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[NEW ENGLAND FINANCIAL LOGO APPEARS HERE]
ZENITH EXECUTIVE ADVANTAGE PLUS
Offered by New England Life Insurance Company
Prospectus
AUGUST 3, 1998
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NEW ENGLAND LIFE
INSURANCE COMPANY
Flexible Premium Adjustable
Variable Life Insurance Policies
Issued by:
New England Life Insurance Company Administrative Office:
501 Boylston Street P.O. Box 725209
Boston, Massachusetts 02116 Atlanta, Georgia 30339
(617) 578-2000 (800) 621-5086
This prospectus describes individual Flexible Premium Adjustable Variable
Life Insurance Policies (the "Policies") offered by New England Life Insurance
Company ("NELICO"), an indirect, wholly-owned subsidiary of Metropolitan Life
Insurance Company ("MetLife").
Each Policy provides premium flexibility and a death benefit. An optional
rider is available under certain circumstances which provides a death benefit
guarantee as long as the total amount of premiums paid less any partial
surrenders and less any outstanding Policy loan plus accrued loan interest at
least equals certain minimum amounts.
You may choose between two death benefit options, one of which provides a
fixed death benefit equal to the Policy's face amount and one of which
provides a variable death benefit which may vary daily with the net investment
experience of one or more mutual fund portfolios. The cash value of the Policy
generally will increase with the payment of each premium but will vary daily
with the investment experience of the mutual fund portfolios. There is no
guaranteed minimum cash value for investments in the mutual fund portfolios.
You may cancel the Policy during the "right to return the Policy" period.
The first net premium for the Policy generally will be credited with net
investment experience equal to that of the Zenith Money Market Sub-Account
until the day that NELICO mails the confirmation for the initial premium (in
some states, until 15 days after the date the initial premium confirmation is
mailed). Thereafter, the Policy's cash value will be invested according to
your instructions.
You may, within limits, allocate premiums to one or more of the 16
investment Sub-Accounts of NELICO's Variable Life Separate Account (the
"Variable Account") or to NELICO's Fixed Account, after certain deductions
have been made. Each Sub-Account of the Variable Account invests in the shares
of one of the Eligible Funds. The Eligible Funds are: the Back Bay Advisors
Money Market Series, the Back Bay Advisors Bond Income Series, the Capital
Growth Series, the Westpeak Stock Index Series, the Back Bay Advisors Managed
Series, the Westpeak Growth and Income Series, the Loomis Sayles Small Cap
Series, the Alger Equity Growth Series, the Loomis Sayles Balanced Series, the
Goldman Sachs Midcap Value Series, the Davis Venture Value Series, and the
Morgan Stanley International Magnum Equity Series of the New England Zenith
Fund (the "Zenith Fund"); the Equity-Income Portfolio, Overseas Portfolio and
High Income Portfolio of the Variable Insurance Products Fund ("VIP Fund");
and the Asset Manager Portfolio of the Variable Insurance Products Fund II
("VIP Fund II"). The Series of the Zenith Fund are advised by affiliates of
NELICO. The VIP Fund and VIP Fund II are advised by Fidelity Management &
Research Company.
SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE OUT OF THE FIXED ACCOUNT.
It may not be advantageous to replace existing insurance with the Policy
described in this prospectus. (See "Charges and Expenses".)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THIS PROSPECTUS IS NOT VALID UNLESS ACCOMPANIED OR PRECEDED BY THE
CURRENT PROSPECTUSES OF THE NEW ENGLAND ZENITH FUND AND OF THE VARIABLE
INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II, WHICH ARE
ATTACHED AT THE END OF THIS PROSPECTUS. THESE PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
SHARES OF THE ZENITH FUND, THE VIP FUND AND THE VIP FUND II, AND INTERESTS
IN THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, A BANK, AND THE SHARES AND INTERESTS ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
AUGUST 3, 1998
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TABLE OF CONTENTS
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GLOSSARY.................................................................. A-4
INTRODUCTION TO THE POLICIES.............................................. A-6
The Policies............................................................ A-6
Availability of the Policy.............................................. A-8
Policy Charges.......................................................... A-8
How the Policy Works.................................................... A-9
Communications and Payments............................................. A-10
NELICO.................................................................. A-10
POLICY VALUES AND BENEFITS................................................ A-11
Death Benefit........................................................... A-11
Guaranteed Death Benefit Rider.......................................... A-11
Adjustments to the Death Proceeds Payable............................... A-12
Change in Death Benefit Option.......................................... A-12
Cash Value.............................................................. A-13
Allocation of Net Premiums.............................................. A-13
Amount Provided for Investment under the Policy......................... A-14
Right to Return the Policy.............................................. A-14
CHARGES AND EXPENSES...................................................... A-14
Deductions from Premiums................................................ A-15
Monthly Deduction from Cash Value....................................... A-15
Charges Against the Eligible Funds...................................... A-17
Special Arrangements.................................................... A-18
PREMIUMS.................................................................. A-18
Flexible Premiums....................................................... A-18
Lapse and Reinstatement................................................. A-20
OTHER POLICY FEATURES..................................................... A-20
Increase in Face Amount................................................. A-20
Loan Provision.......................................................... A-21
Surrender............................................................... A-22
Partial Surrender....................................................... A-22
Reduction in Face Amount................................................ A-23
Acceleration of Death Benefit Rider..................................... A-23
Investment Options...................................................... A-24
Transfer Option......................................................... A-24
Dollar Cost Averaging................................................... A-24
Asset Rebalancing....................................................... A-25
Substitution of Insured Person.......................................... A-25
Payment of Proceeds..................................................... A-25
24 Month Right.......................................................... A-26
Payment Options......................................................... A-26
Additional Benefits by Rider............................................ A-27
Policy Owner and Beneficiary............................................ A-27
THE VARIABLE ACCOUNT...................................................... A-28
Investments of the Variable Account..................................... A-28
Investment Management................................................... A-31
THE FIXED ACCOUNT......................................................... A-32
General Description..................................................... A-32
Values and Benefits..................................................... A-33
Policy Transactions..................................................... A-33
NELICO'S DISTRIBUTION AGREEMENT........................................... A-34
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LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY.......................... A-35
Misstatement of Age or Sex.............................................. A-35
Suicide................................................................. A-35
TAX CONSIDERATIONS........................................................ A-35
Policy Proceeds......................................................... A-35
Charge for NELICO's Income Taxes........................................ A-39
MANAGEMENT................................................................ A-39
VOTING RIGHTS............................................................. A-42
RIGHTS RESERVED BY NELICO................................................. A-43
TOLL-FREE NUMBERS......................................................... A-43
REPORTS................................................................... A-43
ADVERTISING PRACTICES..................................................... A-43
LEGAL MATTERS............................................................. A-44
REGISTRATION STATEMENT.................................................... A-44
EXPERTS................................................................... A-44
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES,
AND ACCUMULATED PREMIUMS................................................. A-46
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............................. A-55
APPENDIX C: LONG TERM MARKET TRENDS....................................... A-76
APPENDIX D: TAX INFORMATION............................................... A-78
APPENDIX E: CASH VALUE ACCUMULATION TEST AND GUIDELINE PREMIUM TEST....... A-79
FINANCIAL STATEMENTS...................................................... F-1
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GLOSSARY
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
AGE. For purposes of this prospectus, the age of an insured refers to the
insured's age at his or her nearest birthday.
CASH VALUE. A Policy's cash value includes the amount of its cash value held
in the Variable Account, the amount held in the Fixed Account and, if there is
an outstanding Policy loan, the amount of its cash value held in NELICO's
general account as a result of the loan. (See "Cash Value".)
COST OF INSURANCE CHARGE. This charge for providing insurance protection is
deducted on the Policy Date and on the first day of each Policy month. The
cost of insurance for a Policy month is equal to the amount at risk multiplied
by the cost of insurance rate for that month. Cost of insurance rates vary
monthly. (See "Monthly Deduction from Cash Value".)
DEATH BENEFIT OPTION 1. Death Benefit equals the greater of (i) the face
amount of the Policy and (ii) at your option, either (A) a percentage,
determined in accordance with federal income tax laws, of the Policy's cash
value, including the pro rata portion of any Monthly Deduction made for a
period beyond the date of death; or (B) the Policy's cash value plus the pro
rata portion of any Monthly Deduction made for a period beyond the date of
death, divided by the applicable net single premium specified in federal
income tax laws. (See "Death Benefit".)
DEATH BENEFIT OPTION 2. Death Benefit equals the greater of (i) the face
amount of the Policy plus the Policy's cash value and (ii) at your option,
either (A) a percentage, determined in accordance with federal income tax
laws, of the Policy's cash value, including the pro rata portion of any
Monthly Deduction made for a period beyond the date of death; or (B) the
Policy's cash value plus the pro rata portion of any Monthly Deduction made
for a period beyond the date of death, divided by the applicable net single
premium specified in federal income tax laws. (See "Death Benefit".)
ELIGIBLE FUNDS. Each Sub-Account of the Variable Account invests in the
shares of one of the Eligible Funds. The Eligible Funds are: the Back Bay
Advisors Money Market Series, the Back Bay Advisors Bond Income Series, the
Capital Growth Series, the Westpeak Stock Index Series, the Back Bay Advisors
Managed Series, the Westpeak Growth and Income Series, the Loomis Sayles Small
Cap Series, the Alger Equity Growth Series, the Loomis Sayles Balanced Series,
the Goldman Sachs Midcap Value Series, the Davis Venture Value Series and the
Morgan Stanley International Magnum Equity Series of the Zenith Fund; the
Equity-Income Portfolio, Overseas Portfolio and the High Income Portfolio of
the VIP Fund; and the Asset Manager Portfolio of VIP Fund II. (See "The
Variable Account".)
EXCESS POLICY LOAN. The situation when Policy loans plus accrued interest
exceed the Policy's cash value less the applicable Surrender Charge. (See
"Loan Provision".)
FIXED ACCOUNT. The Fixed Account is a part of NELICO's general account to
which net premiums may be allocated. NELICO provides guarantees of principal
and interest with respect to amounts allocated to the Fixed Account. (See "The
Fixed Account".)
INVESTMENT START DATE. This is the latest of the date NELICO first receives
a premium payment for the Policy, the date Part II of the Policy application
is signed and the Policy Date. (See "Amount Provided for Investment under the
Policy".)
MINIMUM PREMIUM. Generally, the Minimum Premium is that amount which, if
timely paid, guarantees that the Policy will not lapse during the first three
Policy years even if the Policy's net cash value is insufficient to pay the
Monthly Deduction in any month. The Minimum Premium amount may be recalculated
following certain Policy transactions. In addition, no three-year Minimum
Premium death benefit guarantee will apply to the Policy following certain
other Policy transactions. (See "Premiums".)
MONTHLY DEDUCTION. The Monthly Deduction is the amount of charges deducted
from the Policy's cash value each month and includes the monthly cost of
insurance, the monthly cost of any benefits provided by rider (including the
Guaranteed Death Benefit, if elected), the monthly policy fee and the monthly
mortality and expense risk charge. (See "Monthly Deduction from Cash Value".)
NET CASH VALUE. The amount you may obtain upon surrender of the Policy and
which is equal to the Policy's cash value reduced by any outstanding Policy
loan and accrued interest on the loan. (See "Cash Value".)
NET INVESTMENT EXPERIENCE. For any period, a Sub-Account's net investment
experience equals the investment experience of the underlying Eligible Fund's
shares for the same period. (See "Net Investment Experience".)
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PLANNED PREMIUM. The Planned Premium is the premium payment schedule you
choose in an effort to meet your future goals under the Policy. The Planned
Premium is a level amount that is subject to certain limits under the Policy.
Payments in addition to any Planned Premium are referred to in the Policy as
unscheduled payments and can be paid at any time, subject to certain limits.
(See "Premiums".)
PREMIUMS. Premiums include all payments under the Policy, whether a Planned
Premium or an unscheduled payment. (See "Premiums".)
POLICY DATE. If you make a premium payment with the application, the Policy
Date is generally the later of the date Part II of the application was signed
and receipt of the premium payment. If you choose to pay the initial premium
upon delivery of the Policy, the Policy will be issued with a Policy Date
which is generally five days after issue. (See "Amount Provided for Investment
under the Policy".)
TARGET PREMIUM. The Target Premium is used to determine the amount of Sales
Charge that is imposed on each premium payment. It varies by issue age, sex
and underwriting class of the insured and the Policy's face amount. The Target
Premium is equal to the net annual premium that would be paid assuming the
Policy provides for paid-up benefits after the payment of seven level net
annual premiums determined in accordance with federal income tax laws.
YOU. When used in this prospectus, "you" refers to the Policy Owner.
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INTRODUCTION TO THE POLICIES
This prospectus describes Policies under which net premiums are allocated to
the Variable Account. If the Fixed Account is available in your state, you may
choose to allocate or transfer all or part of your funds to that account.
NELICO provides guarantees of principal and interest with respect to the Fixed
Account which is part of NELICO's general account. Amounts in the Fixed
Account are backed by NELICO's general account, rather than the Variable
Account. For a description of the Fixed Account, see "The Fixed Account" which
appears later in this prospectus.
THE POLICIES
The individual Flexible Premium Adjustable Variable Life Insurance Policies
offered by this prospectus are designed to provide lifetime insurance coverage
under Policies (together constituting a "case") linked by a non-arbitrary
factor (such as a common employer of each Insured under the case). They are
not offered primarily as an investment.
The following is a brief listing of the basic features of the Policy. These
and other features of the Policy are explained in detail throughout the
prospectus. You should be sure to read the entire prospectus for more complete
information.
--You may choose to make premium payments under the Policy based on a
schedule you determine, subject to certain limits. NELICO can limit or
prohibit unscheduled payments in certain situations, including cases where
the insured is in a substandard risk class. (See "Premiums".)
--After an initial period during which net premiums may be credited with net
investment experience equal to that of the Zenith Back Bay Advisors Money
Market Sub-Account, net premiums are invested according to your
instructions in one or more of the Sub-Accounts of the Variable Account
corresponding to mutual fund portfolios, or the Fixed Account. (See
"Allocation of Net Premiums" and "Investment Options".)
--The mutual fund portfolios available to you under the Policy include
several common stock funds, including funds which invest primarily in
foreign securities, two bond funds, two managed funds, a balanced fund,
and a money market fund. Currently, you may allocate your Policy's cash
value to an unlimited number of the available accounts (including the
Fixed Account). (See "Investments of the Variable Account".)
--If the Fixed Account is available in your state, you may also allocate
funds to that account. NELICO provides guarantees of Fixed Account
principal and interest. SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE
FROM THE FIXED ACCOUNT. NELICO also reserves the right to restrict
transfers of cash value and allocations of premiums into the Fixed
Account. (See "The Fixed Account".)
--The cash value of the Policy will vary daily based on, among other things,
the net investment experience of the Sub-Accounts to which amounts have
been allocated and the amount of interest credited to any of the Policy's
cash value in the Fixed Account. (See "Cash Value", "Charges and
Expenses", "Premiums", "Loan Provision" and "Partial Surrender".)
--The portion of the cash value which you invest in the Sub-Accounts is not
guaranteed. You bear the investment risk on this portion of the cash
value. (See "Cash Value".)
--You may choose between two death benefit options under the Policy. The
level option provides a death benefit equal to the Policy's face amount.
The variable option provides a death benefit equal to the face amount plus
any cash value, which varies with the net investment experience of the
Sub-Accounts to which amounts have been allocated and the rate of interest
credited on any cash value in the Fixed Account. Under either of these
options the death benefit could be increased to satisfy tax law
requirements if the cash value reaches certain levels. (See "Death
Benefit".)
--After the first Policy year, you may increase or decrease the Policy's
face amount. The increase or decrease will be reflected in the Policy's
charges. (See "Increase in Face Amount" and "Reduction in Face Amount".)
--If you elect the Guaranteed Death Benefit rider which is available under
certain circumstances, then regardless of investment experience, each form
of death benefit is guaranteed not to be less than the Policy's face
amount, as long as the total amount of premiums paid less any partial
surrenders and outstanding Policy loan plus accrued loan interest at least
equals certain minimum amounts. (See "Death Benefit" and "Guaranteed Death
Benefit Rider".)
--You may change your allocation of future net premiums at any time. (See
"Allocation of Net Premiums" and "Investment Options".)
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--Once 15 days have elapsed after the initial payment confirmation is
mailed, the Policy provides that you may transfer portions of the Policy's
cash value among the Sub-Accounts and, generally, to the Fixed Account up
to four times per policy year (twelve times per policy year for Policies
issued in New York) without NELICO's consent. NELICO currently allows 12
transfers per policy year in all states. Transfers and allocations
involving the Fixed Account are subject to certain limits. (See "Transfer
Option" and "The Fixed Account--Policy Transactions".)
--A loan privilege is available under the Policy. A partial surrender
feature is also available. (See "Loan Provision" and "Partial Surrender".)
--Death benefits paid to the beneficiary under the Policy generally are not
subject to Federal income tax. Under current law, undistributed increases
in cash value generally are not taxable to you. (See "Tax
Considerations".)
--Loans, assignments and other pre-death distributions under the Policy may
have tax consequences depending primarily on the amount which you have
paid into the Policy but also on any "material change" in the terms or
benefits of the Policy or any death benefit reduction. If premium
payments, a death benefit reduction, or a material change in the terms or
benefits of the Policy cause it to become a "modified endowment contract",
then pre-death distributions (including loans) will be included in income
on an income first basis, and a 10% penalty tax may be imposed on income
distributed before the Policy Owner attains age 59 1/2. Tax considerations
may therefore influence the amount and timing of premium payments and
certain Policy transactions which you choose to make. (See "Tax
Considerations".)
--If the Policy is not a modified endowment contract, NELICO believes that
loans under the Policy during the first 10 Policy years will not be
taxable to you as long as the Policy has not lapsed, been surrendered or
terminated. The tax consequences of a policy loan after the tenth policy
year are not clear. You should consult a tax advisor if you intend to take
out a policy loan after the tenth policy year or allow a policy loan taken
out during the first 10 policy years to remain outstanding after the tenth
policy year. With certain exceptions, other pre-death distributions under
a Policy that is not a modified endowment contract are includible in
income only to the extent they exceed the investment in the Policy. (See
"Tax Considerations".)
--In recent years, Congress has adopted new rules relating to life insurance
owned by businesses. Any business contemplating the purchase of a new life
insurance contract or a change in an existing life insurance contract
should consult a tax adviser. (See "Tax Considerations".)
--You have an opportunity during the "Right to Return the Policy" period to
return the Policy for a refund. In some states NELICO is required to
refund premiums paid; in other states, NELICO refunds an amount that
reflects investment experience since the "investment start date" and
certain charges. You also have the right for a limited period to cancel an
increase in the Policy's face amount which you have requested. (See "Right
to Return the Policy".)
--Within 24 months after a Policy's date of issue or the effective date of a
face amount increase, you may exercise the Policy's 24 Month Right, which
will result in the allocation of all or part of your Policy's cash value
and future premiums to the Fixed Account. The purpose of the 24 Month
Right is to provide you with fixed Policy values and benefits. (See "24
Month Right" for a description of this provision generally and for a
description of the variation which applies to Policies issued in Maryland
and New Jersey.)
In many respects the Policies are similar to fixed-benefit universal life
insurance. Like universal life insurance, the Policies offer death benefits
and provide flexible premiums, a cash value, and loan privileges.
The Policies are different from fixed-benefit universal life insurance in
that the death benefit may, and the cash value will, vary to reflect the
investment experience of the selected Sub-Accounts of the Variable Account.
The variable universal life insurance policies offered by NELICO are
designed to provide insurance protection. Although the underlying mutual fund
portfolios invest in securities similar to those in which mutual funds
available directly to the public invest, in many ways the Policies differ from
mutual fund investments. The main differences are:
--The Policy provides a death benefit based on NELICO's assumption of an
actuarially calculated risk.
--If the net cash value is not sufficient to pay a Monthly Deduction, the
Policy may lapse with no value unless additional premiums are paid. If the
Policy lapses when Policy loans are outstanding, adverse tax consequences
may result.
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--In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from the premiums and values of
the Policy. These charges include various insurance, risk, administrative
and premium tax charges. (See "Charges and Expenses".)
--The Variable Account, not the Policy Owner, owns the mutual fund shares.
--Federal income tax liability on any earnings is deferred until you receive
a distribution from the Policy. Transfers from one underlying fund
portfolio to another are accomplished without tax liability under current
law.
--Dividends and capital gains are automatically reinvested.
AVAILABILITY OF THE POLICY
Each Policy is part of a "case," which is a grouping of one or more Policies
linked together by a non-arbitrary factor such as a common employer of each
Insured under the Policies. The Company in its sole discretion determines the
Policies that constitute a case. Policies in a case generally have a common
Policy owner (for example, the employer of the respective Insureds). In
addition, eligibility to purchase a Policy is contingent on the total annual
premium payment payable on the Policies included in the case meeting the
following minimums: cases of at least five Policies--$100,000; and cases of
fewer than five Policies--$250,000. The Policies may be issued on the lives of
insureds from the age of 20 to 80 on an underwritten basis, and on the lives
of insureds from the age of 20 to 65 on a guaranteed issue basis. (Guaranteed
issue Policies may not be available in New Jersey.) All persons must meet
NELICO's underwriting and other criteria for issuance. Generally, the minimum
face amount available is $50,000 unless NELICO consents to a lower amount. The
Policies are not available to employee benefit plans qualified under Section
401 of the Internal Revenue Code, except with NELICO's consent.
POLICY CHARGES
PREMIUM-BASED CHARGES. NELICO deducts the following charges from premiums:
--A maximum sales charge of 8% on each premium payment made during a Policy
year until an amount equal to the Target Premium has been paid; and 1% on
each premium payment made thereafter during the Policy year; and
--A premium tax charge of 2%.
MONTHLY DEDUCTION FROM CASH VALUE. NELICO deducts certain charges from the
cash value:
--Monthly charge for the cost of insurance; and for any benefits provided by
rider including the Minimum Guaranteed Death Benefit (if elected);
--Monthly mortality and expense risk charge, equal to an annual rate of
0.75% during the first ten Policy years, and currently, 0.25% thereafter
(guaranteed not to exceed 0.75%);
--Monthly policy fee currently equal to $5.00 per month (guaranteed not to
exceed $10.00 per month).
CHARGE FOR FACE AMOUNT INCREASES. If you increase your Policy's face amount
and medical underwriting is required for the increase, a charge of $0.80 per
$1,000 of the face amount increase (not to exceed $25.00) will be deducted
from your Policy's cash value on the date that the increase takes effect, and
on the first day of the next eleven Policy months.
CHARGES DEDUCTED FROM THE ELIGIBLE FUNDS. Daily charges against the Eligible
Fund portfolios are deducted for investment advisory services and fund
operating expenses.
Currently, no charge is made to the Variable Account for federal income
taxes that may be attributable to the Variable Account. NELICO may, however,
impose such a charge in the future.
You can designate a Single Source Expense Sub-Account from which Monthly
Deductions and any charges for face amount increases will be taken.
See "Charges and Expenses" and "Other Policy Features--Increase in Face
Amount".
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HOW THE POLICY WORKS
Premium Payments
.Flexible
.Planned premium options
-Minimum premium (in first three Policy years)
-Guaranteed Death Benefit Premium (to age 100)(available only if cash value
accumulation test elected for Policy)
Charges from Premium Payments
.Sales Load: 8% on amount paid up to a Target Premium in each Policy year and
1% on amount paid above a Target Premium in each Policy year (for each
underwritten face amount segment and each segment resulting from a term
conversion)
.State Premium Tax Charge: 2%
Loans
.Beginning 15 days after mailing of initial premium confirmation, you may
borrow a portion of your cash value
.Loan interest charge is 4.75%. Loaned funds are transferred out of the Eligible
Funds into the General Account where they are credited with not less than 4.0%
interest. (Currently NELICO intends to credit 4.50% interest after 10 Policy
years.)
Retirement Benefits
.Fixed settlement options are available for policy proceeds
Cash Values
.Net Premium payments invested in your choice of Eligible Fund investments or
the Fixed Account (generally after an initial period during which net
investment experience equal to that of the Zenith Money Market Sub-Account may
be credited)
.The cash value reflects investment experience, interest, premium payments,
policy charges and any distributions from the Policy
.The cash value invested in mutual funds is not guaranteed
.Any earnings are accumulated free of any current income taxes
.You may change the allocation of future net premiums at any time. You may
currently transfer funds among investment options (and to the Fixed Account)
up to 12 times per policy year, beginning 15 days after mailing of the initial
premium confirmation.
Transfers from (and, in certain circumstances, to) the Fixed Account are
limited as to timing, frequency and amount
.Your cash value may be allocated among a maximum of ten accounts at any one
time. Currently, NELICO is not imposing this limit.
Death Benefit
.Level or Variable Death Benefit Options
.Policy is guaranteed not to lapse regardless of net cash value amount if
Guaranteed Death Benefit rider is in effect (available under certain
circumstances)
.Income tax free to named beneficiary
.Death benefit will not be less than that required by federal tax law, using
tax law test you select (guideline premium or cash value accumulation)
.If you add term insurance coverage, you elect whether to include it in the
calculation of the Option 1 or Option 2 death benefit
.Face amount may be increased, subject to any necessary underwriting and a
monthly charge of $0.80 per $1,000 of increase (not to exceed $25) for 12
months, if the increase is underwritten
Daily Deductions from Assets
.Investment advisory fees and other expenses are deducted from the Eligible
Fund values daily
Beginning of Month Charges
.The cost of insurance charge (reflecting any substandard risk or
guaranteed issue rating) is deducted from the cash value each month
.Any Rider Charges
.Policy Fee: $5.00 (not to exceed $10.00) per month
.Mortality and expense risk charge of .75% in the first 10 Policy years and .25%
thereafter (guaranteed not to exceed .75%)
.Guaranteed Death Benefit Charge (if rider selected): $.01 per $1000 face amount
monthly
Living Benefits
.If policyholder has elected and qualified for benefits for disability and
becomes totally disabled, company will waive monthly charges during the period
of disability up to certain limits.
.Policy may be surrendered at any time for its cash surrender value
.Deferred income taxes, including taxes on amounts borrowed, become payable
upon surrender
.Grace period for lapsing with no value is 62 days from the first date in which
Monthly Deduction was not paid due to insufficient cash value
.Subject to NELICO's rules, a lapsed Policy may be reinstated within seven
years of date of lapse if it has not been surrendered
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COMMUNICATIONS AND PAYMENTS
NELICO will treat your request for a Policy transaction, or your submission
of a payment, as received by us, if it is received at our Administrative Office
before the close of regular trading on the New York Stock Exchange on that day.
If it is received after that time, or if the New York Stock Exchange is not
open that day, then it will be treated as received on the next day when the New
York Stock Exchange is open.
NELICO
NELICO was organized as a stock life insurance company in Delaware in 1980
and is licensed to sell life insurance in all states, the District of Columbia
and Puerto Rico. Before August 30, 1996, NELICO was a wholly-owned subsidiary
of New England Mutual Life Insurance Company ("New England Mutual"). Effective
August 30, 1996, New England Mutual merged into MetLife, a mutual life
insurance company whose principal office is One Madison Avenue, New York, NY
10010. With the merger, New England Mutual's separate corporate existence
ended, and MetLife became the parent of NELICO. In connection with the merger,
NELICO changed its name from "New England Variable Life Insurance Company" to
"New England Life Insurance Company" and changed its domicile from the State of
Delaware to the Commonwealth of Massachusetts. NELICO's Administrative Office
for the Policies and mailing address is: New England Life Insurance Company,
P.O. Box 725209, Atlanta, GA, 31139.
The following chart illustrates the relationship of NELICO, the Fixed
Account, the Variable Account and the Eligible Funds.
<TABLE>
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- ------------------------------------------------------------------------------------------------------------------------------------
NELICO
- ------------------------------------------------------------------------------------------------------------------------------------
(Insurance company subsidiary of Metlife)
Charges are deducted.
Net premiums and net unscheduled payments are allocated to the Policy Owner's choice of sub-accounts in the
Premiums Variable Account or to the Fixed Account.
and-------------------------------------------------------------------------------------------------------------------------
Unscheduled VARIABLE ACCOUNT
Payments-------------------------------------------------------------------------------------------------------------------------
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Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Equity Over- High Asset
Fixed Capital Bond Money Man- Stock Growth Small Bal- Equity Venture Midcap Inter- Income seas Income Man-
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. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
VIP
FUND
NEW ENGLAND ZENITH FUND VIP FUND II
---------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Back Back Back Westpeak Westpeak Loomis Loomis Alger Davis Goldman Morgan Equity Over- High Asset
Growth Bay Bay Bay Stock Growth Sayles Sayles Equity Venture Sachs Stanley Income seas Income Man-
Series Advis- Advisors Advis- Index and Small Bal- Growth Value Midcap Inter- Port- Port- Port- ager
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</TABLE>
Eligible Funds buy portfolio investments to support values and benefits of the
Policies.
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<PAGE>
POLICY VALUES AND BENEFITS
DEATH BENEFIT
If the insured dies while the Policy is in force, NELICO will pay a death
benefit to the beneficiary.
DEATH BENEFIT OPTIONS. When you apply for a Policy, you may choose between
two death benefit options.
The Option 1 (Face Amount) death benefit provides a death benefit equal to
the face amount of the Policy. The Option 1 death benefit is fixed, subject to
increases required by the Internal Revenue Code.
The Option 2 (Face Amount Plus Cash Value) death benefit provides a death
benefit equal to the face amount of the Policy plus the amount, if any, of the
Policy's cash value. The Option 2 death benefit is also subject to increases
required by the Internal Revenue Code.
In order to meet the Internal Revenue Code's definition of life insurance,
the Policies provide that the death benefit, which for these purposes includes
any coverage provided under any Adjustable Term Insurance Rider, will not be
less than that required by the "cash value accumulation test" specified in
Section 7702(a)(1) of the Internal Revenue Code, or the "guideline premium
test" specified in Section 7702(a)(2) of the Internal Revenue Code, as
selected by you when the Policy is issued. Once the Policy is issued with
either the cash value accumulation test or the guideline premium test, that
test will be used for the life of the Policy.
Under the cash value accumulation test, the death benefit payable on any day
is not less than the Policy's cash value including the pro rata portion of any
Monthly Deduction made for a period beyond the date of death, divided by the
applicable net single premium set by the Internal Revenue Code. Net single
premiums are based on the age and sex of the insured at the time of the
calculation, and decline over time. A table of representative net single
premiums is set forth in Appendix E.
Under the guideline premium test, the death benefit is not less than a
percentage of the Policy's cash value, including the pro rata portion of any
Monthly Deduction made for a period beyond the date of death, as set forth in
Table I in Appendix E. This means that, if the cash value grows to certain
levels, the death benefit will be increased to satisfy the tax law
requirements. At that point, any payment you make into the Policy will
increase the death benefit by more than it increases the cash value. (See
"Premiums".)
If you select the cash value accumulation test, a higher amount of premium
payments can generally be made for any given face amount; and a higher death
benefit may result in the long term. If cash value growth in the early Policy
years is your primary objective, the cash value accumulation test may be the
appropriate choice because it allows you to invest more premiums in the Policy
per dollar of death benefit. If death benefit protection is your primary
objective, the guideline premium test may be the appropriate choice because it
generally gives you more coverage per dollar invested, although this is not
necessarily the case at later durations of the Policy. If you select the
guideline premium test, you will not be able to add the Guaranteed Death
Benefit Rider to your Policy. (See "Guaranteed Death Benefit Rider" below.)
In addition, if you add an Adjustable Term Insurance Rider to the Policy,
you may choose to have the face amount of the coverage provided under the
Rider added to the face amount of the Policy for purposes of calculating the
Option 1 or Option 2 death benefit. If you elect to include the rider coverage
in the calculation of the death benefit, the Policy may provide an increased
potential for cash value to grow relative to the death benefit than would
otherwise be the case. If you elect not to include the rider coverage in the
calculation of the death benefit, the Policy may provide an increased
potential for the death benefit to grow relative to cash value than would
otherwise be the case. (If you elect the Adjustable Term Insurance Rider after
the Policy is issued and your Policy has the Guaranteed Death Benefit Rider,
then you must choose to add the Adjustable Term Insurance Rider coverage to
the Policy's face amount in the calculation of the Policy's Option 1 or Option
2 death benefit. See "Guaranteed Death Benefit Rider" below.)
If death occurs at or after the Policy Anniversary when the insured reaches
attained age 100, the death benefit is equal to the greater of (i) the cash
value on the date of death; or (ii) the face amount, if the Policy had a
Guaranteed Death Benefit rider attached, and the Guaranteed Death Benefit was
in effect on the Policy Anniversary when the Insured reached attained age 100.
GUARANTEED DEATH BENEFIT RIDER
Subject to state availability, if you have elected the cash value
accumulation test, you may also elect on your application a rider benefit
under the Policy that provides a Guaranteed Death Benefit. (If you have
elected coverage under an Adjustable Term
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<PAGE>
Insurance Rider, you may elect the Guaranteed Death Benefit Rider only if you
have chosen to add the Adjustable Term Insurance Rider coverage to the
Policy's face amount in the calculation of the Policy's Option 1 or Option 2
death benefit). If the Guaranteed Death Benefit is in effect, as determined on
the first day of each Policy month until the insured attains age 100, the
Policy will not lapse even if the net cash value is insufficient to cover the
Monthly Deduction due for that month. The death benefit will be adjusted as
described below before the proceeds are paid.
On the first day of a Policy month, if the total premiums you have paid,
less all partial surrenders you have made and less any outstanding Policy loan
plus accrued loan interest, is at least equal to: the Guaranteed Death Benefit
Premium shown in Section 1 of your Policy, multiplied by the number of
complete Policy years the Policy has been in force, plus 1/12 of that premium
for each Policy month of the current policy year up to and including the
Policy month in question, then the guarantee will apply for that month.
If you reduce the Policy's face amount or make a partial surrender which
reduces the face amount, or reduce or delete a rider benefit from your Policy,
or if your Policy's rating classification is improved, the Guaranteed Death
Benefit premium shown in Section 1 of your Policy will be recalculated, as
well as following an increase in the Policy's face amount or in the amount of
coverage provided by riders. (See "Premiums" below.) In applying the formula
to determine whether the Guaranteed Death Benefit is in effect, the Policy's
original Guaranteed Death Benefit premium will be used for the period of time
it was in effect, and each recalculated Guaranteed Death Benefit premium for
the period of time it was in effect.
If you elect this benefit, a charge will apply to your Policy as part of the
Monthly Deduction, currently until the Policy anniversary when the insured
reaches attained age 100, unless you request that the rider terminate before
that time. The rider cannot be added after issue of the Policy.
NELICO may restrict any unplanned premium payment that would increase the
Policy's death benefit by more than it would increase cash value. (See
"Flexible Premiums.") Under some circumstances, this could result in your
being unable to make unplanned premium payments that are necessary in order to
keep the Guaranteed Death Benefit rider benefit in effect.
