<PAGE>
As filed with Securities and Exchange Commission on
April 30, 1998
Registration No. 333-21767
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 1
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, ESQ.
Counsel
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
(Name and address of agent for service)
Copies to:
STEPHEN E. ROTH, ESQ.
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
----------------------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 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 Variable Ordinary
Life Insurance Policies.
<PAGE>
ZENITH VARIABLE WHOLE LIFE
Supplement dated May 1, 1998
to Prospectus dated May 1, 1998
For Policies purchased through payroll deductions:
If you elect to pay your scheduled premiums using payroll deductions that
your employer will remit to New England Life Insurance Company ("NELICO") on
your behalf, the following special provisions apply to you.
1. Policy Date. The Policy Date and the investment start date for your
Policy will be six weeks after the date your employer begins making payroll
deductions that will be used to pay the scheduled premiums due on your Policy.
2. Temporary Life Insurance Coverage. The insured under your Policy will
receive temporary life insurance coverage for a limited period under the terms
of a temporary insurance agreement. Coverage will begin as of the date of the
temporary insurance agreement, which is generally the same date you sign your
application.
3. Scheduled Premium Payments. Your first scheduled premium payment will be
due on the Policy Date. Subsequent scheduled premium payments will be due on the
same day each month thereafter, for a total of 12 scheduled premium payments
each year, regardless of the frequency with which payroll deductions are made.
NELICO will apply premiums to your Policy each month on the due date, and the
amount applied each month will be the amount of scheduled premium due for that
month. If the amount of payroll deductions exceeds the amount of scheduled
premium due for any month, your employer will retain the excess for inclusion
with the next scheduled premium payment.
4. Default and Lapse. If NELICO does not receive scheduled premium payments
each month as they become due, your Policy may lapse. See "Default and Lapse
Options." Hence, to keep your Policy in force if you miss a payroll deduction,
you may need to give your employer the amount of the missed deduction, so that
your employer can remit the full amount of the next scheduled premium due. If
you receive a lapse notice from NELICO, you will need to send payment directly
to NELICO in order to reinstate your Policy.
5. Unscheduled Payments and Loan Repayments. You cannot use payroll
deductions to make unscheduled payments or to repay a Policy loan. Please
contact NELICO or your registered representative if you would like to arrange
either of these types of transactions.
THE CASH VALUE OF PREMIUMS ALLOCATED TO THE VARIABLE ACCOUNT IS NOT
GUARANTEED, AND UNFAVORABLE INVESTMENT EXPERIENCE CAN REDUCE IT TO ZERO. YOU
WILL BEAR THE ENTIRE INVESTMENT RISK WITH RESPECT TO CASH VALUE IN THE VARIABLE
ACCOUNT.
<PAGE>
NEW ENGLAND LIFE
INSURANCE COMPANY
Variable Ordinary Life Insurance Policies
Issued by
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus describes individual Variable Ordinary Life Insurance
Policies (the "Policies") offered by New England 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 100.
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 15 days
after NELICO mails the confirmation for the initial premium. 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
<PAGE>
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-13
Adjustments to the Death Proceeds Payable................................ A-13
Tabular Cash Value....................................................... A-13
Cash Value............................................................... A-13
Net Investment Experience................................................ A-14
Allocation of Net Premiums............................................... A-14
Amount Provided for Investment under the Policy.......................... A-14
Right to Return the Policy............................................... A-15
State Variations......................................................... A-15
CHARGES AND EXPENSES...................................................... A-16
Deductions from Premiums and Unscheduled Payments........................ A-16
Surrender Charge......................................................... A-17
Deductions from Cash Value............................................... A-18
Charges Against the Eligible Funds and the Sub-Accounts of the Variable
Account................................................................. A-20
Group or Sponsored Arrangements.......................................... A-22
PREMIUMS.................................................................. A-22
Scheduled Premiums....................................................... A-22
Unscheduled Payments..................................................... A-23
Special Premium Option................................................... A-24
Automatic Premium Loan................................................... A-25
Default and Lapse Options................................................ A-25
OTHER POLICY FEATURES..................................................... A-27
Loan Provision........................................................... A-27
Surrender................................................................ A-28
Partial Surrender and Partial Withdrawal................................. A-28
Reduction in Face Amount................................................. A-30
Acceleration of Death Benefit Rider...................................... A-30
Investment Options....................................................... A-31
Transfer Option.......................................................... A-31
Substitution of Insured Person........................................... A-31
Payment of Proceeds...................................................... A-32
Exchange of Policy During First 24 Months................................ A-32
Payment Options.......................................................... A-33
Additional Benefits by Rider............................................. A-33
Policy Owner and Beneficiary............................................. A-34
THE VARIABLE ACCOUNT...................................................... A-35
Investments of the Variable Account...................................... A-35
Investment Management.................................................... A-39
THE FIXED ACCOUNT......................................................... A-39
General Description...................................................... A-40
Values and Benefits...................................................... A-40
Policy Transactions...................................................... A-41
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
NELICO'S DISTRIBUTION AGREEMENT........................................... A-41
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY.......................... A-42
Misstatement of Age or Sex............................................... A-42
Suicide.................................................................. A-42
TAX CONSIDERATIONS........................................................ A-43
Policy Proceeds.......................................................... A-43
Charge for NELICO's Income Taxes......................................... A-47
MANAGEMENT................................................................ A-47
VOTING RIGHTS............................................................. A-50
RIGHTS RESERVED BY NELICO................................................. A-51
TOLL-FREE NUMBERS......................................................... A-51
REPORTS................................................................... A-52
ADVERTISING PRACTICES..................................................... A-52
LEGAL MATTERS............................................................. A-52
REGISTRATION STATEMENT.................................................... A-53
EXPERTS................................................................... A-53
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET CASH VALUES
AND
ACCUMULATED SCHEDULED PREMIUMS........................................... A-54
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............................. A-64
APPENDIX C: LONG TERM MARKET TRENDS....................................... A-85
APPENDIX D: USES OF LIFE INSURANCE........................................ A-87
APPENDIX E: TAX INFORMATION............................................... A-89
FINANCIAL STATEMENTS...................................................... F-1
</TABLE>
A-3
<PAGE>
GLOSSARY
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
AUTOMATIC PREMIUM LOAN OPTION. If you elect this option, the Policy's loan
value 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 the greater of (i) the face
amount of the Policy and (ii) the Policy's cash value divided by the net
single premium per $1 of death benefit at the insured's attained age. (See
"Death Benefit".)
DEATH BENEFIT OPTION 2. Death Benefit equals the greater of (i) the face
amount of the Policy plus any excess of the Policy's cash value over its
"tabular cash value" and (ii) the Policy's cash value divided by the net
single premium per $1 of death benefit at the insured's attained age. (See
"Death Benefit".)
ELIGIBLE FUNDS. Each sub-account of the Variable Account invests in the
shares of one of the Eligible Funds. The Eligible Funds are: the Back Bay
Advisors Money Market Series, the Back Bay Advisors Bond Income Series, the
Capital Growth Series, the Westpeak Stock Index Series, the Back Bay Advisors
Managed Series, the Westpeak 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".)
A-4
<PAGE>
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 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".)
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 and no loans or other withdrawals of cash value 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.
A-5
<PAGE>
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 Variable Ordinary 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 scheduled premiums. (See "Scheduled
Premiums".)
-- You may choose to make additional, unscheduled payments under the
Policy. NELICO can limit or prohibit unscheduled payments in certain
situations, including cases where the insured is in a substandard risk
class. (See "Unscheduled Payments".)
-- Net scheduled premiums and net unscheduled payments are invested
according to your instructions in one or more of the sub-accounts of the
Variable Account corresponding to mutual fund portfolios, or the Fixed
Account, after an initial period in the 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".)
A-6
<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. If premium payments or a material change in
the terms or benefits of the Policy cause it to become a "modified
endowment contract", then pre-death distributions will be 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 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 whole
life insurance. Like whole 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 whole 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.
A-7
<PAGE>
-- If scheduled premiums are not paid according to the requirements of the
Policy, the Policy may lapse. If the Policy lapses when Policy loans are
outstanding, adverse tax consequences may result.
-- In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from the premiums and values
of the Policy. These charges include various insurance, risk,
administrative and premium tax charges. (See "Charges and Expenses".)
-- The Variable 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
Underwritten Policies may be issued to insureds from the age of 15 to 80 if
issued in a business situation, or to a pension plan qualified under Section
401 of the Internal Revenue Code (a "tax-qualified pension plan"), and
otherwise to insureds from the age of zero to 80. (A "business situation" is
where two or more Policies, on more than one life, are totally or partially
funded, directly or indirectly, by an employer.) Automatic issue Policies are
available in certain situations to insureds from the age of 15 to 70. In all
cases, the availability of issue ages below one and from 76 to 80 is subject
to NELICO's consent. All persons must meet NELICO's underwriting and other
requirements for issuance. Generally, the minimum Policy face amount available
is $5,000 for tax-qualified pension plans and $25,000 in all other situations,
unless NELICO consents to a lower amount. The availability of the Policies for
tax-qualified pension plans may be limited.
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 under
Policies with a face amount of at least $250,000 and smaller Policies
sold in certain business situations or to certain tax-qualified
pension plans;
(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 11 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 is a percentage of annualized basic
scheduled premiums. The maximum dollar amount of the charge applies in policy
years two through four and
A-8
<PAGE>
is the equivalent of 55% of two annualized basic scheduled premiums. If the
applicable Surrender Charge amount exceeds the available cash value, there
will be no proceeds paid to you on surrender or lapse.
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;
-- Monthly administrative charge, currently equal to $0.10 per $1,000 of
face amount (guaranteed not to exceed $0.12 per $1,000 of face amount).
For Policies with a face amount of at least $250,000 and smaller
Policies sold in certain business situations or to certain tax-qualified
pension plans the monthly administrative charge currently equals $0.06
per $1,000 of face amount rather than $0.10;
-- Monthly minimum death benefit guarantee charge of $0.01 per $1,000 of
face amount;
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
- --------------------------------------------------------------------------------
[ARROW POINTING TO CHARGES FROM PREMIUM APPEARS HERE]
- --------------------------------------------------------------------------------
Charges from Premium
.Any rider premiums
.Annual Admin Charge-$55
.Substandard Risk Premium
.Automatic Issue Premium
.Sales Load (5.5%) Company intends to wave after 15 policy
yrs under Policies with face amount of at least $250,000
and smaller Policies sold in certain business situation or to
certain tax-qualified pension plans
.State Premium Tax Charge (2.5%*)
.Charge for Federal Taxes (1%*)
- --------------------------------------------------------------------------------
[ARROW POINTING TO CASH VALUES APPEARS HERE]
- --------------------------------------------------------------------------------
Unscheduled Payments
.Sales Load (5.5%)
.State Premium Tax Charge (2.5%)
.Charge for Federal Taxes (1%*)
- --------------------------------------------------------------------------------
[ARROW POINTING TO CASH VALUES APPEARS HERE]
- --------------------------------------------------------------------------------
Special Premium Option
.If used, charges for 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
- --------------------------------------------------------------------------------
[ARROW POINTING TO SPECIAL PREMIUM OPTION APPEARS HERE]
[ARROW POINTING TO LOANS APPEARS HERE]
[ARROW POINTING TO RETIREMENT BENEFITS APPEARS HERE]
[ARROW POINTING TO DEATH BENEFIT APPEARS HERE]
[ARROW POINTING TO DAILY DEDUCTIONS FROM ASSETS APPEARS HERE]
[ARROW POINTING TO BEGINNING OF MONTH CHARGES APPEARS HERE]
[ARROW POINTING TO SURRENDER CHARGES APPEARS HERE]
[ARROW POINTING TO LIVING BENEFITS APPEARS HERE]
- --------------------------------------------------------------------------------
Death Benefit
.Level or Variable Death Benefit Options
.Guaranteed not to be less than initial face amount net of any loan balance
.Income tax free to named beneficiary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Daily Deductions from Assets
.Mortality and expense risk charges of 0.60% (guaranteed not to exceed .90%) on
an annual basis are deducted from the cash value daily
.Investment advisory fees and other expenses are deducted from the Eligible Fund
values daily
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Beginning of Month Charges
.The cost of insurance protection is deducted from the cash value each month
.Minimum Death Benefit Guarantee Charge of $.01 per $1000 face amount monthly
.Admin. Charge $.10 (guaranteed not to exceed $.12) per $1000 face amount
monthly. For Policies with a face amount of at least $250,000 and smaller
Policies sold in certain business situations or to certain tax-qualified
pension plans charge is currently $.06 per $1000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Surrender Charges
.Consists of Deferred Sales Charge and Deferred Administrative Charge (see page
A-17)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Living Benefits
.If policyholder has elected and qualified for disability waiver of premium
rider and becomes totally disabled, company will waive premiums during the
period of disability. Unscheduled payments are not covered by the waiver of
premium rider
.Policy may be surrendered at any time for its cash surrender value
.Deferred income taxes, including taxes on amounts borrowed, become payable upon
surrender
.Grace period for scheduled premiums is 31 days from 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 Metropolitan Life Insurance
Company ("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.
A-11
<PAGE>
The following chart illustrates the relationship of NELICO, the Fixed
Account, the Variable Account and the Eligible Funds.
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------------------
NELICO
---------------------------------------------------------------------------------------------------------------------
(Insurance company subsidiary of MetLife)
Charges are deducted.
Net premiums and net unscheduled payments are allocated to the Policy Owner's choice of sub-
accounts in the Variable Account or to the Fixed Account.
Premiums -------------------------------------------------------------------------------------------------------------------
and VARIABLE ACCOUNT
Unscheduled ------------------------------------------------------------------------------------------------------------------
Payments ---> Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith
Fixed Capital Bond Money Man- Stock Growth Small Bal- Equity Venture
Account Growth Income Market aged Index and Cap anced Growth Value
Sub- Sub- Sub- Sub- Sub- Income Sub- Sub- Sub- Sub-
Account Account Account Account Account Sub- Account Account Account Account
Account
-------------------------------------------------------------------------------------------------------------------
Sub-accounts buy | | | | | | | | | |
shares of the | | | | | | | | | |
Eligible Funds. | | | | | | | | | |
\|/ \|/ \|/ \|/ \|/ \|/ \|/ \|/ \|/ \|/
-----------------------------------------------------------------------------------------------------------------
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------------------
Capital Back Bay Back Bay Back Bay Westpeak Westpeak Loomis Loomis Alger Davis
Growth Advisors Advisors Advisors Stock Growth Sayles Sayles Equity Venture
Series Bond Money Managed Index and Small Balanced Growth Value
Income Market Series Series Income Cap Series Series Series
Series Series Series Series
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Premiums -------------------------------------------------------------------------------
and VARIABLE ACCOUNT
Unscheduled -------------------------------------------------------------------------------
Payments ---> Zenith Zenith Equity- Over- High Asset
Fixed Midcap Inter- Income seas Income Man-
Account Value national Sub- Sub- Sub- ager
Sub- Magnum Account Account Account Sub-
Account Equity Account
Sub-
Account
-------------------------------------------------------------------------------
| | | | | |
| | | | | |
| | | | | |
\|/ \|/ \|/ \|/ \|/ \|/
-------------------------------------------------------------------------------
NEW ENGLAND ZENITH FUND | VIP FUND | VIP FUND II
-------------------------------------------------------------------------------
Goldman Morgan Equity Overseas High Asset
Sachs Stanley Income Portfolio Income Manager
Midcap Inter- Portfolio Portfolio Portfolio
Value national
Series Magnum
Equity
Series
-------------------------------------------------------------------------------
Eligible Funds buy portfolio investments to support values and benefits of the Policies.
</TABLE>
POLICY VALUES AND BENEFITS
DEATH BENEFIT
DEATH BENEFIT OPTIONS. When you apply for a Policy, you may choose between
two death benefit options. 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.
A-12
<PAGE>
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 and
no loans or other withdrawals of cash value were made, and maximum Policy
charges were deducted.
Your premium payment schedule will affect the amount of the tabular cash
value. The tabular cash value on any day will be calculated as if the current
payment schedule had always been in effect.
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), 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
A-13
<PAGE>
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) will be allocated to the Zenith Money Market Sub-Account
until 15 days after NELICO mails the confirmation for the initial premium.
(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 (which will reflect at least one Monthly Deduction and one cost of
insurance deduction) 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.)
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
A-14
<PAGE>
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. Generally, no premium payment may be submitted
with an application for a Policy to be used in connection with a tax-qualified
pension plan.
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. However, backdating in some cases may cause the insured to be
treated as a juvenile which could result in higher cost of insurance rates
under the Policy than if the insured had been assigned to a nonsmoker class.
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 10 days (or more where required by
applicable state insurance law) after you receive the Policy. 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
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.
STATE VARIATIONS
Certain Policy features, such as the "Right to Return the Policy" and the
state premium tax charge, may be subject to state variation. You should read
the Policy carefully to determine whether any variations apply in the state in
which the Policy is issued.
A-15
<PAGE>
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 Surrender 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 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 distribution, 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 (1) for all
Policies with a face amount of at least $250,000 and (2) for Policies issued
in a business situation or to a tax-qualified pension plan if either the
average face amount for the group is at least $250,000 (where fewer than 25
persons are covered) or the average face amount is at least $150,000 (where 25
or more persons are covered). 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 unscheduled payments made in all policy years.
During the first 11 policy years, if you surrender or lapse the Policy, take
a partial surrender or reduce the face amount, a Surrender Charge will also
apply. (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.
