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As filed with Securities and Exchange Commission on
April 30, 1998
Registration No. 33-65263
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 3
TO REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------------------------
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
NEW ENGLAND LIFE INSURANCE COMPANY
(Name of Depositor)
501 Boylston Street
Boston, Massachusetts 02117
(Address of depositor's principal executive offices)
MARIE C. SWIFT, ESQ.
Counsel
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
(Name and address of agent for service)
Copies to:
STEPHEN E. ROTH, ESQ.
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
---------------------------
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1) of Rule 485
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Units of Interest in Modified Single
Premium Variable Life Insurance Policies.
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NEW ENGLAND LIFE
INSURANCE COMPANY
Modified Single Premium Variable Life Insurance Policies
Issued by
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus describes individual modified single premium variable life
insurance policies (the "Policies") offered by New England Life Insurance
Company ("NELICO"), a wholly-owned subsidiary of Metropolitan Life Insurance
Company ("MetLife").
The Policies are issued in two forms: Single Insured and Last Survivor. A
Single Insured Policy pays a death benefit on the death of a single named
insured; a Last Survivor Policy pays a death benefit on the last of two named
insureds to die. The death benefit provided by a Policy is the greater of the
variable death benefit and the minimum guaranteed death benefit. The variable
death benefit on any day is the amount determined by dividing the Policy's
cash value by the applicable net single premium. The initial minimum
guaranteed death benefit is based on premium payments made.
You purchase the Policy with an initial premium. The minimum premium to
purchase the Policy is $10,000. Additional payments may be made after the
first Policy Year, subject to certain restrictions. You may, within limits,
allocate premiums (net of any charges) to one or more of 13 investment Sub-
Accounts of NELICO's Variable Life Separate Account (the "Variable Account").
Each Sub-Account of the Variable Account invests in shares of one of the
following series of the New England Zenith Fund (the "Zenith Fund"):
Loomis Sayles Small Cap Series Loomis Sayles Balanced Series
Morgan Stanley International Magnum Back Bay Advisors Managed Series
Equity Series Salomon Brothers Strategic Bond
Alger Equity Growth Series Opportunities Series
Back Bay Advisors Bond Income Series
Goldman Sachs Midcap Value
Davis Venture Value Series Salomon Brothers U.S. Government
Westpeak Growth and Income Series Series
Westpeak Stock Index Series Back Bay Advisors Money Market
Series
Partial surrenders and Policy loans may be taken from time to time, subject
to certain restrictions. In almost all cases, the Policies will be modified
endowment contracts for federal income tax purposes. (See "Tax Treatment of
Loans and Other Distributions.")
A LOAN, DISTRIBUTION OR OTHER AMOUNT RECEIVED FROM A MODIFIED ENDOWMENT
CONTRACT DURING THE LIFE OF AN INSURED WILL BE TAXED TO THE EXTENT OF ANY
ACCUMULATED INCOME IN THE POLICY. ANY AMOUNTS THAT ARE TAXABLE WITHDRAWALS
WILL BE SUBJECT TO A 10% ADDITIONAL TAX, WITH CERTAIN EXCEPTIONS, INCLUDING AN
EXCEPTION FOR DISTRIBUTIONS MADE ON OR AFTER THE DATE WHEN THE POLICY OWNER
ATTAINS AGE 59 1/2.
The cash value of a Policy will vary daily with the investment experience of
the mutual fund portfolios in which cash value in the Sub-Accounts is
invested. There is no guaranteed minimum for cash value in the Sub-Accounts.
You may cancel the Policy during the "right to return the Policy" period,
which in most states is the 10-day period after you receive your Policy. The
initial premium for the Policy will be invested in the Money Market Sub-
Account until 15 days (in most states) after NELICO mails the confirmation for
the initial premium. Thereafter, the Policy's cash value will be invested in
the Sub-Accounts according to your instructions.
It may not be advantageous to replace existing insurance with the Policy
described in this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY THE CURRENT
PROSPECTUS OF THE NEW ENGLAND ZENITH FUND. THESE PROSPECTUSES SHOULD BE READ
AND RETAINED FOR FUTURE REFERENCE.
SHARES OF THE ZENITH FUND AND INTERESTS IN THE POLICIES ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, A BANK, AND THE SHARES AND
INTERESTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
MAY 1, 1998
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TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY................................................................... A-4
INTRODUCTION TO THE POLICIES............................................... A-6
The Policies.............................................................. A-6
Comparison to Other Policies and Other Investments........................ A-6
Diagram of Policy......................................................... A-8
Availability of the Policy................................................ A-10
Policy Charges............................................................ A-10
Right to Return the Policy................................................ A-12
Receipt of Communications and Payments at NELICO's Home Office............ A-12
NELICO..................................................................... A-12
PREMIUMS................................................................... A-13
Applying for a Policy..................................................... A-13
Premium Payments.......................................................... A-13
Right to Return the Policy................................................ A-14
Lapse and Reinstatement................................................... A-14
ALLOCATION OF PREMIUM PAYMENTS AND TRANSFER OF CASH VALUE.................. A-14
Allocation of Premium Payments............................................ A-14
Amount Provided for Investment under the Policy........................... A-15
Transfer Option........................................................... A-16
Dollar Cost Averaging..................................................... A-17
Asset Rebalancing......................................................... A-17
Transfer and Reallocation Requests........................................ A-17
DEATH BENEFIT.............................................................. A-18
How the Death Benefit is Determined....................................... A-18
Minimum Guaranteed Death Benefit.......................................... A-18
Adjustments to the Death Proceeds Payable................................. A-18
Payment of Death Benefit Proceeds......................................... A-19
CASH VALUE AND CASH VALUE BENEFITS......................................... A-19
Cash Value................................................................ A-19
Net Investment Experience................................................. A-19
Loan Privilege............................................................ A-19
Effect of Policy Loan..................................................... A-20
Surrender................................................................. A-21
Partial Surrenders........................................................ A-21
Effect of Partial Surrender on Cash Value and Death Benefit............... A-21
Acceleration of Benefits Rider--Terminal Illness.......................... A-22
Acceleration of Benefits Rider--Long-Term Care............................ A-22
Payment of Proceeds....................................................... A-23
Payment Options........................................................... A-23
CHARGES AND EXPENSES....................................................... A-24
Deductions from Initial Premium........................................... A-24
Deductions from Additional Payments....................................... A-24
Monthly Deduction Deducted from Cash Value................................ A-24
Daily Charges Deducted from the Variable Account Assets................... A-25
Charges Deducted from Eligible Fund Assets................................ A-25
Charges Deducted on Surrender or Partial Surrender........................ A-25
Sales Charges............................................................. A-25
Surrender Charge.......................................................... A-25
State Premium Tax Charge.................................................. A-26
Cost of Insurance Charge.................................................. A-26
Administrative Charge..................................................... A-28
</TABLE>
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<TABLE>
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Monthly Maintenance Charge............................................... A-28
Mortality and Expense Risk Charge........................................ A-28
Eligible Fund Expenses................................................... A-28
Charges for Additional Services.......................................... A-28
Charges for Income Taxes................................................. A-28
Group or Sponsored Arrangements.......................................... A-29
THE VARIABLE ACCOUNT...................................................... A-29
Investments of the Variable Account...................................... A-30
Investment Management.................................................... A-33
OTHER POLICY FEATURES..................................................... A-34
Policy Owner and Beneficiary............................................. A-34
Exchange of Policy....................................................... A-34
NELICO'S DISTRIBUTION AGREEMENT........................................... A-34
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY.......................... A-35
Misstatement of Age or Sex............................................... A-35
Suicide.................................................................. A-35
TAX CONSIDERATIONS........................................................ A-36
Policy Proceeds.......................................................... A-36
Definition of Life Insurance............................................. A-36
Tax Treatment of Loans and Other Distributions........................... A-36
Taxation of Accelerated Benefits Rider................................... A-37
Special Treatment of Loans on the Policy................................. A-37
Aggregation of Modified Endowment Contracts.............................. A-37
Other Policy Owner Tax Matters........................................... A-38
Charge for NELICO's Income Taxes......................................... A-39
MANAGEMENT................................................................ A-40
VOTING RIGHTS............................................................. A-43
RIGHTS RESERVED BY NELICO................................................. A-43
TOLL-FREE NUMBERS......................................................... A-44
REPORTS................................................................... A-44
ADVERTISING PRACTICES..................................................... A-44
LEGAL MATTERS............................................................. A-45
REGISTRATION STATEMENT.................................................... A-45
EXPERTS................................................................... A-45
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET CASH VALUES
AND ACCUMULATED PREMIUMS................................................. A-47
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............................. A-59
APPENDIX C: EXAMPLE OF EFFECT OF NEGATIVE INVESTMENT PERFORMANCE ON
CALCULATION OF SURRENDER CHARGES; EXAMPLE OF ADJUSTMENT TO PREMIUM TAX
CHARGE RESULTING FROM ADDITIONAL PAYMENTS................................ A-81
APPENDIX D: EXAMPLES OF EFFECT OF SURRENDERS AND PARTIAL SURRENDERS ON
OPERATION OF POLICY...................................................... A-82
APPENDIX E: LONG-TERM MARKET TRENDS....................................... A-84
APPENDIX F: DOLLAR COST AVERAGING......................................... A-86
FINANCIAL STATEMENTS...................................................... F-1
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GLOSSARY
ADMINISTRATIVE CHARGE. This charge for administering the Policy is deducted
from your cash value on each Monthly Deduction Date after the Policy Date, as
part of the Monthly Deduction. (See "Charges and Expenses.")
AGE. For purposes of this prospectus, the age of an insured refers to the
insured's age at his or her last birthday. Joint insureds are assigned the
same "joint equal age," which reflects the anticipated mortality of both
insureds.
CASH VALUE. A Policy's cash value is the sum of the amount of its cash value
held in the Variable Account and, if there is an outstanding policy loan, the
amount of its cash value held in NELICO's general account as a result of the
loan. (See "Cash Value.")
COST OF INSURANCE CHARGE. This charge for providing insurance protection is
deducted from cash value on each Monthly Deduction Date after the Policy Date,
as part of the Monthly Deduction. No cost of insurance charge is deducted on
or after the Policy Anniversary when the age of the insured(s) is equal to
100. (See "Charges and Expenses.")
ELIGIBLE FUNDS. Each Sub-Account of the Variable Account invests in the
shares of one of the Eligible Funds. The Eligible Funds are: Loomis Sayles
Small Cap Series, Morgan Stanley International Magnum Equity Series, Alger
Equity Growth Series, Goldman Sachs Midcap Value Series, Davis Venture Value
Series, Westpeak Growth and Income Series, Westpeak Stock Index Series, Loomis
Sayles Balanced Series, Back Bay Advisors Managed Series, Salomon Brothers
Strategic Bond Opportunities Series, Back Bay Advisors Bond Income Series,
Salomon Brothers U.S. Government Series, and Back Bay Advisors Money Market
Series, all of which are series of the Zenith Fund. (See "The Variable
Account.")
FACE AMOUNT. The amount of the initial premium.
HOME OFFICE. NELICO's office at 501 Boylston Street, Boston, Massachusetts
02116, (617) 578-2000.
INVESTMENT START DATE. This is the latest of the date NELICO receives the
initial premium for the Policy, the date when the last Part II of the Policy
application or the Supplement to the Part I Application is signed, if any is
required, and the Policy Date. It is the date when an amount is first provided
for investment under the Policy. (See "Amount Provided for Investment Under
the Policy.")
ISSUE AGE. The age of an insured as of the last birthday on or before the
Policy Date. In the case of a Last Survivor Policy, "issue age" refers to the
joint equal age assigned to both insureds.
LAST SURVIVOR POLICY. A Policy providing for the payment of a death benefit
on the last of two named insureds to die.
MINIMUM GUARANTEED DEATH BENEFIT. The minimum guaranteed death benefit on
any day is the greater of total premiums paid or the cash value as of the most
recent five-year anniversary of the Policy Date, as adjusted for any interim
premium payments or withdrawals. See "Death Benefit."
MONTHLY DEDUCTION. The Monthly Deduction is the aggregate amount of charges
deducted from the Policy's cash value on each Monthly Deduction Date and
includes the monthly cost of insurance charge, the monthly administrative
charge, the monthly maintenance charge for certain Policies, the mortality and
expense risk charge, and during the first ten Policy Years, the monthly sales
charge and monthly state premium tax charge. Upon surrender, lapse or partial
surrender, the applicable portion of the Monthly Deduction will also be
deducted from the cash value. (See "Charges and Expenses.")
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MONTHLY DEDUCTION DATE. The last day of each Policy Month.
NET ADDITIONAL PAYMENT. Each net additional payment is equal to the
additional payment made less the applicable sales charge and state premium tax
charge.
NET CASH VALUE. On any day, the Policy's net cash value is equal to the cash
value for that day, reduced by any outstanding Policy loan balance and also
reduced by any Surrender Charge that would apply on surrender. (See "Cash
Value.")
NET INVESTMENT EXPERIENCE. For any period, a Sub-Account's net investment
experience equals the investment experience of the underlying Eligible Fund's
shares for the same period. (See "Net Investment Experience.")
POLICY DATE. If you submit the initial premium payment with the application
or during the underwriting process, the Policy Date is generally the later of
the date when the last Part II of the application or the Supplement to the
Part I Application is signed, if any is required, and receipt of the premium
payment. If you do not submit the initial premium with the application or
during the underwriting process, the Policy Date will generally be the date
NELICO receives the initial premium payment for the Policy. The Policy Date is
the date used to determine all future cyclical periods under the Policy, e.g.,
Policy Months and Policy Years.
POLICY LOAN BALANCE. Policy loans outstanding plus interest accrued to date.
PREFERRED SURRENDER AMOUNT. This amount may be surrendered from the Policy's
cash value during the Surrender Charge Period free of any Surrender Charge.
This amount is equal to the greater of (a) cash value in excess of initial
premium paid (minus any previous partial surrenders attributable to the
initial premium) and (b) 10% of the initial premium paid (minus previous
partial surrenders in that Policy Year).
PREMIUMS. Premiums include all payments you make under the Policy other than
loan repayments. (See "Premiums.")
RIGHT TO RETURN THE POLICY PERIOD. Within 10 days (or more where required by
applicable state insurance law) after you receive the Policy, you may cancel
the Policy by returning the Policy to NELICO or its agent. If you choose to
cancel the Policy, NELICO will refund any premiums paid (or any other amount
that is required by state insurance law) with interest at the rate currently
in use by NELICO.
SINGLE INSURED POLICY. A Policy providing for the payment of a death benefit
on the death of the insured named in the Policy.
STATE PREMIUM TAX CHARGE. This charge for state premium taxes is deducted
from your cash value on each Monthly Deduction Date for the first ten Policy
Years, as part of the Monthly Deduction. If you make an additional payment, a
charge for state premium taxes is deducted from the payment before allocation
to the Sub-Accounts. (See "Charges and Expenses.")
SURRENDER CHARGE. If, during the Surrender Charge Period, a Policy is
totally surrendered or lapses or a partial surrender (other than a preferred
partial surrender) is made, a Surrender Charge is taken from the cash value.
The surrender charge is a deferred sales charge attributable to the initial
premium. (See "Surrender Charge.")
SURRENDER CHARGE PERIOD. The Surrender Charge Period is the first nine
Policy Years.
YOU. When used in this prospectus, "you" refers to the Policy Owner.
ZENITH FUND. The New England Zenith Fund.
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INTRODUCTION TO THE POLICIES
THE POLICIES
The individual modified single premium variable life insurance policies
offered by this prospectus are designed to provide lifetime insurance coverage
for the insured(s) named in the Policy. They are not offered primarily as an
investment.
The following list provides a brief description of the basic features of the
Policy. These and other features of the Policy are explained in more detail
throughout the prospectus. You should be sure to read the entire prospectus
for more complete information.
-- PREMIUM PAYMENTS. You must pay an initial premium at least equal to our
minimum single premium requirements. After the first Policy Year, you
may make additional payments, subject to certain restrictions and
limitations.
-- INVESTMENT OF PREMIUMS. After an initial period in the Money Market Sub-
Account, your initial premium is invested according to your instructions
in one or more of the Sub-Accounts of the Variable Account corresponding
to mutual fund portfolios. (See "Amount Provided for Investment In the
Policy.") Any net additional payments will be invested according to your
instructions in the Sub-Accounts. (See "Allocation of Premiums" and
"Investment Options.")
-- AVAILABLE PORTFOLIOS. The mutual fund portfolios available to you under
the Policy include several common stock funds, including a fund which
invests primarily in foreign securities, three bond funds, one managed
fund, a balanced fund, and a money market fund. (See "Investments of the
Variable Account.")
-- LIMITS ON ALLOCATIONS. You may allocate your Policy's cash value to a
maximum of 10 Sub-Accounts.
-- TRANSFERS. Once fifteen days have passed (longer in certain states)
after we mail the confirmation for the initial premium payment, you may
transfer portions of the Policy's cash value among the Sub-Accounts.
Currently, you are permitted twelve transfers each Policy Year without
NELICO's consent. You will never be permitted less than four transfers
each Policy Year without NELICO's consent (except for Policies issued in
New York, where the minimum number of transfers permitted each Policy
Year will never be less than twelve). (See "Transfer Option.")
-- FLUCTUATING CASH VALUE. The cash value of the Policy will vary daily
based on, among other things, the net investment experience of the Sub-
Accounts to which amounts have been allocated. The cash value is not
guaranteed. You bear the investment risk with respect to the cash value.
(See "Cash Value" and "Charges and Expenses.")
-- DEATH BENEFIT. The death benefit is the greater of the variable death
benefit and the minimum guaranteed death benefit. (See "Death Benefit.")
-- POLICY LOANS AND PARTIAL SURRENDERS. A loan privilege is available under
the Policy. Partial surrenders also are allowed. (See "Loan Privilege"
and "Partial Surrenders.")
-- FEDERAL INCOME TAX CONSEQUENCES. Death benefits paid to the beneficiary
under a life insurance contract generally are not subject to Federal
income tax. Under current law, undistributed increases in cash value of
a life insurance contract generally are not taxable. (See "Tax
Considerations.") In almost all situations, the Policies are expected to
be treated as modified endowment contracts. (See "Tax Treatment of Loans
and Other Distributions.") Pre-death distributions (including partial
surrenders and loans) from a modified endowment contract are included in
income on an income first basis, and a 10% penalty tax may be imposed on
income distributed before the Policy Owner attains age 59 1/2. (See "Tax
Considerations.")
COMPARISON TO OTHER POLICIES AND OTHER INVESTMENTS
In many respects the Policies are similar to fixed-benefit life insurance.
Like fixed-benefit life insurance, the Policies offer a death benefit and
provide a cash value, loan privileges and surrender values.
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The Policies are different from fixed-benefit life insurance in that the
death benefit will in most cases, and the cash value will always, vary to
reflect the investment experience of the selected Sub-Accounts of the Variable
Account.
The Policies are designed to provide insurance protection. Although the
underlying mutual fund portfolios to which cash value may be allocated invest
in securities similar to those in which mutual funds available directly to the
public invest, in many ways the Policies differ from mutual fund investments.
The main differences are:
-- The Policy provides a death benefit based on NELICO's assumption of an
actuarially calculated risk.
-- If the net cash value is not sufficient to pay a Monthly Deduction
because there is an excess Policy loan, the Policy will lapse with no
value unless a payment is made. If the Policy lapses when Policy loans
are outstanding, adverse tax consequences may result.
-- In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from values of the Policy and
from any additional premiums. These charges include various insurance,
risk, administrative and state premium tax charges. (See "Charges and
Expenses.")
-- The Variable Account, not the Policy Owner, owns the mutual fund shares.
-- Federal income tax liability on any earnings on the mutual fund
investment is deferred until you receive a distribution from the Policy.
Transfers from one underlying fund portfolio to another are accomplished
without tax liability under current law.
-- Dividends and capital gains are automatically reinvested.
The chart on the following pages shows how the Policy operates.
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DIAGRAM OF POLICY
PREMIUM PAYMENTS
--Minimum initial premium required is $10,000.
--Additional payments may be paid after the first Policy
Year, within limits. See page A-13.
DEDUCTIONS FROM PREMIUMS BEFORE ALLOCATION
-- From initial premium: NONE
-- From additional payments:
--6.5% charge for sales load expense (reduced to 5.10% for
additional payments on Policies with initial premiums of
$2,000,000 or more).
--2.5% charge for state premium tax. See page A-24.
INVESTMENT OF PREMIUMS
-- You direct the allocation of initial premiums and any net additional
payments among 13 Sub-Accounts of the Variable Account. See pages A-14 to
A-15 for rules and limits on allocations.
-- The Sub-Accounts invest in corresponding portfolios of the New England
Zenith Fund. See page A-29. Portfolios available are:
Loomis Sayles Small Cap Westpeak Stock Index Series
Series Loomis Sayles Balanced Series
Morgan Stanley Back Bay Advisors Managed Series
International Magnum Salomon Brothers Strategic Bond
Equity Series Opportunities Series
Alger Equity Growth Series Back Bay Advisors Bond Income Series
Goldman Sachs Midcap Value Salomon Brothers U.S. Government
Series Series
Davis Venture Value Series Back Bay Advisors Money Market
Westpeak Growth and Income Series
Series
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CASH VALUE
-- Cash value is equal to the initial premium and any net additional
payments, as adjusted each day the New York Stock Exchange is open to
reflect Sub-Account net investment experience, charges deducted and other
Policy transactions (such as transfers and partial surrenders). See page
A-19.
-- Cash value varies from day to day. There is no minimum guaranteed cash
value. The Policy may lapse if there is a Policy loan. See pages A-19 and
A-20.
-- Cash value can be transferred among the Sub-Accounts. See pages A-16 to
A-17 for rules and limits. Policy loans reduce the amount available for
allocations and transfers.
-- Dollar cost averaging and asset rebalancing programs are available. See
page A-17.
-- Cash value is the starting point for calculating certain values under a
Policy, such as the net cash value and the death benefit.
DEDUCTIONS FROM CASH VALUE
-- Monthly Deduction from cash value for:
-- cost of insurance (currently calculated as a percentage of cash value
at an annual rate, depending on the issue age and risk class of the
insured, ranging from:
Single Insured Policy: 0.45% to 1.25% for standard risk class
(0.70% to 1.90% for substandard risk class)
Last Survivor Policy: 0.25% to 1.05% for standard risk class
(0.40% to 1.60% for substandard risk class)
-- Administrative charge, calculated as a percentage of cash value at an
annual rate of 0.35% (currently reducing to 0.10% after ten years).*
-- During first ten Policy Years, sales charge and state premium tax
charge, calculated as percentages of cash value at annual rates of
0.40% and 0.25%, respectively.*
-- Mortality and expense risk charge, calculated as a percentage of cash
value at an annual rate of 0.90%.
-- For Policies with cumulative premiums less than $50,000, a Monthly
Maintenance Charge of $2.50 per month also is included in the Monthly
Deduction.
--------
* For Policies with initial premiums of $2,000,000 or more, the 0.40%
sales charge and the 0.25% state premium tax charge will be waived, and
the 0.35% Administrative Charge currently will be waived after the
tenth Policy Year.
See page A-24.
-- Investment advisory fees and fund expenses are deducted from the assets
of each Eligible Fund. See pages A-10 to A-11.
CASH VALUE BENEFITS DEATH BENEFITS
-- Loans may be taken for amounts -- Income tax free to Beneficiary.
up to 90% of net cash value at (See "Tax Considerations.")
a net interest rate charge of -- Available as lump sum or under
0.75%. Preferred loans are cur- a variety of payment options.
rently available (with a net -- Greater of variable death bene-
interest rate charge of 0%). fit or minimum guaranteed death
See pages A-19 to A-21 for benefit.
rules and limits. -- Variable death benefit is
-- The Policy may be surrendered determined by dividing the
in full at any time for its net cash value by the applicable
cash value, less the Monthly net single premium. See page
Deduction to the date of sur- A-18.
render. A declining sales -- Minimum guaranteed death
charge of up to 8.0% of the benefit guarantees the ini-
initial premium will apply to a tial premium plus additional
full surrender made during the payments, less adjustments
first nine Policy Years. Fed- for partial surrenders, as
eral taxes and a tax penalty long as there is not an ex-
also may apply. See page A-21. cess Policy loan. See page
-- Partial surrenders may be made. A-18. On each five-year an-
A pro rata portion of the Sur- niversary of the Policy Date
render Charge may apply on par- up to age 75, the minimum
tial surrenders made during the guaranteed death benefit
first nine Policy Years. Fed- will be reset as the greater
eral taxes and a tax penalty of the minimum guaranteed
also may apply. See page A-21 death benefit before the re-
for rules and limits. calculation, and the cash
-- Preferred surrender amounts value on that date. See page
(with no surrender charges ap- A-18. Proceeds paid will be
plicable) are available. reduced by any Policy loan
-- Payment options available. See balance.
page A-23.
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AVAILABILITY OF FHE POLICY
Generally, the Policies may be issued on the lives of insureds from the
issue ages of 20 to 80. In the case of a Single Insured Policy, the proposed
insured must meet NELICO's underwriting and other criteria for issuance. In
the case of a Last Survivor Policy, both of the insureds must meet those
criteria. (See "Applying for a Policy.")
The Policies are currently intended for individual use and for use with
certain retirement plans that qualify for tax benefited treatment under
Section 401(a) (but not Section 401(k)) of the Internal Revenue Code (the
"Code").
POLICY CHARGES
-- DEDUCTIONS FROM INITIAL PREMIUM. NELICO deducts no charges from the
initial premium before allocation to the Variable Account, although a
monthly sales charge and state premium tax charge are deducted as part
of the Monthly Deduction during the first ten Policy Years, and a
Surrender Charge applies during the Surrender Charge Period (the first
nine Policy Years).
-- DEDUCTIONS FROM ADDITIONAL PAYMENTS. NELICO will deduct the following
charges from an additional payment before allocation of the net
additional payment to the Sub-Accounts you select:
-- 6.5% sales charge (reduced to 5.10% for Policies with Initial
Premiums of $2,000,000 or more).
-- 2.5% state premium tax charge.
-- MONTHLY DEDUCTION DEDUCTED FROM CASH VALUE. NELICO deducts a charge from
the cash value on each Monthly Deduction Date after the Policy Date.
This charge is the aggregate of the following charges, shown below at
their current annual rates:
-- Cost of insurance charge,* currently ranging from:
Single Insured Policy: 0.45% to 1.25% for standard risk class
(0.70% to 1.90% for substandard risk class)
Last Survivor Policy: 0.25% to 1.05% for standard risk class
(0.40% to 1.60% for substandard risk class)
-- 0.35% Administrative Charge (currently reduced to 0.10% after the
first ten Policy Years)**
-- 0.40% sales charge (deducted during the first ten Policy Years
only)**
-- 0.25% state premium tax charge (deducted during the first ten Policy
Years only)**
-- 0.90% mortality and expense risk charge
-- For Policies with cumulative premiums less than $50,000, a $2.50
Monthly Maintenance Charge also is included in the Monthly Deduction
- --------
* No cost of insurance charge is deducted on or after the Policy Anniversary
when the age of the insured(s) is equal to 100.
** For Policies with initial premiums of $2,000,000 or more, the 0.40% sales
charge and 0.25% premium tax charge for the initial premium will be waived,
and the 0.35% Administrative Charge currently will be waived after the
tenth Policy Year.
Each charge, except the $2.50 Monthly Maintenance Charge, is calculated as a
percentage of cash value on the Monthly Deduction Date. Each charge is
deducted pro rata from the cash value in the Sub-Accounts.
The charges shown above may be changed to the following extent. The current
cost of insurance charges are guaranteed not to exceed the maximum cost of
insurance charges permitted under the 1980 Commissioners' Standard Ordinary
Smoker/Nonsmoker Tables (or multiples of or additives to, in the case of
substandard classifications). The rate of the state premium tax charge
deducted as part of the Monthly Deduction will be adjusted downward
proportionately if cash value increases as a result of an additional payment.
The sales charge also will be monitored so that the total dollar amount
deducted, as part of the Monthly Deduction and any Surrender Charge, does not
exceed 9.0% of the initial premium. The Administrative Charge is guaranteed
not to exceed an annual rate of 0.35% of cash value. The $2.50 Monthly
Maintenance Charge will apply only if cumulative premiums paid are less than
$50,000, and will terminate if cumulative premiums paid exceed $50,000.
-- CHARGES DEDUCTED FROM ELIGIBLE FUND ASSETS. The value of shares of the
Eligible Funds reflect charges and deductions from assets for investment
advisory services and fund operating expenses.
A-10
<PAGE>
ANNUAL SERIES OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 (FOR THE
GOLDMAN SACHS MIDCAP VALUE SERIES, ANTICIPATED EXPENSES FOR 1998)
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE CAP OR EXPENSE
DEFERRAL)*
<TABLE>
<CAPTION>
LOOMIS MORGAN GOLDMAN WESTPEAK
SAYLES STANLEY ALGER SACHS DAVIS GROWTH WESTPEAK
SMALL INTERNATIONAL EQUITY MIDCAP VENTURE AND STOCK
CAP MAGNUM GROWTH VALUE VALUE INCOME INDEX
SERIES EQUITY SERIES SERIES SERIES** SERIES SERIES SERIES
------ ------------- ------ -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... 1.00% .90% .75% .75% .75% .70% .25%
Other Expenses.......... -- .40% .12% .15% .15% .12% .15%
----- ----- ---- ---- ---- ---- ----
Total Operating Ex-
penses............... 1.00% 1.30% .87% .90% .90% .82% .40%
===== ===== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
SALOMON
BROTHERS BACK BAY SALOMON BACK BAY
LOOMIS BACK BAY STRATEGIC ADVISORS BROTHERS ADVISORS
SAYLES ADVISORS BOND BOND U.S. MONEY
BALANCED MANAGED OPPORTUNITIES INCOME GOVERNMENT MARKET
SERIES SERIES SERIES SERIES SERIES SERIES
-------- -------- ------------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Management Fee.......... .70% .50% .65% .40% .55% .35%
Other Expenses.......... .15% .11% .20% .12% .15% .10%
---- ---- ---- ---- ---- ----
Total Operating Ex-
penses............... .85% .61% .85% .52% .70% .45%
==== ==== ==== ==== ==== ====
</TABLE>
- --------
* The Total Operating Expenses are based on the amount of such expenses
applied against assets at December 31, 1997, after giving effect to the
applicable voluntary expense cap or expense deferral. For the Loomis Sayles
Small Cap Series, Total Series Operating Expenses take into account a
voluntary cap on expenses by TNE Advisers, Inc. ("TNE Advisers"), the
Series' investment adviser, which will bear all expenses that exceed 1.00%
of average daily net assets. In the absence of this cap or any other
expense reimbursement arrangement, Total Operating Expenses for the Loomis
Sayles Small Cap Series for the year ended December 31, 1997 would have
been 1.14%. Total Operating Expenses for the Westpeak Growth and Income,
Westpeak Stock Index, Back Bay Advisors Managed, Back Bay Advisors Bond
Income and Back Bay Advisors Money Market Series are after giving effect to
a voluntary expense cap. For each of these Series, TNE Advisers will bear
those expenses (other than the management fee) that exceed 0.15% of average
daily net assets. Without this cap or any other expense reimbursement
arrangement, Total Operating Expenses for the Westpeak Stock Index Series
for the year ending December 31, 1997 would have been 0.43%. Prior to May
1, 1998, the Goldman Sachs Midcap Value Series was subject to a voluntary
expense cap, under which TNE Advisers bore those expenses (other than the
management fee) that exceeded 0.15% of average daily net assets. Without
this expense cap or any other expense reimbursement arrangement, Total
Operating Expenses for the Goldman Sachs Midcap Value Series for the year
ending December 31, 1997 would have been 0.86% of average daily net assets.
Effective May 1, 1998 the Goldman Sachs Midcap Value Series is subject to
the voluntary expense deferral described below for the six other Series
shown, with an annual expense limit of .90% of net assets. For the six
other Series shown, the Total Operating Expenses are after giving effect to
a voluntary expense deferral. Under the deferral, expenses that exceed a
certain limit are paid by TNE Advisers in the year in which they are
incurred and transferred to the Series in a future year when actual
expenses of the Series are below the limit. The limit on expenses for each
of these Series is: 1.30% of average daily net assets for the Morgan
Stanley International Magnum Equity Series; .90% of average daily net
assets for the Alger Equity Growth, Davis Venture Value and Goldman Sachs
Midcap Value (formerly Loomis Sayles Avanti Growth) Series; .85% of average
daily net assets for the Loomis Sayles Balanced and Salomon Brothers
Strategic Bond Opportunities Series; and .70% of average daily net assets
for the Salomon Brothers U.S. Government Series. Absent the expense
deferral, Total Operating Expenses for these Series for the year ended
December 31, 1997 would have been: 1.59% for Morgan Stanley International
Magnum Equity Series, 0.86% for Loomis Sayles Balanced Series, 0.87% for
Salomon Brothers Strategic Bond Opportunities Series and 0.98% for Salomon
Brothers U.S. Government Series. Total Operating Expenses for the Davis
Venture Value Series for the year ended December 31, 1997 would have been
0.85% of average daily net assets; however, pursuant to the expense
deferral arrangement, 0.05% was carried over from a previous year in which
operating expenses exceeded the limit. The expense cap and expense deferral
arrangements are voluntary and may be terminated at any time. (See attached
prospectus of the New England Zenith Fund for more complete information.)
A-11
<PAGE>
** 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.
-- SURRENDER CHARGE. If the Policy is surrendered or lapses or a partial
surrender is taken during the first nine Policy Years (the Surrender
Charge Period), a Surrender Charge may be deducted. The Surrender Charge
is a deferred sales charge. The amount of this charge declines over the
course of the Surrender Charge Period. The table below shows the
Surrender Charge as a percentage of the portion of the amount
surrendered subject to the Surrender Charge:
<TABLE>
<CAPTION>
POLICY YEAR CHARGE
----------- ------
<S> <C>
1............................... 8.0%
2............................... 8.0%
3............................... 7.0%
4............................... 6.0%
5............................... 5.0%
6............................... 4.0%
7............................... 3.0%
8............................... 2.0%
9............................... 1.0%
10............................... 0.0%
</TABLE>
The Surrender Charge is deducted from the amount surrendered.
During the Surrender Charge period, a partial surrender is taken first from
the "preferred surrender amount" free of any Surrender Charge and then from
the cash value subject to the Surrender Charge. The "preferred surrender
amount" is equal to the greater of (a) cash value on the date of surrender in
excess of the initial premium paid (minus any previous partial surrenders
attributable to the initial premium) and (b) 10% of the initial premium paid
(minus previous partial surrenders in that Policy Year). If you make a full
surrender during the Surrender Charge Period, the preferred surrender amount
will be deducted from the amount of the full surrender before the Surrender
Charge is calculated.
For more information concerning the Surrender Charge, see "Surrender
Charge."
For more information concerning the charges and expenses associated with the
Policy, see "Charges and Expenses."
RIGHT TO RETURN THE POLICY
You may cancel the Policy within 10 days (or more where required by
applicable state insurance law) after you receive the Policy. The Policy may
be returned to NELICO or your registered representative. Insurance coverage
ends as soon as the Policy is returned (as determined by its postmark, if the
Policy is mailed). If you choose to cancel the Policy, NELICO will refund any
premiums paid (or any other amount that is required by state insurance law)
with interest at the rate currently in use by NELICO.
RECEIPT OF COMMUNICATIONS AND PAYMENTS AT NELICO'S HOME OFFICE
NELICO will treat your request for a Policy transaction, or your submission
of a payment, as received at the Home Office if it is received there before
the close of regular trading on the New York Stock Exchange on that day. If it
is received after that time, or if the New York Stock Exchange is not open
that day, then it will be treated as received on the next day when the New
York Stock Exchange is open.
NELICO
NELICO was organized as a stock life insurance company in Delaware in 1980
and is licensed to sell life insurance in all states, the District of Columbia
and Puerto Rico. NELICO was formerly a wholly-owned subsidiary
A-12
<PAGE>
of New England Mutual Life Insurance Company ("New England Mutual"). Effective
August 30, 1996, New England Mutual merged into MetLife, a mutual insurance
company whose principal office is at One Madison Avenue, New York, NY 10010.
With the merger, New England Mutual's separate corporate existence ended, and
MetLife became the parent of NELICO. In connection with the merger, NELICO
changed its name from "New England Variable Life Insurance Company" to "New
England Life Insurance Company," and changed its domicile from the State of
Delaware to the Commonwealth of Massachusetts. NELICO's Home Office is now 501
Boylston Street, Boston, Massachusetts 02116. NELICO's mailing address is:
P.O. Box 9116, Boston, Massachusetts 02117.
PREMIUMS
APPLYING FOR A POLICY
Individuals wishing to purchase a Policy must submit an application and
provide evidence of insurability of the proposed insured(s). The initial
premium also must be paid before the Policy is issued. A Single Life Policy
will be issued for an insured only if the insured is between the issue ages of
20 to 80 and satisfies our insurability requirements. A Last Survivor Policy
will be issued on two insureds only if each of them is between the issue ages
of 20 and 80 and each of them satisfies our insurability requirements. The
ages of the two insureds may not be more than nine years apart on the Policy
Date.
Before accepting an application, NELICO conducts underwriting to determine
insurability. The amount of the initial premium and the age of the insured(s)
determines whether the insured initially may qualify for "simplified
underwriting" at issue, which entails completion of a written questionnaire
concerning the insured's health but does not entail a medical examination, or
more detailed underwriting.
NELICO reserves the right to reject an application or premium for any
reason. If a Policy is not issued, any premium payment submitted will be
returned to you plus interest at the rate currently in use by NELICO. If a
Policy is issued, the Policy will be effective on the Policy Date.
PREMIUM PAYMENTS
The minimum initial premium required for a Policy is $10,000, except with
NELICO's consent. You may purchase a Policy with the proceeds of another life
insurance policy, provided that the following conditions are met. First, the
applicable application forms must be completed. Second, if the value to be
applied from the existing policy to a Policy is subject to a policy loan, then
an additional amount of at least $10,000 (above the amount of the policy loan)
must be submitted as part of the initial premium, and any loan remaining
against the new Policy cannot exceed 75% of the cash value of the Policy at
issue. It may not be advantageous to replace existing insurance with a Policy.
Additional payments may be made until the age of the insured(s) is equal to
100, subject to our underwriting requirements and the following rules. Except
with respect to additional payments required in a grace period (see "Lapse and
Reinstatement"), an additional payment must be at least $1,000, and only one
additional payment may be made each Policy Year beginning with the second
Policy Year. You may pay premiums by check or money order. A payment received
after issuance of the Policy while a loan is outstanding generally is treated
first as repayment of Policy loan interest due, second as repayment of a
Policy loan, and last as an additional payment, unless you designate otherwise
in writing when submitting the payment to NELICO. (See "Effect of Policy
Loan.") If you have a Policy loan, it may be more advantageous to repay the
loan than to make an additional payment, because an additional payment is
subject to sales and state premium tax charges, whereas the loan repayment is
not subject to any charges. (See "Loan Privilege" and "Deductions from
Premiums.")
No additional payments may be made on or after age 100 of the insured(s),
except as may be required in a grace period. (See "Lapse and Reinstatement.")
The tax consequences associated with continuing a Policy beyond age 100 of the
insured(s) are unclear. A tax advisor should be consulted on this issue.
A-13
<PAGE>
If acceptance of an additional payment would immediately increase the death
benefit by more than it would increase the cash value, we will require
satisfactory evidence of insurability before accepting it. If the payment
would not so affect the death benefit, we will accept it without underwriting.
However, we reserve the right to reject an additional payment for any reason.
If an additional payment is accepted, NELICO will credit your net additional
payment, after deductions for sales and state premium tax charges, to your
Policy's cash value as of the date the payment is received at NELICO's Home
Office, if underwriting was not required, or the date underwriting was
completed if underwriting was required. (See "Allocation of Premiums,"
"Charges and Expenses," and "Receipt of Communications and Payments at
NELICO's Home Office.")
If an additional payment is accepted, a proportional downward adjustment
will be made in the rate of the state premium tax charge deducted as part of
the Monthly Deduction. (See "Charges and Expenses" and Appendix C.)
RIGHT TO RETURN THE POLICY
You may cancel the Policy within 10 days (or more where required by
applicable state insurance law) after you receive the Policy. The Policy may
be returned to NELICO or your registered representative. Insurance coverage
ends as soon as the Policy is returned (as determined by its postmark, if the
Policy is mailed). If you choose to cancel the Policy, NELICO will refund any
premiums paid (or any other amount that is required by state insurance law)
with interest at the rate currently in use by NELICO.
LAPSE AND REINSTATEMENT
As a single premium policy, the Policy is designed to be fully paid-up when
issued. Accordingly, it will not lapse, regardless of adverse investment
experience, unless there are excessive Policy loans. See "Policy Loans." If a
Policy loan is outstanding, and the net cash value on a Monthly Deduction Date
is not enough to cover the entire Monthly Deduction for that Policy Month, the
Policy will be in default. NELICO will notify you of the amount due to
continue the Policy. The Policy provides a 62-day grace period from the date
the Monthly Deduction was due (unless otherwise provided by state law) for
paying an additional payment in an amount sufficient to cover three months of
Monthly Deductions and loan interest due after the notice is sent. During the
grace period, insurance coverage continues under your Policy, but if the
insured dies (in the case of a Last Survivor Policy, if the last surviving
insured dies) before the grace period payment is made, NELICO will deduct from
the death proceeds the portion of the unpaid Monthly Deduction(s) for the
period prior to the date of death.
If your Policy has lapsed, it may be reinstated within seven years after the
date of lapse. If more than seven years have passed, or if you have
surrendered the Policy, NELICO's consent is required to reinstate.
Reinstatement in all cases is subject to payment of certain charges described
in the Policy and generally requires evidence of insurability that is
satisfactory to NELICO. If a Policy lapses and is reinstated, the period the
Policy was lapsed will not count for purposes of determining (i) the Surrender
Charge on any date after reinstatement; (ii) whether the ten-year period
during which the Monthly Deduction includes deductions for sales charges and
state premium taxes is in effect; and (iii) whether the ten-year period during
which higher administrative charges are deducted is in effect. For the purpose
of determining the dates on which the minimum guaranteed death benefit will be
recalculated, the period the Policy was lapsed will count. If the minimum
guaranteed death benefit would have been recalculated during the period the
Policy was lapsed, it will be recalculated upon reinstatement.
ALLOCATION OF PREMIUM PAYMENTS AND TRANSFER OF CASH VALUE
ALLOCATION OF PREMIUM PAYMENTS
The initial premium will be allocated to the Money Market Sub-Account as of
the latest of the Policy Date, the date when the last Part II of the
application for the Policy or the Supplement to the Part I Application is
signed, if
A-14
<PAGE>
any is required, and the date the initial premium is received by NELICO.
NELICO will mail you a confirmation for the initial premium (see "Right to
Return the Policy") when your application for the Policy has been approved and
the initial premium has been received, and fifteen days after the confirmation
has been mailed, the cash value in the Money Market Sub-Account will be
allocated to the Sub-Accounts according to your instructions. (For Policies
issued in Maryland, this allocation to your selected Sub-Accounts will occur
on the later of fifteen days after the confirmation has been mailed and 45
days after the date of Part I of the application.) (See "Investment Options.")