ADJUSTMENTS TO THE DEATH PROCEEDS PAYABLE
The death proceeds actually paid to the beneficiary are equal to the death
benefit in effect on the date of the insured's death reduced by any
outstanding loan and accrued loan interest as of that date and by the portion
of any unpaid Monthly Deduction for the period prior to that date. The death
proceeds will be increased by any rider benefits payable.
The death proceeds may also be adjusted if the insured's age or sex was
misstated in the application, if death results from the insured's suicide
within two years (or less if provided by state law) from the Policy's date of
issue or within two years (or less if provided by state law) from an increase
in the Policy's face amount, or if limits on the death benefit are imposed by
rider. (See "Limits to NELICO's Right to Challenge the Policy".)
CHANGE IN DEATH BENEFIT OPTION
At any time after the first Policy year, you may change your death benefit
option by sending your written request for change to NELICO's Administrative
Office. The request will be effective on the date it is received at NELICO's
Administrative Office. A change in death benefit option may result in tax
consequences to you. (See "Tax Considerations".)
If you change from Option 1 (Face Amount) to Option 2 (Face Amount Plus Cash
Value), the Policy's face amount will be reduced by the amount necessary for
the death benefit to be the same immediately before and after the change. The
face amount reduction will apply to the Policy's initial face amount and any
prior increases in face amount on a pro rata basis. A face amount reduction
below $50,000 is permitted only with NELICO's consent. Any rider benefits
under the Policy may also have to be decreased. If you selected the guideline
premium test for the Policy, in some circumstances a partial surrender of cash
value may be necessary in order to comply with Federal tax law limits on the
amount of premiums that can be paid into the Policy.
If you change from Option 2 (Face Amount Plus Cash Value) to Option 1 (Face
Amount), the Policy's face amount will be increased, if necessary, for the
death benefit to be the same immediately before and after the change. The
resulting increase in face amount will be applied to the Policy's initial face
amount and any prior increase in face amount on a pro rata basis.
After the Policy is issued, you cannot change your election of the tax test
(cash value accumulation test or guideline premium test). In addition, your
election whether to add the face amount of any Adjustable Term Insurance Rider
that is part of your Policy to the face amount of the base Policy for purposes
of calculating the Option 1 or Option 2 death benefit cannot be changed. (See
"Death Benefit Options".)
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<PAGE>
CASH VALUE
Your Policy's cash value includes its cash value in the Variable Account, in
the Fixed Account and, if you have an outstanding Policy loan, in NELICO's
general account as a result of the loan. The cash value reflects net premium
payments, the investment experience of the Policy's Sub-Accounts, interest
credited on its cash value in the Fixed Account and on amounts held in the
general account as a result of a loan, the death benefit option chosen,
amounts deducted for Policy charges, amounts surrendered and transfers among
the Policy's Sub-Accounts and the Fixed Account.
Your Policy's net cash value is the amount you will receive if you surrender
the Policy. The net cash value is the cash value reduced by any outstanding
Policy loan (and accrued interest). The net cash value is increased by the
portion of any cost of insurance charge deducted that applies to the period
beyond the date of surrender. If you surrender the Policy during the grace
period, the net cash value you receive is reduced by an amount to cover the
Monthly Deduction to the date of surrender. (See "Loan Provision" and "Monthly
Deduction from Cash Value".)
The Policy's cash value in the Variable Account may increase or decrease
daily depending on the investment experience of the Policy's Sub-Accounts.
Unfavorable investment experience can reduce the net cash value to zero.
Because there is no guaranteed minimum cash value in the Variable Account, you
bear the entire investment risk with respect to the cash value. The premium
payment schedule you choose will also affect the Policy's net cash value.
Cash value attributable to the Variable Account is determined by multiplying
the number of units credited to each sub-account by the appropriate unit
values. That portion of any premium payment or transfer amount allocated to a
sub-account is converted to units of the sub-account(s) selected by dividing
the allocated premium payment or transfer amount by the unit value for the
selected sub-account next determined following (i) for premium payments,
receipt of the premium payment at NELICO's Administrative Office (or, in the
case of the initial premium payment, determined on the Investment Start Date);
(ii) for transfers, receipt of the transfer request at NELICO's Administrative
Office. The number of units in a sub-account will be reduced whenever its
value is reduced due to a full or partial surrender, a Policy loan, a
transfer, a Monthly Deduction, and payment of a face amount increase
administrative charge. The reduction is determined by dividing the dollar
amount of the transaction by the unit value for the affected sub-account next
determined following the transaction.
The unit value of each sub-account depends on the net investment experience
of its corresponding Eligible Fund and reflects fees and expenses borne by the
Eligible Fund. The unit value for each sub-account was set at $100.00 on or
about the date on which shares of the corresponding Eligible Fund first became
available to investors. The unit value is determined as of the close of
regular trading on the New York Stock Exchange on each day that the Exchange
is open for trading by multiplying the most recent unit value by the net
investment factor ("NIF") for that day (see below).
The NIF for any sub-account reflects the change in net asset value per share
of the corresponding Eligible Fund as of the close of regular trading on the
Exchange from the net asset value most recently determined, the amount of
dividends or other distributions made by that Eligible Fund since the previous
determination of net asset value per share, and deductions for taxes, if any,
made from the Variable Account. Specifically, a sub-account's NIF for a given
day is equal to the net asset value per share of the Eligible Fund
corresponding to the sub-account at the end of the day, plus the per-share
amount of any dividend, capital gain or other distribution made by the
Eligible Fund on such day; divided by the net asset value per share of that
Eligible Fund as of the end of the immediately preceding day; minus a factor
for taxes deducted from the sub-account and attributable to the Policy, if
any. The NIF can be greater or less than one.
ALLOCATION OF NET PREMIUMS
The first net premium for the Policy is credited with net investment
experience equal to that of the Zenith Money Market Sub-Account from the
investment start date until the day that NELICO mails the confirmation for the
initial premium (in states that require a refund of premiums paid upon
exercise of the Right to Return the Policy, until 15 days after the date the
initial premium confirmation is mailed). Thereafter, the Policy's cash value
(which will reflect at least one Monthly Deduction) is allocated to the Sub-
Accounts and/or the Fixed Account according to your instructions. (See
"Investment Options" and "Monthly Deduction from Cash Value.") Your cash value
is maintained in the general account of NELICO or an affiliate until the date
that NELICO mails the confirmation for the initial premium.
If the face amount of the Policy is increased, the portion of net premiums
attributable to the increase will be allocated among accounts in accordance
with your current allocation instructions. Currently, allocations can be made
to an unlimited number of available accounts (including the Fixed Account) at
any one time.
A-13
<PAGE>
AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY
The investment start date is the latest of: the date when NELICO first
receives a premium payment for the Policy, the date Part II of the Policy
application is signed and the Policy Date. (For this purpose, receipt of the
premium payment means receipt by your registered representative, if the
payment is made with the application; otherwise, it means receipt by a NELICO
agency.
If you make a premium payment with the application, the Policy Date is
generally the later of the date Part II of the application is signed and
receipt of the premium payment. In that case, the Policy Date and investment
start date are the same. The amount of premium paid with the application must
be at least 10% of the annual Planned Premium for the Policy. Only one premium
payment may be made before the Policy is issued.
If you make a premium payment with the application, the insured will be
covered under a temporary insurance agreement for a limited period that is
described in the temporary insurance agreement form. Generally, coverage under
the temporary insurance agreement begins on the later of the date when NELICO
receives the premium for the Policy and the date when Part II of the
application is signed. The maximum amount of coverage provided is the lesser
of the amount of insurance applied for and $500,000 for standard and preferred
risks ($250,000 for substandard risks and $50,000 for persons who are
determined to be uninsurable). There may be variations to these provisions
required by state law.
If a Policy is issued, Monthly Deductions, including cost of insurance
charges, begin as of the Policy Date, even if the Policy's issuance was
delayed due to underwriting requirements; and will be in amounts based on the
face amount of the Policy issued, even if the temporary insurance coverage
received during the underwriting period was for a lesser amount. If NELICO
declines an application, it will refund the premium payment made plus interest
at the rate currently in use by NELICO.
If you choose to pay the initial premium upon delivery of the Policy, the
Policy will have a Policy Date which is generally five days after issue. The
investment start date will be the later of the Policy Date and the date the
premium is received. Monthly Deductions will begin on the Policy Date.
Interest at a 4% net rate will be credited on the applicable net Minimum
Premium for the period, if any, between the Policy Date and the investment
start date. Insurance coverage under the Policy will begin upon receipt of the
portion of the Minimum Premium due for the first quarter (or, upon receipt of
the number of monthly payments due under NELICO's Master Service Account
arrangement.)
Under limited circumstances, NELICO may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
Backdating may be desirable, for example, so that you can purchase a
particular Policy face amount for lower cost of insurance rates, based on a
younger insurance age. For a backdated Policy, you must also pay the Minimum
Premium payable for the period between the Policy Date and the investment
start date. As of the investment start date, NELICO will allocate to the
Policy those net premiums, adjusted for monthly Policy charges and interest at
a 4% net rate, for the period between the Policy Date and the investment start
date.
The amount provided for investment in the Policy is adjusted as of each day
the New York Stock Exchange is open to reflect the investment experience of
the Sub-Accounts for that day.
RIGHT TO RETURN THE POLICY
You may cancel the Policy within 10 days (or more where required by
applicable state insurance law) after you receive the Policy. The Policy may
be returned to NELICO or its agent. Insurance coverage ends as soon as the
Policy is returned (as determined by its postmark, if the Policy is mailed).
If you choose to cancel the Policy, NELICO will refund the cash value of the
Policy plus any sales charges and premium tax charges that were deducted from
the premiums you paid, or if required by state insurance law, any premiums
paid with interest at the rate currently in use by NELICO.
You may cancel an increase in face amount which you have requested within 10
days (or more where required by state law) after you receive the adjusted
Policy. You may return the face amount increase to NELICO or your registered
representative. The face amount increase will be canceled from its beginning
and any Monthly Deduction and charge deducted in connection with the face
amount increase will be returned to your cash value.
CHARGES AND EXPENSES
The amount of a charge may not necessarily correspond to the costs
associated with providing the services or benefits indicated by the
designation of the charge or associated with the particular Policy. For
example, the sales charge may not fully
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<PAGE>
cover all of the sales and distribution expenses actually incurred by NELICO,
and proceeds from other charges, including the mortality and expense risk
charge, may be used in part to cover such expenses.
DEDUCTIONS FROM PREMIUMS
SALES CHARGE. NELICO deducts a sales charge of 8% from each premium payment
made during a Policy year until an amount equal to the Target Premium has been
paid; and 1% from each premium payment made thereafter during a Policy year.
The sales charges under a Policy in a given Policy year are not necessarily
related to NELICO's actual sales expenses for that year.
Sales charges for Policies sold to certain cases may be reduced. NELICO may
reduce or eliminate the sales charge when you purchase a Policy, on cash value
transferred in the first year from life insurance policies that were issued by
New England Mutual, NELICO or NELICO's affiliates and that meet certain
premium, cash value and/or face amount minimums, as currently published by
NELICO. NELICO's normal issuance criteria, including reinsurance and other
limitations, as well as certain other eligibility requirements, would also
apply in these situations. Your registered representative can advise you
regarding the availability of this feature.
PREMIUM TAX CHARGE. NELICO deducts 2% from each premium payment made to
cover premium taxes. Premium taxes vary from state to state.
MONTHLY DEDUCTION FROM CASH VALUE
On the first day of each Policy month, starting with the Policy Date, NELICO
deducts the "Monthly Deduction" from your cash value. If a Guaranteed Death
Benefit rider is in effect, or if the Policy is protected against lapse by
payment of the Minimum Premium during the first three Policy years, the
Monthly Deduction is made, whether or not premiums are paid, until the cash
value equals zero. Otherwise, the Monthly Deduction is made, whether or not
premiums are paid, as long as the net cash value is sufficient to cover the
entire Monthly Deduction. If the net cash value is insufficient to cover the
entire Monthly Deduction and no Guaranteed Death Benefit rider or Minimum
Premium guarantee is in effect, the Policy will be in default and may lapse.
(See "Lapse and Reinstatement".) The Monthly Deduction reduces the cash value
in each Sub-Account of the Variable Account and in the Fixed Account in
proportion to the cash value in each, unless you have specified a "Single
Source Expense Sub-Account" on the Policy application. If a Single Source
Expense Sub-Account has been specified, the Monthly Deduction will reduce the
cash value in the sub-account that you have designated until that sub-
account's cash value has been exhausted; and then will reduce the cash value
in the sub-accounts and the Fixed Account on a pro rata basis, as described
above. The Fixed Account cannot be designated as the Single Source Expense
Sub-Account.
The Monthly Deduction includes the following charges:
POLICY FEE. The Policy fee is currently equal to $5.00 per month. The fee is
guaranteed not to exceed $10.00 per month.
MORTALITY AND EXPENSE RISK CHARGE. NELICO deducts a charge from your cash
value on each Monthly Deduction Date for the mortality and expense risks that
NELICO assumes. This charge is set at an annual rate of 0.75% during the first
ten Policy years, and 0.25% thereafter (guaranteed not to exceed 0.75%). 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. If the
proceeds from this charge are not needed to cover mortality and expense risks,
the Company may use proceeds to finance distribution of the Policies. The
mortality and expense risk charge is deducted last after all other components
of the Monthly Deduction. It is calculated separately for each segment of
coverage that was underwritten; the actual charge is based on a weighted
average of the mortality and expense risk charge applicable to each
underwritten segment (based on relative Target Premiums associated with each
segment).
MONTHLY CHARGES FOR THE COST OF INSURANCE. This charge covers the cost of
providing insurance protection under your Policy. No cost of insurance charge
is deducted on or after the Policy Anniversary when the insured reaches
attained age 100. The cost of insurance charge for a Policy month is equal to
the "amount at risk" under the Policy, multiplied by the cost of insurance
rate for that Policy month. The amount at risk is determined on the first day
of the Policy month after the Monthly Deduction (except for the mortality and
expense risk charge component) has been processed and is the amount by which
the death benefit (discounted at the monthly equivalent of 4% per year)
exceeds the Policy's cash value. The cost of insurance rate for your Policy
changes from month to month.
The Adjustable Term Insurance Rider has its own cost of insurance rates that
are different from those of the base Policy. However, if you elect to add the
Adjustable Term Insurance Rider to the face amount of the base Policy in the
calculation of
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Death Benefit Option 1 or 2, then once the net amount at risk of the base
Policy has been reduced to zero, any excess cash value of the base Policy will
be used to reduce the net amount at risk under the term insurance rider; if
the Adjustable Term Insurance Rider is not added to the face amount of the
base Policy in the calculation of Death Benefit Option 1 or 2, then the term
rider's net amount at risk is not reduced by any of the base Policy's cash
value.
The guaranteed cost of insurance rates for a Policy depend on the insured's
underwriting class, age on the first day of the Policy year and sex (if the
Policy is sex-based). The current cost of insurance rates will also depend on
the insured's age at issue of the Policy and on the duration of the Policy.
The rates for underwritten Policies are guaranteed not to be higher than rates
based on the 1980 Commissioners Standard Ordinary Mortality Tables (the "1980
CSO Tables"). The rates actually used may be lower than these maximum rates,
depending on NELICO's expectations regarding future mortality and expense
experience, lapse rates and investment earnings. NELICO reviews the adequacy
of its current cost of insurance rates and may adjust their level
periodically. Any change in the current cost of insurance rates will be
applied prospectively only and will be on a non-discriminatory basis. The
current cost of insurance rate for a Policy is set forth in the Policy Owner's
annual statement. (For information regarding a Policy's cost of insurance
rates following a face amount increase, see "Increase in Face Amount".)
The underwriting classes used for determining cost of insurance rates are
smoker standard, smoker rated, nonsmoker preferred, nonsmoker standard,
nonsmoker rated and guaranteed issue. Rated and guaranteed issue
classifications result in higher cost of insurance deductions. The guaranteed
maximum mortality charges for rated Policies are based on multiples of the
1980 CSO Tables. (For information regarding a Policy's underwriting
classification following a face amount increase, see "Increase in Face
Amount".)
For fully underwritten Policies with a face amount of $100,000 or more and
where the insured's issue age is 20 through 75, the standard nonsmoker
underwriting classes are nonsmoker preferred and nonsmoker standard; for
Policies with a face amount less than $100,000 and for Policies where the
insured's issue age is above 75 only the nonsmoker standard class is used. The
nonsmoker preferred class generally offers more favorable rates on a current
basis than the nonsmoker standard class.
Cost of insurance rates are generally more favorable for nonsmoker than for
smoker insureds and generally more favorable for female than for male
insureds. Within a given underwriting class, cost of insurance rates are
generally more favorable for insureds with lower issue ages. Where required by
state law, and for Policies sold in connection with certain employee benefit
plans, cost of insurance rates (and Policy values and benefits) do not vary
based on the sex of the insured.
NELICO may offer Policies on a guaranteed issue basis to certain cases. If
an eligible case purchases Policies on a guaranteed issue basis, the Policies
will be issued up to a predetermined face amount limit, with only minimum
evidence of insurability. Guaranteed issue Policies provide substantial
benefit to such arrangements in that minimal time and effort is necessary to
qualify an entire group of persons for coverage without extensive applications
or medical examinations. Because only limited underwriting information is
obtained, NELICO has determined that the issuance of Policies on a guaranteed
issue basis may present additional mortality cost to NELICO relative to
Policies issued to individuals in the standard class. Therefore, NELICO will
generally use higher current cost of insurance rates for guaranteed issue
Policies. For certain cases, the charge may vary based on the size of the
group, the total premium to be paid by the group and certain characteristics
of its members. The guaranteed maximum monthly cost of insurance charges for
guaranteed issue status will exceed charges based on 100% of the 1980 CSO
Tables.
Policies issued on a guaranteed issue basis will have cost of insurance
rates that vary depending on whether the insured is a smoker or nonsmoker.
Nonsmokers will be treated as a group in that no preferred nonsmoker rates
will be available. The cost of insurance rates for guaranteed issue Policies
will not vary according to the face amount of an individual Policy; however,
currently the rates may be lower if the Policy is issued to a case where its
members have certain characteristics. Generally the monthly cost of insurance
charges will be higher than they would be for the same insured under a fully
underwritten Policy, if the insured is not a substandard risk.
Eligible cases may also elect to purchase Policies on a simplified
underwriting basis, either as an alternative to guaranteed issue or for
amounts of insurance which exceed NELICO's guaranteed issue limits, but may
not elect guaranteed issue for some members of the group and simplified
underwriting for others. Policies issued on a simplified underwriting basis
will have the same cost of insurance rates as fully underwritten Policies;
however, the nonsmoker preferred class is not available to these Policies.
GUARANTEED DEATH BENEFIT RIDER CHARGE. If you have elected the Guaranteed
Death Benefit rider, the guaranteed death benefit rider charge is $0.01 per
$1,000 of face amount (including the base Policy and any Adjustable Term
Rider), and is deducted as part of the Monthly Deduction, currently until the
Policy anniversary when the insured reaches attained age 100.
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<PAGE>
This charge compensates NELICO for its guarantee that, regardless of the
investment experience of the Policy's Sub-Accounts, the Policy will not lapse,
provided that the total amount of premiums paid, less partial surrenders and
loans, equals or exceeds the applicable multiple of the Guaranteed Death
Benefit premium shown in Section 1 of the Policy. (See "Guaranteed Death
Benefit Rider" and "Adjustments to the Death Proceeds Payable".)
CHARGES FOR ADDITIONAL BENEFITS AND SERVICES. NELICO imposes charges for the
cost of any additional Rider benefits as described in the rider form. NELICO
also reserves the right to charge Policy Owners a nominal fee, which will be
billed directly to the Policy Owner, in the event that a Policy re-issue or
re-dating is requested.
CHARGES FOR INCOME TAXES. NELICO currently makes no charge for income taxes
against the Variable Account, but in the future NELICO may impose such a
charge, if appropriate. NELICO reserves the right to make a charge for any
taxes imposed on the Policies by any governmental body in the future. (See
"Charge for NELICO's Income Taxes".)
CHARGES AGAINST THE ELIGIBLE FUNDS
Charges for investment advisory fees and other expenses are deducted from
the assets of the Eligible Funds. The Zenith Fund Series incur charges for
advisory fees and certain other expenses. The series (other than the Capital
Growth Series) are advised by TNE Advisers, Inc., an affiliate of NELICO.
Under a voluntary expense cap by TNE Advisers for each of the Back Bay
Advisors Bond Income, Back Bay Advisors Money Market, Back Bay Advisors
Managed, Westpeak Stock Index, and Westpeak Growth and Income Series, TNE
Advisers will bear those expenses (other than the management fee) that exceed
0.15% of average daily net assets; for the Loomis Sayles Small Cap Series, TNE
Advisers will bear all expenses that exceed 1.00% of average daily net assets.
For the remaining Zenith Fund Series (other than the Capital Growth Series),
TNE Advisers, under a voluntary expense deferral arrangement, will bear those
expenses (other than the management fee) which exceed a certain limit in the
year in which they are incurred and will charge those expenses to the series
in a future year when actual expenses of the series are below the limit up
until two years after the end of the fiscal year in which the expense was
incurred. The expense cap and expense deferral arrangement may be terminated
at any time.
The following table shows the annual operating expenses for each series,
based on actual expenses for 1997, (for the Goldman Sachs Midcap Value Series,
anticipated expenses for 1998), after giving effect to the applicable expense
cap or expense deferral arrangement:
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER ANY EXPENSE CAP)
<TABLE>
<CAPTION>
BACK BACK
BAY BAY BACK WESTPEAK LOOMIS
ADVISORS ADVISORS BAY WESTPEAK GROWTH SAYLES
CAPITAL BOND MONEY ADVISORS STOCK AND SMALL
GROWTH INCOME MARKET MANAGED INDEX INCOME CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .63% .40% .35% .50% .25% .70% 1.00%
Other Expenses.......... .04% .12% .10% .11% .15% .12% --
---- ---- ---- ---- ---- ---- -----
Total Series
Operating............ .67% .52% .45% .61% .40% .82% 1.00%
</TABLE>
EXPENSES
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
GOLDMAN MORGAN
SACHS LOOMIS STANLEY DAVIS ALGER
MIDCAP SAYLES INTERNATIONAL VENTURE EQUITY
VALUE BALANCED MAGNUM VALUE GROWTH
SERIES* SERIES EQUITY SERIES SERIES SERIES
------- -------- ------------- ------- ------
<S> <C> <C> <C> <C> <C>
Management Fee.................... .75% .70% .90% .75% .75%
Other Expenses.................... .15% .15% .40% .15% .12%
---- ---- ----- ---- ----
Total Operating Expenses........ .90% .85% 1.30% .90% .87%
</TABLE>
- --------
* Anticipated annual operating expenses for the Goldman Sachs Midcap Value
Series are based on the management fee approved by shareholders of the
Series that became effective on May 1, 1998, and other expenses actually
incurred for the Series for 1997.
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<PAGE>
The investment adviser for the VIP Fund and VIP Fund II is Fidelity
Management & Research Company, a registered investment adviser under the
Investment Advisers Act of 1940. The Portfolios of the VIP Fund and VIP Fund
II, as part of their operating expenses, pay investment management fees to
Fidelity Management & Research Company. The Portfolios also bear certain other
expenses. For the year ended December 31, 1997, the total operating expenses
incurred by the Portfolios, as a percentage of Portfolio average net assets,
were as follows:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
VIP Fund Equity-Income......................... .50% .08% .58%*
VIP Fund Overseas.............................. .75% .17% .92%*
VIP Fund High Income........................... .59% .12% .71%
VIP Fund II Asset Manager...................... .55% .10% .65%*
</TABLE>
- --------
* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. Had these
reductions been included, total annual expenses would have been .57% for
Equity-Income Portfolio, .90% for Overseas Portfolio and .64% for Asset
Manager Portfolio.
Affiliates of Fidelity Management & Research Company compensate NELICO
and/or certain affiliates for administrative, distribution, or other services
relating to these Portfolios of VIP Fund and VIP Fund II. Such compensation is
based on assets of the Portfolios attributable to the Policies and certain
other variable insurance products issued by NELICO and its affiliates.
SPECIAL ARRANGEMENTS
For Policies issued in connection with certain cases, NELICO may waive or
reduce one or more of the following charges: the sales charge, charges for the
cost of insurance including any additional charge for guaranteed issue status,
mortality and expense risk charge, Policy Fee, face amount increase charge,
and/or premium tax charges described in "Charges and Expenses". (In addition,
the interest rate credited on amounts taken from the sub-accounts as a result
of a Policy loan may be increased for these Policies.) NELICO will waive or
reduce these charges according to its rules in effect when the Policy
application is approved. To qualify for a waiver or reduction, the case 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 case,
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 cases. NELICO may modify from time to time
both the amounts of reductions and the criteria for qualification. Reductions
in or waiver of these charges will not be unfairly discriminatory against any
person, including the affected Policy Owners and all other Policy Owners of
Policies funded by the Variable Account. The waiver or reduction of Policy
charges for certain cases described above will not apply to Policies issued in
the state of New York, other than Policies issued to non-tax qualified
deferred compensation plans of various types.
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 consult its attorney
before doing so.
PREMIUMS
FLEXIBLE PREMIUMS
Within the limits described below, you may choose the amount and frequency
of premium payments. You may select a Planned Premium schedule, which is a
level amount. This schedule, which must be within NELICO's minimum and maximum
limits, appears in your Policy. It is not necessarily designed to keep your
Policy in force, and you may skip Planned Premium payments or make additional
payments. Additional payments could be subject to underwriting. No payment can
be less than $25 ($10 for payments made pursuant to certain monthly payment
arrangements), and the total of Planned Premiums and other payments will be
limited to NELICO's published maximum.
Planned Premiums can be paid on an annual, semi-annual, quarterly or monthly
schedule. You can change your Planned Premium schedule by sending your request
to NELICO's Administrative Office. However, the amount of your Planned Premium
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<PAGE>
cannot be increased except with the consent of NELICO, and underwriting may be
required. Cash values and death benefits are permanently affected by the
amount and frequency of premium payments.
You may make payments by check or money order. NELICO will send premium
notices for annual, semi-annual, quarterly or monthly Planned Premiums.
Premium payments may also be made by wire transfer of federal funds in
accordance with our procedures then in effect.
Premium payments may not be made on and after the Policy anniversary on
which the insured reaches attained age 100, except as provided for under the
Policy's grace period provision. (See "Lapse and Reinstatement.")
NELICO offers two types of premium payment levels that can protect your
Policy against lapse over specified time periods.
First, NELICO determines a three-year Minimum Premium amount based on the
Policy's face amount, the age, sex (unless unisex rates apply) and
underwriting class of the insured, the current level of Policy charges and any
rider benefit selected. Generally, during this three-year period, as long as
the Minimum Premium amount is timely paid, the Policy is guaranteed not to
lapse even if the Policy's net cash value is insufficient to pay the Monthly
Deduction in any month. (To determine whether the Policy will lapse, NELICO
compares (a) the total monthly Minimum Premiums for the Policy from the Policy
Date to that Policy month, to (b) the total premiums paid to date, less all
partial surrenders and any outstanding Policy loan balance. If (b) is greater
than or equal to (a), the Policy will not lapse.) However, no three-year
Minimum Premium death benefit guarantee will apply if you substitute the
insured or reinstate the Policy in the first three Policy years, unless, in
the case of a reinstatement, you pay all the applicable Minimum Premiums that
were not paid including those for the period when the Policy was lapsed. The
Minimum Premium will be recalculated if you increase the face amount, reduce
the face amount or make a partial surrender that reduces the face amount, or
add, reduce or delete a rider benefit, or if the rating classification of your
Policy is improved in the first three Policy years.
Second, if you have elected the Guaranteed Death Benefit Rider and the
Guaranteed Death Benefit premium shown in Section 1 of your Policy is timely
paid, then the Policy will stay in force until the insured reaches age 100.
The Guaranteed Death Benefit premium is based on the Policy's face amount, the
age, sex (unless unisex rates apply) and underwriting class of the insured,
the death benefit option chosen, the guaranteed level of Policy charges and
any rider benefit selected. If you reduce the Policy's face amount or make a
partial surrender which reduces the face amount, or reduce or delete a rider
benefit from your Policy, or if your Policy's rating classification is
improved, the Guaranteed Death Benefit premium will be recalculated, as well
as following an increase in the Policy's face amount or in the amount of
coverage provided by riders.
If you have selected the guideline premium test, Federal tax law limits the
amount of premiums that can be paid under the Policy. In addition, if any
payments under the Policy exceed the "7-pay test" under Federal tax law, you
may be taxed on certain distributions. (See "Tax Considerations".) NELICO's
consent is required if, in order to satisfy tax law requirements, any payment
would increase the Policy's death benefit by more than it would increase cash
value. NELICO may require evidence of insurability before accepting the
payment.
NELICO allocates net payments to your Policy's Sub-Accounts as of the date
the payment is received at NELICO's Administrative Office. (See "Receipt of
Communications and Payments at NELICO's Administrative Office".)
A payment is treated first as a Planned Premium, second as repayment of
Policy loan interest due, third as repayment of a Policy loan, and last as an
unscheduled payment, unless you designate otherwise in writing to NELICO. (For
Policies issued in New York, a payment will be treated as a Planned Premium
when a Policy loan is outstanding only if the payment is in the exact amount
of the Planned Premium next due; otherwise, it will be treated first as
repayment of Policy loan interest due, second as repayment of a Policy loan,
third as a Planned Premium, and last as an unscheduled payment.) If you have a
Policy loan, it may be more advantageous to repay the loan than to make a
premium payment, because the premium payment is subject to sales and tax
charges, whereas the loan repayment is not subject to any charges. (See "Loan
Provision", "Deductions from Premiums" and "Death Benefit".)
Under Policies issued in New Jersey, if you have met the requirements for
the three-year Minimum Premium death benefit guarantee at the end of the three
year guarantee period, the Minimum Premium death benefit guarantee will
continue to apply during the fourth Policy year as long as payments made
during that Policy year, less partial surrenders and loans made in that year,
equal the guaranteed maximum Policy charges for the fourth Policy year. If you
make a Policy transaction that changes the amount of the guaranteed maximum
Policy charges for that year, then the amount you need to pay in order to
preserve the Minimum Premium death benefit guarantee for an extra Policy year
will change accordingly.
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<PAGE>
LAPSE AND REINSTATEMENT
LAPSE. Unless the Guaranteed Death Benefit is in effect (or, during the
first three Policy years, unless the Minimum Premium requirements described
under "Premiums" have been met), in any month that there is insufficient net
cash value to pay a Monthly Deduction the Policy will be in default. The
Policy provides a 62 day grace period for payment of a premium sufficient to
permit the Monthly Deduction to be made (as well as applicable deductions from
the premium). (For Policies issued in New Jersey the amount due is the least
of: a premium large enough to permit the Monthly Deduction, as well as
applicable deductions from the premium, to be made; a premium large enough to
permit the Guaranteed Death Benefit to be in effect; and a premium large
enough to permit the three year Minimum Premium death benefit to be in effect.
NELICO will notify you of the amount due. During the grace period insurance
coverage continues under your Policy, but if the insured dies before the
premium is paid, NELICO will deduct from the death proceeds the portion of the
unpaid Monthly Deduction for the period prior to the date of death. If the
required premium is unpaid at the end of the grace period, the Policy will
lapse without value.
REINSTATEMENT. If your Policy has lapsed, it may be reinstated within 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.
OTHER POLICY FEATURES
INCREASE IN FACE AMOUNT
After the first Policy year you may increase the face amount of your Policy.
The request for an increase will be subject to NELICO's underwriting rules and
requirements, including proof of insurability. The amount of the increase must
be at least $10,000. If the increase requires medical underwriting, a face
amount increase charge of $0.80 per $1,000 of the face amount increase (not to
exceed $25.00) will be deducted on the date the increase takes effect, and on
the first day of the next eleven Policy months, from the Policy's cash value
in the sub-accounts and the Fixed Account, in proportion to the amount of cash
value in each (unless you have elected a Single Source Expense Sub-Account).
After an underwritten face amount increase, NELICO will attribute a portion
of each premium payment you make to the face amount increase, even if you do
not increase the amount or frequency of your premiums.
Following an underwritten face increase, a new Target Premium will be
established for that segment of coverage under the Policy, based on the
insured's age and underwriting class at the time of the increase and the
amount of the increase. (The insured's age at the time of the increase will be
the insured's age at the start of that Policy year.) Following such an
increase, sales charges will be deducted from the portion of each premium paid
after a face amount increase by applying premium payments to each segment of
coverage based on the relative Target Premium amount attributable to each
segment, determining whether an amount equal to the Target Premium for each
segment has been paid, and calculating and imposing the applicable sales
charge with respect to each segment. See "Charges and Expenses" for a
description of the sales charges that will apply.
Face amount increases that are not medically underwritten do not require
payment of the face amount increase charge; and generally do not result in an
increase in the Target Premium. (The exception is a conversion from term
insurance, which will result in an increased Target Premium but no face amount
increase charge.)
The Monthly Deduction applicable to the Policy will be adjusted beginning
with the effective date of a face amount increase to reflect the new face
amount and amount at risk under the Policy. Cost of insurance charges for the
segment of coverage attributable to the increase will be based on the
insured's age at the time of the increase (if underwritten or the result of a
conversion from term insurance), or on age at issue (if not underwritten) and
will reflect any change in risk classification of the insured if the face
amount increase was medically underwritten. Generally, if the insured's risk
classification improved as a result of the underwriting, future cost of
insurance rates for the entire Policy will be based on the new underwriting
class. If the insured is determined to be in a worse risk classification than
at issue of the Policy (or at the time of a previous face amount increase),
then only the portion of the cost of insurance charge attributable to the face
amount increase will be based on the new underwriting class. Future cost of
insurance rates for the entire Policy after an increase will be based on a
weighted average of relative net amount at risk amounts for each segment of
coverage. (See "Charges and Expenses--Monthly Deduction from Cash Value.")
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<PAGE>
NELICO determines the net amount at risk associated with a face amount
increase by calculating the amount by which the net amount at risk was
increased as a percentage of the Policy's total net amount at risk immediately
following the increase. The resulting percentage of the Policy's total net
amount at risk is applicable to the face amount increase. The remaining
percentage of the Policy's total net amount at risk is applicable to the
initial face amount. (For example, if the Policy's face amount is increased by
$100,000 and the total net amount at risk immediately following the increase
in $250,000, then 40% of the total net amount at risk applies to the face
amount increase. The remaining 60% applies to the initial face amount.) On
each monthly processing day, the net amount at risk used to determine the cost
of insurance charge associated with the face amount increase is the Policy's
total net amount at risk at that time, multiplied by the percentage calculated
as described above. This percentage remains fixed until there is another face
amount increase.
