<PAGE>
As filed with Securities and Exchange Commission on
April 30, 1998
Registration No. 33-66864
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 10
TO REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
NEW ENGLAND LIFE INSURANCE COMPANY
(Name of Depositor)
501 Boylston Street
Boston, Massachusetts 02117
(Address of depositor's principal executive offices)
------------------------
MARIE C. SWIFT
Counsel
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
(Name and address of agent for service)
Copies to:
STEPHEN E. ROTH
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
------------------------
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on May 1, 1998 pursuant to paragraph (a)(1) of Rule 485
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Units of Interest in Flexible Premium
Adjustable Variable Survivorship Life Insurance Policies.
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
Registration Statement on Form S-6
Cross-Reference Sheet
Form N-8B-2
Item No. Caption in Prospectus
- ----------- ---------------------
1 Cover Page
2 Cover Page
3 Inapplicable
4 NELICO's Distribution Agreement
5 NELICO
6 The Variable Account
9 Inapplicable
10(a) Other Policy Features
10(b) Policy Values and Benefits
10(c), (d), (e)Death Benefit; Cash Value; Exchange of Policy During First 24
Months; Lapse and Reinstatement; Surrender; Partial Surrender;
Right to Return the Policy; Loan Provision; Transfer Option;
Premiums
10(f), (g), (h)Voting Rights; Rights Reserved by NELICO
10(i) Limits to NELICO's Right to Challenge the Policy; Payment of
Proceeds; Investment Options
11 The Variable Account
12 Investments of the Variable Account; NELICO's Distribution
Agreement
13 Charges and Expenses; NELICO's Distribution Agreement; Charge for
NELICO's Income Taxes; Appendix A
14 Amount Provided for Investment Under the Policy; NELICO's
Distribution Agreement
15 Premiums
16 Investments of the Variable Account
17 Captions referenced under Items 10(c), (d), (e) and (i) above
18 The Variable Account; Net Investment Experience
19 Reports; NELICO's Distribution Agreement
20 Captions referenced under Items 6 and 10(g) above
21 Loan Provision
22 Inapplicable
23 NELICO's Distribution Agreement
24 Limits to NELICO's Right to Challenge the Policy
25 NELICO
26 NELICO's Distribution Agreement
<PAGE>
Form N-8B-2
Item No. Caption in Prospectus
- ------------- ---------------------
27 NELICO
28 Management
29 NELICO
30 Inapplicable
31 Inapplicable
32 Inapplicable
33 Inapplicable
34 NELICO's Distribution Agreement
35 NELICO
36 Inapplicable
37 Inapplicable
38 NELICO's Distribution Agreement
39 NELICO's Distribution Agreement
40 NELICO's Distribution Agreement
41(a) NELICO's Distribution Agreement
42 Inapplicable
43 Inapplicable
44(a) Investments of the Variable Account; Amount Provided for
Investment Under the Policy; Deductions from Premiums; Flexible
Premiums
44(b) Charges and Expenses
44(c) Flexible Premiums; Deductions from Premiums
45 Inapplicable
46 Investments of the Variable Account; Captions referenced under
Items 10(c), (d) and (e) above
47 Inapplicable
48 Inapplicable
49 Inapplicable
50 Inapplicable
51 Cover Page; Death Benefit; Lapse and Reinstatement; Charges and
Expenses; Additional Benefits by Rider; Exchange of Policy During
First 24 Months; Payment Options; Policy Owner and Beneficiary;
Premiums; NELICO's Distribution Agreement
52 Rights Reserved by NELICO
53 Tax Considerations
54 Inapplicable
55 Inapplicable
59 Financial Statements
<PAGE>
NEW ENGLAND LIFE
INSURANCE COMPANY
Flexible Premium Adjustable
Variable Survivorship Life Insurance Policies
Issued by
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus describes individual Flexible Premium Adjustable Variable
Survivorship 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 together with two types of death
benefit guarantees as long as the total amount of premiums paid with interest,
less any partial surrenders with interest, equals certain minimum amounts and
there is no policy loan. Insurance coverage is provided on the joint lives of
two insureds. The death benefit is payable upon the death of the second to
die.
You may choose among four death benefit options, two of which provide a
fixed death benefit equal to the Policy's face amount and two of which provide
a variable death benefit which may vary daily with the net investment
experience of one or more mutual fund portfolios. Under any of the death
benefit options, the minimum death benefit guarantees will be available. The
cash value of the Policy generally increases with the payment of each premium
and varies daily with the investment experience of the mutual fund portfolios.
There is no guaranteed minimum cash value for investments in the mutual fund
portfolios.
You may cancel the Policy during the "Right to Return the Policy" period.
The part of the first net premium for the Policy that you direct to the mutual
fund portfolios will be allocated to the Zenith Money Market Sub-Account until
the later of 45 days after the date Part 1 of the application is signed or 10
days after NELICO mails the Notice of Withdrawal Right. Thereafter, the
Policy's cash value will be invested according to your instructions.
You may 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 Loomis Sayles
Balanced Series, the Alger Equity Growth Series, the Davis Venture Value
Series, the Goldman Sachs Midcap Value Series, and the Morgan Stanley
International Magnum Equity Series of the New England Zenith Fund (the "Zenith
Fund"); the Equity-Income Portfolio, Overseas Portfolio and High Income
Portfolio of the Variable Insurance Products Fund ("VIP Fund"); and the Asset
Manager Portfolio of the Variable Insurance Products Fund II ("VIP Fund II").
SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE OUT OF THE FIXED ACCOUNT.
It may not be advantageous to replace existing insurance with the Policy
described in this prospectus. (See "Charges and Expenses".)
- --------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THIS PROSPECTUS IS NOT VALID UNLESS ACCOMPANIED OR PRECEDED BY THE
CURRENT PROSPECTUSES OF THE NEW ENGLAND ZENITH FUND AND OF THE VARIABLE
INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II, WHICH ARE
ATTACHED AT THE END OF THIS PROSPECTUS. THESE PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
SHARES OF THE ZENITH FUND, THE VIP FUND AND THE VIP FUND II, AND INTERESTS
IN THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, A BANK, AND THE SHARES AND INTERESTS ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
MAY 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY.................................................................. A-4
INTRODUCTION TO THE POLICIES.............................................. A-7
The Policies............................................................. A-7
Availability of the Policy............................................... A-9
Policy Charges........................................................... A-9
How the Policy Works..................................................... A-11
Receipt of Communications and Payments at NELICO's Home Office........... A-12
NELICO................................................................... A-12
POLICY VALUES AND BENEFITS................................................ A-13
Death Benefit............................................................ A-13
Minimum Guaranteed Death Benefit......................................... A-14
Adjustments to the Death Proceeds Payable................................ A-15
Change in Death Benefit Option........................................... A-15
Extending the Maturity Date.............................................. A-16
Cash Value............................................................... A-16
Net Investment Experience................................................ A-16
Allocation of Net Premiums............................................... A-17
Amount Provided for Investment under the Policy.......................... A-17
Right to Return the Policy............................................... A-18
CHARGES AND EXPENSES...................................................... A-18
Deductions from Premiums................................................. A-18
Surrender Charge......................................................... A-19
Monthly Deduction from Cash Value........................................ A-21
Charges Against the Eligible Funds and the Sub-Accounts of the Variable
Account................................................................. A-23
Group or Sponsored Arrangements.......................................... A-24
PREMIUMS.................................................................. A-25
Flexible Premiums........................................................ A-25
Lapse and Reinstatement.................................................. A-26
OTHER POLICY FEATURES..................................................... A-27
Loan Provision........................................................... A-27
Surrender................................................................ A-28
Partial Surrender........................................................ A-28
Reduction in Face Amount................................................. A-29
Investment Options....................................................... A-30
Transfer Option.......................................................... A-30
Payment of Proceeds...................................................... A-30
Exchange of Policy During First 24 Months................................ A-31
Policy Split Rider....................................................... A-32
Payment Options.......................................................... A-32
Additional Benefits by Rider............................................. A-33
Policy Owner and Beneficiary............................................. A-33
THE VARIABLE ACCOUNT...................................................... A-34
Investments of the Variable Account...................................... A-34
Investment Management.................................................... A-38
THE FIXED ACCOUNT......................................................... A-39
General Description...................................................... A-39
Values and Benefits...................................................... A-40
Policy Transactions...................................................... A-40
NELICO'S DISTRIBUTION AGREEMENT........................................... A-41
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY.......................... A-41
Notification of First Death.............................................. A-41
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
Misstatement of Age or Sex............................................... A-42
Suicide.................................................................. A-42
TAX CONSIDERATIONS........................................................ A-42
Policy Proceeds.......................................................... A-42
Charge for NELICO's Income Taxes......................................... A-46
MANAGEMENT................................................................ A-47
VOTING RIGHTS............................................................. A-50
RIGHTS RESERVED BY NELICO................................................. A-50
TOLL-FREE NUMBERS......................................................... A-51
REPORTS................................................................... A-51
ADVERTISING PRACTICES..................................................... A-51
LEGAL MATTERS............................................................. A-52
REGISTRATION STATEMENT.................................................... A-52
EXPERTS................................................................... A-52
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET CASH VALUES
AND ACCUMULATED SCHEDULED PREMIUMS ...................................... A-54
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............................. A-62
APPENDIX C: LONG TERM MARKET TRENDS....................................... A-80
APPENDIX D: USES OF SURVIVORSHIP LIFE INSURANCE........................... A-83
APPENDIX E: TAX INFORMATION............................................... A-84
APPENDIX F: ENHANCED DEATH BENEFIT LIMITATIONS............................ A-85
FINANCIAL STATEMENTS...................................................... F-1
</TABLE>
A-3
<PAGE>
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.
BENCHMARK PREMIUM. The Benchmark Premium is used to determine the amount of
Deferred Sales Charge that may apply in the event of a surrender, partial
surrender, lapse or face amount reduction. It is the level premium necessary
to keep a level death benefit Policy, without riders, in-force until age 80 of
the younger insured (or 20 years after issue, if later, but not later than the
Maturity Date) based on certain assumptions. (See "Surrender Charge".)
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 A. Death Benefit equals the greater of (i) the face
amount of the Policy and (ii) a percentage, determined in accordance with
federal income tax laws, of the Policy's cash value, multiplied by an
enhancement factor. (See "Death Benefit".)
DEATH BENEFIT OPTION B. Death Benefit equals the greater of (i) the face
amount of the Policy plus the Policy's cash value and (ii) a percentage,
determined in accordance with federal income tax laws, of the Policy's cash
value, multiplied by an enhancement factor. (See "Death Benefit".)
DEATH BENEFIT OPTION C. Death Benefit equals the greater of (i) the face
amount of the Policy and (ii) a percentage, determined in accordance with
federal income tax laws, of the Policy's cash value. (See "Death Benefit".)
DEATH BENEFIT OPTION D. Death Benefit equals the greater of (i) the face
amount of the Policy plus the Policy's cash value and (ii) a percentage,
determined in accordance with federal income tax laws, of the Policy's cash
value. (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 Loomis Sayles Balanced Series, the Alger Equity Growth Series,
the Davis Venture Value Series, the Goldman Sachs Midcap Value Series, and the
Morgan Stanley International Magnum Equity Series of the Zenith Fund; the
Equity-Income Portfolio, 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 and which provides guarantees of principal
and interest. (See "The Fixed Account".)
A-4
<PAGE>
GUARANTEED DEATH BENEFIT 1 FUND. The Guaranteed Death Benefit 1 Fund is a
measurement used to determine if the Minimum Guaranteed Death Benefit 1 is in
effect. This Fund assumes the Guaranteed Death Benefit 1 Premium that appears
in the Policy is paid on the first day of each Policy year. The Fund equals
the value of those premiums accumulated at 4% per year. The Fund values shown
in your Policy are for the end of each Policy year. (See "Minimum Guaranteed
Death Benefit".)
GUARANTEED DEATH BENEFIT 2 FUND. The Guaranteed Death Benefit 2 Fund is a
measurement used to determine if the Minimum Guaranteed Death Benefit 2 is in
effect. This Fund assumes the Guaranteed Death Benefit 2 Premium that appears
in the Policy is paid on the first day of each Policy year. The Fund equals
the value of those premiums accumulated at 4% per year. The Fund values shown
in your Policy are for the end of each Policy year. (See "Minimum Guaranteed
Death Benefit".)
INVESTMENT START DATE. This is the latest of the date NELICO receives a
premium payment for the Policy, the date each of the insureds has signed
his/her Part II of the Policy application and the Policy Date and is the date
when an amount is first provided for investment under the Policy. (See "Amount
Provided for Investment under the Policy".)
MATURITY DATE. The Policy anniversary on which the younger insured is (or
would have been) age 100, unless the extended maturity option has been added
to the Policy. (See "Extending the Maturity Date".)
MINIMUM PREMIUM. Generally, the Minimum Premium is that amount which, if
timely paid and there is no outstanding Policy loan, 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
three-year Minimum Premium is based on the Policy's face amount, the age, sex
(unless unisex rates apply) and underwriting class of each of the insureds,
the current level of Policy charges and any rider benefits selected. Certain
Policy transactions will terminate this guarantee. (See "Premiums".)
MINIMUM GUARANTEED DEATH BENEFIT 1. The Policy will not lapse, regardless of
whether the net cash value is sufficient to pay a Monthly Deduction, if (at
the time of the Monthly Deduction) premiums paid, accumulated at a 4% rate as
if they were paid on the first day of each Policy year, less partial
surrenders, accumulated at a 4% rate per year, is at least equal to the
Guaranteed Death Benefit 1 Fund and there is no outstanding Policy loan.
Generally, NELICO determines whether this benefit is in effect on the first
day of each Policy month. Certain Policy transactions can terminate this
guarantee. (See "Minimum Guaranteed Death Benefit".)
MINIMUM GUARANTEED DEATH BENEFIT 2. The Policy will not lapse, regardless of
whether the net cash value is sufficient to pay a Monthly Deduction, if (at
the time of the Monthly Deduction prior to the later of: the date when the
younger insured attains age 80, or would have attained age 80 if that person
died before reaching age 80, and 20 years from the Policy Date, but no later
than the Maturity Date of the Policy) premiums paid, accumulated at a 4% rate
as if they were paid on the first day of each Policy year, less partial
surrenders, accumulated at a 4% rate per year, is at least equal to the
Guaranteed Death Benefit 2 Fund and there is no outstanding Policy loan.
Generally, NELICO determines whether this benefit is in effect on the first
day of each Policy month. Certain Policy transactions can terminate this
guarantee. (See "Minimum Guaranteed Death Benefit".)
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 riders, the monthly
policy fee, the monthly administrative charge and the monthly minimum death
benefit guarantee charge. (See "Monthly Deduction from Cash Value".)
MORTALITY AND EXPENSE RISK CHARGE. This charge is made daily from the value
of each sub-account's assets that come from the Policies. Currently, the
charge is at an annual rate of .75% of the sub-accounts' assets, and is
guaranteed not to exceed .90% of the sub-accounts' assets. The mortality risk
NELICO assumes is that insureds may live for shorter periods of time than
estimated. The expense risk NELICO assumes is that the costs of issuing and
administering Policies may be more than estimated. (See "Charges Against the
Eligible Funds and the Sub-Accounts of the Variable Account".)
A-5
<PAGE>
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 applicable Surrender
Charge and by any outstanding policy loan and accrued interest. (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, reduced by the amount of charges against the sub-
account for that period. (See "Net Investment Experience".)
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 can be a fixed amount or can vary over time and 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 each of the insureds has signed
his/her Part II of the application 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 measure the portion of the
total premiums paid in a Policy year that is currently subject to the 9% sales
charge, and commissions payable in connection with sales of the Policies. It
is the level premium necessary to keep a level death benefit base Policy in-
force until age 80 of the younger insured, based on certain assumptions, if
both insureds are a standard or better underwriting risk. If the younger
insured's issue age is above 60, the Target Premium may be calculated using a
period of less than 20, but no less than five, years. If an insured is
assigned to a class below standard, a higher Target Premium will apply.
Certain riders increase the Target Premium for the Policy above the amounts
described herein. (See "Deductions from Premiums".)
YOU. When used in this prospectus, "you" refers to the Policy Owner.
A-6
<PAGE>
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 Survivorship Life
Insurance Policies offered by this prospectus are designed to provide lifetime
insurance coverage for two insureds payable upon the death of the second to
die. They are not offered primarily as an investment.
The following is a brief listing of the basic features of the Policy. These
and other features of the Policy are explained in detail throughout the
prospectus. You should be sure to read the prospectus for more complete
information.
--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 an insured is in a substandard risk class. (See "Premiums".)
--Net premiums are invested according to your instructions in the Fixed
Account or, after an initial period in the Zenith Money Market Sub-
Account, in one or more of the sub-accounts of the Variable Account
corresponding to mutual fund portfolios. (See "Allocation of Net
Premiums" and "Investment Options".)
--The mutual fund portfolios available to you under the Policy include
several common stock funds, including a fund which invests primarily in
foreign securities, two bond funds, two managed funds, a balanced fund,
and a money market fund. You may allocate your Policy's cash value to a
maximum of nine accounts (including the Fixed Account) at any one time.
(See "Investments of the Variable Account".)
--If the Fixed Account is available in your state, you may also allocate
funds to that account. NELICO provides guarantees of Fixed Account
principal and Interest. SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE
FROM THE FIXED ACCOUNT. NELICO also reserves the right to restrict
transfers of cash value and allocations of premiums into the Fixed
Account. (See "The Fixed Account".)
--The cash value of the Policy will vary daily based on, among other
things, the net investment experience of the sub-accounts to which
amounts have been allocated and the amount of interest credited to any of
the Policy's cash value in the Fixed Account. (See "Cash Value", "Charges
and Expenses", "Premiums", "Loan Provision" and "Partial Surrender".)
--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 among four forms of death benefit options under the
Policy. The two level options provide a death benefit equal to the
Policy's face amount. The two variable options provide 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 any of these options the death benefit could be
increased to satisfy tax law requirements if the cash value reaches
certain levels. One of the level and one of the variable options provide
for an enhanced increase. (See "Death Benefit".)
--Regardless of investment experience, each form of death benefit is
guaranteed never to be less than the Policy's face amount, as long as the
total amount of premiums paid, with interest, less any partial
surrenders, with interest, at least equals certain minimum amounts and
there is no outstanding Policy loan. (See "Death Benefit" and "Minimum
Guaranteed Death Benefit".)
A-7
<PAGE>
--You may change your allocation of future net premiums at any time. (See
"Allocation of Net Premiums" and "Investment Options".)
--After the "Right to Return the Policy" period, the Policy provides that
you may transfer portions of the Policy's cash value among the sub-
accounts and, generally, to the Fixed Account up to four times per policy
year (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 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 will not be taxable to you as long as the Policy
has not lapsed, been surrendered or terminated. With certain exceptions,
other pre-death distributions under a Policy that is not a modified
endowment contract are includible in income only to the extent they
exceed the investment in the Policy. (See "Tax Considerations".)
--You have an opportunity during the "Right to Return the Policy" period to
return the Policy for a refund. (See "Right to Return the Policy".)
--Within 24 months after a Policy's date of issue, you may exchange the
Policy, without evidence of insurability, for a comparable fixed-benefit
survivorship life insurance policy issued by NELICO or an affiliate on
the joint lives of the insureds. If you exercise this option, you will
have to make up any investment loss. (See "Exchange of Policy During
First 24 Months".)
In many respects the Policies are similar to fixed-benefit survivorship
universal life insurance. Like survivorship universal life insurance, the
Policies provide for a death benefit upon the death of the second insured,
flexible premiums, a cash value, and loan privileges.
The Policies are different from fixed-benefit survivorship 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 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.
--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".)
A-8
<PAGE>
--The Variable Account, not the Policy Owner, owns the mutual fund shares.
--Federal income tax liability on any earnings is deferred until you
receive a distribution from the Policy. Transfers from one underlying
fund portfolio to another are accomplished without tax liability under
current law.
--Dividends and capital gains are automatically reinvested.
For a discussion of some of the uses of the Policies, see "Appendix D: Uses
of Survivorship Life Insurance".
AVAILABILITY OF THE POLICY
Generally, a Policy may be issued on the lives of Insureds from the age of
20 to 85, and, if NELICO consents, to older or younger insureds. All persons
must meet NELICO's underwriting and other criteria for issuance. The minimum
face amount available is $100,000 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.
Policies for which insurance charges do not vary based on the sex of the
insured may not be available; and imposition of sex-based insurance charges
may not be consistent with requirements applicable to certain employee benefit
plans.
POLICY CHARGES
PREMIUM-BASED CHARGES. NELICO deducts the following charges from premiums:
--A sales charge of 9%. NELICO currently intends to waive this charge on
all premiums paid after the first 15 policy years (17 policy years, for
Policies issued in Pennsylvania). In addition, NELICO currently intends
to deduct this charge from premium payments made in a Policy year
(through the first 15 or 17 Policy years, as applicable) only until an
amount equal to a Target Premium has been paid in that Policy year.
Premium payments during a Policy year in excess of a Target Premium will
not be subject to the sales charge;
--A state premium tax charge of 2.5%;
--A charge for federal taxes of 1%.
SURRENDER CHARGE. The Surrender Charge includes:
--A deferred administrative charge. This charge applies to a lapse,
surrender, reduction in face amount or partial surrender that reduces the
face amount during Policy years one through fourteen. This charge is
$4.00 per $1,000 of face amount for the first five Policy years, and then
reduces monthly until it reaches $2.00 at the end of the tenth Policy
year and 0 at the end of the 14th Policy year. The charge may be less if
the average of the issue ages is greater than 60.
--A deferred sales charge. This charge applies to a lapse, surrender,
reduction in face amount or partial surrender that reduces the face
amount during Policy years one through fourteen. The maximum Deferred
Sales Charge is imposed for Policies which cover insureds whose average
issue age is 60 or less at issue, if you lapse or surrender the Policy,
or reduce its face amount, in Policy years three through five. The
maximum Deferred Sales Charge in those years equals 41% of one Benchmark
Premium plus 41% of a second Benchmark Premium and 8% of a third
Benchmark Premium. In no event will the Deferred Sales Charge be more
than $30 per $1,000 of face amount. After the fifth Policy year, the
maximum Deferred Sales Charge declines on a monthly basis until it
reaches 0% in the last month of the fourteenth Policy year. If you lapse
or surrender the Policy, reduce its face amount, or make a partial
surrender that reduces the face amount in the first two Policy years, the
maximum Deferred Sales Charge will be 21% of one Benchmark Premium.
The Surrender Charge is deducted from the Policy's available cash value,
regardless of whether that cash value is derived from premiums or investment
experience.
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;
A-9
<PAGE>
--Monthly administrative charge, equal to: (1) $0.16 per $1,000 of face
amount for the first Policy year; (2) currently, in Policy years two
through ten, $0.05 per $1,000 of face amount for two insureds who are
each in a standard or better underwriting class, $0.075 per $1,000 if
only one insured is in a standard or better class, and $0.10 per $1,000
if neither insured is in a standard or better class (guaranteed not to
exceed $0.10 per $1,000 for all Policies); and (3) currently, in Policy
years 11 and after, $0.03 per $1,000 (guaranteed not to exceed $0.10 per
$1,000). Currently, NELICO intends to apply this charge to no more than
$4 million of Policy face amount beginning in the second Policy year;
--Monthly minimum death benefit guarantee charge of $0.01 per $1,000 of
face amount;
--Monthly policy fee, currently equal to $5.00 per month (guaranteed not to
exceed $7.50 per month).