Therefore, your selection of Sub-Accounts in the application does not take
effect until after the end of the initial period described above, during which
the cash value is allocated to the Money Market Sub-Account.
Allocations of premium can be made to a maximum of 10 Sub-Accounts at any
one time. The Policy provides that a minimum of 10% of the premium must be
allocated to each Sub-Account selected, and that percentages allocated must be
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.
You select the initial premium allocation when you apply for a Policy. This
allocation will be used for any additional payments, unless you specify
otherwise when submitting the payment. You also may change the allocation
instructions for future payments at any time thereafter, provided that your
Policy's cash value is distributed among no more than 10 Sub-Accounts at any
one time. The change will be effective for additional payments accepted on or
after the date when NELICO receives your instructions. The portion of an
additional payment to be applied to each Sub-Account chosen must be a whole
percent. (Under the Policy terms at least 10% of the payment must be allocated
to each Sub-Account chosen, but NELICO is currently waiving this requirement.)
You may change your instructions by telephone or by written request in a form
satisfactory to NELICO. (See "Receipt of Communications and Payments at
NELICO's Home Office.") See "Transfer and Reallocation Requests" below for
information on how to request a transfer or reallocation by telephone.
AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY
The initial premium is first invested under the Policy as of the investment
start date. The investment start date is the latest of: the date when NELICO
first receives the premium for the Policy, the date when the last Part II of
the Policy application or the Supplement to the Part I Application is signed,
if any is required, and the Policy Date. (For this purpose only, receipt of
the premium means receipt by your registered representative if the payment is
made with the application; otherwise, it means receipt by NELICO's Home
Office.
If you pay the initial premium with the application or during the
underwriting process, the Policy Date is the later of the date when the last
Part II of the application or the Supplement to the Part I Application is
signed, if any is required, and receipt of the premium payment. In this case
the Policy Date and investment start date are the same. (In such cases, the
initial premium will be maintained by NELICO or an affiliate in the general
account, and will not earn interest prior to the investment start date.)
If you pay the initial premium with the application, the insured will be
covered under a temporary insurance agreement for a limited period that is
described in the temporary insurance agreement form. Generally, coverage under
the temporary insurance agreement begins on the later of the date when NELICO
receives the premium payment for the Policy and the date when the last Part II
of the application or the Supplement to the Part I Application is signed, if
any is required. The maximum amount of coverage provided is the lesser of the
amount of insurance applied for and $500,000 for standard and preferred risks
($250,000 for substandard risks and $50,000 for persons who are determined to
be uninsurable). There may be variations to these provisions required by state
law.
If a Policy is issued, Monthly Deductions, including cost of insurance
charges, begin as of the first Monthly Deduction Date, even if the Policy's
issuance was delayed due to underwriting requirements, and will be in amounts
based on the face amount of the Policy issued, even if the temporary insurance
coverage received during the underwriting period was for a lesser amount. If
NELICO declines an application, it will refund the premium payment made plus
interest at the rate currently in use by NELICO.
A-15
<PAGE>
If you do not submit the initial premium with the application or during the
underwriting process, the Policy Date will generally be the date NELICO
receives the initial premium payment for the Policy and will be the same as
the investment start date. However, at your request and under limited
circumstances, NELICO may assign your Policy a Policy Date that is prior to
the investment start date in this situation. No charges will be deducted and
no interest will be credited to the Policy for the period between the Policy
Date and the investment start date.
TRANSFER OPTION
Beginning fifteen days after NELICO mails the confirmation for the initial
premium, you may transfer your Policy's cash value among the Sub-Accounts.
(For Policies issued in Maryland, you may make Sub-Account transfers beginning
with the later of fifteen days after NELICO mails the initial premium
confirmation and 45 days after the date of Part I of the application.)
Currently, you are permitted twelve transfers each Policy Year without
NELICO's consent. You will never be permitted less than four transfers each
Policy Year without NELICO's consent (except for Policies issued in New York,
where the minimum number of transfers permitted each Policy Year will never be
less than twelve). Currently, NELICO's rules for transfers require that the
amount transferred from any Sub-Account must be at least $100. (If the full
amount of cash value in a Sub-Account is less than $100, that full amount may
be transferred). Currently, all transfers are subject to a maximum of $500,000
per transfer. In applying the $500,000 limit, NELICO will treat as one
transfer all transfers that you request on the same day for all Policies you
own. If the $500,000 limitation is exceeded for multiple transfers requested
on the same day that are treated as a single transfer, no amount of the
transfer will be executed by NELICO.
A transfer will be effective as of the date when NELICO receives the
transfer request at its Home Office. (See "Receipt of Communications and
Payments at NELICO's Home Office.") However, you should be aware that because
transfer limitations may prevent you from making a transfer on the date you
want to, your Policy's cash value may in the future be lower than it would
have been had the transfer been made on the desired date.
For transfers that NELICO determines to be based on "market-timing" (e.g.,
transfers under different Policies that are being requested under Powers of
Attorney with a common attorney-in-fact or that are in NELICO's determination
based on the recommendation of a common investment adviser or broker-dealer),
the current transfer limitation is one transfer every 30 days, each transfer
subject to a maximum of $500,000. In applying the limitation of one $500,000
transfer every 30 days, NELICO will treat as one transfer all transfers
requested under different Policies that are being requested under Powers of
Attorney with a common attorney-in-fact or that are, in NELICO's
determination, based on the recommendation of a common investment adviser or
broker-dealer. If the $500,000 limitation is exceeded for multiple transfers
requested on the same day that are treated as a single transfer, no amount of
the transfer will be executed by NELICO. If a transfer is executed under one
Policy and, within the next 30 days, a transfer request for another Policy is
determined by NELICO to be related to the executed transfer under this
paragraph's rules, the transfer request will not be executed by NELICO. (In
order for it to be executed, it would need to be requested again after the 30-
day period and it, along with any other transfer requests that are
collectively treated as a single transfer, would need to total no more than
$500,000).
NELICO's interest in applying these limitations on the maximum number and
size of transfers is to protect the interests of both Policy Owners who are
not engaging in significant transfer activity and Policy Owners who are
engaging in such activity. NELICO has determined that the actions of Policy
Owners engaging in significant transfer activity among Sub-Accounts may cause
an adverse effect on the performance of the underlying Eligible Funds. The
movement of significant Sub-Account values from one Sub-Account to another may
prevent the appropriate Eligible Fund from taking advantage of investment
opportunities because it must maintain a significant cash position in order to
handle redemptions. Such movement may also cause a substantial increase in
Eligible Fund transaction costs that must be indirectly borne by Policy
Owners.
Policy Owners will be notified, in advance, of any change in the limitation
on the number or amount of transfers.
See "Transfer and Reallocation Requests" for information regarding transfers
made by written request and by telephone.
A-16
<PAGE>
Your Policy's cash value may be distributed among no more than ten Sub-
Accounts at any one time.
DOLLAR COST AVERAGING
NELICO offers an automated transfer privilege referred to here as dollar
cost averaging. The main objective of dollar cost averaging is to shield
investments from short term price fluctuations. Since the same dollar amount
is transferred to selected Sub-Accounts each month, over time more purchases
of Eligible Fund shares are made when the value of those shares is low, and
fewer shares are purchased when the value is high. As a result, a lower than
average cost of purchases may be achieved over the long term. This plan of
investing allows Owners to take advantage of investment fluctuations, but does
not assure a profit or protect against a loss in declining markets.
Under this feature you may request that a certain amount of your cash value
be transferred on any selected business day of each month (or if not a day
when the New York Stock Exchange is open, the next such day), from any one
Sub-Account to one or more of the other Sub-Accounts, subject to the
limitation that cash value may not be allocated to more than 10 of the Sub-
Accounts at any one time. A minimum of $100 must be transferred to each Sub-
Account that you select under this feature. Currently, transfers made under
the dollar cost averaging program will not be counted against the 12 transfers
that may be made each year. You may select a dollar cost averaging program
when you apply for the Policy or at a later date by contacting NELICO's Home
Office. You may not participate in the dollar cost averaging program while you
are participating in the asset rebalancing program. (See "Asset Rebalancing"
below). You may cancel your use of the dollar cost averaging program at any
time prior to the monthly transfer date. Transfers will continue until you
notify us to stop making transfers or there no longer is sufficient cash value
in the Sub-Account from which you are transferring cash value.
ASSET REBALANCING
NELICO offers an asset rebalancing program for cash value. Cash value
allocated to the Sub-Accounts can be expected to increase or decrease at
different rates. An asset rebalancing program automatically reallocates your
cash value among the Sub-Accounts each quarter to return the allocation to the
allocation percentages you specify. Asset rebalancing is intended to transfer
cash value from those Sub-Accounts that have increased in value to those that
have declined, or not increased as much, in value. Over time, this method of
investing may help a Policy Owner "buy low and sell high," although there can
be no assurance that this objective will be achieved. Asset rebalancing does
not guarantee profits, nor does it assure that an Owner will not have losses.
You may select an asset rebalancing program when you apply for the Policy or
at a later date by contacting NELICO's Home Office. You specify the percentage
allocations according to which your cash value will be reallocated among the
Sub-Accounts. You may not participate in the asset rebalancing program while
you are participating in the dollar cost averaging program. (See "Dollar Cost
Averaging" above). On the last day of each calendar quarter on which the New
York Stock Exchange is open, we will transfer cash value among the Sub-
Accounts to the extent necessary to return the allocation to your
specifications. Asset rebalancing will continue until a written or telephone
request to terminate is received at NELICO's Home Office. Currently, transfers
made under an asset rebalancing program are not counted for purposes of the
transfer rules described above.
TRANSFER AND REALLOCATION REQUESTS
You may request a Sub-Account transfer or change the allocation of net
additional payments by written request (which may be telecopied) to NELICO's
Home Office or by telephoning NELICO. To request a transfer or reallocation by
telephone, you should contact your registered representative or contact NELICO
at 1-800-435-4117. Requests for transfers (up to NELICO's current limit each
Policy Year) or reallocations by telephone will be automatically permitted.
NELICO will use reasonable procedures, such as requiring certain identifying
information from the caller, tape recording the telephone instructions, and
providing written confirmation of the transaction, in order to confirm that
instructions communicated by telephone are genuine. Any telephone instructions
reasonably believed by NELICO to be genuine will be your responsibility,
including losses arising from any errors in the communication of instructions.
As a result of this policy, you will bear the risk of loss. If NELICO does not
employ
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reasonable procedures to confirm that instructions communicated by telephone
are genuine, it may be liable for any losses due to unauthorized or fraudulent
instructions.
DEATH BENEFIT
If the insured under a Single Insured Policy dies, NELICO will pay a death
benefit to the beneficiary. In the case of a Last Survivor Policy, NELICO will
pay a death benefit on the last of the two insureds to die.
HOW THE DEATH BENEFIT IS DETERMINED. The death benefit payable on any day is
the greater of the variable death benefit and the minimum guaranteed death
benefit. The variable death benefit is determined by dividing the Policy's
cash value by the applicable net single premium set by the Internal Revenue
Code. Net single premiums are based on the age, sex and smoker/nonsmoker
status of the insured at the time of the calculation and decline over time.
Set forth below are net single premiums for selected ages of male and female,
nonsmoker insureds.
<TABLE>
<CAPTION>
NET SINGLE PREMIUM
-------------------------------
AGE MALE NONSMOKER FEMALE NONSMOKER
--- -------------- ----------------
<S> <C> <C>
30.............. .19992 .17824
40.............. .27992 .24926
50.............. .38723 .34338
60.............. .52085 .46422
70.............. .66655 .61117
</TABLE>
As an example of how the variable death benefit is calculated, assume that
the cash value of a Policy held by a 40-year-old male nonsmoker is $10,000.
The variable death benefit would be $35,724 ($10,000 divided by the applicable
net single premium of .27992).
MINIMUM GUARANTEED DEATH BENEFIT
The minimum guaranteed death benefit guarantees, regardless of investment
performance, that as long as there is not an "excess Policy loan," the death
benefit will never be less than the initial premium paid plus additional
payments, less adjustments for partial surrenders. On the Policy Date, the
minimum guaranteed death benefit is equal to the initial premium paid.
Thereafter, the minimum guaranteed death benefit will be increased by each
additional payment, and decreased proportionately by any partial surrenders.
The reduction at the time of a partial surrender will be based on the ratio of
the cash value after the surrender to the cash value before the surrender.
(See Appendix D for an example illustrating the effect of a partial surrender
on a Policy.) At the end of the fifth Policy Year and every five years
thereafter until the insured is (or insureds are) age 75, the guaranteed death
benefit will be recalculated. On each of these days, the guaranteed death
benefit is equal to the greater of: (i) the guaranteed death benefit before
the recalculation; and (ii) the cash value on the date of recalculation.
If, however, an "excess Policy loan" exists, the Policy may terminate. (See
"Loan Privilege" for the definition of "excess Policy loan.")
ADJUSTMENTS TO THE DEATH PROCEEDS PAYABLE
The death proceeds actually paid to the beneficiary are equal to the amount
of the death benefit determined on the date of the insured's death, reduced by
any Policy loan balance as of that date and by a pro rata portion of the
Monthly Deduction for the portion of the Policy month elapsed since the last
deduction prior to that date.
The death proceeds may also be adjusted if the insured's age (or an
insured's age under a Last Survivor Policy) was misstated in the application,
if death results from the insured's suicide (or an insured's suicide under a
Last Survivor Policy) within two years (or less if provided by state law) from
the Policy's Date of Issue, or if limits on the death benefit are imposed by
rider. (See "Limits to NELICO's Right to Challenge the Policy.")
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<PAGE>
PAYMENT OF DEATH BENEFIT PROCEEDS
Death benefit proceeds will be paid in one sum unless the Policy Owner or
payee chooses to put all or part of the proceeds under a payment option. (See
"Payment of Proceeds" and "Payment Options.") Death benefit proceeds also may
be paid pursuant to NELICO's Access Plus program. If the Access Plus program
is elected, an Access Plus account will be established at State Street Bank &
Trust Company at the time that death benefit proceeds are payable. The Access
Plus account provides convenient access to proceeds, which are maintained in
MetLife's general account, through checkbook privileges with State Street. A
beneficiary may elect to have death benefit proceeds paid through the Access
Plus program at any time prior to the payment of death benefit proceeds.
CASH VALUE AND CASH VALUE BENEFITS
CASH VALUE
Your Policy's cash value includes its cash value in the Variable Account
and, if you have an outstanding Policy loan, in NELICO's general account as a
result of the loan. (See "Loan Privilege.") The cash value reflects premium
payments, the net investment experience of the Policy's Sub-Accounts, interest
credited on amounts held in the general account as a result of a loan, amounts
deducted for Policy charges (including Monthly Deductions and any Surrender
Charge that applies if you make a partial surrender), partial surrenders and
transfers among the Policy's Sub-Accounts.
Your Policy's net cash value is the cash value on any day, reduced by any
Policy loan balance and also reduced by any applicable Surrender Charge. (See
"Loan Privilege," "Surrender Charge," and "Monthly Deduction Deducted from
Cash Value.") If you surrender your Policy, the net cash value will be reduced
by the applicable portion of the Monthly Deduction for the period from the
last deduction to the date of surrender.
The amount provided for investment in the Policy (i.e., the cash value) is
adjusted as of each day the New York Stock Exchange is open to reflect the net
investment experience of the Sub-Accounts for that day. The Policy's cash
value in the Variable Account may increase or decrease daily depending on the
net investment experience of the Policy's Sub-Accounts. Unfavorable investment
experience can reduce the net cash value to zero. Because there is no
guaranteed minimum cash value in the Variable Account, you bear the entire
investment risk with respect to cash value in the Variable Account.
NET INVESTMENT EXPERIENCE. The net investment experience of the Policy's
Sub-Accounts will affect the Policy's cash value and, in most circumstances,
the death benefit. The net investment experience of the Sub-Accounts is
determined as of the close of regular trading on the New York Stock Exchange
on each day when the Exchange is open for trading. A Sub-Account's net
investment experience for any period reflects the investment experience of the
underlying Eligible Fund shares for the same period. Currently, NELICO does
not deduct any charges from the Variable Account for federal or state income
taxes with respect to earnings or capital gains that may be attributable to
the Variable Account. Should NELICO determine that this type of tax will be
imposed, NELICO may make deductions from the Variable Account to pay these
taxes. The imposition of such taxes would result in a reduction of your cash
value. See "Daily Charges Deducted from Variable Account Assets" and "Charges
Deducted from Eligible Fund Assets.")
The investment experience of the Eligible Fund shares for any period is the
increase or decrease in their net asset value for the period, increased by the
amount of any dividends or capital gains distributions on the shares during
the period. Dividends and capital gains distributions on Eligible Fund shares
are reinvested in additional shares of the Eligible Fund and affect subsequent
investment experience.
LOAN PRIVILEGE
You may borrow all or part of the Policy's "loan value" once fifteen days
have elapsed after we mail the confirmation for the initial premium. (For
Policies issued in Maryland, you may make a Policy loan once fifteen
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days from the initial premium confirmation mailing and 45 days from the date
of Part 1 of the application have elapsed.) NELICO will make the loan as of
the date when a loan request is received at its Home Office. (See "Receipt of
Communications and Payments at NELICO's Home Office.") You should contact
NELICO's Home Office or your registered representative for information
regarding the procedures to follow for requesting a loan.
The Policy's loan value is equal to 90% (or more where required by state
law) of: the Policy's cash value minus the surrender charge. The amount of
loan value available to be borrowed at any time is reduced by the amount of
any Policy loan balance.
A Policy loan may result in adverse tax consequences. (See "Tax
Considerations.")
EFFECT OF POLICY LOAN. When Policy loan proceeds are paid to you, cash value
in the amount of the loan is taken from the Sub-Accounts and transferred to
NELICO's general account as collateral for the loan. When you make a loan
repayment, cash value held as collateral is transferred from the general
account back to the Sub-Accounts, and thereby increases the cash value in the
Sub-Accounts by the amount of the repayment. Unless you specify a different
allocation, cash value transferred for a Policy loan is taken from the Sub-
Accounts of the Variable Account in proportion to the cash value in each. All
loan repayments are allocated, unless you request otherwise, to repay the
loans made against the Sub-Accounts of the Variable Account in proportion to
the cash value in each.
The interest rate charged on Policy loans is 6.0% per year, accrues daily,
and is due on the Policy Anniversary. If not paid at that time, the interest
accrued on the loan is added to the loan, and an amount equal to the unpaid
interest is deducted from the Policy's cash value in the Sub-Accounts in
proportion to the amount in each. Amounts taken as collateral for a loan earn
interest at not less than a 5.25% rate per year. Currently, on preferred
loans, the rate credited is a 6.0% annual rate (and this rate will be
guaranteed where state law so requires). "Preferred loans" are loans that
represent an amount less than or equal to the excess of cash value over
premiums paid (as adjusted for any partial surrenders). Interest earned on
amounts held in NELICO's general account as collateral for a Policy loan is
credited to the Policy's Sub-Accounts on the Policy Anniversary, in proportion
to the cash value in each.
The amount taken from the Policy's Sub-Accounts as a result of a loan does
not participate in the investment experience of the Sub-Accounts. Therefore,
the death benefit and cash value of the Policy can be permanently affected by
a Policy loan, even if it is repaid. In addition, any proceeds payable under a
Policy are reduced by the amount of any outstanding Policy loan balance.
The following procedures will be applied to payments received while a Policy
loan is outstanding. Such a payment is treated first as a repayment of Policy
loan interest due, then as repayment of a Policy loan, and last as an
additional payment (if no previous additional payment has been made in that
Policy Year), unless you designate otherwise in writing to NELICO. (If a
previous additional payment has been made in that Policy Year, the portion of
the payment in excess of any outstanding Policy loan balance will be
returned). If a Policy loan is outstanding, it may be more advantageous to
repay the loan than to make an additional payment, because an additional
payment is subject to sales and state premium tax charges, and the loan
repayment is not subject to charges.
If a Policy loan is outstanding, and the net cash value on a Monthly
Deduction Date is not enough to cover the entire Monthly Deduction for the
Policy Month, NELICO will notify you that the Policy is going to terminate
unless a sufficient payment is made within the 62-day grace period. (This
situation is referred to as an "excess Policy loan.") The Policy will
terminate without value 62 days after the notice is mailed (unless otherwise
provided by state law) unless a sufficient amount is paid to NELICO within
that time. (See "Lapse and Reinstatement.") If the Policy lapses with a loan
outstanding, adverse tax consequences may result. (See "Tax Considerations"
below.)
If you purchase a Policy with the proceeds of another life insurance policy
that has an outstanding policy loan (see "Premium Payments"), the following
conditions must be met. First, the applicable application forms must be
completed. Second, if the value to be applied from the existing policy to a
Policy is subject to a policy loan, then an additional amount of at least
$10,000 (above the amount of the policy loan) must be submitted as part of the
initial premium, and any loan remaining against the new Policy cannot exceed
75% of the cash value of the Policy at issue. It may not be advantageous to
replace existing insurance with a Policy.
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<PAGE>
Department of Labor ("DOL") regulations set forth requirements for
participant loans under retirement plans subject to the Employee Retirement
Income Security Act of 1974 ("ERISA"). Generally, the DOL regulations will
apply to plans that qualify under Sections 401(a) and 401(k) of the Internal
Revenue Code (the "Code") and certain plans qualifying under Section 403(b) of
the Code. If the retirement plan is subject to ERISA, the plan fiduciary
authorized to oversee/direct the plan loan program must fulfill the
requirements of the regulations including charging a "commercially reasonable"
rate of interest. The policy loan interest rate may not be considered
"commercially reasonable" within the meaning of the DOL regulations. In
addition, the DOL regulations require that a plan loan be adequately secured
but provide that not more than 50% of the participant's vested account balance
(including the Policy's cash value) be used as security for the loan. The DOL
regulations and applicable tax law may also contain other requirements for
plan loans. Therefore, plan loan provisions may differ from Policy loan
provisions. If you are a participant in a retirement plan subject to ERISA,
you should consult with the fiduciary administering the plan loan program.
Failure of the plan loan program to comply with the requirements of the DOL
regulations and of tax law may result in penalties under the Code and under
ERISA.
SURRENDER
You may surrender a Policy for its net cash value, less the applicable
portion of the Monthly Deduction to the date of surrender, at any time while
the insured (or at least one insured under a Last Survivor Policy) is living
by submitting a request conforming to NELICO's administrative procedures. The
net cash value of the surrendered Policy is determined as of the date when a
surrender request is received at NELICO's Home Office. (See "Receipt of
Communications and Payments at NELICO's Home Office.") The net cash value
equals the cash value, reduced by any Policy loan balance and also reduced by
any applicable Surrender Charge (see "Surrender Charge"). Upon surrender, the
applicable portion of the Monthly Deduction will be deducted from net cash
value. (See "Monthly Deduction Deducted from Cash Value.") You may elect in
writing to have all or part of the surrender amount applied to a payment
option. (See "Payment Options.") A surrender may result in adverse tax
consequences. (See "Tax Considerations.")
When you make a full surrender, the requested surrender amount is taken
first from the preferred surrender amount. For more information about the
preferred surrender amount, see "Surrender Charge."
PARTIAL SURRENDERS
You may make a partial surrender of cash value once fifteen days have passed
after we mail the confirmation for the initial premium payment. (For Policies
issued in Maryland, you may make partial surrenders once fifteen days from the
confirmation mailing and 45 days from the date of Part 1 of the application
have passed.) The following rules and limits apply to partial surrenders. In
each Policy Year, partial surrenders will be limited, except with the consent
of NELICO, to: 20% of the net cash value on the day the first partial
surrender is made for the Policy Year; or, if less, the Policy's loan value
less the amount of any Policy loan balance on that day. The minimum amount for
a partial surrender is $500. Currently, NELICO does not limit the maximum
amount of a partial surrender as long as the cash value immediately after the
partial surrender is at least $10,000. A partial surrender made in excess of
the preferred surrender amount may be subject to a Surrender Charge. (See
"Surrender Charge" and "Monthly Deduction.") If any charges apply, they will
be deducted from the amount requested to be surrendered. There are no limits
on the number of partial surrenders that may be made during a Policy Year.
However, there are tax consequences. (See "Tax Considerations.")
When you make a partial surrender, the requested surrender amount is taken
first from the preferred surrender amount. For more information about the
preferred surrender amount, see "Surrender Charge."
EFFECT OF PARTIAL SURRENDER ON CASH VALUE AND DEATH BENEFIT. A partial
surrender reduces the minimum guaranteed death benefit based on the ratio of
the cash value immediately after the partial surrender to the cash value just
before the partial surrender. See "Death Benefit" and Appendix D.
You should be aware that the net cash value paid upon a partial surrender
may not be reinvested in the Policy except as additional payments, which are
subject to the charges described under "Charges and Expenses."
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The amount paid to you as the result of a partial surrender is equal to the
amount requested to be surrendered less any amount deducted for the Surrender
Charge. The applicable portion of the Monthly Deduction (based on the portion
of the Policy Month elapsed and on the proportion of cash value withdrawn)
will be deducted from the cash value remaining. (See "Surrender Charge" and
"Monthly Deduction Deducted from Cash Value.") Unless you specify a different
allocation, the partial surrender is effected by reducing the Policy's cash
value in the Sub-Accounts in proportion to the amount of cash value in each.
The amount of net cash value paid upon partial surrender is determined as of
the date when a request conforming to NELICO's administrative procedures is
received at NELICO's Home Office. NELICO's administrative procedures can be
determined by contacting your registered representative or NELICO's Home
Office. (See "Receipt of Communications and Payments at NELICO's Home Office,"
"Payment of Proceeds," and "Payment Options.")
ACCELERATION OF BENEFITS RIDER--TERMINAL ILLNESS
NELICO offers a rider benefit that will allow you to receive an accelerated
payment of benefits. This advance payment of benefits is available where
certain special circumstances exist, as described briefly below.
If the insured is diagnosed as terminally ill, as defined in the rider, you
may request an accelerated payment of benefits. (In the case of a Last
Survivor Policy, both insureds, or the surviving insured under the Policy,
must be diagnosed as terminally ill in order to request the benefit.) The
rider is available in states where it has been approved. Once available, it
will be added to new Policies at issue and may be requested by owners of
issued Policies.
The accelerated benefit is calculated using the Policy's Eligible Proceeds,
multiplied by the applicable Payout Factor. The Policy's Eligible Proceeds are
equal to the death benefit, less an amount to cover Monthly Deductions that
would be made in the event of death. The Payout Factor used will be determined
by NELICO as of the date a written request for an accelerated benefit is
received by NELICO at its Home Office. The rider lists various considerations
which may influence the Payout Factor. Once eligibility for an accelerated
benefit payment is determined, NELICO will notify you of the Payout Factor and
payment terms which will apply to the benefit.
The accelerated benefit payment made to you will be reduced by any
outstanding Policy loan balance. NELICO's consent is necessary to obtain
payment of a partial accelerated benefit.
Exercise of the accelerated benefits rider is irrevocable and subject to a
number of conditions as set forth in the rider, including evidence
satisfactory to NELICO.
ACCELERATION OF BENEFITS RIDER--LONG-TERM CARE
NELICO may offer in the future a second rider benefit that will allow you to
receive an accelerated payment of benefits. This advance payment of benefits
will be available where certain special circumstances exist, as described
briefly below. The right to exercise the rider will be subject to certain
conditions contained in the rider.
NELICO WILL MAKE THIS ACCELERATED BENEFITS RIDER AVAILABLE TO YOU ONLY IF:
(1) YOUR STATE INSURANCE DEPARTMENT HAS APPROVED THE RIDER, (2) NELICO
BELIEVES THAT THE RIDER WILL MEET THE DEFINITION OF AN ACCELERATED DEATH
BENEFIT FOR FEDERAL INCOME TAX PURPOSES AND (3) NELICO BELIEVES THAT THE
AVAILABILITY OF THE RIDER WILL NOT JEOPARDIZE THE QUALIFICATION OF THE POLICY
AS LIFE INSURANCE UNDER FEDERAL INCOME TAX LAW.
If the accelerated benefits-long term care rider is offered, it is expected
to provide that if one or more of the insured(s) is receiving qualified long-
term care services, as defined in the rider and by the Internal Revenue Code,
you may request an accelerated payment of benefits. The payment may be subject
to discounting and charges. Payment will be subject to evidence satisfactory
to NELICO.
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PAYMENT OF PROCEEDS
NELICO will ordinarily pay any surrender, partial surrender, loan or death
benefit proceeds payable from the Sub-Accounts within seven days after receipt
at the Home Office of a request, or proof of death of an insured, in a form
satisfactory to NELICO. (See "Receipt of Communications and Payments at
NELICO's Home Office.") However, NELICO may delay payment (except when a loan
is made to pay a premium to NELICO) or transfers from the Sub-Accounts: (i) if
the New York Stock Exchange is closed for other than weekends or holidays, or
if trading on the New York Stock Exchange is restricted, (ii) if the SEC
determines that a state of emergency exists that makes payments or Sub-Account
transfers impractical, or (iii) if the SEC orders the Variable Account or
orders the Zenith Fund or its successor or any other Eligible Fund to postpone
payment or transfer of variable benefits.
NELICO may withhold payment of surrender, partial surrender or loan proceeds
to the extent that those proceeds are derived from a Policy Owner's check that
has not yet cleared. In those cases, NELICO will process the surrender or loan
to the extent of Policy values for which the Policy Owner has made full
payment. The balance of the surrender, partial surrender or loan proceeds will
be paid when the Policy Owner's check has cleared. NELICO may also delay
payment if it considers whether to contest the Policy. NELICO will pay
interest on the death benefit proceeds from the date they become payable to
the date they are paid in one sum or, if a payment option was selected, to the
effective date of the option. (See "Payment Options.")
PAYMENT OPTIONS
The Policy's death benefit and any partial surrender or surrender of net
cash value will be paid in one sum unless the Policy Owner or payee chooses to
put all or part of the proceeds under a payment option. You can choose a
combination of payment options. The selection of a payment option and the
naming of a payee must be in written form satisfactory to NELICO. You can
make, change or revoke the selection before the death of the insured.
The payment options available are fixed benefit options only; therefore,
proceeds applied to an option will no longer be affected by the investment
experience of the Variable Account. The guaranteed mortality assumptions used
in determining payment levels under the options will not vary based on sex.
(For Policies issued in New York and Oregon, however, and which are not issued
for use in connection with certain employee benefit plans and fringe benefit
programs, the mortality assumptions will vary based on sex. See "Group or
Sponsored Arrangements.") Once payments under an option begin, withdrawal
rights may be restricted.
The following payment options are available:
(1) INCOME FOR A SPECIFIED NUMBER OF YEARS. Proceeds are paid in monthly
installments for up to 30 years, with interest at a rate not less than
3.5% a year, compounded yearly. Additional interest paid by NELICO for
any year will be added to the monthly payments for that year.
(2) LIFE INCOME. Proceeds are paid in equal monthly installments (i) during
the life of the payee, (ii) for the longer of the life of the payee or
10 years, or (iii) for the longer of the life of the payee or 20 years.
(3) LIFE INCOME WITH REFUND. Proceeds are paid in equal monthly
installments during the life of the payee. At the payee's death, any
unpaid proceeds remaining are paid either in one sum or in equal
monthly installments until the total proceeds have been paid.
(4) INTEREST. Proceeds are held for the life of the payee or another agreed
upon period. Interest of at least 3.5% a year is paid monthly or added
to the principal annually. At the death of the payee, or at the end of
the period agreed to, the balance of principal and any interest will be
paid in one sum.
(5) SPECIFIED AMOUNT OF INCOME. Proceeds plus accrued interest of at least
3.5% a year are paid in an amount and at a frequency elected until
total proceeds have been paid. Any amounts unpaid at the death of the
payee will be paid in one sum.
(6) LIFE INCOME FOR TWO LIVES. Proceeds will be paid in equal monthly
installments (i) while either of two payees is living, (ii) for the
longer of the life of the surviving payee or 10 years, or (iii) while
the two
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payees are living and, after the death of one payee, two-thirds of the
monthly amount for the life of the surviving payee will be paid.
NELICO's consent to use of an option is required if the installment payments
would be less than $20.
CHARGES AND EXPENSES
The following describes the various charges deducted under the Policy. 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 may
not fully cover all of the sales and distribution expenses actually incurred
by the Company, and proceeds from other charges, including the mortality and
expense risk charge, may be used in part to cover such expenses.
DEDUCTIONS FROM INITIAL PREMIUM. NELICO deducts no charges from the initial
premium before allocation to the Variable Account, although the Monthly
Deduction includes deductions for the first ten Policy Years for sales charges
and state premium taxes attributable to the initial premium, and a Surrender
Charge based on the initial premium may apply to surrenders or partial
surrenders during the Surrender Charge Period.
DEDUCTIONS FROM ADDITIONAL PAYMENTS. NELICO will deduct the following
charges from an additional payment before allocation of the net additional
payment to the Sub-Accounts you select:
-- 6.5% sales charge (reduced to 5.10% for Policies with initial premiums
of $2,000,000 or more).
-- 2.5% state premium tax charge.
MONTHLY DEDUCTION DEDUCTED FROM CASH VALUE. NELICO deducts a charge from the
cash value on each Monthly Deduction Date after the Policy Date. This charge
is the aggregate of the following charges, shown below at their current annual
rates:
-- Cost of insurance charge,* currently ranging from:
Single Insured Policy: 0.45% to 1.25% for standard risk class (0.70%
to 1.90% for substandard risk class)
Last Survivor Policy: 0.25% to 1.05% for standard risk class (0.40%
to 1.60% for substandard risk class)
-- 0.35% Administrative Charge (currently reduced to 0.10% after the first
ten Policy Years)**
-- 0.40% sales charge (deducted during the first ten Policy Years only)**
-- 0.25% state premium tax charge (deducted during the first ten Policy
Years only)**
-- 0.90% mortality and expense risk charge
-- For Policies with cumulative premiums less than $50,000, a $2.50 Monthly
Maintenance Charge also is included in the Monthly Deduction.
- --------
* No cost of insurance charge is deducted on or after the Policy Anniversary
when the age of the insured(s) is equal to 100.
** For Policies with initial premiums of $2,000,000 or more, the 0.40% sales
charge and 0.25% premium tax charge will be waived, and the 0.35%
Administrative Charge currently will be waived after the tenth Policy Year.
Each charge, except the $2.50 Monthly Maintenance Charge, is calculated as a
percentage of cash value (including cash value transferred to the general
account as collateral for Policy loans) in the following manner: first, all
charges, other than the cost of insurance charge, are calculated, based on the
cash value on the Monthly Deduction Date (before monthly charges are deducted,
but reflecting daily charges deducted from Eligible Fund Assets), and then
deducted. The cost of insurance charge is then calculated based on the cash
value for that date,
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as reduced by all other charges deducted that day. The Monthly Deduction is
deducted pro rata from the cash value in the Sub-Accounts.
DAILY CHARGES DEDUCTED FROM THE VARIABLE ACCOUNT ASSETS. Currently, NELICO
does not deduct any daily charges from the Variable Account. However, NELICO
reserves the right to make deductions from the Variable Account for federal or
state income taxes with respect to earnings or capital gains that may be
attributable to the Variable Account. Should NELICO determine that this type
of tax will be imposed, NELICO may make deductions from the Variable Account
to pay these taxes. The imposition of such taxes would result in a reduction
of your cash value.
CHARGES DEDUCTED FROM ELIGIBLE FUND ASSETS. The value of shares of the
Eligible Funds reflect charges and deductions from assets for investment
advisory services and fund operating expenses. See "Investment Management" and
the prospectus for the Zenith Fund for more information.
CHARGES DEDUCTED ON SURRENDER OR PARTIAL SURRENDER. If the Policy is
surrendered or lapses or a partial surrender is taken during the Surrender
Charge Period (the first nine Policy Years), a Surrender Charge may be
deducted. The Surrender Charge is a deferred sales charge. This charge
declines over the course of the Surrender Charge period. (See "Surrender
Charge.") The Surrender Charge is deducted from the Policy's available cash
value, regardless of whether that cash value is derived from premiums or
investment experience.
Upon surrender, lapse or partial surrender, the applicable portion of the
Monthly Deduction (based on the portion of the Policy Month elapsed, and, in
the case of a partial surrender, on the proportion of cash value withdrawn)
will also be deducted from the cash value.
The following section provides more information about the various charges
identified above.
SALES CHARGES. No sales charges are deducted from the initial premium before
allocation to the Sub-Accounts. However, except for certain Policies described
below, the Monthly Deduction includes a deduction taken during the first ten
Policy Years for sales charges attributable to the initial premium. This
charge is calculated as a percentage of cash value on each Monthly Deduction
Date at an annual rate of 0.40%. Also, if, during the first nine Policy years,
you surrender or lapse the Policy, or make a partial surrender, NELICO deducts
a Surrender Charge. (See "Surrender Charge.") In no event will the aggregate
amount deducted as part of the Monthly Deduction for sales charges plus the
Surrender Charge exceed 9% of the initial premium.
For Policies with initial premiums of $2,000,000 or more, the 0.40% sales
charge will be waived.
If a Policy lapses and is reinstated, the period the Policy was lapsed will
not count towards the ten-year period during which the Monthly Deduction
includes a deduction for sales charges.
If you make an additional payment, a maximum charge in the amount of 6.5% is
deducted from each additional payment for sales charges before allocation of
the net additional payment to the Sub-Accounts. For Policies with initial
premiums of $2,000,000 or more, this charge is reduced to 5.10%.
The sales charges deducted under a Policy are not necessarily related to
NELICO's actual sales expenses for that year.
Sales charges for Policies sold in certain group or sponsored arrangements
may be reduced.
SURRENDER CHARGE. If, during the first nine Policy Years, a Policy is
totally surrendered or lapses or a partial surrender (other than a preferred
partial surrender) is made, NELICO deducts a Surrender Charge from the amount
requested to be surrendered. This charge is based on the portion of the
initial premium deemed to be surrendered in accordance with the following
rules. When you make a full or partial surrender, the requested surrender
amount is taken first from the preferred surrender amount. The preferred
surrender amount is equal to the greater of (a)
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<PAGE>
cash value calculated on the date of surrender in excess of initial premium
paid (minus any previous partial surrenders attributable to the initial
premium) and (b) 10% of the initial premium paid (minus previous partial
surrenders in that Policy Year). No Surrender Charge applies to the preferred
surrender amount. If there has been negative investment performance under your
Policy (that is, cash value is less than your total premium payments because
net investment experience of the Sub-Accounts has not been at least equal to
total charges or has been negative), any Surrender Charge will be calculated
by deeming additional payments to have been reduced before the initial
premium. If negative investment performance has been deemed to completely
reduce additional payments and to further reduce initial premium, any
subsequent increase in cash value (from earnings or net additional payments)
will be deemed to increase initial premium before additional payments.
Appendix C provides an example of the effect of negative investment
performance on Surrender Charges. The balance of the requested surrender
amount is subject to a Surrender Charge, which is determined by multiplying
the balance by the applicable percentage for the Policy Year. The Surrender
Charge period and the amount of the Surrender Charge are shown in the
following table:
<TABLE>
<CAPTION>
POLICY YEAR CHARGE
----------- ------
<S> <C>
1............................... 8.0%
2............................... 8.0%
3............................... 7.0%
4............................... 6.0%
5............................... 5.0%
6............................... 4.0%
7............................... 3.0%
8............................... 2.0%
9............................... 1.0%
10............................... 0.0%
</TABLE>
Any Surrender Charge deducted upon lapse is credited back to the Policy's
cash value upon reinstatement. The Surrender Charge on the date of
reinstatement will be the same as it was on the date of lapse. For purposes of
determining the Surrender Charge on any date after reinstatement, the period
the Policy was lapsed will not count.
STATE PREMIUM TAX CHARGE. Except for certain Policies described below, this
charge is deducted from your cash value in the Sub-Accounts on each Monthly
Deduction Date after the Policy Date for the first ten Policy Years, as part
of the Monthly Deduction. The annual rate of this charge is 0.25% of cash
value. If you make an additional payment, a charge in the amount of 2.5% is
deducted from the payment before allocation to the Sub-Accounts. Because the
net additional payment will have the immediate effect of increasing the cash
value, the monthly charge for state premium tax is proportionately adjusted
downward to take into account this increase. This adjustment in the rate for
the monthly charge for state premium taxes effectively means that it is not
assessed against cash value attributable to additional premiums. Appendix C
provides an example illustrating the effect of such an additional payment.
For Policies with initial premiums of $2,000,000 or more, the 0.25% monthly
charge for premium tax will be waived.
If a Policy lapses and is reinstated, the period the Policy was lapsed will
not count towards the ten-year period during which the Monthly Deduction
includes a deduction for state premium taxes.
The state premium tax charge is designed to reimburse NELICO for state
premium taxes and administrative expenses. Premium taxes vary from state to
state and the 2.5% charge reflects an average. Administrative expenses covered
by this charge include those related to premium tax and certain other state
filings.
COST OF INSURANCE CHARGE. This charge is deducted from the Policy's cash
value in the Sub-Accounts on each Monthly Deduction Date after the Policy
Date, as part of the Monthly Deduction. This charge is not deducted on or
after the Policy Anniversary when the age of the insured(s) is equal to 100.
A-26
<PAGE>
The cost of insurance charge covers the cost of providing insurance
protection under your Policy. Currently, the amount of this charge is based on
the risk class and issue age of the insured(s). (It does not currently vary by
sex of the insured(s), although it may in the future.) NELICO assigns insureds
to risk classes based on underwriting conducted when NELICO receives an
application for a Policy. Currently, NELICO assigns insureds to the following
risk classes: standard nonsmoker, standard smoker, substandard nonsmoker and
substandard smoker. Once a Policy is issued, an insured's risk class does not
change except in the following circumstances. If an additional payment is
submitted that, if accepted, will have the effect of increasing the death
benefit, acceptance of the payment is subject to underwriting review to
determine whether the insured(s) qualify for the same or a better risk class.
If the new risk class is better and has lower cost of insurance rates than
the original risk class, the risk class for the additional payment will be
used for cost of insurance charges under the entire Policy. If, however, the
new risk class has higher cost of insurance rates than the original risk
class, NELICO will decline the additional payment.
Currently, the cost of insurance charge for a Policy is calculated as a
percentage of the cash value on the Monthly Deduction Date. For a Single Life
Policy, the current charge is calculated based on whether the issue age is 70
or less, or over 70, is a smoker or non-smoker, and has been assigned to a
standard or substandard risk class. The current monthly rates for these
classes are equivalent to the annual percentage rates shown in the following
table:
<TABLE>
<CAPTION>
RATING CLASS AND ISSUE AGE NONSMOKER SMOKER
-------------------------- --------- ------
<S> <C> <C>
Standard issue age 70 or less............................... 0.45% 0.75%
Standard over issue age 70.................................. 0.85% 1.25%
Substandard issue age 70 or less............................ 0.70% 1.15%
Substandard over issue age 70............................... 1.30% 1.90%
</TABLE>
In the case of a Last Survivor Policy, the current charge is calculated
based on whether the joint equal issue age is 70 or less, or over 70, the
smoker/nonsmoker status of each insured, and whether at least one insured is
substandard.