The mortality and expense risk charge is calculated separately for each
segment of coverage that was underwritten or that resulted from a conversion
from term insurance; the actual charge is based on a weighted average of the
mortality and expense risk charge applicable to each underwritten segment and
each segment resulting from a term conversion (based on relative Target
Premiums associated with each segment).
An increase in face amount will take effect on the first day of the Policy
month following NELICO's approval of your application for the increase. You
can contact NELICO's Administrative Office or your registered representative
to determine the procedures for requesting a face amount increase. You have a
limited time in which you may cancel a face amount increase. (See "Right to
Return the Policy".)
If a Policy has an Adjustable Term Insurance Rider, then NELICO may offer
increases in term insurance coverage, including annual term insurance
increases which are related to increases in salary or which are based on a
fixed annual percentage (the "Salary Refresh" program). Limits on the annual
and/or total amount of term insurance increases per Policy that will be
permitted on a guaranteed issue basis will be determined at issue of the
Policies. Increases that are not being made pursuant to an annual increase, or
which exceed this limit, will require underwriting. The terms and conditions
of the Salary Refresh program are contained in NELICO's published rules which
are furnished at the time of application.
LOAN PROVISION
You may borrow all or part of the Policy's "loan value" once fifteen days
have elapsed after we mail the confirmation for the initial premium. NELICO
will make the loan as of the date when a loan request is received at NELICO's
Administrative Office. (See "Receipt of Communications and Payments at
NELICO's Administrative Office".) You should contact NELICO's Administrative
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. The amount of loan value available to be
borrowed at any time is reduced by the amount of any outstanding Policy loan
plus accrued interest.
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 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.
When Policy loan proceeds are paid to you, cash value in the amount of the
loan is taken from 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 at the time of
repayment.
The interest rate charged on Policy loans is 4.75% per year. It 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 4.00% rate per year. Currently, the rate
credited is 4.00% for the first 10 Policy years and 4.50% thereafter. 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.
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The tax consequences of a policy loan after the tenth policy year are not
clear. You should consult a tax advisor if you intend to take out a policy
loan after the tenth policy year or allow a policy loan taken out during the
first 10 policy years to remain outstanding after the tenth policy year.
The amount taken from the Policy's Sub-Accounts as a result of a loan does
not participate in the investment experience of the Sub-Accounts. Therefore,
the death benefit and cash value of the Policy can be permanently affected by
a Policy loan, even if it is repaid. In addition, any proceeds payable under a
Policy are reduced by the amount of any outstanding loan plus accrued
interest.
Any payment received while a Policy loan is outstanding is treated first as
a Planned Premium, second as repayment of Policy loan interest due, third as
repayment of a Policy loan, and last as an unscheduled payment, unless you
designate otherwise in writing to NELICO. (For Policies issued in New York, a
payment will be treated as a Planned Premium when a Policy loan is outstanding
only if the payment is in the exact amount of the Planned Premium; otherwise,
it will be treated first as repayment of Policy loan interest due, second as
repayment of a Policy loan, third as a Planned Premium, and last as an
unscheduled payment.) If a Policy loan is outstanding, it may be more
advantageous to repay the loan than to pay a premium, because the payment is
subject to sales and premium tax charges, and the loan repayment is not
subject to charges. (See "Deductions from Premiums" and "Death Benefit".)
If Policy loans plus accrued interest exceed the Policy's cash value at any
time, NELICO will notify you that the Policy is going to terminate. (This
situation is referred to as an "excess policy loan".) The Policy will
terminate without value 62 days after the notice is mailed unless the excess
amount is paid to NELICO within that time. If the Policy lapses with a loan
outstanding, adverse tax consequences may result. (See "Tax Considerations"
below.)
Department of Labor ("DOL") regulations set forth requirements for
participant loans under retirement plans subject to the Employee Retirement
Income Security Act of 1974 ("ERISA"). Generally, the DOL regulations will
apply to plans that qualify under Section 401 of the Internal Revenue Code
(the "Code"). If the retirement plan is subject to ERISA, the plan fiduciary
authorized to oversee/direct the plan loan program must fulfill the
requirements of the regulations including charging a "commercially reasonable"
rate of interest. The policy loan interest rate may not be considered
"commercially reasonable" within the meaning of the DOL regulations. In
addition, the DOL regulations require that a plan loan be adequately secured
but provide that not more than 50% of the participant's vested account balance
(including the Policy cash value) be used as security for the loan. The DOL
regulations and applicable tax law may also contain other requirements for
plan loans. Therefore, plan loan provisions may differ from Policy loan
provisions. If you are a participant in a retirement plan subject to ERISA,
you should consult with the fiduciary administering the plan loan program.
Failure of the plan loan program to comply with the requirements of the DOL
regulations and of tax law may result in tax penalties under the Code and
under ERISA.
SURRENDER
You may surrender a Policy for its net cash value at any time while the
insured is living by a request conforming to NELICO's administrative
procedures. The net cash value of the surrendered Policy is determined as of
the date when a surrender request is received at NELICO's Administrative
Office. The net cash value equals the cash value reduced by any Policy loan
and accrued interest. The net cash value paid on surrender is increased by the
portion of any cost of insurance charge deducted that applies to the period
beyond the date of surrender. If you surrender the Policy during the grace
period (that is, at a time when the net cash value was not sufficient to cover
the Monthly Deduction and no Guaranteed Death Benefit or three year Minimum
Premium guarantee applies to the Policy), the net cash value you receive is
reduced by an amount to cover the Monthly Deduction to the date of surrender.
You may elect in writing to have all or part of the net cash value applied to
a payment option. (See "Payment Options".) A surrender may result in adverse
tax consequences. (See "Tax Considerations" below.)
PARTIAL SURRENDER
You may make a partial surrender of the Policy to receive a portion of its
net cash value once fifteen days have elapsed after we mail the confirmation
of the initial premium payment. A partial surrender will cause a reduction in
the Policy's death benefit and may cause a reduction in the Policy's face
amount if necessary in order that the amount at risk under the Policy not
increase. Any reduction in the face amount causes a proportionate reduction in
the Policy's Target Premium. Rider benefits may also have to be reduced. For
purposes of calculating any future cost of insurance charges, any face amount
reduction will apply to the initial face amount and to any prior increase in
face amount on a pro rata basis. No partial surrender may reduce the face
amount below the Policy's required minimum except with NELICO's consent.
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Partial surrenders in any one Policy year are limited, except with NELICO's
consent, to 20% of the Policy's net cash value as of the date of the first
partial surrender for the Policy year or, if less, the Policy's available loan
value. Currently, NELICO permits partial surrenders of up to 90% of the
Policy's net cash value per year, assuming sufficient available loan value.
You should be aware that cash value paid upon partial surrender may not be
reinvested in the Policy except as premium payments, which are subject to the
charges described under "Deductions From Premiums."
A partial surrender first reduces the Policy's cash value in the Sub-
Accounts of the Variable Account, in proportion to the amount of cash value in
each, and then the Fixed Account, unless you request otherwise. (See "The
Fixed Account" below.) The amount of net cash value paid upon partial
surrender is determined as of the date when a request conforming to NELICO's
administrative procedures is received at NELICO's Administrative Office.
NELICO's administrative procedures can be determined by contacting your
registered representative or the Administrative Office.
A reduction in the death benefit as a result of a partial surrender may
cause the Policy to become a "modified endowment contract". If you are
contemplating a partial surrender, you should consult your tax advisor
regarding the tax consequences of the transaction. (See "Tax Considerations".)
REDUCTION IN FACE AMOUNT
After the first Policy year, you may reduce the face amount of your Policy
without receiving a distribution of any of the Policy's cash value. (This
feature differs from a partial surrender in that a partial surrender causes
part of the Policy's cash value to be distributed to you.)
For purposes of calculating future cost of insurance charges, a face amount
reduction will apply to the initial face amount and to any prior increase in
face amount on a pro rata basis. The face amount remaining after a reduction
has to meet NELICO's minimum face amount requirements for issue, except with
NELICO's consent.
If you decrease the face amount of your Policy, the Target Premium is also
decreased. Your Policy's actual cash value is not reduced, but generally, the
Policy's death benefit is decreased.
However, if the death benefit is being increased in accordance with federal
income tax laws, the death benefit will not be decreased by a face amount
reduction. A reduction in face amount in this situation is not advisable,
because it will not reduce your death benefit or cost of insurance charges. In
addition, any rider benefits attached to the Policy may also have to be
decreased. Finally, if you have selected the guideline premium test, a
reduction in the face amount of your Policy will reduce the Federal tax law
limitations on the amount of premiums that can be paid under the Policy. In
these cases, a portion of the Policy's cash value may be paid to you if
necessary to allow the Policy to comply with Federal tax law.
A face amount reduction takes effect as of the first day of the Policy month
on or after the date when NELICO has received a request at its Administrative
Office meeting NELICO's administrative requirements. You can determine
NELICO's administrative requirements by contacting your registered
representative or the Administrative Office.
A reduction in the face amount of a Policy that causes a death benefit
reduction may cause the Policy to become a "modified endowment contract". If
you are contemplating a reduction in face amount, you should consult your tax
advisor regarding the tax consequences of the transaction. (See "Tax
Considerations".)
ACCELERATION OF DEATH BENEFIT RIDER
NELICO may offer in the future a rider benefit that will allow you to
receive an accelerated payment of your Policy's death benefit. This advance
payment of the death benefit will be available where certain special needs
exist, as described briefly below. The right to exercise the rider will be
subject to certain conditions contained in the rider.
NELICO will make the accelerated benefits rider available to you only if:
(1) your state insurance department has approved the rider, and (2) NELICO
believes that the rider will meet the definition of an accelerated death
benefit for Federal income tax purposes and (3) NELICO believes that the
availability of the rider will not jeopardize the qualification of the Policy
as life insurance under federal income tax law.
If the accelerated benefits rider is offered, it is expected to provide that
if the insured is diagnosed as terminally ill, as defined in the rider, you
may request an accelerated payment of the Policy's death benefit. The payment
may be subject to discounting and charges. Payment will be subject to evidence
satisfactory to NELICO.
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See "Tax Considerations", below, for a discussion of the tax consequences
associated with the accelerated benefits rider.
INVESTMENT OPTIONS
You may allocate your Policy's premiums and cash value among the Sub-
Accounts of the Variable Account and the Fixed Account in any combination.
Currently, allocations can be made to an unlimited number of the available
accounts (including the Fixed Account) at any time; NELICO reserves the right
to limit the number of available accounts to which allocations can be made to
ten. A minimum of 1% of the premium must be allocated to each Sub-Account
selected. Percentages allocated must be in whole numbers.
You make the initial premium allocation when you apply for a Policy. You may
change the allocation of future premiums at any time thereafter. The change
will be effective for premiums applied on or after the date when NELICO
receives your request. You may request the change by telephone or by written
request in a form satisfactory to NELICO. (See "Receipt of Communications and
Payments at NELICO's Administrative Office.")
See "Transfer Option" below for information on how to request a transfer or
reallocation by telephone.
TRANSFER OPTION
Beginning fifteen days after NELICO mails the confirmation for the initial
premium, you may transfer your Policy's cash value between Sub-Accounts up to
four times in a policy year (twelve times per policy year for Policies issued
in New York) without NELICO's consent. NELICO currently allows 12 Sub-Account
transfers per Policy year under all Policies. Transfers under dollar cost
averaging, asset rebalancing, and transfers out of the Fixed Account, are not
counted against this limit. All Sub-Account transfer requests made at the same
time will be treated as a single request. The transfer will be effective as of
the date when NELICO receives the transfer request at its Administrative
Office. (See "Communications and Payments".) For special rules regarding
transfers involving the Fixed Account, see "The Fixed Account".
You may request a Sub-Account transfer or reallocation of future premiums by
written request (which may be telecopied) to NELICO's Administrative Office or
by telephoning NELICO. To request a transfer or reallocation by telephone, you
should contact your registered representative or contact NELICO at 1-800-621-
5086. Requests for transfers (up to NELICO's current limit per Policy year) or
reallocations by telephone will be automatically permitted. NELICO will use
reasonable procedures, such as requiring certain identifying information from
the caller, tape recording the telephone instructions, and providing written
confirmation of the transaction, in order to confirm that instructions
communicated by telephone are genuine. Any telephone instructions reasonably
believed by NELICO to be genuine will be your responsibility, including losses
arising from any errors in the communication of instructions. As a result of
this policy, you will bear the risk of loss. If NELICO does not employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, it may be liable for any losses due to unauthorized or fraudulent
instructions.
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 Policy 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. We reserve the right to
limit allocation of cash value to no 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 Administrative
Office. You may participate in the dollar cost averaging program while you are
participating in the asset rebalancing program as long as the sub-account from
which you are transferring cash value under the dollar cost averaging program
is not included 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.
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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 a Policy 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 Administrative Office. You specify the
percentage allocations according to which your cash value will be reallocated
among the Sub-Accounts. You may participate in the asset rebalancing program
while you are participating in the dollar cost averaging program as long as
the sub-account from which you are transferring cash value under the dollar
cost averaging program is not included in the asset rebalancing 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 Administrative Office. Currently,
transfers made under an asset rebalancing program are not counted for purposes
of the transfer rules described above.
SUBSTITUTION OF INSURED PERSON
Subject to state insurance department approval, NELICO offers a rider
benefit that will allow you to substitute the insured person under your
Policy, if you provide satisfactory evidence that the person proposed to be
insured is insurable. The right to substitute the insured person is subject to
certain restrictions. A substitution of the insured person will result in a
taxable exchange. In addition, a substitution of the insured person could
reduce the amount of premiums allowed to be paid into the Policy under Federal
tax law if you selected the guideline premium test and, as a result, may
require a partial surrender of cash value. This rider may not be approved in
every state and therefore may not be available in every state. Your registered
representative can provide current information on the availability of the
rider. Since substituting the insured person may be a taxable event, you
should consult your tax advisor before substituting the insured person under
your Policy.
PAYMENT OF PROCEEDS
NELICO will ordinarily pay any net cash value, loan value or death benefit
proceeds payable from the Sub-Accounts within seven days after receipt at the
Administrative Office of a request, or proof of death of the insured, in a
form satisfactory to NELICO. (See "Receipt of Communications and Payments at
NELICO's Administrative Office".) However, NELICO may delay payment (except
when a loan is made to pay a premium to NELICO) or transfers from the Sub-
Accounts: (i) if the New York Stock Exchange is closed for other than weekends
or holidays, or if trading on the New York Stock Exchange is restricted, (ii)
if the SEC determines that a state of emergency exists that makes payments or
Sub-Account transfers impractical, or (iii) at any other time when the
Eligible Funds or the Variable Account have the legal right to suspend
payment. NELICO may withhold payment of surrender or loan proceeds to the
extent that those proceeds are derived from a Policy Owner's check which has
not yet cleared. In those cases, NELICO will process the surrender or loan to
the extent of Policy values for which the Policy Owner has made full payment.
The balance of the surrender or loan proceeds will be paid when the Policy
Owner's check has cleared. NELICO may also delay payment if it considers
whether to contest the Policy. NELICO will pay interest on the death benefit
proceeds from the date they become payable to the date they are paid in one
sum or, if a payment option was selected, to the effective date of the option.
(See "Payment Options".)
Death benefit proceeds may be paid pursuant to NELICO's Access Plus program.
If the Access Plus program is elected, an Access Plus account will be
established at State Street Bank & Trust Company at the time that death
benefit proceeds are payable. The Access Plus account provides convenient
access to proceeds, which are maintained in MetLife's general account, through
checkbook privileges with State Street. A beneficiary may elect to have death
benefit proceeds paid through the Access Plus program at any time prior to the
payment of death benefit proceeds.
Payments of cash value, or of any loan value available, from cash value in
the Fixed Account will normally be paid promptly. However, NELICO has the
right to delay such payments for up to six months from the date of the request
(to the extent allowed by state insurance law). NELICO will pay interest in
accordance with state insurance law requirements on payments that are delayed.
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24 MONTH RIGHT
GENERAL RIGHT. Generally, during the first 24 months after the Policy's
issue date, and during the first 24 months after the effective date of an
increase in face amount, you may convert this Policy, or a portion thereof, to
fixed benefit coverage by transferring all or a portion of your Policy's cash
value, and allocating all or a portion of future premiums, to the Fixed
Account. The request to convert to fixed benefit coverage must be in written
form satisfactory to NELICO.
This privilege may be exercised only once within 24 months after issue, and
only once within 24 months after each increase in face amount. Transfers into
the Fixed Account pursuant to this right will not count toward the limit on
the number of cash value transfers permitted under the Policy each year. Cash
value that is transferred to the Fixed Account, and future premium amounts
allocated to the Fixed Account, may subsequently be transferred back to one or
more Sub-Accounts of the Variable Account, subject to the Policy's general
limits on transfers from the Fixed Account (see "The Fixed Account").
The Policy generally permits NELICO to limit allocations to the Fixed
Account under certain circumstances. (See "The Fixed Account.") If NELICO
limits such allocations and you subsequently wish to exercise the 24 Month
Right, your right will be limited to (i) the Policy's cash value prior to any
face amount increase plus that portion of future premiums attributable to the
Policy's face amount prior to any increase, if the right is exercised during
the first 24 months after issue, or (ii) that portion of the Policy's cash
value and future premiums attributable to the face amount increase, if the
right is exercised within 24 months after a face amount increase. After
exercising the 24 Month Right, you may continue to allocate to the Fixed
Account only the percentage of premiums that was allocated to the Fixed
Account pursuant to your most recent exercise of the 24 Month Right. In
addition, if you have exercised this right, and NELICO subsequently limits
such allocations, then you may continue to allocate to the Fixed Account only
the lowest percentage of premiums that was allocated to the Fixed Account at
any time since your most recent exercise of the 24 Month Right.
FOR POLICIES ISSUED IN MARYLAND AND NEW JERSEY. Under Policies issued in
Maryland and New Jersey, you can exchange the initial face amount of your
Policy, and any increase in face amount of your Policy, for a fixed benefit
whole life or endowment life insurance policy provided that (1) the Policy has
not lapsed and (2) the exchange is made within 24 months after the Policy's
issue date or, if you are exchanging an increase in face amount, within 24
months after the effective date of the increase. The new policy will be issued
by NELICO or, if no such policy is available for an exchange, by MetLife. If
you exercise this option, you will have to make up any investment loss you had
that is attributable to the portion of the variable life insurance policy
being exchanged.
The exchange will be made without evidence of insurability. The new policy
will have, at the option of the policyholder, either the same death benefit or
the same net amount at risk as that being exchanged. For the exchange of the
initial face amount of the variable life policy, the new policy will have the
same issue age, underwriting class and policy date as the variable life policy
had. For the exchange of an increase in face amount, the new policy will have
the same issue age of the insured as the age of the insured on the effective
date of the increase, the same underwriting class as the underwriting class on
the effective date of the increase, and a policy date equal to the effective
date of the increase. Any riders to the original Policy will be attached to
the new policy if they are available.
The exchange will be effective on the date when NELICO receives written
notice at its Administrative Office in a form satisfactory to NELICO, the
Policy and payment to NELICO of any cost to exchange. (See "Receipt of
Communications and Payments at NELICO's Administrative Office".) The exchange
may result in a cost or credit to you. The cost or credit will reflect any
differences in cash values and charges between the exchanged portion of the
variable life policy and the new policy. Upon the exchange, you may also need
to make an immediate premium payment on the new policy in order to keep it in
force. Any policy loan outstanding must be repaid on or before the effective
date of the exchange.
PAYMENT OPTIONS
The Policy's death benefit and net cash value will be paid in one sum unless
the Policy Owner or payee chooses to put all or part of the proceeds under a
payment option. You can choose a combination of payment options. The selection
of a payment option and the naming of a payee must be in written form
satisfactory to NELICO. You can make, change or revoke the selection before
the death of the insured. The payment options available are fixed benefit
options only; therefore, proceeds applied to an option will no longer be
affected by the investment experience of the Variable Account. The guaranteed
mortality assumptions used in determining payment levels under the options
will not vary based on sex. (For Policies issued in New York and Oregon,
however, and which are not issued for use in connection with certain employee
benefit plans and fringe benefit programs, the
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mortality assumptions will vary based on sex. See "Group or Sponsored
Arrangements".) Once payments under an option begin, withdrawal rights may be
restricted.
The following payment options are available:
(i) INCOME FOR A SPECIFIED NUMBER OF YEARS. Proceeds are paid in equal
monthly installments for up to 30 years, with interest at a rate not
less than 3.5% a year, compounded yearly. Additional interest paid by
NELICO for any year will be added to the monthly payments for that
year.
(ii) LIFE INCOME. Proceeds are paid in equal monthly installments (i)
during the life of the payee, (ii) for the longer of the life of the
payee or 10 years, or (iii) for the longer of the life of the payee or
20 years.
(iii) LIFE INCOME WITH REFUND. Proceeds are paid in equal monthly
installments during the life of the payee. At the payee's death, any
unpaid proceeds remaining are paid either in one sum or in equal
monthly installments until the total proceeds have been paid.
(iv) INTEREST. Proceeds are held for the life of the payee or another
agreed upon period. Interest of at least 3.5% a year is paid monthly
or added to the principal annually. At the death of the payee, or at
the end of the period agreed to, the balance of principal and any
interest will be paid in one sum.
(v) SPECIFIED AMOUNT OF INCOME. Proceeds plus accrued interest of at least
3.5% a year are paid in an amount and at a frequency elected until
total proceeds have been paid. Any amounts unpaid at the death of the
payee will be paid in one sum.
(vi) LIFE INCOME FOR TWO LIVES. Proceeds will be paid in equal monthly
installments (i) while either of two payees is living, (ii) for the
longer of the surviving payee or 10 years, or (iii) while the two
payees are living and, after the death of one payee, two-thirds of the
monthly amount for the life of the surviving payee will be paid.
NELICO's consent to use of an option is required if the installment payments
would be less than $20.
ADDITIONAL BENEFITS BY RIDER
The Guaranteed Death Benefit, if elected at issue, is added to the Policy by
rider. A Policy can include additional benefits provided by rider to the
Policy, subject to NELICO's underwriting and issuance standards. These
additional benefits usually require an additional charge as part of the
Monthly Deduction from cash value. The rider benefits available with the
Policies provide fixed benefits that do not vary with the investment
experience of the Variable Account, and rider benefits are subject to
different terms, conditions, and guarantees than is the Policy.
It may be to your economic advantage to include a significant portion or
percentage of your insurance coverage under a term rider. However, like the
cost of coverage under the Policy, charges deducted from the Policy's cash
value to pay for term coverage no longer participate in the investment
experience of the Variable Account, and generally increase with the age of the
covered individual. Use of a term rider reduces sales compensation. Your
registered representative can provide you more information on the uses of term
rider coverage.
The following riders are available:
ADJUSTABLE TERM RIDER, which provides term insurance. This Rider terminates
no later than the Policy anniversary on which the insured has reached
attained age 100.
WAIVER OF MONTHLY DEDUCTION, which provides for waiver of Monthly Deductions
upon the disability of the insured.
TEMPORARY TERM INSURANCE, which provides for insurance from the date of
issue to the Policy Date.
Not all riders may be available to you and riders in addition to those
listed above may be made available. You should consult your registered
representative regarding the availability of particular riders.
POLICY OWNER AND BENEFICIARY
The Policy Owner is named in the application but may be changed from time to
time. At the death of the Policy Owner, his or her estate will become the
Policy Owner unless a successor Policy Owner has been named. The Policy
Owner's rights (except for rights to payment of benefits) terminate at the
death of the insured.
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The beneficiary is also named in the application. The beneficiary of the
Policy may be changed at any time before the death of the insured. The
beneficiary has no rights under the Policy until the death of the insured and
must survive the insured in order to receive the death proceeds. If no named
beneficiary survives the insured, the proceeds will be paid to the Policy
Owner.
A change of Policy Owner or beneficiary must be in written form satisfactory
to NELICO and must be dated and signed by the Policy Owner making the change.
The change will be subject to all payments made and actions taken by NELICO
under the Policy before the signed change form is received by NELICO at its
Administrative 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 Administrative Office. NELICO will not be responsible
for determining whether or not an assignment is valid. Changing the Policy
Owner or assigning the Policy may have tax consequences. (See "Tax
Considerations" below.)
THE VARIABLE ACCOUNT
The Variable Account was established as a separate investment account of
NELICO on January 31, 1983 under Delaware law and became subject to
Massachusetts law when NELICO changed its domicile to Massachusetts on August
30, 1996. The Variable Account is the funding vehicle for other NELICO
variable life insurance policies in addition to the Policies; these other
policies impose different costs, and provide different benefits, from the
Policies. The Variable Account meets the definition of a "separate account"
under Federal securities laws. The Variable Account is registered with the
Securities and Exchange Commission (the "SEC") as a unit investment trust
under the Investment Company Act of 1940. Registration with the SEC does not
involve supervision by the SEC of the management or investment practices or
policies of the Variable Account. However, both NELICO and the Variable
Account are subject to regulation by the Massachusetts Insurance Commissioner
and to the insurance laws and regulations in every jurisdiction where the
Policies are sold.
Although the assets of the Variable Account are owned by NELICO, applicable
law provides that the portion of the Variable Account assets equal to the
reserves and other liabilities of the Variable Account may not be charged with
liabilities that arise out of any other business NELICO may conduct. NELICO
believes this means that the assets of the Variable Account equal to the
reserves and other liabilities of the Variable Account are not available to
meet the claims of NELICO's general creditors, and may only be used to support
the cash values under its variable life insurance policies issued by the
Variable Account. But NELICO may transfer to its general account assets which
exceed the reserves and other liabilities of the Variable Account. Before
making any such transfer, NELICO will consider any possible adverse impact the
transfer might have on the Variable Account.
Income and realized and unrealized capital gains and losses of the Variable
Account are credited to the Variable Account without regard to any of NELICO's
other income or capital gains and losses.
INVESTMENTS OF THE VARIABLE ACCOUNT
The Variable Account currently has 16 Sub-Accounts, each of which invests in
a series of an Eligible Fund. The Sub-Accounts of the Variable Account are:
--The Zenith Money Market Sub-Account, which invests in the Back Bay
Advisors Money Market Series of the Zenith Fund
--The Zenith Bond Income Sub-Account, which invests in the Back Bay Advisors
Bond Income Series of the Zenith Fund
--The Zenith Capital Growth Sub-Account, which invests in the Capital Growth
Series of the Zenith Fund
--The Zenith Stock Index Sub-Account, which invests in the Westpeak Stock
Index Series of the Zenith Fund
--The Zenith Managed Sub-Account, which invests in the Back Bay Advisors
Managed Series of the Zenith Fund
--The Zenith Growth and Income Sub-Account, which invests in the Westpeak
Growth and Income Series of the Zenith Fund
--The Zenith Small Cap Sub-Account, which invests in the Loomis Sayles Small
Cap Series of the Zenith Fund
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--The Zenith Balanced Sub-Account, which invests in the Loomis Sayles
Balanced Series of the Zenith Fund
--The Zenith Equity Growth Sub-Account, which invests in the Alger Equity
Growth Series of the Zenith Fund
--The Zenith Venture Value Sub-Account, which invests in the Davis Venture
Value Series of the Zenith Fund
--The Zenith Midcap Value Sub-Account, which invests in the Goldman Sachs
Midcap Value Series (formerly the Loomis Sayles Avanti Growth Series) of
the Zenith Fund
--The Zenith International Magnum Equity Sub-Account, which invests in the
Morgan Stanley International Magnum Equity Series of the Zenith Fund
--The Equity-Income Sub-Account, which invests in the Equity-Income
Portfolio of the VIP Fund
--The Overseas Sub-Account, which invests in the Overseas Portfolio of the
VIP Fund
--The High Income Sub-Account, which invests in the High Income Portfolio of
the VIP Fund
--The Asset Manager Sub-Account, which invests in the Asset Manager
Portfolio of VIP Fund II
The Zenith Fund is an open-end diversified management investment company,
more commonly known as a mutual fund. The Zenith Fund was established as an
investment vehicle for separate investment accounts of NELICO and of other
life insurance companies. Currently the Zenith Fund is the funding vehicle for
the Variable Account and for separate accounts of NELICO and MetLife that
issue variable annuity contracts.
The VIP Fund and VIP Fund II are open-end, diversified management investment
companies (mutual funds) that serve as the investment vehicles for variable
life insurance and variable annuity separate accounts of various insurance
companies. The VIP Fund and VIP Fund II were organized by Fidelity Management
& Research Company.
Shares of the Eligible Funds are purchased and sold by the Variable Account
at their net asset value (without a deduction for sales load) determined as of
the close of regular trading on the New York Stock Exchange on each day when
the exchange is open for trading.
The investment objectives of the Eligible Funds' portfolios are described
briefly below. There is, of course, no assurance that these objectives will be
met. A full description of the Eligible Funds, including their investment
objectives and policies, expenses, and risks of investing in the Eligible
Funds, is contained in the attached Eligible Fund prospectuses, as well as in
the Zenith Fund's Statement of Additional Information, which is referenced in
the Zenith Fund prospectus, and in the Statement of Additional Information for
the VIP Fund and VIP Fund II, which is referenced in those Funds' prospectus.
The investment objectives and policies of certain Eligible Funds are similar
to the investment objectives and policies of other funds that may be managed
by the same sub-adviser. The investment results of the Eligible Funds,
however, may be higher or lower than the results of such other funds. There
can be no assurance, and no representation is made, that the investment
results of any of the Eligible Funds will be comparable to the investment
results of any other fund, even if the other fund has the same sub-adviser.
The Zenith Back Bay Advisors Money Market Series' investment objective is
the highest possible level of current income consistent with preservation of
capital through investment in a managed portfolio of high quality money market
instruments. Money market funds are neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Series will maintain a
stable net asset value of $100 per share.
The Zenith Back Bay Advisors Bond Income Series' investment objective is to
provide a high level of current income consistent with protection of capital.
The Zenith Capital Growth Series' investment objective is long-term growth
of capital through investment primarily in equity securities of companies
whose earnings are expected to grow at a faster rate than the U.S. economy.
The Zenith Westpeak Stock Index Series' investment objective is to provide
investment results that correspond to the composite price and yield
performance of United States publicly traded common stocks. The Series
currently seeks to achieve its objective by attempting to duplicate the
composite price and yield performance of the Standard & Poor's 500 Composite
Stock Price Index.
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The Zenith Back Bay Advisors Managed Series' investment objective is to
provide a favorable total investment return through investment in a
diversified portfolio of common stocks and fixed income securities.
The Zenith Westpeak Growth and Income Series' investment objective is long-
term total return (capital appreciation and dividend income) through
investment in equity securities. Emphasis will be given to both undervalued
securities ("value" style) and securities of companies with growth potential
("growth" style).
The Zenith Loomis Sayles Small Cap Series' investment objective is long-term
capital growth from investments in common stocks or their equivalent. The
Series invests primarily in stocks of small cap companies with good earnings
growth potential that Loomis Sayles believes are undervalued by the market.
Normally, the Series will invest at least 65% of its assets in companies with
market capitalization in the range of the market capitalization of those
companies which make up the Russell 2000 Index at the time of investment.
The Zenith Loomis Sayles Balanced Series' investment objective is reasonable
long-term investment return from a combination of long-term capital
appreciation and moderate current income. The Series is "flexibly managed" in
that sometimes it invests more heavily in equity securities and at other times
it invests more heavily in fixed-income securities. The Series invests at
least 25% of its assets in fixed income securities and, under normal market
conditions, more than 50% of its assets in common stocks.
The Zenith Morgan Stanley International Magnum Equity Series' investment
objective is long-term capital appreciation through investment primarily in
international equity securities of non-U.S. issuers, in accordance with the
EAFE country weightings determined by the series' sub-adviser. Under normal
circumstances at least 65% of the total assets of the series will be invested
in equity securities of issuers in at least three countries outside the United
States.
The Zenith Goldman Sachs Midcap Value Series' investment objective is long-
term capital appreciation. The Series invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of companies with public stock market
capitalization within the range of the market capitalization of companies
constituting the Russell Midcap Index at the time of investment.
The Zenith Davis Venture Value Series' investment objective is growth of
capital. The Series will primarily invest in domestic common stocks that the
Series' subadviser believes have capital growth potential due to factors such
as undervalued assets or earnings potential, product development and demand,
favorable operating ratios, resources for expansion, management abilities,
reasonableness of market price, and favorable overall business prospects. The
Series will generally invest predominantly in equity securities of companies
with market capitalizations of at least $250 million.
The Zenith Alger Equity Growth Series' investment objective is to seek long-
term capital appreciation. The Series' assets will be invested primarily in a
diversified, actively managed portfolio of equity securities, primarily of
companies having a total market capitalization of $1 billion or greater.
The VIP Fund Equity-Income Portfolio's investment objective is to seek
reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Portfolio will also consider the
potential for capital appreciation. The Portfolio's goal is to achieve a yield
which exceeds the composite yield on the securities comprising the Standard &
Poor's 500 Composite Stock Price Index.
The VIP Fund Overseas Portfolio's investment objective is long-term growth
of capital primarily through investments in foreign securities. VIP Overseas
Portfolio provides a means for investors to diversify their own portfolios by
participating in companies and economies outside of the United States.
The VIP Fund High Income Portfolio's investment objective is to obtain a
high level of current income by investing primarily in high yielding, lower
rated, fixed-income securities, while also considering growth of capital. The
Portfolio may purchase lower-quality bonds which provide poor protection for
payment of principal and interest (commonly referred to as "junk bonds"). For
a discussion of the risks of investment in these securities, please see the
prospectus for the VIP Funds, which is attached to this prospectus.
The VIP Fund II Asset Manager Portfolio's investment objective is to seek a
high total return with reduced risk over the long-term by allocating its
assets among domestic and foreign stocks, bonds and short-term money market
instruments.
The basic objective of the Policy is to provide benefits which increase in
value when the investment experience of the Policy's sub-accounts is
favorable. Historically, the investment performance of common stocks over the
long term has generally been superior to that of long or short term debt
securities, although common stocks have been subject to more dramatic changes
in value over short periods of time. The Zenith Capital Growth, Zenith Midcap
Value, Zenith Equity Growth, Zenith
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<PAGE>
Venture Value, Zenith Growth and Income, Zenith Stock Index, Zenith
International Magnum Equity or Zenith Small Cap Sub-Accounts, or the Equity-
Income or Overseas Sub-Accounts, or some combination of these sub-accounts,
may, therefore, be a more desirable selection for Policy Owners who have a
long-term time horizon and/or are willing to accept such risks of short term
fluctuations in value. For a demonstration of certain of these market trends,
see Appendix C: Long Term Market Trends. Historically, the investment
performance of "small cap" stocks over the long term has generally been
superior to stocks of large capitalization companies, although "small cap"
stocks have been substantially more volatile than "large cap" stocks.