CHARGES DEDUCTED FROM THE VARIABLE ACCOUNT AND THE ELIGIBLE FUNDS. The
following charges are deducted from the Variable Account and Eligible Fund
assets:
--Daily charge against the sub-account assets for NELICO's mortality and
expense risk, currently equal to an annual rate of .75% (guaranteed not
to exceed .90%);
--Daily charges against the Eligible Fund portfolios for investment
advisory services and fund operating expenses.
See "Charges and Expenses".
A-10
<PAGE>
HOW THE P0LICY WORKS
PREMIUM PAYMENTS
. Flexible
. Planned premium options
-Minimum premium (in first three Policy years)
-Guaranteed Death Benefit 2 Premium (to age 80)
-Guaranteed Death Benefit 1 Premium (to age 100)
CHARGES FROM PREMIUM PAYMENTS
. Sales Load: 9.00% up to Target Premium; currently 0%
above Target, NELICO intends to waive after 15 policy yrs.
(17 policy years in PA)
. State Premium Tax Charge: 2.5%
. Charge for Federal Taxes: 1%
LOANS
. After the free look period you may borrow a portion of your
cash value
. Loan interest charge is 5.5%. 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 5.0% interest after 15 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 (after an initial period in the Zenith Money Market
Sub-Account) or the Fixed Account
. 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
after the free look period.
Transfers from the Fixed Account are limited as to timing,
frequency and amount
. Your cash value may be allocated among a maximum of nine
accounts at any one time
DEATH BENEFIT
. Paid upon the 2nd death
. Level of Variable Death Options
. Guaranteed not to be less than initial face amount if Death
Benefit Guarantee is in effect
. Income tax free to named beneficiary
DAILY DEDUCTIONS FROM ASSETS
. Mortality and expense risk charges of .75% (guaranteed not to
exceed .90%) on an annual basis are deducted from the cash
value daily
. Investment advisory fees and other expenses are deducted from
the Eligible Fund values daily
BEGINNING OF MONTH CHARGES
. The cost of insurance protection (reflecting any substandard risk
rating) is deducted from the cash value each month
. Any Rider Charges
. Policy fee: $5.00 (not to exceed $7.50) per month
. Minimum Death Benefit Guarantee Charge: $.01 per $1000 face
amount monthly
. Administrative Charge: $0.16 per $1000 of face amount monthly
in the first year; $0.05 per $1000 monthly for two Standard
insureds [$0.075 for Standard/(Substandard or Uninsurable) or
$0.10 for Substandard/(Substandard or Unisurable] in years 2-
10; and $0.03 per $1000 monthly in subsequent years. On a
guaranteed basis, the Administration Charge is $0.16 per $1000
of face amount in the first year and $0.10 per $1000 in
subsequent years.
SURRENDER CHARGES
. Consist of Deferred Sales Charge and Deferred Administrative
Charge (see page A-19)
LIVING BENEFITS
. If policyholder has elected and qualified for benefits for
disability of covered insured who becomes totally disabled,
company will provide specified premium amounts or waive
monthly charges, depending on the option selected, 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
A-11
<PAGE>
RECEIPT OF COMMUNICATIONS AND PAYMENTS AT NELICO'S HOME OFFICE
NELICO will treat your request for a Policy transaction, or your submission
of a payment, as received at the Home Office if it is received there before
the close of regular trading on the New York Stock Exchange on that day. If it
is received after that time, or if the New York Stock Exchange is not open
that day, then it will be treated as received on the next day when the New
York Stock Exchange is open.
NELICO
NELICO was organized as a stock life insurance company in Delaware in 1980
and is licensed to sell life insurance in all states, the District of Columbia
and Puerto Rico. Before August 30, 1996, NELICO was a wholly-owned subsidiary
of New England Mutual Life Insurance Company ("New England Mutual"). Effective
August 30, 1996, New England Mutual merged into MetLife, a mutual life
insurance company whose principal office is One Madison Avenue, New York, NY
10010. With the merger, New England Mutual's separate corporate existence
ended, and MetLife became the parent of NELICO. In connection with the merger,
NELICO changed its name from "New England Variable Life Insurance Company" to
"New England Life Insurance Company", and changed its domicile from the State
of Delaware to the Commonwealth of Massachusetts. NELICO's Home Office is now
at 501 Boylston Street, Boston, Massachusetts 02116. NELICO's mailing address
is: P.O. Box 9116, Boston, Massachusetts 02117.
The following chart illustrates the relationship of NELICO, the Fixed
Account, the Variable Account and the Eligible Funds.
[FLOW CHART APPEARS HERE]
Eligible Funds buy portfolio investments to support values and benefits of the
Policies.
A-12
<PAGE>
POLICY VALUES AND BENEFITS
DEATH BENEFIT
DEATH BENEFIT OPTIONS. When you apply for a Policy, you may choose among
four death benefit options. The death benefit is payable to the beneficiary
upon the death of the second insured to die.
The Option A (Enhanced with Face Amount) death benefit provides a death
benefit equal to the face amount of the Policy. The Option A death benefit is
fixed, subject to increases required by the Internal Revenue Code on an
enhanced basis, as described below.
The Option B (Enhanced with 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 B death benefit is also
subject to increases required by the Internal Revenue Code on an enhanced
basis, as described below. In general, the Option B death benefit does not
significantly exceed the Option D death benefit.
The Option C (Face Amount) death benefit provides a death benefit equal to
the face amount of the Policy. The Option C death benefit, like the Option A
death benefit, is fixed, subject to increases required by the Internal Revenue
Code. In the case of the Option C death benefit, these increases are not
enhanced.
The Option D (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 D death benefit is also subject to increases
required by the Internal Revenue Code but, unlike the Option B death benefit,
these increases are not enhanced.
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 a percentage
of the Policy's cash value as set forth in Table I below. 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".)
TABLE I
<TABLE>
<CAPTION>
AGE OF YOUNGER AGE OF YOUNGER
INSURED AT START OF PERCENTAGE OF INSURED AT START OF PERCENTAGE OF
THE POLICY YEAR CASH VALUE THE POLICY YEAR CASH VALUE
------------------- ------------- ------------------- -------------
<S> <C> <C> <C>
20 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>
A-13
<PAGE>
In the case of Option A or Option B, the death benefit will be a maximum of
1.45 times the amount required to satisfy tax law requirements, until age 91
of the younger insured, resulting in a higher death benefit than required by
law. After age 91 of the younger insured, the maximum enhancement factor of
1.45 is reduced by .05 each year for nine years, at which time the factor is
1.00. The enhanced death benefit is subject to certain limits that depend in
part on the tabular cash value, set forth in Appendix F, but will never be
less than the amount required to satisfy tax law requirements. Tabular cash
value is a hypothetical value that uses the Guaranteed Death Benefit 1 Premium
(as shown in the Policy), maximum guaranteed charges and a 4% interest rate.
See Appendix F.
MINIMUM GUARANTEED DEATH BENEFIT
The Policy provides two Minimum Guaranteed Death Benefits. If either Minimum
Guaranteed Death Benefit is in effect, as determined on the first day of each
Policy month, the Policy will not lapse even if the net cash value is
insufficient to cover the Monthly Deduction due for that month. If the death
of the second insured occurs while either Minimum Guaranteed Death Benefit is
in effect, the death benefit will be adjusted as described below before the
proceeds are paid. The minimum premiums necessary to maintain either Minimum
Guaranteed Death Benefit in effect under your Policy are shown in your Policy
and also appear in your personalized illustration. See Appendix A.
MINIMUM GUARANTEED DEATH BENEFIT 1. NELICO will determine if Minimum
Guaranteed Death Benefit 1 is in effect on the first day of each Policy month
the Policy is in force, until the Maturity Date. This Benefit is in effect at
the end of a Policy year if (1) the total of all premiums paid under the
Policy for each completed Policy year, accumulated at a 4% rate as if they
were paid on the first day of each Policy year, less any partial surrender
under the Policy in each completed Policy year, accumulated at a 4% rate from
the date of surrender, is at least equal to (2) the Guaranteed Death Benefit 1
Fund, and there is no outstanding Policy loan. For these purposes, premiums
paid within 20 days prior to a Policy anniversary are treated as if paid in
the next Policy year.
During a Policy year, the amount of premiums paid in (1) above will include
premiums paid less partial surrenders in the current Policy year, and the
amount in (2) above will be calculated as the Minimum Guaranteed Death Benefit
1 Fund amount shown in your Policy for the prior Policy year end plus 1/12 of
the Guaranteed Death Benefit 1 Premium for each Policy month of the current
Policy year up to and including the current Policy month.
The Guaranteed Death Benefit 1 Fund assumes that the Guaranteed Death
Benefit 1 Premium, that appears in your Policy, is paid on the first day of
each Policy year and accumulates at a 4% rate per year.
If the Guaranteed Minimum Death Benefit 1 is lost due to insufficient
premium payments, it is unlikely because of Federal tax law limitations that
you will be permitted to pay sufficient premiums in future years to regain the
guarantee. Federal tax law limitations also may prevent the payment of
sufficient premiums to maintain the Minimum Guaranteed Death Benefit 1
following: certain reductions in face amount, including certain partial
surrenders that reduce the face amount, reduction or deletion of a rider
benefit, or improvement in your Policy's rating classification (see "Reduction
in Face Amount").
Under Policies issued in New York, the Minimum Guaranteed Death Benefit 1 is
referred to as the "No Lapse Guarantee Benefit 1", the Minimum Guaranteed
Death Benefit 1 Fund is referred to as the "No Lapse Guarantee Benefit 1
Fund", and the Minimum Guaranteed Death Benefit 1 Premium is referred to as
the "No Lapse Guarantee Benefit 1 Premium".
MINIMUM GUARANTEED DEATH BENEFIT 2. NELICO will determine if Minimum
Guaranteed Death Benefit 2 is in effect on the first day of each Policy month
the Policy is in force, until the later of: the date the younger insured
attains age 80 (or would have attained age 80, if that person died before
reaching age 80), or 20 years from the Policy Date, but no later than the
Maturity Date of the Policy. This Benefit is in effect at the end of a Policy
year if (1) the total of all premiums paid under the Policy for each completed
Policy year, accumulated at a 4% rate as if they were paid on the first day of
each Policy year, less any partial surrender under the Policy in each
completed Policy year, accumulated at a 4% rate from the date of surrender, is
at least equal to (2) the Guaranteed Death Benefit 2 Fund, and there is no
outstanding Policy loan. For these purposes, premiums paid within 20 days
prior to a Policy anniversary are treated as if paid in the next Policy year.
A-14
<PAGE>
During a Policy year, the amount of premiums paid in (1) above will include
premiums paid less partial surrenders in the current Policy year, and the
amount in (2) above will be calculated as the Minimum Guaranteed Death Benefit
2 Fund amount shown in your Policy for the prior Policy year end plus 1/12 of
the Guaranteed Death Benefit 2 Premium for each Policy month of the current
Policy year up to and including the current Policy month.
The Guaranteed Death Benefit 2 Fund assumes that the Guaranteed Death
Benefit 2 Premium, that appears in your Policy, is paid on the first day of
each Policy year and accumulates at a 4% rate per year.
If the Guaranteed Minimum Death Benefit 2 is lost due to insufficient
premium payments, it may be possible to regain the guarantee in future years.
Federal tax law limitations may prevent the payment of sufficient premiums to
maintain the Minimum Guaranteed Death Benefit 2 following: certain reductions
in face amount, including certain partial surrenders that reduce the face
amount, reduction or deletion of a rider benefit, or improvement in your
Policy's rating classification (see "Reduction in Face Amount").
Under Policies issued in New York, the Minimum Guaranteed Death Benefit 2 is
referred to as the "No Lapse Guarantee Benefit 2", the Minimum Guaranteed
Death Benefit 2 Fund is referred to as the "No Lapse Guarantee Benefit 2
Fund", and the Minimum Guaranteed Death Benefit 2 Premium is referred to as
the "No Lapse Guarantee Benefit 2 Premium".
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 second 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 and by any portion of
a Monthly Deduction made for a period beyond the date of the second insured's
death.
The death proceeds may also be adjusted if either insured's age or sex was
misstated in the application, if death results from either insured's suicide
within two years (or less if provided by state law) from the Policy's date of
issue, or if limits on the death benefit are imposed by rider. (See "Limits to
NELICO's Right to Challenge the Policy".)
CHANGE IN DEATH BENEFIT OPTION
At any time after the first Policy year, before or after the death of the
first insured, you may change your death benefit option by sending your
written request for change to NELICO's Home Office. The request will be
effective on the first day of the Policy month on or after it is received. A
change in death benefit option may result in tax consequences to you. (See
"Tax Considerations".)
If you change from Option A or C (face amount options) to Option B or D
(face amount plus cash value options), 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. A face amount reduction below
$100,000 is permitted only with NELICO's consent. Any rider benefits under the
Policy may also have to be decreased. 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. No
Surrender Charge will be assessed in that situation.
If you change from Option B or D (face amount plus cash value options) to
Option A or C (face amount options), the Policy's face amount may be
increased, if necessary, for the death benefit to be the same immediately
before and after the change.
If you change from Option A or B (enhanced) to Option C or D, the Policy's
death benefit amount in most cases will be reduced, if the Internal Revenue
Code increases are in effect, or will remain the same, if they are not in
effect.
A-15
<PAGE>
Changes from Option C or D to Option A or B (enhanced) are subject to
underwriting approval, and both insureds must be living if the amount at risk
under the Policy would increase as a result of the change.
EXTENDING THE MATURITY DATE
If approved in your state, NELICO will issue or amend your Policy with an
extended maturity endorsement. (The endorsement will be added only prior to
the original Maturity Date.) If the extended maturity endorsement is added to
the Policy, the Policy will not mature until the date of the younger insured's
death (the "Extended Maturity Date"). In addition, on and after the original
Maturity Date, the death benefit will equal the cash value on the date of
death; or the greater of (1) the cash value on the date of death and (2) the
Policy face amount, if, on the original Maturity Date, the total premiums paid
in each Policy year accumulated at 4% from the first day of the Policy year,
less every partial surrender accumulated at 4% from the date of surrender, is
not less than the "Age 100 Amount" shown in the Policy. (For this purpose,
premiums paid within 20 days prior to a Policy anniversary are treated as if
paid in the next Policy year.) The Age 100 Amount is based on the Guaranteed
Death Benefit 2 premium being paid each Policy year until the original
Maturity Date (rather than until age 80 of the younger insured.) Currently, no
cost of insurance or minimum death benefit guarantee charges will be deducted
after the original Maturity Date. No premiums can be paid after the original
Maturity Date unless necessary to prevent lapse of the Policy. All riders
attached to the Policy and in effect on the original Maturity Date, other than
the extended maturity endorsement, will terminate on the original Maturity
Date.
The tax consequences associated with extending the Maturity Date beyond age
100 are unclear and a tax advisor should be consulted before effecting such an
extension. For more information about the extended maturity option, contact
your registered representative or NELICO.
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 premium
payments, the net investment experience of the Policy's sub-accounts, interest
credited on its cash value in the Fixed Account and on amounts held in the
general account as a result of a loan, the death benefit option chosen,
amounts deducted for Policy charges (including Monthly Deductions, any
Surrender Charge that applies if you reduce the Policy's face amount or make a
partial surrender and any due and unpaid interest on Policy loans), 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) and by any applicable Surrender Charge.
(See "Loan Provision", "Surrender Charge" and "Monthly Deduction from Cash
Value".)
The Policy's cash value in the Variable Account may increase or decrease
daily depending on the net investment experience of the Policy's sub-accounts.
Unfavorable investment experience can reduce the net cash value to zero.
Because there is no guaranteed minimum cash value in the Variable Account, you
bear the entire investment risk with respect to the cash value. The premium
payment schedule you choose will also affect the Policy's net cash value.
NET INVESTMENT EXPERIENCE
The net investment experience of the Policy's sub-accounts will affect the
Policy's cash value and, in some circumstances, the death benefit. The net
investment experience of the sub-accounts is determined as of the close of
regular trading on the New York Stock Exchange on each day when the Exchange
is open for trading.
A sub-account's net investment experience for any period reflects the
investment experience of the underlying Eligible Fund shares for the same
period, reduced by the charges against the sub-account for that period.
(Currently the sub-accounts are charged only for NELICO's mortality and
expense risk, but in the future NELICO may impose a charge against the sub-
accounts for taxes if appropriate. See "Charges Against the Eligible Funds and
the Sub- Accounts of the Variable Account" and "Charge for NELICO's Income
Taxes".)
A-16
<PAGE>
The investment experience of the Eligible Fund shares for any period is the
increase or decrease in their net asset value for the period, increased by the
amount of any dividends or capital gains distributions on the shares during
the period. Dividends and capital gains distributions on Eligible Fund shares
are reinvested in additional shares of the Eligible Fund and affect subsequent
investment experience.
ALLOCATION OF NET PREMIUMS
As of the "investment start date", the net premium to be allocated to any of
the variable sub-accounts is allocated to the Zenith Money Market Sub-Account
until the later of 45 days after the date Part I of the application is signed
or 10 days after NELICO mails the Notice of Withdrawal Right. (See "Right to
Return the Policy". For the definition of the "investment start date", see
"Amount Provided for Investment under the Policy".) Thereafter, the cash value
(which will reflect at least one Monthly Deduction) is allocated to the sub-
accounts according to your instructions. (See "Investment Options".)
Therefore, your selection of sub-accounts does not take effect until after the
initial period described above, when the cash value is allocated to the Zenith
Money Market Sub-Account. Amounts to be allocated to the Fixed Account are so
allocated as of the investment start date and are not invested in the Money
Market Sub-Account. Allocations can be made to a maximum of nine accounts
(including the Fixed Account) at any time.
AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY
An amount is first provided for investment under the Policy as of the
investment start date. That is the latest of: the date when NELICO first
receives a premium payment for the Policy, the date each of the insureds has
signed his/her Part II of the Policy application and the Policy Date. (For
this purpose, receipt of the premium payment means receipt by your registered
representative, if the payment is made with the application; otherwise, it
means receipt by a NELICO agency or, in the case of a Policy sold through
MetLife Brokerage, receipt by MetLife Brokerage at its Princeton, New Jersey
office.)
If you make a premium payment with the application, the Policy Date is
generally the later of the date each of the insureds has signed his/her Part
II of the application and receipt of the premium payment. In that case the
Policy Date and investment start date are the same. (Under NELICO's
administrative rules, a Policy which would be dated the 28th day or later in a
month will receive a Policy Date of the 28th.) 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 insureds 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 each of the insureds has
signed his/her Part II of the application. The maximum amount of coverage
provided is the lesser of the amount of insurance applied for and $500,000
when both insureds are standard risks ($250,000 for when at least one insured
is not a standard risk and $50,000 when both persons 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 to the Policy 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, with NELICO's consent, upon receipt of the
number of monthly payments due under the Master Service Account arrangement.
This arrangement is not available under the Policies as of the date of this
prospectus, but NELICO plans to make it available in the future).
A-17
<PAGE>
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. Backdating in some cases may result in a Policy with a
higher Surrender Charge if the backdating results in the Surrender Charge
being based on a lower age bracket. (See "Surrender Charge".) 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 net investment experience
of the sub-accounts for that day.
RIGHT TO RETURN THE POLICY
You may cancel the Policy within 45 days after the date Part 1 of the
application is signed, within 10 days (or more where required by applicable
state insurance law) after you receive the Policy or within 10 days after
NELICO mails the Notice of Withdrawal Right, whichever is latest. The Policy
may be returned to NELICO or your registered representative. Insurance
coverage ends as soon as the Policy is returned (as determined by its
postmark, if the Policy is mailed). If you choose to cancel the Policy, NELICO
will refund any premium paid (or any other amount that is required by state
insurance law) with interest at the rate currently in use by NELICO.
CHARGES AND EXPENSES
THE AMOUNT OF A CHARGE MAY NOT NECESSARILY CORRESPOND TO THE COSTS
ASSOCIATED WITH PROVIDING THE SERVICES OR BENEFITS INDICATED BY THE
DESIGNATION OF THE CHARGE OR ASSOCIATED WITH THE PARTICULAR POLICY. FOR
EXAMPLE, THE DEFERRED SALES CHARGE MAY NOT FULLY COVER ALL OF THE SALES AND
DISTRIBUTION EXPENSES ACTUALLY INCURRED BY THE COMPANY, AND PROCEEDS FROM
OTHER CHARGES, INCLUDING THE MORTALITY AND EXPENSE RISK CHARGE, MAY BE USED IN
PART TO COVER SUCH EXPENSES.
DEDUCTIONS FROM PREMIUMS
SALES CHARGE. NELICO deducts a 9% sales charge from premiums (whether a
Planned Premium or an unscheduled payment). NELICO currently intends to waive
this charge on all premiums after the 15th Policy year (after the 17th Policy
year, for Policies issued in Pennsylvania). In addition, NELICO currently
intends to deduct this charge from premiums paid in a Policy year (through the
first 15 or 17 Policy years, as applicable) only until an amount equal to a
Target Premium has been paid in that Policy year; premium payments during a
Policy year in excess of a Target Premium currently will not be subject to the
sales charge. However, NELICO retains the right not to waive the charge or to
resume the charge in either of these circumstances.
The Target Premium for a Policy covering two insureds who are each assigned
to a standard or better underwriting class equals the level annual premium
necessary to keep a level death benefit base Policy in-force until age 80 of
the younger insured, if that insured's issue age is 60 or below, assuming
charges are imposed at the guaranteed levels and a 4% rate of interest. (The
Policy duration used for calculating the Target Premium is 20 years if the
younger insured's issue age is above 60 up to 65, to age 85 of the younger
insured if that insured's issue age is above 65 up to 80, and five years if
the younger insured's issue age is above 80). If an insured is assigned to a
class below standard, the Target Premium for the Policy will be up to 140% of
the comparable Target Premium described above, depending on the underwriting
class of each insured. Certain riders increase the Target Premium for the
Policy above the amounts described herein. The Target Premium is designated on
your personalized illustration.
During the first 14 Policy years, if you surrender or lapse the Policy, make
a partial surrender or reduce the face amount, a Deferred Sales Charge also
applies. (For joint insureds whose average issue age was 60 to 70 at issue of
the Policy, the period when the Deferred Sales Charge applies is nine years,
for insureds whose average issue age was 70 to 80, 6 years, and above 80, five
years. See "Surrender Charge" below.)
A-18
<PAGE>
The sales charges under a Policy in a given Policy year are not necessarily
related to NELICO's actual sales expenses for that year.
Sales charges for Policies sold in certain group or sponsored arrangements
may be reduced. NELICO intends in the future to implement a program under
which certain fixed-benefit life insurance policies that were issued by New
England Mutual may be exchanged for the Policies without a deduction for the
sales charge, state premium tax and federal premium tax charges (see below)
from the amount of cash value that is transferred to the Policy. Certain
eligibility conditions will apply, such as policy issue date, minimum face
amount, maximum age and/or underwriting requirements. Certain insureds may
qualify for a waiver of underwriting requirements. Your registered
representative can advise you regarding terms and availability of the program.
STATE PREMIUM TAX CHARGE. NELICO deducts 2.5% from each premium to cover
state premium taxes and administrative expenses. These taxes vary from state
to state and the 2.5% charge reflects an average. Administrative expenses
covered by this charge include those related to premium tax and certain other
state filings.
FEDERAL PREMIUM TAX CHARGE. NELICO deducts 1% from each premium to recover a
portion of that part of NELICO's federal income tax liability that is
determined solely by the amount of life insurance premiums it receives.
EXAMPLE: The following chart shows the net amount that currently would be
allocated to the Variable Account assuming a premium payment of $5,000 and a
Target Premium of $2,000.