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. (State
insurance law may require that the state premium tax charge be waived under
Policies issued in certain states. See "State Variations".)
A-16
<PAGE>
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
--------- -------------
<S> <C> <C>
$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 under Policies with a face amount of at least $250,000 and
smaller Policies sold in certain business situations or to certain tax-
qualified pension plans. 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
----------- -----------
<S> <C> <C>
$2,000 $2,000
-180 (9% X 2,000 = total sales and premium tax charges)
------
$1,820
------
</TABLE>
- -------------------------------------------------------------------------------
SURRENDER CHARGE
If you totally or partially surrender your Policy, or allow it to lapse, or
reduce its face amount, in the first 11 policy years, a Surrender Charge will
be deducted from the cash value.
The Surrender Charge is a percentage of basic scheduled premiums, as shown
in the chart below. In each policy year, the charge will be applied to the
total annualized basic scheduled premiums for the Policy through the policy
year in which the total or partial surrender, lapse or face amount reduction
occurs, up to a maximum of four annualized basic scheduled premiums. This
means that even if you have not yet paid the full amount of the annualized
basic scheduled premiums to which the Surrender Charge applies at any point in
time, you will be treated as if you have paid those premiums for the purpose
of calculating the charge.
The Surrender Charge rate that applies in each policy year is indicated
below:
<TABLE>
<CAPTION>
POLICY YEAR PERCENTAGE APPLIED TO
----------- ---------- ----------
<S> <C> <C>
1 55.00% One Annualized Basic Scheduled Premium
2 55.00% Two Annualized Basic Scheduled Premiums
3 36.67% Three Annualized Basic Scheduled Premiums
4 27.50% Four Annualized Basic Scheduled Premiums
5* 26.25% Four Annualized Basic Scheduled Premiums
6* 25.00% Four Annualized Basic Scheduled Premiums
7* 20.00% Four Annualized Basic Scheduled Premiums
8* 15.00% Four Annualized Basic Scheduled Premiums
9* 10.00% Four Annualized Basic Scheduled Premiums
10* 5.00% Four Annualized Basic Scheduled Premiums
11* 0.00% Four Annualized Basic Scheduled Premiums
</TABLE>
- --------
*End of Policy Year
A-17
<PAGE>
For the first four policy years the Surrender Charge rate that applies in a
particular year remains level throughout that year. Beginning in the fifth
policy year, the Surrender Charge rate declines on a monthly basis to the end
of year rates shown in the table above.
The dollar amount of the Surrender Charge is also limited to an amount per
$1,000 of your Policy's face amount. These limits are:
<TABLE>
<CAPTION>
POLICY YEAR
-------------------------------------------
1 2 3 4 5 6 7 8 9 10 11
--- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Surrender Charge per $1,000
of Face Amount.................... $47 $44 $42 $39 $37 $35 $33 $31 $29 $27 $25
</TABLE>
In all cases, the annualized premium amount to which the Surrender Charge
applies is calculated based on the premium payment frequency you are using at
the time. Therefore, if you are paying your basic scheduled premiums in
quarterly installments rather than annually at the time you surrender your
Policy, the dollar amount of your Surrender Charge may be higher because the
dollar amount of an annual basic scheduled premium is somewhat higher if you
pay it in installments rather than once a year.
In the case of a partial surrender or reduction in face amount, the
Surrender Charge is deducted from the Policy's cash value in an amount
proportional to the amount of the face amount surrendered. (See "Partial
Surrender" and "Partial Withdrawal".)
The Surrender Charge is deducted from the Policy's available cash value,
regardless of whether the cash value comes from scheduled premiums,
unscheduled payments, or investment experience. If the applicable Surrender
Charge amount exceeds the available cash value, there will be no proceeds paid
to you on surrender or lapse.
The Surrender Charge covers the following expenses: developmental costs
associated with the Policies (such as actuarial, legal, systems and other
overhead costs), underwriting, and marketing and other distribution expenses.
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 $0.10 per $1,000 of Policy
face amount (guaranteed not to exceed $0.12 per $1,000 of face amount). For
all Policies with a face amount of at least $250,000 and for Policies issued
in a business situation or to a tax-qualified pension plan if either the
average face amount for the group is at least $250,000 (where fewer than 25
persons are covered) or the average face amount is at least $150,000 (where 25
or more persons are covered), the monthly administrative charge is currently
$0.06 per $1,000 of face amount rather than $0.10; 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".)
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".)
A-18
<PAGE>
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, 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 the
Monthly Deduction has 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 issue age and the Policy's face amount at
issue and duration. In addition, for Policies sold in a business situation or
to a tax-qualified pension plan, current cost of insurance rates may depend on
the average face amount of Policies sold to the group and on the number of
lives in the group. The rates are guaranteed not to be higher than rates based
on the 1980 Commissioners Standard Ordinary Mortality Tables (the "1980 CSO
Tables"), with smoker/nonsmoker modifications. For Policies issued on juvenile
insureds, 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 (or other termination) 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.
For standard issues, the underwriting classes used for determining current
cost of insurance rates are smoker, nonsmoker, nonsmoker preferred, nonsmoker
residual and, for Policies issued on juvenile insureds (that is, insureds with
an issue age of zero through 19), standard. Substandard Policies and automatic
issue Policies use the same smoker and nonsmoker standard rates and, for
juveniles, standard rates, but require an extra premium as part of the
Policy's total scheduled premium.
Availability of the three nonsmoker classes varies. For fully underwritten
Policies with a face amount of $250,000 or more and where the insured's issue
age is 20 through 75, the standard nonsmoker underwriting classes are
nonsmoker preferred and nonsmoker residual. For all other underwritten
Policies (including any Policy where the insured's issue age is above 75),
only the nonsmoker class is used. Among these three nonsmoker classes, the
nonsmoker preferred class generally offers the most favorable rates on a
current basis and the nonsmoker residual class generally offers the least
favorable rates on a current basis.
Cost of insurance rates are generally more favorable for nonsmoker than for
smoker insureds and generally more favorable for female than for male
insureds. Within a given underwriting class, cost of insurance rates are
generally more favorable for insureds with lower issue ages. Where required by
state law, and for Policies sold in connection with certain employee benefit
plans, cost of insurance rates (and Policy values and benefits) will not vary
based on the sex of the insured.
Currently, cost of insurance rates will be more favorable for a Policy if
the face amount is at least $250,000, unless, in the case of an underwritten
Policy, the insured is assigned to the nonsmoker residual class. In addition,
for Policies with a face amount below $250,000 which are issued in a business
situation or to a tax-qualified pension plan, current cost of insurance rates
will be more favorable if either (1) the average face amount for the group is
at least $250,000, where fewer than 25 persons are covered, or (2) the average
face amount is at least $150,000, where 25 or more persons are covered.
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-19
<PAGE>
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. NELICO
will charge an additional premium for automatic issue Policies. The amount of
the premium will depend on the issue age of the insured and may also depend on
the smoker status of the insured, the Policy's face amount, or the size of the
group and the average Policy face amount for 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 a standard class. This means that an
insured may be able to obtain individual, underwritten insurance coverage at a
lower overall cost. The overall guaranteed maximum monthly cost of insurance
charges, including the extra premium, will exceed charges based on 100% of the
1980 CSO Tables.
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
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 .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. (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
A-20
<PAGE>
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
SACHS LOOMIS MORGAN 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 Ex-
penses...................... .90% .85% 1.30% .90% .87%
</TABLE>
- --------
* Absent the applicable expense cap or expense deferral arrangement
(described above), Total Series Operating Expenses for the year ended
December 31, 1997 would have been as follows: Westpeak Stock Index Series,
.43%; Goldman Sachs Midcap Value Series, .86%; Loomis Sayles Small Cap
Series, 1.14%; Loomis Sayles Balanced Series, .86%; and Morgan Stanley
International Magnum Equity Series, 1.59%. Total Operating Expenses for the
Davis Venture Value Series would have been 0.85% of average daily net
assets; however, pursuant to the expense deferral arrangement, 0.05% was
carried over from a previous year in which operating expenses exceeded the
limit.
** 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.
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.
A-21
<PAGE>
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. Examples of such arrangements are
employer-sponsored benefit plans which are tax-qualified pension plans and
non-tax qualified deferred compensation plans. A "sponsored arrangement"
includes a program under which an employer permits group solicitation of its
employees or an association permits group solicitation of its members for the
purchase of 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,
minimum death benefit guarantee, 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
insured reaches age 100. 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
A-22
<PAGE>
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, you may make unscheduled payments as long
as the Policy has not lapsed. 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.
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.
A-23
<PAGE>
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 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.
A-24
<PAGE>
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 but before the
Monthly Deduction and cost of insurance charge), 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, or is used in connection with a tax-qualified pension
plan.
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 but before the Monthly Deduction and cost of
insurance charge), 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.)
VARIABLE PAID-UP INSURANCE. Variable Paid-Up Insurance is available as a
lapse option (with NELICO's consent) if the NET cash value of your Policy as
of the due date of the premium in default (that is, the cash value
A-25
<PAGE>
reduced by any applicable Surrender Charge and by any outstanding policy loan
plus accrued interest but before the Monthly Deduction and cost of insurance
charge) 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 unless NELICO consents.
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 pro rated 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-26
<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" once 15 days have
passed since the date NELICO mailed the confirmation of the first premium.
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-56 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
------- ---------
<C> <S> <C> <C>
(1) Cash Value after Premium Payment on 10th Policy
Anniversary......................................... $15,500 $14,396
(2) Cash Value Projected at a Constant Annual Rate of
Return of 4.5% to the
(a) 11th Policy Anniversary.......................... 15,661
(b) Next Premium Due Date............................ 14,422
(3) 90% of Amount Calculated in (2)...................... 14,095 12,980
(4) Amount Calculated in (3), Reduced by the Applicable
Surrender Charge.................................... 13,793 12,678
(5) Amount Calculated in (4), Discounted at an Annual
Rate of 6% Back to the 10th Policy Anniversary...... 13,012 12,490
</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.
A-27
<PAGE>
The amount taken from the Policy's sub-accounts as a result of a loan does
not participate in the investment experience of the sub-accounts. Therefore,
the death benefit and cash value of the Policy can be permanently affected by
a policy loan, even if it is repaid. In addition, any proceeds payable under a
Policy are reduced by the amount of any outstanding loan plus accrued
interest.
If a Policy loan is outstanding, it may be more advantageous to repay the
loan than to make an unscheduled payment, because the unscheduled payment is
subject to sales and premium tax charges, and the loan repayment is not
subject to charges. (See "Deductions from Premiums and Unscheduled Payments".)
If policy loans plus accrued interest 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 also be 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-28
<PAGE>
- -------------------------------------------------------------------------------
EXAMPLE: Using the Policy illustrated on page A-57, 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
--------------- --------------- ---------------
<C> <S> <C> <C> <C>
(1) Cash Value at the 20th
anniversary, before
premium payment........ $17,221 $34,508 $71,676
(2) Tabular Cash Value...... 31,093 31,093 31,093
(3) Maximum
Withdrawal = (1) - (2). 0 3,415 40,583
</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 $100,000 face amount 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. 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>
<C> <S> <C>
(1) Cash Value at the 20th anniversary, before premium payment.... $72,759
(2) Net Single Premium per $1 at age 60........................... .47737875
(3) Face Amount X .47737875....................................... $47,738
(4) Maximum Withdrawal = (1) - (3)................................ $25,021
</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.
- -------------------------------------------------------------------------------
A-29
<PAGE>
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".
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
circumstances 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 and by
the Internal Revenue Code, you may request an accelerated payment of
A-30
<PAGE>
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.
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
Once 15 days have passed since the date NELICO mailed the confirmation of
the first premium, 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. 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.
A-31
<PAGE>
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 or transfers from the sub-
accounts: (i) if the New York Stock Exchange is closed for other than weekends
or holidays, or if trading on the New York Stock Exchange is restricted, (ii)
if the SEC determines that a state of emergency exists that makes payments or
sub-account transfers impractical, or (iii) at any other time when the
Eligible Funds or the Variable Account have the legal right to suspend
payment. NELICO may withhold payment of surrender or loan proceeds to the
extent that those proceeds are derived from a Policy Owner's check, or from a
Master Service Account premium transaction, which has not yet cleared. In
those cases, NELICO will process the surrender or loan to the extent of policy
values for which the Policy Owner has made full payment. The balance of the
surrender or loan proceeds will be paid when the Policy Owner's check, or the
Master Service Account premium transaction, has cleared. NELICO may also delay
payment if it considers whether to contest the Policy. NELICO will pay
interest on the death benefit proceeds from the date they become payable to
the date they are paid in one sum or, if a payment option was selected, to the
effective date of the option. (See "Payment Options".)
Death benefit proceeds may be paid pursuant to NELICO's Access Plus program.
If the Access Plus program is elected, an Access Plus account will be
established at State Street Bank & Trust Company at the time that death
benefit proceeds are payable. The Access Plus account provides convenient
access to proceeds, which are maintained in MetLife's general account, through
checkbook privileges with State Street. A beneficiary may elect to have death
benefit proceeds paid through the Access Plus program at any time prior to the
payment of death benefit proceeds.
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 fixed-benefit life insurance policy
issued by NELICO or MetLife, as described below. The new policy will be issued
on any plan of whole life or endowment insurance with a level face amount
issued by NELICO on the Policy Date. 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 which were
in effect on the Policy Date of the original Policy. Any riders to the
original Policy will be attached to the new policy if they are available. If
NELICO does not have a policy available for an exchange, the new policy will
be issued by MetLife. (To be available for the exchange, the new policy must
have been 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.
A-32
<PAGE>
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 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
A-33
<PAGE>
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.
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 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 for rights to payment of benefits) 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.
A-34
<PAGE>
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.
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
A-35
<PAGE>
-- 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.
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.
A-36
<PAGE>
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 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.
A-37
<PAGE>
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-Accounts, or some
combination of these sub-accounts, may, therefore, be a more desirable
selection for Policy Owners who have a long term time horizon and/or are
willing to accept such risks of short term fluctuations in value. For a
demonstration of certain of these market trends, see Appendix C: Long Term
Market Trends. Historically, the investment performance of "small cap" stocks
over the long term has generally been superior to stocks of large
capitalization companies, although "small cap" stocks have been substantially
more volatile than "large cap" stocks. Historically, having a small percentage
of a portfolio invested in overseas stocks and the rest in domestic stocks has
produced a portfolio that has less, although still substantial, volatility
than a completely domestic portfolio. Equity investors should recognize that
overseas and "small cap" funds taken alone traditionally involve more risk
than most domestic stock funds.
The performance of the various financial markets over shorter periods of
time has sometimes differed from their long term historical results. Short
term interest rates were very high in the late 1970's and early 1980's, but
are now lower. Long term bond values continue to fluctuate and could lose
value if interest rates rise. Common stock prices, which have risen
substantially at times, have also had periods of significant negative returns.
Policy Owners who seek somewhat greater protection against loss of principal
in the short term than that afforded by a stock fund may prefer the High
Income Sub-Account or the Zenith Bond Income Sub-Account. However, because the
High Income Portfolio invests in higher yielding, lower rated and unrated
fixed income securities (including bonds commonly referred to as "junk"
bonds), it has a higher degree of risk associated with it relative to more
conservative fixed income funds. Those who seek even greater safety of
principal may select the Zenith Money Market Sub-Account, although it is
subject to possible rapid changes in short term interest rates. Those who
primarily seek safety of principal should consider fixed life insurance as an
alternative to variable life insurance.
NELICO guarantees the principal invested in the Fixed Account, although this
guarantee is subject to NELICO's claims paying ability.
You may wish to consider diversifying your investments by allocating the
Policy's cash value among two or more sub-accounts.
Policy Owners may also diversify by selecting the Zenith Managed Sub-
Account, Zenith Balanced Sub-Account or the Asset Manager Sub-Account, since
each generally invests its assets at most times in a combination of bonds,
stocks and short term instruments, in varying proportions depending upon the
investment adviser's evaluation of the economy and financial markets. The
Asset Manager Portfolio has the ability to invest its stock portfolio more
aggressively than the Back Bay Advisors Managed Series. You may also wish to
diversify your cash value by country. The Overseas Sub-Account and Zenith
International Magnum Equity Sub-Account allow you to participate primarily in
companies and economies outside the United States.
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.
A-38
<PAGE>
INVESTMENT MANAGEMENT
The adviser and sub-adviser for each series of the Zenith Fund are listed in
the chart below. TNE Advisers, which is 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
Market TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Bond In-
come TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Managed TNE Advisers, Inc. Back Bay Advisors, L.P.*
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Westpeak 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 Magnum
Equity TNE Advisers, Inc. Morgan Stanley Asset Management Inc.
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. 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 VIP Fund and VIP Fund II prospectus attached at the end of
this prospectus and their Statement of Additional Information.
THE FIXED ACCOUNT
A FIXED ACCOUNT OPTION IS AVAILABLE UNDER THE POLICY IN STATES WHERE IT HAS
BEEN APPROVED BY THE STATE INSURANCE DEPARTMENT. THE FIXED ACCOUNT MAY NOT BE
APPROVED BY EVERY STATE INSURANCE DEPARTMENT AND THEREFORE IT MAY NOT BE
AVAILABLE IN EVERY STATE.