Historically, having a small percentage of a portfolio invested in overseas
stocks and the rest in domestic stocks has produced a portfolio that has less,
although still substantial, volatility than a completely domestic portfolio.
Equity investors should recognize that overseas and "small cap" funds taken
alone traditionally involve more risk than most domestic stock funds.
The performance of the various financial markets over shorter periods of
time has sometimes differed from their long term historical results. Short
term interest rates were very high in the late 1970's and early 1980's, but
are now lower. Long term bond values continue to fluctuate and could lose
value if interest rates rise. Common stock prices, which have risen
substantially at times, have also had periods of significant negative returns.
Policy Owners who seek somewhat greater protection against loss of principal
in the short term than that afforded by a stock fund may prefer the High
Income Sub-Account or the Zenith Bond Income Sub-Account. However, because the
High Income Portfolio invests in higher yielding, lower rated and unrated
fixed income securities (including bonds commonly referred to as "junk"
bonds), it has a higher degree of risk associated with it relative to more
conservative fixed income funds. Those who seek even greater safety of
principal may select the Zenith Money Market Sub-Account, although it is
subject to possible rapid changes in short term interest rates. Those who
primarily seek safety of principal should consider fixed life insurance as an
alternative to variable life insurance.
NELICO guarantees the principal invested in the Fixed Account, although this
guarantee is subject to NELICO's claims paying ability.
You may wish to consider diversifying your investments by allocating the
Policy's cash value among two or more sub-accounts.
Policy Owners may also diversify by selecting the Zenith Managed Sub-
Account, Zenith Balanced Sub-Account or the Asset Manager Sub-Account, since
each generally invests its assets at most times in a combination of bonds,
stocks and short term instruments, in varying proportions depending upon the
investment adviser's evaluation of the economy and financial markets. The
Asset Manager Portfolio has the ability to invest its stock portfolio more
aggressively than the Back Bay Advisors Managed Series. You may also wish to
diversify your cash value by country. The Overseas Sub-Account and Zenith
International Magnum Equity Sub-Account allow you to participate primarily in
companies and economies outside the United States.
The selection of a Policy's sub-accounts is a matter of your own choice and
should depend on your willingness to accept investment risks, the other types
of investments you have and your own assessment of future economic and
financial market conditions.
INVESTMENT MANAGEMENT
The adviser and sub-adviser for each series of the Zenith Fund are listed in
the chart below. TNE Advisers, which is an indirect, wholly-owned subsidiary
of NELICO, CGM, and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------- -----------
<S> <C> <C>
Capital Growth Capital Growth Management Limited
Partnership ("CGM")*
Back Bay Advisors Money Market TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Bond Income TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Managed TNE Advisers, Inc. Back Bay Advisors, L.P.*
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Westpeak Growth and Income TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Morgan Stanley International TNE Advisers, Inc. Morgan Stanley Asset Management Inc.
Magnum Equity
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------- -----------
<S> <C> <C>
Goldman Sachs Midcap Value TNE Advisers, Inc. Goldman Sachs Asset Management
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.**
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
</TABLE>
- --------
* An affiliate of NEL ICO
** Davis Selected may also delegate any of its responsibilities to Davis
Selected Advisers--NY, Inc., a wholly-owned subsidiary of Davis Selected.
In the case of the Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series, Back Bay Advisors Managed Series, Westpeak Stock Index
Series, Westpeak Growth and Income Series, Goldman Sachs Midcap Value Series
and Loomis Sayles Small Cap Series, TNE Advisers became the adviser on May 1,
1995. Prior to that date those series were advised by their current sub-
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
Capital Growth Series was managed by Loomis Sayles until March 1, 1990, when
its Capital Growth Management Division was reorganized into CGM. The Morgan
Stanley International Magnum Equity Series' sub-adviser was Draycott Partners,
Ltd. until May 1, 1997, when Morgan Stanley Asset Management became the sub-
adviser. The Goldman Sachs Midcap Value Series' sub-adviser was Loomis Sayles
until May 1, 1998, when Goldman Sachs became the sub-adviser. For more
information about the Series' advisory agreements, see the Zenith Fund
prospectus attached at the end of this prospectus and the Zenith Fund's
Statement of Additional Information.
Fidelity Management & Research Company, the investment adviser for the VIP
Fund and VIP Fund II, is the original Fidelity company and was founded in
1946. It provides a number of mutual funds and other clients with investment
research and portfolio management services. It maintains a large staff of
experienced investment personnel and a full complement of related support
facilities. For more information regarding the Equity-Income, Overseas High
Income and Asset Manager Portfolios and Fidelity Management & Research
Company, see the VIP Fund and VIP Fund II prospectus attached at the end of
this prospectus and their Statement of Additional Information.
THE FIXED ACCOUNT
A FIXED ACCOUNT OPTION IS AVAILABLE UNDER THE POLICY IN STATES WHERE IT HAS
BEEN APPROVED BY THE STATE INSURANCE DEPARTMENT. THE FIXED ACCOUNT MAY NOT BE
APPROVED BY EVERY STATE INSURANCE DEPARTMENT AND THEREFORE IT MAY NOT BE
AVAILABLE IN EVERY STATE.
You may allocate net premiums for your Policy, and may transfer your
Policy's cash value, to the Fixed Account, which is part of NELICO's general
account. Because of exemptive and exclusionary provisions in the Federal
securities laws, interests in the Fixed Account have not been registered under
the Securities Act of 1933, and neither the Fixed Account nor the general
account has been registered as an investment company under the Investment
Company Act of 1940. Therefore, neither the Fixed Account, the general account
nor any interests therein are generally subject to the provisions of these
Acts, and NELICO has been advised that the staff of the SEC does not review
disclosures relating to the general account. Disclosures regarding the Fixed
Account may, however, be subject to certain generally applicable provisions of
the Federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
GENERAL DESCRIPTION
NELICO's general account includes all the assets owned by NELICO, other than
the assets in the Variable Account or in any other separate accounts that
NELICO may establish. NELICO has sole discretion over the investment of assets
in the general account, including the Fixed Account. Policy Owners who
allocate cash value to the Fixed Account will not share in the actual
investment experience of the Fixed Account. Instead, NELICO guarantees that
cash values in the Fixed Account will earn interest at an annual rate of at
least 4%. NELICO may from time to time credit interest at a higher rate than
4%, but it is under no obligation to do so. NELICO declares the current
interest rate for the Fixed Account periodically. Your Policy cash values that
are in the Fixed Account will earn interest daily.
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<PAGE>
NELICO may vary the way in which it credits interest in the Fixed Account
from time to time. The following is a description of NELICO's current method
for crediting interest to cash value in the Fixed Account. All of your
Policy's cash value in the Fixed Account on a Policy anniversary will earn
interest at the declared annual rate in effect on the anniversary. It will
earn interest at this rate until the next Policy anniversary, when it will be
credited with the current rate declared by NELICO. (Although NELICO's current
practice is to credit your entire Fixed Account cash value on a Policy
anniversary with the most recently declared annual rate until the next
anniversary, NELICO can select any portion, from 0% to 100%, of your Fixed
Account cash value on a Policy anniversary to earn interest at the most
recently declared rate until the next Policy anniversary.) Any net premiums
allocated or any portion of your Policy's cash value transferred to the Fixed
Account from the Variable Account on a date other than a Policy anniversary
will earn interest at NELICO's most recently declared rate until the next
Policy anniversary. Any loan repayment allocated to the Fixed Account will be
credited with the lesser of the most recently declared interest rate and the
effective interest rate for your Policy's cash value in the Fixed Account on
the date of the repayment. The effective interest rate credited at any time to
your cash value in the Fixed Account will be a weighted average of all the
Fixed Account rates for your Policy.
VALUES AND BENEFITS
The Policy's cash value in the Fixed Account reflects the net premiums
allocated to the Fixed Account, interest credited to cash value in the Fixed
Account, any loans, partial surrenders made from the Fixed Account cash value,
charges deducted, and any transfers of cash value to or from the Variable
Account. Charges will be deducted from the Policy's cash value in the Fixed
Account and in the Policy's Sub-Accounts in proportion to the amount of the
Policy's cash value in each, unless you have designated a monthly charge sub-
account. (See "Monthly Deduction from Cash Value".) The Fixed Account cannot
be selected as the monthly charge sub-account. A Policy's total cash value
will include its cash value in the Variable Account, its cash value in the
Fixed Account, and any of its cash value held in NELICO's general account (but
outside of the Fixed Account) as a result of a Policy loan.
The amount of the Policy's cash value in the Fixed Account will be taken
into account in the calculation of the Policy's death benefit in the same
manner as the cash value in the Variable Account. (See "Death Benefit".)
POLICY TRANSACTIONS
NELICO reserves the right to restrict allocations to the Fixed Account if
the effective annual rate of interest that would apply to the amount allocated
is the minimum 4% rate. Otherwise, allocations of net premiums to the Fixed
Account are subject to the same percentage requirements that apply to the
Variable Account. (See "Allocation of Net Premiums".)
Except as described below, amounts in the Fixed Account are subject to the
same rights and limitations regarding premium allocations, transfers, loans,
surrenders and partial surrenders that apply to amounts in the Variable
Account. (See "Other Policy Features".) The following special rules apply to
transactions involving amounts in the Fixed Account.
TRANSFERS OF AMOUNTS FROM THE FIXED ACCOUNT TO THE VARIABLE ACCOUNT WILL BE
ALLOWED ONLY ONCE IN EACH POLICY YEAR. A TRANSFER OF CASH VALUE FROM THE FIXED
ACCOUNT WILL BE PROCESSED ONLY IF NELICO RECEIVES THE TRANSFER REQUEST WITHIN
THE 30 DAY PERIOD AFTER THE POLICY ANNIVERSARY, AND THE TRANSFER WILL BE
EFFECTED AS OF THE DATE THE TRANSFER REQUEST IS RECEIVED AT NELICO'S
ADMINISTRATIVE OFFICE. THE AMOUNT OF CASH VALUE WHICH MAY BE TRANSFERRED FROM
THE FIXED ACCOUNT IS LIMITED TO THE GREATER OF 25% OF THE POLICY'S CASH VALUE
IN THE FIXED ACCOUNT ON THE TRANSFER DATE OR THE AMOUNT OF CASH VALUE
TRANSFERRED FROM THE FIXED ACCOUNT IN THE PRECEDING POLICY YEAR. Regardless of
these limits, if a transfer of cash value from the Fixed Account would reduce
the remaining cash value in the Fixed Account below $100, you may transfer the
entire amount of cash value from the Fixed Account. The total number of
transfers among Sub-Accounts and from the Sub-Accounts to the Fixed Account
may not exceed four in one Policy year without NELICO's consent. NELICO
currently allows 12 such transfers per Policy year. Transfers out of the Fixed
Account will not be counted against this limit. NELICO reserves the right to
restrict transfers of cash value into the Fixed Account, if the effective
annual rate of interest that would apply to the amount transferred is the
minimum 4% rate.
Unless you request otherwise, a Policy loan will reduce the Policy's cash
value in the Sub-Accounts and not the cash value in the Fixed Account. If
there is not enough cash value in the Policy's Sub-Accounts to provide the
amount of the loan, however, the balance of the loan will be taken from the
cash value in the Fixed Account. All loan repayments will be allocated first
to the outstanding loan balance attributable to the Fixed Account. The amount
removed from the Policy's Sub-Accounts and the Fixed Account as a result of a
loan will earn interest at not less than 4% per year, which will be credited
annually to the Policy's cash value in the Sub-Accounts and the Fixed Account
in proportion to the Policy's cash value in each on the day it is credited.
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<PAGE>
Unless you request otherwise, partial surrenders will be taken only from the
Policy's Sub-Accounts and not the Fixed Account. If there is not enough cash
value in the Policy's sub-accounts to provide the full amount requested, the
balance of the partial surrender will be taken from the Fixed Account.
NELICO has the right to delay transfers, surrenders, and Policy loans from
the Fixed Account for up to six months (to the extent allowed by state
insurance law). Loans to pay premiums on policies issued by NELICO will not be
delayed.
NELICO'S DISTRIBUTION AGREEMENT
NELICO sells the Policies through agents who are licensed by state insurance
officials to sell NELICO's variable life insurance policies. These agents are
also registered representatives of New England Securities Corporation ("New
England Securities"). New England Securities, a Massachusetts corporation
organized in 1968 and an indirect, wholly-owned subsidiary of NELICO, is
registered with the SEC as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc.
New England Securities, whose principal business address is 399 Boylston
Street, Boston, Massachusetts 02116, serves as the principal underwriter for
the Policies under a Distribution Agreement between NELICO and New England
Securities.
Under the Distribution Agreement, NELICO pays the following sales expenses:
general agent and agency manager's compensation, agents' training allowances,
deferred compensation and insurance benefits of agents, general agents and
agency managers and advertising expenses and all other expenses of
distributing the Policies.
The selling agent may select one of three alternative schedules for payment
by NELICO of commissions and/or service fees for sales of a Policy: (1) a
maximum of 12.5% of the Target Premium (plus any additional portion of a
premium which NELICO attributes to certain riders for commission paying
purposes) paid in the first Policy year, a maximum of 6% in Policy years two
through ten, and a maximum of 2% thereafter; with a maximum commission of .67%
of each payment in excess of the Target Premium (plus any additional portion
of a premium which NELICO attributes to certain riders for commission paying
purposes) in any year; (2) a maximum of 12.5% of the Target Premium (plus any
additional portion of a premium which NELICO attributes to certain riders for
commission paying purposes) paid in the first Policy year, and, after the
first Policy year, a maximum of 2% of the Target Premium (plus any additional
portion of a premium which NELICO attributes to certain riders for commission
paying purposes) paid in each Policy year plus a maximum of .175% of the
Policy's cash value; with a maximum commission of .67% of each payment in
excess of the Target Premium (plus any additional portion of a premium which
NELICO attributes to certain riders for commission paying purposes) in any
year; or (3) a maximum commission of 12.5% of the Target Premium (plus any
additional portion of a premium which NELICO attributes to certain riders for
commission paying purposes) paid in the first Policy year, plus a maximum of
.26% of the Policy's cash value after the first Policy year; with a maximum
commission of .67% of each payment in excess of the Target Premium (plus any
additional portion of a premium which NELICO attributes to certain riders for
commission paying purposes) in any year. For Policies sold to certain cases
the maximum 12.5% first year commission may be paid in installments over a
period of years rather than all in the first Policy year. Agents who meet
certain productivity and persistency standards in selling policies issued by
NELICO may be eligible for additional compensation. Non-cash forms of
compensation may also be paid in compliance with applicable law. Sales
expenses in any year are not equal to the deduction for sales charges in that
year.
New England Securities distributes mutual funds, variable annuity contracts
and variable life insurance policies. It is the principal underwriter for the
Zenith Fund; The New England Variable Account; New England Retirement
Investment Account; New England Variable Annuity Separate Account; and New
England Variable Annuity Fund I. New England Securities also sells interests
in various investment partnerships.
New England Securities may enter into selling agreements with other broker-
dealers registered under the Securities Exchange Act of 1934 whose
representatives are authorized by applicable law to sell variable life
insurance policies. Under the agreements with those broker-dealers, the
commission paid to the broker-dealer on behalf of the registered
representative will not exceed the following, depending upon the compensation
schedule elected by the selling agent: (1) 12.5% of the Target Premium (plus
any additional portion of a premium which NELICO attributes to certain riders
for commission paying purposes) in the first Policy year, 6% in Policy years
two through ten, and a maximum of 2% thereafter, and .67% of all payments in
excess of the Target Premium (plus any additional portion of a premium which
NELICO attributes to certain riders for commission paying purposes) in any
year; (2) a maximum of 12.5% of the Target Premium (plus any additional
portion of a premium which NELICO attributes to certain riders for commission
paying purposes) paid in the first Policy year, and, after the first Policy
year, a
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<PAGE>
maximum of 2% of the Target Premium (plus any additional portion of a premium
which NELICO attributes to certain riders for commission paying purposes) paid
in each Policy year plus a maximum of .175% of the Policy's cash value; with a
maximum commission of .67% of each payment in excess of the Target Premium
(plus any additional portion of a premium which NELICO attributes to certain
riders for commission paying purposes) in any year; or (3) a maximum
commission of 12.5% of the Target Premium (plus any additional portion of a
premium which NELICO attributes to certain riders for commission paying
purposes) paid in the first Policy year, plus a maximum of .26% of the
Policy's cash value after the first Policy year; with a maximum commission of
.67% of each payment in excess of the Target Premium (plus any additional
portion of a premium which NELICO attributes to certain riders for commission
paying purposes) in any year. NELICO may pay certain broker-dealers an
additional bonus after the first Policy year on behalf of certain registered
representatives, the maximum amount of which may equal up to the amount of the
basic commission for the particular Policy year. Commissions will be paid
through the registered broker- dealer, which may also be reimbursed for
portions of expenses incurred in connection with the sale of the Policies or
paid additional compensation.
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
Generally, NELICO can challenge the validity of your Policy or a rider to
your Policy during the insured's lifetime for two years (or less, if required
by state law) from the date of issue, based on misrepresentations made in the
application. NELICO can challenge the portion of the death benefit resulting
from payment of an underwritten premium payment for two years during the
insured's lifetime from the date the premium payment was received and can
challenge the portion of the death benefit resulting from an increase in face
amount for two years during the insured's lifetime from the effective date of
the increase. However, if the insured dies within two years of the date of
issue, NELICO can challenge all or part of the Policy at any time with respect
to misrepresentations in the application. If the insured dies within two years
of the effective date of an increase in face amount, NELICO can challenge the
portion of the death benefit resulting from the face amount increase at any
time with respect to misrepresentation.
MISSTATEMENT OF AGE OR SEX
If the insured's age or sex is misstated in the application, the Policy's
death benefit will be the amount that the most recent Monthly Deduction which
was made would have provided, based on the insured's correct age and, if the
Policy is sex-based, on the insured's correct sex.
SUICIDE
If the insured commits suicide within two years (or less, if required by
state law) from the date of issue set forth in the Policy, the death benefit
will be limited to the amount of the premiums paid, less any policy loan
balance, and less any partial surrenders. If the insured commits suicide more
than two years from the issue date of the Policy but within two years from the
effective date of an increase in face amount, the death benefit for the
increase in face amount will be limited to the Monthly Deductions and any Face
Amount Increase Administrative Charge made to pay for that increase. (Where
required by state law, NELICO will determine the death benefit under this
provision by using the greater of: the reserve of the insurance which is
subject to the provision; and the amounts used to purchase the insurance which
is subject to the provision.)
TAX CONSIDERATIONS
POLICY PROCEEDS
The following discussion of Federal income tax issues relating to the
Policies is general in nature and is not intended as tax advice. It describes
what NELICO believes is the Federal income tax treatment of the Policies in
the most commonly occurring circumstances and does not reflect the effect of
Federal income taxes in all situations. In addition, there is no guarantee
that the Federal income tax laws and regulations or interpretation of them
will not change. Therefore, NELICO recommends that you consult your own tax
advisor for more complete information and advice.
DEFINITION OF LIFE INSURANCE. Section 7702 of the Internal Revenue Code of
1986, as amended ("Code") defines a life insurance contract for Federal income
tax purposes.
The Section 7702 definition can be met if a life insurance contract
satisfies either one of two tests set forth in that section. The manner in
which these tests should be applied to certain features of the Policy is not
directly addressed by Section 7702 or
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<PAGE>
proposed regulations issued under that section. The presence of these Policy
features, the absence of final regulations, and the lack of other pertinent
interpretations of Section 7702, thus creates some uncertainty about the
application of Section 7702 to the Policy.
Nevertheless, NELICO believes that the Policy qualifies as a life insurance
contract for federal income tax purposes. This means that:
. the death benefit should be fully excludible from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
. the Policy Owner should not be considered in constructive receipt of the
cash surrender value, including any increases, unless and until they are
distributed from the Policy.
Because of the absence of final regulations or any other pertinent
interpretations, it, however, is unclear whether substandard risk and
automatic issue Policies or Policies with term riders added will, in all
cases, meet the statutory life insurance contract definition. If a Policy were
determined not to be a life insurance contract for purposes of Section 7702,
such Policy would not provide most of the tax advantages normally provided by
a life insurance contract.
NELICO thus reserves the right to make changes in the Policy if such changes
are deemed necessary to attempt to assure its qualification as a life
insurance contract for tax purposes.
TAXATION OF ACCELERATED BENEFITS RIDER. NELICO believes that payments
received under the accelerated benefits rider it makes available will qualify
as an accelerated death benefit under the Code. (See "Acceleration of Death
Benefit Rider" for more information regarding the rider.) Pursuant to the
Health Insurance Portability and Accountability Act of 1996, a payment that is
treated as an accelerated death benefit for federal income tax purposes should
be fully excludable from the gross income of the beneficiary, as long as the
beneficiary is the insured under the Policy. If such payments do not qualify
as an accelerated death benefit, their tax treatment would depend on whether
or not the Policy is a modified endowment contract. You should consult a
qualified tax adviser about the consequences of adding this rider to a Policy
or requesting a payment under this rider.
TAX LAW EFFECTS ON CERTAIN PRE-DEATH DISTRIBUTIONS. Section 7702A of the
Code contains provisions affecting the tax treatment of any loan, assignment
or other pre-death distribution from a life insurance policy which is also a
"modified endowment contract" (defined below under "Modified Endowment
Contracts"). Whether a Policy will be classified as a modified endowment
contract will depend upon the amount and timing of payments made under the
Policy.
NON-MODIFIED ENDOWMENT CONTRACTS. For Policies not classified as modified
endowment contracts NELICO believes any Policy loans received under such
Policies will be treated as indebtedness of the Policy Owner and will not be
treated as taxable income to you. This assumes that the Policy has not lapsed,
been surrendered or terminated. As a general rule, Policy loan interest is not
deductible under current Federal income tax law.
You may be subject to Federal income tax upon surrender of your Policy if
the net cash surrender value of the Policy is greater than the investment in
the Policy less prior distributions from the Policy that were not taxed. If a
Policy has a Policy loan and is surrendered or lapses, the Policy loan is
treated as a distribution and would be taxable if there is a gain in the
Policy. In that case, the gain in the Policy would be taxable even if the
Policy has no net cash surrender value. If you incur a loss upon the surrender
it is not likely to be deductible for Federal income tax purposes.
Generally, a partial surrender of the Policy will not be taxable to you
unless it is greater than the investment in the Policy less the untaxed
portions of any prior distributions. The Code does provide, however, that in
certain situations in the first 15 years of the Policy partial surrenders may
be taxable, in whole or in part, if the cash value is greater than the total
investment in the Policy. In this case, an amount may be taxable even if the
amount of the partial surrender is less than the investment in the Policy.
MODIFIED ENDOWMENT CONTRACTS. A modified endowment contract is a life
insurance contract which fails to satisfy a "7-pay test". In general, a Policy
will fail to satisfy the 7-pay test if the total amount paid under the Policy
at any time during the first seven Policy years exceeds the sum of the net
level premiums that would have been paid on or before such time if the Policy
provided for paid up future benefits after the payment of seven level annual
premiums. (The amount of premiums payable under the 7-pay test are calculated
based upon certain assumptions regarding the Policy's earnings and the use of
a reasonable mortality charge. Variable Account investment experience does not
affect whether or not a Policy will become a modified endowment contract.)
Riders to the Policy are considered part of the Policy for purposes of
applying the 7-pay test. If there is a
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<PAGE>
reduction in the Policy's death benefit (for example, as a result of a partial
surrender or face amount reduction) at any time during the first seven Policy
years or within seven years of a face amount increase or "material change"
(see below), the 7-pay test will be applied back to issue (or to the date of
the most recent face amount increase or material change, whichever is latest),
as if the Policy's coverage were equal to the reduced face amount at that
time. If there is a reduction in rider or other benefits during the first
seven Policy years, the 7-pay test will be applied as if the Policy had
originally been issued at the reduced benefit amount. Any Policy received in
exchange for a modified endowment contract will also be a modified endowment
contract.
Your registered representative can provide you with information about the
maximum amount of premiums which you can make under your Policy during the
first seven Policy years and still satisfy the 7-pay test. This information
will be based upon NELICO's current understanding of the Federal tax law. As
is the case with any provision of the Internal Revenue Code, there is no
assurance that the Internal Revenue Service will agree with NELICO's
interpretation. NELICO will monitor any IRS announcements or rulings
concerning compliance with the 7-pay test.
MATERIAL CHANGES. If a "material change" in the benefits or other Policy
terms occurs under a Policy which has satisfied the 7-pay test, the Policy may
be treated as a new Policy entered into on the day on which the material
change occurred. The Policy will be retested under the 7-pay test, after
making certain adjustments to reflect the Policy's existing cash value. Any
increase in future benefits under the Policy (for example, an increase
pursuant to the "Salary Refresh" program) may constitute a material change if
the increase is not due to the payment of premiums necessary to fund the
Policy's lowest death benefit payable in the first seven Policy years, or the
crediting of interest or other earnings with respect to such premiums. A
material change would also occur if certain Policy changes occurred.
If you do not wish to have the Policy become a modified endowment contract,
you may be required to limit the payment of premiums under the Policy at some
point (or limit your reduction of benefits). The point at which you may have
to limit the payment of premiums will depend upon the issue age and sex of the
insured, investment experience and the amount of your previous payments.
If you exchange your policy for another life insurance policy, the new
insurance policy should be reviewed to determine how the rules regarding
modified endowment contracts may apply to the new policy. (See "24 Month
Right".)
DISTRIBUTIONS UNDER MODIFIED ENDOWMENT CONTRACTS. If a Policy is a modified
endowment contract, then the following rules will apply to distributions under
such contract:
(a) Distributions will be includible in your gross income to the extent
the cash value of the Policy exceeds your investment in the Policy (i.e.,
will be treated as income first).
(b) Loans (including any unpaid interest) are considered distributions.
Your investment in the Policy will be increased by the amount of any prior
loan that was included in your gross income.
(c) A Policy assignment is treated as a distribution. For example, in a
split dollar insurance plan involving a collateral assignment of the Policy,
the collateral assignment is a distribution which will subject any gain that
accrues in the Policy to taxation.
(d) For purposes of determining the amount of the distribution which is
includible in gross income, all modified endowment contracts issued by
NELICO or its affiliates to the same Policy Owner during any calendar year
must be treated as one modified endowment contract.
Any taxable distribution will be subject to an additional tax equal to 10%
of the taxable amount of the distribution unless the distribution is:
(a) made on or after the date when you attain age 59 1/2;
(b) is attributable to your becoming disabled; or
(c) is part of a series of substantially equal periodic payments made no
less frequently than annually for your life (or life expectancy) or for the
joint lives (or life expectancies) of you and your beneficiary.
If a Policy becomes a modified endowment contract, distributions made during
the Policy year in which it becomes a modified endowment contract,
distributions in any subsequent Policy year and distributions within two years
before the Policy becomes a modified endowment contract will be subject to the
tax treatment described above. This means that a distribution from a Policy
that is not a modified endowment contract could later become taxable as a
distribution from a modified endowment
A-37
<PAGE>
contract. In addition, regulations or other interpretations may be issued
which will apply similar tax treatment to other distributions made in
anticipation of a Policy becoming a modified endowment contract.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS. In the case of a pre-death
distribution (including a loan, partial surrender, collateral assignment or
full surrender) from a Policy that is treated as a modified endowment
contract, a special aggregation requirement may apply for purposes of
determining the amount of the income on the Policy. Specifically, if NELICO or
any of its affiliates issues to the same Policy Owner more than one modified
endowment contract within a calendar year, then for purposes of measuring the
income on the Policy with respect to a distribution from any of those
policies, the income on the policy for all those policies will be aggregated
and attributed to that distribution.
OTHER POLICY OWNER TAX MATTERS. Federal and state estate, inheritance and
other tax consequences of ownership or receipt of proceeds under the Policy
depend upon the individual circumstances of each Policy Owner or beneficiary.
The tax consequences of continuing the Policy beyond the insured's 100th
year are unclear. You should consult a tax advisor if you intend to allow the
Policy to remain in force beyond the insured's 100th year.
Section 817(h) of the Code requires the investments of the Variable Account
to be "adequately diversified" in accordance with Treasury Regulations for the
Policy to qualify as a life insurance contract under Section 7702 of the Code.
Failure to comply with the diversification requirements may result in not
treating the Policy as life insurance. If the Policy does not qualify as life
insurance, you may be subjected to immediate taxation on the incremental
increases in cash value of the Policy plus the cost of insurance protection
for the year. Regulations specifying the diversification requirements have
been issued by the Department of Treasury, and NELICO believes it complies
fully with such requirements.
In connection with the issuance of the diversification regulations, the
Treasury Department stated that it anticipates the issuance of additional
guidance prescribing the circumstances in which an owner's control of the
investments of a separate account may cause a Policy Owner, rather than the
insurance company, to be treated as the owner of the assets in the separate
account. If a Policy Owner is considered the owner of the assets of the
Separate Account, income and gains from the Account would be included in the
Owner's gross income.
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the Internal Revenue Service in
rulings in which it determined that the owners were not owners of separate
account assets. For example, a Policy Owner has additional flexibility in
allocating payments and cash values. These differences could result in the
owner being treated as the owner of a pro rata share of the assets of the
Separate Account. In addition, NELICO does not know what standards will be set
forth in the additional guidance which the Treasury has stated it expects to
be issued. NELICO therefore reserves the right to modify the Policy as
necessary to attempt to prevent the Policy Owner from being considered the
owner of the assets of the Separate Account.
In the event that a Policy is owned by the trustee under a pension or profit
sharing plan, or similar deferred compensation arrangement, the Federal, state
and estate tax consequences of ownership or receipt of proceeds under the
Policy could differ from the principles stated herein. However, if ownership
of such Policy is transferred from the plan to a plan participant (upon
termination of employment, for example), the Policy will be subject to all of
the rules described above relating to Federal tax treatment, including the
rules regarding modified endowment contracts. Policies owned by the trustee
under the plans described above may be subject to restrictions under ERISA.
You should consult a qualified tax advisor regarding any applicable
requirements of ERISA.
If the Policy is owned as part of a pension or profit-sharing plan qualified
under Section 401 of the Code, the current cost of insurance for the net
amount at risk is treated as a "current fringe benefit" and is required to be
included annually in the plan participant's gross income. This cost (generally
referred to as the "P.S. 58" cost) is reported to the participant annually. If
the plan participant dies while covered by the plan and the Policy proceeds
are paid to the participant's beneficiary, then the excess of the death
benefit over the cash value will not be subject to Federal income tax.
However, the cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy. The participant's cost basis will
generally include the costs of insurance previously reported as income to the
participant. Special rules may apply if the participant had borrowed from his
cash value or was an owner-employee under the plan.
There are limits on the amounts of life insurance that may be purchased on
behalf of a participant in a pension or profit-sharing plan. Complex rules, in
addition to those discussed above, apply whenever life insurance is purchased
by a tax qualified plan.
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<PAGE>
The Policies may be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus plans, tax exempt and nonexempt welfare benefit plans,
retiree medical benefit plans and others. The tax consequences of such plans
may vary depending on the particular facts and circumstances of each
individual arrangement. Therefore, if you are contemplating the use of the
Policies in any arrangement the value of which depends in part on its tax
consequences, you should be sure to consult a qualified tax advisor regarding
the tax attributes of the particular arrangement and the suitability of this
product for the arrangement. 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 life insurance contract should consult a tax advisor.
NELICO believes that Policies subject to the provisions of the Puerto Rican
tax law will generally receive similar tax treatment, with certain
modifications, as that described above for Policies subject to the Internal
Revenue Code. For taxable years commencing after July 1, 1995, amounts in the
nature of accelerated death benefits are excluded from gross income. The
individual must be certified by a physician as terminally ill and prior
approval of the Secretary of the Treasury must be obtained. You should note
that Policies governed by the Puerto Rican tax law are not currently subject
to the above described rules regarding modified endowment contracts. If such a
Policy becomes subject to the Internal Revenue Code, however, the rules
regarding modified endowment contracts will apply, and they may apply
retroactively. You should consult your tax advisor if a Policy governed by the
Puerto Rican tax law subsequently becomes subject to the Internal Revenue
Code.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Policy could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted,
would adversely modify the federal taxation of this Policy. It is possible
that any legislative change could be retroactive (that is, effective prior to
the date of the change). A tax adviser should be consulted with respect to
legislative developments and their effect on the Policy.
CHARGE FOR NELICO'S INCOME TAXES
Under current Federal income tax law no tax is imposed on NELICO as a result
of the operations of the Variable Account. Thus, no charge is being made
currently to the Variable Account for company Federal income taxes, except for
the charge for federal taxes that is deducted from premiums. NELICO reserves
its rights to charge the Variable Account for company Federal income taxes in
the future.
Under current laws NELICO may incur state and local taxes (in addition to
premium taxes) in several states. At present these taxes are not significant
and, accordingly, NELICO is not currently making a charge for them. If they
increase, however, charges for such taxes attributable to the Variable Account
may be made.
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 Chairman, President and Chief Executive Officer of
NELICO since 1998; formerly, Director, President and
Chief Operating Officer 1997-1998 of NELICO; President
and CEO 1996-1997 of Equitable Life Assurance Society
and President and COO of Equitable Companies, Inc.;
Senior Vice President 1993-1996 of Equitable Life
Assurance Society.
Robert H. Benmosche Director of NELICO since 1998 and Chairman, President
Metropolitan Life and Chief Executive Officer of Metropolitan Life
Insurance Co. Insurance Company since 1998; formerly, Director,
One Madison Avenue President and Chief Operating Officer 1997-1998;
New York, NY 10010 Executive Vice President 1995-1997 of Metropolitan
Life; Executive Vice President 1989-1995 of Paine
Webber.
Susan C. Crampton Director of NELICO since 1996 and serves as Principal
127 Tarbox Road of The Vermont Partnership, a business consulting firm
Jericho, VT 05465 located in Jericho, Vermont since 1989; formerly,
Director 1989-1996 of New England Mutual.
</TABLE>
A-39
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<C> <S>
Edward A. Fox Director of NELICO since 1996 and Chairman of the Board
SLM Holdings of SLM Holdings since 1997; formerly, Director 1994-
1050 Thomas Jefferson 1996 of New England Mutual and Dean 1990-1994 of The
St., N.W. Amos Tuck School of Business Administration at
Washington, D.C. 20007 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 1987-
74 Tater Street 1996 of New England Mutual and Executive Director and
Mont Vernon, NH 03057 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
Bernard A. Leventhal Director of NELICO since 1996; formerly, Vice Chairman
Burlington Industries of the Board of Directors 1995-1998 of Burlington
1345 Avenue of the Industries, Inc.; Director and Executive Vice
Americas President 1993-1995 of Burlington Menswear Division.
17th Floor
New York, NY 10105
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 Vice Chairman and
Metropolitan Life Chief Financial Officer of Metropolitan Life Insurance
Insurance Co. Company since 1998; formerly, Senior Executive Vice
One Madison Avenue President and Chief Financial Officer 1986-1998 of
New York, NY 10010 Metropolitan Life Insurance Company.
