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As filed with Securities and Exchange Commission on
April 30, 1998
Registration No. 33-64170
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 6
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 LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
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It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998 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
Title of Securities Being Registered: Units of Interest in Limited Payment
Variable Ordinary Life Insurance Policies.
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NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
Registration Statement on Form S-6
Cross-Reference Sheet
Form N-8B-2
Item No. Caption in Prospectus
- ----------- ---------------------
1 Cover Page
2 Cover Page
3 Inapplicable
4 NELICO's Distribution Agreement
5 NELICO
6 The Variable Account
9 Inapplicable
10(a) Other Policy Features
10(b) Policy Values and Benefits
10(c), (d), (e) Death Benefit; Cash Value; Tabular Cash Value; Exchange of
Policy During First 24 Months; Default and Lapse Options;
Surrender; Partial Surrender and Partial Withdrawal; Right to
Return the Policy; Loan Provision; Transfer Option; Premiums
10(f), (g), (h) Voting Rights; Rights Reserved by NELICO
10(i) Limits to NELICO's Right to Challenge the Policy; Payment of
Proceeds; Investment Options
11 The Variable Account
12 Investments of the Variable Account; NELICO's Distribution
Agreement
13 Charges and Expenses; NELICO's Distribution Agreement; Charge
for NELICO's Income Taxes; Appendix A
14 Amount Provided for Investment Under the Policy; NELICO's
Distribution Agreement
15 Premiums
16 Investments of the Variable Account
17 Captions referenced under Items 10(c), (d), (e) and (i) above
18 The Variable Account; Net Investment Experience
19 Reports; NELICO's Distribution Agreement
20 Captions referenced under Items 6 and 10(g) above
21 Loan Provision
22 Inapplicable
23 NELICO's Distribution Agreement
24 Limits to NELICO's Right to Challenge the Policy
25 NELICO
26 NELICO's Distribution Agreement
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Form N-8B-2
Item No. Caption in Prospectus
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27 NELICO
28 Management
29 NELICO
30 Inapplicable
31 Inapplicable
32 Inapplicable
33 Inapplicable
34 NELICO's Distribution Agreement
35 NELICO
36 Inapplicable
37 Inapplicable
38 NELICO's Distribution Agreement
39 NELICO's Distribution Agreement
40 NELICO's Distribution Agreement
41(a) NELICO's Distribution Agreement
42 Inapplicable
43 Inapplicable
44(a) Investments of the Variable Account; Amount Provided for
Investment Under the Policy; Deductions from Premiums and
Unscheduled Payments; Scheduled Premiums
44(b) Charges and Expenses
44(c) Scheduled Premiums; Deductions from Premiums and Unscheduled
Payments
45 Inapplicable
46 Investments of the Variable Account; Captions referenced under
Items 10(c), (d) and (e) above
47 Inapplicable
48 Inapplicable
49 Inapplicable
50 Inapplicable
51 Cover Page; Death Benefit; Default and Lapse Options; Charges
and Expenses; Additional Benefits by Rider; Exchange of Policy
During First 24 Months; Payment Options; Policy Owner and
Beneficiary; Premiums; NELICO's Distribution Agreement;
Substitution of Insured Person
52 Rights Reserved by NELICO
53 Tax Considerations
54 Inapplicable
55 Inapplicable
59 Financial Statements
<PAGE>
NEW ENGLAND LIFE
INSURANCE COMPANY
Limited Payment Variable Life Insurance Policies
Issued by
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus describes individual Limited Payment Variable Life Insurance
Policies (the "Policies") offered by New England Life Insurance Company
("NELICO"), an indirect, wholly-owned subsidiary of Metropolitan Life
Insurance Company ("MetLife").
Each Policy provides a guaranteed minimum death benefit equal to the
Policy's face amount, as long as required scheduled premiums are paid when due
and there is no "excess policy loan." (See "Loan Provision.") Scheduled
premium payments are generally required until the insured reaches age 65, or
for 10 years, if later. Under certain circumstances, however, you may skip a
scheduled premium payment. You may also make additional payments, subject to
certain restrictions.
You may choose either a fixed death benefit equal to the Policy's face
amount or a variable death benefit which may vary daily with the net
investment experience of one or more mutual fund portfolios. Under both death
benefit options, the minimum death benefit guarantee will apply. The cash
value of the Policy generally increases with the payment of each premium and
varies daily with the investment experience of the mutual fund portfolios.
There is no guaranteed minimum cash value for investments in the mutual fund
portfolios.
You may cancel the Policy during the "Right to Return the Policy" period.
The first net scheduled premium for the Policy, plus any unscheduled payment
made, will be allocated to the Zenith Money Market Sub-Account until the later
of 45 days after the date Part I of the application is signed or 10 days after
NELICO mails the Notice of Withdrawal Right. Thereafter, the Policy's cash
value will be invested according to your instructions.
You may allocate scheduled premiums and unscheduled payments to one or more
of the 16 investment sub-accounts of NELICO's Variable Life Separate Account
(the "Variable Account") or to NELICO's Fixed Account, after certain
deductions have been made. Each sub-account of the Variable Account invests in
the shares of one of the Eligible Funds. The Eligible Funds are: the Back Bay
Advisors Money Market Series, the Back Bay Advisors Bond Income Series, the
Capital Growth Series, the Westpeak Stock Index Series, the Back Bay Advisors
Managed Series, the Westpeak Growth and Income Series, the Loomis Sayles Small
Cap Series, the Alger Equity Growth Series, the Loomis Sayles Balanced Series,
the Davis Venture Value Series, the Goldman Sachs Midcap Value Series, and the
Morgan Stanley International Magnum Equity Series of the New England Zenith
Fund (the "Zenith Fund"); the Equity-Income Portfolio, Overseas Portfolio and
High Income Portfolio of the Variable Insurance Products Fund ("VIP Fund");
and the Asset Manager Portfolio of the Variable Insurance Products Fund II
("VIP Fund II").
SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE OUT OF THE FIXED ACCOUNT.
It may not be advantageous to replace existing insurance with the Policy
described in this prospectus. (See "Charges and Expenses".)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THIS PROSPECTUS IS NOT VALID UNLESS ACCOMPANIED OR PRECEDED BY THE
CURRENT PROSPECTUSES OF THE NEW ENGLAND ZENITH FUND AND OF THE VARIABLE
INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II, WHICH ARE
ATTACHED AT THE END OF THIS PROSPECTUS. THESE PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
SHARES OF THE ZENITH FUND, THE VIP FUND AND THE VIP FUND II, AND INTERESTS
IN THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, A BANK, AND THE SHARES AND INTERESTS ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
MAY 1, 1998
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TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY.................................................................. A-4
INTRODUCTION TO THE POLICIES.............................................. A-6
The Policies............................................................ A-6
Availability of the Policy.............................................. A-8
Policy Charges.......................................................... A-8
How the Policy Works.................................................... A-10
Receipt of Communications and Payments at NELICO's Home Office.......... A-11
NELICO.................................................................. A-11
POLICY VALUES AND BENEFITS................................................ A-12
Death Benefit........................................................... A-12
Guaranteed Minimum Death Benefit........................................ A-12
Adjustments to the Death Proceeds Payable............................... A-12
Tabular Cash Value...................................................... A-12
Cash Value.............................................................. A-13
Net Investment Experience............................................... A-13
Allocation of Net Premiums.............................................. A-13
Amount Provided for Investment under the Policy......................... A-13
Right to Return the Policy.............................................. A-14
CHARGES AND EXPENSES...................................................... A-15
Deductions from Premiums and Unscheduled Payments....................... A-15
Surrender Charge........................................................ A-16
Deductions from Cash Value.............................................. A-18
Charges Against the Eligible Funds and the Sub-Accounts of the Variable
Account................................................................ A-19
Group or Sponsored Arrangements......................................... A-21
PREMIUMS.................................................................. A-21
Scheduled Premiums...................................................... A-21
Unscheduled Payments.................................................... A-22
Special Premium Option.................................................. A-23
Automatic Premium Loan.................................................. A-24
Default and Lapse Options............................................... A-24
OTHER POLICY FEATURES..................................................... A-26
Loan Provision.......................................................... A-26
Surrender............................................................... A-27
Partial Surrender and Partial Withdrawal................................ A-27
Reduction in Face Amount................................................ A-29
Acceleration of Death Benefit Rider..................................... A-29
Investment Options...................................................... A-29
Transfer Option......................................................... A-30
Substitution of Insured Person.......................................... A-30
Payment of Proceeds..................................................... A-30
Exchange of Policy During First 24 Months............................... A-31
Payment Options......................................................... A-31
Additional Benefits by Rider............................................ A-32
Policy Owner and Beneficiary............................................ A-33
THE VARIABLE ACCOUNT...................................................... A-33
Investments of the Variable Account..................................... A-34
Investment Management................................................... A-37
THE FIXED ACCOUNT......................................................... A-38
General Description..................................................... A-38
Values and Benefits..................................................... A-39
Policy Transactions..................................................... A-39
</TABLE>
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<TABLE>
<S> <C>
NELICO'S DISTRIBUTION AGREEMENT........................................... A-40
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY.......................... A-40
Misstatement of Age or Sex.............................................. A-41
Suicide................................................................. A-41
TAX CONSIDERATIONS........................................................ A-41
Policy Proceeds......................................................... A-41
Charge for NELICO's Income Taxes........................................ A-45
MANAGEMENT................................................................ A-46
VOTING RIGHTS............................................................. A-49
RIGHTS RESERVED BY NELICO................................................. A-50
TOLL-FREE NUMBERS......................................................... A-50
REPORTS................................................................... A-50
ADVERTISING PRACTICES..................................................... A-50
LEGAL MATTERS............................................................. A-51
REGISTRATION STATEMENT.................................................... A-51
EXPERTS................................................................... A-51
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET CASH VALUES
AND ACCUMULATED SCHEDULED PREMIUMS....................................... A-53
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............................. A-63
APPENDIX C: LONG TERM MARKET TRENDS....................................... A-85
APPENDIX D: USES OF LIFE INSURANCE........................................ A-88
APPENDIX E: TAX INFORMATION............................................... A-90
FINANCIAL STATEMENTS...................................................... F-1
</TABLE>
A-3
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GLOSSARY
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
AGE 65. For purposes of this prospectus, "age 65" is determined based on the
age of the insured shown in your Policy.
AUTOMATIC PREMIUM LOAN OPTION. If you elect this option, the Policy's loan
value, if sufficient, will be used to pay a scheduled premium, if you have not
paid the scheduled premium by the end of the grace period. (See "Scheduled
Premiums".)
BASIC SCHEDULED PREMIUM. Scheduled premium minus (i) charges for any
supplementary benefits provided by rider; (ii) any extra premiums paid for a
Policy in a substandard risk classification or for an automatic issue Policy;
and (iii) the portion of the annual Policy administrative charge that is due
with the premium. (See "Deductions from Premiums and Unscheduled Payments".)
CASH VALUE. A Policy's cash value includes the amount of its cash value held
in the Variable Account, the amount held in the Fixed Account and, if there is
an outstanding Policy loan, the amount of its cash value held in NELICO's
general account as a result of the loan. (See "Cash Value".)
COST OF INSURANCE CHARGE. This charge for providing insurance protection is
deducted on the Policy Date and on the first day of each Policy month. The
cost of insurance for a Policy month is equal to the amount at risk multiplied
by the cost of insurance rate for that month. Cost of insurance rates vary
monthly. (See "Deductions from Cash Value".)
DEATH BENEFIT OPTION 1. Death Benefit equals (i) the face amount of the
Policy or, if greater, (ii) the Policy's cash value divided by the net single
premium per $1 of death benefit at the insured's attained age. (See "Death
Benefit".)
DEATH BENEFIT OPTION 2. Death Benefit equals (i) the face amount of the
Policy plus any excess of the Policy's cash value over its "tabular cash
value" or, if greater, (ii) the Policy's cash value divided by the net single
premium per $1 of death benefit at the insured's attained age. (See "Death
Benefit".)
ELIGIBLE FUNDS. Each sub-account of the Variable Account invests in the
shares of one of the Eligible Funds. The Eligible Funds are: the Back Bay
Advisors Money Market Series, the Back Bay Advisors Bond Income Series, the
Capital Growth Series, the Westpeak Stock Index Series, the Back Bay Advisors
Managed Series, the Westpeak Growth and Income Series, the Loomis Sayles Small
Cap Series, the Alger Equity Growth Series, the Loomis Sayles Balanced Series,
the Davis Venture Value Series, the Goldman Sachs Midcap Value Series, and the
Morgan Stanley International Magnum Equity Series of the Zenith Fund; the
Equity-Income Portfolio, the Overseas Portfolio and the High Income Portfolio
of the VIP Fund; and the Asset Manager Portfolio of VIP Fund II.
EXCESS POLICY LOAN. The situation when Policy loans plus accrued interest
exceed the Policy's cash value less the applicable Surrender Charge. (See
"Loan Provision".)
FIXED ACCOUNT. The Fixed Account is a part of NELICO's general account to
which net premiums and net unscheduled payments may be allocated and which
provides guarantees of principal and interest. (See "Fixed Account".)
GUARANTEED MINIMUM DEATH BENEFIT. The death benefit is guaranteed not to be
less than the Policy's face amount, regardless of the investment experience of
the Policy's sub-accounts, as long as scheduled premiums have been paid when
due or are not required to be paid, pursuant to the Special Premium Option.
(See "Guaranteed Minimum Death Benefit".)
INVESTMENT START DATE. This is the latest of the date NELICO receives a
premium payment for the Policy, the date Part II of the Policy application is
signed and the Policy Date and is the date when an amount is first provided
for investment under the Policy. (See "Amount Provided for Investment under
the Policy".)
MORTALITY AND EXPENSE RISK CHARGE. This charge is made daily from the value
of each sub-account's assets that come from the Policies. Currently the charge
is at an annual rate of .60% of the sub-accounts' assets, and is guaranteed
not to exceed .90% of the sub-accounts' assets. The mortality risk NELICO
assumes is that insureds
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may live for shorter periods of time than estimated. The expense risk NELICO
assumes is that the costs of issuing and administering Policies may be more
than estimated. (See "Charges Against the Eligible Funds and the Sub-Accounts
of the Variable Account".)
NET CASH VALUE. The amount you may obtain upon surrender of the Policy and
which is equal to the Policy's cash value reduced by any outstanding Policy
loan and accrued interest; reduced by any applicable Surrender Charge; and
increased by the portion of any cost of insurance charge deducted for the
period beyond the date of surrender. (See "Cash Value".)
NET INVESTMENT EXPERIENCE. For any period, a sub-account's net investment
experience equals the investment experience of the underlying Eligible Funds
shares for the same period, reduced by the amount of charges against the sub-
account for that period. (See "Net Investment Experience".)
NET SCHEDULED PREMIUM. The amount allocated to the Variable Account and/or
the Fixed Account and which is equal to the basic scheduled premium less the
sales charge, state premium tax charge and federal premium tax charge. (See
"Deductions from Premiums and Unscheduled Payments".)
NET UNSCHEDULED PAYMENT. The amount allocated to the Variable Account and/or
the Fixed Account and which is equal to the unscheduled payment less the sales
charge, state premium tax charge and federal premium tax charge. (See
"Deductions From Premiums and Unscheduled Payments".)
POLICY DATE. If you make a premium payment with the application, the Policy
Date is the later of the date Part II of the application has been signed and
receipt of the premium payment. If you choose to pay the initial premium upon
delivery of the Policy, the Policy will be issued with a Policy Date which is
generally five days after issue. (See "Amount Provided for Investment under
the Policy".)
PREMIUM DUE DATE. The date on which a scheduled premium is payable. Net
scheduled premiums, after the first, are allocated to a Policy's sub-accounts
on the premium due dates. (See "Premiums".)
PREMIUM PAYING PERIOD. The period from inception of the Policy until the
Policy anniversary when the insured reaches age 65, or 10 years after the
Policy is issued, whichever is later.
SPECIAL PREMIUM OPTION. If you elect this option, you may not be required to
pay a scheduled premium or premiums under certain circumstances. (See "Special
Premium Option".)
TABULAR CASH VALUE. The tabular cash value is the value which the Policy
would have if: (i) all scheduled premiums were paid when due; (ii) no
unscheduled payments, no loans or other withdrawals of cash value, and no
reductions in face amount were made; (iii) the Policy's sub-accounts earned a
4.5% annual net rate of return; and (iv) maximum Policy charges were deducted
from the cash value. (See "Tabular Cash Value".)
YOU. When used in this prospectus, "you" refers to the Policy Owner.
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INTRODUCTION TO THE POLICIES
This prospectus describes Policies under which net scheduled premiums and
net unscheduled payments are allocated to the Variable Account. If the Fixed
Account is available in your state, you may choose to allocate or transfer all
or part of your funds to that account. NELICO provides guarantees of principal
and interest with respect to the Fixed Account which is part of NELICO's
general account. Amounts in the Fixed Account are backed by NELICO's general
account, rather than the Variable Account. For a description of the Fixed
Account, see "The Fixed Account" which appears later in this prospectus.
THE POLICIES
The individual Limited Payment Variable Life Insurance Policies offered by
this prospectus are designed to provide lifetime insurance coverage. They are
not offered primarily as an investment.
The following is a brief listing of the basic features of the Policy. These
and other features of the Policy are explained in detail throughout the
prospectus. You should be sure to read the prospectus for more complete
information.
--The Policy requires payment of a level scheduled premium until the insured
reaches age 65, or for 10 years after the Policy is issued, whichever is
later. NELICO guarantees that no scheduled premiums will be due after this
period, and no premiums will be accepted after this period. (See
"Scheduled Premiums".)
--You may choose to make additional, unscheduled payments under the Policy
during the Premium Paying Period. NELICO can limit or prohibit unscheduled
payments in certain situations, including cases where the insured is in a
substandard risk class. (See "Unscheduled Payments" and "Substitution of
Insured Person".)
--Net scheduled premiums and net unscheduled payments are invested according
to your instructions in one or more of the sub-accounts of the Variable
Account corresponding to mutual fund portfolios, or the Fixed Account,
after an initial period in the Zenith Money Market Sub-Account. (See
"Allocation of Net Premiums" and "Investment Options".)
--The mutual fund portfolios available to you under the Policy include
several common stock funds, including funds which invest primarily in
foreign securities, two bond funds, two managed funds, a balanced fund and
a money market fund. You may allocate your Policy's cash value to a
maximum of ten accounts (including the Fixed Account) at any one time.
(See "Investments of the Variable Account".)
--If the Fixed Account is available in your state, you may also allocate
funds to that account. NELICO provides guarantees of Fixed Account
principal and interest. SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE
FROM THE FIXED ACCOUNT. NELICO also reserves the right to restrict
transfers of cash value and allocations of premiums into the Fixed
Account. (See "The Fixed Account".)
--The cash value of the Policy will vary daily based on, among other things,
the net investment experience of the sub-accounts to which amounts have
been allocated and the amount of interest credited to any of the Policy's
cash value in the Fixed Account. (See "Cash Value", "Charges and
Expenses", "Premiums", "Loan Provision", and "Partial Surrender and
Partial Withdrawal".)
--The portion of the cash value which you invest in the sub-accounts is not
guaranteed. You bear the investment risk on this portion of the cash
value. (See "Cash Value".)
--You may choose between two forms of death benefit options under the
Policy. One option provides a death benefit equal to the Policy's face
amount. The other option provides a death benefit which varies with the
net investment experience of the sub-accounts to which amounts have been
allocated and the rate of interest credited on any cash value in the Fixed
Account. Under both options the death benefit could be increased to
satisfy tax law requirements if the cash value reaches certain levels.
(See "Death Benefit".)
--Regardless of investment experience, each form of death benefit is
guaranteed never to be less than the Policy's face amount, as long as the
required scheduled premiums are paid when due. (See "Death Benefit".)
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<PAGE>
--If you elect the "Special Premium Option", you can under certain
circumstances miss a scheduled premium payment without causing the Policy
to lapse. In that case, the Policy will keep its minimum death benefit
guarantee. (See "Special Premium Option".)
--You may change your allocation of future net scheduled premiums and net
unscheduled payments at any time. (See "Allocation of Net Premiums" and
"Investment Options".)
--After the "Right to Return the Policy" period, the Policy provides that
you may transfer portions of the Policy's cash value among the sub-
accounts and, generally, to the Fixed Account up to four times per Policy
year without NELICO's consent. NELICO currently allows 12 transfers per
Policy year. Transfers and allocations involving the Fixed Account are
subject to certain limits. (See "Transfer Option" and "The Fixed Account--
Policy Transactions".)
--A loan privilege is available under the Policy. Partial withdrawal and
partial surrender features are also available. (See "Loan Provision" and
"Partial Surrender and Partial Withdrawal".)
--Death benefits paid to the beneficiary under the Policy are not subject to
Federal income tax. Under current law, undistributed increases in cash
value generally are not taxable to you. (See "Tax Considerations".)
--Loans, assignments and other pre-death distributions under the Policy may
have tax consequences depending primarily on the amount which you have
paid into the Policy but also on any "material change" in the terms or
benefits of the Policy or any death benefit reduction. If premium
payments, a death benefit reduction, or a material change in the terms or
benefits of the Policy cause it to become a "modified endowment contract",
then pre-death distributions will be includible in income on an income
first basis, and a 10% penalty tax may be imposed on income distributed
before the Policy Owner attains age 59 1/2. Tax considerations may
therefore influence the amount and timing of premiums and unscheduled
payments and certain Policy transactions which you choose to make. (See
"Tax Considerations".)
--If the Policy is not a modified endowment contract, NELICO believes that
loans under the Policy will not be taxable to you as long as the Policy
has not lapsed, been surrendered or terminated. With certain exceptions,
other pre-death distributions under a Policy that is not a modified
endowment contract are includible in income only to the extent they exceed
the investment in the Policy. (See "Tax Considerations".)
--You have an opportunity during the "Right to Return the Policy" period to
return the Policy for a refund. (See "Right to Return the Policy".)
--Within 24 months after a Policy's date of issue, you may exchange the
Policy, without evidence of insurability, for a comparable fixed-benefit
policy issued by NELICO or an affiliate on the life of the insured. If you
exercise this option, you will have to make up any investment loss. (See
"Exchange of Policy During First 24 Months".)
In many respects the Policies are similar to traditional fixed-benefit
limited payment life insurance. Like fixed-benefit life insurance, the
Policies provide for a guaranteed minimum death benefit, scheduled premiums, a
cash value, and loan privileges.
The Policies are different from traditional, fixed-benefit limited payment
life insurance in that the death benefit may, and the cash value will, vary to
reflect the investment experience of the selected sub-accounts of the Variable
Account. In addition, you can elect an option under the Policy which will
allow you, under certain circumstances, to skip a particular scheduled premium
or premiums and still keep the Policy in force on a premium paying basis.
The variable life insurance policies offered by NELICO are designed to
provide insurance protection. Although the underlying mutual fund portfolios
invest in securities similar to those in which mutual funds available directly
to the public invest, in many ways the Policies differ from mutual fund
investments. The main differences are:
--The Policy provides a death benefit based on NELICO's assumption of an
actuarially calculated risk.
--If scheduled premiums are not paid according to the requirements of the
Policy, the Policy may lapse. If the Policy lapses when Policy loans are
outstanding, adverse tax consequences may result.
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<PAGE>
--In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from the premiums and values of
the Policy. These charges include various insurance, risk, administrative
and premium tax charges. (See "Charges and Expenses".)
--The Variable Account, not the Policy Owner, owns the mutual fund shares.
--Federal income tax liability on any earnings is deferred until you receive
a distribution from the Policy. Transfers from one underlying fund
portfolio to another are accomplished without tax liability under current
law.
--Dividends and capital gains are automatically reinvested.
For a discussion of some of the uses of the Policies, see "Appendix D: Uses
of Life Insurance".
AVAILABILITY OF THE POLICY
Generally, a Policy may be issued to insureds from the age of one to 75,
and, if NELICO consents, to insureds from the age of 76 to 80 and below the
age of one. If the Policy is sold in a business situation, the minimum age
requirement is 15, and if the Policy is issued on an automatic issue basis,
the permitted issue ages are 20 through 70. All persons must meet NELICO's
underwriting and other criteria for issuance. The minimum face amount
available is $25,000 unless NELICO consents to a lower amount. The Policies
are not available to employee benefit plans qualified under Section 401 of the
Internal Revenue Code, except with NELICO's consent.
POLICY CHARGES
PREMIUM-BASED CHARGES. NELICO deducts the following charges:
--From scheduled premiums
(i) an annual administrative charge ($55 for annual premium Policies, up to
a total of $57.75, or $14.4375 per quarter and $4.8125 per month, for
Policies that are billed on a quarterly or monthly basis or that use
NELICO's Master Service Account arrangement), plus any extra premiums
for riders, substandard risk or automatic issue class;
(ii) a sales charge of 5.5%. NELICO currently intends to waive this charge
on scheduled premiums paid after the first 15 Policy years;
(iii) a state premium tax charge of 2.5%;
(iv) a charge for federal taxes of 1%.
-- From unscheduled payments
(i) a sales charge of 5.5% in all Policy years;
(ii) a state premium tax charge of 2.5%;
(iii) a charge for federal taxes of 1%.
SURRENDER CHARGE. During the first 15 Policy years, a Surrender Charge will
apply if the Policy is totally or partially surrendered or lapses or the face
amount is reduced. The Surrender Charge includes:
--a deferred administrative charge. This charge is $2.70 per $1,000 of face
amount in the first Policy year, and then reduces monthly until it reaches
0 at the end of the 10th policy year;
--a deferred sales charge. For insureds who were issue age 50 or less at
issue the maximum charge applies if you lapse or surrender the Policy, or
reduce its face amount, in Policy years three through ten. The maximum
charge in those years is an amount equal to 43.5% of the Policy's basic
scheduled premiums in the first Policy year plus 16.5% of the basic
scheduled premiums in the second Policy year. The charge decreases on a
monthly basis beginning in Policy year 11 until it reaches 0 at the end of
Policy year 15. If you lapse or surrender the Policy, or reduce its face
amount, in the first two Policy years, the maximum charge will be 23.5% of
the first year basic scheduled premiums plus 3.5% of the second year basic
scheduled premiums.
A-8
<PAGE>
For insureds who were above issue age 50, the Deferred Sales Charge
percentages are less than or equal to those described above, with the maximum
occurring in Policy years three through six for insureds with an issue age up
through 65 and in policy years two through four for insureds with an issue age
above 65.
For insureds who were above issue age 50, the Surrender Charge period is 10
years.
The Surrender Charge is deducted from the Policy's available cash value,
regardless of whether that cash value is derived from scheduled premiums,
unscheduled payments, or investment experience.
CHARGES DEDUCTED FROM CASH VALUE. NELICO deducts certain charges from the
cash value:
--Monthly charge for the cost of insurance for the life of the Policy;
--Monthly administrative charge, currently equal to $0.02 per $1,000 of face
amount (guaranteed not to exceed $0.04 per $1,000 of face amount) during
the Premium Paying Period;
--Monthly minimum death benefit guarantee charge of $0.01 per $1,000 of face
amount during the Premium Paying Period.
In addition, if you use the Special Premium Option to skip a scheduled
premium payment, NELICO will deduct from your cash value 91% of the portion of
the annual $55 administrative charge, and of any rider, substandard risk or
automatic issue premium, that was due with the skipped premium.
CHARGES DEDUCTED FROM THE VARIABLE ACCOUNT AND THE 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 .60% (guaranteed not to
exceed .90%);
--Daily charges against the Eligible Fund portfolios for investment advisory
services and fund operating expenses.
See "Charges and Expenses".
A-9
<PAGE>
HOW THE POLICY WORKS
- --------------------------------------------------------------------------------
Premium Payments
.Guaranteed not to increase
.Payable until the insured reaches age 65, or for ten years, if later
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Charges from Premium
.Any rider premiums
.Annual Admin Charge-$55
.Substandard Risk Premium
.Automatic Issue Premium
.Sales Load (5.5%*) Company intends to wave after 15 policy yrs.
.State Premium Tax Charge (2.5%*)
.Charge for Federal Taxes (1%*)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Unscheduled Payments
.Sales Load (5.5%)
.State Premium Tax Charge (2.5%)
.Charge for Federal Taxes (1%*)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Special Premium Option
.If used, charges for Annual Admin. Charge and any riders or substandard risk or
automatic issue premium are deducted from cash value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Loans
.After the free look period, you may borrow up to 90% of the adjusted cash value
(100% in Alabama)
.The loan interest charge is 6%. Loaned funds are transferred out of the
Eligible Funds into the General Account where they are credited with not less
than 4.5% interest
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Retirement Benefits
.Fixed settlement options are available for policy proceeds.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash Values
.Net scheduled premiums or net unscheduled payments invested in your choice of
Eligible Fund investments or the Fixed Account after an initial period in the
Zenith Money Market Sub-Account
.The cash value reflects investment experience, interest, payments and policy
charges
.The cash value invested in mutual funds is not guaranteed
.Any earnings are accumulated free of any current income taxes
.You may change the allocation of future net premiums at any time. You may
currently transfer funds among investment options up to 12 times per policy
year, after the free look period
.Your cash value may be allocated among a maximum of ten accounts at any one
time
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Death Benefit
.Level or Variable Death Benefit Options
.Guaranteed not to be less than initial face amount net of any loan balance
.Income tax free to named beneficiary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Daily Deductions from Assets
.Mortality and expense risk charges of 0.50% (guaranteed not to exceed .90%) on
an annual basis are deducted from the cash value daily
.Investment advisory fees and other expenses are deducted from the Eligible Fund
values daily
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Beginning of Month Charges
.The cost of insurance protection is deducted from the cash value each month
for the life of the policy
.Minimum Death Benefit Guarantee Charge of $.01 per $1000 face amount monthly
during the Premium Paying Period
.Admin. Charge $.02 (guaranteed not to exceed $.04) per $1000 face amount
monthly during the Premium Paying Period
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Surrender Charges
.Consists of Deferred Sales Charge and Deferred Administrative Charge (see page
A-16)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Living Benefits
.If policyholder has elected and qualified for disability waiver of premium
rider and becomes totally disabled, company will waive premiums during the
period of disability. Unscheduled payments are not covered by the waiver of
premium rider
.Policy may be surrendered at any time for its cash surrender value
.Deferred income taxes, including taxes on amounts borrowed, become payable upon
surrender
.Grace period for scheduled premiums is 31 days from the due date.
Nonforfeiture options are extended term insurance and paid-up insurance
.Subject to company rules, a lapsed policy may be reinstated within seven years
of date of lapse if it has not been surrendered
- --------------------------------------------------------------------------------
* Percent of Premium after deducting Annual Admin. Charge, Rider Premiums and
Substandard Risk and Automatic Issue Premiums
A-10
<PAGE>
RECEIPT OF COMMUNICATIONS AND PAYMENTS AT NELICO'S HOME OFFICE
NELICO will treat your request for a Policy transaction, or your submission
of a payment, as received at the Home Office if it is received there before the
close of regular trading on the New York Stock Exchange on that day. If it is
received after that time, or if the New York Stock Exchange is not open that
day, then it will be treated as received on the next day when the New York
Stock Exchange is open.
NELICO
NELICO was organized as a stock life insurance company in Delaware in 1980
and is licensed to sell life insurance in all states, the District of Columbia
and Puerto Rico. Before August 30, 1996, NELICO was a wholly-owned subsidiary
of New England Mutual Life Insurance Company ("New England Mutual"). Effective
August 30, 1996, New England Mutual merged into MetLife, a mutual life
insurance company whose principal office is One Madison Avenue, New York, NY
10010. With the merger, New England Mutual's separate corporate existence
ended, and MetLife became the parent of NELICO. In connection with the merger,
NELICO changed its name from "New England Variable Life Insurance Company" to
"New England Life Insurance Company" and changed its domicile from the State of
Delaware to the Commonwealth of Massachusetts. NELICO's Home Office is now at
501 Boylston Street, Boston, Massachusetts 02116. NELICO's mailing address is:
P.O. Box 9116, Boston, Massachusetts 02117.
The following chart illustrates the relationship of NELICO, the Fixed
Account, the Variable Account and the Eligible Funds.
[FLOW CHART APPEARS HERE]
Eligible Funds buy portfolio investments to support values and benefits of the
Policies.
A-11
<PAGE>
POLICY VALUES AND BENEFITS
DEATH BENEFIT
DEATH BENEFIT OPTIONS. When you apply for a Policy, you may choose between
two death benefit options. Once elected, the death benefit option under a
Policy may not be changed.
The Option 1 death benefit provides a death benefit equal to the face amount
of the Policy. Except as described below, the Option 1 death benefit is fixed.
The Option 2 death benefit provides a death benefit equal to the face amount
of the Policy plus the amount, if any, by which the Policy's cash value
exceeds its "tabular cash value". The Policy's tabular cash value is a
hypothetical value and is described in detail under "Tabular Cash Value"
below.
Generally, the Option 2 death benefit may exceed the face amount if the
Policy's sub-accounts (and the cash value in the Fixed Account) have earned
greater than a 4.5% net return, if you have paid more than the scheduled
premiums, or if less than the maximum charges were deducted.
In order to meet the Internal Revenue Code's definition of life insurance,
the Policies provide that the death benefit will not be less than the Policy's
cash value divided by the net single premium per dollar of death benefit at
the insured's attained age. This means that under both death benefit options,
if the cash value grows to certain levels the death benefit will be increased
to satisfy the tax law requirements. At that point, any payment you make into
the Policy will increase the death benefit by more than it increases the cash
value.
GUARANTEED MINIMUM DEATH BENEFIT
Under both death benefit options, the death benefit is guaranteed not to be
less than the Policy's face amount regardless of the investment experience of
the Policy's sub-accounts, as long as scheduled premiums have been paid when
due or, under the Special Premium Option, are not required to be paid. (See
"Scheduled Premiums" and "Special Premium Option".) The death benefit will be
adjusted as described below before the proceeds are paid. However, if an
"excess Policy loan" exists, the Policy may terminate even if all scheduled
premiums have been paid. (See "Loan Provision" for a definition of "excess
Policy loan".)
ADJUSTMENTS TO THE DEATH PROCEEDS PAYABLE
The death proceeds actually paid to the beneficiary are equal to the death
benefit reduced by any outstanding loan and accrued loan interest and by the
portion of any unpaid scheduled premium for the period prior to the date of
death. The death proceeds will be increased by any rider benefits payable and
by the portion of any scheduled premium paid for a period beyond the date of
death.
The death proceeds may also be adjusted if the insured's age or sex was
misstated in the application, if death results from the insured's suicide
within two years (or less if provided by state law) from the Policy's date of
issue, or if limits on the death benefit are imposed by rider. (See "Limits to
NELICO's Right to Challenge the Policy".)
TABULAR CASH VALUE
The Policy's tabular cash value is a hypothetical value that is used to
determine the Option 2 death benefit, whether a scheduled premium payment can
be skipped under the Special Premium Option, and how much cash value is
available to be withdrawn from the Policy. (See "Death Benefit", "Special
Premium Option" and "Partial Surrender and Partial Withdrawal".) The tabular
cash value is the value the Policy would have if the cash value in the
Policy's sub-accounts (and cash value in the Fixed Account) earned a 4.5% net
return, all scheduled premiums were paid, no unscheduled payments, no loans or
other withdrawals of cash value, and no reductions in face amount were made,
and maximum Policy charges were deducted.
Your premium payment schedule will affect the amount of the tabular cash
value. The Policy's tabular cash value on any day will be calculated as if the
payment schedule on that day had been in effect since inception of the Policy.
A-12
<PAGE>
CASH VALUE
Your Policy's cash value includes its cash value in the Variable Account, in
the Fixed Account and, if you have an outstanding Policy loan, in NELICO's
general account as a result of the loan. The cash value reflects scheduled
premiums and unscheduled payments, the net investment experience of the
Policy's sub-accounts, interest credited on its cash value in the Fixed
Account and on amounts held in the general account as a result of a loan,
amounts deducted for Policy charges (including amounts deducted when you use
the Special Premium Option to skip a scheduled premium or any Surrender Charge
that applies if you reduce the Policy's face amount), and amounts withdrawn or
surrendered.
Your Policy's net cash value is the amount you will receive if you surrender
the Policy. The net cash value is the cash value reduced by any outstanding
Policy loan (and accrued interest) and by any applicable surrender charge. The
net cash value is increased by the portion of any cost of insurance charge
deducted that applies to the period beyond the date of surrender. (See "Loan
Provision", "Surrender Charge" and "Monthly Charges for the Cost of
Insurance".)
The Policy's net cash value in the Variable Account may increase or decrease
daily depending on the net investment experience of the Policy's sub-accounts.
Unfavorable investment experience can reduce the net cash value to zero.
Because there is no guaranteed minimum cash value in the Variable Account, you
bear the entire investment risk with respect to the cash value. The premium
payment schedule you choose will also affect the Policy's net cash value.
NET INVESTMENT EXPERIENCE
The net investment experience of the Policy's sub-accounts will affect the
Policy's cash value and, in some circumstances, the death benefit. The net
investment experience of the sub-accounts is determined as of the close of
regular trading on the New York Stock Exchange on each day when the Exchange
is open for trading.
A sub-account's net investment experience for any period reflects the
investment experience of the underlying Eligible Fund shares for the same
period, reduced by the charges against the sub-account for that period.
(Currently the sub-accounts are charged only for NELICO's mortality and
expense risk, but in the future NELICO may impose a charge against the sub-
accounts for taxes if appropriate. See "Charges Against the Eligible Funds and
the Sub-Accounts of the Variable Account" and "Charge for NELICO's Income
Taxes".)
The investment experience of the Eligible Fund shares for any period is the
increase or decrease in their net asset value for the period, increased by the
amount of any dividends or capital gains distributions on the shares during
the period. Dividends and capital gains distributions on Eligible Fund shares
are reinvested in additional shares of the Fund and affect subsequent
investment experience.
ALLOCATION OF NET PREMIUMS
As of the "investment start date", the net scheduled premium (and any net
unscheduled payment made during this initial period) will be allocated to the
Zenith Money Market Sub-Account until the later of 45 days after the date Part
1 of the application is signed or 10 days after NELICO mails the Notice of
Withdrawal Right. (See "Right to Return the Policy". For the definition of the
"investment start date", see "Amount Provided for Investment under a Policy".)
Thereafter, the cash value will be allocated to the sub-accounts and/or the
Fixed Account according to your instructions. Therefore, your selection of
accounts will not take effect until after the initial period, described above,
when the cash value is allocated to the Zenith Money Market Sub-Account.
AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY
INITIAL AMOUNT. An amount is first provided for investment under the Policy
as of the investment start date. That is the latest of: the date when NELICO
first receives a premium payment for the Policy, the date Part II of the
Policy application is signed and the Policy Date. (For this purpose, receipt
of the premium payment means receipt by your registered representative, if the
payment is made with the application; otherwise, it means receipt by a NELICO
agency or, in the case of a Policy sold through MetLife Brokerage, receipt by
MetLife Brokerage at its Princeton, New Jersey office.)
A-13
<PAGE>
If you make a premium payment with the application, the Policy Date is
generally the later of the date Part II of the application is signed and
receipt of the premium payment. In that case the Policy Date and investment
start date are the same. The amount of premium paid with the application must
be at least 10% of the annual scheduled premium for the Policy or one monthly
scheduled premium. Only one premium payment may be made before the Policy is
issued. (A premium payment made before issue will be maintained by NELICO or
an affiliate in the general account, and will not earn interest prior to the
investment start date.) The amount provided for investment on the investment
start date is generally equal to the first net scheduled premium plus any net
unscheduled payment made as part of the premium payment.
If you make a premium payment with the application, the insured will be
covered under a temporary insurance agreement for a limited period that is
described in the temporary insurance agreement form. Coverage under the
temporary insurance agreement will begin on the later of the date when NELICO
receives the premium for the Policy and the date when Part II of the
application is signed. The maximum amount of coverage provided is the lesser
of the amount of insurance applied for and $500,000 for standard risks
($250,000 for substandard risks and $50,000 for persons who are determined to
be uninsurable).
If a Policy is issued, monthly Policy charges, including cost of insurance
charges, will begin as of the Policy Date, even if the Policy's issuance was
delayed due to underwriting requirements, and will be in amounts based on the
face amount of the Policy issued, even if the temporary insurance coverage
received during the underwriting period was for a lesser amount. If NELICO
declines an application, it will refund the premium payment made and any
unscheduled payment made plus interest on the unscheduled payment at the rate
currently in use by NELICO.
If you choose to pay the initial premium upon delivery of the Policy, the
Policy will have a Policy Date which is generally five days after issue. The
investment start date will be the later of the Policy Date and the date the
premium is received. Monthly Policy charges will begin on the Policy Date.
Interest at a 4.5% net rate will be credited to the Policy for the period, if
any, between the Policy Date and the investment start date. Insurance coverage
will begin upon receipt of the premium.
Under limited circumstances, NELICO may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
Backdating may be desirable, for example, so that you can purchase a
particular Policy face amount for a lower premium, based on a younger
insurance age. Backdating in some cases may result in a Policy with a higher
Surrender Charge, if the backdating results in the Surrender Charge being
based on a lower age bracket, or may cause the insured to be treated as a
juvenile which could result in higher cost of insurance rates under the
Policy. For a backdated Policy, you must also pay the scheduled premiums
payable for the period between the Policy Date and the investment start date.
As of the investment start date, NELICO will allocate to the Policy those net
scheduled premiums, adjusted for monthly Policy charges and interest at a 4.5%
net rate for the period between the Policy Date and the investment start date.
SUBSEQUENT AMOUNTS. Although your Policy's cash value reflects only the
scheduled premiums you have actually paid, on each premium due date NELICO
transfers to your Policy's sub-accounts the amount of the net scheduled
premium due, even if it has not yet been paid. Therefore, the amount provided
for investment on the premium due date includes the Policy's cash value on
that date, calculated as if premiums were paid to but not including that date,
plus the net scheduled premium due on that date. If you use the Special
Premium Option to skip a scheduled premium or if you do not pay a required
scheduled premium and the Policy lapses, NELICO will withdraw the unpaid net
scheduled premium from the Variable Account, adjusted for the net investment
experience of the sub-accounts since the due date. (If you do not pay a
required scheduled premium, the Policy may lapse. (See "Default and Lapse
Options".)
The amount provided for investment in the Policy is adjusted as of each day
the New York Stock Exchange is open to reflect the net investment experience
of the sub-accounts for that day.
RIGHT TO RETURN THE POLICY
You may cancel the Policy within 45 days after the date Part 1 of the
application is signed, within 10 days (or more where required by applicable
state insurance law) after you receive the Policy or within 10 days after
NELICO mails the Notice of Withdrawal Right, whichever is latest. The Policy
may be returned to NELICO or your registered representative. Insurance
coverage ends as soon as the Policy is returned (as determined by its
postmark, if the
A-14
<PAGE>
Policy is mailed). If you choose to cancel the Policy, NELICO will refund any
scheduled premium paid (or any other amount that is required by state
insurance law) and any unscheduled payments made, with interest on the
unscheduled payments at the rate currently in use by NELICO.
CHARGES AND EXPENSES
The amount of a charge may not necessarily correspond to the costs
associated with providing the services or benefits indicated by the
designation of the charge or associated with the particular Policy. For
example, the sales charge and Deferred Sales Charge may not fully cover all of
the sales and distribution expenses actually incurred by the Company, and
proceeds from other charges, including the mortality and expense risk charge,
may be used in part to cover such expenses.
DEDUCTIONS FROM PREMIUMS AND UNSCHEDULED PAYMENTS
NELICO deducts certain charges from your scheduled premiums and unscheduled
payments before allocating the net scheduled premiums and net unscheduled
payments to the Variable Account and Fixed Account.
NELICO deducts the following amounts from scheduled premiums to arrive at
the Policy's BASIC scheduled premium:
(i) charges for any rider benefits under your Policy;
(ii) extra premiums due if your Policy is in a substandard risk or automatic
issue class;
(iii) the portion of the annual Policy administrative charge that is due
with that scheduled premium payment. The total charge is $55 per year
for Policies that pay premiums once a year and increases as the
premium payment frequency increases. The amount of the charge for
other premium frequencies is as follows:
<TABLE>
<CAPTION>
AMOUNT AMOUNT
PAYMENT FREQUENCY PER PAYMENT PER YEAR
----------------- ----------- --------
<S> <C> <C>
Semi-annual............................................. $ 28.325 $56.65
Quarterly............................................... $14.4375 $57.75
Master Service Account.................................. $ 4.8125 $57.75
Monthly................................................. $ 4.8125 $57.75
</TABLE>
If an automatic issue Policy and an underwritten Policy are both issued by
NELICO on the same insured (because the total coverage exceeds NELICO's
automatic issue limits), NELICO will waive the annual Policy administrative
charge on the automatic issue Policy.
The charges described above are not deducted from unscheduled payments.
All of the administrative charges under the Policies cover the cost of
administering the Policies, as well as legal, actuarial, systems, mailing and
other overhead costs connected with NELICO's variable life insurance
operations.
SALES CHARGE. NELICO deducts a sales charge from each scheduled premium and
unscheduled payment. The charge is 5.5% of each BASIC scheduled premium and
5.5% of each unscheduled payment. NELICO currently intends to waive this
charge on basic scheduled premiums after the 15th Policy year; however, NELICO
retains the right not to waive the charge, or to reimpose it once it has been
waived. The sales charge will apply to all unscheduled payments.
During the first 15 Policy years, if you surrender or lapse the Policy, take
a partial surrender or reduce the face amount, a Deferred Sales Charge will
also apply. (For insureds who were above issue age 50 at issue of the Policy,
the period when the Deferred Sales Charge applies is 10 years. See "Surrender
Charge" below.)
The sales charges under a Policy in a given policy year are not necessarily
related to NELICO's actual sales expenses for that year.
Sales charges for Policies sold in certain group or sponsored arrangements
may be reduced.
A-15
<PAGE>
STATE PREMIUM TAX CHARGE. NELICO deducts 2.5% from each BASIC scheduled
premium and each unscheduled payment to cover state premium taxes and
administrative expenses. These taxes vary from state to state and the 2.5%
rate reflects an average. Administrative expenses covered by this charge
include those related to premium tax and certain other state filings.
FEDERAL PREMIUM TAX CHARGE. NELICO deducts 1% from each BASIC scheduled
premium and each unscheduled payment to recover a portion of its federal
income tax liability that is determined solely by the amount of life insurance
premiums it receives.
EXAMPLE: The following chart shows the net amount that would be allocated to
the Variable Account under a Policy with no riders and which is not a
substandard or automatic issue Policy. The example assumes an annual scheduled
premium payment of $2,000 and unscheduled payment of $2,000.
<TABLE>
<CAPTION>
SCHEDULED NET SCHEDULED
PREMIUM PREMIUM
--------- -------------
<C> <C> <S>
$2,000 $2,000
-55 (administrative charge)
---------
$1,945 (BASIC scheduled premium)
$1,945
-175.05 (9% X 1,945 = total sales and premium tax charges)
---------
$1,769.95
</TABLE>
NELICO may waive the 5.5% sales charge on scheduled premiums paid after the
15th Policy year. In that case, the net scheduled premium in this example
would be $1,945 -68.08 (3.5% x 1,945), or $1,876.92.
<TABLE>
<CAPTION>
NET
UNSCHEDULED UNSCHEDULED
PAYMENT PAYMENT
----------- -----------
<C> <C> <S>
$2,000 $2,000
-180 (9% X 2,000 = total sales and premium tax charges)
------
$1,820
</TABLE>
SURRENDER CHARGE
If a Policy is totally or partially surrendered or lapses, or the face
amount is reduced, during the first 15 Policy years, a Surrender Charge will
be deducted from the cash value. (For insureds who are above issue age 50 at
issue of the Policy, the Surrender Charge period is 10 years.) The Surrender
Charge includes a Deferred Sales Charge and a Deferred Administrative Charge.
(Policies issued in certain states may be subject to reduced surrender charges
due to applicable insurance law requirements.)
DEFERRED SALES CHARGE. The Deferred Sales Charge is based on the lesser of
the following amounts:
(i) the total payments (both scheduled premiums and unscheduled payments)
made to the date of the surrender, lapse or face amount reduction; and
(ii) the Policy's total BASIC scheduled premiums up to the date of the
surrender, lapse or face amount reduction, whether or not you have paid
each of those premiums. (A BASIC scheduled premium is a scheduled
premium reduced by any charges for riders, substandard risk or
automatic issue class and the portion of the annual Policy
administrative charge due with the scheduled premium.)
This means that if you have not paid one or more scheduled premiums, the
Deferred Sales Charge will be calculated based on the Policy's scheduled
premiums that you actually paid. However, any unscheduled payments that you
made in that situation will be counted as scheduled premiums, up to the amount
of the BASIC scheduled premiums that you did not pay, in the calculation of
the Deferred Sales Charge. Once the amount of the applicable Deferred Sales
Charge is calculated, using the guidelines described above, it will be
deducted from the Policy's available cash value, regardless of whether that
cash value is derived from scheduled premiums, unscheduled payments, or
investment experience.
A-16
<PAGE>
For Policies with scheduled premiums that are paid once a year and which
cover insureds who are issue age 50 or less at issue, the maximum Deferred
Sales Charge will be paid if you lapse or surrender the Policy, or reduce its
face amount, in Policy years three through ten. The Deferred Sales Charge in
those years will equal 43.5% of the first year basic scheduled premium, plus
16.5% of the basic scheduled premium for the second Policy year. After the
tenth Policy year, the maximum Deferred Sales Charge will decline on a monthly
basis until it reaches 0% in the last month of the fifteenth Policy year. If
you surrender in the first two Policy years, your maximum Deferred Sales
Charge will be 23.5% of the first year basic scheduled premium plus 3.5% of
the second year basic scheduled premium. Thus, the maximum Deferred Sales
Charge increases substantially in the third Policy year.
The table below shows the Deferred Sales Charge that will apply in the event
of a surrender, partial surrender, lapse or face amount reduction under
Policies covering insureds who are issue age 50 or less at issue and with
scheduled premiums that are paid on an annual frequency. The table shows what
the charge will be, expressed as a percentage of the total annual basic
scheduled premiums to date, if the lapse, surrender or face reduction occurs
at the end of each of the Policy years shown.
<TABLE>
<CAPTION>
THE MAXIMUM DEFERRED SALES
CHARGE IS THE FOLLOWING
PERCENTAGE OF THE TOTAL
ANNUAL BASIC SCHEDULED
FOR POLICIES WHICH ARE PREMIUMS TO DATE OF
SURRENDERED, LAPSED SURRENDER, LAPSE OR FACE
OR REDUCED DURING AMOUNT REDUCTION
---------------------- --------------------------
<S> <C> <C>
Entire Policy year 1 23.50%
2 13.50%
3 20.00%
4 15.00%
5 12.00%
6 10.00%
7 8.57%
8 7.50%
9 6.67%
10 6.00%
Last month of Policy
years 11 4.36%
12 3.00%
13 1.85%
14 0.86%
15 0.00%
</TABLE>
For insureds who are above issue age 50 at issue, the Deferred Sales Charge
percentages are less than or equal to those in the table above, with the
maximum charge occurring in Policy years three through six for insureds with
an issue age up through 65 and in Policy years two through four for insureds
with an issue age above 65.
The rate of the Deferred Sales Charge is the same regardless of whether you
pay premiums on an annual basis or more frequently. However, because the total
dollar amount or premiums paid is somewhat higher if you pay more frequently
than annually (e.g. semi-annually or quarterly), the dollar amount of the
Deferred Sales Charge will also be higher if you pay premiums more frequently
than annually.
In the case of a partial surrender or reduction in face amount, any Deferred
Sales Charge that applies will be deducted from the Policy's cash value in an
amount proportional to the amount of the Policy's face amount surrendered.
(See "Partial Surrender and Partial Withdrawal".)
A-17
<PAGE>
DEFERRED ADMINISTRATIVE CHARGE. The table below shows the Deferred
Administrative Charge that will be deducted if you totally or partially
surrender, lapse or reduce the face amount of the Policy.
<TABLE>
<CAPTION>
FOR POLICIES WHICH ARE DEFERRED ADMINISTRATIVE
SURRENDERED, LAPSED OR CHARGE PER $1,000 OF
REDUCED DURING FACE AMOUNT
---------------------- -----------------------
<S> <C> <C>
Entire Policy year 1 $2.70
Last Month of Policy years* 2 2.40
3 2.10
4 1.80
5 1.50
6 1.20
7 .90
8 .60
9 .30
10 zero
</TABLE>
- ----------
* The charge declines monthly in equal dollar amounts after the end of the
first Policy year.
The applicable Deferred Administrative Charge will be deducted from the
Policy's available cash value, regardless of whether that cash value is
derived from scheduled premiums, unscheduled payments, or investment
experience.
DEDUCTIONS FROM CASH VALUE
MONTHLY DEDUCTION. On the first day of each Policy month, starting with the
Policy Date, NELICO will make a deduction (the "Monthly Deduction") from your
cash value for these charges:
(i) an administrative charge, currently equal to $0.02 per $1,000 of Policy
face amount (guaranteed not to exceed $0.04 per $1,000 of face amount);
and
(ii) a minimum death benefit guarantee charge of $0.01 per $1,000 of Policy
face amount. This charge compensates NELICO for its guarantee that,
regardless of the investment experience of the Policy's sub-accounts,
the Policy's death benefit will never be less than the face amount,
provided that all required scheduled premiums have been paid when due.
(See "Adjustments to the Death Proceeds Payable".)
The Monthly Deduction will only apply during the Premium Paying Period, that
is, until the Policy anniversary when the insured reaches age 65, or for 10
years after the Policy is issued, whichever is later.
If there is an outstanding loan under your Policy and the net cash value is
not large enough to cover the full amount of the Monthly Deduction in any
month, the difference will be treated as an excess Policy loan and the Policy
may terminate. (See "Loan Provision".)
MONTHLY CHARGES FOR THE COST OF INSURANCE. The cost of providing insurance
protection under your Policy is deducted from your Policy's cash value at the
beginning of each Policy month for the life of the Policy, beginning with the
Policy Date. The cost of insurance charge for a Policy month is equal to the
"amount at risk" under the Policy, multiplied by the cost of insurance rate
for that Policy month. The amount at risk is determined on the first day of
the Policy month after all applicable monthly charges have been processed and
is the amount by which the death benefit (discounted at the monthly equivalent
of 4.5% per year) exceeds the Policy's cash value. The cost of insurance rate
for your Policy will change from month to month.
If a Policy loan is outstanding and your Policy's net cash value is not
large enough to cover the cost of insurance charge for a Policy month, the
difference between the net cash value available and the cost of insurance
charge will be treated as an excess Policy loan and the Policy may terminate.
(See "Loan Provision".)
The guaranteed cost of insurance rates for a Policy depend on the insured's
underwriting class, age on the first day of the Policy year and sex (if the
Policy is sex-based). The current cost of insurance rates for a given Policy
will also depend on the insured's age at issue of the Policy and on the
duration of the Policy. The rates are guaranteed not to be higher than rates
based on the 1980 Commissioners Standard Ordinary Mortality Tables (the
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"1980 CSO Tables"), with smoker/nonsmoker modifications. For Policies issued
on juvenile insureds (that is, insureds from the age of 0 to 19), the rates
are guaranteed not to be higher than rates based on the 1980 CSO Tables. The
rates actually used may be lower than these maximum rates, depending on
NELICO's expectations regarding future mortality and expense experience, lapse
rates and investment earnings. NELICO reviews the adequacy of its current cost
of insurance rates periodically and may adjust them. Any change in the current
cost of insurance rates will be applied prospectively only and will be on a
non-discriminatory basis. The current cost of insurance rate for a Policy is
set forth in the Policy Owner's annual statement.
The underwriting classes used for determining cost of insurance rates are
smoker, nonsmoker and, for Policies issued on juvenile insureds (that is,
insureds from the age of 0 to 19), standard. Substandard Policies and
automatic issue Policies use the same cost of insurance rates as NELICO's
Policies that are in the smoker and nonsmoker class (or, if applicable,
standard class), but require an extra premium as part of the Policy's total
scheduled premium.
Cost of insurance rates are generally more favorable for nonsmoker than for
smoker insureds and generally more favorable for female than for male
insureds. Within a given underwriting class, cost of insurance rates are
generally more favorable for insureds with lower issue ages. Where required by
state law, and for Policies sold in connection with certain employee benefit
plans, cost of insurance rates (and Policy values and benefits) will not vary
based on the sex of the insured.
NELICO offers Policies on an automatic issue basis to certain group or
sponsored arrangements. If an eligible group or sponsored arrangement
purchases Policies on an automatic issue basis, the Policies will be issued up
to a predetermined face amount limit, with only minimal evidence of
insurability. Because only limited underwriting information is obtained,
NELICO has determined that Policies issued on an automatic issue basis may
present additional mortality cost to NELICO compared to underwritten Policies
issued in the smoker class. NELICO will charge an additional premium for
automatic issue Policies. The additional premium will be payable for 20 years,
or for the premium paying period, if less. The amount of the additional
premium will depend on the issue age of the insured, and may also depend on
the size of the group and the total premium to be paid by the group. The
additional premium will be deducted from the scheduled premium in the same
manner as under a substandard risk Policy before the net scheduled premium is
allocated to the Variable Account. Under automatic issue Policies, the overall
charges for insurance protection, including the extra premium, will be higher
than under a comparable underwritten Policy issued in the nonsmoker standard
or smoker standard class. This means that an insured may be able to obtain
individual, underwritten insurance coverage at a lower overall cost.
Eligible group or sponsored arrangements may choose to purchase Policies on
a simplified underwriting basis either as an alternative to automatic issue or
for amounts of insurance which exceed NELICO's automatic issue limits, but may
not choose automatic issue for some members of the group and simplified
underwriting for others. Policies issued on a simplified underwriting basis
will have the same cost of insurance rates and basic scheduled premiums as
smoker and nonsmoker fully underwritten Policies. Currently NELICO does not
intend to charge an additional premium for coverage issued on a simplified
issue basis unless the insured is in a substandard risk class.
CHARGES UNDER THE SPECIAL PREMIUM OPTION. If you use the Special Premium
Option to skip a scheduled premium payment, NELICO will deduct from the
Policy's cash value the amount of the Policy's annual administrative charge
that was due with the scheduled premium, as well as any premiums due for rider
benefits and substandard risk or automatic issue status. The amount deducted
for all of these charges will be 91% of the amount that was due with the
scheduled premium payment. (See "Special Premium Option".) These charges will
be deducted from the Policy's sub-accounts in proportion to the Policy's cash
value in each sub-account.
CHARGES FOR ADDITIONAL SERVICES. NELICO reserves the right to charge Policy
Owners a nominal fee, which will be billed directly to the Policy Owner, in
the event that a Policy re-issue or re-dating is requested.
CHARGES AGAINST THE ELIGIBLE FUNDS AND THE SUB-ACCOUNTS OF THE VARIABLE
ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. NELICO charges the sub-accounts of the
Variable Account for the mortality and expense risks that NELICO assumes.
Currently, the charge is made daily at an annual rate of .60% of the sub-
accounts' assets. NELICO reserves the right to increase the charge, up to a
maximum annual rate of
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.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, and Westpeak
Growth and Income Series, TNE Advisers will bear those expenses (other than
the management fee) that exceed 0.15% of average daily net assets; for the
Loomis Sayles Small Cap Series, TNE Advisers will bear all expenses that
exceed 1.00% of average daily net assets. For the remaining Zenith Fund Series
(other than the Capital Growth Series) TNE Advisers, under a voluntary expense
deferral arrangement, will bear those expenses (other than the management fee)
which exceed a certain limit in the year in which they are incurred and will
charge those expenses to the series in a future year when actual expenses of
the series are below the limit up until two years after the end of the fiscal
year in which the expense was incurred. The expense cap and expense deferral
arrangement may be terminated at any time.
