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NEW ENGLAND LIFE
INSURANCE COMPANY
Zenith Life Plus
Variable Ordinary Life Insurance Policies
Supplement Dated May 1, 1998 to
Prospectuses Dated May 1, 1997, May 1, 1996, May 1, 1995 and
May 1, 1994
This supplement updates certain information contained in (1) the prospectus
dated May 1, 1997, (2) the prospectus dated May 1, 1996, as supplemented
August 30, 1996 and May 31, 1997, (3) the prospectus dated May 1, 1995, as
supplemented November 13, 1995, May 1, 1996 and May 1, 1997 and (4) the
prospectus dated May 1, 1994, as supplemented October 31, 1994, May 1, 1995,
May 1, 1996 and May 1, 1997. You should read and retain this supplement. A
complete prospectus dated May 1, 1998 is available free of charge upon written
request to New England Life Insurance Company ("NELICO").
NELICO is an indirect, wholly-owned subsidiary of Metropolitan Life
Insurance Company ("MetLife"). NELICO's Home Office is 501 Boylston Street,
Boston, Massachusetts 02116.
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 SUPPLEMENT IS NOT VALID UNLESS ACCOMPANIED OR PRECEDED BY THE CURRENT
PROSPECTUS 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 SUPPLEMENT. THE SUPPLEMENT AND PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
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CHARGES AND EXPENSES
The amount of a charge may not necessarily correspond to the costs
associated with providing the services or benefits indicated by the
designation of the charge or associated with the particular Policy. For
example, the sales charge and Deferred Sales Charges 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.
CHARGES AGAINST THE ELIGIBLE FUNDS AND THE SUB-ACCOUNTS OF THE VARIABLE
ACCOUNT
ELIGIBLE FUND EXPENSES. Charges for investment advisory fees and other
expenses are deducted from the assets of the Eligible Funds.
The New England 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 New
England Zenith Fund Series (other than the Capital Growth Series) TNE
Advisers, under a voluntary expense deferral arrangement, will bear those
expenses (other than the management fee) which exceed a certain limit in the
year in which they are incurred and will charge those expenses to the series
in a future year when actual expenses of the series are below the limit up
until two years after the end of the fiscal year in which the expense was
incurred. The expense cap and expense deferral arrangement may be terminated
at any time.
The following table shows the annual operating expenses for each series,
based on actual expenses for 1997, (for the Goldman Sachs Midcap Value Series,
anticipated expenses for 1998), after giving effect to the applicable expense
cap or expense deferral arrangement.
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER ANY EXPENSE CAP)
<TABLE>
<CAPTION>
BACK BACK
BAY BAY BACK WESTPEAK LOOMIS
ADVISORS ADVISORS BAY WESTPEAK GROWTH SAYLES
CAPITAL BOND MONEY ADVISORS STOCK AND SMALL
GROWTH INCOME MARKET MANAGED INDEX INCOME CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .63% .40% .35% .50% .25% .70% 1.00%
Other Expenses.......... .04% .12% .10% .11% .15% .12% --
---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses.............. .67% .52% .45% .61% .40% .82% 1.00%
</TABLE>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
GOLDMAN MORGAN
SACHS LOOMIS STANLEY DAVIS ALGER
MIDCAP SAYLES INTERNATIONAL VENTURE EQUITY
VALUE BALANCED MAGNUM VALUE GROWTH
SERIES* SERIES EQUITY SERIES SERIES SERIES
------- -------- ------------- ------- ------
<S> <C> <C> <C> <C> <C>
Management Fee................... .75% .70% .90% .75% .75%
Other Expenses................... .15% .15% .40% .15% .12%
---- ---- ----- ---- ----
Total Series Operating Expenses. .90% .85% 1.30% .90% .87%
</TABLE>
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* 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 II Fund is Fidelity
Management & Research Company, a registered investment adviser under the
Investment Advisers Act of 1940. The Portfolios of the VIP Fund and VIP Fund
II, as part of their operating expenses, pay investment management fees to
Fidelity Management & Research Company.
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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>
TOTAL
PORTFOLIO MANAGEMENT FEES OTHER EXPENSES ANNUAL 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>
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* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. Had these
reductions been included, total annual expenses would have been .57% for
Equity-Income Portfolio, .90% for Overseas Portfolio and .64% for Asset
Manager Portfolio.
Affiliates of Fidelity Management & Research Company compensate NELICO
and/or certain affiliates for administrative, distribution, or other services
relating to these Portfolios of VIP Fund and VIP Fund II. Such compensation is
based on assets of the Portfolios attributable to the Policies and certain
other variable insurance products issued by NELICO and its affiliates.
