE, OR
REDUCED DURING FACE AMOUNT REDUCTION
---------------------- -----------------------------
<S> <C> <C>
Entire Policy Year 3 24.00%
4 18.00%
5 14.40%
Last Month of Policy
Years 6 10.00%
7 6.86%
8 4.50%
9 2.67%
10 1.20%
11 0.00%
</TABLE>
For insureds whose issue age is above 55 at issue, the Deferred Sales Charge
percentages are less than or equal to those described above, with the maximum
charge occurring in Policy years 3 through 5 for insureds with an issue age up
through 65, in Policy years 2 through 4 for insureds with an issue age from 66
through 75, and in Policy year 2 for insureds with an issue age above 75.
In the case of a partial surrender or reduction in face amount, any Deferred
Sales Charge that applies is deducted from the Policy's cash value in an
amount proportional to the amount of the Policy's face amount surrendered.
(See "Partial Surrender".) The charge is deducted from the Policy's cash value
in the Sub-Accounts and the Fixed Account in proportion to the amount of the
Policy's cash value in each.
DEFERRED ADMINISTRATIVE CHARGE. The Table below shows the Deferred
Administrative Charge deducted if you totally or partially surrender, lapse or
reduce the face amount of the Policy during the first eleven Policy years or
during the first eleven Policy years following an increase in face amount (see
"Surrender Charge" above).
<TABLE>
<CAPTION>
FOR POLICIES WHICH ARE
SURRENDERED, LAPSED DEFERRED ADMINISTRATIVE
OR REDUCED DURING THE CHARGE PER $1,000 OF
POLICY YEAR SHOWN FACE AMOUNT
---------------------- -----------------------
<S> <C> <C>
Entire Policy year 1 $2.50
Last Month of Policy Year* 2 2.25
3 2.00
4 1.75
5 1.50
6 1.25
7 1.00
8 0.75
9 0.50
10 0.25
11 0.00
</TABLE>
A-18
<PAGE>
- ----------
* The charge declines monthly 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 premiums or investment experience.
For insureds whose issue age is above 65 at issue, the Deferred
Administrative Charge is less than or equal to that in the table above.
The Deferred Administrative Charge, together with the Policy Fee and monthly
Administrative Charge, covers 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.
MONTHLY DEDUCTION FROM CASH VALUE
On the first day of each Policy month, starting with the Policy Date, NELICO
deducts the "Monthly Deduction" from your cash value. If a Minimum Guaranteed
Death Benefit is in effect, or if the Policy is protected against lapse by
payment of the Minimum Premium during the first three Policy years, the
Monthly Deduction is made, whether or not premiums are paid, until the cash
value equals zero. Otherwise, the Monthly Deduction is made, whether or not
premiums are paid, as long as the net cash value is sufficient to cover the
entire Monthly Deduction. If the net cash value is insufficient to cover the
entire Monthly Deduction and no Minimum Guaranteed Death Benefit or Minimum
Premium guarantee is in effect, the Policy will be in default and may lapse.
(See "Lapse and Reinstatement".) The Monthly Deduction reduces the cash value
in each Sub-Account of the Variable Account and in the Fixed Account in
proportion to the cash value in each.
The Monthly Deduction includes the following charges:
POLICY FEE. The Policy fee is currently equal to $4.50 per month (guaranteed
not to exceed $7.00 per month).
ADMINISTRATIVE CHARGE. The Administrative Charge is currently equal to $0.06
per $1,000 of Policy face amount in the first Policy year and $0.02 per $1,000
of Policy face amount thereafter (guaranteed not to exceed $0.08 per $1,000 of
face amount in the first Policy year and $0.04 per $1,000 of Policy face
amount thereafter). On a current basis, NELICO intends not to charge more than
$40 per month for the Administrative Charge in Policy years two and after (for
a Policy face amount above $2 million). For Policies not used in a business
situation and which have a face amount of at least $500,000, the monthly
administrative charge for the first Policy year is currently $0.05 per $1,000
of face amount rather than $0.06. In addition, for Policies issued in business
situations where either (1) the average face amount is at least $500,000 or
(2) the Policies are issued on the lives of at least 25 persons and the
average face amount is at least $250,000, the monthly administrative charge
for the first Policy year is currently $0.05 per $1,000 of face amount rather
than $0.06.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE. The minimum death benefit guarantee
charge is $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 the total amount of premiums paid with interest,
less any partial surrenders with interest, equals or exceeds the applicable
amount derived from the Table(s) of Minimum Guaranteed Death Benefit Premiums
Accumulated at 4% for the Policy. (See "Minimum Guaranteed Death Benefit" and
"Adjustments to the Death Proceeds Payable".)
MONTHLY CHARGES FOR THE COST OF INSURANCE. This charge covers the cost of
providing insurance protection under your Policy. 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 any applicable
Monthly Deduction has been processed and is the amount by which the death
benefit (discounted at the monthly equivalent of 4% per year) exceeds the
Policy's cash value. The cost of insurance rate for your Policy changes from
month to month.
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 is 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 will also depend on
the insured's age at issue of the Policy and on the duration of the Policy. In
addition, for Policies not sold in a business situation, current cost of
insurance rates will also depend on the face amount; for Policies sold in a
business situation, current cost of insurance rates
A-19
<PAGE>
will also depend on the average face amount of Policies sold to the group and
may also depend on the number of lives in the group. For non-juvenile insureds
(those who are age 20 or more at issue) the rates are guaranteed not to be
higher than rates based on the 1980 Commissioners Standard Ordinary Mortality
Tables with smoker/nonsmoker modifications (the "1980 CSO Tables"). For
juvenile insureds, the rates are guaranteed not to be higher than rates based
on the 1980 Commissioners Standard Ordinary Mortality 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. (For information
regarding a Policy's cost of insurance rates following a face amount increase,
see "Increase in Face Amount".)
The underwriting classes used for determining cost of insurance rates for
insureds other than juveniles are smoker standard, smoker substandard,
nonsmoker preferred, nonsmoker standard, nonsmoker aggregate, nonsmoker
substandard and automatic issue. For juvenile insureds the underwriting
classes are standard and substandard. Substandard and automatic issue ratings
result in higher cost of insurance deductions. The guaranteed maximum
mortality charges for substandard ratings are based on multiples of the 1980
CSO Tables. (For information regarding a Policy's underwriting classification
following a face amount increase, see "Increase in Face Amount".)
Availability of the three nonsmoker classes varies. For fully underwritten
Policies with a face amount of $250,000 or more and where the insured's issue
age is 20 through 75, the standard nonsmoker underwriting classes are
nonsmoker preferred and nonsmoker standard; for Policies with a face amount
less than $250,000 (available only in business situations) and for Policies
where the insured's issue age is above 75 only the nonsmoker aggregate class
is used. Among these three nonsmoker classes, the nonsmoker preferred class
generally offers the most favorable rates on a current basis and the nonsmoker
standard class generally offers the least favorable rates on a current basis.
Cost of insurance rates are generally more favorable for nonsmoker than for
smoker insureds and generally more favorable for female than for male
insureds. Within a given underwriting class, cost of insurance rates are
generally more favorable for insureds with lower issue ages. Where required by
state law, and for Policies sold in connection with certain employee benefit
plans, cost of insurance rates (and Policy values and benefits) do not vary
based on the sex of the insured.
Currently, for underwritten Policies that are not issued in a business
situation, cost of insurance rates will be more favorable under Policies with
a face amount of at least $500,000 than for policies with a lower face amount
on the same insured. Currently, for underwritten Policies issued in a business
situation, cost of insurance rates will be more favorable for a Policy issued
on a given insured with a given face amount where either (1) the average face
amount for Policies covering the group (at issue) is at least $500,000, or (2)
the Policies are issued on the lives of at least 25 persons and the average
face amount (at issue) is at least $250,000.
NELICO may offer Policies on an automatic issue basis to certain group or
sponsored arrangements. If an eligible group or sponsored arrangement
purchases Policies on an automatic issue basis, the Policies will be issued up
to a predetermined face amount limit, with only minimum evidence of
insurability. Automatic issue Policies provide substantial benefit to such
arrangements in that minimal time and effort is necessary to qualify an entire
group of persons for coverage without extensive applications or medical
examinations. Because only limited underwriting information is obtained,
NELICO has determined that the issuance of Policies on an automatic issue
basis may present additional mortality cost to NELICO relative to Policies
issued to individuals in the smoker standard class. Therefore, NELICO will
deduct an additional insurance charge from the cash value of automatic issue
Policies. The additional charge will vary based on the issue age of the
insured and, for certain group or sponsored arrangements, may vary based on
the size of the group, the total premium to be paid by the group and certain
characteristics of its members. The overall guaranteed maximum monthly cost of
insurance charges, including the additional charge for automatic issue status,
will exceed charges based on 100% of the 1980 CSO Tables.
Policies issued on an automatic issue basis will have underlying cost of
insurance rates that vary depending on whether the insured is a smoker or
nonsmoker. Nonsmokers will be treated as a group in that no preferred
nonsmoker rates will be available. The underlying cost of insurance rates for
automatic issue Policies will not vary according to the face amount of an
individual Policy; however, currently the rates may be lower if the Policy is
issued to a group or sponsored arrangement where its members have certain
characteristics, the Policies are issued on the lives of at least 25 persons,
the face amount of each individual Policy is at least $100,000 and the average
face amount is at least $250,000. Generally the overall monthly cost of
insurance charges, including the additional charge for automatic issue status,
will be higher than they would be for the same insured under a fully
underwritten Policy, if the insured is not a substandard risk.
A-20
<PAGE>
Eligible group or sponsored arrangements may also elect 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 elect automatic issue for some members of the group and
simplified underwriting for others. Policies issued on a simplified
underwriting basis will have the same cost of insurance rates as fully
underwritten Policies.
CHARGES FOR ADDITIONAL BENEFITS AND SERVICES. NELICO imposes charges for the
cost of any additional rider benefits as described in the rider form. NELICO
also reserves the right to charge Policy Owners a nominal fee, which will be
billed directly to the Policy Owner, in the event that a Policy re-issue or
re-dating is requested.
CHARGES 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 .75% of the Sub-
Accounts' assets. NELICO reserves the right to increase the charge, up to a
maximum annual rate of .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>
A-21
<PAGE>
The investment adviser for the VIP Fund and VIP Fund II is Fidelity
Management & Research Company, a registered investment adviser under the
Investment Advisers Act of 1940. The Portfolios of the VIP Fund and VIP Fund
II, as part of their operating expenses, pay investment management fees to
Fidelity Management & Research Company. The Portfolios also bear certain other
expenses. For the year ended December 31, 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 EXPENSE 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. 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 any
additional charge for automatic issue status, mortality and expense risk
charge, administrative charges, Policy Fee, Face Amount Increase
Administrative Charge, 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 waiver or reduction of Policy charges for group or sponsored arrangements
described above will not apply to Policies issued in the state of New York,
other than Policies issued to non-tax qualified deferred compensation plans.
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
FLEXIBLE PREMIUMS
Within the limits described below, you may choose the amount and frequency
of premium payments. You may select a Planned Premium schedule, which is a
level amount. This schedule, which must be within NELICO's minimum and maximum
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<PAGE>
limits, appears in your Policy. It is not necessarily designed to keep your
Policy in force, and you may skip Planned Premium payments or make additional
payments. Additional payments could be subject to underwriting. No payment can
be less than $25 ($10 for payments made pursuant to the Master Service Account
arrangement, described below), and the total of Planned Premiums and other
payments will be limited to NELICO's published maximum.
Planned Premiums can be paid on an annual, semi-annual or quarterly schedule
or, with NELICO's consent, monthly. You can change your Planned Premium
schedule by sending your request to NELICO's Home Office. However, the amount
of your Planned Premium cannot be increased except with the consent of NELICO,
and underwriting may be required. Cash values and death benefits are
permanently affected by the amount and frequency of premium payments.
You may make payments by check or money order. NELICO will send premium
notices for annual, semi-annual or quarterly Planned Premiums. You may also
choose to have NELICO withdraw your premium payments from your bank checking
account or TNE Cash Management Trust account. (This is known as the Master
Service Account arrangement.)
NELICO offers three types of premium payment levels that can protect your
Policy against lapse over specified time periods. (One of the three is not
available under Policies issued in New York, as described below.)
First, NELICO determines a three-year Minimum Premium amount based on the
Policy's face amount, the age, sex (unless unisex rates apply) and
underwriting class of the insured, the current level of Policy charges and any
rider benefit selected. Generally, during this three-year period, as long as
the Minimum Premium amount is timely paid, the Policy is guaranteed not to
lapse even if the Policy's net cash value is insufficient to pay the Monthly
Deduction in any month. (To determine whether the Policy will lapse, NELICO
compares (a) the total monthly Minimum Premiums for the Policy from the Policy
Date to that Policy month, to (b) the total premiums paid to date, less all
partial surrenders and any outstanding Policy loan balance. If (b) is greater
than or equal to (a), the Policy will not lapse.) However, no three-year
Minimum Premium death benefit guarantee will apply if you increase the Policy
face amount, substitute the insured or reinstate the Policy in the first three
Policy years. The Minimum Premium will be recalculated if you reduce the face
amount or make a partial surrender that reduces the face amount, or add,
reduce or delete a rider benefit, or if the rating classification of your
Policy is improved in the first three Policy years.
Second, NELICO also determines a guaranteed minimum death benefit premium
(to maturity) which will guarantee that the Policy will mature for the net
cash value at age 100 of the insured. Insufficient premium payments, a
reduction in the face amount or partial surrender that reduces the face
amount, reduction or deletion of a rider benefit, or improvement in rating
classification of the Policy could terminate this guarantee. See "Minimum
Guaranteed Death Benefit". This guaranteed minimum death benefit premium is
based on the Policy's face amount, the age, sex (unless unisex rates apply)
and underwriting class of the insured, the death benefit option chosen, the
guaranteed level of cost of insurance charges, the current level of other
Policy charges and any rider benefit selected. The premium is recalculated
following the type of Policy transactions described above in connection with a
recalculation of the three-year Minimum Premium amount, as well as following
an increase in face amount or in rider coverage. This guaranteed minimum death
benefit premium (to maturity) does not apply under Policies issued in New
York.
Third, the Policy's guaranteed minimum death benefit premium (to age 80)
guarantees that the Policy will stay in force until the later of age 80 of the
insured, or 20 years after issue, but no later than the Maturity Date of the
Policy. This premium is based on factors similar to the guaranteed minimum
death benefit premium (to maturity), but is based on the guaranteed level of
both cost of insurance and other Policy charges and is actuarially determined
to provide guaranteed coverage to the earlier age. NELICO limits this premium
so that it will be less than or equal to the guaranteed minimum death benefit
premium (to maturity). Insufficient premium payments, a reduction in the face
amount or a partial surrender that reduces the face amount, reduction or
deletion of a rider benefit, or improvement in the rating classification of
the Policy could also terminate this guarantee, although termination for
insufficient premium payments is less likely here than in the case of the
guaranteed minimum death benefit premium (to maturity). The guaranteed minimum
death benefit premium (to age 80) is recalculated following the type of Policy
transactions described above in connection with a recalculation of the three-
year Minimum Premium amount, as well as following an increase in face amount
or in rider coverage.
Federal tax law limits the amount of premiums that can be paid under the
Policy. In addition, if any payments under the Policy exceed the "7-pay test"
under Federal tax law, you may be taxed on certain distributions. (See "Tax
Considerations".) NELICO's consent is required if, in order to satisfy tax law
requirements, any payment would increase the Policy's death benefit by more
than it would increase cash value. NELICO may require evidence of insurability
before accepting the payment.
NELICO allocates net payments to your Policy's Sub-Accounts as of the date
the payment is received at NELICO's Home Office. (See "Receipt of
Communications and Payments at NELICO's Home Office".)
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<PAGE>
A payment is treated first as a Planned Premium, second as repayment of
Policy loan interest, third as repayment of a Policy loan, and last as an
unscheduled payment, unless you designate otherwise in writing to NELICO. (For
Policies issued in New York, a payment will be treated as a Planned Premium
when a Policy loan is outstanding only if the payment is in the exact amount
of the Planned Premium next due; otherwise, it will be treated first as
repayment of Policy loan interest, second as repayment of a Policy loan, third
as a Planned Premium, and last as an unscheduled payment.) If you have a
Policy loan, it may be more advantageous to repay the loan than to make a
premium payment, because the premium payment is subject to sales and tax
charges, whereas the loan repayment is not subject to any charges; however,
repayment of the loan in place of a premium payment could cause your Policy to
lose its eligibility for a death benefit guarantee. (See "Loan Provision",
"Deductions from Premiums" and "Death Benefit".)
LAPSE AND REINSTATEMENT
LAPSE. Unless either Minimum Guaranteed Death Benefit is in effect (or,
during the first three Policy years, unless the Minimum Premium requirements
described under "Premiums" have been met), in any month that there is
insufficient net cash value to pay a Monthly Deduction the Policy will be in
default. The Policy provides a 62 day grace period for payment of a premium
sufficient to permit the Monthly Deduction to be made (as well as applicable
deductions from the premium). (For Policies issued in New Jersey the amount
due is the least of: a premium large enough to permit the Monthly Deduction,
as well as applicable deductions from the premium, to be made; a premium large
enough to permit Minimum Guaranteed Death Benefit A to be in effect; a premium
large enough to permit Minimum Guaranteed Death Benefit B to be in effect; and
a premium large enough to permit the three-year Minimum Premium death benefit
to be in effect.) NELICO will notify you of the amount due. During the grace
period insurance coverage continues under your Policy, but if the insured dies
before the premium is paid, NELICO will deduct from the death proceeds the
portion of the unpaid Monthly Deduction for the period prior to the date of
death. If the required premium is unpaid at the end of the grace period, the
Policy will lapse without value.
REINSTATEMENT. If your Policy has lapsed, it may be reinstated within 7
years after the date of lapse. 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 requires evidence of insurability that is
satisfactory to NELICO.
Any Surrender Charge deducted upon lapse is credited to the Policy's cash
value upon reinstatement. The Surrender Charge on the date of reinstatement is
the same as it was on the date of lapse. For purposes of determining the
Surrender Charge and other charges that vary by duration of the Policy
(unlike, for example, cost of insurance charges that vary by age of the
insured) on any date after reinstatement, the period the Policy was lapsed
does not count.
OTHER POLICY FEATURES
INCREASE IN FACE AMOUNT
After the first Policy year you may increase the face amount of your Policy.
The request for an increase will be subject to NELICO's underwriting rules and
requirements, including proof of insurability. The amount of the increase must
be at least $10,000. A Face Amount Increase Administrative Charge of $2.50 per
$1,000 of the face amount increase will be deducted on the date the increase
takes effect from the Policy's cash value in the sub-accounts and the Fixed
Account, in proportion to the amount of cash value in each. This charge will
not apply if the increase in face amount was not medically underwritten.
NELICO currently limits the charge to a maximum of $200.
After a face amount increase, NELICO will attribute a portion of each
premium payment you make to the face amount increase, even if you do not
increase the amount or frequency of your premiums.
A new Surrender Charge period will apply to each portion of the Policy
resulting from an increase in face amount, starting with the effective date of
the increase. A separate Target Premium will apply to the face amount
increase, based on the insured's age and underwriting class at the time of the
increase. (The insured's age at the time of the increase will be the insured's
age at the start of that Policy year.) A sales charge will be deducted from
the portion of each premium that is attributable to the face amount increase
for at least 20 years from the date of the increase. See "Charges and
Expenses" for a description of the Surrender Charges and sales charges that
will apply. The Monthly Deduction applicable to the Policy will be adjusted
beginning with the effective date of the increase to reflect the new face
amount and amount at risk under the Policy. In addition, cost of
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<PAGE>
insurance charges will reflect any change in risk classification of the
insured if the face amount increase was medically underwritten. Generally, if
the insured's risk classification improved as a result of the underwriting,
future cost of insurance rates for the entire Policy will be based on the new
underwriting class. If the insured is determined to be in a worse risk
classification than at issue of the Policy (or at the time of a previous face
amount increase), then only the portion of the cost of insurance charge that
is applied to the net amount at risk associated with the increase in face
amount will be based on the new underwriting class. If the Policy was issued
to a juvenile insured and the face amount increase occurs when the insured is
age 20 or older, cost of insurance rates for the original face amount will
continue to be based on juvenile underwriting classes and cost of insurance
rates for the face amount increase will be based on non-juvenile underwriting
classes. In that situation, cost of insurance rates for the original face
amount will be guaranteed not to be higher than rates based on the 1980 CSO
Tables, and cost of insurance rates for the face amount increase will be
guaranteed not to be higher than rates based on the 1980 CSO Tables with
smoker/nonsmoker modifications. (See "Charges and Expenses--Monthly Deduction
from Cash Value.")