The following table shows the annual operating expenses for each series,
based on actual expenses for 1997, (for the Goldman Sachs Midcap Value Series,
anticipated expenses for 1998), after giving effect to the applicable expense
cap or expense deferral arrangement.
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER ANY EXPENSE CAP)
<TABLE>
<CAPTION>
BACK BACK
BAY BAY BACK WESTPEAK LOOMIS
ADVISORS ADVISORS BAY WESTPEAK GROWTH SAYLES
CAPITAL BOND MONEY ADVISORS STOCK AND SMALL
GROWTH INCOME MARKET MANAGED INDEX INCOME CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .63% .40% .35% .50% .25% .70% 1.00%
Other Expenses.......... .04% .12% .10% .11% .15% .12% --
---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses.............. .67% .52% .45% .61% .40% .82% 1.00%
</TABLE>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
GOLDMAN MORGAN
SACHS LOOMIS STANLEY DAVIS ALGER
MIDCAP SAYLES INTERNATIONAL VENTURE EQUITY
VALUE BALANCED MAGNUM VALUE GROWTH
SERIES* SERIES EQUITY SERIES SERIES SERIES
------- -------- ------------- ------- ------
<S> <C> <C> <C> <C> <C>
Management Fee................... .75% .70% .90% .75% .75%
Other Expenses................... .15% .15% .40% .15% .12%
---- ---- ----- ---- ----
Total Series Operating Expenses. .90% .85% 1.30% .90% .87%
</TABLE>
- --------
* Anticipated annual operating expenses for the Goldman Sachs Midcap Value
Series are based on the management fee approved by shareholders of the
Series that became effective on May 1, 1998, and other expenses actually
incurred for the Series for 1997.
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.
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<PAGE>
The Portfolios also bear certain other expenses. For the year ended December
31, 1997, the total operating expenses incurred by the Portfolios, as a
percentage of Portfolio average net assets, were as follows:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
Equity-Income .50% .08% .58%*
Overseas .75% .17% .92%*
High Income .59% .12% .71%
Asset Manager .55% .10% .65%*
</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 .57% for
Equity-Income Portfolio, .90% for Overseas Portfolio and .64% for Asset
Manager Portfolio.
Affiliates of Fidelity Management & Research Company compensate NELICO
and/or certain affiliates for administrative, distribution, or other services
relating to these Portfolios of VIP Fund and VIP Fund II. Such compensation is
based on assets of the Portfolios attributable to the Policies and certain
other variable insurance products issued by NELICO and its affiliates.
GROUP OR SPONSORED ARRANGEMENTS
The Policies may be issued to group or sponsored arrangements, as well as on
an individual basis. A "group arrangement" includes a program under which a
trustee, employer or similar entity purchases individual Policies covering a
group of individuals on a group basis. An example of such an arrangement is a
non-tax qualified deferred compensation plan. A "sponsored arrangement"
includes a program under which an employer permits group solicitation of its
employees or an association permits group solicitation of its members for the
purchase of the Policies on an individual basis.
For Policies issued in connection with group or sponsored arrangements,
NELICO may waive or reduce one or more of the following charges: the sales
charge, Surrender Charge, charges for the cost of insurance (including
automatic issue premiums), mortality and expense risk charge, administrative
charges and/or federal and state premium tax charges described in "Charges and
Expenses". (In addition, the interest rate credited on amounts taken from the
sub-accounts as a result of a Policy loan may be increased for these
Policies.) NELICO will waive or reduce these charges according to its rules in
effect when the Policy application is approved. To qualify for a waiver or
reduction, a group or sponsored arrangement must satisfy certain criteria as
to, for example, size and number of years in existence. Generally, the sales
contacts and effort, administrative costs and mortality cost per Policy vary
based on such factors as the size of the group or sponsored arrangement, its
stability, the purposes for which the Policies are purchased and certain
characteristics of its members. The amount of reduction and the criteria for
qualification will reflect the reduced sales and administrative effort
resulting from sales to qualifying group or sponsored arrangements. NELICO may
modify from time to time both the amounts of reductions and the criteria for
qualification. Reductions in or waiver of these charges will not be unfairly
discriminatory against any person, including the affected Policy Owners and
all other Policy Owners of Policies funded by the Variable Account.
The United States Supreme Court has held that certain insurance policies
providing values and benefits that vary with the sex of the insured may not be
used to fund certain employee benefit programs. Therefore, NELICO offers
Policies that do not vary based on the sex of the insured for use in
connection with certain employee benefit programs. NELICO recommends that any
employer proposing to offer the Policies to employees under a group or
sponsored arrangement consult its attorney before doing so.
PREMIUMS
SCHEDULED PREMIUMS
Scheduled premium payments for the Policy are generally required until the
Policy anniversary when the insured reaches age 65, or for 10 years after the
Policy is issued, whichever is later. NELICO guarantees that no premiums will
be due after this period. (See "Substitution of Insured Person" for an
explanation of when an unscheduled payment may be required after the Premium
Paying Period under Policies which exercise the
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substitution of insured rider.) The scheduled premium amount will depend on
the Policy's face amount, the age, sex (unless unisex rates apply) and
underwriting class of the insured, the premium payment schedule you select,
and any rider benefit premiums.
The underwriting classes used for setting the scheduled premium amount are
smoker standard, smoker substandard, nonsmoker standard, nonsmoker
substandard, automatic issue and, for juvenile insureds, standard and
substandard. Scheduled premiums for substandard and automatic issue classes
reflect additional premiums that are charged for Policies in those categories.
Scheduled premiums are generally higher for males than for females and
generally higher for smokers than for nonsmokers. Scheduled premiums are also
generally higher for Policies issued on older insureds.
Scheduled premiums can be paid on an annual, semi-annual or quarterly
schedule or, with NELICO's consent, monthly. The premium payment schedule you
select will affect the total amount of premium you pay in a Policy year. The
total premium paid is highest if you select the monthly frequency and lowest
if you select the annual frequency. The payment schedule will also affect the
Policy's cash value and tabular cash value and, therefore, may affect the
death benefit.
You can change your premium payment schedule at any time by sending your
request for change to NELICO's Home Office. If you change to a less frequent
payment schedule (e.g. from quarterly to annual), the change will go into
effect on the next premium due date under the new schedule. Until then, you
will continue to make payments under the old schedule; NELICO will not accept
an advance payment of the remaining scheduled premiums due for the Policy year
under the old schedule, that is, you cannot pay the balance of any premium
mode. If you change to a more frequent payment schedule (e.g. from annual to
quarterly), the change will go into effect on the next premium due date under
the original schedule. (See "Receipt of Communications and Payments at
NELICO's Home Office".)
You may make scheduled payments by check or money order. You may also choose
to have NELICO withdraw your scheduled premium payments from your bank
checking account or New England Cash Management Trust account. (This service
is known as the Master Service Account arrangement, or "MSA". Scheduled
payments made through MSA may be maintained by NELICO or an affiliate in the
general account pending their due date.)
Scheduled premiums are due at NELICO's Home Office or a NELICO agency on or
before their due dates. NELICO will allocate net scheduled premiums, after the
first, to your Policy's sub-accounts on the premium due dates, not when they
are received. If you use the Special Premium Option to skip a scheduled
premium payment or if you miss a required scheduled premium payment, however,
NELICO will withdraw from the Variable Account the net scheduled premium that
it advanced, adjusted for the net investment experience of the Policy's sub-
accounts since the due date. (If you do not pay a required scheduled premium,
the Policy may lapse. See "Default and Lapse Options".)
A credit will be applied to the initial scheduled premium under a Policy
converted from certain term insurance that was issued by New England Mutual,
NELICO or NELICO's affiliates and also to scheduled premiums under a Policy
issued to a home office employee of NELICO on the life of the employee, if the
employee has worked for NELICO for at least one year.
UNSCHEDULED PAYMENTS
Within the limits described below and as long as the Policy has not lapsed,
you may make unscheduled payments. Unscheduled payments may only be made
during the Premium Paying Period, that is, until the Policy anniversary when
the insured reaches age 65, or for 10 years after the Policy is issued,
whichever is later. (See "Substitution of Insured Person" for an explanation
of when an unscheduled payment may be required after the Premium Paying Period
under Policies which exercise the substitution of insured rider.) NELICO may
require satisfactory evidence of insurability before accepting the payment. In
addition, NELICO's consent is required if, in order to satisfy tax law
requirements, the payment would increase the Policy's death benefit by more
than it would increase the cash value. NELICO will not accept an unscheduled
payment if the Policy's scheduled premiums are being waived under a waiver of
premium rider. (See "Additional Benefits by Rider".) NELICO also reserves the
right to prohibit or limit the amount of unscheduled payments under a Policy
covering a substandard risk insured or under an automatic issue Policy. An
unscheduled payment must be at least $10 if made pursuant to the Master
Service Account or certain other monthly payment arrangements, and otherwise
must be at least $25.
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You may ask NELICO to include on your premium notice for the Policy
anniversary a planned unscheduled payment amount in addition to the scheduled
premium, subject to NELICO's rules. Subject to NELICO's rules, you may choose
to have NELICO withdraw unscheduled payments from your bank checking account
or New England Cash Management Trust account (i.e. the Master Service Account
arrangement) if you are using this facility to pay scheduled premiums under
the Policy.
If your Policy has a level term insurance rider and you are paying premiums
on the annual mode or by means of the Master Service Account arrangement, you
may choose to have NELICO bill you (or deduct from your bank checking account
or New England Cash Management Trust account) a single level amount (the
"Annual Level Billing Option") each year that is sufficient to cover the
scheduled premium due plus the increasing premium for the level term insurance
rider. Under the Annual Level Billing Option, a portion of the level billing
amount will be allocated to your Policy as an unscheduled payment. The amount
that is allocated as an unscheduled payment will decrease each year as the
cost of the level term insurance rider goes up. You may need to recalculate
your Annual Level Billing Amount as the premium for the level term insurance
rider increases.
Under any of these billing options, the total of all premiums and payments
made could cause the Policy to become a "modified endowment contract". You
should consider the potential tax consequences before planning a series of
unscheduled payments. (See "Tax Considerations".)
NELICO will allocate an unscheduled payment to your Policy's sub-accounts as
of the date the payment is received at NELICO's Home Office. (See "Receipt of
Communications and Payments at NELICO's Home Office".)
RULES FOR CREDITING PAYMENTS TO THE VARIABLE ACCOUNT. NELICO will treat
payments made under the Policy in the following way. Payments accompanied by a
premium notice, and payments received by NELICO during the period from 25 days
before the premium due date to 31 days after the due date, whether or not
accompanied by a premium notice, will be applied first to payment of the
scheduled premium due, next to pay any loan interest due, and any balance will
be applied as an unscheduled payment as of the date it was received. (However,
any payment which is less than the amount of the scheduled premium due will be
treated as an unscheduled payment.) All other payments will be treated as
unscheduled payments. If the Policy lapses and you made an unscheduled payment
during the grace period which was insufficient to pay the premium due, the
unscheduled payment will be refunded to you.
If you pay premiums monthly, including by means of the Master Service
Account arrangement, payments will be credited as agreed by you and NELICO.
Payments made through the MSA arrangement may be maintained by NELICO or an
affiliate in the general account pending crediting. Billing and crediting
procedures for certain group or sponsored arrangements may differ from those
used for other Policy Owners.
If you have a Policy loan, it may be more advantageous to repay the loan
than to make an unscheduled payment, because the unscheduled payment is
subject to sales and tax charges, whereas the loan repayment is not subject to
any charges. (See "Loan Provision" and "Deductions from Premiums and
Unscheduled Payments".) A payment will not be treated as repayment of a Policy
loan unless so designated by you.
SPECIAL PREMIUM OPTION
When you apply for a Policy, or at a later date while the Policy is not
lapsed, you may elect the Special Premium Option. This feature allows you to
skip a scheduled premium payment or payments after the first Policy year,
under the following conditions.
If the scheduled premium has not been paid by the end of the grace period,
the Policy will not lapse if the Policy's cash value on the premium due date
(before NELICO advanced the net premium due) exceeded the tabular cash value
by at least the amount of the scheduled premium due, including any rider and
substandard risk or automatic issue premiums due. The Special Premium Option
may not be used, however, if, immediately afterward, the amount of any
outstanding Policy loan plus accrued interest would exceed the Policy's loan
value.
If the Special Premium Option is used, it will reduce the Policy's cash
value (and loan value) because NELICO will deduct from the cash value, as of
the premium due date, 91% of the portion of the annual administrative charge,
and of any rider, substandard risk or automatic issue premiums, that were due.
These amounts will be
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<PAGE>
deducted from the Policy's sub-accounts in proportion to the Policy's cash
value in each. (NELICO will also withdraw the net scheduled premium that it
advanced to the Policy, adjusted for the net investment experience of the
Policy's sub-accounts since the due date.)
If you have elected both the Special Premium Option and the automatic
premium loan feature, NELICO will first determine whether the Special Premium
Option can be used to satisfy the premium payment before attempting to pay the
premium by means of an automatic premium loan. (See "Automatic Premium Loan".)
You may cancel the Special Premium Option and, generally, re-elect it at any
time. The Special Premium Option is not available to you, however, while you
are paying premiums by means of the Master Service Account arrangement.
AUTOMATIC PREMIUM LOAN
You may elect an automatic premium loan feature. Under this feature, if you
have not paid a required scheduled premium by the end of the grace period,
your Policy's available loan value will be used to pay the scheduled premium
to the next due date, if possible, but at least to the next quarterly due
date. However, no premium loan will be made if the Policy's loan value is not
adequate to pay at least a quarterly premium. Interest on the loan will be
charged from the premium due date. Like other policy loans, an automatic
premium loan can result in an excess Policy loan. (See "Loan Provision".) An
automatic premium loan will not be made if you have elected the Special
Premium Option and can skip the scheduled premium payment under that option.
DEFAULT AND LAPSE OPTIONS
If you have not paid a required scheduled premium by the due date, then the
premium is in default, but the Policy provides a 31 day grace period for
payment of the scheduled premium due. During the grace period insurance
coverage continues under your Policy, but if the insured dies before the
premium is paid, NELICO will deduct from the death proceeds the portion of the
unpaid premium for the period prior to the date of death.
For 60 days after the due date of a premium in default, NELICO will not make
the usual Monthly Deductions and cost of insurance deductions from the
Policy's cash value. If the premium in default is paid, these deductions will
be made retroactively. If you surrender the Policy while the premium is in
default, the full Monthly Deduction and a prorated cost of insurance charge
will be deducted from the proceeds.
There are three lapse options that may be available to you under your
Policy. They are: Fixed Extended Term Insurance, Fixed Paid-Up Insurance and
Variable Paid-Up Insurance.
Fixed Extended Term Insurance is fixed benefit life insurance for a limited
term with no further premiums due. The death benefit under this option will be
the same as the amount of your Policy's death benefit on the due date of the
premium in default. The term of the insurance coverage is determined by
applying the Policy's NET cash value as of the due date of the premium in
default (that is, the cash value reduced by any applicable Surrender Charge
and by any outstanding Policy loan plus accrued interest), less any partial
surrenders or partial withdrawals made during the grace period. Policy loans
are not available under a Policy continued as Fixed Extended Term Insurance.
Fixed Extended Term Insurance is not available if your Policy is in a
substandard or automatic issue class.
If Fixed Extended Term Insurance is available under your Policy, it is the
lapse option which will automatically apply upon lapse unless you have elected
Fixed or Variable Paid-Up Insurance. Even if you have elected Fixed Extended
Term Insurance, however, if Fixed Paid-Up Insurance would provide a greater
death benefit, that is the lapse option which will apply.
Paid-Up Insurance is permanent life insurance with no further premiums due.
The amount of insurance provided is determined by applying the Policy's NET
cash value as of the due date of the premium in default (that is, the cash
value reduced by any applicable Surrender Charge, and by any outstanding
Policy loan plus accrued interest), less any partial surrenders or partial
withdrawals made during the grace period, as a net single premium at the
current age of the insured. Loans are available under a Policy continued as
Paid-Up Insurance.
You may select a lapse option, or change your selection, by written request
to NELICO's Home Office at any time up to 60 days after the due date of the
premium in default. Certain conditions apply to the selection of Variable
Paid-Up Insurance. (See "Variable Paid-Up Insurance" below.)
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<PAGE>
VARIABLE PAID-UP INSURANCE. Variable Paid-Up Insurance is available as a
lapse option if the NET cash value of your Policy as of the due date of the
premium in default (that is, the cash value reduced by any applicable
Surrender Charge and by any outstanding Policy loan plus accrued interest)
less any partial surrenders or partial withdrawals made during the grace
period, is sufficient, when used as a net single premium at the insured's
current age, to purchase paid-up insurance with an initial face amount at
least equal to $5,000. If you have elected Variable Paid-Up Insurance and your
Policy's net cash value is not adequate to purchase this minimum amount of
insurance, then Fixed Paid-Up Insurance will be provided instead. Variable
Paid-Up Insurance is not available under Policies in a substandard or
automatic issue class.
The death benefit under Variable Paid-Up Insurance can vary monthly and the
cash value can vary daily, depending on the net investment experience of the
Policy's sub-accounts (and on the interest earned on any of the Policy's cash
value in the Fixed Account). The death benefit will never be less than the
initial amount of the Variable Paid-Up Insurance, however, if there is no
outstanding Policy loan. There is no minimum guaranteed cash value for a
Policy continued as Variable Paid-Up Insurance.
The death benefit provided under Variable Paid-Up Insurance is predetermined
at the end of each Policy month for the following Policy month. The death
benefit is the greater of the initial face amount of Variable Paid-Up
Insurance and the Variable Death Benefit. The Variable Death Benefit can
increase or decrease at the end of each Policy month, depending on how the
Policy's actual investment experience for the month (plus any cost of
insurance adjustment) compares to investment experience at the monthly
equivalent of 4.5% per year. If the actual investment experience of the
Policy's sub-accounts (and the net interest earned on any of the Policy's cash
value in the Fixed Account), plus any cost of insurance adjustment, is greater
than the monthly equivalent of 4.5% per year, the Variable Death Benefit will
increase. If it is less, the Variable Death Benefit will decrease. The change
in the Variable Death Benefit will equal this difference between the actual
return (plus any cost of insurance adjustment) and the assumed return, divided
by the net single premium per dollar of death benefit at the current age of
the insured. The cost of insurance adjustment reflects any difference between
the actual and the guaranteed maximum cost of insurance charges under the
Policy. Thus, changes in the Variable Death Benefit will depend on the age,
sex (unless the Policy is unisex) and underwriting class of the insured as
well as on net investment experience.
Although the death benefit provided by Variable Paid-Up Insurance will not
be less than the initial amount of insurance under the option regardless of
investment experience, the Variable Death Benefit can be higher or lower than
the initial amount. Changes in the Variable Death Benefit are carried forward
to succeeding Policy months, so that if investment experience has reduced the
Variable Death Benefit below the initial amount of Variable Paid-Up Insurance,
subsequent favorable investment experience must first restore the Variable
Death Benefit to the initial amount before it can cause the Variable Death
Benefit to exceed the initial amount of Variable Paid-Up Insurance.
The initial cash value of a Policy continued as Variable Paid-Up Insurance
is its NET cash value as of the due date of the premium in default, reduced by
any partial surrenders or partial withdrawals made during the grace period.
Thereafter, the cash value is determined in the same manner as it is prior to
lapse, except that the charge for the cost of insurance is deducted at the end
of the Policy month rather than at the beginning, and there is no Monthly
Deduction. Since there are no Monthly Deductions, generally the cost of
insurance rates actually charged under a Policy continued as Variable Paid-Up
Insurance are somewhat higher than they are under the Policy prior to lapse.
Cost of insurance rates under a Policy continued as Variable Paid-Up Insurance
depend on the insured's underwriting class, attained age and sex (if the
Policy is sex-based).
No partial withdrawals, premium payments or unscheduled payments may be made
under a Policy continued as Variable Paid-Up Insurance. You may surrender the
Policy for its net cash value, which is its cash value reduced by any
outstanding loan (and accrued interest) and by a prorated charge for the cost
of insurance, if the surrender occurs on a day other than the last day of the
Policy month. The amount available for a Policy loan under a Policy continued
as Variable Paid-Up Insurance is determined in the same way as prior to lapse.
An excess Policy loan may cause a Policy continued as Variable Paid-Up
Insurance to lapse. (See "Loan Provision".) The Policy provides that you may
transfer the cash value of a Variable Paid-Up Insurance Policy among the sub-
accounts up to four times in a Policy year without NELICO's consent. NELICO
currently allows 12 sub-account transfers per Policy year.
A-25
<PAGE>
REINSTATEMENT. If your Policy has lapsed, it may be reinstated within 7
years after the date of default. If more than 7 years have passed, or if you
have surrendered the Policy, NELICO's consent is required to reinstate.
Reinstatement in all cases is subject to payment of certain charges described
in the Policy and generally will require evidence of insurability that is
satisfactory to NELICO.
OTHER POLICY FEATURES
LOAN PROVISION
You may borrow all or part of the Policy's "loan value" at any time after
the Right to Return the Policy period. NELICO will make the loan as of the
date when a loan request is received at NELICO's Home Office. (See "Receipt of
Communications and Payments at NELICO's Home Office".) You should contact
NELICO's Home Office or your registered representative for information
regarding the procedures to follow for requesting a loan. Policy loans are not
available under a Policy continued as Fixed Extended Term Insurance.
The Policy's loan value is equal to 90% of the Policy's cash value,
projected at a 4.5% annual rate to the next Policy anniversary (or to the next
premium due date, if earlier); less the Surrender Charge on the next loan
interest due date or, if greater, on the date the loan was made; and
discounted at the loan interest rate (6%). If required by state law, the
Policy's loan value may be a greater percentage of the cash value, as
described in your Policy. The amount of loan value available to be borrowed at
any time is reduced by the amount of any outstanding Policy loan plus accrued
interest.
The example below illustrates how the loan value is determined.
- -------------------------------------------------------------------------------
EXAMPLE: Using the Policy illustrated on page A-55 assume that the Policy's
premiums have been paid when due and that the Policy's sub-accounts have
earned a constant 6% hypothetical gross annual rate of return (equal to a
constant net annual rate of return of 4.57%). After the premium payment on the
10th Policy anniversary, the maximum amount that could be borrowed would be
determined as follows under (i) an annual premium payment schedule and (ii) a
quarterly premium payment schedule:
<TABLE>
<CAPTION>
ANNUAL QUARTERLY
------- ---------
<S> <C> <C>
(1) Cash Value after Premium Payment on 10th Policy
Anniversary.......................................... $41,912 $39,264
(2) Cash Value Projected at a Constant Annual Rate of
Return of 4.5% to the
(a)11th Policy Anniversary............................ 42,963
(b)Next Premium Due Date.............................. 39,490
(3) 90% of Amount Calculated in (2)...................... 38,667 35,541
(4) Amount Calculated in (3), Reduced by the Applicable
Surrender Charge..................................... 36,339 33,213
(5) Amount Calculated in (4), Discounted at an Annual
Rate of 6% Back to the 10th Policy Anniversary....... 34,282 32,722
- -------------------------------------------------------------------------------
</TABLE>
A Policy loan reduces the Policy's cash value in the sub-accounts by the
amount of the loan. A loan repayment increases the cash value in the sub-
accounts by the amount of the repayment. Unless you request otherwise, Policy
loans and loan repayments are attributed to the sub-accounts in proportion to
the cash value in each.
The interest rate charged on Policy loans is an effective rate of 6% per
year (using simple interest during the year) and is due on the Policy
anniversary. If not paid, the interest accrued on the loan is added to the
loan, and an amount equal to the unpaid interest is deducted from the Policy's
cash value in the sub-accounts. The amount taken from the Policy's sub-
accounts as a result of the loan will earn interest (compounded daily) at an
effective rate of not less than 4.5% per year. The rate currently credited is
4.75% per year. This interest earned is credited to the Policy's sub-accounts
annually, in proportion to the cash value in each.
The amount taken from the Policy's sub-accounts as a result of a loan does
not participate in the investment experience of the sub-accounts. Therefore,
the death benefit and cash value of the Policy can be permanently affected by
a Policy loan, even if it is repaid. In addition, any proceeds payable under a
Policy are reduced by the amount of any outstanding loan plus accrued
interest.
A-26
<PAGE>
If a Policy loan is outstanding, it may be more advantageous to repay the
loan than to make an unscheduled payment, because the unscheduled payment is
subject to sales and premium tax charges, and the loan repayment is not
subject to charges. (See "Deductions from Premiums and Unscheduled Payments".)
If Policy loans plus accrued interest at any time exceed the Policy's cash
value less the Surrender Charge on the next Policy loan interest due date (or,
if greater, on the date the calculation is made), NELICO will notify you that
the Policy is going to terminate. (This situation is referred to as an "excess
Policy loan".) NELICO tests for an excess Policy loan on each monthly
processing date and in connection with certain other Policy processing
transactions. The Policy will terminate without value 31 days after the notice
is mailed unless the excess amount is paid to NELICO within that time. (See
"Default and Lapse Options".) If the Policy lapses with a loan outstanding,
adverse tax consequences may result. (See "Tax Considerations" below.)
Department of Labor ("DOL") regulations set forth requirements for
participant loans under retirement plans subject to the Employee Retirement
Income Security Act of 1974 ("ERISA"). Generally, the DOL regulations will
apply to plans that qualify under Sections 401(a) and 401(k) of the Internal
Revenue Code (the "Code"). If the retirement plan is subject to ERISA, the
plan fiduciary authorized to oversee/direct the plan loan program must fulfill
the requirements of the regulations including charging a "commercially
reasonable" rate of interest. The Policy loan interest rate may not be
considered "commercially reasonable" within the meaning of the DOL
regulations. In addition, the DOL regulations require that a plan loan be
adequately secured but provide that not more than 50% of the participant's
vested account balance (including the Policy cash value) be used as security
for the loan. The DOL regulations and applicable tax law may also contain
other requirements for plan loans. Therefore, plan loan provisions may differ
from Policy loan provisions. If you are a participant in a retirement plan
subject to ERISA, you should consult with the fiduciary administering the plan
loan program. Failure of the plan loan program to comply with the requirements
of the DOL regulations and of tax law may result in tax penalties under the
Code and under ERISA.
SURRENDER
You may surrender a Policy for its net cash value at any time while the
insured is living by a signed written request conforming to NELICO's
administrative procedures. The net cash value of the surrendered Policy will
be determined as of the date when a surrender request is received at NELICO's
Home Office. The net cash value equals the cash value reduced by any Policy
loan and accrued interest and by any applicable Surrender Charge. (See
"Surrender Charge".) You may elect in writing to have all or part of the net
cash value applied to a payment option. (See "Payment Options".) A surrender
may result in adverse tax consequences. (See "Tax Considerations" below.)
PARTIAL SURRENDER AND PARTIAL WITHDRAWAL
You may make a partial surrender of the Policy to receive a portion of its
net cash value. A partial surrender will cause a proportionate reduction in
the Policy's face amount, tabular cash value, death benefit and basic
scheduled premium. No partial surrender may reduce the face amount below the
Policy's required minimum except with NELICO's consent.
Any Surrender Charge that applies to a partial surrender will be deducted
from the Policy's cash value in an amount proportional to the amount of the
Policy's face amount surrendered. The Surrender Charge applied will reduce any
remaining Surrender Charge under your Policy.
If your Policy has the Option 2 death benefit, you may make a partial
withdrawal of the amount by which the Policy's cash value exceeds its tabular
cash value. If there is a Policy loan outstanding, the amount of the partial
withdrawal will be further limited to prevent the Policy loan plus accrued
interest from exceeding the Policy's loan value. (See "Loan Provision".) A
partial withdrawal will reduce the Policy's Option 2 death benefit and cash
value but will not affect its face amount or scheduled premium level. No
Surrender Charge will apply.
A-27
<PAGE>
- -------------------------------------------------------------------------------
EXAMPLE: Using the Policy illustrated on page A-56, assume that the Policy's
premiums have been paid when due and that the Policy's sub-accounts have
earned constant hypothetical gross annual rates of return of 0%, 6% and 12%.
These hypothetical rates are illustrative only and may not reflect the rates
of return you would realize under the Policy. Before the premium payment on
the 20th Policy anniversary, the maximum amount that can be withdrawn is as
follows:
<TABLE>
<CAPTION>
AT HYPOTHETICAL AT HYPOTHETICAL AT HYPOTHETICAL
0% RETURN 6% RETURN 12% RETURN
--------------- --------------- ---------------
<S> <C> <C> <C>
(1) Cash Value at the 20th anniversary,
before premium payment................. $49,038 $96,676 $196,346
(2) Tabular Cash Value..................... 81,461 81,461 81,461
(3) Maximum Withdral = (1) - (2)........... 0 15,215 114,885
</TABLE>
The death benefit immediately after the withdrawal is temporarily reduced to
the initial face amount. However, the death benefit will increase above the
face amount if the cash value exceeds the tabular value after the premium
payment due on the 20th Policy anniversary is paid and monthly charges are
deducted.
- -------------------------------------------------------------------------------
If you have a Policy with the Option 2 death benefit and you request a
portion of the cash value, unless you specify that you wish a partial
surrender only, the request will be treated as a partial withdrawal first. Any
portion of the cash value requested that cannot be provided by means of a
partial withdrawal will be supplied by means of a partial surrender. In this
way your Surrender Charge costs will be minimized.
If you have a Policy with the Option 1 death benefit, you may make a partial
withdrawal only if the death benefit has increased above the face amount to
satisfy tax law requirements. The amount you may withdraw is limited to the
cash value, less the face amount multiplied by the net single premium per $1
of death benefit at the insured's current age. If there is a Policy loan
outstanding, the partial withdrawal will also be limited to prevent the Policy
loan plus accrued interest from exceeding the Policy's loan value. (See "Loan
Provision".) A partial withdrawal under a Policy with the Option 1 death
benefit will reduce the Policy's death benefit (but not below the face amount)
and cash value but will not reduce its face amount or affect its scheduled
premium level. A partial withdrawal under a Policy with the Option 1 death
benefit will always reduce the death benefit by more than the cash value is
reduced. No Surrender Charge will apply.
- -------------------------------------------------------------------------------
EXAMPLE: Using the Policy with $214,986 face amount illustrated on page A-
55, assume that the Policy's premiums have been paid when due and that the
Policy's sub-accounts have earned constant hypothetical gross annual rates of
return of 0%, 6% and 12%. These hypothetical rates are illustrative only and
may not reflect the rates of return you would realize under the Policy. The
amount available for withdrawal is calculated as of the 20th Policy
anniversary.
At the hypothetical 0% and 6% returns, no portion of the cash value may be
withdrawn.
At the hypothetical 12% return, before the premium payment on the 20th
Policy anniversary, the maximum amount that can be withdrawn is as follows:
<TABLE>
<S> <C>
(1) Cash
Value at the 20th anniversary, before premium payment..... $197,857
(2) Net Single Premium per $1 at age 60....................... .4627826819
(3) Face Amount X .4627826819................................. $99,492
(4) Maximum Withdrawal = (1) - (3)............................ $98,365
</TABLE>
The death benefit immediately after the withdrawal is temporarily reduced to
the initial face amount. However, the premium payment due on the 20th Policy
anniversary increases the death benefit above the face amount in order to
satisfy Federal tax law requirements.
- -------------------------------------------------------------------------------
The total number of partial surrenders and partial withdrawals you may make
in one Policy year is limited to four, unless NELICO consents to more. You
should be aware that amounts withdrawn may not be reinvested in the Policy
except as scheduled premiums or unscheduled payments, which are subject to the
charges described under "Deductions From Premiums and Unscheduled Payments",
and which can only be made during the Premium Paying Period under the Policy.
A-28
<PAGE>
A partial withdrawal or partial surrender will reduce the Policy's cash
value in the sub-accounts in proportion to the amount of cash value in each,
unless you request otherwise. The amount of net cash value paid upon partial
surrender or partial withdrawal will be determined as of the date when a
request conforming to NELICO's administrative procedures is received at
NELICO's Home Office. NELICO's administrative procedures can be determined by
contacting your registered representative or the Home Office.
A death benefit reduction may cause a Policy to become a "modified endowment
contract". If you are contemplating a partial surrender or partial withdrawal,
you should consult your tax advisor regarding the tax consequences of the
transaction. (See "Tax Considerations".)
REDUCTION IN FACE AMOUNT
The Policies offer a feature (in states where it has been approved by the
state insurance department) that allows you to reduce the face amount of your
Policy without receiving a distribution of any of the Policy's cash value.
This feature differs from a partial surrender in that a partial surrender
causes part of the Policy's cash value to be distributed to you.
If you decrease the face amount of your Policy, the premiums and tabular
cash value will also be decreased. Your Policy's actual cash value will not be
reduced except by the amount of any applicable Surrender Charge. Generally,
the Policy's death benefit will be decreased. However, if the death benefit at
the time you elect a face amount reduction is being determined by dividing the
cash value by the net single premium per dollar of death benefit, the death
benefit will not be decreased unless a Surrender Charge was deducted from the
cash value in connection with the face amount reduction. Any rider benefits
attached to the Policy may also have to be decreased. The face amount
remaining after a reduction will have to meet NELICO's minimum face amount
requirements for issue, except with NELICO's consent.
A face amount reduction will take effect as of the date when NELICO has
received a request at its Home Office meeting NELICO's administrative
requirements. You can determine NELICO's administrative requirements by
contacting your registered representative or the Home Office.
A death benefit reduction may cause a Policy to become a "modified endowment
contract". (See "Tax Considerations".)
ACCELERATION OF DEATH BENEFIT RIDER
NELICO may offer in the future a rider benefit that will allow you to
receive an accelerated payment of your Policy's death benefit. This advance
payment of the death benefit will be available where certain special needs
exist, as described briefly below. The right to exercise the rider will be
subject to certain conditions contained in the rider.
NELICO WILL MAKE THE ACCELERATED BENEFITS RIDER AVAILABLE TO YOU ONLY IF:
(1) YOUR STATE INSURANCE DEPARTMENT HAS APPROVED THE RIDER, AND (2) NELICO
BELIEVES THAT THE RIDER WILL MEET THE DEFINITION OF AN ACCELERATED DEATH
BENEFIT FOR FEDERAL INCOME TAX PURPOSES AND (3) NELICO BELIEVES THAT THE
AVAILABILITY OF THE RIDER WILL NOT JEOPARDIZE THE QUALIFICATION OF THE POLICY
AS LIFE INSURANCE UNDER FEDERAL INCOME TAX LAW.
If the accelerated benefits rider is offered, it is expected to provide that
if the insured is diagnosed as terminally ill, as defined in the rider, you
may request an accelerated payment of the Policy's death benefit. The payment
may be subject to discounting and charges. Payment will be subject to evidence
satisfactory to NELICO.
See "Tax Considerations", below, for a discussion of the tax consequences
associated with the accelerated benefits rider.
INVESTMENT OPTIONS
You may allocate your Policy's scheduled premiums and unscheduled payments
among the sub-accounts of the Variable Account in any combination. The Policy
provides that a minimum of 10% of the premium or payment must be allocated to
each sub-account selected and that percentages allocated must be in whole
numbers; currently, however, NELICO is waiving the requirement of a 10%
minimum and will permit any whole percentage to be allocated to a sub-account.
Your Policy's cash value may be distributed among no more than ten accounts
(including the Fixed Account) at any one time.
A-29
<PAGE>
You will make the initial allocation when you apply for a Policy. You may
change the allocation of future premiums and payments at any time thereafter.
The change will be effective for scheduled premiums due and unscheduled
payments applied after the date when NELICO receives your request. You may
request the change by telephone or by written request in a form satisfactory
to NELICO. (See "Receipt of Communications and Payments at NELICO's Home
Office.")
See "Transfer Option" below for information on how to request a transfer or
reallocation by telephone.
TRANSFER OPTION
After the Right to Return the Policy period, the Policy provides that you
may transfer your Policy's cash value between sub-accounts up to four times in
a Policy year without NELICO's consent. NELICO currently allows 12 sub-account
transfers per Policy year. All sub-account transfer requests made at the same
time will be treated as a single request. The transfer will be effective as of
the date when NELICO receives the transfer request at its Home Office. (See
"Receipt of Communications and Payments at NELICO's Home Office".) For special
rules regarding transfers involving the Fixed Account, see "The Fixed
Account". Your Policy's cash value may be distributed among no more than ten
accounts (including the Fixed Account) at any one time.
You may request a sub-account transfer or reallocation of future premiums by
written request (which may be telecopied) to NELICO's Home Office or by
telephoning NELICO. To request a transfer or reallocation by telephone, you
should contact your registered representative or contact NELICO at 1-800-200-
2214. Requests for transfers (up to NELICO's current limit per Policy year) or
reallocations by telephone will be automatically permitted. NELICO will use
reasonable procedures such as requiring certain identifying information from
the caller, tape recording the telephone instructions, and providing written
confirmation of the transaction, in order to confirm that instructions
communicated by telephone are genuine. Any telephone instructions reasonably
believed by NELICO to be genuine will be your responsibility, including losses
arising from any errors in the communication of instructions. As a result of
this policy, you will bear the risk of loss. If NELICO does not employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, it may be liable for any losses due to unauthorized or fraudulent
instructions.
SUBSTITUTION OF INSURED PERSON
Subject to state insurance department approval, NELICO offers a rider
benefit under certain Policies that will allow you to substitute the insured
person under your Policy, if you provide satisfactory evidence that the person
proposed to be insured is insurable. The right to substitute the insured
person is subject to certain restrictions and may also result in a cost or
credit to you. If there is an increase in the Policy's tabular cash value as a
result of substituting the insured, you may be required to make an unscheduled
payment, which will be accepted even if the Policy is beyond the Premium
Paying Period. The rider permits substitution of the insured for those
Policies which have the rider. This rider may not be approved in every state
and therefore may not be available in every state. Your registered
representative can provide current information on the availability of the
rider. Since substituting the insured person may be a taxable event, you
should consult your tax advisor before substituting the insured person under
your Policy.
PAYMENT OF PROCEEDS
NELICO will ordinarily pay any net cash value, loan value or death benefit
proceeds from the sub-accounts within seven days after receipt at the Home
Office of a request, or proof of death of the insured, in a form satisfactory
to NELICO. (See "Receipt of Communications and Payments at NELICO's Home
Office".) However, NELICO may delay payment (except when a loan is made to pay
a premium to NELICO) or transfers from the sub-accounts: (i) if the New York
Stock Exchange is closed for other than weekends or holidays, or if trading on
the New York Stock Exchange is restricted, (ii) if the SEC determines that a
state of emergency exists that makes payments or sub-account transfers
impractical, or (iii) at any other time when the Eligible Funds or the
Variable Account have the legal right to suspend payment. NELICO may withhold
payment of surrender or loan proceeds to the extent that those proceeds are
derived from a Policy Owner's check, or from a Master Service Account premium
transaction, which has not yet cleared. In those cases, NELICO will process
the surrender or loan to the extent of Policy values for which the Policy
Owner has made full payment. The balance of the surrender or loan proceeds
will be paid when the Policy Owner's check, or the Master Service Account
premium transaction, has cleared.
A-30
<PAGE>
NELICO may also delay payment if it considers whether to contest the Policy.
NELICO will pay interest on the death benefit proceeds from the date they
become payable to the date they are paid in one sum or, if a payment option
was selected, to the effective date of the option. (See "Payment Options".)
Death benefit proceeds may be paid pursuant to NELICO's Access Plus program.
If the Access Plus program is elected, an Access Plus account will be
established at State Street Bank & Trust Company at the time that death
benefit proceeds are payable. The Access Plus account provides convenient
access to proceeds, which are maintained in MetLife's general account, through
checkbook privileges with State Street. A beneficiary may elect to have death
benefit proceeds paid through the Access Plus program at any time prior to the
payment of death benefit proceeds.
Payments of net cash value, or of any loan value available, under a fixed-
benefit lapse option or from cash value in the Fixed Account will normally be
paid promptly. However, NELICO has the right to delay such payments for up to
six months from the date of the request. NELICO will pay interest in
accordance with state insurance law requirements on payments that are delayed.
EXCHANGE OF POLICY DURING FIRST 24 MONTHS
During the first 24 months after the issue date of the Policy, if the Policy
has not lapsed, you may exchange it for a comparable fixed-benefit life
insurance policy issued by NELICO or MetLife, as described below. If you
exercise this option, you will have to make up any investment loss you had
under the variable life insurance policy.
The exchange will be made without evidence of insurability. The new policy
will have the same face amount, policy date, issue age and risk classification
for the insured as the variable life Policy had. For Policies issued in New
York, you have the option of exchanging for a new, fixed-benefit policy with a
face amount equal to the current death benefit of the exchanged Variable Life
Policy. Premiums for the new policy will be based on the premium rates for
comparable fixed-benefit life insurance policies issued by NELICO or MetLife
which were in effect on the Policy Date of the original Policy. Any riders to
the original Policy will be attached to the new policy if they are available.
Your Policy may be issued or amended with an endorsement providing for an
exchange right to a fixed benefit policy issued by NELICO (if such a policy
was available on the Policy Date of your variable life Policy), or otherwise,
to a fixed benefit policy issued by MetLife. If your Policy does not have such
an endorsement, the exchange right will be to a fixed benefit policy issued by
MetLife or, at your option, to a fixed benefit policy issued by NELICO if such
a policy was available on the Policy Date of your variable life Policy.
The exchange will be effective on the date when NELICO receives written
notice at its Home Office in a form satisfactory to NELICO, the Policy and
payment to NELICO of any cost to exchange. (See "Receipt of Communications and
Payments at NELICO's Home Office".) The cost to exchange will reflect any
differences in premiums and cash values between the two policies. Any policy
loan outstanding must be repaid on or before the effective date of the
exchange.
For a Policy issued in connection with certain group or sponsored
arrangements, you may (if approved in your state) have the additional option
of exchanging at any time during the first 36 months after the Policy's issue
date, if the Policy has not lapsed, to a fixed-benefit term life insurance
policy issued by NELICO or an affiliate. The terms and conditions applicable
to the 24 month exchange option will also be applicable to this option. If
your Policy has this feature, upon surrender of the Policy in the first 36
months, you will receive the greater of the Policy's net cash value and the
value which you would receive upon exercise of the exchange to term insurance
option.
PAYMENT OPTIONS
The Policy's death benefit and net cash value will be paid in one sum,
unless the Policy Owner or payee chooses to put all or part of the proceeds
under a payment option. You can choose a combination of payment options. The
selection of a payment option and the naming of a payee must be in written
form satisfactory to NELICO. You can make, change or revoke the selection
before the death of the insured. The payment options available are fixed
benefit options only; therefore, proceeds applied to an option will no longer
be affected by the
A-31
<PAGE>
investment experience of the Variable Account. The guaranteed mortality
assumptions used in determining payment levels under the options will not vary
based on sex. (For Policies issued in New York and Oregon, however, and which
are not issued for use in connection with certain employee benefit plans and
fringe benefit programs, the mortality assumptions will vary based on sex. See
"Group or Sponsored Arrangements".) Once payments under an option begin,
withdrawal rights may be restricted.
The following payment options are available:
(i) INCOME FOR A SPECIFIED NUMBER OF YEARS. Proceeds are paid in equal
monthly installments for up to 30 years, with interest at a rate not
less than 3.5% a year, compounded yearly. Additional interest paid by
NELICO for any year will be added to the monthly payments for that year.
(ii) LIFE INCOME. Proceeds are paid in equal monthly installments (i) during
the life of the payee, (ii) for the longer of the life of the payee or
10 years, or (iii) for the longer of the life of the payee or 20 years.
(iii) LIFE INCOME WITH REFUND. Proceeds are paid in equal monthly
installments during the life of the payee. At the payee's death, any
unpaid proceeds remaining are paid either in one sum or in equal
monthly installments until the total proceeds have been paid.
(iv) INTEREST. Proceeds are held for the life of the payee or another agreed
upon period. Interest of at least 3.5% a year is paid monthly or added
to the principal annually. At the death of the payee, or at the end of
the period agreed to, the balance of principal and any interest will be
paid in one sum.
(v) SPECIFIED AMOUNT OF INCOME. Proceeds plus accrued interest of at least
3.5% a year are paid in an amount and at a frequency elected until total
proceeds have been paid. Any amounts unpaid at the death of the payee
will be paid in one sum.
(vi) LIFE INCOME FOR TWO LIVES. Proceeds will be paid in equal monthly
installments (i) while either of two payees is living, (ii) for the
longer of the surviving payee or 10 years, or (iii) while the two
payees are living and, after the death of one payee, two-thirds of the
monthly amount for the life of the surviving payee will be paid.
NELICO's consent to use of an option is required if the installment payments
would be less than $20.
ADDITIONAL BENEFITS BY RIDER
A Policy can include additional benefits provided by rider to the Policy,
subject to NELICO's underwriting and issuance standards. These additional
benefits usually require an additional premium. The rider benefits available
with the Policies provide fixed benefits that do not vary with the investment
experience of the Variable Account.
There may be circumstances in which it will be to your economic advantage to
include a significant portion or percentage of your insurance coverage under a
term rider. In many other circumstances, it may be in your interest to obtain
a Policy without term rider coverage. These circumstances depend on many
factors, including the premium levels and amount and duration of coverage you
choose, as well as the age, sex and risk classification of the insured.
Reductions in or elimination of term rider coverage does not trigger the
imposition of a surrender charge, and use of a term rider generally reduces
sales compensation. Your registered representative can provide you more
information on the uses of term rider coverage.
The following riders are available:
LEVEL TERM INSURANCE, which provides term insurance;
ACCIDENTAL DEATH BENEFIT, which provides additional insurance if death
results from accidental bodily injury;
OPTION TO PURCHASE ADDITIONAL LIFE INSURANCE, which provides the right to
purchase additional insurance on the life of the insured at certain times,
without proof of insurability;
GUARANTEED INCOME BENEFIT RIDER, which provides a monthly income payment
(subject to a $1,000 maximum) directly to the Policy Owner in the event of
the total disability of the insured. The Policy Owner
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must also purchase the Waiver of Scheduled Premiums--Disability of Insured
Rider in order to purchase this rider. (Availability of the rider is subject
to state insurance department approval);
WAIVER OF SCHEDULED PREMIUMS-DISABILITY OF INSURED, which provides for
waiver of scheduled premiums for the total disability of the insured;
WAIVER OF SCHEDULED PREMIUMS-DISABILITY OF APPLICANT, which provides for
waiver of scheduled premiums for the total disability of the applicant;
WAIVER OF SCHEDULED PREMIUMS-DEATH OF APPLICANT, which provides for waiver
of scheduled premiums for a limited period upon the death of the applicant;
WAIVER OF SCHEDULED PREMIUMS-DEATH OR DISABILITY OF APPLICANT, which
provides for waiver of scheduled premiums for a limited period upon the
death or disability of the applicant;
TEMPORARY TERM INSURANCE, which provides for term insurance from the date
of issue to the Policy Date;
CHILDREN'S INSURANCE, which provides for insurance on the life of the
insured's children for a defined period.
Certain riders are available only for sex based Policies. Not all riders may
be available to you and riders in addition to those listed above may be made
available. You should consult your registered representative regarding the
availability of particular riders.
POLICY OWNER AND BENEFICIARY
The Policy Owner is named in the application but may be changed from time to
time. At the death of the Policy Owner, his or her estate will become the
Policy Owner unless a successor Policy Owner has been named. The Policy
Owner's rights (except his right to payment of benefits) as such terminate
when the insured dies.
The beneficiary is also named in the application. The beneficiary of the
Policy may be changed at any time before the death of the insured. The
beneficiary has no rights under the Policy until the death of the insured and
must survive the insured in order to receive the death proceeds. If no named
beneficiary survives the insured, the proceeds will be paid to the Policy
Owner.
A change of Policy Owner or beneficiary must be in written form satisfactory
to NELICO and must be dated and signed by the Policy Owner making the change.
The change will be subject to all payments made and actions taken by NELICO
under the Policy before the signed change form is received by NELICO at its
Home Office.
You may assign (transfer) your rights in the Policy to someone else. An
absolute assignment of the Policy is a change of Policy Owner and beneficiary
to the assignee. A collateral assignment of the Policy does not change the
Policy Owner or beneficiary, but their rights will be subject to the terms of
the assignment. Assignments will be subject to all payments made and actions
taken by NELICO under the Policy before a signed copy of the assignment form
is received at NELICO's Home Office. NELICO will not be responsible for
determining whether or not an assignment is valid. Changing the Policy Owner
or assigning the Policy may have tax consequences. (See "Tax Considerations"
below.)
THE VARIABLE ACCOUNT
The Variable Account was established as a separate investment account of
NELICO on January 31, 1983 under Delaware law and became subject to
Massachusetts law when NELICO changed its domicile to Massachusetts on August
30, 1996. The Variable Account is the funding vehicle for other NELICO
variable life insurance policies in addition to the Policies; these other
policies impose different costs, and provide different benefits, from the
Policies. The Variable Account meets the definition of a "separate account"
under Federal securities laws. The Variable Account is registered with the
Securities and Exchange Commission (the "SEC") as a unit investment trust
under the Investment Company Act of 1940. Registration with the SEC does not
involve supervision by the SEC of the management or investment practices or
policies of the Variable Account. However, both NELICO and the Variable
Account are subject to regulation by the Massachusetts Insurance Commissioner
and to the insurance laws and regulations in every jurisdiction where the
Policies are sold.
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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 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 Midcap Value Sub-Account, which invests in the Goldman Sachs
Midcap Value Series (formerly the Loomis Sayles Avanti Growth Series) of
the Zenith Fund
--The Zenith International Magnum Equity Sub-Account, which invests in the
Morgan Stanley International Magnum Equity Series of the Zenith Fund
--The Equity-Income Sub-Account, which invests in the Equity-Income
Portfolio of the VIP Fund
--The Overseas Sub-Account, which invests in the Overseas Portfolio of the
VIP Fund
--The High Income Sub-Account, which invests in the High Income Portfolio of
the VIP Fund
--The Asset Manager Sub-Account, which invests in the Asset Manager
Portfolio of VIP Fund II
The Zenith Fund is an open-end diversified management investment company,
more commonly known as a mutual fund. The Zenith Fund was established as an
investment vehicle for separate investment accounts of NELICO and of other
life insurance companies. Currently the Zenith Fund is the funding vehicle for
the Variable Account and for separate accounts of NELICO and MetLife that
issue variable annuity contracts.
The VIP Fund and VIP Fund II are open-end, diversified management investment
companies (mutual funds) that serve as the investment vehicles for variable
life insurance and variable annuity separate accounts of various insurance
companies. The VIP Fund and VIP Fund II were organized by Fidelity Management
& Research Company.
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Shares of the Eligible Funds are purchased and sold by the Variable Account
at their net asset value (without a deduction for sales load) determined as of
the close of regular trading on the New York Stock Exchange on each day when
the exchange is open for trading.
The investment objectives of the Eligible Funds' portfolios are described
briefly below. There is, of course, no assurance that these objectives will be
met. A full description of the Eligible Funds, including their investment
objectives and policies, expenses, and the risks of investing in the Eligible
Funds, is contained in the attached Eligible Fund prospectuses, as well as in
the Zenith Fund's Statement of Additional Information, which is referenced in
the Zenith Fund prospectus, and in the Statement of Additional Information for
the VIP Fund and VIP Fund II, which is referenced in those Funds' prospectus.
The investment objectives and policies of certain Eligible Funds are similar
to the investment objectives and policies of other funds that may be managed
by the same sub-adviser. The investment results of the Eligible Funds,
however, may be higher or lower than the results of such other funds. There
can be no assurance, and no representation is made, that the investment
results of any of the Eligible Funds will be comparable to the investment
results of any other fund, even if the other fund has the same sub-adviser.
The Zenith Back Bay Advisors Money Market Series' investment objective is
the highest possible level of current income consistent with preservation of
capital through investment in a managed portfolio of high quality money market
instruments. Money market funds are neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Series will maintain a
stable net asset value of $100 per share.
The Zenith Back Bay Advisors Bond Income Series' investment objective is to
provide a high level of current income consistent with protection of capital.
The Zenith Capital Growth Series' investment objective is long-term growth
of capital through investment primarily in equity securities of companies
whose earnings are expected to grow at a faster rate than the U.S. economy.
The Zenith Westpeak Stock Index Series' investment objective is to provide
investment results that correspond to the composite price and yield
performance of United States publicly traded common stocks. The Series
currently seeks to achieve its objective by attempting to duplicate the
composite price and yield performance of the Standard & Poor's 500 Composite
Stock Price Index.
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 Goldman Sachs Midcap Value Series' investment objective is long-
term capital appreciation. The Series invests, under normal circumstances,
substantially all of its assets in equity securities of companies with public
stock market capitalizations within the range of the market capitalizations of
companies constituting the Russell Midcap Index at the time of investment.
The Zenith Loomis Sayles Small Cap Series' investment objective is long-term
capital growth from investments in common stocks or their equivalent. The
Series invests primarily in stocks of small cap companies with good earnings
growth potential that Loomis Sayles believes are undervalued by the market.
Normally, the Series will invest at least 65% of its assets in companies with
market capitalization in the range of the market capitalization of those
companies which make up the Russell 2000 Index at the time of investment.
The Zenith Loomis Sayles Balanced Series' investment objective is reasonable
long-term investment return from a combination of long-term capital
appreciation and moderate current income. The Series is "flexibly managed" in
that sometimes it invests more heavily in equity securities and at other times
it invests more heavily
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in fixed-income securities. The Series invests at least 25% of its assets in
fixed income securities and, under normal market conditions, more than 50% of
its assets in common stocks.
The Zenith Morgan Stanley International Magnum Equity Series' investment
objective is long-term capital appreciation through investment primarily in
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.
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 stocks, bonds and short-term instruments.
The basic objective of the Policy is to provide benefits which increase in
value when the investment experience of the Policy's sub-accounts is
favorable. Historically, the investment performance of common stocks over the
long term has generally been superior to that of long or short term debt
securities, although common stocks have been subject to more dramatic changes
in value over short periods of time. The Zenith Capital Growth, Zenith Midcap
Value, Zenith Equity Growth, Zenith Venture Value, Zenith Growth and Income,
Zenith Stock Index, Zenith International Magnum Equity or Zenith Small Cap
Sub-Accounts, or the Equity-Income or Overseas Sub-Account, or some
combination of these sub-accounts, may, therefore, be a more desirable
selection for Policy Owners who have a long-term time horizon and/or are
willing to accept such risks of short term fluctuations in value. For a
demonstration of certain of these market trends, see Appendix C: Long Term
Market Trends. Historically, the investment performance of "small cap" stocks
over the long term has generally been superior to stocks of large
capitalization companies, although "small cap" stocks have been substantially
more volatile than "large cap" stocks. Historically, having a small percentage
of a portfolio invested in overseas stocks and the rest in domestic stocks has
produced a portfolio that has less, although still substantial, volatility
than a completely domestic portfolio. Equity investors should recognize that
overseas and "small cap" funds taken alone traditionally involve more risk
than most domestic stock funds.
The performance of various financial markets over shorter periods of time
has sometimes differed from their long term historical results. Short term
interest rates were very high in the late 1970's and early 1980's, but are now
lower. Long term bond values continue to fluctuate and could lose value if
interest rates rise. Common stock prices, which have risen substantially at
times, have also had periods of significant negative returns. Policy Owners
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who seek somewhat greater protection against loss of principal in the short
term than that afforded by a stock fund may prefer the High Income Sub-Account
or the Zenith Bond Income Sub-Account. However, because the High Income
Portfolio invests in higher yielding, lower rated and unrated fixed income
securities (including bonds commonly referred to as "junk" bonds), it has a
higher degree of risk associated with it relative to more conservative fixed
income funds. Those who seek even greater safety of principal may select the
Zenith Money Market Sub-Account, although it is subject to possible rapid
changes in short term interest rates. Those who primarily seek safety of
principal should consider fixed life insurance as an alternative to variable
life insurance.
NELICO guarantees the principal invested in the Fixed Account, although this
guarantee is subject to NELICO's claims paying ability.
You may wish to consider diversifying your investments by allocating the
Policy's cash value among two or more sub-accounts.
Policy Owners may also diversify by selecting the Zenith Managed Sub-
Account, Zenith Balanced Sub-Account or the Asset Manager Sub-Account, since
each generally invests its assets at most times in a combination of bonds,
stocks and short term instruments, in varying proportions depending upon the
investment adviser's evaluation of the economy and financial markets. The
Asset Manager Portfolio has the ability to invest its stock portfolio more
aggressively than the Back Bay Advisors Managed Series. You may also wish to
diversify your cash value by country. The Overseas Sub-Account and Zenith
International Magnum Equity Sub-Account allow you to participate primarily in
companies and economies outside the United States.
The selection of a Policy's sub-accounts is a matter of your own choice and
should depend on your willingness to accept investment risks, the other types
of investments you have and your own assessment of future economic and
financial market conditions.
INVESTMENT MANAGEMENT
The adviser and sub-adviser for each series of the Zenith Fund are listed in
the chart below. TNE Advisers, which is an indirect, wholly-owned subsidiary
of NELICO, CGM and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<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 Income TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Managed TNE Advisers, Inc. Back Bay Advisors, L.P.*
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Westpeak Growth and Income TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Morgan Stanley International TNE Advisers, Inc. Morgan Stanley Asset Management, Inc.
Magnum Equity
Goldman Sachs Midcap Value TNE Advisers, Inc. Goldman Sachs Asset Management
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.**
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
</TABLE>
- --------
* An affiliate of NELICO
** Davis Selected may also delegate any of its responsibilities to Davis
Selected Advisers--NY, Inc., a wholly-owned subsidiary of Davis Selected.
In the case of the Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series, Back Bay Advisors Managed Series, Westpeak Stock Index
Series, Westpeak Growth and Income Series, Goldman Sachs Midcap Value Series
and Loomis Sayles Small Cap Series, TNE Advisers became the adviser on May 1,
1995.
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Prior to that date those series were advised by their current sub-adviser,
except as follows. New England Mutual served as investment adviser to the Back
Bay Advisors Money Market and Back Bay Advisors Bond Income Series until
September 10, 1986 when Back Bay Advisors assumed New England Mutual's
responsibilities under the investment advisory agreements with those Series.
Back Bay Advisors served as investment adviser to the Westpeak Stock Index
Series until August 2, 1993, when Westpeak became the investment adviser. The
Capital Growth Series was managed by Loomis, Sayles until March 1, 1990, when
its Capital Growth Management Division was reorganized into CGM. The Morgan
Stanley International Magnum Equity Series' sub-adviser was Draycott Partners,
Ltd. until May 1, 1997, when Morgan Stanley Asset Management became the sub-
adviser. The Goldman Sachs Midcap Value Series' sub-adviser was Loomis, Sayles
until May 1, 1998, when Goldman Sachs 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 prospectus for the VIP Fund and VIP Fund II attached at the
end of this prospectus and their Statement of Additional Information.