PREMIUMS
UNSCHEDULED PAYMENTS
The first sentence is modified as follows:
You may make unscheduled payments at any time that the Policy is in force on
a premium paying basis provided that the unscheduled payment is at least $25
($10 if made pursuant to the Master Service Account or certain other monthly
payment arrangements) and, if required by NELICO, the insured has submitted
evidence of insurability satisfactory to NELICO.
OTHER POLICY FEATURES
INVESTMENT OPTIONS
The first paragraph is revised as follows:
You have the option to allocate net scheduled premiums and net unscheduled
payments among the sub-accounts of the Variable Account in any combination.
The Policy provides that any portion of a net scheduled premium and net
unscheduled payment allocated to one of the Policy's sub-accounts must be at
least 10% of such premium or payment 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.
THE VARIABLE ACCOUNT
INVESTMENTS OF THE VARIABLE ACCOUNT
The Variable Account currently has 16 investment sub-accounts, each of which
invests in the shares of an Eligible Fund. The sub-accounts of the Variable
Account are:
-- The Zenith Money Market Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Back Bay Advisors Money Market
Series of the New England Zenith Fund.
-- The Zenith Bond Income Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Back Bay Advisors Bond Income
Series of the New England Zenith Fund.
-- The Zenith Capital Growth Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Capital Growth Series of the New
England Zenith Fund.
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-- The Zenith Stock Index Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Westpeak Stock Index Series of the
New England Zenith Fund.
-- The Zenith Managed Sub-Account -- Amounts credited to this sub-account
are invested in shares of the Back Bay Advisors Managed Series of the
New England Zenith Fund.
-- The Zenith Growth and Income Sub-Account -- Amounts credited to this
sub-account are invested in shares of the Westpeak Growth and Income
Series of the New England Zenith Fund.
-- The Zenith Small Cap Sub-Account -- Amounts credited to this sub-account
are invested in shares of the Loomis Sayles Small Cap Series of the New
England Zenith Fund.
-- The Zenith Equity Growth Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Alger Equity Growth Series of the
New England Zenith Fund.
-- The Zenith Balanced Sub-Account -- Amounts credited to this sub-account
are invested in shares of the Loomis Sayles Balanced Series of the New
England Zenith Fund.
-- The Zenith Venture Value Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Davis Venture Value Series of the
New England Zenith Fund.
-- The Zenith Midcap Value Sub-Account -- Amounts credited to this sub-
account are invested in shares of the Goldman Sachs Midcap Value Series
(formerly the Loomis Sayles Avanti Growth Series) of the New England
Zenith Fund.
-- The Zenith International Magnum Equity Sub-Account -- Amounts credited
to this sub-account are invested in shares of the Morgan Stanley
International Magnum Equity Series of the New England Zenith Fund.
-- The Equity-Income Sub-Account -- Amounts credited to this sub-account
are invested in shares of the Equity-Income Portfolio of the VIP Fund.
-- The Overseas Sub-Account -- Amounts credited to this sub-account are
invested in shares of the Overseas Portfolio of the VIP Fund.
-- The High Income Sub-Account -- Amounts credited to this sub-account are
invested in shares of the High Income Portfolio of the VIP Fund.
-- The Asset Manager Sub-Account -- Amounts credit to this sub-account are
invested in shares of the Asset Manager Portfolio of the VIP Fund II.
The New England Zenith fund is an open-end, diversified management company
organized for the purpose of providing a vehicle for the investment of assets
held in various separate investment accounts, including the Variable Account,
established by NELICO or by 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 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.
For each day when the New York Stock Exchange is open for trading, the
Variable Account purchases or redeems shares of the Eligible Fund portfolios
based on, among other things, the amount of net premiums and net unscheduled
payments invested in the Variable Account, transfers among sub-accounts of the
Variable Account, policy loans, policy loan repayments, surrender and
withdrawal payments and death benefit payments to be effected on that day.
Such purchases and redemptions are effected at the net asset value per share
for each Eligible Fund portfolio determined as of the close of regular trading
on the New York Stock Exchange on that same day.
The investment objectives of the Eligible Funds' portfolios currently
available to Policy Owners through each corresponding sub-account are set
forth below. There is, of course, no assurance that these objectives will be
met. A full description of the Eligible Funds, their investment objectives,
policies and restrictions, their expenses and
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other aspects of their operation, as well as a full description of risks
related to investment in the Eligible Funds, is contained in the attached
Eligible Fund prospectuses, which should be read and retained together with
this prospectus, as well as in the New England Zenith Fund's Statement of
Additional Information which may be obtained free of charge from New England
Securities, and in the Statement of Additional Information for the VIP Fund
and VIP Fund II which may be obtained free of charge from Fidelity
Distributors Corporation.