NELICO determines the net amount at risk associated with a face amount
increase by calculating the face amount increase as a percentage of the
Policy's total net amount at risk immediately following the increase. The
resulting percentage of the Policy's total net amount at risk is applicable to
the face amount increase. The remaining percentage of the Policy's total net
amount at risk is applicable to the initial face amount. (For example, if the
Policy's face amount is increased by $100,000 and the total net amount at risk
immediately following the increase in $250,000, then 40% of the total net
amount at risk applies to the face amount increase. The remaining 60% applies
to the initial face amount.) On each monthly processing day, the net amount at
risk used to determine the cost of insurance charge associated with the face
amount increase is the Policy's total net amount at risk at that time,
multiplied by the percentage calculated as described above. This percentage
remains fixed until there is another face amount increase.
An increase in face amount will take effect on the first day of the Policy
month following NELICO's approval of your application for the increase. You
can contact NELICO's Home Office or your registered representative to
determine the procedures for requesting a face amount increase. You have a
limited time in which you may cancel a face amount increase. (See "Right to
Return the Policy".)
Only one face amount increase can be processed on a processing date.
Therefore, if your Policy has a Level Term Insurance rider, and you request an
exchange of the term insurance rider for a face amount increase as well as an
additional face amount increase, the two requests will be combined and
processed as one adjustment if the same underwriting class would be applicable
to each; otherwise, the additional face amount increase will be processed
first, and the exchange of term insurance will be processed one month later.
In connection with Policies issued in certain business situations on an
automatic issue basis, NELICO may offer annual face amount increases which are
related to increases in salary or which are based on a fixed annual percentage
(the "Salary Refresh" program). Limits on the annual and/or total amount of
face increases per Policy that will be permitted on an automatic issue basis
will be determined at issue of the Policies. Increases which exceed this limit
will require underwriting. The Salary Refresh program is not available for
Policies with the Option 2 death benefit.
NELICO may also offer the Salary Refresh program in connection with Policies
issued on an underwritten basis in certain business situations. Any Salary
Refresh face amount increases under such Policies will be underwritten in
connection with the application for the initial face amount of the Policies,
and will be subject to limits determined at that time.
The terms and conditions of the Salary Refresh program are contained in
NELICO's published rules which are furnished at the time of application.
LOAN PROVISION
You may borrow all or part of the Policy's "loan value" 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.
The Policy's loan value is equal to (i) 90% of the Policy's cash value
projected using current Policy charges and a 4% annual rate to the next Policy
anniversary or, if earlier, to the next Planned Premium due date; less (ii)
the Surrender Charge that would apply upon surrender on the next Planned
Premium due date or, if greater, on the date the loan is made; less (iii) loan
interest to the next loan interest due date. If required by state law, the
Policy's loan value may be a greater percentage of
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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-51 assume that the Policy's
Planned Premiums have been paid 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 4.40%). 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 Anni-
versary.............................................. $42,750 $39,957
(2) Cash Value Projected at a Constant Annual Rate of Re-
turn of 4% to the
(a) 11th Policy Anniversary........................... 43,724
(b) Next Planned Premium Due Date..................... 40,168
(3) 90% of Amount Calculated in (2)...................... 39,352 36,151
(4) Amount Calculated in (3), Reduced by the Applicable
Surrender Charge..................................... 39,087 35,886
(5) Amount Calculated in (4), Reduced by Loan Interest to
the Next Interest Due Date........................... 37,049 34,015
</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 are attributed first to the Sub-Accounts of the Variable Account in
proportion to the cash value in each, and then the Fixed Account. All loan
repayments are allocated first to the outstanding loan balance attributed to
the Fixed Account and then to the Sub-Accounts of the Variable Account in
proportion to the cash value in each.
The interest rate charged on Policy loans is an effective rate of 5.5% per
year (using simple interest during the year), accrues daily, and is due on the
Policy anniversary. If not paid at that time, the interest accrued on the loan
is added to the loan, and an amount equal to the unpaid interest is deducted
from the Policy's cash value in the Sub-Accounts and the Fixed Account in
proportion to the amount in each. The amount taken from the Policy's Sub-
Accounts as a result of the loan earns interest (compounded daily) at an
effective rate of not less than 4% per year. The rate currently credited is 4%
per year for the first 15 Policy years and 5.00% thereafter. (For Policies
sold in business situations on the lives of at least five insureds where the
total annual premium is at least $100,000, NELICO currently intends to credit
5.25% after the first 15 Policy years.) 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.
Any payment received while a Policy loan is outstanding is treated first as
a Planned Premium, second as repayment of Policy loan interest, third as
repayment of a Policy loan, and last as an unscheduled payment, unless you
designate otherwise in writing to NELICO. (For Policies issued in New York, a
payment will be treated as a Planned Premium when a Policy loan is outstanding
only if the payment is in the exact amount of the Planned Premium; otherwise,
it will be treated first as repayment of Policy loan interest, second as
repayment of a Policy loan, third as a Planned Premium, and last as an
unscheduled payment.) If a Policy loan is outstanding, it may be more
advantageous to repay the loan than to pay a premium, because the payment is
subject to sales and premium tax charges, and the loan repayment is not
subject to charges; however, repayment of the loan in place of a premium
payment could cause your Policy to lose its eligibility for a death benefit
guarantee. (See "Deductions from Premiums" and "Death Benefit".)
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 the
Surrender Charge would be 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".) The Policy will terminate without
value 62 days after the notice is mailed unless the excess amount is paid to
NELICO within that time. If the Policy lapses with a loan outstanding, adverse
tax consequences may result. (See "Tax Considerations" below.)
A-26
<PAGE>
Department of Labor ("DOL") regulations set forth requirements for
participant loans under retirement plans subject to the Employee Retirement
Income Security Act of 1974 ("ERISA"). Generally, the DOL regulations will
apply to plans that qualify under Section 401 of the Internal Revenue Code
(the "Code"). If the retirement plan is subject to ERISA, the plan fiduciary
authorized to oversee/direct the plan loan program must fulfill the
requirements of the regulations including charging a "commercially reasonable"
rate of interest. The policy loan interest rate may not be considered
"commercially reasonable" within the meaning of the DOL regulations. In
addition, the DOL regulations require that a plan loan be adequately secured
but provide that not more than 50% of the participant's vested account balance
(including the Policy cash value) be used as security for the loan. The DOL
regulations and applicable tax law may also contain other requirements for
plan loans. Therefore, plan loan provisions may differ from Policy loan
provisions. If you are a participant in a retirement plan subject to ERISA,
you should consult with the fiduciary administering the plan loan program.
Failure of the plan loan program to comply with the requirements of the DOL
regulations and of tax law may result in tax penalties under the Code and
under ERISA.
SURRENDER
You may surrender a Policy for its net cash value at any time while the
insured is living by a request conforming to NELICO's administrative
procedures. The net cash value of the surrendered Policy is determined as of
the date when a surrender request is received at NELICO's 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".) The
net cash value paid on surrender is increased by the portion of any cost of
insurance charge deducted that applies to the period beyond the date of
surrender. If you surrender the Policy during the grace period, (that is, at a
time when the net cash value was not sufficient to cover the Monthly Deduction
and no Minimum Guaranteed Death Benefit or three year Minimum Premium
guarantee applies to the Policy), the net cash value you receive is reduced by
an amount to cover the Monthly Deduction to the date of surrender. You may
elect in writing to have all or part of the net cash value applied to a
payment option. (See "Payment Options".) A surrender may result in adverse tax
consequences. (See "Tax Considerations" below.)
PARTIAL SURRENDER
You may make a partial surrender of the Policy after the Right to Return the
Policy period, to receive a portion of its net cash value. A partial surrender
will cause a reduction in the Policy's death benefit and may cause a reduction
in the Policy's face amount if necessary in order that the amount at risk
under the Policy not increase. Any reduction in the face amount causes a
proportionate reduction in the Policy's Target Premium, on which any future
Surrender Charges are based. Rider benefits may also be reduced. For purposes
of calculating the applicable Surrender Charge and any future cost of
insurance charges, any face amount reduction will apply to the initial face
amount and to any prior increase in face amount on a pro rata basis. No
partial surrender may reduce the face amount below the Policy's required
minimum except with NELICO's consent; special rules apply for Policies sold in
business situations.
Partial surrenders in any one Policy year are limited, except with NELICO's
consent, to 20% of the Policy's net cash value as of the date of the first
partial surrender for the Policy year or, if less, the Policy's available loan
value. Currently, NELICO permits partial surrenders of up to 75% of the
Policy's net cash value per year, assuming sufficient available loan value.
(In certain business situations NELICO may permit a higher percentage of the
net cash value to be withdrawn.)
Any Surrender Charge that applies to a partial surrender is 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 reduces any
remaining Surrender Charge that can be applied under your Policy.
You should be aware that cash value paid upon partial surrender may not be
reinvested in the Policy except as premium payments, which are subject to the
charges described under "Deductions From Premiums". A partial surrender could
terminate your Policy's Minimum Guaranteed Death Benefit. See "Minimum
Guaranteed Death Benefit".
A partial surrender first reduces the Policy's cash value in the Sub-
Accounts of the Variable Account, in proportion to the amount of cash value in
each, and then the Fixed Account, unless you request otherwise. (See "The
Fixed Account" below.) The amount of net cash value paid upon partial
surrender is determined as of the date when a request conforming to NELICO's
administrative procedures is received at NELICO's Home Office. NELICO's
administrative procedures can be determined by contacting your registered
representative or the Home Office.
A reduction in the death benefit as a result of a partial surrender may
cause the Policy to become a "modified endowment contract". If you are
contemplating a partial surrender, you should consult your tax advisor
regarding the tax consequences of the transaction. (See "Tax Considerations".)
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<PAGE>
REDUCTION IN FACE AMOUNT
You may reduce the face amount of your Policy without receiving a
distribution of any of the Policy's cash value. (This feature differs from a
partial surrender in that a partial surrender causes part of the Policy's cash
value to be distributed to you.)
If you decrease the face amount of your Policy, the Target Premium, on which
any future Surrender Charges are based, is also decreased. Your Policy's
actual cash value is not reduced except by the amount of any applicable
Surrender Charge. Generally, the Policy's death benefit is decreased.
(However, if the death benefit is being increased in accordance with federal
income tax laws, the death benefit will not be decreased unless a Surrender
Charge was deducted from the cash value in connection with the face amount
reduction. A reduction in face amount in this situation is not advisable,
because it will not reduce your death benefit or cost of insurance charges and
may result in a Surrender Charge.) Any rider benefits attached to the Policy
may also have to be decreased. For purposes of calculating the applicable
Surrender Charge and future cost of insurance charges, a face amount reduction
will apply to the initial face amount and to any prior increase in face amount
on a pro rata basis. The face amount remaining after a reduction has to meet
NELICO's minimum face amount requirements for issue, except with NELICO's
consent; special rules apply in business situations.
A reduction in the face amount of your Policy will reduce the Federal tax
law limitations on the amount of premiums that can be paid under the Policy.
In these cases, a partial surrender of cash value may be required to comply
with Federal tax law. This could result in termination of your Policy's
Minimum Guaranteed Death Benefit. See "Minimum Guaranteed Death Benefit".
A face amount reduction takes 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 reduction in the face amount of a Policy that causes a death benefit
reduction may cause the Policy to become a "modified endowment contract". If
you are contemplating a reduction in face amount, you should consult your tax
advisor regarding the tax consequences of the transaction. (See "Tax
Considerations".)
ACCELERATION OF DEATH BENEFIT RIDER
NELICO may offer in the future a rider benefit that will allow you to
receive an accelerated payment of your Policy's death benefit. This advance
payment of the death benefit will be available where certain special needs
exist, as described briefly below. The right to exercise the rider will be
subject to certain conditions contained in the rider.
NELICO WILL MAKE THE ACCELERATED BENEFITS RIDER AVAILABLE TO YOU ONLY IF:
(1) YOUR STATE INSURANCE DEPARTMENT HAS APPROVED THE RIDER, AND (2) NELICO
BELIEVES THAT THE RIDER WILL MEET THE DEFINITION OF AN ACCELERATED DEATH
BENEFIT FOR FEDERAL INCOME TAX PURPOSES AND (3) 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 premiums among the Sub-Accounts of the
Variable Account and the Fixed Account in any combination, provided that
allocations can be made to a maximum of 10 accounts (including the Fixed
Account) at any time. A minimum of 10% of the premium 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 10 accounts
(including the Fixed Account) at any one time.
You make the initial premium allocation when you apply for a Policy. You may
change the allocation of future premiums at any time thereafter. The change
will be effective for premiums applied on or after the date when NELICO
receives your request. You may request the change by telephone or by written
request in a form satisfactory to NELICO. (See "Receipt of Communications and
Payments at NELICO's Home Office.")
See "Transfer Option" below for information on how to request a transfer or
reallocation by telephone.
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<PAGE>
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 (twelve
times per policy year for Policies issued in New York) without NELICO's
consent. NELICO currently allows 12 Sub-Account transfers per policy year
under all Policies. Transfers out of the Fixed Account are not counted against
this limit. All Sub-Account transfer requests made at the same time will be
treated as a single request. The transfer will be effective as of the date
when NELICO receives the transfer request at its 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 10 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 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. A
substitution of the insured person will result in a taxable exchange. In
addition, a substitution of the insured person could reduce the amount of
premiums allowed to be paid into the Policy under Federal tax law and, as a
result, may require a partial surrender of cash value. No Surrender Charge
will be assessed in that situation. This rider may not be approved in every
state and therefore may not be available in every state. Your registered
representative can provide current information on the availability of the
rider. Since substituting the insured person may be a taxable event, you
should consult your tax advisor before substituting the insured person under
your Policy.
PAYMENT OF PROCEEDS
NELICO will ordinarily pay any net cash value, loan value or death benefit
proceeds payable from the Sub-Accounts within seven days after receipt at the
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. 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.
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Payments of cash value, or of any loan value available, from cash value in
the Fixed Account will normally be paid promptly. However, NELICO has the
right to delay such payments for up to six months from the date of the request
(to the extent allowed by state insurance law). NELICO will pay interest in
accordance with state insurance law requirements on payments that are delayed.
24 MONTH RIGHT
GENERAL RIGHT. Generally, during the first 24 months after the Policy's
issue date, and during the first 24 months after the effective date of an
increase in face amount, you may convert this Policy, or a portion thereof, to
fixed benefit coverage by transferring all or a portion of your Policy's cash
value, and allocating all or a portion of future premiums, to the Fixed
Account. The request to convert to fixed benefit coverage must be in written
form satisfactory to NELICO.
This privilege may be exercised only once within 24 months after issue, and
only once within 24 months after each increase in face amount. Transfers into
the Fixed Account pursuant to this right will not count toward the limit on
the number of cash value transfers permitted under the Policy each year. Cash
value that is transferred to the Fixed Account, and future premium amounts
allocated to the Fixed Account, may subsequently be transferred back to one or
more Sub-Accounts of the Variable Account, subject to the Policy's general
limits on transfers from the Fixed Account (see "The Fixed Account").
The Policy generally permits NELICO to limit allocations to the Fixed
Account under certain circumstances. (See "The Fixed Account.") If NELICO
limits such allocations and you subsequently wish to exercise the 24 Month
Right, your right will be limited to (i) the Policy's cash value prior to any
face amount increase plus that portion of future premiums attributable to the
Policy's face amount prior to any increase, if the right is exercised during
the first 24 months after issue, or (ii) that portion of the Policy's cash
value and future premiums attributable to the face amount increase, if the
right is exercised within 24 months after a face amount increase. After
exercising the 24 Month Right, you may continue to allocate to the Fixed
Account only the percentage of premiums that was allocated to the Fixed
Account pursuant to your most recent exercise of the 24 Month Right. In
addition, if you have exercised this right, and NELICO subsequently limits
such allocations, then you may continue to allocate to the Fixed Account only
the lowest percentage of premiums that was allocated to the Fixed Account at
any time since your most recent exercise of the 24 Month Right.
FOR POLICIES ISSUED IN MARYLAND AND NEW JERSEY. Under Policies issued in
Maryland and New Jersey, you can exchange the initial face amount of your
Policy, and any increase in face amount of your Policy, for a fixed benefit
life insurance policy provided that (1) the Policy has not lapsed and (2) the
exchange is made within 24 months after the Policy's issue date or, if you are
exchanging an increase in face amount, within 24 months after the effective
date of the increase. If you exercise this option, you will have to make up
any investment loss you had that is attributable to the portion of the
variable life insurance policy being exchanged.
The exchange will be made without evidence of insurability. The new policy
will have, at the option of the policyholder, either the same death benefit or
the same net amount at risk as that being exchanged. For the exchange of the
initial face amount of the variable life policy, the new policy will have the
same issue age, underwriting class and policy date as the variable life policy
had. For the exchange of an increase in face amount, the new policy will have
the same issue age of the insured as the age of the insured on the effective
date of the increase, the same underwriting class as the underwriting class on
the effective date of the increase, and a policy date equal to the effective
date of the increase. Any riders to the original Policy will be attached to
the new policy if they are available.
In the case of Policies issued in Maryland, the new policy will be a
flexible premium life insurance policy, and in the case of Policies issued in
New Jersey, the new policy will be a whole life or endowment policy. If the
original policy was issued prior to the merger of MetLife and The New England,
the new policy will be issued by MetLife or, at your option, by NELICO if such
a policy was available for an exchange on the Policy Date of your variable
life Policy or on the effective date of a face amount increase, if applicable.
If the original policy was issued on or after the merger, the new policy will
be issued by NELICO or, if no such policy was available for an exchange, by
MetLife.
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 exchange may result in a cost or
credit to you. The cost or credit will reflect any differences in cash values
and charges between the exchanged portion of the variable life policy and the
new policy. Upon the exchange, you may also need to make an immediate premium
payment on the new policy in order to keep it in force. Any policy loan
outstanding must be repaid on or before the effective date of the exchange.
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GROUP OR SPONSORED ARRANGEMENTS. For a Policy issued in connection with
certain group or sponsored arrangements, NELICO offers the additional option
of exchanging the entire Policy 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. (Availability of this
feature depends on state insurance department approval.) The exchange will be
made without evidence of insurability. The new term insurance policy will have
the same face amount, policy date, issue age and risk classification for the
insured as the variable life Policy had. For the exchange of a face amount
increase, special rules may apply. Policy Owners should refer to the rider
providing this option. Premiums for the new term insurance policy will be
based on the premium rates for comparable fixed-benefit term life insurance
policies issued by NELICO or an affiliate 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. If you exercise this option,
you will bear any investment loss you had under the variable life insurance
policy. 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. Your registered representative can advise you as to the
availability of this feature.
PAYMENT OPTIONS
The Policy's death benefit and net cash value will be paid in one sum unless
the Policy Owner or payee chooses to put all or part of the proceeds under a
payment option. You can choose a combination of payment options. The selection
of a payment option and the naming of a payee must be in written form
satisfactory to NELICO. You can make, change or revoke the selection before
the death of the insured. The payment options available are fixed benefit
options only; therefore, proceeds applied to an option will no longer be
affected by the investment experience of the Variable Account. The guaranteed
mortality assumptions used in determining payment levels under the options
will not vary based on sex. (For Policies issued in New York and Oregon,
however, and which are not issued for use in connection with certain employee
benefit plans and fringe benefit programs, the 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 charge as part of the Monthly Deduction
from cash value. The rider benefits available with the Policies provide fixed
benefits that do not vary with the investment experience of the Variable
Account.
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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 do 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.
WAIVER OF MONTHLY DEDUCTION, which provides for waiver of Monthly
Deductions upon the disability of the insured.