THE FIXED ACCOUNT
A FIXED ACCOUNT OPTION IS AVAILABLE UNDER THE POLICY IN STATES WHERE IT HAS
BEEN APPROVED BY THE STATE INSURANCE DEPARTMENT. THE FIXED ACCOUNT MAY NOT BE
APPROVED BY EVERY STATE INSURANCE DEPARTMENT AND THEREFORE IT MAY NOT BE
AVAILABLE IN EVERY STATE. NELICO IS NOT CURRENTLY SEEKING APPROVAL OF THE
FIXED ACCOUNT IN NEW YORK.
You may allocate net premiums and net unscheduled payments for your Policy,
and may transfer your Policy's cash value, to the Fixed Account, which is part
of NELICO's general account. Because of exemptive and exclusionary provisions
in the Federal securities laws, interests in the Fixed Account have not been
registered under the Securities Act of 1933, and neither the Fixed Account nor
the general account has been registered as an investment company under the
Investment Company Act of 1940. Therefore, neither the Fixed Account, the
general account nor any interests therein are generally subject to the
provisions of these Acts, and NELICO has been advised that the staff of the
SEC does not review disclosures relating to the general account. Disclosures
regarding the Fixed Account may, however, be subject to certain generally
applicable provisions of the Federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
GENERAL DESCRIPTION
NELICO's general account includes all the assets owned by NELICO, other than
the assets in the Variable Account or in any other separate accounts that
NELICO may establish. NELICO has sole discretion over the investment of assets
in the general account, including the Fixed Account. Policy Owners who
allocate cash value to the Fixed Account will not share in the actual
investment experience of the Fixed Account. Instead, NELICO guarantees that
cash values in the Fixed Account will earn interest at an effective annual
rate of at least 4.5%. NELICO may from time to time credit interest at a
higher rate than 4.5%, but it is under no obligation to do so. NELICO declares
the current interest rate for the Fixed Account periodically. Your Policy cash
values that are in the Fixed Account will earn interest daily.
NELICO may vary the way in which it credits interest in the Fixed Account
from time to time. The following is a description of NELICO's current method
for crediting interest to cash value in the Fixed Account. All of your
Policy's cash value in the Fixed Account on a Policy anniversary will earn
interest at the declared annual rate in effect on the anniversary. It will
earn interest at this rate until the next Policy anniversary, when it will be
credited with the current rate declared by NELICO. (Although NELICO's current
practice is to credit your entire Fixed Account cash value on a Policy
anniversary with the most recently declared annual rate until the next
anniversary, NELICO can select any portion, from 0% to 100%, of your Fixed
Account cash value on a Policy anniversary to earn interest
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at the most recently declared rate until the next Policy anniversary.) Any net
premiums or net unscheduled payments allocated or any portion of your Policy's
cash value transferred to the Fixed Account on a date other than a Policy
anniversary will earn interest at NELICO's most recently declared rate until
the next Policy anniversary. The effective interest rate credited at any time
to your cash value in the Fixed Account will be a weighted average of all the
Fixed Account rates for your Policy.
If you select the Fixed Account on the application, your Policy's cash value
will not be allocated to the Fixed Account until the later of 45 days after
the date Part 1 of the application is signed or 10 days after NELICO mails the
Notice of Withdrawal Right. Until then, the net scheduled premium and any net
unscheduled payment will be allocated to the Money Market Sub-Account. (See
"Allocation of Net Premiums" and "Right to Return the Policy".) The cash value
transferred from the Money Market Sub-Account to the Fixed Account will be
credited with NELICO's most recently declared rate of interest as of the date
of the transfer until the next Policy anniversary.
VALUES AND BENEFITS
The Policy's cash value in the Fixed Account reflects the net premiums and
net unscheduled payments allocated to the Fixed Account, net interest credited
to cash value in the Fixed Account, any loans, partial surrenders or partial
withdrawals made from the Fixed Account cash value, charges deducted, and any
transfers of cash value to or from the Variable Account. Charges will be
deducted from the Policy's cash value in the Fixed Account and in the Policy's
sub-accounts in proportion to the amount of the Policy's cash value in each.
(See "Deductions from Cash Value".) A Policy's total cash value will include
its cash value in the Variable Account, its cash value in the Fixed Account,
and any of its cash value held in NELICO's general account (but outside of the
Fixed Account) as a result of a Policy loan.
The amount of the Policy's cash value in the Fixed Account will be taken
into account in the calculation of the Policy's death benefit in the same
manner as the cash value in the Variable Account. The Policy's tabular cash
value will be calculated based on the assumption that the Policy's sub-
accounts earned, and the Fixed Account credited, a 4.5% annual net rate of
return. (See "Death Benefit" and "Tabular Cash Value".)
POLICY TRANSACTIONS
NELICO reserves the right to restrict allocations to the Fixed Account if
the effective annual rate of interest that would apply to the amount allocated
is 4.5%. Otherwise, allocations of net premiums and net unscheduled payments
to the Fixed Account are subject to the same percentage requirements that
apply to the Variable Account. (See "Allocations of Net Premiums".)
Except as described below, amounts in the Fixed Account are subject to the
same rights and limitations regarding premium allocations, transfers, loans,
surrenders and partial withdrawals that apply to amounts in the Variable
Account. (See "Other Policy Features".) The following special rules apply to
transactions involving amounts in the Fixed Account.
TRANSFERS OF AMOUNTS FROM THE FIXED ACCOUNT TO THE VARIABLE ACCOUNT WILL BE
ALLOWED ONLY ONCE IN EACH POLICY YEAR. A TRANSFER OF CASH VALUE FROM THE FIXED
ACCOUNT WILL BE PROCESSED IF NELICO RECEIVES THE TRANSFER REQUEST NO MORE THAN
30 DAYS BEFORE THE POLICY ANNIVERSARY, AND THE TRANSFER WILL BE EFFECTED AS OF
THE DATE THE TRANSFER REQUEST IS RECEIVED AT NELICO'S HOME OFFICE; HOWEVER,
YOU MAY REQUEST A TRANSFER FROM THE FIXED ACCOUNT WITHIN 30 DAYS AFTER A
POLICY ANNIVERSARY IF YOU HAVE NOT REQUESTED SUCH A TRANSFER IN THE 30 DAY
PERIOD BEFORE THE ANNIVERSARY. THE AMOUNT OF CASH VALUE WHICH MAY BE
TRANSFERRED FROM THE FIXED ACCOUNT IS LIMITED TO THE GREATER OF 25% OF THE
POLICY'S CASH VALUE IN THE FIXED ACCOUNT ON THE TRANSFER DATE OR THE AMOUNT OF
CASH VALUE TRANSFERRED FROM THE FIXED ACCOUNT IN THE PRECEDING POLICY YEAR.
Regardless of these limits, if a transfer of cash value from the Fixed Account
would reduce the remaining cash value in the Fixed Account below $100, you may
transfer the entire amount of cash value from the Fixed Account. The total
number of transfers among sub-accounts and from the sub-accounts to the Fixed
Account may not exceed four in one Policy year without NELICO's consent.
NELICO currently allows 12 such transfers per Policy year. Transfers out of
the Fixed Account will not be counted against this limit. NELICO reserves the
right to restrict transfers of cash value into the Fixed Account, if the
effective annual rate of interest that would apply to the amount transferred
is 4.5%.
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Unless you request otherwise, a Policy loan will reduce the Policy's cash
value in the sub-accounts and not the cash value in the Fixed Account. If
there is not enough cash value in the Policy's sub-accounts to provide the
amount of the loan, however, the balance of the loan will be taken from the
cash value in the Fixed Account. All loan repayments will be allocated first
to the outstanding loan balance attributable to the Fixed Account. The amount
removed from the Policy's sub-accounts and the Fixed Account as a result of a
loan will earn interest at not less than 4.5% per year (currently 4.75% per
year), which will be credited annually to the Policy's cash value in the sub-
accounts and the Fixed Account in proportion to the Policy's cash value in
each on the day it is credited.
Unless you request otherwise, partial surrenders and partial withdrawals
will be taken only from the Policy's sub-accounts and not the Fixed Account.
If there is not enough cash value in the Policy's sub-accounts to provide the
full amount requested, the balance of the partial surrender or partial
withdrawal will be taken from the Fixed Account.
NELICO has the right to delay transfers, withdrawals, surrenders, and Policy
loans from the Fixed Account for up to six months. Loans to pay premiums on
policies issued by NELICO will not be delayed.
NELICO'S DISTRIBUTION AGREEMENT
NELICO sells the Policies through agents who are licensed by state insurance
officials to sell NELICO's variable life insurance policies. These agents are
also registered representatives of New England Securities Corporation ("New
England Securities"). New England Securities, a Massachusetts corporation
organized in 1968 and an indirect, wholly-owned subsidiary of NELICO, is
registered with the SEC as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc.
New England Securities, whose principal business address is 399 Boylston
Street, Boston, Massachusetts 02116, serves as the principal underwriter for
the Policies under a Distribution Agreement between NELICO and New England
Securities.
Under the Distribution Agreement, NELICO pays the following sales expenses:
general agent and agency manager's compensation, agents' training allowances,
deferred compensation and insurance benefits of agents, general agents and
agency managers and advertising expenses and all other expenses of
distributing the Policies.
NELICO pays the following commissions and/or service fees to the selling
agent: a maximum of 25% of the scheduled premium paid in the first Policy
year; 5% of scheduled premiums in Policy years two through ten and 2% of
scheduled premiums paid thereafter. Agents receive a commission of 3% of each
unscheduled payment. NELICO pays commissions for substandard risk and rider
premiums, based on its rules in effect at the time of payment. Agents with
fewer than four years of service may be compensated differently. Agents who
meet certain productivity and persistency standards in selling policies issued
by NELICO may be eligible for additional compensation. Non-cash forms of
compensation may also be paid. Sales expenses in any year are not equal to the
deduction for sales load in that year.
New England Securities distributes mutual funds, variable annuity contracts
and variable life insurance policies. It is the principal underwriter for the
Zenith Fund; The New England Variable Account; New England Retirement
Investment Account; New England Variable Annuity Separate Account; and New
England Variable Annuity Fund I. New England Securities also sells interests
in various investment partnerships.
New England Securities may enter into selling agreements with other broker-
dealers registered under the Securities Exchange Act of 1934 whose
representatives are authorized by applicable law to sell variable life
insurance policies. Under the agreements with those broker-dealers, the
commission paid to the broker-dealer on behalf of the registered
representative will not exceed 25% of the scheduled premium in the first
Policy year, 5% in the second through tenth Policy years, 2% in the eleventh
through twentieth Policy years, and 3% of all unscheduled payments. NELICO may
pay certain broker-dealers an additional bonus after the first Policy year on
behalf of certain registered representatives, the maximum amount of which may
equal up to the amount of the basic commission for the particular Policy year.
Commissions will be paid through the registered broker-dealer, which may also
be reimbursed for portions of expenses incurred in connection with the sale of
the Policies.
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
Generally, NELICO can challenge the validity of your Policy or a rider to
your Policy during the insured's lifetime for two years from the date of
issue, based on misrepresentations made in the application. NELICO can
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<PAGE>
challenge the portion of the death benefit resulting from payment of an
underwritten unscheduled payment for two years during the insured's lifetime
from the date the unscheduled payment was received. However, if the insured
dies within two years of the date of issue, NELICO can challenge all or part
of the Policy at any time with respect to misrepresentations in the
application.
MISSTATEMENT OF AGE OR SEX
If the insured's age or sex is misstated in the application, the Policy's
cash value and death benefit will be what the premiums paid and unscheduled
payments made would have purchased, based on the insured's correct age and, if
the Policy is sex-based, on the insured's correct sex.
SUICIDE
If the insured commits suicide within two years from the Policy's date of
issue (or less if required by state law), the death benefit will be limited to
the scheduled premiums paid and unscheduled payments made, reduced by any
outstanding Policy loan plus interest and by any partial withdrawals or
partial surrenders made (or such greater amount required by state law).
TAX CONSIDERATIONS
POLICY PROCEEDS
The following discussion of Federal income tax issues relating to the
Policies is general in nature and is not intended as tax advice. It describes
what NELICO believes is the Federal income tax treatment of the Policies in
the most commonly occurring circumstances and does not reflect the effect of
Federal income taxes in all situations. In addition, there is no guarantee
that the Federal income tax laws and regulations or interpretation of them
will not change. Therefore, NELICO recommends that you consult your own tax
advisor for more complete information and advice.
DEFINITION OF LIFE INSURANCE. Section 7702 of the Internal Revenue Code
defines a life insurance contract for Federal income tax purposes.
The Section 7702 definition can be met if a life insurance contract
satisfies either one of two tests set forth in that section. The manner in
which these tests should be applied to certain features of the Policy is not
directly addressed by Section 7702 or proposed regulations issued under that
section. The presence of these Policy features, the absence of final
regulations, and the lack of other pertinent interpretations of Section 7702,
thus create some uncertainty about the application of Section 7702 to the
Policy.
Nevertheless, NELICO believes that the Policy qualifies as a life insurance
contract for federal income tax purposes. This means that:
. the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
. the Policy Owner should not be considered in constructive receipt of the
cash surrender value, including any increases, unless and until they are
distributed from the Policy.
Because of the absence of final regulations or any other pertinent
interpretations, it, however, is unclear whether substandard risk and
automatic issue Policies or Policies with term riders added will, in all
cases, meet the statutory life insurance contract definition. If a Policy were
determined not to be a life insurance contract for purposes of Section 7702,
such Policy would not provide most of the tax advantages normally provided by
a life insurance contract.
NELICO thus reserves the right to make changes in the Policy if such changes
are deemed necessary to attempt to assure its qualification as a life
insurance contract for tax purposes.
TAXATION OF ACCELERATED BENEFITS RIDER. NELICO believes that payments
received under the accelerated benefits rider it makes available will qualify
as an accelerated death benefit under the Code. (See "Acceleration of
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Death Benefit Rider" for more information regarding the rider.) Pursuant to
the Health Insurance Portability and Accountability Act of 1996, a payment
that is treated as an accelerated death benefit for federal income tax
purposes should be fully excludable from the gross income of the beneficiary,
as long as the beneficiary is the insured under the Policy. If such payments
do not qualify as an accelerated death benefit, their tax treatment would
depend on whether or not the Policy is a modified endowment contract. You
should consult a qualified tax adviser about the consequences of adding this
rider to a Policy or requesting a payment under this rider.
TAX LAW EFFECTS ON CERTAIN PRE-DEATH DISTRIBUTIONS. Section 7702A of the
Code contains provisions affecting the tax treatment of any loan, assignment
or other pre-death distribution from a life insurance policy which is also a
"modified endowment contract" (defined below under "Modified Endowment
Contracts"). Whether a Policy will be classified as a modified endowment
contract will depend upon the amount and timing of payments made under the
Policy.
NON-MODIFIED ENDOWMENT CONTRACTS. For Policies not classified as modified
endowment contracts NELICO believes any Policy loans received under such
Policies will be treated as indebtedness of the owner and will not be treated
as taxable income to you. This assumes that the Policy has not lapsed, been
surrendered or terminated. As a general rule, Policy loan interest is not
deductible under current Federal income tax law.
You may be subject to Federal income tax upon surrender of your Policy if
the net cash surrender value of the Policy is greater than the investment in
the Policy less prior distributions from the Policy that were not taxed. If a
Policy has a Policy loan and is surrendered or lapses, the Policy loan is
treated as a distribution and would be taxable if there is a gain in the
Policy. In that case, the gain in the Policy would be taxable even if the
Policy has no net cash surrender value. If you incur a loss upon the surrender
it is not likely to be deductible for Federal income tax purposes.
Generally, a partial surrender of the Policy will not be taxable to you
unless it is greater than the investment in the Policy less the untaxed
portions of any prior distributions. The Internal Revenue Code does provide,
however, that in certain situations in the first 15 years of the Policy
partial surrenders may be taxable, in whole or in part, if the cash value is
greater than the total investment in the Policy. In this case, an amount may
be taxable even if the amount of the partial surrender is less than the
investment in the Policy. The exercise of an accelerated benefits rider, in
whole or in part, may be treated as a surrender or partial surrender.
MODIFIED ENDOWMENT CONTRACTS. A modified endowment contract is a life
insurance contract which fails to satisfy a "7-pay test". In general, a Policy
will fail to satisfy the 7-pay test if the total amount (both scheduled
premiums and unscheduled payments) paid under the Policy at any time during
the first seven Policy years exceeds the sum of the net level premiums that
would have been paid on or before such time if the Policy provided for paid up
future benefits after the payment of seven level annual premiums. (The amount
of premiums payable under the 7-pay test are calculated based upon certain
assumptions regarding the Policy's earnings and the use of a reasonable
mortality charge. Variable Account investment experience does not affect
whether or not a Policy will become a modified endowment contract.) Riders to
the Policy are considered part of the Policy for purposes of applying the 7-
pay test. A term rider on the insured could cause the Policy to be treated
less favorably for purposes of the 7-pay test. If there is a reduction in the
Policy's future benefits (for example, as a result of a partial surrender,
face amount reduction or partial exercise of the accelerated benefits rider,
or because you allow the Policy to lapse to Paid-Up Insurance) during the
first seven Policy years the 7-pay test will be applied as if the Policy had
originally been issued at the reduced face amount. Any Policy received in
exchange for a modified endowment contract will also be a modified endowment
contract.
Your registered representative can provide you with information about the
maximum amount of scheduled premiums and unscheduled payments which you can
make under your Policy during the first seven policy years and still satisfy
the 7-pay test. This information will be based upon NELICO's current
understanding of the Federal tax law. As is the case with any provision of the
Internal Revenue Code, there is no assurance that the Internal Revenue Service
will agree with NELICO's interpretation. NELICO will monitor any IRS
announcements or rulings concerning compliance with the 7-pay test.
MATERIAL CHANGES. If a "material change" in the benefits or other Policy
terms occurs under a Policy which has satisfied the 7-pay test, the Policy may
be treated as a new Policy entered into on the day on which the material
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change occurred. The Policy will be retested under the 7-pay test, after
making certain adjustments to reflect the Policy's existing cash value. Any
increase in future benefits under the Policy may constitute a material change
if the increase is not due to the payment of premiums necessary to fund the
Policy's lowest death benefit payable in the first seven Policy years, or the
crediting of interest or other earnings with respect to such premiums. A
material change would also occur if certain other Policy changes occurred.
If you do not wish to have the Policy become a modified endowment contract,
you may be required to limit the payment of premiums under the Policy at some
point (or limit your reduction of benefits). This may be the case, when the
insured reaches very high ages, even if no unscheduled payments have been made
for the Policy. The point at which you may have to limit the payment of
scheduled premiums will depend upon the issue age, sex and underwriting class
of the insured, investment experience and the amount of your previous
unscheduled payments. You may limit payment of scheduled premiums by use of
the Special Premium Option, in those situations where it is applicable, or by
allowing the Policy to lapse to paid-up insurance. (See "Special Premium
Option" and "Default and Lapse Options".)
If you exchange your Policy for another life insurance policy, including a
fixed-benefit policy pursuant to the 24 month exchange right, the new
insurance policy should be reviewed to determine how the rules regarding
modified endowment contracts may apply to the new policy. (See "Exchange of
Policy During First 24 Months".)
DISTRIBUTIONS UNDER MODIFIED ENDOWMENT CONTRACTS. If a Policy is a modified
endowment contract, then the following rules will apply to distributions under
such contract:
(a) Distributions will be includible in your gross income to the extent the
cash value of the Policy exceeds your investment in the Policy (i.e. will be
treated as income first).
(b) Loans (including any unpaid interest) are considered distributions even
if the amount borrowed is retained by NELICO as a premium. Your investment in
the Policy will be increased by the amount of any prior loan that was included
in your gross income.
(c) A Policy assignment is treated as a distribution. For example, in a
split dollar insurance plan involving a collateral assignment of the Policy,
the collateral assignment is a distribution which will subject any gain that
accrues in the Policy to taxation.
(d) For purposes of determining the amount of the distribution which is
includible in gross income, all modified endowment contracts issued by NELICO
or its affiliates to the same Policy Owner during any calendar year must be
treated as one modified endowment contract.
(e) Payments under the accelerated benefits rider may be treated as
distributions that are subject to taxation under these rules if the payments
are from a Policy that is a modified endowment contract.
Any taxable distribution will be subject to an additional tax equal to 10%
of the taxable amount of the distribution unless the distribution is:
(a) made on or after the date when you attain age 59 1/2;
(b) is attributable to your becoming disabled; or
(c) is part of a series of substantially equal periodic payments made no
less frequently than annually for your life (or life expectancy) or for the
joint lives (or life expectancies) of you and your beneficiary.
If a Policy becomes a modified endowment contract, distributions made during
the Policy year in which it becomes a modified endowment contract,
distributions in any subsequent Policy year and distributions within two years
before the Policy becomes a modified endowment contract will be subject to the
tax treatment described above. This means that a distribution from a Policy
that is not a modified endowment contract could later become taxable as a
distribution from a modified endowment contract. In addition, regulations or
other interpretations may be issued which will apply similar tax treatment to
other distributions made in anticipation of a Policy becoming a modified
endowment contract.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS. In the case of a pre-death
distribution (including a loan, partial surrender, collateral assignment or
full surrender) from a Policy that is treated as a modified endowment
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contract, a special aggregation requirement may apply for purposes of
determining the amount of the income on the Policy. Specifically, if NELICO or
any of its affiliates issues to the same Policy Owner more than one modified
endowment contract within a calendar year, then for purposes of measuring the
income on the Policy with respect to a distribution from any of those
policies, the income on the policy for all those policies will be aggregated
and attributed to that distribution.
OTHER POLICY OWNER TAX MATTERS. Federal and state estate, inheritance and
other tax consequences of ownership or receipt of proceeds under the Policy
depend upon the individual circumstances of each Policy Owner or beneficiary.
Section 817(h) of the Code requires the investments of the Variable Account
to be "adequately diversified" in accordance with Treasury Regulations for the
Policy to qualify as a life insurance contract under Section 7702 of the Code.
Failure to comply with the diversification requirements may result in not
treating the Policy as life insurance. If the Policy does not qualify as life
insurance, you may be subjected to immediate taxation on the incremental
increases in cash value of the Policy plus the cost of insurance protection
for the year. Regulations specifying the diversification requirements have
been issued by the Department of Treasury, and NELICO believes it complies
fully with such requirements.
In connection with the issuance of the diversification regulations, the
Treasury Department stated that it anticipates the issuance of additional
guidance prescribing the circumstances in which an owner's control of the
investments of a separate account may cause a Policy Owner, rather than the
insurance company, to be treated as the owner of the assets in the separate
account. If a Policy Owner is considered the owner of the assets of the
Separate Account, income and gains from the Account would be included in the
Owner's gross income.
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the Internal Revenue Service in
rulings in which it determined that the owners were not owners of separate
account assets. For example, a Policy Owner has additional flexibility in
allocating payments and cash values. These differences could result in the
owner being treated as the owner of a pro rata share of the assets of the
Separate Account. In addition, NELICO does not know what standards will be set
forth in the additional guidance which the Treasury has stated it expects to
be issued. NELICO therefore reserves the right to modify the Policy as
necessary to attempt to prevent the Policy Owner from being considered the
owner of the assets of the Separate Account.
In the event that a Policy is owned by the trustee under a pension or profit
sharing plan, or similar deferred compensation arrangement, the Federal, state
and estate tax consequences of ownership or receipt of proceeds under the
Policy could differ from the principles stated herein. However, if ownership
of such Policy is transferred from the plan to a plan participant (upon
termination of employment, for example), the Policy will be subject to all of
the rules described above relating to Federal tax treatment, including the
rules regarding modified endowment contracts. Policies owned by the trustee
under the plans described above may be subject to restrictions under ERISA.
You should consult a qualified tax advisor regarding any applicable
requirements of ERISA.
If the Policy is purchased as part of a pension or profit-sharing plan
qualified under Section 401 of the Code, the current cost of insurance for the
net amount at risk is treated as a "current fringe benefit" and is required to
be included annually in the plan participant's gross income. This cost
(generally referred to as the "P.S. 58" cost) is reported to the participant
annually. If the plan participant dies while covered by the plan and the
Policy proceeds are paid to the participant's beneficiary, then the excess of
the death benefit over the cash value will not be subject to Federal income
tax. However, the cash value will generally be taxable to the extent it
exceeds the participant's cost basis in the Policy. The participant's cost
basis will generally include the costs of insurance previously reported as
income to the participant. Special rules may apply if the participant had
borrowed from his cash value or was an owner-employee under the Plan.
There are limits on the amounts of life insurance that may be purchased on
behalf of a participant in a pension or profit-sharing plan. Complex rules, in
addition to those discussed above, apply whenever life insurance is purchased
by a tax qualified plan.
The Policies may be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus plans, tax exempt and nonexempt welfare benefit plans,
retiree medical benefit plans and others. The tax consequences of such plans
may vary depending on the
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particular facts and circumstances of each individual arrangement. Therefore,
if you are contemplating the use of the Policies in any arrangement the value
of which depends in part on its tax consequences, you should be sure to
consult a qualified tax advisor regarding the tax attributes of the particular
arrangement and the suitability of this product for the arrangement. Moreover,
in recent years, Congress has adopted new rules relating to corporate owned
life insurance. Any business contemplating the purchase of a new life
insurance contract or a change in an existing contract should consult a tax
advisor.
NELICO believes that Policies subject to the provisions of the Puerto Rican
tax law will generally receive similar tax treatment, with certain
modifications, as that described above for Policies subject to the Internal
Revenue Code. For taxable years commencing after July 1, 1995, amounts in the
nature of accelerated death benefits are excluded from gross income. The
individual must be certified by a physician as terminally ill and prior
approval of the Secretary of the Treasury must be obtained. You should note
that Policies governed by the Puerto Rican tax law are not currently subject
to the above-described rules regarding modified endowment contracts. If such a
Policy becomes subject to the Internal Revenue Code, however, the rules
regarding modified endowment contracts will apply, and they may apply
retroactively. You should consult your tax advisor if a Policy governed by the
Puerto Rican tax law subsequently becomes subject to the Internal Revenue
Code.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Policy could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted,
would adversely modify the federal taxation of this Policy. It is possible
that any legislative change could be retroactive (that is, effective prior to
the date of the change). A tax advisor should be consulted with respect to
legislative developments and their effect on the Policy.
CHARGE FOR NELICO'S INCOME TAXES
Under current Federal income tax law no tax is imposed on NELICO as a result
of the operations of the Variable Account. Thus, no charge is being made
currently to the Variable Account for company Federal income taxes, except for
the charge for federal taxes that is deducted from scheduled premiums and
unscheduled payments. NELICO reserves its rights to charge the Variable
Account for company Federal income taxes in the future.
Under current laws NELICO may incur state and local taxes (in addition to
premium taxes) in several states. At present these taxes are not significant
and, accordingly, NELICO is not currently making a charge for them. If they
increase, however, charges for such taxes attributable to the Variable Account
may be made.
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<PAGE>
MANAGEMENT
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
DIRECTORS OF NELICO
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<C> <S>
James M. Benson President and Chief Executive Officer of NELICO
since 1998; formerly, President and Chief
Operating Officer 1997-1998 of NELICO; President
and CEO 1996-1997 of Equitable Life Assurance
Society and COO of Equitable Companies, Inc.;
Senior Vice President 1993-1996 of Equitable
Life Assurance Society.
Susan C. Crampton Director of NELICO since 1996 and serves as
127 Tarbox Road Principal of The Vermont Partnership, a business
Jericho, VT 05465 consulting firm located in Jericho, Vermont
since 1989; formerly, Director 1989-1996 of New
England Mutual.
Edward A. Fox Director of NELICO since 1996 and Chairman of the
RR Box 67-15 Board of SLM Holdings since 1997; formerly,
Harborside, ME 04642 Director 1994-1996 of New England Mutual and
Dean 1990-1994 of The Amos Tuck School of
Business Administration at Dartmouth College.
George J. Goodman Director of NELICO since 1996 and author,
Adam Smith's Money World television journalist, and editor.
50th Floor, Craig Drill
Capital
General Motors Building
767 Fifth Street
New York, NY 10153
Dr. Evelyn E. Handler Director of NELICO since 1996; formerly Director
74 Tater Street 1987-1996 of New England Mutual and Executive
Mont Vernon, NH 03057 Director and Chief Executive Officer 1994-1997
of the California Academy of Sciences and
Research Fellow and an Associate 1991-1994 of
the Graduate School of Education at Harvard
University and a Senior Fellow at The Carnegie
Foundation for the Advancement of Teaching.
Philip K. Howard, Esq. Director of NELICO since 1996 and Partner of the
Howard, Darby & Levin law firm of Howard, Darby & Levin in New York
1330 Avenue of the City.
Americas
New York, NY 10019
Harry P. Kamen Director of NELICO since 1996 and Chairman of
Metropolitan Life Metropolitan Life Insurance Company since 1998;
One Madison Avenue formerly, Chairman and Chief Executive Officer
New York, NY 10010 1997-1998; Chairman, President, and Chief
Executive Officer 1995-1997 and Chairman and CEO
1993-1995 of Metropolitan Life.
Terence Lennon Director of NELICO since 1996 and Senior Vice
Metropolitan Life President of Metropolitan Life Insurance Company
One Madison Avenue since 1994; formerly, Assistant Deputy
New York, NY 10010 Superintendent and Chief Examiner 1984-1994 of
the New York Insurance Department.
Bernard A. Leventhal Director of NELICO since 1996; formerly, Vice
Burlington Industries Chairman of the Board of Directors 1995-1998 of
1345 Avenue of the Burlington Industries, Inc.; President since
Americas 1978 and Corporate Group Vice President since
New York, NY 10105 1985 and Director since 1990 of Burlington
Menswear Division.
Thomas J. May Director of NELICO since 1996 and Chairman,
Boston Edison Company President and Chief Executive Officer of Boston
800 Boylston Street Edison Company since 1994; formerly, Director
Boston, MA 02199 1994-1996 of New England Mutual; President and
Chief Operating Officer 1993-1994 of Boston
Edison Co.
</TABLE>
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<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 and Senior Executive
Metropolitan Life Vice 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 and President of
United Timber Corp. United Timber Corp. of Dixfield, Maine; formerly,
P.O. Box 650 Director 1990-1996 of New England Mutual.
Pine Street
Dixfield, ME 04224
Alexander B. Trowbridge Director of NELICO since 1996 and President of
Trowbridge Partners Inc. Trowbridge Partners, Inc. in Washington, DC;
1317 F Street, NW, formerly, Director 1983-1996 of New England Mutual.
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>
James M. Benson See Directors above.
David W. Allen Senior Vice President of NELICO since 1996;
formerly, Senior Vice President 1994-1996 and Vice
President 1990-1994 of New England Mutual.
Thom A. Faria President, Career Agency System (a business unit of
NELICO) since 1996; formerly, Executive Vice
President in 1996, Senior Vice President 1993-1996
of New England Mutual.
Anne M. Goggin Senior Vice President and Associate General Counsel
of NELICO since 1997; formerly, Vice President and
Counsel of NELICO in 1996, Vice President and
Counsel 1994-1996 and Second Vice President and
Counsel 1988-1994 of New England Mutual.
Daniel D. Jordan Second Vice President, Counsel and Secretary since
1996; formerly, Counsel and Assistant Secretary
1990-1996 of New England Mutual.
Richard D. Keidan Senior Vice President of NELICO since 1996;
formerly, Vice President 1994-1996 of Metropolitan
Life (Chief Marketing Officer of MetLife Brokerage)
and Regional Sales and Marketing Manager 1989-1994
of Phoenix Home Life.
Alan C. Leland, Jr. Senior Vice President of NELICO since 1996;
formerly, Vice President 1984-1996 of New England
Mutual.
Bruce C. Long President, New England Annuities (a business unit of
NELICO) since 1996; formerly, President 1994-1996
New England Annuities (a business unit of New
England Mutual) and Senior Vice President in 1994
of New England Annuities; Vice President 1992-1994
of Keyport Life Insurance.
George J. Maloof Senior Vice President of NELICO since 1996;
formerly, Vice President 1991-1996 of New England
Mutual.
Thomas W. McConnell Senior Vice President of NELICO since 1996 and
Director, Chief Executive Officer and President of
New England Securities Corporation since 1993;
formerly, National Sales Manager 1993 of Alliance
Fund Distributors; National Sales Manager 1992-1993
of Equitable Capital Securities.
Thomas W. Moore Senior Vice President of NELICO since 1996;
formerly, Vice President 1990-1996 of New England
Mutual.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<C> <S>
Robert W. Powell President, Life Brokerage (a business unit of NELICO)
since 1996; formerly, Officer-In-Charge 1994-1996 of
MetLife Brokerage (a subsidiary of Metropolitan Life
Insurance Company) and Marketing Vice President 1988-
1994 of MetLife.
Richard A. Robinson Second Vice President and chief accounting officer of
NELICO since 1998; formerly, Second Vice President
1997-1998 of NELICO; Manager of Life Insurance
Accounting 1994-1997 and Chief Accountant 1992-1994
of Liberty Life Assurance Company.
Robert E. Schneider Executive Vice President and Chief Financial Officer
of NELICO since 1996; formerly, Director, Executive
Vice President and Chief Financial Officer 1993-1996
and Executive Vice President and Chief Financial
Officer 1990-1993 of New England Mutual.
John G. Small, Jr. President, New England Services (a business unit of
NELICO) since 1997; formerly, Senior Vice President
1996-1997 of NELICO and Senior Vice President 1990-
1996 of New England Mutual.
Ellen D. Sullivan Senior Vice President and Associate General Counsel of
NELICO since 1997; formerly, Vice President and
Counsel in 1996 of NELICO; Vice President and Counsel
1994-1996 and Second Vice President and Counsel 1985-
1994 of New England Mutual.
H. James Wilson Executive Vice President and General Counsel of NELICO
since 1996; formerly, Executive Vice President and
General Counsel 1993-1996, Senior Vice President and
General Counsel 1992-1993 of New England Mutual.
John W. Wright President, New England Employee Benefits Group (a
business unit of NELICO) since 1996; formerly,
President 1993-1996 New England Employee Benefits
Group (a business unit of New England Mutual), Senior
Vice President 1989-1993 of New England Employee
Benefits Group of New England Mutual.
Frederick K. Zimmermann Executive Vice President and Chief Investment Officer
of NELICO since 1996; formerly, Executive Vice
President and Chief Investment Officer 1993-1996 and
Senior Vice President--Investments 1989-1993 of New
England Mutual.
</TABLE>
The principal business address for each of the directors and officers is the
same as NELICO's except where indicated otherwise.
Like all financial services providers, NELICO utilizes systems that may be
affected by Year 2000 transition issues and it relies on a number of third
parties, including banks, custodians, and investment managers, that also may
be affected. NELICO and its affiliates have developed, and are in the process
of implementing, a Year 2000 transition plan, and are confirming that their
service providers are also so engaged. The resources that are being devoted to
this effort are substantial. It is difficult to predict with precision whether
the amount of resources ultimately devoted, or the outcome of these efforts,
will have any negative impact on NELICO. However, as of the date of this
prospectus, it is not anticipated that Owners will experience negative effects
on their investment, or on the services provided in connection therewith, as a
result of Year 2000 transition implementation. NELICO currently anticipates
that its systems will be Year 2000 compliant on or about December 31, 1998,
with systems testing and compliance verification to follow. There can,
however, be no assurance that the other service providers have anticipated
every step necessary to avoid any adverse effect on the Variable Account
attributable to Year 2000 transition.
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<PAGE>
VOTING RIGHTS
NELICO is the legal owner of the Eligible Fund shares held in the Variable
Account and has the right to vote those shares at meetings of the Eligible
Fund shareholders. However, to the extent required by applicable Federal
securities law, NELICO will give you, as Policy Owner, the right to instruct
NELICO how to vote the shares that are attributable to your Policy.
The Policy Owners who are entitled to give voting instructions and the
number of shares attributable to their Policies will be determined as of the
record date for the meeting. All Eligible Fund shares held in any sub-account
of the Variable Account, or in any other registered (or to the extent voting
privileges are granted by the issuing insurance company, unregistered)
separate account of NELICO or an affiliate, and for which timely instructions
are not received, will be voted in the same proportion as (i) the aggregate
cash value of policies giving instructions, respectively, to vote for,
against, or withhold votes on a proposition, bears to (ii) the total cash
value in that sub-account for all policies for which voting instructions are
received. No voting privileges apply to Policies continued under a fixed-
benefit lapse option or with respect to cash value removed from the Variable
Account as a result of a policy loan.
All Zenith Fund shares held by the general account (or any unregistered
separate account for which voting privileges were not extended) of NELICO or
its affiliates will be voted in the same proportion as the total of (i) shares
for which voting instructions were received and (ii) the shares that are voted
in proportion to such voting instructions.
The SEC requires the Eligible Fund Boards of Trustees to monitor events to
identify conflicts that may arise from the sale of Eligible Fund shares to
variable life and variable annuity separate accounts of affiliated and, if
applicable, unaffiliated insurance companies. Conflicts could arise as a
result of changes in state insurance law or Federal income tax law, changes in
investment management of any portfolio of the Eligible Funds, or differences
in voting instructions given by variable life and variable annuity contract
owners, for example. If there is a material conflict, the Board of Trustees
will have an obligation to determine what action should be taken, including
the removal of the affected sub-accounts from the Eligible Fund(s), if
necessary. If NELICO believes any Eligible Fund action is insufficient, NELICO
will consider taking other action to protect Policy Owners. There could,
however, be unavoidable delays or interruptions of operations of the Variable
Account that NELICO may be unable to remedy.
If required by state insurance authorities, NELICO may disregard voting
instructions if they would require that shares be voted to cause a change in
the investment objectives of the portfolios of the Eligible Funds or to
approve or disapprove an investment advisory or underwriting contract for a
portfolio. In addition, NELICO may disregard voting instructions in favor of
changes, initiated by a Policy Owner or an Eligible Fund's Board of Trustees,
in the investment policy, investment adviser or principal underwriter of the
Eligible Fund portfolio if NELICO (i) reasonably disapproves of the changes
and (ii) in the case of a change in investment policy or investment adviser,
makes a good faith determination that the proposed change is contrary to state
law or is prohibited by state regulatory authorities or that the change would
be inconsistent with a sub-account's investment objectives or would result in
the purchase of securities which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts of
NELICO or of an affiliated life insurance company, which separate accounts
have investment objectives similar to those of the sub-account. If NELICO does
disregard voting instructions, a summary of that action and the reasons for it
will be included in the next semiannual report to Policy Owners.
A-49
<PAGE>
RIGHTS RESERVED BY NELICO
NELICO and its affiliates may change the voting procedures described above,
and may vote Eligible Fund shares in their own right without instructions from
Policy Owners, if the applicable Federal securities laws or regulations or
interpretations of them change. NELICO also reserves the right: (1) to create
new investment accounts; (2) to combine any two or more separate investment
accounts including the Variable Account; (3) to make available additional sub-
accounts of the Variable Account investing in additional Eligible Fund
portfolios or in portfolios of other mutual funds; (4) to invest the assets of
the Variable Account in securities other than Eligible Fund shares or in
shares of a different series of the Eligible Funds as a substitute for such
shares already purchased or as the securities to be purchased in the future,
to withdraw the availability of a series of the Eligible Funds as an
investment option under the Policies, or to transfer assets to NELICO's
general account as permitted by applicable law; (5) to operate the Variable
Account as a management investment company under the Investment Company Act of
1940 or in any other form permitted by law; and (6) to deregister the Variable
Account under the Investment Company Act of 1940 if registration is no longer
required. NELICO will exercise these rights in accordance with applicable law,
including approval of Policy Owners if required. NELICO will notify you if
exercise of any of these rights would result in a material change in the
Variable Account or its investments.
TOLL-FREE NUMBERS
For information about historical values of the Variable Account sub-
accounts, call the toll-free number 1-800-333-2501.
For sub-account transfers, premium reallocations, or Statements of
Additional Information for the Eligible Funds, call the toll-free number 1-
800-200-2214.
You may also call our Client TeleService Center toll-free at 1-800-388-4000
to request current information about your Policy values, to change or update
Policy information such as your address, billing mode, beneficiary or
ownership, or to request Policy loans of less than $25,000. Requests must be
in writing if the Policy is owned by a corporation or a pension trust.
For all other types of Policy changes, please contact your registered
representative.
REPORTS
Annually (except while the Policy is under a fixed lapse option or a
settlement option), NELICO will send you a statement showing your Policy's
death benefit, cash value and any outstanding Policy loan principal. NELICO
will also confirm Policy loans, sub-account transfers, lapses, surrenders and
other Policy transactions when they occur.
You will be sent semiannual reports containing the financial statements of
the Variable Account and the Eligible Funds.
ADVERTISING PRACTICES
NELICO may from time to time receive endorsements of the Policies from
professional organizations. NELICO may refer to or use such endorsements in
advertisements or sales material for the Policies. NELICO may also pay the
professional organization making the endorsement for the use of its customer
or mailing lists in order to distribute promotional materials regarding the
Policies. An endorsement of the Policies by a third party is not necessarily
indicative of the future performance or results which may be obtained by
persons who purchase the Policies.
From time to time, articles discussing the Variable Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited to Lipper Analytical Services, Inc. and
Morningstar, Inc.) may publish their own rankings or performance reviews of
variable contract separate accounts, including the Variable Account.
References to,
A-50
<PAGE>
reprints or portions of reprints of such articles or rankings may be used by
NELICO as sales literature or advertising material and may include rankings
that indicate the names of other variable contract separate accounts and their
investment experience.
Articles and releases, developed by NELICO, the Eligible Funds and other
parties, about the Variable Account or the Eligible Funds regarding individual
Eligible Funds' and fund groups' asset levels and sales volumes, statistics
and analyses of industry sales volume and asset levels, and other
characteristics may appear in various publications. References to or reprints
of such articles may be used in promotional literature for the Policies or the
Variable Account. Such literature may refer to personnel of the advisers, who
have portfolio management responsibility, and their investment style. The
reference may allude to or include excerpts from articles appearing in the
media.
NELICO is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
The advertising and sales literature for the Policies and the Variable
Account may refer to historical, current and prospective economic trends.
In addition, sales literature may be published concerning topics of general
investor interest for the benefit of registered representatives and
prospective Policy Owners. These materials may include, but are not limited
to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by H. James Wilson, General Counsel of NELICO. Sutherland,
Asbill & Brennan LLP, Washington, D.C., has provided advice on certain matters
relating to the Federal securities laws.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. Copies of such additional
information may be obtained from the SEC upon payment of the prescribed fee.
EXPERTS
The financial statements of New England Variable Life Separate Account of
New England Life Insurance Company ("NELICO") (formerly New England Variable
Life Insurance Company) and the consolidated financial statements of NELICO
and subsidiaries as of and for the years ended December 31, 1997 and 1996
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein (whose
reports express unqualified opinions and, with respect to NELICO, includes an
explanatory paragraph referring to the change in the basis of accounting and
the change in corporate organization), and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing. The adjustments that were applied to restate the 1995
financial statements to reflect the effects of the changes for adoption of
generally accepted accounting principles and the changes in corporate
organization have also been audited by Deloitte & Touche LLP.
The statutory statements of operations, surplus, and cash flows of New
England Variable Life Insurance Company and New England Pension and Annuity
Company for the year ended December 31, 1995 (not included herein), have been
incorporated herein in reliance on the reports (which reports include adverse
opinions as to generally accepted accounting principles and unqualified
opinions as to statutory accounting practices prescribed or permitted by the
Insurance Department of the State of Delaware) of Coopers & Lybrand L.L.P.,
independent
A-51
<PAGE>
accountants, given on the authority of that firm as experts in accounting and
auditing. The statutory statements of operations and surplus, and cash flows
of Exeter Reassurance Company, Ltd. for the year ended December 31, 1995 (not
included herein), have been incorporated herein in reliance on the report
(which report includes an adverse opinion as to generally accepted accounting
principles and an unqualified opinion as to conformity with The Insurance Act
1978, amendments thereto and related regulations) of Coopers & Lybrand,
chartered accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated statements of operations, shareholder's equity, and cash
flows of New England Securities Corporation for the year ended December 31,
1995 (not included herein); the statements of operations, changes in
shareholder's equity, and cash flows of TNE Advisers, Inc. for the year ended
December 31, 1995 (not included herein), have been incorporated herein in
reliance on the reports of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing. The
statements of earnings and retained earnings, and cash flows of Newbury
Insurance Company, Limited for the year ended December 31, 1995 (not included
herein), have been incorporated herein in reliance on the report of Coopers &
Lybrand, chartered accountants, given on the authority of that firm as experts
in accounting and auditing.
The statements of operations and changes in net assets of New England
Variable Life Separate Account for the period ended December 31, 1995, have
been incorporated herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Rodney
J. Chandler, F.S.A., M.A.A.A., Second Vice President and Actuary of NELICO, as
stated in his opinion filed as an exhibit to the Registration Statement.
A-52
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS,
CASH VALUES, NET CASH VALUES AND ACCUMULATED SCHEDULED PREMIUMS
The tables in Appendix A illustrate the way the Policies operate. They show
how the death benefit, net cash value and cash value could vary over an
extended period of time assuming hypothetical gross rates of return (i.e.
investment income and capital gains and losses, realized or unrealized) for
the Variable Account equal to constant after tax annual rates of 0%, 6% and
12%. The tables are based on annual scheduled premiums of $4,000 for males
aged 40 and 50. The males aged 40 and 50 are assumed to be in the nonsmoker
standard risk classification. Values are first given based on current
mortality and other Policy charges and then based on guaranteed mortality and
other Policy charges. Each illustration is given first for a Policy with an
Option 1 death benefit and then for a Policy with an Option 2 death benefit.
These tables may assist in the comparison of death benefits, net cash values
and cash values for the Policies with those under other variable life
insurance policies which may be issued by NELICO or other companies.
(Substandard risk Policies and automatic issue Policies have the same basic
scheduled premiums and cost of insurance rates as standard risk Policies but
require an additional premium.)
Death benefits, net cash values and cash values for a Policy would be
different from the amounts shown if the actual gross rates of return averaged
0%, 6% or 12%, but varied above and below that average for the period, if
scheduled premiums were paid at other than annual intervals, or if unscheduled
payments were made. They would also be different depending on the allocation
of cash value among the Variable Account's sub-accounts, if the actual gross
rate of return for all sub-accounts averaged 0%, 6% or 12%, but varied above
or below that average for individual sub-accounts. They would also differ if
any policy loan were made during the period of time illustrated, if the
insured were female or in the smoker standard risk classification, or if the
Policies were issued at unisex rates.
The death benefits, net cash values and cash values shown in the tables
reflect: (i) deductions from annual premiums for the annual administrative
charge, sales charge and state and federal premium tax charge; and (ii) a
monthly deduction (consisting of an administrative charge and a minimum death
benefit guarantee charge) and a charge for the cost of insurance from the cash
value on the first day of each policy month. The net cash values reflect a
surrender charge deducted from the cash value upon surrender, face reduction
or lapse during the first 15 policy years. The death benefits, net cash values
and cash values also reflect a daily charge assessed against the Variable
Account for mortality and expense risks equivalent to an annual charge of .60%
(on a current basis) and .90% (on a guaranteed basis) of the average daily
value of the assets in the Variable Account attributable to the Policies. (See
"Charges and Expenses".) The illustrations are based on an average of the
investment advisory fees and operating expenses incurred by the Eligible
Funds, at an annual rate of .76% of the average daily net assets of the
Eligible Funds. This average reflects voluntary expense cap and expense
deferral arrangements between TNE Advisers and the Zenith Fund under which TNE
Advisers bears operating expenses of the Zenith Fund Series (other than the
Capital Growth Series) that exceed certain amounts. 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 -
1.35%, 4.57% and 10.49%, respectively, based on NELICO's current charge for
mortality and expense risks, and -1.65%, 4.25% and 10.16%, respectively, based
on NELICO's guaranteed maximum charge for mortality and expense risks. (See
"Net Investment Experience".)
The hypothetical rates of return shown in the tables do not reflect any tax
charges attributable to the Variable Account since no such charges are
currently made. If any such charges are imposed in the future, the gross
annual rate of return would have to exceed the rates shown by an amount
sufficient to cover the tax charges, in order to produce the death benefits,
net cash values and cash values illustrated. (See "Charges for NELICO's Income
Taxes".)
A-53
<PAGE>
The second column of each table shows the amount which would accumulate if
an amount equal to the annual premium were invested to earn interest, after
taxes, of 5% per year, compounded annually.
The internal rate of return on net cash value is equivalent to an interest
rate (after taxes) at which an amount equal to the illustrated premiums could
have been invested outside the Policy to arrive at the net cash value of the
Policy. The internal rate of return on the death benefit is equivalent to an
interest rate (after taxes) at which an amount equal to the illustrated
premiums could have been invested outside the Policy to arrive at the death
benefit of the Policy. The internal rate of return is compounded annually, and
the premiums are assumed to be paid at the beginning of each policy year.
NELICO will furnish upon request an illustration reflecting the proposed
insured's age, sex, underwriting classification, and the face amount or
scheduled premium requested. Where applicable, NELICO will also furnish upon
request an illustration for a Policy which is not affected by the sex of the
insured.
A-54
<PAGE>
MALE ISSUE AGE 40
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$214,986 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------- ------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,200 $214,986 $214,986 $214,986 $ 1,477 $ 1,672 $ 1,867 $ 2,985 $ 3,179 $ 3,375 -63.07% -58.20% -53.32%
2 8,610 214,986 214,986 214,986 4,338 4,914 5,513 5,919 6,495 7,094 -34.48 -28.41 -22.40
3 13,240 214,986 214,986 214,986 5,986 7,135 8,378 8,805 9,953 11,197 -30.95 -23.83 -16.92
4 18,102 214,986 214,986 214,986 8,882 10,802 12,963 11,636 13,556 15,717 -22.20 -15.11 -8.24
5 23,208 214,986 214,986 214,986 11,725 14,621 18,013 14,414 17,310 20,702 -17.30 -10.27 -3.47
6 28,568 214,986 214,986 214,986 14,508 18,592 23,570 17,133 21,217 26,195 -14.24 -7.25 -.52
7 34,196 214,986 214,986 214,986 17,216 22,707 29,674 19,777 25,267 32,234 -12.19 -5.24 1.45
8 40,106 214,986 214,986 214,986 19,845 26,968 36,381 22,341 29,464 38,877 -10.74 -3.82 2.85
9 46,311 214,986 214,986 214,986 22,394 31,384 43,759 24,826 33,815 46,190 -9.68 -2.76 3.88
10 52,827 214,986 214,986 214,986 24,858 35,955 51,876 27,225 38,322 54,243 -8.87 -1.95 4.68
15 90,630 214,986 214,986 266,175 38,291 63,850 108,885 38,291 63,850 108,885 -5.86 .77 7.14
20 138,877 214,986 214,986 412,109 49,038 97,009 197,857 49,038 97,009 197,857 -4.94 1.80 8.01
25 200,453 214,986 247,392 605,610 56,596 136,958 336,813 56,596 136,958 336,813 -4.73 2.34 8.41
30 255,835 214,986 257,879 831,385 40,699 162,634 526,733 40,699 162,634 526,733 -5.27 2.64 8.63
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 5,274.68% 5,274.68% 5,274.68%
2 584.82 584.82 584.82
3 238.78 238.78 238.78
4 138.18 138.18 138.18
5 93.22 93.22 93.22
6 68.44 68.44 68.44
7 52.99 52.99 52.99
8 42.54 42.54 42.54
9 35.06 35.06 35.06
10 29.47 29.47 29.47
15 14.80 14.80 17.15
20 8.70 8.70 13.94
25 5.47 6.41 12.08
30 4.10 5.04 10.86
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-55
<PAGE>
MALE ISSUE AGE 40
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$214,986 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------- ------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,200 $214,986 $215,041 $215,220 $ 1,477 $ 1,672 $ 1,867 $ 2,985 $ 3,179 $ 3,374 -63.07% -58.20% -53.33%
2 8,610 214,986 215,121 215,685 4,338 4,913 5,512 5,919 6,495 7,093 -34.48 -28.41 -22.41
3 13,240 214,986 215,229 216,413 5,986 7,134 8,374 8,805 9,952 11,192 -30.95 -23.84 -16.94
4 18,102 214,986 215,363 217,436 8,882 10,800 12,953 11,636 13,554 15,707 -22.20 -15.12 -8.27
5 23,208 214,986 215,525 218,793 11,725 14,618 17,993 14,414 17,307 20,682 -17.30 -10.27 -3.51
6 28,568 214,986 215,715 220,524 14,508 18,587 23,534 17,133 21,212 26,159 -14.24 -7.26 -.56
7 34,196 214,986 215,921 222,661 17,216 22,699 29,612 19,777 25,259 32,172 -12.19 -5.25 1.40
8 40,106 214,986 216,140 225,253 19,845 26,956 36,281 22,341 29,452 38,776 -10.74 -3.83 2.78
9 46,311 214,986 216,375 228,356 22,394 31,367 43,602 24,826 33,798 46,034 -9.68 -2.77 3.81
10 52,827 214,986 216,626 232,029 24,858 35,931 51,639 27,225 38,298 54,006 -8.87 -1.96 4.59
15 90,630 214,986 218,669 263,851 38,291 63,754 107,934 38,291 63,754 107,934 -5.86 .75 7.04
20 138,877 214,986 224,391 408,963 49,038 96,676 196,346 49,038 96,676 196,346 -4.94 1.77 7.94
25 200,453 214,986 246,370 601,326 56,596 136,392 334,430 56,596 136,392 334,430 -4.73 2.31 8.37
30 255,835 214,986 256,813 825,504 40,699 161,962 523,007 40,699 161,962 523,007 -5.27 2.62 8.59
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 5,274.68% 5,276.04% 5,280.50%
2 584.82 585.05 586.01
3 238.78 238.92 239.62
4 138.18 138.30 138.97
5 93.22 93.34 94.04
6 68.44 68.56 69.33
7 52.99 53.11 53.97
8 42.54 42.66 43.62
9 35.06 35.19 36.26
10 29.47 29.60 30.80
15 14.80 14.99 17.05
20 8.70 9.05 13.88
25 5.47 6.38 12.04
30 4.10 5.02 10.82
</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-56
<PAGE>
MALE ISSUE AGE 40
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$214,986 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------- ------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,200 $214,986 $214,986 $214,986 $ 1,416 $ 1,609 $ 1,802 $ 2,924 $ 3,116 $ 3,309 -64.60% -59.79% -54.96%
2 8,610 214,986 214,986 214,986 4,187 4,753 5,343 5,768 6,334 6,924 -36.12 -30.08 -24.08
3 13,240 214,986 214,986 214,986 5,718 6,840 8,058 8,536 9,659 10,876 -32.74 -25.58 -18.63
4 18,102 214,986 214,986 214,986 8,469 10,337 12,444 11,223 13,091 15,198 -23.88 -16.73 -9.81
5 23,208 214,986 214,986 214,986 11,143 13,947 17,239 13,832 16,636 19,929 -18.90 -11.78 -4.91
6 28,568 214,986 214,986 214,986 13,731 17,669 22,481 16,356 20,294 25,106 -15.78 -8.69 -1.86
7 34,196 214,986 214,986 214,986 16,234 21,507 28,215 18,795 24,067 30,776 -13.67 -6.60 .19
8 40,106 214,986 214,986 214,986 18,650 25,463 34,493 21,146 27,959 36,989 -12.16 -5.10 1.66
9 46,311 214,986 214,986 214,986 20,978 29,543 41,372 23,409 31,974 43,803 -11.05 -3.98 2.77
10 52,827 214,986 214,986 214,986 23,211 33,746 48,913 25,578 36,113 51,280 -10.20 -3.12 3.63
15 90,630 214,986 214,986 247,244 34,807 58,705 101,116 34,807 58,705 101,116 -7.18 -.27 6.28
20 138,877 214,986 214,986 368,681 40,438 84,471 176,963 40,438 84,471 176,963 -7.07 .52 7.07
25 200,453 214,986 214,986 520,010 40,694 113,839 289,134 40,694 113,839 289,134 -7.89 .98 7.43
30 255,835 214,986 214,986 676,978 13,671 126,498 428,799 13,671 126,498 428,799 -12.60 1.29 7.61
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 5,274.68% 5,274.68% 5,274.68%
2 584.82 584.82 584.82
3 238.78 238.78 238.78
4 138.18 138.18 138.18
5 93.22 93.22 93.22
6 68.44 68.44 68.44
7 52.99 52.99 52.99
8 42.54 42.54 42.54
9 35.06 35.06 35.06
10 29.47 29.47 29.47
15 14.80 14.80 16.34
20 8.70 8.70 13.06
25 5.47 5.47 11.14
30 4.10 4.10 9.86
</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
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$214,986 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------- ------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,200 $214,986 $214,986 $215,156 $ 1,416 $ 1,609 $ 1,802 $ 2,924 $ 3,116 $ 3,309 -64.60% -59.79% -54.96%
2 8,610 214,986 214,986 215,518 4,187 4,753 5,341 5,768 6,334 6,923 -36.12 -30.08 -24.09
3 13,240 214,986 214,986 216,099 5,718 6,840 8,054 8,536 9,659 10,873 -32.74 -25.58 -18.65
4 18,102 214,986 214,986 216,927 8,469 10,337 12,435 11,223 13,091 15,189 -23.88 -16.73 -9.83
5 23,208 214,986 214,986 218,033 11,143 13,947 17,222 13,832 16,636 19,911 -18.90 -11.78 -4.94
6 28,568 214,986 214,986 219,454 13,731 17,669 22,449 16,356 20,294 25,074 -15.78 -8.69 -1.91
7 34,196 214,986 214,986 221,228 16,234 21,507 28,159 18,795 24,067 30,719 -13.67 -6.60 .14
8 40,106 214,986 214,986 223,397 18,650 25,463 34,400 21,146 27,959 36,896 -12.16 -5.10 1.61
9 46,311 214,986 214,986 226,010 20,978 29,543 41,226 23,409 31,974 43,657 -11.05 -3.98 2.70
10 52,827 214,986 214,986 229,119 23,211 33,746 48,691 25,578 36,113 51,058 -10.20 -3.12 3.55
15 90,630 214,986 214,986 254,367 34,807 58,705 100,018 34,807 58,705 100,018 -7.18 -.27 6.16
20 138,877 214,986 214,986 365,186 40,438 84,471 175,285 40,438 84,471 175,285 -7.07 .52 6.99
25 200,453 214,986 214,986 515,461 40,694 113,839 286,605 40,694 113,839 286,605 -7.89 .98 7.37
30 255,835 214,986 214,986 671,055 13,671 126,498 425,048 13,671 126,498 425,048 -12.60 1.29 7.56
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 5,274.68% 5,274.68% 5,278.91%
2 584.82 584.82 585.73
3 238.78 238.78 239.44
4 138.18 138.18 138.81
5 93.22 93.22 93.88
6 68.44 68.44 69.16
7 52.99 52.99 53.79
8 42.54 42.54 43.43
9 35.06 35.06 36.05
10 29.47 29.47 30.58
15 14.80 14.80 16.65
20 8.70 8.70 12.98
25 5.47 5.47 11.09
30 4.10 4.10 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-58
<PAGE>
MALE ISSUE AGE 50
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$110,165 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------ ------------------------ ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,200 $110,165 $110,165 $110,165 $ 1,789 $ 1,985 $ 2,182 $ 3,014 $ 3,210 $ 3,406 -55.27% -50.37% -45.46%
2 8,610 110,165 110,165 110,165 4,631 5,211 5,815 5,960 6,540 7,144 -31.35 -25.39 -19.47
3 13,241 110,165 110,165 110,165 6,237 7,395 8,649 8,835 9,993 11,247 -29.32 -22.33 -15.50
4 18,103 110,165 110,165 110,165 9,071 11,007 13,188 11,636 13,572 15,753 -21.45 -14.42 -7.58
5 23,208 110,165 110,165 110,165 11,823 14,744 18,168 14,355 17,276 20,700 -17.04 -10.00 -3.19
6 28,568 110,165 110,165 110,165 14,491 18,611 23,640 16,991 21,110 26,139 -14.27 -7.23 -.43
7 34,197 110,165 110,165 110,165 17,073 22,614 29,661 19,539 25,081 32,127 -12.40 -5.34 1.44
8 40,106 110,165 110,165 110,165 19,567 26,763 36,299 22,000 29,196 38,732 -11.07 -3.99 2.80
9 46,312 110,165 110,165 110,165 21,973 31,066 43,633 24,373 33,466 46,033 -10.08 -2.96 3.82
10 52,827 110,165 110,165 112,699 24,285 35,532 51,741 26,652 37,899 54,108 -9.32 -2.17 4.63
15 90,630 110,165 115,053 193,291 37,485 63,694 107,500 37,485 63,694 107,500 -6.15 .74 6.99
20 115,670 110,165 120,009 265,525 29,493 75,685 168,226 29,493 75,685 168,226 -5.54 1.78 7.82
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 2,654.12% 2,654.12% 2,654.12%
2 377.17 377.17 377.17
3 162.27 162.27 162.27
4 94.81 94.81 94.81
5 63.55 63.55 63.55
6 45.97 45.97 45.97
7 34.88 34.88 34.88
8 27.34 27.34 27.34
9 21.92 21.92 21.92
10 17.87 17.87 18.26
15 7.28 7.78 13.63
20 4.63 5.28 11.23
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-59
<PAGE>
MALE ISSUE AGE 50
$4,000 ANNUAL PREMIUM FOR NON-SMOKER
STANDARD UNDERWRITING RISK
$110,165 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------ ------------------------ ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,200 $110,165 $110,227 $110,406 $ 1,789 $ 1,985 $ 2,181 $ 3,014 $ 3,210 $ 3,406 -55.27% -50.37% -45.47%
2 8,610 110,165 110,298 110,865 4,631 5,210 5,812 5,960 6,540 7,141 -31.35 -25.40 -19.50
3 13,241 110,165 110,379 111,569 6,237 7,393 8,639 8,835 9,992 11,238 -29.32 -22.33 -15.55
4 18,103 110,165 110,469 112,550 9,071 11,003 13,165 11,636 13,569 15,730 -21.45 -14.43 -7.65
5 23,208 110,165 110,566 113,842 11,823 14,738 18,121 14,355 17,270 20,653 -17.04 -10.01 -3.27
6 28,568 110,165 110,671 115,485 14,491 18,601 23,553 16,991 21,100 26,052 -14.27 -7.24 -.54
7 34,197 110,165 110,784 117,522 17,073 22,599 29,509 19,539 25,066 31,975 -12.40 -5.36 1.31
8 40,106 110,165 110,905 120,002 19,567 26,741 36,048 22,000 29,174 38,481 -11.07 -4.00 2.64
9 46,312 110,165 111,034 122,978 21,973 31,035 43,233 24,373 33,435 45,633 -10.08 -2.98 3.64
10 52,827 110,165 111,171 126,512 24,285 35,488 51,132 26,652 37,855 53,499 -9.32 -2.19 4.42
15 90,630 110,165 114,803 191,388 37,485 63,556 106,441 37,485 63,556 106,441 -6.15 .72 6.88
20 115,670 110,165 119,748 262,910 29,493 75,520 166,570 29,493 75,520 166,570 -5.54 1.76 7.74
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 2,654.12% 2,655.66% 2,660.16%
2 377.17 377.49 378.83
3 162.27 162.47 163.57
4 94.81 94.98 96.10
5 63.55 63.70 64.93
6 45.97 46.12 47.50
7 34.88 35.03 36.59
8 27.34 27.49 29.25
9 21.92 22.07 24.06
10 17.87 18.02 20.26
15 7.28 7.75 13.52
20 4.63 5.26 11.16
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-60
<PAGE>
MALE ISSUE AGE 50
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$110,165 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------ ------------------------ ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,200 $110,165 $110,165 $110,165 $ 1,721 $ 1,915 $ 2,109 $ 2,946 $ 3,139 $ 3,333 -56.97% -52.13% -47.28%
2 8,610 110,165 110,165 110,165 4,482 5,052 5,646 5,812 6,381 6,975 -32.93 -27.00 -21.10
3 13,241 110,165 110,165 110,165 5,996 7,128 8,357 8,594 9,727 10,956 -30.89 -23.87 -17.03
4 18,103 110,165 110,165 110,165 8,726 10,613 12,743 11,291 13,178 15,308 -22.83 -15.76 -8.90
5 23,208 110,165 110,165 110,165 11,365 14,204 17,538 13,897 16,736 20,071 -18.28 -11.20 -4.35
6 28,568 110,165 110,165 110,165 13,912 17,905 22,789 16,411 20,404 25,288 -15.41 -8.32 -1.48
7 34,197 110,165 110,165 110,165 16,363 21,720 28,545 18,830 24,186 31,012 -13.47 -6.35 .48
8 40,106 110,165 110,165 110,165 18,720 25,657 34,870 21,153 28,090 37,304 -12.08 -4.93 1.91
9 46,312 110,165 110,165 110,165 20,979 29,724 41,834 23,379 32,124 44,234 -11.05 -3.86 2.99
10 52,827 110,165 110,165 110,165 23,137 33,926 49,515 25,504 36,293 51,882 -10.26 -3.02 3.85
15 90,630 110,165 110,165 181,498 34,371 59,482 100,916 34,371 59,482 100,916 -7.35 -.11 6.26
20 115,670 110,165 110,165 236,283 21,201 66,433 149,663 21,201 66,433 149,663 -8.16 .78 6.94
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY ---------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 2,654.12% 2,654.12% 2,654.12%
2 377.17 377.17 377.17
3 162.27 162.27 162.27
4 94.81 94.81 94.81
5 63.55 63.55 63.55
6 45.97 45.97 45.97
7 34.88 34.88 34.88
8 27.34 27.34 27.34
9 21.92 21.92 21.92
10 17.87 17.87 17.87
15 7.28 7.28 12.93
20 4.63 4.63 10.36
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-61
<PAGE>
MALE ISSUE AGE 50
$4,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$110,165 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL HYPOTHETICAL GROSS
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------ ------------------------ ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,200 $110,165 $110,165 $110,335 $ 1,721 $ 1,915 $ 2,108 $ 2,946 $ 3,139 $ 3,333 -56.97% -52.13% -47.29%
2 8,610 110,165 110,165 110,700 4,482 5,052 5,643 5,812 6,381 6,973 -32.93 -27.00 -21.13
3 13,241 110,165 110,165 111,284 5,996 7,128 8,349 8,594 9,727 10,948 -30.89 -23.87 -17.07
4 18,103 110,165 110,165 112,117 8,726 10,613 12,724 11,291 13,178 15,289 -22.83 -15.76 -8.96
5 23,208 110,165 110,165 113,230 11,365 14,204 17,498 13,897 16,736 20,030 -18.28 -11.20 -4.42
6 28,568 110,165 110,165 114,658 13,912 17,905 22,712 16,411 20,404 25,212 -15.41 -8.32 -1.57
7 34,197 110,165 110,165 116,441 16,363 21,720 28,411 18,830 24,186 30,877 -13.47 -6.35 .36
8 40,106 110,165 110,165 118,621 18,720 25,657 34,646 21,153 28,090 37,079 -12.08 -4.93 1.76
9 46,312 110,165 110,165 121,247 20,979 29,724 41,476 23,379 32,124 43,876 -11.05 -3.86 2.82
10 52,827 110,165 110,165 124,371 23,137 33,926 48,960 25,504 36,293 51,327 -10.26 -3.02 3.64
15 90,630 110,165 110,165 179,702 34,371 59,482 99,917 34,371 59,482 99,917 -7.35 -.11 6.14
20 115,670 110,165 110,165 233,946 21,201 66,433 148,182 21,201 66,433 148,182 -8.16 .78 6.87
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
END ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 2,654.12% 2,654.12% 2,658.37%
2 377.17 377.17 378.44
3 162.27 162.27 163.31
4 94.81 94.81 95.87
5 63.55 63.55 64.70
6 45.97 45.97 47.26
7 34.88 34.88 36.35
8 27.34 27.34 28.99
9 21.92 21.92 23.79
10 17.87 17.87 19.97
15 7.28 7.28 12.82
20 4.63 4.63 10.29
</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-62
<PAGE>
APPENDIX B
INVESTMENT EXPERIENCE INFORMATION
The information contained in this Appendix gives hypothetical illustrations
of the Variable Account's and the Policy's investment experience based on the
historical investment experience of the Eligible Funds. It does not represent
what may happen in the future.