Catherine A. Rein Director of NELICO since 1998 and Senior Executive Vice
Metropolitan Life President of Metropolitan Life Insurance Company since
Insurance Company 1998; formerly, Executive Vice President 1989-1998 of
One Madison Avenue Metropolitan Life Insurance Company.
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; formerly,
1317 F Street, NW, Director 1983-1996 of New England Mutual.
Suite 500
Washington, D.C. 20004
</TABLE>
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<PAGE>
EXECUTIVE OFFICERS OF NELICO
OTHER THAN DIRECTORS
<TABLE>
<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.
Anthony J. Candito President, New England Financial Information Services
(a business unit of NELICO) and Chief Information
Officer since 1998; formerly, Senior Vice President
1995-1998 of New England Life and Vice President 1994-
1995, Second 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.
Stephan M. Largent Senior Vice President of NELICO since 1998; formerly,
President 1995-1998 of First Variable Life Company,
President 1993-1995 of ING Equities, Inc. and Vice
President 1993-1995 of Security Life of Denver.
Alan C. Leland, Jr. Senior Vice President of NELICO since 1996; formerly,
Vice President 1984-1996 of New England Mutual.
Bruce C. Long President, New England Annuities (a business unit of
NELICO) since 1996; formerly, President 1994-1996 New
England Annuities (a business unit of New England
Mutual) and Senior Vice President in 1994 of New
England Annuities; Vice President 1992-1994 of Keyport
Life Insurance.
George J. Maloof Senior Vice President of NELICO since 1996; formerly,
Vice President 1991-1996 of New England Mutual.
Thomas W. McConnell Senior Vice President of NELICO since 1996 and
Director, Chief Executive Officer and President of New
England Securities Corporation since 1993; formerly,
National Sales Manager 1993 of Alliance Fund
Distributors; National Sales Manager 1992-1993 of
Equitable Capital Securities.
Thomas W. Moore Senior Vice President of NELICO since 1996; formerly,
Vice President 1990-1996 of New England Mutual.
Robert W. Powell President, Life Brokerage (a business unit of NELICO)
since 1996; formerly, Officer-In-Charge 1994-1996 of
MetLife Brokerage (a subsidiary of Metropolitan Life
Insurance Company) and Marketing Vice President 1988-
1994 of MetLife.
Robert E. Schneider Executive Vice President, Chief Financial Officer and
Chief Accounting Officer of NELICO since 1998;
formerly, Executive Vice President and Chief Financial
Officer 1996-1998 of NELICO, 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.
</TABLE>
A-41
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING PAST FIVE YEARS
---- -----------------------------
<C> <S>
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 Financial Employee Benefits
Group (a business unit of NELICO) since 1996;
formerly, President 1993-1996 New England Employee
Benefits Group (a business unit of New England
Mutual), Senior Vice President 1989-1993 of New
England Employee Benefits Group of New England
Mutual.
Frederick K. Zimmermann Executive Vice President and Chief Investment Officer
of NELICO since 1996; formerly, Executive Vice
President and Chief Investment Officer 1993-1996 and
Senior Vice President--Investments 1989-1993 of New
England Mutual.
</TABLE>
The principal business address for each of the directors and executive
officers is the same as NELICO's except where indicated otherwise.
Like all financial services providers, NELICO utilizes systems that may be
affected by Year 2000 transition issues and it relies on a number of third
parties, including banks, custodians, and investment managers, that also may
be affected. NELICO and its affiliates have developed, and are in the process
of implementing, a Year 2000 transition plan, and are confirming that their
service providers are also so engaged. The resources that are being devoted to
this effort are substantial. It is difficult to predict with precision whether
the amount of resources ultimately devoted, or the outcome of these efforts,
will have any negative impact on NELICO. However, as of the date of this
prospectus, it is not anticipated that Owners will experience negative effects
on their investment, or on the services provided in connection therewith, as a
result of Year 2000 transition implementation. NELICO currently anticipates
that its systems will be Year 2000 compliant on or about December 31, 1998,
with systems testing and compliance verification to follow. There can,
however, be no assurance that the other service providers have anticipated
every step necessary to avoid any adverse effect on the Variable Account
attributable to Year 2000 transition.
VOTING RIGHTS
NELICO is the legal owner of the Eligible Fund shares held in the Variable
Account and has the right to vote those shares at meetings of the Eligible
Fund shareholders. However, to the extent required by applicable Federal
securities law, NELICO will give you, as Policy Owner, the right to instruct
NELICO how to vote the shares that are attributable to your Policy.
The Policy Owners who are entitled to give voting instructions and the
number of shares attributable to their Policies will be determined as of the
record date for the meeting. All Eligible Fund shares held in any Sub-Account
of the Variable Account, or in any other registered (or to the extent voting
privileges are granted by the issuing insurance company, unregistered)
separate account of NELICO or an affiliate, and for which timely instructions
are not received, will be voted in the same proportion as (i) the aggregate
cash value of policies giving instructions, respectively, to vote, for,
against, or withhold votes on a proposition, bears to (ii) the total cash
value in that Sub-Account for all policies for which voting instructions are
received. No voting privileges apply with respect to cash value removed from
the Variable Account as a result of a Policy loan.
All Zenith Fund shares held by the general account (or any unregistered
separate account for which voting privileges were not extended) of NELICO or
its affiliates will be voted in the same proportion as the total of (i) shares
for which voting instructions were received and (ii) shares that are voted in
proportion to such voting instructions.
The SEC requires the Eligible Funds' Boards of Trustees to monitor events to
identify conflicts that may arise from the sale of Eligible Fund shares to
variable life and variable annuity separate accounts of affiliated and, if
applicable, unaffiliated insurance companies. Conflicts could arise as a
result of changes in state insurance law or Federal income tax law, changes in
investment management of any portfolio of the Eligible Funds, or differences
in voting instructions given by variable life and variable annuity contract
owners, for example. If there is a material conflict, the Board of Trustees
will have an obligation to determine what action should be taken, including
the removal of the affected Sub-Accounts from the Eligible Fund(s), if
necessary. If NELICO believes any Eligible Fund action is insufficient, NELICO
will consider taking other action to protect Policy Owners. There could,
however, be unavoidable delays or interruptions of operations of the Variable
Account that NELICO may be unable to remedy.
If required by state insurance authorities, NELICO may disregard voting
instructions if they would require that shares be voted to cause a change in
the investment objectives of the portfolios of the Eligible Funds or to
approve or disapprove an
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<PAGE>
investment advisory or underwriting contract for a portfolio. In addition,
NELICO may disregard voting instructions in favor of changes, initiated by a
Policy Owner or an Eligible Fund's Board of Trustees, in the investment
policy, investment adviser or principal underwriter of the Eligible Fund
portfolio if NELICO (i) reasonably disapproves of the changes and (ii) in the
case of a change in investment policy or investment adviser, makes a good
faith determination that the proposed change is contrary to state law or is
prohibited by state regulatory authorities or that the change would be
inconsistent with a Sub-Account's investment objectives or would result in the
purchase of securities which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts of
NELICO or of an affiliated life insurance company, which separate accounts
have investment objectives similar to those of the Sub-Account. If NELICO does
disregard voting instructions, a summary of that action and the reasons for it
will be included in the next semiannual report to Policy Owners.
RIGHTS RESERVED BY NELICO
NELICO and its affiliates may change the voting procedures described above,
and may vote Eligible Fund shares in their own right without instructions from
Policy Owners, if the applicable Federal securities laws or regulations or
interpretations of them change. NELICO also reserves the right: (1) to create
new investment accounts; (2) to combine any two or more separate investment
accounts including the Variable Account; (3) to make available additional Sub-
Accounts of the Variable Account investing in additional Eligible Fund
portfolios or in portfolios of other mutual funds; (4) to invest the assets of
the Variable Account in securities other than Eligible Fund shares or in
shares of a different series of the Eligible Funds as a substitute for such
shares already purchased or as the securities to be purchased in the future,
to withdraw the availability of a series of the Eligible Funds as an
investment option under the Policies, or to transfer assets to NELICO's
general account as permitted by applicable law; (5) to operate the Variable
Account as a management investment company under the Investment Company Act of
1940 or in any other form permitted by law; and (6) to deregister the Variable
Account under the Investment Company Act of 1940 if registration is no longer
required. NELICO will exercise these rights in accordance with applicable law,
including approval of Policy Owners if required. NELICO will notify you if
exercise of any of these rights would result in a material change in the
Variable Account or its investments.
TOLL-FREE NUMBERS
For information about historical values of the Variable Account Sub-
Accounts, call the toll-free number 1-800-333-2501.
For Sub-Account transfers, premium reallocations, or Statements of
Additional Information for the Eligible Funds, call the toll-free number 1-
800-621-5086.
You may also call our Administrative Office toll-free at 1-800-621-5086 to
request current information about your Policy values, to change or update
Policy information such as your address, billing mode, beneficiary or
ownership, or to request Policy loans of less than $25,000. Requests must be
in writing if the Policy is owned by a corporation or a pension trust.
For all other types of Policy changes, please contact your registered
representative.
REPORTS
NELICO will send you a statement annually showing your Policy's death
benefit, cash value and any outstanding Policy loan principal. NELICO will
also confirm Policy loans, subaccount transfers, lapses, surrenders and other
Policy transactions when they occur.
You will be sent semiannual reports containing the financial statements of
the Variable Account and the Eligible Funds.
ADVERTISING PRACTICES
NELICO may from time to time receive endorsements of the Policies from
professional organizations. NELICO may refer to or use such endorsements in
advertisements or sales material for the Policies. NELICO may also pay the
professional organization making the endorsement for the use of its customer
or mailing lists in order to distribute promotional materials regarding the
Policies. An endorsement of the Policies by a third party is not necessarily
indicative of the future performance or results which may be obtained by
persons who purchase the Policies.
From time to time, articles discussing the Variable Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited
A-43
<PAGE>
to Lipper Analytical Services, Inc. and Morningstar, Inc.) may publish their
own rankings or performance reviews of variable contract separate accounts,
including the Variable Account. References to, reprints or portions of
reprints of such articles or rankings may be used by NELICO as sales
literature or advertising material and may include rankings that indicate the
names of other variable contract separate accounts and their investment
experience.
Articles and releases, developed by NELICO, the Eligible Funds and other
parties, about the Variable Account or the Eligible Funds regarding individual
Eligible Funds' and fund groups' asset levels and sales volumes, statistics
and analyses of industry sales volume and asset levels, and other
characteristics may appear in various publications. References to or reprints
of such articles may be used in promotional literature for the Policies or the
Variable Account. Such literature may refer to personnel of the advisers, who
have portfolio management responsibility, and their investment style. The
reference may allude to or include excerpts from articles appearing in the
media.
NELICO is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
The advertising and sales literature for the Policies and the Variable
Account may refer to historical, current and prospective economic trends.
In addition, sales literature may be published concerning topics of general
investor interest for the benefit of registered representatives and
prospective Policy Owners. These materials may include, but are not limited
to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by H. James Wilson, General Counsel of NELICO. Sutherland,
Asbill & Brennan LLP, of Washington, D.C., has provided advice on certain
matters relating to 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 interim
financial statements of NELICO as of March 31, 1998 and for the three month
period ended March 31, 1998 and the interim financial statements of New
England Variable Life Separate Account as of December 31, 1998 and for each of
the three month periods ended March 31, 1998 and 1997 have not been audited,
reviewed or compiled by Deloitte & Touche LLP, and they assume no
responsibility for such financial statements.
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
A-44
<PAGE>
and auditing. The statutory statements of operations and surplus, and cash
flows of Exeter Reassurance Company, Ltd. for the year ended December 31, 1995
(not included herein), have been incorporated herein in reliance on the report
(which report includes an adverse opinion as to generally accepted accounting
principles and an unqualified opinion as to conformity with The Insurance Act
1978, amendments thereto and related regulations) of Coopers & Lybrand,
chartered accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated statements of operations, shareholder's equity, and cash
flows of New England Securities Corporation for the year ended December 31,
1995 (not included herein); the statements of operations, changes in
shareholder's equity, and cash flows of TNE Advisers, Inc. for the year ended
December 31, 1995 (not included herein), have been incorporated herein in
reliance on the reports of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing. The
statements of earnings and retained earnings, and cash flows of Newbury
Insurance Company, Limited for the year ended December 31, 1995 (not included
herein), have been incorporated herein in reliance on the reports of Coopers &
Lybrand, chartered accountants, given on the authority of that firm as experts
in accounting and auditing.
The statements of operations and changes in net assets of New England
Variable Life Separate Account for the period ended December 31, 1995, have
been incorporated herein in reliance on the reports of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Rodney
J. Chandler, F.S.A., M.A.A.A., Second Vice President and Actuary of NELICO, as
stated in his opinion filed as an exhibit to the Registration Statement.
A-45
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES,
AND ACCUMULATED PREMIUMS
The tables in Appendix A illustrate the way the Policies operate. They show
how the death benefit 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 insured is
assumed to be in the nonsmoker preferred risk classification. The Tables
assume no rider benefits and assume that no allocations are made to the Fixed
Account. (See "Charges and Expenses.") Each illustration is given for a Policy
with an Option 1 and an Option 2 death benefit, and for the cash value
accumulation test and guideline premium test. These tables may assist in the
comparison of death benefits, net cash values and cash values for the Policies
with those under other variable life insurance policies which may be issued by
NELICO or other companies.
Death benefits and cash values for a Policy would be different from the
amounts shown if the actual gross rates of return averaged 0%, 6% or 12%, but
varied above and below that average for the period, if premiums were paid in
other amounts or at other than annual intervals. They would also be different
depending on the allocation of cash value among the Variable Account's Sub-
Accounts, if the actual gross rate of return for all Sub-Accounts averaged 0%,
6% or 12%, but varied above or below that average for individual Sub-Accounts.
They would also differ if any Policy loan or partial surrender were made
during the period of time illustrated, if the insured were female or in
another risk classification, or if the Policies were issued at unisex rates.
The death benefits and cash values shown in the tables reflect: (i)
deductions from premiums for the sales charge and premium tax charge; and (ii)
a Monthly Deduction (consisting of a Policy fee, a mortality and expense risk
fee, and a charge for the cost of insurance) from the cash value on the first
day of each Policy month. (See "Charges and Expenses".) The illustrations are
based on an average of the investment advisory fees and operating expenses
incurred by the Eligible Funds, at an annual rate of .76% of the average daily
net assets of the Eligible Funds. This average reflects voluntary expense cap
and expense deferral arrangements between TNE Advisers and the Zenith Fund,
under which TNE Advisers bears operating expenses of the Zenith Fund Series
(other than the Capital Growth Series) that exceed certain amounts. TNE
Advisers could terminate the expense cap and expense deferral arrangements at
any time. If TNE Advisers terminates these arrangements, the values
illustrated on the following pages could be less. (See "Charges Against the
Eligible Funds and the Sub-Accounts of the Variable Account".)
Taking account of the 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 -0.76%,
5.2% and 11.15%, respectively.
The hypothetical rates of return shown in the tables do not reflect any tax
charges attributable to the Variable Account since no such charges are
currently made. If any such charges are imposed in the future, the gross
annual rate of return would have to exceed the rates shown by an amount
sufficient to cover the tax charges, in order to produce the death benefits,
net cash values and cash values illustrated. (See "Charges for NELICO's Income
Taxes".)
The second column of each table shows the amount which would accumulate if
an amount equal to the annual premium were invested to earn interest, after
taxes, of 5% per year, compounded annually.
The internal rate of return on net cash value is equivalent to an interest
rate (after taxes) at which an amount equal to the illustrated premiums could
have been invested outside the Policy to arrive at the net cash value of the
Policy. The internal rate of return on the death benefit is equivalent to an
interest rate (after taxes) at which an amount equal to the illustrated
premiums could have been invested outside the Policy to arrive at the death
benefit of the Policy. The internal rate of return is compounded annually, and
the premiums are assumed to be paid at the beginning of each Policy year.
NELICO will furnish upon request a personalized illustration reflecting the
proposed insured's age, sex, underwriting classification, and the face amount
or premium payment schedule requested. Where applicable, NELICO will also
furnish upon request an illustration for a Policy which is not affected by the
sex of the insured.
A-46
<PAGE>
MALE ISSUE AGE 40
$50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS
NONSMOKER PREFERRED UNDERWRITING RISK
$1,054,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
CASH VALUE ACCUMULATION TEST
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% 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%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $1,054,000 $1,054,000 $1,054,000 $ 42,015 $ 44,605 $ 47,193 -15.97% -10.79% -5.61%
2 107,625 1,054,000 1,054,000 1,054,000 83,415 91,205 99,292 -11.50 -5.98 -0.47
3 165,506 1,054,000 1,054,000 1,054,000 124,133 139,817 156,739 -9.17 -3.47 2.21
4 226,282 1,054,000 1,054,000 1,054,000 164,084 190,443 220,015 -7.76 -1.95 3.85
5 290,096 1,054,000 1,054,000 1,054,000 203,461 243,369 289,934 -6.79 -0.89 4.98
6 357,100 1,054,000 1,054,000 1,054,000 243,313 299,716 368,175 -5.96 -0.03 5.88
7 427,455 1,054,000 1,054,000 1,231,484 282,541 358,565 454,300 -5.36 0.60 6.53
8 448,828 1,054,000 1,054,000 1,313,790 276,838 373,044 499,591 -4.67 1.28 7.17
9 471,270 1,054,000 1,054,000 1,401,829 271,095 388,086 549,352 -4.23 1.73 7.61
10 494,833 1,054,000 1,054,000 1,496,420 265,427 403,824 604,167 -3.92 2.05 7.93
15 631,546 1,054,000 1,082,929 2,134,836 242,139 504,943 995,422 -3.04 3.09 8.97
20 806,031 1,054,000 1,180,866 3,065,931 213,259 629,131 1,633,439 -2.88 3.50 9.38
25 1,028,722 1,054,000 1,294,410 4,426,144 172,863 779,267 2,664,648 -3.16 3.69 9.58
30 1,312,940 1,054,000 1,429,710 6,438,469 112,308 959,283 4,319,973 -4.14 3.79 9.69
35 1,675,681 1,054,000 1,603,808 9,511,616 33,081 1,182,121 7,010,743 -7.14 3.87 9.76
<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 2008.00% 2008.00% 2008.00%
2 311.84 311.84 311.84
3 136.03 136.03 136.03
4 79.23 79.23 79.23
5 52.55 52.55 52.55
6 37.45 37.45 37.45
7 27.90 27.90 31.95
8 22.64 22.64 27.34
9 18.98 18.98 24.11
10 16.30 16.30 21.74
15 9.47 9.71 15.85
20 6.65 7.35 13.41
25 5.11 6.09 12.09
30 4.15 5.33 11.29
35 3.50 4.86 10.80
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT
VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS
CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-47
<PAGE>
MALE ISSUE AGE 40
$50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS
NONSMOKER PREFERRED UNDERWRITING RISK
$1,054,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
CASH VALUE ACCUMULATION TEST
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% 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%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $1,054,000 $1,054,000 $1,054,000 $ 41,183 $ 43,748 $ 46,310 -17.63% -12.50% -7.38%
2 107,625 1,054,000 1,054,000 1,054,000 81,610 89,297 97,279 -12.81 -7.31 -1.82
3 165,506 1,054,000 1,054,000 1,054,000 121,312 136,760 153,435 -10.24 -4.55 1.14
4 226,282 1,054,000 1,054,000 1,054,000 160,284 186,218 215,330 -8.66 -2.84 2.98
5 290,096 1,054,000 1,054,000 1,054,000 198,548 237,791 283,611 -7.59 -1.66 4.23
6 357,100 1,054,000 1,054,000 1,054,000 236,105 291,583 358,985 -6.81 -0.81 5.15
7 427,455 1,054,000 1,054,000 1,197,387 272,981 347,736 441,721 -6.22 -0.16 5.82
8 448,828 1,054,000 1,054,000 1,269,811 264,627 359,150 482,867 -5.56 0.52 6.48
9 471,270 1,054,000 1,054,000 1,346,646 256,023 370,835 527,727 -5.17 0.97 6.92
10 494,833 1,054,000 1,054,000 1,428,159 247,123 382,778 576,607 -4.92 1.28 7.24
15 631,546 1,054,000 1,054,000 1,916,457 196,179 445,845 893,597 -4.75 2.03 8.02
20 806,031 1,054,000 1,054,000 2,572,471 127,052 512,573 1,370,538 -5.83 2.26 8.28
25 1,028,722 1,054,000 1,054,000 3,453,697 24,993 580,726 2,079,211 -11.42 2.32 8.37
30 1,312,940 0 1,054,000 4,637,355 0 644,581 3,111,493 -100.00 2.28 8.38
35 1,675,681 0 1,054,000 6,227,164 0 695,393 4,589,867 -100.00 2.17 8.33
<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 2,008.00% 2,008.00% 2,008.00%
2 311.84 311.84 311.84
3 136.03 136.03 136.03
4 79.23 79.23 79.23
5 52.55 52.55 52.55
6 37.45 37.45 37.45
7 27.90 27.90 31.21
8 22.64 22.64 26.61
9 18.98 18.98 23.38
10 16.30 16.30 21.00
15 9.47 9.47 14.86
20 6.65 6.65 12.27
25 5.11 5.11 10.86
30 4.15 4.15 9.97
35 3.50 3.50 9.36
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT
VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS
CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-48
<PAGE>
MALE ISSUE AGE 40
$50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS
NONSMOKER PREFERRED UNDERWRITING RISK
$1,054,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
CASH VALUE ACCUMULATION TEST
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% 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%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $1,095,918 $1,098,502 $1,101,084 $ 41,918 $ 44,502 $ 47,084 -16.16% -11.00% -5.83%
2 107,625 1,137,123 1,144,883 1,152,938 83,123 90,883 98,938 -11.71 -6.21 -0.71
3 165,506 1,177,531 1,193,128 1,209,954 123,531 139,128 155,954 -9.40 -3.72 1.96
4 226,282 1,217,031 1,243,190 1,272,533 163,031 189,190 218,533 -8.01 -2.21 3.58
5 290,096 1,255,833 1,295,354 1,341,459 201,833 241,354 287,459 -7.05 -1.17 4.69
6 357,100 1,295,295 1,351,103 1,418,819 241,295 297,103 364,819 -6.19 -0.28 5.62
7 427,455 1,334,040 1,409,184 1,504,029 280,040 355,184 450,029 -5.58 0.37 6.29
8 448,828 1,327,868 1,422,831 1,548,378 273,868 368,831 494,378 -4.88 1.05 6.96
9 471,270 1,321,632 1,436,919 1,597,137 267,632 382,919 543,137 -4.44 1.50 7.42
10 494,833 1,315,489 1,451,630 1,650,928 261,489 397,630 596,928 -4.13 1.83 7.75
15 631,546 1,289,264 1,544,687 2,106,957 235,264 490,687 982,423 -3.27 2.84 8.85
20 806,031 1,256,147 1,653,673 3,025,883 202,147 599,673 1,612,103 -3.19 3.21 9.30
25 1,028,722 1,209,675 1,775,265 4,368,321 155,675 721,265 2,629,837 -3.63 3.33 9.52
30 1,312,940 1,141,871 1,902,878 6,354,349 87,871 848,878 4,263,532 -5.01 3.33 9.63
35 1,675,681 1,058,374 2,043,136 9,387,338 4,374 989,136 6,919,141 -12.90 3.29 9.72
<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 2,091.84% 2,097.00% 2,102.17%
2 329.50 331.12 332.79
3 146.63 147.91 149.29
4 87.50 88.74 90.11
5 59.71 60.99 62.45
6 44.00 45.36 46.94
7 34.05 35.49 37.22
8 27.57 29.06 30.90
9 23.04 24.56 26.49
10 19.72 21.26 23.28
15 11.27 12.89 15.73
20 7.74 9.46 13.32
25 5.77 7.61 12.03
30 4.46 6.44 11.24
35 3.51 5.65 10.75
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT
VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS
CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-49
<PAGE>
MALE ISSUE AGE 40
$50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS
NONSMOKER PREFERRED UNDERWRITING RISK
$1,054,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
CASH VALUE ACCUMULATION TEST
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% 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%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $1,095,054 $1,097,610 $1,100,165 $ 41,054 $ 43,610 $ 46,165 -17.89% -12.78% -7.67%
2 107,625 1,135,209 1,142,855 1,150,794 81,209 88,855 96,794 -13.10 -7.62 -2.15
3 165,506 1,174,479 1,189,805 1,206,347 120,479 135,805 152,347 -10.56 -4.89 0.78
4 226,282 1,212,836 1,238,494 1,267,290 158,836 184,494 213,290 -9.01 -3.20 2.59
5 290,096 1,250,283 1,288,987 1,334,166 196,283 234,987 280,166 -7.96 -2.06 3.82
6 357,100 1,286,791 1,341,321 1,407,544 232,791 287,321 353,544 -7.21 -1.23 4.71
7 427,455 1,322,364 1,395,566 1,488,083 268,364 341,566 434,083 -6.64 -0.61 5.39
8 448,828 1,312,660 1,404,787 1,526,846 258,660 350,787 472,846 -6.01 0.04 6.05
9 471,270 1,302,662 1,413,961 1,569,141 248,662 359,961 515,141 -5.64 0.47 6.51
10 494,833 1,292,321 1,423,032 1,615,278 238,321 369,032 561,278 -5.43 0.76 6.85
15 631,546 1,233,424 1,464,254 1,916,381 179,424 410,254 862,381 -5.47 1.33 7.71
20 806,031 1,155,710 1,488,861 2,480,539 101,710 434,861 1,321,559 -7.07 1.28 8.05
25 1,028,722 0 1,478,889 3,330,228 0 424,889 2,004,879 -100.00 0.88 8.20
30 1,312,940 0 1,399,370 4,471,530 0 345,370 3,000,231 -100.00 -0.05 8.23
35 1,675,681 0 1,193,448 6,004,455 0 139,448 4,425,714 -100.00 -2.84 8.21
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 2,090.11% 2,095.22% 2,100.33%
2 329.11 330.70 332.35
3 146.38 147.64 148.99
4 87.29 88.52 89.87
5 59.52 60.79 62.22
6 43.79 45.12 46.68
7 33.82 35.23 36.93
8 27.33 28.79 30.59
9 22.78 24.27 26.17
10 19.45 20.95 22.94
15 10.87 12.41 14.86
20 7.22 8.80 12.04
25 5.11 6.73 10.68
30 4.15 5.25 9.82
35 3.50 3.90 9.24
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT
VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS
CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-50
<PAGE>
MALE ISSUE AGE 40
$50,000 ANNUAL PREMIUM FOR TWENTY POLICY YEARS
NONSMOKER PREFERRED UNDERWRITING RISK
$2,900,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
GUIDELINE PREMIUM TEST
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% 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%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $2,900,000 $2,900,000 $ 2,900,000 $ 37,899 $ 40,357 $ 42,815 -24.20% -19.29% -14.37%
2 107,625 2,900,000 2,900,000 2,900,000 75,090 82,361 89,917 -17.64 -12.26 -6.88
3 165,506 2,900,000 2,900,000 2,900,000 111,338 125,837 141,506 -14.18 -8.53 -2.89
4 226,282 2,900,000 2,900,000 2,900,000 146,340 170,536 197,732 -12.11 -6.27 -0.46
5 290,096 2,900,000 2,900,000 2,900,000 180,644 217,063 259,654 -10.64 -4.67 1.27
6 357,100 2,900,000 2,900,000 2,900,000 217,692 268,995 331,407 -9.10 -3.11 2.85
7 427,455 2,900,000 2,900,000 2,900,000 253,932 322,994 410,383 -8.03 -2.01 3.98
8 501,328 2,900,000 2,900,000 2,900,000 289,667 379,454 497,641 -7.22 -1.17 4.84
9 578,895 2,900,000 2,900,000 2,900,000 324,547 438,135 593,712 -6.62 -0.53 5.50
10 660,339 2,900,000 2,900,000 2,900,000 358,972 499,528 699,906 -6.13 -0.02 6.03
15 1,132,875 2,900,000 2,900,000 2,900,000 529,300 864,758 1,452,255 -4.50 1.76 7.89
20 1,735,963 2,900,000 2,900,000 3,530,284 675,561 1,319,296 2,715,603 -3.91 2.57 8.78
25 2,215,577 2,900,000 2,900,000 5,410,965 563,581 1,622,297 4,509,137 -3.79 3.07 9.30
30 2,827,700 2,900,000 2,900,000 8,599,552 398,175 1,993,010 7,477,871 -4.56 3.33 9.58
35 3,608,942 2,900,000 2,900,000 13,049,926 183,089 2,477,971 12,428,501 -6.73 3.54 9.78
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 5,700.00% 5,700.00% 5,700.00%
2 613.22 613.22 613.22
3 248.60 248.60 248.60
4 143.55 143.55 143.55
5 96.81 96.81 96.81
6 71.12 71.12 71.12
7 55.12 55.12 55.12
8 44.31 44.31 44.31
9 36.57 36.57 36.57
10 30.80 30.80 30.80
15 15.64 15.64 15.64
20 9.32 9.32 10.92
25 6.64 6.64 10.38
30 5.12 5.12 10.24
35 4.15 4.15 9.97
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT
VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS
CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-51
<PAGE>
MALE ISSUE AGE 40
$50,000 ANNUAL PREMIUM FOR TWENTY POLICY YEARS
NONSMOKER PREFERRED UNDERWRITING RISK
$2,900,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
GUIDELINE PREMIUM TEST
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% 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%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $2,900,000 $2,900,000 $2,900,000 $ 35,655 $ 38,042 $ 40,429 -28.69% -23.92% -19.14%
2 107,625 2,900,000 2,900,000 2,900,000 70,123 77,102 84,363 -21.45 -16.13 -10.81
3 165,506 2,900,000 2,900,000 2,900,000 103,437 117,251 132,199 -17.47 -11.82 -6.18
4 226,282 2,900,000 2,900,000 2,900,000 135,519 158,451 184,269 -14.98 -9.10 -3.25
5 290,096 2,900,000 2,900,000 2,900,000 166,373 200,751 241,033 -13.28 -7.23 -1.22
6 357,100 2,900,000 2,900,000 2,900,000 195,927 244,121 302,926 -12.07 -5.86 0.28
7 427,455 2,900,000 2,900,000 2,900,000 224,188 288,620 370,521 -11.16 -4.82 1.42
8 501,328 2,900,000 2,900,000 2,900,000 251,110 334,258 444,414 -10.47 -4.00 2.34
9 578,895 2,900,000 2,900,000 2,900,000 276,676 381,077 525,301 -9.92 -3.34 3.08
10 660,339 2,900,000 2,900,000 2,900,000 300,791 429,048 613,899 -9.50 -2.80 3.70
15 1,132,875 2,900,000 2,900,000 2,900,000 395,406 684,859 1,205,029 -8.53 -1.14 5.73
20 1,735,963 2,900,000 2,900,000 2,900,000 431,856 962,623 2,174,024 -8.92 -0.36 6.93
25 2,215,577 2,900,000 2,900,000 4,157,370 153,974 986,279 3,464,475 -13.12 -0.09 7.72
30 2,827,700 0 2,900,000 6,334,859 0 888,154 5,508,573 -100.00 -0.58 8.15
35 3,608,942 0 2,900,000 9,213,315 0 507,450 8,774,586 -100.00 -2.67 8.44
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 5,700.00% 5,700.00% 5,700.00%
2 613.22 613.22 613.22
3 248.60 248.60 248.60
4 143.55 143.55 143.55
5 96.81 96.81 96.81
6 71.12 71.12 71.12
7 55.12 55.12 55.12
8 44.31 44.31 44.31
9 36.57 36.57 36.57
10 30.80 30.80 30.80
15 15.64 15.64 15.64
20 9.32 9.32 9.32
25 6.64 6.64 8.81
30 5.12 5.12 8.81
35 4.15 4.15 8.62
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT
VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS
CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-52
<PAGE>
MALE ISSUE AGE 40
$50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS FOR
NONSMOKER PREFERRED UNDERWRITING RISK
$1,054,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
GUIDELINE PREMIUM TEST
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% 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%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $1,095,918 $1,098,502 $1,101,084 $ 41,918 $ 44,502 $ 47,084 -16.16% -11.00% -5.83%
2 107,625 1,137,123 1,144,883 1,152,938 83,123 90,883 98,938 -11.71 -6.21 -0.71
3 165,506 1,177,531 1,193,128 1,209,954 123,531 139,128 155,954 -9.40 -3.72 1.96
4 226,282 1,217,031 1,243,190 1,272,533 163,031 189,190 218,533 -8.01 -2.21 3.58
5 290,096 1,255,833 1,295,354 1,341,459 201,833 241,354 287,459 -7.05 -1.17 4.69
6 357,100 1,295,295 1,351,103 1,418,819 241,295 297,103 364,819 -6.19 -0.28 5.62
7 427,455 1,334,040 1,409,184 1,504,029 280,040 355,184 450,029 -5.58 0.37 6.29
8 448,828 1,327,868 1,422,831 1,548,378 273,868 368,831 494,378 -4.88 1.05 6.96
9 471,270 1,321,632 1,436,919 1,597,137 267,632 382,919 543,137 -4.44 1.50 7.42
10 494,833 1,315,489 1,451,630 1,650,928 261,489 397,630 596,928 -4.13 1.83 7.75
15 631,546 1,289,264 1,544,687 2,036,567 235,264 490,687 982,567 -3.27 2.84 8.85
20 806,031 1,256,147 1,653,673 2,671,856 202,147 599,673 1,617,856 -3.19 3.21 9.32
25 1,028,722 1,209,675 1,775,265 3,716,865 155,675 721,265 2,662,865 -3.63 3.33 9.58
30 1,312,940 1,141,871 1,902,878 5,436,955 87,871 848,878 4,382,955 -5.01 3.33 9.74
35 1,675,681 1,058,374 2,043,136 8,293,903 4,374 989,136 7,239,903 -12.90 3.29 9.87
<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 2,091.84% 2,097.00% 2,102.17%
2 329.50 331.12 332.79
3 146.63 147.91 149.29
4 87.50 88.74 90.11
5 59.71 60.99 62.45
6 44.00 45.36 46.94
7 34.05 35.49 37.22
8 27.57 29.06 30.90
9 23.04 24.56 26.49
10 19.72 21.26 23.28
15 11.27 12.89 15.41
20 7.74 9.46 12.52
25 5.77 7.61 11.22
30 4.46 6.44 10.61
35 3.51 5.65 10.33
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT
VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS
CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-53
<PAGE>
MALE ISSUE AGE 40
$50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS
NONSMOKER PREFERRED UNDERWRITING RISK
$1,054,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
GUIDELINE PREMIUM TEST
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% 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%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $1,095,054 $1,097,610 $1,100,165 $ 41,054 $ 43,610 $ 46,165 -17.89% -12.78% -7.67%
2 107,625 1,135,209 1,142,855 1,150,794 81,209 88,855 96,794 -13.10 -7.62 -2.15
3 165,506 1,174,479 1,189,805 1,206,347 120,479 135,805 152,347 -10.56 -4.89 0.78
4 226,282 1,212,836 1,238,494 1,267,290 158,836 184,494 213,290 -9.01 -3.20 2.59
5 290,096 1,250,283 1,288,987 1,334,166 196,283 234,987 280,166 -7.96 -2.06 3.82
6 357,100 1,286,791 1,341,321 1,407,544 232,791 287,321 353,544 -7.21 -1.23 4.71
7 427,455 1,322,364 1,395,566 1,488,083 268,364 341,566 434,083 -6.64 -0.61 5.39
8 448,828 1,312,660 1,404,787 1,526,846 258,660 350,787 472,846 -6.01 0.04 6.05
9 471,270 1,302,662 1,413,961 1,569,141 248,662 359,961 515,141 -5.64 0.47 6.51
10 494,833 1,292,321 1,423,032 1,615,278 238,321 369,032 561,278 -5.43 0.76 6.85
15 631,546 1,233,424 1,464,254 1,916,381 179,424 410,254 862,381 -5.47 1.33 7.71
20 806,031 1,155,710 1,488,861 2,377,999 101,710 434,861 1,323,999 -7.07 1.28 8.06
25 1,028,722 0 1,478,889 3,086,179 0 424,889 2,032,179 -100.00 0.88 8.26
30 1,312,940 0 1,399,370 4,167,135 0 345,370 3,113,135 -100.00 -0.05 8.38
35 1,675,681 0 1,193,448 5,813,070 0 139,448 4,759,070 -100.00 -2.84 8.45
<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 2,090.11% 2,095.22% 2,100.33%
2 329.11 330.70 332.35
3 146.38 147.64 148.99
4 87.29 88.52 89.87
5 59.52 60.79 62.22
6 43.79 45.12 46.68
7 33.82 35.23 36.93
8 27.33 28.79 30.59
9 22.78 24.27 26.17
10 19.45 20.95 22.94
15 10.87 12.41 14.86
20 7.22 8.80 11.77
25 5.11 6.73 10.30
30 4.15 5.25 9.54
35 3.50 3.90 9.13
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT
VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS
CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-54
<PAGE>
APPENDIX B
INVESTMENT EXPERIENCE INFORMATION
The information contained in this Appendix gives hypothetical illustrations
of the Variable Account's and the Policy's investment experience based on the
historical investment experience of the Eligible Funds. It does not represent
what may happen in the future.