GUARANTEED INCOME BENEFIT RIDER, which provides a monthly income payment
(subject to a $1,000 maximum) directly to the Policy Owner in the event of
the total disability of the insured. The Policy Owner must also purchase
the Waiver of Monthly Deduction 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.)
TEMPORARY TERM INSURANCE, which provides for insurance from the date of
issue to the Policy Date.
CHILDREN'S INSURANCE, which provides insurance on the life of the insured's
children.
Not all riders may be available to you and riders in addition to those
listed above may be made available. You should consult your registered
representative regarding the availability of particular riders.
POLICY OWNER AND BENEFICIARY
The Policy Owner is named in the application but may be changed from time to
time. At the death of the Policy Owner, his or her estate will become the
Policy Owner unless a successor Policy Owner has been named. The Policy
Owner's rights (except for rights to payment of benefits) terminate at the
death of the insured.
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.
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.
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The investment objectives of the Eligible Funds' portfolios are described
briefly below. There is, of course, no assurance that these objectives will be
met. A full description of the Eligible Funds, including their investment
objectives and policies, expenses, and risks of investing in the Eligible
Funds, is contained in the attached Eligible Fund prospectuses, as well as in
the Zenith Fund's Statement of Additional Information, which is referenced in
the Zenith Fund prospectus, and in the Statement of Additional Information for
the VIP Fund and VIP Fund II, which is referenced in those Funds' prospectus.
The 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 a
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
international equity securities of non-U.S. issuers, in accordance with the
EAFE country weightings determined by the series' sub-adviser. Under normal
circumstances at least 65% of the total assets of the series will be invested
in equity securities of issuers in at least three countries outside the United
States.
The Zenith Davis Venture Value Series' investment objective is growth of
capital. The Series will primarily invest in domestic common stocks that the
Series' subadviser believes have capital growth potential due to factors such
as undervalued assets or earnings potential, product development and demand,
favorable operating ratios, resources for expansion, management abilities,
reasonableness of market price, and favorable overall business prospects. The
Series will generally invest predominantly in equity securities of companies
with market capitalizations of at least $250 million.
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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-Accounts, or some
combination of these sub-accounts, may, therefore, be a more desirable
selection for Policy Owners who have a long-term time horizon and/or are
willing to accept such risks of short term fluctuations in value. For a
demonstration of certain of these market trends, see Appendix C: Long Term
Market Trends. Historically, the investment performance of "small cap" stocks
over the long term has generally been superior to stocks of large
capitalization companies, although "small cap" stocks have been substantially
more volatile than "large cap" stocks. Historically, having a small percentage
of a portfolio invested in overseas stocks and the rest in domestic stocks has
produced a portfolio that has less, although still substantial, volatility
than a completely domestic portfolio. Equity investors should recognize that
overseas and "small cap" funds taken alone traditionally involve more risk
than most domestic stock funds.
The performance of the various financial markets over shorter periods of
time has sometimes differed from their long term historical results. Short
term interest rates were very high in the late 1970's and early 1980's, but
are now lower. Long term bond values continue to fluctuate and could lose
value if interest rates rise. Common stock prices, which have risen
substantially at times, have also had periods of significant negative returns.
Policy Owners who seek somewhat greater protection against loss of principal
in the short term than that afforded by a stock fund may prefer the High
Income Sub-Account or the Zenith Bond Income Sub-Account. However, because the
High Income Portfolio invests in higher yielding, lower rated and unrated
fixed income securities (including bonds commonly referred to as "junk"
bonds), it has a higher degree of risk associated with it relative to more
conservative fixed income funds. Those who seek even greater safety of
principal may select the Zenith Money Market Sub-Account, although it is
subject to possible rapid changes in short term interest rates. Those who
primarily seek safety of principal should consider fixed life insurance as an
alternative to variable life insurance.
NELICO guarantees the principal invested in the Fixed Account, although this
guarantee is subject to NELICO's claims paying ability.
You may wish to consider diversifying your investments by allocating the
Policy's cash value among two or more sub-accounts.
Policy Owners may also diversify by selecting the Zenith Managed Sub-
Account, Zenith Balanced Sub-Account or the Asset Manager Sub-Account, since
each generally invests its assets at most times in a combination of bonds,
stocks and short term instruments, in varying proportions depending upon the
investment adviser's evaluation of the economy and financial markets. The
Asset Manager Portfolio has the ability to invest its stock portfolio more
aggressively than the Back Bay Advisors Managed Series. You may also wish to
diversify your cash value by country. The Overseas Sub-Account and Zenith
International Magnum Equity Sub-Account allow you to participate primarily in
companies and economies outside the United States.
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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 In- TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
come
Loomis Sayles Avanti TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Growth
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Morgan Stanley TNE Advisers, Inc. Morgan Stanley Asset Management Inc.
International
Magnum Equity
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
</TABLE>
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* 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-
advisers, 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 investment
research and portfolio management services. It maintains a large staff of
experienced investment personnel and a full complement of related support
facilities. For more information regarding the Equity-Income, Overseas High
Income and Asset Manager Portfolios and Fidelity Management & Research
Company, see the VIP Fund and VIP Fund II prospectus attached at the end of
this prospectus and their Statement of Additional Information.
THE FIXED ACCOUNT
A FIXED ACCOUNT OPTION IS AVAILABLE UNDER THE POLICY IN STATES WHERE IT HAS
BEEN APPROVED BY THE STATE INSURANCE DEPARTMENT. THE FIXED ACCOUNT MAY NOT BE
APPROVED BY EVERY STATE INSURANCE DEPARTMENT AND THEREFORE IT MAY NOT BE
AVAILABLE IN EVERY STATE.
You may allocate net premiums for your Policy, and may transfer your
Policy's cash value, to the Fixed Account, which is part of NELICO's general
account. Because of exemptive and exclusionary provisions in the Federal
securities laws, interests in
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the Fixed Account have not been registered under the Securities Act of 1933,
and neither the Fixed Account nor the general account has been registered as
an investment company under the Investment Company Act of 1940. Therefore,
neither the Fixed Account, the general account nor any interests therein are
generally subject to the provisions of these Acts, and NELICO has been advised
that the staff of the SEC does not review disclosures relating to the general
account. Disclosures regarding the Fixed Account may, however, be subject to
certain generally applicable provisions of the Federal securities laws
relating to the accuracy and completeness of statements made in prospectuses.
GENERAL DESCRIPTION
NELICO's general account includes all the assets owned by NELICO, other than
the assets in the Variable Account or in any other separate accounts that
NELICO may establish. NELICO has sole discretion over the investment of assets
in the general account, including the Fixed Account. Policy Owners who
allocate cash value to the Fixed Account will not share in the actual
investment experience of the Fixed Account. Instead, NELICO guarantees that
cash values in the Fixed Account will earn interest at an annual rate of at
least 4%. NELICO may from time to time credit interest at a higher rate than
4%, but it is under no obligation to do so. NELICO declares the current
interest rate for the Fixed Account periodically. Your Policy cash values that
are in the Fixed Account will earn interest daily.
NELICO may vary the way in which it credits interest in the Fixed Account
from time to time. The following is a description of NELICO's current method
for crediting interest to cash value in the Fixed Account. All of your
Policy's cash value in the Fixed Account on a Policy anniversary will earn
interest at the declared annual rate in effect on the anniversary. It will
earn interest at this rate until the next Policy anniversary, when it will be
credited with the current rate declared by NELICO. (Although NELICO's current
practice is to credit your entire Fixed Account cash value on a Policy
anniversary with the most recently declared annual rate until the next
anniversary, NELICO can select any portion, from 0% to 100%, of your Fixed
Account cash value on a Policy anniversary to earn interest at the most
recently declared rate until the next Policy anniversary.) Any net premiums
allocated or any portion of your Policy's cash value transferred to the Fixed
Account from the Variable Account on a date other than a Policy anniversary
will earn interest at NELICO's most recently declared rate until the next
Policy anniversary. Any loan repayment allocated to the Fixed Account will be
credited with the lesser of the most recently declared interest rate and the
effective interest rate for your Policy's cash value in the Fixed Account on
the date of the repayment. The effective interest rate credited at any time to
your cash value in the Fixed Account will be a weighted average of all the
Fixed Account rates for your Policy.
VALUES AND BENEFITS
The Policy's cash value in the Fixed Account reflects the net premiums
allocated to the Fixed Account, interest credited to cash value in the Fixed
Account, any loans, partial surrenders made from the Fixed Account cash value,
charges deducted, and any transfers of cash value to or from the Variable
Account. Charges will be deducted from the Policy's cash value in the Fixed
Account and in the Policy's Sub-Accounts in proportion to the amount of the
Policy's cash value in each. (See "Monthly Deduction 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. (See "Death Benefit".)
POLICY TRANSACTIONS
NELICO reserves the right to restrict allocations to the Fixed Account if
the effective annual rate of interest that would apply to the amount allocated
is the minimum 4% rate. Otherwise, allocations of net premiums to the Fixed
Account are subject to the same percentage requirements that apply to the
Variable Account. (See "Allocation of Net Premiums".)
Except as described below, amounts in the Fixed Account are subject to the
same rights and limitations regarding transfers, loans, surrenders and partial
surrenders that apply to amounts in the Variable Account. (See "Other Policy
Features".) The following special rules apply to transactions involving
amounts in the Fixed Account.
TRANSFERS OF AMOUNTS FROM THE FIXED ACCOUNT TO THE VARIABLE ACCOUNT WILL BE
ALLOWED ONLY ONCE IN EACH POLICY YEAR. A TRANSFER OF CASH VALUE FROM THE FIXED
ACCOUNT WILL BE PROCESSED ONLY IF NELICO RECEIVES THE TRANSFER REQUEST WITHIN
THE 30 DAY PERIOD AFTER THE POLICY ANNIVERSARY, AND THE TRANSFER WILL BE
EFFECTED AS OF THE DATE THE TRANSFER REQUEST IS RECEIVED AT NELICO'S HOME
OFFICE. THE AMOUNT OF CASH VALUE WHICH MAY BE TRANSFERRED FROM THE FIXED
ACCOUNT IS
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LIMITED TO THE GREATER OF 25% OF THE POLICY'S CASH VALUE IN THE FIXED ACCOUNT
ON THE TRANSFER DATE OR THE AMOUNT OF CASH VALUE TRANSFERRED FROM THE FIXED
ACCOUNT IN THE PRECEDING POLICY YEAR. Regardless of these limits, if a
transfer of cash value from the Fixed Account would reduce the remaining cash
value in the Fixed Account below $100, you may transfer the entire amount of
cash value from the Fixed Account. The total number of transfers among Sub-
Accounts and from the Sub-Accounts to the Fixed Account may not exceed four in
one Policy year without NELICO's consent. NELICO currently allows 12 such
transfers per Policy year. Transfers out of the Fixed Account will not be
counted against this limit. NELICO reserves the right to restrict transfers of
cash value into the Fixed Account, if the effective annual rate of interest
that would apply to the amount transferred is the minimum 4% rate.
Unless you request otherwise, a Policy loan will reduce the Policy's cash
value in the Sub-Accounts and not the cash value in the Fixed Account. If
there is not enough cash value in the Policy's Sub-Accounts to provide the
amount of the loan, however, the balance of the loan will be taken from the
cash value in the Fixed Account. All loan repayments will be allocated first
to the outstanding loan balance attributable to the Fixed Account. The amount
removed from the Policy's Sub-Accounts and the Fixed Account as a result of a
loan will earn interest at not less than 4% per year, which will be credited
annually to the Policy's cash value in the Sub-Accounts and the Fixed Account
in proportion to the Policy's cash value in each on the day it is credited.
Unless you request otherwise, partial surrenders will be taken only from the
Policy's Sub-Accounts and not the Fixed Account. If there is not enough cash
value in the Policy's sub-accounts to provide the full amount requested, the
balance of the partial surrender will be taken from the Fixed Account.
NELICO has the right to delay transfers, surrenders, and Policy loans from
the Fixed Account for up to six months (to the extent allowed by state
insurance law). Loans to pay premiums on policies issued by NELICO will not be
delayed.
NELICO'S DISTRIBUTION AGREEMENT
NELICO sells the Policies through agents who are licensed by state insurance
officials to sell NELICO's variable life insurance policies. These agents are
also registered representatives of New England Securities Corporation ("New
England Securities"). New England Securities, a Massachusetts corporation
organized in 1968 and an indirect, wholly-owned subsidiary of NELICO, is
registered with the SEC as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc.
New England Securities, whose principal business address is 399 Boylston
Street, Boston, Massachusetts 02116, serves as the principal underwriter for
the Policies under a Distribution Agreement between NELICO and New England
Securities.
Under the Distribution Agreement, NELICO pays the following sales expenses:
general agent and agency manager's compensation, agents' training allowances,
deferred compensation and insurance benefits of agents, general agents and
agency managers and advertising expenses and all other expenses of
distributing the Policies.
NELICO pays the following commissions and/or service fees to the selling
agent: a maximum of 50% of the Target Premium (plus any additional portion of
a premium which NELICO attributes to certain riders for commission paying
purposes) paid in the first Policy year, and a maximum of 4% thereafter.
Agents receive a maximum commission of 3% of each payment in excess of the
Target Premium (plus any additional portion of a premium which NELICO
attributes to certain riders for commission paying purposes) in any year. For
Policies sold to certain group or sponsored arrangements the maximum 50% first
year commission may be paid in installments over a period of years rather than
all in the first Policy year. Agents who meet certain productivity and
persistency standards in selling policies issued by NELICO may be eligible for
additional compensation. Non-cash forms of compensation may also be paid in
compliance with applicable state law. 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 50% of the Target Premium
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(plus any additional portion of a premium which NELICO attributes to certain
riders for commission paying purposes) in the first Policy year, 4%
thereafter, and 3% of all payments in excess of the Target Premium (plus any
additional portion of a premium which NELICO attributes to certain riders for
commission paying purposes) in any year. 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 (or less, if required
by state law) from the date of issue, based on misrepresentations made in the
application. NELICO can challenge the portion of the death benefit resulting
from payment of an underwritten premium payment for two years during the
insured's lifetime from the date the premium payment was received and can
challenge the portion of the death benefit resulting from an increase in face
amount for two years during the insured's lifetime from the effective date of
the increase. However, if the insured dies within two years of the date of
issue, NELICO can challenge all or part of the Policy at any time with respect
to misrepresentations in the application. If the insured dies within two years
of the effective date of an increase in face amount, NELICO can challenge the
portion of the death benefit resulting from the face amount increase at any
time with respect to misrepresentation.
MISSTATEMENT OF AGE OR SEX
If the insured's age or sex is misstated in the application, the Policy's
death benefit will be the amount that the most recent Monthly Deduction which
was made would have provided, based on the insured's correct age and, if the
Policy is sex-based, on the insured's correct sex.
SUICIDE
If the insured commits suicide within two years (or less, if required by
state law) from the date of issue set forth in the Policy, the death benefit
will be limited to the amount of the premiums paid, less any policy loan
balance, and less any partial surrenders. If the insured commits suicide more
than two years from the issue date of the Policy but within two years from the
effective date of an increase in face amount, the death benefit for the
increase in face amount will be limited to the Monthly Deductions and any Face
Amount Increase Administrative Charge made to pay for that increase. (Where
required by state law, NELICO will determine the death benefit under this
provision by using the greater of: the reserve of the insurance which is
subject to the provision; and the amounts used to purchase the insurance which
is subject to the provision.)
TAX CONSIDERATIONS
POLICY PROCEEDS
The following discussion of Federal income tax issues relating to the
Policies is general in nature and is not intended as tax advice. It describes
what NELICO believes is the Federal income tax treatment of the Policies in
the most commonly occurring circumstances and does not reflect the effect of
Federal income taxes in all situations. In addition, there is no guarantee
that the Federal income tax laws and regulations or interpretation of them
will not change. Therefore, NELICO recommends that you consult your own tax
advisor for more complete information and advice.
DEFINITION OF LIFE INSURANCE. Section 7702 of the Internal Revenue Code of
1986, as amended ("Code") defines a life insurance contract for Federal income
tax purposes.
The Section 7702 definition can be met if a life insurance contract
satisfies either one of two tests set forth in that section. The manner in
which these tests should be applied to certain features of the Policy is not
directly addressed by Section 7702 or proposed regulations issued under that
section. The presence of these Policy features, the absence of final
regulations, and the lack of other pertinent interpretations of Section 7702,
thus creates some uncertainty about the application of Section 7702 to the
Policy.
Nevertheless, NELICO believes that the Policy qualifies as a life insurance
contract for federal income tax purposes. This means that:
. the death benefit should be fully excludible from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
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. 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 Policy Owner and will not be
treated as taxable income to you. This assumes that the Policy has not lapsed,
been surrendered or terminated. As a general rule, Policy loan interest is not
deductible under current Federal income tax law.
You may be subject to Federal income tax upon surrender of your Policy if
the net cash surrender value of the Policy is greater than the investment in
the Policy less prior distributions from the Policy that were not taxed. If a
Policy has a Policy loan and is surrendered or lapses, the Policy loan is
treated as a distribution and would be taxable if there is a gain in the
Policy. In that case, the gain in the Policy would be taxable even if the
Policy has no net cash surrender value. If you incur a loss upon the surrender
it is not likely to be deductible for Federal income tax purposes.
Generally, a partial surrender of the Policy will not be taxable to you
unless it is greater than the investment in the Policy less the untaxed
portions of any prior distributions. The Code does provide, however, that in
certain situations in the first 15 years of the Policy partial surrenders may
be taxable, in whole or in part, if the cash value is greater than the total
investment in the Policy. In this case, an amount may be taxable even if the
amount of the partial surrender is less than the investment in the Policy.
MODIFIED ENDOWMENT CONTRACTS. A modified endowment contract is a life
insurance contract which fails to satisfy a "7-pay test". In general, a Policy
will fail to satisfy the 7-pay test if the total amount paid under the Policy
at any time during the first seven Policy years exceeds the sum of the net
level premiums that would have been paid on or before such time if the Policy
provided for paid up future benefits after the payment of seven level annual
premiums. (The amount of premiums payable under the 7-pay test are calculated
based upon certain assumptions regarding the Policy's earnings and the use of
a reasonable mortality charge. Variable Account investment experience does not
affect whether or not a Policy will become a modified endowment contract.)
Riders to the Policy are considered part of the Policy for purposes of
applying the 7-pay test. If there is a reduction in the Policy's death benefit
(for example, as a result of a partial surrender or face amount reduction) at
any time during the first seven Policy years or within seven years of a face
amount increase or "material change" (see below), the 7-pay test will be
applied back to issue (or to the date of the most recent face amount increase
or material change, whichever is latest), as if the Policy's coverage were
equal to the reduced face amount at that time. If there is a reduction in
rider or other benefits during the first seven Policy years, the 7-pay test
will be applied as if the Policy had originally been issued at the reduced
benefit amount. Any Policy received in exchange for a modified endowment
contract will also be a modified endowment contract.
Your agent can provide you with information about the maximum amount of
premiums which you can make under your Policy during the first seven Policy
years and still satisfy the 7-pay test. This information will be based upon
NELICO's current
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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 Policy changes occurred.
If you do not wish to have the Policy become a modified endowment contract,
you may be required to limit the payment of premiums under the Policy at some
point (or limit your reduction of benefits). The point at which you may have
to limit the payment of premiums will depend upon the issue age, sex and
underwriting class of the insured, investment experience and the amount of
your previous payments.
If you exchange your policy for another life insurance policy, the new
insurance policy should be reviewed to determine how the rules regarding
modified endowment contracts may apply to the new policy. (See "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.
Your investment in the Policy will be increased by the amount of any prior
loan that was included in your gross income.
(c) A Policy assignment is treated as a distribution. For example, in a
split dollar insurance plan involving a collateral assignment of the
Policy, the collateral assignment is a distribution which will subject any
gain that accrues in the Policy to taxation.
(d) For purposes of determining the amount of the distribution which is
includible in gross income, all modified endowment contracts issued by
NELICO or its affiliates to the same Policy Owner during any calendar year
must be treated as one modified endowment contract.