<TABLE>
<CAPTION>
NONSMOKER NONSMOKER SMOKER
RATING CLASS AND ISSUE AGE NONSMOKER SMOKER SMOKER
-------------------------- --------- --------- ------
<S> <C> <C> <C>
Standard issue age 70 or less..................... 0.25% 0.40% 0.55%
Standard over issue age 70........................ 0.65% 0.85% 1.05%
Substandard issue age 70 or less.................. 0.40% 0.60% 0.85%
Substandard over issue age 70..................... 1.00% 1.30% 1.60%
</TABLE>
For purposes of determining the current cost of insurance charge on a
Monthly Deduction Date, all other charges included in the Monthly Deduction
are calculated and deducted from the Policy's cash value, and then the
applicable cost of insurance percentage is applied to the cash value, as
reduced by the other charges.
The cost of insurance charge deducted on a Monthly Deduction Date is
guaranteed not to exceed the amount calculated using the guaranteed cost of
insurance rates set forth in the Policy for that date. The cost of insurance
charge for a Monthly Deduction Date determined using the guaranteed cost of
insurance rates is equal to the "net amount at risk" under the Policy,
multiplied by the cost of insurance rate for that date. The net amount at risk
is determined on the last day of the Policy Month. The net amount at risk
equals the death benefit on the first day of the month, minus the cash value
on the first day of the month, accumulated with interest at the monthly
equivalent of 4.0% per year, and reduced by the guaranteed cost of insurance
charge.
The guaranteed cost of insurance rate for a Monthly Deduction Date under a
Policy depends on the insured's sex, risk class, and age on the first day of a
Policy Year. Guaranteed cost of insurance rates applicable to joint insureds
under a Last Survivor policy depend on the sex of each insured, their joint
equal issue age, their risk classes, and the Policy Year. The guaranteed cost
of insurance rate for a Policy changes from month to month.
A-27
<PAGE>
The risk classes used for determining guaranteed cost of insurance rates for
insureds are smoker standard, smoker substandard, nonsmoker standard,
nonsmoker substandard. Substandard ratings result in higher cost of insurance
charges. The guaranteed cost of insurance rates for substandard ratings are
based on multiples of or additives to the guaranteed standard rates provided
by the 1980 Commissioners Standard Ordinary Mortality Tables.
Cost of insurance rates--whether current or guaranteed--are generally more
favorable for nonsmoker than for smoker insureds. Within a given rating class,
guaranteed cost of insurance rates are generally more favorable for insureds
of lower ages than for insureds of higher ages.
If a Policy loan is outstanding, and the net cash value on a Monthly
Deduction Date is not enough to cover the entire Monthly Deduction for the
Policy Month, NELICO will notify you that the Policy is going to terminate
unless a sufficient payment is made within the 62-day grace period. (See
"Effect of a Policy Loan.")
Eligible group or sponsored arrangements may also elect to purchase Policies
on a simplified underwriting basis above the underwriting limits applicable to
other purchasers. Policies issued on a simplified underwriting basis will have
the same cost of insurance rates as fully underwritten Policies.
ADMINISTRATIVE CHARGE. This charge is deducted from your Policy's cash value
in the Sub-Accounts on each Monthly Deduction Date after the Policy Date, as
part of the Monthly Deduction. Except for certain Policies described below,
this charge is currently set at an annual rate of 0.35% of cash value on each
Monthly Deduction Date, and is intended to be decreased to 0.10% after the
first 10 Policy Years. It is guaranteed never to exceed an amount equivalent
to an annual rate of 0.35% of cash value. This charge is for the cost of
administering the Policies (such as the cost of processing Policy
transactions, issuing Policy Owner statements and reports, and record
keeping), as well as legal, actuarial, systems, mailing and other overhead
costs connected with NELICO's variable life insurance operations.
For Policies with initial premiums of $2,000,000 or more, the Administrative
Charge currently will be waived after the tenth Policy Year.
For purposes of calculating the 10-year period after which the
Administrative Charge is intended to be reduced to 0.10%, the period that a
Policy was lapsed will not count.
MONTHLY MAINTENANCE CHARGE. If the initial premium paid for the Policy is
less than $50,000, a $2.50 fee is deducted from cash value on each Monthly
Deduction Date to cover administrative expenses. This fee is in addition to
the administrative charge. This monthly fee will continue to be deducted until
cumulative premium payments made are at least $50,000. After cumulative
premium payments of at least $50,000 have been made, the Monthly Maintenance
Charge will not be charged even if the Policy's cash value is reduced to less
than $50,000 as a result of investment performance or partial surrenders.
MORTALITY AND EXPENSE RISK CHARGE. NELICO deducts a charge from your cash
value in the Sub-Accounts on each Monthly Deduction Date after the Policy Date
for the mortality and expense risks that NELICO assumes. This charge is
currently set at an annual rate of 0.90% of cash value on each Monthly
Deduction Date. The mortality risk NELICO assumes is that insureds may live
for shorter periods of time than NELICO estimated. The expense risk is that
NELICO's costs of issuing and administering the Policies may be more than
NELICO estimated.
ELIGIBLE FUND EXPENSES. Charges for investment advisory fees and other
expenses are deducted from the assets of the Eligible Funds. (See "Investment
Management.")
CHARGES FOR ADDITIONAL SERVICES. NELICO reserves the right to charge Policy
Owners a nominal fee, which will be billed directly to the Policy Owner in the
event that a Policy re-issue or re-dating is requested.
CHARGES FOR INCOME TAXES. NELICO currently makes no charge for income taxes
against the Variable Account, but in the future NELICO may impose such a
charge, if appropriate. NELICO reserves the right to make a
A-28
<PAGE>
charge for any taxes imposed on the Policies by any governmental body in the
future. (See "Charge for NELICO's Income Taxes.")
GROUP OR SPONSORED ARRANGEMENTS
The Policies may be issued to group or sponsored arrangements, as well as on
an individual basis. A "group arrangement" includes a program under which a
trustee, employer or similar entity purchases individual Policies covering a
group of individuals. An example of such an arrangement is a non-tax qualified
deferred compensation plan. A "sponsored arrangement" includes a program under
which an employer permits group solicitation of its employees or an
association permits group solicitation of its members for the purchase of the
Policies on an individual basis.
For Policies issued in connection with group or sponsored arrangements,
NELICO may waive or reduce one or more of the following charges: the sales
charge, Surrender Charge, monthly cost of insurance charge, mortality and
expense risk charge, administrative charges, Monthly Maintenance Charge,
and/or state premium tax charge described in "Charges and Expenses." (In
addition, the interest rate credited on amounts taken from the sub-accounts as
a result of a Policy loan may be increased for these Policies.) NELICO will
waive or reduce these charges according to its rules in effect when the Policy
application is approved. To qualify for a waiver or reduction, a group or
sponsored arrangement must satisfy certain criteria as to, for example, size
and number of years in existence. Generally, the sales contacts and effort,
administrative costs and mortality cost per Policy vary based on such factors
as the size of the group or sponsored arrangement, its stability, the purposes
for which the Policies are purchased and certain characteristics of its
members. The amount of reduction and the criteria for qualification will
reflect the reduced sales and administrative effort resulting from sales to
qualifying group or sponsored arrangements. NELICO may modify from time to
time both the amounts of reductions and the criteria for qualification.
Reductions in or waiver of these charges will not be unfairly discriminatory
against any person, including the affected Policy Owners and all other Policy
Owners of Policies funded by the Variable Account.
The United States Supreme Court has held that certain insurance policies
providing values and benefits that vary with the sex of the insured may not be
used to fund certain employee benefit programs.
Therefore, NELICO offers Policies that do not vary based on the sex of the
insured for use in connection with certain employee benefit programs. NELICO
recommends that any employer proposing to offer the Policies to employees
under a group or sponsored arrangement consult its attorney before doing so.
THE VARIABLE ACCOUNT
The Variable Account was established as a separate investment account of
NELICO on January 31, 1983 under Delaware law and became subject to
Massachusetts law when NELICO changed its domicile to Massachusetts on August
30, 1996. The Variable Account is the funding vehicle for other NELICO
variable life insurance policies in addition to the Policies; these other
policies impose different costs, and provide different benefits, from the
Policies. The Variable Account meets the definition of a "separate account"
under Federal securities laws. The Variable Account is registered with the
Securities and Exchange Commission (the "SEC") as a unit investment trust
under the Investment Company Act of 1940. Both NELICO and the Variable Account
are subject to regulation by the Massachusetts Insurance Commissioner and to
the insurance laws and regulations in every jurisdiction where the Policies
are sold.
Although the assets of the Variable Account are owned by NELICO, applicable
law provides that the portion of the Variable Account assets equal to the
reserves and other liabilities of the Variable Account may not be charged with
liabilities that arise out of any other business NELICO may conduct. NELICO
believes this means that the assets of the Variable Account equal to the
reserves and other liabilities of the Variable Account are not available to
meet the claims of NELICO's general creditors, and may only be used to support
the cash values under its variable life insurance policies issued by the
Variable Account. But NELICO may transfer to its general account assets which
A-29
<PAGE>
exceed the reserves and other liabilities of the Variable Account. Before
making any such transfer, NELICO will consider any possible adverse impact the
transfer might have on the Variable Account.
Income and realized and unrealized capital gains and losses of the Variable
Account are credited to the Variable Account without regard to any of NELICO's
other income or capital gains and losses.
INVESTMENTS OF THE VARIABLE ACCOUNT
The Variable Account currently has 13 Sub-Accounts available under the
Policy, each of which invests in an Eligible Fund. The Sub-Accounts of the
Variable Account are:
-- The Small Cap Sub-Account, which invests in the Loomis Sayles Small Cap
Series of the Zenith Fund
-- The International Magnum Equity Sub-Account, which invests in the Morgan
Stanley International Magnum Equity Series of the Zenith Fund
-- The Equity Growth Sub-Account, which invests in the Alger Equity Growth
Series of the Zenith Fund
-- The Midcap Value Sub-Account, which invests in the Goldman Sachs Midcap
Value Series (formerly the Loomis Sayles Avanti Growth Series) of the
Zenith Fund
-- The Venture Value Sub-Account, which invests in the Davis Venture Value
Series of the Zenith Fund
-- The Growth and Income Sub-Account, which invests in the Westpeak Growth
and Income Series of the Zenith Fund
-- The Stock Index Sub-Account, which invests in the Westpeak Stock Index
Series of the Zenith Fund
-- The Balanced Sub-Account, which invests in the Loomis Sayles Balanced
Series of the Zenith Fund
-- The Managed Sub-Account, which invests in the Back Bay Advisors Managed
Series of the Zenith Fund
-- The Strategic Bond Opportunities Sub-Account, which invests in the
Salomon Brothers Strategic Bond Opportunities Series of the Zenith Fund
-- The Bond Income Sub-Account, which invests in the Back Bay Advisors Bond
Income Series of the Zenith Fund
-- The U.S. Government Sub-Account, which invests in the Salomon Brothers
U.S. Government Series of the Zenith Fund
-- The Money Market Sub-Account, which invests in the Back Bay Advisors
Money Market Series of the Zenith Fund
The Zenith Fund is an open-end diversified management investment company,
more commonly known as a mutual fund. The Zenith Fund was established as an
investment vehicle for separate investment accounts of NELICO and of other
life insurance companies. Currently the Zenith Fund is the funding vehicle for
the Variable Account and for certain separate accounts of NELICO and MetLife
that issue variable annuity contracts.
Shares of the Eligible Funds are purchased and sold by the Variable Account
at their net asset value (without a deduction for sales load) determined as of
the close of regular trading on the New York Stock Exchange on each day when
the exchange is open for trading.
The investment objectives of the Eligible Funds' portfolios are described
briefly below. There is, of course, no assurance that these objectives will be
met. A full description of the Eligible Funds, including their investment
objectives and policies, expenses, and risks of investing in the Eligible
Funds, is contained in the attached Zenith Fund prospectus, as well as in the
Zenith Fund's Statement of Additional Information, which is referenced in the
Zenith Fund prospectus.
A-30
<PAGE>
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 LOOMIS SAYLES SMALL CAP SERIES seeks long-term capital growth from
investments in common stocks or their equivalents. The Series invests
primarily in stocks of small cap companies with good earnings growth potential
that its sub-adviser 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 MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES seeks 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 at least three
different countries outside the United States.
The ALGER EQUITY GROWTH SERIES seeks 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 GOLDMAN SACHS MIDCAP VALUE SERIES seeks 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 DAVIS VENTURE VALUE SERIES seeks growth of capital. The Series will
primarily invest in domestic common stocks that its sub-adviser 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 WESTPEAK GROWTH AND INCOME SERIES seeks 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 WESTPEAK STOCK INDEX SERIES seeks to provide investment results that
correspond to the composite price and yield performance of United States
publicly traded common stocks. The Series currently seeks to achieve its
objective by attempting to duplicate the composite price and yield performance
of the Standard & Poor's 500 Composite Stock Price Index.
The LOOMIS SAYLES BALANCED SERIES seeks reasonable long-term investment
return from a combination of long-term capital appreciation and moderate
current income. The Series is "flexibly managed" in that sometimes it invests
more heavily in equity securities and at other times it invests more heavily
in fixed-income securities. The Series invests at least 25% of its assets in
fixed income securities and, under normal market conditions, more than 50% of
its assets in common stocks.
The BACK BAY ADVISORS MANAGED SERIES seeks to provide a favorable total
investment return through investment in a diversified portfolio of common
stocks and fixed income securities.
The SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES seeks a high level
of total return consistent with preservation of capital. Assets will be
allocated among U.S. Government obligations, mortgage backed securities,
A-31
<PAGE>
domestic and foreign corporate debt and sovereign debt securities rated
investment grade (BBB or higher by S&P or Baa or higher by Moody's) (or
unrated but deemed to be of equivalent quality in the subadviser's judgment)
and domestic and foreign corporate debt and sovereign debt securities rated
below investment grade. Depending on market conditions, the Series may invest
without limit in below investment grade fixed-income securities. Securities of
below investment grade quality are considered high yield, high risk securities
and are commonly known as "junk bonds."
The BACK BAY ADVISORS BOND INCOME SERIES seeks to provide a high level of
current income consistent with preservation of capital.
The SALOMON BROTHERS U.S. GOVERNMENT SERIES seeks to provide a high level of
current income consistent with preservation of capital and maintenance of
liquidity. The Series invests primarily in debt obligations (including
mortgage backed securities) issued or guaranteed by the U.S. Government or its
agencies, authorities or instrumentalities, or derivative securities (such as
collateralized mortgage obligations) backed by such securities.
The BACK BAY ADVISORS MONEY MARKET SERIES seeks to provide 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 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 Small Cap, International Magnum
Equity, Equity Growth, Midcap Value, Venture Value, Stock Index or Growth and
Income 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 E: Long Term Market Trends.
Historically, the investment performance of "small cap" stocks over the long
term has generally been superior to stocks of large capitalization companies,
although "small cap" stocks have been substantially more volatile than "large
cap" stocks. Historically, having a small percentage of a portfolio invested
in overseas stocks and the rest in domestic stocks has produced a portfolio
that has less, although still substantial, volatility than a completely
domestic portfolio. Equity investors should recognize that overseas and "small
cap" funds, taken alone, traditionally involve more risk than most domestic
stock funds.
The performance of the various financial markets over shorter periods of
time has sometimes differed from their long term historical results. Short
term interest rates were very high in the late 1970's and early 1980's, but
are now lower. Long term bond values continue to fluctuate and could lose
value if interest rates rise. Common stock prices, which have risen
substantially at times, have also had periods of significant negative returns.
Policy Owners who seek somewhat greater protection against loss of principal
in the short term than that afforded by a stock fund may prefer the Strategic
Bond Opportunities Sub-Account, the Bond Income Sub-Account or the U.S.
Government Sub-Account. However, because the Zenith Salomon Brothers Strategic
Bond Opportunities Series may invest in below-investment-grade securities,
which are considered high-yield, high-risk securities, commonly known as "junk
bonds," this series 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 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.
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<PAGE>
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 Managed Sub-Account or the Balanced 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.
You may also wish to diversify your cash value by country. The International
Magnum Equity Sub-Account allows 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
TNE Advisers, which is an indirect, wholly-owned subsidiary of NELICO, is
the investment adviser of each of the Series. The chart below lists the sub-
adviser of each Series. TNE Advisers and each of the sub-advisers are
registered with the SEC as investment advisers under the Investment Advisers
Act of 1940.
<TABLE>
<CAPTION>
SERIES SUB-ADVISER
- ------ -----------
<S> <C>
Loomis Sayles Small Cap Series Loomis, Sayles & Company, L.P.*
Morgan Stanley International Magnum
Equity Series Morgan Stanley Asset Management Inc.
Alger Equity Growth Series Fred Alger Management, Inc.
Goldman Sachs Midcap Value Series Goldman Sachs Asset Management
Davis Venture Value Series Davis Selected Advisers, L.P.**
Westpeak Growth and Income Series Westpeak Investment Advisors, L.P.*
Westpeak Stock Index Series Westpeak Investment Advisors, L.P.*
Loomis Sayles Balanced Series Loomis, Sayles & Company, L.P.*
Back Bay Advisors Managed Series Back Bay Advisors, L.P.*
Salomon Brothers Strategic Bond Op-
portunities Series Salomon Brothers Asset Management Inc***
Back Bay Advisors Bond Income Series Back Bay Advisors, L.P.*
Salomon Brothers U.S. Government Se-
ries Salomon Brothers Asset Management Inc
Back Bay Advisors Money Market Series Back Bay Advisors, L.P.*
</TABLE>
- --------
* An affiliate of NELICO
** Davis Selected may also delegate any of its responsibilities to Davis
Selected Advisers-NY, Inc., a wholly-owned subsidiary of Davis Selected.
*** In connection with Salomon Brothers Asset Management's service as sub-
adviser to the Strategic Bond Opportunities Series, Salomon Brothers'
London-based affiliate, Salomon Brothers Asset Management Limited,
provides certain sub-advisory services to Salomon Brothers Asset
Management.
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-
advisers, 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
Morgan Stanley International Magnum Equity Series' sub-adviser was Draycott
Partners 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.
The table on pages A-10 to A-11 shows the annual operating expenses of each
Series.
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.
A-33
<PAGE>
OTHER POLICY FEATURES
POLICY OWNER AND BENEFICIARY
The Policy Owner is named in the application but may be changed from time to
time. At the death of the Policy Owner, his or her estate will become the
Policy Owner unless a successor Policy Owner has been named. The Policy
Owner's rights (except for rights to payment of benefits) terminate at the
death of the insured (or the second death under a Last Survivor Policy) or the
receipt of all death proceeds payable under an accelerated death benefits
rider.
The beneficiary is also named in the application. The beneficiary of the
Policy may be changed at any time before the death of the insured, or before
the second death under a Last Survivor Policy. The beneficiary has no rights
under the Policy until the death of the insured (or until the second death in
the case of a Last Survivor Policy) and must survive the insured(s) in order
to receive the death proceeds. The beneficiary may have no rights if the Owner
elects to receive all death proceeds payable under an accelerated death
benefits rider. If no named beneficiary survives the insured(s), the proceeds
will be paid to the Policy Owner.
A change of Policy Owner or beneficiary must be in written form satisfactory
to NELICO and must be dated and signed by the Policy Owner making the change.
The change will be subject to all payments made and actions taken by NELICO
under the Policy before the signed change form is received by NELICO at its
Home Office.
You may assign (transfer) your rights in the Policy to someone else. An
absolute assignment of the Policy is a change of Policy Owner and beneficiary
to the assignee. A collateral assignment of the Policy does not change the
Policy Owner or beneficiary, but their rights will be subject to the terms of
the assignment. Assignments will be subject to all payments made and actions
taken by NELICO under the Policy before a signed copy of the assignment form
is received at NELICO's Home Office. NELICO will not be responsible for
determining whether or not an assignment is valid. Changing the Policy Owner
or assigning the Policy may have tax consequences. (See "Tax Considerations"
below.)
EXCHANGE OF POLICY
Within 24 months after the Date of Issue, the Policy Owner can exchange the
Policy, if the Policy is in force, for a policy that provides fixed benefit
insurance. The new policy will be issued by NELICO or MetLife, as described
below, on any plan of whole life or endowment insurance (or, if the Policy
exchanged is a Last Survivor Policy, on any plan of survivorship insurance)
with a level face amount issued by NELICO or MetLife on the Policy Date.
The new policy will be issued with the same insured(s), Face Amount, Policy
Date, and risk class(es) as this Policy, with the age of the insured(s) on the
Policy Date, and with a rider that purchases paid-up additions issued by
NELICO or MetLife on the Policy Date, if the cash value of the Policy is more
than is required to purchase the new policy. The new policy will be issued
subject to any cost or credit and the repayment of any Policy loan balance,
and subject to any assignments of this Policy.
Your Policy may be issued or amended with an endorsement providing for an
exchange right to a fixed benefit policy issued by NELICO (if such a policy
was available on the Policy Date of your variable life Policy), or otherwise,
to a fixed benefit policy issued by MetLife. If your Policy does not have such
an endorsement, the exchange right will be to a fixed benefit policy issued by
MetLife or, at your option, to a fixed benefit policy issued by NELICO if such
a policy was available on the Policy Date of your variable life Policy.
NELICO'S DISTRIBUTION AGREEMENT
NELICO sells the Policies through agents who are licensed by state insurance
officials to sell NELICO's variable life insurance policies. These agents are
also registered representatives of New England Securities. New England
Securities, the principal underwriter of the variable life insurance policies,
is a Massachusetts corporation organized
A-34
<PAGE>
in 1968 and an indirect, wholly-owned subsidiary of NELICO. New England
Securities is registered with the SEC as a broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. New England Securities intends to enter into selling agreements
with other broker-dealers registered under the Securities Exchange Act of 1934
whose representatives are authorized by applicable law to sell variable life
insurance policies. In some states, Policies may be sold by representatives or
employees of banks that may be acting as broker-dealers without separate
registration under the Securities Exchange Act of 1934, pursuant to legal and
regulatory exemptions.
NELICO will pay compensation to the New England Securities registered
representatives or other broker-dealers or banks involved in the sale of a
Policy. Such compensation will generally have a present value that does not
exceed 8% of premiums under the Policy (although a lower amount may be paid in
certain circumstances, such as sales of the Policies to a person over age 75),
and such compensation may be paid either as a percentage of premiums at the
time NELICO receives them, as a percentage of cash value on an ongoing basis,
or in some combination of both.
New England Securities distributes mutual funds, variable annuity contracts
and variable life insurance policies. It is the principal underwriter for the
Zenith Fund; The New England Variable Account; New England Retirement
Investment Account; New England Variable Annuity Separate Account; and New
England Variable Annuity Fund I. New England Securities also sells interests
in various investment partnerships.
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
NELICO can challenge that amount of the death benefit that results from the
initial premium for two years during an insured's lifetime from the Date of
Issue, based on misrepresentations made in the application. NELICO can
challenge any amount of the death benefit that results from an additional
payment for which proof of insurability is required for two years during an
insured's lifetime from the date that payment is received. However, if an
insured dies within two years of the Date of Issue, NELICO can challenge all
or part of the Policy at any time with respect to misrepresentations in the
application. If an insured dies within two years of the receipt of an
additional payment for which proof of insurability is required, NELICO can
challenge any amount of the death benefit resulting from that additional
payment at any time with respect to misrepresentation.
MISSTATEMENT OF AGE OR SEX
If the insured's age (or either insured's age under a Last Survivor Policy)
or sex is misstated in the application, the Policy's death benefit will be the
amount that the most recent Monthly Deduction (for Policies issued in
Maryland, the most recent cost of insurance deduction) which was made would
have provided, based on the insured's correct age(s) and sex(es).
SUICIDE
Single Insured Policies. If the Insured dies by suicide while sane or insane
within two years (or less, if required by state law) from the Date of Issue
(or the Policy Date, if earlier, if required by state law) set forth in the
Policy, the Death Benefit will be limited to: the amount of the initial
premium; plus any additional payments made; less any outstanding Policy Loan
Balance; and less any partial surrenders (or such greater amount, if required
by state law).
Last Survivor Policies. If either of the Insureds dies by suicide while sane
or insane within two years (or less, if required by state law) from the Date
of Issue (or the Policy Date, if earlier, if required by state law) set forth
in the Policy, the Death Benefit will be limited to: the amount of the initial
premium; plus any additional payments made; less any outstanding Policy Loan
Balance; and less any partial surrenders (or such greater amount, if required
by law). The Policy will terminate as of the first death by suicide.
A-35
<PAGE>
Within 60 days after the first death by suicide under a Last Survivor
Policy, the Owner can purchase new life insurance on an Eligible Insured
without evidence of insurability. For purposes of this provision, an Eligible
Insured is a surviving Insured on whom NELICO would have issued a single life
policy on the Policy Date of this Policy. The new policy will be issued on a
plan of single life variable life insurance agreed to and issued by NELICO on
the Policy Date of the new policy, if the issue age on the new policy is age
75 or younger; and on a single life Ordinary Life plan with a level face
amount issued by NELICO or MetLife on the Policy Date of the new policy, if
the issue age on the new policy is greater than 75. The new policy will be
issued: with a Face Amount equal to the Face Amount of this Policy plus the
amount of any single life term rider for the Eligible Insured under this
Policy: based on the underwriting class to which the Eligible Insured was
assigned by NELICO on the Policy Date of this Policy; with a Policy Date equal
to the date of the suicidal death; and premiums must be paid from the policy
date. The single life variable life insurance policy can be exchanged for an
ordinary life policy, if desired, using any exchange provision of the new
policy.
If an Eligible Insured dies within the 60 day period and before submitting
an application, the death benefit will be paid as if the new policy had been
issued and if the new policy is a variable life policy, assuming all premiums
for the new policy were allocated to the Money Market Sub-Account and the
death benefit option in effect would result in the smallest amount of death
proceeds.
TAX CONSIDERATIONS
POLICY PROCEEDS
The following discussion of Federal income tax issues relating to the
Policies is general in nature and is not intended as tax advice. It describes
what NELICO believes is the Federal income tax treatment of the Policies in
the most commonly occurring circumstances and does not reflect the effect of
Federal income taxes in all situations. In addition, there is no guarantee
that the Federal income tax laws and regulations or interpretation of them
will not change. Therefore, NELICO recommends that you consult your own tax
advisor for more complete information and advice.
DEFINITION OF LIFE INSURANCE. Section 7702 of the Internal Revenue Code of
1986, as amended ("Code") defines a life insurance contract for Federal income
tax purposes.
The Section 7702 definition can be met if a life insurance contract
satisfies either one of two tests set forth in that section. The manner in
which these tests should be applied to certain features of the Policy is not
directly addressed by Section 7702 or proposed regulations issued under that
section. The presence of these Policy features, the absence of final
regulations, and the lack of other pertinent interpretations of Section 7702,
thus create some uncertainty about the application of Section 7702 to the
Policy.
Nevertheless, NELICO believes that it is reasonable to conclude that the
Policy qualifies as a life insurance contract for federal tax purposes, so
that:
-- the death benefit should be fully excludible 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.
If a Policy were determined not to be a life insurance contract for purposes
of Section 7702, such Policy would not provide most of the tax advantages
normally provided by a life insurance contract. NELICO thus reserves the right
to make changes in the Policy if such changes are deemed necessary to attempt
to assure its qualification as a life insurance contract for tax purposes.
TAX TREATMENT OF LOANS AND OTHER DISTRIBUTIONS. Federal tax law establishes
a class of life insurance policies referred to as modified endowment
contracts. In almost all cases, this Policy will be a modified endowment
A-36
<PAGE>
contract. (See, however, the discussion below on a Policy issued in exchange
for another life insurance policy.) A life insurance contract will generally
be classified as a modified endowment contract if it fails to meet the "7-pay"
test set forth in the Code. A contract generally fails to meet the 7-pay test
if the accumulated amount paid under the contract at any time during the first
seven contract years exceeds the sum of the net level premiums which would
have been paid on or before such time if the contract provided for paid up
future benefits after the payment of seven level annual premiums. Except as
specifically noted, the remainder of this discussion assumes that this Policy
will be a modified endowment contract. Loans and partial withdrawals from, as
well as collateral assignments of, modified endowment contracts will be
treated as distributions to the Policy Owner. All pre-death distributions
(including loans, partial surrenders and collateral assignments) from these
Policies will be included in gross income on an income-first basis to the
extent of any income in the Policy immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, collateral assignments, partial withdrawals and complete surrenders)
from modified endowment contracts to the extent they are included in income,
unless such amounts are distributed on or after the date when the taxpayer
attains age 59 1/2, because the taxpayer is disabled, or as substantially
equal periodic payments over the taxpayer's life (or life expectancy) or over
the joint lives (or joint life expectancies) of the taxpayer and his or her
beneficiary. Furthermore, if the loan interest is capitalized by adding the
amount due to the balance of the loan, the amount of the capitalized interest
will be treated as an additional distribution subject to income tax as well as
the 10% penalty tax, if applicable, to the extent of income in the Policy.
Any Policy issued in exchange for a modified endowment contract will be
subject to the tax treatment accorded to modified endowment contracts.
However, NELICO believes that any Policy issued in exchange for a life
insurance policy that is not a modified endowment contract will generally not
be treated as a modified endowment contract if the death benefit of the Policy
is greater than or equal to the death benefit of the policy being exchanged.
The payment of any premiums at the time of or after the exchange may, however,
cause the Policy to become a modified endowment contract. A Policy Owner may,
of course, choose not to exercise the right to make additional payments in
order to prevent a Policy from being treated as a modified endowment contract.
If a Policy that was not a modified endowment contract at issue subsequently
becomes a modified endowment contract, distributions made during the Policy
year in which it becomes a modified endowment contract, distributions in any
subsequent Policy year and distributions within two years before the Policy
becomes a modified endowment contract will be subject to the tax treatment
described above. This means that a distribution from a Policy that is not a
modified endowment contract could later become taxable as a distribution from
a modified endowment contract. In addition, regulations or other
interpretations may be issued which will apply similar tax treatment to other
distributions made in anticipation of a Policy becoming a modified endowment
contract.
TAXATION OF ACCELERATED BENEFITS RIDER. NELICO believes that payments
received under any accelerated benefits rider it makes available will qualify
as an accelerated death benefit under the Internal Revenue Code. (See
"Acceleration of Death Benefit Rider" for more information regarding the
rider.) Payments under any accelerated benefits rider may also be treated as
distributions that are subject to taxation. See "Tax Treatment of Loans and
Other Distributions."
SPECIAL TREATMENT OF LOANS ON THE POLICY. If there is any borrowing against
the Policy, the interest paid on loans may not be tax deductible.
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.
A-37
<PAGE>
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.
The Policy may continue after the insured(s) attain age 100. The tax
consequences associated with continuing a Policy beyond age 100 are unclear. A
tax advisor should be consulted on this issue.
Section 817(h) of the Code requires the investments of the Variable Account
to be "adequately diversified" in accordance with Treasury Regulations for the
Policy to qualify as a life insurance contract under Section 7702 of the Code.
Failure to comply with the diversification requirements may result in not
treating the Policy as life insurance. If the Policy does not qualify as life
insurance, you may be subjected to immediate taxation on the incremental
increases in cash value of the Policy plus the cost of insurance protection
for the year. Regulations specifying the diversification requirements have
been issued by the Department of Treasury, and NELICO believes it complies
fully with such requirements.
In connection with the issuance of the diversification regulations, the
Treasury Department stated that it anticipates the issuance of additional
guidance prescribing the circumstances in which an owner's control of the
investments of a separate account may cause a Policy Owner, rather than the
insurance company, to be treated as the owner of the assets in the separate
account. If a Policy Owner is considered the owner of the assets of the
Separate Account, income and gains from the Account would be included in the
Owner's gross income.
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the Internal Revenue Service in
rulings in which it determined that the owners were not owners of separate
account assets. For example, a Policy Owner has additional flexibility in
allocating payments and cash values. These differences could result in the
owner being treated as the owner of a pro rata share of the assets of the
Separate Account. In addition, NELICO does not know what standards will be set
forth in the additional guidance which the Treasury has reserved the right to
issue. NELICO therefore reserves the right to modify the Policy as necessary
to attempt to prevent the Policy Owner from being considered the owner of the
assets of the Separate Account.
In the event that a Policy is owned by the trustee under a pension or profit
sharing plan, or similar deferred compensation arrangement, the Federal, state
and estate tax consequences of ownership or receipt of proceeds under the
Policy could differ from the principles stated herein. However, if ownership
of such Policy is transferred from the plan to a plan participant (upon
termination of employment, for example), the Policy will be subject to all of
the rules described above relating to Federal tax treatment, including the
rules regarding modified endowment contracts. Policies owned by the trustee
under the plans described above may be subject to restrictions under ERISA.
You should consult a qualified tax advisor regarding any applicable
requirements of ERISA.
If the Policy is purchased as part of a pension or profit-sharing plan
qualified under Section 401 of the Code, the current cost of insurance for the
net amount at risk is treated as a "current fringe benefit" and is required to
be included annually in the plan participant's gross income. This cost
(generally referred to as the "P.S. 58" cost) is reported to the participant
annually. If the plan participant dies while covered by the plan and the
Policy proceeds are paid to the participant's beneficiary, then the excess of
the death benefit over the cash value will not be subject to Federal income
tax. However, the cash value will generally be taxable to the extent it
exceeds the participant's cost basis in the Policy. The participant's cost
basis will generally include the costs of insurance previously reported as
income to the participant. Special rules may apply if the participant had
borrowed from his cash value or was an owner-employee under the plan.
There are limits on the amounts of life insurance that may be purchased on
behalf of a participant in a pension or profit-sharing plan. Complex rules, in
addition to those discussed above, apply whenever life insurance is purchased
by a tax qualified plan. Distributions or withdrawals from a pension or
profit-sharing plan prior to age 59 1/2 may be subject to a 10% penalty tax on
the amount included in income. You should consult a qualified tax advisor
regarding these rules.
A-38
<PAGE>
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus plans, tax exempt and nonexempt welfare benefit plans,
retiree medical benefit plans and others. The tax consequences of such plans
may vary depending on the particular facts and circumstances of each
individual arrangement. Therefore, if you are contemplating the use of the
Policies in any arrangement the value of which depends in part on its tax
consequences, you should be sure to consult a qualified tax advisor regarding
the tax attributes of the particular arrangement and the suitability of this
product for the arrangement. 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 NELICO's 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.
A-39
<PAGE>
MANAGEMENT
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
DIRECTORS OF NELICO
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<C> <S>
James M. Benson........... President and Chief Executive Officer of NELICO since
1998; formerly, President and Chief Operating
Officer 1997-1998 of NELICO; President and CEO 1996-
1997 of Equitable Life Assurance Society and COO of
Equitable Companies, Inc.; Senior Vice President
1993-1996 of Equitable Life Assurance Society.
Susan C. Crampton......... Director of NELICO since 1996 and serves as Principal
127 Tarbox Road of The Vermont Partnership, a business consulting
Jericho, VT 05465 firm located in Jericho, Vermont since 1989;
formerly, Director 1989-1996 of New England Mutual.
Edward A. Fox............. Director of NELICO since 1996 and Chairman of the
RR Box 67-15 Board of SLM Holdings since 1997; formerly, Director
Harborside, ME 04642 1994-1996 of New England Mutual and Dean 1990-1994
of The Amos Tuck School of Business Administration
at Dartmouth College.
George J. Goodman......... Director of NELICO since 1996 and author, television
Adam Smith's Money World journalist, and editor.
50th Floor, Craig Drill
Capital
General Motors Building
767 Fifth Street
New York, NY 10153
Dr. Evelyn E. Handler..... Director of NELICO since 1996; formerly Director
74 Tater Street 1987-1996 of New England Mutual and Executive
Mont Vernon, NH 03057 Director and Chief Executive Officer 1994-1997 of
the California Academy of Sciences and Research
Fellow and an Associate 1991-1994 of the Graduate
School of Education at Harvard University and a
Senior Fellow at The Carnegie Foundation for the
Advancement of Teaching.
Philip K. Howard, Esq..... Director of NELICO since 1996 and Partner of the law
Howard, Darby & Levin firm of Howard, Darby & Levin in New York City.
1330 Avenue of the
Americas
New York, NY 10019
Harry P. Kamen............ Director of NELICO since 1996 and Chairman of
Metropolitan Life Metropolitan Life Insurance Company since 1998;
One Madison Avenue formerly, Chairman and Chief Executive Officer 1997-
New York, NY 10010 1998; Chairman, President, and Chief Executive
Officer 1995-1997 and Chairman and CEO 1993-1995 of
Metropolitan Life.
Terence Lennon............ Director of NELICO since 1996 and Senior Vice
Metropolitan Life President of Metropolitan Life Insurance Company
One Madison Avenue since 1994; formerly, Assistant Deputy
New York, NY 10010 Superintendent and Chief Examiner 1984-1994 of the
New York Insurance Department.
Bernard A. Leventhal...... Director of NELICO since 1996; formerly, Vice
Burlington Industries Chairman of the Board of Directors 1995-1998 of
1345 Avenue of the Burlington Industries, Inc.; President since 1978
Americas and Corporate Group Vice President since 1985 and
New York, NY 10105 Director since 1990 of Burlington Menswear Division.
</TABLE>
A-40
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<C> <S>
Thomas J. May............. Director of NELICO since 1996 and Chairman, President
Boston Edison Company and Chief Executive Officer of Boston Edison Company
800 Boylston Street since 1994; formerly, Director 1994-1996 of New
Boston, MA 02199 England Mutual; President and Chief Operating
Officer 1993-1994 of Boston Edison Co.
Stewart G. Nagler......... Director of NELICO since 1996 and Senior Executive
Metropolitan Life Vice President and Chief Financial Officer of
One Madison Avenue Metropolitan Life Insurance Company since 1986.
New York, NY 10010
Rand N. Stowell........... Director of NELICO since 1996 and President of United
United Timber Corp. Timber Corp. of Dixfield, Maine; formerly, Director
P.O. Box 650 1990-1996 of New England Mutual.
Pine Street
Dixfield, ME 04224
Alexander B. Trowbridge... Director of NELICO since 1996 and President of
Trowbridge Partners Inc. Trowbridge Partners, Inc. in Washington, DC;
1317 F Street, NW, formerly, Director 1983-1996 of New England Mutual.
Suite 500
Washington, D.C. 20004
EXECUTIVE OFFICERS OF NELICO
OTHER THAN DIRECTORS
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<C> <S>
James M. Benson........... See Directors above
David W. Allen............ Senior Vice President of NELICO since 1996; formerly,
Senior Vice President 1994-1996 and Vice President
1990-1994 of New England Mutual.
Thom A. Faria............. President, Career Agency System (a business unit of
NELICO) since 1996; formerly, Executive Vice
President in 1996, Senior Vice President 1993-1996
of New England Mutual.
Anne M. Goggin............ Senior Vice President and Associate General Counsel
of NELICO since 1997; formerly, Vice President and
Counsel of NELICO in 1996, Vice President and
Counsel 1994-1996 and Second Vice President and
Counsel 1988-1994 of New England Mutual.
Daniel D. Jordan.......... Second Vice President, Counsel and Secretary since
1996; formerly, Counsel and Assistant Secretary
1990-1996 of New England Mutual.
Richard D. Keidan......... Senior Vice President of NELICO since 1996; formerly,
Vice President 1994-1996 of Metropolitan Life (Chief
Marketing Officer of MetLife Brokerage) and Regional
Sales and Marketing Manager 1989-1994 of Phoenix
Home Life.
Alan C. Leland, Jr........ Senior Vice President of NELICO since 1996; formerly,
Vice President 1984-1996 of New England Mutual.
Bruce C. Long............. President, New England Annuities (a business unit of
NELICO) since 1996; formerly, President 1994-1996
New England Annuities (a business unit of New
England Mutual) and Senior Vice President in 1994 of
New England Annuities; Vice President 1992-1994 of
Keyport Life Insurance.
George J. Maloof.......... Senior Vice President of NELICO since 1996; formerly,
Vice President 1991-1996 of New England Mutual.
Thomas W. McConnell....... Senior Vice President of NELICO since 1996 and
Director, Chief Executive Officer and President of
New England Securities Corporation since 1993;
formerly, National Sales Manager 1993 of Alliance
Fund Distributors; National Sales Manager 1992-1993
of Equitable Capital Securities.
</TABLE>
A-41
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<C> <S>
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 officers is the
same as NELICO's except where indicated otherwise.
Like all financial services providers, NELICO utilizes systems that may be
affected by Year 2000 transition issues and it relies on a number of third
parties, including banks, custodians, and investment managers, that also may
be affected. NELICO and its affiliates have developed, and are in the process
of implementing, a Year 2000 transition plan, and are confirming that their
service providers are also so engaged. The resources that are being devoted to
this effort are substantial. It is difficult to predict with precision whether
the amount of resources ultimately devoted, or the outcome of these efforts,
will have any negative impact on NELICO. However, as of the date of this
prospectus, it is not anticipated that Owners will experience negative effects
on their investment, or on the services provided in connection therewith, as a
result of Year 2000 transition implementation. NELICO currently anticipates
that its systems will be Year 2000 compliant on or about December 31, 1998,
with systems testing and compliance verification to follow. There can,
however, be no assurance that the other service providers have anticipated
every step necessary to avoid any adverse effect on the Variable Account
attributable to Year 2000 transition.
A-42
<PAGE>
VOTING RIGHTS
NELICO is the legal owner of the Eligible Fund shares held in the Variable
Account and has the right to vote those shares at meetings of the Eligible
Fund shareholders. However, to the extent required by applicable Federal
securities law, NELICO will give you, as Policy Owner, the right to instruct
NELICO how to vote the shares that are attributable to your Policy.
The Policy Owners who are entitled to give voting instructions and the
number of shares attributable to their Policies will be determined as of the
record date for the meeting. All Eligible Fund shares held in any Sub-Account
of the Variable Account, or in any other registered (or to the extent voting
privileges are granted by the issuing insurance company, unregistered)
separate account of NELICO or an affiliate, and for which timely instructions
are not received, will be voted in the same proportion as (i) the aggregate
cash value of policies giving instructions, respectively, to vote for,
against, or withhold votes on a proposition, bears to (ii) the total cash
value in that Sub-Account for all policies for which voting instructions are
received. No voting privileges apply with respect to cash value removed from
the Variable Account as a result of a Policy loan. All Zenith Fund shares held
by the general account (or any unregistered separate account for which voting
privileges were not extended) of NELICO or its affiliates will be voted in the
same proportion as the total of (i) shares for which voting instructions were
received and (ii) shares that are voted in proportion to such voting
instructions.
The SEC requires the Eligible Funds' Board of Trustees to monitor events to
identify conflicts that may arise from the sale of Eligible Fund shares to
variable life and variable annuity separate accounts of affiliated and, if
applicable, unaffiliated insurance companies. Conflicts could arise as a
result of changes in state insurance law or Federal income tax law, changes in
investment management of any of the Eligible Funds, or differences in voting
instructions given by variable life and variable annuity contract owners, for
example. If there is a material conflict, the Board of Trustees will have an
obligation to determine what action should be taken, including the removal of
the affected Sub-Accounts from the Eligible Fund(s), if necessary. If NELICO
believes any Eligible Fund action is insufficient, NELICO will consider taking
other action to protect Policy Owners. There could, however, be unavoidable
delays or interruptions of operations of the Variable Account that NELICO may
be unable to remedy.