A-39
<PAGE>
You may allocate net premiums and net unscheduled payments for your Policy,
and may transfer your Policy's cash value, to the Fixed Account, which is part
of NELICO's general account. Because of exemptive and exclusionary provisions
in the Federal securities laws, interests in the Fixed Account have not been
registered under the Securities Act of 1933, and neither the Fixed Account nor
the general account has been registered as an investment company under the
Investment Company Act of 1940. Therefore, neither the Fixed Account, the
general account nor any interests therein are generally subject to the
provisions of these Acts, and NELICO has been advised that the staff of the
SEC does not review disclosures relating to the general account. Disclosures
regarding the Fixed Account may, however, be subject to certain generally
applicable provisions of the Federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
GENERAL DESCRIPTION
NELICO's general account includes all the assets owned by NELICO, other than
the assets in the Variable Account or in any other separate accounts that
NELICO may establish. NELICO has sole discretion over the investment of assets
in the general account, including the Fixed Account. Policy Owners who
allocate cash value to the Fixed Account will not share in the actual
investment experience of the Fixed Account. Instead, NELICO guarantees that
cash values in the Fixed Account will earn interest at an effective annual
rate of at least 4.5%. NELICO may from time to time credit interest at a
higher rate than 4.5%, but it is under no obligation to do so. NELICO declares
the current interest rate for the Fixed Account periodically. Your Policy cash
values that are in the Fixed Account will earn interest daily.
NELICO may vary the way in which it credits interest in the Fixed Account
from time to time. The following is a description of NELICO's current method
for crediting interest to cash value in the Fixed Account. All of your
Policy's cash value in the Fixed Account on a policy anniversary will earn
interest at the declared annual rate in effect on the anniversary. It will
earn interest at this rate until the next policy anniversary, when it will be
credited with the current rate declared by NELICO. (Although NELICO's current
practice is to credit your entire Fixed Account cash value on a policy
anniversary with the most recently declared annual rate until the next
anniversary, NELICO can select any portion, from 0% to 100%, of your Fixed
Account cash value on a policy anniversary to earn interest at the most
recently declared rate until the next policy anniversary.) Any net premiums or
net unscheduled payments allocated or any portion of your Policy's cash value
transferred to the Fixed Account on a date other than a policy anniversary
will earn interest at NELICO's most recently declared rate until the next
policy anniversary. The effective interest rate credited at any time to your
cash value in the Fixed Account will be a weighted average of all the Fixed
Account rates for your Policy.
If you select the Fixed Account on the application, your Policy's cash value
will not be allocated to the Fixed Account until 15 days after NELICO mails
the confirmation of the initial premium. 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.
A-40
<PAGE>
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 ONLY IF NELICO RECEIVES THE TRANSFER REQUEST NO MORE
THAN 30 DAYS AFTER THE POLICY ANNIVERSARY, AND THE TRANSFER WILL BE EFFECTED
AS OF THE DATE THE TRANSFER REQUEST IS RECEIVED AT NELICO'S HOME OFFICE. THE
AMOUNT OF CASH VALUE WHICH MAY BE TRANSFERRED FROM THE FIXED ACCOUNT IS
LIMITED TO THE GREATER OF 25% OF THE POLICY'S CASH VALUE IN THE FIXED ACCOUNT
ON THE TRANSFER DATE OR THE AMOUNT OF CASH VALUE TRANSFERRED FROM THE FIXED
ACCOUNT IN THE PRECEDING POLICY YEAR. Regardless of these limits, if a
transfer of cash value from the Fixed Account would reduce the remaining cash
value in the Fixed Account below $100, you may transfer the entire amount of
cash value from the Fixed Account. The total number of transfers among sub-
accounts and from the sub-accounts to the Fixed Account may not exceed four in
one policy year without NELICO's consent. NELICO currently allows 12 such
transfers per policy year. Transfers out of the Fixed Account will not be
counted against this limit. NELICO reserves the right to restrict transfers of
cash value into the Fixed Account, if the effective annual rate of interest
that would apply to the amount transferred is 4.5%.
Unless you request otherwise, a policy loan will reduce the Policy's cash
value in the sub-accounts and not the cash value in the Fixed Account. If
there is not enough cash value in the Policy's sub-accounts to provide the
amount of the loan, however, the balance of the loan will be taken from the
cash value in the Fixed Account. All loan repayments will be allocated first
to the outstanding loan balance attributable to the Fixed Account. The amount
removed from the Policy's sub-accounts and the Fixed Account as a result of a
loan will earn interest at not less than 4.5% per year (currently 4.75% per
year), which will be credited annually to the Policy's cash value in the sub-
accounts and the Fixed Account in proportion to the Policy's cash value in
each on the day it is credited.
Unless you request otherwise, partial surrenders and partial withdrawals
will be taken only from the Policy's sub-accounts and not the Fixed Account.
If there is not enough cash value in the Policy's sub-accounts to provide the
full amount requested, the balance of the partial surrender or partial
withdrawal will be taken from the Fixed Account.
NELICO has the right to delay transfers, withdrawals, surrenders, and policy
loans from the Fixed Account for up to six months. Loans to pay premiums on
policies issued by NELICO will not be delayed.
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
A-41
<PAGE>
indirect, wholly-owned subsidiary of NELICO, is registered with the SEC as a
broker-dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc.
New England Securities, whose principal business address is 399 Boylston
Street, Boston, Massachusetts 02116, serves as the principal underwriter for
the Policies under a Distribution Agreement between NELICO and New England
Securities.
Under the Distribution Agreement, NELICO pays the following sales expenses:
general agent and agency manager's compensation, agents' training allowances,
deferred compensation and insurance benefits of agents, general agents and
agency managers and advertising expenses and all other expenses of
distributing the Policies.
NELICO pays the following commissions and/or service fees to the selling
agent: a maximum of 50% of the scheduled premium paid in the first policy
year; a maximum of 5% of scheduled premiums in policy years two through ten;
and a maximum of 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 less 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 50% 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 paid additional compensation and/or 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 based on misrepresentations made in the application. However,
NELICO cannot challenge the Policy or a rider after it has been in force,
during the insured's lifetime, for two years from the date of issue. NELICO
cannot challenge the portion of the death benefit resulting from payment of an
underwritten unscheduled payment for more than two years (during the insured's
lifetime) from the date the unscheduled payment was received.
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).
A-42
<PAGE>
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 an accelerated benefits rider it makes available will qualify
as an accelerated death benefit under the Code. (See "Acceleration of Death
Benefit Rider" for more information regarding the rider.) Pursuant to the
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
A-43
<PAGE>
treated as taxable income to you. This assumes that the Policy has not lapsed,
been surrendered or terminated. As a general rule, policy loan interest is not
deductible under current Federal income tax law.
You may be subject to Federal income tax upon surrender of your Policy if
the net cash surrender value of the Policy is greater than the investment in
the Policy less prior distributions from the Policy that were not taxed. If a
Policy has a policy loan and is surrendered or lapses, the policy loan is
treated as a distribution and would be taxable if there is a gain in the
Policy. In that case, the gain in the Policy would be taxable even if the
Policy has no net cash surrender value. If you incur a loss upon the surrender
it is not likely to be deductible for Federal income tax purposes.
Generally, a partial surrender of the Policy will not be taxable to you
unless it is greater than the investment in the Policy less the untaxed
portions of any prior distributions. The Internal Revenue Code does provide,
however, that in certain situations in the first 15 years of the Policy
partial surrenders may be taxable, in whole or in part, if the cash value is
greater than the total investment in the Policy less the previous untaxed
distributions. This may be the case even if the amount of the partial
surrender is less than the investment in the Policy. The exercise of an
accelerated benefits rider, in whole or in part, may be treated as a surrender
or partial surrender.
MODIFIED ENDOWMENT CONTRACTS. A modified endowment contract is a life
insurance contract which fails to satisfy a "7-pay test". In general, a Policy
will fail to satisfy the 7-pay test if the total amount (both scheduled
premiums and unscheduled payments) paid under the Policy at any time during
the first seven policy years exceeds the sum of the net level premiums that
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 issued in New York could cause the
Policy to be treated less favorably for purposes of the 7-pay test. If there
is a reduction in the Policy's future benefits (for example, as a result of a
partial surrender, face amount reduction or partial exercise of the
accelerated benefits rider, or because you allow the Policy to lapse to Paid-
Up Insurance) during the first seven policy years the 7-pay test will be
applied as if the Policy had originally been issued at the reduced face
amount. Any Policy received in exchange for a modified endowment contract will
also be a modified endowment contract.
Your 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
change occurred. The Policy will be retested under the 7-pay test, after
making certain adjustments to reflect the Policy's existing cash value. Any
increase in future benefits under the Policy may constitute a material change
unless the increase is due to the payment of premiums necessary to fund the
Policy's lowest death benefit payable in the first seven policy years, or the
crediting of interest or other earnings with respect to such premiums. A
material change would also occur if there were a substitution of the insured
person or if certain other Policy changes occurred.
If you do not wish to have the Policy become a modified endowment contract,
you may be required to limit the payment of premiums under the Policy at some
point (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
A-44
<PAGE>
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 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).
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
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.
A-45
<PAGE>
Section 817(h) of the Code requires the investments of the Variable Account
to be "adequately diversified" in accordance with Treasury Regulations for the
Policy to qualify as a life insurance contract under Section 7702 of the Code.
Failure to comply with the diversification requirements may result in not
treating the Policy as life insurance. If the Policy does not qualify as life
insurance, you may be subjected to immediate taxation on the incremental
increases in cash value of the Policy. Regulations specifying the
diversification requirements have been issued by the Department of Treasury,
and 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, retiree medical benefit plans and others. The
tax consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of the Policies in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement and the suitability of this product for the arrangement. 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.
A-46
<PAGE>
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.
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
------------------ -----------------------------
<S> <C>
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 Principal of
127 Tarbox Road The Vermont Partnership, a business consulting firm
Jericho, VT 05465 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 Board of
RR Box 67-15 SLM Holdings since 1997; formerly, Director 1994-1996 of
Harborside, ME 04642 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, television
Adam Smith's Money journalist, and editor.
World
50th Floor, Craig
Drill Capital
General Motors Build-
ing
767 Fifth Street
New York, NY 10153
</TABLE>
A-47
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<S> <C>
Dr. Evelyn E. Handler... Director of NELICO since 1996; formerly Director 1987-1996
74 Tater Street of New England Mutual and Executive Director and Chief
Mount Vernon, NH 03057 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 law firm
Howard, Darby & Levin of Howard, Darby & Levin in New York City.
1330 Avenue of the
Americas
New York, NY 10019
Harry P. Kamen.......... Director of NELICO since 1996 and Chairman of Metropolitan
Metropolitan Life Life Insurance Company since 1998; formerly, Chairman and
One Madison Avenue Chief Executive Officer 1997-1998; Chairman, President,
New York, NY 10010 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 President of
Metropolitan Life Metropolitan Life Insurance Company since 1994; formerly,
One Madison Avenue Assistant Deputy Superintendent and Chief Examiner 1984-
New York, NY 10010 1994 of the New York Insurance Department.
Bernard A. Leventhal.... Director of NELICO since 1996; formerly, Vice Chairman of
Burlington Industries the Board of Directors 1995-1998 of Burlington
1345 Avenue of the Industries, Inc.; President since 1978 and Corporate
Americas Group Vice President since 1985 and Director since 1990
New York, NY 10105 of Burlington Menswear Division.
Thomas J. May........... Director of NELICO since 1996 and Chairman, President and
Boston Edison Company Chief Executive Officer of Boston Edison Company since
800 Boylston Street 1994; formerly, Director 1994-1996 of New England Mutual;
Boston, MA 02199 President and Chief Operating Officer 1993-1994 of Boston
Edison Co.
Stewart G. Nagler....... Director of NELICO since 1996 and Senior Executive Vice
Metropolitan Life President and Chief Financial Officer of Metropolitan
One Madison Avenue Life Insurance Company since 1986.
New York, NY 10010
Rand N. Stowell......... Director of NELICO since 1996 and President of United
United Timber Corp. Timber Corp. of Dixfield, Maine; formerly, Director 1990-
P.O. Box 650 1996 of New England Mutual.
Pine Street
Dixfield, ME 04224
Alexander B. Trowbridge. Director of NELICO since 1996 and President of Trowbridge
Trowbridge Partners Partners, Inc. in Washington, DC; formerly, Director
Inc. 1983-1996 of New England Mutual.
1317 F Street, NW,
Suite 500
Washington, D.C. 20004
</TABLE>
EXECUTIVE OFFICERS OF NELICO
OTHER THAN DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
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.
</TABLE>
A-48
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
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.
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.
</TABLE>
A-49
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
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.
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
A-50
<PAGE>
conflict, the Board of Trustees will have an obligation to determine what
action should be taken, including the removal of the affected sub-accounts
from the Eligible Fund(s), if necessary. If NELICO believes any Eligible Fund
action is insufficient, NELICO will consider taking other action to protect
Policy Owners. There could, however, be unavoidable delays or interruptions of
operations of the Variable Account that NELICO may be unable to remedy.
If required by state insurance authorities, NELICO may disregard voting
instructions if they would require that shares be voted to cause a change in
the investment objectives of the portfolios of the Eligible Funds or to
approve or disapprove an investment advisory or underwriting contract for a
portfolio. In addition, NELICO may disregard voting instructions in favor of
changes, initiated by a Policy Owner or an Eligible Fund's Board of Trustees,
in the investment policy, investment adviser or principal underwriter of the
Eligible Fund portfolio if NELICO (i) reasonably disapproves of the changes
and (ii) in the case of a change in investment policy or investment adviser,
makes a good faith determination that the proposed change is contrary to state
law or is prohibited by state regulatory authorities or that the change would
be inconsistent with a sub-account's investment objectives or would result in
the purchase of securities which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts of
NELICO or of an affiliated life insurance company, which separate accounts
have investment objectives similar to those of the sub-account. If NELICO does
disregard voting instructions, a summary of that action and the reasons for it
will be included in the next semiannual report to Policy Owners.
RIGHTS RESERVED BY NELICO
NELICO and its affiliates may change the voting procedures described above,
and may vote Eligible Fund shares in their own right without instructions from
policy owners, if the applicable Federal securities laws or regulations or
interpretations of them change. NELICO also reserves the right: (1) to create
new investment accounts; (2) to combine any two or more separate investment
accounts including the Variable Account; (3) to make available additional sub-
accounts of the Variable Account investing in additional Eligible Fund
portfolios or in portfolios of other mutual funds; (4) to invest the assets of
the Variable Account in securities other than Eligible Fund shares or in
shares of a different series of the Eligible Funds as a substitute for such
shares already purchased or as the securities to be purchased in the future,
to withdraw the availability of a series of the Eligible Funds as an
investment option under the Policies, or to transfer assets to NELICO's
general account as permitted by applicable law; (5) to operate the Variable
Account as a management investment company under the Investment Company Act of
1940 or in any other form permitted by law; and (6) to deregister the Variable
Account under the Investment Company Act of 1940 if registration is no longer
required. NELICO will exercise these rights in accordance with applicable law,
including approval of Policy Owners if required. NELICO will notify you if
exercise of any of these rights would result in a material change in the
Variable Account or its investments.
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.
A-51
<PAGE>
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, 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.
A-52
<PAGE>
REGISTRATION STATEMENT
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. Copies of such additional
information may be obtained from the SEC upon payment of the prescribed fee.
EXPERTS
The financial statements of New England Variable Life Separate Account of
New England Life Insurance Company ("NELICO") (formerly New England Variable
Life Insurance Company) and the consolidated financial statements of NELICO
and subsidiaries as of and for the 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 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 (which
includes a qualified opinion as to the provision for losses incurred but not
reported, which such underlying information used on the calculation of the
provision was not reviewed by the independent accountants) 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-53
<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 face amounts of $100,000 and $250,000 for a male
aged 40. The insured is assumed to be in the nonsmoker standard risk
classification for the $100,000 Policy and in the nonsmoker preferred risk
classification for the $250,000 Policy. Values are first given based on
current mortality and other Policy charges and then based on guaranteed
mortality and other Policy charges. The illustrations based on current charges
for the $250,000 face amount reflect the lower charges that apply to a Policy
of that size. The $100,000 Policy is assumed not to be eligible for NELICO's
currently applicable charge reductions. 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 smoker
and nonsmoker 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 another risk classification, or if the Policies were
issued at unisex rates.
The death benefits, net cash values and cash values shown in the tables
reflect: (i) deductions from 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 that are
deducted from the cash value on the first day of each policy month. The net
cash values reflect a surrender charge that is deducted from the cash value
upon surrender, face reduction or lapse during the first 11 policy years. The
death benefits, net cash values and cash values also reflect a daily charge
assessed against the Variable Account for mortality and expense risks
equivalent to an annual charge of .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. TNE Advisers could terminate the expense cap and expense deferral
arrangements at any time. If TNE Advisers terminates these arrangements, the
values illustrated on the following pages could be less. (See "Charges Against
the Eligible Funds and the Sub-Accounts of the Variable Account".)
Taking account of the charges for mortality and expense risks in the
Variable Account and the average investment advisory fee and operating
expenses of the Eligible Funds, the gross annual rates of return of 0%, 6% and
12% correspond to net investment experience at constant annual rates of -
1.35%, 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
A-54
<PAGE>
rate of return would have to exceed the rates shown by an amount sufficient to
cover the tax charges, in order to produce the death benefits, net cash values
and cash values illustrated. (See "Charges for NELICO's Income Taxes".)
The second column of each table shows the amount which would accumulate if
an amount equal to the annual premium were invested to earn interest, after
taxes, of 5% per year, compounded annually.