Any taxable distribution will be subject to an additional tax equal to 10%
of the taxable amount of the distribution unless the distribution is:
(a) made on or after the date when you attain age 59 1/2;
(b) is attributable to your becoming disabled; or
(c) is part of a series of substantially equal periodic payments made no
less frequently than annually for your life (or life expectancy) or for the
joint lives (or life expectancies) of you and your beneficiary.
If a Policy becomes a modified endowment contract, distributions made during
the Policy year in which it becomes a modified endowment contract,
distributions in any subsequent Policy year and distributions within two years
before the Policy becomes a modified endowment contract will be subject to the
tax treatment described above. This means that a distribution from a Policy
that is not a modified endowment contract could later become taxable as a
distribution from a modified endowment 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.
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In connection with the issuance of the diversification regulations, the
Treasury Department stated that it anticipates the issuance of additional
guidance prescribing the circumstances in which an owner's control of the
investments of a separate account may cause a Policy Owner, rather than the
insurance company, to be treated as the owner of the assets in the separate
account. If a Policy Owner is considered the owner of the assets of the
Separate Account, income and gains from the Account would be included in the
Owner's gross income.
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the Internal Revenue Service in
rulings in which it determined that the owners were not owners of separate
account assets. For example, a Policy Owner has additional flexibility in
allocating payments and cash values. These differences could result in the
owner being treated as the owner of a pro rata share of the assets of the
Separate Account. In addition, NELICO does not know what standards will be set
forth in the additional guidance which the Treasury has stated it expects to
be issued. NELICO therefore reserves the right to modify the Policy as
necessary to attempt to prevent the Policy Owner from being considered the
owner of the assets of the Separate Account.
In the event that a Policy is owned by the trustee under a pension or profit
sharing plan, or similar deferred compensation arrangement, the Federal, state
and estate tax consequences of ownership or receipt of proceeds under the
Policy could differ from the principles stated herein. However, if ownership
of such Policy is transferred from the plan to a plan participant (upon
termination of employment, for example), the Policy will be subject to all of
the rules described above relating to Federal tax treatment, including the
rules regarding modified endowment contracts. Policies owned by the trustee
under the plans described above may be subject to restrictions under ERISA.
You should consult a qualified tax advisor regarding any applicable
requirements of ERISA.
If the Policy is owned as part of a pension or profit-sharing plan qualified
under Section 401 of the Code, the current cost of insurance for the net
amount at risk is treated as a "current fringe benefit" and is required to be
included annually in the plan participant's gross income. This cost (generally
referred to as the "P.S. 58" cost) is reported to the participant annually. If
the plan participant dies while covered by the plan and the Policy proceeds
are paid to the participant's beneficiary, then the excess of the death
benefit over the cash value will not be subject to Federal income tax.
However, the cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy. The participant's cost basis will
generally include the costs of insurance previously reported as income to the
participant. Special rules may apply if the participant had borrowed from his
cash value or was an owner-employee under the plan.
There are limits on the amounts of life insurance that may be purchased on
behalf of a participant in a pension or profit-sharing plan. Complex rules, in
addition to those discussed above, apply whenever life insurance is purchased
by a tax qualified plan.
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 premiums. NELICO reserves
its rights to charge the Variable Account for company Federal income taxes in
the future.
Under current laws NELICO may incur state and local taxes (in addition to
premium taxes) in several states. At present these taxes are not significant
and, accordingly, NELICO is not currently making a charge for them. If they
increase, however, charges for such taxes attributable to the Variable Account
may be made.
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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-43
<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.
</TABLE>
A-44
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<C> <S>
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.
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-45
<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 with respect to cash value removed from
the Variable Account as a result of a Policy loan.
All Zenith Fund shares held by the general account (or any unregistered
separate account for which voting privileges were not extended) of NELICO or
its affiliates will be voted in the same proportion as the total of (i) shares
for which voting instructions were received and (ii) shares that are voted in
proportion to such voting instructions.
The SEC requires the Eligible Funds' Boards of Trustees to monitor events to
identify conflicts that may arise from the sale of Eligible Fund shares to
variable life and variable annuity separate accounts of affiliated and, if
applicable, unaffiliated insurance companies. Conflicts could arise as a
result of changes in state insurance law or Federal income tax law, changes in
investment management of any portfolio of the Eligible Funds, or differences
in voting instructions given by variable life and variable annuity contract
owners, for example. If there is a material conflict, the Board of Trustees
will have an obligation to determine what action should be taken, including
the removal of the affected Sub-Accounts from the Eligible Fund(s), if
necessary. If NELICO believes any Eligible Fund action is insufficient, NELICO
will consider taking other action to protect Policy Owners. There could,
however, be unavoidable delays or interruptions of operations of the Variable
Account that NELICO may be unable to remedy.
If required by state insurance authorities, NELICO may disregard voting
instructions if they would require that shares be voted to cause a change in
the investment objectives of the portfolios of the Eligible Funds or to
approve or disapprove an investment advisory or underwriting contract for a
portfolio. In addition, NELICO may disregard voting instructions in favor of
changes, initiated by a Policy Owner or an Eligible Fund's Board of Trustees,
in the investment policy, investment adviser or principal underwriter of the
Eligible Fund portfolio if NELICO (i) reasonably disapproves of the changes
and (ii) in the case of a change in investment policy or investment adviser,
makes a good faith determination that the proposed change is contrary to state
law or is prohibited by state regulatory authorities or that the change would
be inconsistent with a Sub-Account's investment objectives or would result in
the purchase of securities which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts of
NELICO or of an affiliated life insurance company, which separate accounts
have investment objectives similar to those of the Sub-Account. If NELICO does
disregard voting instructions, a summary of that action and the reasons for it
will be included in the next semiannual report to Policy Owners.
RIGHTS RESERVED BY NELICO
NELICO and its affiliates may change the voting procedures described above,
and may vote Eligible Fund shares in their own right without instructions from
Policy Owners, if the applicable Federal securities laws or regulations or
interpretations of them change. NELICO also reserves the right: (1) to create
new investment accounts; (2) to combine any two or more separate investment
accounts including the Variable Account; (3) to make available additional Sub-
Accounts of the Variable Account investing in additional Eligible Fund
portfolios or in portfolios of other mutual funds; (4) to invest the assets of
the Variable Account in securities other than Eligible Fund shares or in
shares of a different series of the Eligible Funds as a substitute for such
shares already purchased or as the securities to be purchased in the future,
to withdraw the availability of a series of the Eligible Funds as an
investment option under the Policies, or to transfer assets to NELICO's
general account as permitted by applicable law; (5) to operate the Variable
Account as a management investment company under the Investment Company Act of
1940 or in any other form permitted by law; and (6) to deregister the Variable
Account under the Investment Company Act of 1940 if registration is no longer
required. NELICO will exercise these rights in accordance with applicable law,
including approval of Policy Owners if required. NELICO will notify you if
exercise of any of these rights would result in a material change in the
Variable Account or its investments.
A-46
<PAGE>
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
NELICO will send you a statement annually showing your Policy's death
benefit, cash value and any outstanding Policy loan principal. NELICO will
also confirm Policy loans, subaccount transfers, lapses, surrenders and other
Policy transactions when they occur.
You will be sent semiannual reports containing the financial statements of
the Variable Account and the Eligible Funds.
ADVERTISING PRACTICES
NELICO may from time to time receive endorsements of the Policies from
professional organizations. NELICO may refer to or use such endorsements in
advertisements or sales material for the Policies. NELICO may also pay the
professional organization making the endorsement for the use of its customer
or mailing lists in order to distribute promotional materials regarding the
Policies. An endorsement of the Policies by a third party is not necessarily
indicative of the future performance or results which may be obtained by
persons who purchase the Policies.
From time to time, articles discussing the Variable Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited to Lipper Analytical Services, Inc. and
Morningstar, Inc.) may publish their own rankings or performance reviews of
variable contract separate accounts, including the Variable Account.
References to, reprints or portions of reprints of such articles or rankings
may be used by NELICO as sales literature or advertising material and may
include rankings that indicate the names of other variable contract separate
accounts and their investment experience.
Articles and releases, developed by NELICO, the Eligible Funds and other
parties, about the Variable Account or the Eligible Funds regarding individual
Eligible Funds' and fund groups' asset levels and sales volumes, statistics
and analyses of industry sales volume and asset levels, and other
characteristics may appear in various publications. References to or reprints
of such articles may be used in promotional literature for the Policies or the
Variable Account. Such literature may refer to personnel of the advisers, who
have portfolio management responsibility, and their investment style. The
reference may allude to or include excerpts from articles appearing in the
media.
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., of Washington, D.C., has provided advice on certain
matters relating to federal securities laws.
A-47
<PAGE>
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 (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-48
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES,
NET CASH VALUES AND ACCUMULATED 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 face amounts of $250,000 and $500,000 for a male
aged 40. The insured is assumed to be in the nonsmoker preferred risk
classification. The Tables assume no rider benefits and assume that no
allocations are made to the Fixed Account. Values are first given based on
current mortality and other Policy charges and then based on guaranteed
mortality and other Policy charges. The illustrations for the $500,000 face
amount reflect the lower sales charge and, in the illustrations based on
current charges, the lower cost of insurance and first-year administrative
charges that would apply to the Policy if issued in the personal market or if
issued in business situations which qualify for those lower charges. (See
"Charges and Expenses".) Each illustration is given for a Policy with an
Option 1 and 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.
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
premiums were paid in other amounts or at other than annual intervals. They
would also be different depending on the allocation of cash value among the
Variable Account's Sub-Accounts, if the actual gross rate of return for all
Sub-Accounts averaged 0%, 6% or 12%, but varied above or below that average
for individual Sub-Accounts. They would also differ if any policy loan or
partial surrender were made during the period of time illustrated, if the
insured were female or in another risk classification, or if the Policies were
issued at unisex rates.
The death benefits, net cash values and cash values shown in the tables
reflect: (i) deductions from premiums for the sales charge and state and
federal premium tax charge; and (ii) a Monthly Deduction (consisting of a
Policy fee, an administrative charge, 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
11 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 .75% (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. TNE Advisers could terminate the expense cap and expense deferral
arrangements at any time. If TNE Advisers terminates these arrangements, the
values illustrated on the following pages could be less. (See "Charges Against
the Eligible Funds and the Sub-Accounts of the Variable Account".)
Taking account of the 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 -
1.51%, 4.40% and 10.31%, 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".)
The second column of each table shows the amount which would accumulate if
an amount equal to the annual premium were invested to earn interest, after
taxes, of 5% per year, compounded annually.
A-49
<PAGE>
The internal rate of return on net cash value is equivalent to an interest
rate (after taxes) at which an amount equal to the illustrated premiums could
have been invested outside the Policy to arrive at the net cash value of the
Policy. The internal rate of return on the death benefit is equivalent to an
interest rate (after taxes) at which an amount equal to the illustrated
premiums could have been invested outside the Policy to arrive at the death
benefit of the Policy. The internal rate of return is compounded annually, and
the premiums are assumed to be paid at the beginning of each Policy year.
NELICO will furnish upon request a personalized illustration reflecting the
proposed insured's age, sex, underwriting classification, and the face amount
or premium payment schedule requested. Where applicable, NELICO will also
furnish upon request an illustration for a Policy which is not affected by the
sex of the insured.
A-50
<PAGE>
MALE ISSUE AGE 40
$4,025 ANNUAL PREMIUM FOR NONSMOKER
PREFERRED UNDERWRITING RISK
$250,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ------------------------- ---------------------- ---------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,226 250,000 250,000 250,000 1,870 2,068 2,266 2,968 3,166 3,364 -53.54% -48.63% -43.70%
2 8,664 250,000 250,000 250,000 4,871 5,455 6,063 6,001 6,585 7,193 -29.16 -23.30 -17.48
3 13,323 250,000 250,000 250,000 7,098 8,264 9,526 8,961 10,127 11,389 -24.31 -17.80 -11.39
4 18,215 250,000 250,000 250,000 10,027 11,976 14,170 11,827 13,776 15,970 -18.07 -11.49 -5.04
5 23,352 250,000 250,000 250,000 12,903 15,841 19,280 14,640 17,578 21,018 -14.47 -7.88 -1.42
6 28,746 250,000 250,000 250,000 15,949 20,087 25,130 17,397 21,535 26,578 -11.75 -5.24 1.14
7 34,409 250,000 250,000 250,000 18,921 24,479 31,527 20,079 25,637 32,686 -9.97 -3.52 2.81
8 40,356 250,000 250,000 250,000 21,857 29,060 38,570 22,726 29,929 39,439 -8.69 -2.28 4.00
9 46,600 250,000 250,000 250,000 24,713 33,795 46,282 25,292 34,374 46,862 -7.76 -1.39 4.87
10 53,156 250,000 250,000 250,000 27,535 38,736 54,781 27,825 39,025 55,070 -7.04 -.70 5.54
15 91,194 250,000 250,000 250,000 40,077 65,825 111,253 40,077 65,825 111,253 -5.32 1.07 7.32
20 139,741 250,000 250,000 264,686 50,442 98,474 203,605 50,442 98,474 203,605 -4.70 1.88 8.19
25 201,701 250,000 250,000 426,034 58,440 138,735 355,029 58,440 138,735 355,029 -4.49 2.39 8.71
30 280,780 250,000 250,000 689,510 62,128 188,290 599,574 62,128 188,290 599,574 -4.73 2.73 9.01
35 381,706 250,000 264,285 1,045,237 59,133 251,700 995,464 59,133 251,700 995,464 -5.56 3.02 9.21
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 6,111.35% 6,111.35% 6,111.35%
2 639.71 639.71 639.71
3 257.64 257.64 257.64
4 148.47 148.47 148.47
5 100.09 100.09 100.09
6 73.55 73.55 73.55
7 57.05 57.05 57.05
8 45.91 45.91 45.91
9 37.94 37.94 37.94
10 32.00 32.00 32.00
15 16.39 16.39 16.39
20 9.88 9.88 10.35
25 6.44 6.44 9.86
30 4.35 4.35 9.72
35 2.99 3.26 9.42
</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-51
<PAGE>
MALE ISSUE AGE 40
$4,025 ANNUAL PREMIUM FOR NONSMOKER
PREFERRED UNDERWRITING RISK
$250,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ----------------------- ---------------------- ---------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,226 250,000 250,000 250,000 1,776 1,970 2,166 2,874 3,068 3,264 -55.88% -51.05% -46.20%
2 8,664 250,000 250,000 250,000 4,530 5,096 5,687 5,660 6,226 6,817 -32.72 -26.87 -21.04
3 13,323 250,000 250,000 250,000 6,501 7,619 8,834 8,363 9,482 10,696 -27.91 -21.32 -14.83
4 18,215 250,000 250,000 250,000 9,179 11,033 13,128 10,979 12,833 14,928 -21.25 -14.56 -8.00
5 23,352 250,000 250,000 250,000 11,772 14,549 17,814 13,510 16,287 19,551 -17.37 -10.62 -4.04
6 28,746 250,000 250,000 250,000 14,500 18,391 23,152 15,948 19,839 24,600 -14.42 -7.74 -1.20
7 34,409 250,000 250,000 250,000 17,134 22,333 28,958 18,293 23,491 30,116 -12.46 -5.81 .69
8 40,356 250,000 250,000 250,000 19,671 26,377 35,280 20,540 27,246 36,149 -11.09 -4.45 2.03
9 46,600 250,000 250,000 250,000 22,110 30,527 42,172 22,689 31,106 42,751 -10.08 -3.44 3.03
10 53,156 250,000 250,000 250,000 24,444 34,779 49,690 24,734 35,069 49,980 -9.32 -2.67 3.80
15 91,194 250,000 250,000 250,000 33,110 56,363 98,024 33,110 56,363 98,024 -7.97 -.86 5.85
20 139,741 250,000 250,000 250,000 37,260 79,681 175,583 37,260 79,681 175,583 -8.09 -.10 6.95
25 201,701 250,000 250,000 362,723 34,894 104,420 302,269 34,894 104,420 302,269 -9.59 .28 7.68
30 280,780 250,000 250,000 577,558 20,883 129,378 502,225 20,883 129,378 502,225 -16.09 .44 8.10
35 381,706 250,000 250,000 860,370 0 153,298 819,400 0 153,298 819,400 -- .46 8.39
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 6,111.35% 6,111.35% 6,111.35%
2 639.71 639.71 639.71
3 257.64 257.64 257.64
4 148.47 148.47 148.47
5 100.09 100.09 100.09
6 73.55 73.55 73.55
7 57.05 57.05 57.05
8 45.91 45.91 45.91
9 37.94 37.94 37.94
10 32.00 32.00 32.00
15 16.39 16.39 16.39
20 9.88 9.88 9.88
25 6.44 6.44 8.85
30 4.35 4.35 8.82
35 2.99 2.99 8.59
</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-52
<PAGE>
MALE ISSUE AGE 40
$4,025 ANNUAL PREMIUM FOR NONSMOKER
PREFERRED UNDERWRITING RISK
$250,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ------------------------- ---------------------- ---------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,226 252,962 253,160 253,357 1,864 2,061 2,259 2,962 3,160 3,357 -53.69% -48.78% -43.87%
2 8,664 255,984 256,566 257,172 4,854 5,435 6,041 5,984 6,566 7,172 -29.34 -23.49 -17.67
3 13,323 258,925 260,086 261,342 7,063 8,223 9,480 8,925 10,086 11,342 -24.52 -18.01 -11.62
4 18,215 261,765 263,702 265,882 9,965 11,902 14,082 11,765 13,702 15,882 -18.29 -11.72 -5.28
5 23,352 264,545 267,460 270,872 12,807 15,722 19,135 14,545 17,460 20,872 -14.70 -8.12 -1.68
6 28,746 267,260 271,360 276,353 15,812 19,912 24,905 17,260 21,360 26,353 -11.99 -5.49 .88
7 34,409 269,893 275,388 282,354 18,734 24,230 31,195 19,893 25,388 32,354 -10.22 -3.77 2.55