If required by state insurance authorities, NELICO may disregard voting
instructions if they would require that shares be voted to cause a change in
the investment objectives of the portfolios of the Eligible Funds or to
approve or disapprove an investment advisory or underwriting contract for a
portfolio. In addition, NELICO may disregard voting instructions in favor of
changes, initiated by a Policy Owner or an Eligible Fund's Board of Trustees,
in the investment policy, investment adviser or principal underwriter of the
Eligible Fund portfolio if NELICO (i) reasonably disapproves of the changes
and (ii) in the case of a change in investment policy or investment adviser,
makes a good faith determination that the proposed change is contrary to state
law or is prohibited by state regulatory authorities or that the change would
be inconsistent with a Sub-Account's investment objectives or would result in
the purchase of securities which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts of
NELICO or of an affiliated life insurance company, which separate accounts
have investment objectives similar to those of the Sub-Account. If NELICO does
disregard voting instructions, a summary of that action and the reasons for it
will be included in the next semiannual report to Policy Owners.
RIGHTS RESERVED BY NELICO
NELICO and its affiliates may change the voting procedures described above,
and may vote Eligible Fund shares in their own right without instructions from
Policy Owners, if the applicable Federal securities laws or regulations or
interpretations of them change. NELICO also reserves the right: (1) to create
new investment accounts; (2) to combine any two or more separate investment
accounts, including the Variable Account; (3) to invest some or all of the
assets of the Variable Account other than in the Zenith Fund; (4) to invest
some or all of the assets of the Variable Account in any other investment
company chosen by NELICO; (5) to remove a portfolio in which the Sub-Account
is invested or to substitute a different portfolio; (6) to operate the
Variable Account as a management investment company under the Investment
Company Act of 1940 or in any other form permitted by
A-43
<PAGE>
law; and (7) to deregister the Variable Account under the Investment Company
Act of 1940 if registration is no longer required. NELICO will exercise these
rights in accordance with applicable law, including approval of Policy Owners
if required. NELICO will notify you if exercise of any of these rights would
result in a material change in the Variable Account or its investments.
TOLL-FREE NUMBERS
For Sub-Account transfers or premium reallocations, call the toll-free
number 1-800-435-4117.
To request a copy of the Statement of Additional Information for the New
England Zenith Fund, call the toll-free number 1-800-356-5015.
You may also call our Customer Service toll-free at 1-800-435-4117 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 Dollar Cost Averaging, Asset Reallocation or 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.
NELICO plans to make available later in 1998 a toll-free number that will
provide information about historical values of the Variable Account Sub-
Accounts. The toll-free number will be 1-800-333-2501.
REPORTS
NELICO will send you a statement at least annually showing your Policy's
death benefit, cash value and any outstanding Policy loan balance. NELICO will
also confirm Policy loans, sub-account transfers, lapses, surrenders and other
Policy transactions.
You will be sent semiannual reports containing the financial statements of
the Variable Account and the Eligible Funds.
ADVERTISING PRACTICES
NELICO may from time to time receive endorsements of the Policies from
professional organizations. NELICO may refer to or use such endorsements in
advertisements or sales material for the Policies. NELICO may also pay the
professional organization making the endorsement for the use of its customer
or mailing lists in order to distribute promotional materials regarding the
Policies. An endorsement of the Policies by a third party is not necessarily
indicative of the future performance or results which may be obtained by
persons who purchase the Policies. From time to time, articles discussing the
Variable Account's investment experience, performance rankings and other
characteristics may appear in national publications. Some or all of these
publishers or ranking services (including, but not limited to Lipper
Analytical Services, Inc. and Morningstar, Inc.) may publish their own
rankings or performance reviews of variable contract separate accounts,
including the Variable Account. References to, reprints or portions of
reprints of such articles or rankings may be used by NELICO as sales
literature or advertising material and may include rankings that indicate the
names of other variable contract separate accounts and their investment
experience.
Articles and releases, developed by NELICO, the Eligible Funds and other
parties, about the Variable Account or the Eligible Funds regarding individual
Eligible Funds' and fund groups' asset levels and sales volumes, statistics
and analyses of industry sales volume and asset levels, and other
characteristics may appear in various publications. References to or reprints
of such articles may be used in promotional literature for the Policies or the
A-44
<PAGE>
Variable Account. Such literature may refer to personnel of the advisers, who
have portfolio management responsibility, and their investment style. The
reference may allude to or include excerpts from articles appearing in the
media.
NELICO is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
The advertising and sales literature for the Policies and the Variable
Account may refer to historical, current and prospective economic trends.
In addition, sales literature may be published concerning topics of general
investor interest for the benefit of registered representatives and
prospective Policy Owners. These materials may include, but are not limited
to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by H. James Wilson, General Counsel of NELICO. Sutherland,
Asbill & Brennan LLP, of Washington, D.C., has provided advice on certain
matters relating to the federal securities laws.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. Copies of such additional
information may be obtained from the SEC upon payment of the prescribed fee.
EXPERTS
The financial statements of New England Variable Life Separate Account of
New England Life Insurance Company ("NELICO") (formerly New England Variable
Life Insurance Company) and the consolidated financial statements of NELICO
and subsidiaries as of and for the years ended December 31, 1997 and 1996
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein (whose
reports express unqualified opinions and, with respect to NELICO, includes an
explanatory paragraph referring to the change in the basis of accounting and
the change in corporate organization), and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing. The adjustments that were applied to restate the 1995
financial statements to reflect the effects of the changes for adoption of
generally accepted accounting principles and the changes in corporate
organization have also been audited by Deloitte & Touche LLP.
The statutory statements of operations, surplus, and cash flows of New
England Variable Life Insurance Company and New England Pension and Annuity
Company for the year ended December 31, 1995 (not included herein), have been
incorporated herein in reliance on the reports (which reports include adverse
opinions as to generally accepted accounting principles and unqualified
opinions as to statutory accounting practices prescribed or permitted by the
Insurance Department of the State of Delaware) of Coopers & Lybrand L.L.P.,
independent 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
A-45
<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, of Newbury Insurance Company,
Limited as of December 31, 1995, and the related and cash flows for the year
ended December 31, 1995 (not included herein), have been incorporated herein
in reliance on the report of Coopers & Lybrand, chartered accountants, given
on the authority of that firm as experts in accounting and auditing.
The statements of operations and changes in net assets of New England
Variable Life Separate Account for the period ended December 31, 1995, have
been incorporated herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Rodney
J. Chandler, F.S.A., M.A.A.A., Second Vice President and Actuary of NELICO, as
stated in his opinion filed as an exhibit to the Registration Statement.
A-46
<PAGE>
APPENDIX A:
ILLUSTRATIONS OF DEATH BENEFITS,
CASH VALUES, NET CASH VALUES AND ACCUMULATED PREMIUMS
The tables in Appendix A illustrate the way the Policies operate. They show
how the death benefit, net cash value and cash value could vary over an
extended period of time assuming hypothetical gross rates of return (i.e.,
investment income and capital gains and losses, realized or unrealized) for
the Variable Account equal to constant after tax annual rates of 0%, 6% and
12%. The tables are based on an initial premium of $50,000 and also show the
initial death benefit based on that premium. The insureds are assumed to be in
the standard nonsmoker underwriting class. Values are first given based on
current Policy charges and then based on guaranteed Policy charges. (See
"Charges and Expenses.") The issue ages represented in the illustrations are
age 70 or less; if an issue age were over age 70, the death benefit, net cash
value and cash value in the illustrations based on current Policy charges
would be lower, all other things being equal, because the current cost of
insurance charge under the Policy increases for issue ages over 70. These
tables may assist in the comparison of death benefits, net cash values and
cash values for the Policies with those under other variable life insurance
policies that may be issued by NELICO or other companies.
Death benefits, net cash values and cash values for a Policy would be
different from the amounts shown if the actual gross rates of return averaged
0%, 6% or 12%, but varied above and below that average for the period, if the
initial premium was paid in another amount, or additional payments were made.
They would also be different depending on the allocation of cash value among
the Variable Account's Sub-Accounts, if the actual gross rate of return for
all Sub-Accounts averaged 0%, 6% or 12%, but varied above or below that
average for individual Sub-Accounts. They would also differ if any Policy loan
or partial surrender were made during the period of time illustrated, or if
the insured were in another risk class.
The death benefits, net cash values and cash values shown in the tables
reflect a Monthly Deduction (consisting of an administrative charge, a charge
for the cost of insurance, a mortality and expense risk charge, and, during
the first ten Policy Years, a sales charge and state premium tax charge) from
cash value on each Monthly Deduction Date. (Because an initial premium of
$50,000 has been assumed for purposes of these illustrations, no Monthly
Maintenance Charge is reflected in the illustrations. If an initial premium of
less than $50,000 had been assumed, a $2.50 Monthly Maintenance Charge would
apply.) The net cash values shown in the tables reflect the fact that a
Surrender Charge (consisting of a deferred sales charge) is deducted from cash
value upon surrender or lapse during the first nine Policy Years. (See
"Charges and Expenses.") The illustrations are based on an average of the
investment advisory fees and operating expenses incurred by the Eligible
Funds, at an annual rate of .79% of the average daily net assets of the
Eligible Funds. This average reflects voluntary expense cap and expense
deferral arrangements between TNE Advisers and the Zenith Fund, under which
TNE Advisers bears operating expenses of the Zenith Fund that exceed certain
amounts. TNE Advisers could terminate the expense cap and expense deferral
arrangements at any time. If TNE Advisers terminates these arrangements, the
values illustrated on the following pages could be less. (See "Charges and
Expenses.")
Taking account of the average investment advisory fee and operating expenses
of the Eligible Funds, the gross annual rates of return of 0%, 6% and 12%
correspond to net investment experience at constant annual rates of -.79%,
5.17%, and 11.12%, respectively. (See "Net Investment Experience.")
The hypothetical rates of return shown in the tables do not reflect any tax
charges attributable to the Variable Account since no such charges are
currently made. If any such charges are imposed in the future, the gross
annual rate of return would have to exceed the rates shown by an amount
sufficient to cover the tax charges, in order to produce the death benefits,
net cash values and cash values illustrated. (See "Charge for NELICO's Income
Taxes.")
The second column of each table shows the amount which would accumulate if
the initial premium of $50,000 were invested to earn interest, after taxes, of
5% per year, compounded annually.
A-47
<PAGE>
The internal rate of return on net cash value is equivalent to an interest
rate (after taxes) at which an amount equal to the initial premium could have
been invested outside the Policy to arrive at the net cash value of the
Policy. The internal rate of return on the death benefit is equivalent to an
interest rate (after taxes) at which an amount equal to the initial premium
could have been invested outside the Policy to arrive at the death benefit of
the Policy. The internal rate of return is compounded annually.
NELICO will furnish upon request a personalized illustration reflecting the
proposed insured's age, sex, and underwriting classification. Where
applicable, NELICO will also furnish upon request an illustration for a Policy
which is not affected by the sex of the insured.
A-48
<PAGE>
SINGLE INSURED POLICY
MALE ISSUE AGE 50
$50,000 INITIAL PREMIUM FOR STANDARD NONSMOKER
$129,122 INITIAL DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
INTERNAL RATE OF RETURN
INITIAL DEATH BENEFIT NET CASH VALUE CASH VALUE ON NET CASH VALUE
PREMIUM ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST ------------------------- ------------------------ ------------------------ ---------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ------- ------- --------- ------ ------- --------- ------ ------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 121,586 128,890 136,182 44,452 47,363 50,269 48,452 51,363 54,269 (11.10) (5.27) .54
2 55,125 114,221 128,356 143,291 42,952 48,763 54,902 46,952 52,763 58,902 (7.32) (1.24) 4.79
3 57,881 107,337 127,867 150,820 41,999 50,701 60,431 45,499 54,201 63,931 (5.65) .47 6.52
4 60,775 100,905 127,427 158,804 41,090 52,678 66,389 44,090 55,678 69,389 (4.79) 1.31 7.34
5 63,814 94,897 127,039 167,278 40,225 54,696 72,812 42,725 57,196 75,312 (4.26) 1.81 7.81
6 67,005 89,285 126,706 176,278 39,402 56,755 79,742 41,402 58,755 81,742 (3.89) 2.13 8.09
7 70,355 84,040 126,427 185,842 38,621 58,856 87,221 40,121 60,356 88,721 (3.62) 2.36 8.27
8 73,873 79,135 126,200 196,003 37,879 61,002 95,295 38,879 62,002 96,295 (3.41) 2.52 8.40
9 77,566 74,548 126,027 206,808 37,175 63,191 104,016 37,675 63,691 104,516 (3.24) 2.64 8.48
10 81,445 70,258 125,911 218,306 36,509 65,428 113,439 36,509 65,428 113,439 (3.10) 2.73 8.54
15 103,946 55,083 132,148 301,694 32,634 78,293 178,743 32,634 78,293 178,743 (2.80) 3.03 8.86
20 132,665 50,000 140,817 423,313 29,171 93,688 281,638 29,171 93,688 281,638 (2.66) 3.19 9.03
25 169,318 50,000 152,615 604,095 26,076 112,111 443,768 26,076 112,111 443,768 (2.57) 3.28 9.13
30 216,097 50,000 168,702 879,288 23,309 134,156 699,230 23,309 134,156 699,230 (2.51) 3.34 9.19
35 275,801 50,000 189,513 1,300,621 20,835 160,536 1,101,752 20,835 160,536 1,101,752 (2.47) 3.39 9.24
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL
GROSS ANNUAL
END OF RATE OF RETURN OF
POLICY -----------------------
YEAR 0% 6% 12%
- ------ ------- ------- -------
<S> <C> <C> <C>
1 143.17 157.78 172.36
2 51.14 60.22 69.29
3 29.00 36.75 44.49
4 19.19 26.35 33.50
5 13.67 20.50 27.32
6 10.15 16.76 23.37
7 7.70 14.17 20.63
8 5.91 12.27 18.62
9 4.54 10.82 17.09
10 3.46 9.68 15.88
15 .65 6.69 12.73
20 0 5.31 11.27
25 0 4.56 10.48
30 0 4.14 10.03
35 0 3.88 9.76
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, WHETHER ADDITIONAL PAYMENTS ARE MADE, AND THE INVESTMENT EXPERIENCE OF
THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND NET CASH VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED
ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF
ANY POLICY LOAN OR PARTIAL SURRENDER WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-49
<PAGE>
SINGLE INSURED POLICY
MALE ISSUE AGE 50
$50,000 INITIAL PREMIUM FOR STANDARD NONSMOKER
$129,122 INITIAL DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
INITIAL DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUM ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ----------------------- --------------------- --------------------- --------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ------- ------- ------- ------ ------ ------- ------ ------ ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 121,167 128,451 135,723 44,285 47,188 50,086 48,285 51,188 54,086 (11.43) (5.62) .17
2 55,125 113,401 127,445 142,284 42,615 48,388 54,488 46,615 52,388 58,488 (7.68) (1.62) 4.39
3 57,881 106,133 126,448 149,163 41,488 50,099 59,728 44,988 53,599 63,228 (6.03) .07 6.11
4 60,775 99,329 125,457 156,373 40,401 51,818 65,326 43,401 54,818 68,326 (5.19) .90 6.91
5 63,814 92,962 124,474 163,933 39,354 53,541 71,306 41,854 56,041 73,806 (4.68) 1.38 7.36
6 67,005 87,002 123,498 171,857 38,344 55,268 77,692 40,344 57,268 79,692 (4.33) 1.68 7.62
7 70,355 81,425 122,530 180,165 37,372 56,996 84,511 38,872 58,496 86,011 (4.07) 1.89 7.79
8 73,873 76,204 121,570 188,875 36,439 58,727 91,793 37,439 59,727 92,793 (3.88) 2.03 7.89
9 77,566 71,318 120,617 198,007 35,543 60,457 99,568 36,043 60,957 100,068 (3.72) 2.13 7.95
10 81,445 66,746 119,671 207,579 34,683 62,185 107,865 34,683 62,185 107,865 (3.59) 2.20 7.99
15 103,946 50,000 118,856 271,548 29,328 70,418 160,882 29,328 70,418 160,882 (3.49) 2.31 8.10
20 132,665 50,000 118,044 355,247 23,335 78,537 236,353 23,335 78,537 236,353 (3.74) 2.28 8.08
25 169,318 50,000 117,226 464,738 14,101 86,114 341,396 14,101 86,114 341,396 (4.94) 2.20 7.99
30 216,097 50,000 116,417 608,041 0 92,577 483,528 0 92,577 483,528 -- 2.07 7.86
35 275,801 50,000 115,608 795,556 0 97,931 673,912 0 97,931 673,912 -- 1.94 7.71
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY -----------------------------
YEAR 0% 6% 12%
- ------ --------- --------- ---------
<S> <C> <C> <C>
1 142.33 156.90 171.45
2 50.60 59.65 68.69
3 28.52 36.24 43.96
4 18.72 25.86 32.98
5 13.21 20.01 26.81
6 9.67 16.26 22.85
7 7.21 13.66 20.10
8 5.41 11.75 18.07
9 4.02 10.28 16.52
10 2.93 9.12 15.30
15 0 5.94 11.94
20 0 4.39 10.30
25 0 3.47 9.33
30 0 2.86 8.68
35 0 2.42 8.23
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, WHETHER ADDITIONAL PAYMENTS ARE MADE, AND THE INVESTMENT EXPERIENCE OF
THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND NET CASH VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED
ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF
ANY POLICY LOAN OR PARTIAL SURRENDER WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-50
<PAGE>
SINGLE INSURED POLICY
FEMALE ISSUE AGE 50
$50,000 INITIAL PREMIUM FOR STANDARD NONSMOKER
$145,611 INITIAL DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
INITIAL DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUM ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ------------------------- ------------------------ ------------------------ ---------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ------- ------- --------- ------ ------- --------- ------ ------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 137,136 145,375 153,599 44,452 47,363 50,269 48,452 51,363 54,269 (11.10) (5.27) .54
2 55,125 128,844 144,789 161,636 42,952 48,763 54,902 46,952 52,763 58,902 (7.32) (1.24) 4.79
3 57,881 121,083 144,242 170,135 41,999 50,701 60,431 45,499 54,201 63,931 (5.65) .47 6.52
4 60,775 113,820 143,735 179,129 41,090 52,678 66,389 44,090 55,678 69,389 (4.79) 1.31 7.34
5 63,814 107,018 143,265 188,643 40,225 54,696 72,812 42,725 57,196 75,312 (4.26) 1.81 7.81
6 67,005 100,646 142,829 198,709 39,402 56,755 79,742 41,402 58,755 81,742 (3.89) 2.13 8.09
7 70,355 94,671 142,420 209,351 38,621 58,856 87,221 40,121 60,356 88,721 (3.62) 2.36 8.27
8 73,873 89,062 142,031 220,590 37,879 61,002 95,295 38,879 62,002 96,295 (3.41) 2.52 8.40
9 77,566 83,791 141,653 232,450 37,175 63,191 104,016 37,675 63,691 104,516 (3.24) 2.64 8.48
10 81,445 78,840 141,290 244,972 36,509 65,428 113,439 36,509 65,428 113,439 (3.10) 2.73 8.54
15 103,946 61,083 146,543 334,558 32,634 78,293 178,743 32,634 78,293 178,743 (2.80) 3.03 8.86
20 132,665 50,000 153,627 461,823 29,171 93,688 281,638 29,171 93,688 281,638 (2.66) 3.19 9.03
25 169,318 50,000 162,889 644,764 26,076 112,111 443,768 26,076 112,111 443,768 (2.57) 3.28 9.13
30 216,097 50,000 176,118 917,943 23,309 134,156 699,230 23,309 134,156 699,230 (2.51) 3.34 9.19
35 275,801 50,000 194,153 1,332,469 20,835 160,536 1,101,752 20,835 160,536 1,101,752 (2.47) 3.39 9.24
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY -----------------------------
YEAR 0% 6% 12%
- ------ --------- --------- ---------
<S> <C> <C> <C>
1 174.27 190.75 207.20
2 60.53 70.17 79.80
3 34.29 42.36 50.41
4 22.83 30.21 37.58
5 16.44 23.43 30.42
6 12.37 19.12 25.86
7 9.55 16.13 22.70
8 7.48 13.94 20.39
9 5.90 12.27 18.62
10 4.66 10.95 17.22
15 1.34 7.43 13.51
20 0 5.77 11.76
25 0 4.84 10.77
30 0 4.29 10.19
35 0 3.95 9.83
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, WHETHER ADDITIONAL PAYMENTS ARE MADE, AND THE INVESTMENT EXPERIENCE OF
THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND NET CASH VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED
ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF
ANY POLICY LOAN OR PARTIAL SURRENDER WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-51
<PAGE>
SINGLE INSURED POLICY
FEMALE ISSUE AGE 50
$50,000 INITIAL PREMIUM FOR STANDARD NONSMOKER
$145,611 INITIAL DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
INITIAL DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUM ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ----------------------- ---------------------- ---------------------- ---------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ------- ------- ------- ------ ------- ------- ------ ------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 136,637 144,851 153,052 44,276 47,178 50,075 48,276 51,178 54,075 (11.45) (5.64) .15
2 55,125 127,881 143,719 160,453 42,601 48,373 54,471 46,601 52,373 58,471 (7.69) (1.64) 4.38
3 57,881 119,685 142,594 168,211 41,473 50,082 59,708 44,973 53,582 63,208 (6.04) .05 6.09
4 60,775 112,014 141,479 176,344 40,391 51,804 65,310 43,391 54,804 68,310 (5.20) .89 6.91
5 63,814 104,835 140,372 184,870 39,354 53,541 71,306 41,854 56,041 73,806 (4.68) 1.38 7.36
6 67,005 98,116 139,274 193,810 38,362 55,293 77,727 40,362 57,293 79,727 (4.32) 1.69 7.63
7 70,355 91,828 138,185 203,183 37,416 57,062 84,607 38,916 58,562 86,107 (4.06) 1.91 7.80
8 73,873 85,943 137,106 213,010 36,517 58,852 91,986 37,517 59,852 92,986 (3.85) 2.06 7.92
9 77,566 80,436 136,035 223,313 35,666 60,665 99,908 36,166 61,165 100,408 (3.68) 2.17 7.99
10 81,445 75,281 134,972 234,114 34,861 62,502 108,412 34,861 62,502 108,412 (3.54) 2.26 8.05
15 103,946 55,842 134,064 306,271 29,835 71,626 163,630 29,835 71,626 163,630 (3.38) 2.43 8.22
20 132,665 50,000 133,162 400,682 24,988 81,207 244,352 24,988 81,207 244,352 (3.41) 2.45 8.26
25 169,318 50,000 132,250 524,165 18,712 91,023 360,764 18,712 91,023 360,764 (3.86) 2.43 8.23
30 216,097 50,000 131,336 685,718 7,862 100,043 522,336 7,862 100,043 522,336 (5.98) 2.34 8.13
35 275,801 50,000 130,418 897,078 0 107,836 741,748 0 107,836 741,748 -- 2.22 8.01
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY -----------------------------
YEAR 0% 6% 12%
- ------ --------- --------- ---------
<S> <C> <C> <C>
1 173.27 189.70 206.10
2 59.93 69.54 79.14
3 33.77 41.81 49.84
4 22.34 29.70 37.04
5 15.96 22.93 29.89
6 11.89 18.62 25.33
7 9.07 15.63 22.18
8 7.01 13.44 19.86
9 5.42 11.76 18.09
10 4.18 10.44 16.69
15 .74 6.80 12.84
20 0 5.02 10.97
25 0 3.97 9.86
30 0 3.27 9.12
35 0 2.78 8.60
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, WHETHER ADDITIONAL PAYMENTS ARE MADE, AND THE INVESTMENT EXPERIENCE OF
THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND NET CASH VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED
ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF
ANY POLICY LOAN OR PARTIAL SURRENDER WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-52
<PAGE>
SINGLE INSURED POLICY
MALE ISSUE AGE 70
$50,000 INITIAL PREMIUM FOR STANDARD NONSMOKER
$75,013 INITIAL DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
INITIAL DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUM ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ---------------------- ---------------------- ---------------------- --------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ------ ------- ------- ------ ------- ------- ------ ------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 71,284 75,567 79,842 44,452 47,363 50,269 48,452 51,363 54,269 (11.10) (5.27) .54
2 55,125 67,664 76,038 84,885 42,952 48,763 54,902 46,952 52,763 58,902 (7.32) (1.24) 4.79
3 57,881 64,278 76,573 90,318 41,999 50,701 60,431 45,499 54,201 63,931 (5.65) .47 6.52
4 60,775 61,116 77,179 96,184 41,090 52,678 66,389 44,090 55,678 69,389 (4.79) 1.31 7.34
5 63,814 58,161 77,860 102,522 40,225 54,696 72,812 42,725 57,196 75,312 (4.26) 1.81 7.81
6 67,005 55,396 78,614 109,371 39,402 56,755 79,742 41,402 58,755 81,742 (3.89) 2.13 8.09
7 70,355 52,805 79,438 116,769 38,621 58,856 87,221 40,121 60,356 88,721 (3.62) 2.36 8.27
8 73,873 50,369 80,325 124,754 37,879 61,002 95,295 38,879 62,002 96,295 (3.41) 2.52 8.40
9 77,566 50,000 81,272 133,366 37,175 63,191 104,016 37,675 63,691 104,516 (3.24) 2.64 8.48
10 81,445 50,000 82,276 142,651 36,509 65,428 113,439 36,509 65,428 113,439 (3.10) 2.73 8.54
15 103,946 50,000 92,425 211,006 32,634 78,293 178,743 32,634 78,293 178,743 (2.80) 3.03 8.86
20 132,665 50,000 105,513 317,184 29,171 93,688 281,638 29,171 93,688 281,638 (2.66) 3.19 9.03
25 169,318 50,000 120,171 475,675 26,076 112,111 443,768 26,076 112,111 443,768 (2.57) 3.28 9.13
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY -----------------------------
YEAR 0% 6% 12%
- ------ --------- --------- ---------
<S> <C> <C> <C>
1 42.57 51.13 59.68
2 16.33 23.32 30.30
3 8.73 15.27 21.79
4 5.15 11.46 17.77
5 3.07 9.26 15.44
6 1.72 7.83 13.93
7 .78 6.84 12.88
8 .09 6.10 12.11
9 0 5.55 11.52
10 0 5.11 11.05
15 0 4.18 10.07
20 0 3.80 9.68
25 0 3.57 9.43
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, WHETHER ADDITIONAL PAYMENTS ARE MADE, AND THE INVESTMENT EXPERIENCE OF
THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND NET CASH VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED
ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF
ANY POLICY LOAN OR PARTIAL SURRENDER WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-53
<PAGE>
SINGLE INSURED POLICY
MALE ISSUE AGE 70
$50,000 INITIAL PREMIUM FOR STANDARD NONSMOKER
$75,013 INITIAL DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
INITIAL DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUM ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST --------------------- --------------------- --------------------- --------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ------ ------ ------- ------ ------ ------- ------ ------ ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 70,329 74,561 78,786 43,803 46,679 49,551 47,803 50,679 53,551 (12.39) (6.64) (.90)
2 55,125 65,816 73,974 82,595 41,670 47,331 53,313 45,670 51,331 57,313 (8.71) (2.71) 3.26
3 57,881 61,591 73,391 86,588 40,096 48,449 57,790 43,596 51,949 61,290 (7.09) (1.04) 4.94
4 60,775 57,637 72,812 90,773 38,580 49,528 62,485 41,580 52,528 65,485 (6.28) (.24) 5.73
5 63,814 53,936 72,238 95,162 37,121 50,566 67,406 39,621 53,066 69,906 (5.78) .23 6.16
6 67,005 50,473 71,668 99,762 35,722 51,564 72,561 37,722 53,564 74,561 (5.45) .51 6.40
7 70,355 50,000 71,103 104,587 34,303 52,524 77,964 35,803 54,024 79,464 (5.24) .71 6.55
8 73,873 50,000 70,543 109,645 32,689 53,451 83,633 33,689 54,451 84,633 (5.17) .84 6.64
9 77,566 50,000 69,988 114,949 30,828 54,349 89,584 31,328 54,849 90,084 (5.23) .93 6.69
10 81,445 50,000 69,438 120,511 28,654 55,218 95,833 28,654 55,218 95,833 (5.42) 1.00 6.72
15 103,946 50,000 68,955 157,675 6,794 58,412 133,566 6,794 58,412 133,566 (12.46) 1.04 6.77
20 132,665 50,000 68,480 206,328 0 60,805 183,205 0 60,805 183,205 -- .98 6.71
25 169,318 50,000 68,041 270,122 0 63,477 252,003 0 63,477 252,003 -- .96 6.68
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY -----------------------------
YEAR 0% 6% 12%
- ------ --------- --------- ---------
<S> <C> <C> <C>
1 40.66 49.12 57.57
2 14.73 21.63 28.53
3 7.20 13.65 20.09
4 3.62 9.85 16.08
5 1.53 7.64 13.74
6 .16 6.18 12.20
7 0 5.16 11.12
8 0 4.40 10.31
9 0 3.81 9.69
10 0 3.34 9.20
15 0 2.17 7.96
20 0 1.58 7.34
25 0 1.24 6.98
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, WHETHER ADDITIONAL PAYMENTS ARE MADE, AND THE INVESTMENT EXPERIENCE OF
THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND NET CASH VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED
ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF
ANY POLICY LOAN OR PARTIAL SURRENDER WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-54
<PAGE>
SINGLE INSURED POLICY
FEMALE ISSUE AGE 70
$50,000 INITIAL PREMIUM FOR STANDARD NONSMOKER
$81,811 INITIAL DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
INITIAL DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUM ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ---------------------- ---------------------- ---------------------- --------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ------ ------- ------- ------ ------- ------- ------ ------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 77,454 82,107 86,752 44,452 47,363 50,269 48,452 51,363 54,269 (11.10) (5.27) .54
2 55,125 73,205 82,265 91,837 42,952 48,763 54,902 46,952 52,763 58,902 (7.32) (1.24) 4.79
3 57,881 69,235 82,477 97,282 41,999 50,701 60,431 45,499 54,201 63,931 (5.65) .47 6.52
4 60,775 65,530 82,753 103,130 41,090 52,678 66,389 44,090 55,678 69,389 (4.79) 1.31 7.34
5 63,814 62,077 83,102 109,424 40,225 54,696 72,812 42,725 57,196 75,312 (4.26) 1.81 7.81
6 67,005 58,857 83,525 116,203 39,402 56,755 79,742 41,402 58,755 81,742 (3.89) 2.13 8.09
7 70,355 55,850 84,019 123,504 38,621 58,856 87,221 40,121 60,356 88,721 (3.62) 2.36 8.27
8 73,873 53,037 84,581 131,363 37,879 61,002 95,295 38,879 62,002 96,295 (3.41) 2.52 8.40
9 77,566 50,401 85,205 139,820 37,175 63,191 104,016 37,675 63,691 104,516 (3.24) 2.64 8.48
10 81,445 50,000 85,893 148,922 36,509 65,428 113,439 36,509 65,428 113,439 (3.10) 2.73 8.54
15 103,946 50,000 94,688 216,173 32,634 78,293 178,743 32,634 78,293 178,743 (2.80) 3.03 8.86
20 132,665 50,000 106,516 320,202 29,171 93,688 281,638 29,171 93,688 281,638 (2.66) 3.19 9.03
25 169,318 50,000 120,327 476,291 26,076 112,111 443,768 26,076 112,111 443,768 (2.57) 3.28 9.13
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY -----------------------------
YEAR 0% 6% 12%
- ------ --------- --------- ---------
<S> <C> <C> <C>
1 54.91 64.21 73.50
2 21.00 28.27 35.53
3 11.46 18.16 24.84
4 7.00 13.42 19.84
5 4.42 10.70 16.96
6 2.76 8.93 15.09
7 1.59 7.70 13.79
8 .74 6.79 12.83
9 .09 6.10 12.10
10 0 5.56 11.53
15 0 4.35 10.25
20 0 3.85 9.73
25 0 3.58 9.43
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, WHETHER ADDITIONAL PAYMENTS ARE MADE, AND THE INVESTMENT EXPERIENCE OF
THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND NET CASH VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED
ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF
ANY POLICY LOAN OR PARTIAL SURRENDER WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-55
<PAGE>
SINGLE INSURED POLICY
FEMALE ISSUE AGE 70
$50,000 INITIAL PREMIUM FOR STANDARD NONSMOKER
$81,811 INITIAL DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
INITIAL DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN
PREMIUM ASSUMING HYPOTHETICAL NET CASH VALUE ASSUMING ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL HYPOTHETICAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST --------------------- --------------------------- --------------------- --------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ------ ------ ------- -------- -------- --------- ------ ------ ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 76,731 81,346 85,954 44,000 46,887 49,769 48,000 50,887 53,769 (12.00) (6.23) (.46)
2 55,125 71,810 80,708 90,110 42,057 47,764 53,794 46,057 51,764 57,794 (8.29) (2.26) 3.72
3 57,881 67,203 80,073 94,466 40,663 49,121 58,580 44,163 52,621 62,080 (6.66) (.59) 5.42
4 60,775 62,890 79,443 99,032 39,314 50,451 63,631 42,314 53,451 66,631 (5.83) .22 6.21
5 63,814 58,854 78,817 103,818 38,007 51,747 68,954 40,507 54,247 71,454 (5.34) .69 6.64
6 67,005 55,077 78,196 108,835 36,743 53,006 74,560 38,743 55,006 76,560 (5.00) .98 6.89
7 70,355 51,541 77,580 114,096 35,526 54,230 80,463 37,026 55,730 81,963 (4.77) 1.17 7.03
8 73,873 50,000 76,969 119,612 34,334 55,422 86,681 35,334 56,422 87,681 (4.59) 1.30 7.12
9 77,566 50,000 76,363 125,396 33,026 56,582 93,235 33,526 57,082 93,735 (4.50) 1.38 7.17
10 81,445 50,000 75,762 131,460 31,545 57,711 100,138 31,545 57,711 100,138 (4.50) 1.44 7.19
15 103,946 50,000 75,233 171,980 17,389 62,206 142,202 17,389 62,206 142,202 (6.80) 1.47 7.22
20 132,665 50,000 74,710 225,018 0 65,712 197,918 0 65,712 197,918 -- 1.38 7.12
25 169,318 50,000 74,219 294,532 0 69,151 274,420 0 69,151 274,420 -- 1.31 7.05
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY -----------------------------
YEAR 0% 6% 12%
- ------ --------- --------- ---------
<S> <C> <C> <C>
1 53.46 62.69 71.91
2 19.84 27.05 34.25
3 10.36 17.00 23.62
4 5.90 12.27 18.63
5 3.31 9.53 15.73
6 1.62 7.74 13.84
7 .43 6.48 12.51
8 0 5.54 11.52
9 0 4.82 10.76
10 0 4.24 10.15
15 0 2.76 8.58
20 0 2.03 7.81
25 0 1.59 7.35
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, WHETHER ADDITIONAL PAYMENTS ARE MADE, AND THE INVESTMENT EXPERIENCE OF
THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND NET CASH VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED
ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF
ANY POLICY LOAN OR PARTIAL SURRENDER WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-56
<PAGE>
LAST SURVIVOR POLICY
MALE ISSUE AGE 65
FEMALE ISSUE AGE 60
(JOINT EQUAL AGE 63)
$50,000 INITIAL PREMIUM FOR STANDARD NONSMOKER
$114,909 INITIAL DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
INITIAL DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUM ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ------------------------- ------------------------ ------------------------ --------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ------- ------- --------- ------ ------- --------- ------ ------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 107,901 114,384 120,855 44,658 47,581 50,499 48,658 51,581 54,499 (10.68) (4.84) 1.00
2 55,125 100,988 113,486 126,691 43,325 49,182 55,370 47,325 53,182 59,370 (6.91) (.82) 5.23
3 57,881 94,516 112,596 132,809 42,499 51,298 61,135 45,999 54,798 64,635 (5.27) .86 6.93
4 60,775 88,459 111,711 139,222 41,679 53,424 67,319 44,679 56,424 70,319 (4.45) 1.67 7.72
5 63,814 82,822 110,877 145,999 40,883 55,578 73,975 43,383 58,078 76,475 (3.95) 2.14 8.15
6 67,005 77,605 110,133 153,224 40,124 57,780 81,170 42,124 59,780 83,170 (3.60) 2.44 8.41
7 70,355 72,775 109,483 160,937 39,402 60,033 88,952 40,902 61,533 90,452 (3.35) 2.65 8.58
8 73,873 68,305 108,931 169,186 38,715 62,336 97,371 39,715 63,336 98,371 (3.15) 2.79 8.69
9 77,566 64,170 108,485 178,026 38,062 64,693 106,483 38,562 65,193 106,983 (2.99) 2.90 8.76
10 81,445 60,350 108,156 187,527 37,443 67,104 116,349 37,443 67,104 116,349 (2.85) 2.99 8.81
15 103,946 50,000 113,563 259,270 33,806 81,106 185,170 33,806 81,106 185,170 (2.58) 3.28 9.12
20 132,665 50,000 123,152 370,218 30,523 98,031 294,699 30,523 98,031 294,699 (2.44) 3.42 9.27
25 169,318 50,000 137,951 546,062 27,558 118,486 469,015 27,558 118,486 469,015 (2.35) 3.51 9.37
30 216,097 50,000 157,448 820,649 24,881 143,210 746,440 24,881 143,210 746,440 (2.30) 3.57 9.43
35 275,801 50,000 178,645 1,226,063 22,464 173,094 1,187,963 22,464 173,094 1,187,963 (2.26) 3.61 9.47
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY -----------------------------
YEAR 0% 6% 12%
- ------ --------- --------- ---------
<S> <C> <C> <C>
1 115.80 128.77 141.71
2 42.12 50.66 59.18
3 23.65 31.07 38.49
4 15.33 22.26 29.18
5 10.62 17.27 23.90
6 7.60 14.07 20.52
7 5.51 11.85 18.18
8 3.98 10.22 16.46
9 2.81 8.99 15.15
10 1.90 8.02 14.13
15 0 5.62 11.60
20 0 4.61 10.53
25 0 4.14 10.04
30 0 3.90 9.78
35 0 3.71 9.57
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, WHETHER ADDITIONAL PAYMENTS ARE MADE, AND THE INVESTMENT EXPERIENCE OF
THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND NET CASH VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED
ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF
ANY POLICY LOAN OR PARTIAL SURRENDER WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-57
<PAGE>
LAST SURVIVOR POLICY
MALE ISSUE AGE 65
FEMALE ISSUE AGE 60
(JOINT EQUAL AGE 63)
$50,000 INITIAL PREMIUM FOR STANDARD NONSMOKER
$114,909 INITIAL DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
INITIAL DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUM ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST ----------------------- --------------------- --------------------- --------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ------- ------- ------- ------ ------ ------- ------ ------ ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 107,901 114,384 120,855 44,658 47,581 50,499 48,658 51,581 54,499 (10.68) (4.84) 1.00
2 55,125 100,988 113,486 126,691 43,325 49,182 55,370 47,325 53,182 59,370 (6.91) (.82) 5.23
3 57,881 94,516 112,596 132,809 42,499 51,298 61,135 45,999 54,798 64,635 (5.27) .86 6.93
4 60,775 88,459 111,711 139,222 41,679 53,424 67,319 44,679 56,424 70,319 (4.45) 1.67 7.72
5 63,814 82,789 110,834 145,945 40,865 55,555 73,947 43,365 58,055 76,447 (3.95) 2.13 8.14
6 67,005 77,482 109,962 152,992 40,057 57,688 81,044 42,057 59,688 83,044 (3.63) 2.41 8.38
7 70,355 72,515 109,097 160,379 39,256 59,816 88,638 40,756 61,316 90,138 (3.40) 2.59 8.52
8 73,873 67,865 108,239 168,123 38,459 61,934 96,753 39,459 62,934 97,753 (3.23) 2.71 8.60
9 77,566 63,513 107,386 176,240 37,667 64,032 105,410 38,167 64,532 105,910 (3.10) 2.79 8.64
10 81,445 59,439 106,539 184,749 36,878 66,101 114,625 36,878 66,101 114,625 (3.00) 2.83 8.65
15 103,946 50,000 105,782 241,600 31,272 75,549 172,550 31,272 75,549 172,550 (3.08) 2.79 8.61
20 132,665 50,000 105,027 315,984 21,836 83,603 251,527 21,836 83,603 251,527 (4.06) 2.60 8.41
25 169,318 50,000 104,273 413,312 0 89,561 354,995 0 89,561 354,995 -- 2.36 8.16
30 216,097 50,000 103,561 540,854 0 94,196 491,946 0 94,196 491,946 -- 2.13 7.92
35 275,801 50,000 102,851 707,716 0 99,655 685,724 0 99,655 685,724 -- 1.99 7.77
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY -----------------------------
YEAR 0% 6% 12%
- ------ --------- --------- ---------
<S> <C> <C> <C>
1 115.80 128.77 141.71
2 42.12 50.66 59.18
3 23.65 31.07 38.49
4 15.33 22.26 29.18
5 10.61 17.26 23.89
6 7.57 14.04 20.49
7 5.45 11.79 18.12
8 3.89 10.14 16.37
9 2.69 8.86 15.03
10 1.74 7.86 13.96
15 0 5.12 11.07
20 0 3.78 9.66
25 0 2.98 8.82
30 0 2.46 8.26
35 0 2.08 7.87
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, WHETHER ADDITIONAL PAYMENTS ARE MADE, AND THE INVESTMENT EXPERIENCE OF
THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND NET CASH VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED
ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF
ANY POLICY LOAN OR PARTIAL SURRENDER WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-58
<PAGE>
APPENDIX B
INVESTMENT EXPERIENCE INFORMATION
The information contained in Appendix B gives hypothetical illustrations of
the Variable Account's and the Policy's investment experience based on the
historical investment experience of the Eligible Funds. It does not represent
what may happen in the future.
The Policies were not available until July, 1996. The Zenith Fund and the
Variable Account commenced operations on August 26, 1983. The Westpeak Stock
Index and Back Bay Advisors Managed Series of the Zenith Fund commenced
operations on May 1, 1987. The Westpeak Growth and Income Series and Goldman
Sachs Midcap Value Series of the Zenith Fund commenced operations on April 30,
1993. The Loomis Sayles Small Cap Series of the Zenith Fund commenced
operations on May 2, 1994. The remaining Zenith Fund Series commenced
operations on October 31, 1994.
The illustrations are based on the actual investment experience of the
relevant Eligible Funds for the periods shown (net of actual charges and
expenses incurred by the Eligible Funds). The illustrations assume that an
initial premium of $50,000 was paid and that no loans, transfers or other
Policy Owner transactions were made during the periods shown.
SUB-ACCOUNT INVESTMENT EXPERIENCE
The Policies are supported by the Variable Account, which invests in the
Eligible Funds. The investment experience of the Sub-Account or Sub-Accounts
you choose will affect the values and benefits of your Policy.
Many factors in addition to investment experience will affect the actual
values and benefits of your Policy. For instance, these investment experience
figures do not reflect the charges deducted from additional Premiums and the
Monthly Deductions from the cash value. (See "Charges and Expenses.")
NET RATES OF RETURN
A Sub-Account's investment experience is expressed below as a net rate of
return. The annual net rate is the effective earnings rate at which the Sub-
Accounts increased or decreased over a one-year period, based on the
investment experience of the relevant Eligible Funds. The rate is calculated
by taking the difference between the Sub-Accounts' ending values and beginning
values of the period and dividing it by the beginning values of the period.