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 Money Market Sub-Account invests in shares of the New England
Zenith Fund's Back Bay Advisors Money Market Series. Its 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 Bond Income Sub-Account invests in shares of the New England
Zenith Fund's Back Bay Advisors Bond Income Series. Its investment objective
is to provide a high level of current income consistent with protection of
capital.
The Zenith Capital Growth Sub-Account invests in shares of the New England
Zenith Fund's Capital Growth Series. Its investment objective is long-term
growth of capital through investment primarily in equity securities of
companies whose earnings are expected to grow at a faster rate than the U.S.
economy.
The Zenith Stock Index Sub-Account invests in shares of the New England
Zenith Fund's Westpeak Stock Index Series. Its investment objective is to
provide investment results that correspond to the composite price and yield
performance of United States publicly traded common stocks. The Stock Index
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 Managed Sub-Account invests in shares of the New England Zenith
Fund's Back Bay Advisors Managed Series. Its 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 Growth and Income Sub-Account invests in shares of the New
England Zenith Fund's Westpeak Growth and Income Series. Its 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 Midcap Value Sub-Account invests in shares of the New England
Zenith Fund's Goldman Sachs Midcap Value Series. Its 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 Small Cap Sub-Account invests in shares of the New England Zenith
Fund's Loomis Sayles Small Cap Series. Its 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 Balanced Sub-Account invests in shares of the New England Zenith
Fund's Loomis Sayles Balanced Series. Its 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
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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 International Magnum Equity Sub-Account invests in shares of the
New England Zenith Fund's Morgan Stanley International Magnum Equity Series.
Its 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 Venture Value Sub-Account invests in shares of the New England
Zenith Fund's Davis Venture Value Series. Its 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 Equity Growth Sub-Account invests in shares of the New England
Zenith Fund's Alger Equity Growth Series. Its 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 Equity-Income Sub-Account invests in shares of the VIP Fund's Equity-
Income Portfolio. Its 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 Overseas Sub-Account invests in shares of the VIP Fund's Overseas
Portfolio. Its investment objective is long-term growth of capital primarily
through investments in foreign securities. Foreign investments involve greater
risks than U.S. investments, including political and economic risks and the
risks of currency fluctuation.
The High Income Sub-Account invests in shares of the VIP Fund's High Income
Portfolio. Its 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 Asset Manager Sub-Account invests in shares of the VIP Fund II Asset
Manager Portfolio. Its 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
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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.
INVESTMENT MANAGEMENT
The adviser and sub-adviser for each series of the Zenith Fund are listed in
the chart below. TNE Advisers, which is an indirect, wholly-owned subsidiary
of NELICO, CGM, and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------- -----------
<S> <C> <C>
Capital Growth Capital Growth Management
Limited Partnership ("CGM")*
Back Bay Advisors Money TNE Advisers, Inc. Back Bay Advisors, L.P.*
Market
Back Bay Advisors Bond TNE Advisers, Inc. Back Bay Advisors, L.P.*
Income
Back Bay Advisors Man- TNE Advisers, Inc. Back Bay Advisors, L.P.*
aged
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors,
L.P.*
Westpeak Growth and In- TNE Advisers, Inc. Westpeak Investment Advisors,
come 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 Interna- TNE Advisers, Inc. Morgan Stanley Asset Management
tional Magnum Equity Inc.
Goldman Sachs Midcap TNE Advisers, Inc. Goldman Sachs Asset Management
Value
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.**
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
</TABLE>
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* An affiliate of NELICO
** Davis Selected may also delegate any of its responsibilities to Davis Se-
lected Advisers-NY, Inc., a wholly-owned subsidiary of Davis Selected.
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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.
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 represents
what NELICO believes to be 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. Furthermore, 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
advisors 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.
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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 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. With certain exceptions discussed below, a Policy will not have the
potential to be classified as a modified endowment contract unless it was
issued on or after June 21, 1988.
NON-MODIFIED ENDOWMENT CONTRACTS. For Policies not classified as modified
endowment contracts NELICO believes any policy loans received under such
Policies will be treated as indebtedness of the owner and will not be treated
as taxable income to you. This assumes that the Policy has not lapsed, been
surrendered or terminated. As a general rule, policy loan interest is not
deductible under current Federal income tax law.