8 40,356 272,483 279,591 288,971 21,614 28,722 38,102 22,483 29,591 38,971 -8.94 -2.55 3.73
9 46,600 274,982 283,925 296,215 24,403 33,346 45,636 24,982 33,925 46,215 -8.02 -1.66 4.59
10 53,156 277,441 288,447 304,203 27,152 38,158 53,914 27,441 38,447 54,203 -7.31 -.97 5.25
15 91,194 289,250 314,296 358,420 39,250 64,296 108,420 39,250 64,296 108,420 -5.61 .78 7.02
20 139,741 298,777 344,765 445,192 48,777 94,765 195,192 48,777 94,765 195,192 -5.06 1.53 7.84
25 201,701 305,064 379,695 583,719 55,064 129,695 333,719 55,064 129,695 333,719 -5.03 1.90 8.31
30 280,780 305,665 417,019 803,134 55,665 167,019 553,134 55,665 167,019 553,134 -5.62 2.02 8.60
35 381,706 297,610 453,436 1,150,311 47,610 203,436 900,311 47,610 203,436 900,311 -7.28 1.95 8.79
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 6,184.94% 6,189.84% 6,194.77%
2 649.06 649.97 650.91
3 262.35 262.96 263.61
4 151.82 152.35 152.96
5 102.82 103.35 103.97
6 75.94 76.49 77.15
7 59.22 59.79 60.51
8 47.93 48.54 49.32
9 39.86 40.50 41.35
10 33.82 34.51 35.44
15 17.99 18.89 20.32
20 11.33 12.48 14.50
25 7.74 9.14 11.82
30 5.47 7.13 10.49
35 3.83 5.79 9.82
</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-53
<PAGE>
MALE ISSUE AGE 40
$4,025 ANNUAL PREMIUM FOR NONSMOKER
PREFERRED UNDERWRITING RISK
$250,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ----------------------- --------------------- --------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,226 252,868 253,062 253,257 1,770 1,964 2,159 2,868 3,062 3,257 -56.03% -51.20% -46.36%
2 8,664 255,639 256,203 256,792 4,509 5,073 5,662 5,639 6,203 6,792 -32.94 -27.10 -21.28
3 13,323 258,319 259,431 260,639 6,457 7,569 8,776 8,319 9,431 10,639 -28.19 -21.60 -15.13
4 18,215 260,903 262,743 264,821 9,103 10,943 13,021 10,903 12,743 14,821 -21.55 -14.86 -8.31
5 23,352 263,393 266,141 269,372 11,655 14,404 17,634 13,393 16,141 19,372 -17.68 -10.95 -4.37
6 28,746 265,778 269,620 274,319 14,330 18,172 22,871 15,778 19,620 24,319 -14.76 -8.08 -1.55
7 34,409 268,058 273,177 279,697 16,899 22,018 28,539 18,058 23,177 29,697 -12.81 -6.17 .32
8 40,356 270,228 276,810 285,545 19,359 25,941 34,676 20,228 26,810 35,545 -11.45 -4.82 1.64
9 46,600 272,284 280,519 291,904 21,705 29,939 41,325 22,284 30,519 41,904 -10.46 -3.84 2.62
10 53,156 274,220 284,295 298,817 23,931 34,005 48,527 24,220 34,295 48,817 -9.73 -3.09 3.37
15 91,194 281,740 303,845 343,370 31,740 53,845 93,370 31,740 53,845 93,370 -8.57 -1.44 5.28
20 139,741 284,261 322,867 409,844 34,261 72,867 159,844 34,261 72,867 159,844 -9.09 -.96 6.16
25 201,701 279,213 337,847 508,007 29,213 87,847 258,007 29,213 87,847 258,007 -11.62 -1.06 6.64
30 280,780 261,783 341,618 650,443 11,783 91,618 440,443 11,783 91,618 400,443 -25.46 -1.85 6.92
35 381,706 0 321,664 853,509 0 71,664 603,509 0 71,664 603,509 -- -4.17 7.06
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 6,182.61% 6,187.43% 6,192.27%
2 648.53 649.40 650.32
3 262.04 262.62 263.25
4 151.57 152.09 152.67
5 102.61 103.11 103.70
6 75.74 76.26 76.88
7 59.03 59.56 60.24
8 47.74 48.30 49.04
9 39.66 40.26 41.06
10 33.62 34.25 35.13
15 17.70 18.53 19.86
20 10.93 11.95 13.85
25 7.16 8.39 10.96
30 4.61 6.07 9.43
35 -- 4.20 8.56
</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
$7,916 ANNUAL PREMIUM FOR NONSMOKER
PREFERRED UNDERWRITING RISK
$500,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ------------------------- ------------------------- ------------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,312 500,000 500,000 500,000 4,039 4,442 4,847 6,235 6,639 7,043 -48.98% -43.88% -38.77%
2 17,039 500,000 500,000 500,000 10,278 11,478 12,727 12,538 13,738 14,987 -25.57 -19.62 -13.70
3 26,202 500,000 500,000 500,000 14,987 17,391 19,992 18,712 21,116 23,717 -21.31 -14.79 -8.36
4 35,824 500,000 500,000 500,000 21,117 25,143 29,672 24,717 28,743 33,272 -15.56 -9.01 -2.58
5 45,927 500,000 500,000 500,000 27,143 33,220 40,330 30,618 36,695 43,805 -12.32 -5.78 .63
6 56,534 500,000 500,000 500,000 33,516 42,087 52,250 36,412 44,983 55,416 -9.89 -3.44 2.88
7 67,673 500,000 500,000 500,000 39,753 51,275 65,870 42,070 53,592 68,187 -8.31 -1.94 4.32
8 79,368 500,000 500,000 500,000 45,910 60,854 80,559 47,648 62,592 82,296 -7.20 -.89 5.33
9 91,648 500,000 500,000 500,000 51,927 70,781 96,667 53,086 71,939 97,826 -6.40 -.13 6.05
10 104,542 500,000 500,000 500,000 57,874 81,139 114,412 58,453 81,718 114,991 -5.79 .45 6.60
15 179,351 500,000 500,000 500,000 83,525 137,116 231,479 83,525 137,116 231,479 -4.54 1.78 7.97
20 274,830 500,000 500,000 548,726 104,114 203,908 422,097 104,114 203,908 422,097 -4.19 2.35 8.63
25 396,687 500,000 500,000 880,377 119,607 285,947 733,647 119,607 285,947 733,647 -4.14 2.72 9.02
30 552,210 500,000 500,000 1,422,306 126,555 387,235 1,236,788 126,555 387,235 1,236,788 -4.45 2.99 9.26
35 750,703 500,000 542,577 2,153,879 120,218 516,740 2,051,313 120,218 516,740 2,051,313 -5.31 3.23 9.41
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 6,216.50% 6,216.50% 6,216.50%
2 646.34 646.34 646.34
3 259.89 259.89 259.89
4 149.69 149.69 149.69
5 100.90 100.90 100.90
6 74.15 74.15 74.15
7 57.52 57.52 57.52
8 46.30 46.30 46.30
9 38.28 38.28 38.28
10 32.29 32.29 32.29
15 16.58 16.58 16.58
20 10.02 10.02 10.78
25 6.55 6.55 10.17
30 4.45 4.45 9.96
35 3.07 3.47 9.62
</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
$7,916 ANNUAL PREMIUM FOR NONSMOKER
PREFERRED UNDERWRITING RISK
$500,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ------------------------- ------------------------ ------------------------ -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,312 500,000 500,000 500,000 3,820 4,217 4,614 6,016 6,413 6,811 -51.74% -46.73% -41.71%
2 17,039 500,000 500,000 500,000 9,363 10,519 11,726 11,624 12,780 13,987 -30.30 -24.34 -18.42
3 26,202 500,000 500,000 500,000 13,340 15,620 18,095 17,065 19,345 21,820 -26.18 -19.53 -12.99
4 35,824 500,000 500,000 500,000 18,732 22,505 26,767 22,332 26,105 30,368 -19.93 -13.20 -6.61
5 45,927 500,000 500,000 500,000 23,952 29,596 36,232 27,428 33,071 39,707 -16.30 -9.54 -2.93
6 56,534 500,000 500,000 500,000 29,442 37,342 47,011 32,338 40,238 49,907 -13.53 -6.84 -.29
7 67,673 500,000 500,000 500,000 34,743 45,291 58,737 37,060 47,607 61,054 -11.70 -5.04 1.46
8 79,368 500,000 500,000 500,000 39,851 53,448 71,508 41,589 55,185 73,245 -10.41 -3.78 2.69
9 91,648 500,000 500,000 500,000 44,761 61,818 85,431 45,920 62,976 86,590 -9.47 -2.85 3.61
10 104,542 500,000 500,000 500,000 49,462 70,398 100,622 50,041 70,978 101,201 -8.77 -2.14 4.32
15 179,351 500,000 500,000 500,000 66,954 114,007 198,367 66,954 114,007 198,367 -7.57 -.51 6.18
20 274,830 500,000 500,000 500,000 75,423 161,235 355,357 75,423 161,235 355,357 -7.75 .17 7.20
25 396,687 500,000 500,000 733,824 70,883 211,556 611,520 70,883 211,556 611,520 -9.24 .51 7.86
30 552,210 500,000 500,000 1,168,112 43,116 262,795 1,015,749 43,116 262,795 1,015,749 -15.43 .65 8.25
35 750,703 500,000 500,000 1,739,799 0 313,036 1,656,952 0 313,036 1,656,952 -- .67 8.50
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 6,216.50% 6,216.50% 6,216.50%
2 646.34 646.34 646.34
3 259.89 259.89 259.89
4 149.69 149.69 149.69
5 100.90 100.90 100.90
6 74.15 74.15 74.15
7 57.52 57.52 57.52
8 46.30 46.30 46.30
9 38.28 38.28 38.28
10 32.29 32.29 32.29
15 16.58 16.58 16.58
20 10.02 10.02 10.02
25 6.55 6.55 9.03
30 4.45 4.45 8.97
35 3.07 3.07 8.71
</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
$7,916 ANNUAL PREMIUM FOR NONSMOKER
PREFERRED UNDERWRITING RISK
$500,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ------------------------- ------------------------- ------------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,312 506,226 506,629 507,033 4,030 4,433 4,837 6,226 6,629 7,033 -49.09% -44.00% -38.90%
2 17,039 512,512 513,709 514,955 10,251 11,448 12,694 12,512 13,709 14,955 -25.70 -19.76 -13.85
3 26,202 518,658 521,054 523,646 14,933 17,329 19,921 18,658 21,054 23,646 -21.47 -14.95 -8.53
4 35,824 524,623 528,631 533,138 21,022 25,030 29,538 24,623 28,631 33,138 -15.73 -9.18 -2.76
5 45,927 530,472 536,515 543,583 26,997 33,040 40,108 30,472 36,515 43,583 -12.49 -5.96 .44
6 56,534 536,204 544,716 555,074 33,308 41,820 52,178 36,204 44,716 55,074 -10.06 -3.63 2.69
7 67,673 541,785 553,211 567,680 39,468 50,894 65,363 41,785 53,211 67,680 -8.49 -2.13 4.13
8 79,368 547,276 562,074 581,581 45,539 60,337 79,843 47,276 62,074 81,581 -7.38 -1.08 5.13
9 91,648 552,611 571,252 596,836 51,452 70,093 95,678 52,611 71,252 96,836 -6.59 -.33 5.85
10 104,542 557,865 580,833 613,665 57,285 80,254 113,085 57,865 80,833 113,665 -5.98 .25 6.39
15 179,351 582,100 634,516 726,706 82,100 134,516 226,706 82,100 134,516 226,706 -4.77 1.54 7.73
20 274,830 600,937 696,924 906,547 100,937 196,924 406,547 100,937 196,924 406,547 -4.52 2.03 8.32
25 396,687 612,905 768,126 1,193,312 112,905 268,126 693,312 112,905 268,126 693,312 -4.65 2.26 8.66
30 552,210 613,547 844,438 1,648,011 113,547 344,438 1,148,011 113,547 344,438 1,148,011 -5.32 2.30 8.88
35 750,703 596,917 919,339 2,368,296 96,917 419,339 1,868,296 96,917 419,339 1,868,296 -7.00 2.19 9.02
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 6,295.16% 6,300.25% 6,305.36%
2 656.20 657.14 658.11
3 264.84 265.47 266.14
4 153.20 153.76 154.38
5 103.76 104.32 104.96
6 76.66 77.23 77.91
7 59.80 60.40 61.14
8 48.43 49.06 49.87
9 40.29 40.96 41.84
10 34.21 34.92 35.89
15 18.24 19.18 20.65
20 11.51 12.70 14.78
25 7.87 9.32 12.06
30 5.58 7.28 10.70
35 3.93 5.92 10.01
</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 40
$7,916 ANNUAL PREMIUM FOR NONSMOKER
PREFERRED UNDERWRITING RISK
$500,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ------------------------- ------------------------ ------------------------ -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,312 506,008 506,404 506,801 3,811 4,207 4,604 6,008 6,404 6,801 -51.85% -46.85% -41.83%
2 17,039 511,584 512,737 513,939 9,324 10,476 11,679 11,584 12,737 13,939 -30.51 -24.56 -18.65
3 26,202 516,979 519,246 521,708 13,254 15,521 17,983 16,979 19,246 21,708 -26.45 -19.81 -13.27
4 35,824 522,181 525,925 530,154 18,581 22,325 26,554 22,181 25,925 30,154 -20.22 -13.50 -6.92
5 45,927 527,192 532,779 539,348 23,717 29,304 35,872 27,192 32,779 39,348 -16.61 -9.86 -3.26
6 56,534 531,996 539,796 549,342 29,100 36,900 46,446 31,996 39,796 49,342 -13.86 -7.17 -.64
7 67,673 536,587 546,973 560,209 34,270 44,656 57,893 36,587 46,973 60,209 -12.04 -5.40 1.10
8 79,368 540,958 554,306 572,027 39,220 52,568 70,289 40,958 54,306 72,027 -10.77 -4.15 2.31
9 91,648 545,102 561,791 584,880 43,944 60,633 83,722 45,102 61,791 84,880 -9.86 -3.24 3.21
10 104,542 549,004 569,414 598,853 48,425 68,835 98,274 49,004 69,414 98,853 -9.18 -2.56 3.90
15 179,351 564,188 608,920 688,958 64,188 108,920 188,958 64,188 108,920 188,958 -8.17 -1.09 5.61
20 274,830 569,362 647,460 823,524 69,362 147,460 323,324 69,362 147,460 323,524 -8.74 -.68 6.40
25 396,687 559,390 678,032 1,022,477 59,390 178,032 522,477 59,390 178,032 522,477 -11.23 -.82 6.84
30 552,210 524,642 686,329 1,311,611 24,642 186,329 811,611 24,642 186,329 811,611 -24.31 -1.62 7.08
35 750,703 0 647,351 1,724,664 0 147,351 1,224,664 0 147,351 1,224,664 -- -3.86 7.20
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 6,292.40% 6,297.41% 6,302.42%
2 655.47 656.38 657.32
3 264.40 246.99 265.64
4 152.86 153.38 153.97
5 103.46 103.97 104.57
6 76.37 76.90 77.53
7 59.53 60.08 60.76
8 48.15 48.73 49.47
9 40.01 40.62 41.43
10 33.93 34.57 35.46
15 17.90 18.73 20.07
20 11.07 12.11 14.02
25 7.28 8.52 11.11
30 4.72 6.18 9.56
35 -- 4.31 8.68
</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>
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 August, 1995. 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 of the Zenith Fund commenced
operations on May 2, 1994. The remaining Zenith Fund Series commenced
operations on October 31, 1994. The Equity-Income Portfolio and Overseas
Portfolio of the VIP Fund commenced operations on October 9, 1986 and January
28, 1987, respectively. The High Income Portfolio of the VIP Fund and the
Asset Manager Portfolio of the VIP Fund II commenced operations on September
19, 1985 and September 6, 1989, respectively.
The illustrations are based on the actual investment experience of the
relevant Eligible Funds for the periods shown (net of actual charges and
expenses incurred by the Eligible Funds), and reflect a charge for mortality
and expense risks against the Variable Account's assets at an annual rate of
.75%. The illustrations assume that premiums are paid at the beginning of each
year and that no loans, transfers or other Policy Owner transactions were made
during the periods shown.
VARIABLE ACCOUNT INVESTMENT EXPERIENCE
The Policies are supported by the Variable Account which invests in the
Eligible Funds. The investment experience of the Sub-Account or Sub-Accounts
you choose will affect the values and benefits of your Policy.
Many factors in addition to investment experience will affect the actual
values and benefits of your Policy. For instance, these investment experience
figures do not reflect the charges deducted from Premiums and Monthly
Deductions from the cash value. (See "Charges and Expenses".)
NET RATES OF RETURN
The annual net rate is the effective earnings rate at which the investment
Sub-Accounts increased or decreased over a one-year period, based on the
investment experience of the relevant Eligible Funds. The rate is calculated
by taking the difference between the Sub-Accounts' ending values and beginning
values of the period and dividing it by the beginning values of the period.
The effective annual net rate of return since inception is the annualized
effective interest rate at which the Sub-Accounts increased or decreased since
the inception dates of the Sub-Accounts. For each Sub-Account, the rate is
calculated by taking the difference between the Sub-Account's ending value and
the value on the date of its inception and dividing it by the value on the
date of inception. This result is the total net rate of return since inception
("Total Return"). The effective annual net rate of return is the rate which,
if compounded annually, would equal the total net rate of return since
inception.
A-59
<PAGE>
SUB-ACCOUNT INVESTING IN ZENITH FUND
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
----------- 8/26/83- ---------------------------------------------------------------------------------------------------
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*. 8.58% -1.11% 66.84% 93.75% 51.56% -9.47% 31.88% -5.73% 52.83% -6.75% 14.11% -7.76%
Bond Income..... 2.77% 11.93 17.87 13.98 1.50 7.56 11.46 7.28 17.08 7.37 11.77 -4.08
Money Market.... 3.03% 9.80 7.45 6.01 5.73 6.71 8.44 7.38 5.42 3.02 2.20 3.20
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------- 8/26/83- 8/26/93-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/96 12/31/96
----------- ------------------------- TOTAL EFFECTIVE
12/31/95 12/31/96 RETURN ANNUAL
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Capital Growth*. 37.00% 20.16% 1,362.22% 22.26%
Bond Income..... 20.29 3.82 239.56 9.59
Money Market.... 4.91 4.34 112.26 5.80
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------------------------------------------------------------- 5/1/87- 5/1/87-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/96 12/31/96
----------- 5/1/87- -------------------------------------------------------------------------------- TOTAL EFFECTIVE
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 RETURN ANNUAL
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <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% .36% 35.90% 21.55% 208.57% 12.36%
Managed......... -1.15% 8.67 18.20 2.44 19.28 5.90 9.82 -1.85 30.28 14.16 163.39 10.53
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------- 4/30/93- 4/30/93-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/96 12/31/96
----------- 4/30/93- -------------------------- TOTAL EFFECTIVE
12/31/93 12/31/94 12/31/95 12/31/96 RETURN ANNUAL
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income........ 13.67% -1.94% 35.45% 17.21% 76.95% 16.82%
Avanti Growth............ 14.16 -1.01 29.38 16.72 70.66 15.67
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------- 5/2/94- 5/2/94-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/96 12/31/96
----------- 5/2/94- ---------------------- TOTAL EFFECTIVE
12/31/94 12/31/95 12/31/96 RETURN ANNUAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Small Cap................ -3.71% 27.88% 29.70% 59.72% 19.19%
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------
FOR ONE YEAR ENDING 10/31/94- 10/31/94-
---------------------- 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............ -4.32% 47.59% 12.32% 58.62% 23.71%
Balanced................. -.22 23.86 16.03 43.40 18.09
Venture Value............ -3.62 38.25 24.89 66.41 26.47
International Magnum
Equity**................ 2.48 5.44 5.87 14.39 6.40
</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 sub-adviser.
SUB-ACCOUNTS INVESTING IN VARIABLE INSURANCE PRODUCTS FUND
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------------------------------------- 10/9/86-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/96
----------- 10/9/86- ----------------------------------------------------------------------------------------- TOTAL
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 RETURN
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income... .03% -1.87% 21.79% 16.47% -15.93% 30.46% 16.01% 17.41% 6.27% 34.09% 13.42% 236.19%
<CAPTION>
10/9/86-
SUB-ACCOUNT 12/31/96
----------- EFFECTIVE
ANNUAL
---------
<S> <C>
Equity-Income... 12.59%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------------------------------------------------------------- 1/28/87- 1/28/87-
FOR ONE YEAR ENDING 12/31/96 12/31/96
1/28/87- -------------------------------------------------------------------------------- TOTAL EFFECTIVE
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 RETURN ANNUAL
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas........ -6.03% 7.32% 25.34% -2.40% 7.19% -11.39% 36.33% .97% 8.86% 12.36% 97.28% 7.09%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
----------- 9/19/85- --------------------------------------------------------------------------------------------------
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..... 6.15% 16.80% 0.46% 10.81% -4.89% -2.97% 34.07% 22.24% 19.50% -2.28% 19.71% 13.17%
<CAPTION>
9/19/85- 9/19/85-
SUB-ACCOUNT 12/31/96 12/31/96
----------- TOTAL EFFECTIVE
RETURN ANNUAL
-------- ---------
<S> <C> <C>
High Income..... 230.27% 11.17%
</TABLE>
SUB-ACCOUNT INVESTING IN VARIABLE INSURANCE PRODUCTS FUND II
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------------------------------------------- 9/6/89- 9/6/89-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/96 12/31/96
----------- 9/6/89- -------------------------------------------------------------- TOTAL EFFECTIVE
12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 RETURN ANNUAL
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager........... .57% 5.92% 21.64% 10.88% 20.33% -6.79% 16.08% 13.74% 112.77% 10.87%
</TABLE>
A-60
<PAGE>
POLICY PERFORMANCE
The material below assumes a Policy was issued with a $250,000 and $500,000
face amount, respectively, with annual premiums paid on August 26 of each year
(May 1 in the case of the Zenith Stock Index, Zenith Managed and Zenith Small
Cap Sub-Accounts; October 31 in the case of the Zenith Balanced, Zenith
International Magnum Equity, Zenith Venture Value and Zenith Equity Growth
Sub-Accounts; October 9 in the case of the Equity-Income Sub-Account, January
28 in the case of the Overseas Sub-Account; April 30 in the case of the Zenith
Growth and Income and Zenith 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 age 40 in the nonsmoker preferred risk
category. Values and benefits are shown first for Policies with the Option 1
death benefit and then for Policies with the Option 2 death benefit. The death
benefits, cash values and internal rates of return assume in each instance
that the entire Policy value was invested in the particular Sub-Account for
the period shown. These illustrations of policy investment experience reflect
all Policy charges based on NELICO's current rates. The illustrations for the
$500,000 face amount reflect the lower sales charge, cost of insurance and
first-year administrative charges that would apply to the Policy if issued in
the personal market or if issued in business situations which qualify for
those lower charges. (See "Charges and Expenses".) (See Appendix A for the
definition of the internal rate of return.)