The effective annual net rate of return since inception is the annualized
effective interest rate at which the Sub-Accounts increased or decreased since
the inception dates of the Sub-Accounts. For each Sub-Account, the rate is
calculated by taking the difference between the Sub-Account's ending value and
the value on the date of its inception and dividing it by the value on the
date of inception. This result is the total net rate of return since inception
("Total Return"). The effective annual net rate of return is the rate which,
if compounded annually, would equal the total net rate of return since
inception.
A-59
<PAGE>
SUB-ACCOUNTS INVESTING IN NEW ENGLAND ZENITH FUND
<TABLE>
<CAPTION>
8/26/83-
SUB-ACCOUNT 12/31/83 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Bond Income..... 3.20% 12.61% 18.76% 14.83% 2.27% 8.37%
Money Market.... 3.20 10.73 8.26 6.80 6.53 7.52
<CAPTION>
5/1/87-
SUB-ACCOUNT 12/31/87 12/31/88
- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Stock Index......................................... (12.20%) 16.34%
Managed............................................. (0.66) 9.48
<CAPTION>
SUB-ACCOUNT
- -----------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income....................................................
Midcap Value**.......................................................
<CAPTION>
SUB-ACCOUNT
- -----------
<S> <C> <C> <C> <C> <C> <C>
Small Cap............................................................
<CAPTION>
SUB-ACCOUNT
- -----------
<S> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................
Balanced.............................................................
Venture Value........................................................
International Magnum Equity*.........................................
U.S. Government......................................................
Strategic Bond Opportunities.........................................
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------- 8/26/83- 8/28/83-
FOR ONE YEAR ENDING 12/31/97 12/31/97
--------------------------------------------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income..... 12.30% 8.09% 17.96% 8.18% 12.61% (3.36%) 21.20% 4.61% 10.89% 316.19% 10.45%
Money Market.... 9.25 8.19 6.21 3.80 2.97 3.97 5.70 5.13 5.34 147.14 6.51
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------- 5/1/87- 5/1/87-
FOR ONE YEAR ENDING 12/31/97 12/31/97
--------------------------------------------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index..... 30.15% (4.14%) 30.43% 7.30% 9.72% 1.12% 36.92% 22.47% 32.50% 337.49% 14.89%
Managed......... 19.08 3.21 20.17 6.70 10.65 (1.11) 31.26 15.03 26.56 258.44 12.71
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------- 4/30/93- 4/30/93-
FOR ONE YEAR ENDING 12/31/97 12/31/97
4/30/93- ------------------------------------ TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- -------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth and Income.................. 14.24% (1.21%) 36.47% 18.10% 33.47% 142.77% 20.91%
Midcap Value**..................... 14.74 (.27) 30.35 17.61 17.32 105.81 16.71
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------------ 5/2/94- 5/2/94-
FOR ONE YEAR ENDING 12/31/97 12/31/97
5/2/94- -------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Small Cap................................... (3.23%) 28.84% 30.68% 24.85% 103.44% 21.38%
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------------ 10/31/94- 10/31/94-
FOR ONE YEAR ENDING 12/31/96 12/31/96
10/31/94- -------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Equity Growth............................... (4.20%) 48.69% 13.17% 25.63% 102.54% 24.96%
Balanced.................................... (.10) 24.79 16.91 16.18 69.33 18.09
Venture Value............................... (3.50) 39.28 25.84 33.50 125.80 29.32
International Magnum Equity*................ 2.60 6.23 6.67 (1.30) 14.76 4.44
U.S. Government............................. 0.60 15.02 3.31 8.47 29.67 8.55
Strategic Bond Opportunities................ (1.40) 19.38 14.36 11.07 49.52 13.54
</TABLE>
- -------
* The Morgan Stanley International Magnum Equity Series' sub-adviser was
Draycott Partners until May 1, 1997, when Morgan Stanley Asset Management
became the sub-adviser.
** The Goldman Sachs Midcap Value Series' sub-adviser was Loomis Sayles until
May 1, 1998, when Goldman Sachs Asset Management became the sub-adviser.
Rates of return reflect the Series' former investment advisory fee of .70%
of average daily net assets. Beginning May 1, 1998, the Series' investment
advisory fee is .75%.
A-60
<PAGE>
POLICY PERFORMANCE
The material below assumes a Policy was issued with an initial premium of
$50,000 paid on August 26, 1983, in the case of the Bond Income and Money
Market Sub-Accounts (May 1, 1987, in the case of the Stock Index and Managed
Sub-Accounts; April 30, 1993, in the case of the Growth and Income and Midcap
Value Sub-Accounts; May 2, 1994, in the case of the Small Cap Sub-Account;
October 31, 1994, in the case of the Balanced, International Magnum Equity,
Equity Growth, Venture Value, U.S. Government and Strategic Bond Opportunities
Sub-Accounts), to (1) a male age 50, (2) a female age 50, (3) a male age 70,
(4) a female age 70, and (5) a male age 65 and female age 60, each in the
standard nonsmoker risk category. The death benefits, cash values and internal
rates of return assume in each instance that the entire Policy value was
invested in the particular Sub-Account for the period shown. These
illustrations of policy investment experience reflect all Policy charges
(except for the $2.50 Monthly Maintenance Charge) based on NELICO's current
rates. (See Appendix A for the definition of the internal rate of return.)
MALE STANDARD NON SMOKER, ISSUE AGE 50
$50,000 INITIAL PREMIUM
$129,122 INITIAL DEATH BENEFIT
BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $50,000 $ 50,000 $129,122 $ 50,000 $ 46,000 -- --
December 31, 1983....... 50,000 50,000 130,654 51,122 47,122 (15.66)% --
December 31, 1984....... 50,000 50,000 139,494 56,311 52,311 3.41 114.08%
December 31, 1985....... 50,000 50,000 156,886 65,320 61,820 9.46 62.75
December 31, 1986....... 50,000 50,000 170,674 73,266 70,266 10.70 44.30
December 31, 1987....... 50,000 50,000 165,419 73,185 70,685 8.29 31.68
December 31, 1988....... 50,000 75,767 169,828 77,406 75,406 7.99 25.69
December 31, 1989....... 50,000 75,767 180,973 84,942 83,442 8.40 22.46
December 31, 1990....... 50,000 75,767 185,675 89,706 88,706 8.11 19.55
December 31, 1991....... 50,000 75,767 207,916 103,356 102,856 9.02 18.62
December 31, 1992....... 50,000 75,767 213,612 109,212 109,212 8.72 16.81
December 31, 1993....... 50,000 120,283 229,245 120,487 120,487 8.87 15.85
December 31, 1994....... 50,000 120,283 212,033 114,506 114,506 7.57 13.58
December 31, 1995....... 50,000 120,283 247,171 137,081 137,081 8.51 13.82
December 31, 1996....... 50,000 120,283 248,295 141,335 141,335 8.10 12.76
December 31, 1997....... 50,000 120,283 264,560 154,468 154,468 8.18 12.31
MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $50,000 $ 50,000 $129,122 $ 50,000 $ 46,000 -- --
December 31, 1983....... 50,000 50,000 130,974 51,247 47,247 (15.02)% --
December 31, 1984....... 50,000 50,000 137,164 55,371 51,371 2.03 111.42%
December 31, 1985....... 50,000 50,000 140,631 58,552 55,052 4.19 55.34
December 31, 1986....... 50,000 50,000 142,293 61,083 58,083 4.58 36.67
December 31, 1987....... 50,000 50,000 143,656 63,557 61,057 4.70 27.47
December 31, 1988....... 50,000 65,444 146,543 66,793 64,793 4.97 22.27
December 31, 1989....... 50,000 65,444 151,824 71,260 69,760 5.39 19.12
December 31, 1990....... 50,000 65,444 155,804 75,274 74,274 5.53 16.73
December 31, 1991....... 50,000 65,444 157,095 78,093 77,593 5.41 14.70
December 31, 1992....... 50,000 65,444 154,861 79,175 79,175 5.04 12.86
December 31, 1993....... 50,000 79,450 151,970 79,872 79,872 4.63 11.34
December 31, 1994....... 50,000 79,450 151,626 81,883 81,883 4.44 10.27
December 31, 1995....... 50,000 79,450 153,789 85,291 85,291 4.42 9.53
December 31, 1996....... 50,000 79,450 155,211 88,350 88,350 4.36 8.86
December 31, 1997....... 50,000 79,450 157,100 91,726 91,726 4.32 8.31
</TABLE>
A-61
<PAGE>
MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $50,000 $50,000 $129,122 $ 50,000 $ 46,000 -- --
December 31, 1987....... 50,000 50,000 124,238 48,993 44,993 (14.60)% --
December 31, 1988....... 50,000 50,000 128,321 52,204 48,204 (2.17) 75.93%
December 31, 1989....... 50,000 50,000 146,503 61,467 57,967 5.70 49.61
December 31, 1990....... 50,000 50,000 142,039 61,437 58,437 4.34 32.92
December 31, 1991....... 50,000 50,000 161,786 72,115 69,615 7.35 28.60
December 31, 1992....... 50,000 70,177 163,688 75,159 73,159 6.95 23.27
December 31, 1993....... 50,000 70,177 171,814 81,230 79,730 7.25 20.33
December 31, 1994....... 50,000 70,177 161,126 78,405 77,405 5.86 16.49
December 31, 1995....... 50,000 70,177 202,017 101,135 100,635 8.40 17.48
December 31, 1996....... 50,000 70,177 219,535 113,022 113,022 8.80 16.54
December 31, 1997....... 50,000 118,897 265,421 140,455 140,455 10.17 16.94
MIDCAP VALUE SUB-ACCOUNT*
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $50,000 $50,000 $129,122 $ 50,000 $ 46,000 -- --
December 31, 1993....... 50,000 50,000 142,840 56,477 52,477 7.47% --
December 31, 1994....... 50,000 50,000 133,421 54,419 50,419 .50 79.91%
December 31, 1995....... 50,000 50,000 166,943 70,222 66,722 11.41 57.04
December 31, 1996....... 50,000 50,000 185,560 80,465 77,465 12.67 42.93
December 31, 1997....... 50,000 50,000 206,351 92,209 89,709 13.33 35.45
SMALL CAP SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $50,000 $50,000 $129,122 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 120,049 47,342 43,342 (19.32)% --
December 31, 1995....... 50,000 50,000 147,654 60,069 56,069 7.12 91.57%
December 31, 1996....... 50,000 50,000 182,739 76,670 73,170 15.35 62.61
December 31, 1997....... 50,000 50,000 216,164 93,499 90,499 17.57 49.09
BALANCED SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $129,122 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 127,694 49,705 45,705 (41.58)% --
December 31, 1995....... 50,000 50,000 151,641 60,900 56,900 11.71 158.73%
December 31, 1996....... 50,000 50,000 167,190 69,256 65,756 13.47 74.54
December 31, 1997....... 50,000 50,000 184,004 78,591 75,591 13.94 50.89
</TABLE>
A-62
<PAGE>
INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $129,122 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 130,766 50,900 46,900 (31.81)% --
December 31, 1995....... 50,000 50,000 132,641 53,270 49,270 (1.25) 130.69%
December 31, 1996....... 50,000 50,000 133,372 55,248 51,748 1.60 57.26
December 31, 1997....... 50,000 50,000 124,702 53,263 50,263 .17 33.45
EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $129,122 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 120,911 47,065 43,065 (59.08)% --
December 31, 1995....... 50,000 50,000 172,803 69,399 65,399 25.86 189.37%
December 31, 1996....... 50,000 50,000 184,931 76,605 73,105 19.16 82.86
December 31, 1997....... 50,000 50,000 220,083 94,002 91,002 20.81 59.67
GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $50,000 $50,000 $129,122 $ 50,000 $ 46,000 -- --
December 31, 1993....... 50,000 50,000 142,221 56,232 52,232 6.72% --
December 31, 1994....... 50,000 50,000 132,620 54,093 50,093 .11 79.26%
December 31, 1995....... 50,000 50,000 172,204 72,435 68,935 12.77 58.88
December 31, 1996....... 50,000 50,000 192,400 83,431 80,431 13.82 44.35
December 31, 1997....... 50,000 50,000 243,407 108,768 106,268 17.52 40.33
STOCK INDEX SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $50,000 $50,000 $129,122 $ 50,000 $ 46,000 -- --
December 31, 1987....... 50,000 50,000 109,807 43,303 39,303 (30.24)% --
December 31, 1988....... 50,000 50,000 119,943 48,796 44,796 (6.38) 68.95%
December 31, 1989....... 50,000 50,000 151,676 63,637 60,137 7.16 51.57
December 31, 1990....... 50,000 50,000 135,410 58,570 55,570 2.92 31.20
December 31, 1991....... 50,000 50,000 167,404 74,619 72,119 8.16 29.54
December 31, 1992....... 50,000 73,892 170,317 78,203 76,203 7.72 24.14
December 31, 1993....... 50,000 73,892 177,273 83,811 82,311 7.76 20.90
December 31, 1994....... 50,000 73,892 170,021 82,733 81,733 6.62 17.30
December 31, 1995....... 50,000 73,892 222,827 111,553 111,053 9.64 18.81
December 31, 1996....... 50,000 73,892 257,217 132,421 132,421 10.60 18.46
December 31, 1997....... 50,000 141,939 325,557 172,277 172,277 12.29 19.20
</TABLE>
A-63
<PAGE>
VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $129,122 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 123,857 48,211 44,211 (52.11)% --
December 31, 1995....... 50,000 50,000 163,803 65,784 61,784 19.88 176.41%
December 31, 1996....... 50,000 50,000 194,017 80,369 76,869 21.95 86.95
December 31, 1997....... 50,000 50,000 245,356 104,796 101,796 25.17 65.24
U.S. GOVERNMENT SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $129,122 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 128,589 50,053 46,053 (38.86)% --
December 31, 1995....... 50,000 50,000 140,033 56,238 52,238 3.82 141.67%
December 31, 1996....... 50,000 50,000 137,128 56,804 53,304 3.00 59.29
December 31, 1997....... 50,000 50,000 140,903 60,182 57,182 4.33 38.70
STRATEGIC BOND OPPORTUNITIES SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $129,122 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 125,905 49,008 45,008 (46.71)% --
December 31, 1995....... 50,000 50,000 142,849 57,369 53,369 5.75 145.82%
December 31, 1996....... 50,000 50,000 154,412 63,963 60,463 9.16 68.26
December 31,1997........ 50,000 50,000 162,474 69,396 66,396 9.37 45.08
</TABLE>
- --------
* Rates of return and Policy values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998, the Series' investment advisory fee is
.75%.
A-64
<PAGE>
FEMALE STANDARD NON SMOKER, ISSUE AGE 50
$50,000 INITIAL PREMIUM
$145,611 INITIAL DEATH BENEFIT
BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $50,000 $ 50,000 $145,611 $ 50,000 $ 46,000 -- --
December 31, 1983....... 50,000 50,000 147,348 51,122 47,122 (15.66)% --
December 31, 1984....... 50,000 50,000 157,343 56,311 52,311 3.41 134.08%
December 31, 1985....... 50,000 50,000 176,975 65,320 61,820 9.46 71.32
December 31, 1986....... 50,000 50,000 192,526 73,266 70,266 10.70 49.59
December 31, 1987....... 50,000 50,000 186,573 73,185 70,685 8.29 35.37
December 31, 1988....... 50,000 75,767 191,487 77,406 75,406 7.99 28.54
December 31, 1989....... 50,000 75,767 203,947 84,942 83,442 8.40 24.79
December 31, 1990....... 50,000 75,767 209,082 89,706 88,706 8.11 21.50
December 31, 1991....... 50,000 75,767 233,873 103,356 102,856 9.02 20.30
December 31, 1992....... 50,000 75,767 239,936 109,212 109,212 8.72 18.27
December 31, 1993....... 50,000 120,283 257,039 120,487 120,487 8.87 17.14
December 31, 1994....... 50,000 120,283 237,248 114,506 114,506 7.57 14.71
December 31, 1995....... 50,000 120,283 275,927 137,081 137,081 8.51 14.84
December 31, 1996....... 50,000 120,283 276,495 141,335 141,335 8.10 13.67
December 31, 1997....... 50,000 120,283 293,838 154,468 154,468 8.18 13.14
MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $50,000 $ 50,000 $145,611 $ 50,000 $ 46,000 -- --
December 31, 1983....... 50,000 50,000 147,709 51,247 47,247 (15.02)% --
December 31, 1984....... 50,000 50,000 154,715 55,371 51,371 2.03 131.17%
December 31, 1985....... 50,000 50,000 158,639 58,552 55,052 4.19 63.52
December 31, 1986....... 50,000 50,000 160,511 61,083 58,083 4.58 41.68
December 31, 1987....... 50,000 50,000 162,027 63,557 61,057 4.70 31.05
December 31, 1988....... 50,000 65,444 165,232 66,793 64,793 4.97 25.05
December 31, 1989....... 50,000 65,444 171,098 71,260 69,760 5.39 21.38
December 31, 1990....... 50,000 65,444 175,446 75,274 74,274 5.53 18.63
December 31, 1991....... 50,000 65,444 176,708 78,093 77,593 5.41 16.33
December 31, 1992....... 50,000 65,444 173,946 79,175 79,175 5.04 14.27
December 31, 1993....... 50,000 79,450 170,395 79,872 79,872 4.63 12.58
December 31, 1994....... 50,000 79,450 169,657 81,883 81,883 4.44 11.37
December 31, 1995....... 50,000 79,450 171,681 85,291 85,291 4.42 10.51
December 31, 1996....... 50,000 79,450 172,838 88,350 88,350 4.36 9.74
December 31, 1997....... 50,000 79,450 174,486 91,726 91,726 4.32 9.10
</TABLE>
A-65
<PAGE>
MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $50,000 $50,000 $145,611 $ 50,000 $ 46,000 -- --
December 31, 1987....... 50,000 50,000 140,118 48,993 44,993 (14.60)% --
December 31, 1988....... 50,000 50,000 144,745 52,204 48,204 (2.17) 89.09%
December 31, 1989....... 50,000 50,000 165,263 61,467 57,967 5.70 56.52
December 31, 1990....... 50,000 50,000 160,222 61,437 58,437 4.34 37.36
December 31, 1991....... 50,000 50,000 182,464 72,115 69,615 7.35 31.95
December 31, 1992....... 50,000 70,177 184,543 75,159 73,159 6.95 25.91
December 31, 1993....... 50,000 70,177 193,592 81,230 79,730 7.25 22.51
December 31, 1994....... 50,000 70,177 181,395 78,405 77,405 5.86 18.30
December 31, 1995....... 50,000 70,177 227,163 101,135 100,635 8.40 19.08
December 31, 1996....... 50,000 70,177 246,487 113,022 113,022 8.80 17.94
December 31, 1997....... 50,000 118,897 297,453 140,455 140,455 10.17 18.19
MIDCAP VALUE SUB-ACCOUNT*
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $50,000 $50,000 $145,611 $ 50,000 $ 46,000 -- --
December 31, 1993....... 50,000 50,000 161,101 56,477 52,477 7.47% --
December 31, 1994....... 50,000 50,000 150,498 54,419 50,419 .50 93.35%
December 31, 1995....... 50,000 50,000 188,321 70,222 66,722 11.41 64.29
December 31, 1996....... 50,000 50,000 209,312 80,465 77,465 12.67 47.70
December 31, 1997....... 50,000 50,000 232,720 92,209 89,709 13.33 38.99
SMALL CAP SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $50,000 $50,000 $145,611 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 135,395 47,342 43,342 (19.32)% --
December 31, 1995....... 50,000 50,000 166,551 60,069 56,069 7.12 105.93%
December 31, 1996....... 50,000 50,000 206,139 76,670 73,170 15.35 70.13
December 31, 1997....... 50,000 50,000 243,835 93,499 90,499 17.57 54.07
BALANCED SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $145,611 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 144,006 49,705 45,705 (41.58)% --
December 31, 1995....... 50,000 50,000 171,041 60,900 56,900 11.71 186.84%
December 31, 1996....... 50,000 50,000 188,598 69,256 65,756 13.47 84.52
December 31, 1997....... 50,000 50,000 207,566 78,591 75,591 13.94 56.74
</TABLE>
A-66
<PAGE>
INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $145,611 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 147,469 50,900 46,900 (31.81)% --
December 31, 1995....... 50,000 50,000 149,611 53,270 49,270 (1.25) 155.76%
December 31, 1996....... 50,000 50,000 150,449 55,248 51,748 1.60 66.25
December 31, 1997....... 50,000 50,000 140,671 53,263 50,263 .17 38.63
EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $145,611 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 136,356 47,065 43,065 (59.08)% --
December 31, 1995....... 50,000 50,000 194,910 69,399 65,399 25.86 220.82%
December 31, 1996....... 50,000 50,000 208,610 76,605 73,105 19.16 93.31
December 31, 1997....... 50,000 50,000 248,266 94,002 91,002 20.81 65.86
GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $50,000 $50,000 $145,611 $ 50,000 $ 46,000 -- --
December 31, 1993....... 50,000 50,000 160,403 56,232 52,232 6.72% --
December 31, 1994....... 50,000 50,000 149,594 54,093 50,093 .11 92.66%
December 31, 1995....... 50,000 50,000 194,256 72,435 68,935 12.77 66.21
December 31, 1996....... 50,000 50,000 217,029 83,431 80,431 13.82 49.16
December 31, 1997....... 50,000 50,000 274,512 108,768 106,268 17.52 43.99
STOCK INDEX SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $50,000 $50,000 $145,611 $ 50,000 $ 46,000 -- --
December 31, 1987....... 50,000 50,000 123,843 43,303 39,303 (30.24)% --
December 31, 1988....... 50,000 50,000 135,293 48,796 44,796 (6.38) 81.59%
December 31, 1989....... 50,000 50,000 171,099 63,637 60,137 7.16 58.57
December 31, 1990....... 50,000 50,000 152,745 58,570 55,570 2.92 35.58
December 31, 1991....... 50,000 50,000 188,801 74,619 72,119 8.16 32.92
December 31, 1992....... 50,000 73,892 192,017 78,203 76,203 7.72 26.79
December 31, 1993....... 50,000 73,892 199,743 83,811 82,311 7.76 23.08
December 31, 1994....... 50,000 73,892 191,409 82,733 81,733 6.62 19.13
December 31, 1995....... 50,000 73,892 250,564 111,553 111,053 9.64 20.43
December 31, 1996....... 50,000 73,892 288,795 132,421 132,421 10.60 19.89
December 31, 1997....... 50,000 141,939 364,847 172,277 172,277 12.29 20.48
</TABLE>
A-67
<PAGE>
VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $145,611 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 139,678 48,211 44,211 (52.11)% --
December 31, 1995....... 50,000 50,000 184,758 65,784 61,784 19.88 206.45%
December 31, 1996....... 50,000 50,000 218,859 80,369 76,869 21.95 97.64
December 31, 1997....... 50,000 50,000 276,775 104,796 101,796 25.17 71.65
U.S. GOVERNMENT SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $145,611 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 145,014 50,053 46,053 (38.86)% --
December 31, 1995....... 50,000 50,000 157,948 56,238 52,238 3.82 167.93%
December 31, 1996....... 50,000 50,000 154,686 56,804 53,804 3.00 68.39
December 31, 1997....... 50,000 50,000 158,946 60,182 57,182 4.33 44.08
STRATEGIC BOND OPPORTUNITIES SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $145,611 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 141,987 49,008 45,008 (46.71)% --
December 31, 1995....... 50,000 50,000 161,124 57,369 53,369 5.75 172.53%
December 31, 1996....... 50,000 50,000 174,183 63,963 60,463 9.16 77.88
December 31, 1997....... 50,000 50,000 183,279 69,396 66,396 9.37 50.70
</TABLE>
- --------
* Rates of return and Policy values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998, the Series' investment advisory fee is
.75%.
A-68
<PAGE>
MALE STANDARD NON SMOKER, ISSUE AGE 70
$50,000 INITIAL PREMIUM
$75,013 INITIAL DEATH BENEFIT
BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $50,000 $50,000 $ 75,013 $ 50,000 $ 46,000 -- --
December 31, 1983....... 50,000 50,000 76,157 51,122 47,122 (15.66)% --
December 31, 1984....... 50,000 50,000 82,136 56,311 52,311 3.41 44.52%
December 31, 1985....... 50,000 50,000 93,357 65,320 61,820 9.46 30.47
December 31, 1986....... 50,000 50,000 102,688 73,266 70,266 10.70 23.98
December 31, 1987....... 50,000 50,000 100,681 73,185 70,685 8.29 17.47
December 31, 1988....... 50,000 75,767 104,613 77,406 75,406 7.99 14.80
December 31, 1989....... 50,000 75,767 112,870 84,942 83,442 8.40 13.69
December 31, 1990....... 50,000 75,767 117,286 89,706 88,706 8.11 12.30
December 31, 1991....... 50,000 75,767 133,050 103,356 102,856 9.02 12.44
December 31, 1992....... 50,000 75,767 138,501 109,212 109,212 8.72 11.52
December 31, 1993....... 50,000 75,767 150,616 120,487 120,487 8.87 11.24
December 31, 1994....... 50,000 75,767 141,177 114,506 114,506 7.57 9.58
December 31, 1995....... 50,000 75,767 166,804 137,081 137,081 8.51 10.25
December 31, 1996....... 50,000 75,767 169,862 141,335 141,335 8.10 9.60
December 31, 1997....... 50,000 75,767 183,500 154,468 154,468 8.18 9.49
MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $50,000 $50,000 $ 75,013 $ 50,000 $ 46,000 -- --
December 31, 1983....... 50,000 50,000 76,344 51,247 47,247 (15.02)% --
December 31, 1984....... 50,000 50,000 80,764 55,371 51,371 2.03 42.72%
December 31, 1985....... 50,000 50,000 83,684 58,552 55,052 4.19 24.53
December 31, 1986....... 50,000 50,000 85,612 61,083 58,083 4.58 17.43
December 31, 1987....... 50,000 50,000 87,435 63,557 61,057 4.70 13.72
December 31, 1988....... 50,000 65,444 90,269 66,793 64,793 4.97 11.68
December 31, 1989....... 50,000 65,444 94,690 71,260 69,760 5.39 10.58
December 31, 1990....... 50,000 65,444 98,417 75,274 74,274 5.53 9.65
December 31, 1991....... 50,000 65,444 100,528 78,093 77,593 5.41 8.73
December 31, 1992....... 50,000 65,444 100,408 79,175 79,175 5.04 7.74
December 31, 1993....... 50,000 65,444 99,846 79,872 79,872 4.63 6.91
December 31, 1994....... 50,000 65,444 100,957 81,883 81,883 4.44 6.39
December 31, 1995....... 50,000 65,444 103,785 85,291 85,291 4.42 6.09
December 31, 1996....... 50,000 65,444 106,182 88,350 88,350 4.36 5.80
December 31, 1997....... 50,000 65,444 108,965 91,726 91,726 4.32 5.58
</TABLE>
A-69
<PAGE>
MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $50,000 $50,000 $ 75,013 $ 50,000 $ 46,000 -- --
December 31, 1987....... 50,000 50,000 72,598 48,993 44,993 (14.60)% --
December 31, 1988....... 50,000 50,000 75,754 52,204 48,204 (2.17) 28.28%
December 31, 1989....... 50,000 50,000 87,415 61,467 57,967 5.70 23.29
December 31, 1990....... 50,000 50,000 85,703 61,437 58,437 4.34 15.82
December 31, 1991....... 50,000 50,000 98,762 72,115 69,615 7.35 15.70
December 31, 1992....... 50,000 70,177 101,141 75,159 73,159 6.95 13.23
December 31, 1993....... 50,000 70,177 107,496 81,230 79,730 7.25 12.16
December 31, 1994....... 50,000 70,177 102,108 78,405 77,405 5.86 9.76
December 31, 1995....... 50,000 70,177 129,698 101,135 100,635 8.40 11.62
December 31, 1996....... 50,000 70,177 142,811 113,022 113,022 8.80 11.47
December 31, 1997....... 50,000 70,177 174,963 140,455 140,455 10.17 12.46
MIDCAP VALUE SUB-ACCOUNT*
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $50,000 $50,000 $ 75,013 $ 50,000 $ 46,000 -- --
December 31, 1993....... 50,000 50,000 83,538 56,477 52,477 7.47% --
December 31, 1994....... 50,000 50,000 78,833 54,419 50,419 .50 31.32%
December 31, 1995....... 50,000 50,000 99,702 70,222 66,722 11.41 29.48
December 31, 1996....... 50,000 50,000 112,069 80,465 77,465 12.67 24.59
December 31, 1997....... 50,000 50,000 126,092 92,209 89,709 13.33 21.90
SMALL CAP SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $50,000 $50,000 $ 75,013 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 70,151 47,342 43,342 (19.32)% --
December 31, 1995....... 50,000 50,000 87,167 60,069 56,069 7.12 39.61%
December 31, 1996....... 50,000 50,000 109,037 76,670 73,170 15.35 33.97
December 31, 1997....... 50,000 50,000 130,428 93,499 90,499 17.57 29.89
BALANCED SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $ 75,013 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 74,308 49,705 45,705 (41.58)% --
December 31, 1995....... 50,000 50,000 89,133 60,900 56,900 11.71 64.10%
December 31, 1996....... 50,000 50,000 99,308 69,256 65,756 13.47 37.25
December 31, 1997....... 50,000 50,000 110,499 78,591 75,591 13.94 28.45
</TABLE>
A-70
<PAGE>
INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $ 75,013 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 76,095 50,900 46,900 (31.81)% --
December 31, 1995....... 50,000 50,000 77,966 53,270 49,270 (1.25) 46.32%
December 31, 1996....... 50,000 50,000 79,221 55,248 51,748 1.60 23.66
December 31, 1997....... 50,000 50,000 74,887 53,263 50,263 .17 13.60
EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $ 75,013 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 70,361 47,065 43,065 (59.08)% --
December 31, 1995....... 50,000 50,000 101,572 69,399 65,399 25.86 83.54%
December 31, 1996....... 50,000 50,000 109,846 76,605 73,105 19.16 43.79
December 31, 1997....... 50,000 50,000 132,165 94,002 91,002 20.81 35.92
GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $50,000 $50,000 $ 75,013 $ 50,000 $ 46,000 -- --
December 31, 1993....... 50,000 50,000 83,176 56,232 52,232 6.72% --
December 31, 1994....... 50,000 50,000 78,360 54,093 50,093 .11 30.84%
December 31, 1995....... 50,000 50,000 102,844 72,435 68,935 12.77 30.99
December 31, 1996....... 50,000 50,000 116,200 83,431 80,431 13.82 25.82
December 31, 1997....... 50,000 50,000 148,735 108,768 106,268 17.52 26.29
STOCK INDEX SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $50,000 $50,000 $ 75,013 $ 50,000 $ 46,000 -- --
December 31, 1987....... 50,000 50,000 64,166 43,303 39,303 30.24% --
December 31, 1988....... 50,000 50,000 70,808 48,796 44,796 (6.38) 23.19%
December 31, 1989....... 50,000 50,000 90,502 63,637 60,137 7.16 24.90
December 31, 1990....... 50,000 50,000 81,703 58,570 55,570 2.92 14.32
December 31, 1991....... 50,000 50,000 102,192 74,619 72,119 8.16 16.55
December 31, 1992....... 50,000 73,892 105,237 78,203 76,203 7.72 14.03
December 31, 1993....... 50,000 73,892 110,912 83,811 82,311 7.76 12.69
December 31, 1994....... 50,000 73,892 107,745 82,733 81,733 6.62 10.53
December 31, 1995....... 50,000 73,892 143,059 111,553 111,053 9.64 12.89
December 31, 1996....... 50,000 73,892 167,323 132,421 132,421 10.60 13.31
December 31, 1997....... 50,000 73,892 214,604 172,227 172,227 12.29 14.63
</TABLE>
A-71
<PAGE>
VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $ 75,013 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 72,075 48,211 44,211 (52.11)% --
December 31, 1995....... 50,000 50,000 96,282 65,784 61,784 19.88 75.32%
December 31, 1996....... 50,000 50,000 115,242 80,369 76,869 21.95 47.01
December 31, 1997....... 50,000 50,000 147,342 104,796 101,796 25.17 40.67
U.S. GOVERNMENT SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $ 75,013 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 74,828 50,053 46,053 (38.86)% --
December 31, 1995....... 50,000 50,000 82,311 56,238 52,238 3.82 53.28%
December 31, 1996....... 50,000 50,000 81,452 56,804 53,304 3.00 25.25
December 31, 1997....... 50,000 50,000 84,616 60,182 57,182 4.33 18.07
STRATEGIC BOND OPPORTUNITIES SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $ 75,013 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 73,266 49,008 45,008 (46.71)% --
December 31, 1995....... 50,000 50,000 83,966 57,369 53,369 5.75 55.92%
December 31, 1996....... 50,000 50,000 91,718 63,963 60,463 9.16 32.31
December 31, 1997....... 50,000 50,000 97,569 69,396 66,396 9.37 23.50
</TABLE>
- --------
* Rates of return and Policy values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998, the Series' investment advisory fee is
.75%
A-72
<PAGE>
FEMALE STANDARD NON SMOKER, ISSUE AGE 70
$50,000 INITIAL PREMIUM
$81,811 INITIAL DEATH BENEFIT
BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $50,000 $50,000 $ 81,811 $ 50,000 $ 46,000 -- --
December 31, 1983....... 50,000 50,000 82,947 51,122 47,122 (15.66)% --
December 31, 1984....... 50,000 50,000 89,088 56,311 52,311 3.41 53.50%
December 31, 1985....... 50,000 50,000 100,818 65,320 61,820 9.46 34.81
December 31, 1986....... 50,000 50,000 110,400 73,266 70,266 10.70 26.69
December 31, 1987....... 50,000 50,000 107,750 73,185 70,685 8.29 19.31
December 31, 1988....... 50,000 75,767 111,447 77,406 75,406 7.99 16.17
December 31, 1989....... 50,000 75,767 119,699 84,942 83,442 8.40 14.74
December 31, 1990....... 50,000 75,767 123,826 89,706 88,706 8.11 13.14
December 31, 1991....... 50,000 75,767 139,851 103,356 102,856 9.02 13.11
December 31, 1992....... 50,000 75,767 144,956 109,212 109,212 8.72 12.06
December 31, 1993....... 50,000 75,767 156,979 120,487 120,487 8.87 11.69
December 31, 1994....... 50,000 75,767 146,552 114,506 114,506 7.57 9.94
December 31, 1995....... 50,000 75,767 172,489 137,081 137,081 8.51 10.55
December 31, 1996....... 50,000 75,767 175,005 141,335 141,335 8.10 9.84
December 31, 1997....... 50,000 75,767 188,391 154,468 154,468 8.18 9.69
MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $50,000 $50,000 $ 81,811 $ 50,000 $ 46,000 -- --
December 31, 1983....... 50,000 50,000 83,150 51,247 47,247 (15.02)% --
December 31, 1984....... 50,000 50,000 87,600 55,371 51,371 2.03 51.59%
December 31, 1985....... 50,000 50,000 90,373 58,552 55,052 4.19 28.67
December 31, 1986....... 50,000 50,000 92,042 61,083 58,083 4.58 19.99
December 31, 1987....... 50,000 50,000 93,574 63,557 61,057 4.70 15.51
December 31, 1988....... 50,000 65,444 96,167 66,793 64,793 4.97 13.01
December 31, 1989....... 50,000 65,444 100,419 71,260 69,760 5.39 11.61
December 31, 1990....... 50,000 65,444 103,905 75,274 74,274 5.53 10.47
December 31, 1991....... 50,000 65,444 105,667 78,093 77,593 5.41 9.38
December 31, 1992....... 50,000 65,444 105,088 79,175 79,175 5.04 8.27
December 31, 1993....... 50,000 65,444 104,064 79,872 79,872 4.63 7.34
December 31, 1994....... 50,000 65,444 104,800 81,883 81,883 4.44 6.74
December 31, 1995....... 50,000 65,444 107,322 85,291 85,291 4.42 6.38
December 31, 1996....... 50,000 65,444 109,397 88,350 88,350 4.36 6.04
December 31, 1997....... 50,000 65,444 111,870 91,726 91,726 4.32 5.77
</TABLE>
A-73
<PAGE>
MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $50,000 $50,000 $ 81,811 $ 50,000 $ 46,000 -- --
December 31, 1987....... 50,000 50,000 78,989 48,993 44,993 (14.60)% --
December 31, 1988....... 50,000 50,000 82,078 52,204 48,204 (2.17) 34.59%
December 31, 1989....... 50,000 50,000 94,297 61,467 57,967 5.70 26.84
December 31, 1990....... 50,000 50,000 92,035 61,437 58,437 4.34 18.10
December 31, 1991....... 50,000 50,000 105,576 72,115 69,615 7.35 17.36
December 31, 1992....... 50,000 70,177 107,626 75,159 73,159 6.95 14.48
December 31, 1993....... 50,000 70,177 113,873 81,230 79,730 7.25 13.14
December 31, 1994....... 50,000 70,177 107,683 78,405 77,405 5.86 10.52
December 31, 1995....... 50,000 70,177 136,181 101,135 100,635 8.40 12.25
December 31, 1996....... 50,000 70,177 149,310 113,022 113,022 8.80 11.98
December 31, 1997....... 50,000 70,177 182,171 140,455 140,455 10.17 12.88
MIDCAP VALUE SUB-ACCOUNT*
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $50,000 $50,000 $ 81,811 $ 50,000 $ 46,000 -- --
December 31, 1993....... 50,000 50,000 90,861 56,477 52,477 7.47% --
December 31, 1994....... 50,000 50,000 85,382 54,419 50,419 .50 37.74%
December 31, 1995....... 50,000 50,000 107,511 70,222 66,722 11.41 33.19
December 31, 1996....... 50,000 50,000 120,302 80,465 77,465 12.67 27.02
December 31, 1997....... 50,000 50,000 134,739 92,209 89,709 13.33 23.64
SMALL CAP SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $50,000 $50,000 $ 81,811 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 76,327 47,342 43,342 (19.32)% --
December 31, 1995....... 50,000 50,000 94,443 60,069 56,069 7.12 46.49%
December 31, 1996....... 50,000 50,000 117,621 76,670 73,170 15.35 37.84
December 31, 1997....... 50,000 50,000 140,064 93,499 90,499 17.57 32.45
BALANCED SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $ 81,811 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 80,987 49,705 45,705 (41.58)% --
December 31, 1995....... 50,000 50,000 96,746 60,900 56,900 11.71 76.04%
December 31, 1996....... 50,000 50,000 107,324 69,256 65,756 13.47 42.26
December 31, 1997....... 50,000 50,000 118,886 78,591 75,591 13.94 31.45
</TABLE>
A-74
<PAGE>
INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $ 81,811 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 82,935 50,900 46,900 (31.81)% --
December 31, 1995....... 50,000 50,000 84,624 53,270 49,270 (1.25) 56.96%
December 31, 1996....... 50,000 50,000 85,615 55,248 51,748 1.60 28.17
December 31, 1997....... 50,000 50,000 80,571 53,263 50,263 .17 16.26
EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $ 81,811 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 76,685 47,065 43,065 (59.08)% --
December 31, 1995....... 50,000 50,000 110,247 69,399 65,399 25.86 96.89%
December 31, 1996....... 50,000 50,000 118,713 76,605 73,105 19.16 49.03
December 31, 1997....... 50,000 50,000 142,197 94,002 91,002 20.81 39.10
GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $50,000 $50,000 $ 81,811 $ 50,000 $ 46,000 -- --
December 31, 1993....... 50,000 50,000 90,467 56,232 52,232 6.72% --
December 31, 1994....... 50,000 50,000 84,870 54,093 50,093 .11 37.24%
December 31, 1995....... 50,000 50,000 110,899 72,435 68,935 12.77 34.74
December 31, 1996....... 50,000 50,000 124,737 83,431 80,431 13.82 28.28
December 31, 1997....... 50,000 50,000 158,935 108,768 106,268 17.52 28.09
STOCK INDEX SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $50,000 $50,000 $ 81,811 $ 50,000 $ 46,000 -- --
December 31, 1987....... 50,000 50,000 69,815 43,303 39,303 (30.24)% --
December 31, 1988....... 50,000 50,000 76,718 48,796 44,796 (6.38) 29.25%
December 31, 1989....... 50,000 50,000 97,627 63,637 60,137 7.16 28.50
December 31, 1990....... 50,000 50,000 87,740 58,570 55,570 2.92 16.57
December 31, 1991....... 50,000 50,000 109,242 74,619 72,119 8.16 18.22
December 31, 1992....... 50,000 73,892 111,985 78,203 76,203 7.72 15.29
December 31, 1993....... 50,000 73,892 117,491 83,811 82,311 7.76 13.67
December 31, 1994....... 50,000 73,892 113,627 82,733 81,733 6.62 11.30
December 31, 1995....... 50,000 73,892 150,209 111,553 111,053 9.64 13.53
December 31, 1996....... 50,000 73,892 174,938 132,421 132,421 10.60 13.83
December 31, 1997....... 50,000 73,892 223,445 172,277 172,277 12.29 15.07
</TABLE>
A-75
<PAGE>
VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $ 81,811 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 78,554 48,211 44,211 (52.11)% --
December 31, 1995....... 50,000 50,000 104,505 65,784 61,784 19.88 88.07%
December 31, 1996....... 50,000 50,000 124,545 80,369 76,869 21.95 52.37
December 31, 1997....... 50,000 50,000 158,526 104,796 101,796 25.17 43.96
U.S. GOVERNMENT SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $ 81,811 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 81,555 50,053 46,053 (38.86)% --
December 31, 1995....... 50,000 50,000 89,340 56,238 52,238 3.82 64.43%
December 31, 1996....... 50,000 50,000 88,027 56,804 53,304 3.00 29.82
December 31, 1997....... 50,000 50,000 91,038 60,182 57,182 4.33 20.83
STRATEGIC BOND OPPORTUNITIES SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $ 81,811 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 79,852 49,008 45,008 (46.71)% --
December 31, 1995....... 50,000 50,000 91,137 57,369 53,369 5.75 67.26%
December 31, 1996....... 50,000 50,000 99,122 63,963 60,463 9.16 37.13
December 31, 1997....... 50,000 50,000 104,975 69,396 66,396 9.37 26.39
</TABLE>
- --------
* Rates of return and Policy values and benefits shown reflect the Goldman
Sachs Midcap Value Series investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998, the Series' investment advisory fee is
.75%.