<TABLE>
<CAPTION>
NET
PREMIUM PREMIUM
------- -------
<C> <C> <S>
$5,000 $2,000
(12.5% X 2,000 = total sales and premium tax charge up to
-250 Target Premium)
------
$1,750
$3,000
-105
------
$2,895 (3.5% X 3,000 = total sales and premium tax charge on
payments in excess of Target Premium, based on NELICO's
current rules)
$1,750
+2,895
------
$4,645 Net Premium
======
</TABLE>
NELICO may waive the 9% sales charge on premiums paid after the 15th Policy
year (after the 17th Policy year for Policies issued in Pennsylvania). In that
case, the net premium in this example would be $5,000 - 175 (3.5% X 5,000), or
$4,825.
SURRENDER CHARGE
If, during the first 14 Policy years, a Policy is totally surrendered or
lapses, the face amount is reduced, or a partial surrender reduces the face
amount, a Surrender Charge will be deducted from the cash value. (For joint
insureds whose average issue age is 60 1/2 to 70 at issue of the Policy, the
Surrender Charge period is nine years, for insureds whose average issue ages
are 70 1/2 to 80, six years, and above 80, five years.) The Surrender Charge
includes a Deferred Sales Charge and a Deferred Administrative Charge. The
maximum Surrender Charge is set forth in your Policy.
Any Surrender Charge deducted upon lapse is credited back to the Policy's
cash value upon reinstatement. The Surrender Charge on the date of
reinstatement will be the same as it was on the date of lapse. For purposes of
determining the Surrender Charge on any date after reinstatement, the period
the Policy was lapsed will not count.
DEFERRED SALES CHARGE. The Deferred Sales Charge is based on a percentage of
the Benchmark Premium, rather than the Target Premium. In general, the Target
Premium differs from the Benchmark Premium in that the Target Premium may be
up to 110% of the Benchmark Premium for the same base Policy. In addition,
certain
A-19
<PAGE>
riders to the Policy increase the Target Premium but do not increase the
Benchmark Premium. The Policy's Benchmark Premium equals the level annual
premium necessary to keep a level death benefit Policy, without riders, in-
force until age 80 of the younger insured (or 20 years after issue, if later,
but not later than the Maturity Date) assuming charges are imposed at the
guaranteed levels and a 4% rate of interest.
For Policies which cover insureds whose average issue age is 60 or less at
issue, the maximum Deferred Sales Charge applies in Policy years three through
five. The Deferred Sales Charge in these years equals 41% of actual premiums
paid up to one Benchmark Premium, plus 41% of additional premiums paid up to a
second Benchmark Premium, plus 8% of additional premiums paid up to a third
Benchmark Premium. In no event will the Deferred Sales Charge exceed $30 per
$1,000 of face amount. After the fifth Policy year, the maximum Deferred Sales
Charge declines on a monthly basis until it reaches 0% in the last month of
the fourteenth Policy year.
The Deferred Sales Charge during either of the first two Policy years for
insureds whose average issue age is 70 or less is equal to 21% of the premiums
paid in the first Policy year, up to a maximum of 21% of one Benchmark
Premium. As described above, after the second Policy year, the maximum
Deferred Sales Charge increases substantially.
The table below shows the maximum Deferred Sales Charge that applies to
Policies covering insureds whose average issue age is 60 or less at issue, and
assumes that one Benchmark Premium per year is paid under the Policy. The
table shows the charge, expressed as a percentage of the Benchmark Premiums
paid to date, if the lapse, surrender or face reduction occurs at the end of
each of the Policy years shown. During Policy years six through 14, the
maximum Deferred Sales Charge declines on a monthly basis.
<TABLE>
<CAPTION>
THE MAXIMUM DEFERRED SALES
CHARGE IS THE FOLLOWING
PERCENTAGE OF ONE BENCHMARK
FOR POLICIES WHICH ARE PREMIUM PER YEAR TO DATE
SURRENDERED, LAPSED OF SURRENDER, LAPSE OR
OR REDUCED DURING FACE AMOUNT REDUCTION
---------------------- ---------------------------
<S> <C> <C>
Entire policy year 3 30.00%
4 22.50%
5 18.00%
Last Month of Policy
years 6 13.33%
7 10.00%
8 7.50%
9 5.56%
10 4.00%
11 2.73%
12 1.67%
13 .77%
14 0.00%
</TABLE>
For insureds whose average issue age is above 60 at issue, the Deferred
Sales Charge percentages are less than or equal to those described above, with
the maximum charge occurring in Policy year three, for insureds with an
average issue age up through 70, and in Policy year one, for insureds with an
average issue age above 70.
The applicable Deferred Sales Charge will be deducted from the Policy's
available cash value, regardless of whether that cash value is derived from
premiums or investment experience.
In the case of a reduction in face amount or partial surrender that reduces
the face amount, any Deferred Sales Charge that applies is deducted from the
Policy's remaining cash value in an amount proportional to the amount of the
Policy's face amount surrendered. (See "Partial Surrender".) The charge is
deducted from the Policy's cash value in the sub-accounts and the Fixed
Account in proportion to the amount of the Policy's cash value in each.
A-20
<PAGE>
DEFERRED ADMINISTRATIVE CHARGE. The Table below shows the Deferred
Administrative Charge deducted if you totally or partially surrender, lapse or
reduce the face amount of the Policy.
<TABLE>
<CAPTION>
FOR POLICIES WHICH ARE
SURRENDERED, LAPSED DEFERRED ADMINISTRATIVE
OR REDUCED DURING THE CHARGE PER $1,000 OF
POLICY YEAR SHOWN FACE AMOUNT
---------------------- -----------------------
<S> <C> <C>
Entire Policy year 1 $4.00
2 4.00
3 4.00
4 4.00
5 4.00
Last Month of Policy year* 6 3.60
7 3.20
8 2.80
9 2.40
10 2.00
11 1.50
12 1.00
13 0.50
14 0.00
</TABLE>
- --------
* The charge declines monthly after the end of the fifth Policy year.
The applicable Deferred Administrative Charge will be deducted from the
Policy's available cash value, regardless of whether that cash value is
derived from premiums or investment experience.
For insureds whose average issue age is above 60 at issue, the Deferred
Administrative Charge is less than or equal to that in the table above.
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 either Minimum
Guaranteed Death Benefit is in effect, or if the Policy coverage is being
protected by payment of the Minimum Premium during the first three Policy
years, the Monthly Deduction is made until the cash value equals zero.
Otherwise, the Monthly Deduction is made 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 Minimum Guaranteed
Death Benefit 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.
The Monthly Deduction includes the following charges:
POLICY FEE. The Policy fee is currently equal to $5.00 per month (guaranteed
not to exceed $7.50 per month).
ADMINISTRATIVE CHARGE. Currently, the Administrative Charge is $0.16 per
$1,000 of Policy face amount in the first Policy year. The Administrative
Charge in the second through tenth Policy years is, on a current basis, $0.05
per $1,000 of Policy face amount, for two insureds who are each assigned to a
standard or better underwriting class; $0.075 per $1,000 of Policy face amount
if only one insured is in a standard or better class; and $0.10 per $1,000 of
Policy face amount if neither insured is in a standard or better class. In
Policy years eleven and after, currently the Administrative Charge is $0.03
per $1,000 of Policy face amount.
The current monthly Administrative Charge will apply to no more than $4
million of Policy face amount beginning in the second Policy year. As a
result, the maximum monthly charge currently deducted in the second
A-21
<PAGE>
Policy year, for example, will be $200 per month for two insureds who are each
a standard or better risk and $400 per month if neither insured is a standard
or better risk.
The guaranteed maximum monthly Administrative Charge is $0.16 per $1,000 of
face amount in the first Policy year and $0.10 per $1,000 thereafter.
The Policy Fee, the Administrative Charge and the Deferred Administrative
Charge together cover the cost of administering the Policies, as well as
legal, actuarial, systems, mailing and other overhead costs connected with
NELICO's variable life insurance operations.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE. The minimum death benefit guarantee
charge is $0.01 per $1,000 of Policy face amount. This charge compensates
NELICO for its guarantee that, regardless of the investment experience of the
Policy's sub-accounts, the Policy's death benefit will never be less than the
face amount, provided that the total amount of premiums paid with interest,
less any partial surrenders with interest, equals or exceeds the applicable
Minimum Guaranteed Death Benefit Fund amount for the Policy. (See "Minimum
Guaranteed Death Benefit" and "Adjustments to the Death Proceeds Payable".)
MONTHLY CHARGES FOR THE COST OF INSURANCE. This charge covers the cost of
providing insurance protection under your Policy. There are no future
mortality charges attributable to an insured from the time he or she reaches
age 100 (or would have reached age 100, if that person died before reaching
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 any applicable Monthly Deduction 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.
If a Policy loan is outstanding and your Policy's net cash value is not
large enough to cover the cost of insurance charge for a policy month, the
difference between the net cash value available and the cost of insurance
charge is treated as an excess policy loan and the Policy may terminate. (See
"Loan Provision".)
The guaranteed cost of insurance rates for a Policy depend on each insured's
underwriting class, age on the first day of the Policy year and sex (if the
Policy is sex-based). The current cost of insurance rates for a given Policy
also depend on the insureds' issue ages and on the duration of the Policy. The
joint rates are guaranteed not to be higher than joint rates based on the 1980
Commissioners Standard Ordinary Mortality Tables with smoker/nonsmoker
modifications (the "1980 CSO Tables"). The rates actually used may be lower
than these maximum rates, depending on NELICO's expectations regarding future
mortality and expense experience, lapse rates and investment earnings. NELICO
reviews the adequacy of its current cost of insurance rates periodically and
may adjust them. Any change in the current cost of insurance rates will be
applied prospectively only and will be on a non-discriminatory basis. The
current cost of insurance rate for a Policy is set forth in the Policy Owner's
annual statement.
Each insured person is underwritten separately. The underwriting classes
used for determining cost of insurance rates are smoker standard, smoker
substandard, nonsmoker standard, nonsmoker preferred, nonsmoker residual, and
nonsmoker substandard. Substandard ratings result in higher cost of insurance
deductions. The guaranteed maximum mortality charges for substandard ratings
are based on multiples of the 1980 CSO Tables.
Availability of the three standard nonsmoker classes varies. Under a Policy
with a face amount of $500,000 or more the available standard nonsmoker
classes for an insured whose issue age is 20 through 75 are nonsmoker
preferred and nonsmoker residual. For Policies with a face amount below
$500,000 and for all insureds whose issue age is above 75, only the nonsmoker
standard class is used. Among these three standard nonsmoker classes, the
nonsmoker preferred class generally offers the most favorable rates on a
current basis and the nonsmoker residual class generally offers the least
favorable rates on a current basis.
A-22
<PAGE>
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. NELICO may offer
Policies for which cost of insurance rates (and Policy values and benefits) do
not vary based on the sex of the insured. Such Policies would be available, if
at all, only where required by state law or to certain employee benefit plans.
CHARGES FOR ADDITIONAL BENEFITS AND SERVICES. Charges are imposed 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 AGAINST THE ELIGIBLE FUNDS AND THE SUB-ACCOUNTS OF THE VARIABLE
ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. NELICO charges the sub-accounts of the
Variable Account for the mortality and expense risks that NELICO assumes.
Currently, the charge is made daily at an annual rate of .75% of the sub-
accounts' assets. NELICO reserves the right to increase the charge, up to a
maximum annual rate of .90%. The mortality risk NELICO assumes is that
insureds may live for shorter periods of time than NELICO estimated. The
expense risk is that NELICO's costs of issuing and administering the Policies
may be more than NELICO estimated. If proceeds from this charge are not needed
to cover mortality and expense risks, NELICO may use proceeds to finance
distribution of the Policies.
CHARGES FOR INCOME TAXES. NELICO currently makes no charge for income taxes
against the Variable Account, but in the future NELICO may impose such a
charge, if appropriate. NELICO reserves the right to make a charge for any
taxes imposed on the Policies by any governmental body in the future. (See
"Charge for NELICO's Income Taxes".)
ELIGIBLE FUND EXPENSES. Charges for investment advisory fees and other
expenses are deducted from the assets of the Eligible Funds.
The Zenith Fund Series incur charges for advisory fees and certain other
expenses. The series (other than the Capital Growth Series) are advised by TNE
Advisers, Inc., an affiliate of NELICO. Under a voluntary expense cap by TNE
Advisers for each of the Back Bay Advisors Bond Income, Back Bay Advisors
Money Market, Back Bay Advisors Managed, Westpeak Stock Index, and Westpeak
Growth and Income Series, TNE Advisers will bear those expenses (other than
the management fee) that exceed 0.15% of average daily net assets; for the
Loomis Sayles Small Cap Series, TNE Advisers will bear all expenses that
exceed 1.00% of average daily net assets. For the remaining Zenith Fund Series
(other than the Capital Growth Series) TNE Advisers, under a voluntary expense
deferral arrangement, will bear those expenses (other than the management fee)
which exceed a certain limit in the year in which they are incurred and will
charge those expenses to the series in a future year when actual expenses of
the series are below the limit up until two years after the end of the fiscal
year in which the expense was incurred. The expense cap and expense deferral
arrangement may be terminated at any time.
The following table shows the annual operating expenses for each series,
based on actual expenses for 1997, (for the Goldman Sachs Midcap Value Series,
anticipated expenses for 1998), after giving effect to the applicable expense
cap or expense deferral arrangement.
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER ANY
EXPENSE CAP)
<TABLE>
<CAPTION>
BACK BACK
BAY BAY BACK WESTPEAK LOOMIS
ADVISORS ADVISORS BAY WESTPEAK GROWTH SAYLES
CAPITAL BOND MONEY ADVISORS STOCK AND SMALL
GROWTH INCOME MARKET MANAGED INDEX INCOME CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee .63% .40% .35% .50% .25% .70% 1.00%
Other Expenses .04% .12% .10% .11% .15% .12% --
---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses .67% .52% .45% .61% .40% .82% 1.00%
</TABLE>
A-23
<PAGE>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE
DEFERRAL)
<TABLE>
<CAPTION>
GOLDMAN
SACHS LOOMIS MORGAN STANLEY DAVIS ALGER
MIDCAP SAYLES INTERNATIONAL VENTURE EQUITY
VALUE BALANCED MAGNUM VALUE GROWTH
SERIES* SERIES EQUITY SERIES SERIES SERIES
------- -------- -------------- ------- ------
<S> <C> <C> <C> <C> <C>
Management Fee .75% .70% .90% .75% .75%
Other Expenses .15% .15% .40% .15% .12%
---- ---- ----- ---- ----
Total Series Operating
Expenses .90% .85% 1.30% .90% .87%
</TABLE>
- --------
* Anticipated annual operating expenses for the Goldman Sachs Midcap Value
Series are based on the management fee approved by shareholders of the
Series that became effective on May 1, 1998, and other expenses actually
incurred for the Series for 1997.
The investment adviser for the VIP Fund and VIP Fund II is Fidelity
Management & Research Company, a registered investment adviser under the
Investment Advisers Act of 1940. The Portfolios of the VIP Fund and VIP Fund
II, as part of their operating expenses, pay investment management fees to
Fidelity Management & Research Company.
The Portfolios also bear certain other expenses. For the year ended December
31, 1997, the total operating expenses incurred by the Portfolios, as a
percentage of Portfolio average net assets, were as follows:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
Equity-Income .50% .08% .58%*
Overseas .75% .17% .92%*
High Income .59% .12% .71%
Asset Manager .55% .10% .65%*
</TABLE>
- --------
* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. Had these
reductions been included, total annual expenses would have been .57% for
Equity-Income Portfolio, .90% for Overseas Portfolio, and .64% for Asset
Manager Portfolio.
Affiliates of Fidelity Management & Research Company compensate NELICO
and/or certain affiliates for administrative, distribution, or other services
relating to these Portfolios of VIP Fund and VIP Fund II. Such compensation is
based on assets of the Portfolios attributable to the Policies and certain
other variable insurance products issued by NELICO and its affiliates.
GROUP OR SPONSORED ARRANGEMENTS
The Policies may be issued to group or sponsored arrangements, as well as on
an individual basis. A "group arrangement" includes a program under which a
trustee, employer or similar entity purchases individual Policies covering a
group of individuals. An example of such an arrangement is a non-tax qualified
deferred compensation plan. A "sponsored arrangement" includes a program under
which an employer permits group solicitation of its employees or an
association permits group solicitation of its members for the purchase of the
Policies on an individual basis.
For Policies issued in connection with group or sponsored arrangements,
NELICO may waive or reduce one or more of the following charges: the sales
charge, Surrender Charge, charges for the cost of insurance, mortality and
expense risk charge, administrative charges, Policy Fee and/or federal and
state premium tax charges described in "Charges and Expenses". (In addition,
the interest rate credited on amounts taken from the sub-accounts as a result
of a Policy loan may be increased for these Policies.) NELICO will waive or
reduce these charges according to its rules in effect when the Policy
application is approved. To qualify for a waiver or reduction,
A-24
<PAGE>
a group or sponsored arrangement must satisfy certain criteria as to, for
example, size and number of years in existence. Generally, the sales contacts
and effort, administrative costs and mortality cost per Policy vary based on
such factors as the size of the group or sponsored arrangement, its stability,
the purposes for which the Policies are purchased and certain characteristics
of its members. The amount of reduction and the criteria for qualification
will reflect the reduced sales and administrative effort resulting from sales
to qualifying group or sponsored arrangements. NELICO may modify from time to
time both the amounts of reductions and the criteria for qualification.
Reductions in or waiver of these charges will not be unfairly discriminatory
against any person, including the affected Policy Owners and all other Policy
Owners of Policies funded by the Variable Account. The waiver or reduction of
Policy charges for group or sponsored arrangements 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.
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. NELICO may offer Policies that
do not vary based on the sex of the insured for use in connection with certain
employee benefit programs. Your registered representative can advise you as to
the availability of such Policies. NELICO recommends that any employer
proposing to offer the Policies to employees under a group or sponsored
arrangement consult its attorney before doing so.
PREMIUMS
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 may be a
fixed amount or a varying amount. This schedule, which must be within NELICO's
minimum and maximum limits, appears in your Policy form. 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, 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 or quarterly schedule
or, with NELICO's consent, monthly. You can change your Planned Premium
schedule at any time by sending your request to NELICO's Home Office. 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 or quarterly Planned Premiums. In the future,
NELICO may make available the Master Service Account arrangement under which
you may have NELICO withdraw your premium payments from your bank checking
account or New England Cash Management Trust account.
NELICO offers three 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 each of the insureds, 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 and there is no
outstanding Policy loan, 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. However, no three-year Minimum Premium death benefit guarantee will
apply if you reinstate the Policy, if you reduce the face amount or make a
partial surrender that reduces the face amount, if you add, reduce or delete a
rider benefit, or if the rating classification of your Policy is improved in
the first three Policy years.
A-25
<PAGE>
Second, NELICO determines a guaranteed minimum death benefit premium (to
maturity) which will guarantee that the Policy will mature for the net cash
value at age 100 of the younger insured. Insufficient premium payments, a
reduction in the face amount or partial surrender that reduces the face
amount, reduction or deletion of a rider benefit, or improvement in rating
classification of the Policy could terminate this guarantee. See "Minimum
Guaranteed Death Benefit". The guaranteed minimum death benefit premium is
based on the Policy's face amount, the age, sex (unless unisex rates apply)
and underwriting class of each of the insureds, the death benefit option
chosen, the guaranteed level of Policy charges and any rider benefit selected.
The premium is recalculated following the Policy transactions described above
(other than insufficient premiums) and is also recalculated following an
increase in rider coverage.
Third, the Policy's guaranteed minimum death benefit premium (to age 80)
guarantees that the Policy will stay in force until the later of age 80 of the
younger insured, or 20 years after issue, but no later than the Maturity Date
of the Policy. This premium is based on factors similar to the guaranteed
minimum death benefit premium (to maturity), but is actuarially determined to
provide guaranteed coverage to the earlier age. Insufficient premium payments,
a reduction in the face amount or a partial surrender that reduces the face
amount, reduction or deletion of a rider benefit, or improvement in the rating
classification of the Policy could also terminate this guarantee, although
termination for insufficient premium payments is less likely here than in the
case of the guaranteed minimum death benefit premium (to maturity). The
guaranteed minimum death benefit premium (to age 80) is recalculated following
these transactions (other than insufficient premiums) and is also recalculated
following an increase in rider coverage.
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 payments to your Policy's sub-accounts as of the date the
payment is received at NELICO's Home Office. (See "Receipt of Communications
and Payments at NELICO's Home Office".)
A payment is treated first as a Planned Premium, second as repayment of a
Policy loan, and third 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; however, repayment of the loan in place of a premium payment
could cause your Policy to lose its eligibility for a death benefit guarantee.
(See "Loan Provision", "Deductions from Premiums" and "Death Benefit".)
LAPSE AND REINSTATEMENT
LAPSE. Unless either Minimum 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 pay the amount in default plus applicable deductions from
premium payments. NELICO will notify you of the amount due. During the grace
period insurance coverage continues under your Policy, but if the second
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
A-26
<PAGE>
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.
Any Surrender Charge deducted upon lapse is credited to the Policy's cash
value upon reinstatement. The Surrender Charge on the date of reinstatement is
the same as it was on the date of lapse. For purposes of determining the
Surrender Charge and other charges that vary by duration of the Policy (rather
than by age of the insured) on any date after reinstatement, the period the
Policy was lapsed does not count.
OTHER POLICY FEATURES
LOAN PROVISION
You may borrow all or part of the Policy's "loan value" at any time after
the Right to Return the Policy period. NELICO will make the loan as of the
date when a loan request is received at NELICO's Home Office. (See "Receipt of
Communications and Payments at NELICO's Home Office".) You should contact
NELICO's Home Office or your registered representative for information
regarding the procedures to follow for requesting a loan.
The Policy's loan value is equal to (i) 90% of the Policy's cash value
projected using current Policy charges and a 4% annual rate to the next Policy
anniversary or, if earlier, to the next Planned Premium due date ("projected
cash value"); less (ii) the Surrender Charge that would apply upon surrender
on the next Planned Premium due date or, if greater, on the date the loan is
made; less (iii) loan interest to the next interest due date. If required by
state law, the Policy's loan value may be a greater percentage of the cash
value, as described in your Policy. The amount of loan value available to be
borrowed at any time is reduced by the amount of any outstanding Policy loan
plus accrued interest. NELICO currently intends to base the loan value on 100%
of the Policy's projected cash value, rather than 90%, as described above in
item (i), for Policy years 16 and after.
The example below illustrates how the loan value is determined.
- -------------------------------------------------------------------------------
EXAMPLE: Using the Policy illustrated on page A-56 assume that the Policy's
Planned Premiums have been paid and that the Policy's sub-accounts have earned
a constant 6% hypothetical gross annual rate of return (equal to a constant
net annual rate of return of 4.41%). After the premium payment on the 10th
Policy anniversary, the maximum amount that could be borrowed would be
determined as follows under (i) an annual premium payment schedule and (ii) a
quarterly premium payment schedule:
<TABLE>
<CAPTION>
ANNUAL QUARTERLY
-------- ---------
<C> <S> <C> <C>
(1) Cash Value after Premium Payment on 10th Policy
Anniversary........................................ $186,755 $175,790
(2) Cash Value Projected at a Constant Annual Rate of
Return of 4% to the
(a) 11th Policy Anniversary......................... 193,421
(b) Next Planned Premium Due Date................... 177,323
(3) 90% of Amount Calculated in (2)..................... 174,079 159,591
(4) Amount Calculated in (3), Reduced by the Applicable
Surrender Charge................................... 168,264 153,776
(5) Amount Calculated in (4), Reduced by Loan Interest
to the Next Interest Due Date...................... 159,492 151,690
</TABLE>
- -------------------------------------------------------------------------------
A Policy loan reduces the Policy's cash value in the sub-accounts by the
amount of the loan. A loan repayment increases the cash value in the sub-
accounts by the amount of the repayment. Unless you request otherwise, Policy
loans are attributed first to the sub-accounts of the Variable Account in
proportion to the cash value in each, and then the Fixed Account. All loan
repayments are allocated first to the outstanding loan balance attributed to
the Fixed Account and then to the sub-accounts of the Variable Account in
proportion to the cash value in each.