MALE NONSMOKER PREFERRED RISK, AGE 40
$250,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1983....... 4,025 250,000 250,000 3,746 2,648 -69.98% --
December 31, 1984....... 8,050 250,000 250,000 6,739 5,572 -37.22 1,965.76%
December 31, 1985....... 12,075 250,000 250,000 15,011 13,112 6.21 432.72
December 31, 1986....... 16,100 250,000 250,000 32,114 30,278 36.31 206.04
December 31, 1987....... 20,124 250,000 250,000 51,029 49,255 39.74 127.04
December 31, 1988....... 24,149 250,000 250,000 49,346 47,729 24.08 88.73
December 31, 1989....... 28,174 250,000 250,000 67,185 65,858 25.13 66.61
December 31, 1990....... 32,199 250,000 250,000 66,992 65,955 18.23 52.41
December 31, 1991....... 36,224 250,000 250,000 105,918 105,170 23.59 42.60
December 31, 1992....... 40,249 250,000 250,000 102,251 101,793 18.29 35.48
December 31, 1993....... 44,274 250,000 250,000 120,031 119,862 17.61 30.09
December 31, 1994....... 48,299 250,000 250,000 112,839 112,839 13.72 25.89
December 31, 1995....... 52,324 250,000 273,035 159,669 159,669 16.33 23.75
December 31, 1996....... 56,348 250,000 319,794 194,996 194,996 16.66 22.90
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1983....... 4,025 250,000 250,000 3,530 2,432 -76.48% --
December 31, 1984....... 8,050 250,000 250,000 7,266 6,099 -29.16 1,965.76%
December 31, 1985....... 12,075 250,000 250,000 11,858 9,959 -13.79 432.72
December 31, 1986....... 16,100 250,000 250,000 16,672 14,836 -4.39 206.04
December 31, 1987....... 20,124 250,000 250,000 20,023 18,249 -4.15 127.04
December 31, 1988....... 24,149 250,000 250,000 24,652 23,036 -1.66 88.73
December 31, 1989....... 28,174 250,000 250,000 30,604 29,277 1.15 66.61
December 31, 1990....... 32,199 250,000 250,000 36,029 34,991 2.15 52.41
December 31, 1991....... 36,224 250,000 250,000 45,467 44,719 4.79 42.60
December 31, 1992....... 40,249 250,000 250,000 51,848 51,389 4.96 35.48
December 31, 1993....... 44,274 250,000 250,000 60,986 60,817 5.80 30.09
December 31, 1994....... 48,299 250,000 250,000 61,384 61,384 4.02 25.89
December 31, 1995....... 52,324 250,000 250,000 77,271 77,271 5.95 22.54
December 31, 1996....... 56,348 250,000 250,000 83,527 83,527 5.55 19.81
</TABLE>
A-61
<PAGE>
ZENITH MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1983....... 4,025 250,000 250,000 3,538 2,440 -76.28% --
December 31, 1984....... 8,050 250,000 250,000 7,044 5,877 -32.54 1,965.76%
December 31, 1985....... 12,075 250,000 250,000 10,758 8,859 -21.68 432.72
December 31, 1986....... 16,100 250,000 250,000 14,538 12,701 -12.58 206.04
December 31, 1987....... 20,124 250,000 250,000 18,486 16,712 -7.87 127.04
December 31, 1988....... 24,149 250,000 250,000 22,859 21,243 -4.51 88.73
December 31, 1989....... 28,174 250,000 250,000 27,885 26,558 -1.77 66.61
December 31, 1990....... 32,199 250,000 250,000 33,018 31,981 .18 52.41
December 31, 1991....... 36,224 250,000 250,000 37,864 37,115 .56 42.60
December 31, 1992....... 40,249 250,000 250,000 42,026 41,568 .66 35.48
December 31, 1993....... 44,274 250,000 250,000 45,979 45,810 .64 30.09
December 31, 1994....... 48,299 250,000 250,000 50,529 50,529 .77 25.89
December 31, 1995....... 52,324 250,000 250,000 56,103 56,103 1.09 22.54
December 31, 1996....... 56,348 250,000 250,000 61,648 61,648 1.30 19.81
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1987....... 4,025 250,000 250,000 2,846 1,748 -71.28% --
December 31, 1988....... 8,050 250,000 250,000 6,586 5,435 -29.47 1,028.86%
December 31, 1989....... 12,075 250,000 250,000 12,434 10,550 -7.90 327.26
December 31, 1990....... 16,100 250,000 250,000 14,728 12,907 -9.98 173.58
December 31, 1991....... 20,124 250,000 250,000 22,457 20,699 1.06 112.36
December 31, 1992....... 24,149 250,000 250,000 27,181 25,637 1.89 80.63
December 31, 1993....... 28,174 250,000 250,000 32,856 31,601 3.12 61.58
December 31, 1994....... 32,199 250,000 250,000 36,084 35,119 2.08 49.02
December 31, 1995....... 36,224 250,000 250,000 53,156 52,480 7.83 40.19
December 31, 1996....... 40,249 250,000 250,000 67,614 67,228 9.69 33.69
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1987....... 4,025 250,000 250,000 3,227 2,129 -61.43% --
December 31, 1988....... 8,050 250,000 250,000 6,768 5,617 -27.29 1,028.86%
December 31, 1989....... 12,075 250,000 250,000 11,636 9,753 -12.32 327.26
December 31, 1990....... 16,100 250,000 250,000 15,120 13,299 -8.65 173.58
December 31, 1991....... 20,124 250,000 250,000 21,424 19,665 -.86 112.36
December 31, 1992....... 24,149 250,000 250,000 26,000 24,455 .40 80.63
December 31, 1993....... 28,174 250,000 250,000 31,752 30,497 2.16 61.58
December 31, 1994....... 32,199 250,000 250,000 34,246 33,281 .79 49.02
December 31, 1995....... 36,224 250,000 250,000 48,496 47,820 5.88 40.19
December 31, 1996....... 40,249 250,000 250,000 58,466 58,080 6.97 33.69
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1993....... 4,025 250,000 250,000 3,674 2,576 -48.56% --
December 31, 1994....... 8,050 250,000 250,000 6,728 5,582 -27.65 1,024.16%
December 31, 1995....... 12,075 250,000 250,000 13,001 11,123 -4.84 326.55
December 31, 1996....... 16,100 250,000 250,000 18,655 16,839 2.08 173.34
</TABLE>
A-62
<PAGE>
ZENITH AVANTI GROWTH SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1993....... 4,025 250,000 250,000 3,692 2,594 -48.03% --
December 31, 1994....... 8,050 250,000 250,000 6,797 5,651 -26.84 1,024.16%
December 31, 1995....... 12,075 250,000 250,000 12,669 10,791 -6.59 326.55
December 31, 1996....... 16,100 250,000 250,000 18,057 16,241 .40 173.34
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............. 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1994....... 4,025 250,000 250,000 3,100 2,002 -64.97% --
December 31, 1995....... 8,050 250,000 250,000 7,739 6,588 -16.07 1,033.60%
December 31, 1996....... 12,075 250,000 250,000 13,599 11,716 -1.80 327.97
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1994....... 4,025 250,000 250,000 3,534 2,436 -95.04% --
December 31, 1995....... 8,050 250,000 250,000 7,554 6,377 -31.31 3,253.36%
December 31, 1996....... 12,075 250,000 250,000 11,970 10,061 -15.13 521.02
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1994....... 4,025 250,000 250,000 3,622 2,524 -93.88% --
December 31, 1995....... 8,050 250,000 250,000 7,087 5,910 -40.06 3,253.36%
December 31, 1996....... 12,075 250,000 250,000 10,667 8,758 -25.98 521.02
ZENITH VENTURE VALUE SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1994....... 4,025 250,000 250,000 3,425 2,327 -96.24% --
December 31, 1995....... 8,050 250,000 250,000 7,886 6,708 -25.08 3,253.36%
December 31, 1996....... 12,075 250,000 250,000 13,093 11,184 -6.48 521.02
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1994....... 4,025 250,000 250,000 3,342 2,243 -96.97% --
December 31, 1995....... 8,050 250,000 250,000 7,890 6,713 -25.00 3,253.36%
December 31,1996........ 12,075 250,000 250,000 12,056 10,146 -14.45 521.02
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1986....... 4,025 250,000 250,000 3,551 2,453 -88.67% --
December 31, 1987....... 8,050 250,000 250,000 5,966 4,788 -56.35 2,709.25%
December 31, 1988....... 12,075 250,000 250,000 10,279 8,370 -27.92 488.44
December 31, 1989....... 16,100 250,000 250,000 15,090 13,243 -11.14 221.13
December 31, 1990....... 20,124 250,000 250,000 15,893 14,108 -15.87 133.47
December 31, 1991....... 24,149 250,000 250,000 23,974 22,309 -2.91 92.16
December 31, 1992....... 28,174 250,000 250,000 31,179 29,803 1.74 68.70
December 31, 1993....... 32,199 250,000 250,000 39,615 38,529 4.77 53.79
December 31, 1994....... 36,224 250,000 250,000 45,032 44,236 4.67 43.58
December 31, 1995....... 40,249 250,000 250,000 63,947 63,440 9.34 36.19
December 31, 1996....... 44,274 250,000 250,000 75,421 75,203 9.76 30.63
</TABLE>
A-63
<PAGE>
<TABLE>
OVERSEAS SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1987....... 4,025 250,000 250,000 2,847 1,749 -59.46% --
December 31, 1988....... 8,050 250,000 250,000 6,645 5,515 -23.83 705.23%
December 31, 1989....... 12,075 250,000 250,000 11,929 10,066 -9.17 271.30
December 31, 1990....... 16,100 250,000 250,000 14,741 12,941 -8.82 153.68
December 31, 1991....... 20,124 250,000 250,000 19,116 17,379 -4.98 102.71
December 31, 1992....... 24,149 250,000 250,000 19,568 18,120 -8.34 75.09
December 31, 1993....... 28,174 250,000 250,000 30,774 29,615 1.27 58.04
December 31, 1994....... 32,199 250,000 250,000 33,855 32,986 .55 46.60
December 31, 1995....... 36,224 250,000 250,000 40,760 40,181 2.10 38.44
December 31, 1996....... 40,249 250,000 250,000 48,889 48,599 3.45 32.37
HIGH INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1985....... 4,025 250,000 250,000 3,707 2,609 -78.50% --
December 31, 1986....... 8,050 250,000 250,000 7,521 6,350 -27.35 2,325.76%
December 31, 1987....... 12,075 250,000 250,000 10,629 8,725 -23.86 461.69
December 31, 1988....... 16,100 250,000 250,000 14,896 13,054 -11.57 214.04
December 31, 1989....... 20,124 250,000 250,000 17,079 15,299 -11.94 130.47
December 31, 1990....... 24,149 250,000 250,000 19,579 17,937 -10.74 90.57
December 31, 1991....... 28,174 250,000 250,000 29,380 28,029 -.16 67.74
December 31, 1992....... 32,199 250,000 250,000 38,934 37,872 4.26 53.16
December 31, 1993....... 36,224 250,000 250,000 49,702 48,929 6.90 43.13
December 31, 1994....... 40,249 250,000 250,000 51,594 51,111 4.91 35.86
December 31, 1995....... 44,274 250,000 250,000 64,965 64,772 7.01 30.38
December 31, 1996....... 48,299 250,000 250,000 76,503 76,503 7.67 26.12
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... 4,025 250,000 250,000 3,664 2,566 -- --
December 31, 1989....... 4,025 250,000 250,000 3,526 2,428 -79.61% --
December 31, 1990....... 8,050 250,000 250,000 6,962 5,790 -35.01 2,119.26%
December 31, 1991....... 12,075 250,000 250,000 11,693 9,788 -15.32 445.60
December 31, 1992....... 16,100 250,000 250,000 16,156 14,314 -6.40 209.64
December 31, 1993....... 20,124 250,000 250,000 22,689 20,910 1.65 128.59
December 31, 1994....... 24,149 250,000 250,000 23,983 22,342 -2.76 89.56
December 31, 1995....... 28,174 250,000 250,000 31,140 29,789 1.68 67.12
December 31, 1996....... 32,199 250,000 250,000 38,646 37,584 4.02 52.75
OPTION 2 DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1983....... 4,025 250,000 253,743 3,743 2,645 -70.08% --
December 31, 1984....... 8,050 250,000 256,727 6,727 5,560 -37.40 2,008.31%
December 31, 1985....... 12,075 250,000 264,967 14,967 13,068 5.95 447.39
December 31, 1986....... 16,100 250,000 281,966 31,966 30,129 36.01 218.91
December 31, 1987....... 20,124 250,000 300,693 50,693 48,919 39.42 138.75
December 31, 1988....... 24,149 250,000 298,931 48,931 47,314 23.76 96.57
December 31, 1989....... 28,174 250,000 316,483 66,483 65,156 24.81 74.50
December 31, 1990....... 32,199 250,000 316,157 66,157 65,120 17.91 58.72
December 31, 1991....... 36,224 250,000 354,368 104,368 103,619 23.26 50.47
December 31, 1992....... 40,249 250,000 350,528 100,528 100,069 17.96 42.03
December 31, 1993....... 44,274 250,000 367,736 117,736 117,567 17.08 36.66
December 31, 1994....... 48,299 250,000 360,431 110,431 110,431 13.39 31.45
December 31, 1995....... 52,324 250,000 405,939 155,939 155,939 16.00 26.19
December 31, 1996....... 56,348 250,000 440,142 190,142 190,142 16.34 26.90
</TABLE>
A-64
<PAGE>
<TABLE>
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1983....... 4,025 250,000 253,528 3,528 2,430 -76.56% --
December 31, 1984....... 8,050 250,000 257,253 7,253 6,086 -29.35 2,011.63%
December 31, 1985....... 12,075 250,000 261,824 11,824 9,925 -14.02 444.35
December 31, 1986....... 16,100 250,000 266,603 16,603 14,766 -4.64 212.86
December 31, 1987....... 20,124 250,000 269,911 19,911 18,137 -4.41 131.85
December 31, 1988....... 24,149 250,000 274,480 24,480 22,863 -1.92 92.80
December 31, 1989....... 28,174 250,000 280,341 30,341 29,014 .88 70.42
December 31, 1990....... 32,199 250,000 285,660 35,660 34,622 1.88 55.98
December 31, 1991....... 36,224 250,000 294,920 44,920 44,171 4.51 46.31
December 31, 1992....... 40,249 250,000 301,121 51,121 50,663 4.68 39.07
December 31, 1993....... 44,274 250,000 310,010 60,010 59,841 5.51 33.74
December 31, 1994....... 48,299 250,000 310,285 60,285 60,285 3.72 29.17
December 31, 1995....... 52,324 250,000 325,746 75,746 75,746 5.65 26.17
December 31, 1996....... 56,348 250,000 331,731 81,731 81,731 5.25 23.36
</TABLE>
<TABLE>
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1983....... 4,025 250,000 253,535 3,535 2,437 -76.36% --
December 31, 1984....... 8,050 250,000 257,031 7,031 5,865 -32.73 2,010.23%
December 31, 1985....... 12,075 250,000 260,728 10,728 8,829 -21.91 443.29
December 31, 1986....... 16,100 250,000 264,479 14,479 12,642 -12.82 212.01
December 31, 1987....... 20,124 250,000 268,387 18,387 16,613 -8.21 131.49
December 31, 1988....... 24,149 250,000 272,705 22,705 21,088 -4.77 92.52
December 31, 1989....... 28,174 250,000 277,654 27,654 26,326 -2.03 70.10
December 31, 1990....... 32,199 250,000 282,690 32,690 31,652 -.45 55.70
December 31, 1991....... 36,224 250,000 287,422 37,422 36,674 .28 45.73
December 31, 1992....... 40,249 250,000 291,460 41,460 41,002 .38 38.44
December 31, 1993....... 44,274 250,000 295,278 45,278 45,109 .35 32.91
December 31, 1994....... 48,299 250,000 299,670 49,670 49,670 .48 28.64
December 31, 1995....... 52,324 250,000 305,058 55,058 55,058 .80 25.27
December 31, 1996....... 56,348 250,000 310,403 60,403 60,403 1.01 22.53
</TABLE>
<TABLE>
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1987....... 4,025 250,000 252,842 2,842 1,744 -71.37% --
December 31, 1988....... 8,050 250,000 256,572 6,572 5,421 -29.64 1,047.46%
December 31, 1989....... 12,075 250,000 262,392 12,392 10,509 -8.12 335.94
December 31, 1990....... 16,100 250,000 264,660 14,660 12,839 -10.21 178.54
December 31, 1991....... 20,124 250,000 272,321 22,321 20,562 .81 117.05
December 31, 1992....... 24,149 250,000 276,974 26,974 25,429 1.63 84.67
December 31, 1993....... 28,174 250,000 282,550 32,550 31,295 2.86 65.34
December 31, 1994....... 32,199 250,000 285,688 35,688 34,723 1.81 52.37
December 31, 1995....... 36,224 250,000 302,472 52,472 51,797 7.55 44.24
December 31, 1996....... 40,249 250,000 316,606 66,606 66,220 9.41 38.04
</TABLE>
<TABLE>
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1987....... 4,025 250,000 253,223 3,223 2,125 -61.54% --
December 31, 1988....... 8,050 250,000 256,753 6,753 5,602 -27.47 1,047.97%
December 31, 1989....... 12,075 250,000 261,597 11,597 9,714 -12.54 335.39
December 31, 1990....... 16,100 250,000 265,050 15,050 13,229 -8.89 178.67
December 31, 1991....... 20,124 250,000 271,294 21,294 19,536 -1.11 116.84
December 31, 1992....... 24,149 250,000 275,804 25,804 24,259 .14 84.51
December 31, 1993....... 28,174 250,000 281,460 31,460 30,205 1.90 65.22
December 31, 1994....... 32,199 250,000 283,875 33,875 32,910 .52 52.21
December 31, 1995....... 36,224 250,000 297,881 47,881 47,205 5.61 43.91
December 31, 1996....... 40,249 250,000 307,608 57,608 57,222 6.69 37.51
</TABLE>
A-65
<PAGE>
<TABLE>
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1993....... 4,025 250,000 253,669 3,669 2,571 -48.72% --
December 31, 1994....... 8,050 250,000 256,712 6,712 5,556 -27.84 1,043.04%
December 31, 1995....... 12,075 250,000 262,955 12,955 11,077 -5.08 335.60
December 31, 1996....... 16,100 250,000 268,562 18,562 16,746 1.82 179.58
</TABLE>
<TABLE>
ZENITH AVANTI GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1993....... 4,025 250,000 253,687 3,687 2,589 -48.18% --
December 31, 1994....... 8,050 250,000 256,780 6,780 5,634 -27.03 1,043.23%
December 31, 1995....... 12,075 250,000 262,624 12,624 10,746 -6.83 335.37
December 31, 1996....... 16,100 250,000 267,967 17,967 16,151 .15 179.38
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............. 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1994....... 4,025 250,000 253,096 3,096 1,998 -65.08% --
December 31, 1995....... 8,050 250,000 257,722 7,722 6,571 -16.27 1,055.56%
December 31, 1996....... 12,075 250,000 263,552 13,552 11,669 -2.04 337.47
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1994....... 4,025 250,000 253,533 3,533 2,435 -95.06% --
December 31, 1995....... 8,050 250,000 257,543 7,543 6,366 -31.51 3,342.07%
December 31, 1996....... 12,075 250,000 261,940 11,940 10,030 -15.37 535.75
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1994....... 4,025 250,000 253,620 3,620 2,522 -93.90% --
Decmber 31, 1995........ 8,050 250,000 257,077 7,077 5,900 -40.24 3,336.60%
December 31, 1996....... 12,075 250,000 260,642 10,642 8,732 -26.20 534.16
ZENITH VENTURE VALUE SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1994....... 4,025 250,000 253,423 3,423 2,325 -96.25% --
December 31, 1995....... 8,050 250,000 257,874 7,874 6,697 -25.30 3,345.95%
December 31, 1996....... 12,075 250,000 263,059 13,059 11,149 -6.73 537.11
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1994....... 4,025 250,000 253,340 3,340 2,242 -96.98% --
December 31, 1995....... 8,050 250,000 257,878 7,878 6,701 -25.23 3,346.01%
December 31, 1996....... 12,075 250,000 262,024 12,024 10,115 -14.70 535.85
</TABLE>
A-66
<PAGE>
<TABLE>
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1986....... 4,025 250,000 253,550 3,550 2,451 -88.70% --
December 31, 1987....... 8,050 250,000 255,957 5,957 4,780 -56.50 2,765.23%
December 31, 1988....... 12,075 250,000 260,254 10,254 8,345 -28.14 500.15
December 31, 1989....... 16,100 250,000 265,034 15,034 13,187 -11.38 227.85
December 31, 1990....... 20,124 250,000 265,816 15,816 14,032 -16.11 137.53
December 31, 1991....... 24,149 250,000 273,825 23,825 22,160 -3.16 96.29
December 31, 1992....... 28,174 250,000 280,937 30,937 29,561 1.49 72.70
December 31, 1993....... 32,199 250,000 289,236 39,236 38,150 4.51 57.80
December 31, 1994....... 36,224 250,000 294,519 44,519 43,723 4.40 47.33
December 31, 1995....... 40,249 250,000 313,084 63,084 62,578 9.07 40.63
December 31, 1996....... 44,274 250,000 324,045 74,245 74,028 9.48 35.13
OVERSEAS SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1987....... 4,025 250,000 252,841 2,841 1,743 -59.61% --
December 31, 1988....... 8,050 250,000 256,626 6,626 5,596 -24.02 716.93%
December 31, 1989....... 12,075 250,000 261,881 11,881 10,018 -9.40 277.95