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-55
<PAGE>
MALE ISSUE AGE 40
$1,700 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$100,000 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------ ------------------------ -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -------- -------- -------- ------- ------- -------- ------- ------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,785 $100,000 $100,000 $100,000 $ 222 $ 299 $ 377 $ 1,126 $ 1,204 $ 1,281 -86.97% -82.41% -77.84%
2 3,659 100,000 100,000 100,000 413 638 873 2,223 2,448 2,682 -79.78 -70.92 -62.63
3 5,627 100,000 100,000 100,000 1,481 1,925 2,406 3,290 3,734 4,216 -50.14 -41.35 -33.11
4 7,694 100,000 100,000 100,000 2,517 3,254 4,085 4,326 5,063 5,895 -35.98 -27.39 -19.37
5 9,863 100,000 100,000 100,000 3,605 4,710 6,007 5,332 6,437 7,734 -27.32 -19.07 -11.36
6 12,141 100,000 100,000 100,000 4,660 6,210 8,105 6,305 7,855 9,750 -22.06 -14.04 -6.54
7 14,533 100,000 100,000 100,000 5,927 8,002 10,643 7,243 9,318 11,959 -17.51 -9.94 -2.79
8 17,045 100,000 100,000 100,000 7,159 9,840 13,396 8,146 10,827 14,383 -14.51 -7.25 -.34
9 19,682 100,000 100,000 100,000 8,360 11,730 16,391 9,018 12,388 17,049 -12.40 -5.37 1.37
10 22,452 100,000 100,000 100,000 9,527 13,674 19,654 9,856 14,003 19,983 -10.87 -4.00 2.62
15 38,518 100,000 100,000 100,000 13,407 22,845 39,747 13,407 22,845 39,747 -8.57 -1.39 5.37
20 59,023 100,000 100,000 151,547 17,221 34,603 72,759 17,221 34,603 72,759 -7.05 .17 6.79
25 85,193 100,000 100,000 224,906 19,905 48,852 125,083 19,905 48,852 125,083 -6.50 1.06 7.54
30 118,593 100,000 105,145 327,543 20,977 66,311 207,518 20,977 66,311 207,518 -6.59 1.64 7.99
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ ---------- ---------- ----------
<S> <C> <C> <C>
1 5,782.38% 5,782.38% 5,782.38%
2 618.59 618.59 618.59
3 250.44 250.44 250.44
4 144.56 144.56 144.56
5 97.48 97.48 97.48
6 71.62 71.62 71.62
7 55.51 55.51 55.51
8 44.64 44.64 44.64
9 36.86 36.86 36.86
10 31.05 31.05 31.05
15 15.80 15.80 15.80
20 9.44 9.44 12.80
25 6.08 6.08 11.25
30 4.05 4.33 10.32
</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
$1,700 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$100,000 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------ ------------------------ -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -------- -------- -------- ------- ------- -------- ------- ------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,785 $100,000 $100,030 $100,101 $ 222 $ 299 $ 377 $ 1,126 $ 1,204 $ 1,281 -86.97% -82.41% -77.85%
2 3,659 100,000 100,062 100,283 413 638 872 2,223 2,448 2,682 -79.78 -70.92 -62.65
3 5,627 100,000 100,097 100,556 1,481 1,924 2,405 3,290 3,734 4,214 -50.14 -41.36 -33.14
4 7,694 100,000 100,135 100,933 2,517 3,253 4,081 4,326 5,062 5,890 -35.98 -27.40 -19.41
5 9,863 100,000 100,175 101,425 3,605 4,709 5,998 5,332 6,436 7,726 -27.32 -19.08 -11.40
6 12,141 100,000 100,219 102,049 4,660 6,208 8,089 6,305 7,853 9,734 -22.06 -14.05 -6.59
7 14,533 100,000 100,266 102,820 5,927 7,999 10,617 7,243 9,315 11,933 -17.51 -9.95 -2.85
8 17,045 100,000 100,317 103,757 7,159 9,835 13,353 8,146 10,822 14,340 -14.51 -7.26 -.41
9 19,682 100,000 100,377 104,883 8,360 11,725 16,326 9,018 12,383 16,984 -12.40 -5.38 1.30
10 22,452 100,000 100,446 106,223 9,527 13,666 19,556 9,856 13,995 19,885 -10.87 -4.01 2.53
15 38,518 100,000 100,924 117,054 13,407 22,814 39,183 13,407 22,814 39,183 -8.57 -1.40 5.20
20 59,023 100,000 103,401 149,290 17,221 34,508 71,676 17,221 34,508 71,676 -7.05 .14 6.67
25 85,193 100,000 107,540 221,802 19,905 48,515 123,356 19,905 48,515 123,356 -6.50 1.00 7.45
30 118,593 100,000 114,245 323,220 20,977 65,265 204,780 20,977 65,265 204,780 -6.59 1.55 7.92
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ ---------- ---------- ----------
<S> <C> <C> <C>
1 5,782.38% 5,784.12% 5,788.30%
2 618.59 618.83 619.68
3 250.44 250.57 251.17
4 144.56 144.65 145.22
5 97.48 97.57 98.16
6 71.62 71.69 72.33
7 55.51 55.59 56.30
8 44.64 44.71 45.50
9 36.86 36.93 37.81
10 31.05 31.12 32.10
15 15.80 15.90 17.52
20 9.44 9.71 12.68
25 6.08 6.56 11.17
30 4.05 4.79 10.25
</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
$1,700 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$100,000 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------ ------------------------ -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -------- -------- -------- ------- ------- -------- ------- ------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,785 $100,000 $100,000 $100,000 $ 189 $ 266 $ 342 $ 1,094 $ 1,170 $ 1,247 -88.86% -84.37% -79.86%
2 3,659 100,000 100,000 100,000 346 566 796 2,155 2,376 2,606 -82.66 -73.65 -65.25
3 5,627 100,000 100,000 100,000 1,375 1,808 2,278 3,184 3,617 4,088 -52.46 -43.54 -35.20
4 7,694 100,000 100,000 100,000 2,370 3,085 3,894 4,179 4,895 5,704 -37.92 -29.21 -21.09
5 9,863 100,000 100,000 100,000 3,414 4,483 5,741 5,141 6,210 7,468 -28.98 -20.61 -12.81
6 12,141 100,000 100,000 100,000 4,421 5,917 7,749 6,066 7,562 9,394 -23.52 -15.39 -7.80
7 14,533 100,000 100,000 100,000 5,639 7,635 10,182 6,955 8,951 11,498 -18.78 -11.12 -3.90
8 17,045 100,000 100,000 100,000 6,818 9,391 12,810 7,805 10,378 13,797 -15.64 -8.30 -1.33
9 19,682 100,000 100,000 100,000 7,958 11,184 15,654 8,616 11,842 16,312 -13.45 -6.34 .46
10 22,452 100,000 100,000 100,000 9,058 13,016 18,735 9,387 13,345 19,064 -11.86 -4.92 1.76
15 38,518 100,000 100,000 100,000 12,504 21,382 37,320 12,504 21,382 37,320 -9.58 -2.24 4.63
20 59,023 100,000 100,000 136,928 13,930 30,076 65,724 13,930 30,076 65,724 -9.56 -1.18 5.93
25 85,193 100,000 100,000 193,820 12,725 39,082 107,767 12,725 39,082 107,767 -11.26 -.65 6.57
30 118,593 100,000 100,000 265,856 6,790 47,683 168,394 6,790 47,683 168,394 -20.00 -.44 6.89
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ ---------- ---------- ----------
<S> <C> <C> <C>
1 5,782.38% 5,782.38% 5,782.38%
2 618.59 618.59 618.59
3 250.44 250.44 250.44
4 144.56 144.56 144.56
5 97.48 97.48 97.48
6 71.62 71.62 71.62
7 55.51 55.51 55.51
8 44.64 44.64 44.64
9 36.86 36.86 36.86
10 31.05 31.05 31.05
15 15.80 15.80 15.80
20 9.44 9.44 11.98
25 6.08 6.08 10.33
30 4.05 4.05 9.26
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY 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 40
$1,700 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$100,000 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------ ------------------------ -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -------- -------- -------- ------- ------- -------- ------- ------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,785 $100,000 $100,000 $100,068 $ 189 $ 266 $ 342 $ 1,094 $ 1,170 $ 1,247 -88.86% -84.37% -79.87%
2 3,659 100,000 100,000 100,208 346 566 796 2,155 2,376 2,605 -82.66 -73.65 -65.27
3 5,627 100,000 100,000 100,430 1,375 1,808 2,277 3,184 3,617 4,086 -52.46 -43.54 -35.22
4 7,694 100,000 100,000 100,745 2,370 3,085 3,891 4,179 4,895 5,700 -37.92 -29.21 -21.12
5 9,863 100,000 100,000 101,165 3,414 4,483 5,734 5,141 6,210 7,461 -28.98 -20.61 -12.84
6 12,141 100,000 100,000 101,702 4,421 5,917 7,737 6,066 7,562 9,382 -23.52 -15.39 -7.85
7 14,533 100,000 100,000 102,370 5,639 7,635 10,160 6,955 8,951 11,476 -18.78 -11.12 -3.95
8 17,045 100,000 100,000 103,186 6,818 9,391 12,775 7,805 10,378 13,762 -15.64 -8.30 -1.39
9 19,682 100,000 100,000 104,166 7,958 11,184 15,598 8,616 11,842 16,256 -13.45 -6.34 .39
10 22,452 100,000 100,000 105,330 9,058 13,016 18,650 9,387 13,345 18,979 -11.86 -4.92 1.68
15 38,518 100,000 100,000 114,717 12,504 21,382 36,817 12,504 21,382 36,817 -9.58 -2.24 4.47
20 59,023 100,000 100,000 134,171 13,930 30,076 64,401 13,930 30,076 64,401 -9.56 -1.18 5.75
25 85,193 100,000 100,000 190,231 12,725 39,082 105,772 12,725 39,082 105,772 -11.26 -.65 6.45
30 118,593 100,000 100,000 261,184 6,790 47,683 165,435 6,790 47,683 165,435 -20.00 -.44 6.80
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ ---------- ---------- ----------
<S> <C> <C> <C>
1 5,782.38% 5,782.38% 5,786.33%
2 618.59 618.59 619.39
3 250.44 250.44 251.01
4 144.56 144.56 145.09
5 97.48 97.48 98.04
6 71.62 71.62 72.21
7 55.51 55.51 56.17
8 44.64 44.64 45.37
9 36.86 36.86 37.67
10 31.05 31.05 31.95
15 15.80 15.80 17.30
20 9.44 9.44 11.82
25 6.08 6.08 10.21
30 4.05 4.05 9.17
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY 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 40
$4,167 ANNUAL PREMIUM FOR NON-SMOKER PREFERRED UNDERWRITING RISK
$250,000 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------- -------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -------- -------- -------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,376 $250,000 $250,000 $250,000 $ 812 $ 1,014 $ 1,216 $ 3,074 $ 3,276 $ 3,478
2 8,971 250,000 250,000 250,000 1,556 2,151 2,770 6,080 6,675 7,294
3 13,795 250,000 250,000 250,000 4,496 5,679 6,961 9,019 10,203 11,484
4 18,861 250,000 250,000 250,000 7,364 9,338 11,562 11,888 13,862 16,085
5 24,179 250,000 250,000 250,000 10,370 13,342 16,824 14,689 17,660 21,143
6 29,764 250,000 250,000 250,000 13,303 17,485 22,587 17,415 21,598 26,699
7 35,628 250,000 250,000 250,000 16,777 22,390 29,518 20,067 25,680 32,808
8 41,786 250,000 250,000 250,000 20,174 27,444 37,061 22,641 29,912 39,529
9 48,251 250,000 250,000 250,000 23,503 32,664 45,290 25,148 34,309 46,935
10 55,039 250,000 250,000 250,000 26,758 38,053 54,277 27,581 38,876 55,099
15 94,425 250,000 250,000 269,726 38,416 64,335 110,338 38,416 64,335 110,338
20 144,692 250,000 250,000 421,916 50,107 98,390 202,565 50,107 98,390 202,565
25 208,848 250,000 252,597 626,742 58,662 139,840 348,566 58,662 139,840 348,566
30 290,728 250,000 300,443 912,215 62,950 189,477 577,944 62,950 189,477 577,944
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY -------------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -80.51% -75.67% -70.81% 5,898.79% 5,898.79% 5,898.79%
2 -71.04 -62.47 -54.36 626.13 626.13 626.13
3 -43.04 -34.57 -26.55 253.02 253.02 253.02
4 -30.11 -21.88 -14.11 145.96 145.96 145.96
5 -22.41 -14.51 -7.05 98.42 98.42 98.42
6 -17.81 -10.14 -2.90 72.31 72.31 72.31
7 -13.87 -6.62 .29 56.07 56.07 56.07
8 -11.31 -4.34 2.35 45.10 45.10 45.10
9 -9.53 -2.78 3.75 37.25 37.25 37.25
10 -8.25 -1.66 4.75 31.39 31.39 31.39
15 -6.38 .36 6.82 16.01 16.01 16.84
20 -5.15 1.55 7.86 9.60 9.60 13.80
25 -4.77 2.19 8.37 6.21 6.27 12.04
30 -4.90 2.56 8.65 4.16 5.18 10.95
</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 40
$4,167 ANNUAL PREMIUM FOR NON-SMOKER PREFERRED UNDERWRITING RISK
$250,000 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------- -------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -------- -------- -------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,376 $250,154 $250,340 $250,525 $ 812 $ 1,014 $ 1,216 $ 3,074 $ 3,276 $ 3,478
2 8,971 250,146 250,708 251,290 1,556 2,150 2,768 6,080 6,673 7,292
3 13,795 250,000 251,104 252,326 4,495 5,676 6,954 9,019 10,200 11,478
4 18,861 250,000 251,532 253,666 7,364 9,332 11,548 11,888 13,856 16,072
5 24,179 250,000 251,993 255,351 10,370 13,331 16,799 14,688 17,649 21,117
6 29,764 250,000 252,490 257,423 13,302 17,468 22,542 17,415 21,581 26,654
7 35,628 250,000 253,025 259,929 16,776 22,365 29,444 20,066 25,655 32,734
8 41,786 250,000 253,602 262,923 20,173 27,409 36,945 22,641 29,876 39,412
9 48,251 250,000 254,233 266,472 23,502 32,615 45,114 25,147 34,260 46,759
10 55,039 250,000 254,921 270,643 26,758 37,986 54,018 27,580 38,808 54,840
15 94,425 250,000 259,334 303,608 38,415 64,083 109,022 38,415 64,083 109,022
20 144,692 250,000 269,937 417,185 50,107 97,749 200,294 50,107 97,749 200,294
25 208,848 250,000 285,482 620,022 58,661 137,981 344,939 58,661 137,981 344,939
30 290,728 250,000 308,373 903,136 62,949 186,009 572,191 62,949 186,009 572,191
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY -------------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -80.51% -75.67% -70.83% 5,902.49% 5,906.95% 5,911.41%
2 -71.05 -62.49 -54.39 626.36 627.22 628.12
3 -43.05 -34.59 -26.59 253.02 253.60 254.25
4 -30.12 -21.90 -14.16 145.96 146.60 147.01
5 -22.41 -14.53 -7.10 98.42 98.80 99.43
6 -17.81 -10.17 -2.96 72.31 72.66 73.35
7 -13.88 -6.65 .23 56.07 56.40 57.16
8 -11.31 -4.37 2.28 45.10 45.43 46.28
9 -9.53 -2.81 3.67 37.25 37.58 38.52
10 -8.25 -1.69 4.67 31.39 31.73 32.78
15 -6.38 .31 6.68 16.01 16.41 18.14
20 -5.15 1.49 7.77 9.60 10.23 13.72
25 -4.77 2.10 8.30 6.21 7.08 11.98
30 -4.90 2.45 8.60 4.16 5.32 10.90
</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 40
$4,167 ANNUAL PREMIUM FOR NON-SMOKER PREFERRED UNDERWRITING RISK
$250,000 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------- -------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -------- -------- -------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,376 $250,000 $250,000 $250,000 $ 474 $ 664 $ 856 $ 2,735 $ 2,926 $ 3,118
2 8,971 250,000 250,000 250,000 865 1,415 1,990 5,389 5,939 6,514
3 13,795 250,000 250,000 250,000 3,437 4,519 5,695 7,961 9,043 10,219
4 18,861 250,000 250,000 250,000 5,925 7,713 9,735 10,448 12,237 14,259
5 24,179 250,000 250,000 250,000 8,534 11,207 14,353 12,852 15,525 18,671
6 29,764 250,000 250,000 250,000 11,053 14,793 19,373 15,166 18,905 23,486
7 35,628 250,000 250,000 250,000 14,096 19,087 25,455 17,386 22,377 28,745
8 41,786 250,000 250,000 250,000 17,045 23,476 32,025 19,512 25,944 34,492
9 48,251 250,000 250,000 250,000 19,896 27,961 39,135 21,541 29,606 40,780
10 55,039 250,000 250,000 250,000 22,644 32,540 46,837 23,466 33,362 47,659
15 94,425 250,000 250,000 250,000 31,260 53,456 93,301 31,260 53,456 93,301
20 144,692 250,000 250,000 342,319 34,825 75,189 164,309 34,825 75,189 164,309
25 208,848 250,000 250,000 484,549 31,813 97,704 269,417 31,813 97,704 269,417
30 290,728 250,000 250,000 664,639 16,974 119,207 420,984 16,974 119,207 420,984
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY -------------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -88.64% -84.06% -79.46% 5,898.79% 5,898.79% 5,898.79%
2 -82.36 -73.22 -64.70 626.13 626.13 626.13
3 -51.86 -42.86 -34.46 253.02 253.02 253.02
4 -37.29 -28.54 -20.39 145.96 145.96 145.96
5 -28.38 -20.00 -12.18 98.42 98.42 98.42
6 -22.98 -14.84 -7.;25 72.31 72.31 72.31
7 -18.28 -10.62 -3.41 56.07 56.07 56.07
8 -15.18 -7.86 -.90 45.10 45.10 45.10
9 -13.03 -5.94 .85 37.25 37.25 37.25
10 -11.48 -4.55 2.11 31.39 31.39 31.39
15 -9.29 -1.98 4.86 16.01 16.01 16.01
20 -9.32 -.99 6.09 9.60 9.60 12.14
25 -11.03 -.50 6.70 6.21 6.21 10.45
30 -19.69 -.31 7.00 4.16 4.16 9.36
</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-62
<PAGE>
MALE ISSUE AGE 40
$4,167 ANNUAL PREMIUM FOR NON-SMOKER PREFERRED UNDERWRITING RISK
$250,000 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------- ------------------------- -------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -------- -------- -------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,376 $250,000 $250,000 $250,169 $ 474 $ 664 $ 856 $ 2,735 $ 2,926 $ 3,117
2 8,971 250,000 250,000 250,520 865 1,415 1,989 5,389 5,939 6,513
3 13,795 250,000 250,000 251,076 3,437 4,519 5,692 7,961 9,043 10,215
4 18,861 250,000 250,000 251,864 5,925 7,713 9,727 10,448 12,237 14,250
5 24,179 250,000 250,000 252,913 8,534 11,207 14,336 12,852 15,525 18,654
6 29,764 250,000 250,000 254,255 11,053 14,793 19,342 15,166 18,905 23,454
7 35,628 250,000 250,000 255,926 14,096 19,087 25,400 17,386 22,377 28,690
8 41,786 250,000 250,000 257,965 17,045 23,476 31,936 19,512 25,944 34,404
9 48,251 250,000 250,000 260,415 19,896 27,961 38,996 21,541 29,606 40,641
10 55,039 250,000 250,000 263,324 22,644 32,540 46,626 23,466 33,362 47,449
15 94,425 250,000 250,000 286,792 31,260 53,456 92,043 31,260 53,456 92,043
20 144,692 250,000 250,000 335,428 34,825 75,189 161,001 34,825 75,189 161,001
25 208,848 250,000 250,000 475,578 31,813 97,704 264,429 31,813 97,704 264,429
30 290,728 250,000 250,000 652,961 16,974 119,207 413,587 16,974 119,207 413,587
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY -------------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -88.64% -84.06% -79.47% 5,898.79% 5,898.79% 5,902.85%
2 -82.36 -73.22 -64.72 626.13 626.13 626.93
3 -51.86 -42.86 -34.48 253.02 253.02 253.59
4 -37.29 -28.54 -20.42 145.96 145.96 146.49
5 -28.38 -20.00 -12.22 98.42 98.42 98.97
6 -22.98 -14.84 -7.30 72.31 72.31 72.91
7 -18.28 -10.62 -3.46 56.07 56.07 56.73
8 -15.18 -7.86 -.96 45.10 45.10 45.83
9 -13.03 -5.94 .78 37.25 37.25 38.06
10 -11.48 -4.55 2.03 31.39 31.39 32.30
15 -9.29 -1.98 4.70 16.01 16.01 17.52
20 -9.32 -.99 5.92 9.60 9.60 11.98
25 -11.03 -.50 6.58 6.21 6.21 10.33
30 -19.69 -.31 6.90 4.16 4.16 9.27
</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-63
<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 1997. 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 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.