The interest rate charged on Policy loans is an effective rate of 5.5% per
year (using simple interest during the year) and is due on the Policy
anniversary. If not paid, the interest accrued on the loan is added to the
loan,
A-27
<PAGE>
and an amount equal to the unpaid interest is deducted from the Policy's cash
value in the sub-accounts and the Fixed Account in proportion to the amount in
each. The amount taken from the Policy's sub-accounts as a result of the loan
earns interest (compounded daily) at an effective rate of not less than 4% per
year. The rate currently credited is 4% per year for the first 15 Policy years
and 5% thereafter. This interest earned is credited to the Policy's sub-
accounts annually, in proportion to the cash value in each.
The amount taken from the Policy's sub-accounts as a result of a loan does
not participate in the investment experience of the sub-accounts. Therefore,
the death benefit and cash value of the Policy can be permanently affected by
a Policy loan, even if it is repaid. In addition, any proceeds payable under a
Policy are reduced by the amount of any outstanding loan plus accrued
interest.
Any payment received while a Policy loan is outstanding is treated first as
a Planned Premium, second as repayment of a Policy loan, and third 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 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; however, repayment of the
loan in place of a premium payment could cause your Policy to lose its
eligibility for a death benefit guarantee. (See "Deductions from Premiums" and
"Death Benefits".)
If Policy loans plus accrued interest at any time exceed the Policy's cash
value less the Surrender Charge on the next Policy loan interest due date (or,
if the Surrender Charge would be greater, on the date the calculation is
made), NELICO will notify you that the Policy is going to terminate. (This
situation is referred to as an "excess Policy loan". NELICO tests for an
excess Policy loan on each monthly processing date and in connection with
certain Policy processing transactions.) The Policy will terminate without
value 62 days after the notice is mailed unless the excess amount is paid to
NELICO within that time. (See "Lapse and Reinstatement".) If the Policy lapses
with a loan outstanding, adverse tax consequences may result. (See "Tax
Considerations" below.)
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 either
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 Home Office. The net
cash value equals the cash value reduced by any Policy loan and accrued
interest and by any applicable Surrender Charge. (See "Surrender Charge".) You
may elect in writing to have all or part of the net cash value applied to a
payment option. (See "Payment Options".) A surrender may result in adverse tax
consequences. (See "Tax Considerations" below.)
PARTIAL SURRENDER
You may make a partial surrender of the Policy on the first day of any
Policy month after the Right to Return the Policy period, to receive a portion
of its net cash value. A partial surrender will cause a reduction in the
Policy's
A-28
<PAGE>
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
Benchmark Premium, on which any future Surrender Charges are based, and in the
Target Premium, on which the 9% sales charge is currently based. Rider
benefits may also be reduced. No partial surrender may reduce the face amount
below the Policy's required minimum except with NELICO's consent.
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 75% of the
Policy's net cash value per year, assuming sufficient available loan value.
Any Surrender Charge that applies to a partial surrender is deducted from
the Policy's remaining cash value in an amount proportional to the amount of
the Policy's face amount surrendered. The Surrender Charge applied reduces any
remaining Surrender Charge under your Policy.
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 could
terminate your Policy's Minimum Guaranteed Death Benefit 1 or 2. See "Minimum
Guaranteed Death Benefit".
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. The amount of
net cash value paid upon partial surrender is determined as of the first day
of the Policy month on or after the date when a request conforming to NELICO's
administrative procedures is received at NELICO's Home Office. NELICO's
administrative procedures can be determined by contacting your registered
representative or the Home Office.
A 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
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.)
If you decrease the face amount of your Policy, the Benchmark Premium, on
which any future Surrender Charges are based, and the Target Premium, on which
the 9% sales charge is currently based, are also decreased. Your Policy's
actual cash value is not reduced except by the amount of any applicable
Surrender Charge. 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 unless a Surrender
Charge was deducted from the cash value in connection with the face amount
reduction. A reduction in face amount in this situation may not be advisable,
although it will reduce your administrative charges, because it will not
reduce your death benefit or cost of insurance charges and may result in a
Surrender Charge.) Any rider benefits attached to the Policy may also have to
be decreased. The face amount remaining after a reduction has to meet NELICO's
minimum face amount requirements for issue, except with NELICO's consent.
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 partial surrender of cash value may be required to comply
with Federal tax law. This could result in termination of the Minimum
Guaranteed Death Benefit 1 or 2. See "Minimum Guaranteed Death Benefit".
A-29
<PAGE>
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 Home Office
meeting NELICO's administrative requirements. You can determine NELICO's
administrative requirements by contacting your registered representative or
the Home 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".)
INVESTMENT OPTIONS
You may allocate your Policy's premiums among the sub-accounts of the
Variable Account and the Fixed Account in any combination, provided that
allocations can be made to a maximum of nine accounts (including the Fixed
Account) at any time. The Policy provides that a minimum of 10% of the premium
must be allocated to each sub-account selected and that percentages allocated
must be in whole numbers; currently, however, NELICO is waiving the
requirement of a 10% minimum and will permit any whole percentage to be
allocated to a sub-account. Your Policy's cash value may be distributed among
no more than nine accounts (including the Fixed Account) at any one time.
You make the initial 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 Home Office.")
See "Transfer Option" below for information on how to request a transfer or
reallocation by telephone.
TRANSFER OPTION
After the Right to Return the Policy period, the Policy provides that you
may transfer your Policy's cash value between sub-accounts up to four times in
a policy year (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 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 Home Office. (See
"Receipt of Communications and Payments at NELICO's Home Office".) For special
rules regarding transfers involving the Fixed Account, see "The Fixed
Account". Your Policy's cash value may be distributed among no more than nine
accounts (including the Fixed Account) at any one time.
You may request a sub-account transfer or reallocation of future premiums by
written request (which may be telecopied) to NELICO's Home Office or by
telephoning NELICO. To request a transfer or reallocation by telephone, you
should contact your registered representative or contact NELICO at 1-800-200-
2214. Requests for transfers (up to NELICO's current limit per policy year) or
reallocations by telephone will be automatically permitted. NELICO will use
reasonable procedures such as requiring certain identifying information from
the caller, tape recording the telephone instructions, and providing written
confirmation of the transaction, in order to confirm that instructions
communicated by telephone are genuine. Any telephone instructions reasonably
believed by NELICO to be genuine will be your responsibility, including losses
arising from any errors in the communication of instructions. As a result of
this policy, you will bear the risk of loss. If NELICO does not employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, it may be liable for any losses due to unauthorized or fraudulent
instructions.
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
Home Office of a request, or proof of death of an insured, in a form
A-30
<PAGE>
satisfactory to NELICO. (See "Receipt of Communications and Payments at
NELICO's Home Office".) However, NELICO may delay payment (except when a loan
is made to pay a premium to NELICO) or transfers from the sub-accounts: (i) if
the New York Stock Exchange is closed for other than weekends or holidays, or
if trading on the New York Stock Exchange is restricted, (ii) if the SEC
determines that a state of emergency exists that makes payments or sub-account
transfers impractical, or (iii) at any other time when the Eligible Funds or
the Variable Account have the legal right to suspend payment. NELICO may
withhold payment of surrender or loan proceeds to the extent that those
proceeds are derived from a Policy Owner's check, or from a Master Service
Account premium transaction, which has not yet cleared. In those cases, NELICO
will process the surrender or loan to the extent of policy values for which
the Policy Owner has made full payment. The balance of the surrender or loan
proceeds will be paid when the Policy Owner's check, or the Master Service
Account premium transaction, has cleared. NELICO may also delay payment if it
considers whether to contest the Policy. NELICO will pay interest on the death
benefit proceeds from the date they become payable to the date they are paid
in one sum or, if a payment option was selected, to the effective date of the
option. (See "Payment Options".)
Death benefit proceeds may be paid pursuant to NELICO's Access Plus program.
If the Access Plus program is elected, an Access Plus account will be
established at State Street Bank & Trust Company at the time that death
benefit proceeds are payable. The Access Plus account provides convenient
access to proceeds, which are maintained in MetLife's general account, through
checkbook privileges with State Street. A beneficiary may elect to have death
benefit proceeds paid through the Access Plus program at any time prior to the
payment of death benefit proceeds.
Payments of net cash value, or of any loan value available, 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.
EXCHANGE OF POLICY DURING FIRST 24 MONTHS
During the first 24 months after the issue date of the Policy, if the Policy
has not lapsed, you may exchange it for a comparable fixed-benefit traditional
survivorship life insurance policy issued by NELICO or MetLife, as described
below. This exchange is available to a surviving insured. If you exercise this
option, you will have to make up any investment loss you had under the
variable life insurance policy.
The exchange will be made without evidence of insurability. The new policy
will have the same face amount (or the same net amount at risk) as the
original Policy on the date of the exchange, the same policy date as the
original Policy, the same issue ages as of the Policy Date of the original
Policy and risk classifications based on the actual underwriting classes to
which each insured was assigned by NELICO on the date of issue of the original
Policy. For Policies issued in New York, you have the option of exchanging for
a new, fixed-benefit traditional survivorship policy with a face amount equal
to the current death benefit of the exchanged variable life policy. Premiums
for the new policy will be based on the premium rates for comparable fixed-
benefit traditional survivorship life insurance policies issued by NELICO or
MetLife which were in effect on the Policy Date of the original Policy. Any
riders to the original Policy will be attached to the new policy if they are
available.
Your Policy may be issued or amended with an endorsement providing for an
exchange right to a fixed benefit policy issued by NELICO (if such a policy
was available on the Policy Date of your variable life Policy), or otherwise,
to a fixed benefit policy issued by MetLife. If your Policy does not have such
an endorsement, the exchange right will be to a fixed benefit policy issued by
MetLife or, at your option, to a fixed benefit policy issued by NELICO if such
a policy was available on the Policy Date of your variable life Policy.
The exchange will be effective on the date when NELICO receives written
notice at its Home Office in a form satisfactory to NELICO, the Policy and
payment to NELICO of any cost to exchange. (See "Receipt of Communications and
Payments at NELICO's Home Office".) The cost to exchange will reflect any
differences in premiums and cash values between the two policies. Any Policy
loan outstanding must be repaid on or before the effective date of the
exchange.
A-31
<PAGE>
For a Policy issued in connection with certain group or sponsored
arrangements, you may (if approved in your state) have the additional option
of exchanging at any time during the first 36 months after the Policy's issue
date, if the Policy has not lapsed, to a fixed-benefit term life insurance
policy issued by NELICO or an affiliate. The terms and conditions applicable
to the 24 month exchange option will also be applicable to this option. If
your Policy has this feature, upon surrender of the Policy in the first 36
months, you will receive the greater of the Policy's net cash value and the
value which you would receive upon exercise of the exchange to term insurance
option.
POLICY SPLIT RIDER
Subject to state availability and NELICO's underwriting criteria, your
Policy may be issued with a split rider which allows the Policy Owner to
"split" the Policy into two new individual flexible premium adjustable
variable life insurance policies issued by NELICO. (If your Policy was not
issued with the rider, the rider may be added to the Policy if it has been
approved in your state and if the insureds under the Policy meet NELICO's
underwriting requirements for the rider.) The rider permits the Policy to be
split at the request of the Policy Owner in the event of divorce of the
insureds, if certain federal tax law changes occur, or if certain business
circumstances change (each, a "split event"). The rider sets forth the
specific conditions that must be met in order for a split event to be deemed
to have occurred. If the split rider is exercised, this Policy will be
canceled, and its cash value will be transferred (in equal portions, unless
otherwise requested) to two new individual policies issued on the effective
date of the split. A Surrender Charge will apply to each individual policy in
accordance with such Policy's terms. Each new policy will be issued with
either a level or variable death benefit option in effect, depending on which
type of death benefit option is in effect under this Policy at the time the
split rider is exercised.
For more information about the Policy split rider and the conditions and
rules relating to the exercise of any rights under the split rider, you should
contact your registered representative or NELICO. You can also request a
prospectus and additional information regarding the individual policies to be
issued upon exercise of the split rider. For a discussion of the possible tax
consequences of splitting the Policy, see "Tax Considerations."
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 last death under the Policy. The payment options available are
fixed benefit options only, therefore, proceeds applied to an option will no
longer be affected by the investment experience of the Variable Account. The
guaranteed mortality assumptions used in determining payment levels under the
options will not vary based on sex. (For Policies issued in New York and
Oregon, however, and which are not issued for use in connection with certain
employee benefit plans and fringe benefit programs, the mortality assumptions
will vary based on sex. See "Group or Sponsored Arrangements".) Once payments
under an option begin, withdrawal rights may be restricted.
The following payment options are available:
(i) INCOME FOR A SPECIFIED NUMBER OF YEARS. Proceeds are paid in equal
monthly installments for up to 30 years, with interest at a rate not
less than 3.5% a year, compounded yearly. Additional interest paid by
NELICO for any year will be added to the monthly payments for that
year.
(ii) LIFE INCOME. Proceeds are paid in equal monthly installments (i)
during the life of the payee, (ii) for the longer of the life of the
payee or 10 years, or (iii) for the longer of the life of the payee or
20 years.
(iii) LIFE INCOME WITH REFUND. Proceeds are paid in equal monthly
installments during the life of the payee. At the payee's death, any
unpaid proceeds remaining are paid either in one sum or in equal
monthly installments until the total proceeds have been paid.
(iv) INTEREST. Proceeds are held for the life of the payee or another
agreed upon period. Interest of at least 3.5% a year is paid monthly
or added to the principal annually. At the death of the payee, or at
the end of the period agreed to, the balance of principal and any
interest will be paid in one sum.
A-32
<PAGE>
(v) SPECIFIED AMOUNT OF INCOME. Proceeds plus accrued interest of at least
3.5% a year are paid in an amount and at a frequency elected until
total proceeds have been paid. Any amounts unpaid at the death of the
payee will be paid in one sum.
(vi) LIFE INCOME FOR TWO LIVES. Proceeds will be paid in equal monthly
installments (i) while either of two payees is living, (ii) for the
longer of the surviving payee or 10 years, or (iii) while the two
payees are living and, after the death of one payee, two-thirds of the
monthly amount for the life of the surviving payee will be paid.
NELICO's consent to use of an option is required if the installment payments
would be less than $20.
ADDITIONAL BENEFITS BY RIDER
A Policy can include additional benefits provided by rider to the Policy,
subject to NELICO's underwriting and issuance standards. These additional
benefits usually require an additional 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 joint life term rider to age
100.
Reductions in or elimination of term rider coverage does not trigger the
imposition of a surrender charge, and use of a term rider generally reduces
sales compensation. However, like the cost of coverage under the Policy,
charges deducted from the Policy's cash value to pay for term rider coverage
no longer participate in the investment experience of the Variable Account,
and generally increase with the age of the covered individual. Your registered
representative can provide you more information on the uses of term rider
coverage.
The following riders are available:
TERM RIDER--JOINT LIFE TERM INSURANCE TO AGE 100, which provides joint
life term insurance.
TERM RIDER--JOINT 4 YEAR TERM INSURANCE, which provides joint life term
insurance for four policy years.
TERM RIDER--LEVEL SINGLE LIFE TERM INSURANCE, which provides additional
term insurance on one of the insureds.
TERM RIDER--DECREASING SINGLE LIFE TERM INSURANCE, which provides
additional term insurance on one of the insureds in an amount that
decreases each year to zero over a coverage period of 10, 15 or 20 years.
WAIVER OF MONTHLY DEDUCTION, which provides for waiver of Monthly
Deductions upon the disability of the insured covered by the waiver.
BENEFITS FOR DISABILITY OF COVERED INSUREDS, which provides for waiver of
the cost of the rider itself and for a premium benefit upon the disability
of an insured covered by the rider.
An extended maturity endorsement and/or a Policy split rider may also be
available. (See "Extending the Maturity Date" and "Policy Split Rider".) 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 second insured.
A-33
<PAGE>
The beneficiary is also named in the application. The beneficiary of the
Policy may be changed at any time before the death of the second insured. The
beneficiary has no rights under the Policy until the death of the second
insured and must survive the second insured in order to receive the death
proceeds. If no named beneficiary survives the second insured, the proceeds
will be paid to the Policy Owner.
A change of Policy Owner or beneficiary must be in written form satisfactory
to NELICO and must be dated and signed by the Policy Owner making the change.
The change will be subject to all payments made and actions taken by NELICO
under the Policy before the signed change form is received by NELICO at its
Home Office.
You may assign (transfer) your rights in the Policy to someone else. An
absolute assignment of the Policy is a change of Policy Owner and beneficiary
to the assignee. A collateral assignment of the Policy does not change the
Policy Owner or beneficiary, but their rights will be subject to the terms of
the assignment. Assignments will be subject to all payments made and actions
taken by NELICO under the Policy before a signed copy of the assignment form
is received at NELICO's Home Office. NELICO will not be responsible for
determining whether or not an assignment is valid. Changing the Policy Owner
or assigning the Policy may have tax consequences. (See "Tax Considerations"
below.)
THE VARIABLE ACCOUNT
The Variable Account was established as a separate investment account of
NELICO on January 31, 1983 under Delaware law and became subject to
Massachusetts law when NELICO changed its domicile to Massachusetts on August
30, 1996. The Variable Account is the funding vehicle for other NELICO
variable life insurance policies in addition to the Policies; these other
policies impose different costs, and provide different benefits, from the
Policies. The Variable Account meets the definition of a "separate account"
under Federal securities laws. The Variable Account is registered with the
Securities and Exchange Commission (the "SEC") as a unit investment trust
under the Investment Company Act of 1940. Registration with the SEC does not
involve supervision by the SEC of 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
A-34
<PAGE>
-- The Zenith Stock Index Sub-Account, which invests in the Westpeak Stock
Index Series of the Zenith Fund
-- The Zenith Managed Sub-Account, which invests in the Back Bay Advisors
Managed Series of the Zenith Fund
-- The Zenith Growth and Income Sub-Account, which invests in the Westpeak
Growth and Income Series of the Zenith Fund
-- The Zenith Small Cap Sub-Account, which invests in the Loomis Sayles
Small Cap Series of the Zenith Fund
-- The Zenith 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 certain 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.
A-35
<PAGE>
The Zenith Back Bay Advisors Money Market Series' investment objective is
the highest possible level of current income consistent with preservation of
capital through investment in a managed portfolio of high quality money market
instruments. Money market funds are neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Series will maintain a
stable net asset value of $100 per share.
The Zenith Back Bay Advisors Bond Income Series' investment objective is to
provide a high level of current income consistent with protection of capital.
The Zenith Capital Growth Series' investment objective is long-term growth
of capital through investment primarily in equity securities of companies
whose earnings are expected to grow at a faster rate than the U.S. economy.
The Zenith Westpeak Stock Index Series' investment objective is to provide
investment results that correspond to the composite price and yield
performance of United States publicly traded common stocks. The Series
currently seeks to achieve its objective by attempting to duplicate the
composite price and yield performance of the Standard & Poor's 500 Composite
Stock Price Index.
The Zenith Back Bay Advisors Managed Series' investment objective is to
provide a favorable total investment return through investment in a
diversified portfolio of common stocks and fixed income securities.
The Zenith Westpeak Growth and Income Series' investment objective is long-
term total return (capital appreciation and dividend income) through
investment in equity securities. Emphasis will be given to both undervalued
securities ("value" style) and securities of companies with growth potential
("growth" style).
The Zenith Goldman Sachs Midcap Value Series' investment objective is long-
term capital appreciation. The Series invests, under normal circumstances,
substantially all of its assets in equity securities of companies with public
stock market capitalizations within the range of the market capitalizations of
companies constituting the Russell Midcap Index at the time of investment.
The Zenith Loomis Sayles Small Cap Series' investment objective is long-term
capital growth from investments in common stocks or their equivalent. The
Series invests primarily in stocks of small cap companies with good earnings
growth potential that Loomis Sayles believes are undervalued by the market.
Normally, the Series will invest at least 65% of its assets in companies with
market capitalization in the range of the market capitalization of those
companies which make up the Russell 2000 index at the time of investment.
The Zenith Loomis Sayles Balanced Series' investment objective is reasonable
long-term investment return from a combination of long-term capital
appreciation and moderate current income. The Series is "flexibly managed" in
that sometimes it invests more heavily in equity securities and at other times
it invests more heavily in fixed-income securities. The series invests at
least 25% of its assets in fixed income securities and, under normal market
conditions, more than 50% of its assets in common stocks.
The Zenith Morgan Stanley International Magnum Equity Series' investment
objective is long-term capital appreciation through investment primarily in
equity securities of non-U.S. issuers, in accordance with the EAFE country
weightings determined by the Series' sub-adviser. Under normal circumstances
at least 65% of the total assets of the Series will be invested in equity
securities of issuers in at least three countries outside the United States.
The Zenith Davis Venture Value Series' investment objective is growth of
capital. The Series will primarily invest in domestic common stocks that the
Series' subadviser believes have capital growth potential due to factors such
as undervalued assets or earnings potential, product development and demand,
favorable operating ratios, resources for expansion, management abilities,
reasonableness of market price, and favorable overall business prospects. The
Series will generally invest predominantly in equity securities of companies
with market capitalizations of at least $250 million.
A-36
<PAGE>
The Zenith Alger Equity Growth Series' investment objective is to seek long-
term capital appreciation. The Series' assets will be invested primarily in a
diversified, actively managed portfolio of equity securities, primarily of
companies having a total market capitalization of $1 billion or greater.
The VIP Fund Equity-Income Portfolio's investment objective is to seek
reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Equity-Income Portfolio will
also consider the potential for capital appreciation.
The VIP Fund Overseas Portfolio's investment objective is long-term growth
of capital primarily through investments in foreign securities. Foreign
investments involve greater risks than U.S. investments, including political
and economic risks and the risks of currency fluctuation.
The VIP Fund High Income Portfolio's investment objective is to obtain a
high level of current income by investing primarily in high-yielding, lower-
rated, fixed-income securities, while also considering growth of capital.
High-yielding, lower-rated debt securities present higher risks of untimely
interest and principal payments, default and price volatility than higher-
rated securities, and may present problems of liquidity and valuation.
The VIP Fund II Asset Manager Portfolio's investment objective is to seek
high total return with reduced risk over the long-term by allocating its
assets among stocks, bonds and short-term instruments.
The basic objective of the Policy is to provide benefits which increase in
value when the investment experience of the Policy's sub-accounts is
favorable. Historically, the investment performance of common stocks over the
long term has generally been superior to that of long or short term debt
securities, although common stocks have been subject to more dramatic changes
in value over short periods of time. The Zenith Capital Growth, Zenith Midcap
Value, Zenith Equity Growth, Zenith Venture Value, Zenith Growth and Income,
Zenith Stock Index, Zenith International Magnum Equity or Zenith Small Cap
Sub-Accounts, or the Equity-Income or Overseas Sub-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.
A-37
<PAGE>
NELICO guarantees the principal invested in the Fixed Account, although this
guarantee is subject to NELICO's claims paying ability.
You may wish to consider diversifying your investments by allocating the
Policy's cash value among two or more sub-accounts.