December 31, 1990....... 16,100 250,000 264,661 14,661 12,861 -9.06 158.00
December 31, 1991....... 20,124 250,000 268,986 18,986 17,248 -5.23 106.35
December 31, 1992....... 24,149 250,000 269,405 19,405 17,957 -8.61 77.82
December 31, 1993....... 28,174 250,000 280,472 30,472 29,314 1.01 61.37
December 31, 1994....... 32,199 250,000 283,465 33,465 32,596 .28 49.60
December 31, 1995....... 36,224 250,000 290,216 40,216 39,637 1.82 41.48
December 31, 1996....... 40,249 250,000 298,145 48,145 47,856 3.17 35.50
HIGH INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... 4,025 250,000 253,664 3,664 2.566 -- --
December 31, 1985....... 4,025 250,000 253,704 3,704 2,606 -78.56% --
December 31, 1986....... 8,050 250,000 257,509 7,509 6,337 -27.55 2,384.21%
December 31, 1987....... 12,075 250,000 260,601 10,601 8,696 -24.09 472.99
December 31, 1988....... 16,100 250,000 264,838 14,838 12,997 -11.81 220.43
December 31, 1989....... 20,124 250,000 266,990 16,990 15,210 -12.20 134.72
December 31, 1990....... 24,149 250,000 269,452 19,452 17,811 -11.00 93.90
December 31, 1991....... 28,174 250,000 279,144 29,144 27,793 -.42 71.46
December 31, 1992....... 32,199 250,000 288,552 38,552 37,490 3.99 57.05
December 31, 1993....... 36,224 250,000 299,120 49,120 48,347 6.63 47.20
December 31, 1994....... 40,249 250,000 300,888 50,888 50,405 4.63 39.48
December 31, 1995....... 44,274 250,000 313,944 63,944 63,751 6.72 34.29
December 31, 1996....... 48,299 250,000 325,145 75,145 75,145 7.38 30.14
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... 4,025 250,000 253,664 3,664 2,566 -- --
December 31, 1989....... 4,025 250,000 253,524 3,524 2,426 -79.67% --
December 31, 1990....... 8,050 250,000 256,952 6,952 5,780 -35.18 2,167.51%
December 31, 1991....... 12,075 250,000 261,661 11,661 9,757 -15.54 457.50
December 31, 1992....... 16,100 250,000 266,093 16,093 14,251 -6.64 216.39
December 31, 1993....... 20,124 250,000 272,567 22,567 20,788 1.40 134.09
December 31, 1994....... 24,149 250,000 273,819 23,819 22,178 -3.02 93.57
December 31, 1995....... 28,174 250,000 280,878 30,878 29,527 1.41 71.02
December 31, 1996....... 32,199 250,000 288,255 38,255 37,194 3.75 56.59
</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-67
<PAGE>
MALE NONSMOKER PREFERRED RISK, AGE 40
$500,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1983....... 7,916 500,000 500,000 7,589 5,393 -66.82% --
December 31, 1984....... 15,832 500,000 500,000 13,876 11,543 -32.67 1,992.57%
December 31, 1985....... 23,747 500,000 500,000 31,008 27,210 10.36 436.92
December 31, 1986....... 31,663 500,000 500,000 66,468 62,795 39.58 207.81
December 31, 1987....... 39,579 500,000 500,000 105,713 102,164 42.24 128.08
December 31, 1988....... 47,495 500,000 500,000 102,261 99,027 26.00 89.45
December 31, 1989....... 55,410 500,000 500,000 139,323 136,668 26.73 67.17
December 31, 1990....... 63,326 500,000 500,000 138,955 136,879 19.59 52.86
December 31, 1991....... 71,242 500,000 500,000 219,936 218,240 24.75 42.98
December 31, 1992....... 79,158 500,000 500,000 212,124 211,207 19.31 35.80
December 31, 1993....... 87,073 500,000 500,000 249,013 248,675 18.53 30.37
December 31, 1994....... 94,989 500,000 500,000 234,084 234,084 14.55 26.14
December 31, 1995....... 102,905 500,000 566,241 331,135 331,135 17.07 24.48
December 31, 1996....... 110,821 500,000 662,779 404,134 404,134 17.33 23.56
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1983....... 7,916 500,000 500,000 7,160 4,964 -73.85% --
December 31, 1984....... 15,832 500,000 500,000 14,942 12,608 -24.42 1,992.57%
December 31, 1985....... 23,747 500,000 500,000 24,475 20,676 -10.01 436.92
December 31, 1986....... 31,663 500,000 500,000 34,494 30,821 -1.45 207.81
December 31, 1987....... 39,579 500,000 500,000 41,499 37,951 -1.79 128.08
December 31, 1988....... 47,495 500,000 500,000 51,164 47,930 .32 89.45
December 31, 1989....... 55,410 500,000 500,000 63,598 60,943 2.84 67.17
December 31, 1990....... 63,326 500,000 500,000 74,945 72,869 3.63 52.86
December 31, 1991....... 71,242 500,000 500,000 94,653 93,157 6.08 42.98
December 31, 1992....... 79,158 500,000 500,000 108,018 107,101 6.12 35.80
December 31, 1993....... 87,073 500,000 500,000 127,129 126,792 6.84 30.37
December 31, 1994....... 94,989 500,000 500,000 127,998 127,998 4.98 26.14
December 31, 1995....... 102,905 500,000 500,000 161,059 161,059 6.80 22.77
December 31, 1996....... 110,821 500,000 500,000 173,898 173,898 6.33 20.02
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1983....... 7,916 500,000 500,000 7,176 4,979 -73.61% --
December 31, 1984....... 15,832 500,000 500,000 14,488 12,155 -27.92 1,992.57%
December 31, 1985....... 23,747 500,000 500,000 22,207 18,409 -18.02 436.92
December 31, 1986....... 31,663 500,000 500,000 30,086 26,413 -9.66 207.81
December 31, 1987....... 39,579 500,000 500,000 38,336 34,788 -5.47 128.08
December 31, 1988....... 47,495 500,000 500,000 47,477 44,243 -2.49 89.45
December 31, 1989....... 55,410 500,000 500,000 57,992 55,338 -.04 67.17
December 31, 1990....... 63,326 500,000 500,000 68,740 66,665 1.33 52.86
December 31, 1991....... 71,242 500,000 500,000 78,897 77,401 1.90 42.98
December 31, 1992....... 79,158 500,000 500,000 87,648 86,730 1.87 35.80
December 31, 1993....... 87,073 500,000 500,000 95,969 95,631 1.74 30.37
December 31, 1994....... 94,989 500,000 500,000 105,519 105,519 1.78 26.14
December 31, 1995....... 102,905 500,000 500,000 117,096 117,096 2.01 22.77
December 31, 1996....... 110,821 500,000 500,000 128,476 128,476 2.13 20.02
</TABLE>
A-68
<PAGE>
<TABLE>
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1987....... 7,916 500,000 500,000 5,852 3,656 -68.51% --
December 31, 1988....... 15,832 500,000 500,000 13,632 11,330 -25.59 1,040.86%
December 31, 1989....... 23,747 500,000 500,000 25,766 21,999 -4.52 330.25
December 31, 1990....... 31,663 500,000 500,000 30,570 26,928 -7.35 175.03
December 31, 1991....... 39,579 500,000 500,000 46,680 43,163 3.26 113.27
December 31, 1992....... 47,495 500,000 500,000 56,548 53,459 3.74 81.29
December 31, 1993....... 55,410 500,000 500,000 68,405 65,895 4.72 62.09
December 31, 1994....... 63,326 500,000 500,000 75,175 73,245 3.48 49.44
December 31, 1995....... 71,242 500,000 500,000 110,791 109,439 9.05 40.55
December 31, 1996....... 79,158 500,000 500,000 140,967 140,195 10.77 33.99
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1987....... 7,916 500,000 500,000 6,632 4,436 -57.95% --
December 31, 1988....... 15,832 500,000 500,000 14,000 11,698 -23.40 1,040.86%
December 31, 1989....... 23,747 500,000 500,000 24,105 20,338 -9.03 330.25
December 31, 1990....... 31,663 500,000 500,000 31,371 27,729 -6.04 175.03
December 31, 1991....... 39,579 500,000 500,000 44,513 40,996 1.32 113.27
December 31, 1992....... 47,495 500,000 500,000 54,070 50,981 2.24 81.29
December 31, 1993....... 55,410 500,000 500,000 66,089 63,580 3.74 62.09
December 31, 1994....... 63,326 500,000 500,000 71,334 69,403 2.19 49.44
December 31, 1995....... 71,242 500,000 500,000 101,074 99,723 7.11 40.55
December 31, 1996....... 79,158 500,000 500,000 121,903 121,130 8.06 33.99
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1993....... 7,916 500,000 500,000 7,571 5,375 -43.83% --
December 31, 1994....... 15,832 500,000 500,000 13,932 11,640 -23.69 1,036.09%
December 31, 1995....... 23,747 500,000 500,000 26,939 23,182 -1.43 329.54
December 31, 1996....... 31,663 500,000 500,000 38,709 35,077 4.76 174.79
ZENITH AVANTI GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1993....... 7,916 500,000 500,000 7,607 5,411 -43.27% --
December 31, 1994....... 15,832 500,000 500,000 14,069 11,777 -22.88 1,036.09%
December 31, 1995....... 23,747 500,000 500,000 26,241 22,484 -3.24 329.54
December 31, 1996....... 31,663 500,000 500,000 37,457 33,825 3.06 174.79
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............. 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1994....... 7,916 500,000 500,000 6,381 4,184 -61.62% --
December 31, 1995....... 15,832 500,000 500,000 16,013 13,710 -11.76 1,045.67%
December 31, 1996....... 23,747 500,000 500,000 28,187 24,420 1.69 330.97
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1994....... 7,916 500,000 500,000 7,111 4,914 -94.23% --
December 31, 1995....... 15,832 500,000 500,000 15,476 13,122 -25.77 3,303.18%
December 31, 1996....... 23,747 500,000 500,000 24,638 20,819 -11.01 526.28
</TABLE>
A-69
<PAGE>
<TABLE>
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1994....... 7,916 500,000 500,000 7,285 5,089 -92.89% --
December 31, 1995....... 15,832 500,000 500,000 14,518 12,164 -34.91 3,303.18%
December 31, 1996....... 23,747 500,000 500,000 21,951 18,132 -22.02 526.28
ZENITH VENTURE VALUE SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1994....... 7,916 500,000 500,000 6,892 4,695 -95.61% --
December 31, 1995....... 15,832 500,000 500,000 16,161 13,807 -19.24 3,303.18%
December 31, 1996....... 23,747 500,000 500,000 26,953 23,134 -2.23 526.28
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1994....... 7,916 500,000 500,000 6,725 4,529 -96.46% --
December 31, 1995....... 15,832 500,000 500,000 16,179 13,824 -19.07 3,303.18%
December 31, 1996....... 23,747 500,000 500,000 24,820 21,001 -10.30 526.28
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1986....... 7,916 500,000 500,000 7,142 4,946 -87.36% --
December 31, 1987....... 15,832 500,000 500,000 12,222 9,868 -52.41 2,749.05%
December 31, 1988....... 23,747 500,000 500,000 21,173 17,355 -24.12 493.31
December 31, 1989....... 31,663 500,000 500,000 31,191 27,497 -8.08 223.05
December 31, 1990....... 39,579 500,000 500,000 32,887 29,318 -13.41 134.57
December 31, 1991....... 47,495 500,000 500,000 49,713 46,382 -.87 92.91
December 31, 1992....... 55,410 500,000 500,000 64,732 61,980 3.46 69.27
December 31, 1993....... 63,326 500,000 500,000 82,341 80,169 6.26 54.25
December 31, 1994....... 71,242 500,000 500,000 93,676 92,083 5.98 43.96
December 31, 1995....... 79,158 500,000 500,000 133,125 133,112 10.49 36.52
December 31, 1996....... 87,073 500,000 500,000 157,068 156,634 10.78 30.92
OVERSEAS SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1987....... 7,916 500,000 500,000 5,971 3,775 -55.16% --
December 31, 1988....... 15,832 500,000 500,000 13,850 11,589 -20.03 712.72%
December 31, 1989....... 23,747 500,000 500,000 24,844 21,118 -5.98 273.69
December 31, 1990....... 31,663 500,000 500,000 30,721 27,121 -6.29 154.95
December 31, 1991....... 39,579 500,000 500,000 39,859 36,384 -2.87 103.54
December 31, 1992....... 47,495 500,000 500,000 40,855 37,959 -6.52 75.70
December 31, 1993....... 55,410 500,000 500,000 64,234 61,918 2.83 58.53
December 31, 1994....... 63,326 500,000 500,000 70,701 68,964 1.92 47.00
December 31, 1995....... 71,242 500,000 500,000 85,157 83,999 3.33 38.78
December 31, 1996....... 79,158 500,000 500,000 102,171 101,592 4.55 32.67
</TABLE>
A-70
<PAGE>
<TABLE>
HIGH INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1985....... 7,916 500,000 500,000 7,486 5,290 -76.03% --
December 31, 1986....... 15,832 500,000 500,000 15,430 13,086 -22.41 2,358.75%
December 31, 1987....... 23,747 500,000 500,000 21,893 18,085 -20.20 466.24
December 31, 1988....... 31,663 500,000 500,000 30,776 27,093 -8.64 215.89
December 31, 1989....... 39,579 500,000 500,000 35,366 31,808 -9.53 131.55
December 31, 1990....... 47,495 500,000 500,000 40,628 37,346 -8.67 91.31
December 31, 1991....... 55,410 500,000 500,000 61,077 58,374 1.58 68.30
December 31, 1992....... 63,326 500,000 500,000 81,023 78,900 5.76 53.61
December 31, 1993....... 71,242 500,000 500,000 103,498 101,954 8.21 43.51
December 31, 1994....... 79,158 500,000 500,000 107,499 106,533 6.09 36.19
December 31, 1995....... 87,073 500,000 500,000 135,437 135,051 8.05 30.67
December 31, 1996....... 94,989 500,000 500,000 159,534 159,534 8.62 26.38
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... 7,916 500,000 500,000 7,313 5,116 -- --
December 31, 1989....... 7,916 500,000 500,000 7,123 4,927 -77.50% --
December 31, 1990....... 15,832 500,000 500,000 14,295 11,951 -30.51 2,148.68%
December 31, 1991....... 23,747 500,000 500,000 24,106 20,298 -11.57 449.96
December 31, 1992....... 31,663 500,000 500,000 33,397 29,713 -3.48 211.44
December 31, 1993....... 39,579 500,000 500,000 46,998 43,439 4.03 129.65
December 31, 1994....... 47,495 500,000 500,000 49,748 46,466 -.78 90.30
December 31, 1995....... 55,410 500,000 500,000 64,692 61,989 3.37 67.68
December 31, 1996....... 63,326 500,000 500,000 80,355 78,232 5.49 53.20
OPTION 2 DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... 7,916 500,000 507,312 7,312 5,116 -- --
December 31, 1983....... 7,916 500,000 507,585 7,585 5,388 -66.89% --
December 31, 1984....... 15,832 500,000 513,858 13,858 11,525 -32.81 2,036.94%
December 31, 1985....... 23,747 500,000 530,941 30,941 27,143 10.17 452.18
December 31, 1986....... 31,663 500,000 566,242 66,242 62,569 39.36 221.19
December 31, 1987....... 39,579 500,000 605,200 105,200 101,652 42.00 140.25
December 31, 1988....... 47,495 500,000 601,629 101,629 98,395 25.77 97.60
December 31, 1989....... 55,410 500,000 638,253 138,253 135,598 26.50 75.35
December 31, 1990....... 63,326 500,000 637,682 137,682 135,606 19.35 59.41
December 31, 1991....... 71,242 500,000 717,370 217,370 215,874 24.52 51.13
December 31, 1992....... 79,158 500,000 709,495 209,495 208,578 19.07 42.59
December 31, 1993....... 87,073 500,000 745,521 245,521 245,183 18.29 37.18
December 31, 1994....... 94,989 500,000 730,420 230,420 230,420 14.30 31.90
December 31, 1995....... 102,905 500,000 825,410 325,410 325,410 16.83 29.65
December 31, 1996....... 110,821 500,000 896,571 396,571 396,571 17.09 27.34
</TABLE>
A-71
<PAGE>
<TABLE>
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... 7,916 500,000 507,312 7,312 5,116 -- --
December 31, 1983....... 7,916 500,000 507,156 7,156 4,960 -73.91% --
December 31, 1984....... 15,832 500,000 514,923 14,923 12,589 -24.57 2,040.34%
December 31, 1985....... 23,747 500,000 524,423 24,423 20,625 -10.19 449.01
December 31, 1986....... 31,663 500,000 534,389 34,389 30,716 -1.64 214.90
December 31, 1987....... 39,579 500,000 541,330 41,330 37,781 -1.98 133.09
December 31, 1988....... 47,495 500,000 550,901 50,901 47,667 .13 93.69
December 31, 1989....... 55,410 500,000 563,197 63,197 60,542 2.64 71.13
December 31, 1990....... 63,326 500,000 574,381 74,381 72,305 3.43 56.57
December 31, 1991....... 71,242 500,000 593,816 93,816 92,320 5.88 46.84
December 31, 1992....... 79,158 500,000 606,907 106,907 105,990 5.91 39.55
December 31, 1993....... 87,073 500,000 625,640 125,640 125,302 6.63 34.18
December 31, 1994....... 94,989 500,000 626,321 126,321 126,321 4.76 29.56
December 31, 1995....... 102,905 500,000 658,693 158,693 158,693 6.59 26.55
December 31, 1996....... 110,821 500,000 671,022 171,022 171,022 6.10 23.71
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... 7,916 500,000 507,312 7,312 5,116 -- --
December 31, 1983....... 7,916 500,000 507,171 7,171 4,975 -73.68% --
December 31, 1984....... 15,832 500,000 514,469 14,469 12,136 -28.07 2,038.89%
December 31, 1985....... 23,747 500,000 522,161 22,161 18,363 -18.18 447.91
December 31, 1986....... 31,663 500,000 529,997 29,997 26,324 -9.84 214.02
December 31, 1987....... 39,579 500,000 538,184 38,184 34,636 -5.66 132.72
December 31, 1988....... 47,495 500,000 547,241 47,241 44,007 -2.68 93.40
December 31, 1989....... 55,410 500,000 557,638 57,638 54,984 --.23 70.80
December 31, 1990....... 63,326 500,000 568,239 68,239 66,163 1.14 56.28
December 31, 1991....... 71,242 500,000 578,222 78,222 76,726 1.70 46.24
December 31, 1992....... 79,158 500,000 586,781 86,781 85,864 1.67 38.89
December 31, 1993....... 87,073 500,000 594,898 94,898 94,560 1.53 33.32
December 31, 1994....... 94,989 500,000 604,208 104,208 104,208 1.57 29.02
December 31, 1995....... 102,905 500,000 615,471 115,471 115,471 1.80 25.62
December 31, 1996....... 110,821 500,000 626,474 126,474 126,474 1.91 22.85
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. 7,916 500,000 507,312 7,312 5,116 -- --
December 31, 1987....... 7,916 500,000 505,847 5,847 3,651 -68.58% --
December 31, 1988....... 15,832 500,000 513,610 13,610 11,308 -25.72 1,060.31%
December 31, 1989....... 23,747 500,000 525,703 25,703 21,936 -4.69 339.31
December 31, 1990....... 31,663 500,000 530,466 30,466 26,825 -7.53 180.20
December 31, 1991....... 39,579 500,000 546,471 46,471 42,954 3.08 118.17
December 31, 1992....... 47,495 500,000 556,232 56,232 53,143 3.55 85.51
December 31, 1993....... 55,410 500,000 567,939 67,939 65,429 4.52 66.01
December 31, 1994....... 63,326 500,000 574,570 74,570 72,639 3.28 52.93
December 31, 1995....... 71,242 500,000 609,746 109,746 108,394 8.85 44.77
December 31, 1996....... 79,158 500,000 639,424 139,424 138,652 10.57 38.53
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. 7,916 500,000 507,312 7,313 5,116 -- --
December 31, 1987....... 7,916 500,000 506,626 6,626 4,430 -58.04% --
December 31, 1988....... 15,832 500,000 513,977 13,977 11,675 -23.53 1,060.84%
December 31, 1989....... 23,747 500,000 524,046 24,046 20,280 -9.20 338.73
December 31, 1990....... 31,663 500,000 531,265 31,265 27,623 -6.21 180.34
December 31, 1991....... 39,579 500,000 544,316 44,316 40,799 1.14 117.95
December 31, 1992....... 47,495 500,000 553,772 53,772 50,683 2.05 85.33
December 31, 1993....... 55,410 500,000 565,644 65,644 63,134 3.55 65.88
December 31, 1994....... 63,326 500,000 570,767 70,767 68,836 2.00 52.76
December 31, 1995....... 71,242 500,000 600,134 100,134 98,783 6.91 44.43
December 31, 1996....... 79,158 500,000 620,591 120,591 119,819 7.86 37.98
</TABLE>
A-72
<PAGE>
<TABLE>
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... 7,916 500,000 507,312 7,312 5,116 -- --
December 31, 1993....... 7,916 500,000 507,563 7,563 5,367 -43.95% --
December 31, 1994....... 15,832 500,000 513,907 13,907 11,615 -23.84 1,055.85%
December 31, 1995....... 23,747 500,000 526,869 26,869 23,113 -1.61 338.97
December 31, 1996....... 31,663 500,000 538,568 38,568 34,936 4.57 181.29
ZENITH AVANTI GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... 7,916 500,000 507,312 7,312 5,116 -- --
December 31, 1993....... 7,916 500,000 507,599 7,599 5,403 -43.39% --