The policies were not available until November, 1993. The Zenith Fund and
the Variable Account commenced operations on August 26, 1983. The Westpeak
Stock Index and Back Bay Advisors Managed Series of the Zenith Fund commenced
operations on May 1, 1987. The Westpeak Growth and Income Series and Goldman
Sachs Midcap Value Series of the Zenith Fund commenced operations on April 30,
1993. The Loomis Sayles Small Cap Series commenced operations on May 2, 1994
and was made available under the Policies on December 19, 1994. The remaining
Zenith Fund Series commenced operations on October 31, 1994 and were made
available under the Policies on May 1, 1995. The Equity-Income Portfolio and
Overseas Portfolio of the VIP Fund commenced operations on October 9, 1986 and
January 28, 1987, respectively. They were first made available as investment
options under the Policies on April 30, 1993. The High Income Portfolio of the
VIP Fund and the Asset Manager Portfolio of the VIP Fund II commenced
operations on September 19, 1985 and September 6, 1989, respectively, and were
added as investment options on December 19, 1994. The illustrations are based
on the actual investment experience of the relevant Eligible Funds for the
periods shown (and reflect actual charges and expenses incurred by the
Eligible Funds), and reflect a charge for mortality and expense risks against
the Variable Account's assets at an annual rate of .60%. The illustrations
assume that annual scheduled premiums are paid at the beginning of each year
and that no loans, transfers or other Policy Owner transactions were made
during the periods shown.
VARIABLE ACCOUNT INVESTMENT EXPERIENCE
The Policies are supported by the Variable Account which invests in the
Eligible Funds. The investment experience of the sub-account or sub-accounts
you choose will affect the values and benefits of your Policy.
Many factors in addition to investment experience will affect the actual
values and benefits of your Policy. For instance, these investment experience
figures do not reflect the charges deducted from premiums and monthly
deductions from the cash value. (See "Charges and Expenses".)
NET RATES OF RETURN
The annual net rate of return is the effective earnings rate at which the
investment sub-accounts increased or decreased over a one year period, based
on the investment experience of the relevant Eligible Funds. The rate is
calculated by taking the difference between the sub-accounts' ending values
and beginning values of the period and dividing it by the beginning values of
the period.
The effective annual net rate of return since inception is the annualized
effective interest rate at which the sub-accounts increased or decreased since
the inception dates of the sub-accounts. For each sub-account, the rate is
calculated by taking the difference between the sub-account's ending value and
the value on the date of its inception and dividing it by the value on the
date of inception. This result is the total net rate of return since inception
("Total Return"). The effective annual net rate of return is the rate which,
if compounded annually, would equal the total net rate of return since
inception.
A-63
<PAGE>
SUB-ACCOUNT INVESTING IN ZENITH FUND
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
8/26/83- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/83 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth*. 8.64% -.96% 67.09% 94.04% 51.79% -9.34% 29.98% -4.06% 53.06% -6.61% 14.28% -7.62%
Bond Income..... 2.83% 12.10 18.05 14.15 1.65 7.72 11.63 7.44 17.25 7.53 11.94 -3.94
Money Market.... 3.08% 9.96 7.61 6.16 5.89 6.87 8.60 7.54 5.58 3.18 2.36 3.35
<CAPTION>
8/26/83- 8/26/83-
12/31/97 12/31/97
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Capital Growth*. 37.21% 20.34% 22.74% 1,731.06% 22.46%
Bond Income..... 20.47 3.98 10.23 281.85 9.79
Money Market.... 5.07 4.50 4.71 126.75 5.87
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------
FOR ONE YEAR ENDING
5/1/87- --------------------------------------------------------------
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............................................... -12.55% 15.65% 29.37% -4.72% 29.65% 6.65% 9.07% 0.51%
Managed................................................... -1.06 8.83 18.37 2.59 19.45 6.06 9.99 -1.70
<CAPTION>
5/1/87- 5/1/87-
12/31/97 12/31/97
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Stock Index.................. 36.10% 21.73% 31.70% 312.34% 14.20%
Managed...................... 30.48 14.34 25.81 236.17 12.03
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------
4/30/93- 4/30/93-
FOR ONE YEAR ENDING 12/31/97 12/31/97
4/30/93- ----------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth and Income................................................... 13.78% -1.80% 35.65% 17.38% 32.67% 136.06% 20.19%
Midcap Value**...................................................... 14.28 -.87 29.57 16.90 16.62 100.12 16.01
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------------
5/2/94- 5/2/94-
FOR ONE YEAR ENDING 12/31/97 12/31/97
5/2/94- -------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Small Cap................................................................. -3.61% 28.08% 29.90% 24.11% 99.01% 20.65%
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------------
10/31/94- 10/31/94-
FOR ONE YEAR ENDING 12/31/97 12/31/97
10/31/94- -------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................... -4.29% 47.81% 12.49% 24.88% 98.72% 24.21%
Balanced................................................................ -.20 24.05 16.21 15.48 66.15 17.38
Venture Value........................................................... -3.60 38.45 25.08 32.70 121.55 28.55
International Magnum Equity***.......................................... 2.50 5.60 6.03 -1.89 12.60 3.82
</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 Goldman Sachs Midcap Value Series' sub-adviser was Loomis Sayles until
May 1, 1998, when Goldman Sachs Asset Management became the sub-adviser.
Rates of return reflect the Series' former investment advisory fee of .70%
of average daily net assets. Beginning May 1, 1998, the Series' investment
advisory fee is .75%.
*** The Morgan Stanley International Magnum Equity Series' sub-adviser was
Draycott Partners until May 1, 1997, when Morgan Stanley Asset Management
became the sub-adviser.
SUB-ACCOUNTS INVESTING IN VARIABLE INSURANCE PRODUCTS FUND
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
10/9/86- -----------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income.................... .06% -3.08% 21.98% 16.64% -15.80% 31.07% 16.39% 17.59% 6.43% 34.29% 13.59%
<CAPTION>
10/9/86- 10/9/86-
12/31/97 12/31/97
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/97 RETURN ANNUAL
- ----------- -------- -------- ---------
<S> <C> <C> <C>
Equity-Income.................... 27.34% 334.74% 13.98%
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
1/28/87- --------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas.................................. -5.90% 7.48% 25.53% -2.26% 7.79% -11.12% 36.53% 1.12% 9.02% 12.53%
<CAPTION>
1/28/87- 1/28/87-
12/31/97 12/31/97
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/97 RETURN ANNUAL
- ----------- -------- -------- ---------
<S> <C> <C> <C>
Overseas.................................. 10.89% 122.04% 7.58%
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
9/19/85- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income............. 6.20% 16.98% 0.61% 10.97% -4.75% -2.82% 34.27% 22.43% 19.68% -2.13% 19.88% 13.35%
<CAPTION>
9/19/85- 9/19/85-
12/31/97 12/31/97
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/97 RETURN ANNUAL
- ----------- -------- -------- ---------
<S> <C> <C> <C>
High Income............. 16.96% 292.89% 11.79%
<CAPTION>
SUB-ACCOUNT INVESTING IN VARIABLE INSURANCE PRODUCTS FUND II
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------- 9/6/89- 9/6/89-
FOR ONE YEAR ENDING 12/31/97 12/31/97
9/6/89- ------------------------------------------------------------------------ TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager................ .62% 6.08% 21.83% 11.04% 20.51% -6.65% 16.26% 13.91% 19.93% 157.99% 12.07%
</TABLE>
A-64
<PAGE>
POLICY PERFORMANCE
The material below assumes, in the first example, a Policy with an Option 1
death benefit was issued with a $214,986 face amount and annual premiums of
$4,000, paid on August 26 of each year (May 1 in the case of the Zenith Stock
Index and Managed Sub-Accounts; May 2 in the case of the Zenith Small Cap Sub-
Account; October 31 in the case of the Zenith Balanced, Zenith International
Magnum Equity, Zenith Venture Value, and Zenith Equity Growth Sub-Accounts;
October 9 in the case of the Equity-Income Sub-Account; January 28 in the case
of the Overseas Sub-Account; April 30 in the case of the Zenith Growth and
Income and Zenith Midcap Value Sub-Accounts; September 19 in the case of the
High Income Sub-Account; September 6 in the case of the Asset Manager Sub-
Account), to a male nonsmoker standard risk, age 40. The second example
assumes a Policy was issued with a $110,165 face amount and annual premiums of
$4,000, paid on August 26 of each year (May 1 in the case of the Zenith Stock
Index and Managed Sub-Accounts; May 2 in the case of the Zenith Small Cap Sub-
Account; October 31 in the case of the Zenith Balanced, Zenith International
Magnum Equity, Zenith Venture Value, and Zenith Equity Growth Sub-Accounts;
October 9 in the case of the Equity-Income Sub-Account; January 28 in the case
of the Overseas Sub-Account; April 30 in the case of the Zenith Growth and
Income and Zenith Midcap Value Sub-Accounts; September 19 in the case of the
High Income Sub-Account; September 6 in the case of the Asset Manager Sub-
Account), to a male nonsmoker standard risk, age 50. The death benefits, cash
values and internal rates of return assume in each instance that the entire
Policy value was invested in the particular sub-account for the period shown.
These illustrations of Policy investment experience also reflect all charges
applicable to the Policy, including cost of insurance charges based on
NELICO's current rates. (See Appendix A for the definition of the internal
rate of return.)
MALE NONSMOKER STANDARD RISK, AGE 40
OPTION 1--FIXED DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1983....... 4,000 214,986 214,986 3,664 2,157 -83.06% --
December 31, 1984....... 8,000 214,986 214,986 6,634 5,016 -45.31 1,748.07%
December 31, 1985....... 12,000 214,986 214,986 14,732 11,876 -0.77 397.72
December 31, 1986....... 16,000 214,986 214,986 31,555 28,764 33.56 191.12
December 31, 1987....... 20,000 214,986 214,986 50,228 47,501 38.34 118.15
December 31, 1988....... 24,000 214,986 214,986 48,635 45,972 22.95 82.52
December 31, 1989....... 28,000 214,986 214,986 66,297 63,699 24.33 61.87
December 31, 1990....... 32,000 214,986 214,986 66,146 63,613 17.48 48.58
December 31, 1991....... 36,000 214,986 315,493 104,476 102,007 23.06 47.97
December 31, 1992....... 40,000 214,986 296,564 100,670 98,265 17.73 38.90
December 31, 1993....... 44,000 214,986 341,006 117,831 115,661 17.11 35.47
December 31, 1994....... 48,000 214,986 311,482 110,391 108,695 13.24 29.32
December 31, 1995....... 52,000 214,986 415,604 155,566 154,343 15.95 29.60
December 31, 1996....... 56,000 214,986 505,008 189,197 188,448 16.31 28.69
December 31, 1997....... 60,000 214,986 565,335 234,001 233,725 16.84 27.02
</TABLE>
A-65
<PAGE>
<TABLE>
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1983....... 4,000 214,986 214,986 3,456 1,948 -87.35% --
December 31, 1984....... 8,000 214,986 214,986 7,149 5,530 -37.33 1,748.07%
December 31, 1985....... 12,000 214,986 214,986 11,627 8,771 -21.94 397.72
December 31, 1986....... 16,000 214,986 214,986 16,353 13,561 -8.82 191.12
December 31, 1987....... 20,000 214,986 214,986 19,665 16,938 -7.04 118.15
December 31, 1988....... 24,000 214,986 214,986 24,236 21,573 -3.75 82.52
December 31, 1989....... 28,000 214,986 214,986 30,111 27,513 -0.52 61.87
December 31, 1990....... 32,000 214,986 214,986 35,454 32,920 0.74 48.58
December 31, 1991....... 36,000 214,986 214,986 44,732 42,263 3.66 39.38
December 31, 1992....... 40,000 214,986 214,986 50,997 48,593 3.96 32.69
December 31, 1993....... 44,000 214,986 214,986 59,945 57,775 4.99 27.63
December 31, 1994....... 48,000 214,986 214,986 60,242 58,546 3.34 23.69
December 31, 1995....... 52,000 214,986 214,986 75,713 74,490 5.49 20.54
December 31, 1996....... 56,000 214,986 214,986 81,754 81,005 5.22 17.98
December 31, 1997....... 60,000 214,986 233,655 93,115 92,839 5.71 16.83
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1983....... 4,000 214,986 214,986 3,463 1,956 -87.21% --
December 31, 1984....... 8,000 214,986 214,986 6,931 5,312 -40.71 1,748.07%
December 31, 1985....... 12,000 214,986 214,986 10,545 7,689 -30.39 397.72
December 31, 1986....... 16,000 214,986 214,986 14,252 11,460 -17.56 191.12
December 31, 1987....... 20,000 214,986 214,986 18,148 15,421 -11.00 118.15
December 31, 1988....... 24,000 214,986 214,986 22,464 19,801 -6.76 82.52
December 31, 1989....... 28,000 214,986 214,986 27,423 24,825 -3.61 61.87
December 31, 1990....... 32,000 214,986 214,986 32,473 29,940 -1.74 48.58
December 31, 1991....... 36,000 214,986 214,986 37,221 34,751 -0.81 39.38
December 31, 1992....... 40,000 214,986 214,986 41,280 38,876 -0.59 32.69
December 31, 1993....... 44,000 214,986 214,986 45,086 42,916 -0.47 27.63
December 31, 1994....... 48,000 214,986 214,986 49,418 47,722 -0.10 23.69
December 31, 1995....... 52,000 214,986 214,986 54,706 53,483 .44 20.54
December 31, 1996....... 56,000 214,986 214,986 59,971 59,221 .81 17.98
December 31, 1997....... 60,000 214,986 214,986 65,633 65,357 1.15 15.86
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1987....... 4,000 214,986 214,986 2,816 1,308 -81.21% --
December 31, 1988....... 8,000 214,986 214,986 6,485 4,882 -35.82 930.30%
December 31, 1989....... 12,000 214,986 214,986 12,199 9,359 -14.25 302.19
December 31, 1990....... 16,000 214,986 214,986 14,459 11,684 -14.07 161.30
December 31, 1991....... 20,000 214,986 214,986 22,076 19,365 -1.21 104.58
December 31, 1992....... 24,000 214,986 214,986 26,743 24,097 0.13 75.01
December 31, 1993....... 28,000 214,986 214,986 32,350 29,768 1.67 57.20
December 31, 1994....... 32,000 214,986 214,986 35,524 33,007 0.74 45.43
December 31, 1995....... 36,000 214,986 214,986 52,327 49,874 6.89 37.14
December 31, 1996....... 40,000 214,986 214,986 66,559 64,171 8.94 31.03
December 31, 1997....... 44,000 214,986 261,616 91,217 89,165 12.01 29.55
</TABLE>
A-66
<PAGE>
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1987....... 4,000 214,986 214,986 3,191 1,684 -72.59% --
December 31, 1988....... 8,000 214,986 214,986 6,664 5,061 -33.61 930.30%
December 31, 1989....... 12,000 214,986 214,986 11,415 8,575 -18.96 302.19
December 31, 1990....... 16,000 214,986 214,986 14,841 12,065 -12.67 161.30
December 31, 1991....... 20,000 214,986 214,986 21,054 18,343 -3.23 104.58
December 31, 1992....... 24,000 214,986 214,986 25,573 22,927 -1.44 75.01
December 31, 1993....... 28,000 214,986 214,986 31,253 28,671 0.65 57.20
December 31, 1994....... 32,000 214,986 214,986 33,702 31,184 -0.62 45.43
December 31, 1995....... 36,000 214,986 214,986 47,715 45,262 4.86 37.14
December 31, 1996....... 40,000 214,986 214,986 57,505 55,117 6.10 31.03
December 31, 1997....... 44,000 214,986 217,508 75,833 73,782 8.86 26.55
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1993....... 4,000 214,986 214,986 3,658 2,151 -60.33% --
December 31, 1994....... 8,000 214,986 214,986 6,689 5,092 -33.17 926.15%
December 31, 1995....... 12,000 214,986 214,986 12,427 9,593 -12.87 301.55
December 31, 1996....... 16,000 214,986 214,986 17,729 14,959 -3.08 161.08
December 31, 1997....... 20,000 214,986 214,986 24,271 21,565 2.83 104.47
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1993....... 4,000 214,986 214,986 3,641 2,133 -60.80% --
December 31, 1994....... 8,000 214,986 214,986 6,623 5,025 -33.98 926.15%
December 31, 1995....... 12,000 214,986 214,986 12,755 9,920 -11.01 301.55
December 31, 1996....... 16,000 214,986 214,986 18,319 15,549 -1.31 161.08
December 31, 1997....... 20,000 214,986 214,986 28,109 25,404 9.06 104.47
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,069 1,562 -75.66% --
December 31, 1995....... 8,000 214,986 214,986 7,626 6,023 -22.13 934.48%
December 31, 1996....... 12,000 214,986 214,986 13,360 10,520 -7.72 302.84
December 31, 1997....... 16,000 214,986 214,986 20,402 17,627 4.51 161.52
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,252 1,744 -100.00% --
December 31, 1995....... 8,000 214,986 214,986 7,767 6,138 -35.07 2,852.46%
December 31, 1996....... 12,000 214,986 214,986 11,824 8,957 -23.78 477.27
December 31, 1997....... 16,000 214,986 214,986 17,792 14,990 -3.89 212.55
</TABLE>
A-67
<PAGE>
ZENITH BALANCED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,439 1,931 -98.72% --
December 31, 1995....... 8,000 214,986 214,986 7,429 5,799 -41.45 2,852.46%
December 31, 1996....... 12,000 214,986 214,986 11,730 8,863 -24.59 477.27
December 31, 1997....... 16,000 214,986 214,986 16,618 13,816 -8.71 212.55
ZENITH VENTURE VALUE SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,333 1,825 -100.00% --
December 31, 1995....... 8,000 214,986 214,986 7,759 6,129 -35.24 2,852.46%
December 31, 1996....... 12,000 214,986 214,986 12,840 9,973 -15.33 477.27
December 31, 1997....... 16,000 214,986 214,986 20,113 17,310 4.75 212.55
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,523 2,016 -98.34% --
December 31, 1995....... 8,000 214,986 214,986 6,967 5,337 -50.12 2,852.46%
December 31, 1996....... 12,000 214,986 214,986 10,444 7,578 -36.30 477.27
December 31, 1997....... 16,000 214,986 214,986 13,200 10,398 -25.14 212.55
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1986....... 4,000 214,986 214,986 3,455 1,947 -95.78% --
December 31, 1987....... 8,000 214,986 214,986 5,864 4,234 -65.32 2,387.88%
December 31, 1988....... 12,000 214,986 214,986 10,064 7,198 -37.95 447.96
December 31, 1989....... 16,000 214,986 214,986 14,779 11,977 -16.41 204.96
December 31, 1990....... 20,000 214,986 214,986 15,580 12,842 -19.79 124.10
December 31, 1991....... 24,000 214,986 214,986 23,533 20,859 -5.15 85.71
December 31, 1992....... 28,000 214,986 214,986 30,631 28,023 0.03 63.81
December 31, 1993....... 32,000 214,986 214,986 38,948 36,403 3.44 49.87
December 31, 1994....... 36,000 214,986 214,986 44,276 41,796 3.50 40.29
December 31, 1995....... 40,000 214,986 214,986 62,890 60,475 8.51 33.36
December 31, 1996....... 44,000 214,986 214,986 74,170 71,921 9.07 28.32
December 31, 1997....... 48,000 214,986 272,949 97,207 95,432 11.41 27.76
</TABLE>
A-68
<PAGE>
OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1987....... 4,000 214,986 214,986 2,859 1,351 -69.13% --
December 31, 1988....... 8,000 214,986 214,986 6,543 4,962 -29.25 643.33%
December 31, 1989....... 12,000 214,986 214,986 11,709 8,891 -14.82 251.25
December 31, 1990....... 16,000 214,986 214,986 14,489 11,735 -12.40 142.98
December 31, 1991....... 20,000 214,986 214,986 18,805 16,116 -7.30 95.64
December 31, 1992....... 24,000 214,986 214,986 19,264 16,639 -10.63 69.87
December 31, 1993....... 28,000 214,986 214,986 30,296 27,736 -0.24 53.91
December 31, 1994....... 32,000 214,986 214,986 33,312 30,816 -0.85 43.18
December 31, 1995....... 36,000 214,986 214,986 40,085 37,653 0.91 35.52
December 31, 1996....... 40,000 214,986 214,986 48,022 45,655 2.42 29.82
December 31, 1997....... 44,000 214,986 214,986 56,502 54,609 3.60 25.43
HIGH INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1985....... 4,000 214,986 214,986 3,617 2,110 -89.64% --
December 31, 1986....... 8,000 214,986 214,986 7,397 5,773 -36.17 2,058.68%
December 31, 1987....... 12,000 214,986 214,986 10,415 7,553 -33.14 423.86
December 31, 1988....... 16,000 214,986 214,986 14,597 11,800 -16.68 198.45
December 31, 1989....... 20,000 214,986 214,986 16,760 14,028 -15.44 121.33
December 31, 1990....... 24,000 214,986 214,986 19,231 16,563 -13.42 84.23
December 31, 1991....... 28,000 214,986 214,986 28,886 26,282 -1.93 62.92
December 31, 1992....... 32,000 214,986 214,986 38,300 35,761 2.92 49.27
December 31, 1993....... 36,000 214,986 214,986 48,897 46,422 5.85 39.87
December 31, 1994....... 40,000 214,986 214,986 50,754 48,344 3.91 33.05
December 31, 1995....... 44,000 214,986 214,986 63,875 61,666 6.23 27.91
December 31, 1996....... 48,000 214,986 214,986 75,160 73,424 7.11 23.91
December 31, 1997....... 52,000 214,986 244,321 90,760 89,498 8.27 22.49
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 4,000 $214,986 $214,986 $ 3,543 $ 2,036 -- --
December 31, 1989....... 4,000 214,986 214,986 3,442 1,934 -89.83% --
December 31, 1990....... 8,000 214,986 214,986 6,848 5,224 -43.46 1,880.71%
December 31, 1991....... 12,000 214,986 214,986 11,460 8,599 -23.77 409.35
December 31, 1992....... 16,000 214,986 214,986 15,838 13,041 -11.06 194.42
December 31, 1993....... 20,000 214,986 214,986 22,276 19,544 -0.99 119.59
December 31, 1994....... 24,000 214,986 214,986 23,573 20,905 -4.91 83.30
December 31, 1995....... 28,000 214,986 214,986 30,635 28,032 .03 62.35
December 31, 1996....... 32,000 214,986 214,986 38,032 35,493 2.70 48.89
December 31, 1997....... 36,000 214,986 214,986 48,582 46,107 5.65 39.61
</TABLE>
A-69
<PAGE>
MALE NONSMOKER STANDARD RISK, AGE 50
OPTION 1--FIXED DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1983....... 4,000 110,165 110,165 3,677 2,453 -75.48% --
December 31, 1984....... 8,000 110,165 110,165 6,672 5,323 -40.54 996.91%
December 31, 1985....... 12,000 110,165 110,165 14,809 12,191 1.18 260.78
December 31, 1986....... 16,000 110,165 110,165 31,740 29,155 34.38 129.41
December 31, 1987....... 20,000 110,165 125,112 50,485 47,934 38.76 87.05
December 31, 1988....... 24,000 110,165 118,316 48,888 46,370 23.26 58.20
December 31, 1989....... 28,000 110,165 152,051 66,489 64,004 24.47 50.81
December 31, 1990....... 32,000 110,165 150,281 66,135 63,683 17.51 39.26
December 31, 1991....... 36,000 110,165 224,315 104,081 101,662 22.98 40.33
December 31, 1992....... 40,000 110,165 210,881 99,913 97,527 17.58 32.32
December 31, 1993....... 44,000 110,165 242,534 116,487 114,318 16.91 29.68
December 31, 1994....... 48,000 110,165 221,709 108,739 107,043 13.00 24.16
December 31, 1995....... 52,000 110,165 296,279 152,766 151,543 15.69 24.96
December 31, 1996....... 56,000 110,165 360,762 185,272 184,523 16.04 24.49
December 31, 1997....... 60,000 110,165 404,825 228,516 228,240 16.56 23.18
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1983....... 4,000 110,165 110,165 3,469 2,244 -81.01% --
December 31, 1984....... 8,000 110,165 110,165 7,188 5,840 -32.56 996.91%
December 31, 1985....... 12,000 110,165 110,165 11,682 9,065 -19.75 260.78
December 31, 1986....... 16,000 110,165 110,165 16,409 13,824 -7.81 129.41
December 31, 1987....... 20,000 110,165 110,165 19,696 17,144 -6.53 80.18
December 31, 1988....... 24,000 110,165 110,165 24,223 21,705 -3.53 55.41
December 31, 1989....... 28,000 110,165 110,165 30,045 27,559 -0.47 40.82
December 31, 1990....... 32,000 110,165 110,165 35,336 32,884 0.71 31.33
December 31, 1991....... 36,000 110,165 110,165 44,571 42,152 3.60 24.73
December 31, 1992....... 40,000 110,165 110,165 50,843 48,456 3.91 19.92
December 31, 1993....... 44,000 110,165 124,329 59,755 57,585 4.93 18.34
December 31, 1994....... 48,000 110,165 121,504 60,055 58,359 3.29 14.96
December 31, 1995....... 52,000 110,165 146,267 75,399 74,176 5.43 15.19
December 31, 1996....... 56,000 110,165 154,224 81,256 80,506 5.13 13.74
December 31, 1997....... 60,000 110,165 169,873 92,322 92,046 5.60 13.08
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1983....... 4,000 110,165 110,165 3,476 2,252 -80.82% --
December 31, 1984....... 8,000 110,165 110,165 6,970 5,621 -35.93 996.91%
December 31, 1985....... 12,000 110,165 110,165 10,593 7,976 -28.09 260.78
December 31, 1986....... 16,000 110,165 110,165 14,290 11,706 -16.47 129.41
December 31, 1987....... 20,000 110,165 110,165 18,156 15,604 -10.50 80.18
December 31, 1988....... 24,000 110,165 110,165 22,417 19,899 -6.59 55.41
December 31, 1989....... 28,000 110,165 110,165 27,308 24,823 -3.61 40.82
December 31, 1990....... 32,000 110,165 110,165 32,292 29,840 -1.82 31.33
December 31, 1991....... 36,000 110,165 110,165 36,982 34,563 -0.94 24.73
December 31, 1992....... 40,000 110,165 110,165 40,997 38,610 -0.73 19.92
December 31, 1993....... 44,000 110,165 110,165 44,771 42,602 -0.61 16.28
December 31, 1994....... 48,000 110,165 110,165 49,114 47,418 -0.21 13.45
December 31, 1995....... 52,000 110,165 110,165 54,478 53,255 0.37 11.19
December 31, 1996....... 56,000 110,165 113,427 59,848 59,098 0.78 9.74
December 31, 1997....... 60,000 110,165 120,831 65,602 65,325 1.15 8.98
</TABLE>
A-70
<PAGE>
ZENITH STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1987....... 4,000 110,165 110,165 2,833 1,608 -74.41% --
December 31, 1988....... 8,000 110,165 110,165 6,524 5,184 -32.11 571.27%
December 31, 1989....... 12,000 110,165 110,165 12,255 9,645 -12.59 202.15
December 31, 1990....... 16,000 110,165 110,165 14,497 11,921 -13.19 110.00
December 31, 1991....... 20,000 110,165 110,165 22,090 19,547 -0.86 71.14
December 31, 1992....... 24,000 110,165 110,165 26,714 24,204 0.27 50.37
December 31, 1993....... 28,000 110,165 110,165 32,276 29,799 1.70 37.69
December 31, 1994....... 32,000 110,165 110,165 35,415 32,971 0.72 29.24
December 31, 1995....... 36,000 110,165 114,065 52,179 49,768 6.85 23.99
December 31, 1996....... 40,000 110,165 143,478 66,299 63,921 8.87 23.66
December 31, 1997....... 44,000 110,165 186,995 90,528 88,476 11.88 24.10
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1987....... 4,000 110,165 110,165 3,211 1,986 -64.91% --
December 31, 1988....... 8,000 110,165 110,165 6,705 5,364 -29.92 571.27%
December 31, 1989....... 12,000 110,165 110,165 11,466 8,857 -17.24 202.15
December 31, 1990....... 16,000 110,165 110,165 14,876 12,300 -11.82 110.00
December 31, 1991....... 20,000 110,165 110,165 21,061 18,517 -2.88 71.14
December 31, 1992....... 24,000 110,165 110,165 25,530 23,020 -1.32 50.37
December 31, 1993....... 28,000 110,165 110,165 31,161 28,684 0.66 37.69
December 31, 1994....... 32,000 110,165 110,165 33,566 31,122 -0.67 29.24
December 31, 1995....... 36,000 110,165 110,165 47,520 45,109 4.79 23.27
December 31, 1996....... 40,000 110,165 123,744 57,301 54,923 6.04 20.97
December 31, 1997....... 44,000 110,165 155,697 75,372 73,320 8.75 21.13
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1993....... 4,000 110,165 110,165 3,682 2,458 -51.60% --
December 31, 1994....... 8,000 110,165 110,165 6,731 5,393 -29.51 569.00%
December 31, 1995....... 12,000 110,165 110,165 12,486 9,879 -11.24 201.75
December 31, 1996....... 16,000 110,165 110,165 17,788 15,215 -2.31 109.86
December 31, 1997....... 20,000 110,165 110,165 24,317 21,777 3.20 71.07
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1993....... 4,000 110,165 110,165 3,665 2,440 -52.11% --
December 31, 1994....... 8,000 110,165 110,165 6,664 5,326 -30.31 569.00%
December 31, 1995....... 12,000 110,165 110,165 12,815 10,208 -9.40 201.75
December 31, 1996....... 16,000 110,165 110,165 18,379 15,806 -.56 109.86
December 31, 1997....... 20,000 110,165 110,165 28,176 25,636 9.41 71.07
</TABLE>
A-71
<PAGE>
ZENITH SMALL CAP SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,088 1,864 -68.24% --
December 31, 1995....... 8,000 110,165 110,165 7,674 6,333 -18.53 573.55%
December 31, 1996....... 12,000 110,165 110,165 13,429 10,820 -6.10 202.55
December 31, 1997....... 16,000 110,165 110,165 20,485 17,909 5.26 110.15
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,259 2,035 -98.25% --
December 31, 1995....... 8,000 110,165 110,165 7,810 6,456 -29.07 1,527.81%
December 31, 1996....... 12,000 110,165 110,165 11,885 9,262 -21.18 308.47
December 31, 1997....... 16,000 110,165 110,165 17,869 15,279 -2.76 143.24
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,446 2,222 -97.04% --
December 31, 1995....... 8,000 110,165 110,165 7,468 6,113 -35.53 1,527.81%
December 31, 1996....... 12,000 110,165 110,165 11,788 9,165 -22.00 308.47
December 31, 1997....... 16,000 110,165 110,165 16,680 14,090 -7.55 143.24
ZENITH VENTURE VALUE SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,340 2,115 -97.79% --
December 31, 1995....... 8,000 110,165 110,165 7,800 6,446 -29.26 1,527.81%
December 31, 1996....... 12,000 110,165 110,165 12,907 10,284 -12.86 308.47
December 31, 1997....... 16,000 110,165 110,165 20,207 17,617 5.82 143.24
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,531 2,306 -96.29% --
December 31, 1995....... 8,000 110,165 110,165 7,002 5,648 -44.30 1,527.81%
December 31, 1996....... 12,000 110,165 110,165 10,491 7,868 -33.55 308.47
December 31, 1997....... 16,000 110,165 110,165 13,236 10,645 -23.80 143.24
</TABLE>
A-72
<PAGE>
EQUITY-INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1986....... 4,000 110,165 110,165 3,462 2,238 -92.23% --
December 31, 1987....... 8,000 110,165 110,165 5,893 4,539 -60.13 1,309.09%
December 31, 1988....... 12,000 110,165 110,165 10,109 7,486 -35.28 291.01
December 31, 1989....... 16,000 110,165 110,165 14,824 12,234 -15.23 138.35
December 31, 1990....... 20,000 110,165 110,165 15,586 13,029 -19.14 84.14
December 31, 1991....... 24,000 110,165 110,165 23,482 20,958 -4.98 57.55
December 31, 1992....... 28,000 110,165 110,165 30,514 28,023 0.03 42.12
December 31, 1993....... 32,000 110,165 110,165 38,779 36,321 3.38 32.18
December 31, 1994....... 36,000 110,165 110,165 44,089 41,664 3.42 25.32
December 31, 1995....... 40,000 110,165 135,672 62,624 60,232 8.43 24.40
December 31, 1996....... 44,000 110,165 155,135 73,670 71,422 8.95 22.52
December 31, 1997....... 48,000 110,165 195,037 96,198 94,423 11.24 22.58
OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1987....... 4,000 110,165 110,165 2,886 1,662 -61.38% --
December 31, 1988....... 8,000 110,165 110,165 6,587 5,257 -26.14 410.91%
December 31, 1989....... 12,000 110,165 110,165 11,757 9,158 -13.42 170.18
December 31, 1990....... 16,000 110,165 110,165 14,518 11,952 -11.69 97.98
December 31, 1991....... 20,000 110,165 110,165 18,788 16,256 -7.01 65.17
December 31, 1992....... 24,000 110,165 110,165 19,186 16,687 -10.55 46.93
December 31, 1993....... 28,000 110,165 110,165 30,119 27,653 -0.32 35.50
December 31, 1994....... 32,000 110,165 110,165 33,096 30,663 -0.97 27.76
December 31, 1995....... 36,000 110,165 110,165 39,807 37,407 0.78 22.22
December 31, 1996....... 40,000 110,165 110,165 47,711 45,344 2.30 18.09
December 31, 1997....... 44,000 110,165 113,930 56,163 54,269 3.50 15.44
HIGH INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1985....... 4,000 110,165 110,165 3,628 2,403 -83.56% --
December 31, 1986....... 8,000 110,165 110,165 7,437 6,085 -31.04 1,150.26%
December 31, 1987....... 12,000 110,165 110,165 10,463 7,843 -30.66 276.55
December 31, 1988....... 16,000 110,165 110,165 14,640 12,053 -15.54 134.15
December 31, 1989....... 20,000 110,165 110,165 16,771 14,217 -14.86 82.30
December 31, 1990....... 24,000 110,165 110,165 19,179 16,658 -13.21 56.56
December 31, 1991....... 28,000 110,165 110,165 28,744 26,256 -1.96 41.52
December 31, 1992....... 32,000 110,165 110,165 38,094 35,638 2.83 31.79
December 31, 1993....... 36,000 110,165 110,165 48,655 46,233 5.76 25.05
December 31, 1994....... 40,000 110,165 110,165 50,548 48,158 3.83 20.15
December 31, 1995....... 44,000 110,165 134,323 63,589 61,380 6.15 19.86
December 31, 1996....... 48,000 110,165 149,494 74,650 72,914 7.00 18.32
December 31, 1997....... 52,000 110,165 175,582 89,884 88,621 8.13 17.89
</TABLE>
A-73
<PAGE>
ASSET MANAGER SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 4,000 $110,165 $110,165 $ 3,546 $ 2,321 -- --
December 31, 1989....... 4,000 110,165 110,165 3,452 2,227 -84.15% --
December 31, 1990....... 8,000 110,165 110,165 6,884 5,532 -38.55 1,062.85%
December 31, 1991....... 12,000 110,165 110,165 11,514 8,894 -21.50 267.81
December 31, 1992....... 16,000 110,165 110,165 15,890 13,303 -10.00 131.55
December 31, 1993....... 20,000 110,165 110,165 22,317 19,762 -0.52 81.14
December 31, 1994....... 24,000 110,165 110,165 23,572 21,051 -4.66 55.93
December 31, 1995....... 28,000 110,165 110,165 30,578 28,090 0.10 41.13
December 31, 1996....... 32,000 110,165 110,165 37,927 35,472 2.69 31.54
December 31, 1997....... 36,000 110,165 110,165 48,460 46,038 5.62 24.88
</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.
** Rates of return and Policy values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998, the Series' investment advisory fee is
.75%.
A-74
<PAGE>
The material below assumes, in the first example, a Policy with an Option 2
death benefit was issued with a $214,986 face amount and annual premiums of
$4,000, paid on August 26 of each year (May 1 in the case of the Zenith Stock
Index and Managed Sub-Accounts; May 2 in the case of the Zenith Small Cap Sub-
Account; October 31 in the case of the Zenith Balanced, Zenith International
Magnum Equity, Zenith Venture Value and Zenith Equity Growth Sub-Accounts;
October 9 in the case of the Equity-Income Sub-Account; January 28 in the case
of the Overseas Sub-Account; April 30 in the case of the Zenith Growth and
Income and Zenith Midcap Value Sub-Accounts; September 19 in the case of the
High Income Sub-Account; September 6 in the case of the Asset Manager Sub-
Account), to a male nonsmoker standard risk, age 40. The second example
assumes a Policy was issued with a $110,165 face amount and annual premiums of
$4,000, paid on August 26 of each year (May 1 in the case of the Zenith Stock
Index and Managed Sub-Accounts; May 2 in the case of the Zenith Small Cap Sub-
Account; October 31 in the case of the Zenith Balanced, Zenith International
Magnum Equity, Zenith Venture Value and Zenith Equity Growth Sub-Accounts;
October 9 in the case of the Equity-Income Sub-Account; January 28 in the case
of the Overseas Sub-Account; April 30 in the case of the Zenith Growth and
Income and Zenith Midcap Value Sub-Accounts; September 19 in the case of the
High Income Sub-Account; September 6 in the case of the Asset Manager Sub-
Account), to a male nonsmoker standard risk, age 50. The death benefits, cash
values and internal rates of return assume in each instance that the entire
Policy value was invested in the particular sub-account for the period shown.
These illustrations of Policy investment experience also reflect all charges
applicable to the Policy, including cost of insurance charges based on
NELICO's current rates. (See Appendix A for the definition of the internal
rate of return.)