Policy Owners may also diversify by selecting the Zenith Managed Sub-
Account, Zenith Balanced Sub-Account or the Asset Manager Sub-Account, since
each generally invests its assets at most times in a combination of bonds,
stocks and short term instruments, in varying proportions depending upon the
investment adviser's evaluation of the economy and financial markets. The
Asset Manager Portfolio has the ability to invest its stock portfolio more
aggressively than the Back Bay Advisors Managed Series. You may also wish to
diversify your cash value by country. The Overseas Sub-Account and Zenith
International Magnum Equity Sub-Account allow you to participate primarily in
companies and economies outside the United States.
The selection of a Policy's sub-accounts is a matter of your own choice and
should depend on your willingness to accept investment risks, the other types
of investments you have and your own assessment of future economic and
financial market conditions.
INVESTMENT MANAGEMENT
The adviser and sub-adviser for each series of the Zenith Fund are listed in
the chart below. TNE Advisers, which is an indirect, wholly-owned subsidiary
of NELICO, CGM, and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------------------------- ------------------------------
<S> <C> <C>
Capital Growth Capital Growth Management
Limited Partnership
("CGM")*
Back Bay Advisors Money TNE Advisers, Inc. Back Bay Advisors, L.P.*
Market
Back Bay Advisors Bond TNE Advisers, Inc. Back Bay Advisors, L.P.*
Income
Back Bay Advisors Man- TNE Advisers, Inc. Back Bay Advisors, L.P.*
aged
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors,
L.P.*
Westpeak Growth and In- TNE Advisers, Inc. Westpeak Investment Advisors,
come L.P.*
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company,
L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company,
L.P.*
Morgan Stanley TNE Advisers, Inc. Morgan Stanley Asset
International Magnum Management Inc.
Equity
Goldman Sachs Midcap TNE Advisers, Inc. Goldman Sachs Asset Management
Value
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers,
L.P.**
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
</TABLE>
- --------
* An affiliate of NELICO
** Davis Selected may also delegate any of its responsibilities to Davis
Selected Advisers--NY, Inc., a wholly-owned subsidiary of Davis Selected.
In the case of the Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series, Back Bay Advisors Managed Series, Westpeak Stock Index
Series, Westpeak Growth and Income Series, Goldman Sachs Midcap Value Series
and Loomis Sayles Small Cap Series, TNE Advisers became the adviser on May 1,
1995. Prior to that date those series were advised by their current sub-
adviser, except as follows. New England Mutual served as investment adviser to
the Back Bay Advisors Money Market and Back Bay Advisors Bond Income Series
until September 10, 1986 when Back Bay Advisors assumed New England Mutual's
responsibilities under the investment advisory agreements with those Series.
Back Bay Advisors served as investment adviser to the Westpeak Stock Index
Series until August 2, 1993, when Westpeak became the investment adviser. The
Capital Growth Series was managed by Loomis, Sayles until March 1, 1990, when
its Capital Growth Management Division was reorganized
A-38
<PAGE>
into CGM. 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. 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.
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, unless otherwise
required by state law.) Any net premiums allocated or any portion of your
Policy's cash value transferred to the Fixed Account on a date other than a
Policy anniversary will earn interest at NELICO's most recently declared rate
until the next Policy anniversary. The effective interest rate credited at any
time to your cash value in the Fixed Account will be a weighted average of all
the Fixed Account rates for your Policy.
A-39
<PAGE>
VALUES AND BENEFITS
The Policy's cash value in the Fixed Account reflects the net premiums
allocated to the Fixed Account, net 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. (See "Monthly Deduction from Cash Value".) A
Policy's total cash value will include its cash value in the Variable Account,
its cash value in the Fixed Account, and any of its cash value held in
NELICO's general account (but outside of the Fixed Account) as a result of a
Policy loan.
The amount of the Policy's cash value in the Fixed Account will be taken
into account in the calculation of the Policy's death benefit in the same
manner as the cash value in the Variable Account. (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 4%. 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 IF NELICO RECEIVES THE TRANSFER REQUEST NO MORE THAN
30 DAYS BEFORE THE POLICY ANNIVERSARY, AND THE TRANSFER WILL BE EFFECTED AS OF
THE DATE THE TRANSFER REQUEST IS RECEIVED AT NELICO'S HOME OFFICE; HOWEVER,
YOU MAY REQUEST A TRANSFER FROM THE FIXED ACCOUNT WITHIN 30 DAYS AFTER A
POLICY ANNIVERSARY IF YOU HAVE NOT REQUESTED SUCH A TRANSFER IN THE 30 DAY
PERIOD BEFORE THE ANNIVERSARY. THE AMOUNT OF CASH VALUE WHICH MAY BE
TRANSFERRED FROM THE FIXED ACCOUNT IS LIMITED TO THE GREATER OF 25% OF THE
POLICY'S CASH VALUE IN THE FIXED ACCOUNT ON THE TRANSFER DATE OR THE AMOUNT OF
CASH VALUE TRANSFERRED FROM THE FIXED ACCOUNT IN THE PRECEDING POLICY YEAR.
Regardless of these limits, if a transfer of cash value from the Fixed Account
would reduce the remaining cash value in the Fixed Account below $100, you may
transfer the entire amount of cash value from the Fixed Account. The total
number of transfers among sub-accounts and from the sub-accounts to the Fixed
Account may not exceed four in one Policy year without NELICO's consent.
NELICO currently allows 12 such transfers per Policy year. Transfers out of
the Fixed Account will not be counted against this limit. NELICO reserves the
right to restrict transfers of cash value into the Fixed Account, if the
effective annual rate of interest that would apply to the amount transferred
is 4%.
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.
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.
A-40
<PAGE>
NELICO'S DISTRIBUTION AGREEMENT
NELICO sells the Policies through agents who are licensed by state insurance
officials to sell NELICO's variable life insurance policies. These agents are
also registered representatives of New England Securities Corporation ("New
England Securities"). New England Securities, a Massachusetts corporation
organized in 1968 and an indirect, wholly-owned subsidiary of NELICO, is
registered with the SEC as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc.
New England Securities, whose principal business address is 399 Boylston
Street, Boston, Massachusetts 02116, serves as the principal underwriter for
the Policies under a Distribution Agreement between NELICO and New England
Securities.
Under the Distribution Agreement, NELICO pays the following sales expenses:
general agent and agency manager's compensation, agents' training allowances,
deferred compensation and insurance benefits of agents, general agents and
agency managers and advertising expenses and all other expenses of
distributing the Policies.
NELICO pays the following commissions and/or service fees to the selling
agent: a maximum of 50% of the Target Premium paid in the first Policy year;
5% in Policy years two through ten and 4% thereafter. Agents receive a
commission of 3% of each payment in excess of the Target Premium in any 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. Sales expenses in any year are
not equal to the deduction for sales load in that year.
New England Securities distributes mutual funds, variable annuity contracts
and variable life insurance policies. It is the principal underwriter for the
Zenith Fund; The New England Variable Account; New England Retirement
Investment Account; New England Variable Annuity Separate Account; and New
England Variable Annuity Fund I. New England Securities also sells interests
in various investment partnerships.
New England Securities may enter into selling agreements with other broker-
dealers registered under the Securities Exchange Act of 1934 whose
representatives are authorized by applicable law to sell variable life
insurance policies. Under the agreements with those broker-dealers, the
commission paid to the broker-dealer on behalf of the registered
representative will not exceed 50% of the Target Premium in the first Policy
year, 5% in the second through tenth Policy years, 4% thereafter, and 3% of
all payments in excess of the Target Premium 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.
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
NOTIFICATION OF FIRST DEATH
Generally, NELICO can challenge the validity of your Policy or a rider to
your Policy during either 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 either insured's lifetime) from the date the premium payment was
received. However, if either 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 relating to that insured.
NELICO should be notified immediately upon the first death of an insured
under the Policy. Even if premiums continue to be paid after the first death,
NELICO generally has the right to contest the Policy or to limit benefits
under the suicide provision (described below) and terminate the Policy at any
time, even beyond the two-year period, if it was not notified of a death that
occurred during the period of contestability. Policies issued in New York are
not contestable after they have been in force for two years during the life of
either insured.
A-41
<PAGE>
MISSTATEMENT OF AGE OR SEX
If either 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 insureds' correct ages and, if the
Policy is sex-based, on the insureds' correct sexes.
SUICIDE
If either of the insureds dies by 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 (or such greater amount
required by state law). The Policy will terminate as of the date of the first
death by suicide.
An eligible insured, if age 75 or younger, can request a new single life
variable life insurance policy, with the same face amount as the original
Policy, within 60 days of the date of the suicide. An eligible insured over
age 75 may request a single life ordinary life policy and not a single life
variable life insurance policy. For these purposes an eligible insured is a
surviving insured on whom NELICO would have issued a single life policy on the
Policy Date of the original Policy. The new single life policy is based on the
surviving insured's underwriting class at the time of issue of the original
Policy, with a policy date equal to the date of the suicidal death, and
premiums must be paid from the policy date. The single life variable life
insurance policy can be exchanged for an ordinary life policy, if desired,
using the 24-month exchange provision.
If the eligible surviving insured dies within the 60 day period and before
submitting an application, the death benefit will be paid as if the new policy
had been issued and, if the new policy would have been a variable life policy,
assuming all premiums had been allocated to the Fixed Account and that the
death benefit option chosen equals the face amount of the new policy.
TAX CONSIDERATIONS
POLICY PROCEEDS
The following discussion of Federal income tax issues relating to the
Policies is general in nature and is not intended as tax advice. It describes
what NELICO believes is the Federal income tax treatment of the Policies in
the most commonly occurring circumstances and does not reflect the effect of
Federal income taxes in all situations. In addition, there is no guarantee
that the Federal income tax laws and regulations or interpretation of them
will not change. Therefore, NELICO recommends that you consult your own tax
advisor for more complete information and advice.
DEFINITION OF LIFE INSURANCE. Section 7702 of the Internal Revenue Code of
1986, as amended ("Code") defines a life insurance contract for Federal income
tax purposes.
The Section 7702 definition can be met if a life insurance contract
satisfies either one of two tests set forth in that section. The manner in
which these tests should be applied to certain features of the Policy is not
directly addressed by Section 7702 or proposed regulations issued under that
section. The presence of these Policy features, the absence of final
regulations, and the lack of other pertinent interpretations of Section 7702,
thus create some uncertainty about the application of Section 7702 to the
Policy.
Nevertheless, NELICO believes it is reasonable to conclude that the Policy
qualifies as a life insurance contract for federal income tax purposes. This
means that:
. the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
. the Policy Owner should not be considered in constructive receipt of the
cash surrender value, including any increases, unless and until they are
distributed from the Policy.
A-42
<PAGE>
Because of the absence of final regulations or any other pertinent
interpretations, it, however, is unclear whether a Policy will meet the
statutory life insurance definition, particularly if it is a substandard risk
Policy. If a Policy were determined not to be a life insurance contract for
purposes of Section 7702, such Policy would not provide most of the tax
advantages normally provided by a life insurance contract.
NELICO thus reserves the right to make changes in the Policy if such changes
are deemed necessary to attempt to assure its qualification as a life
insurance contract for tax purposes.
TAX 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. A joint term rider could cause the Policy to be
treated less favorably for purposes of the 7-pay test. If there is a reduction
in the Policy's death benefit (for example, as a result of a partial surrender
or face amount reduction) at any time during the Policy's existence the 7-pay
test will be applied as if the Policy had originally been issued at the
reduced face amount. Any Policy received in exchange for a modified endowment
contract will also be a modified endowment contract.
Your registered representative can provide you with information about the
maximum amount of 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
A-43
<PAGE>
change occurred. The Policy will be retested under the 7-pay test, after
making certain adjustments to reflect the Policy's existing cash value. Any
increase in future benefits under the Policy may constitute a material change
if the increase is not due to the payment of premiums necessary to fund the
Policy's lowest death benefit payable in the first seven Policy years, or the
crediting of interest or other earnings with respect to such premiums. A
material change would also occur if certain 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, sex and
underwriting class of the insureds, investment experience and the amount of
your previous payments.
If you exchange your policy for another life insurance policy, including a
fixed-benefit policy pursuant to the 24 month exchange right, the new
insurance policy should be reviewed to determine how the rules regarding
modified endowment contracts may apply to the new policy. (See "Exchange of
Policy During First 24 Months.")
DISTRIBUTIONS UNDER MODIFIED ENDOWMENT CONTRACTS. If a Policy is a modified
endowment contract, then the following rules will apply to distributions under
such contract:
(a) Distributions will be includible in your gross income to the extent
the cash value of the Policy exceeds your investment in the Policy (i.e.,
will be treated as income first).
(b) Loans (including any unpaid interest) are considered distributions.
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 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.
A-44
<PAGE>
OTHER POLICY OWNER TAX MATTERS. Federal and state estate, inheritance and
other tax consequences of ownership or receipt of proceeds under the Policy
depend upon the individual circumstances of each Policy Owner or beneficiary.
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.
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
A-45
<PAGE>
product for the arrangement. Moreover, in recent years, Congress has adopted
new rules relating to corporate owned life insurance. Any business
contemplating the purchase of a new life insurance contract or a change in an
existing contract should consult a tax advisor.
NELICO believes that Policies subject to the provisions of the Puerto Rican
tax law will generally receive similar tax treatment, with certain
modifications, as that described above for Policies subject to the Internal
Revenue Code. 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.
TAX TREATMENT OF POLICY SPLIT. The policy split rider permits a Policy to be
split into two individual contracts, provided certain conditions are met. A
policy split could have adverse tax consequences; for example, it is not clear
whether a policy split will be treated as a nontaxable exchange under Sections
1031 through 1043 of the Code. If the policy split is not treated as a
nontaxable exchange, a split could result in the recognition of taxable income
in an amount up to any gain in the Policy at the time of the split. In
addition, it is not clear whether the individual policies that result from a
policy split would be classified as modified endowment contracts. (See above.)
Before the Policy Owner exercises rights provided by the policy split rider,
it is important that he or she consult with a competent tax advisor regarding
the possible consequences of a policy split.
OTHER TAX CONSIDERATIONS. The transfer of the Policy or designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate, and generation-
skipping transfer taxes. For example, the transfer of the Policy to, or the
designation as a beneficiary of, or the payment of proceeds to, a person who
is assigned to a generation which is two or more generations below the
generation assignment of the Policy Owner, may have Generation Skipping
Transfer tax considerations under Section 2601 of the Code.
The individual situation of each Policy Owner or beneficiary will determine
the extent, if any, to which federal, state, and local transfer and
inheritance taxes may be imposed. Consult with your tax advisor for specific
information in connection with these taxes.
The particular situation of each Policy Owner or beneficiary will determine
how ownership or receipt of Policy proceeds will be treated for purposes of
federal, state and local estate, inheritance, generation skipping and other
taxes.
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.
A-46
<PAGE>
MANAGEMENT
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
DIRECTORS OF NELICO
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<S> <C>
James M. Benson......... President and Chief Executive Officer of NELICO since
1998; formerly, President and Chief Operating Officer
1997-1998 of NELICO; President and CEO 1996-1997 of
Equitable Life Assurance Society and COO of Equitable
Companies, Inc.; Senior Vice President 1993-1996 of
Equitable Life Assurance Society.
Susan C. Crampton....... Director of NELICO since 1996 and serves as Principal of
127 Tarbox Road The Vermont Partnership, a business consulting firm
Jericho, VT 05465 located in Jericho, Vermont since 1989; formerly,
Director 1989-1996 of New England Mutual.
Edward A. Fox........... Director of NELICO since 1996 and Chairman of the Board of
RR Box 67-15 SLM Holdings since 1997; formerly, Director 1994-1996 of
Harborside, ME 04642 New England Mutual and Dean 1990-1994 of The Amos Tuck
School of Business Administration at Dartmouth College.
George J. Goodman....... Director of NELICO since 1996 and author, television
Adam Smith's Money journalist, and editor.
World
50th Floor, Craig Drill
Capital
General Motors Building
767 Fifth Street
New York, NY 10153
Dr. Evelyn E. Handler... Director of NELICO since 1996; formerly Director 1987-1996
74 Tater Street of New England Mutual and Executive Director and Chief
Mont Vernon, NH 03057 Executive Officer 1994-1997 of the California Academy of
Sciences and Research Fellow and an Associate 1991-1994
of the Graduate School of Education at Harvard University
and a Senior Fellow at The Carnegie Foundation for the
Advancement of Teaching.
Philip K. Howard, Esq... Director of NELICO since 1996 and Partner of the law firm
Howard, Darby & Levin of Howard, Darby & Levin in New York City.
1330 Avenue of the
Americas
New York, NY 10019
Harry P. Kamen.......... Director of NELICO since 1996 and Chairman of Metropolitan
Metropolitan Life Life Insurance Company since 1998; formerly, Chairman and
One Madison Avenue Chief Executive Officer 1997-1998; Chairman, President,
New York, NY 10010 and Chief Executive Officer 1995-1997 and Chairman and
CEO 1993-1995 of Metropolitan Life.
Terence Lennon.......... Director of NELICO since 1996 and Senior Vice President of
Metropolitan Life Metropolitan Life Insurance Company since 1994; formerly,
One Madison Avenue Assistant Deputy Superintendent and Chief Examiner 1984-
New York, NY 10010 1994 of the New York Insurance Department.
</TABLE>
<TABLE>
<S> <C>
Bernard A. Leventhal.... Director of NELICO since 1996; formerly, Vice Chairman of
Burlington Industries the Board of Directors 1995-1998 of Burlington
1345 Avenue of the Industries, Inc., President since 1978 and Corporate
Americas Group Vice President since 1985 and Director since 1990
New York, NY 10105 of Burlington Menswear Division.
</TABLE>
A-47
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<S> <C>
Thomas J. May........... Director of NELICO since 1996 and Chairman, President and
Boston Edison Company Chief Executive Officer of Boston Edison Company since
800 Boylston Street 1994; formerly, Director 1994-1996 of New England Mutual;
Boston, MA 02199 President and Chief Operating Officer 1993-1994 of Boston
Edison Co.
Stewart G. Nagler....... Director of NELICO since 1996 and Senior Executive Vice
Metropolitan Life President and Chief Financial Officer of Metropolitan
One Madison Avenue Life Insurance Company since 1986.
New York, NY 10010
Rand N. Stowell......... Director of NELICO since 1996 and President of United
United Timber Corp. Timber Corp. of Dixfield, Maine; formerly, Director 1990-
P.O. Box 650 1996 of New England Mutual.
Pine Street
Dixfield, ME 04224
Alexander B. Trowbridge. Director of NELICO since 1996 and President of Trowbridge
Trowbridge Partners Partners, Inc. in Washington, DC; formerly, Director
Inc. 1983-1996 of New England Mutual.
1317 F Street, NW,
Suite 500
Washington, D.C. 20004
</TABLE>
EXECUTIVE OFFICERS OF NELICO
OTHER THAN DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
James M. Benson......... See Directors above
David W. Allen.......... Senior Vice President of NELICO since 1996; formerly,
Senior Vice President 1994-1996 and Vice President 1990-
1994 of New England Mutual.
Thom A. Faria........... President, Career Agency System (a business unit of
NELICO) since 1996; formerly, Executive Vice President in
1996, Senior Vice President 1993-1996 of New England
Mutual.
Anne M. Goggin.......... Senior Vice President and Associate General Counsel of
NELICO since 1997; formerly, Vice President and Counsel
of NELICO in 1996, Vice President and Counsel 1994-1996
and Second Vice President and Counsel 1988-1994 of New
England Mutual.
Daniel D. Jordan........ Second Vice President, Counsel and Secretary since 1996;
formerly, Counsel and Assistant Secretary 1990-1996 of
New England Mutual.
Richard D. Keidan....... Senior Vice President of NELICO since 1996; formerly, Vice
President 1994-1996 of Metropolitan Life (Chief Marketing
Officer of MetLife Brokerage) and Regional Sales and
Marketing Manager 1989-1994 of Phoenix Home Life.
Alan C. Leland, Jr. .... Senior Vice President of NELICO since 1996; formerly, Vice
President 1984-1996 of New England Mutual.
Bruce C. Long........... President, New England Annuities (a business unit of
NELICO) since 1996; formerly, President 1994-1996 New
England Annuities (a business unit of New England Mutual)
and Senior Vice President in 1994 of New England
Annuities; Vice President 1992-1994 of Keyport Life
Insurance.
George J. Maloof........ Senior Vice President of NELICO since 1996; formerly, Vice
President 1991-1996 of New England Mutual.
</TABLE>
A-48
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
Thomas W. McConnell..... Senior Vice President of NELICO since 1996 and Director,
Chief Executive Officer and President of New England
Securities Corporation since 1993; formerly, National
Sales Manager 1993 of Alliance Fund Distributors;
National Sales Manager 1992-1993 of Equitable Capital
Securities.
Thomas W. Moore......... Senior Vice President of NELICO since 1996; formerly, Vice
President 1990-1996 of New England Mutual.
Robert W. Powell........ President, Life Brokerage (a business unit of NELICO)
since 1996; formerly, Officer-In-Charge 1994-1996 of
MetLife Brokerage (a subsidiary of Metropolitan Life
Insurance Company) and Marketing Vice President 1988-1994
of MetLife.
Richard A. Robinson..... Second Vice President and chief accounting officer of
NELICO since 1998; formerly, Second Vice President 1997-
1998 of NELICO; Manager of Life Insurance Accounting
1994-1997 and Chief Accountant 1992-1994 of Liberty Life
Assurance Company.
Robert E. Schneider..... Executive Vice President and Chief Financial Officer of
NELICO since 1996; formerly, Director, Executive Vice
President and Chief Financial Officer 1993-1996 and
Executive Vice President and Chief Financial Officer
1990-1993 of New England Mutual.
John G. Small, Jr....... President, New England Services (a business unit of
NELICO) since 1997; formerly, Senior Vice President 1996-
1997 of NELICO and Senior Vice President 1990-1996 of New
England Mutual.
Ellen D. Sullivan....... Senior Vice President and Associate General Counsel of
NELICO since 1997; formerly, Vice President and Counsel
in 1996 of NELICO; Vice President and Counsel 1994-1996
and Second Vice President and Counsel 1985-1994 of New
England Mutual.
H. James Wilson......... Executive Vice President and General Counsel of NELICO
since 1996; formerly, Executive Vice President and
General Counsel 1993-1996, Senior Vice President and
General Counsel 1992-1993 of New England Mutual.
John W. Wright.......... President, New England Employee Benefits Group (a business
unit of NELICO) since 1996; formerly, President 1993-1996
New England Employee Benefits Group (a business unit of
New England Mutual), Senior Vice President 1989-1993 of
New England Employee Benefits Group of New England
Mutual.
Frederick K. Zimmermann. Executive Vice President and Chief Investment Officer of
NELICO since 1996; formerly, Executive Vice President and
Chief Investment Officer 1993-1996 and Senior Vice
President--Investments 1989-1993 of New England Mutual.
</TABLE>
The principal business address for each of the directors and 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
A-49
<PAGE>
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 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
A-50
<PAGE>
regulations or interpretations of them change. NELICO also reserves the right:
(1) to create new investment accounts; (2) to combine any two or more separate
investment accounts including the Variable Account; (3) to make available
additional sub-accounts of the Variable Account investing in additional
Eligible Fund portfolios or in portfolios of other mutual funds; (4) to invest
the assets of the Variable Account in securities other than Eligible Fund
shares or in shares of a different series of the Eligible Funds as a
substitute for such shares already purchased or as the securities to be
purchased in the future, to withdraw the availability of a series of the
Eligible Funds as an investment option under the Policies, or to transfer
assets to NELICO's general account as permitted by applicable law; (5) to
operate the Variable Account as a management investment company under the
Investment Company Act of 1940 or in any other form permitted by law; and (6)
to deregister the Variable Account under the Investment Company Act of 1940 if
registration is no longer required. NELICO will exercise these rights in
accordance with applicable law, including approval of Policy Owners if
required. NELICO will notify you if exercise of any of these rights would
result in a material change in the Variable Account or its investments.