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
</TABLE>
A-64
<PAGE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------------------------- 5/1/87-
FOR ONE YEAR ENDING 12/31/97
5/1/87- ------------------------------------------------------------------------------------------ TOTAL
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN
- ----------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index..... -12.55% 15.65% 29.37% -4.72% 29.65% 6.65% 9.07% .51% 36.10% 21.73% 31.70% 312.34%
Managed......... -1.06 8.83 18.37 2.59 19.45 6.06 9.99 -1.70 30.48 14.34 25.81 236.17
<CAPTION>
5/1/87-
12/31/97
EFFECTIVE
SUB-ACCOUNT ANNUAL
- ----------- ---------
<S> <C>
Stock Index..... 14.20%
Managed......... 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%
</TABLE>
<TABLE>
<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 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 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <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% 27.34%
<CAPTION>
10/9/86- 10/9/86-
12/31/97 12/31/97
TOTAL EFFECTIVE
SUB-ACCOUNT RETURN ANNUAL
- ----------- -------- ---------
<S> <C> <C>
Equity-Income... 334.74% 13.98%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------------------------------------- 1/28/87- 1/28/87-
FOR ONE YEAR ENDING 12/31/97 12/31/97
1/28/87- ----------------------------------------------------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <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% 10.89% 122.04% 7.58%
</TABLE>
<TABLE>
<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%
</TABLE>
SUB-ACCOUNT INVESTING IN VARIABLE INSURANCE PRODUCTS FUND II
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------------------- 9/6/89- 9/6/89-
FOR ONE YEAR ENDING 12/31/97 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-65
<PAGE>
POLICY PERFORMANCE
The material below assumes, in the first example, a Policy with an Option 1
death benefit was issued with a $100,000 face amount and annual premiums of
$1,700, 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 with an Option 1 death benefit was issued with a $250,000
face amount and annual premiums of $4,167, 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 preferred risk,
age 40. 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 VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $1,700 $100,000 $100,000 $1,468 $ 563 -- --
December 31, 1983....... 1,700 100,000 100,000 1,478 573 -95.61% --
December 31, 1984....... 3,400 100,000 100,000 2,584 774 -91.70 1,881.12%
December 31, 1985....... 5,100 100,000 100,000 5,667 3,857 -19.67 419.30
December 31, 1986....... 6,800 100,000 100,000 12,056 10,247 23.05 200.35
December 31, 1987....... 8,500 100,000 100,000 19,120 17,344 31.34 123.66
December 31, 1988....... 10,200 100,000 100,000 18,462 16,769 17.51 86.38
December 31, 1989....... 11,900 100,000 100,000 25,090 23,582 20.23 64.82
December 31, 1990....... 13,600 100,000 100,000 24,986 23,807 14.28 50.96
December 31, 1991....... 15,300 100,000 119,119 39,446 38,596 20.53 45.30
December 31, 1992....... 17,000 100,000 112,020 38,026 37,505 15.66 36.61
December 31, 1993....... 18,700 100,000 128,826 44,514 44,323 15.34 33.47
December 31, 1994....... 20,400 100,000 117,689 41,710 41,710 11.64 27.53
December 31, 1995....... 22,100 100,000 156,966 58,754 58,754 14.40 27.98
December 31, 1996....... 23,800 100,000 190,548 71,387 71,387 14.84 27.21
December 31, 1997....... 25,500 100,000 212,869 88,110 88,110 15.43 25.63
</TABLE>
A-66
<PAGE>
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1983....... 1,700 100,000 100,000 1,391 486 -97.26% --
December 31, 1984....... 3,400 100,000 100,000 2,792 982 -85.87 1,881.12%
December 31, 1985....... 5,100 100,000 100,000 4,479 2,669 -42.57 419.30
December 31, 1986....... 6,800 100,000 100,000 6,245 4,435 -22.33 200.35
December 31, 1987....... 8,500 100,000 100,000 7,460 5,685 -16.97 123.66
December 31, 1988....... 10,200 100,000 100,000 9,140 7,447 -11.08 86.38
December 31, 1989....... 11,900 100,000 100,000 11,295 9,787 -5.88 64.82
December 31, 1990....... 13,600 100,000 100,000 13,241 12,062 -3.14 50.96
December 31, 1991....... 15,300 100,000 100,000 16,644 15,795 .73 41.39
December 31, 1992....... 17,000 100,000 100,000 18,916 18,395 1.62 34.43
December 31, 1993....... 18,700 100,000 100,000 22,178 21,986 2.99 29.16
December 31, 1994....... 20,400 100,000 100,000 22,235 22,235 1.46 25.06
December 31, 1995....... 22,100 100,000 100,000 27,870 27,870 3.58 21.79
December 31, 1996....... 23,800 100,000 100,000 29,991 29,991 3.30 19.12
December 31, 1997....... 25,500 100,000 100,000 34,031 34,031 3.82 16.19
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1983....... 1,700 100,000 100,000 1,394 489 -97.21% --
December 31, 1984....... 3,400 100,000 100,000 2,705 896 -88.42 1,881.12%
December 31, 1985....... 5,100 100,000 100,000 4,060 2,250 -52.04 419.30
December 31, 1986....... 6,800 100,000 100,000 5,437 3,627 -32.34 200.35
December 31, 1987....... 8,500 100,000 100,000 6,872 5,097 -21.54 123.66
December 31, 1988....... 10,200 100,000 100,000 8,453 6,760 -14.53 86.38
December 31, 1989....... 11,900 100,000 100,000 10,262 8,754 -9.28 64.82
December 31, 1990....... 13,600 100,000 100,000 12,096 10,917 -5.78 50.96
December 31, 1991....... 15,300 100,000 100,000 13,809 12,959 -3.86 41.39
December 31, 1992....... 17,000 100,000 100,000 15,264 14,743 -2.97 34.43
December 31, 1993....... 18,700 100,000 100,000 16,620 16,428 -2.45 29.16
December 31, 1994....... 20,400 100,000 100,000 18,165 18,165 -2.01 25.06
December 31, 1995....... 22,100 100,000 100,000 20,039 20,039 -1.56 21.79
December 31, 1996....... 23,800 100,000 100,000 21,862 21,862 -1.25 19.12
December 31, 1997....... 25,500 100,000 100,000 23,782 23,782 -.96 16.91
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1987....... 1,700 100,000 100,000 1,105 201 -95.91% --
December 31, 1988....... 3,400 100,000 100,000 2,493 683 -80.43 990.78%
December 31, 1989....... 5,100 100,000 100,000 4,650 2,841 -31.55 317.67
December 31, 1990....... 6,800 100,000 100,000 5,474 3,665 -26.87 168.91
December 31, 1991....... 8,500 100,000 100,000 8,308 6,553 -9.63 109.40
December 31, 1992....... 10,200 100,000 100,000 10,018 8,345 -6.32 78.50
December 31, 1993....... 11,900 100,000 100,000 12,071 10,645 -3.04 59.92
December 31, 1994....... 13,600 100,000 100,000 13,207 12,110 -2.79 47.67
December 31, 1995....... 15,300 100,000 100,000 19,403 18,635 4.19 39.04
December 31, 1996....... 17,000 100,000 100,000 24,631 24,192 6.71 32.69
December 31, 1997....... 18,700 100,000 100,000 33,751 33,642 10.03 27.83
</TABLE>
A-67
<PAGE>
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1987....... 1,700 100,000 100,000 1,254 349 -90.62% --
December 31, 1988....... 3,400 100,000 100,000 2,565 756 -77.94 990.78%
December 31, 1989....... 5,100 100,000 100,000 4,354 2,545 -36.74 317.67
December 31, 1990....... 6,800 100,000 100,000 5,623 3,814 -25.23 168.91
December 31, 1991....... 8,500 100,000 100,000 7,930 6,175 -11.81 109.40
December 31, 1992....... 10,200 100,000 100,000 9,586 7,914 -7.99 78.50
December 31, 1993....... 11,900 100,000 100,000 11,666 10,241 -4.10 59.92
December 31, 1994....... 13,600 100,000 100,000 12,531 11,435 -4.19 47.67
December 31, 1995....... 15,300 100,000 100,000 17,690 16,922 2.15 39.04
December 31, 1996....... 17,000 100,000 100,000 21,272 20,833 3.89 32.69
December 31, 1997....... 18,700 100,000 100,000 28,010 27,900 6.90 27.83
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.......... $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1993....... 1,700 100,000 100,000 1,431 526 -82.57% --
December 31, 1994....... 3,400 100,000 100,000 2,569 759 -77.71 986.29%
December 31, 1995....... 5,100 100,000 100,000 4,741 2,931 -29.88 316.99
December 31, 1996....... 6,800 100,000 100,000 6,721 4,912 -14.52 168.67
December 31, 1997....... 8,500 100,000 100,000 9,169 7,421 -5.05 109.30
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.......... $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1993....... 1,700 100,000 100,000 1,424 519 -82.93% --
December 31, 1994....... 3,400 100,000 100,000 2,541 732 -78.64 986.29%
December 31, 1995....... 5,100 100,000 100,000 4,861 3,052 -28.01 316.99
December 31, 1996....... 6,800 100,000 100,000 6,940 5,130 -12.63 168.67
December 31, 1997....... 8,500 100,000 100,000 10,616 8,868 1.59 109.30
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............. $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1994....... 1,700 100,000 100,000 1,203 298 -92.69% --
December 31, 1995....... 3,400 100,000 100,000 2,935 1,126 -65.50 995.30%
December 31, 1996....... 5,100 100,000 100,000 5,095 3,286 -24.38 318.36
December 31, 1997....... 6,800 100,000 100,000 7,752 5,943 -6.14 169.14
</TABLE>
A-68
<PAGE>
ZENITH EQUITY GROWTH SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1994....... 1,700 100,000 100,000 1,327 422 -- --
December 31, 1995....... 3,400 100,000 100,000 3,056 1,247 -90.77% 3,096.71%
December 31, 1996....... 5,100 100,000 100,000 4,586 2,776 -46.81 504.22
December 31, 1997....... 6,800 100,000 100,000 6,835 5,026 -17.77 222.99
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........ $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1994....... 1,700 100,000 100,000 1,404 499 -- --
December 31, 1995....... 3,400 100,000 100,000 2,927 1,118 -94.19% 3,096.71%
December 31, 1996....... 5,100 100,000 100,000 4,549 2,740 -47.72 504.22
December 31, 1997....... 6,800 100,000 100,000 6,832 4,573 -23.20 222.99
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........ $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1994....... 1,700 100,000 100,000 1,360 455 -- --
December 31, 1995....... 3,400 100,000 100,000 3,056 1,246 -90.79% 3,096.71%
December 31, 1996....... 5,100 100,000 100,000 4,981 3,171 -37.42 504.22
December 31, 1997....... 6,800 100,000 100,000 7,732 5,922 -8.21 222.99
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........ $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1994....... 1,700 100,000 100,000 1,439 534 -- --
December 31, 1995....... 3,400 100,000 100,000 2,745 936 -97.57% 3,096.71%
December 31, 1996....... 5,100 100,000 100,000 4,051 2,242 -60.95 504.22
December 31, 1997....... 6,800 100,000 100,000 5,067 3,258 -42.33 222.99
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1986....... 1,700 100,000 100,000 1,411 506 -- --
December 31, 1987....... 3,400 100,000 100,000 2,309 500 -- 2,583.90%
December 31, 1988....... 5,100 100,000 100,000 3,893 2,084 -61.88% 472.91
December 31, 1989....... 6,800 100,000 100,000 5,654 3,845 -31.74 214.97
December 31, 1990....... 8,500 100,000 100,000 5,930 4,141 -32.19 129.91
December 31, 1991....... 10,200 100,000 100,000 8,890 7,184 -12.96 89.71
December 31, 1992....... 11,900 100,000 100,000 11,512 9,949 -5.59 66.85
December 31, 1993....... 13,600 100,000 100,000 14,569 13,336 -.53 52.31
December 31, 1994....... 15,300 100,000 100,000 16,501 15,596 .45 42.34
December 31, 1995....... 17,000 100,000 100,000 23,364 22,788 6.07 35.13
December 31, 1996....... 18,700 100,000 100,000 27,496 27,250 7.00 29.70
December 31, 1997....... 20,400 100,000 101,112 36,010 36,010 9.50 25.65
</TABLE>
A-69
<PAGE>
OVERSEAS 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>
January 28, 1987........ $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1987....... 1,700 100,000 100,000 1,082 177 -91.37% --
December 31, 1988....... 3,400 100,000 100,000 2,469 660 -72.43 681.40%
December 31, 1989....... 5,100 100,000 100,000 4,404 2,594 -31.31 263.64
December 31, 1990....... 6,800 100,000 100,000 5,426 3,617 -24.47 149.61
December 31, 1991....... 8,500 100,000 100,000 7,013 5,286 -15.86 100.03
December 31, 1992....... 10,200 100,000 100,000 7,140 5,495 -17.89 73.11
December 31, 1993....... 11,900 100,000 100,000 11,214 9,898 -4.70 56.48
December 31, 1994....... 13,600 100,000 100,000 12,288 11,301 -4.20 45.31
December 31, 1995....... 15,300 100,000 100,000 14,754 14,096 -1.67 37.34
December 31, 1996....... 17,000 100,000 100,000 17,640 17,311 .33 31.41
December 31, 1997....... 18,700 100,000 100,000 20,729 20,729 1.73 26.85
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...... $ 1,700 $100,000 $100,000 $1,468 $ 563 -- --
December 31, 1985....... 1,700 100,000 100,000 1,467 562 -98.02% --
December 31, 1986....... 3,400 100,000 100,000 2,905 1,095 -86.54 2,221.74%
December 31, 1987....... 5,100 100,000 100,000 4,031 2,221 -55.54 447.18
December 31, 1988....... 6,800 100,000 100,000 5,592 3,782 -31.50 208.10
December 31, 1989....... 8,500 100,000 100,000 6,370 4,588 -26.80 127.00
December 31, 1990....... 10,200 100,000 100,000 7,252 5,552 -22.20 88.17
December 31, 1991....... 11,900 100,000 100,000 10,819 9,284 -7.64 65.92
December 31, 1992....... 13,600 100,000 100,000 14,282 13,076 -1.04 51.69