A-76
<PAGE>
MALE STANDARD NON SMOKER, ISSUE AGE 65
FEMALE STANDARD NON SMOKER, ISSUE AGE 60
(JOINT EQUAL AGE 63)
$50,000 INITIAL PREMIUM
$114,909 INITIAL DEATH BENEFIT
BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $50,000 $50,000 $114,909 $ 50,000 $ 46,000 -- --
December 31, 1983....... 50,000 50,000 116,136 51,194 47,194 (15.29)% --
December 31, 1984....... 50,000 50,000 123,559 56,620 52,620 3.86 95.65%
December 31, 1985....... 50,000 50,000 138,437 65,906 62,406 9.90 54.30
December 31, 1986....... 50,000 50,000 149,980 74,131 71,131 11.10 38.83
December 31, 1987....... 50,000 50,000 144,723 74,216 71,716 8.65 27.69
December 31, 1988....... 50,000 76,937 147,943 78,654 76,654 8.32 22.49
December 31, 1989....... 50,000 76,937 157,032 86,484 84,984 8.72 19.76
December 31, 1990....... 50,000 76,937 160,543 91,517 90,517 8.41 17.21
December 31, 1991....... 50,000 76,937 179,230 105,654 105,154 9.31 16.52
December 31, 1992....... 50,000 76,937 183,685 111,864 111,864 9.00 14.94
December 31, 1993....... 50,000 123,368 196,769 123,659 123,659 9.14 14.16
December 31, 1994....... 50,000 123,368 181,797 117,756 117,756 7.84 12.05
December 31, 1995....... 50,000 123,368 211,855 141,254 141,254 8.77 12.40
December 31, 1996....... 50,000 123,368 212,910 145,930 145,930 8.36 11.47
December 31, 1997....... 50,000 123,368 227,113 159,809 159,809 8.44 11.12
MONEY MARKET SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $50,000 $50,000 $114,909 $ 50,000 $ 46,000 -- --
December 31, 1983....... 50,000 50,000 116,420 51,320 47,320 (14.64)% --
December 31, 1984....... 50,000 50,000 121,496 55,674 51,674 2.47 93.22%
December 31, 1985....... 50,000 50,000 124,093 59,077 55,577 4.61 47.28
December 31, 1986....... 50,000 50,000 125,037 61,803 58,803 4.96 31.49
December 31, 1987....... 50,000 50,000 125,682 64,451 61,951 5.05 23.61
December 31, 1988....... 50,000 66,453 127,657 67,868 65,868 5.29 19.16
December 31, 1989....... 50,000 66,453 131,737 72,553 71,053 5.69 16.49
December 31, 1990....... 50,000 66,453 134,714 76,793 75,793 5.82 14.44
December 31, 1991....... 50,000 66,453 135,418 79,828 79,328 5.68 12.68
December 31, 1992....... 50,000 66,453 133,164 81,096 81,096 5.31 11.05
December 31, 1993....... 50,000 81,486 130,440 81,975 81,975 4.89 9.71
December 31, 1994....... 50,000 81,486 130,002 84,207 84,207 4.70 8.78
December 31, 1995....... 50,000 81,486 131,814 87,887 87,887 4.67 8.17
December 31, 1996....... 50,000 81,486 133,089 91,221 91,221 4.61 7.61
December 31, 1997....... 50,000 81,486 134,862 94,896 94,896 4.57 7.16
</TABLE>
A-77
<PAGE>
MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $50,000 $50,000 $114,909 $ 50,000 $ 46,000 -- --
December 31, 1987....... 50,000 50,000 110,338 49,114 45,114 (14.26)% --
December 31, 1988....... 50,000 50,000 113,557 52,538 48,538 (1.76) 63.50%
December 31, 1989....... 50,000 50,000 129,144 62,065 58,565 6.10 42.70
December 31, 1990....... 50,000 50,000 124,677 62,198 59,198 4.71 28.28
December 31, 1991....... 50,000 50,000 141,388 73,167 70,667 7.96 24.94
December 31, 1992....... 50,000 71,261 142,449 76,409 74,409 7.27 20.29
December 31, 1993....... 50,000 71,261 148,947 82,746 81,246 7.55 17.78
December 31, 1994....... 50,000 71,261 139,206 80,028 79,028 6.15 14.28
December 31, 1995....... 50,000 71,261 174,028 103,435 102,935 8.69 15.47
December 31, 1996....... 50,000 71,261 188,682 115,824 115,824 9.08 14.72
December 31, 1997....... 50,000 121,946 227,744 144,226 144,226 10.44 15.72
MIDCAP VALUE SUB-ACCOUNT*
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $50,000 $50,000 $114,909 $ 50,000 $ 46,000 -- --
December 31, 1993....... 50,000 50,000 126,824 56,636 52,636 7.96% --
December 31, 1994....... 50,000 50,000 118,034 54,784 50,784 .94 67.19%
December 31, 1995....... 50,000 50,000 147,115 70,924 67,424 11.84 49.78
December 31, 1996....... 50,000 50,000 162,823 81,480 78,480 13.07 37.93
December 31, 1997....... 50,000 50,000 180,270 93,571 91,071 13.70 31.59
SMALL CAP SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $50,000 $50,000 $114,909 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 106,618 47,459 43,459 (18.99)% --
December 31, 1995....... 50,000 50,000 130,666 60,454 56,454 7.56 78.01%
December 31, 1996....... 50,000 50,000 161,089 77,417 73,917 15.79 55.10
December 31, 1997....... 50,000 50,000 189,750 94,662 91,662 17.98 43.88
BALANCED SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $114,909 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 113,571 49,740 45,740 (41.31)% --
December 31, 1995....... 50,000 50,000 134,404 61,196 57,196 12.21 133.32%
December 31, 1996....... 50,000 50,000 147,631 69,842 66,342 13.94 64.81
December 31, 1997....... 50,000 50,000 161,815 79,489 76,489 14.37 44.89
</TABLE>
A-78
<PAGE>
INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $114,909 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 116,303 50,936 46,936 (31.50)% --
December 31, 1995....... 50,000 50,000 117,564 53,529 49,529 (.81) 108.03%
December 31, 1996....... 50,000 50,000 117,768 55,715 52,215 2.02 48.49
December 31, 1997....... 50,000 50,000 109,661 53,869 50,869 .55 28.14
EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $114,909 $ 50,000 $ 46,000 -- --
December 31, 1994....... 50,000 50,000 107,538 47,098 43,098 (58.89)% --
December 31, 1995....... 50,000 50,000 153,160 69,736 65,736 26.42 160.95%
December 31, 1996....... 50,000 50,000 163,296 77,253 73,753 19.65 72.66
December 31, 1997....... 50,000 50,000 193,545 95,076 92,076 21.26 53.32
GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $50,000 $50,000 $114,909 $ 50,000 $ 46,000 -- --
December 31, 1993....... 50,000 50,000 126,274 56,391 52,391 7.21% --
December 31, 1994....... 50,000 50,000 117,325 54,455 50,455 .54 66.59%
December 31, 1995....... 50,000 50,000 151,752 73,160 69,660 13.22 51.53
December 31, 1996....... 50,000 50,000 168,827 84,484 81,484 14.23 39.30
December 31, 1997....... 50,000 50,000 212,647 110,377 107,877 17.89 36.33
STOCK INDEX SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $50,000 $50,000 $114,909 $ 50,000 $ 46,000 -- --
December 31, 1987....... 50,000 50,000 97,521 43,409 39,409 (29.96)% --
December 31, 1988....... 50,000 50,000 106,142 49,107 45,107 (5.99) 57.01%
December 31, 1989....... 50,000 50,000 133,705 64,257 60,757 7.58 44.57
December 31, 1990....... 50,000 50,000 118,857 59,295 56,295 3.29 26.62
December 31, 1991....... 50,000 50,000 146,300 75,709 73,209 8.51 25.86
December 31, 1992....... 50,000 75,033 148,219 79,503 77,503 8.04 21.13
December 31, 1993....... 50,000 75,033 153,680 85,376 83,876 8.07 18.34
December 31, 1994....... 50,000 75,033 146,891 84,446 83,446 6.91 15.09
December 31, 1995....... 50,000 75,033 191,956 114,091 113,591 9.93 16.79
December 31, 1996....... 50,000 75,033 221,069 135,706 135,706 10.88 16.62
December 31, 1997....... 50,000 145,580 279,345 176,903 176,903 12.57 17.50
</TABLE>
A-79
<PAGE>
VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $114,909 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 110,158 48,245 44,245 (51.89)% --
December 31, 1995....... 50,000 50,000 145,183 66,104 62,104 20.41 149.26%
December 31, 1996....... 50,000 50,000 171,321 81,049 77,549 22.45 76.52
December 31, 1997....... 50,000 50,000 215,775 105,996 102,996 25.63 58.67
U.S. GOVERNMENT SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $114,909 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 114,367 50,088 46,088 (38.58)% --
December 31, 1995....... 50,000 50,000 124,115 56,512 52,512 4.29 117.93%
December 31, 1996....... 50,000 50,000 121,085 57,284 53,784 3.42 50.40
December 31, 1997....... 50,000 50,000 123,910 60,869 57,869 4.72 33.18
STRATEGIC BOND OPPORTUNITIES SUB-ACCOUNT
<CAPTION>
MINIMUM INTERNAL RATE
TOTAL GUARANTEED VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $50,000 $114,909 $50,000 $46,000 -- --
December 31, 1994....... 50,000 50,000 111,979 49,043 45,043 (46.46)% --
December 31, 1995....... 50,000 50,000 126,611 57,648 53,648 6.22 121.68%
December 31, 1996....... 50,000 50,000 136,347 64,504 61,004 9.61 58.87
December 31, 1997....... 50,000 50,000 142,880 70,188 67,188 9.78 39.31
</TABLE>
- --------
* Rates of return and Policy values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998, the Series' investment advisory fee is
.75%.
A-80
<PAGE>
APPENDIX C
EXAMPLE OF EFFECT OF NEGATIVE INVESTMENT PERFORMANCE
ON CALCULATION OF SURRENDER CHARGES
As described under "Charges and Expenses," if there has been negative
investment performance under your Policy (that is, cash value is less than
your total premium payments because net investment experience of the Sub-
Accounts has not been at least equal to total charges or has been negative),
any Surrender Charge will be calculated by deeming additional payments to have
been reduced before the initial premium. If negative investment performance
has been deemed to completely reduce additional payments and to further reduce
initial premium, any subsequent increase in cash value (from earnings or net
additional payments) will be deemed to increase initial premium before
additional payments.
For example, assume that an initial premium of $30,000 and a net additional
payment of $20,000 have been paid, so that the amount of total net premium
payments equals $50,000. Assume further that because of negative investment
performance, cash value is equal to $40,000, or $10,000 less than total net
premium payments. For purposes of calculating the Surrender Charge upon a
surrender, the amount of additional payments at this time would be deemed to
be equal to $10,000, and the amount of the initial premium would be equal to
$30,000. If, because of negative investment performance, cash value were equal
to $20,000, the negative investment performance would be deemed to have
completely reduced additional payments, and the initial premium remaining
would be deemed to be $20,000. If, in this last situation, there was a
subsequent increase in cash value (from earnings or net additional payments)
of $15,000 occurring after the negative investment performance, $10,000 would
be deemed to increase the initial premium first back to $30,000, and the
remaining $5,000 would be deemed then to increase additional payments to
$5,000.
EXAMPLE OF ADJUSTMENT TO PREMIUM TAX CHARGE RESULTING FROM ADDITIONAL PAYMENTS
As described under "Charges and Expenses," if an additional payment is
accepted, a proportional adjustment will be made in the rate of the state
premium tax charge deducted as part of the Monthly Deduction.
For example, assume that the cash value immediately before acceptance of the
additional payment is $30,000, and the net additional payment would increase
the cash value to $50,000. As a result, the state premium tax charge deducted
monthly as part of the Monthly Deduction would be 60% of what it was
originally, resulting in deductions thereafter at an annual rate of 0.15% for
the state premium tax charge.
A-81
<PAGE>
APPENDIX D
EXAMPLES OF EFFECT OF SURRENDERS AND PARTIAL
SURRENDERS ON OPERATION OF POLICY
The following examples assume that an initial premium of $40,000 was paid.
The examples further assume that no additional payments have been made and
that there have been no partial surrenders.
Based on these hypothetical assumptions, the examples demonstrate the effect
of surrenders and partial surrenders on a hypothetical Policy at the beginning
of Policy Year 5, assuming that current cash value is either $60,000 or
$30,000.
THE HYPOTHETICAL CURRENT CASH VALUES OF $60,000 AND $30,000 ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
PERFORMANCE.
SURRENDER CHARGE ON FULL SURRENDER
$60,000 current cash value:
Preferred Surrender $20,000 [The maximum of (1) $20,000 (cash value
Amount: calculated on the date of surrender, or $60,000,
in excess of the initial premium paid, or
$40,000); and (2) $4,000 (10% of the initial
premium paid, or $40,000)]
Surrender Charge Imposed: $2,000[5% of $40,000 ($60,000, the amount being
surrendered, less $20,000, the preferred
surrender amount)]
Surrender Proceeds: $58,000 [$60,000, the cash value of the Policy,
less $2,000, the Surrender Charge]
$30,000 current cash value:
Preferred Surrender $4,000 [The maximum of (1)--$10,000 (cash value
Amount: calculated on the date of surrender, or $30,000,
in excess of the initial premium paid, or
$40,000); and (2) $4,000 (10% of the initial
premium paid, or $40,000)]
Surrender Charge Imposed: $1,300 [5% of $26,000 ($30,000, or the amount
being surrendered, less $4,000, the preferred
surrender amount)]
Surrender Proceeds: $28,700 [$30,000, the cash value of the Policy,
less $1,300, the Surrender Charge]
SURRENDER CHARGE ON PARTIAL SURRENDER AND EFFECT ON CASH VALUE
$60,000 current cash value:
Partial Surrender: $30,000
Preferred Surrender $20,000The maximum of (1) $20,000 (cash value
Amount: calculated on the date of surrender, or $60,000,
in excess of the initial premium paid, or
$40,000); and (2) $4,000 (10% of the initial
premium paid, or $40,000)]
Surrender Charge Imposed:
$500 [5% of $10,000 ($30,000, the amount being
surrendered, less $20,000, the preferred
surrender amount)]
A-82
<PAGE>
Surrender Proceeds:
$29,500($30,000, the amount being surrendered,
less $500, the Surrender Charge being imposed)
Remaining Cash Value: $30,000
Remaining Initial Premium: $30,000
Remaining Surrender $1,500 [5% of $30,000]
Charge:
Remaining Cash Surrender $28,500
Value:
$30,000 current cash value:
Partial Surrender: $20,000
Preferred Surrender $4,000 [The maximum of (1)--$10,000 (cash value
Amount: calculated on the date of surrender, or $30,000,
in excess of the initial premium paid, or
$40,000); and (2) $4,000 (10% of the initial
premium paid, or $40,000)]
Surrender Charge Imposed: $800 [5% of $16,000 ($20,000, or the amount being
surrendered, less $4,000, the preferred surrender
amount)]
Surrender Proceeds: $19,200[$20,000, the amount being surrendered,
less $800, the surrender charge being imposed]
Remaining Cash Value: $10,000
Remaining Initial Premium: $20,000
Remaining Surrender $1,000 [5% of $20,000]
Charge:
Remaining Cash Surrender $9,000
Value:
EFFECT OF PARTIAL SURRENDER ON GUARANTEED DEATH BENEFIT
Making a partial surrender will reduce the amount of the minimum guaranteed
death benefit on a proportionate basis, based on the amount of the reduction
in cash value (including any Surrender Charge) resulting from the partial
surrender, as compared to the cash value before the reduction (but not more
than the partial surrender amount).
Cash Value: $60,000
Partial Surrender: $15,000
Cash Value after $45,000
Surrender:
Minimum Guaranteed Death
Benefit before partial $40,000 [Initial premium paid]
surrender:
Minimum Guaranteed Death
Benefit after partial $30,000 [$40,000, or the minimum guaranteed death
surrender: benefit before partial surrender, multiplied by
$45,000, the cash value after the partial
surrender, divided by $60,000, the cash value
before the partial surrender]
A-83
<PAGE>
APPENDIX E
LONG-TERM MARKET TRENDS
The information below is a comparison of the average annual returns of
common stock, high grade corporate bonds and 30-day U.S. Treasury bills over
20-year and 30-year holding periods.* The average annual returns assume the
reinvestment of dividends, capital gains and interest. This is an historical
record and is not intended as a projection of future performance. Charges
associated with a variable life policy are not reflected.
The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods
of time. These trends indicate the potential advantages of holding a variable
life insurance policy for a long period of time.
Over the 53 20-year time periods beginning in 1926 and ending in 1997 (i.e.,
1926-1945, 1927-1946, and so on through 1978-1997):
-- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 50 of the 53 periods.
-- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 53 periods.
-- Common stock average annual returns exceeded the average annual rate of
inflation in each of the 53 periods.
Over the 43 30-year periods beginning in 1926 and ending in 1997, the
average annual return of common stocks was superior to that of high grade,
long-term corporate bonds, U.S. Treasury bills and inflation in all 43
periods.
From 1926 through 1997 the average annual return for common stocks was
11.0%, compared to 5.7% for high grade, long-term corporate bonds, 3.8% for
U.S. Treasury bills and 3.1% for the Consumer Price Index.
- --------
* Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
----------------
SUMMARY: HISTORIC S&P STOCK INDEX RESULTS FOR SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Stock Index with dividends reinvested, over one-year, five-year and
twenty-year periods beginning in 1926 and ending in 1997.
The chart shows that, historically, the longer that a portfolio matching the
S&P 500 Stock Index was held, the less likely was the chance of a loss.
Conversely, the shorter the holding period of such a portfolio, the more
likely was the chance of a loss. The chart also shows that shorter term
results tend to be more extreme than longer term results.
The chart is not a projection or representation of future stock market
results. It cannot be taken as representative of the performance of any one
fund. Rather it shows the historic performance of a broad index of stocks.
----------------
A-84
<PAGE>
PERCENT OF HOLDING PERIODS WITH THE FOLLOWING RETURNS:
<TABLE>
<CAPTION>
GREATER
5.01- 10.01- 15.01- THAN
HOLDING NEGATIVE 0-5.00% 10.00% 15.00% 20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
-------- -------- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
1 year 28% 4% 11% 7% 11% 39%
5 years 10% 15% 15% 31% 19% 10%
10 years 3% 10% 34% 24% 27% 2%
20 years 0% 6% 32% 55% 7% 0%
</TABLE>
- --------
Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
A-85
<PAGE>
APPENDIX F
DOLLAR COST AVERAGING
Dollar cost averaging allows a person to take advantage of the historical
long-term stock market results, assuming that they continue, although it does
not guarantee a profit or protect against a loss. If an investor follows a
program of dollar cost averaging on a long-term basis, and the stock fund
selected performs at least as well as the S&P 500 has historically, it is
likely although not guaranteed that the price at which shares are surrendered,
for whatever reason, will be higher than the average cost per share.
An investor using dollar cost averaging invests the same amount of money in
the same professionally managed fund at regular intervals over a long period
of time. Dollar cost averaging keeps an investor from investing too much when
the price of shares is high and too little when the price is low. When the
price of shares is low, the money invested buys more shares. When it is high,
the money invested buys fewer shares. If the investor has the ability and
desire to maintain this program over a long period of time (for example, 20
years), and the stock fund chosen follows the historical upward market trends,
the price at which the shares are sold should be higher than their average
cost. This price could be lower, however, if the fund chosen does not follow
these historical trends.
Investors contemplating the use of dollar cost averaging should consider
their ability to continue the on-going purchases so that they can take
advantage of periods of low price levels.
A-86
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT AUDITORS
To the Policy Owners and Board of Directors of New England Life Insurance
Company:
We have audited the accompanying statement of assets and liabilities of the
New England Variable Life Separate Account (comprised of Capital Growth Sub-
Account, Bond Income Sub-Account, Money Market Sub-Account, Stock Index Sub-
Account, Managed Sub-Account, Avanti Growth Sub-Account, Growth and Income
Sub-Account (formerly Value Growth Sub-Account), Small Cap Sub-Account, U.S.
Government Sub-Account, Balanced Sub-Account, Equity Growth Sub-Account,
International Equity Sub-Account, Venture Value Sub-Account, Bond
Opportunities Sub-Account, Equity-Income Sub-Account, Overseas Sub-Account,
High Income Sub-Account and Asset Manager Sub-Account) of New England Life
Insurance Company (formerly New England Variable Life Insurance Company) as of
December 31, 1997, and the related statements of operations and changes in net
assets for the two years then ended for all Sub-Accounts. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The statements of operations and changes in net assets of New
England Variable Life Separate Account for the year ended December 31, 1995
were audited by other auditors whose report, dated February 6, 1996, expressed
an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the respective aforementioned
sub-accounts comprising the New England Variable Life Separate Account of New
England Life Insurance Company as of December 31, 1997, and the results of
their operations and the changes in their net assets for the two years then
ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Policy Owners and Board of Directors of New England Variable Life
Separate Account of New England Variable Life Insurance Company:
We have audited the statements of operations and changes in net assets of New
England Variable Life Separate Account, comprised of Capital Growth Sub-
Account, Bond Income Sub-Account, Money Market Sub-Account, Stock Index Sub-
Account, Managed Sub-Account, Avanti Growth Sub-Account, Growth and Income
Sub-Account (formerly Value Growth Sub-Account), Small Cap Sub-Account,
Equity-Income Sub-Account, Overseas Sub-Account, High Income Sub-Account and
Asset Manager Sub-Account for the year ended December 31, 1995, and also
comprised of the Balanced Sub-Account, Equity Growth Sub-Account,
International Equity Sub-Account, and Venture Value Sub-Account for the period
May 1, 1995 (commencement of operations) through December 31, 1995, of New
England Variable Life Insurance Company. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations and
changes in net assets are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of operations and changes in net assets. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statements
of operations and changes in net assets. We believe that our audit of the
statements of operations and changes in net assets provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and changes in net assets of
the respective aforementioned sub-accounts comprising New England Variable
Life Separate Account of New England Variable Life Insurance Company for each
of the aforementioned periods ending December 31, 1995, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1996
F-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-3
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
----------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2)............................. $761,342,931 $46,779,684 $36,990,546 $66,002,486 $42,839,748 $35,698,565 $36,701,292
<CAPTION>
SHARES COST
--------- --------------
Capital Growth
Series............ 1,905,310 $ 669,976,568
Back Bay Advisors
Bond Income
Series............ 431,109 45,887,625
Back Bay Advisors
Money Market
Series............ 369,905 36,990,546
Westpeak Stock
Index Series...... 423,745 46,113,427
Back Bay Advisors
Managed Series.... 225,651 33,392,311
Loomis Sayles
Avanti Growth
Series............ 209,265 28,734,184
Westpeak Growth
and Income
Series............ 203,930 29,842,628
Loomis Sayles
Small Cap Series.. 347,003 49,723,722
Salomon Brothers
U.S. Government
Series............ 15,715 176,828
Loomis Sayles
Balanced Series... 547,678 7,495,878
Alger Equity
Growth Series..... 2,783,337 43,651,128
Morgan Stanley
International
Magnum Equity
Series............ 773,563 8,555,901
Davis Venture
Value Series...... 2,875,094 49,085,168
Salomon Brothers
Bond
Opportunities
Series............ 52,710 635,304
VIP Equity-Income
Portfolio......... 5,116,958 91,540,584
VIP Overseas
Portfolio......... 4,049,703 66,617,006
VIP High Income
Portfolio......... 622,056 7,482,998
VIP II Asset
Manager
Portfolio......... 350,236 5,336,650
--------------
Total........... $1,221,238,456
==============
Amount due and accrued (payable) from
policy-related transactions, net........... 101,231 159,544 897,289 107,549 48,961 (8,730) 9,824
Dividends receivable........................ -- -- 165,664 -- -- -- --
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total Assets............................. 761,444,162 46,939,228 38,053,499 66,110,035 42,888,709 35,689,835 36,711,116
LIABILITIES
Due New England Life Insurance Company...... 69,802,554 5,423,528 4,948,075 8,559,199 4,348,325 4,623,232 4,943,446
------------ ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES.................................... $691,641,608 $41,515,700 $33,105,424 $57,550,836 $38,540,384 $31,066,603 $31,767,670
============ =========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ----------------------------------------------------------------------------------------- ------------------------------------
SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------- ----------- ----------- ----------- ------------- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$55,145,780 $174,912 $8,138,490 $49,042,395 $8,400,895 $59,801,951 $633,048 $124,239,747 $77,754,305 $8,447,518
140,958 (1,259) 1,139 (20,153) (30,340) 168,093 (525) 127,430 31,232 10,331
-- -- -- -- -- -- -- -- -- --
- ----------- -------- ---------- ----------- ---------- ----------- -------- ------------ ----------- ----------
55,286,738 173,653 8,139,629 49,022,242 8,370,555 59,970,044 632,523 124,367,177 77,785,537 8,457,849
7,776,303 12,470 1,264,381 7,085,182 1,237,518 8,553,311 44,786 17,035,856 9,960,217 1,277,576
- ----------- -------- ---------- ----------- ---------- ----------- -------- ------------ ----------- ----------
$47,510,435 $161,183 $6,875,248 $41,937,060 $7,133,037 $51,416,733 $587,737 $107,331,321 $67,825,320 $7,180,273
=========== ======== ========== =========== ========== =========== ======== ============ =========== ==========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------------------------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
- ------------- --------------
<S> <C>
$6,307,747 $1,424,442,040
(2,214) 1,740,360
-- 165,664
- ------------- --------------
6,305,533 1,426,348,064
856,655 157,752,614
- ------------- --------------
$5,448,878 $1,268,595,450
============= ==============
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends............... $184,229,729 $3,419,409 $1,852,865 $ 1,082,727 $5,025,764 $2,781,138 $3,928,553
EXPENSE
Mortality and expense
risk charge (Note 3)... 4,170,905 253,374 241,048 333,771 229,423 207,451 190,264
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net investment income... 180,058,824 3,166,035 1,611,817 748,956 4,796,341 2,573,687 3,738,289
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
End of year............ 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,664
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net change in unrealized
appreciation
(depreciation)......... (46,643,042) 851,540 -- 12,256,046 3,309,808 2,141,065 3,751,574
Net realized gain on
investments............ 1,699,829 15,488 -- 35,165 242,079 87,159 17,721
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments......... (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295
------------ ---------- ---------- ----------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $135,115,611 $4,033,063 $1,611,817 $13,040,167 $8,348,228 $4,801,911 $7,507,584
============ ========== ========== =========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
F-6
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
---------------------------------------------------------------------------------------- -----------------------------------
SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ------------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$6,279,206 $ 9,089 $438,430 $4,721,050 $ 209,389 $ 1,822,395 $43,914 $ 8,872,794 $ 5,434,055 $393,295
275,141 2,290 50,941 265,599 51,702 276,055 9,400 676,059 447,597 41,502
---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- --------
6,004,065 6,799 387,489 4,455,451 157,687 1,546,340 34,514 8,196,735 4,986,458 351,793
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600
5,422,058 (1,916) 642,612 5,391,267 (155,006) 10,716,783 (2,256) 32,699,163 11,137,299 964,520
---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- --------
2,362,493 (1,097) 405,987 3,306,878 (291,197) 8,318,760 (1,103) 16,289,174 1,635,083 601,920
20,956 1 55,231 75,802 8,303 21,718 201 126,489 67,905 12,234
---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- --------
2,383,449 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154
---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- --------
$8,387,514 $ 5,703 $848,707 $7,838,131 $(125,207) $ 9,886,818 $33,612 $24,612,398 $ 6,689,446 $965,947
========== ======= ======== ========== ========= =========== ======= =========== =========== ========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- -------------------------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
----------- ------------
<S> <C>
$528,401 $231,072,203
33,135 7,755,657
----------- ------------
495,266 223,316,546
547,647 194,486,245
971,097 203,203,584
----------- ------------
423,450 8,717,339
5,368 2,491,649
----------- ------------
428,818 11,208,988
----------- ------------
$924,084 $234,525,534
=========== ============
</TABLE>
F-7
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI GROWTH AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends............... $32,991,113 $2,579,133 $1,306,712 $ 841,454 $2,942,415 $1,494,679 $1,804,344
EXPENSE
Mortality and expense
risk charge (Note 3)... 2,981,244 192,456 160,903 168,590 158,607 137,775 100,738
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment income
(loss)................. 30,009,869 2,386,677 1,145,809 672,864 2,783,808 1,356,904 1,703,606
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 71,963,590 997,195 -- 2,853,587 5,216,548 2,881,100 2,105,777
End of year............ 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net change in unrealized
appreciation
(depreciation)......... 66,045,815 (956,676) -- 4,779,426 921,081 1,942,216 1,001,313
Net realized gain (loss)
on investments......... 985,421 299 -- 1,808 69,775 27,429 18,964
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments......... 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277
----------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $97,041,105 $1,430,300 $1,145,809 $5,454,098 $3,774,664 $3,326,549 $2,723,883
=========== ========== ========== ========== ========== ========== ==========
</TABLE>
* For the period July 1, 1996 (Commencement of Operations) through December 31,
1996.
See Notes to Financial Statements
F-8
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------------------------------------- ------------------------------ ---------
SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME ASSET
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- MANAGER
ACCOUNT ACCOUNT* ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT* ACCOUNT ACCOUNT ACCOUNT SUB-
- ---------- ---------- -------- ---------- ------------- ---------- ------------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,624,708 $ 702 $104,939 $ 44,863 $ 71,347 $ 444,012 $1,218 $2,662,990 $1,164,550 $199,463 $174,907
90,146 28 11,713 104,685 19,385 64,656 40 428,473 325,346 19,551 20,483
- ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- --------
1,534,562 674 93,226 (59,822) 51,962 379,356 1,178 2,234,517 839,204 179,912 154,424
768,552 -- 3,769 65,901 24,089 171,931 -- 9,642,454 4,022,725 167,043 269,255
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600 547,647
- ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- --------
2,291,013 (819) 232,856 2,018,488 112,102 2,226,092 (1,153) 6,767,535 5,479,491 195,557 278,392
31,570 -- 2,318 11,723 159 4,907 -- 27,750 44,049 1,942 4,122
- ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- --------
2,322,583 (819) 235,174 2,030,211 112,261 2,230,999 (1,153) 6,795,285 5,523,540 197,499 282,514
- ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- --------
$3,857,145 $(145) $328,400 $1,970,389 $164,223 $2,610,355 $ 25 $9,029,802 $6,362,744 $377,411 $436,938
========== ===== ======== ========== ======== ========== ====== ========== ========== ======== ========
<CAPTION>
------------
TOTAL
------------
<S>
$ 50,453,549
4,984,819
------------
45,468,730
101,153,516
194,486,245
------------
93,332,729
1,232,236
------------
94,564,965
------------
$140,033,695
============
</TABLE>
See Notes to Financial Statements
F-9
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends............... $ 58,318,276 $1,844,411 $1,109,838 $ 627,118 $1,061,289 $ 535,217 $ 606,696
EXPENSE
Mortality and expense
risk charge (Note 3)... 2,173,846 143,873 112,033 95,240 113,501 77,636 52,633
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net investment income... 56,144,430 1,700,538 997,805 531,878 947,788 457,581 554,063
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 9,892,073 (2,028,893) -- (1,645,744) 703,242 205,680 1,918
End of year............ 71,963,590 997,195 -- 2,853,587 5,216,548 2,881,100 2,105,777
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net change in unrealized
appreciation
(depreciation)......... 62,071,517 3,026,088 -- 4,499,331 4,513,306 2,675,420 2,103,859
Net realized gain (loss)
on investments......... 1,613,390 7,382 -- 7,637 42,457 21,233 9,493
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net realized and
unrealized gain on
investments............ 63,684,907 3,033,470 -- 4,506,968 4,555,763 2,696,653 2,113,352
------------ ---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............. $119,829,337 $4,734,008 $ 997,805 $5,038,846 $5,503,551 $3,154,234 $2,667,415
============ ========== ========== ========== ========== ========== ==========
</TABLE>
* For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
See Notes to Financial Statements
F-10
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------- ------------------------------- --------- ------------
SMALL EQUITY INTERNATIONAL VENTURE EQUITY HIGH ASSET
CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT* ACCOUNT* ACCOUNT* ACCOUNT* ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
- ---------- -------- -------- ------------- -------- ----------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$365,015 $17,538 $195,436 $12,460 $ 86,716 $ 2,284,557 $ 282,520 $ 8,412 $ 11,896 $ 67,367,395
24,746 743 11,686 2,165 7,251 233,864 240,253 6,639 9,537 3,305,646
- ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------
340,269 16,795 183,750 10,295 79,465 2,050,693 42,267 1,773 2,359 64,061,749
4,662 -- -- -- -- 149,659 260,895 213 (1,503) 7,542,202
768,552 3,769 65,901 24,089 171,931 9,642,454 4,022,725 167,043 269,255 101,153,516
- ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------
763,890 3,769 65,901 24,089 171,931 9,492,795 3,761,830 166,830 270,758 93,611,314
1,325 223 237 (34) 203 61,089 32,279 2,817 4,661 1,804,392
- ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------
765,215 3,992 66,138 24,055 172,134 9,553,884 3,794,109 169,647 275,419 95,415,706
- ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------
$1,105,484 $20,787 $249,888 $34,350 $251,599 $11,604,577 $3,836,376 $171,420 $277,778 $159,477,455
========== ======= ======== ======= ======== =========== ========== ======== ======== ============
</TABLE>
See Notes to Financial Statements
F-11
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income......... $ 180,058,824 $ 3,166,035 $ 1,611,817 $ 748,956 $ 4,796,341 $ 2,573,687 $ 3,738,289 $ 6,004,065
Net realized and
unrealized gain
(loss) on
investments.... (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295 2,383,449
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations.... 135,115,611 4,033,063 1,611,817 13,040,167 8,348,228 4,801,911 7,507,584 8,387,514
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 115,563,292 9,916,442 112,790,933 11,030,326 6,066,893 8,052,822 6,483,236 12,931,007
Net transfers
(to) from other
sub-accounts... 19,184,703 2,250,884 (100,492,346) 13,670,086 2,168,458 728,467 6,112,407 13,551,252
Net transfers to
New England
Life Insurance
Company........ (103,221,618) (7,435,545) (10,617,259) (11,516,905) (6,628,199) (5,007,957) (5,507,253) (8,882,069)
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 31,526,377 4,731,781 1,681,328 13,183,507 1,607,152 3,773,332 7,088,390 17,600,190
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase in
net assets..... 166,641,988 8,764,844 3,293,145 26,223,674 9,955,380 8,575,243 14,595,974 25,987,704
NET ASSETS, AT
BEGINNING OF
THE YEAR....... 524,999,620 32,750,856 29,812,279 31,327,162 28,585,004 22,491,360 17,171,696 21,522,731
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT
END OF THE
YEAR........... $ 691,641,608 $41,515,700 $ 33,105,424 $ 57,550,836 $38,540,384 $31,066,603 $31,767,670 $47,510,435
============= =========== ============= ============ =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-12
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ------------------------------------------------------------------------------- --------------------------------------
U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,799 $ 387,489 $ 4,455,451 $ 157,687 $ 1,546,340 $ 34,514 $ 8,196,735 $ 4,986,458 $ 351,793
(1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
5,703 848,707 7,838,131 (125,207) 9,886,818 33,612 24,612,398 6,689,446 965,947
-- 2,146,406 14,606,449 3,056,999 13,157,429 -- 23,866,781 17,551,475 2,042,291
118,925 2,461,028 6,194,266 1,537,466 22,596,463 563,357 5,377,892 1,724,137 1,829,771
(9,482) (1,814,302) (8,772,068) (1,574,196) (10,885,947) (36,000) (18,885,322) (9,549,079) (1,756,377)
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
109,443 2,793,132 12,028,647 3,020,269 24,867,945 527,357 10,359,351 9,726,533 2,115,685
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
115,146 3,641,839 19,866,778 2,895,062 34,754,763 560,969 34,971,749 16,415,979 3,081,632
46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768 72,359,572 51,409,341 4,098,641
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
$161,183 $ 6,875,248 $41,937,060 $ 7,133,037 $ 51,416,733 $587,737 $107,331,321 $67,825,320 $ 7,180,273
======== =========== =========== =========== ============ ======== ============ =========== ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------------------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
----------- ---------------
<S> <C>
$ 495,266 $ 223,316,546
428,818 11,208,988
----------- ---------------
924,084 234,525,534
1,403,144 360,665,925
422,784 --
(881,229) (212,980,807)
----------- ---------------
944,699 147,685,118
----------- ---------------
1,868,783 382,210,652
3,580,095 886,384,798
----------- ---------------
$5,448,878 $1,268,595,450
=========== ===============
</TABLE>
See Notes to Financial Statements
F-13
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment income
(loss)................. $ 30,009,869 $ 2,386,677 $ 1,145,809 $ 672,864 $ 2,783,808 $ 1,356,904 $ 1,703,606
Net realized and
unrealized gain (loss)
on investments......... 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net Increase (decrease)
in net assets
resulting from
operations............ 97,041,105 1,430,300 1,145,809 5,454,098 3,774,664 3,326,549 2,723,883
FROM POLICY-RELATED
TRANSACTIONS
Net premiums transferred
from New England Life
Insurance Company (Note
4)..................... 111,194,198 8,517,031 79,806,482 6,566,717 5,631,293 7,140,375 5,201,936
Net transfers (to) from
other sub-accounts..... (1,541,352) 1,894,963 (61,482,739) 5,875,439 1,412,522 2,859,556 2,274,270
Net transfers to New
England Life Insurance
Company................ (76,528,987) (5,770,575) (9,089,129) (5,144,242) (4,232,475) (5,172,577) (3,338,671)
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net Increase in net
assets resulting from
policy related
transactions........... 33,123,859 4,641,419 9,234,614 7,297,914 2,811,340 4,827,354 4,137,335
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase in net
assets................. 130,164,964 6,071,719 10,380,423 12,752,012 6,586,004 8,153,903 6,861,218
NET ASSETS, AT BEGINNING
OF THE YEAR............ 394,834,656 26,679,137 19,431,856 18,575,150 21,999,000 14,337,457 10,310,478
------------ ----------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT END OF
THE YEAR............... $524,999,620 $32,750,856 $ 29,812,279 $31,327,162 $28,585,004 $22,491,360 $17,171,696
============ =========== ============ =========== =========== =========== ===========
</TABLE>
* For the period July 1, 1996 (Commencement of Operations) through December 31,
1996.
See Notes to Financial Statements
F-14
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
EQUITY
SMALL U.S. GROWTH INTERNATIONAL VENTURE BOND
CAP GOVERNMENT BALANCED SUB- EQUITY VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
- ----------- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,534,562 $ 674 $ 93,226 $ (59,822) $ 51,962 $ 379,356 $ 1,178
2,322,583 (819) 235,174 2,030,211 112,261 2,230,999 (1,153)
- ----------- ------- ---------- ----------- ----------- ----------- -------
3,857,145 (145) 328,400 1,970,389 164,223 2,610,355 25
5,440,860 -- 811,932 9,286,073 1,454,605 4,876,053 --
10,060,122 46,951 2,383,695 11,496,667 2,908,047 9,510,686 27,190
(4,380,392) (769) (708,829) (6,395,345) (1,242,748) (3,721,564) (447)
- ----------- ------- ---------- ----------- ----------- ----------- -------
11,120,590 46,182 2,486,798 14,387,395 3,119,904 10,665,175 26,743
- ----------- ------- ---------- ----------- ----------- ----------- -------
14,977,735 46,037 2,815,198 16,357,784 3,284,127 13,275,530 26,768
6,544,996 -- 418,211 5,712,498 953,848 3,386,440 --
- ----------- ------- ---------- ----------- ----------- ----------- -------
$21,522,731 $46,037 $3,233,409 $22,070,282 $ 4,237,975 $16,661,970 $26,768
=========== ======= ========== =========== =========== =========== =======
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
--------------------------------------- ---------------------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
$ 2,234,517 $ 839,204 $ 179,912 $ 154,424 $ 45,468,730
6,795,285 5,523,540 197,499 282,514 94,564,965
------------ ------------- ------------ ------------ --------------
9,029,802 6,362,744 377,411 436,938 140,033,695
20,426,731 17,135,189 970,763 1,258,847 285,719,085
9,029,810 1,051,463 1,631,762 560,948 --
(13,479,623) (11,522,274) (623,788) (649,631) (152,002,266)
------------ ------------- ------------ ------------ --------------
15,976,918 6,664,378 1,978,737 1,170,164 133,716,819
------------ ------------- ------------ ------------ --------------
25,006,720 13,027,122 2,356,148 1,607,102 273,750,514
47,352,852 38,382,219 1,742,493 1,972,993 612,634,284
------------ ------------- ------------ ------------ --------------
$72,359,572 $ 51,409,341 $4,098,641 $3,580,095 $ 886,384,798
============ ============= ============ ============ ==============
</TABLE>
See Notes to Financial Statements
F-15
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING ACTIVI-
TIES
Net investment income... $ 56,144,430 $ 1,700,538 $ 997,805 $ 531,878 $ 947,788 $ 457,581 $ 554,063
Net realized and
unrealized gain on
investments............ 63,684,907 3,033,470 -- 4,506,968 4,555,763 2,696,653 2,113,352
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net Increase in net
assets resulting from
operations............ 119,829,337 4,734,008 997,805 5,038,846 5,503,551 3,154,234 2,667,415
FROM POLICY-RELATED
TRANSACTIONS
Net premiums transferred
from New England
Life Insurance Company
(Note 4)............... 100,611,223 7,330,838 40,457,027 4,559,195 4,757,562 5,407,500 3,473,273
Net transfers (to) from
other sub-accounts..... (7,820,362) 2,481,090 (32,083,917) 2,734,513 286,111 3,131,998 2,645,617
Net transfers to New
England Life Insurance
Company................ (67,280,279) (4,616,930) (6,819,802) (3,436,368) (3,307,802) (3,767,486) (2,568,808)
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net Increase in net
assets resulting from
policy related
transactions........... 25,510,582 5,194,998 1,553,308 3,857,340 1,735,871 4,772,012 3,550,082
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase in net
assets................. 145,339,919 9,929,006 2,551,113 8,896,186 7,239,422 7,926,246 6,217,497
NET ASSETS, AT BEGINNING
OF THE YEAR............ 249,494,737 16,750,131 16,880,743 9,678,964 14,759,578 6,411,211 4,092,981
------------ ----------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT END OF
THE YEAR............... $394,834,656 $26,679,137 $ 19,431,856 $18,575,150 $21,999,000 $14,337,457 $10,310,478
============ =========== ============ =========== =========== =========== ===========
</TABLE>
* For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
See Notes to Financial Statements
F-16
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ------------------------------------------------------------------- ------------------------------------- ---------
SMALL EQUITY INTERNATIONAL VENTURE EQUITY- HIGH ASSET
CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------- ------------ ------------ ------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 340,269 $ 16,795 $ 183,750 $ 10,295 $ 79,465 $ 2,050,693 $ 42,267 $ 1,773 $ 2,359
765,215 3,992 66,138 24,055 172,134 9,553,884 3,794,109 169,647 275,419
- ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ----------
1,105,484 20,787 249,888 34,350 251,599 11,604,577 3,836,376 171,420 277,778
2,237,626 81,978 1,048,361 241,835 625,044 13,985,879 17,076,602 395,370 696,227
4,814,141 409,874 5,735,744 948,764 3,228,499 12,483,761 (2,007,296) 1,503,857 1,507,606
(1,803,085) (94,428) (1,321,495) (271,101) (718,702) (9,853,532) (8,392,295) (358,576) (709,312)
- ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ----------
5,248,682 397,424 5,462,610 919,498 3,134,841 16,616,108 6,677,011 1,540,651 1,494,521
- ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ----------
6,354,166 418,211 5,712,498 953,848 3,386,440 28,220,685 10,513,387 1,712,071 1,772,299
190,830 -- -- -- -- 19,132,167 27,868,832 30,422 200,694
- ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ----------
$ 6,544,996 $418,211 $ 5,712,498 $ 953,848 $3,386,440 $47,352,852 $38,382,219 $1,742,493 $1,972,993
=========== ======== =========== ========= ========== =========== =========== ========== ==========
<CAPTION>
--------------
TOTAL
--------------
<S>
$ 64,061,749
95,415,706
--------------
159,477,455
202,985,540
--
(115,320,001)
--------------
87,665,539
--------------
247,142,994
365,491,290
--------------
$ 612,634,284
==============
</TABLE>
See Notes to Financial Statements
F-17
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS. New England Variable Life Separate Account (the
"Account") of New England Life Insurance Company ("NELICO"), formerly New
England Variable Life Insurance Company ("NEVLICO"), was established by
NELICO's Board of Directors on January 31, 1983 in accordance with the
regulations of the Delaware Insurance Department and is now operating in
accordance with the regulations of the Commonwealth of Massachusetts Division
of Insurance. The Account is registered as a unit investment trust under the
Investment Company Act of 1940. The assets of the Account are owned by NELICO.