TOLL-FREE NUMBERS
For information about historical values of the Variable Account sub-
accounts, call the toll-free number 1-800-333-2501.
For sub-account transfers, premium reallocations, or Statements of
Additional Information for the Eligible Funds, call the toll-free number 1-
800-200-2214.
You may also call our Client TeleService Center toll-free at 1-800-388-4000
to request current information about your Policy values, to change or update
Policy information such as your address, billing mode, beneficiary or
ownership, or to request Policy loans of less than $25,000. Requests must be
in writing if the Policy is owned by a corporation or a pension trust.
For all other types of Policy changes, please contact your registered
representative.
REPORTS
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, sub-account transfers, lapses, surrenders and other
Policy transactions when they occur.
You will be sent semiannual reports containing the financial statements of
the Variable Account and the Eligible Funds.
ADVERTISING PRACTICES
NELICO may from time to time receive endorsements of the Policies from
professional organizations. NELICO may refer to or use such endorsements in
advertisements or sales material for the Policies. NELICO may also pay the
professional organization making the endorsement for the use of its customer
or mailing lists in order to distribute promotional materials regarding the
Policies. An endorsement of the Policies by a third party is not necessarily
indicative of the future performance or results which may be obtained by
persons who purchase the Policies.
From time to time, articles discussing the Variable Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited to Lipper Analytical Services, Inc. and
Morningstar, Inc.) may publish their own rankings or performance reviews of
variable contract separate accounts, including the Variable Account.
References to,
A-51
<PAGE>
reprints or portions of reprints of such articles or rankings may be used by
NELICO as sales literature or advertising material and may include rankings
that indicate the names of other variable contract separate accounts and their
investment experience.
Articles and releases, developed by NELICO, the Eligible Funds and other
parties, about the Variable Account or the Eligible Funds regarding individual
Eligible Funds' and fund groups' asset levels and sales volumes, statistics
and analyses of industry sales volume and asset levels, and other
characteristics may appear in various publications. References to or reprints
of such articles may be used in promotional literature for the Policies or the
Variable Account. Such literature may refer to personnel of the advisers, who
have portfolio management responsibility, and their investment style. The
reference may allude to or include excerpts from articles appearing in the
media.
NELICO is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
The advertising and sales literature for the Policies and the Variable
Account may refer to historical, current and prospective economic trends.
In addition, sales literature may be published concerning topics of general
investor interest for the benefit of registered representatives and
prospective Policy Owners. These materials may include, but are not limited
to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by H. James Wilson, General Counsel of NELICO. Sutherland,
Asbill & Brennan LLP, Washington, D.C., has provided advice on certain matters
relating to the Federal securities laws.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. Copies of such additional
information may be obtained from the SEC upon payment of the prescribed fee.
EXPERTS
The financial statements of New England Variable Life Separate Account of
New England Life Insurance Company ("NELICO") (formerly New England Variable
Life Insurance Company) and the consolidated financial statements of NELICO
and subsidiaries as of and for the years ended December 31, 1997 and 1996
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein (whose
reports express unqualified opinions and, with respect to NELICO, includes an
explanatory paragraph referring to the change in the basis of accounting and
the change in corporate organization), and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing. The adjustments that were applied to restate the 1995
financial statements to reflect the effects of the changes for adoption of
generally accepted accounting principles and the changes in corporate
organization have also been audited by Deloitte & Touche LLP.
A-52
<PAGE>
The statutory statements of operations, surplus, and cash flows of New
England Variable Life Insurance Company and New England Pension and Annuity
Company for the year ended December 31, 1995 (not included herein), have been
incorporated herein in reliance on the reports (which reports include adverse
opinions as to generally accepted accounting principles and unqualified
opinions as to statutory accounting practices prescribed or permitted by the
Insurance Department of the State of Delaware) of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing. The statutory statements of operations and surplus,
and cash flows of Exeter Reassurance Company, Ltd. for the year ended December
31, 1995 (not included herein), have been incorporated herein in reliance on
the report (which report includes an adverse opinion as to generally accepted
accounting principles and an unqualified opinion as to conformity with The
Insurance Act 1978, amendments thereto and related regulations) of Coopers &
Lybrand, chartered accountants, given on the authority of that firm as experts
in accounting and auditing.
The consolidated statements of operations, shareholder's equity, and cash
flows of New England Securities Corporation for the year ended December 31,
1995 (not included herein); the statements of operations, changes in
shareholder's equity, and cash flows of TNE Advisers, Inc. for the year ended
December 31, 1995 (not included herein), have been incorporated herein in
reliance on the reports of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing. The
statements of earnings and retained earnings, and cash flows of Newbury
Insurance Company, Limited for the year ended December 31, 1995 (not included
herein), have been incorporated herein in reliance on the report of Coopers &
Lybrand, chartered accountants, given on the authority of that firm as experts
in accounting and auditing.
The statements of operations and changes in net assets of New England
Variable Life Separate Account for the period ended December 31, 1995, have
been incorporated herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Rodney
J. Chandler, F.S.A., M.A.A.A., Second Vice President and Actuary of NELICO, as
stated in his opinion filed as an exhibit to the Registration Statement.
A-53
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS,
CASH VALUES, NET CASH VALUES AND ACCUMULATED SCHEDULED PREMIUMS
The tables in Appendix A illustrate the way the Policies operate. They show
how the death benefit, net cash value and cash value could vary over an
extended period of time assuming hypothetical gross rates of return (i.e.,
investment income and capital gains and losses, realized or unrealized) for
the Variable Account equal to constant after tax annual rates of 0%, 6% and
12%. The tables are based on annual premium payments of $16,000 for a male and
a female, both aged 55. The insureds are each assumed to be in the nonsmoker
standard risk classification. The Tables assume no rider benefits. Values are
first given based on current mortality and other Policy charges and then based
on guaranteed mortality and other Policy charges. Each illustration is given
for a Policy with an Option A death benefit, a Policy with an Option B death
benefit and a Policy with an Option C death benefit. A Policy with an Option D
death benefit, under the circumstances illustrated, will have the same values
as a Policy with an Option B death benefit. These tables may assist in the
comparison of death benefits, net cash values and cash values for the Policies
with those under other variable life insurance policies which may be issued by
NELICO or other companies.
Death benefits, net cash values and cash values for a Policy would be
different from the amounts shown if the actual gross rates of return averaged
0%, 6% or 12%, but varied above and below that average for the period, if
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 either
or both insureds were in the smoker standard risk classification or a
substandard risk classification, or if the Policies were issued at unisex
rates.
The death benefits, net cash values and cash values shown in the tables
reflect: (i) deductions from premiums for the sales charge and state and
federal premium tax charge; and (ii) a Monthly Deduction (consisting of a
Policy fee, an administrative charge, a minimum death benefit guarantee
charge, a charge for the cost of insurance and charges for any additional
benefits) from the cash value on the first day of each Policy month. The net
cash values reflect a Surrender Charge that is deducted from the cash value
upon surrender, face reduction or lapse during the first 14 Policy years. The
death benefits, net cash values and cash values also reflect a daily charge
assessed against the Variable Account for mortality and expense risks
equivalent to an annual charge of .75% (on a current basis) and .90% (on a
guaranteed basis) of the average daily value of the assets in the Variable
Account attributable to the Policies. (See "Charges and Expenses".) The
illustrations are based on an average of the investment advisory fees and
operating expenses incurred by the Eligible Funds, at an annual rate of .76%
of the average daily net assets of the Eligible Funds. This average reflects
voluntary expense cap and expense deferral arrangements between TNE Advisers
and the Zenith Fund under which TNE Advisers bear operating expenses of the
Zenith Fund Series (other than the Capital Growth Series) that exceed certain
amounts. TNE Advisers could terminate the expense cap and expense deferral
arrangements at any time. If TNE Advisers terminates these arrangements, the
values illustrated on the following pages could be less. (See "Charges Against
the Eligible Funds and the Sub-Accounts of the Variable Account".)
Taking account of the charges for mortality and expense risks in the
Variable Account and the average investment advisory fee and operating
expenses of the Eligible Funds, the gross annual rates of return of 0%, 6% and
12% correspond to net investment experience at constant annual rates of -
1.50%, 4.41%, and 10.32%, respectively, based on NELICO's current charge for
mortality and expense risks, and -1.65%, 4.25% and 10.16%, respectively, based
on NELICO's guaranteed maximum charge for mortality and expense risks. (See
"Net Investment Experience".)
The hypothetical rates of return shown in the tables do not reflect any tax
charges attributable to the Variable Account since no such charges are
currently made. If any such charges are imposed in the future, the gross
annual rate of return would have to exceed the rates shown by an amount
sufficient to cover the tax charges, in order to
A-54
<PAGE>
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 insureds' 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 insureds.
The illustrations using current Policy charges assume that the 9% sales
charge is waived after the 15th policy year. For Policies issued in
Pennsylvania, NELICO does not intend to waive this charge until after the 17th
policy year. Purchasers in Pennsylvania should refer to a personalized
illustration, which will reflect the longer duration of this sales charge.
A-55
<PAGE>
MALE AND FEMALE BOTH ISSUE AGE 55
$16,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$1,000,000 FACE AMOUNT
OPTION A (ENHANCED WITH FACE AMOUNT)--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ---------- ---------- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,000,000 $1,000,000 $1,000,000 $ 6,096 $ 6,884 $ 7,673 $ 12,164 $ 12,952 $ 13,741
2 34,440 1,000,000 1,000,000 1,000,000 19,383 21,755 24,221 25,451 27,823 30,289
3 52,962 1,000,000 1,000,000 1,000,000 25,670 30,480 35,675 38,533 43,343 48,538
4 72,410 1,000,000 1,000,000 1,000,000 38,545 46,674 55,797 51,408 59,537 68,660
5 92,831 1,000,000 1,000,000 1,000,000 51,213 63,568 77,981 64,076 76,431 90,844
6 114,272 1,000,000 1,000,000 1,000,000 65,057 82,572 103,819 76,535 94,051 115,298
7 136,786 1,000,000 1,000,000 1,000,000 78,686 102,327 132,156 88,780 112,421 142,249
8 160,425 1,000,000 1,000,000 1,000,000 92,098 122,858 163,241 100,807 131,567 171,949
9 185,246 1,000,000 1,000,000 1,000,000 105,285 144,191 197,351 112,609 151,515 204,675
10 211,309 1,000,000 1,000,000 1,000,000 118,240 166,351 234,791 124,179 172,290 240,730
15 362,520 1,000,000 1,000,000 1,000,000 179,318 290,843 485,686 179,318 290,843 485,686
20 555,508 1,000,000 1,000,000 1,379,393 229,438 438,734 889,070 229,438 438,734 889,070
25 801,815 1,000,000 1,000,000 2,318,628 255,451 609,821 1,522,909 255,451 609,821 1,522,909
30 1,116,173 1,000,000 1,198,235 3,684,672 212,044 787,018 2,420,146 212,044 787,018 2,420,146
35 1,517,381 1,000,000 1,404,019 5,349,786 36,665 922,180 3,513,817 36,665 922,180 3,513,817
<CAPTION>
INTERNAL RATE OF RETURN
ON NET CASH VALUE INTERNAL RATE OF RETURN
ASSUMING ON DEATH BENEFIT
END HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY ----------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -61.90% -56.98% -52.04% 6,150.00% 6,150.00% 6,150.00%
2 -29.11 -23.13 -17.19 642.15 642.15 642.15
3 -28.18 -21.05 -14.12 258.47 258.47 258.47
4 -19.28 -12.24 -5.41 148.92 148.92 148.92
5 -14.52 -7.57 -.85 100.39 100.39 100.39
6 -11.03 -4.29 2.24 73.77 73.77 73.77
7 -8.84 -2.26 4.14 57.22 57.22 57.22
8 -7.37 -.91 5.38 46.06 46.06 46.06
9 -6.34 .03 6.25 38.07 38.07 38.07
10 -5.58 .71 6.87 32.11 32.11 32.11
15 -3.74 2.37 8.40 16.46 16.46 16.46
20 -3.29 2.92 8.97 9.93 9.93 12.53
25 -3.66 3.10 9.19 6.48 6.48 11.82
30 -5.98 3.02 9.09 4.39 5.39 11.21
35 -30.38 2.62 8.71 3.02 4.64 10.48
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-56
<PAGE>
MALE AND FEMALE BOTH ISSUE AGE 55
$16,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$1,000,000 FACE AMOUNT
OPTION B (ENHANCED WITH FACE AMOUNT PLUS CASH VALUE)--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ---------- ---------- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,012,164 $1,012,952 $1,013,741 $ 6,096 $ 6,884 $ 7,673 $ 12,164 $ 12,952 $ 13,741
2 34,440 1,025,451 1,027,823 1,030,289 19,383 21,755 24,221 25,451 27,823 30,289
3 52,962 1,038,532 1,043,242 1,048,537 25,669 30,479 35,674 38,532 43,342 48,537
4 72,410 1,051,406 1,059,535 1,068,658 38,543 46,672 55,794 51,406 59,535 68,658
5 92,831 1,064,072 1,076,426 1,090,838 51,209 63,563 77,975 64,072 76,426 90,838
6 114,272 1,076,526 1,094,040 1,115,284 65,048 82,561 103,806 76,526 94,040 115,284
7 136,786 1,088,763 1,112,399 1,142,221 78,670 102,305 132,128 88,763 112,399 142,221
8 160,425 1,100,777 1,131,527 1,171,896 92,068 122,818 163,187 100,777 131,527 171,896
9 185,246 1,112,559 1,151,445 1,204,578 105,235 144,121 197,255 112,559 151,445 204,578
10 211,309 1,124,099 1,172,175 1,240,564 118,160 166,236 234,625 124,099 172,175 240,564
15 362,520 1,178,774 1,289,912 1,484,066 178,774 289,912 484,066 178,774 289,912 484,066
20 555,508 1,226,690 1,433,151 1,879,076 226,690 433,151 879,066 226,690 433,151 879,076
25 801,815 1,243,059 1,579,354 2,489,189 243,059 579,354 1,489,189 243,059 579,354 1,489,189
30 1,116,173 1,168,989 1,659,541 3,371,844 168,989 659,541 2,371,844 168,989 659,541 2,371,844
35 1,517,381 1,597,462 4,631,196 597,462 3,631,196 597,462 3,631,196
<CAPTION>
INTERNAL RATE OF RETURN
ON NET CASH VALUE INTERNAL RATE OF RETURN
ASSUMING ON DEATH BENEFIT
END HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY ----------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -61.90% -56.98% -52.04% 6,226.03% 6,230.95% 6,235.88%
2 -29.11 -23.13 -17.19 652.13 653.05 654.01
3 -28.18 -21.05 -14.12 263.56 264.19 264.86
4 -19.28 -12.24 -5.41 152.57 153.14 153.77
5 -14.52 -7.57 -.85 103.39 103.95 104.60
6 -11.03 -4.29 2.24 76.41 77.00 77.69
7 -8.84 -2.26 4.13 59.64 60.25 61.01
8 -7.38 -.92 5.38 48.31 48.96 49.79
9 -6.35 .02 6.24 40.21 40.90 41.81
10 -5.60 .69 6.86 34.16 34.90 35.89
15 -3.78 2.33 8.36 18.26 19.24 20.77
20 -3.41 2.80 8.88 11.59 12.83 14.98
25 -4.09 2.74 9.05 7.90 9.42 12.25
30 -8.00 1.98 8.99 5.25 7.14 10.76
35 .36 8.85 5.24 9.88
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-57
<PAGE>
MALE AND FEMALE BOTH ISSUE AGE 55
$16,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$1,000,000 FACE AMOUNT
OPTION C (FACE AMOUNT)--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ------------------------------ ------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ---------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,000,000 $1,000,000 $1,000,000 $ 6,096 $ 6,884 $ 7,673 $ 12,164 $ 12,952 $ 13,741
2 34,440 1,000,000 1,000,000 1,000,000 19,383 21,755 24,221 25,451 27,823 30,289
3 52,962 1,000,000 1,000,000 1,000,000 25,670 30,480 35,675 38,533 43,343 48,538
4 72,410 1,000,000 1,000,000 1,000,000 38,545 46,674 55,797 51,408 59,537 68,660
5 92,831 1,000,000 1,000,000 1,000,000 51,213 63,568 77,981 64,076 76,431 90,844
6 114,272 1,000,000 1,000,000 1,000,000 65,057 82,572 103,819 76,535 94,051 115,298
7 136,786 1,000,000 1,000,000 1,000,000 78,686 102,327 132,156 88,780 112,421 142,249
8 160,425 1,000,000 1,000,000 1,000,000 92,098 122,858 163,241 100,807 131,567 171,949
9 185,246 1,000,000 1,000,000 1,000,000 105,285 144,191 197,351 112,609 151,515 204,675
10 211,309 1,000,000 1,000,000 1,000,000 118,240 166,351 234,791 124,179 172,290 240,730
15 362,520 1,000,000 1,000,000 1,000,000 179,318 290,843 485,686 179,318 290,843 485,686
20 555,508 1,000,000 1,000,000 1,000,000 229,438 438,734 890,893 229,438 438,734 890,893
25 801,815 1,000,000 1,000,000 1,631,714 255,451 609,821 1,554,013 255,451 609,821 1,554,013
30 1,116,173 1,000,000 1,000,000 2,755,710 212,044 802,024 2,624,486 212,044 802,024 2,624,486
35 1,517,381 1,000,000 1,107,336 4,550,138 36,665 1,054,606 4,333,465 36,665 1,054,606 4,333,465
<CAPTION>
INTERNAL RATE OF RETURN
ON NET CASH VALUE INTERNAL RATE OF RETURN
ASSUMING ON DEATH BENEFIT
END HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY ----------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -61.90% -56.98% -52.04% 6,150.00% 6,150.00% 6,150.00%
2 -29.11 -23.13 -17.19 642.15 642.15 642.15
3 -28.18 -21.05 -14.12 258.47 258.47 258.47
4 -19.28 -12.24 -5.41 148.92 148.92 148.92
5 -14.52 -7.57 -.85 100.39 100.39 100.39
6 -11.03 -4.29 2.24 73.77 73.77 73.77
7 -8.84 -2.26 4.14 57.22 57.22 57.22
8 -7.37 -.91 5.38 46.06 46.06 46.06
9 -6.34 .03 6.25 38.07 38.07 38.07
10 -5.58 .71 6.87 32.11 32.11 32.11
15 -3.74 2.37 8.40 16.46 16.46 16.46
20 -3.29 2.92 8.99 9.93 9.93 9.93
25 -3.66 3.10 9.32 6.48 6.48 9.63
30 -5.98 3.13 9.50 4.39 4.39 9.75
35 -30.38 3.28 9.60 3.02 3.51 9.80
</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, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-58
<PAGE>
MALE AND FEMALE BOTH ISSUE AGE 55
$16,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$1,000,000 FACE AMOUNT
OPTION A (ENHANCED WITH FACE AMOUNT)--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ---------- ---------- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,000,000 $1,000,000 $1,000,000 $ 5,543 $ 6,300 $ 7,059 $ 11,611 $ 12,368 $ 13,127
2 34,440 1,000,000 1,000,000 1,000,000 17,569 19,820 22,166 23,637 25,888 28,234
3 52,962 1,000,000 1,000,000 1,000,000 22,473 26,986 31,876 35,336 39,850 44,739
4 72,410 1,000,000 1,000,000 1,000,000 33,826 41,386 49,900 46,689 54,249 62,763
5 92,831 1,000,000 1,000,000 1,000,000 44,812 56,215 69,572 57,675 69,078 82,435
6 114,272 1,000,000 1,000,000 1,000,000 56,785 72,844 92,412 68,264 84,322 103,891
7 136,786 1,000,000 1,000,000 1,000,000 68,326 89,864 117,183 78,420 99,957 127,276
8 160,425 1,000,000 1,000,000 1,000,000 79,383 107,238 144,032 88,092 115,946 152,740
9 185,246 1,000,000 1,000,000 1,000,000 89,887 124,910 173,113 97,211 132,234 180,437
10 211,309 1,000,000 1,000,000 1,000,000 99,754 142,812 204,589 105,693 148,751 210,528
15 362,520 1,000,000 1,000,000 1,000,000 135,181 231,916 404,646 135,181 231,916 404,646
20 555,508 1,000,000 1,000,000 1,091,048 127,212 302,860 703,222 127,212 302,860 703,222
25 801,815 1,000,000 1,000,000 1,710,772 26,262 317,734 1,123,660 26,262 317,734 1,123,660
30 1,116,173 1,000,000 1,000,000 2,396,022 159,735 1,573,742 159,735 1,573,742
35 1,517,381 1,000,000 1,000,000 2,721,970 1,787,829 1,787,829
<CAPTION>
INTERNAL RATE OF RETURN
ON NET CASH VALUE INTERNAL RATE OF RETURN
ASSUMING ON DEATH BENEFIT
END HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY ----------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -65.35% -60.63% -55.88% 6,150.00% 6,150.00% 6,150.00%
2 -33.89 -27.99 -22.12 642.15 642.15 642.15
3 -33.41 -26.15 -19.12 258.47 258.47 258.47
4 -23.93 -16.70 -9.71 148.92 148.92 148.92