December 31, 1993....... 15,300 100,000 100,000 18,173 17,295 2.84 41.90
December 31, 1994....... 17,000 100,000 100,000 18,814 18,265 1.49 34.81
December 31, 1995....... 18,700 100,000 100,000 23,616 23,397 4.17 29.45
December 31, 1996....... 20,400 100,000 100,000 27,729 27,729 5.18 25.29
December 31, 1997....... 22,100 100,000 100,000 33,431 33,431 6.36 21.97
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....... $ 1,700 $100,000 $100,000 $ 1,468 $ 563 -- --
December 31, 1989....... 1,700 100,000 100,000 1,395 490 -98.00% --
December 31, 1990....... 3,400 100,000 100,000 2,684 875 -90.67 2,026.44%
December 31, 1991....... 5,100 100,000 100,000 4,426 2,617 -44.72 431.70
December 31, 1992....... 6,800 100,000 100,000 6,061 4,251 -24.89 203.84
December 31, 1993....... 8,500 100,000 100,000 8,463 6,681 -10.32 125.18
December 31, 1994....... 10,200 100,000 100,000 8,904 7,204 -12.40 87.19
December 31, 1995....... 11,900 100,000 100,000 11,503 9,968 -5.37 65.32
December 31, 1996....... 13,600 100,000 100,000 14,222 13,016 -1.15 51.29
December 31, 1997....... 15,300 100,000 100,000 18,098 17,221 2.72 41.62
</TABLE>
A-70
<PAGE>
MALE NONSMOKER PREFERRED RISK, AGE 40
OPTION 1--FIXED DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,167 $250,000 $250,000 $ 3,691 $ 1,469 -- --
December 31, 1983....... 4,167 250,000 250,000 3,804 1,542 -94.26% --
December 31, 1984....... 8,335 250,000 250,000 6,853 2,329 -86.84 1,911.21%
December 31, 1985....... 12,502 250,000 250,000 15,173 10,649 -11.55 424.10
December 31, 1986....... 16,670 250,000 250,000 32,434 27,910 29.28 202.39
December 31, 1987....... 20,837 250,000 250,000 51,557 47,119 36.06 124.87
December 31, 1988....... 25,005 250,000 250,000 49,852 45,619 21.21 87.22
December 31, 1989....... 29,172 250,000 250,000 67,880 64,110 23.30 65.47
December 31, 1990....... 33,340 250,000 250,000 67,677 64,730 16.89 51.48
December 31, 1991....... 37,507 250,000 322,884 106,924 104,799 22.75 47.57
December 31, 1992....... 41,675 250,000 303,714 103,097 101,794 17.62 38.56
December 31, 1993....... 45,842 250,000 349,520 120,772 120,293 17.08 35.19
December 31, 1994....... 50,010 250,000 319,570 113,258 113,258 13.24 29.09
December 31, 1995....... 54,177 250,000 426,741 159,734 159,734 15.85 29.40
December 31, 1996....... 58,345 250,000 518,665 194,314 194,314 16.18 28.51
December 31, 1997....... 62,512 250,000 580,428 240,248 240,248 16.68 26.85
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1983....... 4,167 250,000 250,000 3,587 1,325 -96.29% --
December 31, 1984....... 8,335 250,000 250,000 7,387 2,863 -79.92 1,911.21%
December 31, 1985....... 12,502 250,000 250,000 11,976 7,452 -34.86 424.10
December 31, 1986....... 16,670 250,000 250,000 16,799 12,276 -16.14 202.39
December 31, 1987....... 20,837 250,000 250,000 20,153 15,715 -11.93 124.87
December 31, 1988....... 25,005 250,000 250,000 24,781 20,549 -6.90 87.22
December 31, 1989....... 29,172 250,000 250,000 30,727 26,957 -2.36 65.47
December 31, 1990....... 33,340 250,000 250,000 36,126 33,179 -.13 51.48
December 31, 1991....... 37,507 250,000 250,000 45,532 43,407 3.33 41.83
December 31, 1992....... 41,675 250,000 250,000 51,874 50,571 3.94 34.81
December 31, 1993....... 45,842 250,000 250,000 60,947 60,467 5.07 29.50
December 31, 1994....... 50,010 250,000 250,000 61,235 61,235 3.41 25.36
December 31, 1995....... 54,177 250,000 250,000 76,916 76,916 5.36 22.06
December 31, 1996....... 58,345 250,000 250,000 82,936 82,936 4.98 19.37
December 31, 1997....... 62,512 250,000 250,000 94,307 94,307 5.39 17.14
</TABLE>
A-71
<PAGE>
ZENITH MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1983....... 4,167 250,000 250,000 3,594 1,333 -96.23% --
December 31, 1984....... 8,335 250,000 250,000 7,161 2,637 -82.93 1,911.21%
December 31, 1985....... 12,502 250,000 250,000 10,861 6,337 -44.40 424.10
December 31, 1986....... 16,670 250,000 250,000 14,637 10,113 -25.96 202.39
December 31, 1987....... 20,837 250,000 250,000 18,590 14,152 -16.32 124.87
December 31, 1988....... 25,005 250,000 250,000 22,955 18,723 -10.19 87.22
December 31, 1989....... 29,172 250,000 250,000 27,966 24,196 -5.62 65.47
December 31, 1990....... 33,340 250,000 250,000 33,066 30,119 -2.65 51.48
December 31, 1991....... 37,507 250,000 250,000 37,861 35,736 -1.12 41.83
December 31, 1992....... 41,675 250,000 250,000 41,965 40,663 -.51 34.81
December 31, 1993....... 45,842 250,000 250,000 45,821 45,341 -.21 29.50
December 31, 1994....... 50,010 250,000 250,000 50,221 50,221 .07 25.36
December 31, 1995....... 54,177 250,000 250,000 55,567 55,567 .40 22.06
December 31, 1996....... 58,345 250,000 250,000 60,807 60,807 .60 19.37
December 31, 1997....... 62,512 250,000 250,000 66,366 66,366 .81 17.14
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1987....... 4,167 250,000 250,000 2,913 652 -93.77% --
December 31, 1988....... 8,335 250,000 250,000 6,684 2,161 -73.63 1,004.35%
December 31, 1989....... 12,502 250,000 250,000 12,542 8,018 -24.58 321.10
December 31, 1990....... 16,670 250,000 250,000 14,828 10,304 -21.18 170.58
December 31, 1991....... 20,837 250,000 250,000 22,585 18,198 -5.04 110.46
December 31, 1992....... 25,005 250,000 250,000 27,304 23,123 -2.47 79.27
December 31, 1993....... 29,172 250,000 250,000 32,974 29,410 .22 60.52
December 31, 1994....... 33,340 250,000 250,000 36,164 33,422 .06 48.15
December 31, 1995....... 37,507 250,000 250,000 53,226 51,307 6.63 39.46
December 31, 1996....... 41,675 250,000 250,000 67,666 66,570 8.86 33.05
December 31, 1997....... 45,842 250,000 226,094 92,778 92,504 11.94 29.16
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1987....... 4,167 250,000 250,000 3,303 1,041 -87.45% --
December 31, 1988....... 8,335 250,000 250,000 6,870 2,346 -71.05 1,004.35%
December 31, 1989....... 12,502 250,000 250,000 11,736 7,212 -29.85 321.10
December 31, 1990....... 16,670 250,000 250,000 15,220 10,696 -19.61 170.58
December 31, 1991....... 20,837 250,000 250,000 21,541 17,154 -7.22 110.46
December 31, 1992....... 25,005 250,000 250,000 26,109 21,928 -4.14 79.27
December 31, 1993....... 29,172 250,000 250,000 31,855 28,291 -.84 60.52
December 31, 1994....... 33,340 250,000 250,000 34,306 31,564 -1.32 48.15
December 31, 1995....... 37,507 250,000 250,000 48,530 46,611 4.61 39.46
December 31, 1996....... 41,675 250,000 250,000 58,458 57,361 6.08 33.05
December 31, 1997....... 45,842 250,000 250,000 77,064 76,789 8.84 28.15
</TABLE>
A-72
<PAGE>
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1993....... 4,167 250,000 250,000 3,783 1,522 -77.71% --
December 31, 1994....... 8,335 250,000 250,000 6,893 2,369 -70.63 999.79%
December 31, 1995....... 12,502 250,000 250,000 12,776 8,252 -23.07 320.41
December 31, 1996....... 16,670 250,000 250,000 18,184 13,660 -9.00 170.35
December 31, 1997....... 20,837 250,000 250,000 24,847 20,477 -.65 110.35
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.......... $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1993....... 4,167 250,000 250,000 3,765 1,503 -78.11% --
December 31, 1994....... 8,335 250,000 250,000 6,824 2,300 -71.58 999.79%
December 31, 1995....... 12,502 250,000 250,000 13,111 8,587 -21.01 320.41
December 31, 1996....... 16,670 250,000 250,000 18,786 14,263 -7.08 170.35
December 31, 1997....... 20,837 250,000 250,000 28,778 24,408 5.97 110.35
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............. $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1994....... 4,167 250,000 250,000 3,175 913 -89.78% --
December 31, 1995....... 8,335 250,000 250,000 7,863 3,339 -57.77 1,008.95%
December 31, 1996....... 12,502 250,000 250,000 13,738 9,214 -17.34 321.80
December 31, 1997....... 16,670 250,000 250,000 20,940 16,416 -.71 170.81
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........ $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1994....... 4,167 250,000 250,000 3,381 1,119 -- --
December 31, 1995....... 8,335 250,000 250,000 8,036 3,512 -84.69% 3,152.30%
December 31, 1996....... 12,502 250,000 250,000 12,195 7,671 -38.38 510.22
December 31, 1997....... 16,670 250,000 250,000 18,301 13,778 -11.28 225.29
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........ $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1994....... 4,167 250,000 250,000 3,575 1,313 -- --
December 31, 1995....... 8,335 250,000 250,000 7,687 3,163 -89.46% 3,152.30%
December 31, 1996....... 12,502 250,000 250,000 12,097 7,574 -39.30 510.22
December 31, 1997....... 16,670 250,000 250,000 17,091 12,567 -16.62 225.29
</TABLE>
A-73
<PAGE>
ZENITH VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1994....... 4,167 250,000 250,000 3,465 1,203 -- --
December 31, 1995....... 8,335 250,000 250,000 8,027 3,504 -84.81% 3,152.30%
December 31, 1996....... 12,502 250,000 250,000 13,243 8,719 -28.96 510.22
December 31, 1997....... 16,670 250,000 250,000 20,692 16,168 -1.83 225.29
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........ $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1994....... 4,167 250,000 250,000 3,663 1,401 -- --
December 31, 1995....... 8,335 250,000 250,000 7,208 2,685 -94.71% 3,152.30%
December 31, 1996....... 12,502 250,000 250,000 10,771 6,247 -52.62 510.22
December 31, 1997....... 16,670 250,000 250,000 13,573 9,049 -35.33 225.29
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1986....... 4,167 250,000 250,000 3,592 1,330 -- --
December 31, 1987....... 8,335 250,000 250,000 6,066 1,543 -98.80% 2,628.41%
December 31, 1988....... 12,502 250,000 250,000 10,375 5,851 -53.87 478.46
December 31, 1989....... 16,670 250,000 250,000 15,189 10,665 -25.04 217.17
December 31, 1990....... 20,837 250,000 250,000 15,977 11,504 -26.55 131.19
December 31, 1991....... 25,005 250,000 250,000 24,069 19,802 -8.59 90.59
December 31, 1992....... 29,172 250,000 250,000 31,267 27,360 -1.99 67.52
December 31, 1993....... 33,340 250,000 250,000 39,695 36,610 2.50 52.84
December 31, 1994....... 37,507 250,000 250,000 45,075 42,813 3.10 42.79
December 31, 1995....... 41,675 250,000 250,000 63,974 62,534 8.36 35.51
December 31, 1996....... 45,842 250,000 250,000 75,410 74,793 9.04 30.03
December 31, 1997....... 50,010 250,000 277,657 98,884 98,884 11.32 27.40
OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1987....... 4,167 250,000 250,000 2,945 684 -85.89% --
December 31, 1988....... 8,335 250,000 250,000 6,725 2,201 -64.07 689.91%
December 31, 1989....... 12,502 250,000 250,000 12,007 7,483 -24.45 266.39
December 31, 1990....... 16,670 250,000 250,000 14,825 10,301 -18.94 151.07
December 31, 1991....... 20,837 250,000 250,000 19,197 14,879 -11.32 100.99
December 31, 1992....... 25,005 250,000 250,000 19,616 15,503 -13.85 73.82
December 31, 1993....... 29,172 250,000 250,000 30,816 27,526 -1.48 57.04
December 31, 1994....... 33,340 250,000 250,000 33,846 31,379 -1.37 45.77
December 31, 1995....... 37,507 250,000 250,000 40,706 39,061 .82 37.74
December 31, 1996....... 41,675 250,000 250,000 48,755 47,933 2.56 31.76
December 31, 1997....... 45,842 250,000 250,000 57,361 57,361 3.74 27.15
</TABLE>
A-74
<PAGE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1985....... 4,167 250,000 250,000 3,757 1,496 -97.35% --
December 31, 1986....... 8,335 250,000 250,000 7,650 3,126 -80.69 2,258.71%
December 31, 1987....... 12,502 250,000 250,000 10,735 6,212 -47.93 452.37
December 31, 1988....... 16,670 250,000 250,000 15,003 10,479 -25.14 210.23
December 31, 1989....... 20,837 250,000 250,000 17,180 12,725 -21.44 128.25
December 31, 1990....... 25,005 250,000 250,000 19,659 15,409 -17.58 89.03
December 31, 1991....... 29,172 250,000 250,000 29,460 25,621 -3.97 66.57
December 31, 1992....... 33,340 250,000 250,000 39,004 35,988 2.01 52.22
December 31, 1993....... 37,507 250,000 250,000 49,745 47,552 5.47 42.35
December 31, 1994....... 41,675 250,000 250,000 51,602 50,231 3.85 35.19
December 31, 1995....... 45,842 250,000 250,000 64,912 64,363 6.26 29.79
December 31, 1996....... 50,010 250,000 250,000 76,353 76,353 7.08 25.29
December 31, 1997....... 54,177 250,000 250,000 92,205 92,205 8.11 22.24
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....... $ 4,167 $250,000 $250,000 $ 3,691 $ 1,429 -- --
December 31, 1989....... 4,167 250,000 250,000 3,575 1,313 -97.36% --
December 31, 1990....... 8,335 250,000 250,000 7,080 2,556 -85.84 2,059.44%
December 31, 1991....... 12,502 250,000 250,000 11,810 7,287 -37.06 436.67
December 31, 1992....... 16,670 250,000 250,000 16,277 11,753 -18.69 205.92
December 31, 1993....... 20,837 250,000 250,000 22,839 18,383 -5.39 126.40
December 31, 1994....... 25,005 250,000 250,000 24,114 19,864 -8.19 88.04
December 31, 1995....... 29,172 250,000 250,000 31,271 27,433 -1.86 65.97
December 31, 1996....... 33,340 250,000 250,000 38,766 35,750 1.82 51.82
December 31, 1997....... 37,507 250,000 250,000 49,464 47,270 5.29 42.06
</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%.