MALE NONSMOKER STANDARD RISK, AGE 40
OPTION 2--VARIABLE DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1983....... 4,000 214,986 215,283 3,664 2,156 -83.06% --
December 31, 1984....... 8,000 214,986 215,130 6,634 5,015 -45.32 1,749.02%
December 31, 1985....... 12,000 214,986 219,482 14,725 11,869 -0.81 402.60
December 31, 1986....... 16,000 214,986 233,769 31,502 28,710 33.45 199.68
December 31, 1987....... 20,000 214,986 247,642 50,064 47,337 38.18 126.83
December 31, 1988....... 24,000 214,986 242,839 48,408 45,746 22.78 87.74
December 31, 1989....... 28,000 214,986 254,950 65,901 63,302 24.14 67.47
December 31, 1990....... 32,000 214,986 252,520 65,670 63,136 17.29 52.84
December 31, 1991....... 36,000 214,986 313,181 103,711 101,241 22.89 47.81
December 31, 1992....... 40,000 214,986 294,471 99,959 97,554 17.59 38.76
December 31, 1993....... 44,000 214,986 338,674 117,025 114,855 16.99 35.36
December 31, 1994....... 48,000 214,986 309,414 109,658 107,962 13.13 29.22
December 31, 1995....... 52,000 214,986 412,910 154,557 153,334 15.85 29.51
December 31, 1996....... 56,000 214,986 501,805 187,997 187,248 16.23 28.61
December 31, 1997....... 60,000 214,986 561,803 232,539 232,262 16.76 26.95
</TABLE>
A-75
<PAGE>
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1983....... 4,000 214,986 215,075 3,456 1,948 -87.35% --
December 31, 1984....... 8,000 214,986 215,595 7,148 5,530 -37.34 1,752.10%
December 31, 1985....... 12,000 214,986 216,771 11,623 8,767 -21.96 399.66
December 31, 1986....... 16,000 214,986 218,198 16,342 13,550 -8.87 192.62
December 31, 1987....... 20,000 214,986 217,843 19,646 16,919 -7.09 118.95
December 31, 1988....... 24,000 214,986 218,903 24,205 21,543 -3.80 83.29
December 31, 1989....... 28,000 214,986 220,877 30,062 27,463 -0.58 62.75
December 31, 1990....... 32,000 214,986 222,299 35,380 32,847 0.68 49.46
December 31, 1991....... 36,000 214,986 227,234 44,611 42,142 3.59 40.62
December 31, 1992....... 40,000 214,986 229,668 50,815 48,410 3.89 33.96
December 31, 1993....... 44,000 214,986 234,427 59,663 57,493 4.90 29.10
December 31, 1994....... 48,000 214,986 230,370 59,898 58,202 3.24 24.74
December 31, 1995....... 52,000 214,986 240,250 75,190 73,967 5.39 22.07
December 31, 1996....... 56,000 214,986 241,984 81,088 80,339 5.10 19.47
December 31, 1997....... 60,000 214,986 248,074 92,267 91,991 5.59 17.53
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1983....... 4,000 214,986 215,057 3,463 1,956 -87.21% --
December 31, 1984....... 8,000 214,986 215,364 6,930 5,312 -40.71 1,750.57%
December 31, 1985....... 12,000 214,986 215,706 10,543 7,687 -30.41 398.50
December 31, 1986....... 16,000 214,986 216,024 14,248 11,456 -17.58 191.60
December 31, 1987....... 20,000 214,986 216,413 18,141 15,413 -11.02 118.55
December 31, 1988....... 24,000 214,986 217,071 22,450 19,788 -6.79 82.93
December 31, 1989....... 28,000 214,986 218,262 27,400 24,802 -3.64 62.37
December 31, 1990....... 32,000 214,986 219,426 32,436 29,902 -1.77 49.12
December 31, 1991....... 36,000 214,986 220,149 37,164 34,694 -0.85 39.91
December 31, 1992....... 40,000 214,986 220,050 41,202 38,797 -0.63 33.14
December 31, 1993....... 44,000 214,986 219,538 44,985 42,815 -0.51 27.99
December 31, 1994....... 48,000 214,986 219,378 49,294 47,597 -0.14 24.00
December 31, 1995....... 52,000 214,986 220,053 54,552 53,329 0.40 20.86
December 31, 1996....... 56,000 214,986 220,575 59,784 59,034 .77 18.30
December 31, 1997....... 60,000 214,986 221,328 65,408 65,132 1.11 16.20
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1987....... 4,000 214,986 214,986 2,815 1,308 -81.22% --
December 31, 1988....... 8,000 214,986 214,986 6,485 4,882 -35.82 930.30%
December 31, 1989....... 12,000 214,986 217,106 12,195 9,356 -14.27 303.85
December 31, 1990....... 16,000 214,986 216,007 14,452 11,677 -14.09 161.69
December 31, 1991....... 20,000 214,986 218,453 22,057 19,346 -1.24 105.43
December 31, 1992....... 24,000 214,986 220,994 26,708 24,061 0.08 76.07
December 31, 1993....... 28,000 214,986 222,780 32,288 29,706 1.61 58.27
December 31, 1994....... 32,000 214,986 221,556 35,438 32,920 0.68 46.17
December 31, 1995....... 36,000 214,986 234,948 52,155 49,702 6.82 39.01
December 31, 1996....... 40,000 214,986 246,249 66,249 63,861 8.85 33.52
December 31, 1997....... 44,000 214,986 265,415 90,712 88,661 11.91 29.79
</TABLE>
A-76
<PAGE>
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1987....... 4,000 214,986 214,986 3,191 1,684 -72.59% --
December 31, 1988....... 8,000 214,986 215,168 6,664 5,061 -33.61 930.85%
December 31, 1989....... 12,000 214,986 216,517 11,412 8,572 -18.97 303.39
December 31, 1990....... 16,000 214,986 216,416 14,834 12,059 -12.69 161.85
December 31, 1991....... 20,000 214,986 218,047 21,039 18,329 -3.26 105.33
December 31, 1992....... 24,000 214,986 219,719 25,545 22,899 -1.48 75.85
December 31, 1993....... 28,000 214,986 221,929 31,203 28,621 0.60 58.15
December 31, 1994....... 32,000 214,986 219,974 33,633 31,115 -0.67 46.00
December 31, 1995....... 36,000 214,986 230,351 47,585 45,132 4.80 38.60
December 31, 1996....... 40,000 214,986 236,986 57,286 54,897 6.03 32.82
December 31, 1997....... 44,000 214,986 250,077 75,427 73,376 8.77 28.82
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1993....... 4,000 214,986 215,414 3,658 2,150 -60.34% --
December 31, 1994....... 8,000 214,986 215,322 6,688 5,091 -33.18 927.16%
December 31, 1995....... 12,000 214,986 217,674 12,421 9,587 -12.90 303.65
December 31, 1996....... 16,000 214,986 219,677 17,712 14,942 -3.13 162.88
December 31, 1997....... 20,000 214,986 222,448 24,233 21,528 2.77 106.29
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1993....... 4,000 214,986 215,405 3,640 2,133 -60.82% --
December 31, 1994....... 8,000 214,986 215,204 6,622 5,024 -33.99 926.80%
December 31, 1995....... 12,000 214,986 218,001 12,749 9,914 -11.04 303.90
December 31, 1996....... 16,000 214,986 220,376 18,302 15,532 -1.36 163.15
December 31, 1997....... 20,000 214,986 226,237 28,062 25,356 8.99 107.19
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,069 1,562 -75.66% --
December 31, 1995....... 8,000 214,986 215,926 7,625 6,023 -22.14 937.35%
December 31, 1996....... 12,000 214,986 218,212 13,353 10,513 -7.75 305.36
December 31, 1997....... 16,000 214,986 222,155 20,379 17,604 4.45 164.27
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,252 1,744 -- --
December 31, 1995....... 8,000 214,986 216,149 7,765 6,136 -35.11% 2,866.52%
December 31, 1996....... 12,000 214,986 216,951 11,818 8,951 -23.83 479.94
December 31, 1997....... 16,000 214,986 219,542 17,775 14,973 -3.96 214.95
</TABLE>
A-77
<PAGE>
ZENITH BALANCED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,439 1,931 -98.72% --
December 31, 1995....... 8,000 214,986 215,811 7,428 5,798 -41.47 2,862.44%
December 31, 1996....... 12,000 214,986 216,859 11,726 8,859 -24.62 479.81
December 31, 1997....... 16,000 214,986 218,373 16,606 13,804 -8.76 214.34
ZENITH VENTURE VALUE SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 214,986 3,333 1,825 -- --
December 31, 1995....... 8,000 214,986 216,140 7,757 6,128 -35.26% 2,866.43%
December 31, 1996....... 12,000 214,986 217,966 12,833 9,966 -15.38 481.31
December 31, 1997....... 16,000 214,986 221,856 20,090 17,287 4.67 216.16
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1994....... 4,000 214,986 215,046 3,523 2,016 -98.34% --
December 31, 1995....... 8,000 214,986 215,350 6,966 5,337 -50.13 2,856.86%
December 31, 1996....... 12,000 214,986 215,576 10,443 7,576 -36.32 478.07
December 31, 1997....... 16,000 214,986 214,986 13,198 10,395 -25.16 212.55
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1986....... 4,000 214,986 215,093 3,455 1,947 -95.78% --
December 31, 1987....... 8,000 214,986 214,986 5,863 4,233 -65.34 2,387.88%
December 31, 1988....... 12,000 214,986 215,273 10,063 7,196 -37.96 448.32
December 31, 1989....... 16,000 214,986 216,293 14,774 11,971 -16.43 205.62
December 31, 1990....... 20,000 214,986 214,986 15,575 12,837 -19.80 124.10
December 31, 1991....... 24,000 214,986 216,443 23,522 20,848 -5.17 86.00
December 31, 1992....... 28,000 214,986 220,923 30,605 27,997 0.00 64.73
December 31, 1993....... 32,000 214,986 225,457 38,886 36,342 3.39 51.15
December 31, 1994....... 36,000 214,986 226,335 44,169 41,689 3.44 41.46
December 31, 1995....... 40,000 214,986 242,115 62,665 60,249 8.43 35.69
December 31, 1996....... 44,000 214,986 249,250 73,789 71,541 8.98 30.69
December 31, 1997....... 48,000 214,986 271,353 96,639 94,863 11.31 27.67
</TABLE>
A-78
<PAGE>
OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1987....... 4,000 214,986 214,986 2,859 1,351 -69.14% --
December 31, 1988....... 8,000 214,986 215,048 6,543 4,962 -29.26 643.45%
December 31, 1989....... 12,000 214,986 217,058 11,707 8,888 -14.83 252.55
December 31, 1990....... 16,000 214,986 216,342 14,482 11,728 -12.43 143.44
December 31, 1991....... 20,000 214,986 216,960 18,793 16,103 -7.33 96.08
December 31, 1992....... 24,000 214,986 214,986 19,250 16,625 -10.65 69.87
December 31, 1993....... 28,000 214,986 221,042 30,266 27,706 -0.27 54.70
December 31, 1994....... 32,000 214,986 220,274 33,260 30,764 -0.89 43.75
December 31, 1995....... 36,000 214,986 222,385 40,005 37,573 0.87 36.20
December 31, 1996....... 40,000 214,986 226,085 47,894 45,527 2.37 30.71
December 31, 1997....... 44,000 214,986 230,153 56,293 54,399 3.54 26.50
HIGH INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1985....... 4,000 214,986 215,125 3,617 2,109 -89.64% --
December 31, 1986....... 8,000 214,986 215,730 7,396 5,772 -36.19 2,064.71%
December 31, 1987....... 12,000 214,986 215,370 10,412 7,550 -33.17 424.31
December 31, 1988....... 16,000 214,986 216,271 14,591 11,794 -16.71 199.08
December 31, 1989....... 20,000 214,986 214,986 16,751 14,019 -15.46 121.33
December 31, 1990....... 24,000 214,986 214,986 19,223 16,555 -13.44 84.23
December 31, 1991....... 28,000 214,986 219,523 28,867 26,263 -1.96 63.61
December 31, 1992....... 32,000 214,986 225,060 38,248 35,709 2.88 50.50
December 31, 1993....... 36,000 214,986 231,597 48,782 46,308 5.80 41.55
December 31, 1994....... 40,000 214,986 229,084 50,583 48,173 3.84 34.29
December 31, 1995....... 44,000 214,986 239,237 63,584 61,375 6.15 29.74
December 31, 1996....... 48,000 214,986 244,389 74,705 72,969 7.01 25.87
December 31, 1997....... 52,000 214,986 255,564 90,106 88,843 8.16 23.11
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 4,000 $214,986 $214,990 $ 3,543 $ 2,036 -- --
December 31, 1989....... 4,000 214,986 214,987 3,442 1,934 -89.83% --
December 31, 1990....... 8,000 214,986 215,186 6,848 5,224 -43.46 1,882.16%
December 31, 1991....... 12,000 214,986 216,167 11,458 8,596 -23.79 410.68
December 31, 1992....... 16,000 214,986 217,493 15,829 13,032 -11.10 195.62
December 31, 1993....... 20,000 214,986 220,041 22,255 19,523 -1.04 121.02
December 31, 1994....... 24,000 214,986 218,817 23,542 20,874 -4.96 84.06
December 31, 1995....... 28,000 214,986 221,670 30,585 27,981 -0.02 63.35
December 31, 1996....... 32,000 214,986 225,331 37,948 35,409 2.64 50.14
December 31, 1997....... 36,000 214,986 231,688 48,431 45,957 5.58 41.28
</TABLE>
A-79
<PAGE>
MALE NONSMOKER STANDARD RISK, AGE 50
OPTION 2--VARIABLE DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1983....... 4,000 110,165 110,465 3,677 2,452 -75.50% --
December 31, 1984....... 8,000 110,165 110,313 6,671 5,322 -40.55 998.07%
December 31, 1985....... 12,000 110,165 114,672 14,794 12,177 1.09 267.96
December 31, 1986....... 16,000 110,165 128,990 31,618 29,034 34.13 142.97
December 31, 1987....... 20,000 110,165 142,862 50,200 47,649 38.48 94.38
December 31, 1988....... 24,000 110,165 137,976 48,472 45,954 22.94 64.28
December 31, 1989....... 28,000 110,165 150,662 65,881 63,396 24.18 50.52
December 31, 1990....... 32,000 110,165 148,946 65,547 63,095 17.27 39.03
December 31, 1991....... 36,000 110,165 222,398 103,192 100,773 22.79 40.14
December 31, 1992....... 40,000 110,165 209,150 99,093 96,706 17.42 32.17
December 31, 1993....... 44,000 110,165 240,605 115,561 113,392 16.77 29.54
December 31, 1994....... 48,000 110,165 219,999 107,901 106,204 12.88 24.04
December 31, 1995....... 52,000 110,165 294,049 151,616 150,393 15.58 24.85
December 31, 1996....... 56,000 110,165 358,107 183,909 183,159 15.95 24.39
December 31, 1997....... 60,000 110,165 401,891 226,860 226,584 16.47 23.10
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1983....... 4,000 110,165 110,256 3,469 2,244 -81.01% --
December 31, 1984....... 8,000 110,165 110,780 7,187 5,838 -32.58 1,001.75%
December 31, 1985....... 12,000 110,165 111,945 11,675 9,057 -19.81 263.63
December 31, 1986....... 16,000 110,165 113,344 16,385 13,800 -7.90 131.81
December 31, 1987....... 20,000 110,165 112,935 19,653 17,101 -6.64 81.51
December 31, 1988....... 24,000 110,165 113,922 24,152 21,633 -3.65 56.72
December 31, 1989....... 28,000 110,165 115,804 29,926 27,440 -0.60 42.35
December 31, 1990....... 32,000 110,165 117,125 35,155 32,703 0.56 32.88
December 31, 1991....... 36,000 110,165 121,927 44,267 41,848 3.43 26.94
December 31, 1992....... 40,000 110,165 124,235 50,376 47,989 3.71 22.22
December 31, 1993....... 44,000 110,165 128,844 59,116 56,946 4.73 18.95
December 31, 1994....... 48,000 110,165 124,742 59,368 57,672 3.09 15.37
December 31, 1995....... 52,000 110,165 144,652 74,567 73,344 5.26 15.04
December 31, 1996....... 56,000 110,165 152,599 80,400 79,650 4.98 13.61
December 31, 1997....... 60,000 110,165 168,155 91,389 91,112 5.47 12.96
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1983....... 4,000 110,165 110,239 3,476 2,252 -80.82% --
December 31, 1984....... 8,000 110,165 110,548 6,969 5,620 -35.95 999.92%
December 31, 1985....... 12,000 110,165 110,874 10,589 7,972 -28.12 261.92
December 31, 1986....... 16,000 110,165 111,160 14,281 11,696 -16.52 130.17
December 31, 1987....... 20,000 110,165 111,496 18,138 15,587 -10.55 80.83
December 31, 1988....... 24,000 110,165 112,081 22,387 19,868 -6.64 56.08
December 31, 1989....... 28,000 110,165 113,180 27,255 24,770 -3.68 41.64
December 31, 1990....... 32,000 110,165 114,243 32,203 29,750 -1.90 32.25
December 31, 1991....... 36,000 110,165 114,862 36,844 34,424 -1.03 25.64
December 31, 1992....... 40,000 110,165 114,658 40,804 38,418 -0.84 20.68
December 31, 1993....... 44,000 110,165 114,042 44,524 42,354 -0.72 16.87
December 31, 1994....... 48,000 110,165 113,799 48,810 47,114 -0.32 13.95
December 31, 1995....... 52,000 110,165 114,416 54,105 52,882 0.26 11.73
December 31, 1996....... 56,000 110,165 114,877 59,414 58,665 .68 9.91
December 31, 1997....... 60,000 110,165 119,973 65,135 64,859 1.05 8.89
</TABLE>
A-80
<PAGE>
ZENITH STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1987....... 4,000 110,165 110,165 2,832 1,608 -74.42% --
December 31, 1988....... 8,000 110,165 110,165 6,524 5,183 -32.12 571.27%
December 31, 1989....... 12,000 110,165 112,273 12,247 9,638 -12.63 204.66
December 31, 1990....... 16,000 110,165 111,132 14,481 11,904 -13.25 110.62
December 31, 1991....... 20,000 110,165 113,526 22,046 19,503 -0.94 72.56
December 31, 1992....... 24,000 110,165 115,986 26,629 24,118 0.16 52.20
December 31, 1993....... 28,000 110,165 117,679 32,125 29,648 1.56 39.57
December 31, 1994....... 32,000 110,165 116,370 35,199 32,755 0.56 30.55
December 31, 1995....... 36,000 110,165 129,564 51,743 49,332 6.66 26.61
December 31, 1996....... 40,000 110,165 142,134 65,679 63,301 8.69 23.49
December 31, 1997....... 44,000 110,165 185,326 89,719 87,668 11.73 23.95
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1987....... 4,000 110,165 110,165 3,210 1,986 -64.92% --
December 31, 1988....... 8,000 110,165 110,348 6,704 5,363 -29.93 571.99%
December 31, 1989....... 12,000 110,165 111,682 11,460 8,851 -17.27 203.96
December 31, 1990....... 16,000 110,165 111,542 14,863 12,286 -11.87 110.88
December 31, 1991....... 20,000 110,165 113,117 21,026 18,483 -2.95 72.39
December 31, 1992....... 24,000 110,165 114,709 25,463 22,953 -1.41 51.81
December 31, 1993....... 28,000 110,165 116,824 31,036 28,559 0.54 39.36
December 31, 1994....... 32,000 110,165 114,787 33,395 30,951 -0.80 30.22
December 31, 1995....... 36,000 110,165 124,984 47,190 44,778 4.63 25.87
December 31, 1996....... 40,000 110,165 131,455 56,767 54,389 5.85 22.07
December 31, 1997....... 44,000 110,165 154,244 74,668 72,617 8.59 20.97
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1993....... 4,000 110,165 110,599 3,681 2,457 -51.62% --
December 31, 1994....... 8,000 110,165 110,501 6,728 5,391 -29.54 570.32%
December 31, 1995....... 12,000 110,165 112,841 12,472 9,866 -11.31 204.93
December 31, 1996....... 16,000 110,165 114,811 17,750 15,176 -2.42 112.79
December 31, 1997....... 20,000 110,165 117,525 24,229 21,689 3.05 74.13
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1993....... 4,000 110,165 110,590 3,664 2,439 -52.13% --
December 31, 1994....... 8,000 110,165 110,382 6,662 5,324 -30.34 569.86%
December 31, 1995....... 12,000 110,165 113,170 12,802 10,195 -9.47 205.32
December 31, 1996....... 16,000 110,165 115,511 18,341 15,767 -.67 113.22
December 31, 1997....... 20,000 110,165 121,320 28,064 25,523 9.24 75.65
</TABLE>
A-81
<PAGE>
ZENITH SMALL CAP SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $4,000 $110,165 $110,170 $3,546 $2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,088 1,864 -68.24% --
December 31, 1995....... 8,000 110,165 111,111 7,672 6,331 -18.55 577.31%
December 31, 1996....... 12,000 110,165 113,389 13,414 10,805 -6.18 206.39
December 31, 1997....... 16,000 110,165 117,307 20,433 17,856 5.12 114.62
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $4,000 $110,165 $110,170 $3,546 $2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,259 2,035 -98.25% --
December 31, 1995....... 8,000 110,165 111,339 7,806 6,452 -29.15 1,543.44%
December 31, 1996....... 12,000 110,165 112,131 11,872 9,249 -21.29 312.31
December 31, 1997....... 16,000 110,165 114,703 17,830 15,240 -2.91 147.05
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $4,000 $110,165 $110,170 $3,546 $2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,446 2,222 -97.04% --
December 31, 1995....... 8,000 110,165 110,999 7,466 6,111 -35.57 1,538.91%
December 31, 1996....... 12,000 110,165 112,038 11,779 9,156 -22.08 312.13
December 31, 1997....... 16,000 110,165 113,527 16,654 14,064 -7.66 146.07
ZENITH VENTURE VALUE SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $4,000 $110,165 $110,170 $3,546 $2,321 -- --
December 31, 1994....... 4,000 110,165 110,165 3,340 2,115 -97.79% --
December 31, 1995....... 8,000 110,165 111,330 7,797 6,443 -29.32 1,543.31%
December 31, 1996....... 12,000 110,165 113,152 12,892 10,269 -12.97 314.29
December 31, 1997....... 16,000 110,165 117,027 20,155 17,565 5.64 148.97
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $4,000 $110,165 $110,170 $3,546 $2,321 -- --
December 31, 1994....... 4,000 110,165 110,227 3,531 2,306 -96.29% --
December 31, 1995....... 8,000 110,165 110,534 7,001 5,647 -44.31 1,532.73%
December 31, 1996....... 12,000 110,165 110,747 10,488 7,865 -33.58 309.61
December 31, 1997....... 16,000 110,165 110,165 13,230 10,640 -23.83 143.24
</TABLE>
A-82
<PAGE>
EQUITY-INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1986....... 4,000 110,165 110,273 3,462 2,237 -92.23% --
December 31, 1987....... 8,000 110,165 110,165 5,892 4,537 -60.16 1,309.09%
December 31, 1988....... 12,000 110,165 110,443 10,106 7,483 -35.30 291.52
December 31, 1989....... 16,000 110,165 111,438 14,813 12,223 -15.28 139.39
December 31, 1990....... 20,000 110,165 110,165 15,574 13,017 -19.18 84.14
December 31, 1991....... 24,000 110,165 111,458 23,458 20,934 -5.02 58.02
December 31, 1992....... 28,000 110,165 115,837 30,452 27,961 -0.04 43.70
December 31, 1993....... 32,000 110,165 120,253 38,626 36,169 3.26 34.46
December 31, 1994....... 36,000 110,165 121,028 43,818 41,393 3.27 27.41
December 31, 1995....... 40,000 110,165 136,569 62,111 59,720 8.25 24.53
December 31, 1996....... 44,000 110,165 153,887 73,077 70,829 8.80 22.38
December 31, 1997....... 48,000 110,165 193,525 95,453 93,678 11.11 22.46
OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1987....... 4,000 110,165 110,165 2,886 1,661 -61.40% --
December 31, 1988....... 8,000 110,165 110,221 6,586 5,256 -26.15 411.06%
December 31, 1989....... 12,000 110,165 112,214 11,751 9,153 -13.45 172.18
December 31, 1990....... 16,000 110,165 111,452 14,501 11,935 -11.75 98.70
December 31, 1991....... 20,000 110,165 112,005 18,759 16,227 -7.07 65.89
December 31, 1992....... 24,000 110,165 110,165 19,153 16,653 -10.60 46.93
December 31, 1993....... 28,000 110,165 115,880 30,048 27,582 -0.38 36.86
December 31, 1994....... 32,000 110,165 115,023 32,969 30,536 -1.06 28.74
December 31, 1995....... 36,000 110,165 117,012 39,609 37,209 0.67 23.41
December 31, 1996....... 40,000 110,165 120,567 47,387 45,020 2.17 19.67
December 31, 1997....... 44,000 110,165 124,487 55,687 53,794 3.36 16.84
HIGH INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1985....... 4,000 110,165 110,306 3,628 2,403 -83.56% --
December 31, 1986....... 8,000 110,165 110,915 7,434 6,083 -31.08 1,157.31%
December 31, 1987....... 12,000 110,165 110,538 10,456 7,836 -30.72 277.20
December 31, 1988....... 16,000 110,165 111,410 14,626 12,039 -15.60 135.14
December 31, 1989....... 20,000 110,165 110,165 16,752 14,198 -14.91 82.30
December 31, 1990....... 24,000 110,165 110,165 19,160 16,639 -13.25 56.56
December 31, 1991....... 28,000 110,165 114,421 28,700 26,212 -2.02 42.70
December 31, 1992....... 32,000 110,165 119,830 37,965 35,510 2.74 33.95
December 31, 1993....... 36,000 110,165 126,216 48,365 45,943 5.62 28.05
December 31, 1994....... 40,000 110,165 123,621 50,108 47,719 3.64 22.37
December 31, 1995....... 44,000 110,165 133,566 62,955 60,746 5.96 19.77
December 31, 1996....... 48,000 110,165 148,070 73,939 72,203 6.84 18.17
December 31, 1997....... 52,000 110,165 173,977 89,062 87,799 7.99 17.76
</TABLE>
A-83
<PAGE>
ASSET MANAGER SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 4,000 $110,165 $110,170 $ 3,546 $ 2,321 -- --
December 31, 1989....... 4,000 110,165 110,168 3,452 2,227 -84.15% --
December 31, 1990....... 8,000 110,165 110,369 6,884 5,532 -38.55 1,064.85
December 31, 1991....... 12,000 110,165 111,341 11,509 8,888 -21.54 269.76
December 31, 1992....... 16,000 110,165 112,639 15,871 13,284 -10.08 133.46
December 31, 1993....... 20,000 110,165 115,141 22,269 19,714 -0.62 83.54
December 31, 1994....... 24,000 110,165 113,847 23,498 20,977 -4.78 57.23
December 31, 1995....... 28,000 110,165 116,603 30,455 27,967 -0.04 42.89
December 31, 1996....... 32,000 110,165 120,152 37,720 35,265 2.53 33.75
December 31, 1997....... 36,000 110,165 126,369 48,079 45,657 5.43 27.88
</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.
** Rates of return and Policy values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998, the Series' investment advisory fee is
.75%.
A-84
<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 53 20-year time periods beginning in 1926 and ending in 1997 (i.e.
1926-1945, 1927-1946, and so on through 1978-1997):
--The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 50 of the 53 periods.
--The average annual return of common stocks surpassed that of U.S. Treasury
bills in each of the 53 periods.
--Common stock average annual returns exceeded the average annual rate of
inflation in each of the 53 periods.
Over the 43 30-year time periods beginning in 1926 and ending in 1997, the
average annual return of common stocks was superior to that of high grade,
long-term corporate bonds, U.S. Treasury bills and inflation in all 43
periods.
From 1926 through 1997 the average annual return for common stocks was
11.0%, compared to 5.7% for high grade, long-term corporate bonds, 3.8% for
U.S. Treasury bills and 3.1% for the Consumer Price Index.
----------------
- --------
* Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook (TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
A-85
<PAGE>
SUMMARY TABLE: HISTORIC S&P 500 STOCK INDEX RESULTS
FOR SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Stock Index, with dividends reinvested, over one-year, five-year,
ten-year and twenty-year periods beginning in 1926 and ending in 1997.
The chart shows that historically, the longer that a portfolio matching the
S&P 500 Stock Index was held, the less likely was the chance of a loss.
Conversely, the shorter the holding period of such a portfolio, the more
likely was the chance of a loss. The chart also shows that shorter term
results tend to be more extreme than longer term results.
The chart is not a projection or representation of future stock market
results. It cannot be taken as representative of the performance of any one
fund. Rather it shows the historic performance of a broad index of stocks.
----------------
PERCENT OF HOLDING PERIODS WITH THE FOLLOWING RETURNS:
<TABLE>
<CAPTION>
GREATER
0- 5.01- 10.01- 15.01- THAN
HOLDING NEGATIVE 5.00% 10.00% 15.00% 20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
------- -------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
1 year.......................... 28% 4% 11% 7% 11% 39%
5 years......................... 10% 15% 15% 31% 19% 10%
10 years........................ 3% 10% 34% 24% 27% 2%
20 years........................ 0% 6% 32% 55% 7% 0%
</TABLE>
- --------
Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook (TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
A-86
<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-87
<PAGE>
APPENDIX D
USES OF LIFE INSURANCE
The following are examples of ways in which the Policy can be used to
address certain financial objectives.
FAMILY INCOME PROTECTION
Life insurance may be purchased on the lives of the family income earners to
provide a death benefit to cover final expenses, and continue the current
income to the family. The amount of insurance purchased should be an amount
which will provide a death benefit that when invested outside the policy at a
reasonable interest rate, will generate enough money to replace the
individual's income.
ESTATE PROTECTION
Life insurance may be purchased by a trust on the life of the person whose
estate will incur federal estate taxes upon the person's death. The amount of
insurance purchased would equal the amount of the estimated estate tax
liability. Upon the insured's death, the trustee could make the death proceeds
available to the estate for the payment of estate tax costs.
EDUCATION FUNDING
Life insurance may be purchased on the life of the parent(s) or primary
person funding an education. The amount of insurance purchased should equal
the total education cost projected at a reasonable inflation rate.
In the event of death, the guaranteed death benefit is available to help pay
the education costs. If the insured lives through the education years, the
cash value accumulations may be accessed to help offset the remaining
education costs. Any cash value loans or surrenders will reduce the policy
death benefit.
MORTGAGE PROTECTION
Life insurance may be purchased on the life of the person responsible for
making mortgage payments. The amount of insurance purchased should equal the
mortgage amount. In the event of the insured's death, the guaranteed death
benefit can be used to offset the remaining mortgage balance.
During the insured's lifetime, the cash value accumulations may be accessed
late in the mortgage term to help make the remaining mortgage payments. Any
cash value loans or surrenders will reduce the policy death benefit.
KEY PERSON PROTECTION
Life insurance may be purchased by the business on the life of the key
person in an amount equal to the key person's value, considering salary,
benefits, and contribution to business profits. Upon the key person's death,
the business uses the death benefit to ease the interruption of business
operations and/or to provide a replacement fund for hiring a new executive.
BUSINESS CONTINUATION PROTECTION
Life insurance may be purchased on the life of each business owner in an
amount equal to the value of each owner's business interest. In the event of
death, the guaranteed death benefit may provide the funds needed to carry out
the purchase of the deceased's business interest by the business, or surviving
owners, from the deceased owner's heirs.
DEFERRED COMPENSATION PLANS
Life insurance may be purchased by the business on the life of an executive
in order to informally fund a nonqualified deferred compensation plan. The
cash value accumulations may be accessed through withdrawals, loans and
surrenders when the benefits become due and payable. The insurance policy's
death proceeds may be used by the business to recover its costs for the
benefits paid to the executive.
A-88
<PAGE>
SPLIT DOLLAR PLANS
Life insurance may be purchased by the business on the life of an employee.
The arrangement splits the death benefit proceeds, the living benefits and
possibly the premium cost between the business and the employee. The
arrangement brings together the needs of the employee for insurance protection
and the premium paying ability of the employer.
RETIREMENT INCOME
Life insurance may be purchased on the life of a family income earner during
his or her working life. If the insured lives to retirement, the cash value
accumulations may be accessed to provide retirement payments. In the event of
the insured's death, the proceeds may be used to provide retirement income to
his or her spouse. Any cash value loans or surrenders will reduce the policy
death benefit.
Because the Policy provides a death benefit and for the accumulation of cash
value, the Policy can be used for various individual and business planning
purposes. Purchasing the Policy in part for such purposes entails certain
risks, particularly if the Policy's cash value, as opposed to its death
benefit, will be the principal Policy feature used for such planning purposes.
If the investment performance of the Sub-Accounts to which cash value is
allocated is poorer than expected, or if sufficient premiums are not paid or
cash values maintained, the Policy may lapse or may not accumulate sufficient
cash value or net cash value to fund the purpose for which the Policy was
purchased. Because the Policy is designed to provide benefits on a long-term
basis, before purchasing a Policy for a specialized purpose, a purchaser
should consider whether the long-term nature of the Policy is consistent with
the purpose for which it is being considered. If you wish to access your
Policy's cash value, through loans, surrenders or withdrawals, you should
consult your tax advisor about possible tax consequences. (See "Tax
Considerations".)
A-89
<PAGE>
APPENDIX E
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the Treasury published
a "Report to the Congress on the Taxation of Life Insurance Company Products"
in March 1990. Page 4 of this report is Table 1.1, a "Comparison of Tax
Treatment of Life Insurance Products and Other Retirement Savings Plans".
Because it is a convenient summary of the relevant tax characteristics of
these products and plans, we have reprinted it here, and added footnotes to
reflect exceptions to the general rules.
---------------------
TABLE 1.1
COMPARISION OF TAX TREATMENT OF LIFE INSURANCE PRODUCTS AND OTHER RETIREMENT
SAVINGS PLANS
<TABLE>
<CAPTION>
CASH-VALUE
LIFE NON-QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
---------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as Distributions No* Yes Loans not Yes,
allowed beyond
$50,000
Income Ordering Rules (Income
included in First Distribution) No* Yes Yes Yes
Early Withdrawal Penalties No* Yes*** Yes*** Yes***
Minimum Distribution Rules by
Age 70 1/2 No No Yes Yes
Maximum Annual Distribution
Rules No No Yes Yes
Anti-discrimination Rules No No No Yes
</TABLE>
- --------
Department of the Treasury
Office of Tax Analysis
* If the Policy is not a modified endowment contract.
** If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not
deductible.
*** There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
The foregoing information is not intended as tax advice. You should consult
your own tax advisor for more complete information.
A-90
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT AUDITORS
To the Policy Owners and Board of Directors of New England Life Insurance
Company:
We have audited the accompanying statement of assets and liabilities of the
New England Variable Life Separate Account (comprised of Capital Growth Sub-
Account, Bond Income Sub-Account, Money Market Sub-Account, Stock Index Sub-
Account, Managed Sub-Account, Avanti Growth Sub-Account, Growth and Income
Sub-Account (formerly Value Growth Sub-Account), Small Cap Sub-Account, U.S.
Government Sub-Account, Balanced Sub-Account, Equity Growth Sub-Account,
International Equity Sub-Account, Venture Value Sub-Account, Bond
Opportunities Sub-Account, Equity-Income Sub-Account, Overseas Sub-Account,
High Income Sub-Account and Asset Manager Sub-Account) of New England Life
Insurance Company (formerly New England Variable Life Insurance Company) as of
December 31, 1997, and the related statements of operations and changes in net
assets for the two years then ended for all Sub-Accounts. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The statements of operations and changes in net assets of New
England Variable Life Separate Account for the year ended December 31, 1995
were audited by other auditors whose report, dated February 6, 1996, expressed
an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the respective aforementioned
sub-accounts comprising the New England Variable Life Separate Account of New
England Life Insurance Company as of December 31, 1997, and the results of
their operations and the changes in their net assets for the two years then
ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1998
F-1
<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, Growth and Income
Sub-Account (formerly Value Growth Sub-Account), Small Cap Sub-Account,
Equity-Income Sub-Account, Overseas Sub-Account, High Income Sub-Account and
Asset Manager Sub-Account for the year ended December 31, 1995, and also
comprised of the Balanced Sub-Account, Equity Growth Sub-Account,
International Equity Sub-Account, and Venture Value Sub-Account for the period
May 1, 1995 (commencement of operations) through December 31, 1995, of New
England Variable Life Insurance Company. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations and
changes in net assets are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of operations and changes in net assets. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statements
of operations and changes in net assets. We believe that our audit of the
statements of operations and changes in net assets provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and changes in net assets of
the respective aforementioned sub-accounts comprising New England Variable
Life Separate Account of New England Variable Life Insurance Company for each
of the aforementioned periods ending December 31, 1995, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1996
F-2
<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, 1997
<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> <C> <C>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2)............................. $761,342,931 $46,779,684 $36,990,546 $66,002,486 $42,839,748 $35,698,565 $36,701,292
<CAPTION>
SHARES COST
--------- --------------
Capital Growth
Series............ 1,905,310 $ 669,976,568
Back Bay Advisors
Bond Income
Series............ 431,109 45,887,625
Back Bay Advisors
Money Market
Series............ 369,905 36,990,546
Westpeak Stock
Index Series...... 423,745 46,113,427
Back Bay Advisors
Managed Series.... 225,651 33,392,311
Loomis Sayles
Avanti Growth
Series............ 209,265 28,734,184
Westpeak Growth
and Income
Series............ 203,930 29,842,628
Loomis Sayles
Small Cap Series.. 347,003 49,723,722
Salomon Brothers
U.S. Government
Series............ 15,715 176,828
Loomis Sayles
Balanced Series... 547,678 7,495,878
Alger Equity
Growth Series..... 2,783,337 43,651,128
Morgan Stanley
International
Magnum Equity
Series............ 773,563 8,555,901
Davis Venture
Value Series...... 2,875,094 49,085,168
Salomon Brothers
Bond
Opportunities
Series............ 52,710 635,304
VIP Equity-Income
Portfolio......... 5,116,958 91,540,584
VIP Overseas
Portfolio......... 4,049,703 66,617,006
VIP High Income
Portfolio......... 622,056 7,482,998
VIP II Asset
Manager
Portfolio......... 350,236 5,336,650
--------------
Total........... $1,221,238,456
==============
Amount due and accrued (payable) from
policy-related transactions, net........... 101,231 159,544 897,289 107,549 48,961 (8,730) 9,824
Dividends receivable........................ -- -- 165,664 -- -- -- --
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total Assets............................. 761,444,162 46,939,228 38,053,499 66,110,035 42,888,709 35,689,835 36,711,116
LIABILITIES
Due New England Life Insurance Company...... 69,802,554 5,423,528 4,948,075 8,559,199 4,348,325 4,623,232 4,943,446
------------ ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES.................................... $691,641,608 $41,515,700 $33,105,424 $57,550,836 $38,540,384 $31,066,603 $31,767,670
============ =========== =========== =========== =========== =========== ===========
</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>
$55,145,780 $174,912 $8,138,490 $49,042,395 $8,400,895 $59,801,951 $633,048 $124,239,747 $77,754,305 $8,447,518
140,958 (1,259) 1,139 (20,153) (30,340) 168,093 (525) 127,430 31,232 10,331
-- -- -- -- -- -- -- -- -- --
- ----------- -------- ---------- ----------- ---------- ----------- -------- ------------ ----------- ----------
55,286,738 173,653 8,139,629 49,022,242 8,370,555 59,970,044 632,523 124,367,177 77,785,537 8,457,849
7,776,303 12,470 1,264,381 7,085,182 1,237,518 8,553,311 44,786 17,035,856 9,960,217 1,277,576
- ----------- -------- ---------- ----------- ---------- ----------- -------- ------------ ----------- ----------
$47,510,435 $161,183 $6,875,248 $41,937,060 $7,133,037 $51,416,733 $587,737 $107,331,321 $67,825,320 $7,180,273
=========== ======== ========== =========== ========== =========== ======== ============ =========== ==========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------------------------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
- ------------- --------------
<S> <C>
$6,307,747 $1,424,442,040
(2,214) 1,740,360
-- 165,664
- ------------- --------------
6,305,533 1,426,348,064
856,655 157,752,614
- ------------- --------------
$5,448,878 $1,268,595,450
============= ==============
</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, 1997
<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............... $184,229,729 $3,419,409 $1,852,865 $ 1,082,727 $5,025,764 $2,781,138 $3,928,553
EXPENSE
Mortality and expense
risk charge (Note 3)... 4,170,905 253,374 241,048 333,771 229,423 207,451 190,264
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net investment income... 180,058,824 3,166,035 1,611,817 748,956 4,796,341 2,573,687 3,738,289
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
End of year............ 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,664
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net change in unrealized
appreciation
(depreciation)......... (46,643,042) 851,540 -- 12,256,046 3,309,808 2,141,065 3,751,574
Net realized gain on
investments............ 1,699,829 15,488 -- 35,165 242,079 87,159 17,721
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments......... (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295
------------ ---------- ---------- ----------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $135,115,611 $4,033,063 $1,611,817 $13,040,167 $8,348,228 $4,801,911 $7,507,584
============ ========== ========== =========== ========== ========== ==========
</TABLE>
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>
$6,279,206 $ 9,089 $438,430 $4,721,050 $ 209,389 $ 1,822,395 $43,914 $ 8,872,794 $ 5,434,055 $393,295
275,141 2,290 50,941 265,599 51,702 276,055 9,400 676,059 447,597 41,502
---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- --------
6,004,065 6,799 387,489 4,455,451 157,687 1,546,340 34,514 8,196,735 4,986,458 351,793
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600
5,422,058 (1,916) 642,612 5,391,267 (155,006) 10,716,783 (2,256) 32,699,163 11,137,299 964,520
---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- --------
2,362,493 (1,097) 405,987 3,306,878 (291,197) 8,318,760 (1,103) 16,289,174 1,635,083 601,920
20,956 1 55,231 75,802 8,303 21,718 201 126,489 67,905 12,234
---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- --------
2,383,449 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154
---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- --------
$8,387,514 $ 5,703 $848,707 $7,838,131 $(125,207) $ 9,886,818 $33,612 $24,612,398 $ 6,689,446 $965,947
========== ======= ======== ========== ========= =========== ======= =========== =========== ========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- -------------------------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
----------- ------------
<S> <C>
$528,401 $231,072,203
33,135 7,755,657
----------- ------------
495,266 223,316,546
547,647 194,486,245
971,097 203,203,584
----------- ------------
423,450 8,717,339
5,368 2,491,649
----------- ------------
428,818 11,208,988
----------- ------------
$924,084 $234,525,534
=========== ============
</TABLE>
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, 1996
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI GROWTH AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
----------- ---------- ---------- ---------- ---------- ---------- ----------
<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 year...... 71,963,590 997,195 -- 2,853,587 5,216,548 2,881,100 2,105,777
End of year............ 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net change in unrealized
appreciation
(depreciation)......... 66,045,815 (956,676) -- 4,779,426 921,081 1,942,216 1,001,313
Net realized gain (loss)
on investments......... 985,421 299 -- 1,808 69,775 27,429 18,964
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments......... 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277
----------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $97,041,105 $1,430,300 $1,145,809 $5,454,098 $3,774,664 $3,326,549 $2,723,883
=========== ========== ========== ========== ========== ========== ==========
</TABLE>
* For the period July 1, 1996 (Commencement of Operations) through December 31,
1996.
See Notes to Financial Statements
F-8
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------------------------------------- ------------------------------ ---------
SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME ASSET
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- MANAGER
ACCOUNT ACCOUNT* ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT* ACCOUNT ACCOUNT ACCOUNT SUB-
- ---------- ---------- -------- ---------- ------------- ---------- ------------- ---------- ---------- -------- ---------
<S> <C> <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 $174,907
90,146 28 11,713 104,685 19,385 64,656 40 428,473 325,346 19,551 20,483
- ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- --------
1,534,562 674 93,226 (59,822) 51,962 379,356 1,178 2,234,517 839,204 179,912 154,424
768,552 -- 3,769 65,901 24,089 171,931 -- 9,642,454 4,022,725 167,043 269,255
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600 547,647
- ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- --------
2,291,013 (819) 232,856 2,018,488 112,102 2,226,092 (1,153) 6,767,535 5,479,491 195,557 278,392
31,570 -- 2,318 11,723 159 4,907 -- 27,750 44,049 1,942 4,122
- ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- --------
2,322,583 (819) 235,174 2,030,211 112,261 2,230,999 (1,153) 6,795,285 5,523,540 197,499 282,514
- ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- --------
$3,857,145 $(145) $328,400 $1,970,389 $164,223 $2,610,355 $ 25 $9,029,802 $6,362,744 $377,411 $436,938
========== ===== ======== ========== ======== ========== ====== ========== ========== ======== ========
<CAPTION>
------------
TOTAL
------------
<S>
$ 50,453,549
4,984,819
------------
45,468,730
101,153,516
194,486,245
------------
93,332,729
1,232,236
------------
94,564,965
------------
$140,033,695
============
</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, 1995
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends............... $ 58,318,276 $1,844,411 $1,109,838 $ 627,118 $1,061,289 $ 535,217 $ 606,696
EXPENSE
Mortality and expense
risk charge (Note 3)... 2,173,846 143,873 112,033 95,240 113,501 77,636 52,633
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net investment income... 56,144,430 1,700,538 997,805 531,878 947,788 457,581 554,063
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 9,892,073 (2,028,893) -- (1,645,744) 703,242 205,680 1,918
End of year............ 71,963,590 997,195 -- 2,853,587 5,216,548 2,881,100 2,105,777
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net change in unrealized
appreciation
(depreciation)......... 62,071,517 3,026,088 -- 4,499,331 4,513,306 2,675,420 2,103,859
Net realized gain (loss)
on investments......... 1,613,390 7,382 -- 7,637 42,457 21,233 9,493
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net realized and
unrealized gain on
investments............ 63,684,907 3,033,470 -- 4,506,968 4,555,763 2,696,653 2,113,352
------------ ---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............. $119,829,337 $4,734,008 $ 997,805 $5,038,846 $5,503,551 $3,154,234 $2,667,415
============ ========== ========== ========== ========== ========== ==========
</TABLE>
* For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
See Notes to Financial Statements
F-10
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------- ------------------------------- --------- ------------
SMALL EQUITY INTERNATIONAL VENTURE EQUITY HIGH ASSET
CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT* ACCOUNT* ACCOUNT* ACCOUNT* ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
- ---------- -------- -------- ------------- -------- ----------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$365,015 $17,538 $195,436 $12,460 $ 86,716 $ 2,284,557 $ 282,520 $ 8,412 $ 11,896 $ 67,367,395
24,746 743 11,686 2,165 7,251 233,864 240,253 6,639 9,537 3,305,646
- ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------
340,269 16,795 183,750 10,295 79,465 2,050,693 42,267 1,773 2,359 64,061,749
4,662 -- -- -- -- 149,659 260,895 213 (1,503) 7,542,202
768,552 3,769 65,901 24,089 171,931 9,642,454 4,022,725 167,043 269,255 101,153,516
- ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------
763,890 3,769 65,901 24,089 171,931 9,492,795 3,761,830 166,830 270,758 93,611,314
1,325 223 237 (34) 203 61,089 32,279 2,817 4,661 1,804,392
- ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------
765,215 3,992 66,138 24,055 172,134 9,553,884 3,794,109 169,647 275,419 95,415,706
- ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------
$1,105,484 $20,787 $249,888 $34,350 $251,599 $11,604,577 $3,836,376 $171,420 $277,778 $159,477,455
========== ======= ======== ======= ======== =========== ========== ======== ======== ============
</TABLE>
See Notes to Financial Statements
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, 1997
<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>
FROM OPERATING
ACTIVITIES
Net investment
income......... $ 180,058,824 $ 3,166,035 $ 1,611,817 $ 748,956 $ 4,796,341 $ 2,573,687 $ 3,738,289 $ 6,004,065
Net realized and
unrealized gain
(loss) on
investments.... (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295 2,383,449
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations.... 135,115,611 4,033,063 1,611,817 13,040,167 8,348,228 4,801,911 7,507,584 8,387,514
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 115,563,292 9,916,442 112,790,933 11,030,326 6,066,893 8,052,822 6,483,236 12,931,007
Net transfers
(to) from other
sub-accounts... 19,184,703 2,250,884 (100,492,346) 13,670,086 2,168,458 728,467 6,112,407 13,551,252
Net transfers to
New England
Life Insurance
Company........ (103,221,618) (7,435,545) (10,617,259) (11,516,905) (6,628,199) (5,007,957) (5,507,253) (8,882,069)
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 31,526,377 4,731,781 1,681,328 13,183,507 1,607,152 3,773,332 7,088,390 17,600,190
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase in
net assets..... 166,641,988 8,764,844 3,293,145 26,223,674 9,955,380 8,575,243 14,595,974 25,987,704
NET ASSETS, AT
BEGINNING OF
THE YEAR....... 524,999,620 32,750,856 29,812,279 31,327,162 28,585,004 22,491,360 17,171,696 21,522,731
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT
END OF THE
YEAR........... $ 691,641,608 $41,515,700 $ 33,105,424 $ 57,550,836 $38,540,384 $31,066,603 $31,767,670 $47,510,435
============= =========== ============= ============ =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-12
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ------------------------------------------------------------------------------- --------------------------------------
U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,799 $ 387,489 $ 4,455,451 $ 157,687 $ 1,546,340 $ 34,514 $ 8,196,735 $ 4,986,458 $ 351,793
(1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
5,703 848,707 7,838,131 (125,207) 9,886,818 33,612 24,612,398 6,689,446 965,947
-- 2,146,406 14,606,449 3,056,999 13,157,429 -- 23,866,781 17,551,475 2,042,291
118,925 2,461,028 6,194,266 1,537,466 22,596,463 563,357 5,377,892 1,724,137 1,829,771
(9,482) (1,814,302) (8,772,068) (1,574,196) (10,885,947) (36,000) (18,885,322) (9,549,079) (1,756,377)
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
109,443 2,793,132 12,028,647 3,020,269 24,867,945 527,357 10,359,351 9,726,533 2,115,685
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
115,146 3,641,839 19,866,778 2,895,062 34,754,763 560,969 34,971,749 16,415,979 3,081,632
46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768 72,359,572 51,409,341 4,098,641
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
$161,183 $ 6,875,248 $41,937,060 $ 7,133,037 $ 51,416,733 $587,737 $107,331,321 $67,825,320 $ 7,180,273
======== =========== =========== =========== ============ ======== ============ =========== ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------------------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
----------- ---------------
<S> <C>
$ 495,266 $ 223,316,546
428,818 11,208,988
----------- ---------------
924,084 234,525,534
1,403,144 360,665,925
422,784 --
(881,229) (212,980,807)
----------- ---------------
944,699 147,685,118
----------- ---------------
1,868,783 382,210,652
3,580,095 886,384,798
----------- ---------------
$5,448,878 $1,268,595,450
=========== ===============
</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, 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) (3,338,671)
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net Increase in net
assets resulting from
policy related
transactions........... 33,123,859 4,641,419 9,234,614 7,297,914 2,811,340 4,827,354 4,137,335
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase in net
assets................. 130,164,964 6,071,719 10,380,423 12,752,012 6,586,004 8,153,903 6,861,218
NET ASSETS, AT BEGINNING
OF THE YEAR............ 394,834,656 26,679,137 19,431,856 18,575,150 21,999,000 14,337,457 10,310,478
------------ ----------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT END OF
THE YEAR............... $524,999,620 $32,750,856 $ 29,812,279 $31,327,162 $28,585,004 $22,491,360 $17,171,696
============ =========== ============ =========== =========== =========== ===========
</TABLE>
* For the period July 1, 1996 (Commencement of Operations) through December 31,
1996.
See Notes to Financial Statements
F-14
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
EQUITY
SMALL U.S. GROWTH INTERNATIONAL VENTURE BOND
CAP GOVERNMENT BALANCED SUB- EQUITY VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
- ----------- ------------ ----------- ----------- ------------- ----------- -------------
<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-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, 1995
<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 ACTIVI-
TIES
Net investment income... $ 56,144,430 $ 1,700,538 $ 997,805 $ 531,878 $ 947,788 $ 457,581 $ 554,063
Net realized and
unrealized gain on
investments............ 63,684,907 3,033,470 -- 4,506,968 4,555,763 2,696,653 2,113,352
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net Increase in net
assets resulting from
operations............ 119,829,337 4,734,008 997,805 5,038,846 5,503,551 3,154,234 2,667,415
FROM POLICY-RELATED
TRANSACTIONS
Net premiums transferred
from New England
Life Insurance Company
(Note 4)............... 100,611,223 7,330,838 40,457,027 4,559,195 4,757,562 5,407,500 3,473,273
Net transfers (to) from
other sub-accounts..... (7,820,362) 2,481,090 (32,083,917) 2,734,513 286,111 3,131,998 2,645,617
Net transfers to New
England Life Insurance
Company................ (67,280,279) (4,616,930) (6,819,802) (3,436,368) (3,307,802) (3,767,486) (2,568,808)
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net Increase in net
assets resulting from
policy related
transactions........... 25,510,582 5,194,998 1,553,308 3,857,340 1,735,871 4,772,012 3,550,082
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase in net
assets................. 145,339,919 9,929,006 2,551,113 8,896,186 7,239,422 7,926,246 6,217,497
NET ASSETS, AT BEGINNING
OF THE YEAR............ 249,494,737 16,750,131 16,880,743 9,678,964 14,759,578 6,411,211 4,092,981
------------ ----------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT END OF
THE YEAR............... $394,834,656 $26,679,137 $ 19,431,856 $18,575,150 $21,999,000 $14,337,457 $10,310,478
============ =========== ============ =========== =========== =========== ===========
</TABLE>
* For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
See Notes to Financial Statements
F-16
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ------------------------------------------------------------------- ------------------------------------- ---------
SMALL EQUITY INTERNATIONAL VENTURE EQUITY- HIGH ASSET
CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------- ------------ ------------ ------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 340,269 $ 16,795 $ 183,750 $ 10,295 $ 79,465 $ 2,050,693 $ 42,267 $ 1,773 $ 2,359
765,215 3,992 66,138 24,055 172,134 9,553,884 3,794,109 169,647 275,419
- ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ----------
1,105,484 20,787 249,888 34,350 251,599 11,604,577 3,836,376 171,420 277,778
2,237,626 81,978 1,048,361 241,835 625,044 13,985,879 17,076,602 395,370 696,227
4,814,141 409,874 5,735,744 948,764 3,228,499 12,483,761 (2,007,296) 1,503,857 1,507,606
(1,803,085) (94,428) (1,321,495) (271,101) (718,702) (9,853,532) (8,392,295) (358,576) (709,312)
- ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ----------
5,248,682 397,424 5,462,610 919,498 3,134,841 16,616,108 6,677,011 1,540,651 1,494,521
- ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ----------
6,354,166 418,211 5,712,498 953,848 3,386,440 28,220,685 10,513,387 1,712,071 1,772,299
190,830 -- -- -- -- 19,132,167 27,868,832 30,422 200,694
- ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ----------
$ 6,544,996 $418,211 $ 5,712,498 $ 953,848 $3,386,440 $47,352,852 $38,382,219 $1,742,493 $1,972,993
=========== ======== =========== ========= ========== =========== =========== ========== ==========
<CAPTION>
--------------
TOTAL
--------------
<S>
$ 64,061,749
95,415,706
--------------
159,477,455
202,985,540
--
(115,320,001)
--------------
87,665,539
--------------
247,142,994
365,491,290
--------------
$ 612,634,284
==============
</TABLE>
See Notes to Financial Statements
F-17
<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 as the surviving company of the merger.
NELICO then became an indirect wholly-owned subsidiary of MLI.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. SUB-ACCOUNTS. The Account has eighteen investment sub-accounts each of
which invest in the shares of one portfolio of the New England Zenith Fund
("Zenith Fund"), the Variable Insurance Products Fund or the Variable
Insurance Products Fund II. The portfolios of the Zenith Fund, the Variable
Insurance Products Fund and the Variable Insurance Products Fund II in which
the sub-accounts invest are referred to herein as the "Eligible Funds". The
Zenith Fund, the Variable Insurance Products Fund and the Variable Insurance
Products Fund II are diversified, open-end management investment companies.
The Account purchases or redeems shares of the eighteen Eligible Funds based
on the amount of net premiums invested in the Account, transfers among the
sub-accounts, policy loans, surrender payments, and death benefit payments.
The values of the shares of the Eligible Funds are determined as of the close
of the New York Stock Exchange (normally 4:00 p.m. EST) on each day the
Exchange is open for trading. Realized gains and losses on the sale of
Eligible Funds' shares are computed on the basis of identified cost on the
trade date. Income from dividends is recorded on the ex-dividend date. Charges
for investment advisory fees and other expenses are reflected in the carrying
value of the assets of the Eligible Funds.
3. MORTALITY AND EXPENSE RISK CHARGES. NELICO charges the Account for the
mortality and expense risk NELICO assumes. The mortality risk assumed by
NELICO is the risk that insureds may live for shorter periods of time than
NELICO estimated when setting its cost of insurance charges. The expense risk
assumed by NELICO is the risk that the deductions for sales and administrative
charges may prove insufficient to cover actual cost. If these deductions are
insufficient to cover the cost of the mortality and expense risk assumed by
NELICO, NELICO absorbs the resulting losses and makes sufficient transfers to
the Fund from its general assets. Conversely, if those deductions are more
than sufficient after the establishment of any contingency reserves deemed
prudent or required by law, the excess is retained by NELICO. Currently, the
charges are made daily at an annual rate of .35% of the Account assets
attributable to fixed premium ("Zenith Life") variable policies, .45% of the
Account assets attributable to single premium ("Zenith Life One") variable
life policies, .60% of the Account assets attributable to variable ordinary
("Zenith Life Plus", "Zenith Life Plus II" and "Zenith Variable Whole Life")
life policies and limited payment ("Zenith Life Executive 65") variable life
policies, .90% of the Account assets attributable to variable survivorship
("Zenith Survivorship Life") life policies, and .75% of the Account assets
attributable to flexible premium ("Zenith Flexible Life") variable life
policies. For the modified single premium ("American Gateway") variable life
policies mortality and expense risk charges are not charged daily against the
sub-account assets but are deducted from the policy cash values monthly at an
annual rate of .90%.
4. NET PREMIUM TRANSFERS AND DEDUCTIONS FROM CASH VALUE. Certain deductions
are made from each premium payment paid to NELICO to arrive at a net premium
that is transferred to the Account. Certain deductions are made from cash
value in the sub-accounts. These deductions, depending on the policy, could
include sales loads,
F-18
<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 an
indirect subsidiary of NELICO, Capital Growth Management Limited Partnership
("CGM"), and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------------------ -------------------------------------
<S> <C> <C>
Capital Growth CGM* --
Back Bay Advisors Money TNE Advisers, Inc. Back Bay Advisors, L.P.*
Market
Back Bay Advisors Bond TNE Advisers, Inc. Back Bay Advisors, L.P.*
Income
Back Bay Advisors TNE Advisers, Inc. Back Bay Advisors, L.P.*
Managed
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Westpeak Growth and TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Income
Loomis Sayles Avanti TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Growth
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Morgan Stanley TNE Advisers, Inc. Morgan Stanley Asset Management Inc.
International Magnum
Equity
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
Salomon Brothers U.S. TNE Advisers, Inc. Salomon Brothers Asset Management Inc
Government
Salomon Brothers TNE Advisers, Inc. Salomon Brothers Asset Management Inc
Strategic Bond
Opportunities
</TABLE>
* An affiliate of NELICO
Effective May 1, 1997 the Draycott International Equity Series was renamed the
Morgan Stanley International Magnum Equity Series and a new Sub-advisory
agreement between TNE Advisers, Inc. and Morgan Stanley Asset Management Inc.
went into effect replacing the prior agreement between TNE Advisers, Inc. and
Draycott Partners, Ltd.
On January 28, 1998, the Fund's Board of Trustees approved new advisory and
subadvisory agreements (the "New Agreements") relating to the Loomis Sayles
Avanti Growth Series between TNE Advisers, Inc. and the Fund on behalf of the
Series, and between TNE Advisers, Inc. and Goldman Sachs Asset Management
("Goldman Sachs"), respectively. The New Agreements, which are subject to
shareholder approval, are expected to become effective on or about May 1,
1998. Under the New Agreements, Goldman Sachs would become the subadviser of
the Series, succeeding Loomis Sayles & Company, L.P., and would become
responsible for the day-to-day management of the Series' investment operations
under the oversight of TNE Advisers, Inc. Accordingly, the name of the Series
would be changed to the "Goldman Sachs Midcap Value Series" at the time the
New Agreements take effect. Goldman Sachs is a separate operating division of
Goldman, Sachs & Co., a privately-owned global financial services company.
F-19
<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, 1997:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth Series $190,848,855 $152,123,058
Back Bay Advisors Money Market Series 165,843,613 162,797,235
Back Bay Advisors Bond Income Series 19,577,841 13,951,014
Back Bay Advisors Managed Series 12,248,935 9,123,459
Westpeak Stock Index Series 31,190,566 13,926,513
Westpeak Growth and Income Series 16,870,544 7,986,008
Loomis Sayles Avanti Growth Series 14,966,505 10,913,924
Loomis Sayles Small Cap Series 35,774,167 14,288,925
Loomis Sayles Balanced Series 6,944,300 3,461,274
Morgan Stanley International Magnum Equity Series 7,071,617 3,577,480
Davis Venture Value Series 41,982,387 11,519,957
Alger Equity Growth Series 27,712,451 13,170,766
Salomon Brothers U.S. Government Series 315,478 195,450
Salomon Brothers Strategic Bond Opportunities
Series 711,406 148,625
VIP Equity-Income Portfolio 43,541,020 28,601,305
VIP Overseas Portfolio 33,752,160 24,396,016
VIP High Income Portfolio 5,573,049 2,765,596
VIP II Asset Manager Portfolio 3,323,050 2,105,248
</TABLE>
F-20
<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 American Gateway
Series, the mortality and expense risk charge is deducted monthly from the
cash values rather than daily from sub-account assets and, therefore, does not
impact sub-account net investment returns). These figures do not reflect
charges deducted from premiums and the cash values of the policies. Such
charges will affect the actual cash values and benefits of the policies.
Certain amounts have been restated to conform with the current calculation of
net investment return to provide greater comparability with industry
convention.
FIXED PREMIUM ("ZENITH LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.11%) 30.30% (3.82%) 53.45% (6.38%) 14.57% (7.39%) 37.55% 20.65% 23.05%
Bond Income............. 7.99% 11.91% 7.71% 17.55% 7.80% 12.22% (3.70%) 20.78% 4.24% 10.50%
Money Market............ 7.14% 8.87% 7.81% 5.84% 3.43% 2.61% 3.61% 5.33% 4.76% 4.97%
<CAPTION>
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.93% 29.70% (4.48%) 29.98% 6.92% 9.34% 0.76% 36.44% 22.04% 32.03%
Managed................. 9.10% 18.67% 2.85% 19.75% 6.33% 10.26% (1.46%) 30.81% 14.62% 26.12%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.47% (0.62%) 29.90% 17.20% 16.91%
Growth and Income.................................................... 13.97% (1.55%) 35.99% 17.68% 33.01%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity-Income........................................................ 9.29% 6.69% 34.62% 13.88% 27.66%
Overseas............................................................. 14.57% 1.37% 9.30% 12.82% 11.17%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.45%) 28.40% 30.22% 24.42%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.58%) 20.18% 13.63% 17.26%
Asset Manager................................................................. (4.41%) 16.55% 14.20% 20.23%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.84% 12.78% 25.19%
Balanced............................................................................... 13.75% 16.50% 15.77%
International Equity................................................................... 3.85% 6.30% (1.64%)
Venture Value.......................................................................... 21.64% 25.40% 33.03%
</TABLE>
F-21
<PAGE>
SINGLE PREMIUM ("ZENITH LIFE ONE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.20%) 30.17% (3.91%) 53.29% (6.47%) 14.46% (7.38%) 37.41% 20.53% 22.92%
Bond Income............. 7.88% 11.79% 7.60% 17.43% 7.69% 12.10% (3.80%) 20.66% 4.14% 10.39%
Money Market............ 7.03% 8.77% 7.71% 5.74% 3.33% 2.51% 3.35% 5.23% 4.65% 4.87%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.82% 29.57% (4.58%) 29.85% 6.81% 9.23% 0.66% 36.30% 21.91% 31.90%
Managed................. 8.99% 18.55% 2.75% 19.63% 6.22% 10.15% (1.56%) 30.67% 14.51% 25.99%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.39% (0.72%) 29.77% 17.08% 16.80%
Growth and Income.................................................... 13.90% (1.65%) 35.85% 17.56% 32.87%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity Income........................................................ 9.22% 6.59% 34.49% 13.77% 27.53%
Overseas............................................................. 14.49% 1.27% 9.19% 12.70% 11.05%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.52%) 28.27% 30.09% 24.29%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.61%) 20.06% 13.52% 17.14%
Asset Manager................................................................. (4.45%) 16.43% 14.09% 20.11%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.76% 12.66% 25.06%
Balanced............................................................................... 13.67% 16.39% 15.66%
International Equity................................................................... 3.79% 6.19% (1.74%)
Venture Value.......................................................................... 21.56% 25.27% 32.90%
</TABLE>
F-22
<PAGE>
VARIABLE ORDINARY ("ZENITH LIFE PLUS", "ZENITH LIFE PLUS II" AND "ZENITH
VARIABLE WHOLE LIFE") AND
LIMITED PAYMENT ("ZENITH LIFE EXECUTIVE 65") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.34%) 29.98% (4.06%) 53.06% (6.61%) 14.28% (7.62%) 37.21% 20.34% 22.74%
Bond Income............. 7.72% 11.63% 7.44% 17.25% 7.53% 11.94% (3.94%) 20.47% 3.98% 10.23%
Money Market............ 6.87% 8.60% 7.54% 5.58% 3.18% 2.36% 3.35% 5.07% 4.50% 4.71%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.65% 29.37% (4.72%) 29.65% 6.65% 9.07% 0.51% 36.10% 21.73% 31.70%
Managed................. 8.83% 18.37% 2.59% 19.45% 6.06% 9.99% (1.70%) 30.48% 14.34% 25.81%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.28% (0.87%) 29.57% 16.90% 16.62%
Growth and Income.................................................... 13.78% (1.80%) 35.65% 17.38% 32.67%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity-Income........................................................ 9.11% 6.43% 34.29% 13.59% 27.34%
Overseas............................................................. 14.38% 1.12% 9.02% 12.53% 10.89%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.61%) 28.08% 29.90% 24.11%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.66%) 19.88% 13.35% 16.96%
Asset Manager................................................................. (4.49%) 16.26% 13.91% 19.93%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.64% 12.49% 24.88%
Balanced............................................................................... 13.56% 16.21% 15.48%
International Equity................................................................... 3.68% 6.03% (1.89%)
Venture Value.......................................................................... 21.44% 25.08% 32.70%
</TABLE>
F-23
<PAGE>
VARIABLE SURVIVORSHIP ("ZENITH SURVIVORSHIP LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.61%) 29.59% (4.35%) 52.61% (6.90%) 13.94% (7.90%) 36.80% 19.98% 22.37%
Bond Income............. 7.40% 11.29% 7.11% 16.90% 7.21% 11.60% (4.23%) 20.12% 3.67% 9.90%
Money Market............ 6.55% 8.28% 7.22% 5.26% 2.87% 2.05% 3.04% 4.75% 4.18% 4.39%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.30% 28.99% (5.01%) 29.27% 6.33% 8.74% 0.21% 35.69% 21.36% 31.31%
Managed................. 8.50% 18.02% 2.28% 19.10% 5.74% 9.69% (2.00%) 30.09% 13.99% 25.43%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.05% (1.16%) 29.19% 16.55% 16.27%
Growth and Income.................................................... 13.55% (2.09%) 35.25% 17.03% 32.28%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity-Income........................................................ 8.89% 6.11% 33.89% 13.25% 26.96%
Overseas............................................................. 14.15% 0.82% 8.70% 12.19% 10.56%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.80%) 27.69% 29.50% 23.73%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.76%) 19.53% 13.00% 16.61%
Asset Manager................................................................. (4.59%) 15.91% 13.57% 19.57%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.39% 12.15% 24.50%
Balanced............................................................................... 13.33% 15.86% 15.14%
International Equity................................................................... 3.48% 5.71% (2.18%)
Venture Value.......................................................................... 21.20% 24.71% 32.30%
</TABLE>
F-24
<PAGE>
FLEXIBLE PREMIUM ("ZENITH FLEXIBLE LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.47%) 31.88% (5.73%) 52.83% (6.75%) 14.11% (7.76%) 37.00% 20.16% 22.56%
Bond Income............. 7.56% 11.46% 7.28% 17.08% 7.37% 11.77% (4.08%) 20.29% 3.82% 10.06%
Money Market............ 6.71% 8.44% 7.38% 5.42% 3.02% 2.20% 3.20% 4.91% 4.34% 4.55%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.47% 29.18% (4.86%) 29.46% 6.49% 8.90% 0.36% 35.90% 21.55% 31.51%
Managed................. 8.67% 18.20% 2.44% 19.28% 5.90% 9.82% (1.85%) 30.28% 14.16% 25.62%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.16% (1.01%) 29.38% 16.72% 16.45%
Growth and Income.................................................... 13.67% (1.94%) 35.45% 17.21% 32.47%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity-Income........................................................ 9.00% 6.27% 34.09% 13.42% 27.15%
Overseas............................................................. 14.26% 0.97% 8.86% 12.36% 10.72%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.71%) 27.88% 29.70% 23.92%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.71%) 19.71% 13.17% 16.79%
Asset Manager................................................................. (4.54%) 16.08% 13.74% 19.75%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.51% 12.32% 24.69%
Balanced............................................................................... 13.44% 16.03% 15.31%
International Equity................................................................... 3.58% 5.87% (2.04%)
Venture Value.......................................................................... 21.32% 24.89% 32.50%
</TABLE>
F-25
<PAGE>
MODIFIED SINGLE PREMIUM ("AMERICAN GATEWAY") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income............. 8.37% 12.30% 8.09% 17.96% 8.18% 12.61% (3.36%) 21.20% 4.61% 10.89%
Money Market............ 7.52% 9.25% 8.19% 6.21% 3.80% 2.97% 3.97% 5.70% 5.13% 5.34%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 16.34% 30.15% (4.14%) 30.43% 7.30% 9.72% 1.12% 36.92% 22.47% 32.50%
Managed................. 9.48% 19.08% 3.21% 20.17% 6.70% 10.65% (1.11%) 31.26% 15.03% 26.56%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.74% (0.27%) 30.35% 17.61% 17.32%
Growth and Income.................................................... 14.24% (1.21%) 36.47% 18.10% 33.47%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.23%) 28.84% 30.68% 24.85%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 25.13% 13.17% 25.63%
Balanced............................................................................... 14.01% 16.91% 16.18%
International Equity................................................................... 4.01% 6.67% (1.30%)
Venture Value.......................................................................... 21.92% 25.84% 33.50%
6/28/96- 1/1/97-
SUB-ACCOUNT 12/31/96 12/31/97
- ----------- -------- --------
U.S. Government................................................................................. 4.55% 8.47%
Strategic Bond Opportunities.................................................................... 8.46% 11.07%
</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-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of New England
Life Insurance Company (formerly New England Variable Life Insurance Company)
and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the New England Life Insurance
Company and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
In 1996, as discussed in Note 1 to the financial statements, the Company (1)
adopted all applicable generally accepted accounting principles as required
for mutual life insurance enterprises (or wholly-owned stock life insurance
company subsidiaries of mutual life insurance enterprises) by Interpretation
No. 40, Applicability of Generally Accepted Accounting Principles to Mutual
Life Insurance and Other Enterprises, and Statement of Financial Accounting
Standards No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long Duration
Participating Policies; and (2) reflected the effects of the changes in
corporate organizations.