The Policies were not available until August, 1998. 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 Equity-Income Portfolio and Overseas
Portfolio of the VIP Fund commenced operations on October 9, 1986 and January
28, 1987, respectively. The High Income Portfolio of the VIP Fund and the
Asset Manager Portfolio of the VIP Fund II commenced operations on September
19, 1985 and September 6, 1989, respectively.
The illustrations are based on the actual investment experience of the
relevant Eligible Funds for the periods shown (net of actual charges and
expenses incurred by the Eligible Funds). The illustrations assume that
premiums are paid at the beginning of each year and that no loans, transfers
or other Policy Owner transactions were made during the periods shown.
VARIABLE ACCOUNT INVESTMENT EXPERIENCE
The Policies are supported by the Variable Account which invests in the
Eligible Funds. The investment experience of the Sub-Account or Sub-Accounts
you choose will affect the values and benefits of your Policy.
Many factors in addition to investment experience will affect the actual
values and benefits of your Policy. For instance, these investment experience
figures do not reflect the charges deducted from Premiums and Monthly
Deductions from the cash value. (See "Charges and Expenses".)
NET RATES OF RETURN
The annual net rate is the effective earnings rate at which the investment
Sub-Accounts increased or decreased over a one-year period, based on the
investment experience of the relevant Eligible Funds. The rate is calculated
by taking the difference between the Sub-Accounts' ending values and beginning
values of the period and dividing it by the beginning values of the period.
The effective annual net rate of return since inception is the annualized
effective interest rate at which the Sub-Accounts increased or decreased since
the inception dates of the Sub-Accounts. For each Sub-Account, the rate is
calculated by taking the difference between the Sub-Account's ending value and
the value on the date of its inception and dividing it by the value on the
date of inception. This result is the total net rate of return since inception
("Total Return"). The effective annual net rate of return is the rate which,
if compounded annually, would equal the total net rate of return since
inception.
A-55
<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>
Capital Growth*. 8.87% -0.36% 68.10% 95.21% 52.71% -8.81%
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>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------- 8/26/83- 8/26/83-
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>
Capital Growth*. 31.59% -4.07% 53.98% -6.05% 14.97% -7.74% 39.59% 20.59% 23.48% 1,895.71% 23.20%
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>
-----------------
5/1/87-
SUB-ACCOUNT 12/31/87 12/31/88
- ----------- -------- --------
<S> <C> <C>
Stock Index......................................... (12.20%) 16.34%
Managed............................................. (0.66) 9.48
<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% 14.84%
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 12/31/97 12/31/97
10/31/94- -------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Equity Growth................................ (4.20%) 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
- -------
* Rates of return reflect the Capital Growth Series' former investment
advisory fee of .50% of average daily net assets for the period through
December 31, 1987 and its current advisory fee schedule thereafter.
** The Morgan Stanley International Magnum Equity Series' sub-adviser was
Draycott Partners until May 1, 1997, when Morgan Stanley Asset Management
became 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%.
SUB-ACCOUNTS INVESTING IN VARIABLE INSURANCE PRODUCTS FUND
<CAPTION>
--------------------------
10/9/86-
SUB-ACCOUNT 12/31/86 12/31/87 12/31/88
- ----------- -------- -------- --------
<S> <C> <C> <C>
Equity-Income.............................. .20% -1.13% 21.93%
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------- 10/9/86- 10/9/86-
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>
Equity-Income..... 19.54% -16.31% 31.44% 16.89% 18.29% 6.93% 35.90% 13.75% 28.11% 365.04% 14.67%
<CAPTION>
-----------------
1/28/87-
SUB-ACCOUNT 12/31/87 12/31/88
- ----------- -------- --------
<S> <C> <C>
Overseas............................................ -5.38% 9.63%
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------- 1/28/87- 1/28/87-
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>
Overseas......... 23.97% -1.20% 8.00% -10.72% 37.35% 1.21% 11.02% 12.43% 11.56% 137.09% 8.22%
<CAPTION>
-----------------------------------
9/19/85-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
High Income....................... 6.38% 17.68% 1.22% 11.53%
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------- 9/19/85- 9/19/85-
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>
High Income...... -4.07% -2.23% 35.08% 23.17% 20.40% -1.45% 20.79% 13.75% 17.67% 322.94% 12.46%
SUB-ACCOUNT INVESTING IN VARIABLE INSURANCE PRODUCTS FUND II
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------------- 9/6/89- 9/6/89-
FOR ONE YEAR ENDING 12/31/97 12/31/97
9/6/89- ------------------------------------------------------------------------ TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager..... 1.32% 6.19% 22.56% 11.71% 21.23% -6.43% 17.68% 14.31% 20.65% 171.19% 12.74%
</TABLE>
A-56
<PAGE>
POLICY PERFORMANCE
The material below assumes a Policy was issued with a $1,054,000 face amount
($2,900,000 face amount in the case of the Option 1 death benefit, guideline
premium test example) with premiums paid on August 26 of the years in which
they are paid (May 1 in the case of the Zenith Stock Index, Zenith Managed and
Zenith Small Cap Sub-Accounts; October 31 in the case of the Zenith Balanced,
Zenith International Magnum Equity, Zenith Venture Value and Zenith Equity
Growth Sub-Accounts; October 9 in the case of the Equity-Income Sub-Account,
January 28 in the case of the Overseas Sub-Account; April 30 in the case of
the Zenith Growth and Income and Zenith Midcap Value Sub-Accounts; September
19 in the case of the High Income Sub-Account; September 6 in the case of the
Asset Manager Sub-Account), to a male age 40 in the nonsmoker preferred risk
category. Values and benefits are shown for Policies with an Option 1 and
Option 2 death benefit, and for the cash value accumulation test and guideline
premium test. 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. (See "Charges and
Expenses".) (See Appendix A for the definition of the internal rate of
return.)
MALE NONSMOKER PREFERRED RISK, AGE 40
$1,054,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
CASH VALUE ACCUMULATION TEST
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1983....... 50,000 1,054,000 1,054,000 47,893 47,893 -11.64% --
December 31, 1984....... 100,000 1,054,000 1,054,000 90,141 90,141 -11.72 786.55%
December 31, 1985....... 150,000 1,054,000 1,054,000 202,325 202,325 23.49 215.77
December 31, 1986....... 200,000 1,054,000 1,317,628 435,027 435,027 45.37 125.72
December 31, 1987....... 250,000 1,054,000 2,028,976 691,181 691,181 45.49 101.61
December 31, 1988....... 300,000 1,054,000 1,901,908 668,310 668,310 28.39 68.21
December 31, 1989....... 350,000 1,054,000 2,513,994 910,975 910,975 28.33 59.72
December 31, 1990....... 350,000 1,054,000 2,314,394 864,610 864,610 21.09 45.30
December 31, 1991....... 350,000 1,054,000 3,421,044 1,317,258 1,317,258 25.69 45.67
December 31, 1992....... 350,000 1,054,000 3,086,150 1,224,464 1,224,464 20.50 36.78
December 31, 1993....... 350,000 1,054,000 3,413,880 1,395,329 1,395,329 19.67 33.39
December 31, 1994....... 350,000 1,054,000 3,041,428 1,280,198 1,280,198 16.18 27.76
December 31, 1995....... 350,000 1,054,000 4,100,847 1,777,020 1,777,020 18.28 28.43
December 31, 1996....... 350,000 1,054,000 4,777,283 2,130,349 2,130,349 18.42 27.32
December 31, 1997....... 350,000 1,054,000 5,700,132 2,614,672 2,614,672 18.77 26.65
</TABLE>
A-57
<PAGE>
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE CASH VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1983....... 50,000 1,054,000 1,054,000 45,280 45,280 -24.80% --
December 31, 1984....... 100,000 1,054,000 1,054,000 96,850 96,850 -3.72 786.55%
December 31, 1985....... 150,000 1,054,000 1,054,000 159,420 159,420 4.57 215.77
December 31, 1986....... 200,000 1,054,000 1,054,000 225,497 225,497 6.56 107.68
December 31, 1987....... 250,000 1,054,000 1,054,000 272,105 272,105 3.62 66.26
December 31, 1988....... 300,000 1,054,000 1,054,000 336,745 336,745 4.06 45.19
December 31, 1989....... 350,000 1,054,000 1,160,419 420,492 420,492 5.46 35.61
December 31, 1990....... 350,000 1,054,000 1,203,947 449,770 449,770 5.78 29.05
December 31, 1991....... 350,000 1,054,000 1,363,182 524,887 524,887 7.65 26.39
December 31, 1992....... 350,000 1,054,000 1,415,920 561,782 561,782 7.56 22.99
December 31, 1993....... 350,000 1,054,000 1,534,036 626,995 626,995 8.08 21.08
December 31, 1994....... 350,000 1,054,000 1,428,275 601,189 601,189 6.59 17.61
December 31, 1995....... 350,000 1,054,000 1,675,579 726,079 726,079 7.98 17.58
December 31, 1996....... 350,000 1,054,000 1,693,258 755,080 755,080 7.60 15.97
December 31, 1997....... 350,000 1,054,000 1,814,263 832,209 832,209 7.82 15.20
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE CASH VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1983....... 50,000 1,054,000 1,054,000 45,386 45,386 -24.29% --
December 31, 1984....... 100,000 1,054,000 1,054,000 93,940 93,940 -7.18 786.55%
December 31, 1985....... 150,000 1,054,000 1,054,000 144,652 144,652 -2.68 215.77
December 31, 1986....... 200,000 1,054,000 1,054,000 196,689 196,689 -0.90 107.68
December 31, 1987....... 250,000 1,054,000 1,054,000 251,448 251,448 0.25 66.26
December 31, 1988....... 300,000 1,054,000 1,054,000 312,688 312,688 1.45 45.19
December 31, 1989....... 350,000 1,054,000 1,059,313 383,855 383,855 2.75 32.86
December 31, 1990....... 350,000 1,054,000 1,099,292 410,673 410,673 3.68 26.85
December 31, 1991....... 350,000 1,054,000 1,120,728 431,531 431,531 3.94 22.45
December 31, 1992....... 350,000 1,054,000 1,116,907 443,145 443,145 3.74 18.94
December 31, 1993....... 350,000 1,054,000 1,106,471 452,239 452,239 3.52 16.25
December 31, 1994....... 350,000 1,054,000 1,111,254 467,749 467,749 3.51 14.35
December 31, 1995....... 350,000 1,054,000 1,134,254 491,506 491,506 3.67 13.04
December 31, 1996....... 350,000 1,054,000 1,151,535 513,508 513,508 3.75 11.92
December 31, 1997....... 350,000 1,054,000 1,172,025 537,613 537,613 3.83 11.02
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE CASH VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1987....... 50,000 1,054,000 1,054,000 37,995 37,995 -33.68% --
December 31, 1988....... 100,000 1,054,000 1,054,000 89,361 89,361 -9.27 463.55%
December 31, 1989....... 150,000 1,054,000 1,054,000 169,006 169,006 7.31 168.48
December 31, 1990....... 200,000 1,054,000 1,054,000 200,966 200,966 0.22 91.74
December 31, 1991....... 250,000 1,054,000 1,054,000 307,644 307,644 7.85 58.80
December 31, 1992....... 300,000 1,054,000 1,056,259 374,034 374,034 6.98 41.13
December 31, 1993....... 350,000 1,054,000 1,243,164 453,936 453,936 7.07 34.80
December 31, 1994....... 350,000 1,054,000 1,205,715 453,861 453,861 5.59 27.21
December 31, 1995....... 350,000 1,054,000 1,597,712 619,840 619,840 10.24 28.00
December 31, 1996....... 350,000 1,054,000 1,864,591 745,335 745,335 11.60 26.45
December 31, 1997....... 350,000 1,054,000 2,380,040 979,993 979,993 13.87 26.59
</TABLE>
A-58
<PAGE>
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1987....... 50,000 1,054,000 1,054,000 43,013 43,013 -20.16% --
December 31, 1988....... 100,000 1,054,000 1,054,000 91,682 91,682 -7.22 463.55%
December 31, 1989....... 150,000 1,054,000 1,054,000 158,023 158,023 3.15 168.48
December 31, 1990....... 200,000 1,054,000 1,054,000 206,075 206,075 1.38 91.74
December 31, 1991....... 250,000 1,054,000 1,054,000 293,132 293,132 6.01 58.80
December 31, 1992....... 300,000 1,054,000 1,054,000 357,389 357,389 5.54 41.06
December 31, 1993....... 350,000 1,054,000 1,200,639 438,408 438,408 6.13 33.82
December 31, 1994....... 350,000 1,054,000 1,138,608 428,600 428,600 4.35 25.91
December 31, 1995....... 350,000 1,054,000 1,443,372 559,963 559,963 8.40 26.04
December 31, 1996....... 350,000 1,054,000 1,585,778 633,885 633,885 9.07 23.76
December 31, 1997....... 350,000 1,054,000 1,933,488 796,123 796,123 11.00 23.54
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1993....... 50,000 1,054,000 1,054,000 49,314 49,314 -2.04% --
December 31, 1994....... 100,000 1,054,000 1,054,000 91,336 91,336 -7.51 461.80%
December 31, 1995....... 150,000 1,054,000 1,054,000 176,580 176,580 10.05 168.16
December 31, 1996....... 200,000 1,054,000 1,054,000 254,295 254,295 11.33 91.62
December 31, 1997....... 250,000 1,054,000 1,133,755 390,254 390,254 17.06 62.05
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1993....... 50,000 1,054,000 1,054,000 49,536 49,536 -1.38% --
December 31, 1994....... 100,000 1,054,000 1,054,000 92,180 92,180 -6.76 461.80%
December 31, 1995....... 150,000 1,054,000 1,054,000 171,888 171,888 8.35 168.16
December 31, 1996....... 200,000 1,054,000 1,054,000 245,951 245,951 9.72 91.62
December 31, 1997....... 250,000 1,054,000 1,054,000 336,903 336,903 11.34 58.74
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1994....... 50,000 1,054,000 1,054,000 41,500 41,500 -24.41% --
December 31, 1995....... 100,000 1,054,000 1,054,000 104,932 104,932 4.20 465.32%
December 31, 1996....... 150,000 1,054,000 1,054,000 185,031 185,031 13.09 168.81
December 31, 1997....... 200,000 1,054,000 1,054,000 282,743 282,743 16.55 91.85
</TABLE>
A-59
<PAGE>
ZENITH BALANCED SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1994....... 50,000 1,054,000 1,054,000 44,272 44,272 -51.72% --
December 31, 1995....... 100,000 1,054,000 1,054,000 99,674 99,674 -0.49 1,177.18%
December 31, 1996....... 150,000 1,054,000 1,054,000 159,765 159,765 5.47 253.93
December 31, 1997....... 200,000 1,054,000 1,054,000 227,978 227,978 7.93 119.01
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1994....... 50,000 1,054,000 1,054,000 45,344 45,344 -44.28% --
December 31, 1995....... 100,000 1,054,000 1,054,000 93,476 93,476 -9.80 1,177.18%
December 31, 1996....... 150,000 1,054,000 1,054,000 142,219 142,219 -4.52 253.93
December 31, 1997....... 200,000 1,054,000 1,054,000 181,110 181,110 -5.91 119.01
ZENITH VENTURE VALUE SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1994....... 50,000 1,054,000 1,054,000 42,929 42,929 -59.84% --
December 31, 1995....... 100,000 1,054,000 1,054,000 104,157 104,157 6.22 1,177.18%
December 31, 1996....... 150,000 1,054,000 1,054,000 174,848 174,848 13.51 253.93
December 31, 1997....... 200,000 1,054,000 1,054,000 275,721 275,721 19.77 119.01
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1994....... 50,000 1,054,000 1,054,000 41,903 41,903 -65.26% --
December 31, 1995....... 100,000 1,054,000 1,054,000 104,376 104,376 6.55 1,177.18%
December 31, 1996....... 150,000 1,054,000 1,054,000 161,043 161,043 6.17 253.93
December 31, 1997....... 200,000 1,054,000 1,054,000 244,056 244,056 12.13 119.01
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1986....... 50,000 1,054,000 1,054,000 44,463 44,463 -40.32% --
December 31, 1987....... 100,000 1,054,000 1,054,000 78,734 78,734 -29.50 1,017.57%
December 31, 1988....... 150,000 1,054,000 1,054,000 137,473 137,473 -6.99 239.99
December 31, 1989....... 200,000 1,054,000 1,054,000 203,562 203,562 1.02 115.01
December 31, 1990....... 250,000 1,054,000 1,054,000 214,954 214,954 -6.76 69.51
December 31, 1991....... 300,000 1,054,000 1,054,000 326,357 326,357 3.08 46.94
December 31, 1992....... 350,000 1,054,000 1,184,342 426,982 426,982 6.12 37.39
December 31, 1993....... 350,000 1,054,000 1,344,307 499,678 499,678 8.45 32.57
December 31, 1994....... 350,000 1,054,000 1,379,722 528,604 528,604 7.96 27.22
December 31, 1995....... 350,000 1,054,000 1,800,224 710,727 710,727 11.62 27.67
December 31, 1996....... 350,000 1,054,000 1,968,492 800,624 800,624 11.75 25.26
December 31, 1997....... 350,000 1,054,000 2,434,931 1,019,945 1,019,945 13.45 25.09
</TABLE>
A-60
<PAGE>
OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1987....... 50,000 1,054,000 1,054,000 40,135 40,135 -21.18% --
December 31, 1988....... 100,000 1,054,000 1,054,000 91,763 91,763 -5.89 338.48%
December 31, 1989....... 150,000 1,054,000 1,054,000 164,134 164,134 4.75 142.48
December 31, 1990....... 200,000 1,054,000 1,054,000 203,149 203,149 0.65 81.84
December 31, 1991....... 250,000 1,054,000 1,054,000 263,833 263,833 1.85 53.89
December 31, 1992....... 300,000 1,054,000 1,054,000 271,968 271,968 -2.86 38.23
December 31, 1993....... 350,000 1,054,000 1,161,488 428,478 428,478 5.16 30.96
December 31, 1994....... 350,000 1,054,000 1,128,239 429,032 429,032 4.15 24.44
December 31, 1995....... 350,000 1,054,000 1,202,367 471,186 471,186 5.06 21.61
December 31, 1996....... 350,000 1,054,000 1,298,212 524,142 524,142 5.91 19.73
December 31, 1997....... 350,000 1,054,000 1,397,586 581,186 581,186 6.50 18.26
HIGH INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1985....... 50,000 1,054,000 1,054,000 46,970 46,970 -19.87% --
December 31, 1986....... 100,000 1,054,000 1,054,000 99,624 99,624 -0.48 900.55%
December 31, 1987....... 150,000 1,054,000 1,054,000 142,133 142,133 -4.16 228.43
December 31, 1988....... 200,000 1,054,000 1,054,000 200,698 200,698 0.20 111.57
December 31, 1989....... 250,000 1,054,000 1,054,000 231,477 231,477 -3.37 68.00
December 31, 1990....... 300,000 1,054,000 1,054,000 267,146 267,146 -4.17 46.13
December 31, 1991....... 350,000 1,054,000 1,117,595 403,944 403,944 4.35 35.07
December 31, 1992....... 350,000 1,054,000 1,320,836 492,193 492,193 7.99 31.75
December 31, 1993....... 350,000 1,054,000 1,526,457 586,286 586,286 9.89 29.03
December 31, 1994....... 350,000 1,054,000 1,444,273 571,612 571,612 7.92 23.57
December 31, 1995....... 350,000 1,054,000 1,677,710 684,034 684,034 9.40 22.63
December 31, 1996....... 350,000 1,054,000 1,842,678 773,738 773,738 9.82 21.14
December 31, 1997....... 350,000 1,054,000 2,094,154 905,285 905,285 10.54 20.37
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 50,000 $1,054,000 $1,054,000 $ 44,778 $ 44,778 -- --
December 31, 1989....... 50,000 1,054,000 1,054,000 44,725 44,725 -29.59% --
December 31, 1990....... 100,000 1,054,000 1,054,000 92,438 92,438 -9.30 835.70%
December 31, 1991....... 150,000 1,054,000 1,054,000 156,791 156,791 3.39 221.42
December 31, 1992....... 200,000 1,054,000 1,054,000 218,058 218,058 4.79 109.43
December 31, 1993....... 250,000 1,054,000 1,054,000 307,968 307,968 9.06 67.04
December 31, 1994....... 300,000 1,054,000 1,054,000 327,179 327,179 3.08 45.62
December 31, 1995....... 350,000 1,054,000 1,183,071 427,610 427,610 6.01 36.48
December 31, 1996....... 350,000 1,054,000 1,297,728 483,582 483,582 7.51 31.07
December 31, 1997....... 350,000 1,054,000 1,502,896 577,237 577,237 9.52 28.52
</TABLE>
A-61
<PAGE>
$1,054,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
CASH VALUE ACCUMULATION TEST
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1983....... 50,000 1,054,000 1,101,847 47,847 47,847 -11.88% --
December 31, 1984....... 100,000 1,054,000 1,143,947 89,947 89,947 -11.96 846.61%
December 31, 1985....... 150,000 1,054,000 1,255,588 201,588 201,588 23.19 244.67
December 31, 1986....... 200,000 1,054,000 1,486,851 432,851 432,851 45.05 135.93
December 31, 1987....... 250,000 1,054,000 2,019,199 687,851 687,851 45.26 101.33
December 31, 1988....... 300,000 1,054,000 1,893,368 665,309 665,309 28.22 68.03
December 31, 1989....... 350,000 1,054,000 2,503,211 907,068 907,068 28.21 59.58
December 31, 1990....... 350,000 1,054,000 2,304,467 860,902 860,902 20.99 45.19
December 31, 1991....... 350,000 1,054,000 3,406,369 1,311,607 1,311,607 25.61 45.58
December 31, 1992....... 350,000 1,054,000 3,072,911 1,219,212 1,219,212 20.43 36.70
December 31, 1993....... 350,000 1,054,000 3,399,235 1,389,344 1,389,344 19.60 33.32
December 31, 1994....... 350,000 1,054,000 3,028,380 1,274,705 1,274,705 16.13 27.70
December 31, 1995....... 350,000 1,054,000 4,083,254 1,769,396 1,769,396 18.23 28.38
December 31, 1996....... 350,000 1,054,000 4,756,787 2,121,209 2,121,209 18.37 27.28
December 31, 1997....... 350,000 1,054,000 5,675,676 2,603,454 2,603,454 18.73 26.61
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1983....... 50,000 1,054,000 1,099,237 45,237 45,237 -25.00% --
December 31, 1984....... 100,000 1,054,000 1,150,642 96,642 96,642 -3.97 851.03%
December 31, 1985....... 150,000 1,054,000 1,212,855 158,855 158,855 4.30 238.79
December 31, 1986....... 200,000 1,054,000 1,278,327 224,327 224,327 6.28 123.21
December 31, 1987....... 250,000 1,054,000 1,324,219 270,219 270,219 3.32 78.11
December 31, 1988....... 300,000 1,054,000 1,387,988 333,988 333,988 3.77 55.72
December 31, 1989....... 350,000 1,054,000 1,470,805 416,805 416,805 5.20 42.84
December 31, 1990....... 350,000 1,054,000 1,499,199 445,199 445,199 5.55 34.41
December 31, 1991....... 350,000 1,054,000 1,572,973 518,973 518,973 7.44 29.30
December 31, 1992....... 350,000 1,054,000 1,608,993 554,993 554,993 7.36 25.20
December 31, 1993....... 350,000 1,054,000 1,673,078 619,078 619,078 7.90 22.38
December 31, 1994....... 350,000 1,054,000 1,647,160 593,160 593,160 6.42 19.49
December 31, 1995....... 350,000 1,054,000 1,769,967 715,967 715,967 7.83 18.23
December 31, 1996....... 350,000 1,054,000 1,798,179 744,179 744,179 7.45 16.61
December 31, 1997....... 350,000 1,054,000 1,873,851 819,851 819,851 7.69 15.51
</TABLE>
A-62
<PAGE>
ZENITH MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1983....... 50,000 1,054,000 1,099,343 45,343 45,343 -24.50% --
December 31, 1984....... 100,000 1,054,000 1,147,737 93,737 93,737 -7.43 849.11%
December 31, 1985....... 150,000 1,054,000 1,198,146 144,146 144,146 -2.93 236.73
December 31, 1986....... 200,000 1,054,000 1,249,702 195,702 195,702 -1.17 121.34
December 31, 1987....... 250,000 1,054,000 1,303,765 249,765 249,765 -0.04 77.28
December 31, 1988....... 300,000 1,054,000 1,364,218 310,218 310,218 1.18 55.05
December 31, 1989....... 350,000 1,054,000 1,434,553 380,553 380,553 2.49 42.07
December 31, 1990....... 350,000 1,054,000 1,460,434 406,434 406,434 3.44 33.77
December 31, 1991....... 350,000 1,054,000 1,480,365 426,365 426,365 3.71 28.06
December 31, 1992....... 350,000 1,054,000 1,491,084 437,084 437,084 3.52 23.88
December 31, 1993....... 350,000 1,054,000 1,499,238 445,238 445,238 3.30 20.74
December 31, 1994....... 350,000 1,054,000 1,513,601 459,601 459,601 3.29 18.37
December 31, 1995....... 350,000 1,054,000 1,535,945 481,945 481,945 3.46 16.56
December 31, 1996....... 350,000 1,054,000 1,556,386 502,386 502,386 3.53 15.08
December 31, 1997....... 350,000 1,054,000 1,578,689 524,689 524,689 3.61 13.86
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1987....... 50,000 1,054,000 1,091,937 37,937 37,937 -33.83% --
December 31, 1988....... 100,000 1,054,000 1,143,122 89,122 89,122 -9.48 494.44%
December 31, 1989....... 150,000 1,054,000 1,222,315 168,315 168,315 7.05 186.73
December 31, 1990....... 200,000 1,054,000 1,253,814 199,814 199,814 -0.04 103.46
December 31, 1991....... 250,000 1,054,000 1,359,318 305,318 305,318 7.56 70.53
December 31, 1992....... 300,000 1,054,000 1,424,819 370,819 370,819 6.71 51.58
December 31, 1993....... 350,000 1,054,000 1,503,874 449,874 449,874 6.83 40.20
December 31, 1994....... 350,000 1,054,000 1,503,254 449,254 449,254 5.37 32.27
December 31, 1995....... 350,000 1,054,000 1,667,076 613,076 613,076 10.04 28.83
December 31, 1996....... 350,000 1,054,000 1,844,004 737,106 737,106 11.43 26.27
December 31, 1997....... 350,000 1,054,000 2,353,760 969,172 969,172 13.72 26.43
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1987....... 50,000 1,054,000 1,096,947 42,947 42,947 -20.34% --
December 31, 1988....... 100,000 1,054,000 1,145,433 91,433 91,433 -7.44 495.23%
December 31, 1989....... 150,000 1,054,000 1,211,375 157,375 157,375 2.90 185.60
December 31, 1990....... 200,000 1,054,000 1,258,900 204,900 204,900 1.12 103.74
December 31, 1991....... 250,000 1,054,000 1,344,937 290,937 290,937 5.72 70.03
December 31, 1992....... 300,000 1,054,000 1,408,362 354,362 354,362 5.27 51.17
December 31, 1993....... 350,000 1,054,000 1,488,502 434,502 434,502 5.88 39.90
December 31, 1994....... 350,000 1,054,000 1,478,168 424,168 424,168 4.13 31.88
December 31, 1995....... 350,000 1,054,000 1,607,562 553,562 553,562 8.19 28.12
December 31, 1996....... 350,000 1,054,000 1,680,281 626,281 626,281 8.88 24.72
December 31, 1997....... 350,000 1,054,000 1,910,060 786,476 786,476 10.83 23.37
</TABLE>
A-63
<PAGE>
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $44,770 -- --
December 31, 1993....... 50,000 1,054,000 1,103,229 49,229 49,229 -2.29% --
December 31, 1994....... 100,000 1,054,000 1,145,066 91,066 91,066 -7.74 493.20%
December 31, 1995....... 150,000 1,054,000 1,229,807 175,807 175,807 9.77 187.14
December 31, 1996....... 200,000 1,054,000 1,306,729 252,729 252,729 11.03 106.19
December 31, 1997....... 250,000 1,054,000 1,441,180 387,180 387,180 16.75 73.22
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $44,770 -- --
December 31, 1993....... 50,000 1,054,000 1,103,451 49,451 49,451 -1.63% --
December 31, 1994....... 100,000 1,054,000 1,145,907 91,907 91,907 -7.00 493.49%
December 31, 1995....... 150,000 1,054,000 1,225,137 171,137 171,137 8.08 186.66
December 31, 1996....... 200,000 1,054,000 1,298,436 244,436 244,436 9.43 105.75
December 31, 1997....... 250,000 1,054,000 1,388,208 334,208 334,208 11.03 71.45
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 50,000 $1,054,000 $1,098,770 $ 44,770 $44,770 -- --
December 31, 1994....... 50,000 1,054,000 1,095,437 41,437 41,437 -24.59% --
December 31, 1995....... 100,000 1,054,000 1,158,647 104,647 104,647 3.96 501.66%
December 31, 1996....... 150,000 1,054,000 1,238,246 184,246 184,246 12.81 188.75
December 31, 1997....... 200,000 1,054,000 1,335,054 281,054 281,054 16.25 107.97
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $44,770 -- --
December 31, 1994....... 50,000 1,054,000 1,098,247 44,247 44,247 -51.88% --
December 31, 1995....... 100,000 1,054,000 1,153,493 99,493 99,493 -0.76 1,286.61%
December 31, 1996....... 150,000 1,054,000 1,213,257 159,257 159,257 5.19 281.82
December 31, 1997....... 200,000 1,054,000 1,280,890 226,890 226,890 7.64 136.50
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $44,770 -- --
December 31, 1994....... 50,000 1,054,000 1,099,319 45,319 45,319 -44.47% --
December 31, 1995....... 100,000 1,054,000 1,147,314 93,314 93,314 -10.04 1,279.86%
December 31, 1996....... 150,000 1,054,000 1,195,790 141,790 141,790 -4.77 278.87
December 31, 1997....... 200,000 1,054,000 1,234,304 180,304 180,304 -6.17 133.10
</TABLE>
A-64
<PAGE>
ZENITH VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1994....... 50,000 1,054,000 1,096,905 42,905 42,905 -59.98% --
December 31, 1995....... 100,000 1,054,000 1,157,964 103,964 103,964 5.93 1,291.50%
December 31, 1996....... 150,000 1,054,000 1,228,275 174,275 174,275 13.22 284.35
December 31, 1997....... 200,000 1,054,000 1,328,338 274,338 274,338 19.46 139.87
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1994....... 50,000 1,054,000 1,095,879 41,879 41,879 -65.37% --
December 31, 1995....... 100,000 1,054,000 1,158,176 104,176 104,176 6.25 1,291.73%
December 31, 1996....... 150,000 1,054,000 1,214,515 160,515 160,515 5.88 282.04
December 31, 1997....... 200,000 1,054,000 1,296,853 242,853 242,853 11.83 137.64
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1986....... 50,000 1,054,000 1,098,437 44,437 44,437 -40.47% --
December 31, 1987....... 100,000 1,054,000 1,132,591 78,591 78,591 -29.70 1,089.85%
December 31, 1988....... 150,000 1,054,000 1,191,049 137,049 137,049 -7.23 262.58
December 31, 1989....... 200,000 1,054,000 1,256,614 202,614 202,614 0.75 130.16
December 31, 1990....... 250,000 1,054,000 1,267,660 213,660 213,660 -7.03 79.53
December 31, 1991....... 300,000 1,054,000 1,377,925 323,925 323,925 2.81 57.57
December 31, 1992....... 350,000 1,054,000 1,477,517 423,517 423,517 5.87 44.34
December 31, 1993....... 350,000 1,054,000 1,549,148 495,148 495,148 8.23 36.14
December 31, 1994....... 350,000 1,054,000 1,577,413 523,413 523,413 7.77 30.00
December 31, 1995....... 350,000 1,054,000 1,781,952 703,513 703,513 11.44 27.49
December 31, 1996....... 350,000 1,054,000 1,948,510 792,497 792,497 11.60 25.10
December 31, 1997....... 350,000 1,054,000 2,410,213 1,009,592 1,009,592 13.31 24.95
OVERSEAS SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1987....... 50,000 1,054,000 1,094,042 40,042 40,042 -21.38% --
December 31, 1988....... 100,000 1,054,000 1,145,445 91,445 91,445 -6.12 359.94%
December 31, 1989....... 150,000 1,054,000 1,217,331 163,331 163,331 4.49 157.10
December 31, 1990....... 200,000 1,054,000 1,255,791 201,791 201,791 0.37 92.30
December 31, 1991....... 250,000 1,054,000 1,315,613 261,613 261,613 1.56 63.21
December 31, 1992....... 300,000 1,054,000 1,323,539 269,539 269,539 -3.12 45.62
December 31, 1993....... 350,000 1,054,000 1,478,446 424,446 424,446 4.92 37.41
December 31, 1994....... 350,000 1,054,000 1,478,431 424,431 424,431 3.93 30.33
December 31, 1995....... 350,000 1,054,000 1,519,389 465,389 465,389 4.85 25.90
December 31, 1996....... 350,000 1,054,000 1,571,039 517,039 517,039 5.70 22.75
December 31, 1997....... 350,000 1,054,000 1,626,798 572,798 572,798 6.31 20.37
</TABLE>
A-65
<PAGE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1985....... 50,000 1,054,000 1,100,934 46,934 46,934 -20.09% --
December 31, 1986....... 100,000 1,054,000 1,153,424 99,424 99,424 -0.74 978.99%
December 31, 1987....... 150,000 1,054,000 1,195,659 141,659 141,659 -4.41 250.45
December 31, 1988....... 200,000 1,054,000 1,253,727 199,727 199,727 -0.08 126.04
December 31, 1989....... 250,000 1,054,000 1,283,975 229,975 229,975 -3.65 78.49
December 31, 1990....... 300,000 1,054,000 1,319,107 265,107 265,107 -4.45 54.86
December 31, 1991....... 350,000 1,054,000 1,454,591 400,591 400,591 4.10 43.22
December 31, 1992....... 350,000 1,054,000 1,541,609 487,609 487,609 7.77 35.59
December 31, 1993....... 350,000 1,054,000 1,634,486 580,486 580,486 9.70 30.44
December 31, 1994....... 350,000 1,054,000 1,619,660 565,660 565,660 7.75 25.57
December 31, 1995....... 350,000 1,054,000 1,730,656 676,656 676,656 9.24 23.10
December 31, 1996....... 350,000 1,054,000 1,822,643 765,325 765,325 9.68 21.00
December 31, 1997....... 350,000 1,054,000 2,071,381 895,440 895,440 10.42 20.24
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ----- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1989....... 50,000 1,054,000 1,098,691 44,691 44,691 -29.76% --
December 31, 1990....... 100,000 1,054,000 1,146,261 92,261 92,261 -9.52 902.09%
December 31, 1991....... 150,000 1,054,000 1,210,271 156,271 156,271 3.13 244.76
December 31, 1992....... 200,000 1,054,000 1,270,991 216,991 216,991 4.52 124.75
December 31, 1993....... 250,000 1,054,000 1,359,903 305,903 305,903 8.77 80.46
December 31, 1994....... 300,000 1,054,000 1,378,526 324,526 324,526 2.79 55.98
December 31, 1995....... 350,000 1,054,000 1,477,881 423,881 423,881 5.74 43.32
December 31, 1996....... 350,000 1,054,000 1,532,801 478,801 478,801 7.28 35.18
December 31, 1997....... 350,000 1,054,000 1,625,146 571,146 571,146 9.32 30.13
</TABLE>
- ----------
* Rates of return and Policy values and benefits shown reflect the Capital
Growth Series' investment advisory fee of .50% of average daily net assets
for the period through December 31, 1987 and its current advisory fee
schedule thereafter.