5 -18.73 -11.54 -4.62 100.39 100.39 100.39
6 -14.84 -7.84 -1.09 73.77 73.77 73.77
7 -12.39 -5.51 1.13 57.22 57.22 57.22
8 -10.74 -3.95 2.62 46.06 46.06 46.06
9 -9.61 -2.86 3.66 38.07 38.07 38.07
10 -8.81 -2.08 4.42 32.11 32.11 32.11
15 -7.59 -.43 6.29 16.46 16.46 16.46
20 -9.93 -.53 7.02 9.93 9.93 10.64
25 -37.86 -1.82 7.24 6.48 6.48 9.93
30 -8.53 6.86 4.39 4.39 9.04
35 5.75 3.02 3.02 7.61
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-59
<PAGE>
MALE AND FEMALE BOTH ISSUE AGE 55
$16,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$1,000,000 FACE AMOUNT
OPTION B (ENHANCED WITH FACE AMOUNT PLUS CASH VALUE)--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ---------- ---------- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,011,611 $1,012,367 $1,013,127 $ 5,543 $ 6,299 $ 7,058 $ 11,611 $ 12,367 $ 13,127
2 34,440 1,023,633 1,025,883 1,028,228 17,565 19,815 22,160 23,633 25,883 28,228
3 52,962 1,035,321 1,039,832 1,044,720 22,458 26,969 31,857 35,321 39,832 44,720
4 72,410 1,046,652 1,054,206 1,062,713 33,789 41,343 49,850 46,652 54,206 62,713
5 92,831 1,057,600 1,068,987 1,082,324 44,737 56,124 69,461 57,600 68,987 82,324
6 114,272 1,068,127 1,084,149 1,103,674 56,649 72,671 92,195 68,127 84,149 103,674
7 136,786 1,078,191 1,099,656 1,126,883 68,097 89,563 116,790 78,191 99,656 126,883
8 160,425 1,087,727 1,115,450 1,152,067 79,018 106,741 143,359 87,727 115,450 152,067
9 185,246 1,096,653 1,131,447 1,179,328 89,329 124,123 172,004 96,653 131,447 179,328
10 211,309 1,104,866 1,147,540 1,208,757 98,926 141,601 202,818 104,866 147,540 208,757
15 362,520 1,131,078 1,224,615 1,391,534 131,078 224,615 391,534 131,078 224,615 391,534
20 555,508 1,113,950 1,272,647 1,634,838 113,950 272,647 634,838 113,950 272,647 634,838
25 801,815 1,219,123 1,901,379 219,123 901,379 219,123 901,379
30 1,116,173 2,078,324 1,078,324 1,078,324
35 1,517,381 1,887,063 887,063 887,063
<CAPTION>
INTERNAL RATE OF RETURN
ON NET CASH VALUE INTERNAL RATE OF RETURN
ASSUMING ON DEATH BENEFIT
END HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY ----------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -65.36% -60.63% -55.88% 6,222.57% 6,227.30% 6,232.04%
2 -33.90 -28.00 -22.13 651.42 652.29 653.21
3 -33.44 -26.18 -19.14 263.14 263.73 264.37
4 -23.97 -16.73 -9.75 152.24 152.77 153.36
5 -18.78 -11.59 -4.67 103.09 103.62 104.22
6 -14.91 -7.91 -1.15 76.13 76.67 77.31
7 -12.47 -5.59 1.05 59.36 59.92 60.62
8 -10.85 -4.05 2.51 48.03 48.62 49.39
9 -9.74 -2.99 3.53 39.92 40.55 41.39
10 -8.97 -2.23 4.27 33.86 34.52 35.44
15 -8.03 -.83 5.90 17.81 18.68 20.07
20 -11.33 -1.55 6.15 10.81 11.88 13.88
25 -5.02 5.79 7.77 10.59
30 4.81 8.31
35 2.42 5.99
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-60
<PAGE>
MALE AND FEMALE BOTH ISSUE AGE 55
$16,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$1,000,000 FACE AMOUNT
OPTION C (FACE AMOUNT)--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ---------- ---------- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,000,000 $1,000,000 $1,000,000 $ 5,543 $ 6,300 $ 7,059 $ 11,611 $ 12,368 $ 13,127
2 34,440 1,000,000 1,000,000 1,000,000 17,569 19,820 22,166 23,637 25,888 28,234
3 52,962 1,000,000 1,000,000 1,000,000 22,473 26,986 31,876 35,336 39,850 44,739
4 72,410 1,000,000 1,000,000 1,000,000 33,826 41,386 49,900 46,689 54,249 62,763
5 92,831 1,000,000 1,000,000 1,000,000 44,812 56,215 69,572 57,675 69,078 82,435
6 114,272 1,000,000 1,000,000 1,000,000 56,785 72,844 92,412 68,264 84,322 103,891
7 136,786 1,000,000 1,000,000 1,000,000 68,326 89,864 117,183 78,420 99,957 127,276
8 160,425 1,000,000 1,000,000 1,000,000 79,383 107,238 144,032 88,092 115,946 152,740
9 185,246 1,000,000 1,000,000 1,000,000 89,887 124,910 173,113 97,211 132,234 180,437
10 211,309 1,000,000 1,000,000 1,000,000 99,754 142,812 204,589 105,693 148,751 210,528
15 362,520 1,000,000 1,000,000 1,000,000 135,181 231,916 404,646 135,181 231,916 404,646
20 555,508 1,000,000 1,000,000 1,000,000 127,212 302,860 704,094 127,212 302,860 704,094
25 801,815 1,000,000 1,000,000 1,263,880 26,262 317,734 1,203,695 26,262 317,734 1,203,695
30 1,116,173 1,000,000 2,103,167 159,735 2,003,016 159,735 2,003,016
35 1,517,381 3,380,992 3,219,992 3,219,992
<CAPTION>
INTERNAL RATE OF RETURN
ON NET CASH VALUE INTERNAL RATE OF RETURN
ASSUMING ON DEATH BENEFIT
END HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY ----------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -65.35% -60.63% -55.88% 6,150.00% 6,150.00% 6,150.00%
2 -33.89 -27.99 -22.12 642.15 642.15 642.15
3 -33.41 -26.15 -19.12 258.47 258.47 258.47
4 -23.93 -16.70 -9.71 148.92 148.92 148.92
5 -18.73 -11.54 -4.62 100.39 100.39 100.39
6 -14.84 -7.84 -1.09 73.77 73.77 73.77
7 -12.39 -5.51 1.13 57.22 57.22 57.22
8 -10.74 -3.95 2.62 46.06 46.06 46.06
9 -9.61 -2.86 3.66 38.07 38.07 38.07
10 -8.81 -2.08 4.42 32.11 32.11 32.11
15 -7.59 -.43 6.29 16.46 16.46 16.46
20 -9.93 -.53 7.03 9.93 9.93 9.93
25 -37.86 -1.82 7.69 6.48 6.48 8.00
30 -8.53 8.12 4.39 8.37
35 8.34 8.55
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-61
<PAGE>
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 January, 1994. The Zenith Fund and the
Variable Account commenced operations on August 26, 1983. The Westpeak Stock
Index and Back Bay Advisors Managed Series of the Zenith Fund commenced
operations on May 1, 1987. The Westpeak Growth and Income Series and Goldman
Sachs Midcap Value Series of the Zenith Fund commenced operations on April 30,
1993. The Loomis Sayles Small Cap Series commenced operations on May 2, 1994
and was made available under the Policies on December 19, 1994. The remaining
Zenith Fund series commenced operations on October 31, 1994 and were made
available under the Policies in May 1996. 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, and were added as
investment options on December 19, 1994. The illustrations are based on the
actual investment experience of the relevant Eligible Funds for the periods
shown (and reflect actual charges and expenses incurred by the Eligible
Funds), and reflect a charge for mortality and expense risks against the
Variable Account's assets at the currently applicable annual rate of .75%. 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-62
<PAGE>
SUB-ACCOUNT INVESTING IN ZENITH FUND
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
8/26/83- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/83 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth*. 8.58% -1.11% 66.84% 93.75% 51.56% -9.47% 31.88% -5.73% 52.83% -6.75% 14.11% -7.76%
Bond Income..... 2.77 11.93 17.87 13.98 1.50 7.56 11.46 7.28 17.08 7.37 11.77 -4.08
Money Market.... 3.03 9.80 7.45 6.01 5.73 6.71 8.44 7.38 5.42 3.02 2.20 3.20
<CAPTION>
8/26/83- 8/26/83-
12/31/97 12/31/97
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Capital Growth*. 37.00% 20.16% 22.56% 1,692.05% 22.28%
Bond Income..... 20.29 3.82 10.06 273.72 9.62
Money Market.... 4.91 4.34 4.55 121.92 5.71
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------------------------------------- 5/1/87-
FOR ONE YEAR ENDING 12/31/97
5/1/87- ----------------------------------------------------------------------------------------- TOTAL
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index..... -13.06% 15.47% 29.18% -4.86% 29.46% 6.49% 8.90% .36% 35.90% 21.55% 31.51% 305.79%
Managed......... -1.15 8.67 18.20 2.44 19.28 5.90 9.82 -1.85 30.28 14.16 25.62 230.83
<CAPTION>
5/1/87-
12/31/97
EFFECTIVE
SUB-ACCOUNT ANNUAL
- ----------- ---------
<S> <C>
Stock Index..... 14.03%
Managed......... 11.87
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------- 4/30/93- 4/30/93-
FOR ONE YEAR ENDING 12/31/97 12/31/97
4/30/93- ----------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth and Income....... 13.67% -1.94% 35.45% 17.21% 32.47% 134.41% 20.01%
Midcap Value**.......... 14.16 -1.01 29.38 16.72 16.45 98.72 15.84
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------------ 5/2/94- 5/2/94-
FOR ONE YEAR ENDING 12/31/97 12/31/97
5/2/94- -------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Small Cap............... -3.71% 27.88% 29.70% 23.92% 97.92% 20.47%
<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........... -4.32% 47.59% 12.32% 24.69% 97.78% 24.02%
Balanced................ -.22 23.86 16.03 15.31 65.36 17.21
Venture Value........... -3.62 38.25 24.89 32.50 120.50 28.35
International Magnum
Equity***.............. 2.48 5.44 5.87 -2.04 12.06 3.66
</TABLE>
- -------
* Rates of return reflect the Capital Growth Series' former investment
advisory fee of .50% of average daily net assets for the period through
December 31, 1987 and its current advisory fee schedule thereafter.
** The Goldman Sachs Midcap Value Series' Sub-adviser was Loomis Sayles until
May 1, 1998, when Goldman Sachs Asset Management became the sub-adviser.
Rates of return reflect the Series' former investment advisory fee of .70%
of average daily net assets. Beginning May 1, 1998, the Series' investment
advisory fee is .75%.
*** The Morgan Stanley International Magnum Equity Series' sub-adviser was
Draycott Partners until May 1, 1997, when Morgan Stanley Asset Management
became sub-adviser.
SUB-ACCOUNTS INVESTING IN VARIABLE INSURANCE PRODUCTS FUND
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
10/9/86- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income... .03% -1.87% 21.79% 16.47% -15.93% 30.46% 16.01% 17.41% 6.27% 34.09% 13.42% 27.15%
<CAPTION>
10/9/86- 10/9/86-
12/31/97 12/31/97
TOTAL EFFECTIVE
SUB-ACCOUNT RETURN ANNUAL
- ----------- -------- ---------
<S> <C> <C>
Equity-Income... 327.48% 13.81%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------------------------------------- 1/28/87-
FOR ONE YEAR ENDING 12/31/97
1/28/87- ----------------------------------------------------------------------------------------- TOTAL
12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas........ -6.03% 7.32% 25.34% -2.40% 7.19% -11.39% 36.33% .97% 8.86% 12.36% 10.72% 118.43%
<CAPTION>
1/28/87-
12/31/97
EFFECTIVE
ANNUAL
---------
<S> <C>
Overseas........ 7.41%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
9/19/85- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income..... 6.15% 16.80% 0.46% 10.81% -4.89% -2.97% 34.07% 22.24% 19.50% -2.28% 19.71% 13.17%
<CAPTION>
9/19/85- 9/19/85-
12/31/97 12/31/97
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/97 RETURN ANNUAL
- ----------- -------- -------- ---------
<S> <C> <C> <C>
High Income..... 16.79% 285.71% 11.62%
</TABLE>
SUB-ACCOUNT INVESTING IN VARIABLE INSURANCE PRODUCTS FUND II
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------------------- 9/6/89- 9/6/89-
FOR ONE YEAR ENDING 12/31/97 12/31/97
9/6/89- ----------------------------------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager..... .57% 5.92% 21.64% 10.88% 20.33% -6.79% 16.08% 13.74% 19.75% 154.79% 11.90%
</TABLE>
A-63
<PAGE>
POLICY PERFORMANCE
The material below assumes a Policy was issued with a $1 million face amount
and annual premiums of $16,000 paid on August 26 of each year (May 1 in the
case of the Zenith Stock Index and Managed Sub-Accounts; May 2 in the case of
the Zenith Small Cap Sub-Account; October 31 in the case of the Zenith
Balanced, Zenith International Magnum Equity, Zenith Venture Value and Zenith
Equity Growth Sub-Accounts; October 9 in the case of the Equity-Income Sub-
Account, January 28 in the case of the Oversees 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 and a female, both age 55 in
the nonsmoker standard risk category. The first example shows such a Policy
with an Option A death benefit, the second example shows a policy with an
Option B death benefit and the third example shows a Policy with an Option C
death benefit. The death benefits, cash values and internal rates of return
assume in each instance that the entire policy value was invested in the
particular sub-account for the period shown. These illustrations of policy
investment experience also reflect all Policy charges based on NELICO's
current rates. (See Appendix A for the definition of the internal rate of
return.)
OPTION A DEATH BENEFIT
ZENITH CAPTAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 1,000,000 14,821 8,753 -82.34% --
December 31, 1984....... 32,000 1,000,000 1,000,000 27,505 21,437 -39.98 1,975.63%
December 31, 1985....... 48,000 1,000,000 1,000,000 62,502 49,639 2.51 434.27
December 31, 1986....... 64,000 1,000,000 1,000,000 134,815 121,952 37.12 206.69
December 31, 1987....... 80,000 1,000,000 1,000,000 214,988 202,125 41.23 127.42
December 31, 1988....... 96,000 1,000,000 1,000,000 208,430 196,144 25.27 88.99
December 31, 1989....... 112,000 1,000,000 1,000,000 284,500 273,599 26.44 66.82
December 31, 1990....... 128,000 1,000,000 1,000,000 284,089 274,573 19.39 52.57
December 31, 1991....... 144,000 1,000,000 1,000,000 449,551 441,419 24.77 42.74
December 31, 1992....... 160,000 1,000,000 1,000,000 434,089 427,342 19.33 35.59
December 31, 1993....... 176,000 1,000,000 1,000,000 509,672 504,352 18.58 30.19
December 31, 1994....... 192,000 1,000,000 1,000,000 479,267 475,432 14.62 25.98
December 31, 1995....... 208,000 1,000,000 1,160,323 678,155 675,804 17.21 24.67
December 31, 1996....... 224,000 1,000,000 1,404,320 827,775 826,909 17.48 24.15
December 31, 1997....... 240,000 1,000,000 1,728,529 1,027,663 1,027,663 17.94 23.93
</TABLE>
A-64
<PAGE>
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 1,000,000 13,983 7,915 -86.77% --
December 31, 1984....... 32,000 1,000,000 1,000,000 29,594 23,526 -31.92 1,975.63%
December 31, 1985....... 48,000 1,000,000 1,000,000 49,374 36,511 -19.29 434.27
December 31, 1986....... 64,000 1,000,000 1,000,000 70,297 57,434 -5.80 206.69
December 31, 1987....... 80,000 1,000,000 1,000,000 85,192 72,329 -4.28 127.42
December 31, 1988....... 96,000 1,000,000 1,000,000 105,565 93,279 -1.01 88.99
December 31, 1989....... 112,000 1,000,000 1,000,000 131,735 120,834 2.26 66.82
December 31, 1990....... 128,000 1,000,000 1,000,000 155,697 146,181 3.43 52.57
December 31, 1991....... 144,000 1,000,000 1,000,000 197,046 188,915 6.15 42.74
December 31, 1992....... 160,000 1,000,000 1,000,000 225,207 218,460 6.30 35.59
December 31, 1993....... 176,000 1,000,000 1,000,000 265,319 259,998 7.10 30.19
December 31, 1994....... 192,000 1,000,000 1,000,000 267,415 263,579 5.28 25.98
December 31, 1995....... 208,000 1,000,000 1,000,000 336,781 334,430 7.20 22.62
December 31, 1996....... 224,000 1,000,000 1,000,000 363,892 363,026 6.76 19.89
December 31, 1997....... 240,000 1,000,000 1,000,000 414,531 414,531 7.09 17.62
ZENITH MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 1,000,000 14,013 7,945 -86.63% --
December 31, 1984....... 32,000 1,000,000 1,000,000 28,700 22,632 -35.36 1,975.63%
December 31, 1985....... 48,000 1,000,000 1,000,000 44,840 31,977 -27.94 434.27
December 31, 1986....... 64,000 1,000,000 1,000,000 61,434 48,571 -14.59 206.69
December 31, 1987....... 80,000 1,000,000 1,000,000 78,901 66,037 -8.13 127.42
December 31, 1988....... 96,000 1,000,000 1,000,000 98,239 85,953 -3.88 88.99
December 31, 1989....... 112,000 1,000,000 1,000,000 120,481 109,580 -.65 66.82
December 31, 1990....... 128,000 1,000,000 1,000,000 143,243 133,727 1.14 52.57
December 31, 1991....... 144,000 1,000,000 1,000,000 164,775 156,643 1.93 42.74
December 31, 1992....... 160,000 1,000,000 1,000,000 183,374 176,627 2.03 35.59
December 31, 1993....... 176,000 1,000,000 1,000,000 201,078 195,757 1.97 30.19
December 31, 1994....... 192,000 1,000,000 1,000,000 221,421 217,586 2.12 25.98
December 31, 1995....... 208,000 1,000,000 1,000,000 246,045 243,694 2.46 22.62
December 31, 1996....... 224,000 1,000,000 1,000,000 270,328 269,462 2.65 19.89
December 31, 1997....... 240,000 1,000,000 1,000,000 296,184 296,184 2.80 17.62
</TABLE>
A-65
<PAGE>
ZENITH STOCK INDEX 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............. $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 1,000,000 11,424 5,356 -80.55% --
December 31, 1988....... 32,000 1,000,000 1,000,000 27,289 21,221 -30.63 1,033.28%
December 31, 1989....... 48,000 1,000,000 1,000,000 52,355 39,492 -11.29 328.36
December 31, 1990....... 64,000 1,000,000 1,000,000 62,718 49,855 -11.24 174.11
December 31, 1991....... 80,000 1,000,000 1,000,000 96,375 83,512 1.61 112.69
December 31, 1992....... 96,000 1,000,000 1,000,000 117,202 105,262 2.91 80.87
December 31, 1993....... 112,000 1,000,000 1,000,000 142,189 131,634 4.40 61.77
December 31, 1994....... 128,000 1,000,000 1,000,000 156,609 147,438 3.38 49.18
December 31, 1995....... 144,000 1,000,000 1,000,000 231,125 223,340 9.25 40.32
December 31, 1996....... 160,000 1,000,000 1,000,000 294,238 287,837 11.06 33.80
December 31, 1997....... 176,000 1,000,000 1,000,000 403,635 398,686 13.84 28.82
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 1,000,000 12,946 6,878 -71.72% --
December 31, 1988....... 32,000 1,000,000 1,000,000 28,001 21,933 -28.48 1,033.28%
December 31, 1989....... 48,000 1,000,000 1,000,000 48,976 36,113 -16.20 328.36
December 31, 1990....... 64,000 1,000,000 1,000,000 64,356 51,493 -9.82 174.11
December 31, 1991....... 80,000 1,000,000 1,000,000 91,906 79,043 -.45 112.69
December 31, 1992....... 96,000 1,000,000 1,000,000 112,086 100,146 1.34 80.87
December 31, 1993....... 112,000 1,000,000 1,000,000 137,422 126,867 3.39 61.77
December 31, 1994....... 128,000 1,000,000 1,000,000 148,681 139,511 2.06 49.18
December 31, 1995....... 144,000 1,000,000 1,000,000 211,010 203,224 7.28 40.32
December 31, 1996....... 160,000 1,000,000 1,000,000 254,692 248,292 8.32 33.80
December 31, 1997....... 176,000 1,000,000 1,000,000 336,163 331,213 10.78 28.82
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.......... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1993....... 16,000 1,000,000 1,000,000 14,777 8,709 -59.59% --
December 31, 1994....... 32,000 1,000,000 1,000,000 27,939 21,817 -28.61 1,028.55%
December 31, 1995....... 48,000 1,000,000 1,000,000 54,765 41,902 -7.93 327.65
December 31, 1996....... 64,000 1,000,000 1,000,000 79,347 66,484 1.76 173.87
December 31, 1997....... 80,000 1,000,000 1,000,000 122,151 109,288 11.86 112.58
</TABLE>
A-66
<PAGE>
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1993....... 16,000 1,000,000 1,000,000 14,847 8,779 -59.11% --
December 31, 1994....... 32,000 1,000,000 1,000,000 28,208 22,140 -27.80 1,028.55%
December 31, 1995....... 48,000 1,000,000 1,000,000 53,325 40,462 -9.91 327.65
December 31, 1996....... 64,000 1,000,000 1,000,000 76,758 63,895 -.08 173.87
December 31, 1997....... 80,000 1,000,000 1,000,000 105,505 92,642 5.53 112.58
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............. $16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 12,455 6,387 -74.82% --
December 31, 1995....... 32,000 1,000,000 1,000,000 31,978 25,910 -16.87 1,038.05%
December 31, 1996....... 48,000 1,000,000 1,000,000 57,127 44,264 -4.79 329.07
December 31, 1997....... 64,000 1,000,000 1,000,000 87,879 75,016 7.45 174.35
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 13,138 7,070 -- --
December 31, 1995....... 32,000 1,000,000 1,000,000 31,826 25,758 -29.38% 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 49,770 36,907 -21.48 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 75,888 63,025 -.92 230.16
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........ $16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 13,891 7,823 -98.62% --
December 31, 1995....... 32,000 1,000,000 1,000,000 30,465 24,397 -35.80 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 49,478 36,615 -22.10 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 71,056 58,193 -5.67 230.16
ZENITH VENTURE VALUE SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 13,463 7,395 -- --
December 31, 1995....... 32,000 1,000,000 1,000,000 31,801 25,733 -29.49% 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 54,051 41,188 -12.75 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 85,681 72,818 7.82 230.16
</TABLE>
A-67
<PAGE>
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 14,232 8,164 -98.22% --
December 31, 1995....... 32,000 1,000,000 1,000,000 28,599 22,531 -44.58 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 44,142 31,279 -34.00 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 56,644 43,781 -22.21 230.16
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1986....... 16,000 1,000,000 1,000,000 13,953 7,885 -95.55% --
December 31, 1987....... 32,000 1,000,000 1,000,000 24,098 18,030 -60.67 2,723.89%
December 31, 1988....... 48,000 1,000,000 1,000,000 42,671 29,808 -35.59 490.23
December 31, 1989....... 64,000 1,000,000 1,000,000 63,581 50,718 -13.23 221.84
December 31, 1990....... 80,000 1,000,000 1,000,000 67,546 54,683 -17.00 133.88
December 31, 1991....... 96,000 1,000,000 1,000,000 102,729 90,212 -2.28 92.44
December 31, 1992....... 112,000 1,000,000 1,000,000 134,252 123,120 2.92 68.91
December 31, 1993....... 128,000 1,000,000 1,000,000 171,250 161,503 6.17 53.96
December 31, 1994....... 144,000 1,000,000 1,000,000 195,178 186,815 6.06 43.72
December 31, 1995....... 160,000 1,000,000 1,000,000 277,751 270,773 10.77 36.31