You may be subject to Federal income tax upon surrender of the 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 part, if the net cash surrender
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 issued on or after June 21, 1988, which fails to satisfy a
"7-pay test". In general, a Policy will fail to satisfy the 7-pay test if the
cumulative 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
had 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 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 the 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
9
<PAGE>
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.
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 even if no
unscheduled payments have been made for the Policy. The point at which you may
be required 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 any previous unscheduled payments. You may limit payment of
scheduled premiums by use of the Special Premium Option, in those situations
where it is applicable, or by allowing the Policy to lapse to paid-up
insurance. (See "Special Premium Option" and "Default and Lapse Options".)
Regardless of when it was issued, if a Policy described in this prospectus
is exchanged on or after June 21, 1988 for another life insurance policy,
including a fixed-benefit policy pursuant to the twenty-four 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 shall 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
10
<PAGE>
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.
EFFECTIVE DATE. As explained above, the rules regarding modified endowment
contracts apply only to Policies issued on or after June 21, 1988. For this
purpose, the following Policies, even if issued before June 21, 1988, will be
considered issued on or after June 21, 1988:
(a) a Policy under which, after June 20, 1988, the death benefit is
increased or an additional benefit (e.g. a Policy rider) is added if,
prior to June 21, 1988, the Policy Owner did not have the right to
obtain such increase or addition without submitting additional evidence
of insurability;
(b) a Policy issued after June 20, 1988, upon conversion of a term life
policy; and,
(c) in certain cases, a Policy under which the death benefit payable as of
October 20, 1988, increases by more than $150,000.
OTHER POLICY OWNER TAX MATTERS. Federal and state estate, inheritance and
other tax consequences of ownership or receipt of proceeds under the Policy
depend upon the individual circumstances of each Policy Owner or beneficiary.
Section 817(h) of the Code requires the investments of the Variable Account
to be "adequately diversified" in accordance with Treasury Regulations for the
Policy to qualify as a life insurance contract under Section 7702 of the Code.
Failure to comply with the diversification requirements may result in not
treating the Policy as life insurance. If the Policy does not qualify as life
insurance, you may be subjected to immediate taxation on the incremental
increases in cash value of the Policy. 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 a 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.
11
<PAGE>
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 continuation 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.
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 adviser 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. 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.
12
<PAGE>
MANAGEMENT
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
DIRECTORS OF NELICO
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<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 The
127 Tarbox Road Vermont Partnership, a business consulting firm located in
Jericho, VT 05465 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 New
Harborside, ME 04642 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
Building
767 Fifth Street
New York, NY 10153
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
Mont 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 of
Howard, Darby & Levin 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, and
New York, NY 10010 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 1984-1994
New York, NY 10010 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 Industries,
1345 Avenue of the Inc.; President since 1978 and Corporate Group Vice
Americas President since 1985 and Director since 1990 of Burlington
New York, NY 10105 Menswear Division.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<S> <C>
Thomas J. May Director of NELICO since 1996 and Chairman, President and
Boston Edison Company Chief Executive Officer of Boston Edison Company since 1994;
800 Boylston Street 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 Life
One Madison Avenue Insurance Company since 1986.
New York, NY 10010
Rand N. Stowell Director of NELICO since 1996 and President of United Timber
United Timber Corp. Corp. of Dixfield, Maine; formerly, Director 1990-1996 of
P.O. Box 650 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 1983-
Inc. 1996 of New England Mutual.
1317 F Street, N.W.,
Suite 500
Washington, D.C. 20004
EXECUTIVE OFFICERS OF NELICO
OTHER THAN DIRECTORS
<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.
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 The New England) and Senior
Vice President in 1994 of New England Annuities; Vice
President 1992-1994 of Keyport Life Insurance.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
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.
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 executive
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
15
<PAGE>
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.
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.
ADVERTISING PRACTICES
The following paragraph is added to this section:
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.
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
16
<PAGE>
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 reports of Coopers &
Lybrand, chartered accountants, given on the authority of that firm as experts
in accounting and auditing.
The statements of operations and changes in net assets of New England
Variable Life Separate Account for the 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.
17
<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
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INDEPENDENT AUDITORS' REPORT
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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
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REPORT OF INDEPENDENT ACCOUNTANTS
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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
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INDEPENDENT AUDITORS' REPORT
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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
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INDEPENDENT AUDITORS' REPORT
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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>
New England Life Insurance Company
501 Boylston Street
Boston, MA 02116
e-mail: [email protected]
internet: http://www.nefn.com
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EQUAL OPPORTUNITY EMPLOYER
(C)1998 by New England Life Insurance Company (NELICO). New England Financial
is the service mark for NELICO, Boston, MA, and related companies.
VL-92-98