** Rates of return and Policy values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998, the Series' investment advisory fee is
.75%.
A-66
<PAGE>
MALE NON-SMOKER PREFERRED RISK AGE 40
$2,900,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
GUIDELINE PREMIUM TEST
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT CASH VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1983....... 50,000 2,900,000 2,900,000 46,146 46,146 -20.59% --
December 31, 1984....... 100,000 2,900,000 2,900,000 83,880 83,880 -19.27 1,859.74%
December 31, 1985....... 150,000 2,900,000 2,900,000 186,199 186,199 16.71 415.88
December 31, 1986....... 200,000 2,900,000 2,900,000 398,104 398,104 39.81 198.89
December 31, 1987....... 250,000 2,900,000 2,900,000 632,523 632,523 41.30 122.80
December 31, 1988....... 300,000 2,900,000 2,900,000 612,555 612,555 25.25 85.77
December 31, 1989....... 350,000 2,900,000 2,900,000 836,915 836,915 25.81 64.36
December 31, 1990....... 400,000 2,900,000 2,900,000 836,806 836,806 18.76 50.59
December 31, 1991....... 450,000 2,900,000 2,900,000 1,325,784 1,325,784 23.90 41.08
December 31, 1992....... 500,000 2,900,000 2,900,000 1,282,024 1,282,024 18.55 34.16
December 31, 1993....... 550,000 2,900,000 2,900,000 1,509,458 1,509,458 17.85 28.92
December 31, 1994....... 600,000 2,900,000 2,900,000 1,427,553 1,427,553 14.00 24.85
December 31, 1995....... 650,000 2,900,000 3,472,481 2,030,691 2,030,691 16.66 24.07
December 31, 1996....... 700,000 2,900,000 4,085,880 2,491,390 2,491,390 17.02 23.25
December 31, 1997....... 750,000 2,900,000 4,879,151 3,107,740 3,107,740 17.56 22.77
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT CASH VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1983....... 50,000 2,900,000 2,900,000 43,537 43,537 -32.82% --
December 31, 1984....... 100,000 2,900,000 2,900,000 90,352 90,352 -11.47 1,859.74%
December 31, 1985....... 150,000 2,900,000 2,900,000 146,915 146,915 -1.54 415.88
December 31, 1986....... 200,000 2,900,000 2,900,000 206,124 206,124 1.64 198.89
December 31, 1987....... 250,000 2,900,000 2,900,000 247,103 247,103 -0.50 122.80
December 31, 1988....... 300,000 2,900,000 2,900,000 305,270 305,270 0.61 85.77
December 31, 1989....... 350,000 2,900,000 2,900,000 382,025 382,025 2.61 64.36
December 31, 1990....... 400,000 2,900,000 2,900,000 452,527 452,527 3.19 50.59
December 31, 1991....... 450,000 2,900,000 2,900,000 573,774 573,774 5.51 41.08
December 31, 1992....... 500,000 2,900,000 2,900,000 656,781 656,781 5.53 34.16
December 31, 1993....... 550,000 2,900,000 2,900,000 775,953 775,953 6.28 28.92
December 31, 1994....... 600,000 2,900,000 2,900,000 786,331 786,331 4.52 24.85
December 31, 1995....... 650,000 2,900,000 2,900,000 995,369 995,369 6.48 21.59
December 31, 1996....... 700,000 2,900,000 2,900,000 1,080,816 1,080,816 6.11 18.94
December 31, 1997....... 750,000 2,900,000 2,900,000 1,237,191 1,237,191 6.51 16.75
</TABLE>
A-67
<PAGE>
ZENITH MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1983....... 50,000 2,900,000 2,900,000 43,632 43,632 -32.40% --
December 31, 1984....... 100,000 2,900,000 2,900,000 87,603 87,603 -14.77 1,859.74%
December 31, 1985....... 150,000 2,900,000 2,900,000 133,251 133,251 -8.59 415.88
December 31, 1986....... 200,000 2,900,000 2,900,000 179,616 179,616 -5.76 198.89
December 31, 1987....... 250,000 2,900,000 2,900,000 227,974 227,974 -3.92 122.80
December 31, 1988....... 300,000 2,900,000 2,900,000 282,977 282,977 -2.05 85.77
December 31, 1989....... 350,000 2,900,000 2,900,000 348,241 348,241 -0.15 64.36
December 31, 1990....... 400,000 2,900,000 2,900,000 415,087 415,087 0.96 50.59
December 31, 1991....... 450,000 2,900,000 2,900,000 478,510 478,510 1.41 41.08
December 31, 1992....... 500,000 2,900,000 2,900,000 533,501 533,501 1.33 34.16
December 31, 1993....... 550,000 2,900,000 2,900,000 586,724 586,724 1.20 28.92
December 31, 1994....... 600,000 2,900,000 2,900,000 649,443 649,443 1.34 24.85
December 31, 1995....... 650,000 2,900,000 2,900,000 725,127 725,127 1.71 21.59
December 31, 1996....... 700,000 2,900,000 2,900,000 800,191 800,191 1.93 18.94
December 31, 1997....... 750,000 2,900,000 2,900,000 880,405 880,405 2.15 16.75
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1987....... 50,000 2,900,000 2,900,000 35,600 35,600 -39.84% --
December 31, 1988....... 100,000 2,900,000 2,900,000 82,139 82,139 -15.76 981.11%
December 31, 1989....... 150,000 2,900,000 2,900,000 154,280 154,280 1.69 315.22
December 31, 1990....... 200,000 2,900,000 2,900,000 182,221 182,221 -4.25 167.71
December 31, 1991....... 250,000 2,900,000 2,900,000 277,357 277,357 3.91 108.65
December 31, 1992....... 300,000 2,900,000 2,900,000 337,612 337,612 3.73 77.95
December 31, 1993....... 350,000 2,900,000 2,900,000 410,999 410,999 4.37 59.50
December 31, 1994....... 400,000 2,900,000 2,900,000 453,983 453,983 3.03 47.32
December 31, 1995....... 450,000 2,900,000 2,900,000 671,492 671,492 8.44 38.75
December 31, 1996....... 500,000 2,900,000 2,900,000 856,518 856,518 10.16 32.43
December 31, 1997....... 550,000 2,900,000 2,900,000 1,180,208 1,180,208 12.95 27.60
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1987....... 50,000 2,900,000 2,900,000 40,344 40,344 -27.46% --
December 31, 1988....... 100,000 2,900,000 2,900,000 84,386 84,386 -13.72 981.11%
December 31, 1989....... 150,000 2,900,000 2,900,000 144,341 144,341 -2.29 315.22
December 31, 1990....... 200,000 2,900,000 2,900,000 186,992 186,992 -3.08 167.71
December 31, 1991....... 250,000 2,900,000 2,900,000 264,466 264,466 2.11 108.65
December 31, 1992....... 300,000 2,900,000 2,900,000 322,870 322,870 2.32 77.95
December 31, 1993....... 350,000 2,900,000 2,900,000 397,206 397,206 3.44 59.50
December 31, 1994....... 400,000 2,900,000 2,900,000 431,010 431,010 1.79 47.32
December 31, 1995....... 450,000 2,900,000 2,900,000 613,062 613,062 6.54 38.75
December 31, 1996....... 500,000 2,900,000 2,900,000 741,449 741,449 7.48 32.43
December 31, 1997....... 550,000 2,900,000 2,900,000 982,902 982,902 9.92 27.60
</TABLE>
A-68
<PAGE>
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1993....... 50,000 2,900,000 2,900,000 46,028 46,028 -11.60% --
December 31, 1994....... 100,000 2,900,000 2,900,000 83,837 83,837 -14.19 976.68%
December 31, 1995....... 150,000 2,900,000 2,900,000 161,175 161,175 4.36 314.55
December 31, 1996....... 200,000 2,900,000 2,900,000 230,701 230,701 6.67 167.48
December 31, 1997....... 250,000 2,900,000 2,900,000 353,034 353,034 13.15 108.54
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1993....... 50,000 2,900,000 2,900,000 46,246 46,246 -10.98% --
December 31, 1994....... 100,000 2,900,000 2,900,000 84,668 84,668 -13.44 976.68%
December 31, 1995....... 150,000 2,900,000 2,900,000 157,024 157,024 2.76 314.55
December 31, 1996....... 200,000 2,900,000 2,900,000 223,270 223,270 5.12 167.48
December 31, 1997....... 250,000 2,900,000 2,900,000 304,772 304,772 7.49 108.54
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............. $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1994....... 50,000 2,900,000 2,900,000 38,815 38,815 -31.64% --
December 31, 1995....... 100,000 2,900,000 2,900,000 96,567 96,567 -2.96 985.58%
December 31, 1996....... 150,000 2,900,000 2,900,000 168,954 168,954 7.30 315.90
December 31, 1997....... 200,000 2,900,000 2,900,000 257,201 257,201 11.91 167.93
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1994....... 50,000 2,900,000 2,900,000 43,234 43,234 -58.11% --
December 31, 1995....... 100,000 2,900,000 2,900,000 93,799 93,799 -9.31 3,057.30%
December 31, 1996....... 150,000 2,900,000 2,900,000 148,172 148,172 -1.05 499.94
December 31, 1997....... 200,000 2,900,000 2,900,000 209,514 209,514 2.80 221.34
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1994....... 50,000 2,900,000 2,900,000 44,295 44,295 -51.56% --
December 31, 1995....... 100,000 2,900,000 2,900,000 87,967 87,967 -18.10 3,057.30%
December 31, 1996....... 150,000 2,900,000 2,900,000 131,930 131,930 -10.74 499.94
December 31, 1997....... 200,000 2,900,000 2,900,000 166,391 166,391 -10.89 221.34
</TABLE>
A-69
<PAGE>
ZENITH VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1994....... 50,000 2,900,000 2,900,000 41,902 41,902 -65.26% --
December 31, 1995....... 100,000 2,900,000 2,900,000 97,965 97,965 -3.05 3,057.30%
December 31, 1996....... 150,000 2,900,000 2,900,000 162,184 162,184 6.79 499.94
December 31, 1997....... 200,000 2,900,000 2,900,000 253,603 253,603 14.52 221.34
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1994....... 50,000 2,900,000 2,900,000 40,890 40,890 -69.99% --
December 31, 1995....... 100,000 2,900,000 2,900,000 98,083 98,083 -2.87 3,057.30%
December 31, 1996....... 150,000 2,900,000 2,900,000 149,351 149,351 -0.37 499.94
December 31, 1997....... 200,000 2,900,000 2,900,000 224,332 224,332 6.95 221.34
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1986....... 50,000 2,900,000 2,900,000 43,444 43,444 -46.10% --
December 31, 1987....... 100,000 2,900,000 2,900,000 74,063 74,063 -36.03 2,552.32%
December 31, 1988....... 150,000 2,900,000 2,900,000 127,216 127,216 -13.02 468.95
December 31, 1989....... 200,000 2,900,000 2,900,000 186,445 186,445 -4.04 213.38
December 31, 1990....... 250,000 2,900,000 2,900,000 195,833 195,833 -10.92 128.99
December 31, 1991....... 300,000 2,900,000 2,900,000 295,975 295,975 -0.50 89.08
December 31, 1992....... 350,000 2,900,000 2,900,000 388,212 388,212 3.20 66.38
December 31, 1993....... 400,000 2,900,000 2,900,000 496,234 496,234 5.72 51.93
December 31, 1994....... 450,000 2,900,000 2,900,000 566,747 566,747 5.38 42.02
December 31, 1995....... 500,000 2,900,000 2,900,000 807,683 807,683 9.84 34.85
December 31, 1996....... 550,000 2,900,000 2,900,000 955,640 955,640 10.16 29.45
December 31, 1997....... 600,000 2,900,000 2,900,000 1,262,137 1,262,137 12.31 25.26
OVERSEAS SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1987....... 50,000 2,900,000 2,900,000 36,295 36,295 -29.32% --
December 31, 1988....... 100,000 2,900,000 2,900,000 82,978 82,978 -12.42 675.33%
December 31, 1989....... 150,000 2,900,000 2,900,000 148,046 148,046 -0.68 261.68
December 31, 1990....... 200,000 2,900,000 2,900,000 182,363 182,363 -3.77 148.57
December 31, 1991....... 250,000 2,900,000 2,900,000 235,931 235,931 -1.98 99.34
December 31, 1992....... 300,000 2,900,000 2,900,000 244,318 244,318 -5.97 72.60
December 31, 1993....... 350,000 2,900,000 2,900,000 386,982 386,982 2.56 56.08
December 31, 1994....... 400,000 2,900,000 2,900,000 428,024 428,024 1.53 44.97
December 31, 1995....... 450,000 2,900,000 2,900,000 517,622 517,622 2.83 37.06
December 31, 1996....... 500,000 2,900,000 2,900,000 622,936 622,936 4.01 31.16
December 31, 1997....... 550,000 2,900,000 2,900,000 738,747 738,747 4.90 26.62
</TABLE>
A-70
<PAGE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1985....... 50,000 2,900,000 2,900,000 45,524 45,524 -28.27% --
December 31, 1986....... 100,000 2,900,000 2,900,000 93,442 93,442 -8.42 2,195.51%
December 31, 1987....... 150,000 2,900,000 2,900,000 131,563 131,563 -9.98 443.48
December 31, 1988....... 200,000 2,900,000 2,900,000 183,998 183,998 -4.65 206.58
December 31, 1989....... 250,000 2,900,000 2,900,000 210,569 210,569 -7.49 126.11
December 31, 1990....... 300,000 2,900,000 2,900,000 242,185 242,185 -7.72 87.55
December 31, 1991....... 350,000 2,900,000 2,900,000 366,840 366,840 1.43 65.45
December 31, 1992....... 400,000 2,900,000 2,900,000 489,002 489,002 5.26 51.31
December 31, 1993....... 450,000 2,900,000 2,900,000 626,858 626,858 7.60 41.59
December 31, 1994....... 500,000 2,900,000 2,900,000 653,037 653,037 5.48 34.53
December 31, 1995....... 550,000 2,900,000 2,900,000 825,606 825,606 7.47 29.21
December 31, 1996....... 600,000 2,900,000 2,900,000 978,597 978,597 8.15 25.07
December 31, 1997....... 650,000 2,900,000 2,900,000 1,189,982 1,189,982 9.17 21.77
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 50,000 $2,900,000 $2,900,000 $ 44,434 $ 44,434 -- --
December 31, 1989....... 50,000 2,900,000 2,900,000 43,332 43,332 -36.26% --
December 31, 1990....... 100,000 2,900,000 2,900,000 86,547 86,547 -16.62 2,003.02%
December 31, 1991....... 150,000 2,900,000 2,900,000 144,853 144,853 -2.63 428.16
December 31, 1992....... 200,000 2,900,000 2,900,000 199,729 199,729 -0.07 202.35
December 31, 1993....... 250,000 2,900,000 2,900,000 280,075 280,075 4.92 124.30
December 31, 1994....... 300,000 2,900,000 2,900,000 296,799 296,799 -0.38 86.58
December 31, 1995....... 350,000 2,900,000 2,900,000 388,619 388,619 3.15 64.85
December 31, 1996....... 400,000 2,900,000 2,900,000 485,141 485,141 5.01 50.92
December 31, 1997....... 450,000 2,900,000 2,900,000 622,394 622,394 7.38 41.31
$1,054,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
GUIDELINE PREMIUM TEST
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1983....... 50,000 1,054,000 1,101,847 47,847 47,847 -11.88% --
December 31, 1984....... 100,000 1,054,000 1,143,947 89,947 89,947 -11.96 846.61%
December 31, 1985....... 150,000 1,054,000 1,255,588 201,588 201,588 23.19 244.67
December 31, 1986....... 200,000 1,054,000 1,486,851 432,851 432,851 45.05 135.93
December 31, 1987....... 250,000 1,054,000 1,742,667 688,667 688,667 45.32 93.01
December 31, 1988....... 300,000 1,054,000 1,720,403 666,403 666,403 28.28 64.18
December 31, 1989....... 350,000 1,054,000 1,963,291 909,291 909,291 28.28 51.83
December 31, 1990....... 350,000 1,054,000 1,917,833 863,833 863,833 21.07 40.54
December 31, 1991....... 350,000 1,054,000 2,595,710 1,317,620 1,317,620 25.70 39.74
December 31, 1992....... 350,000 1,054,000 2,342,186 1,226,275 1,226,275 20.53 31.80
December 31, 1993....... 350,000 1,054,000 2,588,331 1,399,098 1,399,098 19.71 29.05
December 31, 1994....... 350,000 1,054,000 2,339,268 1,285,268 1,285,268 16.24 24.18
December 31, 1995....... 350,000 1,054,000 3,054,918 1,786,501 1,786,501 18.34 24.79
December 31, 1996....... 350,000 1,054,000 3,517,899 2,145,061 2,145,061 18.50 23.90
December 31, 1997....... 350,000 1,054,000 4,140,654 2,637,359 2,637,359 18.86 23.38
</TABLE>
A-71
<PAGE>
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1983....... 50,000 1,054,000 1,099,237 45,237 45,237 -25.00% --
December 31, 1984....... 100,000 1,054,000 1,150,642 96,642 96,642 -3.97 851.03%
December 31, 1985....... 150,000 1,054,000 1,212,855 158,855 158,855 4.30 238.79
December 31, 1986....... 200,000 1,054,000 1,278,327 224,327 224,327 6.28 123.21
December 31, 1987....... 250,000 1,054,000 1,324,219 270,219 270,219 3.32 78.11
December 31, 1988....... 300,000 1,054,000 1,387,988 333,988 333,988 3.77 55.72
December 31, 1989....... 350,000 1,054,000 1,470,805 416,805 416,805 5.20 42.84
December 31, 1990....... 350,000 1,054,000 1,499,199 445,199 445,199 5.55 34.41
December 31, 1991....... 350,000 1,054,000 1,572,973 518,973 518,973 7.44 29.30
December 31, 1992....... 350,000 1,054,000 1,608,993 554,993 554,993 7.36 25.20
December 31, 1993....... 350,000 1,054,000 1,673,078 619,078 619,078 7.90 22.38
December 31, 1994....... 350,000 1,054,000 1,647,160 593,160 593,160 6.42 19.49
December 31, 1995....... 350,000 1,054,000 1,769,967 715,967 715,967 7.83 18.23
December 31, 1996....... 350,000 1,054,000 1,798,179 744,179 744,179 7.45 16.61
December 31, 1997....... 350,000 1,054,000 1,873,851 819,851 819,851 7.69 15.51
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1983....... 50,000 1,054,000 1,099,343 45,343 45,343 -24.50% --
December 31, 1984....... 100,000 1,054,000 1,147,737 93,737 93,737 -7.43 849.11%
December 31, 1985....... 150,000 1,054,000 1,198,146 144,146 144,146 -2.93 236.73
December 31, 1986....... 200,000 1,054,000 1,249,702 195,702 195,702 -1.17 121.34
December 31, 1987....... 250,000 1,054,000 1,303,765 249,765 249,765 -0.04 77.28
December 31, 1988....... 300,000 1,054,000 1,364,218 310,218 310,218 1.18 55.05
December 31, 1989....... 350,000 1,054,000 1,434,553 380,553 380,553 2.49 42.07
December 31, 1990....... 350,000 1,054,000 1,460,434 406,434 406,434 3.44 33.77
December 31, 1991....... 350,000 1,054,000 1,480,365 426,365 426,365 3.71 28.06
December 31, 1992....... 350,000 1,054,000 1,491,084 437,084 437,084 3.52 23.88
December 31, 1993....... 350,000 1,054,000 1,499,238 445,238 445,238 3.30 20.74
December 31, 1994....... 350,000 1,054,000 1,513,601 459,601 459,601 3.29 18.37
December 31, 1995....... 350,000 1,054,000 1,535,945 481,945 481,945 3.46 16.56
December 31, 1996....... 350,000 1,054,000 1,556,386 502,386 502,386 3.53 15.08
December 31, 1997....... 350,000 1,054,000 1,578,689 524,689 524,689 3.61 13.86
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1987....... 50,000 1,054,000 1,091,937 37,937 37,937 -33.83% --
December 31, 1988....... 100,000 1,054,000 1,143,122 89,122 89,122 -9.48 494.44%
December 31, 1989....... 150,000 1,054,000 1,222,315 168,315 168,315 7.05 186.73
December 31, 1990....... 200,000 1,054,000 1,253,814 199,814 199,814 -0.04 103.46
December 31, 1991....... 250,000 1,054,000 1,359,318 305,318 305,318 7.56 70.53
December 31, 1992....... 300,000 1,054,000 1,424,819 370,819 370,819 6.71 51.58
December 31, 1993....... 350,000 1,054,000 1,503,874 449,874 449,874 6.83 40.20
December 31, 1994....... 350,000 1,054,000 1,503,254 449,254 449,254 5.37 32.27
December 31, 1995....... 350,000 1,054,000 1,667,076 613,076 613,076 10.04 28.83
December 31, 1996....... 350,000 1,054,000 1,791,119 737,119 737,119 11.43 25.78
December 31, 1997....... 350,000 1,054,000 2,023,653 969,653 969,653 13.72 24.21
</TABLE>
A-72
<PAGE>
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1987....... 50,000 1,054,000 1,096,947 42,947 42,947 -20.34% --
December 31, 1988....... 100,000 1,054,000 1,145,433 91,433 91,433 -7.44 495.23%
December 31, 1989....... 150,000 1,054,000 1,211,375 157,375 157,375 2.90 185.60
December 31, 1990....... 200,000 1,054,000 1,258,900 204,900 204,900 1.12 103.74
December 31, 1991....... 250,000 1,054,000 1,344,937 290,937 290,937 5.72 70.03
December 31, 1992....... 300,000 1,054,000 1,408,362 354,362 354,362 5.27 51.17
December 31, 1993....... 350,000 1,054,000 1,488,502 434,502 434,502 5.88 39.90
December 31, 1994....... 350,000 1,054,000 1,478,168 424,168 424,168 4.13 31.88
December 31, 1995....... 350,000 1,054,000 1,607,562 553,562 553,562 8.19 28.12
December 31, 1996....... 350,000 1,054,000 1,680,281 626,281 626,281 8.88 24.72
December 31, 1997....... 350,000 1,054,000 1,840,527 786,527 786,527 10.83 22.83
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1993....... 50,000 1,054,000 1,103,229 49,229 49,229 -2.29% --
December 31, 1994....... 100,000 1,054,000 1,145,066 91,066 91,066 -7.74 493.20%
December 31, 1995....... 150,000 1,054,000 1,229,807 175,807 175,807 9.77 187.14
December 31, 1996....... 200,000 1,054,000 1,306,729 252,729 252,729 11.03 106.19
December 31, 1997....... 250,000 1,054,000 1,441,180 387,180 387,180 16.75 73.22
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1993....... 50,000 1,054,000 1,103,451 49,451 49,451 -1.63% --
December 31, 1994....... 100,000 1,054,000 1,145,907 91,907 91,907 -7.00 493.49%
December 31, 1995....... 150,000 1,054,000 1,225,137 171,137 171,137 8.08 186.66
December 31, 1996....... 200,000 1,054,000 1,298,436 244,436 244,436 9.43 105.75
December 31, 1997....... 250,000 1,054,000 1,388,208 334,208 334,208 11.03 71.45
ZENITH SMALL CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1994....... 50,000 1,054,000 1,095,437 41,437 41,437 -24.59% --
December 31, 1995....... 100,000 1,054,000 1,158,647 104,647 104,647 3.96 501.66%
December 31, 1996....... 150,000 1,054,000 1,238,246 184,246 184,246 12.81 188.75
December 31, 1997....... 200,000 1,054,000 1,335,054 281,054 281,054 16.25 107.97
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1994....... 50,000 1,054,000 1,098,247 44,247 44,247 -51.88% --
December 31, 1995....... 100,000 1,054,000 1,153,493 99,493 99,493 -0.76 1,286.61%
December 31, 1996....... 150,000 1,054,000 1,213,257 159,257 159,257 5.19 281.82
December 31, 1997....... 200,000 1,054,000 1,280,890 226,890 226,890 7.64 136.50
</TABLE>
A-73
<PAGE>
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ----- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1994....... 50,000 1,054,000 1,099,319 45,319 45,319 -44.47% --
December 31, 1995....... 100,000 1,054,000 1,147,314 93,314 93,314 -10.04 1,279.86%
December 31, 1996....... 150,000 1,054,000 1,195,790 141,790 141,790 -4.77 278.87
December 31, 1997....... 200,000 1,054,000 1,234,304 180,304 180,304 -6.17 133.10
ZENITH VENTURE VALUE SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ----- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1994....... 50,000 1,054,000 1,096,905 42,905 42,905 -59.98% --
December 31, 1995....... 100,000 1,054,000 1,157,964 103,964 103,964 5.93 1,291.50%
December 31, 1996....... 150,000 1,054,000 1,228,275 174,275 174,275 13.22 284.35
December 31, 1997....... 200,000 1,054,000 1,328,338 274,338 274,338 19.46 139.87
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ----- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1994....... 50,000 1,054,000 1,095,879 41,879 41,879 -65.37% --
December 31, 1995....... 100,000 1,054,000 1,158,176 104,176 104,176 6.25 1,291.73%
December 31, 1996....... 150,000 1,054,000 1,214,515 160,515 160,515 5.88 282.04
December 31, 1997....... 200,000 1,054,000 1,296,853 242,853 242,853 11.83 137.64
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ----- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1986....... 50,000 1,054,000 1,098,437 44,437 44,437 -40.47% --
December 31, 1987....... 100,000 1,054,000 1,132,591 78,591 78,591 -29.70 1,089.85%
December 31, 1988....... 150,000 1,054,000 1,191,049 137,049 137,049 -7.23 262.58
December 31, 1989....... 200,000 1,054,000 1,256,614 202,614 202,614 0.75 130.16
December 31, 1990....... 250,000 1,054,000 1,267,660 213,660 213,660 -7.03 79.53
December 31, 1991....... 300,000 1,054,000 1,377,925 323,925 323,925 2.81 57.57
December 31, 1992....... 350,000 1,054,000 1,477,517 423,517 423,517 5.87 44.34
December 31, 1993....... 350,000 1,054,000 1,549,148 495,148 495,148 8.23 36.14
December 31, 1994....... 350,000 1,054,000 1,577,413 523,413 523,413 7.77 30.00
December 31, 1995....... 350,000 1,054,000 1,757,515 703,515 703,515 11.44 27.24
December 31, 1996....... 350,000 1,054,000 1,846,607 792,607 792,607 11.60 24.27
December 31, 1997....... 350,000 1,054,000 2,064,290 1,010,290 1,010,290 13.32 22.83
</TABLE>
A-74
<PAGE>
OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ----- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1987....... 50,000 1,054,000 1,094,042 40,042 40,042 -21.38% --
December 31, 1988....... 100,000 1,054,000 1,145,445 91,445 91,445 -6.12 359.94%
December 31, 1989....... 150,000 1,054,000 1,217,331 163,331 163,331 4.49 157.10
December 31, 1990....... 200,000 1,054,000 1,255,791 201,791 201,791 0.37 92.30
December 31, 1991....... 250,000 1,054,000 1,315,613 261,613 261,613 1.56 63.21
December 31, 1992....... 300,000 1,054,000 1,323,539 269,539 269,539 -3.12 45.62
December 31, 1993....... 350,000 1,054,000 1,478,446 424,446 424,446 4.92 37.41
December 31, 1994....... 350,000 1,054,000 1,478,431 424,431 424,431 3.93 30.33
December 31, 1995....... 350,000 1,054,000 1,519,389 465,389 465,389 4.85 25.90
December 31, 1996....... 350,000 1,054,000 1,571,039 517,039 517,039 5.70 22.75
December 31, 1997....... 350,000 1,054,000 1,626,798 572,798 572,798 6.31 20.37
HIGH INCOME SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ----- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1985....... 50,000 1,054,000 1,100,934 46,934 46,934 -20.09% --
December 31, 1986....... 100,000 1,054,000 1,153,424 99,424 99,424 -0.74 978.99%
December 31, 1987....... 150,000 1,054,000 1,195,659 141,659 141,659 -4.41 250.45
December 31, 1988....... 200,000 1,054,000 1,253,727 199,727 199,727 -0.08 126.04
December 31, 1989....... 250,000 1,054,000 1,283,975 229,975 229,975 -3.65 78.49
December 31, 1990....... 300,000 1,054,000 1,319,107 265,107 265,107 -4.45 54.86
December 31, 1991....... 350,000 1,054,000 1,454,591 400,591 400,591 4.10 43.22
December 31, 1992....... 350,000 1,054,000 1,541,609 487,609 487,609 7.77 35.59
December 31, 1993....... 350,000 1,054,000 1,634,486 580,486 580,486 9.70 30.44
December 31, 1994....... 350,000 1,054,000 1,619,660 565,660 565,660 7.75 25.57
December 31, 1995....... 350,000 1,054,000 1,730,656 676,656 676,656 9.24 23.10
December 31, 1996....... 350,000 1,054,000 1,819,325 765,325 765,325 9.68 20.97
December 31, 1997....... 350,000 1,054,000 1,949,609 895,609 895,609 10.42 19.51
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- ------- -------- ----- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 50,000 $1,054,000 $1,098,770 $ 44,770 $ 44,770 -- --
December 31, 1989....... 50,000 1,054,000 1,098,691 44,691 44,691 -29.76% --
December 31, 1990....... 100,000 1,054,000 1,146,261 92,261 92,261 -9.52 902.09%
December 31, 1991....... 150,000 1,054,000 1,210,271 156,271 156,271 3.13 244.76
December 31, 1992....... 200,000 1,054,000 1,270,991 216,991 216,991 4.52 124.75
December 31, 1993....... 250,000 1,054,000 1,359,903 305,903 305,903 8.77 80.46
December 31, 1994....... 300,000 1,054,000 1,378,526 324,526 324,526 2.79 55.98
December 31, 1995....... 350,000 1,054,000 1,477,881 423,881 423,881 5.74 43.32
December 31, 1996....... 350,000 1,054,000 1,532,801 478,801 478,801 7.28 35.18
December 31, 1997....... 350,000 1,054,000 1,625,146 571,146 571,146 9.32 30.13
</TABLE>
- --------
* Rates of return and Policy values and benefits shown reflect the Capital
Growth Series' investment advisory fee of .50% of average daily net assets
for the period through December 31, 1987 and its current advisory fee
schedule thereafter.
** Rates of return and Policy values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998, the Series' investment advisory fee is
.75%.
A-75
<PAGE>
APPENDIX C
LONG TERM MARKET TRENDS
The information below is a comparison of the average annual returns of
common stock, high grade corporate bonds and 30-day U.S. Treasury bills over
20-year and 30-year holding periods.* The average annual returns assume the
reinvestment of dividends, capital gains and interest. This is an historical
record and is not intended as a projection of future performance. Charges
associated with a variable life policy are not reflected.
The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods
of time. These trends indicate the potential advantages of holding a variable
life insurance policy for a long period of time.
Over the 53 20-year time periods beginning in 1926 and ending in 1997 (i.e.,
1926-1945, 1927-1946, and so on through 1978-1997):
--The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 50 of the 53 periods.
--The average annual return of common stocks surpassed that of U.S. Treasury
bills in each of the 53 periods.
--Common stock average annual returns exceeded the average annual rate of
inflation in each of the 53 periods.
Over the 43 30-year 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 1997.
The chart shows that, historically, the longer that a portfolio matching the
S&P 500 Stock Index was held, the less likely was the chance of a loss.