The consolidated statements of earnings, equity, and cash flows for the period
ended December 31, 1995 present the combination of the individual financial
statements of New England Variable Life Insurance Company and other entities
listed in Note 1. Such individual financial statements were audited by other
auditors before the applicable effects of the changes described in the
paragraph above and their reports on the financial statements of each of the
insurance entities listed in Note 1 expressed an adverse opinion as to the
conformity with generally accepted accounting principles and an unqualified
opinion as to conformity with statutory principles and their reports on the
financial statements of each of the other entities expressed an unqualified
opinion. We have audited the adjustments that were applied to restate the 1995
financial statements to reflect the effects of the changes for the adoption of
generally accepted accounting principles and the changes in corporate
organization as described in Note 1. In our opinion, such adjustments are
appropriate and have been properly applied.
DELOITTE & TOUCHE LLP
February 17, 1998
Boston, Massachusetts
N-1
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES 1997 1996
----- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed Maturities:
Available for Sale, at Estimated Fair Value...... 2,11 $ 734,391 $ 524,285
Held to Maturity, at Amortized Cost.............. 2 -- 29,666
Equity Securities................................. 2,11 9,399 --
Policy Loans...................................... 11 104,783 76,263
Real Estate....................................... 2,757 1,702
Short-Term Investments............................ 11 27,944 156,560
Other Invested Assets............................. 24,349 12,956
---------- ----------
Total Investments.............................. 903,623 801,432
Cash and Cash Equivalents.......................... 11 74,148 49,147
Deferred Policy Acquisition Costs.................. 565,769 434,637
Accrued Investment Income.......................... 18,712 13,713
Premiums and Other Receivables..................... 4 63,036 5,941
Other Assets....................................... 62,326 95,106
Separate Account Assets............................ 1,988,225 1,206,959
---------- ----------
TOTAL ASSETS................................... $3,675,839 $2,606,935
========== ==========
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits............................. 4 $ 500,429 $ 464,889
Policyholder Account Balances...................... 4,11 240,411 181,594
Other Policyholder Funds........................... 11 8,380 2,071
Policyholder Dividends Payable..................... 14,719 9,018
Short and Long-Term Debt........................... 8,11 85,981 84,057
Income Taxes Payable: 5
Current........................................... 9,102 6,272
Deferred.......................................... 42,066 39,463
Due to Parent...................................... 107,337 40,225
Other Liabilities.................................. 45,647 21,965
Separate Account Liabilities....................... 1,988,225 1,206,959
---------- ----------
TOTAL LIABILITIES.............................. 3,042,297 2,056,513
---------- ----------
Commitments and Contingencies (Notes 2, 4, 8 and 9)
EQUITY
Common Stock, $125.00 par value; 50,000 shares
authorized, 20,000 shares issued and outstanding.. 2,500 2,500
Contributed Capital................................ 545,477 497,946
Retained Earnings.................................. 68,218 46,249
Net Unrealized Investment Gains.................... 3 17,347 3,727
---------- ----------
TOTAL EQUITY................................... 12 633,542 550,422
---------- ----------
TOTAL LIABILITIES AND EQUITY....................... $3,675,839 $2,606,935
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
N-2
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Premiums...................................... 4 $ 63,616 $ 37,410 $ 38,566
Universal Life and Investment-Type Product
Policy Fee Income............................ 145,157 101,756 79,371
Net Investment Income......................... 3 61,059 49,628 41,815
Investment Gains (Losses), Net................ 3 890 8,822 10,514
Commissions, Fees and Other Income............ 28,302 44,930 34,555
-------- -------- --------
TOTAL REVENUES.............................. 299,024 242,546 204,821
-------- -------- --------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits......................... 4 100,180 65,520 55,810
Interest Credited to Policyholder Account
Balances..................................... 6,220 5,558 2,564
Policyholder Dividends........................ 21,325 14,830 13,954
Other Operating Costs and Expenses............ 10 144,342 143,886 99,424
-------- -------- --------
TOTAL BENEFITS AND OTHER DEDUCTIONS......... 272,067 229,794 171,752
-------- -------- --------
Earnings from Operations before Income Taxes.. 26,957 12,752 33,069
Income Taxes.................................. 5 4,988 3,051 12,303
-------- -------- --------
NET EARNINGS.................................. $ 21,969 $ 9,701 $ 20,766
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
N-3
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EQUITY
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK & NET UNREALIZED
CONTRIBUTED RETAINED INVESTMENT
CAPITAL EARNINGS GAINS (LOSSES) TOTAL
----------- -------- -------------- --------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994.... 228,057 15,782 (670) 243,169
Net Earnings..................... 20,766 20,766
Change in Net Unrealized Invest-
ment Gains (Losses)............. 27,026 27,026
Contributed Capital.............. 63,543 63,543
-------- ------- -------- --------
BALANCES AT DECEMBER 31, 1995.... 291,600 36,548 26,356 354,504
Net Earnings..................... 9,701 9,701
Change in Net Unrealized Invest-
ment Gains (Losses)............. (22,629) (22,629)
Contributed Capital.............. 208,846 208,846
-------- ------- -------- --------
BALANCES AT DECEMBER 31, 1996.... 500,446 46,249 3,727 550,422
Net Earnings..................... 21,969 21,969
Change in Net Unrealized Invest-
ment Gains (Losses)............. 13,620 13,620
Contributed Capital.............. 47,531 47,531
-------- ------- -------- --------
BALANCES AT DECEMBER 31, 1997.... $547,977 $68,218 $ 17,347 $633,542
======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
N-4
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES......... $(121,838) $ (85,674) $(111,834)
--------- --------- ---------
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Available for Sale Fixed Maturities.......... 178,003 276,420 538,297
Held to Maturity Fixed Maturities............ -- 10,519 625
Mortgage Loans on Real Estate................ -- 2,210 12
Other, Net................................... 128 -- --
Purchases of:
Available for Sale Fixed Maturities.......... (326,059) (259,713) (983,518)
Real Estate.................................. -- (480) --
Fixed Asset Property and Equipment........... (101) (3,786) --
Other Assets................................. -- (11,024) (15)
Net Change in Short-Term Investments......... 128,616 (135,731) 379,325
Net Change in Policy Loans................... (28,520) (18,052) (14,243)
Other, Net................................... 177 67 (114)
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES......... (47,756) (139,570) (79,631)
--------- --------- ---------
Cash Flows from Financing Activities:
Common Stock
Capital Contributions........................ 46,681 159,162 9,515
Borrowed Money............................... (3,181) -- 25,000
Policyholder Account Balances
Deposits..................................... 244,338 482,552 281,762
Withdrawals.................................. (95,066) (364,933) (148,403)
Financial Reinsurance Receivables............ 1,823 (37,519) --
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES..... 194,595 239,262 167,874
--------- --------- ---------
Change in Cash and Cash Equivalents........... 25,001 14,018 (23,591)
Cash and Cash Equivalents, Beginning of Year.. 49,147 35,129 58,720
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR........ $ 74,148 $ 49,147 $ 35,129
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid................................ $ 1,495 $ 1,523 $ 1,277
========= ========= =========
Income Taxes Paid............................ $ 5,470 $ 4,721 $ 6,765
========= ========= =========
NET EARNINGS.................................. 21,969 9,701 20,766
Adjustments to Reconcile Net Earnings to Net
Cash Provided by (Used in) Operating
Activities:
Change in Deferred Policy Acquisition Costs,
Net......................................... (140,578) (68,626) (45,823)
Change in Accrued Investment Income.......... (4,999) 909 (11,507)
Change in Premiums and Other Receivables..... (57,095) 4,370 (4,073)
Gains from Sales of Investments, Net......... (890) (15,979) (21,980)
Depreciation and Amortization Expenses....... 10,085 4,120 5,725
Interest Credited to Policyholder Account
Balances.................................... 6,220 5,558 2,565
Universal Life and Investment-Type Product
Policy Fee Income........................... -- (101,756) (79,371)
Change in Future Policy Benefits............. 35,540 18,202 14,539
Change in Other Policyholder Funds........... 6,309 (283) 1,789
Change in Policyholder Dividends Payable..... 5,701 1,671 114
Change in Income Taxes Payable............... 1,674 (6,634) 10,211
Other, Net................................... (5,774) 63,073 (4,789)
--------- --------- ---------
NET CASH USED BY OPERATING ACTIVITIES......... $(121,838) $ (85,674) $(111,834)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
N-5
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
New England Life Insurance Company and its subsidiaries (the Company) is a
wholly-owned stock life insurance subsidiary of Metropolitan Life Insurance
Company (MetLife). The Company principally provides variable life insurance
and variable annuity products through a network of general agencies located
throughout the United States. The Company also provides participating
traditional life insurance, annuity contracts, pension products, as well as,
group life, group medical, and group disability coverage.
Prior to the merger of New England Mutual Life Insurance Company (NEMLICO)
with MetLife on August 30, 1996, New England Life Insurance Company (NELICO),
formerly known as New England Variable Life Insurance Company (NEVLICO) was a
subsidiary of NEMLICO. NEMLICO was merged directly into MetLife and ceased to
exist as a separate mutual life insurance company. In conjunction with the
merger, NEVLICO became a subsidiary of MetLife and changed its name to New
England Life Insurance Company. NELICO has continued after the merger to
conduct its existing businesses and is also administering the business
activities of the former parent NEMLICO. (Note 13)
NELICO is headquartered in Boston, Massachusetts and became a Massachusetts
chartered company through a legal process known as redomestication. Prior to
the merger, NEVLICO was organized under Delaware law. The capital structure of
NELICO continues in the same form subsequent to the merger with common stock
authorized at 50,000 shares and 20,000 shares issued and outstanding with a
par value of $125 per share. MetLife made an additional statutory capital
contribution to NELICO at the merger date totaling $208,846 consisting of
$129,254 of cash and $79,592 of bonds, real estate, mortgages, common stock of
affiliates and furniture and equipment. Prior to the merger, NELICO received a
capital contribution from NEMLICO for $20,000 in cash. MetLife made an
additional statutory capital contribution to NELICO of $50,000 in cash during
1997, which was offset by $2,469 of returned capital.
Certain companies that were subsidiaries of NEMLICO became subsidiaries of
NELICO as of the merger. The principal subsidiaries of which NELICO owns 100%
of the outstanding common stock are: Exeter Reassurance Company, Ltd., New
England Pension and Annuity Company, and Newbury Insurance Company, Limited,
for insurance operations and New England Securities Corporation and TNE
Advisers, Inc. for other operations. On February 28, 1997, NELICO created and
became the sole owner of New England Life Holdings, Inc. which was established
as a holding company for the non-insurance operations of the Company,
principally, New England Securities and TNE Advisers, Inc. The principal
business activities of the subsidiaries are disclosed below.
Exeter Reassurance Company, Ltd., (Exeter) was incorporated in Bermuda on
November 15, 1994, and registered as an insurer under The Insurance Act 1978
(Bermuda). Exeter engages in financial reinsurance of life insurance and
annuity policies.
New England Pension and Annuity Company (NEPA) was incorporated under the laws
of the State of Delaware on September 12, 1980. NEPA holds licenses in 20
states, but is currently not actively engaged in the sale or distribution of
insurance products.
New England Securities Corporation (NES), a National Association of Securities
Dealers (NASD) registered broker/dealer, conducts business as a wholesale
distributor of investment products through the sales force of NELICO.
Established in 1968, NES offers a range of investment products including
mutual funds, investment partnerships, and individual securities. In 1994, NES
became a Registered Investment Advisor with the Securities and Exchange
Commission (SEC) and now offers individually managed portfolios. NES is the
national distributor for variable annuity and variable life products issued by
NELICO. NES is the sole owner of Hereford Insurance Agency, Inc.
N-6
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Newbury Insurance Company, Limited (Newbury) was incorporated in Bermuda on
May 1, 1987, and is registered as a Class 2 insurer under The Insurance Act
1978 (Bermuda). Newbury provides professional liability and personal injury
coverage to the agents of NELICO through a facultative reinsurance agreement
with Lexington Insurance Company. The policy applies to claims made during the
policy period or during the discovery period with limits of $1,000 each claim,
$1,000 annual aggregate each insured, $3,500, $3,500 and $3,000 annual
aggregate all insured in 1997, 1996 and 1995 respectively.
TNE Advisers, Inc. was incorporated on August 26, 1994, and is registered as
an investment adviser with the SEC, under the Investment Advisers Act of 1940.
TNE Advisers, Inc. was organized to serve as an investment adviser to certain
mutual funds of the New England Zenith Fund and does not intend to engage in
any business activities other than providing investment management and
administrative services.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP), and include
the accounts of NELICO and its subsidiaries in which NELICO has control and a
majority economic interest. The consolidated financial statements have been
prepared as though the current reporting entity had always existed.
Significant intercompany transactions and balances have been eliminated in
consolidation.
Prior to 1996, NELICO, as a wholly owned stock life insurance subsidiary of a
mutual life insurance company, prepared its financial statements in conformity
with accounting practices prescribed or permitted by the Insurance Department
of the State of Delaware (statutory financial statements), which accounting
practices were considered to be GAAP. In 1996, NELICO adopted Interpretation
No. 40, APPLICABILITY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO MUTUAL
LIFE INSURANCE AND OTHER ENTERPRISES (the "Interpretation") and Statement of
Financial Accounting Standards (SFAS) No. 120, ACCOUNTING AND REPORTING BY
MUTUAL LIFE INSURANCE ENTERPRISES AND BY INSURANCE ENTERPRISES FOR CERTAIN
LONG DURATION PARTICIPATING POLICIES (the "Standard"), of the Financial
Accounting Standards Board (FASB). The Interpretation and Standard required
mutual life insurance companies to adopt all standards promulgated by the FASB
in their general purpose financial statements. The cumulative effect of such
adoption of all applicable authoritative GAAP pronouncements as of January 1,
1994 was reflected in the financial statements of NELICO as an adjustment of
equity at January 1, 1994.
As of December 31, 1993, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", which expanded the use of fair value accounting for those
securities that a company does not have positive intent and ability to hold to
maturity. Implementation of SFAS No. 115 increased consolidated equity by
$105, net of deferred income taxes and adjustments of deferred policy
acquisition costs and future policy benefits.
Effective July 1, 1997, management realigned its fixed maturity investment
classifications and transferred all securities classified as held to maturity
to available for sale. As a result, consolidated equity at July 1, 1997
increased by $798, excluding the effects of deferred income taxes, amounts
attributable to participating pension contractholders and adjustments of
deferred policy acquisition costs and future policy benefits.
N-7
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
VALUATION OF INVESTMENTS
As mentioned above, during 1997 management reclassified all of the company's
fixed maturity securities to available for sale. Accordingly, as of December
31, all of the company's investment securities are carried at estimated fair
value. Prior to this reclassification, certain fixed maturity securities
(principally bonds) were carried at amortized cost. Unrealized investment
gains and losses on investment securities are recorded directly as a separate
component of equity net of related deferred income taxes and adjustments of
deferred policy acquisition costs and future policy benefits. Costs of
securities are adjusted for impairments in value deemed to be other than
temporary. Such adjustments are recorded as realized investment losses. All
securities transactions are recorded on a trade date basis.
Real estate is considered held for sale by management and is reported at the
lower of cost or estimated fair market value less allowances for the estimated
cost of sales. No impairment allowance is required on the property.
Policy loans are stated at unpaid principal balances which approximates fair
value.
Short-term investments are stated at amortized cost which approximates fair
value.
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less. These are carried at cost, which approximates fair value.
INVESTMENT RESULTS
Realized investment gains and losses are determined by specific identification
and are presented as a component of revenues. Valuation allowances are netted
against asset categories to which they apply and provisions for losses for
investments are included in investment gains and losses.
PROPERTY AND EQUIPMENT
Property and equipment and leasehold improvements are included in other assets
and are stated at cost, less accumulated depreciation and amortization.
Depreciation is provided using the straight line method over the estimated
useful lives of the assets which generally range from 4 to 15 years or the
term of the lease, if shorter. Amortization of leasehold improvements is
provided using the straight line method over the lesser of the term of the
leases or the estimated useful life of the improvements.
Accumulated depreciation and amortization on property and equipment and
leasehold improvements was $13,203, and $3,118 at December 31, 1997 and 1996,
respectively. Related depreciation and amortization expense was $10,085,
$3,118, and $0 for the years ended December 31, 1997, 1996 and 1995,
respectively.
RECOGNITION OF INCOME AND EXPENSES
Premiums from traditional life and annuity policies with life contingencies
are generally recognized as income when due. Benefits and expenses are matched
with such income so as to result in the recognition of profits over the life
of the contract. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
Reinsurance allowances for individual non-medical health contracts are
recognized as income when due.
Premiums from variable life, universal life and investment-type contracts are
reported as deposits to policyholder account balances. Revenues from these
contracts consist of amounts assessed during the period against policyholder
account balances for mortality charges, policy administration charges and
surrender charges. Policy benefits and claims that are charged to expense
include benefit claims incurred in the period in excess of related
policyholder account balances and interest credited to policyholder account
balances.
N-8
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, agency and
policy issue expenses, all of which vary with and are primarily related to the
production of new business, have been deferred. Deferred policy acquisition
costs are subject to recoverability testing at the time of policy issue and
loss recognition testing at the end of each accounting period.
Deferred policy acquisition costs are amortized over a period up to 40 years
for traditional life, variable life, universal life products and investment-
type products as a constant percentage of estimated gross margins or profits
arising principally from surrender charges and interest, mortality and expense
margins based on historical and anticipated future experience, updated
regularly. The effects of revisions to experience on previous amortization of
deferred policy acquisition costs are reflected in earnings in the period
estimated gross margins or profits are revised.
For non-medical health insurance contracts, deferred policy acquisition costs
are amortized over the life of the contracts (generally between 10 and 30
years) in proportion to anticipated reinsurance allowances.
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life insurance
policies are equal to the aggregate of net level premium reserve for death and
endowment policy benefits and the liability for terminal dividends. The net
level premium reserve is calculated based on the dividend fund interest rate
and mortality rates guaranteed in calculating the cash surrender values
described in such contracts. Interest rates used in establishing future policy
benefit liabilities range from 4 percent to 5 percent for life insurance
policies.
Policyholder account balances for variable life, universal life and
investment-type contracts are equal to the policy account values. The policy
account values represent an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
Benefit liabilities for non-medical health insurance are calculated as the net
GAAP liability plus the unamortized deferred acquisition costs. Benefit
liabilities for disabled lives are estimated using the present value of
benefits method and experience assumptions as to claim terminations, expenses
and interest.
INCOME TAXES
NELICO and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., files a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and nonlife
insurance direct subsidiaries. The future tax consequences of temporary
differences between financial reporting and tax basis of assets and
liabilities are measured as of the balance sheet dates and are recorded as
deferred income tax assets or liabilities.
SEPARATE ACCOUNT OPERATIONS
Separate Accounts are established in conformity with the state insurance laws
and are generally not chargeable with liabilities that arise from any other
business of the Company. Separate Account assets are subject to general
account claims only to the extent the value of such assets exceed the Separate
Account liabilities.
Investments held in the Separate Accounts (stated at estimated fair market
value) and liabilities of the Separate Accounts (including participants'
corresponding equity in the Separate Accounts) are reported separately as
assets and liabilities. Deposits to Separate Accounts are reported as
increases in Separate Account liabilities and are not reported in revenues.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues.
N-9
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
POLICYHOLDER DIVIDENDS
The amount of policyholder dividends to be paid is determined annually by the
Board of Directors. The aggregate amount of policyholder dividends is related
to actual interest, mortality, morbidity and expense experience for the year
and management's judgment as to the appropriate level of statutory surplus to
be retained by the Company.
CONSOLIDATED STATEMENTS OF CASH FLOWS--NON CASH TRANSACTIONS
For the years ended December 31, 1997, 1996 and 1995, the Company received
capital contributions in the form of transfer of assets of $0, $79,592 and
$54,028, respectively.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
The FASB has issued SFAS No. 130 REPORTING COMPREHENSIVE INCOME which
establishes standards for reporting and presentation of comprehensive income
and its components. Comprehensive income (loss) was $35,589, $(12,928), and
$47,792 in 1997, 1996, and 1995, respectively. Consolidated statements of
comprehensive income, which will be required in 1998, have not been presented
as the Company has not determined the individual amounts to be displayed in
such statements.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts to conform to
the 1997 presentation.
N-10
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
2. INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
The amortized cost, gross unrealized gain (loss) and estimated fair value of
fixed securities and equity securities, by category, are shown below.
AVAILABLE FOR SALE SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 12,105 $ 101 $ -- $ 12,206
Foreign governments.................... 2,316 67 -- 2,383
Corporate.............................. 620,916 41,564 3,308 659,172
Mortgage-backed securities............. 57,348 3,282 -- 60,630
-------- -------- ------- --------
Total Fixed Maturities............... $692,685 $ 45,014 $ 3,308 $734,391
======== ======== ======= ========
Equity Securities:
Common stocks.......................... 9,424 216 241 9,399
-------- -------- ------- --------
Total Equity Securities.............. $ 9,424 $ 216 $ 241 $ 9,399
======== ======== ======= ========
AVAILABLE FOR SALE SECURITIES
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 5,465 $ 47 $ 25 $ 5,487
Foreign governments.................... 1,577 1 57 1,521
Corporate.............................. 505,683 18,637 7,093 517,227
Mortgage-backed securities............. 49 1 -- 50
-------- -------- ------- --------
Total Fixed Maturities............... $512,774 $ 18,686 $ 7,175 $524,285
======== ======== ======= ========
HELD TO MATURITY SECURITIES
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 7,299 $ 51 $ 6 $ 7,344
States and political subdivisions...... 480 38 -- 518
Corporate.............................. 21,887 860 99 22,648
-------- -------- ------- --------
Total Fixed Maturities............... $ 29,666 $ 949 $ 105 $ 30,510
======== ======== ======= ========
</TABLE>
N-11
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Included in net unrealized investment gains (losses) are unrealized gains on
foreign currency investments as well as unrealized gains on the associated
forward foreign exchange contracts. Unrealized investment gains (losses)
consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net unrealized gains on investments................................ $281 $ 8
Unrealized gains (losses) on the maturity of forward contracts..... 14 14
---- ---
$295 $22
==== ===
</TABLE>
The amortized cost and estimated fair value of bonds classified as available
for sale, by contractual maturity, at December 31, 1997 are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less................................. $ 5,729 $ 5,723
Due after one year through five years................... 61,395 62,503
Due after five years through ten years.................. 155,795 157,820
Due after ten years..................................... 412,418 447,715
-------- --------
Subtotal.............................................. 635,337 673,761
Mortgage-backed securities.............................. 57,348 60,630
-------- --------
Total................................................. $692,685 $734,391
======== ========
</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.
ASSETS HELD IN TRUST FOR THE BENEFIT OF OTHER PARTIES
Exeter has deposited in a trust for the benefit of MetLife certain assets for
the purpose of allowing MetLife to record a reserve credit as permitted by
regulations of the State of New York. Under the terms of the Trust Agreement
MetLife enjoys broad powers to withdraw funds from the trust for the payment
of policyholder claims incurred by Exeter under its reinsurance treaty and to
direct the investment of funds held in the trust. The Trust Agreement limits
the types of investments that may be held in trust to cash and certificates of
deposit, U.S. Government bonds and notes and publicly traded securities of
U.S. companies having a National Association of Insurance Commissioners (NAIC)
rating of 1. At December 31, 1997 the trust held $516,491 of bonds and short-
term investments, and at December 31, 1996, the trust held $787 of cash and
$468,847 of bonds and short-term investments.
ASSETS ON DEPOSIT
As of December 31, 1997 and 1996, the Company had assets on deposit with
regulatory agencies of $7,020 and $5,884, respectively.
N-12
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
3. NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................. $50,348 $44,630 $39,264
Equity securities................................ 4,915 -- --
Mortgage loans on real estate.................... -- 110 234
Real estate...................................... 815 55 --
Policy loans..................................... 5,081 3,734 2,831
Cash, cash equivalents and short-term
investments..................................... 4,160 3,656 1,174
Other investment income.......................... 591 38 --
------- ------- -------
Gross investment income.......................... 65,910 52,223 43,503
Investment expenses.............................. (4,851) (2,595) (1,688)
------- ------- -------
Net Investment income............................ $61,059 $49,628 $41,815
======= ======= =======
</TABLE>
Investment gains (losses) are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Fixed maturities................................... $ (774) $15,467 $21,981
Other.............................................. 1,032 512 (1)
------ ------- -------
Subtotal......................................... 258 15,979 21,980
Investment gains (losses) related to accelerated
amortization of deferred
policy acquisition costs.......................... (632) 7,157 11,466
------ ------- -------
Investment gains (losses), net..................... $ 890 $ 8,822 $10,514
====== ======= =======
</TABLE>
Proceeds from the sales of bonds classified as available for sale during 1997,
1996 and 1995 were $143,107, $275,008 and $518,417 respectively. During 1997,
1996 and 1995, respectively, gross gains of $1,846, $19,109 and $22,558, and
gross losses of $1,489, $3,878, and $577 were realized on those sales.
Proceeds from the call of direct issue fixed maturities classified as held to
maturity during 1997, 1996 and 1995 were $0, $5,291 and $0, respectively.
During 1997, 1996 and 1995, respectively, gross gains of $0, $236 and $0, and
gross losses of $0, $0 and $0 were realized due to prepayment premiums
received. In 1997 the Company transferred all fixed maturities classified as
held to maturity to available for sale.
N-13
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
The net unrealized investment gains (losses), which are included in the
consolidated balance sheets as a component of equity and the changes for the
corresponding years are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Year ended December 31
Balance, beginning of year................... $ 3,727 $ 26,356 $ (670)
Change in unrealized investment gains
(losses).................................. 30,207 (46,850) 58,947
Change in unrealized investment gains
(losses) attributable to:
Deferred policy acquisition cost
allowances.............................. (9,446) 12,211 (17,884)
Deferred income tax (expense) benefit.... (7,141) 12,010 (14,037)
-------- -------- --------
Balance, end of year......................... $ 17,347 $ 3,727 $ 26,356
======== ======== ========
December 31
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed maturities......................... $ 41,706 $ 11,525 $ 58,369
Other.................................... 22 (4) 2
-------- -------- --------
41,728 11,521 58,371
Amounts of unrealized investment gains
(losses) attributable to:
Deferred policy acquisition cost
allowances................................ (15,202) (5,756) (17,967)
Deferred income tax (expense) benefit...... (9,179) (2,038) (14,048)
-------- -------- --------
Balance, end of year......................... $ 17,347 $ 3,727 $ 26,356
======== ======== ========
</TABLE>
Net unrealized investment gains at December 31, 1997, before deferred Federal
income tax, reflects gross unrealized gains of $45,014 and gross unrealized
losses of $3,308.
4. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
In the normal course of business, the Company assumes and cedes reinsurance
with other insurance companies. The accompanying consolidated statements of
earnings are presented net of reinsurance.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................................ $ 30,975 $ 2,682 $ 2,794
Reinsurance assumed............................ 62,315 67,483 69,330
Reinsurance ceded.............................. (29,674) (32,755) (33,558)
-------- -------- --------
Net premiums earned............................ $ 63,616 $ 37,410 $ 38,566
======== ======== ========
</TABLE>
N-14
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Policyholder benefits in the accompanying consolidated statements of earnings
are presented net of reinsurance recoveries of $55,445, $23,962 and $22,577
for the years ended December 31, 1997, 1996 and 1995, respectively. Premiums
and other receivables in the accompanying consolidated balance sheets include
reinsurance recoveries of $1,489 and $200 at December 31, 1997 and 1996,
respectively.
A contingent liability exists with respect to reinsurance ceded should the
reinsurers be unable to meet their obligations.
5. INCOME TAXES
Income tax expense for U.S. operations has been calculated in accordance with
the provisions of the Internal Revenue Code, as amended (the "Code").
NELICO and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., files a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and nonlife
insurance direct subsidiaries. The Company uses the liability method of
accounting for income taxes. Income tax provisions are based on income
reported for financial statement purposes. Deferred income taxes arise from
the recognition of temporary differences between income determined for
financial reporting purposes and income tax purposes.
A summary of income tax expense (benefit) in the consolidated statements of
earnings is shown below:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
1997
Federal............................................ $8,473 $(3,772) $ 4,701
State and Local.................................... 316 (29) 287
------ ------- -------
Total............................................ $8,789 $(3,801) $ 4,988
====== ======= =======
1996
Federal............................................ $5,333 $(1,531) $ 3,802
State and Local.................................... -- (751) (751)
------ ------- -------
Total............................................ $5,333 $(2,282) $ 3,051
====== ======= =======
1995
Federal............................................ $5,504 $ 6,355 $11,859
State and Local.................................... -- 444 444
------ ------- -------
Total.......................................... $5,504 $ 6,799 $12,303
====== ======= =======
</TABLE>
Reconciliations of the differences between income taxes of operations computed
at the federal statutory tax rates and consolidated provisions for income
taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income before taxes.............................. $26,957 $12,752 $33,069
Income tax rate.................................. 35% 35% 35%
------- ------- -------
Expected income tax expense at federal statutory
income tax rate................................. 9,435 4,463 11,574
Tax effect of:
Change in valuation allowance.................. -- (13,948) (413)
NOL benefit write-off.......................... -- 13,012 --
State and local income taxes................... (1,013) (488) 289
Other, net..................................... (3,434) 12 853
------- ------- -------
Income Tax Expense............................... $ 4,988 $ 3,051 $12,303
======= ======= =======
</TABLE>
N-15
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
The net deferred tax liabilities recorded represents the net temporary
differences between the tax bases of assets and liabilities and their amounts
for financial reporting. The components of the net deferred tax liabilities at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities............................ $ 63,723 $ 83,304
Net operating loss carryforward..................... -- 12,548
Other............................................... 81,988 14,690
--------- ---------
Total gross assets................................ 145,711 110,542
--------- ---------
Deferred tax liabilities:
Investments......................................... (2,456) (2,526)
Deferred policy acquisition costs................... (168,270) (132,965)
Net unrealized capital gains........................ (9,179) (2,038)
Other............................................... (7,872) (12,476)
--------- ---------
Total gross liabilities........................... (187,777) (150,005)
--------- ---------
Net deferred tax liability............................ $ (42,066) $ (39,463)
========= =========
</TABLE>
The sources of the deferred tax expense (benefit) and their tax effects are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Policyholder liabilities....................... $(23,759) $(17,818) $(4,110)
Net operating loss carryforward................ 12,548 464 --
Investments.................................... 1,319 -- --
Deferred policy acquisition costs.............. 33,621 21,828 13,878
Other, net..................................... (27,530) (6,756) (2,969)
-------- -------- -------
Total........................................ $ (3,801) $ (2,282) $ 6,799
======== ======== =======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
Prior to the merger, substantially all employees were employed by NEMLICO and
were covered under the Home Office Retirement Plan and related Select
Employees' Supplemental Retirement Plan (collectively referred to as the
Plans). Subsequent to the merger substantially all of the employees became
employees of the Company and continued to be covered by the Plans, which
became the Plans of the Company. Under the Plans retirement benefits are based
primarily on years of service and the employee's average salary. The Company's
funding policy is to contribute annually an amount that can be deducted for
federal income tax purposes using a different actuarial cost method and
different assumptions from those used for financial reporting purposes. The
Company's net pension cost charged to income in 1997, 1996, and 1995 was $277,
$159, and $150, respectively, which represents the Company's allocation of the
total net periodic pension cost of the Plans as shown below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost................................... $ 5,310 $ 5,761 $ 4,797
Interest cost on projected benefit obligation.. 13,958 12,489 11,012
Actual return on assets........................ (22,250) (15,468) (21,221)
Net amortization and deferrals................. 11,092 6,009 13,059
-------- -------- --------
Net periodic pension cost.................... $ 8,110 $ 8,791 $ 7,647
======== ======== ========
</TABLE>
N-16
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
The assumed long-term rate of return on assets used in determining the net
periodic pension cost was 8.5 percent.
The following information for the Plans includes amounts relating to NEMLICO.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of accumulated plan benefits.... $143,681 $133,000
======== ========
Projected benefit obligation............................ 193,652 182,000
======== ========
Net assets available for plan benefits.................. 150,820 130,992
======== ========
Unrecognized prior service cost......................... 2,844 224
======== ========
Unrecognized net (loss) from past experience difference
from that assumed...................................... (18,936) (37,327)
======== ========
Unamortized transition gains............................ $ 5,832 $ 4,015
======== ========
</TABLE>
The weighted average discount rate was 7.75%, 7.5% and 8.0% in 1997, 1996 and
1995, respectively. The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit was 5.0% for
1997, 1996 and 1995. Assets of the Plans consist of bonds, stocks, real
estate, and insurance contracts and have an assumed long-term rate of return
of 8.75% for 1997, and 8.5% for 1996 and 1995.
OTHER POSTRETIREMENT BENEFITS
Prior to the merger, NEMLICO provided certain health care and life insurance
benefits for retired employees. Substantially all employees would have become
eligible for these benefits had they reached retirement age while working for
NEMLICO. Subsequent to the merger, these benefits are being provided by
MetLife, with respect to benefits earned prior to the merger, and the Company,
with respect to benefits earned subsequent to the merger.
As claims were incurred, the Company made contributions to the plan in 1997
and 1996 which were considered immaterial. The total contributions made to the
plan were $3,670 and $3,386, in 1997 and 1996, respectively. The following
table sets forth the plan's fiscal year end funded status:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $33,823 $28,566
Fully eligible active plan participants................... 4,487 5,482
All other actives......................................... 11,114 11,098
------- -------
Total....................................................... 49,424 45,146
plus: unrecognized net gain............................... 15,726 19,997
------- -------
Accrued postretirement benefit liability.................... $65,150 $65,143
======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
The components of net postretirement benefit cost
were:
Service cost........................................ $ 880 $ 876 $ 876
Interest cost....................................... 3,690 3,183 3,768
Amortization of gain................................ (849) (1,155) (1,043)
------ ------ ------
Net periodic postretirement benefit cost.............. $3,721 $2,904 $3,601
====== ====== ======
</TABLE>
N-17
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Net periodic postretirement benefit costs for the years ended December 31,
1997, 1996 and 1995, includes the cost of benefits earned by active employees,
interest cost, gains and losses arising from differences between actuarial
assumptions and actual experience, and amortization of the transition
obligation. The discount rate used to determine the net periodic
postretirement benefit cost was 7.75%, 7.25% and 8.5% for 1997, 1996 and 1995,
respectively.
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.75% and 7.50% as of December 31, 1997 and 1996, respectively.
The health care cost trend rate was 7.8% graded to 5.0% over 8 years for 1997,
and 8.2% graded to 5.0% over 8 years for 1996. The health care cost trend rate
assumption has a minimal impact on the amounts reported, since the Company has
capped its contributions at 200% of 1993 levels.
7. LEASES
LEASE EXPENSE
The Company has entered into various lease agreements for office space, data
processing and other equipment. Future gross minimum rental payments under
non-cancelable leases for 1998 and the succeeding four years are $13,323,
$13,057, $11,765, $10,739 and $10,468, respectively, and $95,762 thereafter.
Minimum future sub-lease rental income on these non-cancelable leases for 1998
and the succeeding four years is $3,553, $3,620, $3,600, $3,578 and $3,578,
respectively, and $15,257 thereafter.
8. DEBT
In 1995, the Company borrowed $25,000 from a bank, bearing interest at a
variable rate, equal to the greater of the bank's base rate or money market
rates plus 0.6% per annum payable monthly, 5.8% at December 31, 1997 and 5.7%
at December 31, 1996. The loan is collateralized by sales loads and surrender
charges collected on a defined block of variable life insurance policies
issued by the Company. Repayment is structured in a manner to result in
repayment over a term of five years. The carrying value of the loan
approximates its fair value of $21,965, repayments made during 1997 were
$3,181.
Exeter privately placed $75,118 aggregate principal amount, subordinated notes
payable (the "Notes"), on December 30, 1994 which are due December 30, 2004,
with no interest payments for the first five years and semiannual interest
payments thereafter. The Notes have been discounted to yield 8.45% for the
first five years and pay interest at 8.845% thereafter. The Notes are
expressly subordinated in right of payment to the insurance liabilities of
Exeter. The Notes are not subject to redemption by Exeter or through the
operation of a sinking fund prior to maturity. Proceeds of the issuance of the
Notes, net of discount, amounted to $50,000. The issue costs of the Notes of
$130 were deducted from Notes, net of discount, to arrive at net subordinated
notes payable of $49,870. The issue cost will be amortized over the life of
the Notes. The Notes are held by MetLife, and the carrying value of the loan
approximates its fair value of $64,016, repayments made during 1997 were $0.
9. CONTINGENCIES
The Company has no contingent liabilities which might materially affect the
financial position of the Company or the results of its operations. There are
no pending legal proceedings which are beyond the ordinary course of business
which could have a material financial effect.
N-18
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
10. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Compensation costs........................... $ 58,754 $ 36,172 $ 23,630
Commissions.................................. 77,351 51,617 37,476
Debt expense................................. 6,750 6,261 5,659
Amortization of policy acquisition costs..... 17,723 22,233 21,199
Capitalization of policy acquisition costs... (157,670) (98,016) (65,850)
Rent expense, net of sub-lease income of
$719, $119 and $0........................... 4,473 3,060 1,609
Other........................................ 136,961 122,559 75,701
--------- -------- --------
Total...................................... $ 144,342 $143,886 $ 99,424
========= ======== ========
</TABLE>
11. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments presented below have
been determined by the Company using market information available as of
December 31, 1997 and 1996 and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value for financial instruments for which there
are no available market value quotations.
The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
<S> <C> <C>
DECEMBER 31, 1997:
ASSETS
Fixed Maturities......................................... $734,391 $734,391
Equity Securities........................................ 9,399 9,399
Policy loans............................................. 104,783 104,783
Short-term investments................................... 27,944 27,944
Cash and cash equivalents................................ 74,148 74,148
LIABILITIES
Policyholder account balances............................ 9,271 8,508
Other policyholder funds................................. 4,324 4,324
Short and long-term debt................................. 85,981 85,981
DECEMBER 31, 1996:
ASSETS
Fixed Maturities......................................... $553,951 $554,795
Policy loans............................................. 76,263 76,263
Short-term investments................................... 156,560 156,560
Cash and cash equivalents................................ 49,147 49,147
LIABILITIES
Policyholder account balances............................ 3,368 3,168
Other policyholder funds................................. 2,868 2,868
Short and long-term debt................................. 84,057 84,057
</TABLE>
N-19
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
For bonds that are publicly traded, estimated fair value was obtained from an
independent market pricing service. Publicly traded bonds represented
approximately 91% of the carrying value and estimated fair value of the total
bonds as of December 31, 1997 and 96% of the carrying value and estimated fair
value of the total bonds as of December 31, 1996. For all other bonds,
estimated fair value was determined by management, based primarily on interest
rates, maturity, credit quality and average life. Estimated fair values of
policy loans were based on discounted projected cash flows using U.S. Treasury
rates to approximate interest rates and Company experience to project patterns
of loan accrual and repayment. For cash and cash equivalents and short-term
investments, the carrying amount is a reasonable estimate of fair value.
The fair values for policyholder account balances are estimated using
discounted projected cash flows, based on interest rates being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued. Other policyholder funds include liabilities without
defined durations such as policy proceeds and dividends left with the Company.
The estimated fair value of such liabilities, which generally are of short
duration or have periodic adjustments of interest rates, approximates their
carrying value.
The estimated fair value of short and long-term debt was determined using
rates currently available to the Company for debt with similar terms and
remaining maturities.
12. STATUTORY FINANCIAL INFORMATION
The following reconciles statutory net income and statutory surplus and
reflects the corporate reorganization described in Note 1 determined in
accordance with accounting practices prescribed or permitted by insurance
regulatory authorities with net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income (loss)................ $ (37,358) $ (46,021) $ 375
Adjustments to GAAP for life insurance
companies:
Future policy benefits and policyholders
account balances........................ (718,229) (41,174) (9,616)
Deferred policy acquisition costs........ 139,947 68,626 45,823
Deferred Federal Income taxes............ 4,009 2,283 (6,799)
Statutory interest maintenance reserve... 342 231 --
Other, net............................... 633,258 25,756 (9,017)
--------- --------- ---------
Net GAAP Earnings.......................... $ 21,969 $ 9,701 $ 20,766
========= ========= =========
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory surplus.......................... $ 307,290 $ 355,853 $ 203,374
Adjustments to GAAP for life insurance
companies:
Future policy benefits and policyholders
account balances........................ (279,510) (195,273) (154,099)
Deferred policy acquisition costs........ 565,769 434,637 353,809
Deferred Federal Income taxes............ (43,318) (40,185) (55,201)
Valuation of investments................. 56,873 11,503 58,063
Statutory interest maintenance reserve... 571 306 74
Statutory investment valuation reserves.. 8,388 3,335 373
Surplus notes............................ (64,016) (58,911) (54,210)
Receivables from reinsurance
transactions............................ 27,519 26,030 --
Other, net............................... 53,976 13,127 2,320
--------- --------- ---------
GAAP Equity................................ $ 633,542 $ 550,422 $ 354,503
========= ========= =========
</TABLE>
N-20
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
13. RELATED PARTY TRANSACTIONS
Prior to the merger NELICO operated under a service agreement with its parent
NEMLICO to receive all executive, legal, clerical and other personnel
services. Subsequent to the merger, the Company has entered into a Service
Agreement to provide all administrative, accounting, legal and similar
services to MetLife for certain administered contracts, which are life
insurance and annuity contracts issued by NEMLICO prior to the merger of
NEMLICO and MetLife and those policies and contracts defined in the Service
Agreement as Transition Policies which were sold by the Company's field force
post-merger.
The Company charged MetLife $186,757 including accruals for administrative
services on NEMLICO administered contracts for 1997. The Company charged
MetLife $88,043 including accruals for administrative services on NEMLICO
administered contracts for the period of September 1, 1996 through December
31, 1996. Prior to the merger, the Company paid $62,643 to NEMLICO for
administrative services on variable-life and variable-annuity contracts for
the period of January 1, 1996 through August 31, 1996. In 1995, the Company
paid $50,875 to NEMLICO for administrative services. These services were
charged based upon direct costs incurred. Service fees are recorded by NELICO
as a reduction in operating expenses.
In 1997, MetLife made a capital contribution to the Company of $50,000 in
cash. In 1996, MetLife made a non-cash capital contribution to the Company of
common stock of affiliated companies consisting of Exeter, NEPA, NES, Newbury,
Omega Reinsurance Corp., TNE Advisers Inc., and TNE Information Services Inc.
with a total estimated statutory fair value of $29,558. MetLife also made non-
cash capital contributions of home-office properties of $10,301, socially-
responsible investments with a book value of $11,916, furniture, equipment and
leasehold improvements of $27,816, and a cash contribution of $128,412. Prior
to the merger, NEMLICO made a cash contribution to NELICO of $20,000.
In 1995, NEMLICO made a non-cash capital contribution to NELICO of publicly-
traded debt securities and private-placement obligations with an estimated
fair value of $54,028. NELICO received cash contributions from NEMLICO of
$8,215 in 1995.
The Company entered into a lease agreement with MetLife on August 30, 1996 for
the home-office building which it occupies on 501 Boylston Street in Boston,
Massachusetts. The Company paid lease payments to MetLife of $2,340 and $780
in 1997 and 1996, respectively.
On June 21, 1996, NEMLICO purchased a mortgage from NELICO for $2,217 which
included principal of $2,204, and interest of $13.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1997 were $16,799
and $1,127, respectively. Included in accrued income at December 31, 1997,
were amounts receivable for sales-based commissions from NEF and SSR totaling
$233 and $13, respectively. In 1997, NES earned asset-based income of $8,777
and $61 on average assets of approximately $3.9 billion and $33 million under
management with NEF and SSR, respectively.
Exeter has a privately-placed subordinated notes payable to MetLife for
$64,016 at December 31, 1997 and $58,911 at December 31, 1996.
Stockholder dividends or other distributions proposed to be paid by NELICO
must be approved by the Massachusetts Commissioner of Insurance if such
dividends or distributions, together with other dividends or distributions
made within the preceding 12 months, exceeds the greater of (1) 10% of
NELICO's statutory surplus as regards policyholders as of the previous
December 31, or (2) NELICO's statutory net gain from operations for the 12
month period ending the previous December 31.
N-21
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Of the statutory profits earned by NELICO on participating policies and
contracts, the portion which shall inure to the benefit of NELICO's
stockholder shall not exceed the larger of (1) 10% of such statutory profits,
or (2) fifty cents per year per thousand dollars of participating life
insurance other than group term insurance in force at the end of the year.
14. SUBSEQUENT EVENTS
In February 1998, the Company signed a definitive agreement to acquire all of
the outstanding common stock of Nathan Lewis Holding Corp. (Nathan Lewis) a
broker-dealer based in New York City. Under the terms of the agreement, the
Company will pay approximately $28 million in cash at the close and $2 million
per year over the next three years subject to certain financial conditions.
Nathan Lewis had approximately $22 million in assets and earned $2.1 million
on revenues of $78.4 million for the twelve month fiscal period ended
September 30, 1997. The acquisition, which is expected to close in the second
quarter of 1998, will be accounted for as a purchase under generally accepted
accounting principles.
N-22
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholder of
New England Variable Life Insurance Company:
We have audited the statutory statements of operations, surplus, and cash
flows of New England Variable Life Insurance Company (a wholly-owned
subsidiary of New England Mutual Life Insurance Company) for the year ended
December 31, 1995. These statutory financial statements (not presented
separately herein) are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations,
surplus, and cash flows are free of material misstatement. An audit includes
examining, on test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall presentation of the statements of operations, surplus,
and cash flows. We believe that our audit of the statements of operations,
surplus, and cash flows provides a reasonable basis for our opinion.
As described more fully in Note 1 to the aforementioned financial statements,
the Company prepared the statements of operations, surplus, and cash flows
using accounting practices prescribed or permitted by the Insurance Department
of the State of Delaware (SAP), which practices after 1996 (upon issuance of
1996 financial statements) differ from generally accepted accounting
principles (GAAP).
In our report dated March 8, 1996, we expressed our opinion that the 1995
statements of operations, surplus, and cash flows, prepared using SAP,
presented fairly, in all material respects the results of operations and cash
flows of New England Variable Life Insurance Company for the year ended
December 31, 1995 in conformity with GAAP. As described in Note 1 to the
aforementioned financial statements, financial statements of wholly-owned
subsidiaries of mutual life insurance enterprises prepared in accordance with
SAP are no longer considered to be presented in conformity with GAAP.
Accordingly, our present opinion on the 1995 statements of operations,
surplus, and cash flows is different from that expressed in our previous
report.
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above (and not
included herein) do not present fairly, in conformity with GAAP, the results
of operations or cash flows of New England Variable Life Insurance Company for
the year ended December 31, 1995.
In our opinion, the statutory financial statements referred to above (and not
included herein) present fairly, in all material respects, the results of
operations and cash flows of New England Variable Life Insurance Company for
the year ended December 31, 1995, on the basis of accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 8, 1996, except for the information in the
second paragraph under "Basis of Presentation
and Principles of Consolidation" of Note 1, for which
the date is February 18, 1997
N-23
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT ON INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholder of
New England Pension and Annuity Company:
We have audited the statutory statements of operations and surplus, and cash
flows of New England Pension and Annuity Company (a wholly-owned subsidiary of
New England Mutual Life Insurance Company) for the year ended December 31,
1995. These statutory financial statements (not presented separately herein)
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations and
surplus, and cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall presentation of the statements of operations and
surplus, and cash flows. We believe that our audit of the statements of
operations and surplus, and cash flows provides a reasonable basis for our
opinion.
As described more fully in Note 1 to the aforementioned financial statements,
the Company prepared the statements of operations and surplus, and cash flows
using accounting practices prescribed or permitted by the Insurance Department
of the State of Delaware (SAP), which practices after 1996 (upon issuance of
1996 financial statements) differ from generally accepted accounting
principles (GAAP).
In our report dated March 8, 1996, we expressed our opinion that the 1995
statements of operations and surplus, and cash flows, prepared using SAP,
presented fairly, in all material respects the results of operations and cash
flows of New England Pension and Annuity Company for the year ended December
31, 1995 in conformity with GAAP. As described in Note 1 to the aforementioned
financial statements, financial statements of wholly-owned subsidiaries of
mutual life insurance enterprises prepared in accordance with SAP are no
longer considered to be presented in conformity with GAAP. Accordingly, our
present opinion on the 1995 statements of operations and surplus, and cash
flows is different from that expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above (and not
included herein) do not present fairly, in conformity with GAAP, the results
of operations or cash flows of New England Pension and Annuity Company for the
year ended December 31, 1995.
In our opinion, the statutory financial statements referred to above (and not
included herein) present fairly, in all material respects, the results of
operations and cash flows of New England Pension and Annuity Company for the
year ended December 31, 1995, on the basis of accounting practices prescribed
or permitted by the Insurance Department of the State of Delaware.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 8, 1996, except for the information in the
second paragraph under "Basis of Presentation and
Principles of Consolidation" of Note 1, for which the
date is February 18, 1997
N-24
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
April 23, 1996
To The Board of Directors and Shareholder of
Exeter Reassurance Company, Ltd.
We have audited the statutory statements of operations and surplus, and cash
flows of Exeter Reassurance Company, Ltd. (a wholly-owned subsidiary of New
England Mutual Life Insurance Company) for the year ended December 31, 1995.
These statutory financial statements (not presented separately herein) are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
statements of operations and surplus, and cash flows are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the statements of operations and surplus, and cash flows. We believe that
our audit of the statements of operations and surplus, and cash flows provides
a reasonable basis for our opinion.
The statutory statements of operations and surplus, and cash flows have been
prepared in conformity with The Insurance Act 1978, amendments thereto and
related regulations and are not intended to be presented in conformity with
accounting principles generally accepted in the United States of America
("U.S. GAAP").
In our opinion, because of the effects of the matter discussed in the
preceding paragraph, the financial statements referred to above (and not
included herein) do not present fairly in conformity with U.S. GAAP, the
results of operations or cash flows of Exeter Reassurance Company, Ltd. for
the year ended December 31, 1995. In our opinion, the statutory financial
statements referred to above (and not included herein) present fairly, in all
material respects, the results of operations and cash flows of Exeter
Reassurance Company, Ltd. for the year ended December 31, 1995 in conformity
with the Insurance Act 1978, amendments thereto and related regulations.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
N-25
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholder of
New England Securities Corporation:
We have audited the consolidated statements of operations, shareholder's
equity, and cash flows of New England Securities Corporation for the year
ended December 31, 1995. These financial statements (not presented separately
herein) are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations,
shareholder's equity, and cash flows are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements of operations,
shareholder's equity, and cash flows. We believe that our audit of the
statements of operations, shareholder's equity, and cash flows provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above (and not included
herein) present fairly, in all material respects, the consolidated results of
operations and cash flows of New England Securities Corporation for the year
ended December 31, 1995 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 9, 1996
N-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholder and Board of Directors of
TNE Advisers, Inc.:
We have audited the statements of operations, changes in shareholder's equity,
and cash flows of TNE Advisers, Inc. for the year ended December 31, 1995.
These financial statements (not presented separately herein) are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations,
changes in shareholder's equity, and cash flows are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the statements of operations, changes in shareholder's equity, and cash
flows. We believe that our audit of the statements of operations, changes in
shareholder's equity, and cash flows provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above (and not included
herein) present fairly, in all material respects, the results of operations
and cash flows of TNE Advisers, Inc. for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 29, 1996
N-27
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
March 14, 1996
To The Shareholders of
Newbury Insurance Company, Limited
We have audited the statements of earnings and retained earnings, and cash
flows of Newbury Insurance Company, Limited for the year ended December 31,
1995 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of earnings and retained
earnings, and cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statements of earnings and retained
earnings, and cash flows. We believe that our audit of the statements of
earnings and retained earnings, and cash flows provides a reasonable basis for
our opinion.
The provision for losses incurred but not reported is calculated in the manner
described in note 3(b). We have not reviewed the underlying information used
in the calculation of the provision and therefore we have been unable to
determine whether the provision for the year ended December 31, 1995 is
adequate, deficient or excessive.
In our opinion, except for the effects of such adjustments, if any, that might
have been determined to be necessary had we been able to assess fully the
matter described in the preceding paragraph, the financial statements referred
to above (and not included herein) present fairly, in all material respects,
the results of operations and cash flows of Newbury Insurance Company, Limited
for the year ended December 31, 1995, in conformity with accounting principles
generally accepted in the United States of America.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
N-28
<PAGE>
Part II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Section 9 of NELICO's By-Laws provides that NELICO shall, to the extent
legally permissible, indemnify its directors and officers against liabilities
and expenses relating to lawsuits and proceedings based on such persons' roles
as directors or officers. However, Section 9 further provides that no such
indemnification shall be made with respect to any matter as to which a director
or officer is adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the corporation. Section 9
also provides that in the event a matter is disposed of by a settlement payment
by a director or officer, indemnification will be provided only if the
settlement is approved as in the best interest of the corporation by (a) a
disinterested majority of the directors then in office, (b) a majority of the
disinterested directors then in office, or (c) the holders of a majority of
outstanding voting stock (exclusive of any stock owned by any interested
director or officer).
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
NELICO pursuant to the foregoing provisions, or otherwise, NELICO has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification may be against public policy as expressed in the Act and may be,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by NELICO of expenses incurred or paid by a
director, officer, or controlling person of NELICO in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered. NELICO
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II - 1
<PAGE>
REPRESENTATIONS
New England Life Insurance Company hereby represents that the fees and
charges deducted under the limited payment variable life insurance policies
described in this registration statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by New England Life Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of the information shown in the prospectus with
the items of Form N-8B-2.
The prospectus consisting of 144 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 LLP (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 NELICO and its General Agents***
(ii) Form of contract between NEVLICO and its Agents****
II - 2
<PAGE>
(c) Commission Schedule for Policies
(d) Form of contract among NES, NELICO and other broker
dealers*
(4) None
(5) (a) Specimen of Policy, including Applications
(b) Consolidated Application ****
(c) Riders to Policy ****
(d) Level Term Rider
(e) Acceleration of Benefits Rider ###
(6) (a) Amended and restated Articles of Incorporation ##
(b) Amended and restated By-Laws of NELICO *
(7) None
(8) None
(9) None
2. See Exhibit 1.A.(5)
3. (i) Opinion and Consent of H. James Wilson, Esquire
(ii) Opinion and Consent of Rodney J. Chandler, F.S.A., M.A.A.A.
4. None
5. Inapplicable
6. Consent of Sutherland, Asbill & Brennan LLP
7. (i) Powers of Attorney ##
(ii) Power of Attorney of James M. Benson *
(iii) Power of Attorney of Richard Robinson **
8. Notice of Withdrawal Right for Policies
9. Inapplicable
10. Inapplicable
11. Consents of Independent Auditors
12. Schedule for computation of performance quotations ****
13. Consolidated memorandum describing certain procedures,
filed pursuant to Rule 6e-2(b)12(ii) and Rule 6e-3(T)(b)
(12)(iii) ****
14. 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#
II - 3
<PAGE>
(iii) Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and New
England Variable Life Insurance Company#
- ------------
# Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 33-88082,
filed June 22, 1995.
## Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 333-21767, filed February 13, 1997.
### Incorporated herein by reference to Post-Effective Amendment No. 8 to the
Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 30, 1997.
* Incorporated herein by reference to the Pre-effective Amendment No. 1 to
the Variable Account's Form S-6 Registration Statement, File No. 333-21767,
filed July 16, 1997.
** Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 333-46401, filed February 17, 1998.
*** Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-66864,
filed February 25, 1998.
**** Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 24, 1998.
II - 4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
New England Variable Life Separate Account, certifies that it meets all of the
requirements for effectiveness of this amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the city of Boston, and the Commonwealth of Massachusetts, on
the 28th day of April, 1998.
New England Variable Life Separate
Account
(Registrant)
By: New England Life Insurance
Company
(Depositor)
By:
-------------------------------
H. James Wilson
Executive Vice President
and General Counsel
Attest:
- ---------------------
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 28th day of
April, 1998.
New England Life Insurance Company
(Seal)
Attest: By:
---------------------- ---------------------------
Marie C. Swift H. James Wilson
Executive Vice President and
General Counsel
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 28, 1998.
* President and Chief
- ---------------------- Executive Officer
James M. Benson
* Director
- ----------------------
Susan C. Crampton
* Director
- ----------------------
Edward A. Fox
* Director
- ----------------------
George J. Goodman
* 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
Second Vice President and
* Chief Accounting Officer
- ----------------------
Richard A. Robinson
* 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, Pre-
Effective Amendment No. 1 to the Variable Account's Form S-6 Registration
Statement, File No. 333-21767, on July 16, 1997, and the Variable Account's
Form S-6 Registration Statement, File No. 333-46401, on February 17, 1998.
<PAGE>
EXHIBIT LIST
Sequentially
Exhibit Numbered
Number Title Page*
- ------ ----- -----
1.A.3(c) Commission Schedule for Policies
1.A.5(a) Specimen of Policy, including
Applications
1.A.5(d) Level Term Rider
3. (i) Opinion and Consent of H. James Wilson, Esq.
3. (ii) Opinion and Consent of Rodney J.
Chandler, F.S.A., M.A.A.A.
6. Consent of Sutherland, Asbill &
Brennan LLP
8. Notice of Withdrawal Right
11. Consents of the Independent Auditors
- -----------
* Page numbers inserted on manually-signed copy only.
<PAGE>
Exhibit 1.A.(1)(c)
Commission and Service Fee Schedule
The following maximum percentages of the scheduled premium paid for each
policy year will be paid to the NELICO agent/New England Securities registered
representative involved in the sale of a Policy:
Policy Year Maximum Percentages
----------- -------------------
1 25% (at most issue ages)*
2-10 5%
11 and later 2%
Agents will also receive a commission of 3% of each unscheduled payment
made.
The amount of commissions for extra premiums for a Policy covering an
insured in a substandard risk or automatic issue classification will be
determined by NELICO's rules and practices current at the time such premiums
are charged. Additional commissions are paid based on premiums paid for
benefits purchased by Rider.
Agents with fewer than four years of service may be compensated
differently. Agents who meet certain productivity and persistency standards
with respect to policies sold by NELICO and its affiliates may be eligible for
additional compensation.
New England Securities may enter into selling agreements with other broker-
dealers registered under the Securities and Exchange Act of 1934 whose
representatives are authorized by applicable law to sell variable life insurance
policies. Under the agreements with any such broker-dealers, the commission paid
to the broker-dealer will not exceed 25% of the scheduled premium in the first
policy year, 5% in the second through tenth policy years, 2% in the eleventh
through twentieth policy years, and 3% of unscheduled payments. NELICO may pay
certain broker-dealers an additional bonus after the first policy year on behalf
of certain registered representatives, the maximum amount of which may equal up
to the amount of the basic commission for the particular policy year.
Commissions will be paid through the registered broker-dealer, which may also be
reimbursed for portions of expenses incurred in connection with the sale of the
Policies.
*20% for ages 55+
grades from 25 to 20% for ages 50-55
<PAGE>
Exhibit 1A5(a)
NEV-7
New England Variable Life
Insurance Company
Variable Life Policy
Name of Insured
JOHN ALDEN
Policy Number
Specimen
Plan
30 Payment Variable Life
Face Amount
$25,000
New England Variable Life Insurance Company Agrees to pay the Death Benefit of
this Policy to the Beneficiary on receipt of proof of the death of the Insured;
and to provide the other rights and benefits of the Policy.
These agreements are subject to all the provisions of the Policy.