December 31, 1994....... 15,832 500,000 514,044 14,044 11,752 -23.03 1,056.04%
December 31, 1995....... 23,747 500,000 526,173 26,173 22,416 -3.42 338.73
December 31, 1996....... 31,663 500,000 537,320 37,320 33,689 2.87 181.09
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............. 7,916 500,000 507,312 7,313 5,116 -- --
December 31, 1994....... 7,916 500,000 506,375 6,375 4,179 -61.70% --
December 31, 1995....... 15,832 500,000 515,987 15,987 13,684 -11.90 1,068.63%
December 31, 1996....... 23,747 500,000 528,116 28,116 24,349 1.51 340.89
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 7,916 500,000 507,312 7,312 5,116 -- --
December 31, 1994....... 7,916 500,000 507,108 7,108 4,912 -94.25% --
December 31, 1995....... 15,832 500,000 515,459 15,459 13,105 -25.93 3,395.40%
December 31, 1996....... 23,747 500,000 524,592 24,592 20,773 -11.19 541.56
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 7,916 500,000 507,312 7,312 5,116 -- --
December 31, 1994....... 7,916 500,000 507,283 7,283 5,086 -92.91% --
December 31, 1995....... 15,832 500,000 514,503 14,503 12,149 -35.05 3,389.70%
December 31, 1996....... 23,747 500,000 521,911 21,911 18,093 -22.19 539.92
ZENITH VENTURE VALUE SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 7,916 500,000 507,312 7,312 5,116 -- --
December 31, 1994....... 7,916 500,000 506,889 6,889 4,693 -95.62% --
December 31, 1995....... 15,832 500,000 516,143 16,143 13,789 -19.41 3,399.47%
December 31, 1996....... 23,747 500,000 526,901 26,901 23,082 -2.42 542.98
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ 7,916 500,000 507,312 7,312 5,116 -- --
December 31, 1994....... 7,916 500,000 506,723 6,723 4,527 -96.47% --
December 31, 1995....... 15,832 500,000 516,160 16,160 13,806 -19.25 3,399.57%
December 31, 1996....... 23,747 500,000 524,772 24,772 20,953 -10.49 541.67
</TABLE>
A-73
<PAGE>
<TABLE>
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... 7,915 500,000 507,312 7,312 5,116 -- --
December 31, 1986....... 7,916 500,000 507,140 7,140 4,944 -87.38% --
December 31, 1987....... 15,832 500,000 512,209 12,209 9,855 -52.53 2,807.21%
December 31, 1988....... 23,747 500,000 521,135 21,135 17,316 -24.29 505.46
December 31, 1989....... 31,663 500,000 531,105 31,105 27,411 -8.26 230.03
December 31, 1990....... 39,579 500,000 532,770 32,770 29,201 -13.59 138.79
December 31, 1991....... 47,495 500,000 549,485 49,485 46,155 -1.05 97.21
December 31, 1992....... 55,410 500,000 564,363 64,363 61,611 3.27 73.43
December 31, 1993....... 63,326 500,000 581,762 81,762 79,590 6.07 58.42
December 31, 1994....... 71,242 500,000 592,891 92,891 91,299 5.78 47.87
December 31, 1995....... 79,158 500,000 631,807 131,807 130,793 10.29 41.14
December 31, 1966....... 87,073 500,000 655,273 155,273 154,839 10.58 35.60
OVERSEAS SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ 7,916 500,000 507,312 7,312 5,116 -- --
December 31, 1987....... 7,916 500,000 505,963 5,963 3,766 -55.27% --
December 31, 1988....... 15,832 500,000 513,821 13,821 11,560 -20.18 725.03%
December 31, 1989....... 23,747 500,000 524,771 24,771 21,046 -6.15 280.66
December 31, 1990....... 31,663 500,000 530,599 30,599 26,998 -6.47 159.46
December 31, 1991....... 39,579 500,000 539,660 39,660 36,185 -3.05 107.35
December 31, 1992....... 47,495 500,000 540,606 40,606 37,710 -6.71 78.56
December 31, 1993....... 55,410 500,000 563,774 63,774 61,457 2.64 62.00
December 31, 1994....... 63,326 500,000 570,104 70,104 68,367 1.73 50.13
December 31, 1995....... 71,242 500,000 589,325 84,325 83,166 3.13 41.96
December 31, 1996....... 79,158 500,000 601,033 101,033 100,454 4.35 35.94
HIGH INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... 7,915 500,000 507,312 7,312 5,116 -- --
December 31, 1985....... 7,916 500,000 507,483 7,483 5,286 -76.08% --
December 31, 1986....... 15,832 500,000 515,412 15,412 13,068 -22.56 2,419.52%
December 31, 1987....... 23,747 500,000 521,850 21,850 18,042 -20.37 477.96
December 31, 1988....... 31,663 500,000 530,689 30,689 27,005 -8.81 222.52
December 31, 1989....... 39,579 500,000 535,231 35,231 31,672 -9.72 135.97
December 31, 1990....... 47,495 500,000 540,435 40,435 37,152 -8.86 94.78
December 31, 1991....... 55,410 500,000 560,716 60,716 58,013 1.40 72.18
December 31, 1992....... 63,326 500,000 580,439 80,439 78,315 5.56 57.67
December 31, 1993....... 71,242 500,000 602,608 102,608 101,064 8.01 47.75
December 31, 1994....... 79,158 500,000 606,418 106,418 105,453 5.88 39.96
December 31, 1995....... 87,073 500,000 633,878 133,878 133,492 7.84 34.74
December 31, 1996....... 94,989 500,000 657,462 157,462 157,462 8.41 30.57
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... 7,916 500,000 507,312 7,312 5,116 -- --
December 31, 1989....... 7,916 500,000 507,120 7,120 4,924 -77.55% --
December 31, 1990....... 15,832 500,000 514,279 14,279 11,935 -30.64 2,198.86%
December 31, 1991....... 23,747 500,000 524,059 24,059 20,251 -11.73 462.31
December 31, 1992....... 31,663 500,000 533,301 33,301 29,617 -3.65 218.46
December 31, 1993....... 39,579 500,000 546,812 46,812 43,254 3.84 135.37
December 31, 1994....... 47,495 500,000 549,498 49,498 46,216 -.97 94.47
December 31, 1995....... 55,410 500,000 564,292 64,292 61,589 3.18 71.74
December 31, 1996....... 63,326 500,000 579,760 79,760 77,636 5.29 57.19
</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-74
<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 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.
----------------
SUMMARY: HISTORIC S&P STOCK INDEX RESULTS FOR
SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Stock Index with dividends reinvested, over one-year, five-year and
twenty-year periods beginning in 1926 and ending 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
THAN
HOLDING NEGATIVE 0-5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
- ------- -------- ------- ----------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
1 year......... 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-75
<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-76
<PAGE>
APPENDIX D
USES OF LIFE INSURANCE
The following are examples of ways in which the Policy can be used to
address certain financial objectives.
FAMILY INCOME PROTECTION
Life insurance may be purchased on the lives of the family income earners to
provide a death benefit to cover final expenses, and continue the current
income to the family. The amount of insurance purchased should be an amount
which will provide a death benefit that when invested outside the policy at a
reasonable interest rate, will generate enough money to replace the
individual's income.
ESTATE PROTECTION
Life insurance may be purchased by a trust on the life of the person whose
estate will incur federal estate taxes upon the person's death. The amount of
insurance purchased would equal the amount of the estimated estate tax
liability. Upon the insured's death, the trustee could make the death proceeds
available to the estate for the payment of estate tax costs.
EDUCATION FUNDING
Life insurance may be purchased on the life of the parent(s) or primary
person funding an education. The amount of insurance purchased should equal
the total education cost projected at a reasonable inflation rate.
In the event of death, the guaranteed death benefit is available to help pay
the education costs. If the insured lives through the education years, the
cash value accumulations may be accessed to help offset the remaining
education costs. Any cash value loans or surrenders will reduce the policy
death benefit.
MORTGAGE PROTECTION
Life insurance may be purchased on the life of the person responsible for
making mortgage payments. The amount of insurance purchased should equal the
mortgage amount. In the event of the insured's death, the guaranteed death
benefit can be used to offset the remaining mortgage balance.
During the insured's lifetime, the cash value accumulations may be accessed
late in the mortgage term to help make the remaining mortgage payments. Any
cash value loans or surrenders will reduce the policy death benefit.
KEY PERSON PROTECTION
Life insurance may be purchased by the business on the life of the key
person in an amount equal to the key person's value, considering salary,
benefits, and contribution to business profits. Upon the key person's death,
the business uses the death benefit to ease the interruption of business
operations and/or to provide a replacement fund for hiring a new executive.
BUSINESS CONTINUATION PROTECTION
Life insurance may be purchased on the life of each business owner in an
amount equal to the value of each owner's business interest. In the event of
death, the guaranteed death benefit may provide the funds needed to carry out
the purchase of the deceased's business interest by the business, or surviving
owners, from the deceased owner's heirs.
RETIREMENT INCOME
Life insurance may be purchased on the life of a family income earner during
his or her working life. If the insured lives to retirement, the cash value
accumulations may be accessed to provide retirement payments. In the event of
the insured's death, the proceeds may be used to provide retirement income to
his or her spouse. Any cash value loans or surrenders will reduce the policy
death benefit.
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-77
<PAGE>
APPENDIX E
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the Treasury published
a "Report to the Congress on the Taxation of Life Insurance Company Products"
in March 1990. Page 4 of this report is Table 1.1, a "Comparison of Tax
Treatment of Life Insurance Products and Other Retirement Savings Plans".
Because it is a convenient summary of the relevant tax characteristics of
these products and plans, we have reprinted it here, and added footnotes to
reflect exceptions to the general rules.
---------------------
TABLE 1.1
COMPARISON OF TAX TREATMENT OF LIFE INSURANCE PRODUCTS AND
OTHER RETIREMENT SAVINGS PLANS
<TABLE>
<CAPTION>
CASH-VALUE
LIFE NON-QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
---------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as No* Yes Loans not Yes,
Distributions allowed beyond
$50,000
Income Ordering Rules (Income No* Yes Yes Yes
included in First
Distribution)
Early Withdrawal Penalties No* Yes*** Yes*** Yes***
Minimum Distribution Rules by No No Yes Yes
Age 70 1/2
Maximum Annual Distribution No No Yes Yes
Rules
Anti-discrimination Rules No No No Yes
</TABLE>
- ----------
Department of the Treasury March 1990
Office of Tax Analysis
* If the Policy is not a modified endowment contract.
** If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not
deductible.
*** There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
The foregoing information is not intended as tax advice. You should consult
with your own tax advisor for more complete information.
A-78
<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) 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 flexible premium adjustable variable life insurance policies
described in this registration statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by New England Life Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and
documents:
The facing sheet.
A reconciliation and tie-in of the information shown in the prospectus
with the items of Form N-8B-2.#
The prospectus consisting of 131 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**
(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++
II - 1
<PAGE>
(4) None
(5) (a) Specimen of Policy#
(b) Riders and Endorsements #
(c) Acceleration of Benefit Rider####
(6) (a) Amended and restated Articles of Incorporation and
amended and restated By- Laws of NELICO###
(7) None
(8) None
(9) None
(10) Specimen of Applications for Policy#
2. See Exhibit 3(i)
3.(i) Opinion and Consent of H. James Wilson, Esquire##
(ii) Opinion and Consent of Rodney J. Chandler, F.S.A.,
M.A.A.A.
4. None
5. Inapplicable
6. Consent of Sutherland, Asbill & Brennan, L.L.P.
7. Powers of Attorney###
8. Notice of Withdrawal Right for Policies##
9. Inapplicable
10. Inapplicable
11. Consent of Independent Auditors
12. Schedule for computation of performance quotations+
13. Consolidated memorandum describing certain procedures,
filed pursuant to Rule 6e-2(b)(12)(ii) and Rule 6e-
3(T)(b)(12)(iii)@@
14.(i) Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation and
New England Variable Life Insurance Company++++
(ii) Amendment No. 1 to Participation Agreement among
Variable Insurance Products Fund, Fidelity
Distributors Corporation and New England Variable Life
Insurance Company##
(iii) Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors Corporation
and New England Variable Life Insurance Company##
27. Financial Data Schedule
II - 2
<PAGE>
* 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.
++++ 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 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 the Variable Account's Form S-6
Registration Statement, File No. 33-88082, filed December 30, 1994.
## 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 - 3
<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.
*
- ---------------------- Chairman, President and
Robert A. Shafto Chief Executive Officer
*
- ---------------------- Director
Susan C. Crampton
* Senior Vice President and
- ---------------------- Treasurer,
Chester R. Frost Chief Accounting Officer
*
- ---------------------- Director
Edward A. Fox
*
- ---------------------- Director
George J. Goodman
*
- ---------------------- Director
Paul E. Gray
*
- ---------------------- Director
Evelyn E. Handler
*
- ---------------------- Director
Philip K. Howard
*
- ---------------------- Director
Harry P. Kamen
*
- ---------------------- Director
Terence Lennon
*
- ---------------------- Director
Bernard A. Leventhal
<PAGE>
- ---------------------- 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
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 Number Title Numbered Page*
- -------------- ----- --------------
<S> <C> <C>
1.A.(3(c) Commission Schedule for Policies
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. Consent of the Independent Auditors
27. Financial Data Schedule
</TABLE>
- ---------
* Page numbers inserted on manually-signed copy only.
<PAGE>
Exhibit 1.A.(3)(c)
Commission Schedule
The following maximum percentages of the Target Premium (plus any
additional portion of a premium which NELICO attributes to certain riders for
commission paying purposes) paid for each policy year will be paid to the NELICO
agent involved in the sale of a Policy:
<TABLE>
<CAPTION>
Policy Year Maximum Percentage
----------- ------------------
<S> <C>
1 50%
2 and later 3% (4% for Policies issued
on or after May 1, 1997)
</TABLE>
Agents will also receive a commission of 3% of each payment in excess
of the Target Premium (plus any additional portion of a premium which NELICO
attributes to certain riders for commission paying purposes) in any year. For
Policies sold to certain group or sponsored arrangements the maximum 50% first
year commission may be paid in level installments over a period of years rather
than all in the first policy year.
Agents who meet certain productivity and persistency standards in
selling policies issued by NELICO may be eligible for additional compensation.
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 be based on the schedule illustrated above. 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.
<PAGE>
Exhibit 3(ii)
April 28, 1997
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
Gentlemen:
In my capacity as Second Vice President and Actuary of New England Life
Insurance Company (the "Company"), I have provided actuarial advice concerning:
The preparation of Post-Effective Amendment No. 2 to the registration
statement on Form S-6 (File No. 33-88082) filed by New England Variable
Life Separate Account and the Company with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to variable life
insurance policies (the "Registration Statement"); and
The preparation of policy forms for the variable life insurance policies
described in the Registration Statement (the "Policies").
It is my professional opinion that:
1. The illustrations of death benefits, net cash values, accumulated premiums,
internal rates of return on net cash values and internal rates of return on
death benefits shown in Appendix A of the Prospectus, based on the
assumptions stated in the illustrations, are consistent with the provisions
of the Policies. The rate structure of the Policies has not been designed
so as to make the relationship between premiums and benefits, as shown in
the illustrations, appear to be correspondingly more favorable to
prospective purchasers of Policies for male insureds, aged 40 in the
underwriting class illustrated than to prospective purchasers of Policies
for insureds of other sexes or ages. Insureds in other underwriting
classes may have higher cost of insurance charges.
2. The information contained in the description of historical investment
experience in Appendix B, based on the assumptions stated in the Appendix,
is consistent with the provisions of the Policies.
<PAGE>
3. The illustration of net premiums shown under the heading "Charges and
Expenses-Deductions from Premiums" in the Prospectus contains the net
premium amounts allocated to the Variable Account for a $2,000 premium
under a Policy.
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.
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. 2 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. 33-88082). 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. 2 to the Registration
Statement No. 33-88082 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. 2 to the
Registration Statement on Form S-6 (File No. 33-88082) 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 report dated February 6, 1996, on our audit of New England
Variable Life Separate Account of New England Variable Life Insurance Company.
We also consent to the inclusion in this Registration Statement of our report,
which includes an adverse opinion as to generally accepted accounting principles
and an unqualified opinion as to conformity with The Insurance Act 1978, dated
April 23, 1996, 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>