The net assets of the Account are restricted from use in the ordinary business
of NELICO.
Effective with the merger on August 30, 1996 of New England Mutual Life
Insurance Company ("NEMLICO") and Metropolitan Life Insurance Company ("MLI"),
NEMLICO ceased to exist, with MLI as the surviving company of the merger.
NELICO then became an indirect wholly-owned subsidiary of MLI.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. SUB-ACCOUNTS. The Account has eighteen investment sub-accounts each of
which invest in the shares of one portfolio of the New England Zenith Fund
("Zenith Fund"), the Variable Insurance Products Fund or the Variable
Insurance Products Fund II. The portfolios of the Zenith Fund, the Variable
Insurance Products Fund and the Variable Insurance Products Fund II in which
the sub-accounts invest are referred to herein as the "Eligible Funds". The
Zenith Fund, the Variable Insurance Products Fund and the Variable Insurance
Products Fund II are diversified, open-end management investment companies.
The Account purchases or redeems shares of the eighteen Eligible Funds based
on the amount of net premiums invested in the Account, transfers among the
sub-accounts, policy loans, surrender payments, and death benefit payments.
The values of the shares of the Eligible Funds are determined as of the close
of the New York Stock Exchange (normally 4:00 p.m. EST) on each day the
Exchange is open for trading. Realized gains and losses on the sale of
Eligible Funds' shares are computed on the basis of identified cost on the
trade date. Income from dividends is recorded on the ex-dividend date. Charges
for investment advisory fees and other expenses are reflected in the carrying
value of the assets of the Eligible Funds.
3. MORTALITY AND EXPENSE RISK CHARGES. NELICO charges the Account for the
mortality and expense risk NELICO assumes. The mortality risk assumed by
NELICO is the risk that insureds may live for shorter periods of time than
NELICO estimated when setting its cost of insurance charges. The expense risk
assumed by NELICO is the risk that the deductions for sales and administrative
charges may prove insufficient to cover actual cost. If these deductions are
insufficient to cover the cost of the mortality and expense risk assumed by
NELICO, NELICO absorbs the resulting losses and makes sufficient transfers to
the Fund from its general assets. Conversely, if those deductions are more
than sufficient after the establishment of any contingency reserves deemed
prudent or required by law, the excess is retained by NELICO. Currently, the
charges are made daily at an annual rate of .35% of the Account assets
attributable to fixed premium ("Zenith Life") variable policies, .45% of the
Account assets attributable to single premium ("Zenith Life One") variable
life policies, .60% of the Account assets attributable to variable ordinary
("Zenith Life Plus", "Zenith Life Plus II" and "Zenith Variable Whole Life")
life policies and limited payment ("Zenith Life Executive 65") variable life
policies, .90% of the Account assets attributable to variable survivorship
("Zenith Survivorship Life") life policies, and .75% of the Account assets
attributable to flexible premium ("Zenith Flexible Life") variable life
policies. For the modified single premium ("American Gateway") variable life
policies mortality and expense risk charges are not charged daily against the
sub-account assets but are deducted from the policy cash values monthly at an
annual rate of .90%.
4. NET PREMIUM TRANSFERS AND DEDUCTIONS FROM CASH VALUE. Certain deductions
are made from each premium payment paid to NELICO to arrive at a net premium
that is transferred to the Account. Certain deductions are made from cash
value in the sub-accounts. These deductions, depending on the policy, could
include sales loads,
F-18
<PAGE>
administrative charges, premium tax charges, risk charges, cost of insurance
charges, and charges for rider benefits and special risk charges.
5. FEDERAL INCOME TAXES. For federal income tax purposes the Account's
operations are included with those of NELICO. NELICO intends to make
appropriate charges against the Account in the future if and when tax
liabilities arise.
6. INVESTMENT ADVISERS. The adviser and sub-adviser for each series of the
Zenith Fund are listed in the chart below. TNE Advisers, Inc., which is an
indirect subsidiary of NELICO, Capital Growth Management Limited Partnership
("CGM"), and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------------------ -------------------------------------
<S> <C> <C>
Capital Growth CGM* --
Back Bay Advisors Money TNE Advisers, Inc. Back Bay Advisors, L.P.*
Market
Back Bay Advisors Bond TNE Advisers, Inc. Back Bay Advisors, L.P.*
Income
Back Bay Advisors TNE Advisers, Inc. Back Bay Advisors, L.P.*
Managed
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Westpeak Growth and TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Income
Loomis Sayles Avanti TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Growth
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Morgan Stanley TNE Advisers, Inc. Morgan Stanley Asset Management Inc.
International Magnum
Equity
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
Salomon Brothers U.S. TNE Advisers, Inc. Salomon Brothers Asset Management Inc
Government
Salomon Brothers TNE Advisers, Inc. Salomon Brothers Asset Management Inc
Strategic Bond
Opportunities
</TABLE>
* An affiliate of NELICO
Effective May 1, 1997 the Draycott International Equity Series was renamed the
Morgan Stanley International Magnum Equity Series and a new Sub-advisory
agreement between TNE Advisers, Inc. and Morgan Stanley Asset Management Inc.
went into effect replacing the prior agreement between TNE Advisers, Inc. and
Draycott Partners, Ltd.
On January 28, 1998, the Fund's Board of Trustees approved new advisory and
subadvisory agreements (the "New Agreements") relating to the Loomis Sayles
Avanti Growth Series between TNE Advisers, Inc. and the Fund on behalf of the
Series, and between TNE Advisers, Inc. and Goldman Sachs Asset Management
("Goldman Sachs"), respectively. The New Agreements, which are subject to
shareholder approval, are expected to become effective on or about May 1,
1998. Under the New Agreements, Goldman Sachs would become the subadviser of
the Series, succeeding Loomis Sayles & Company, L.P., and would become
responsible for the day-to-day management of the Series' investment operations
under the oversight of TNE Advisers, Inc. Accordingly, the name of the Series
would be changed to the "Goldman Sachs Midcap Value Series" at the time the
New Agreements take effect. Goldman Sachs is a separate operating division of
Goldman, Sachs & Co., a privately-owned global financial services company.
F-19
<PAGE>
7. INVESTMENT PURCHASES AND SALES. The following table shows the aggregate cost
of Eligible Fund shares purchased and proceeds from the sales of Eligible Fund
shares for each sub-account for the year ended December 31, 1997:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth Series $190,848,855 $152,123,058
Back Bay Advisors Money Market Series 165,843,613 162,797,235
Back Bay Advisors Bond Income Series 19,577,841 13,951,014
Back Bay Advisors Managed Series 12,248,935 9,123,459
Westpeak Stock Index Series 31,190,566 13,926,513
Westpeak Growth and Income Series 16,870,544 7,986,008
Loomis Sayles Avanti Growth Series 14,966,505 10,913,924
Loomis Sayles Small Cap Series 35,774,167 14,288,925
Loomis Sayles Balanced Series 6,944,300 3,461,274
Morgan Stanley International Magnum Equity Series 7,071,617 3,577,480
Davis Venture Value Series 41,982,387 11,519,957
Alger Equity Growth Series 27,712,451 13,170,766
Salomon Brothers U.S. Government Series 315,478 195,450
Salomon Brothers Strategic Bond Opportunities
Series 711,406 148,625
VIP Equity-Income Portfolio 43,541,020 28,601,305
VIP Overseas Portfolio 33,752,160 24,396,016
VIP High Income Portfolio 5,573,049 2,765,596
VIP II Asset Manager Portfolio 3,323,050 2,105,248
</TABLE>
F-20
<PAGE>
8. NET INVESTMENT RETURNS. The following table shows the net investment return
of the sub-account for each type of variable life insurance policy investing
in the Account. The net investment return reflects the appropriate mortality
and expense risk charge against sub-account assets, where applicable, for each
type of variable life insurance policy shown (in the case of American Gateway
Series, the mortality and expense risk charge is deducted monthly from the
cash values rather than daily from sub-account assets and, therefore, does not
impact sub-account net investment returns). These figures do not reflect
charges deducted from premiums and the cash values of the policies. Such
charges will affect the actual cash values and benefits of the policies.
Certain amounts have been restated to conform with the current calculation of
net investment return to provide greater comparability with industry
convention.
FIXED PREMIUM ("ZENITH LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.11%) 30.30% (3.82%) 53.45% (6.38%) 14.57% (7.39%) 37.55% 20.65% 23.05%
Bond Income............. 7.99% 11.91% 7.71% 17.55% 7.80% 12.22% (3.70%) 20.78% 4.24% 10.50%
Money Market............ 7.14% 8.87% 7.81% 5.84% 3.43% 2.61% 3.61% 5.33% 4.76% 4.97%
<CAPTION>
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.93% 29.70% (4.48%) 29.98% 6.92% 9.34% 0.76% 36.44% 22.04% 32.03%
Managed................. 9.10% 18.67% 2.85% 19.75% 6.33% 10.26% (1.46%) 30.81% 14.62% 26.12%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.47% (0.62%) 29.90% 17.20% 16.91%
Growth and Income.................................................... 13.97% (1.55%) 35.99% 17.68% 33.01%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity-Income........................................................ 9.29% 6.69% 34.62% 13.88% 27.66%
Overseas............................................................. 14.57% 1.37% 9.30% 12.82% 11.17%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.45%) 28.40% 30.22% 24.42%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.58%) 20.18% 13.63% 17.26%
Asset Manager................................................................. (4.41%) 16.55% 14.20% 20.23%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.84% 12.78% 25.19%
Balanced............................................................................... 13.75% 16.50% 15.77%
International Equity................................................................... 3.85% 6.30% (1.64%)
Venture Value.......................................................................... 21.64% 25.40% 33.03%
</TABLE>
F-21
<PAGE>
SINGLE PREMIUM ("ZENITH LIFE ONE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.20%) 30.17% (3.91%) 53.29% (6.47%) 14.46% (7.38%) 37.41% 20.53% 22.92%
Bond Income............. 7.88% 11.79% 7.60% 17.43% 7.69% 12.10% (3.80%) 20.66% 4.14% 10.39%
Money Market............ 7.03% 8.77% 7.71% 5.74% 3.33% 2.51% 3.35% 5.23% 4.65% 4.87%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.82% 29.57% (4.58%) 29.85% 6.81% 9.23% 0.66% 36.30% 21.91% 31.90%
Managed................. 8.99% 18.55% 2.75% 19.63% 6.22% 10.15% (1.56%) 30.67% 14.51% 25.99%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.39% (0.72%) 29.77% 17.08% 16.80%
Growth and Income.................................................... 13.90% (1.65%) 35.85% 17.56% 32.87%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity Income........................................................ 9.22% 6.59% 34.49% 13.77% 27.53%
Overseas............................................................. 14.49% 1.27% 9.19% 12.70% 11.05%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.52%) 28.27% 30.09% 24.29%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.61%) 20.06% 13.52% 17.14%
Asset Manager................................................................. (4.45%) 16.43% 14.09% 20.11%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.76% 12.66% 25.06%
Balanced............................................................................... 13.67% 16.39% 15.66%
International Equity................................................................... 3.79% 6.19% (1.74%)
Venture Value.......................................................................... 21.56% 25.27% 32.90%
</TABLE>
F-22
<PAGE>
VARIABLE ORDINARY ("ZENITH LIFE PLUS", "ZENITH LIFE PLUS II" AND "ZENITH
VARIABLE WHOLE LIFE") AND
LIMITED PAYMENT ("ZENITH LIFE EXECUTIVE 65") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.34%) 29.98% (4.06%) 53.06% (6.61%) 14.28% (7.62%) 37.21% 20.34% 22.74%
Bond Income............. 7.72% 11.63% 7.44% 17.25% 7.53% 11.94% (3.94%) 20.47% 3.98% 10.23%
Money Market............ 6.87% 8.60% 7.54% 5.58% 3.18% 2.36% 3.35% 5.07% 4.50% 4.71%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.65% 29.37% (4.72%) 29.65% 6.65% 9.07% 0.51% 36.10% 21.73% 31.70%
Managed................. 8.83% 18.37% 2.59% 19.45% 6.06% 9.99% (1.70%) 30.48% 14.34% 25.81%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.28% (0.87%) 29.57% 16.90% 16.62%
Growth and Income.................................................... 13.78% (1.80%) 35.65% 17.38% 32.67%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity-Income........................................................ 9.11% 6.43% 34.29% 13.59% 27.34%
Overseas............................................................. 14.38% 1.12% 9.02% 12.53% 10.89%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.61%) 28.08% 29.90% 24.11%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.66%) 19.88% 13.35% 16.96%
Asset Manager................................................................. (4.49%) 16.26% 13.91% 19.93%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.64% 12.49% 24.88%
Balanced............................................................................... 13.56% 16.21% 15.48%
International Equity................................................................... 3.68% 6.03% (1.89%)
Venture Value.......................................................................... 21.44% 25.08% 32.70%
</TABLE>
F-23
<PAGE>
VARIABLE SURVIVORSHIP ("ZENITH SURVIVORSHIP LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.61%) 29.59% (4.35%) 52.61% (6.90%) 13.94% (7.90%) 36.80% 19.98% 22.37%
Bond Income............. 7.40% 11.29% 7.11% 16.90% 7.21% 11.60% (4.23%) 20.12% 3.67% 9.90%
Money Market............ 6.55% 8.28% 7.22% 5.26% 2.87% 2.05% 3.04% 4.75% 4.18% 4.39%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.30% 28.99% (5.01%) 29.27% 6.33% 8.74% 0.21% 35.69% 21.36% 31.31%
Managed................. 8.50% 18.02% 2.28% 19.10% 5.74% 9.69% (2.00%) 30.09% 13.99% 25.43%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.05% (1.16%) 29.19% 16.55% 16.27%
Growth and Income.................................................... 13.55% (2.09%) 35.25% 17.03% 32.28%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity-Income........................................................ 8.89% 6.11% 33.89% 13.25% 26.96%
Overseas............................................................. 14.15% 0.82% 8.70% 12.19% 10.56%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.80%) 27.69% 29.50% 23.73%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.76%) 19.53% 13.00% 16.61%
Asset Manager................................................................. (4.59%) 15.91% 13.57% 19.57%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.39% 12.15% 24.50%
Balanced............................................................................... 13.33% 15.86% 15.14%
International Equity................................................................... 3.48% 5.71% (2.18%)
Venture Value.......................................................................... 21.20% 24.71% 32.30%
</TABLE>
F-24
<PAGE>
FLEXIBLE PREMIUM ("ZENITH FLEXIBLE LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.47%) 31.88% (5.73%) 52.83% (6.75%) 14.11% (7.76%) 37.00% 20.16% 22.56%
Bond Income............. 7.56% 11.46% 7.28% 17.08% 7.37% 11.77% (4.08%) 20.29% 3.82% 10.06%
Money Market............ 6.71% 8.44% 7.38% 5.42% 3.02% 2.20% 3.20% 4.91% 4.34% 4.55%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.47% 29.18% (4.86%) 29.46% 6.49% 8.90% 0.36% 35.90% 21.55% 31.51%
Managed................. 8.67% 18.20% 2.44% 19.28% 5.90% 9.82% (1.85%) 30.28% 14.16% 25.62%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.16% (1.01%) 29.38% 16.72% 16.45%
Growth and Income.................................................... 13.67% (1.94%) 35.45% 17.21% 32.47%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity-Income........................................................ 9.00% 6.27% 34.09% 13.42% 27.15%
Overseas............................................................. 14.26% 0.97% 8.86% 12.36% 10.72%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.71%) 27.88% 29.70% 23.92%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.71%) 19.71% 13.17% 16.79%
Asset Manager................................................................. (4.54%) 16.08% 13.74% 19.75%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.51% 12.32% 24.69%
Balanced............................................................................... 13.44% 16.03% 15.31%
International Equity................................................................... 3.58% 5.87% (2.04%)
Venture Value.......................................................................... 21.32% 24.89% 32.50%
</TABLE>
F-25
<PAGE>
MODIFIED SINGLE PREMIUM ("AMERICAN GATEWAY") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income............. 8.37% 12.30% 8.09% 17.96% 8.18% 12.61% (3.36%) 21.20% 4.61% 10.89%
Money Market............ 7.52% 9.25% 8.19% 6.21% 3.80% 2.97% 3.97% 5.70% 5.13% 5.34%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 16.34% 30.15% (4.14%) 30.43% 7.30% 9.72% 1.12% 36.92% 22.47% 32.50%
Managed................. 9.48% 19.08% 3.21% 20.17% 6.70% 10.65% (1.11%) 31.26% 15.03% 26.56%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.74% (0.27%) 30.35% 17.61% 17.32%
Growth and Income.................................................... 14.24% (1.21%) 36.47% 18.10% 33.47%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.23%) 28.84% 30.68% 24.85%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 25.13% 13.17% 25.63%
Balanced............................................................................... 14.01% 16.91% 16.18%
International Equity................................................................... 4.01% 6.67% (1.30%)
Venture Value.......................................................................... 21.92% 25.84% 33.50%
6/28/96- 1/1/97-
SUB-ACCOUNT 12/31/96 12/31/97
- ----------- -------- --------
U.S. Government................................................................................. 4.55% 8.47%
Strategic Bond Opportunities.................................................................... 8.46% 11.07%
</TABLE>
The net investment return of a sub-account is calculated by taking the
difference between the sub-account's ending value and the beginning value for
the period and dividing it by the beginning value for the period.
F-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of New England
Life Insurance Company (formerly New England Variable Life Insurance Company)
and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the New England Life Insurance
Company and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
In 1996, as discussed in Note 1 to the financial statements, the Company (1)
adopted all applicable generally accepted accounting principles as required
for mutual life insurance enterprises (or wholly-owned stock life insurance
company subsidiaries of mutual life insurance enterprises) by Interpretation
No. 40, Applicability of Generally Accepted Accounting Principles to Mutual
Life Insurance and Other Enterprises, and Statement of Financial Accounting
Standards No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long Duration
Participating Policies; and (2) reflected the effects of the changes in
corporate organizations.
The consolidated statements of earnings, equity, and cash flows for the period
ended December 31, 1995 present the combination of the individual financial
statements of New England Variable Life Insurance Company and other entities
listed in Note 1. Such individual financial statements were audited by other
auditors before the applicable effects of the changes described in the
paragraph above and their reports on the financial statements of each of the
insurance entities listed in Note 1 expressed an adverse opinion as to the
conformity with generally accepted accounting principles and an unqualified
opinion as to conformity with statutory principles and their reports on the
financial statements of each of the other entities expressed an unqualified
opinion. We have audited the adjustments that were applied to restate the 1995
financial statements to reflect the effects of the changes for the adoption of
generally accepted accounting principles and the changes in corporate
organization as described in Note 1. In our opinion, such adjustments are
appropriate and have been properly applied.
DELOITTE & TOUCHE LLP
February 17, 1998
Boston, Massachusetts
N-1
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES 1997 1996
----- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed Maturities:
Available for Sale, at Estimated Fair Value...... 2,11 $ 734,391 $ 524,285
Held to Maturity, at Amortized Cost.............. 2 -- 29,666
Equity Securities................................. 2,11 9,399 --
Policy Loans...................................... 11 104,783 76,263
Real Estate....................................... 2,757 1,702
Short-Term Investments............................ 11 27,944 156,560
Other Invested Assets............................. 24,349 12,956
---------- ----------
Total Investments.............................. 903,623 801,432
Cash and Cash Equivalents.......................... 11 74,148 49,147
Deferred Policy Acquisition Costs.................. 565,769 434,637
Accrued Investment Income.......................... 18,712 13,713
Premiums and Other Receivables..................... 4 63,036 5,941
Other Assets....................................... 62,326 95,106
Separate Account Assets............................ 1,988,225 1,206,959
---------- ----------
TOTAL ASSETS................................... $3,675,839 $2,606,935
========== ==========
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits............................. 4 $ 500,429 $ 464,889
Policyholder Account Balances...................... 4,11 240,411 181,594
Other Policyholder Funds........................... 11 8,380 2,071
Policyholder Dividends Payable..................... 14,719 9,018
Short and Long-Term Debt........................... 8,11 85,981 84,057
Income Taxes Payable: 5
Current........................................... 9,102 6,272
Deferred.......................................... 42,066 39,463
Due to Parent...................................... 107,337 40,225
Other Liabilities.................................. 45,647 21,965
Separate Account Liabilities....................... 1,988,225 1,206,959
---------- ----------
TOTAL LIABILITIES.............................. 3,042,297 2,056,513
---------- ----------
Commitments and Contingencies (Notes 2, 4, 8 and 9)
EQUITY
Common Stock, $125.00 par value; 50,000 shares
authorized, 20,000 shares issued and outstanding.. 2,500 2,500
Contributed Capital................................ 545,477 497,946
Retained Earnings.................................. 68,218 46,249
Net Unrealized Investment Gains.................... 3 17,347 3,727
---------- ----------
TOTAL EQUITY................................... 12 633,542 550,422
---------- ----------
TOTAL LIABILITIES AND EQUITY....................... $3,675,839 $2,606,935
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
N-2
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Premiums...................................... 4 $ 63,616 $ 37,410 $ 38,566
Universal Life and Investment-Type Product
Policy Fee Income............................ 145,157 101,756 79,371
Net Investment Income......................... 3 61,059 49,628 41,815
Investment Gains (Losses), Net................ 3 890 8,822 10,514
Commissions, Fees and Other Income............ 28,302 44,930 34,555
-------- -------- --------
TOTAL REVENUES.............................. 299,024 242,546 204,821
-------- -------- --------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits......................... 4 100,180 65,520 55,810
Interest Credited to Policyholder Account
Balances..................................... 6,220 5,558 2,564
Policyholder Dividends........................ 21,325 14,830 13,954
Other Operating Costs and Expenses............ 10 144,342 143,886 99,424
-------- -------- --------
TOTAL BENEFITS AND OTHER DEDUCTIONS......... 272,067 229,794 171,752
-------- -------- --------
Earnings from Operations before Income Taxes.. 26,957 12,752 33,069
Income Taxes.................................. 5 4,988 3,051 12,303
-------- -------- --------
NET EARNINGS.................................. $ 21,969 $ 9,701 $ 20,766
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
N-3
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EQUITY
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK & NET UNREALIZED
CONTRIBUTED RETAINED INVESTMENT
CAPITAL EARNINGS GAINS (LOSSES) TOTAL
----------- -------- -------------- --------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994.... 228,057 15,782 (670) 243,169
Net Earnings..................... 20,766 20,766
Change in Net Unrealized Invest-
ment Gains (Losses)............. 27,026 27,026
Contributed Capital.............. 63,543 63,543
-------- ------- -------- --------
BALANCES AT DECEMBER 31, 1995.... 291,600 36,548 26,356 354,504
Net Earnings..................... 9,701 9,701
Change in Net Unrealized Invest-
ment Gains (Losses)............. (22,629) (22,629)
Contributed Capital.............. 208,846 208,846
-------- ------- -------- --------
BALANCES AT DECEMBER 31, 1996.... 500,446 46,249 3,727 550,422
Net Earnings..................... 21,969 21,969
Change in Net Unrealized Invest-
ment Gains (Losses)............. 13,620 13,620
Contributed Capital.............. 47,531 47,531
-------- ------- -------- --------
BALANCES AT DECEMBER 31, 1997.... $547,977 $68,218 $ 17,347 $633,542
======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
N-4
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES......... $(121,838) $ (85,674) $(111,834)
--------- --------- ---------
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Available for Sale Fixed Maturities.......... 178,003 276,420 538,297
Held to Maturity Fixed Maturities............ -- 10,519 625
Mortgage Loans on Real Estate................ -- 2,210 12
Other, Net................................... 128 -- --
Purchases of:
Available for Sale Fixed Maturities.......... (326,059) (259,713) (983,518)
Real Estate.................................. -- (480) --
Fixed Asset Property and Equipment........... (101) (3,786) --
Other Assets................................. -- (11,024) (15)
Net Change in Short-Term Investments......... 128,616 (135,731) 379,325
Net Change in Policy Loans................... (28,520) (18,052) (14,243)
Other, Net................................... 177 67 (114)
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES......... (47,756) (139,570) (79,631)
--------- --------- ---------
Cash Flows from Financing Activities:
Common Stock
Capital Contributions........................ 46,681 159,162 9,515
Borrowed Money............................... (3,181) -- 25,000
Policyholder Account Balances
Deposits..................................... 244,338 482,552 281,762
Withdrawals.................................. (95,066) (364,933) (148,403)
Financial Reinsurance Receivables............ 1,823 (37,519) --
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES..... 194,595 239,262 167,874
--------- --------- ---------
Change in Cash and Cash Equivalents........... 25,001 14,018 (23,591)
Cash and Cash Equivalents, Beginning of Year.. 49,147 35,129 58,720
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR........ $ 74,148 $ 49,147 $ 35,129
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid................................ $ 1,495 $ 1,523 $ 1,277
========= ========= =========
Income Taxes Paid............................ $ 5,470 $ 4,721 $ 6,765
========= ========= =========
NET EARNINGS.................................. 21,969 9,701 20,766
Adjustments to Reconcile Net Earnings to Net
Cash Provided by (Used in) Operating
Activities:
Change in Deferred Policy Acquisition Costs,
Net......................................... (140,578) (68,626) (45,823)
Change in Accrued Investment Income.......... (4,999) 909 (11,507)
Change in Premiums and Other Receivables..... (57,095) 4,370 (4,073)
Gains from Sales of Investments, Net......... (890) (15,979) (21,980)
Depreciation and Amortization Expenses....... 10,085 4,120 5,725
Interest Credited to Policyholder Account
Balances.................................... 6,220 5,558 2,565
Universal Life and Investment-Type Product
Policy Fee Income........................... -- (101,756) (79,371)
Change in Future Policy Benefits............. 35,540 18,202 14,539
Change in Other Policyholder Funds........... 6,309 (283) 1,789
Change in Policyholder Dividends Payable..... 5,701 1,671 114
Change in Income Taxes Payable............... 1,674 (6,634) 10,211
Other, Net................................... (5,774) 63,073 (4,789)
--------- --------- ---------
NET CASH USED BY OPERATING ACTIVITIES......... $(121,838) $ (85,674) $(111,834)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
N-5
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
New England Life Insurance Company and its subsidiaries (the Company) is a
wholly-owned stock life insurance subsidiary of Metropolitan Life Insurance
Company (MetLife). The Company principally provides variable life insurance
and variable annuity products through a network of general agencies located
throughout the United States. The Company also provides participating
traditional life insurance, annuity contracts, pension products, as well as,
group life, group medical, and group disability coverage.
Prior to the merger of New England Mutual Life Insurance Company (NEMLICO)
with MetLife on August 30, 1996, New England Life Insurance Company (NELICO),
formerly known as New England Variable Life Insurance Company (NEVLICO) was a
subsidiary of NEMLICO. NEMLICO was merged directly into MetLife and ceased to
exist as a separate mutual life insurance company. In conjunction with the
merger, NEVLICO became a subsidiary of MetLife and changed its name to New
England Life Insurance Company. NELICO has continued after the merger to
conduct its existing businesses and is also administering the business
activities of the former parent NEMLICO. (Note 13)
NELICO is headquartered in Boston, Massachusetts and became a Massachusetts
chartered company through a legal process known as redomestication. Prior to
the merger, NEVLICO was organized under Delaware law. The capital structure of
NELICO continues in the same form subsequent to the merger with common stock
authorized at 50,000 shares and 20,000 shares issued and outstanding with a
par value of $125 per share. MetLife made an additional statutory capital
contribution to NELICO at the merger date totaling $208,846 consisting of
$129,254 of cash and $79,592 of bonds, real estate, mortgages, common stock of
affiliates and furniture and equipment. Prior to the merger, NELICO received a
capital contribution from NEMLICO for $20,000 in cash. MetLife made an
additional statutory capital contribution to NELICO of $50,000 in cash during
1997, which was offset by $2,469 of returned capital.
Certain companies that were subsidiaries of NEMLICO became subsidiaries of
NELICO as of the merger. The principal subsidiaries of which NELICO owns 100%
of the outstanding common stock are: Exeter Reassurance Company, Ltd., New
England Pension and Annuity Company, and Newbury Insurance Company, Limited,
for insurance operations and New England Securities Corporation and TNE
Advisers, Inc. for other operations. On February 28, 1997, NELICO created and
became the sole owner of New England Life Holdings, Inc. which was established
as a holding company for the non-insurance operations of the Company,
principally, New England Securities and TNE Advisers, Inc. The principal
business activities of the subsidiaries are disclosed below.
Exeter Reassurance Company, Ltd., (Exeter) was incorporated in Bermuda on
November 15, 1994, and registered as an insurer under The Insurance Act 1978
(Bermuda). Exeter engages in financial reinsurance of life insurance and
annuity policies.
New England Pension and Annuity Company (NEPA) was incorporated under the laws
of the State of Delaware on September 12, 1980. NEPA holds licenses in 20
states, but is currently not actively engaged in the sale or distribution of
insurance products.
New England Securities Corporation (NES), a National Association of Securities
Dealers (NASD) registered broker/dealer, conducts business as a wholesale
distributor of investment products through the sales force of NELICO.
Established in 1968, NES offers a range of investment products including
mutual funds, investment partnerships, and individual securities. In 1994, NES
became a Registered Investment Advisor with the Securities and Exchange
Commission (SEC) and now offers individually managed portfolios. NES is the
national distributor for variable annuity and variable life products issued by
NELICO. NES is the sole owner of Hereford Insurance Agency, Inc.
N-6
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Newbury Insurance Company, Limited (Newbury) was incorporated in Bermuda on
May 1, 1987, and is registered as a Class 2 insurer under The Insurance Act
1978 (Bermuda). Newbury provides professional liability and personal injury
coverage to the agents of NELICO through a facultative reinsurance agreement
with Lexington Insurance Company. The policy applies to claims made during the
policy period or during the discovery period with limits of $1,000 each claim,
$1,000 annual aggregate each insured, $3,500, $3,500 and $3,000 annual
aggregate all insured in 1997, 1996 and 1995 respectively.
TNE Advisers, Inc. was incorporated on August 26, 1994, and is registered as
an investment adviser with the SEC, under the Investment Advisers Act of 1940.
TNE Advisers, Inc. was organized to serve as an investment adviser to certain
mutual funds of the New England Zenith Fund and does not intend to engage in
any business activities other than providing investment management and
administrative services.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP), and include
the accounts of NELICO and its subsidiaries in which NELICO has control and a
majority economic interest. The consolidated financial statements have been
prepared as though the current reporting entity had always existed.
Significant intercompany transactions and balances have been eliminated in
consolidation.
Prior to 1996, NELICO, as a wholly owned stock life insurance subsidiary of a
mutual life insurance company, prepared its financial statements in conformity
with accounting practices prescribed or permitted by the Insurance Department
of the State of Delaware (statutory financial statements), which accounting
practices were considered to be GAAP. In 1996, NELICO adopted Interpretation
No. 40, APPLICABILITY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO MUTUAL
LIFE INSURANCE AND OTHER ENTERPRISES (the "Interpretation") and Statement of
Financial Accounting Standards (SFAS) No. 120, ACCOUNTING AND REPORTING BY
MUTUAL LIFE INSURANCE ENTERPRISES AND BY INSURANCE ENTERPRISES FOR CERTAIN
LONG DURATION PARTICIPATING POLICIES (the "Standard"), of the Financial
Accounting Standards Board (FASB). The Interpretation and Standard required
mutual life insurance companies to adopt all standards promulgated by the FASB
in their general purpose financial statements. The cumulative effect of such
adoption of all applicable authoritative GAAP pronouncements as of January 1,
1994 was reflected in the financial statements of NELICO as an adjustment of
equity at January 1, 1994.
As of December 31, 1993, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", which expanded the use of fair value accounting for those
securities that a company does not have positive intent and ability to hold to
maturity. Implementation of SFAS No. 115 increased consolidated equity by
$105, net of deferred income taxes and adjustments of deferred policy
acquisition costs and future policy benefits.
Effective July 1, 1997, management realigned its fixed maturity investment
classifications and transferred all securities classified as held to maturity
to available for sale. As a result, consolidated equity at July 1, 1997
increased by $798, excluding the effects of deferred income taxes, amounts
attributable to participating pension contractholders and adjustments of
deferred policy acquisition costs and future policy benefits.
N-7
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
VALUATION OF INVESTMENTS
As mentioned above, during 1997 management reclassified all of the company's
fixed maturity securities to available for sale. Accordingly, as of December
31, all of the company's investment securities are carried at estimated fair
value. Prior to this reclassification, certain fixed maturity securities
(principally bonds) were carried at amortized cost. Unrealized investment
gains and losses on investment securities are recorded directly as a separate
component of equity net of related deferred income taxes and adjustments of
deferred policy acquisition costs and future policy benefits. Costs of
securities are adjusted for impairments in value deemed to be other than
temporary. Such adjustments are recorded as realized investment losses. All
securities transactions are recorded on a trade date basis.
Real estate is considered held for sale by management and is reported at the
lower of cost or estimated fair market value less allowances for the estimated
cost of sales. No impairment allowance is required on the property.
Policy loans are stated at unpaid principal balances which approximates fair
value.
Short-term investments are stated at amortized cost which approximates fair
value.
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less. These are carried at cost, which approximates fair value.
INVESTMENT RESULTS
Realized investment gains and losses are determined by specific identification
and are presented as a component of revenues. Valuation allowances are netted
against asset categories to which they apply and provisions for losses for
investments are included in investment gains and losses.
PROPERTY AND EQUIPMENT
Property and equipment and leasehold improvements are included in other assets
and are stated at cost, less accumulated depreciation and amortization.
Depreciation is provided using the straight line method over the estimated
useful lives of the assets which generally range from 4 to 15 years or the
term of the lease, if shorter. Amortization of leasehold improvements is
provided using the straight line method over the lesser of the term of the
leases or the estimated useful life of the improvements.
Accumulated depreciation and amortization on property and equipment and
leasehold improvements was $13,203, and $3,118 at December 31, 1997 and 1996,
respectively. Related depreciation and amortization expense was $10,085,
$3,118, and $0 for the years ended December 31, 1997, 1996 and 1995,
respectively.
RECOGNITION OF INCOME AND EXPENSES
Premiums from traditional life and annuity policies with life contingencies
are generally recognized as income when due. Benefits and expenses are matched
with such income so as to result in the recognition of profits over the life
of the contract. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
Reinsurance allowances for individual non-medical health contracts are
recognized as income when due.
Premiums from variable life, universal life and investment-type contracts are
reported as deposits to policyholder account balances. Revenues from these
contracts consist of amounts assessed during the period against policyholder
account balances for mortality charges, policy administration charges and
surrender charges. Policy benefits and claims that are charged to expense
include benefit claims incurred in the period in excess of related
policyholder account balances and interest credited to policyholder account
balances.
N-8
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, agency and
policy issue expenses, all of which vary with and are primarily related to the
production of new business, have been deferred. Deferred policy acquisition
costs are subject to recoverability testing at the time of policy issue and
loss recognition testing at the end of each accounting period.
Deferred policy acquisition costs are amortized over a period up to 40 years
for traditional life, variable life, universal life products and investment-
type products as a constant percentage of estimated gross margins or profits
arising principally from surrender charges and interest, mortality and expense
margins based on historical and anticipated future experience, updated
regularly. The effects of revisions to experience on previous amortization of
deferred policy acquisition costs are reflected in earnings in the period
estimated gross margins or profits are revised.
For non-medical health insurance contracts, deferred policy acquisition costs
are amortized over the life of the contracts (generally between 10 and 30
years) in proportion to anticipated reinsurance allowances.
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life insurance
policies are equal to the aggregate of net level premium reserve for death and
endowment policy benefits and the liability for terminal dividends. The net
level premium reserve is calculated based on the dividend fund interest rate
and mortality rates guaranteed in calculating the cash surrender values
described in such contracts. Interest rates used in establishing future policy
benefit liabilities range from 4 percent to 5 percent for life insurance
policies.
Policyholder account balances for variable life, universal life and
investment-type contracts are equal to the policy account values. The policy
account values represent an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
Benefit liabilities for non-medical health insurance are calculated as the net
GAAP liability plus the unamortized deferred acquisition costs. Benefit
liabilities for disabled lives are estimated using the present value of
benefits method and experience assumptions as to claim terminations, expenses
and interest.
INCOME TAXES
NELICO and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., files a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and nonlife
insurance direct subsidiaries. The future tax consequences of temporary
differences between financial reporting and tax basis of assets and
liabilities are measured as of the balance sheet dates and are recorded as
deferred income tax assets or liabilities.
SEPARATE ACCOUNT OPERATIONS
Separate Accounts are established in conformity with the state insurance laws
and are generally not chargeable with liabilities that arise from any other
business of the Company. Separate Account assets are subject to general
account claims only to the extent the value of such assets exceed the Separate
Account liabilities.
Investments held in the Separate Accounts (stated at estimated fair market
value) and liabilities of the Separate Accounts (including participants'
corresponding equity in the Separate Accounts) are reported separately as
assets and liabilities. Deposits to Separate Accounts are reported as
increases in Separate Account liabilities and are not reported in revenues.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues.
N-9
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
POLICYHOLDER DIVIDENDS
The amount of policyholder dividends to be paid is determined annually by the
Board of Directors. The aggregate amount of policyholder dividends is related
to actual interest, mortality, morbidity and expense experience for the year
and management's judgment as to the appropriate level of statutory surplus to
be retained by the Company.
CONSOLIDATED STATEMENTS OF CASH FLOWS--NON CASH TRANSACTIONS
For the years ended December 31, 1997, 1996 and 1995, the Company received
capital contributions in the form of transfer of assets of $0, $79,592 and
$54,028, respectively.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
The FASB has issued SFAS No. 130 REPORTING COMPREHENSIVE INCOME which
establishes standards for reporting and presentation of comprehensive income
and its components. Comprehensive income (loss) was $35,589, $(12,928), and
$47,792 in 1997, 1996, and 1995, respectively. Consolidated statements of
comprehensive income, which will be required in 1998, have not been presented
as the Company has not determined the individual amounts to be displayed in
such statements.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts to conform to
the 1997 presentation.
N-10
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
2. INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
The amortized cost, gross unrealized gain (loss) and estimated fair value of
fixed securities and equity securities, by category, are shown below.
AVAILABLE FOR SALE SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 12,105 $ 101 $ -- $ 12,206
Foreign governments.................... 2,316 67 -- 2,383
Corporate.............................. 620,916 41,564 3,308 659,172
Mortgage-backed securities............. 57,348 3,282 -- 60,630
-------- -------- ------- --------
Total Fixed Maturities............... $692,685 $ 45,014 $ 3,308 $734,391
======== ======== ======= ========
Equity Securities:
Common stocks.......................... 9,424 216 241 9,399
-------- -------- ------- --------
Total Equity Securities.............. $ 9,424 $ 216 $ 241 $ 9,399
======== ======== ======= ========
AVAILABLE FOR SALE SECURITIES
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 5,465 $ 47 $ 25 $ 5,487
Foreign governments.................... 1,577 1 57 1,521
Corporate.............................. 505,683 18,637 7,093 517,227
Mortgage-backed securities............. 49 1 -- 50
-------- -------- ------- --------
Total Fixed Maturities............... $512,774 $ 18,686 $ 7,175 $524,285
======== ======== ======= ========
HELD TO MATURITY SECURITIES
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 7,299 $ 51 $ 6 $ 7,344
States and political subdivisions...... 480 38 -- 518
Corporate.............................. 21,887 860 99 22,648
-------- -------- ------- --------
Total Fixed Maturities............... $ 29,666 $ 949 $ 105 $ 30,510
======== ======== ======= ========
</TABLE>
N-11
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Included in net unrealized investment gains (losses) are unrealized gains on
foreign currency investments as well as unrealized gains on the associated
forward foreign exchange contracts. Unrealized investment gains (losses)
consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net unrealized gains on investments................................ $281 $ 8
Unrealized gains (losses) on the maturity of forward contracts..... 14 14
---- ---
$295 $22
==== ===
</TABLE>
The amortized cost and estimated fair value of bonds classified as available
for sale, by contractual maturity, at December 31, 1997 are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less................................. $ 5,729 $ 5,723
Due after one year through five years................... 61,395 62,503
Due after five years through ten years.................. 155,795 157,820
Due after ten years..................................... 412,418 447,715
-------- --------
Subtotal.............................................. 635,337 673,761
Mortgage-backed securities.............................. 57,348 60,630
-------- --------
Total................................................. $692,685 $734,391
======== ========
</TABLE>
Bonds not due at a single maturity date have been included in the above tables
in the year of final maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without prepayment penalties.
ASSETS HELD IN TRUST FOR THE BENEFIT OF OTHER PARTIES
Exeter has deposited in a trust for the benefit of MetLife certain assets for
the purpose of allowing MetLife to record a reserve credit as permitted by
regulations of the State of New York. Under the terms of the Trust Agreement
MetLife enjoys broad powers to withdraw funds from the trust for the payment
of policyholder claims incurred by Exeter under its reinsurance treaty and to
direct the investment of funds held in the trust. The Trust Agreement limits
the types of investments that may be held in trust to cash and certificates of
deposit, U.S. Government bonds and notes and publicly traded securities of
U.S. companies having a National Association of Insurance Commissioners (NAIC)
rating of 1. At December 31, 1997 the trust held $516,491 of bonds and short-
term investments, and at December 31, 1996, the trust held $787 of cash and
$468,847 of bonds and short-term investments.
ASSETS ON DEPOSIT
As of December 31, 1997 and 1996, the Company had assets on deposit with
regulatory agencies of $7,020 and $5,884, respectively.
N-12
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
3. NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................. $50,348 $44,630 $39,264
Equity securities................................ 4,915 -- --
Mortgage loans on real estate.................... -- 110 234
Real estate...................................... 815 55 --
Policy loans..................................... 5,081 3,734 2,831
Cash, cash equivalents and short-term
investments..................................... 4,160 3,656 1,174
Other investment income.......................... 591 38 --
------- ------- -------
Gross investment income.......................... 65,910 52,223 43,503
Investment expenses.............................. (4,851) (2,595) (1,688)
------- ------- -------
Net Investment income............................ $61,059 $49,628 $41,815
======= ======= =======
</TABLE>
Investment gains (losses) are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Fixed maturities................................... $ (774) $15,467 $21,981
Other.............................................. 1,032 512 (1)
------ ------- -------
Subtotal......................................... 258 15,979 21,980
Investment gains (losses) related to accelerated
amortization of deferred
policy acquisition costs.......................... (632) 7,157 11,466
------ ------- -------
Investment gains (losses), net..................... $ 890 $ 8,822 $10,514
====== ======= =======
</TABLE>
Proceeds from the sales of bonds classified as available for sale during 1997,
1996 and 1995 were $143,107, $275,008 and $518,417 respectively. During 1997,
1996 and 1995, respectively, gross gains of $1,846, $19,109 and $22,558, and
gross losses of $1,489, $3,878, and $577 were realized on those sales.