Signed on the Date of Issue for the Company at its
Administrative Office,
501 Boylston Street
Boston, MA 02117
Robert A. Shafto
/s/
President
Edward N. Wadsworth
/s/
Secretary
Variable Life Policy
. The Death Benefit is payable at the death of the Insured.
. Premiums are payable to the Company for a specified period.
. Unscheduled Payments can be made.
. The Policy does not participate in dividends.
<PAGE>
Please Read Your Policy Carefully
This Policy is a legal contract between you and the Company.
THE DEATH BENEFIT ON THE POLICY DATE WILL BE EQUAL TO THE FACE AMOUNT SHOWN IN
SECTION 1. THEREAFTER, THE DEATH BENEFIT CAN VARY FROM DAY TO DAY. IT CAN
INCREASE OR DECREASE, DEPENDING ON SEPARATE INVESTMENT ACCOUNT PERFORMANCE AND
ON FIXED ACCOUNT INTEREST; BUT IT WILL NOT BE LESS THAN THE FACE AMOUNT. SEE
SECTION 12.
THE CASH VALUE OF THIS POLICY CAN VARY FROM DAY TO DAY. IT CAN INCREASE OR
DECREASE. DEPENDING ON SEPARATE INVESTMENT ACCOUNT PERFORMANCE AND ON FIXED
ACCOUNT INTEREST. SEE SECTION 11.
Right to Return the Policy When this Policy is issued, you should examine it.
You can return the Policy to the Company or its Agent for any reason within the
latest of: (a) 10 days after you receive it from the Company; (b) 45 days after
Part I of the Application is signed; and (c) 10 days after the Company mails the
separate Notice of Withdrawal Right If you return the Policy: an amount equal to
any premium paid plus any Unscheduled Payment made will be refunded to you; and
the Policy will be cancelled from the start.
<PAGE>
Policy Provisions
Section
1 Policy Schedule
2 Tabular Values
3 Surrender Charges
4 Contract
5 Premiums
6 Unscheduled Payments
7 The Variable Account
8 The Fixed Account
9 Nonpayment of Premiums
10 Reinstatement After Lapse
11 Cash Value of the Policy
12 Death Benefit
13 Policy Loans
14 Exchange of Policy
15 Policy Changes
16 Owner and Beneficiary
17 Payment of Benefits
18 Payment Options
19 Life Income Tables
. Riders, if any
. Copy of the Application
. Amendments and Endorsements
Alphabetical Guide
Section
1, 4 Age of Insured
16 Assignments
5 Automatic Premium Payment
16 Beneficiary
17 Benefits, Payment of
4 Claims of Creditors
4 Contestable
4 Contract
11 Cost of Insurance
1, 4 Date of Issue
1, 4 Date, Policy
12 Death Benefit
14 Exchange of Policy
1 Face Amount
8 Fixed Account
9 Fixed Extended Term Insurance
9 Fixed Paid-Up Insurance
5 Grace Period
11 Investment Return
9 Lapse Options
18, 19 Life Income Options
19 Life Income Tables
1 Loan Interest Rate
13 Loans, Policy
11 Net Cash Value
9 Nonpayment of Premiums
11 Monthly Deduction
16 Owner
15 Partial Surrender
15 Partial Withdrawal
18 Payment Options
4 Periodic Reports
15 Policy changes
13 Policy Loan Balance
4 Postponement of Payments
5 Premiums
10 Reinstatement
1 Schedule, Policy
7 Sub-Accounts
4 Suicide
3 Surrender charge
3, 11 Surrender of the Policy
2 Tabular Value
6 Unscheduled Payments
7 Variable Account
9 Variable Paid-Up Insurance
<PAGE>
New England Variable Life
Insurance Company
1. Policy Schedule
Owner and Beneficiary As named in the Application or as later changed. See the
Owner and Beneficiary Section of the Policy.
Policy Number Age Sex
Specimen 35 Male
Policy Date Date of Issue Policy Class
September 1, 1993 September 1, 1993 Smoker Standard
Policy Loan Interest Rate Basis of Values Interest Rate
6% 4.5%
Death Benefit Option
1
Schedule of Benefits
30 Payment Variable Life (LIFE) $25,000
Schedule of Annual Premiums
Policy Years LIFE
First 30 $499.75
Total Premium on Policy Date
Annual Semi-Annual Quarterly
$499.75 $257.37 $131.18
Table of Net Annual Premiums (Amount Invested; Based on Maximum Premium Charges)
Beginning of
Policy Year Net Premium
First 30 $404.72
Annual Administrative Charge (Reflected in Net Annual Premium) $55.00
Each Net Unscheduled Payment will be equal to the Unscheduled Payment less 9%.
Sex-distinct Issue
Edward N. Wadsworth
/s/
Secretary
<PAGE>
New England Variable Life
Insurance Company
2. Tabular Values
Policy Number
Specimen
Tabular Values are used to determine: the Death Benefit and the partial
withdrawal available for Death Benefit Option 2; and whether the Special Premium
Option can apply.
The amounts shown in this table assume that: an annual premium has been paid on
the first day of each policy year during the Policy's premium paying period; no
Unscheduled Payment has been made; no partial surrender has been made; no
partial withdrawal has been made; no Policy Loan has been made; the cost of
insurance rates are equal to the maximum guaranteed rates; the maximum Monthly
Deduction is deducted from the Cash Value in every month; the Face Amount of the
Policy has not been decreased; the actual net premiums credited are equal to the
net annual premiums shown in Section 1; and the Actual Investment Return is
equal to the Base Investment Return. The actual Tabular Values at any time will
reflect the frequency of premium payment then in effect.
End of End of
Policy Year Tabular Value Policy Year Tabular Value
1 $ 341.50 16 $6,804.50
2 694.50 17 7,329.00
3 1,059.00 18 7,864.50
4 1,435.00 19 8,412.00
5 1,822.00 20 8,969.50
6 2,219.50 25 Age 60 11,955.00
7 2,628.00 30 Age 65 15,392.50
8 3,047.00 35 Age 70 17,050.50
9 3,476.50
10 3,917.50
11 4,368.50
12 4,831.50
13 5,306.50
14 5,793.50
15 6,292.50
Edward N. Wadsworth
/s/
Secretary
<PAGE>
New England Variable Life
Insurance Company
3. Surrender Charge
Policy Number
Specimen
A Surrender Charge will be deducted from partial surrender, full surrender,
decrease in Face Amount and lapse transactions during the first 15 policy years.
The Surrender Charge is equal to a Deferred Sales Charge plus any Deferred
Administrative Charge.
The Maximum Deferred Sales Charges for years 1 through 10 are shown in the table
on the next page. The Maximum Deferred Sales Charges for the last policy month
of each of years 11 through 15 are shown in the table on the next page; the
Maximum Charges for other months will reflect the number of completed policy
months in the year of surrender, lapse or decrease in Face Amount. If you paid
premiums at an annual, semi-annual or quarterly frequency, the actual Deferred
Sales Charges will be less than the Maximums shown.
The Deferred Administrative Charge for the first policy year is shown in the
table on the next page; the Charge is level throughout the year. The Charge for
the last policy month of each of years 2 through 10 is shown in the table on the
next page; the Charge for other months will reflect the number of completed
policy months in the year of surrender, lapse or decrease in Face Amount.
Edward N. Wadsworth
/s/
Secretary
<PAGE>
New England Variable Life
Insurance Company
3. Surrender Charge (Second Page)
Policy Number
Specimen
Year of
Surrender, Maximum Deferred
Decrease or Deferred Administrative
Lapse Sales Charge Charge
1. $104.52 $67.50
2. 120.08 60.00
3. 266.85 52.50
4. 266.85 45.00
5. 266.85 37.50
6. 266.85 30.00
7. 266.85 22.50
8. 266.85 15.00
9. 266.85 7.50
10. 266.85 0.00
11. 213.48
12. 160.11
13. 106.74
14. 53.37
15. 0.00
Edward N. Wadsworth
/s/
Secretary
<PAGE>
4. Contract
The Contract
This Policy is a legal contract between the Owner of the Policy (called "you")
and New England Variable Life Insurance Company, a Delaware corporation, (called
"the Company"). The Policy, which includes the attached Application, is the
entire contract between you and the Company. All riders are listed in Section 1.
A change in or waiver of the provisions of the Policy must be signed by the
President or the Secretary of the Company to be valid.
Payments Under the Contract
All contract amounts are in dollars of the United States of America. Payments by
the Company under the contract will be made at the Administrative Office of the
Company. The obligations of the Company are subject to all payments made and
actions taken by the Company under the Policy before receipt by the Company at
its Administrative Office of proof of death of the Insured.
Dates
Policy years, months and anniversaries are all measured from the Policy Date.
The contestable and suicide periods start on the Date of Issue. The Policy Date
and the Date of Issue are both shown in Section 1.
Not Contestable After Two Years
Insurance is issued by the Company in reliance on the statements made in the
Application for the insurance. Those statements are representations; they are
not warranties. No statement can be used to contest or rescind insurance or to
defend against a claim unless contained in the Application for the insurance.
The insurance issued under this Policy will not be contestable after it has been
in force during the life of the Insured:
. With respect to the amount of Death Benefit which results from other than
Unscheduled Payments, for two years from the Date of Issue; and
. With respect to any Death Benefit which results from an Unscheduled
Payment for which proof is required that the insured is insurable, for two
years from the date that Unscheduled Payment is received.
Suicide Within Two Years
If the Insured dies by suicide while sane or insane within two years from the
Date of Issue, the Death Benefit will be limited to: the amount of the premiums
paid; plus the amount of any Unscheduled Payments; less the amount of each
partial surrender; less the amount of each partial withdrawal; less any Policy
Loan
<PAGE>
Balance on the date of death.
Age of Insured
The age of the Insured on the Policy Date and on policy anniversaries means the
age at the nearest birthday of the Insured. Between anniversaries, age means age
on the last anniversary plus elapsed time.
If the age or sex of the Insured has not been correctly stated in the
application, the values and benefits will be the amounts which the premiums and
Unscheduled Payments paid would have purchased for the correct age and sex.
The Company will reprocess each policy transaction to determine the current Cash
Value and Death Benefit based on the correct cost of insurance rates.
Claims of Creditors
The Policy and payments under it will be exempt from the claims of creditors to
the extent allowed by law.
Basis of Values
"1980 CSO" means Commissioners 1980 Standard Ordinary; it is used to describe
mortality tables. The B Tables are used for unisex issues and are weighted 80
per cent male and 20 per cent female. The Policy Class and issue basis are shown
in Section 1. Unisex issues provide the same rates, benefits and values for
males and females.
If the Policy is in a Nonsmoker Class, the table is the 1980 CSO Nonsmoker
Table.
If the Policy is in a Smoker Class, the table is the 1980 CSO Smoker Table.
If the age of the Insured on the Policy Date is less than 20, the table is the
1980 CSO Table.
<PAGE>
Reserves and Cash Values are not less than those based on the mortality table
for this Policy. Reserves are not less than reserves computed by the
Commissioners Reserve Valuation Method. Net single premiums, Fixed and Variable
Paid-Up Insurance and Fixed Extended Term Insurance are based on the mortality
table for this Policy. Curtate monthly functions are used. Interest is
compounded monthly at the annual effective rate shown in Section 1. (See the
Basis of Values Interest Rate.) A detailed statement of the method of computing
values and net single premiums has been filed with the Insurance Department of
the state in which the Policy is delivered. All values are equal to or are in
excess of the minimum values required by, and all comply with, the law of that
state.
Periodic Reports
The Company will send you all reports required by law and regulation. Such
reports will be sent once each year or more often if required by law or
regulation. The annual report will include, as of the date for which the report
is made: the Death Benefit: the Cash Value; any Policy Loan Balance; and any
other required information. No annual reports will be sent while the Policy is
in force under the Fixed Paid-Up Insurance Option or the Fixed Extended Term
Insurance Option.
Postponement of Variable Benefits
The Company can postpone the determination of and the payment or transfer of
amounts based on separate investment account performance if:
. The New York Stock Exchange is closed for trading (except for normal
weekend and holiday closing) or when trading is restricted; or
. The Securities and Exchange Commission determines that a state of
emergency exists which may make payment or transfer impractical; or
. The Securities and Exchange Commission orders the New England Zenith Fund
or its successor or any other investment company in which the Variable
Account is invested to postpone payment or transfer of variable benefits.
<PAGE>
Postponement of Loans and Surrender Under Fixed Lapse Options
If the Policy is in force under the Fixed Paid-Up or Fixed Extended Term
Insurance Option, the Company can postpone payment of the Net Cash Value for not
more than six months after surrender. If payment is postponed for more than 30
days it will be credited with interest from the date of surrender. The rate of
interest will be set each year by the Company; but the rate will not be less
than 3 1/2% per year.
If the Policy is in force under the Fixed Paid-Up Insurance Option, the Company
can postpone the making of any Policy Loan for not more than six months from the
day you apply, except Loans to pay premiums on policies issued by the Company.
Postponement of Surrenders, Transfers and Loans From The Fixed Account
The Company can postpone the payment of the portion of the Policy's Net Cash
Value which is in the Fixed Account for not more than six months after
surrender. If payment is postponed for more than 30 days, it will be credited
with interest from the date of surrender. The rate of interest will be set each
year by the Company; but the rate will not be less than 3 1/2% per year.
The Company can postpone transfers from the Fixed Account for not more than six
months from the date of the request. The effective date of the transfer is the
date on which values are transferred from the Fixed Account.
The Company can postpone the making of any Policy Loan from the Fixed Account
for not more than six months from the day you apply, except Loans to pay
premiums on policies issued by the Company.
5. Premiums
Payment
Premiums are scheduled payments to the Company for the Policy. Payments can be
made at the Administrative Office of the Company or at any Agency of the
Company. A receipt for payment signed by the Secretary of the Company will be
given on request. The Policy will not be in force until the first premium is
paid.
Amount and Frequency
Annual premiums for the Policy and for any riders are shown in Section 1.
Payments can be annual, semi-annual or quarterly or can be at any other
frequency agreed to by the Company. Payment is due in advance on the first day
of each payment period, starting on the Policy Date. Future Cash Values and
Death Benefits can be permanently affected:
<PAGE>
. By payment of premiums at a frequency other than annual; and
. By changing the frequency of payment of premiums.
No premium will be due or payable for any period after the death of the Insured.
The company will send you a bill 25 days before the premium due date if you pay
premiums at an annual, semi-annual or quarterly frequency. The bill will show:
the premium due; any policy loan interest due; and any planned Unscheduled
Payment, if the premium due date is a policy anniversary. If you submit the bill
with a payment, the premium due will be paid, if the payment is large enough.
The amount of the payment which is in excess of the premium due will be used to
pay any policy loan interest due. Any remaining amount will be an Unscheduled
Payment. (See Section 6.) If you submit a payment without a bill, the payment
will be deemed to be the premium due if: the payment is received in the period
between 25 days prior to the premium due date and 31 days after the premium due
date; and the payment is large enough to pay the premium due. The amount of the
payment which is in excess of the premium due will be used to pay any policy
loan interest due; any remainder will be an Unscheduled Payment. Any payment
received that is less than the premium due will be deemed an Unscheduled
Payment. (See Section 6.)
If you pay premiums at any other frequency, each payment will be credited as
agreed to by you and the Company.
Grace Period
There is a grace period of 31 days in which to pay a premium, without interest,
after its due date. The insurance will be in force during the grace period.
There is no grace period for the first premium.
Special Premium Option
If you choose this Option in writing it will take effect after the first policy
year. When this Option is in effect, each time a premium has not been paid by
the end of its grace period, the Company will determine if the Option will
apply. This Option will apply if the following conditions are met:
. On the due date of the premium in default, the Cash Value less the
Tabular Value is equal to or greater than the total of the Policy and rider
premiums in default; and
. Use of the Option will not result in the Policy Loan Balance exceeding
the Loan Value of the Policy.
<PAGE>
If the Option is applied, the Company will not require payment of the policy
premium less any substandard premium. The Company will deduct from the Cash
Value 91% of each of the following:
. Any substandard premium, if the Policy is in other than a Standard Policy
Class;
. Any rider premium in default; and
. The administrative charge for the policy premium.
If the premiums are being paid at a frequency other than annual, the amount of
the payment not required and the deduction will reflect the frequency of premium
payment.
The amount will be deducted in the same proportion as the Cash Value of the
Policy is in the sub-accounts and the Fixed Account. If this Option is applied,
the Policy will not lapse for nonpayment of the premium.
If you have chosen both this Option and the Option for Automatic Premium Payment
by Policy Loans, the Company first will determine if this Option will apply. If
this Option cannot be applied, the Company will determine if the Option for
Automatic Premium Payment by Policy Loans will apply.
You can choose in writing to use or to cancel the Special Premium Option.
Use of this Option can have a permanent effect on Cash Values and Death
Benefits.
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Option for Automatic Premium Payment by Policy Loans
If this Option has been chosen in writing and a premium is not paid by the end
of its grace period, a premium will be paid using any available Loan Value of
the Policy as long as the Special Premium Option is not applied. (See Section
13.) If the unpaid premium is an annual or a semi-annual premium, it will be
paid in full, if possible. Otherwise, a premium will be paid to the next
quarterly due date, if possible. If the amount available is not enough to pay a
premium to the next quarterly due date, no premium will be paid. Loan interest
will be charged on automatic Policy Loans from the due date of the premium. You
can choose in writing to use or to cancel this Option.
Premium Adjustment at Death
The pro rata portion of any premium paid for a period beyond the date of death
will be added to the policy proceeds. This adjustment does not apply to Variable
Paid-Up, Fixed Paid-Up or Fixed Extended Term Insurance.
If the Insured dies during the grace period of an unpaid premium, the policy
proceeds will be reduced by a pro rata premium to the date of death.
6. Unscheduled Payments
Unscheduled Payments
Unscheduled Payments can be made subject to the following:
. The Policy must be in force on a premium paying basis; and
. The premiums for the Policy and any riders are not being waived under any
Waiver of Premiums rider attached to the Policy; and
. No Unscheduled Payment can be less than $25 except with the consent of the
Company; and
. No Unscheduled Payment can be made after the premium paying period except
with the consent of the Company; and
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. If an Unscheduled Payment would increase the Death Benefit by more than
it would increase the Cash Value, proof that the Insured is insurable and
the Company's consent will be required; and
. If the Policy is in other than a Standard Policy class, the Company's
consent will be required.
Unscheduled Payments will not be waived by the Company under any Waiver of
Premiums rider attached to the Policy.
Each net Unscheduled Payment (see Section 1) will be applied to the Policy as of
the date it is received by the Company at its Administrative Office. There is no
grace period for Unscheduled Payments.
If the Policy lapses and you made an Unscheduled Payment during the grace period
of the premium in default, the amount of the Unscheduled Payment will be
refunded to you.
7. The Variable Account
The Variable Account
The Variable Account (called "the Account") is a separate investment account
established by the Company in accordance with Delaware law. The assets of the
Account are owned by the Company. The assets of the Account will be used to
provide values and benefits under this Policy and similar policies; but the
Account is not chargeable with liabilities arising out of any other business the
Company may conduct.
Sub-Accounts
The Account consists of sub-accounts, each of which is invested in shares of one
portfolio of the New England Zenith fund or its successor or any other
investment company in which the Account is invested. Shares of a portfolio are
purchased for a sub-account at their net asset value.
The Policy's first investment is made in the Money Market sub-account as of the
latest of:
. The Policy Date;
. The date of Part II of the Application, if any is required; and
. The date the first premium is received by the Company.
<PAGE>
The Policy's Cash Value will be transferred, based on your choice, to the sub-
accounts and the Fixed Account as of the later of: 45 days after Part I of the
Application is signed; and 10 days after the Company mails the separate Notice
of Withdrawal Right. Before this transfer, the values and benefits of the Policy
will depend on the net investment performance of the Money Market sub-account.
After this transfer: each net premium allocated to the Account will be invested
in the sub-accounts you chose as of its due date; and each net Unscheduled
Payment allocated to the Account will be invested in the sub-accounts you chose
as of the date it is received by the Company at its Administrative Office.
Each distribution of income, dividends and capital gains from a portfolio to a
sub-account will be reinvested for the benefit of the owners of the policies in
that sub-account at net asset value in shares of the portfolio which made the
distribution.
The Cash Value of the Policy at any time cannot be allocated among more than 10
sub-accounts, except with the consent of the Company; and the Fixed Account will
be counted in the limit of 10.
The values and benefits of a policy depend on: the investment performance of
the portfolios in which the sub-accounts are invested; and the interest credited
to the Fixed Account. The Company does not guarantee the investment performance
of the portfolios of the sub-accounts. You bear the investment risk for amounts
invested in the sub-accounts for your Policy.
Choice of Sub-Accounts
You choose the sub-accounts in which net premiums and net Unscheduled Payments
are to be invested. You can change the choice for future premiums and future
Unscheduled Payments at any time by notice to the Company. The portion of the
net premium and the net Unscheduled Payment to be applied to each sub-account
chosen must be a whole percent not less than 10.
<PAGE>
The portfolios as of the Date of Issue are listed in the then current prospectus
for the Account.
Change in Portfolios
The Company can add or remove portfolios as sub-account investments as permitted
by law. When a change is made, the Company will send you: a revised prospectus
for the Account which will describe all of the portfolios then available in the
New England Zenith Fund or its successor or any other investment company in
which the Account is invested; and any notice required by law.
When a portfolio is removed. the Company has the right to substitute a different
portfolio in which the sub-account will then invest:
. The value of the removed portfolio; and
. Future net premiums and future net Unscheduled Payments applied to that
sub-account.
Transfer Option
After the Right to Return the Policy period you can transfer all or a portion of
the Policy's existing share of a sub-account to another sub-account or to the
Fixed Account. (See Restriction of New Amounts Applied to the Fixed Account
provision.) Requests for transfers can be made in writing or by telephone. The
Company is not responsible for determining the authenticity of transfer
instructions received by telephone. Transfers will be subject to a limit of 4
in each policy year, except with the consent of the Company.
Change of Investment Policy
The investment policy of the Account will not be changed unless: (a) the change
has been approved by the Insurance Commissioner of the state of Delaware; and
(b) a statement of the approval process has been filed with the Insurance
Department of the state in which this Policy is delivered. If the investment
policy of the Account is changed, the Company will give you written notice of
the change. You can then choose to exchange this Policy for a new policy which
has a fixed death benefit. The exchange will be on the same basis as that
described in the Exchange of Policy section. (See Section 14.) If you choose to
make the exchange, the request for the exchange must be made within 60 days of
the later of: (a) the effective date of the investment policy change; or (b) the
date you receive the notice of the change.
Rights Reserved by the Company
The Company reserves the right to take certain actions subject to
<PAGE>
compliance with law including, if required, the approval of the owners of the
policies. These actions are: (a) to create new investment accounts; (b) to
combine any two or more separate investment accounts, including the Account; (c)
to invest some or all of the assets of the Account other than in the New England
Zenith Fund; (d) to invest some or all of the assets of the Account in any other
investment company chosen by New England Variable Life Insurance Company; (e) to
remove a portfolio in which the sub-account is invested or to substitute a
different portfolio; (f) to operate the Account as a management investment
company and to charge investment advisory fees under the Investment Company Act
of 1940 or to operate the Account in any other form permitted by law; and (g) to
deregister the Account under the Investment Company Act of 1940 if registration
is no longer required.
8. The Fixed Account
The Fixed Account
The Fixed Account is a segmented fund within the general account of the Company.
If you choose the Fixed Account, the first date on which money is applied to the
Fixed Account for the Policy is the latest of:
. 45 days after Part I of the Application is signed;
. 10 days after the Company mails the separate Notice of Withdrawal Right;
and
. The effective date of the choice of the Fixed Account.
Before this date, the value of the portion of the net premium and any net
Unscheduled Payment allocated to the Fixed Account will depend on the net
investment performance of the Money Market sub-account of the Variable Account.
After this date: each net premium allocated to the Fixed Account will be applied
as of its due date; and each net Unscheduled Payment allocated to the Fixed
Account will be applied as of the date it is received by the Company at its
Administrative Office. Each transfer to the Fixed Account will be applied as of
the transfer date.
Fixed Account Interest
The rate of interest for each amount applied to the Fixed Account: will be the
rate set by the Company in advance for the date the amount is applied to the
Fixed Account; and will not be less than a rate equivalent to an annual
effective rate of 4.5%. The effective interest rate used on your Policy will be
the weighted average of all such rates for your Policy.
Each year, on the policy anniversary, the Company will determine a portion, if
any of the Policy's share of the Fixed Account
<PAGE>
which will be reinvested at the rate effective on that date.
Interest will be credited to the Fixed Account on a daily basis.
Restriction of New Amounts Applied to the Fixed Account
The Company reserves the right to restrict new amounts applied to the Fixed
Account if the rate of interest that would be used for the new amount is a rate
equivalent to an annual effective rate of 4.5%.
Transfers Out of the Fixed Account
You can transfer a limited portion of the Policy's share of the Fixed Account to
the sub-accounts once within 30 days before each policy anniversary. The
transfer will be limited to the greater of: 25% of the Policy's share of the
Fixed Account; and the amount of the Policy's share of the Fixed Account
transferred to the sub-accounts the prior year. Requests for transfers can be
made in writing or by telephone. The Company is not responsible for determining
the authenticity of transfer instructions received by telephone.
Choice of the Fixed Account
You can choose to have net premiums and net Unscheduled Payments applied to the
Fixed Account. You can change the choice for future net premiums and future net
Unscheduled Payments at any time by notice to the Company in writing. (See the
Restriction of New Amounts Applied to the Fixed Account provision.) The portion
of the net premium and net Unscheduled Payment to be applied to the Fixed
Account must be a whole percent not less than 10.
<PAGE>
9. Nonpayment of Premiums
Lapse of Policy
Any premium which is not paid by its due date is in default. If it remains
unpaid at the end of its 31-day grace period and is not paid automatically under
one of the options in Section 5, the Policy will lapse and Unscheduled Payments
cannot be made. If the Policy lapses to Fixed Paid-Up Insurance or Fixed
Extended Term Insurance, it will not be affected by: the investment performance
of the Account; and the interest rates used for the Fixed Account.
Lapse Options
If the Policy lapses because a premium is not paid, any Net Cash Value of the
Policy less the amount of each partial surrender and partial withdrawal made
during the grace period of the premium in default will be: transferred from the
Fixed Account and the Account to the general account of the Company and used to
continue the Policy in force either as Fixed Paid-Up Insurance or Fixed Extended
Term Insurance as stated below; or left in the Fixed Account and the Account and
used to continue the Policy in force as Variable Paid-Up Insurance as stated
below. Any riders will lapse unless otherwise stated in the rider. Any Policy
Loan Balance will be cancelled when the Net cash Value is used for this purpose.
Choice of Lapse Option
If the Policy is in a Standard Policy Class (see Section 1), the use of the
Fixed Extended Term Insurance Option at lapse will be automatic unless you
choose the Fixed Paid-Up Insurance Option or the Variable Paid-Up Insurance
Option. You can make or change your choice at any time in writing, but not later
than 60 days after the due date of the premium in default. Unless Variable Paid-
Up Insurance applies:
. If the Net Cash Value less the amount of each partial surrender and partial
withdrawal made during the grace period of the premium in default will
provide an amount of Fixed Paid-Up Insurance equal to or greater than the
amount of Fixed Extended Term Insurance, the Fixed Paid-Up Insurance Option
will be used; and
<PAGE>
. If the Insured dies within 60 days after the due date of the premium in
default, the Fixed Option which will provide the greater death benefit will
be used.
If the Policy is in other than a Standard Policy Class, only the Fixed Paid-Up
Insurance Option is available.
Fixed Paid-Up Insurance Option
Fixed Paid-Up Insurance is permanent life insurance for a level amount with no
premiums due. It has increasing Cash Values and Loan Values. The amount of Fixed
Paid-Up Insurance is payable at the death of the Insured.
Fixed Paid-Up Insurance will be provided by using the Net Cash Value of the
Policy less the amount of each partial surrender and partial withdrawal made
during the grace period of the premium in default as a net single premium at the
age of the Insured on the due date of the premium in default.
Fixed Extended Term Insurance Option
(Available only if the Policy is in a Standard Policy Class.) Fixed Extended
Term Insurance is life insurance for a level amount for a limited term with no
premiums due. It has Cash Values, but no Loan Value. The amount of Fixed
Extended Term Insurance is payable only if the Insured dies prior to the end of
the term.
Fixed Extended Term Insurance will be provided by using the Net Cash Value of
the Policy less the amount of each partial surrender and partial withdrawal made
during the grace period of the premium in default as a net single premium at the
age of the Insured on the due date of the premium in default. The amount of
Fixed Extended Term Insurance will equal the Death Benefit of the Policy on the
due date of the premium in default.
Variable Paid-Up Insurance Option
Variable Paid-Up Insurance is available:
. If the Policy is in a Standard Policy Class; and
. If the Initial Amount of Variable Paid-Up Insurance is at least $5,000.
If you chose this Option and the Initial Amount of Variable Paid-Up Insurance is
less than $5,000, Fixed Paid-Up Insurance will be provided.
Variable Paid-Up Insurance is permanent life insurance with no premiums due. The
Initial Amount of Variable Paid-Up Insurance
<PAGE>
will be determined by using the Net Cash Value less the amount of each partial
surrender and partial withdrawal made during the grace period of the premium in
default as a net single premium at the age of the Insured on the due date of the
premium in default.
The Death Benefit will be equal to: the greater of the Variable Death Benefit
and the Initial Amount of the Variable Paid-Up Insurance; less any Policy Loan
Balance. The Variable Death Benefit for the first policy month after lapse is
equal to the Initial Amount. The Variable Death Benefit for each later policy
month is adjusted on the first day of that policy month. For each policy month
after the first, the Variable Death Benefit:
. Will increase if the Policy's Actual Investment Return for the Period plus
any cost of insurance adjustment is greater than the Base Investment
Return;
. Will remain the same if the Policy's Actual Investment Return for the
Period plus any cost of insurance adjustment is equal to the Base
Investment Return; and
. Will decrease if the Policy's Actual Investment Return for the Period plus
any cost of insurance adjustment is less than the Base Investment Return.
(See Actual Investment Return and Base Investment Return, Section 11.)
The amount by which the Variable Death Benefit will change each policy month is
equal to:
. The dollar amount by which the Policy's Actual Investment Return for the
Period plus any cost of insurance adjustment is greater or less than its
Base Investment Return;
DIVIDED BY
. The Net Single Premium per $1.00 of Variable Death Benefit at the age of
the Insured on the first day of the policy month.
The cost of insurance adjustment, if any, to be added to the Policy's Actual
Investment Return for the Period to compute the Variable Death Benefit is equal
to the difference between the maximum guaranteed cost of insurance and the
actual cost of insurance for the Policy.
Variable Paid-Up Insurance has Cash Values and Loan Values. The Cash Value and
Loan Value can increase or decrease on a daily basis, depending on: the
investment performance of the chosen sub-accounts; and the interest credited to
the Policy's share of the Fixed Account. (See Actual Investment Return, Section
11.)
<PAGE>
The Cash Value of the Variable Paid-Up insurance is equal to: the Policy's share
of the chosen sub-accounts; plus the Policy's share of the Fixed Account; plus
the amount of any assets transferred to the general account of the Company
because of Policy Loans. (See Section 13.) The amount of the Cash Value depends
on: investment performance of the chosen sub-accounts; interest credited to the
Policy's share of the Fixed Account; cost of insurance charges; transfers among
sub-accounts and the Fixed Account; and Policy Loans.
The cost of insurance is deducted from the Cash Value:
. On the last day of each policy month; and
. On the date the Policy is surrendered if it is other than the last day of
the policy month.
The cost of insurance will be deducted in the same proportion as the Cash Value
of the Policy is in the sub-accounts and the Fixed Account.
The cost of insurance depends on the cost of insurance rate at the time of the
deduction and on the difference between the Variable Death Benefit and the Cash
Value on the last day of the month. The cost is pro rated in the event of
surrender during a policy month. (See Cost of Insurance Rates, Section 11.)
If a Policy Loan Balance exists and the Net Cash Value is not enough to cover
the cost of insurance, the difference will be treated in the same manner as an
excess Policy Loan. (See Section 13.)
The Loan Value of the Variable Paid-Up Insurance is described in Section 13.
10. Reinstatement After Lapse
Reinstatement
The Policy and riders can be reinstated at any time. (See Limitations on
Reinstatement below.) Reinstatement will be subject to:
. Application to reinstate; and
. Proof that the Insured is then insurable if reinstatement is applied for
more than 31 days after the end of the grace period of the premium in
default; and
. Payment, while the Insured is living, of the cost to
<PAGE>
reinstate; and
. Payment or reinstatement of any Policy Loan Balance on the due date of the
premium in default, plus interest that would have accrued if the Policy had
not lapsed; and
. Payment or reinstatement of each partial surrender and partial withdrawal
made during the grace period of the premium in default.
The cost to reinstate is the greater of: (a) each unpaid premium plus interest
at the rate of 5% per year compounded yearly; and (b) 110% of any increase in
the Cash Value as the result of the reinstatement plus each unpaid rider premium
with interest at the rate of 5% per year compounded yearly.
If Fixed Extended Term Insurance is in force under Section 9, and there are at
least five years of the term left, proof that the Insured is insurable will not
be required to reinstate the Policy; but it may be required to reinstate riders.
If Policy Loans were made while the Policy was in force as Paid-Up insurance and
the Loans are not repaid, they will continue in force after the Policy is
reinstated.
Limitations on Reinstatement
The Policy and riders cannot be reinstated, except with the consent of the
Company:
. If more than seven years have passed since the due date of the premium in
default; or
. If the Policy has been surrendered for its Net Cash Value. (See Section
11.)
Any rider which provides life or disability insurance on a person other than the
Insured can be reinstated only as stated in the rider.
11. Cash Value of the Policy
Surrender of the Policy
You can surrender the Policy for its Net Cash Value at any time by notice to the
Company in writing. Upon surrender, the Policy will be cancelled. The Net Cash
Value will be paid to you in one sum, unless you choose in writing to apply all
or part of the Value to any Payment Option. (See Payment of Benefits, Section
17.)
<PAGE>
Net Cash Value
The Net Cash Value of the Policy is equal to:
. The Cash Value of the Policy;
LESS
. Any Policy Loan Balance;
LESS
. Any Surrender Charge. (See Section 3.)
Cash Value
The Cash Value of the Policy will depend on the net investment performance of
the Money Market sub-account until the later of: 45 days after Part I of the
Application is signed; and 10 days after the Company mails the separate Notice
of Withdrawal Right. Thereafter, the Cash Value of the Policy if all premiums
due have been paid is equal to: the Policy's share of the chosen sub-accounts;
plus the Policy's share of the Fixed Account; plus the amount of any assets
transferred to the general account of the Company because of Policy Loans. (See
Section 13.) The amount of the Cash Value depends on: the frequency and amount
of net premiums; the frequency and amount of net Unscheduled Payments;
investment performance of the chosen sub-accounts; interest credited to the
Policy's share of the Fixed Account; Monthly Deductions; cost of insurance
charges; partial surrenders; partial withdrawals; decreases in Face Amount; the
use of the Special Premium Option; transfers among sub-accounts and the Fixed
Account; and Policy Loans. The Cash Value can increase or decrease on a daily
basis, depending on: the actual investment performance of the chosen sub-
accounts; and the interest credited to the Policy's share of the Fixed Account.
(See Actual Investment Return below.)
For 60 days after the due date of a premium in default, the Cash Value will not
be less than the Cash Value on the due date plus or less the Actual Investment
Return from the due date to the date of the calculation.
If the Policy is in force under the Fixed Paid-Up Insurance Option or the Fixed
Extended Term Insurance Option: the Cash Value of the Policy on any date is
equal to the net single premium which would be required to provide the insurance
at the age of the Insured on that date; and for 31 days after each policy
anniversary, the Cash Value will not be less than on the anniversary.
The Cash Value of the Policy is not increased by the Cash Value of any rider,
unless stated in the rider.
<PAGE>
Monthly Charges
If the Policy is not lapsed, monthly charges are deducted from the Cash Value of
this Policy on the first day of each policy month for that policy month: for the
Monthly Deduction, only during the Policy's premium paying period; and for the
cost of insurance in all policy years. As long as the Cash Value less the Policy
Loan Balance is sufficient to pay the entire monthly charges, the monthly
charges will be deducted in the same proportion as the Cash Value of the Policy
is in the sub-accounts and the Fixed Account.
If a Policy Loan Balance exists and the Cash Value less the Policy Loan Balance
is not enough to cover the monthly charges, the difference will be treated in
the same manner as an excess Policy Loan. (See Section 13.)
The Monthly Deduction consists of an administrative charge and a minimum death
benefit guarantee charge. The maximum amount of the Monthly Deduction due for a
policy month is equal to 0.00005 times the Face Amount.
The monthly cost of insurance is equal to: the amount at risk; times the cost of
insurance rate per $1000 for that month divided by 1,000. The amount at risk is
equal to:
. The Death Benefit on the first day of the policy month discounted at the
monthly equivalent of 4.5% per year:
LESS
. The Cash Value on the first day of the policy month after the Monthly
Deduction, if any, has been processed.
Cost of Insurance Rates
The cost of insurance rates for each policy month are based on: the sex of the
Insured; the class of the Policy; and the age of the Insured on the first day of
the policy year. The rates will be set by the Company each year on the policy
anniversary, based on the expectations of the Company as to future experience
with regard to investment earnings, mortality, expenses and lapse rates. The
rates are guaranteed for one year. The rates are guaranteed not to be greater
than those based on the mortality table for the Policy. (See Basis of Values.)
Monthly Cost of Insurance Adjustment At Surrender
The pro rata portion of any monthly cost of insurance deduction made for a
period beyond the date of surrender will be added to the surrender proceeds.
Base Investment Return
The Policy has a Base Investment Return for each Valuation Period
<PAGE>
for its share of each chosen sub-account and of the Fixed Account. The Policy's
Base Investment Return is the amount which would be earned by the Policy's share
if each sub-account had investment performance and the Fixed Account had
interest credited at a rate equivalent to an annual effective rate of 4.5% per
year. The Base Investment Return is used in the determination of: the Tabular
Value; and the Variable Death Benefit under the Variable Paid-Up Insurance
Option.
Actual Investment Return
The Policy has an Actual Investment Return for each Valuation Period for its
share of each chosen sub-account and of the Fixed Account. The Policy's Actual
Investment Return for each sub-account for each Valuation Period is equal to (a)
minus (b); where:
. (a) is equal to the Policy's share of the sub-account as of the end of the
Valuation Period;
PLUS
the monthly charges deducted in the Valuation Period:
LESS
any net premium and net Unscheduled Payment credited during the Valuation
Period;
PLUS
the total of the partial surrenders and partial withdrawals made during the
Valuation Period;
PLUS
the interest credited during the Valuation Period to any borrowed portion
of the Policy's Cash Value;
PLUS or LESS
a charge or credit for the Policy's share of any reserve for taxes which
the Company determines to apply to the sub-account; and
. (b) is equal to the Policy's share of the sub-account as of the end of the
most recent Valuation Period;
PLUS or LESS
a charge or credit for the Policy's share of any reserve for taxes which
the Company determines to apply to the sub-account.
The Actual Investment Return for the Fixed Account for each Valuation Period is
equal to (a) minus (b); where:
<PAGE>
. (a) is equal to the Policy's share of the Fixed Account as of the end of
the Valuation Period;
PLUS
<PAGE>
the monthly charges deducted in the Valuation Period;
LESS
any net premium and net Unscheduled Payment credited during the Valuation
Period;
PLUS
the total of the partial surrenders and partial withdrawals made during the
Valuation Period;
PLUS
the interest credited during the Valuation Period to any borrowed portion
of the Policy's Cash Value; and
. (b) is equal to the Policy's share of the Fixed Account as of the end of
the most recent Valuation Period.
There is a daily charge for mortality risk and expense risk against the Policy's
share of the sub-accounts. This charge will not be greater than: a rate
equivalent to .90% per yea; or, if less, the rate allowed by federal securities
law.
Valuation Periods and Valuation Dates
A Valuation Period for each sub-account is a period:
. Which starts on a Valuation Date: and
. Which ends on the next succeeding Valuation Date.
Each day the New York Stock Exchange is open for trading is a Valuation Date.
12. Death Benefit
Death Benefit
The amount of the Death Benefit will depend on the Death Benefit Option in
effect on the date of death. The amount payable will be reduced by any Policy
Loan Balance on the date of death.
Death Benefit Option
This Policy offers two Death Benefit Options. The Death Benefit Option will be
as chosen in the Application. The Death Benefit Option is shown in the Policy
Schedule.
Option 1
The Death Benefit on the date of death is equal to:
. The Face Amount shown in Section 1; or, if greater,
<PAGE>
. The Cash Value divided by the net single premium at the attained age of the
Insured.
Option 2
The Death Benefit on the date of death is equal to:
. The Face Amount shown in Section 1 plus any excess of the Cash Value over
the Tabular Value; or, if greater,
. The Cash Value divided by the net single premium at the attained age of the
Insured.
13. Policy Loans
Policy Loans
After the Right to Return the Policy period you can borrow all or part of the
Loan Value of the Policy by written request to the Company. Policy Loans are
made on the sole security of the Policy. The amount you can borrow at any time
is equal to the Loan Value less any Policy Loan Balance at that time. Policy
Loans may be made automatically to pay premiums. (See Option for Automatic
Premium Payment, Section 5.) Unless you request otherwise, Policy Loans will
reduce first, the Policy's share of the sub-accounts proportionately and second,
the Policy's share of the Fixed Account, except as noted below in the Interest
on Loans; Policy Loan Balance provision. Assets equal to the amount of the Loan:
. Will be transferred to the general account of the Company; and
. Will earn interest at the effective rate per year of not less than: the
Policy Loan interest rate; less 1.5%.
Policy Loans, whether or not repaid, can have a permanent effect on Cash Values
and Death Benefits.
<PAGE>
Loan Value
Unless the Policy is lapsed for Fixed Paid-Up Insurance or Fixed Extended Term
Insurance, the Loan Value of the Policy is the amount which with loan interest
will equal: 90% of the Cash Value of the Policy projected to the next policy
anniversary or, if earlier, to the next premium due date: less the Surrender
Charge on the next loan interest due date or, if greater, on the date the loan
is made. The Cash Value will be projected with interest at the effective rate
per year of 1.5% less than the Policy Loan interest rate.
If the Policy is in force under the Fixed Paid-Up Insurance Option, the Loan
Value is the amount which with loan interest will equal the Cash Value of the
Policy on the next loan interest due date. The Policy has no Loan Value while it
is in force as Fixed Extended Term Insurance. (See Section 9.)
Interest on Loans; Policy Loan Balance
Policy Loans bear interest as shown in Section 1. Interest accrues daily. The
Policy Loan Balance at any time means Policy Loans outstanding plus interest
accrued to date. Loan interest is due on the annual premium anniversary date
each year. Loan interest not paid when due will be added to the Loan and will
bear interest; when loan interest is added to the Loan, the Policy's share of
the sub-accounts and of the Fixed Account will be reduced proportionately.
Repayment of Loans
Policy Loans may be repaid to the Company at any time in whole or in part. Loan
repayments will be allocated: first, to repay the Loans made against the Fixed
Account; and second, unless you request otherwise, to repay the Loans made
against the sub-accounts in the same proportion as the Policy is invested in the
sub-accounts. A Policy Loan is a charge against the Policy. The proceeds of the
Policy will be reduced by any Policy Loan Balance on the date of death of the
Insured. If the Policy Loan Balance at any time exceeds the Cash Value of the
Policy less the Surrender Charge on the next loan interest due date or, if
greater, on the current Valuation Date (called "excess Policy loan"), the
Company will mail a notice to you and to any assignee. The notice will be mailed
to the addresses on record with the Company. If the excess amount is not paid to
the Company within 31 days after mailing of the notice, the Policy will lapse
without value.
14. Exchange of Policy
Exchange of Policy
Within 24 months after its Date of Issue, you can exchange this
<PAGE>
Policy, if all premiums due have been paid, for a policy which provides fixed
benefit insurance. The new policy will be issued:
. By New England Mutual Life Insurance Company;
. On any plan of Whole Life or Endowment insurance with a level face amount
issued by New England Mutual Life Insurance Company on the Policy Date;
. With the same Insured, Age, Policy Date, Face Amount and underwriting class
as this Policy;
. Subject to any cost or credit and the repayment of any Policy Loan Balance;
and
. Subject to any assignments of this Policy, and limitations on this Policy
stated in riders.
Riders which provide benefits that are the same as those provided by riders on
this Policy will be attached to the new policy, if they are available.
Change Cost or Credit
Any change cost or credit will be quoted by the Company on request.
A detailed statement of the method of computing the change cost or credit has
been filed with the Insurance Department of the state in which the Policy is
delivered.
15. Policy Changes
Decrease in Face Amount
The Face Amount may be decreased by written request to the Company, if the
Company consents. No portion of the Cash Value will be paid to you. A Surrender
Charge will apply to a decrease in Face Amount. A decrease in Face Amount will
result in a decrease in premiums and Tabular Values. The Cash Value after the
decrease in Face Amount will be equal to: the Cash Value just prior to the
decrease; less any Surrender Charge for the decrease. The Death Benefit will be
recalculated based on the new Face Amount and the Cash Value after the decrease.
A decrease in Face Amount may require a decrease in the amounts provided by
riders attached to this Policy.
Partial Withdrawal and Partial Surrender
The total number of partial surrenders and partial withdrawals will be limited
to 4 in each policy year, except with the consent of the Company.
<PAGE>
If Death Benefit Option 1 is in effect, you can make a partial withdrawal if the
Death Benefit is greater than the Face Amount of the Policy. If there is no
Policy Loan Balance, the partial withdrawal is limited to: the Cash Value; less
the Face Amount times the net single premium at the Insured's attained age. If
there is a Policy Loan Balance, the amount of the partial withdrawal will be
further limited to prevent the Policy Loan Balance from exceeding the Loan Value
of the Policy.
If Death Benefit Option 2 is in effect, you can make a partial withdrawal. If
there is no Policy Loan Balance, the partial withdrawal is limited to the Cash
Value less the Tabular Value. (See Section 2.) If there is a Policy Loan
Balance, the amount of the partial withdrawal will be further limited to prevent
the Policy Loan Balance from exceeding the Loan Value of the Policy.
A partial withdrawal will result in a decrease in Death Benefit and Cash Value.
The premium, Face Amount and Surrender Charge will not change.
Unless you request otherwise, a partial withdrawal will reduce: first, the
Policy's share of the sub-accounts proportionately; and second, the Policy's
share of the Fixed Account.
You also can make a partial surrender. A portion of the Cash Value will be paid
to you. A Surrender Charge will be applied if you make a partial surrender. (See
Section 3.) A partial surrender will result in a decrease in Cash Value,
premiums, Face Amount, Death Benefit and Tabular Value. The Face Amount which
will remain after the partial surrender must not be less than the Company's
published minimum, except with the consent of the Company.
<PAGE>
Unless you request otherwise, a partial surrender will reduce: first, the
Policy's share of the sub-accounts proportionately; and second, the Policy's
share of the Fixed Account.
The Company will subtract the amount of each partial withdrawal and partial
surrender taken during the grace period of a premium in default from the Net
Cash Value used to determine the value of the Policy at lapse.
16. Owner and Beneficiary
Owner
The Owner of the Policy is named in the Application (see copy attached); but the
Owner can be changed. The new Owner will succeed to all rights of the Owner,
including the right to make a further change of Owner. At the death of the
Owner, his or her estate will be the Owner, unless a successor Owner has been
named. In this Policy "you" means the Owner, whether the Owner is a person, a
partnership, a corporation, a fiduciary or any other legal entity. The rights of
the Owner will terminate at the death of the Insured, except for Payment of
Benefits. (See Section 17.)
Beneficiary
The Beneficiary is named in the Application (see copy attached); but the
Beneficiary can be changed before the death of the Insured. The Beneficiary has
no rights in the Policy until the death of the Insured. A person must survive
the Insured to qualify as Beneficiary. If none survives, the proceeds will be
paid to the Owner. The Beneficiary can also be a corporation, a partnership, a
fiduciary or any other legal entity.
Change of Owner or Beneficiary
A change of Owner or Beneficiary must be in written form satisfactory to the
Company, and must be dated and signed by the Owner who is making the change. The
change will be subject to all payments made and actions taken by the Company
under the Policy before the signed change form is received by the Company at its
Administrative Office.
Assignments
An absolute assignment of the Policy by the Owner is a change of Owner and
Beneficiary to the assignee. A collateral assignment of the Policy by the Owner
is not a change of 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 the Company before a signed copy of the assignment form is
received by the Company at its Administrative Office. The Company will not be
responsible for determining whether or not an assignment is valid.
<PAGE>
Designation of Owner and Beneficiary
A numbered sequence can be used to name successive Owners or Beneficiaries. Co-
Beneficiaries will receive equal shares unless otherwise stated.
In naming Owners or Beneficiaries, unless otherwise stated:
. "Child" includes an adopted or posthumous child;
. "Provision for issue" means that if a Beneficiary does not survive the
Insured, the share of that Beneficiary will be taken by his or her living
issue by right of representation; and
. A family relation such as "wife", "husband" or "child" means the relation
to the Insured.
At the time for payment of benefits the Company can rely on an affidavit of any
Owner or other responsible person to determine family relations or members of a
class.
17. Payment of Benefits
Payment
The policy proceeds will be paid in one sum, unless all or part of the proceeds
are applied to a Payment Option. (See Section 18.) The Company will pay interest
on the proceeds from the date they become payable to the date of payment in one
sum, or to the Option Date. The rate of interest will be set each year by the
Company; but the rate on death and maturity proceeds will not be less than that
required by law and the rate on other proceeds will not be less than 3 1/2% per
year. The interest payable on surrender proceeds is described in Section 4.
Choice of Payment Options; Option Date
The choice of a Payment Option and the naming of the Payee must be in written
form satisfactory to the Company. You can make or change or revoke the choice
before the death of the Insured. The Option Date is the effective date of the
Payment Option, as stated in the form on which you made your choice.
Payee
A Payee is a person, a corporation, a partnership, a fiduciary or any other
legal entity entitled to receive payment in one sum or under a Payment Option.
Choices By Payees
<PAGE>
Any proceeds payable in one sum at the death of the Insured, or upon surrender
of the Policy, can be applied to any Payment Option chosen by the Payee.
Further, subject to the consent of the Company, any Payee who is entitled to
receive proceeds in one sum when a Payment Option ends, or at the death of a
prior Payee, or when proceeds are withdrawn can choose to apply the proceeds to
a Payment Option.
Rights of Payees
The Payee under a Payment Option can be given the right:
. To withdraw principal and interest under the Fourth or Fifth Option; or
. To withdraw the commuted value of payments certain under the First, Second
or Sixth Option.
Under the Life Income Options only payments certain can be commuted. No Payee
has the right to assign, commute or withdraw the payments under any Payment
Option, unless the right is reserved to the Payee.
Limitations
If instalments under an Option would be less than $20, proceeds can be applied
to a Payment Option only with the consent of the Company.
Life Income Options
Life Income Options are based on the age of the Payee on the Payee's birthday
nearest the Option Date. The Company will require proof of age. The Life Income
payments will be based: on the rates shown in the Life Income Tables (Section
19); or, if they are greater, on the Payment Option rates of the Company on the
Option Date. If the rates at a given age are the same for different periods
certain, the longest period certain will be used.
Purchase of Increased Life Income Benefits
On the Option Date, a one sum purchase payment can be made to the Company to be
added to the proceeds being applied to any Payment Option. The portion of Life
Income payments purchased in this way will be based on the Payment Option rates
of the Company on the Option Date, which may not be the rates shown in the Life
Income Tables (Section 19). The purchase payment will be limited to the
Company's published maximum for single premium immediate annuities on the Option
Date. A portion of the purchase payment may be used by the Company to pay
premium taxes on the purchase payment.
Death of Payee
<PAGE>
If a Payee under a Life Income Option dies within 30 days after the Option Date,
the amount applied to the Option, less any payments made, will be paid in one
sum, unless a Payment Option is chosen by the successor payee. Otherwise,
amounts to be paid after the death of a Payee under a Payment Option will be
paid as due to the successor Payee. If there is no successor Payee, amounts to
be paid in one sum, or the commuted value of any unpaid payments certain, will
be paid in one sum to the estate of the last Payee to die.
Commutation Rate
The interest rate used to compute the commuted value of any unpaid payments
certain:
. Under the First Option will be 3 1/2% per year; and
. Under the Life Income Options will be the rate used by the Company in
computing the amount of the monthly payments.
18. Payment Options
Payment Options
All or any part of the policy proceeds can be applied to any one of the
following Options, subject to Section 17, Payment of Benefits:
First Option: Income for a Specified Number of Years
The Company will make equal monthly payments which will include both principal
and interest. Payments will start on the Option Date and will continue for the
number of years chosen. The number of years chosen cannot be more than 30.
Interest is at the rate of 3 1/2% per year compounded yearly. Additional
interest paid by the Company for any year will be added to the monthly payments
for that year.
Guaranteed monthly payments per $1,000 of proceeds applied to the First Option
are shown below.
- ------------------------------------------------
Number Number Number
of Years of Years of Years
- ------------------------------------------------
1 $84.65 11 $9.09 21 $5.56
2 43.05 12 8.46 22 5.39
3 29.19 13 7.94 23 5.24
4 22.27 14 7.49 24 5.09
5 18.12 15 7.10 25 4.96
6 15.35 16 6.76 26 4.84
7 13.38 17 6.47 27 4.73
8 11.90 18 6.20 28 4.63
<PAGE>
9 10.75 19 5.97 29 4.53
10 9.83 20 5.75 30 4.45
Second Option: Life Income
The Company will make equal monthly payments. Payments will start on the Option
Date and will continue:
. During the life of the Payee, with no further payment after the death of
the Payee, called "Life Income, No Refund"; or
. During the life of the Payee, but for at least 10 years, called "Life
Income, 10 Years Certain"; or
. During the life of the Payee, but for at least 20 years, called "Life
Income, 20 Years Certain".
Third Option: Life Income with Refund
The Company will make equal monthly payments. Payments will start on the Option
Date and will continue during the life of the Payee. At the death of the Payee,
if the total payments made are less than the total proceeds applied to the
Option, then:
. The difference will be paid in one sum, called "Life Income, Cash Refund";
or
. The equal monthly payments will continue until the total payments are equal
to the total proceeds applied to the Option, called "Life Income,
Instalment Refund".
Fourth Option: Interest
The Company will hold the proceeds at interest during the life of the Payee or
for any other period agreed to by the Company. Interest on proceeds:
. Will be paid each month to the Payee starting one month after the Option
Date; or
. Will be added to the principal amount each year and will earn interest.
At the death of the Payee, or at the end of the period agreed to, the balance of
principal and any accrued interest will be paid in one sum. The rate of interest
will be set each year by the Company; but the rate will not be less than 3 1/2%
per year.
Fifth Option: Specified Amount of Income
The Company will make equal monthly payments which will include both principal
and interest. Payments will be in the amount chosen. Payments may be quarterly
or at any other frequency
<PAGE>
chosen, and payments may be for different amounts, all subject to the consent of
the Company. Payments will start on the Option Date and will continue until the
balance is fully paid out. At the death of the Payee any unpaid balance and
accrued interest will be paid in one sum. The rate of interest will be set each
year by the Company; but the rate will not be less than 3 1/2% per year.
Interest will be added each year to the principal and will earn interest.
Sixth Option: Life Income for Two Lives
The Company will make equal monthly payments. Payments will start on the Option
Date and will continue:
. While either of two Payees is living, called "Joint and Survivor Life
Income"; or
<PAGE>
. While either of two Payees is living, but for at least 10 years, called
"Joint and Survivor Life Income, 10 Years Certain"; or
. While two Payees are living; and after the death of one Payee, two-thirds
of the monthly amount while the other Payee is living, called "Joint and
2/3 to Survivor Life Income".
19. Life Income Tables
Life Income Tables
Guaranteed monthly payments per $1,000 of proceeds applied to the Life Income
Options are shown below:
- --------------------------------------------------------------------------
Second and Third Options: Life Income
- --------------------------------------------------------------------------
Age of No 10 Years 20 Years Cash Installment
Payee Refund Certain Certain Refund Refund
- --------------------------------------------------------------------------
*15 $3.19 $3.19 $3.19 $3.18 $3.19
16 3.21 3.20 3.20 3.19 3.20
17 3.22 3.22 3.21 3.21 3.21
18 3.23 3.23 3.23 3.22 3.22
19 3.25 3.24 3.24 3.23 3.24
20 3.26 3.26 3.25 3.25 3.25
21 3.27 3.27 3.27 3.26 3.26
22 3.29 3.29 3.28 3.28 3.28
23 3.31 3.30 3.30 3.29 3.29
24 3.32 3.32 3.31 3.31 3.31
25 3.34 3.34 3.33 3.32 3.33
26 3.36 3.36 3.35 3.34 3.35
27 3.38 3.37 3.37 3.36 3.36
28 3.40 3.39 3.39 3.38 3.38
29 3.42 3.41 3.41 3.40 3.40
30 3.44 3.44 3.43 3.42 3.42
31 3.46 3.46 3.45 3.44 3.44
32 3.49 3.48 3.47 3.46 3.47
33 3.51 3.51 3.50 3.49 3.49
34 3.54 3.53 3.52 3.51 3.52
35 3.56 3.56 3.55 3.54 3.54
36 3.59 3.59 3.58 3.56 3.57
37 3.62 3.62 3.60 3.59 3.60
38 3.66 3.65 3.63 3.62 3.63
39 3.69 3.69 3.67 3.65 3.66
40 3.73 3.72 3.70 3.68 3.69
41 3.76 3.76 3.73 3.71 3.72
42 3.80 3.79 3.77 3.75 3.76
43 3.84 3.84 3.80 3.78 3.79
<PAGE>
44 3.89 3.88 3.84 3.82 3.83
45 3.93 3.92 3.88 3.86 3.87
46 3.98 3.97 3.92 3.90 3.91
47 4.03 4.02 3.97 3.94 3.96
48 4.08 4.07 4.01 3.99 4.00
49 4.14 4.12 4.06 4.03 4.05
50 4.20 4.18 4.11 4.08 4.10
51 4.26 4.23 4.16 4.13 4.15
52 4.32 4.30 4.21 4.19 4.21
53 4.39 4.36 4.26 4.24 4.27
54 4.46 4.43 4.32 4.30 4.33
55 4.54 4.50 4.37 4.36 4.39
56 4.62 4.58 4.43 4.43 4.46
57 4.70 4.65 4.49 4.49 4.53
58 4.79 4.74 4.56 4.57 4.60
59 4.89 4.83 4.62 4.64 4.68
60 4.99 4.92 4.68 4.72 4.76
61 5.10 5.02 4.75 4.80 4.85
62 5.22 5.12 4.82 4.89 4.94
63 5.34 5.23 4.88 4.98 5.03
64 5.47 5.35 4.95 5.07 5.13
65 5.61 5.47 5.02 5.17 5.24
66 5.76 5.60 5.08 5.28 5.35
67 5.92 5.73 5.15 5.39 5.47
68 6.10 5.87 5.21 5.51 5.59
69 6.28 6.02 5.27 5.63 5.72
- --------------------------------------------------------------------------
Age of No 10 Years 20 Years Cash Installment
Payee Refund Certain Certain Refund Refund
- --------------------------------------------------------------------------
70 $6.48 $6.17 $5.33 $5.76 $5.86
71 6.70 6.33 5.38 5.89 6.00
72 6.92 6.49 5.43 6.04 6.16
73 7.17 6.66 5.48 6.19 6.32
74 7.43 6.84 5.52 6.34 6.49
75 7.71 7.02 5.56 6.52 6.67
76 8.02 7.20 5.60 6.69 6.86
77 8.34 7.38 5.63 6.87 7.06
78 8.69 7.56 5.66 7.07 7.27
79 9.07 7.75 5.68 7.27 7.50
80 9.47 7.93 5.70 7.49 7.74
81 9.90 8.11 5.71 7.73 7.99
82 10.36 8.28 5.73 7.96 8.25
83 10.86 8.45 5.73 8.21 8.53
84 11.39 8.62 5.74 8.50 8.83
**85 11.96 8.77 5.75 8.78 9.14
- --------------------------------------------------------------------------
*and under **and over
- --------------------------------------------------------------------------
Sixth Option: Life Income for Two Lives
<PAGE>
- -------------------------------------------------------------------
Age of One Age of Other Payee
Payee 55 60 65 70 75
- -------------------------------------------------------------------
Joint and Survivor
55 $4.04 $4.17 $4.28 $4.37 $4.43
60 4.17 4.36 4.53 4.68 4.79
65 4.28 4.53 4.79 5.02 5.22
70 4.37 4.68 5.02 5.38 5.71
75 4.43 4.79 5.22 5.71 6.22
80 4.47 4.87 5.37 5.98 6.68
- -------------------------------------------------------------------
Joint and Survivor. 10 Years Certain
55 $3.96 $4.09 $4.20 $4.36 $4.42
60 4.09 4.27 4.44 4.59 4.77
65 4.20 4.44 4.69 4.91 5.09
70 4.36 4.59 4.91 5.22 5.50
75 4.42 4.77 5.09 5.50 5.88
80 4.46 4.85 5.33 5.72 6.21
- -------------------------------------------------------------------
Joint and 2/3 to Survivor
55 $4.37 $4.56 $4.76 $4.99 $5.23
60 4.56 4.78 5.02 5.30 5.59
65 4.76 5.02 5.33 5.67 6.03
70 4.99 5.30 5.67 6.10 6.57
75 5.23 5.59 6.03 6.57 7.18
80 5.48 5.89 6.41 7.06 7.84
- -------------------------------------------------------------------
Payments for other ages will be quoted by the Company on request.