Conversely, the shorter the holding period of such a portfolio, the more
likely was the chance of a loss. The chart also shows that shorter term
results tend to be more extreme than longer term results.
The chart is not a projection or representation of future stock market
results. It cannot be taken as representative of the performance of any one
fund. Rather it shows the historic performance of a broad index of stocks.
----------------
PERCENT OF HOLDING PERIODS WITH THE FOLLOWING RETURNS:
<TABLE>
<CAPTION>
GREATER
THAN
HOLDING NEGATIVE 0-5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
- ------- -------- ------- ----------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
1 year......... 28% 4% 11% 7% 11% 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-76
<PAGE>
DOLLAR COST AVERAGING
Dollar cost averaging allows a person to take advantage of the historical
long-term stock market results, assuming that they continue, although it does
not guarantee a profit or protect against a loss. If an investor follows a
program of dollar cost averaging on a long-term basis, and the stock fund
selected performs at least as well as the S&P 500 has historically, it is
likely although not guaranteed that the price at which shares are surrendered,
for whatever reason, will be higher than the average cost per share.
An investor using dollar cost averaging invests the same amount of money in
the same professionally managed fund at regular intervals over a long period
of time. Dollar cost averaging keeps an investor from investing too much when
the price of shares is high and too little when the price is low. When the
price of shares is low, the money invested buys more shares. When it is high,
the money invested buys fewer shares. If the investor has the ability and
desire to maintain this program over a long period of time (for example, 20
years), and the stock fund chosen follows the historical upward market trends,
the price at which the shares are sold should be higher than their average
cost. This price could be lower, however, if the fund chosen does not follow
these historical trends.
Investors contemplating the use of dollar cost averaging should consider
their ability to continue the on-going purchases so that they can take
advantage of periods of low price levels.
A-77
<PAGE>
APPENDIX D
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the Treasury published
a "Report to the Congress on the Taxation of Life Insurance Company Products"
in March 1990. Page 4 of this report is Table 1.1, a "Comparison of Tax
Treatment of Life Insurance Products and Other Retirement Savings Plans".
Because it is a convenient summary of the relevant tax characteristics of
these products and plans, we have reprinted it here, and added footnotes to
reflect exceptions to the general rules.
---------------------
TABLE 1.1
COMPARISON OF TAX TREATMENT OF LIFE INSURANCE PRODUCTS AND
OTHER RETIREMENT SAVINGS PLANS
<TABLE>
<CAPTION>
CASH-VALUE
LIFE NON-QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
---------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as Distribu-
tions No* Yes Loans not Yes,
allowed beyond
$50,000
Income Ordering Rules (Income
included in First No* Yes Yes Yes
Distribution)
Early Withdrawal Penalties No* Yes*** Yes*** Yes***
Minimum Distribution Rules by
Age 70 1/2 No No Yes Yes
Maximum Annual Distribution
Rules No No Yes Yes
Anti-discrimination Rules No No No Yes
</TABLE>
- ----------
Department of the Treasury March 1990
Office of Tax Analysis
* If the Policy is not a modified endowment contract.
** If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not
deductible.
*** There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
The foregoing information is not intended as tax advice. You should consult
with your own tax advisor for more complete information.
A-78
<PAGE>
APPENDIX E
CASH VALUE ACCUMULATION TEST AND GUIDELINE PREMIUM TEST
In order to meet the Internal Revenue Code's definition of life insurance,
the Policies provide that the death benefit will not be less than that
required by the "cash value accumulation test" specified in Section 7702(a)(1)
of the Internal Revenue Code, or the "guideline premium test" specified in
Section 7702(a)(2) of the Internal Revenue Code, as selected by you when the
Policy is issued. Once the Policy is issued with either the cash value
accumulation test or the guideline premium test, that test will be used for
the life of the Policy. (See "Death Benefit".)
With respect to the cash value accumulation test, representative net single
premiums for selected ages of male and female, nonsmoker insureds are set
forth below.
<TABLE>
<CAPTION>
NET SINGLE PREMIUM
-------------------------------
AGE MALE NONSMOKER FEMALE NONSMOKER
--- -------------- ----------------
<S> <C> <C>
30........................................... 0.2015 0.1719
40........................................... 0.2801 0.2396
50........................................... 0.3821 0.3272
60........................................... 0.5046 0.4903
70........................................... 0.6365 0.5742
</TABLE>
With respect to the guideline premium test, Table I shows the percentage of
the Policy's cash value, including the pro rata portion of any Monthly
Deduction made for a period beyond the date of death, that is used to
determine the death benefit.
TABLE I
<TABLE>
<CAPTION>
AGE OF
AGE OF INSURED AT
INSURED AT START OF PERCENTAGE OF START OF PERCENTAGE OF
THE POLICY YEAR CASH VALUE* THE POLICY YEAR CASH VALUE*
- ------------------- ------------- --------------- -------------
<S> <C> <C> <C>
0 through 40 250 61 128
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75 through 90 105
55 150 91 104
56 146 92 103
57 142 93 102
58 138 94 through 99 101
59 134 100+ 100
60 130
</TABLE>
- ----------
* including the pro rata portion of any Monthly Deduction made for a period
beyond the date of death.
A-79
<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>
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
--------- --------------
<S> <C> <C>
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
==============
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ------------ --------------
<C> <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 ASSETS AND LIABILITIES
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2)............................. $902,464,811 $50,031,439 $39,292,980 $81,517,617 $48,105,570 $40,686,546 $46,830,880
<CAPTION>
SHARES COST
--------- --------------
<S> <C> <C>
Capital Growth
Series............ 1,915,369 673,925,319
Back Bay Advisors
Bond Income
Series............ 451,466 48,128,241
Back Bay Advisors
Money Market
Series............ 392,934 39,292,980
Westpeak Stock
Index Series...... 460,630 52,177,353
Back Bay Advisors
Managed Series.... 228,965 34,050,946
Loomis Sayles
Avanti Growth
Series............ 210,713 28,959,408
Westpeak Growth
and Income
Series............ 227,224 34,239,050
Loomis Sayles
Small Cap Series.. 382,251 55,457,458
Salomon Bros. U.S.
Government
Series............ 16,948 190,783
Loomis Sayles
Balanced Series... 617,661 8,566,360
Alger Equity
Growth Series..... 2,984,199 47,355,847
Morgan Stanley
International
Magnum Equity
Series............ 781,569 8,622,650
Davis Venture
Value Series...... 3,383,877 59,837,290
Salomon Bros. Bond
Opportunities
Series............ 78,795 952,377
VIP Equity-Income
Series............ 5,602,398 102,967,970
VIP Overseas
Series............ 4,408,384 73,392,247
VIP High Income
Series............ 826,228 10,094,610
VIP II Asset
Manager Series.... 427,709 6,620,263
--------------
Total........... $1,284,831,152
==============
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Amount due and accrued (payable) from
policy-related transactions, net........... (128,164) (6,530) 524,663 56,629 14,733 12,912 22,857
Dividends receivable........................ -- -- 154,798 -- -- -- --
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total Assets............................. 902,336,647 50,024,909 39,972,441 81,574,246 48,120,303 40,699,458 46,853,737
LIABILITIES
Due New England Life Insurance Company...... 75,520,840 4,912,001 5,188,379 9,766,409 4,454,392 4,572,184 5,720,674
------------ ------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES.................................... $826,815,807 $45,112,908 $34,784,062 $71,807,837 $43,665,911 $36,127,274 $41,133,063
============ ============ =========== =========== =========== =========== ===========
</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>
$66,660,743 $191,682 $9,833,167 $60,817,984 $9,746,164 $76,035,726 $969,176 $141,740,676 $89,402,025 $10,476,565
36,348 -- 28,569 34,786 (2,236) 66,009 -- 79,398 (31,113) 3,851
-- -- -- -- -- -- -- -- -- --
- ----------- -------- ---------- ----------- ---------- ----------- -------- ------------ ----------- -----------
66,697,091 191,682 9,861,736 60,852,770 9,743,928 76,101,735 969,176 141,820,074 89,370,912 10,480,416
8,555,316 15,447 1,426,151 8,793,795 1,324,069 10,041,659 61,086 17,036,298 10,128,801 1,433,289
- ----------- -------- ---------- ----------- ---------- ----------- -------- ------------ ----------- -----------
$58,141,775 $176,235 $8,435,585 $52,058,975 $8,419,859 $66,060,076 $908,090 $124,783,776 $79,242,111 $ 9,047,127
=========== ======== ========== =========== ========== =========== ======== ============ =========== ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------- --------------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
- ----------- --------------
<C> <C>
$7,283,891 $1,682,087,642
1,978 714,690
-- 154,798
- ----------- --------------
7,285,869 1,682,957,130
887,187 169,837,977
- ----------- --------------
$6,398,682 $1,513,119,153
=========== ==============
</TABLE>
See Notes to Financial Statements
F-7
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 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-8
<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
- ----------- ------------
<C> <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-9
<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-10
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------------------------------------- ------------------------------ ---------
SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH ASSET
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT* ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT* ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ---------- -------- ---------- ------------- ---------- ------------- ---------- ---------- -------- ---------
<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
- ------------
<C>
$ 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-11
<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-12
<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-13
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI GROWTH 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 $ -- $ -- $461,470 $ -- $ -- $ -- $ --
EXPENSE
Mortality and expense
risk charge (Note 3) 1,359,946 76,401 66,196 131,195 75,114 71,090 78,671
------------ ---------- -------- ----------- ----------- ----------- -----------
Net investment income
(loss) (1,359,946) (76,401) 395,274 (131,195) (75,114) (71,090) (78,671)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,665
End of period 228,539,492 1,903,198 -- 29,340,264 14,054,624 11,727,138 12,591,830
------------ ---------- -------- ----------- ----------- ----------- -----------
Net change in unrealized
appreciation
(depreciation) 137,173,129 1,011,139 -- 9,451,205 4,607,187 4,762,757 5,733,165
Net realized gain (loss)
on investments -- -- -- -- -- -- --
------------ ---------- -------- ----------- ----------- ----------- -----------
Net realized and
unrealized gain (loss)
on investments 137,173,129 1,011,139 -- 9,451,205 4,607,187 4,762,757 5,733,165
------------ ---------- -------- ----------- ----------- ----------- -----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS $135,813,183 $ 934,738 $395,274 $ 9,320,010 $ 4,532,073 $ 4,691,667 $ 5,654,494
============ ========== ======== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-14
<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>
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 8,088,940 $ 6,093,523 $1,064,286
110,409 1,190 20,860 108,809 23,546 126,568 5,614 224,751 139,750 15,964
- ----------- ------- ---------- ----------- ---------- ----------- ------- ----------- ----------- ----------
(110,409) (1,190) (20,860) (108,809) (23,546) (126,568) (5,614) 7,864,189 5,953,773 1,048,322
5,422,058 (1,916) 642,612 5,391,267 (155,005) 10,716,783 (2,256) 32,699,163 11,137,299 964,520
11,203,285 899 1,266,807 13,462,137 1,123,514 16,198,436 16,799 38,772,706 16,009,778 381,955
- ----------- ------- ---------- ----------- ---------- ----------- ------- ----------- ----------- ----------
5,781,227 2,815 624,195 8,070,870 1,278,519 5,481,653 19,055 6,073,543 4,872,479 (582,565)
-- -- -- -- -- -- -- -- -- --
- ----------- ------- ---------- ----------- ---------- ----------- ------- ----------- ----------- ----------
5,781,227 2,815 624,195 8,070,870 1,278,519 5,481,653 19,055 6,073,543 4,872,479 (582,565)
- ----------- ------- ---------- ----------- ---------- ----------- ------- ----------- ----------- ----------
$ 5,670,818 $ 1,625 $ 603,335 $ 7,962,061 $1,254,973 $ 5,355,085 $13,441 $13,937,732 $10,826,252 $ 465,757
=========== ======= ========== =========== ========== =========== ======= =========== =========== ==========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------- ------------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
- ----------- ------------
<C> <C>
$ 834,951 $ 16,543,170
11,344 2,647,418
- ----------- ------------
823,607 13,895,752
971,097 203,203,586
663,628 397,256,490
- ----------- ------------
(307,469) 194,052,904
-- --
- ----------- ------------
(307,469) 194,052,904
- ----------- ------------
$ 516,138 $207,948,656
=========== ============
</TABLE>
F-15
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<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 .............. $ -- $ -- $412,321 $ -- $ -- $ -- $ --
EXPENSE
Mortality and expense
risk charge (Note 3) .. 900,993 54,992 53,388 59,926 47,755 41,819 34,298
----------- --------- -------- --------- --------- ----------- ---------
Net investment income
(loss) ................ (900,993) (54,992) 358,933 (59,926) (47,755) (41,819) (34,298)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS ........
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period ... 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
End of period ......... 153,141,313 (52,784) -- 8,420,247 6,740,164 3,473,231 3,409,503
----------- --------- -------- --------- --------- ----------- ---------
Net change in unrealized
appreciation
(depreciation) ........ 15,131,908 (93,303) -- 787,234 602,535 (1,350,085) 302,413
Net realized gain (loss)
on investments ........ -- -- -- -- -- -- --
----------- --------- -------- --------- --------- ----------- ---------
Net realized and
unrealized gain (loss)
on investments ........ 15,131,908 (93,303) -- 787,234 602,535 (1,350,085) 302,413
----------- --------- -------- --------- --------- ----------- ---------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS ....... $14,230,915 $(148,295) $358,933 $ 727,308 $ 554,780 $(1,391,904) $ 268,115
=========== ========= ======== ========= ========= =========== =========
</TABLE>
See Notes to Financial Statements
F-16
<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>
$ -- $-- $ -- $ -- $ -- $ -- $ -- $8,872,794 $5,434,055 $393,295
44,079 301 8,520 46,253 8,754 38,400 571 136,519 95,951 7,791
---------- ----- -------- ---------- --------- --------- ------ ---------- ---------- --------
(44,079) (301) (8,520) (46,253) (8,754) (38,400) (571) 8,736,275 5,338,104 385,504
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600
2,528,912 (887) 184,126 1,783,260 19,085 2,544,772 (1,557) 8,401,186 6,106,908 (43,017)
---------- ----- -------- ---------- --------- --------- ------ ---------- ---------- --------
(530,653) (68) (52,499) (301,129) (117,106) 146,749 (404) (8,008,803) (3,395,308) (405,617)
-- -- -- -- -- -- -- -- -- --
---------- ----- -------- ---------- --------- --------- ------ ---------- ---------- --------
(530,653) (68) (52,499) (301,129) (117,106) 146,749 (404) (8,008,803) (3,395,308) (405,617)
---------- ----- -------- ---------- --------- --------- ------ ---------- ---------- --------
$(574,732) $(369) $(61,019) $(347,382) $(125,860) $ 108,349 $ (975) $ 727,472 $1,942,796 $(20,113)
========== ===== ======== ========== ========= ========= ====== ========== ========== ========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------- -----------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
- ----------- -----------
<C> <C>
$528,401 $15,640,866
6,661 1,586,971
- ----------- -----------
521,740 14,053,895
547,647 194,486,245
11,516 196,665,978
- ----------- -----------
(536,131) 2,179,733
-- --
- ----------- -----------
(536,131) 2,179,733
- ----------- -----------
$(14,391) $16,233,628
=========== ===========
</TABLE>
F-17
<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-18
<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
- ----------- ---------------
<C> <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-19
<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-20
<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
- ------------ ------------- ------------ ------------ --------------
<C> <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-21
<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-22
<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
- --------------
<C>
$ 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-23
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<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>
FROM OPERATING
ACTIVITIES
Net investment income
(loss) ............... $ (1,359,946) $ (76,401) $ 395,274 $ (131,195) $ (75,114) $ (71,090) $ (78,671)
Net realized and
unrealized gain (loss)
on investments ....... 137,173,129 1,011,139 -- 9,451,205 4,607,187 4,762,757 5,733,165
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase in net
assets resulting from
operations .......... 135,813,183 934,738 395,274 9,320,010 4,532,073 4,691,667 5,654,494
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from New
England Life Insurance
Company (Note 4) ..... 31,524,433 2,508,936 36,098,434 2,838,291 1,465,442 2,146,084 2,314,584
Net transfers (to) from
other sub-accounts ... 3,517,293 1,157,191 (31,659,585) 6,231,622 654,492 (192,918) 3,405,949
Net transfers (to) from
New England Life
Insurance Company .... (35,680,710) (1,003,657) (3,155,485) (4,132,922) (1,526,480) (1,584,162) (2,009,634)
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets
resulting from policy
related transactions . (638,984) 2,662,470 1,283,364 4,936,991 593,454 369,004 3,710,899
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase in net
assets ............... 135,174,199 3,597,208 1,678,638 14,257,001 5,125,527 5,060,671 9,365,393
NET ASSETS, AT
BEGINNING OF THE
PERIOD ............... 691,641,608 41,515,700 33,105,424 57,550,836 38,540,384 31,066,603 31,767,670
------------ ----------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT END OF
THE PERIOD ........... $826,815,807 $45,112,908 $ 34,784,062 $71,807,837 $43,665,911 $36,127,274 $41,133,063
============ =========== ============ =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-24
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ------------------------------------------------------------------------------------------- -------------------------------------
SMALL U.S. EQUITY VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH INTERNATIONAL VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- EQUITY SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT SUB- ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------- ---------- ---------- ------------ ------------- ----------- ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ (110,409) $ (1,190) $ (20,860) $ (108,809) $ (23,546) $ (126,568) $ (5,614) $ 7,864,189 $ 5,953,773 $1,048,322
5,781,227 2,815 624,195 8,070,870 1,278,519 5,481,653 19,055 6,073,543 4,872,479 (582,565)
- ----------- -------- ---------- ------------ ---------- ----------- -------- ------------ ----------- ----------
5,670,818 1,625 603,335 7,962,061 1,254,973 5,355,085 13,441 13,937,732 10,826,252 465,757
4,312,164 -- 681,446 4,059,732 783,837 4,929,980 -- 6,389,053 4,503,263 596,395
3,385,719 3,079 645,712 1,891,804 (425,321) 7,814,039 237,047 2,536,689 (568,397) 1,237,258
(2,737,361) 10,348 (370,156) (3,791,682) (326,667) (3,455,761) 69,865 (5,411,019) (3,344,327) (432,556)
- ----------- -------- ---------- ------------ ---------- ----------- -------- ------------ ----------- ----------
4,960,522 13,427 957,002 2,159,854 31,849 9,288,258 306,912 3,514,723 590,539 1,401,097
- ----------- -------- ---------- ------------ ---------- ----------- -------- ------------ ----------- ----------
10,631,340 15,052 1,560,337 10,121,915 1,286,822 14,643,343 320,353 17,452,455 11,416,791 1,866,854
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
- ----------- -------- ---------- ------------ ---------- ----------- -------- ------------ ----------- ----------
$58,141,775 $176,235 $8,435,585 $ 52,058,975 $8,419,859 $66,060,076 $908,090 $124,783,776 $79,242,111 $9,047,127
=========== ======== ========== ============ ========== =========== ======== ============ =========== ==========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------- ---------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ----------- ---------------
<C> <C>
$ 823,607 $ 13,895,752
(307,469) 194,052,904
- ----------- ---------------
516,138 207,948,656
555,057 105,707,131
128,327 --
(249,718) (69,132,084)
- ----------- ---------------
433,666 36,575,047
- ----------- ---------------
949,804 244,523,703
5,448,878 1,268,595,450
- ----------- ---------------
$6,398,682 $1,513,119,153
=========== ===============
</TABLE>
F-25
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<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>
FROM OPERATING
ACTIVITIES
Net investment income
(loss)............... $ (900,993) $ (54,992) $ 358,933 $ (59,926) $ (47,755) $ (41,819) $ (34,298)
Net realized and
unrealized gain
(loss) on
investments.......... 15,131,908 (93,303) -- 787,234 602,535 (1,350,085) 302,413
------------ ----------- ----------- ----------- ----------- ----------- -----------
Net Increase
(decrease) in net
assets resulting
from operations..... 14,230,915 (148,295) 358,933 727,308 554,780 (1,391,904) 268,115
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from New
England Life
Insurance Company
(Note 4)............. 28,014,580 2,199,642 23,099,255 2,057,572 1,439,000 2,029,690 1,403,484
Net transfers (to)
from other sub-
accounts............. (91,496) 107,865 (18,114,943) 2,988,353 387,696 717,709 789,760
Net transfers to New
England Life
Insurance Company.... (26,501,970) (1,981,732) (3,039,397) (2,473,583) (1,727,053) (1,368,087) (1,312,128)
------------ ----------- ----------- ----------- ----------- ----------- -----------
Net Increase in net
assets resulting from
policy related
transactions......... 1,421,114 325,775 1,944,915 2,572,342 99,643 1,379,312 881,116
------------ ----------- ----------- ----------- ----------- ----------- -----------
Net increase
(decrease) in net
assets............... 15,652,029 177,480 2,303,848 3,299,650 654,423 (12,592) 1,149,231
NET ASSETS, AT
BEGINNING OF THE
PERIOD............... 524,999,620 32,750,856 29,812,279 31,327,162 28,585,004 22,491,360 17,171,696
------------ ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS, AT END OF
THE PERIOD........... $540,651,649 $32,928,336 $32,116,127 $34,626,812 $29,239,427 $22,478,768 $18,320,927
============ =========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-26
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ------------------------------------------------------------------------------------------ ------------------------------------
SMALL U.S. EQUITY VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH INTERNATIONAL VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- EQUITY SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT SUB- ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------- ---------- ---------- ----------- ------------- ----------- ------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ (44,079) $ (301) $ (8,520) $ (46,253) $ (8,754) $ (38,400) $ (571) $ 8,736,275 $ 5,338,104 $ 385,504
(530,653) (68) (52,499) (301,129) (117,106) 146,749 (404) (8,008,803) (3,395,308) (405,617)
- ----------- ------- ---------- ----------- ---------- ----------- -------- ----------- ----------- ----------
(574,732) (369) (61,019) (347,382) (125,860) 108,349 (975) 727,472 1,942,796 (20,113)
2,614,881 -- 479,012 3,485,633 537,259 2,235,369 -- 6,078,065 4,309,590 471,412
3,712,376 8,141 790,576 1,437,554 184,460 5,101,599 205,164 1,195,723 296,427 344,865
(2,102,861) (1,934) (343,271) (2,214,397) (415,212) (2,023,274) (4,471) (4,608,002) (3,643,272) (400,395)
- ----------- ------- ---------- ----------- ---------- ----------- -------- ----------- ----------- ----------
4,224,396 6,207 926,317 2,708,790 306,507 5,313,694 200,693 2,665,786 962,745 415,882
- ----------- ------- ---------- ----------- ---------- ----------- -------- ----------- ----------- ----------
3,649,664 5,838 865,298 2,361,408 180,647 5,422,043 199,718 3,393,258 2,905,541 395,769
21,522,731 46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768 72,359,572 51,409,341 4,098,641
- ----------- ------- ---------- ----------- ---------- ----------- -------- ----------- ----------- ----------
$25,172,395 $51,875 $4,098,707 $24,431,690 $4,418,622 $22,084,013 $226,486 $75,752,830 $54,314,882 $4,494,410
=========== ======= ========== =========== ========== =========== ======== =========== =========== ==========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------- -------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ----------- -------------
<C> <C>
$ 521,740 $ 14,053,895
(536,131) 2,179,733
- ----------- -------------
(14,391) 16,233,628
458,555 80,912,999
(61,829) --
(135,879) (54,296,918)
- ----------- -------------
260,847 26,616,081
- ----------- -------------
246,456 42,849,709
3,580,095 886,384,798
- ----------- -------------
$3,826,551 $929,234,507
=========== =============
</TABLE>
F-27
<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-28
<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-29
<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-30
<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
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Equity-Income........................................................ 9.29% 6.69% 34.62% 13.88% 27.66%
Overseas............................................................. 14.57% 1.37% 9.30% 12.82% 11.17%
<CAPTION>
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
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Small Cap..................................................................... (3.45%) 28.40% 30.22% 24.42%
<CAPTION>
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
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
High Income................................................................... (0.58%) 20.18% 13.63% 17.26%
Asset Manager................................................................. (4.41%) 16.55% 14.20% 20.23%
<CAPTION>
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
<S> <C> <C> <C>
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-31
<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%
<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
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Equity Income........................................................ 9.22% 6.59% 34.49% 13.77% 27.53%
Overseas............................................................. 14.49% 1.27% 9.19% 12.70% 11.05%
<CAPTION>
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
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Small Cap..................................................................... (3.52%) 28.27% 30.09% 24.29%
<CAPTION>
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
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
High Income................................................................... (0.61%) 20.06% 13.52% 17.14%
Asset Manager................................................................. (4.45%) 16.43% 14.09% 20.11%
<CAPTION>
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
<S> <C> <C> <C>
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-32
<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%
<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
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Equity-Income........................................................ 9.11% 6.43% 34.29% 13.59% 27.34%
Overseas............................................................. 14.38% 1.12% 9.02% 12.53% 10.89%
<CAPTION>
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
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Small Cap..................................................................... (3.61%) 28.08% 29.90% 24.11%
<CAPTION>
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
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
High Income................................................................... (0.66%) 19.88% 13.35% 16.96%
Asset Manager................................................................. (4.49%) 16.26% 13.91% 19.93%
<CAPTION>
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
<S> <C> <C> <C>
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-33
<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%
<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
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Equity-Income........................................................ 8.89% 6.11% 33.89% 13.25% 26.96%
Overseas............................................................. 14.15% 0.82% 8.70% 12.19% 10.56%
<CAPTION>
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
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Small Cap..................................................................... (3.80%) 27.69% 29.50% 23.73%
<CAPTION>
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
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
High Income................................................................... (0.76%) 19.53% 13.00% 16.61%
Asset Manager................................................................. (4.59%) 15.91% 13.57% 19.57%
<CAPTION>
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
<S> <C> <C> <C>
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-34
<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%
<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
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Equity-Income........................................................ 9.00% 6.27% 34.09% 13.42% 27.15%
Overseas............................................................. 14.26% 0.97% 8.86% 12.36% 10.72%
<CAPTION>
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
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Small Cap..................................................................... (3.71%) 27.88% 29.70% 23.92%
<CAPTION>
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
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
High Income................................................................... (0.71%) 19.71% 13.17% 16.79%
Asset Manager................................................................. (4.54%) 16.08% 13.74% 19.75%
<CAPTION>
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
<S> <C> <C> <C>
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-35
<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%
<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
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Small Cap..................................................................... (3.23%) 28.84% 30.68% 24.85%
<CAPTION>
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
<S> <C> <C> <C>
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%
<CAPTION>
6/28/96- 1/1/97-
SUB-ACCOUNT 12/31/96 12/31/97
- ----------- -------- --------
<S> <C> <C>
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-36
<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
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
NOTES 1997 1996 1998
----- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Investments:
Fixed Maturities:
Available for Sale, at Estimated Fair
Value............................... 2,11 $ 734,391 $ 524,285 $ 747,114
Held to Maturity, at Amortized Cost.. 2 -- 29,666 --
Equity Securities..................... 2,11 9,399 -- 12,020
Policy Loans.......................... 11 104,783 76,263 112,789
Real Estate........................... 2,757 1,702 --
Short-Term Investments................ 11 27,944 156,560 15,296
Other Invested Assets................. 24,349 12,956 21,869
---------- ---------- ----------
Total Investments.................. 903,623 801,432 909,088
Cash and Cash Equivalents.............. 11 74,148 49,147 54,591
Deferred Policy Acquisition Costs...... 565,769 434,637 606,466
Accrued Investment Income.............. 18,712 13,713 21,515
Premiums and Other Receivables......... 4 63,036 5,941 72,923
Other Assets........................... 62,326 95,106 83,906
Separate Account Assets................ 1,988,225 1,206,959 2,402,826
---------- ---------- ----------
TOTAL ASSETS....................... $3,675,839 $2,606,935 $4,151,315
========== ========== ==========
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits................. 4 $ 500,429 $ 464,889 $ 526,569
Policyholder Account Balances.......... 4,11 240,411 181,594 255,999
Other Policyholder Funds............... 11 8,380 2,071 11,283
Policyholder Dividends Payable......... 14,719 9,018 14,841
Short and Long-Term Debt............... 8,11 85,981 84,057 85,121
Income Taxes Payable: 5
Current............................... 9,102 6,272 11,877
Deferred.............................. 42,066 39,463 42,350
Due to Parent.......................... 107,337 40,225 122,523
Other Liabilities...................... 45,647 21,965 43,256
Separate Account Liabilities........... 1,988,225 1,206,959 2,402,826
---------- ---------- ----------
TOTAL LIABILITIES.................. 3,042,297 2,056,513 3,516,645
---------- ---------- ----------
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 2,500
Contributed Capital.................... 545,477 497,946 545,537
Retained Earnings...................... 68,218 46,249 69,708
Net Unrealized Investment Gains........ 3 17,347 3,727 16,925
---------- ---------- ----------
TOTAL EQUITY....................... 12 633,542 550,422 634,670
---------- ---------- ----------
TOTAL LIABILITIES AND EQUITY........... $3,675,839 $2,606,935 $4,151,315
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
N-2
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
-------------------------- ENDED
NOTES 1997 1996 1995 MARCH 31, 1998
----- -------- -------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Premiums....................... 4 $ 63,616 $ 37,410 $ 38,566 $ 41,498
Universal Life and Investment-
Type Product Policy Fee
Income........................ 145,157 101,756 79,371 32,684
Net Investment Income.......... 3 61,059 49,628 41,815 15,020
Investment Gains (Losses), Net. 3 890 8,822 10,514 265
Commissions, Fees and Other
Income........................ 28,302 44,930 34,555 13,969
-------- -------- -------- --------
TOTAL REVENUES............... 299,024 242,546 204,821 103,436
-------- -------- -------- --------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits.......... 4 100,180 65,520 55,810 34,475
Interest Credited to
Policyholder Account Balances. 6,220 5,558 2,564 1,893
Policyholder Dividends......... 21,325 14,830 13,954 4,855
Other Operating Costs and
Expenses...................... 10 144,342 143,886 99,424 59,976
-------- -------- -------- --------
TOTAL BENEFITS AND OTHER
DEDUCTIONS.................. 272,067 229,794 171,752 101,199
-------- -------- -------- --------
Earnings from Operations before
Income Taxes.................. 26,957 12,752 33,069 2,237
Income Taxes................... 5 4,988 3,051 12,303 747
-------- -------- -------- --------
NET EARNINGS................... $ 21,969 $ 9,701 $ 20,766 $ 1,490
======== ======== ======== ========
</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>
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON
STOCK & NET UNREALIZED
CONTRIBUTED RETAINED INVESTMENT
CAPITAL EARNINGS GAINS (LOSSES) TOTAL
----------- -------- -------------- --------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997..... $547,977 $68,218 $17,347 $633,542
Net Earnings..................... -- 1,490 -- 1,490
Change in Net Unrealized
Investment Gains (Losses)....... -- -- (422) (422)
Contributed Capital.............. 60 -- -- 60
-------- ------- ------- --------
BALANCE AT MARCH 31, 1998........ $548,037 $69,708 $16,925 $634,670
======== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
N-4
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------- MARCH 31,
1997 1996 1995 1998
--------- --------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET CASH USED BY OPERATING
ACTIVITIES...................... $(121,838) $ (85,674) $(111,834) $(59,097)
--------- --------- --------- --------
Cash Flows from Investing
Activities:
Sales, Maturities and Repayments
of:
Available for Sale Fixed
Maturities..................... 178,003 276,420 538,297 12,763
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) (12,446)
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 17,361
Net Change in Policy Loans...... (28,520) (18,052) (14,243) (8,006)
Other, Net...................... 177 67 (114) (1,793)
--------- --------- --------- --------
NET CASH USED BY INVESTING
ACTIVITIES...................... (47,756) (139,570) (79,631) (7,879)
--------- --------- --------- --------
Cash Flows from Financing
Activities:
Capital Contributions........... 46,681 159,162 9,515 60
Borrowed Money.................. (3,181) -- 25,000 (2,208)
Policyholder Account Balances
Deposits........................ 244,338 482,552 281,762 63,575
Withdrawals..................... (95,066) (364,933) (148,403) (31,231)
Financial Reinsurance
Receivables.................... 1,823 (37,519) -- 1,465
--------- --------- --------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES...................... 194,595 239,262 167,874 31,661
--------- --------- --------- --------
Change in Cash and Cash
Equivalents..................... 25,001 14,018 (23,591) (19,557)
Cash and Cash Equivalents,
Beginning of Year............... 49,147 35,129 58,720 74,148
--------- --------- --------- --------
CASH AND CASH EQUIVALENTS, END OF
YEAR............................ $ 74,148 $ 49,147 $ 35,129 $ 54,591
========= ========= ========= ========
Supplemental Cash Flow
Information:
Interest Paid................... $ 1,495 $ 1,523 $ 1,277 $ 374
========= ========= ========= ========
Income Taxes Paid............... $ 5,470 $ 4,721 $ 6,765 $ 2,612
========= ========= ========= ========
NET EARNINGS..................... $ 21,969 $ 9,701 $ 20,766 $ 1,490
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) (41,846)
Change in Accrued Investment
Income......................... (4,999) 909 (11,507) (2,803)
Change in Premiums and Other
Receivables.................... (57,095) 4,370 (4,073) (9,887)
Gains from Sales of Investments,
Net............................ (890) (15,979) (21,980) 265
Depreciation and Amortization
Expenses....................... 10,085 4,120 5,725 2,521
Interest Credited to
Policyholder Account Balances.. 6,220 5,558 2,565 1,893
Universal Life and Investment-
Type Product Policy Fee Income. -- (101,756) (79,371) --
Change in Future Policy
Benefits....................... 35,540 18,202 14,539 26,140
Change in Other Policyholder
Funds.......................... 6,309 (283) 1,789 15,588
Change in Policyholder Dividends
Payable........................ 5,701 1,671 114 (122)
Change in Income Taxes Payable.. 1,674 (6,634) 10,211 284
Other, Net...................... (5,774) 63,073 (4,789) (52,620)
--------- --------- --------- --------
NET CASH USED BY OPERATING
ACTIVITIES...................... $(121,838) $ (85,674) $(111,834) $(59,097)
========= ========= ========= ========
</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>
NEW ENGLAND LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MA 02116
RECEIPT
This is to acknowledge receipt of a Zenith Executive Advantage Plus
Prospectus dated August 3, 1998. This Variable Life policy is offered by New
England Life Insurance Company.
- ------------------------------------- -------------------------------------
(Date) (Client's Signature)
<PAGE>
New England Life Insurance Company
501 Boylston Street
Boston, MA 02116
E-mail: [email protected]
Internet: http//www.nefn.com
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Equal Opportunity Employer
(Copyright)1998 by New England Life Insurance Company (NELICO). New England
Financial is the service mark for NELICO, Boston, MA, and related companies.
VL-124-98