The material below assumes, in the first example, a Policy with an Option 2
death benefit was issued with a $100,000 face amount and annual premiums of
$1,700, 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 with an Option 2 death benefit was issued with a $250,000
face amount and annual premiums of $4,167, 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-
A-75
<PAGE>
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 preferred risk,
age 40. 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 VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 1,700 $100,000 $100,002 $ 1,468 $ 563 -- --
December 31, 1983....... 1,700 100,000 100,126 1,478 573 -95.61% --
December 31, 1984....... 3,400 100,000 100,061 2,584 774 -91.70 1,882.05%
December 31, 1985....... 5,100 100,000 101,737 5,664 3,855 -19.71 423.52
December 31, 1986....... 6,800 100,000 107,187 12,034 10,225 22.92 207.62
December 31, 1987....... 8,500 100,000 112,448 19,049 17,273 31.15 130.98
December 31, 1988....... 10,200 100,000 110,601 18,364 16,671 17.30 90.74
December 31, 1989....... 11,900 100,000 115,146 24,909 23,401 20.01 69.48
December 31, 1990....... 13,600 100,000 114,206 24,759 23,580 14.04 54.50
December 31, 1991....... 15,300 100,000 126,147 39,020 38,170 20.28 46.60
December 31, 1992....... 17,000 100,000 123,601 37,565 37,044 15.42 38.52
December 31, 1993....... 18,700 100,000 129,108 43,958 43,766 15.12 33.50
December 31, 1994....... 20,400 100,000 125,108 41,177 41,177 11.44 28.46
December 31, 1995....... 22,100 100,000 154,966 58,006 58,006 14.22 27.80
December 31, 1996....... 23,800 100,000 188,175 70,498 70,498 14.68 27.05
December 31, 1997....... 25,500 100,000 210,258 87,029 87,029 15.29 25.49
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 1,700 $100,000 $100,002 $ 1,468 $ 563 -- --
December 31, 1983....... 1,700 100,000 100,039 1,391 486 -97.26% --
December 31, 1984....... 3,400 100,000 100,249 2,791 982 -85.88 1,884.92%
December 31, 1985....... 5,100 100,000 100,700 4,477 2,668 -42.60 421.01
December 31, 1986....... 6,800 100,000 101,237 6,240 4,431 -22.38 201.63
December 31, 1987....... 8,500 100,000 101,086 7,452 5,677 -17.03 124.33
December 31, 1988....... 10,200 100,000 101,466 9,127 7,434 -11.15 87.00
December 31, 1989....... 11,900 100,000 102,180 11,274 9,766 -5.94 65.53
December 31, 1990....... 13,600 100,000 102,683 13,210 12,031 -3.21 51.67
December 31, 1991....... 15,300 100,000 104,493 16,593 15,743 .66 42.37
December 31, 1992....... 17,000 100,000 105,369 18,840 18,319 1.53 35.43
December 31, 1993....... 18,700 100,000 107,109 22,061 21,869 2.89 30.33
December 31, 1994....... 20,400 100,000 105,596 22,095 22,095 1.36 25.89
December 31, 1995....... 22,100 100,000 109,210 27,656 27,656 3.46 23.00
December 31, 1996....... 23,800 100,000 109,795 29,714 29,714 3.17 20.30
December 31, 1997....... 25,500 100,000 111,937 33,653 33,653 3.68 18.23
</TABLE>
A-76
<PAGE>
ZENITH MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 1,700 $100,000 $100,002 $ 1,468 $ 563 -- --
December 31, 1983....... 1,700 100,000 100,032 1,394 489 -97.22% --
December 31, 1984....... 3,400 100,000 100,158 2,705 896 -88.43 1,883.53%
December 31, 1985....... 5,100 100,000 100,288 4,059 2,250 -52.06 420.00
December 31, 1986....... 6,800 100,000 100,401 5,435 3,625 -32.36 200.77
December 31, 1987....... 8,500 100,000 100,532 6,869 5,094 -21.57 123.99
December 31, 1988....... 10,200 100,000 100,757 8,447 6,754 -14.56 86.70
December 31, 1989....... 11,900 100,000 101,175 10,252 8,744 -9.31 65.21
December 31, 1990....... 13,600 100,000 101,579 12,080 10,901 -5.82 51.38
December 31, 1991....... 15,300 100,000 101,820 13,786 12,936 -3.90 41.79
December 31, 1992....... 17,000 100,000 101,759 15,232 14,711 -3.02 34.76
December 31, 1993....... 18,700 100,000 101,549 16,580 16,388 -2.50 29.42
December 31, 1994....... 20,400 100,000 101,474 18,116 18,116 -2.05 25.28
December 31, 1995....... 22,100 100,000 101,695 19,979 19,979 -1.61 22.02
December 31, 1996....... 23,800 100,000 101,830 21,788 21,788 -1.30 19.35
December 31, 1997....... 25,500 100,000 102,016 23,692 23,692 -1.01 17.15
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 1,700 $100,000 $100,002 $ 1,468 $ 563 -- --
December 31, 1987....... 1,700 100,000 100,000 1,105 200 -95.91% --
December 31, 1988....... 3,400 100,000 100,000 2,492 683 -80.44 990.78%
December 31, 1989....... 5,100 100,000 100,820 4,649 2,839 -31.58 319.10
December 31, 1990....... 6,800 100,000 100,393 5,471 3,662 -26.90 169.24
December 31, 1991....... 8,500 100,000 101,299 8,300 6,546 -9.68 110.10
December 31, 1992....... 10,200 100,000 102,230 10,003 8,330 -6.38 79.36
December 31, 1993....... 11,900 100,000 102,873 12,045 10,619 -3.11 60.78
December 31, 1994....... 13,600 100,000 102,392 13,170 12,074 -2.87 48.25
December 31, 1995....... 15,300 100,000 107,340 19,330 18,563 4.11 40.54
December 31, 1996....... 17,000 100,000 111,503 24,502 24,063 6.61 34.69
December 31, 1997....... 18,700 100,000 118,581 33,505 33,395 9.91 30.60
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 1,700 $100,000 $100,002 $ 1,468 $ 563 -- --
December 31, 1987....... 1,700 100,000 100,000 1,254 349 -90.62% --
December 31, 1988....... 3,400 100,000 100,082 2,565 755 -77.94 991.34%
December 31, 1989....... 5,100 100,000 100,599 4,353 2,544 -36.76 318.71
December 31, 1990....... 6,800 100,000 100,553 5,621 3,811 -25.26 169.38
December 31, 1991....... 8,500 100,000 101,152 7,924 6,169 -11.84 110.02
December 31, 1992....... 10,200 100,000 101,759 9,574 7,902 -8.04 79.18
December 31, 1993....... 11,900 100,000 102,561 11,645 10,219 -4.16 60.69
December 31, 1994....... 13,600 100,000 101,806 12,502 11,405 -4.25 48.11
December 31, 1995....... 15,300 100,000 105,635 17,635 16,867 2.08 40.20
December 31, 1996....... 17,000 100,000 108,071 21,180 20,742 3.81 34.11
December 31, 1997....... 18,700 100,000 112,899 27,843 27,733 6.79 29.80
</TABLE>
A-77
<PAGE>
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $1,700 $100,000 $100,002 $1,468 $ 563 -- --
December 31, 1993....... 1,700 100,000 100,180 1,431 526 -82.58% --
December 31, 1994....... 3,400 100,000 100,148 2,568 759 -77.72 987.30%
December 31, 1995....... 5,100 100,000 101,053 4,738 2,929 -30.02 318.82
December 31, 1996....... 6,800 100,000 101,805 6,714 4,905 -14.58 170.20
December 31, 1997....... 8,500 100,000 102,849 9,153 7,405 -5.13 110.81
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.......... $1,700 $100,000 $100,002 $1,468 $ 563 -- --
December 31, 1993....... 1,700 100,000 100,176 1,424 519 -82.94% --
December 31, 1994....... 3,400 100,000 100,100 2,541 731 -78.66 986.98%
December 31, 1995....... 5,100 100,000 101,174 4,859 3,049 -28.05 319.02
December 31, 1996....... 6,800 100,000 102,065 6,933 5,123 -12.69 170.42
December 31, 1997....... 8,500 100,000 104,277 10,596 8,848 1.51 111.56
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............. $1,700 $100,000 $100,002 $1,468 $ 563 -- --
December 31, 1994....... 1,700 100,000 100,000 1,203 298 -92.69% --
December 31, 1995....... 3,400 100,000 100,374 2,935 1,125 -65.52 997.89%
December 31, 1996....... 5,100 100,000 101,244 5,093 3,283 -24.42 320.52
December 31, 1997....... 6,800 100,000 102,748 7,742 5,933 -6.22 171.46
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........ $1,700 $100,000 $100,002 $1,468 $ 563 -- --
December 31, 1994....... 1,700 100,000 100,000 1,327 422 -- --
December 31, 1995....... 3,400 100,000 100,465 3,056 1,246 -90.79% 3,109.77%
December 31, 1996....... 5,100 100,000 100,776 4,583 2,774 -46.87 506.58
December 31, 1997....... 6,800 100,000 101,764 6,828 5,018 -17.85 225.04
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........ $1,700 $100,000 $100,002 $1,468 $ 563 -- --
December 31, 1994....... 1,700 100,000 100,000 1,404 499 -- --
December 31, 1995....... 3,400 100,000 100,336 2,927 1,117 -94.20% 3,106.16%
December 31, 1996....... 5,100 100,000 100,740 4,548 2,738 -47.46 506.47
December 31, 1997....... 6,800 100,000 101,313 6,377 4,568 -23.26 224.52
</TABLE>
A-78
<PAGE>
ZENITH VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $1,700 $100,000 $100,002 $1,468 $ 563 -- --
December 31, 1994....... 1,700 100,000 100,000 1,360 455 -- --
December 31, 1995....... 3,400 100,000 100,464 3,055 1,246 -90.81% 3,109.77%
December 31, 1996....... 5,100 100,000 101,170 4,978 3,169 -37.48 507.78
December 31, 1997....... 6,800 100,000 102,658 7,722 5,913 -8.30 226.07
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........ $ 1,700 $100,000 $100,002 $ 1,468 $ 563 -- --
December 31, 1994....... 1,700 100,000 100,027 1,439 534 -- --
December 31, 1995....... 3,400 100,000 100,154 2,745 936 -97.57% 3,101.04%
December 31, 1996....... 5,100 100,000 100,243 4,051 2,241 -60.97 504.96
December 31, 1997....... 6,800 100,000 100,002 5,066 3,257 -42.35 222.99
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 1,700 $100,000 $100,002 $ 1,468 $ 563 -- --
December 31, 1986....... 1,700 100,000 100,046 1,411 506 -- --
December 31, 1987....... 3,400 100,000 100,000 2,309 500 -- 2,583.90%
December 31, 1988....... 5,100 100,000 100,115 3,893 2,083 -61.90% 473.23
December 31, 1989....... 6,800 100,000 100,494 5,652 3,843 -31.77 215.52
December 31, 1990....... 8,500 100,000 100,000 5,928 4,139 -32.22 129.91
December 31, 1991....... 10,200 100,000 100,525 8,886 7,179 -12.98 89.95
December 31, 1992....... 11,900 100,000 102,190 11,501 9,938 -5.62 67.59
December 31, 1993....... 13,600 100,000 103,856 14,544 13,310 -.58 53.34
December 31, 1994....... 15,300 100,000 104,153 16,456 15,551 .38 43.27
December 31, 1995....... 17,000 100,000 109,987 23,270 22,694 5.99 36.99
December 31, 1996....... 18,700 100,000 112,611 27,339 27,092 6.90 31.74
December 31, 1997....... 20,400 100,000 119,223 35,725 35,725 9.37 28.19
OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 1,700 $100,000 $100,002 $ 1,468 $ 563 -- --
December 31, 1987....... 1,700 100,000 100,000 1,082 177 -91.38% 8,152.29%
December 31, 1988....... 3,400 100,000 100,038 2,469 660 -72.44 681.56
December 31, 1989....... 5,100 100,000 100,794 4,403 2,593 -31.33 264.75
December 31, 1990....... 6,800 100,000 100,514 5,423 3,613 -24.50 149.99
December 31, 1991....... 8,500 100,000 100,728 7,008 5,280 -15.89 100.38
December 31, 1992....... 10,200 100,000 100,000 7,134 5,489 -17.92 73.11
December 31, 1993....... 11,900 100,000 102,196 11,202 9,886 -4.73 57.10
December 31, 1994....... 13,600 100,000 101,882 12,267 11,280 -4.25 45.75
December 31, 1995....... 15,300 100,000 102,642 14,721 14,063 -1.72 37.87
December 31, 1996....... 17,000 100,000 103,988 17,588 17,259 .28 32.10
December 31, 1997....... 18,700 100,000 105,480 20,645 20,645 1.66 27.69
</TABLE>
A-79
<PAGE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 1,700 $100,000 $100,002 $ 1,468 $ 563 -- --
December 31, 1985....... 1,700 100,000 100,059 1,467 562 -98.02% --
December 31, 1986....... 3,400 100,000 100,306 2,904 1,095 -86.55 2,227.47%
December 31, 1987....... 5,100 100,000 100,166 4,029 2,220 -55.57 447.62
December 31, 1988....... 6,800 100,000 100,505 5,589 3,779 -31.54 208.65
December 31, 1989....... 8,500 100,000 100,000 6,366 4,584 -26.84 127.00
December 31, 1990....... 10,200 100,000 100,000 7,248 5,548 -22.22 88.17
December 31, 1991....... 11,900 100,000 101,643 10,811 9,276 -7.67 66.46
December 31, 1992....... 13,600 100,000 103,678 14,260 13,054 -1.09 52.66
December 31, 1993....... 15,300 100,000 106,080 18,125 17,247 2.78 43.24
December 31, 1994....... 17,000 100,000 105,124 18,743 18,195 1.41 35.78
December 31, 1995....... 18,700 100,000 108,856 23,497 23,277 4.08 30.90
December 31, 1996....... 20,400 100,000 110,738 27,545 27,545 5.07 26.85
December 31, 1997....... 22,100 100,000 114,824 33,142 33,142 6.23 23.88
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....... $ 1,700 $100,000 $100,002 $ 1,468 $ 563 -- --
December 31, 1989....... 1,700 100,000 100,003 1,395 490 -98.00% --
December 31, 1990....... 3,400 100,000 100,087 2,684 875 -90.67 2,027.90%
December 31, 1991....... 5,100 100,000 100,466 4,425 2,616 -44.75 432.88
December 31, 1992....... 6,800 100,000 100,967 6,057 4,248 -24.93 204.86
December 31, 1993....... 8,500 100,000 101,920 8,455 6,673 -10.38 126.36
December 31, 1994....... 10,200 100,000 101,434 8,891 7,191 -12.47 87.81
December 31, 1995....... 11,900 100,000 102,474 11,482 9,946 -5.44 66.13
December 31, 1996....... 13,600 100,000 103,818 14,187 12,980 -1.22 52.30
December 31, 1997....... 15,300 100,000 106,154 18,035 17,158 2.64 42.96
MALE NONSMOKER PREFERRED RISK, AGE 40
OPTION 2--VARIABLE DEATH BENEFIT
ZENITH CAPITAL 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>
August 26, 1983......... $ 4,167 $250,000 $250,028 $ 3,691 $ 1,429 -- --
December 31, 1983....... 4,167 250,000 250,426 3,804 1,542 -94.26% --
December 31, 1984....... 8,335 250,000 250,547 6,852 2,328 -86.84 1,914.60%
December 31, 1985....... 12,502 250,000 255,319 15,166 10,642 -11.60 429.30
December 31, 1986....... 16,670 250,000 270,303 32,384 27,860 29.17 210.61
December 31, 1987....... 20,837 250,000 284,848 51,404 46,966 35.91 133.05
December 31, 1988....... 25,005 250,000 280,218 49,641 45,409 21.05 92.18
December 31, 1989....... 29,172 250,000 292,941 67,495 63,725 23.12 70.72
December 31, 1990....... 33,340 250,000 290,800 67,197 64,250 16.70 55.52
December 31, 1991....... 37,507 250,000 323,689 106,070 103,945 22.57 47.63
December 31, 1992....... 41,675 250,000 317,214 102,233 100,930 17.46 39.41
December 31, 1993....... 45,842 250,000 346,621 119,771 119,291 16.94 35.05
December 31, 1994....... 50,010 250,000 322,295 112,338 112,338 13.11 29.22
December 31, 1995....... 54,177 250,000 423,338 158,461 158,461 15.74 29.29
December 31, 1996....... 58,345 250,000 514,617 192,797 192,797 16.08 28.42
December 31, 1997....... 62,512 250,000 575,964 238,400 238,400 16.59 26.76
</TABLE>
A-80
<PAGE>
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,167 $250,000 $250,028 $ 3,691 $ 1,429 -- --
December 31, 1983....... 4,167 250,000 250,208 3,587 1,325 -96.29% --
December 31, 1984....... 8,335 250,000 251,031 7,386 2,862 -79.93 1,917.59%
December 31, 1985....... 12,502 250,000 252,528 11,971 7,448 -34.90 426.58
December 31, 1986....... 16,670 250,000 254,283 16,787 12,263 -16.19 204.16
December 31, 1987....... 20,837 250,000 254,211 20,131 15,693 -11.99 125.91
December 31, 1988....... 25,005 250,000 255,596 24,745 20,513 -6.97 88.18
December 31, 1989....... 29,172 250,000 257,925 30,669 26,899 -2.43 66.49
December 31, 1990....... 33,340 250,000 259,713 36,040 33,092 -.19 52.50
December 31, 1991....... 37,507 250,000 265,107 45,393 43,268 3.26 43.14
December 31, 1992....... 41,675 250,000 267,991 51,670 50,367 3.86 36.14
December 31, 1993....... 45,842 250,000 273,280 60,643 60,163 4.98 31.01
December 31, 1994....... 50,010 250,000 269,656 60,870 60,870 3.31 26.51
December 31, 1995....... 54,177 250,000 280,205 76,366 76,366 5.25 23.63
December 31, 1996....... 58,345 250,000 282,437 82,229 82,229 4.86 20.90
December 31, 1997....... 62,512 250,000 289,043 93,350 93,350 5.26 18.83
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 4,167 $250,000 $250,028 $ 3,691 $ 1,429 -- --
December 31, 1983....... 4,167 250,000 250,190 3,594 1,333 -96.23% --
December 31, 1984....... 8,335 250,000 250,792 7,160 2,636 -82.94 1,916.11%
December 31, 1985....... 12,502 250,000 251,429 10,857 6,334 -44.43 425.50
December 31, 1986....... 16,670 250,000 252,044 14,630 10,106 -26.00 203.24
December 31, 1987....... 20,837 250,000 252,735 18,578 14,140 -16.36 125.55
December 31, 1988....... 25,005 250,000 253,706 22,934 18,702 -10.23 87.86
December 31, 1989....... 29,172 250,000 255,234 27,930 24,161 -5.67 66.15
December 31, 1990....... 33,340 250,000 256,757 33,011 30,064 -2.70 52.19
December 31, 1991....... 37,507 250,000 257,863 37,781 35,656 -1.17 42.52
December 31, 1992....... 41,675 250,000 258,172 41,856 40,554 -.56 35.42
December 31, 1993....... 45,842 250,000 258,104 45,682 45,202 -.26 30.04
December 31, 1994....... 50,010 250,000 258,438 50,047 50,047 .01 25.86
December 31, 1995....... 54,177 250,000 259,633 55,347 55,347 .34 22.58
December 31, 1996....... 58,345 250,000 260,634 60,532 60,532 .54 19.89
December 31, 1997....... 62,512 250,000 261,829 66,023 66,023 .74 17.68
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 4,167 $250,000 $250,028 $ 3,691 $ 1,429 -- --
December 31, 1987....... 4,167 250,000 250,000 2,913 651 93.77% --
December 31, 1988....... 8,335 250,000 250,426 6,684 2,160 -73.63 1,005.54%
December 31, 1989....... 12,502 250,000 252,941 12,537 8,013 -24.61 323.16