The rates shown above are based on an interest rate of 3 1/2% per year; and on
mortality: using a 60/40 male/female weighting; based on the Individual
Annuitant Mortality Table for 1983; and with projection on Scale G to the year
2000 and then on Scale B Modified to year 2010.
<PAGE>
Please notify the Company of any change in your name or address. The Company
will communicate with you at your address on record with the Company.
New England Variable Life
Insurance Company
Administrative Office:
501 Boylston Street
Boston, Massachusetts 02117
Variable Life Policy
.The Death Benefit is payable at the death of the Insured.
.Premiums are payable to the Company for a specified period.
. Unscheduled Payments can be made.
.The Policy does not participate in Dividends.
<PAGE>
- ------------------------------------------------------------
Amendments and Endorsements (To be made only by the Company)
<PAGE>
NEV APP-20-87
The New England
Your Financial Partner
For Company Use Only
No.
-----------
Part I - Application to the New England Life
Insurance Company for Insurance on the Proposed Insured
For use when Proposed Insured is under Age 15.
Proposed Insured:
----------------------------------------------------
(Print name as it should appear in policy)
Questions below pertain to Proposed Insured unless otherwise indicated.
1. Residence Address (Include street and number, city, state and zip code)
2. Premium Notice Address __ Applicant at address in 1.
___Other (Give Name and Address)
- ----------------------------------------------------------------------
(Street) (City) (State) (Zip Code)
3. Social security or Employer
Identification Number
Proposed
Insured
---------------------------
First Owner
------------------------------
4. Birthplace
---------------------------
(City) (State or Country)
5. Citizen of
---------------------------
6. Birth Date
--------------------------------------
(Month) (Day) (Year)
7. Age (Nearest Birthday)
-------------------------------------------
8. Sex Male ___ Female ___
9. Grade in School
---------------------------
New England Life Insurance Company, 501 Boylston Street, Boston, Massachusetts,
02116
Continued on Reverse Side
<PAGE>
10. Name of Applicant
-------------------------------------------------
Relation to Proposed Insured
-------------------------------------------------
11. State relation and amount of life insurance in force or applied for on
person responsible for support of Proposed Insured.
Relation to Proposed Insured
-------------------------------------------------
Amount of Insurance
-------------------------------------------------
12. Life Insurance in Force (if none, so state)
Company Year of Issue Amount A.D.B.
--------------------- ---------- --------- ---------
--------------------- ---------- --------- ---------
--------------------- ---------- --------- ---------
13. Any insurance or annuity in this or any other company which has been or
will be replaced as a result of this application for insurance? (if "Yes",
complete required replacement forms; list company, policy number, and
amounts in 21.) ___Yes ___No
14. My other negotiations for life or accidental death insurance pending or
contemplated? _____Yes _____No (If "Yes", see 2l)
15. Any intent to travel or reside outside USA? ____Yes ____ No (if "Yes", see
21)
16. Any participation within the past 3 years or intent to participate in:
SCUBA diving; sky diving; hang gliding; or motor racing? (If "Yes",
complete applicable Questionnaire) _____Yes _____ No
17. Plan of Insurance
-----------------------------------------------
Riders
___ a. Waiver of Premiums ___b. Acc. Death Ben. $_______
___ Disability of Insured ___c. Purchase Option $_______
___ Payor Death Only ___d. Other (see 21)
___ Payor Death or Disability
18. Face Amount of Policy
$
----------------------
<PAGE>
19. If available under policy applied for, state Planned Annual Unscheduled
Payment.
$
-------------------------
20. Death Benefit Option (If available under policy applied for):
___ Option 1 (Face Amount)
___ Option 2 (Face Amount plus any Excess Cash Value)
21. Explain "Yes" answers. Indicate any special request. (Attach memo if more
space needed)
------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
New England Life Insurance Company, 501 Boylston Street, Boston, Massachusetts
02116
- --------------------------------------------------------------------------------
22. Beneficiary (Include relation to Proposed Insured)
(1) Primary (2) Secondary
------------------------------ ------------------
23. Owner (Include relation to Proposed Insured)
------------------------
(Note: A numbered sequence may be used to name successive Owners. An Owner
who is a minor may need a guardian and court order to exercise rights.)
24. Premium Mode ___ Annual ____ Semi-Annual
___ Quarterly ____ Other (see 21)
25. If available under policy applied for, are premiums in default to be paid
automatically by policy loan? ____Yes ___No
26. If available under policy applied for, is the Special Premium Option
elected for premiums in default? _____Yes _____No
27. Any history of a blood disorder, tumor or heart disease? ___Yes ____No
28. Any change in health or any treatment by or consultation with a physician
since the date of Part II of this Application? (Answer only if Part II is
dated prior to Part I. If "Yes", see 2l). ____Yes ____No
29. Prepayment Receipt Amount
____ $___________________ _____ None If Question 27 or 28 is answered
"Yes", no prepayment is permitted.
<PAGE>
30. Account Allocation (whole %) (Minimum 10% in each selected account.)
_________% Capital Growth
_________% Money Market
_________% Bond Income
_________% Stock Index
_________% Managed
- -----------
100% Total
31. Suitability Statement by Applicant:
a. Did you receive the prospectus? ____Yes _____No
(If "Yes", give date of prospectus:______________)
b. Do you understand that:
___ the death benefit may increase or decrease depending on the policy's
investment return, but will never be less than the guaranteed
minimum? _____Yes _____No
___ the cash value may increase or decrease depending on the
investment return? _____Yes ____No
c. Do you believe that this policy will meet insurance needs and
financial objectives? _____Yes ____No
. THE DEATH BENEFIT MAY BE VARIABLE OR FIXED UNDER SPECIFIED CONDITIONS.
. THE CASH VALUES MAY INCREASE OR DECREASE IN ACCORDANCE WITH SEPARATE
INVESTMENT ACCOUNT EXPERIENCE
Administrative Office Use: Additions and Amendments
- --------------------------------------------------------------------------------
General: To the best of my knowledge and belief, the answers recorded are true
and complete. In those states where written consent is required by law, my
agreement in writing is required to any entry made by the Company in "Additions
and Amendments" as to (a) age; or (b) plan of insurance; or (c) riders; or (d)
amounts; or (e) rate class.
When Insurance Takes Effect. If a prepayment is made in connection with this
Application, the insurance will take effect as stated on the Prepayment Receipt
and Temporary Life Insurance Agreement. Otherwise, the insurance will take
effect only when the first premium is paid; provided that at the time of such
payment: (a) this Application has been approved by the Company at its
Administrative Office; and (b) there has been no change in insurability as
represented in this Application since the date of the Application.
Limitation on Authority of Agents and Examiners. Agents and Examiners do not
have authority: (a) to determine insurability; or (b) to change
<PAGE>
any terms of this Application; or (c) to make a contract for the Company.
Cost of Insurance Rates May Change. The cost of insurance rates for the policy
may change. The rates currently being charged are not guaranteed; and the
Company may charge the full maximum guaranteed rates.
Signed at (City and State)__________________ Date________19___
- ------------------ ----------------------------------- -----------------
Agent (Signature Optional) Proposed Insured Applicant
<PAGE>
Agent's Certificate
Questions regarding Proposed Insured
1. How long have you known Proposed Insured?
-----------------
2. Did you personally see Proposed Insured? ___Yes ___No
(if "No", explain)
3. After investigation. are you completely satisfied that Proposed Insured is
in good health, and that there is nothing in the physical condition,
personal or family history, or home environment of Proposed Insured which
would adversely affect the risk? ____ Yes _____No (if "No ", explain in
separate memo)
4. a. Does Proposed Insured live with parents?
____ Yes ____ No (If' "No", explain)
b. If Proposed Insured changed residence within past 2 years. give
previous address.
5. Show ages of all living brothers and sisters and insurance in force or
applied for, if any.
Brothers' Ages Amount Sisters' Ages Amount If no insurance,
give reason
- --------------- --------- --------------- --------- ----------------
- --------------- --------- --------------- --------- ----------------
- --------------- --------- --------------- --------- ----------------
- --------------- --------- --------------- --------- ----------------
6. Do you have knowledge or reason to believe that any insurance or annuity in
this or any other company has been or will be replaced as a result of this
application for insurance? _____ Yes _____ No
Questions regarding Applicant
7. Source of Client (Check only one)
Previous TNE Policyholder New Policyholder
___ a. Agent's Own Client ___ d. Acquaintance
___ b. Orphan Policyholder ___ e. Referred Lead
___ c. TNE Group Insured ___ f. Direct Mail
___ g. Published Sources
___Agent's Immediate Family ___ h. Other
8. How long have you known Applicant?
--------------------------------
<PAGE>
9. Indicate source of premiums for this insurance
-------------------------------------------------------
(If corporate or guardianship funds involved, evidence of authority may be
required)
10. What is your estimate (in figures) of Applicant's:
a. Earned income $__________ b. Other Income $__________
c. Total Income $__________ d. Net Worth $__________
e. Spouse's Income $__________
11. Education ___a. High School ____ b. Attended College
___ c. College Graduate ____ d. Graduate School
12. Applicant's Occupation
13. Applicant's Employer and Business Address:
-------------------
-------------------------------------------------------------
14. Applicant's Employment Status (Check Employer and Field and Level or Other
Status)
<TABLE>
<CAPTION>
Employer Field Level Other Status
<S> <C> <C> <C>
_a. Government _a. Business _a. Professional _j. Armed Forces
_b Non Profit Org. _b. Sales _b. Executive _k. Student
_c. Corporation _c. Medicine _c. Middle Mgr. _j. Homemaker
_d. Partnership _d. Law _d. Supervisory _m. Unemployed
_e. Sole Proprietorship _e. Agriculture _e. Technical _n. Retired
_f. Self Employed _f. Education _f. Clerical
_g. Other _g. Craftsman
_h. Laborer
</TABLE>
To the best of my knowledge, I have presented the Company all pertinent facts
regarding the Proposed Insured and regarding this application.
Date
- ------------------------------- -------------------
Signature of Agent
Accepted for the Company
By: Date
---------------------------- -------------------
General Agent's Certificate
<PAGE>
1. If agent of another company, name other company
-----------------------------------------------------
2. Is the agent licensed where the application is written?
Date
- ------------------------- ---------------------------------------
Signature of General Agent
Agent's Identification Plate
(Agent's
Code (Commission
(Agent's Name) Number) Split %)
Owner's Certification Section (in lieu of W9):
Owner's Social Security or Employer Identification Number:
--------------------
___ I am ____ I am not subject to backup withholding under Section
3406(a)(1)(c) of the Internal Revenue Code. Under penalties of perjury, I
certify that the information provided in this section is true, correct, and
complete.
---------------------- -------------
Owner's Signature Date
<PAGE>
Exhibit 1.A. (10)
NEV APP-19-87
The New England
Your Financial Partner
For Company Use Only
No
-------------------
Part I - Application to The New England Life
Insurance Company for Insurance on the Proposed Insured
Insured Proposed:
--------------------------------------
(Print name as it should appear in policy)
Questions below pertain to Proposed Insured unless otherwise indicated.
1. Address (Include street and number, city, state and zip code)
a. Residence
-------------------------------------------------------
b. Business
-------------------------------------------------------
2. Premium Notice Address - Proposed Insured
___ at 1 .a. ____ at 1 .b.
___ Other than Proposed Insured (Give Name and Address)
- ------------------------------------------------------------
(Street) (City) (State) (Zip Code)
3. Social Security or Employer Identification Number
Proposed
Insured
- --------------------------------
First Owner
- --------------------------------
4. Birthplace
-----------------------------------
(City) (State or Country)
5. Citizen of
-----------------------------------
6. Birthdate
------------------------------------------
(mo/day/yr)
7. Marital Status
___ Married ___ Single
___ Divorced ___ Widowed ___ Separated
Continued on Reverse Side
<PAGE>
8. Age (Nearest Birthday)
--------------------------------------------
9. Sex ___Male ____ Female
10. a. Occupation
---------------------------------
b. Principal Duties
---------------------------------
c. Other Duties
---------------------------------
11. a. Employer
-----------------------------------
b. Nature of Business
---------------------------------
---------------------------------
12. a. Annual income after business expenses and before income
taxes: (Answer every item)
Earned income: $___________ Other income:$_______________
(Describe in 23)
b. Net worth: $__________________
13. Life Insurance (Personal, Business and Group) in Force (If none, so state)
(Put "B" to the left of any business insurance listed)
Company Year of Issue Amount ADB
- ------------------- ------------------- -------- -----------
- ------------------- ------------------- -------- -----------
- ------------------- ------------------- -------- -----------
14. Any insurance or annuity in this or any other company which has been or
will be replaced as a result of this application for insurance? (If "Yes',
complete required replacement forms; list company, policy number & amounts
in 23)
___ Yes ____ No
15. a. Any cigarette smoking in past year? ____ Yes ___No
b. Any other tobacco use in past year? ____ Yes ___No
16. Any other negotiations for life, disability or accidental death insurance
pending or contemplated? ____ Yes ___No
(If "Yes", see 23)
17. Any intent to travel or reside outside USA? ___ Yes ___ No
(If "Yes", see 23)
Continued on Reverse Side
<PAGE>
18. Any participation within the past 3 years or intent to participate in: any
flights as a trainee, pilot or crew member; SCUBA diving; sky diving; hang
gliding; or motor racing? (If "Yes", complete applicable Questionnaire
___Yes ___ No
19. Any suspension or revocation of driver's license within past 2 years?
___ Yes ___ No (If "Yes" see 23)
20. Any treatment for or consultation with a physician concerning a heart
attack, a stroke or cancer (other than skin cancer) within past 2 years?
____ Yes ___No
21. Any change in health or any treatment by or consultation with a physician
since the date of Part II of this Application? (Answer only if Part II is
dated prior to Part I. If "Yes'; see 23)
____ Yes ___No
22. Is Proposed Insured currently employed less than full time? ____ Yes ___No
23. Explain "Yes" answers (Attach memo if more space needed)
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
24. Plan of Insurance
-------------------------------------------------------
Riders (Complete any additional application needed)
___ Waiver of Premiums
___ Acc. Death Ben. $
------------------
___ Purchase Option $
------------------
___ Level Term $
------------------
25. Face Amount of Policy $
------------------------------------------------
26. If available under policy applied for, state Planned Annual Unscheduled
Payment.$
----------------------
27. Death Benefit Option (if available under policy applied for):
___ Option 1 (Face Amount)
___ Option 2 (Face Amount plus any Excess Cash Value)
28. Indicate any special request (Attach memo if more space needed)
------
---------------------------------------------
29. Beneficiary (Include relation to Proposed Insured)
Continued on Reverse Side
<PAGE>
(1) Primary (2) Secondary
--------------------------- ---------------------------
30. Is Proposed Insured to own the policy? ____ Yes ___No
(If "No" name the Owner (Include relation to Proposed Insured) (Note: a
numbered sequence may be used to name successive Owners)
--------------------------------------------------------------
31. Premium Mode
___ Annual ___ Semi-Annual ___ Quarterly
___ Other (see 28)
32. If available under policy applied for, are premiums in default to be paid
automatically by policy loan?
____ Yes ___No
33. If available under policy applied for, is the Special Premium Option
elected for premiums in default?
____ Yes ___No
34. Prepayment $____________ ____ None (If Question 20 or 21 is answered
"Yes", no prepayment is permitted)
35. Account Allocation (whole %) (Minimum 10% in each selected account)
___% Capital Growth
___% Money Market
___% Bond Income
___% Stock Index
___% Managed
100% Total
36. Suitability Statement by Applicant
a. Did you receive the prospectus? ____ Yes ___No
(If "Yes", give date of prospectus)__________
b. Do you understand that
- the death benefit may increase or decrease depending on the
policy's investment return, but will never be less than the
guaranteed minimum? ____ Yes ___No
- the cash value may increase or decrease depending on the
investment return? ____ Yes ___No
c. Do you believe that this policy will meet insurance needs & financial
objectives? ____ Yes ___No
Continued on Reverse Side
<PAGE>
. The death benefit may be variable or fixed under specified conditions.
. The cash values may increase or decrease in accordance with separate
investment account experience.
Administrative Office Use: Additions and Amendments
General To the best of my knowledge and belief, the answers recorded are true
and complete. In those states where written consent is required by law, my
agreement in writing is required to any entry made by the Company in "Additions
and Amendments" as to: (a) age; or (b) plan of insurance; or (c) riders; or (d)
amounts; or (e) rate class.
When Insurance Takes Effect. If a prepayment is made in connection with this
Application, the Insurance will take effect as stated in the Prepayment Receipt
and Temporary Life Insurance Agreement. Otherwise, the insurance will take
effect only when the first premium is paid; provided that at the time of such
payment: (a) this Application has been approved by the Company at its
Administrative Office; and (b) there has been no change in insurability as
represented in this Application since the date of the Application.
Limitation on Authority of Agents and Examiners. Agents and Examiners do not
have authority: (a) to determine insurability; or (b) to change any terms of
this Application; or (c) to make a contract for the Company.
Cost of Insurance Rates May Change. The cost of insurance rates for the policy
may change. The rates currently being charged are not guaranteed; and the
Company may charge the full maximum guaranteed rates.
Signed at (City and State)_________________Date __________19____
- -------------------- -------------------- ---------------------------
Agent Proposed Insured Applicant if other than
Proposed Insured
New England Life Insurance Company, 501 Boylston Street, Boston, Massachusetts
02116
<PAGE>
Agent's Certificate
Proposed Insured No.
- ---------------------------------------------------- ------------------
Completion Required in Every Case
1. Source of Client (Check only one)
Previous TNE Policyholder
___ a. Agent's Own Client
___ b. Orphan Policyholder
___ c. TNE Group Insured
New Policyholder
___ d. Acquaintance
___ e. Referred Lead
___ f. Direct Mail
___ g. Published Sources
___ h. Other
Agent's
___ j. Own Life
___ k. Immediate Family
___ i. Business Associate
2. How long have you known Proposed Insured?
--------------
3. If name of Proposed Insured has changed within past 10 years by Marriage or
otherwise, give previous name.
4. Give Proposed Insured's addresses for the past 5 years.
a. Residence Address shown on Part I?
Former Business Addresses:
From Mo. Yr.
-----------------------
To Mo. Yr. Present
-------------------
b. Business Address shown on Part I?
Former Business Addresses:
From Mo. Yr.
-----------------------
To Mo. Yr. Present
-------------------
5. If Proposed Insured is a minor or married
a. Give full name and relationship of person responsible for support, if
a minor; or spouse, if married.
--------------------------------------------------
b. How much insurance is in force or applied for on person named above?
-----------------------------------
<PAGE>
6. Explain insurable interest of applicant, proposed beneficiary or proposed
owner if not a relative nor a business partner or associate of Proposed
Insured.
----------------------------------------------------------------------
----------------------------------------------------------------------
7. a. Your estimate (in figures) of annual income after business
expenses and before income taxes of Proposed
Insured's:
Earned Income $
-----------------
Other Income $
-----------------
Total Income $
--------------
Spouse's income $
-------------
b. Your estimate (in figures) of Proposed Insured's networth:
$
-------------
8. Indicate who will pay premiums for this insurance (If
guardianship funds involved, evidence of authority is
required.)
------------------------------------------
9. Has insurance on the life of the Proposed Insured ever been declined,
postponed, or modified as to plan, amount or rate? (If "Yes", explain
fully) _____Yes No_____
10. Do you have knowledge or reason to believe that any insurance or annuity in
this or any other company has been or will be replaced as a result of this
application for insurance? _____Yes No_____
11. Does Proposed Insured contemplate any change in
occupation or duties? _____Yes No_____
(If "Yes" explain fully)
12. Education
___a. High School ___b. Attended College
___c. College Graduate ___Graduate School
13. Employment Status (Check Employer and Field and Level, or check Other
Status)
<TABLE>
<CAPTION>
Employer Corporation Field Level Other Status
<S> <C> <C> <C> <C>
_a. Government _1) Professional _a. Business _a. Professional _j. Armed Forces
_b Non Profit Org. _2) Closely Held _b. Sales _b. Executive _k. Student
_c. Partnership _3) Other _c. Medicine _c. Middle Mgr. _j. Homemaker
_d. Sole Proprietorship _d. Law _d. Supervisory _m. Unemployed
_e. Self Employed _e. Agriculture _e. Technical _n. Retired
</TABLE>
<PAGE>
_f. Education _f. Clerical
_g. Other _g. Craftsman
_h. Laborer
14. Purpose Of Policy Life
Personal Estate Plan Business
__a. Single Need __f. Liquidity __k. Key EE.
__b. Program __g. Capital & Income __l. Buy-Sell
__c. Gift __h. Char. Gifts __m. Def. Comp.
__d. Salary Svngs. __j. Other __n. Salary Cont.
__e. Other __o. Split Dollar
(If purpose is business, complete Questions 16-20 on reverse)
15. Ledger Services Used
a. Capital Needs or Income Analysis ___Yes ___No
b. Estate Analysis Service ___Yes ___No
To the best of my knowledge, I have presented the Company all pertinent facts
regarding the Proposed Insured and regarding this application.
- ------------- --------------------------
Date Signature of Agent
Accepted for the Company
By:
------------------------- ---------------
Date
General Agent's Certificate
If agent of another Company, give name of other
Company
--------------------------------------
Is agent licensed where this application is written?
- ------------- -------------------------------
Date Signature of General Agent
For Business Life Insurance Only
16. If premiums are to be paid by corporation, give exact name of corporation
and State of incorporation.
<PAGE>
Submit evidence of authority, unless corporation is sole beneficiary and
sole owner.
17. a. Give names of other officers, key employees or partners on whom
business insurance is in force or proposed and amount of business
insurance on each.
Name Title Amt. of Business Amt. Of Business
Ins. in force Ins. Proposed
- ------------------ ------------------ ---------------- ------------------
- ------------------ ------------------ ---------------- ------------------
- ------------------ ------------------ ---------------- ------------------
b. Are there any officers, key employees or partners among the executives
or partners on whom business insurance is not in force or proposed?
____Yes ____No (If "Yes" give details)
-------------------------------------------
-------------------------------------------
18. If Applicant is a Corporation
a. What is the present net worth? $
--------------
b What percentage of stock is held by Proposed Insured?
________%
19. If Applicant is a Partnership, give full names of partners, and percent of
interest of each
____________________________ _____________%
____________________________ _____________%
____________________________ _____________%
20. It is frequently advisable to describe a Proposed Insured's value to the
business including skills, financial loss expected, financial resources,
etc. which warrant the amount of insurance requested (Submit a separate
letter if more space needed)
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Owner's Certification Section (in lieu of W9)
Owner's Social Security or Employer Identification Number.
--------------------------------------------
___ I am ___ I am not subject to backup withholding under Section
3406(a)( 1 )(c) of the Internal Revenue Code. Under penalties of perjury, I
certify that the information provided in this section is true, correct and
complete.
<PAGE>
- ----------------------------- --------------
Owner's Signature Date
Enter any request for additional or alternate life policies.
Agent's Identification Plate
(Agent's
Code
(Agent's Name) Number) (Commission Split %)
<PAGE>
APP-557-91
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------------------------------------------------------------
Application To Policy Number
-----------------------------------
NEW ENGLAND LIFE INSURANCE COMPANY
Questions below pertain to the Proposed Insured unless otherwise indicated.
Part I
- ----------------------------------------------------------------------------------------------
Personal 1. Print Name as it is to appear on the 2. Social Security Number
policy.
------------------------------------- --------------------------------
Data
--------------------------------
-------------------------------------
First MI Last
-------------------
3. Birthplace 4. Marital [_] Single [_] Married
------------------- Status [_] Widowed [_] Divorced
(state/county) [_] Separated
------------------- -----
5. Birth Date 6. Age Nearest 7. Sex [_] Female
------------------- Birthday ----- [_] Male
month day year
- ----------------------------------------------------------------------------------------------
------------------------------------------------------------------
Address 8.a. Residence
------------------------------------------------------------------
Street City State Zip
------------------------------------------------------------------
b. Business
------------------------------------------------------------------
Company/Street City State Zip
c. Premium [_] Proposed Insured [_] Other (Give name and address.)
--------------------------------------------
Notice [_] a. Residence
Address [_] b. Business
Street
City/State/Zip
--------------------------------------------
- ----------------------------------------------------------------------------------------------
Beneficiary 9. Beneficiary 10. Owner [_] Proposed [_] Other
and Owner Primary Insured
----------------------------
If other, specify below. (Use a numbered
sequence to designate successive owners.)
----------------------------
Names and Relation to Proposed ------------------------------------------
Insured
Secondary
---------------------------- ------------------------------------------
Names and Relation to Proposed Insured
First Owner's Social Security
---------------------------- or Taxpayer ID Number
Names and Relation to Proposed -------------------------------------------
Insured
------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Part I
Application
Continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
------------------------ ------------------------
Plan/Amount 11. Plan 12. Face Amount $
------------------------ ------------------------
-------------------------------------------------------------------------------
13. [_] Universal Life Product*
a. Planned Annual Premium c. Death Benefit Option
--------------------- [_] Option 1 (Face Amount)
Year 1 $
--------------------- [_] Option 2 (Face Amount plus
Cash Value)
---------------------
Renewal $
---------------------
b. [_] Waiver of Monthly Deductions
- --------------------------------------------------------------------------------------------
14. [_] Variable Life Product*
(Complete Variable Life Section (questions 35 through 39)
for scheduled premium, allocations, etc.)
-------------------------------------------------------------------------------
* COST OF INSURANCE RATES MAY CHANGE. The cost of insurance rates for the
policy may change. The rates currently being charged are not guaranteed;
and the Company may charge the full maximum guaranteed rates.
- --------------------------------------------------------------------------------------------
Benefits/ 15. Waiver of Premiums Benefits
Riders a. [_] Waiver of Premium - c. [_] Applicant's Waiver** -
(**Complete Proposed Insured Juvenile Insured
additional [_] Death or Disability
form.) b. [_] Applicant's Waiver** - [_] Death Only
Adult Insured
-------------------------------------------------------------------------------
---------------
16. a. [_] Acc. $ f. [_] Paid-Up Additions
Death ---------------
-------------
[_] Lump Sum $
At Issue -------------
---------------
b. [_] Level $
Term ---------------
[_] Annual
---------------
c. [_] Purchase $
Option ---------------
-------------
At Issue $
-------------
-------------
d. [_] Children's Insurance Rider** Thereafter $
-------------
---------------
$
---------------
g. [_] 1 Year Term (dividends)
e. [_] Additional Protection (FTR)
First Year Total Coverage -------------
(FTR Amount plus h. [_] Spouse $
Amount shown in 12.) Rider** -------------
--------------- -------------------
$ i. [_] Other
--------------- -------------------
[_] Level
[_] Increasing
Increase
-------
Percentage %
-------
-------
Number of Years
-------
[_] Offset Amount (for list
billed policies only)
---------------
$
---------------
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Part I
Application
Continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Health 17. Any treatment for or consultation with a physician [_] YES [_] NO
concerning a heart attack, a stroke or cancer (other than
skin cancer) within past 2 years? (If YES, explain in REMARKS.)
18. Any change in health or any treatment by or [_] YES [_] NO
consultation with a physician since the date of Part II of
this Application? (If YES, explain in REMARKS.)
- -------------------------------------------------------------------------------------------------------------------------------
Premium 19. [_] Annual [_] Semi Annual [_] Quarterly
Payment
(*Complete ----------------- ----------------
additional [_] MSA No. [_] List Bill No.
form.) ----------------- ----------------
[_] New Account* [_] Level Billing Option* (For graded
premium life plans only.)
[_] Add to Existing Account
----------------
Amount $
----------------
-------------------
20. Prepayment* $ [_] None
-------------------
(If question 17. or 18. is answered YES, no prepayment is permitted.)
21. [_] Automatic Payment of Premium in Default (if available)
From Dividend Accumulations [_] YES [_] NO
By Policy Loan [_] YES [_] NO
- -------------------------------------------------------------------------------------------------------------------------------
Dividend 22. a. [_] Cash b. [_] Premium Reduction c. [_] Paid-Up Additions
Option d. [_] Accumulations e. [_] Add to Cash Value (Universal Life Only)
23. If available under policy applied for, state year in which: dividend option is
to be changed to Premium Reduction; and any remainder of the premium
is to be paid with surrendered Paid-Up Additions or Accumulations. ----------------
----------------
- -------------------------------------------------------------------------------------------------------------------------------
Policy 24. If available, special Policy Date requested is:
Date -----------------
[_] a. or [_] b. latest date that retains Proposed
----------------- Insured's age last birthday.
mo day yr
Note: Date more than 30 days prior to date of application not allowed if Paid-Up Additions Riders,
Variable Life or Universal Life applied for.
- -------------------------------------------------------------------------------------------------------------------------------
Existing 25. Life Insurance In Force (If none, so state. Type - P = Personal, B = Business, G = Group)
Insurance
Yr of
Company Type Issue Life Amount ADB Amount
------------------------------------------------------------------------------------------------------------
$ $
------------------------------------------------------------------------------------------------------------
$ $
------------------------------------------------------------------------------------------------------------
$ $
------------------------------------------------------------------------------------------------------------
$ $
------------------------------------------------------------------------------------------------------------
26. If Juvenile Insured, state relation to and amount of life insurance in force or applied for on person
responsible for support of Proposed Insured.
Relation to Proposed Insured Amount of Insurance
---------------------------- -------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Part I
Application
Continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C>
Existing 27. Any life Insurance or annuity in this or any other [_] YES [_] NO
Insurance company which has been or will be replaced as a
(Cont'd) result of this Application for insurance? (If YES,
complete the following and submit replacement forms
if required.)
1035
Company Exch. Policy Date Policy Number Amount
-------------------------------------------------------------------------
$
-------------------------------------------------------------------------
$
-------------------------------------------------------------------------
$
-------------------------------------------------------------------------
28. Has life or disability insurance on your life ever [_] YES [_] NO
been declined, postponed or modified as to plan, amount or
rate?
(If YES, give details in REMARKS.)
- --------------------------------------------------------------------------------------------
Smoking/ 29. Has Proposed Insured:
Driving
a. Used any tobacco in the past year? [_] YES [_] NO
If YES, complete the following:
---------------------
How many cigarettes per day?
---------------------
If other than cigarettes, please explain.
---------------------------------------------------------------
---------------------------------------------------------------
b. Been convicted in the past 2 years of: driving [_] YES [_] NO
under the influence of alcohol or drugs; or 2 or more
moving violations?
(If YES, complete supplemental form.)
------------------------ ---------------
30. a. Drivers License No. b. State
------------------------ ---------------
- --------------------------------------------------------------------------------------------
Avocation/ 31. Have you in the past 2 years participated in, or do
Aviation/ you intend to participate in: any flights as a trainee,
Foreign pilot or crew member; underwater sports (SCUBA diving,
Travel skin diving, snorkeling, hardhat); sky sports (sky diving,
hang gliding, parachuting, ballooning); or motor racing
(auto, motorcycle, motorboat)? [_] YES [_] NO
(If YES, complete supplemental form.)
32. Do you intend to travel or reside outside of the [_] YES [_] NO
United States?
(If YES, give details in REMARKS.)
- --------------------------------------------------------------------------------------------
Occupation (If Juvenile Insured, complete with Payor data.)
And ----------------------------------------------------------
Financial 33. a. Occupation
----------------------------------------------------------
(Give Job Title and Duties)
----------------------------------------------------------
b. Employed by
----------------------------------------------------------
-------------------- -------------------------
34. a. Annual b. Net
Income Worth
-------------------- -------------------------
- --------------------------------------------------------------------------------------------
Remarks/ (Attach additional sheet, if necessary.)
Special
Requests for
additional
coverage
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Part I
Application
Continued
- --------------------------------------------------------------------------------
Variable 35. If available under policy applied for, state Planned Annual
Life Unscheduled Payment.
Section ---------------------
$
---------------------
36. Death Benefit Option (if available under policy applied for):
(See Prospectus for further explanation.)
[_] Option 1 (Face Amount)
[_] Option 2 (Face Amount plus any Excess Cash Value)
37. If available under policy applied for, is the
Special Premium Option elected for premiums in default?
[_] YES [_] NO
38. Account allocations (Whole %) (Minimum 10% in each selected
account)*
-----------------------
% Capital Growth
-----------------------
-----------------------
% Money Market
-----------------------
-----------------------
% Bond Income
-----------------------
-----------------------
% Stock Index
-----------------------
-----------------------
% Managed
-----------------------
-----------------------
% Fixed Account
-----------------------
-----------------------
%
-----------------------
-----------------------
100% Total
-----------------------
39. Suitability Statement by Applicant
a. Did you receive the prospectus? [_] YES [_] NO
(If YES, give date of prospectus.)
--------------------
--------------------
b. Do you understand that:
- the Option 2 death benefit may increase or [_] YES [_] NO
decrease depending on the policy's investment
return, but will never be less than the
guaranteed minimum?
- the cash value may increase or decrease [_] YES [_] NO
depending on the policy's investment return?
c. Do you believe that this policy will meet your [_] YES [_] NO
insurance needs and financial objectives?
* The Cash Value will be allocated to the Money Market account,
for an initial period described on page 1 of the prospectus.
THE DEATH BENEFIT MAY BE VARIABLE OR FIXED UNDER SPECIFIED CONDITIONS.
THE CASH VALUE MAY INCREASE OR DECREASE IN ACCORDANCE WITH SEPARATE
INVESTMENT ACCOUNT EXPERIENCE
- --------------------------------------------------------------------------------
<PAGE>
Part II
Application
(Complete only if medical or paramedical exam is not required.)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Family 40. a. Age b. Mother Age
Father
-------------------------- -------------------------
if living at death if living at death
-------------------------- -------------------------
-------------------------- -------------------------
- -------------------------------------------------------------------------------------------------
--------------------------
Medical 41. a. Height ft. in. c. Any weight change
-------------------------- in the past year? [_] YES [_] NO
Data ------------- ----------
b. Weight lbs. If YES: lbs. [_] Gain [_] Loss
------------- ----------
- -------------------------------------------------------------------------------------------------
Give details for each YES answer to questions 42 through YES NO
46 in question 47.
42. Have you ever been treated for or had any known indication
of: frequent fatigue; frequent loss of appetite; frequent
night sweats; chronic diarrhea; enlarged lymph nodes;
unexplained infections; or unusual skin lesions?
[_] [_]
43. Have you ever:
a. Received treatment, advice or counseling from a physician,
other practitioner or an organization for an alcohol
problem? [_] [_]
b. Used cocaine or other drugs except as prescribed by a
physician or licensed practitioner? [_] [_]
44. Have you ever been treated for, or been diagnosed by a member
of the medical profession as having Acquired Immune
Deficiency Syndrome (AIDS) or AIDS-Related Complex (ARC)? [_] [_]
45. Have you ever been treated for or diagnosed as having:
a. Cancer; tumor; or diabetes? [_] [_]
b. High blood pressure; stroke; or disease of
heart, blood or circulatory system? [_] [_]
c. Any mental or nervous disorder; epilepsy; any
muscular or skeletal disorder; or any paralysis or
deformity? [_] [_]
d. Disease or disorder of: kidneys; lungs;
stomach; liver; digestive system; or urinary
system? [_] [_]
46. Other than above, have you within the past 5 years: had a [_] [_]
check up or consultation; been a patient in a medical
facility; or been advised to have any diagnostic test,
hospitalization or surgery?
- --------------------------------------------------------------------------------------------
47. Give details to each YES answer to questions 42 through 46.
(Attach additional sheet, if necessary.)
------------------------------------------------------------------------------
Detail and severity of condition.
Ques. # Onset Recov Number of attacks. Specific Physician/Health
Letter Mo/Yr Mo/Yr. diagnosis, medication/treatment. Facility address
------------------------------------------------------------------------------
Illness
-----------------------------------
Treatment
------------------------------------------------------------------------------
Illness
-----------------------------------
Treatment
------------------------------------------------------------------------------
Illness
-----------------------------------
Treatment
------------------------------------------------------------------------------
Illness
-----------------------------------
Treatment
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Application
Continued
- --------------------------------------------------------------------------------
Company Use
(Additions and
Amendments)
- --------------------------------------------------------------------------------
Declarations General. To the best of my knowledge and belief the answers
recorded are true and complete. In those states where written
consent is required by law, my agreement in writing is required
to any entry made by the Company in the "Company Use" section as
to: (a) age; or (b) plan of insurance; or (c) riders; or (d)
amounts; or (e) rate class.
When Insurance Takes Effect. If a prepayment is made in
connection with this Application, the insurance will take effect
as stated in the Prepayment Receipt and Temporary Insurance
Agreement. Otherwise, the insurance will take effect only when
the first premium is paid; provided that at the time of such
payment: (a) this Application has been approved by the Company
at 501 Boylston Street, Boston, MA; and (b) there has been no
change in insurability as represented in this Application since
the date of the Application.
Limitation on Authority of Agents and Examiners. Agents and
Examiners do not have authority: (a) to determine insurability;
(b) to change any terms of this Application; or (c) to make a
contract for the Company.
- --------------------------------------------------------------------------------
Authorization In order that insurance can be issued, I authorize each of the
following having records or knowledge of me or my health to give
this information to the Company: a medical practitioner; a
medical facility; an insurance company; the Medical Information
Bureau; a consumer reporting bureau; and any other company,
concern or person. If insurance on any minor child is applied
for this authorization extends to records and knowledge of that
child and the child's health. Information received by the
Company may be disclosed to third parties in the conduct of the
Company's business.
I understand that: I have a right of access to and correction of
all information obtained by the Company; I can ask to be
interviewed with respect to any investigative consumer report;
and I can ask for a copy of any such report. A photocopy of this
authorization is as valid as the original. This authorization is
valid for 30 months from the date it is signed. I have received
a Notice of Information Practices; this Notice gives a more
detailed description of the information practices of the
Company.
- --------------------------------------------------------------------------------
------------------------- ------------------------
Signatures Signed at Date
------------------------- ------------------------
city state month day year
--------------------------------------------------------
Proposed
Insured
--------------------------------------------------------
-----------------------------------------------
Applicant if Other
than Proposed
Insured
-----------------------------------------------
-----------------------------------------------
Agent
-----------------------------------------------
- --------------------------------------------------------------------------------
-----------------------------
Owner's Owner's Social Security or Taxpayer
Identification Number:
-----------------------------
Certification
(in lieu [_] I am [_] I am not subject to backup withholding under
of W9) Section 3406(a)(l)(c) of the Internal Revenue Code. Under
penalties of perjury, I certify that the information in this
section is true, correct and complete.
-------------------------- -----------------------
Signature Date
of Owner
-------------------------- -----------------------
month day year
- --------------------------------------------------------------------------------
<PAGE>
Agent
Certificate
(Completion required in every case.)
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Questions 1. Did you see the Proposed Insured on the date the [_] YES [_] NO
application was signed? If NO, explain in REMARKS.
2. Is the Proposed Insured a citizen of the USA?
---------------- -----------------------------
If NO, specify: Date of entry Type of visa
---------------- -----------------------------
mo day yr
3. If Proposed Insured's name has been changed in the past 10 years, give former name(s).
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
4. Provide phone number where Proposed Insured can be contacted.
--------------
Preferred calling time AM PM
------ ------
5. If Proposed Insured is a juvenile (ages 0 through 14);
a. Give name and relation of person responsible for support.
----------------------------------------------------------------------
----------------------------------------------------------------------------------------
b. Give Life Insurance in force on above person's life.
---------------------------
c. Are there any other children insured for less than this child? [_] YES [_] NO
If YES, provide details in REMARKS.
6. Has a nonmedical been submitted based on expanded nonmedical limit? [_] YES [_] NO
If YES:
------------- ----------------------------------------
Date of Physician's Who completed
Exam detailed in APS the exam?
------------- ---------------------------------------
mo day year Physician's name and address
7. Do you have knowledge or reason to believe that any insurance
or annuity in this or any other company has been or will be
replaced as a result of this Application for
insurance? [_] YES [_] NO
8. Is this Business Insurance? [_] YES [_] NO
If YES, complete the following:
a. Describe purpose of insurance.
[_] Key Employee [_] Buy-Sell [_] Deferred Compensation
[_] Salary Continuation [_] Split Dollar [_] Section 162 Bonus
[_] Other (Describe in REMARKS.)
b. Are other key individuals insured or being
insured for similar amounts? [_] YES [_] NO
If NO, state why not.
------------------
c. What percentage of business does the applicant own or control? %
------------------
Give names and amount of business coverage in force and/or applied for for all key
associates, plus the percentage of ownership in each:
Name Amount % Name Amount %
----------------------------------------------------------------------------------------
$ $
----------------------------------------------------------------------------------------
$ $
----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Agent
Certificate
Continued
(Completion required in every case.)
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------------------
----------
d. Year Business was established.
----------
e. For the Business, provide approximate amount of:
Assets Liabilities Net Worth Net Income
-------------------------------------------------------------------------
$ $ $ $
-------------------------------------------------------------------------
9. If Paid Up Additions Rider or FTR was requested, submit copy
of Illustration to the home office with Application.
10. State Source of Funds if $10,000 or greater.
- --------------------------------------------------------------------------------------------
Complete questions 11 and 12 for Variable Life Only:
11. Is policyowner associated with a member firm of the NASD? (If
YES, give name and address of firm.)
-----------
12. Tax Bracket (%)
-----------
- --------------------------------------------------------------------------------------------
Remarks
- --------------------------------------------------------------------------------------------
Signature To the best of my knowledge, I have presented the Company all pertinent facts
regarding the Proposed Insured and regarding this Application.
------------------------------ --------------------
Signature Date
of Agent --------------------
------------------------------ month day year
- --------------------------------------------------------------------------------------------
--------------------------
General If agent of another company, give name of company.
Agent --------------------------
Certificate Is agent licensed where Application is written? [_] YES [_] NO
--------------------------------------- ---------------------
Signature Date
of General ---------------------
Agent month day year
---------------------------------------
- --------------------------------------------------------------------------------------------
------------------------------------------------------------------------------
Commission Split
Agent Agent Agency -----------------------
Identification Agent Name Number Number First Renewal
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
--------------------------------------- -------------------
For Variable Accepted for Date
Life Only the Company -------------------
--------------------------------------- month day year
- --------------------------------------------------------------------------------------------
COMPLETE ABOVE DATA IN ALL CASES FOR PROPER CREDITING OF COMMISSIONS
</TABLE>
<PAGE>
Exhibit 1A5(d)
NEV-83
Rider: Level Term Insurance
The Company agrees that if the Insured dies while this Rider is in force, the
policy proceeds will be increased by the amount of Level Term Insurance shown in
the Policy Schedule. (See Section 1 of the Policy.)
Premiums For This Rider
Premiums for this Rider are due with the premiums for the Policy. The annual
premium for the first rider year is shown in the Policy Schedule. The guaranteed
maximum annual premiums for each $1,000 of Level Term Insurance for later rider
years are in the following Table. No premium will be due or payable for the
Rider for any period after the death of the Insured or the termination of the
Rider.
Date of Issue
The Date of Issue of this Rider is the same as the Date of Issue of the Policy
unless a later Date of Issue is shown for the Rider in the Policy Schedule.
Rider years will coincide with policy years. If this Rider is issued after the
Date of Issue of the Policy, the first rider year will begin on the policy
anniversary on or next following the Date of Issue of the Rider. The term
insurance provided by this Rider will be in force from the Date of Issue of the
Rider. The effective date of this Rider is its Date of Issue.
Not Contestable After Two Years
This Rider will not be contestable after it has been in force during the life of
the Insured for two years from its Date of Issue.
Suicide Within Two Years
If the Insured dies by suicide while sane or insane within two years from the
Date of Issue of this Rider: the amount of Level Term Insurance will not be
paid; and the amount payable under the Rider will be limited to the premiums
paid for the Rider.
Contract
A copy of the application for this Rider is attached to and made a part of the
Rider. This Rider is made a part of the Policy to which it is attached if the
Rider is listed in the Policy Schedule. This Rider has no cash value.
<PAGE>
Exchange Option
The Owner may exchange this Rider for a new policy before the policy anniversary
which occurs five years prior to the Expiry Date, but not beyond the Insured's
age 75. The new policy will be issued:
. Without proof that the Insured is insurable;
. With a Face Amount equal to the amount of term insurance then provided by
this Rider;
. With the same Insured and underwriting class as this Rider;
. With a current Policy Date and Age of Insured;
. On any plan of Variable Life insurance issued by the Company on the Policy
Date of the new policy;
. On a policy form and at premium rates in use by the Company on the Policy
Date of the new policy; and
. Subject to any assignments and limitations to which this Rider is subject,
and to the exchange cost described below.
The exchange is subject to payment of the first premium for the new policy .
Exchange With Waiver of Premiums Rider
Upon exchange if this Policy has a rider for Waiver of Premiums for disability,
the new policy can have a similar Waiver of Premiums rider, but only if the new
policy is not a single premium plan. If the person insured under the Waiver of
Premiums rider is disabled at the time of the exchange, premiums for the new
policy will be waived as if the rider had been in force at the start of the
disability.
Automatic Exchange With Waiver of Premiums Rider
At the Expiry Date of this Rider, if premiums are being waived under a rider for
Waiver of Premiums for disability, then an automatic Current Date Exchange will
be made. The new policy will be on the plan being issued by the Company which is
most similar to the plan on which this Policy is written. A similar Waiver of
Premiums rider will be attached to the new policy. Premiums for the new policy
will be waived as if the rider had been in force when the disability started.
<PAGE>
Termination
This Rider will terminate upon the earliest of: (a) the end of the grace period
of any unpaid premium for the Policy or for the Rider; (b) termination or
maturity of the Policy other than by death; (c) request by the Owner to continue
the Policy in force under a lapse option; (d) exchange of the Rider for a new
policy; (e) receipt at the Administrative Office of the Company of written
election signed by the Owner of the Policy to terminate the Rider; and (f) the
end of the Expiry Date shown for the Rider in the Policy Schedule.
New England Variable Life Insurance Company
Administrative Office:
501 Boylston Street, Boston, Massachusetts
/s/ /s/
Robert A. Shafto Edward N. Wadsworth
President Secretary
Table of Guaranteed Maximum Annual Premiums Per $1 ,000 of Level Term Insurance
Age Annual Age Annual
Rate Rate
35 2.87 70 54.48
36 3.01 71 59.09
37 3.17 72 64.33
38 3.36 73 70.23
39 3.60 74 76.66
40 3.94 75 83.77
41 4.34 76 91.10
42 4.75 77 98.52
43 5.22 78 105.91
44 5.71 79 113.49
45 6.27 80 121.59
46 6.83 81 130.41
47 7.44 82 140.20
48 8.20 83 151.03
49 9.06 84 162.49
50 10.03 85 174.76
51 11.07 86 189.48
52 12.19 87 204.46
53 13.40 88 219.36
54 14.71 89 233.32
55 16.12
56 17.62
57 19.21
58 20.90
59 22.76
<PAGE>
60 24.75
61 26.64
62 28.79
63 31.12
64 33.59
65 36.29
66 39.57
67 43.01
68 46.55
69 50.32
Edward N. Wadsworth
/s/
Secretary
<PAGE>
Exhibit 1A5(d)
NEV-311-92
Endorsement
As of the Date of Issue of this Policy, the following provision is added to the
Exchange of Policy section of the Policy.
Exchange of Policy for Term Insurance
You can exchange this Policy. if it is not lapsed, for a policy which provides
fixed benefit term insurance if:
. The Policy is in force under a Corporate Plan of Deferred Compensation;
. The purchase of insurance under the Plan was not at the option of the
Insured; and
. The exchange is made within three years of the Date of Issue of the Policy.
The new policy: will be issued by New England Mutual Life Insurance Company;
will have the same Insured, Age, Policy Date. and Face Amount as this Policy;
and will be on a plan agreed to by New England Mutual Life Insurance Company.
The exchange will be subject to: application to change the Policy; and proof
that the Insured is then insurable. An exchange credit will be paid to you; the
credit will be quoted by the Company on request.
A detailed statement of the method of computing the exchange credit has been
filed with the Insurance Department of the state in which the Policy is
delivered.
If you surrender this Policy for its Net Cash Value at a time when this Exchange
of Policy for Term Insurance would have been available, the Company will
automatically pay an amount equal to the exchange credit in lieu of the Net Cash
Value if the Company determines that the exchange credit would be greater.
New England Variable Life Insurance Company
Administrative Office:
501 Boylston Street, Boston, Massachusetts
Robert A. Shafto Edward N. Wadsworth
/s/ /s/
President Secretary
<PAGE>
Exhibit 3(i)
October 18, 1993
New England Variable Life Separate Account
New England Variable Life Insurance Company
501 Boylston Street
Boston, MA 02117
Gentlemen:
In my capacity as General Counsel of New England Variable Life Insurance Company
(the "Company"), I have provided legal advice concerning the preparation of a
registration statement on Form S-6, filed by New England Variable Life Separate
Account (the "Account") and the Company with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to individual Limited
Payment Variable Life Insurance Policies (the "Registration Statement").
It is my professional opinion that:
1. The Account is a separate investment account of the Company and is
duly created and validly existing pursuant to the laws of the State of
Delaware.
2. The Limited Payment Variable Life Insurance Policies, when issued in
accordance with the prospectus contained in the Registration Statement
and in compliance with applicable local law, are and will be legal and
binding obligations of the Company in accordance with their terms; and
3. Assets attributable to reserves and other contract liabilities and
held in the Account will not be chargeable with liabilities arising
out of any other business the Company may conduct.
In forming this opinion, I have made such examination of law and examined such
records and other documents as in my judgment are necessary and appropriate.
<PAGE>
New England Variable Life Separate Account
New England Variable Life Insurance Company
October 18, 1993
Page 2
I hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the use of my name under the caption "Legal
Matters" in the prospectus contained in the Registration Statement.
Very truly yours,
H. James Wilson
General Counsel
<PAGE>
Exhibit 3(ii)
April 28, 1998
New England Life Insurance Company
501 Boylston Street
Boston, MA 02117
Gentlemen:
In my capacity as Second Vice President and Actuary of New England Life
Insurance Company (the "Company"), I have provided actuarial advice concerning:
The preparation of Post-Effective Amendment No. 6 to the registration
statement on Form S-6 (File No. 33-64170) filed by New England Variable
Life Separate Account and the Company with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to variable life
insurance policies (the "Registration Statement"); and
The preparation of policy forms for the variable life insurance policies
described in the Registration Statement (the "Policies").
It is my professional opinion that:
1. The illustrations of death benefits, net cash values, accumulated premiums,
internal rates of return on net cash values and internal rates of return on
death benefits shown in Appendix A of the Prospectus, based on the
assumptions stated in the illustrations, are consistent with the provisions
of the Policies. The rate structure of the Policies has not been designed
so as to make the relationship between premiums and benefits, as shown in
the illustrations, appear to be correspondingly more favorable to
prospective purchasers of Policies for males aged 40 or 50 in the
underwriting class illustrated than to prospective purchasers of Policies
for males at other ages or for females. Insureds in other underwriting
classes may have higher cost of insurance charges and premiums.
2. The information contained in the description of historical investment
experience in Appendix B, based on the assumptions stated in the Appendix,
is consistent with the provisions of the Policies.
3. The illustration of net scheduled premiums and net unscheduled payments
shown under the heading "Charges and Expenses-Deductions from Premiums and
Unscheduled
<PAGE>
Page 2
April 28, 1998
Payments" in the Prospectus contains the net scheduled premium and net
unscheduled payment amounts allocated to the Variable Account for scheduled
premiums and unscheduled payments of $2,000 each under a Policy with no
riders and covering an insured who is not in a substandard risk or
automatic issue classification.
4. The information contained in the example of how the maximum loanable amount
is determined under the heading "Other Policy Features-Loan Provision" in
the Prospectus is consistent with the Provisions of the Policies.
5. The information contained in the examples of how the maximum amount of cash
available for withdrawal is determined, under the heading "Partial
Surrender and Partial Withdrawal" in the Prospectus, is consistent with the
provisions of the Policies.
I hereby consent to the filing of this opinion as an Exhibit to this Post-
Effective Amendment to the Registration Statement and to the use of my name
under the heading "Experts" in the Prospectus.
Sincerely,
Rodney J. Chandler, F.S.A.,M.A.A.A.
Second Vice President and Actuary
<PAGE>
Sutherland, Asbill & Brennan LLP
Exhibit 6
CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Legal Matters"
in the prospectus included in Post-Effective Amendment No. 6 to the Registration
Statement on Form S-6 for certain variable life insurance policies issued
through of New England Variable Life Separate Account of New England Life
Insurance Company (File No. 33-64170). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
SUTHERLAND, ASBILL & BRENNAN LLP
Washington, D.C.
April 28, 1998
<PAGE>
Exhibit 8
Notice of Withdrawal Right
We are sending you this notice in order to comply with the laws administered by
the United States Securities and Exchange Commission ("SEC"). Please read it
carefully and retain it with your important records.
You have recently purchased a variable life insurance policy from New England
Variable Life Insurance Company ("NEVLICO"). The benefits of the policy depend
on the investment experience of New England Variable Life Separate Account
("ACCOUNT").
You have the right to examine and cancel this policy. You may return the policy
for cancellation at any time up until the latest of:
1. 10 days after you have received the policy;
2. 45 days from the date you completed Part 1 of the application; and
3. 10 days from the date of the postmark of this notice.
If you exercise this right, you are entitled to a full refund of all payments
made. In determining whether to cancel your policy, you should consider, among
other things, the projected cost of your policy and your ability to make the
scheduled premium payments as stated in your policy. Please consult and review
the prospectus you have received which describes the deductions from premiums
before amounts are allocated to the selected accounts and other charges assessed
in connection with the policy, including:
From each scheduled premium (after deduction of any premiums for rider
benefits and substandard risk) a deduction of the portion of the annual
administrative charge allocable to the premium, equal to $55 per year if
premiums are paid annually, or a maximum of $57.75 per year if premiums are
paid more frequently;
From each scheduled premium (after deduction of the annual administrative
charge and any premiums for rider benefits and substandard risk), a charge
of 2.5% for premium tax, a charge of 1% for federal taxes, and a charge of
5.5% for sales expenses. NEVLICO currently intends to waive this sales
charge on scheduled premiums paid after the first 15 policy years;
From each unscheduled payment, a state premium tax charge of 2.5%, a charge
for federal taxes of 1%, and a sales charge of 5.5%;
<PAGE>
Upon total or partial surrender, if the face amount is reduced or upon
lapse of the Policy during the first 15 policy years, a surrender charge
consisting of a deferred administrative charge no greater than $2.70 per
$1,000 of face amount and a deferred sales charge in an amount no greater
than 43.5% of the scheduled premium for the first policy year, plus 16.5%
of the scheduled premium for policy year two. This maximum deferred sales
charge applies in policy years three through ten. For insureds who are
above issue age 50, the maximum deferred sales charge may be lower and the
surrender charge period is 10 years. Your policy's schedule page shows the
maximum surrender charge for your policy;
On the first day of each policy month, deductions from the cash value for
the cost of insurance, an administrative charge of $0.02 per $1,000 of face
amount (guaranteed not to exceed $0.04 per $1,000 of face amount) and a
minimum death benefit guarantee charge of $0.01 per $1,000 of face amount:
Upon nonpayment of a scheduled premium pursuant to the Special Premium
Option, a deduction from cash value equal to 91% of the amount of the
annual administrative charge and of any charges for riders or substandard
risk that are due with the premium.
If you decide to cancel your policy, complete the enclosed form and return your
policy in accordance with the enclosed instructions. The post mark of the
returned policy must be on or before the latest date permitted for cancellation
described above.
H. James Wilson
Secretary
<PAGE>
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 6 to the
Registration Statement No. 33-64170 of New England Variable Life Separate
Account (the "Separate Account") of New England Life Insurance Company (the
"Company") of our reports dated February 10, 1998 and February 17, 1998, on
the financial statements of the Separate Account and the Company for the
years ended December 31, 1997 and 1996 appearing in the Prospectus (which
expressed unqualified opinions and, with respect to the Company, includes
an explanatory paragraph referring to the change in the basis of accounting
and the change in corporate organization), which is part of such
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 28, 1998
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in Post-Effective Amendment No. 6 to the
Registration Statement on Form S-6 (File No. 33-64170) of our reports, which
include adverse opinions as to generally accepted accounting principles and
unqualified opinions as to statutory accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, dated March 8,
1996, except as to the information in the second paragraph under "Basis of
Presentation and Principles of Consolidation" of Note 1, for which the date is
February 18, 1997, on our audits of the statutory financial statements of New
England Variable Life Insurance Company and New England Pension and Annuity
Company, and our report dated February 6, 1996, on our audit of New England
Variable Life Separate Account of New England Variable Life Insurance Company.
We also consent to the inclusion in this registration statement of our report,
which includes an adverse opinion as to generally accepted accounting principles
and an unqualified opinion as to conformity with The Insurance Act 1978, dated
April 23, 1996, on our audit of the statutory financial statements of Exeter
Reassurance Company, Ltd., and our report dated February 9, 1996, on our audit
of New England Securities Corporation, and our report dated February 29, 1996,
on our audit of TNE Advisors, Inc., and our report dated March 14, 1996, on our
audit of Newbury Insurance Company, Limited. We also consent to the reference
to our firm under the caption "Experts" in this Post-Effective Amendment.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 28, 1998