Proceeds from the call of direct issue fixed maturities classified as held to
maturity during 1997, 1996 and 1995 were $0, $5,291 and $0, respectively.
During 1997, 1996 and 1995, respectively, gross gains of $0, $236 and $0, and
gross losses of $0, $0 and $0 were realized due to prepayment premiums
received. In 1997 the Company transferred all fixed maturities classified as
held to maturity to available for sale.
N-13
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
The net unrealized investment gains (losses), which are included in the
consolidated balance sheets as a component of equity and the changes for the
corresponding years are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Year ended December 31
Balance, beginning of year................... $ 3,727 $ 26,356 $ (670)
Change in unrealized investment gains
(losses).................................. 30,207 (46,850) 58,947
Change in unrealized investment gains
(losses) attributable to:
Deferred policy acquisition cost
allowances.............................. (9,446) 12,211 (17,884)
Deferred income tax (expense) benefit.... (7,141) 12,010 (14,037)
-------- -------- --------
Balance, end of year......................... $ 17,347 $ 3,727 $ 26,356
======== ======== ========
December 31
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed maturities......................... $ 41,706 $ 11,525 $ 58,369
Other.................................... 22 (4) 2
-------- -------- --------
41,728 11,521 58,371
Amounts of unrealized investment gains
(losses) attributable to:
Deferred policy acquisition cost
allowances................................ (15,202) (5,756) (17,967)
Deferred income tax (expense) benefit...... (9,179) (2,038) (14,048)
-------- -------- --------
Balance, end of year......................... $ 17,347 $ 3,727 $ 26,356
======== ======== ========
</TABLE>
Net unrealized investment gains at December 31, 1997, before deferred Federal
income tax, reflects gross unrealized gains of $45,014 and gross unrealized
losses of $3,308.
4. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
In the normal course of business, the Company assumes and cedes reinsurance
with other insurance companies. The accompanying consolidated statements of
earnings are presented net of reinsurance.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................................ $ 30,975 $ 2,682 $ 2,794
Reinsurance assumed............................ 62,315 67,483 69,330
Reinsurance ceded.............................. (29,674) (32,755) (33,558)
-------- -------- --------
Net premiums earned............................ $ 63,616 $ 37,410 $ 38,566
======== ======== ========
</TABLE>
N-14
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Policyholder benefits in the accompanying consolidated statements of earnings
are presented net of reinsurance recoveries of $55,445, $23,962 and $22,577
for the years ended December 31, 1997, 1996 and 1995, respectively. Premiums
and other receivables in the accompanying consolidated balance sheets include
reinsurance recoveries of $1,489 and $200 at December 31, 1997 and 1996,
respectively.
A contingent liability exists with respect to reinsurance ceded should the
reinsurers be unable to meet their obligations.
5. INCOME TAXES
Income tax expense for U.S. operations has been calculated in accordance with
the provisions of the Internal Revenue Code, as amended (the "Code").
NELICO and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., files a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and nonlife
insurance direct subsidiaries. The Company uses the liability method of
accounting for income taxes. Income tax provisions are based on income
reported for financial statement purposes. Deferred income taxes arise from
the recognition of temporary differences between income determined for
financial reporting purposes and income tax purposes.
A summary of income tax expense (benefit) in the consolidated statements of
earnings is shown below:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
1997
Federal............................................ $8,473 $(3,772) $ 4,701
State and Local.................................... 316 (29) 287
------ ------- -------
Total............................................ $8,789 $(3,801) $ 4,988
====== ======= =======
1996
Federal............................................ $5,333 $(1,531) $ 3,802
State and Local.................................... -- (751) (751)
------ ------- -------
Total............................................ $5,333 $(2,282) $ 3,051
====== ======= =======
1995
Federal............................................ $5,504 $ 6,355 $11,859
State and Local.................................... -- 444 444
------ ------- -------
Total.......................................... $5,504 $ 6,799 $12,303
====== ======= =======
</TABLE>
Reconciliations of the differences between income taxes of operations computed
at the federal statutory tax rates and consolidated provisions for income
taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income before taxes.............................. $26,957 $12,752 $33,069
Income tax rate.................................. 35% 35% 35%
------- ------- -------
Expected income tax expense at federal statutory
income tax rate................................. 9,435 4,463 11,574
Tax effect of:
Change in valuation allowance.................. -- (13,948) (413)
NOL benefit write-off.......................... -- 13,012 --
State and local income taxes................... (1,013) (488) 289
Other, net..................................... (3,434) 12 853
------- ------- -------
Income Tax Expense............................... $ 4,988 $ 3,051 $12,303
======= ======= =======
</TABLE>
N-15
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
The net deferred tax liabilities recorded represents the net temporary
differences between the tax bases of assets and liabilities and their amounts
for financial reporting. The components of the net deferred tax liabilities at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities............................ $ 63,723 $ 83,304
Net operating loss carryforward..................... -- 12,548
Other............................................... 81,988 14,690
--------- ---------
Total gross assets................................ 145,711 110,542
--------- ---------
Deferred tax liabilities:
Investments......................................... (2,456) (2,526)
Deferred policy acquisition costs................... (168,270) (132,965)
Net unrealized capital gains........................ (9,179) (2,038)
Other............................................... (7,872) (12,476)
--------- ---------
Total gross liabilities........................... (187,777) (150,005)
--------- ---------
Net deferred tax liability............................ $ (42,066) $ (39,463)
========= =========
</TABLE>
The sources of the deferred tax expense (benefit) and their tax effects are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Policyholder liabilities....................... $(23,759) $(17,818) $(4,110)
Net operating loss carryforward................ 12,548 464 --
Investments.................................... 1,319 -- --
Deferred policy acquisition costs.............. 33,621 21,828 13,878
Other, net..................................... (27,530) (6,756) (2,969)
-------- -------- -------
Total........................................ $ (3,801) $ (2,282) $ 6,799
======== ======== =======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
Prior to the merger, substantially all employees were employed by NEMLICO and
were covered under the Home Office Retirement Plan and related Select
Employees' Supplemental Retirement Plan (collectively referred to as the
Plans). Subsequent to the merger substantially all of the employees became
employees of the Company and continued to be covered by the Plans, which
became the Plans of the Company. Under the Plans retirement benefits are based
primarily on years of service and the employee's average salary. The Company's
funding policy is to contribute annually an amount that can be deducted for
federal income tax purposes using a different actuarial cost method and
different assumptions from those used for financial reporting purposes. The
Company's net pension cost charged to income in 1997, 1996, and 1995 was $277,
$159, and $150, respectively, which represents the Company's allocation of the
total net periodic pension cost of the Plans as shown below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost................................... $ 5,310 $ 5,761 $ 4,797
Interest cost on projected benefit obligation.. 13,958 12,489 11,012
Actual return on assets........................ (22,250) (15,468) (21,221)
Net amortization and deferrals................. 11,092 6,009 13,059
-------- -------- --------
Net periodic pension cost.................... $ 8,110 $ 8,791 $ 7,647
======== ======== ========
</TABLE>
N-16
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
The assumed long-term rate of return on assets used in determining the net
periodic pension cost was 8.5 percent.
The following information for the Plans includes amounts relating to NEMLICO.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of accumulated plan benefits.... $143,681 $133,000
======== ========
Projected benefit obligation............................ 193,652 182,000
======== ========
Net assets available for plan benefits.................. 150,820 130,992
======== ========
Unrecognized prior service cost......................... 2,844 224
======== ========
Unrecognized net (loss) from past experience difference
from that assumed...................................... (18,936) (37,327)
======== ========
Unamortized transition gains............................ $ 5,832 $ 4,015
======== ========
</TABLE>
The weighted average discount rate was 7.75%, 7.5% and 8.0% in 1997, 1996 and
1995, respectively. The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit was 5.0% for
1997, 1996 and 1995. Assets of the Plans consist of bonds, stocks, real
estate, and insurance contracts and have an assumed long-term rate of return
of 8.75% for 1997, and 8.5% for 1996 and 1995.
OTHER POSTRETIREMENT BENEFITS
Prior to the merger, NEMLICO provided certain health care and life insurance
benefits for retired employees. Substantially all employees would have become
eligible for these benefits had they reached retirement age while working for
NEMLICO. Subsequent to the merger, these benefits are being provided by
MetLife, with respect to benefits earned prior to the merger, and the Company,
with respect to benefits earned subsequent to the merger.
As claims were incurred, the Company made contributions to the plan in 1997
and 1996 which were considered immaterial. The total contributions made to the
plan were $3,670 and $3,386, in 1997 and 1996, respectively. The following
table sets forth the plan's fiscal year end funded status:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $33,823 $28,566
Fully eligible active plan participants................... 4,487 5,482
All other actives......................................... 11,114 11,098
------- -------
Total....................................................... 49,424 45,146
plus: unrecognized net gain............................... 15,726 19,997
------- -------
Accrued postretirement benefit liability.................... $65,150 $65,143
======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
The components of net postretirement benefit cost
were:
Service cost........................................ $ 880 $ 876 $ 876
Interest cost....................................... 3,690 3,183 3,768
Amortization of gain................................ (849) (1,155) (1,043)
------ ------ ------
Net periodic postretirement benefit cost.............. $3,721 $2,904 $3,601
====== ====== ======
</TABLE>
N-17
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Net periodic postretirement benefit costs for the years ended December 31,
1997, 1996 and 1995, includes the cost of benefits earned by active employees,
interest cost, gains and losses arising from differences between actuarial
assumptions and actual experience, and amortization of the transition
obligation. The discount rate used to determine the net periodic
postretirement benefit cost was 7.75%, 7.25% and 8.5% for 1997, 1996 and 1995,
respectively.
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.75% and 7.50% as of December 31, 1997 and 1996, respectively.
The health care cost trend rate was 7.8% graded to 5.0% over 8 years for 1997,
and 8.2% graded to 5.0% over 8 years for 1996. The health care cost trend rate
assumption has a minimal impact on the amounts reported, since the Company has
capped its contributions at 200% of 1993 levels.
7. LEASES
LEASE EXPENSE
The Company has entered into various lease agreements for office space, data
processing and other equipment. Future gross minimum rental payments under
non-cancelable leases for 1998 and the succeeding four years are $13,323,
$13,057, $11,765, $10,739 and $10,468, respectively, and $95,762 thereafter.
Minimum future sub-lease rental income on these non-cancelable leases for 1998
and the succeeding four years is $3,553, $3,620, $3,600, $3,578 and $3,578,
respectively, and $15,257 thereafter.
8. DEBT
In 1995, the Company borrowed $25,000 from a bank, bearing interest at a
variable rate, equal to the greater of the bank's base rate or money market
rates plus 0.6% per annum payable monthly, 5.8% at December 31, 1997 and 5.7%
at December 31, 1996. The loan is collateralized by sales loads and surrender
charges collected on a defined block of variable life insurance policies
issued by the Company. Repayment is structured in a manner to result in
repayment over a term of five years. The carrying value of the loan
approximates its fair value of $21,965, repayments made during 1997 were
$3,181.
Exeter privately placed $75,118 aggregate principal amount, subordinated notes
payable (the "Notes"), on December 30, 1994 which are due December 30, 2004,
with no interest payments for the first five years and semiannual interest
payments thereafter. The Notes have been discounted to yield 8.45% for the
first five years and pay interest at 8.845% thereafter. The Notes are
expressly subordinated in right of payment to the insurance liabilities of
Exeter. The Notes are not subject to redemption by Exeter or through the
operation of a sinking fund prior to maturity. Proceeds of the issuance of the
Notes, net of discount, amounted to $50,000. The issue costs of the Notes of
$130 were deducted from Notes, net of discount, to arrive at net subordinated
notes payable of $49,870. The issue cost will be amortized over the life of
the Notes. The Notes are held by MetLife, and the carrying value of the loan
approximates its fair value of $64,016, repayments made during 1997 were $0.
9. CONTINGENCIES
The Company has no contingent liabilities which might materially affect the
financial position of the Company or the results of its operations. There are
no pending legal proceedings which are beyond the ordinary course of business
which could have a material financial effect.
N-18
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
10. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Compensation costs........................... $ 58,754 $ 36,172 $ 23,630
Commissions.................................. 77,351 51,617 37,476
Debt expense................................. 6,750 6,261 5,659
Amortization of policy acquisition costs..... 17,723 22,233 21,199
Capitalization of policy acquisition costs... (157,670) (98,016) (65,850)
Rent expense, net of sub-lease income of
$719, $119 and $0........................... 4,473 3,060 1,609
Other........................................ 136,961 122,559 75,701
--------- -------- --------
Total...................................... $ 144,342 $143,886 $ 99,424
========= ======== ========
</TABLE>
11. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments presented below have
been determined by the Company using market information available as of
December 31, 1997 and 1996 and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value for financial instruments for which there
are no available market value quotations.
The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
<S> <C> <C>
DECEMBER 31, 1997:
ASSETS
Fixed Maturities......................................... $734,391 $734,391
Equity Securities........................................ 9,399 9,399
Policy loans............................................. 104,783 104,783
Short-term investments................................... 27,944 27,944
Cash and cash equivalents................................ 74,148 74,148
LIABILITIES
Policyholder account balances............................ 9,271 8,508
Other policyholder funds................................. 4,324 4,324
Short and long-term debt................................. 85,981 85,981
DECEMBER 31, 1996:
ASSETS
Fixed Maturities......................................... $553,951 $554,795
Policy loans............................................. 76,263 76,263
Short-term investments................................... 156,560 156,560
Cash and cash equivalents................................ 49,147 49,147
LIABILITIES
Policyholder account balances............................ 3,368 3,168
Other policyholder funds................................. 2,868 2,868
Short and long-term debt................................. 84,057 84,057
</TABLE>
N-19
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
For bonds that are publicly traded, estimated fair value was obtained from an
independent market pricing service. Publicly traded bonds represented
approximately 91% of the carrying value and estimated fair value of the total
bonds as of December 31, 1997 and 96% of the carrying value and estimated fair
value of the total bonds as of December 31, 1996. For all other bonds,
estimated fair value was determined by management, based primarily on interest
rates, maturity, credit quality and average life. Estimated fair values of
policy loans were based on discounted projected cash flows using U.S. Treasury
rates to approximate interest rates and Company experience to project patterns
of loan accrual and repayment. For cash and cash equivalents and short-term
investments, the carrying amount is a reasonable estimate of fair value.
The fair values for policyholder account balances are estimated using
discounted projected cash flows, based on interest rates being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued. Other policyholder funds include liabilities without
defined durations such as policy proceeds and dividends left with the Company.
The estimated fair value of such liabilities, which generally are of short
duration or have periodic adjustments of interest rates, approximates their
carrying value.
The estimated fair value of short and long-term debt was determined using
rates currently available to the Company for debt with similar terms and
remaining maturities.
12. STATUTORY FINANCIAL INFORMATION
The following reconciles statutory net income and statutory surplus and
reflects the corporate reorganization described in Note 1 determined in
accordance with accounting practices prescribed or permitted by insurance
regulatory authorities with net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income (loss)................ $ (37,358) $ (46,021) $ 375
Adjustments to GAAP for life insurance
companies:
Future policy benefits and policyholders
account balances........................ (718,229) (41,174) (9,616)
Deferred policy acquisition costs........ 139,947 68,626 45,823
Deferred Federal Income taxes............ 4,009 2,283 (6,799)
Statutory interest maintenance reserve... 342 231 --
Other, net............................... 633,258 25,756 (9,017)
--------- --------- ---------
Net GAAP Earnings.......................... $ 21,969 $ 9,701 $ 20,766
========= ========= =========
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory surplus.......................... $ 307,290 $ 355,853 $ 203,374
Adjustments to GAAP for life insurance
companies:
Future policy benefits and policyholders
account balances........................ (279,510) (195,273) (154,099)
Deferred policy acquisition costs........ 565,769 434,637 353,809
Deferred Federal Income taxes............ (43,318) (40,185) (55,201)
Valuation of investments................. 56,873 11,503 58,063
Statutory interest maintenance reserve... 571 306 74
Statutory investment valuation reserves.. 8,388 3,335 373
Surplus notes............................ (64,016) (58,911) (54,210)
Receivables from reinsurance
transactions............................ 27,519 26,030 --
Other, net............................... 53,976 13,127 2,320
--------- --------- ---------
GAAP Equity................................ $ 633,542 $ 550,422 $ 354,503
========= ========= =========
</TABLE>
N-20
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
13. RELATED PARTY TRANSACTIONS
Prior to the merger NELICO operated under a service agreement with its parent
NEMLICO to receive all executive, legal, clerical and other personnel
services. Subsequent to the merger, the Company has entered into a Service
Agreement to provide all administrative, accounting, legal and similar
services to MetLife for certain administered contracts, which are life
insurance and annuity contracts issued by NEMLICO prior to the merger of
NEMLICO and MetLife and those policies and contracts defined in the Service
Agreement as Transition Policies which were sold by the Company's field force
post-merger.
The Company charged MetLife $186,757 including accruals for administrative
services on NEMLICO administered contracts for 1997. The Company charged
MetLife $88,043 including accruals for administrative services on NEMLICO
administered contracts for the period of September 1, 1996 through December
31, 1996. Prior to the merger, the Company paid $62,643 to NEMLICO for
administrative services on variable-life and variable-annuity contracts for
the period of January 1, 1996 through August 31, 1996. In 1995, the Company
paid $50,875 to NEMLICO for administrative services. These services were
charged based upon direct costs incurred. Service fees are recorded by NELICO
as a reduction in operating expenses.
In 1997, MetLife made a capital contribution to the Company of $50,000 in
cash. In 1996, MetLife made a non-cash capital contribution to the Company of
common stock of affiliated companies consisting of Exeter, NEPA, NES, Newbury,
Omega Reinsurance Corp., TNE Advisers Inc., and TNE Information Services Inc.
with a total estimated statutory fair value of $29,558. MetLife also made non-
cash capital contributions of home-office properties of $10,301, socially-
responsible investments with a book value of $11,916, furniture, equipment and
leasehold improvements of $27,816, and a cash contribution of $128,412. Prior
to the merger, NEMLICO made a cash contribution to NELICO of $20,000.
In 1995, NEMLICO made a non-cash capital contribution to NELICO of publicly-
traded debt securities and private-placement obligations with an estimated
fair value of $54,028. NELICO received cash contributions from NEMLICO of
$8,215 in 1995.
The Company entered into a lease agreement with MetLife on August 30, 1996 for
the home-office building which it occupies on 501 Boylston Street in Boston,
Massachusetts. The Company paid lease payments to MetLife of $2,340 and $780
in 1997 and 1996, respectively.
On June 21, 1996, NEMLICO purchased a mortgage from NELICO for $2,217 which
included principal of $2,204, and interest of $13.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1997 were $16,799
and $1,127, respectively. Included in accrued income at December 31, 1997,
were amounts receivable for sales-based commissions from NEF and SSR totaling
$233 and $13, respectively. In 1997, NES earned asset-based income of $8,777
and $61 on average assets of approximately $3.9 billion and $33 million under
management with NEF and SSR, respectively.
Exeter has a privately-placed subordinated notes payable to MetLife for
$64,016 at December 31, 1997 and $58,911 at December 31, 1996.
Stockholder dividends or other distributions proposed to be paid by NELICO
must be approved by the Massachusetts Commissioner of Insurance if such
dividends or distributions, together with other dividends or distributions
made within the preceding 12 months, exceeds the greater of (1) 10% of
NELICO's statutory surplus as regards policyholders as of the previous
December 31, or (2) NELICO's statutory net gain from operations for the 12
month period ending the previous December 31.
N-21
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Of the statutory profits earned by NELICO on participating policies and
contracts, the portion which shall inure to the benefit of NELICO's
stockholder shall not exceed the larger of (1) 10% of such statutory profits,
or (2) fifty cents per year per thousand dollars of participating life
insurance other than group term insurance in force at the end of the year.
14. SUBSEQUENT EVENTS
In February 1998, the Company signed a definitive agreement to acquire all of
the outstanding common stock of Nathan Lewis Holding Corp. (Nathan Lewis) a
broker-dealer based in New York City. Under the terms of the agreement, the
Company will pay approximately $28 million in cash at the close and $2 million
per year over the next three years subject to certain financial conditions.
Nathan Lewis had approximately $22 million in assets and earned $2.1 million
on revenues of $78.4 million for the twelve month fiscal period ended
September 30, 1997. The acquisition, which is expected to close in the second
quarter of 1998, will be accounted for as a purchase under generally accepted
accounting principles.
N-22
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholder of
New England Variable Life Insurance Company:
We have audited the statutory statements of operations, surplus, and cash
flows of New England Variable Life Insurance Company (a wholly-owned
subsidiary of New England Mutual Life Insurance Company) for the year ended
December 31, 1995. These statutory financial statements (not presented
separately herein) are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations,
surplus, and cash flows are free of material misstatement. An audit includes
examining, on test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall presentation of the statements of operations, surplus,
and cash flows. We believe that our audit of the statements of operations,
surplus, and cash flows provides a reasonable basis for our opinion.
As described more fully in Note 1 to the aforementioned financial statements,
the Company prepared the statements of operations, surplus, and cash flows
using accounting practices prescribed or permitted by the Insurance Department
of the State of Delaware (SAP), which practices after 1996 (upon issuance of
1996 financial statements) differ from generally accepted accounting
principles (GAAP).
In our report dated March 8, 1996, we expressed our opinion that the 1995
statements of operations, surplus, and cash flows, prepared using SAP,
presented fairly, in all material respects the results of operations and cash
flows of New England Variable Life Insurance Company for the year ended
December 31, 1995 in conformity with GAAP. As described in Note 1 to the
aforementioned financial statements, financial statements of wholly-owned
subsidiaries of mutual life insurance enterprises prepared in accordance with
SAP are no longer considered to be presented in conformity with GAAP.
Accordingly, our present opinion on the 1995 statements of operations,
surplus, and cash flows is different from that expressed in our previous
report.
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above (and not
included herein) do not present fairly, in conformity with GAAP, the results
of operations or cash flows of New England Variable Life Insurance Company for
the year ended December 31, 1995.
In our opinion, the statutory financial statements referred to above (and not
included herein) present fairly, in all material respects, the results of
operations and cash flows of New England Variable Life Insurance Company for
the year ended December 31, 1995, on the basis of accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 8, 1996, except for the information in the
second paragraph under "Basis of Presentation
and Principles of Consolidation" of Note 1, for which
the date is February 18, 1997
N-23
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT ON INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholder of
New England Pension and Annuity Company:
We have audited the statutory statements of operations and surplus, and cash
flows of New England Pension and Annuity Company (a wholly-owned subsidiary of
New England Mutual Life Insurance Company) for the year ended December 31,
1995. These statutory financial statements (not presented separately herein)
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations and
surplus, and cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall presentation of the statements of operations and
surplus, and cash flows. We believe that our audit of the statements of
operations and surplus, and cash flows provides a reasonable basis for our
opinion.
As described more fully in Note 1 to the aforementioned financial statements,
the Company prepared the statements of operations and surplus, and cash flows
using accounting practices prescribed or permitted by the Insurance Department
of the State of Delaware (SAP), which practices after 1996 (upon issuance of
1996 financial statements) differ from generally accepted accounting
principles (GAAP).
In our report dated March 8, 1996, we expressed our opinion that the 1995
statements of operations and surplus, and cash flows, prepared using SAP,
presented fairly, in all material respects the results of operations and cash
flows of New England Pension and Annuity Company for the year ended December
31, 1995 in conformity with GAAP. As described in Note 1 to the aforementioned
financial statements, financial statements of wholly-owned subsidiaries of
mutual life insurance enterprises prepared in accordance with SAP are no
longer considered to be presented in conformity with GAAP. Accordingly, our
present opinion on the 1995 statements of operations and surplus, and cash
flows is different from that expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above (and not
included herein) do not present fairly, in conformity with GAAP, the results
of operations or cash flows of New England Pension and Annuity Company for the
year ended December 31, 1995.
In our opinion, the statutory financial statements referred to above (and not
included herein) present fairly, in all material respects, the results of
operations and cash flows of New England Pension and Annuity Company for the
year ended December 31, 1995, on the basis of accounting practices prescribed
or permitted by the Insurance Department of the State of Delaware.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 8, 1996, except for the information in the
second paragraph under "Basis of Presentation and
Principles of Consolidation" of Note 1, for which the
date is February 18, 1997
N-24
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
April 23, 1996
To The Board of Directors and Shareholder of
Exeter Reassurance Company, Ltd.
We have audited the statutory statements of operations and surplus, and cash
flows of Exeter Reassurance Company, Ltd. (a wholly-owned subsidiary of New
England Mutual Life Insurance Company) for the year ended December 31, 1995.
These statutory financial statements (not presented separately herein) are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
statements of operations and surplus, and cash flows are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the statements of operations and surplus, and cash flows. We believe that
our audit of the statements of operations and surplus, and cash flows provides
a reasonable basis for our opinion.
The statutory statements of operations and surplus, and cash flows have been
prepared in conformity with The Insurance Act 1978, amendments thereto and
related regulations and are not intended to be presented in conformity with
accounting principles generally accepted in the United States of America
("U.S. GAAP").
In our opinion, because of the effects of the matter discussed in the
preceding paragraph, the financial statements referred to above (and not
included herein) do not present fairly in conformity with U.S. GAAP, the
results of operations or cash flows of Exeter Reassurance Company, Ltd. for
the year ended December 31, 1995. In our opinion, the statutory financial
statements referred to above (and not included herein) present fairly, in all
material respects, the results of operations and cash flows of Exeter
Reassurance Company, Ltd. for the year ended December 31, 1995 in conformity
with the Insurance Act 1978, amendments thereto and related regulations.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
N-25
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholder of
New England Securities Corporation:
We have audited the consolidated statements of operations, shareholder's
equity, and cash flows of New England Securities Corporation for the year
ended December 31, 1995. These financial statements (not presented separately
herein) are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations,
shareholder's equity, and cash flows are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements of operations,
shareholder's equity, and cash flows. We believe that our audit of the
statements of operations, shareholder's equity, and cash flows provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above (and not included
herein) present fairly, in all material respects, the consolidated results of
operations and cash flows of New England Securities Corporation for the year
ended December 31, 1995 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 9, 1996
N-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholder and Board of Directors of
TNE Advisers, Inc.:
We have audited the statements of operations, changes in shareholder's equity,
and cash flows of TNE Advisers, Inc. for the year ended December 31, 1995.
These financial statements (not presented separately herein) are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations,
changes in shareholder's equity, and cash flows are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the statements of operations, changes in shareholder's equity, and cash
flows. We believe that our audit of the statements of operations, changes in
shareholder's equity, and cash flows provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above (and not included
herein) present fairly, in all material respects, the results of operations
and cash flows of TNE Advisers, Inc. for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 29, 1996
N-27
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
March 14, 1996
To The Shareholders of
Newbury Insurance Company, Limited
We have audited the statements of earnings and retained earnings, and cash
flows of Newbury Insurance Company, Limited for the year ended December 31,
1995 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of earnings and retained
earnings, and cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statements of earnings and retained
earnings, and cash flows. We believe that our audit of the statements of
earnings and retained earnings, and cash flows provides a reasonable basis for
our opinion.
The provision for losses incurred but not reported is calculated in the manner
described in note 3(b). We have not reviewed the underlying information used
in the calculation of the provision and therefore we have been unable to
determine whether the provision for the year ended December 31, 1995 is
adequate, deficient or excessive.
In our opinion, except for the effects of such adjustments, if any, that might
have been determined to be necessary had we been able to assess fully the
matter described in the preceding paragraph, the financial statements referred
to above (and not included herein) present fairly, in all material respects,
the results of operations and cash flows of Newbury Insurance Company, Limited
for the year ended December 31, 1995, in conformity with accounting principles
generally accepted in the United States of America.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
N-28
<PAGE>
Part II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Section 9 of NELICO's By-Laws provides that NELICO shall, to the extent
legally permissible, indemnify its directors and officers against liabilities
and expenses relating to lawsuits and proceedings based on such persons' roles
as directors or officers. However, Section 9 further provides that no such
indemnification shall be made with respect to any matter as to which a director
or officer is adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the corporation. Section 9
also provides that in the event a matter is disposed of by a settlement payment
by a director or officer, indemnification will be provided only if the
settlement is approved as in the best interest of the corporation by (a) a
disinterested majority of the directors then in office, (b) a majority of the
disinterested directors then in office, or (c) the holders of a majority of
outstanding voting stock (exclusive of any stock owned by any interested
director or officer).
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
NELICO pursuant to the foregoing provisions, or otherwise, NELICO has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification may be against public policy as expressed in the Act and may be,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by NELICO of expenses incurred or paid by a
director, officer, or controlling person of NELICO in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered. NELICO
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
REPRESENTATIONS
New England Life Insurance Company hereby represents that the fees and
charges deducted under the modified single premium variable life insurance
policies described in this registration statement, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by New England Life Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
II - 1
<PAGE>
The facing sheet.
A reconciliation and tie-in of the information shown in the prospectus with
the items of Form N-8B-2.#
The prospectus consisting of 140 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484(b) under the Securities Act of 1933.
The signatures.
Written consents of the following persons:
H. James Wilson, Esq. (see Exhibit 3(i) below)
Rodney J. Chandler, F.S.A., M.A.A.A.
(see Exhibit 3(ii) below)
Sutherland, Asbill & Brennan LLP
(see Exhibit 6 below)
Independent Auditors (see Exhibit 11 below)
The following exhibits:
1.A. (1) January 31, 1983 resolution of the Board of
Directors of NEVLICO ***
(2) None
II - 2
<PAGE>
(3) (a) Distribution Agreement between NEVLICO and NELESCO ****
(b)(i) Form of Contract between NELICO and its General Agents ***
(ii) Form of Contract between NELICO and its Agents ****
(c) Commission Schedule for Policies##
(d) Form of contract among NELICO and other broker dealers *
(e) Additional Forms of selling agreement among NELICO, NES
and other broker-dealers ####
(4) None
(5) (a) Specimens of Policy#
(5) (b) Accelerated Death Benefit Rider
(6) (a) Amended and restated Articles of Incorporation of
NELICO ###
(b) Amended and restated By-Laws of NELICO *
(7) None
(8) None
(9) None
(10) Specimen of Applications for Policy#
2. See Exhibit 3(i)
3. (i) Opinion and Consent of H. James Wilson, Esquire##
(ii) Opinion and Consent of Rodney J. Chandler, F.S.A., M.A.A.A.
4. None
5. Inapplicable
6. Consent of Sutherland, Asbill & Brennan LLP
7. (i) Powers of Attorney###
(ii) Power of Attorney for James Benson *
(iii) Power of Attorney for Richard Robinson **
8. Inapplicable
9. Inapplicable
10. Inapplicable
11. Consents of Independent Auditors
12. Schedule for computation of performance quotations ****
13. Consolidated memorandum describing certain procedures,
filed pursuant to Rule 6e-3(T)(b)(12)(iii) ****
II - 3
<PAGE>
# Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 33-65263, filed December 21, 1995.
## Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 33-65263,
filed June 10, 1996.
### Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 333-21767, filed February 13, 1997.
#### Incorporated herein be reference to the Post-Effective Amendment No.2 to
the Variable Account's Form S-6 Registration Statement, File No. 33-65263,
filed April 30, 1997.
* Incorporated herein by reference to the Pre-effective Amendment No. 1 to
the Variable Account's Form S-6 Registration Statement, File No. 333-
21767, filed July 16, 1997.
** Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 333-46401, filed February 17, 1998.
*** Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-66864,
filed February 25, 1998.
**** Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 24, 1998.
II - 3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
New England Variable Life Separate Account, certifies that it meets all of the
requirements for effectiveness of this amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the city of Boston, and the Commonwealth of Massachusetts, on
the 28th day of April, 1998.
New England Variable Life Separate
Account
(Registrant)
By: New England Life Insurance
Company
(Depositor)
By: /s/ H. James Wilson
------------------------------------
H. James Wilson
Executive Vice President and
General Counsel
Attest:
/s/Marie C. Swift
- -----------------
Marie C. Swift
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, New England
Life Insurance Company certifies that it meets all of the requirements for
effectiveness of this amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the city of Boston, and the Commonwealth of Massachusetts, on the 28th day of
April, 1998.
New England Life Insurance Company
(Seal)
Attest: By:
------------------- -----------------------------------
Marie C. Swift H. James Wilson
Executive Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on April 28, 1998.
* President and Chief
- ----------------------- Executive Officer
James M. Benson
* Director
- -----------------------
Susan C. Crampton
* Director
- -----------------------
Edward A. Fox
* Director
- -----------------------
George J. Goodman
* Director
- -----------------------
Evelyn E. Handler
* Director
- -----------------------
Philip K. Howard
* Director
- -----------------------
Harry P. Kamen
* Director
- -----------------------
Terence Lennon
* Director
- -----------------------
Bernard A. Leventhal
* Director
- -----------------------
Thomas J. May
<PAGE>
*
Thomas J. May Director
* Director
Stewart G. Nagler
* Second Vice President and
Chief Accounting Officer
Richard A. Robinson
* Executive Vice President and
Chief Financial Officer
Robert E. Schneider
* Director
Rand N. Stowell
* Director
Alexander B. Trowbridge
By:
---------------------------
Anne M. Goggin, Esq.
Attorney-in-fact
* Executed by Anne M. Goggin, Esquire on behalf of those indicated pursuant
to powers of attorney filed with the Variable Account's Form S-6
Registration Statement, File No. 333-21767, on February 13, 1997, Pre-
Effective Amendment No. 1 to the Variable Account's Form S-6 Registration
Statement, File No. 333-21767, on July 16, 1997, and the Variable Account's
Form S-6 Registration Statement, File No. 333-46401, on February 17, 1998.
<PAGE>
EXHIBIT LIST
Sequentially
Exhibit Number Title Numbered Page*
- -------------- ----- --------------
1.A.5 (b) Rider to policy
3. (ii) Opinion and Consent of Rodney J.
Chandler, F.S.A., M.A.A.A.
6. Consent of Sutherland, Asbill &
Brennan L.L.P.
11. Consents of Independent Auditors
- --------
* Page numbers inserted on manually-signed copy only.
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 1.A.5(b)
NEL-81
Rider: Terminal Illness Accelerated Death Benefit
RECEIPT OF BENEFITS UNDER THIS RIDER MAY BE TAXABLE. THEREFORE, PRIOR TO
REQUESTING AN ACCELERATED BENEFIT, YOU SHOULD CONSULT A PERSONAL TAX ADVISOR TO
DETERMINE ANY TAX CONSEQUENCES.
THE COMPANY agrees to pay an accelerated benefit to the Owner of the Policy if
one or more of the Insureds is Terminally Ill, as defined below. This agreement
is subject to the following provisions.
CONDITIONS
The Company will pay an accelerated benefit subject to the following conditions:
. The Policy must be in force.
. Each assignee, if any, must give written consent to the payment of an
accelerated benefit in a form satisfactory to the Company.
. Each irrevocable beneficiary, if any, must give written consent to the
payment of an accelerated benefit in a form satisfactory to the Company.
. You are not required by law to use the accelerated benefit to meet the claims
of any creditors, whether in bankruptcy or not.
. You are not required by a government agency to accelerate benefits in order
to apply for, obtain or keep a government benefit or entitlement.
ELIGIBLE PROCEEDS
Eligible Proceeds equal: the amount of Death Benefit provided under the Policy;
less an amount to cover Monthly Deductions that would be made in the event of
death.
PAYOUT FACTOR
The Payout Factor applicable to an accelerated benefit will be determined by the
Company as of the date a written request for an accelerated benefit is received
by the Company at its Home Office.
The Company's schedule of Payout Factors may change from time to time. Any
change will affect only the Payout Factor for accelerated benefit requests on or
after the date of the change. In determining Payout Factors, the Company may
consider:
. The life expectancy of the Insured.
. The age, gender and underwriting class of the Insured.
. Whether the Policy covers one or two Insureds.
. The Net Cash Value on the date used to calculate the Eligible Proceeds.
. The Death Benefit on the date the accelerated benefit request is received by
the Company at its Home Office.
. Expected future charges and investment management revenue which would be
generated by the Policy without the payment of an accelerated benefit.
. Interest at a rate set by the Company.
. The costs of processing acceleration requests and payments.
ACCELERATED BENEFIT ELIGIBILITY
An accelerated benefit may be paid to the Owner if an Insured is diagnosed as
Terminally Ill. For the purpose of this Rider, Terminally Ill means having a
medical condition that is expected to result in death within six months, unless
that medical condition is the result of an attempted suicide or a self-inflicted
injury.
If this Rider is part of a Survivorship Single Premium Variable Life Policy, one
of the following conditions also must be met for an accelerated benefit to be
paid:
. One Insured must have died before the surviving Insured is diagnosed as
Terminally Ill; or
. If both Insureds are still alive, both must be diagnosed as Terminally Ill.
<PAGE>
ACCELERATED BENEFIT REQUEST PROCESS
A request to receive accelerated benefits under this Rider must be in written
form satisfactory to the Company.
You must also provide the Company with:
. A certification signed by a licensed medical doctor that an Insured has a
medical condition that is expected to result in death within six months; and
. Any other information needed by the Company to process your request.
The certification must be supported by evidence satisfactory to the Company.
The Company may require a second opinion by a licensed medical doctor chosen by
the Company, at the Company's expense. This right will be exercised at a
location convenient to the Insured.
Once eligibility has been determined by the Company, the Owner will be notified
in writing of the Payout Factor and payment terms which will apply to the
benefit. In order to receive the accelerated benefit, the Owner must sign and
return to the Company the election form included with the notice.
ACCELERATED BENEFIT PAYMENT
Unless the Company agrees to the payment of a partial accelerated benefit, a
request for accelerated benefits will result in payment of:
. The Eligible Proceeds multiplied by the Payout Factor in effect on the date
the Company receives the request at its Home Office; less
. The Policy Loan Balance.
The amount paid to the Owner will satisfy all of the Company's obligations under
the Policy and the Policy will terminate as of the date of payment.
Any actions taken and payments made by the Company before it receives the
Owner's written request for accelerated benefits will affect the amounts paid
under this Rider.
CONTRACT
This Rider is made part of the Policy to which it is attached if the Rider is
listed in the Policy Schedule. This Rider has no cash value.
DATE OF ISSUE
The Date of Issue of this Rider is the same as the Date of Issue of the Policy
unless a later Date of Issue is shown for the Rider in the Policy Schedule. The
effective date of the Rider is its Date of Issue.
TERMINATION
This Rider will terminate upon the earliest of:
. Termination of the Policy;
. The date on which the Policy would be disqualified as life insurance because
this Rider is attached, under the Internal Revenue Code as interpreted by the
Internal Revenue Service;
. Receipt by the Company at its Home Office of a written election signed by the
Owner of the Policy to terminate the Rider;
. The death of the Insured if only one Insured is covered under the Policy; and
. The death of both Insureds if two Insureds are covered under this Policy.
NEW ENGLAND LIFE INSURANCE COMPANY
501 Boylston Street, Boston, Massachusetts
/s/ Robert A. Shafto /s/ Daniel D. Jordan
President Secretary
<PAGE>
Exhibit 3(ii)
April 28, 1998
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
Gentlemen:
In my capacity as Second Vice President and Actuary of New England Life
Insurance Company (the "Company"), I have provided actuarial advice concerning:
The preparation of Post-Effective Amendment No. 3 to the registration
statement on Form S-6 (File No. 33-65263) filed by New England Variable
Life Separate Account and the Company with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to variable life
insurance policies (the "Registration Statement"); and
The preparation of policy forms for the variable life insurance policies
described in the Registration Statement (the "Policies").
It is my professional opinion that:
1. The illustrations of death benefits, net cash values, accumulated premium,
internal rates of return on net cash values and internal rates of return on
death benefits shown in Appendix A of the Prospectus, based on the
assumptions stated in the illustrations, are consistent with the provisions
of the Policies. The rate structure of the Policies has not been designed
so as to make the relationship between the initial premiums and policy
benefits, as shown in the illustrations, appear to be correspondingly more
favorable to prospective purchasers of Policies for male and female
insureds, aged 50 and 70, or for joint insureds (male aged 65 and female
aged 60) in the underwriting class illustrated than to prospective
purchasers of Policies for insureds of other sexes or ages. Insureds in
other underwriting classes may have higher cost of insurance charges.
2. The information contained in the description of historical investment
experience in Appendix B, based on the assumptions stated in the Appendix,
is consistent with the provisions of the Policies.
<PAGE>
I hereby consent to the filing of this opinion as an Exhibit to this Post-
Effective Amendment to the Registration Statement and to the use of my name
under the heading "Experts" in the Prospectus.
Sincerely,
Rodney J. Chandler, F.S.A., M.A.A.A.
Second Vice President and Actuary
2
<PAGE>
Exhibit 6
Sutherland, Asbill & Brennan LLP
CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Legal Matters"
in the prospectus included in Post-Effective Amendment No. 3 to the Registration
Statement on Form S-6 for certain variable life insurance policies issued
through of New England Variable Life Separate Account of New England Life
Insurance Company (File No. 33-65263). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
SUTHERLAND, ASBILL & BRENNAN LLP
Washington, D.C.
April 28, 1998
<PAGE>
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 3 to the
Registration Statement No. 33-65263 of New England Variable Life Separate
Account (the "Separate Account") of New England Life Insurance Company (the
"Company") of our reports dated February 10, 1998 and February 17, 1998, on
the financial statements of the Separate Account and the Company for the
years ended December 31, 1997 and 1996 appearing in the Prospectus (which
expressed unqualified opinions and, with respect to the Company, includes
an explanatory paragraph referring to the change in the basis of accounting
and the change in corporate organization), which is part of such
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 28, 1998
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in Post-Effective Amendment No. 3 to the
Registration Statement on Form S-6 (File No. 33-65263) of our reports, which
include adverse opinions as to generally accepted accounting principles and
unqualified opinions as to statutory accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, dated March 8,
1996, except as to the information in the second paragraph under "Basis of
Presentation and Principles of Consolidation" of Note 1, for which the date is
February 18, 1997, on our audits of the statutory financial statements of New
England Variable Life Insurance Company and New England Pension and Annuity
Company, and our report dated February 6, 1996, on our audit of New England
Variable Life Separate Account of New England Variable Life Insurance Company.
We also consent to the inclusion in this registration statement of our report,
which includes an adverse opinion as to generally accepted accounting principles
and an unqualified opinion as to conformity with The Insurance Act 1978, dated
April 23, 1996, on our audit of the statutory financial statements of Exeter
Reassurance Company, Ltd., and our report dated February 9, 1996, on our audit
of New England Securities Corporation, and our report dated February 29, 1996,
on our audit of TNE Advisors, Inc., and our report dated March 14, 1996, on our
audit of Newbury Insurance Company, Limited. We also consent to the reference to
our firm under the caption "Experts" in this Post-Effective Amendment.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 28, 1998