December 31, 1990....... 16,670 250,000 252,102 14,818 10,294 -21.22 171.30
December 31, 1991....... 20,837 250,000 254,903 22,562 18,175 -5.09 111.52
December 31, 1992....... 25,005 250,000 257,801 27,261 23,080 -2.53 80.47
December 31, 1993....... 29,175 250,000 259,945 32,903 29,339 .15 61.71
December 31, 1994....... 33,340 250,000 259,046 36,065 33,323 -.01 49.04
December 31, 1995....... 37,507 250,000 273,052 53,036 57,117 6.55 41.32
December 31, 1996....... 41,675 250,000 284,964 67,340 66,243 8.77 35.45
December 31, 1997....... 45,842 250,000 304,914 92,192 91,918 11.83 31.38
</TABLE>
A-81
<PAGE>
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 4,167 $250,000 $250,028 $ 3,691 $ 1,429 -- --
December 31, 1987....... 4,167 250,000 250,017 3,302 1,041 -87.45% --
December 31, 1988....... 8,335 250,000 250,660 6,869 2,346 -71.06 1,006.19%
December 31, 1989....... 12,502 250,000 252,336 11,732 7,208 -29.88 322.74
December 31, 1990....... 16,670 250,000 252,522 15,211 10,687 -19.65 171.44
December 31, 1991....... 20,837 250,000 254,487 21,521 17,134 -7.27 111.43
December 31, 1992....... 25,005 250,000 256,498 26,073 21,892 -4.19 80.27
December 31, 1993....... 29,172 250,000 259,074 31,793 28,229 -.90 61.60
December 31, 1994....... 33,340 250,000 257,430 34,222 31,480 -1.38 48.88
December 31, 1995....... 37,507 250,000 268,366 48,377 46,458 4.54 40.96
December 31, 1996....... 41,675 250,000 257,533 58,213 57,117 6.00 34.83
December 31, 1997....... 45,842 250,000 289,304 76,636 76,362 8.75 30.52
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.......... $ 4,167 $250,000 $250,028 $ 3,691 $ 1,429 -- --
December 31, 1993....... 4,167 250,000 250,656 3,783 1,521 -77.72% --
December 31, 1994....... 8,335 250,000 250,845 6,891 2,367 -70.65 1,002.13%
December 31, 1995....... 12,502 250,000 253,555 12,769 8,245 -23.11 322.89
December 31, 1996....... 16,670 250,000 255,902 18,165 13,641 -9.06 172.35
December 31, 1997....... 20,837 250,000 259,042 24,807 20,437 -.73 112.28
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.......... $ 4,167 $250,000 $250,028 $ 3,691 $ 1,429 -- --
December 31, 1993....... 4,167 250,000 250,647 3,765 1,503 -78.12% --
December 31, 1994....... 8,335 250,000 250,722 6,822 2,299 -71.60 1,001.79%
December 31, 1995....... 12,502 250,000 253,890 13,103 8,580 -21.05 323.12
December 31, 1996....... 16,670 250,000 256,617 18,767 14,243 -7.14 172.59
December 31, 1997....... 20,837 250,000 262,922 28,728 24,358 5.89 113.09
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............. $ 4,167 $250,000 $250,028 $ 3,691 $ 1,429 -- --
December 31, 1994....... 4,167 250,000 250,000 3,175 913 -89.78% --
December 31, 1995....... 8,335 250,000 251,443 7,861 3,338 -57.79 1,012.99%
December 31, 1996....... 12,502 250,000 254,082 13,730 9,206 -17.39 324.66
December 31, 1997....... 16,670 250,000 258,427 20,916 16,392 -.78 173.67
</TABLE>
A-82
<PAGE>
ZENITH EQUITY GROWTH SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 4,167 $250,000 $250,028 $ 3,691 $1,429 -- --
December 31, 1994....... 4,167 250,000 250,000 3,381 1,119 -- --
December 31, 1995....... 8,335 250,000 251,556 8,034 3,510 -84.72% 3,170.09%
December 31, 1996....... 12,502 250,000 252,669 12,188 7,665 -38.44 513.50
December 31, 1997....... 16,670 250,000 255,624 18,284 13,760 -11.35 227.92
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........ $ 4,167 $250,000 $250,028 $ 3,691 $1,429 -- --
December 31, 1994....... 4,167 250,000 250,044 3,575 1,313 -- --
December 31, 1995....... 8,335 250,000 251,208 7,686 3,162 -89.47% 3,166.11%
December 31, 1996....... 12,502 250,000 252,573 12,093 7,569 -39.35 513.38
December 31, 1997....... 16,670 250,000 254,418 17,078 12,555 -16.68 227.36
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........ $ 4,167 $250,000 $250,028 $ 3,691 $1,429 -- --
December 31, 1994....... 4,167 250,000 250,000 3,465 1,203 -- --
December 31, 1995....... 8,335 250,000 251,548 8,026 3,502 -84.83% 3,170.00%
December 31, 1996....... 12,502 250,000 253,717 13,236 8,712 -29.01 514.78
December 31, 1997....... 16,670 250,000 258,009 20,669 16,145 -1.91 229.03
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........ $ 4,167 $250,000 $250,028 $ 3,691 $1,429 -- --
December 31, 1994....... 4,167 250,000 250,132 3,663 1,401 -- --
December 31, 1995....... 8,335 250,000 250,730 7,208 2,684 -94.72% 3,160.65%
December 31, 1996....... 12,502 250,000 251,249 10,768 6,245 -52.64 511.76
December 31, 1997....... 16,670 250,000 250,908 13,568 9,044 -35.36 225.72
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 4,167 $250,000 $250,028 $ 3,691 $1,429 -- --
December 31, 1986....... 4,167 250,000 250,181 3,592 1,330 -- --
December 31, 1987....... 8,335 250,000 250,000 6,066 1,542 -98.80% 2,628.41%
December 31, 1988....... 12,502 250,000 250,933 10,372 5,849 -53.90 479.52
December 31, 1989....... 16,670 250,000 252,268 15,182 10,658 -25.08 218.20
December 31, 1990....... 20,837 250,000 250,108 15,969 11,496 -26.58 131.22
December 31, 1991....... 25,005 250,000 253,014 24,052 19,785 -8.62 91.13
December 31, 1992....... 29,172 250,000 257,903 31,231 27,324 -2.03 68.57
December 31, 1993....... 33,340 250,000 262,857 39,619 36,535 2.44 54.21
December 31, 1994....... 37,507 250,000 264,114 44,952 42,690 3.04 44.04
December 31, 1995....... 41,675 250,000 280,566 63,729 62,289 8.28 37.78
December 31, 1996....... 45,842 250,000 288,265 75,016 74,399 8.94 32.49
December 31, 1997....... 50,010 250,000 306,992 98,222 98,222 11.21 28.94
</TABLE>
A-83
<PAGE>
OVERSEAS 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>
January 28, 1987........ $ 4,167 $250,000 $250,028 $ 3,691 $ 1,429 -- --
December 31, 1987....... 4,167 250,000 250,000 2,945 683 -85.89% --
December 31, 1988....... 8,335 250,000 250,633 6,724 2,200 -64.09 691.01%
December 31, 1989....... 12,502 250,000 252,984 12,003 7,479 -24.48 268.06
December 31, 1990....... 16,670 250,000 252,542 14,814 10,290 -18.98 151.83
December 31, 1991....... 20,837 250,000 253,471 19,179 14,861 -11.36 101.67
December 31, 1992....... 25,005 250,000 250,566 19,594 15,481 -13.89 73.90
December 31, 1993....... 29,172 250,000 258,259 30,772 27,482 -1.52 57.98
December 31, 1994....... 33,340 250,000 257,833 33,776 31,309 -1.42 46.50
December 31, 1995....... 37,507 250,000 260,374 40,601 38,956 .77 38.56
December 31, 1996....... 41,675 250,000 264,568 48,594 47,772 2.50 32.76
December 31, 1997....... 45,842 250,000 269,181 57,115 57,115 3.67 28.32
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...... $ 4,167 $250,000 $250,028 $ 3,691 $ 1,429 -- --
December 31, 1985....... 4,167 250,000 250,237 3,757 1,496 -97.35% --
December 31, 1986....... 8,335 250,000 251,148 7,648 3,124 -80.71 2,267.42%
December 31, 1987....... 12,502 250,000 251,062 10,731 6,208 -47.97 453.50
December 31, 1988....... 16,670 250,000 252,278 14,994 10,471 -25.18 211.22
December 31, 1989....... 20,837 250,000 251,227 17,168 12,712 -21.48 128.56
December 31, 1990....... 25,005 250,000 250,187 19,645 15,396 -17.62 89.06
December 31, 1991....... 29,172 250,000 256,486 29,431 25,592 -4.01 67.43
December 31, 1992....... 33,340 250,000 262,461 38,937 35,921 1.96 53.53
December 31, 1993....... 37,507 250,000 269,479 49,613 47,419 5.40 44.04
December 31, 1994....... 41,675 250,000 267,331 51,414 50,004 3.78 36.49
December 31, 1995....... 45,842 250,000 278,094 64,603 64,055 6.18 31.61
December 31, 1996....... 50,010 250,000 283,820 75,887 75,887 6.98 27.53
December 31, 1997....... 54,177 250,000 295,680 91,492 91,492 7.99 24.56
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 4,167 $250,000 $250,028 $ 3,691 $ 1,429 -- --
December 31, 1989....... 4,167 250,000 250,094 3,575 1,313 -97.36% --
December 31, 1990....... 8,335 250,000 250,583 7,079 2,556 -85.85 2,063.39%
December 31, 1991....... 12,502 250,000 251,881 11,807 7,283 -37.09 438.59
December 31, 1992....... 16,670 250,000 253,533 16,267 11,743 -18.73 207.41
December 31, 1993....... 20,837 250,000 256,439 22,815 18,359 -5.44 128.00
December 31, 1994....... 25,005 250,000 255,484 24,078 19,828 -8.25 88.99
December 31, 1995....... 29,172 250,000 258,706 31,212 27,374 -1.92 67.10
December 31, 1996....... 33,340 250,000 262,775 38,670 35,654 1.75 53.15
December 31, 1997....... 37,507 250,000 269,614 49,298 47,104 5.21 43.76
</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 1996, the
average annual return of common stocks was superior to that of high grade,
long-term corporate bonds, U.S. Treasury bills and inflation in all 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.
----------------
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.
----------------
A-85
<PAGE>
PERCENT OF HOLDING PERIODS WITH THE FOLLOWING RETURNS:
<TABLE>
<CAPTION>
GREATER
5.01- 10.01- 15.01- THAN
HOLDING NEGATIVE 0-5.00% 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.
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-86
<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.
A-87
<PAGE>
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-88
<PAGE>
APPENDIX E
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the Treasury published
a "Report to the Congress on the Taxation of Life Insurance Company Products"
in March 1990. Page 4 of this report is Table 1.1, a "Comparison of Tax
Treatment of Life Insurance Products and Other Retirement Savings Plans".
Because it is a convenient summary of the relevant tax characteristics of
these products and plans, we have reprinted it here, and added footnotes to
reflect exceptions to the general rules.
---------------------
TABLE 1.1
COMPARISON OF TAX TREATMENT OF LIFE INSURANCE PRODUCTS AND
OTHER RETIREMENT SAVINGS PLANS
<TABLE>
<CAPTION>
CASH-VALUE
LIFE NON-QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
---------- ------------- -------- ---------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as Distribu- No* Yes Loans Yes,
tions not beyond
allowed $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 No No Yes Yes
Age 70 1/2
Maximum Annual Distribution No No Yes Yes
Rules
Anti-discrimination Rules No No No Yes
</TABLE>
- --------
Department of the Treasury March 1990
Office of Tax Analysis
* If the Policy is not a modified endowment contract.
** If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not
deductible.
*** There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
The foregoing information is not intended as tax advice. You should consult
your own tax advisor for more complete information.
A-89
<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.
REPRESENTATIONS
New England Life Insurance Company hereby represents that the fees and
charges deducted under the variable ordinary 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.
II-1
<PAGE>
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 143 pages.
The undertaking to file reports.
The Rule 484 Undertaking.
The signatures.
Written consents of the following persons:
Independent Auditors
H. James Wilson, Esq.
Rodney J. Chandler, F.S.A., M.A.A.A.
Sutherland, Asbill & Brennan LLP
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 NELICO and its Agents ****
(c) Commission Schedule for Policies
(d) Specimen of contract among NES, NELICO and other broker
dealers *
(4) None
(5) (a) Specimen of Policy ##
(b) Riders ****
(c) Acceleration of Benefits Rider ###
(d) Benefits for Disability of Insured Rider *
(6) (a) Amended and restated Articles of Incorporation of NELICO ##
(b) Amended and restated By-Laws *
(7) None
(8) None
(9) None
(10) Specimen of Application for Policy ##
II - 2
<PAGE>
2. See Exhibit 3(i)
3.(i) Opinion and Consent of H. James Wilson, Esquire *
(ii) Opinion and Consent of Rodney J. Chandler, F.S.A., M.A.A.A.
4. None
5. Inapplicable
6. Consent of Sutherland, Asbill & Brennan LLP
7. (i) Powers of Attorney ##
(ii) Power of Attorney of James Benson *
(iii) Power of Attorney of Richard Robinson **
8. Inapplicable
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)(iii) and
Rule 6e-3(T)(b)(12)(iii) ****
14. (i) Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and New England
Variable Life Insurance Company ****
(ii) Amendment No. 1 to Participation Agreement Variable Insurance
Products Fund, Fidelity Distributors Corporation and New
England Variable Life Insurance Company #
(iii) Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and New England
Variable Life Insurance Company #
- ------------------
# 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 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.
II - 3
<PAGE>
** 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 29th 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:
/s/ Marie C. Swift
- ----------------------
Marie C. Swift
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, New England
Life Insurance Company certifies that it meets all of the requirements for
effectiveness of this amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the city of Boston, and the Commonwealth of Massachusetts, on the 29th day of
April, 1998.
New England Life Insurance Company
(Seal)
By:
-------------------------------
Attest: /s/ Marie C. Swift H. James Wilson
--------------------- Executive Vice President and
Marie C. Swift 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 29, 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
* Director
- -----------------------
Thomas J. May
<PAGE>
* Director
- -----------------------
Stewart G. Nagler
* Second Vice President and
- ----------------------- Chief Accounting Officer
Richard A. Robinson
* Executive Vice President and
- ----------------------- Chief Financial Officer
Robert E. Schneider
* 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 Number Title Numbered Page*
- -------------- ----- --------------
1.A.(3)(c) Commission Schedule
3(ii) Opinion and Consent of
Rodney J. Chandler, F.S.A., M.A.A.A.
6. Consent of Sutherland, Asbill & Brennan LLP
11. Consents of Independent Auditors
_________
* Page numbers inserted on manually-signed copy only.
<PAGE>
Exhibit 1.A(3)(c)
Commission 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:
<TABLE>
<CAPTION>
Policy Year Maximum Percentages
----------- -------------------
<S> <C>
1 50%
2-10 5%
11 and later 2%
</TABLE>
Such agents/registered representatives 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 classification and for rider premiums will be
determined by NELICO's rules and practices current at the time such premiums are
charged.
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 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 agreement with any such broker-dealers, the commission paid
to the broker-dealer will not exceed 50% 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.
Increases in the maximum percentages contained in this commission schedule
will be reflected in the prospectus.
<PAGE>
Exhibit 3(ii)
April 28, 1998
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
Gentlemen:
In my capacity as Second Vice President and Actuary of New England Life
insurance Company (the "Company"), I have provided actuarial advice concerning:
The preparation of Post-Effective Amendment No. 1 to the registration
statement on Form S-6 (File No. 333-21767) 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
premium, 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 policy benefits, as shown in the illustrations, appear to be
correspondingly more favorable to prospective purchasers of Policies
for male insureds aged 40 and 50 in the underwriting classes
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.
<PAGE>
2. The information contained in the description of historical investment
experience in Appendix B, based on the assumptions stated in the
Appendix, is consistent with the provisions of the Policies.
3. The illustration of net scheduled premiums and net unscheduled payments
shown under the heading "Charges and Expenses-Deductions from Premiums
and Unscheduled Payments" in the Prospectus contains the net scheduled
premium and net unscheduled payment amounts allocated to the Variable
Account for scheduled premiums and 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.
2
<PAGE>
Exhibit 6
Sutherland, Asbill & Brennan LLP
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. 1 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. 333-21767). 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 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 1 to the
Registration Statement No. 333-21767 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. 1 to the
Registration Statement on Form S-6 (File No. 333-21767) 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