December 31, 1996....... 176,000 1,000,000 1,000,000 327,854 322,286 11.10 30.74
December 31, 1997....... 192,000 1,000,000 1,000,000 430,576 426,493 13.17 26.41
OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 1,000,000 11,648 5,580 -68.05% --
December 31, 1988....... 32,000 1,000,000 1,000,000 28,084 22,016 -23.59 707.99%
December 31, 1989....... 48,000 1,000,000 1,000,000 50,973 38,110 -11.54 272.18
December 31, 1990....... 64,000 1,000,000 1,000,000 63,523 50,660 -9.42 154.15
December 31, 1991....... 80,000 1,000,000 1,000,000 82,844 69,981 -4.54 103.01
December 31, 1992....... 96,000 1,000,000 1,000,000 85,309 73,831 -7.63 75.31
December 31, 1993....... 112,000 1,000,000 1,000,000 134,365 124,272 2.65 58.22
December 31, 1994....... 128,000 1,000,000 1,000,000 148,145 139,437 1.93 46.75
December 31, 1995....... 144,000 1,000,000 1,000,000 178,682 171,358 3.51 38.57
December 31, 1996....... 160,000 1,000,000 1,000,000 214,502 208,563 4.83 32.48
December 31, 1997....... 176,000 1,000,000 1,000,000 252,891 248,437 5.72 27.80
</TABLE>
A-68
<PAGE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1985....... 16,000 1,000,000 1,000,000 14,622 8,554 -89.13% --
December 31, 1986....... 32,000 1,000,000 1,000,000 30,459 24,391 -30.84 2,337.90%
December 31, 1987....... 48,000 1,000,000 1,000,000 44,065 31,202 -31.02 463.37
December 31, 1988....... 64,000 1,000,000 1,000,000 62,671 49,808 -13.79 214.72
December 31, 1989....... 80,000 1,000,000 1,000,000 72,625 59,762 -12.70 130.87
December 31, 1990....... 96,000 1,000,000 1,000,000 83,995 71,593 -10.59 90.84
December 31, 1991....... 112,000 1,000,000 1,000,000 126,861 115,844 1.03 67.95
December 31, 1992....... 128,000 1,000,000 1,000,000 168,743 159,111 5.70 53.32
December 31, 1993....... 144,000 1,000,000 1,000,000 215,883 207,636 8.38 43.27
December 31, 1994....... 160,000 1,000,000 1,000,000 224,476 217,614 6.30 35.98
December 31, 1995....... 176,000 1,000,000 1,000,000 283,070 277,626 8.35 30.49
December 31, 1996....... 192,000 1,000,000 1,000,000 333,670 329,711 8.98 26.21
December 31, 1997....... 208,000 1,000,000 1,000,000 403,545 401,070 9.93 22.81
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1989....... 16,000 1,000,000 1,000,000 13,914 7,846 -89.38% --
December 31, 1990....... 32,000 1,000,000 1,000,000 28,254 22,186 -38.32 2,130.09%
December 31, 1991....... 48,000 1,000,000 1,000,000 48,561 35,698 -21.27 447.21
December 31, 1992....... 64,000 1,000,000 1,000,000 67,997 55,134 -8.10 210.30
December 31, 1993....... 80,000 1,000,000 1,000,000 96,401 83,538 1.87 128.98
December 31, 1994....... 96,000 1,000,000 1,000,000 102,550 90,149 -2.23 89.83
December 31, 1995....... 112,000 1,000,000 1,000,000 133,928 122,912 2.79 67.33
December 31, 1996....... 128,000 1,000,000 1,000,000 166,813 157,182 5.33 52.92
December 31, 1997....... 144,000 1,000,000 1,000,000 213,658 205,411 8.07 42.98
</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-69
<PAGE>
OPTION B DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 1,014,821 14,821 8,753 -82.34% --
December 31, 1984....... 32,000 1,000,000 1,027,505 27,505 21,437 -39.98 2,019.32%
December 31, 1985....... 48,000 1,000,000 1,062,501 62,501 49,638 2.51 449.61
December 31, 1986....... 64,000 1,000,000 1,134,812 134,812 121,949 37.12 220.26
December 31, 1987....... 80,000 1,000,000 1,214,977 214,977 202,114 41.23 139.81
December 31, 1988....... 96,000 1,000,000 1,208,411 208,411 196,125 25.26 97.32
December 31, 1989....... 112,000 1,000,000 1,284,455 284,455 273,553 26.44 75.20
December 31, 1990....... 128,000 1,000,000 1,284,017 284,017 274,500 19.39 59.30
December 31, 1991....... 144,000 1,000,000 1,449,372 449,372 441,241 24.76 51.12
December 31, 1992....... 160,000 1,000,000 1,433,833 433,833 427,087 19.33 42.58
December 31, 1993....... 176,000 1,000,000 1,509,244 509,244 503,923 18.57 37.20
December 31, 1994....... 192,000 1,000,000 1,478,710 478,710 474,874 14.61 31.93
December 31, 1995....... 208,000 1,000,000 1,677,106 677,106 674,756 17.18 29.72
December 31, 1996....... 224,000 1,000,000 1,826,187 826,187 825,321 17.46 27.43
December 31, 1997....... 240,000 1,000,000 2,025,434 1,025,434 1,025,434 17.91 25.75
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 1,013,983 13,983 7,915 -86.77% --
December 31, 1984....... 32,000 1,000,000 1,029,594 29,594 23,526 -31.92 2,022.63%
December 31, 1985....... 48,000 1,000,000 1,049,374 49,374 36,511 -19.29 446.43
December 31, 1986....... 64,000 1,000,000 1,070,295 70,295 57,432 -5.80 213.92
December 31, 1987....... 80,000 1,000,000 1,085,188 85,188 72,325 -4.28 132.56
December 31, 1988....... 96,000 1,000,000 1,105,556 105,556 93,270 -1.01 93.38
December 31, 1989....... 112,000 1,000,000 1,131,717 131,717 120,815 2.26 70.93
December 31, 1990....... 128,000 1,000,000 1,155,661 155,661 146,145 3.43 56.45
December 31, 1991....... 144,000 1,000,000 1,196,975 196,975 188,844 6.14 42.78
December 31, 1992....... 160,000 1,000,000 1,225,085 225,085 218,338 6.29 39.52
December 31, 1993....... 176,000 1,000,000 1,265,112 265,112 259,792 7.08 34.19
December 31, 1994....... 192,000 1,000,000 1,267,126 267,126 263,291 5.27 29.58
December 31, 1995....... 208,000 1,000,000 1,336,279 336,279 333,928 7.18 26.60
December 31, 1996....... 224,000 1,000,000 1,363,151 363,151 362,285 6.74 23.77
December 31, 1997....... 240,000 1,000,000 1,413,385 413,885 413,885 7.05 21.62
</TABLE>
A-70
<PAGE>
ZENITH MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 1,014,013 14,013 7,945 -86.63% --
December 31, 1984....... 32,000 1,000,000 1,028,700 28,700 22,632 -35.36 2,021.21%
December 31, 1985....... 48,000 1,000,000 1,044,840 44,840 31,977 -27.94 445.33
December 31, 1986....... 64,000 1,000,000 1,061,432 61,432 48,569 -14.59 213.02
December 31, 1987....... 80,000 1,000,000 1,078,897 78,897 66,034 -8.13 132.19
December 31, 1988....... 96,000 1,000,000 1,098,231 98,231 85,945 -3.89 93.09
December 31, 1989....... 112,000 1,000,000 1,120,464 120,464 109,563 -.66 70.60
December 31, 1990....... 128,000 1,000,000 1,143,210 143,210 133,694 1.13 56.16
December 31, 1991....... 144,000 1,000,000 1,164,716 164,716 156,585 1.92 46.16
December 31, 1992....... 160,000 1,000,000 1,183,276 183,276 176,529 2.01 38.85
December 31, 1993....... 176,000 1,000,000 1,200,926 200,926 195,605 1.96 33.30
December 31, 1994....... 192,000 1,000,000 1,221,190 221,190 217,354 2.10 29.02
December 31, 1995....... 208,000 1,000,000 1,245,691 245,691 243,340 2.44 25.64
December 31, 1996....... 224,000 1,000,000 1,269,796 269,796 268,930 2.62 22.88
December 31, 1997....... 240,000 1,000,000 1,295,393 295,393 295,393 2.77 20.62
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 1,011,424 11,424 5,356 -80.55% --
December 31, 1988....... 32,000 1,000,000 1,027,289 27,289 21,221 -30.63 1,052.66%
December 31, 1989....... 48,000 1,000,000 1,052,354 52,354 39,491 -11.29 337.55
December 31, 1990....... 64,000 1,000,000 1,062,716 62,716 49,853 -11.24 179.42
December 31, 1991....... 80,000 1,000,000 1,096,370 96,370 83,506 1.61 117.76
December 31, 1992....... 96,000 1,000,000 1,117,190 117,190 105,251 2.91 85.25
December 31, 1993....... 112,000 1,000,000 1,142,166 142,166 131,610 4.39 65.85
December 31, 1994....... 128,000 1,000,000 1,156,567 156,567 147,397 3.37 52.83
December 31, 1995....... 144,000 1,000,000 1,231,031 231,031 223,245 9.24 44.74
December 31, 1996....... 160,000 1,000,000 1,294,058 294,058 287,657 11.05 38.56
December 31, 1997....... 176,000 1,000,000 1,403,285 403,285 398,336 13.83 34.34
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 1,012,946 12,946 6,878 -71.72% --
December 31, 1988....... 32,000 1,000,000 1,028,001 28,001 21,933 -28.48 1,053.16%
December 31, 1989....... 48,000 1,000,000 1,048,975 48,975 36,112 -16.20 336.96
December 31, 1990....... 64,000 1,000,000 1,064,355 64,355 51,492 -9.82 179.56
December 31, 1991....... 80,000 1,000,000 1,091,901 91,901 79,038 -.45 117.53
December 31, 1992....... 96,000 1,000,000 1,112,075 112,075 100,135 1.33 85.07
December 31, 1993....... 112,000 1,000,000 1,137,400 137,400 126,845 3.39 65.72
December 31, 1994....... 128,000 1,000,000 1,148,642 148,642 139,472 2.05 52.65
December 31, 1995....... 144,000 1,000,000 1,210,924 210,924 203,139 7.27 44.39
December 31, 1996....... 160,000 1,000,000 1,254,538 254,538 248,138 8.31 37.98
December 31, 1997....... 176,000 1,000,000 1,335,874 335,874 330,925 10.77 33.54
</TABLE>
A-71
<PAGE>
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1993....... 16,000 1,000,000 1,014,777 14,777 8,709 -59.59% --
December 31, 1994....... 32,000 1,000,000 1,027,938 27,938 21,870 -28.61 1,048.27%
December 31, 1995....... 48,000 1,000,000 1,054,764 54,764 41,901 -7.93 337.23
December 31, 1996....... 64,000 1,000,000 1,079,345 79,345 66,482 1.76 180.54
December 31, 1997....... 80,000 1,000,000 1,122,144 122,144 109,281 11.86 118.93
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.......... $16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1993....... 16,000 1,000,000 1,014,847 14,847 8,779 -59.11% --
December 31, 1994....... 32,000 1,000,000 1,028,208 28,208 22,140 -27.80 1,048.46%
December 31, 1995....... 48,000 1,000,000 1,053,325 53,325 40,462 -9.91 336.98
December 31, 1996....... 64,000 1,000,000 1,076,756 76,756 63,893 -.08 180.33
December 31, 1997....... 80,000 1,000,000 1,105,499 105,499 92,636 5.53 118.10
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............. $16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,012,455 12,455 6,387 -74.82% --
December 31, 1995....... 32,000 1,000,000 1,013,978 31,978 25,910 -16.87 1,060.86%
December 31, 1996....... 48,000 1,000,000 1,057,127 57,127 44,263 -4.79 339.11
December 31, 1997....... 64,000 1,000,000 1,087,876 87,876 75,013 7.45 181.74
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,013,138 13,138 7,070 -- --
December 31, 1995....... 32,000 1,000,000 1,031,826 31,826 25,758 -29.38% 3,365.75%
December 31, 1996....... 48,000 1,000,000 1,049,770 49,770 36,907 -21.48 538.34
December 31, 1997....... 64,000 1,000,000 1,075,887 75,887 63,024 -.92 238.98
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........ $16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,013,891 13,891 7,823 -98.62% --
December 31, 1995....... 32,000 1,000,000 1,030,465 30,465 24,397 -35.80 3,361.73%
December 31, 1996....... 48,000 1,000,000 1,049,478 49,478 36,615 -22.10 538.25
December 31, 1997....... 64,000 1,000,000 1,071,055 71,055 58,192 -5.67 238.43
</TABLE>
A-72
<PAGE>
ZENITH VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,013,463 13,463 7,395 -- --
December 31, 1995....... 32,000 1,000,000 1,031,801 31,801 25,733 -29.50% 3,365.67%
December 31, 1996....... 48,000 1,000,000 1,054,051 54,051 41,188 -12.76 539.65
December 31, 1997....... 64,000 1,000,000 1,085,679 85,679 72,816 7.82 240.09
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,014,232 14,232 8,164 -98.22% --
December 31, 1995....... 32,000 1,000,000 1,028,599 28,599 22,531 -44.58 3,356.23%
December 31, 1996....... 48,000 1,000,000 1,044,142 44,142 31,279 -34.00 536.62
December 31, 1997....... 64,000 1,000,000 1,056,643 56,643 43,780 -22.21 236.79
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1986....... 16,000 1,000,000 1,013,953 13,953 7,885 -95.55% --
December 31, 1987....... 32,000 1,000,000 1,024,098 24,098 18,030 -60.67 2,780.79%
December 31, 1988....... 48,000 1,000,000 1,042,671 42,671 29,808 -35.59 502.45
December 31, 1989....... 64,000 1,000,000 1,063,580 63,580 50,717 -13.23 228.95
December 31, 1990....... 80,000 1,000,000 1,067,543 67,543 54,680 -17.00 138.21
December 31, 1991....... 96,000 1,000,000 1,102,722 102,722 90,205 -2.28 96.88
December 31, 1992....... 112,000 1,000,000 1,134,235 134,235 123,103 2.92 73.23
December 31, 1993....... 128,000 1,000,000 1,171,215 171,215 161,467 6.16 58.31
December 31, 1994....... 144,000 1,000,000 1,195,113 195,113 186,750 6.05 47.81
December 31, 1995....... 160,000 1,000,000 1,277,610 277,610 270,632 10.76 41.14
December 31, 1996....... 176,000 1,000,000 1,327,312 327,612 322,044 11.09 35.64
December 31, 1997....... 192,000 1,000,000 1,430,129 430,129 426,046 13.15 31.93
OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 1,101,648 11,648 5,580 -68.05% --
December 31, 1988....... 32,000 1,000,000 1,028,084 28,084 22,016 -23.59 720.42%
December 31, 1989....... 48,000 1,000,000 1,050,972 50,972 38,109 -11.54 279.32
December 31, 1990....... 64,000 1,000,000 1,063,521 63,521 50,658 -9.43 158.82
December 31, 1991....... 80,000 1,000,000 1,082,838 82,838 69,975 -4.55 106.98
December 31, 1992....... 96,000 1,000,000 1,085,299 85,299 73,821 -7.63 78.31
December 31, 1993....... 112,000 1,000,000 1,134,339 134,339 124,246 2.64 61.87
December 31, 1994....... 128,000 1,000,000 1,148,100 148,100 139,391 1.92 50.04
December 31, 1995....... 144,000 1,000,000 1,178,600 178,600 171,276 3.50 41.92
December 31, 1996....... 160,000 1,000,000 1,214,357 214,357 208,418 4.82 35.93
December 31, 1997....... 176,000 1,000,000 1,252,653 252,653 248,198 5.70 31.35
</TABLE>
A-73
<PAGE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1985....... 16,000 1,000,000 1,014,622 14,622 8,554 -89.13% --
December 31, 1986....... 32,000 1,000,000 1,030,459 30,459 24,391 -30.84% 2,397.46%
December 31, 1987....... 48,000 1,000,000 1,044,065 44,065 31,202 -31.02 475.14
December 31, 1988....... 64,000 1,000,000 1,062,670 62,670 49,807 -13.79 221.47
December 31, 1989....... 80,000 1,000,000 1,072,622 72,622 59,759 -12.70 135.41
December 31, 1990....... 96,000 1,000,000 1,083,988 83,988 71,587 -10.60 94.44
December 31, 1991....... 112,000 1,000,000 1,126,844 126,844 115,827 1.02 71.98
December 31, 1992....... 128,000 1,000,000 1,168,706 168,706 159,074 5.69 57.56
December 31, 1993....... 144,000 1,000,000 1,215,808 215,808 207,561 8.37 47.71
December 31, 1994....... 160,000 1,000,000 1,224,359 224,359 217,497 6.29 39.94
December 31, 1995....... 176,000 1,000,000 1,282,856 282,856 277,412 8.34 34.76
December 31, 1996....... 192,000 1,000,000 1,333,318 333,318 329,359 8.96 30.62
December 31, 1997....... 208,000 1,000,000 1,402,953 402,953 400,479 9.91 27.49
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 16,000 $1,000,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1989....... 16,000 1,000,000 1,013,914 13,914 7,846 -89.38% --
December 31, 1990....... 32,000 1,000,000 1,028,254 28,254 22,186 -38.32 2,179.34%
December 31, 1991....... 48,000 1,000,000 1,048,560 48,560 35,697 -21.27 459.61
December 31, 1992....... 64,000 1,000,000 1,067,996 67,996 55,133 -8.10 217.44
December 31, 1993....... 80,000 1,000,000 1,096,397 96,397 83,533 1.87 134.85
December 31, 1994....... 96,000 1,000,000 1,102,542 102,542 90,140 -2.24 94.14
December 31, 1995....... 112,000 1,000,000 1,133,910 133,910 122,893 2.79 71.54
December 31, 1996....... 128,000 1,000,000 1,166,776 166,776 157,145 5.33 57.08
December 31, 1997....... 144,000 1,000,000 1,213,583 213,583 205,336 8.06 47.35
</TABLE>
- --------
* Rates of return and Policy values and benefits shown reflect the Capital
Growth Series' investment advisory fee of .50% of average daily net assets
for the period through December 31, 1987 and its current advisory fee
schedule thereafter.
** Rates of return and Policy values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets. Beginning May 1, 1998, the Series' investment advisory fee is
.75%.
A-74
<PAGE>
OPTION C DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 1,000,000 14,821 8,753 -82.34% --
December 31, 1984....... 32,000 1,000,000 1,000,000 27,505 21,437 -39.98 1,975.63%
December 31, 1985....... 48,000 1,000,000 1,000,000 62,502 49,639 2.51 434.27
December 31, 1986....... 64,000 1,000,000 1,000,000 134,815 121,952 37.12 206.69
December 31, 1987....... 80,000 1,000,000 1,000,000 214,988 202,125 41.23 127.42
December 31, 1988....... 96,000 1,000,000 1,000,000 208,430 196,144 25.27 88.99
December 31, 1989....... 112,000 1,000,000 1,000,000 284,500 273,599 26.44 66.82
December 31, 1990....... 128,000 1,000,000 1,000,000 284,089 274,573 19.39 52.57
December 31, 1991....... 144,000 1,000,000 1,000,000 449,551 441,419 24.77 42.74
December 31, 1992....... 160,000 1,000,000 1,000,000 434,089 427,342 19.33 35.59
December 31, 1993....... 176,000 1,000,000 1,000,000 509,672 504,352 18.58 30.19
December 31, 1994....... 192,000 1,000,000 1,000,000 479,267 475,432 14.62 25.98
December 31, 1995....... 208,000 1,000,000 1,000,000 678,192 675,841 17.21 22.62
December 31, 1996....... 224,000 1,000,000 1,000,000 827,992 827,126 17.49 19.89
December 31, 1997....... 240,000 1,000,000 1,192,900 1,028,362 1,028,362 17.94 19.66
ZENITH BOND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 1,000,000 13,983 7,915 -86.77% --
December 31, 1984....... 32,000 1,000,000 1,000,000 29,594 23,526 -31.92 1,975.63%
December 31, 1985....... 48,000 1,000,000 1,000,000 49,374 36,511 -19.29 434.27
December 31, 1986....... 64,000 1,000,000 1,000,000 70,297 57,434 -5.80 206.69
December 31, 1987....... 80,000 1,000,000 1,000,000 85,192 72,329 -4.28 127.42
December 31, 1988....... 96,000 1,000,000 1,000,000 105,565 93,279 -1.01 88.99
December 31, 1989....... 112,000 1,000,000 1,000,000 131,735 120,834 2.26 66.82
December 31, 1990....... 128,000 1,000,000 1,000,000 155,697 146,181 3.43 52.57
December 31, 1991....... 144,000 1,000,000 1,000,000 197,046 188,915 6.15 42.74
December 31, 1992....... 160,000 1,000,000 1,000,000 225,207 218,460 6.30 35.59
December 31, 1993....... 176,000 1,000,000 1,000,000 265,319 259,998 7.10 30.19
December 31, 1994....... 192,000 1,000,000 1,000,000 267,415 263,579 5.28 25.98
December 31, 1995....... 208,000 1,000,000 1,000,000 336,781 334,430 7.20 22.62
December 31, 1996....... 224,000 1,000,000 1,000,000 363,892 363,026 6.76 19.89
December 31, 1997....... 240,000 1,000,000 1,000,000 414,531 414,531 7.09 17.62
</TABLE>
A-75
<PAGE>
ZENITH MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 1,000,000 14,013 7,945 -86.63% --
December 31, 1984....... 32,000 1,000,000 1,000,000 28,700 22,632 -35.36 1,975.63%
December 31, 1985....... 48,000 1,000,000 1,000,000 44,840 31,977 -27.94 434.27
December 31, 1986....... 64,000 1,000,000 1,000,000 61,434 48,571 -14.59 206.69
December 31, 1987....... 80,000 1,000,000 1,000,000 78,901 66,037 -8.13 127.42
December 31, 1988....... 96,000 1,000,000 1,000,000 98,239 85,953 -3.88 88.99
December 31, 1989....... 112,000 1,000,000 1,000,000 120,481 109,580 -.65 66.82
December 31, 1990....... 128,000 1,000,000 1,000,000 143,243 133,727 1.14 52.57
December 31, 1991....... 144,000 1,000,000 1,000,000 164,775 156,643 1.93 42.74
December 31, 1992....... 160,000 1,000,000 1,000,000 183,374 176,627 2.03 35.59
December 31, 1993....... 176,000 1,000,000 1,000,000 201,078 195,757 1.97 30.19
December 31, 1994....... 192,000 1,000,000 1,000,000 221,421 217,586 2.12 25.98
December 31, 1995....... 208,000 1,000,000 1,000,000 246,045 243,694 2.46 22.62
December 31, 1996....... 224,000 1,000,000 1,000,000 270,328 269,462 2.65 19.89
December 31, 1997....... 240,000 1,000,000 1,000,000 296,184 296,184 2.80 17.62
ZENITH STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 1,000,000 11,424 5,356 -80.55% --
December 31, 1988....... 32,000 1,000,000 1,000,000 27,289 21,221 -30.63 1,033.28%
December 31, 1989....... 48,000 1,000,000 1,000,000 52,355 39,492 -11.29 328.36
December 31, 1990....... 64,000 1,000,000 1,000,000 62,718 49,855 -11.24 174.11
December 31, 1991....... 80,000 1,000,000 1,000,000 96,375 83,512 1.61 112.69
December 31, 1992....... 96,000 1,000,000 1,000,000 117,202 105,262 2.91 80.87
December 31, 1993....... 112,000 1,000,000 1,000,000 142,189 131,634 4.40 61.77
December 31, 1994....... 128,000 1,000,000 1,000,000 156,609 147,438 3.38 49.18
December 31, 1995....... 144,000 1,000,000 1,000,000 231,125 223,340 9.25 40.32
December 31, 1996....... 160,000 1,000,000 1,000,000 294,238 287,837 11.06 33.80
December 31, 1997....... 176,000 1,000,000 1,000,000 403,635 398,686 13.84 28.82
ZENITH MANAGED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 1,000,000 12,946 6,878 -71.72% --
December 31, 1988....... 32,000 1,000,000 1,000,000 28,001 21,933 -28.48 1,033.28%
December 31, 1989....... 48,000 1,000,000 1,000,000 48,976 36,113 -16.20 328.36
December 31, 1990....... 64,000 1,000,000 1,000,000 64,356 51,493 -9.82 174.11
December 31, 1991....... 80,000 1,000,000 1,000,000 91,906 79,043 -.45 112.69
December 31, 1992....... 96,000 1,000,000 1,000,000 112,086 100,146 1.34 80.87
December 31, 1993....... 112,000 1,000,000 1,000,000 137,422 126,867 3.39 61.77
December 31, 1994....... 128,000 1,000,000 1,000,000 148,681 139,511 2.06 49.18
December 31, 1995....... 144,000 1,000,000 1,000,000 211,010 203,224 7.28 40.32
December 31, 1996....... 160,000 1,000,000 1,000,000 254,692 248,292 8.32 33.80
December 31, 1997....... 176,000 1,000,000 1,000,000 336,163 331,213 10.78 28.82
</TABLE>
A-76
<PAGE>
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1993....... 16,000 1,000,000 1,000,000 14,777 8,709 -59.59% --
December 31, 1994....... 32,000 1,000,000 1,000,000 27,939 21,871 -28.61 1,028.55%
December 31, 1995....... 48,000 1,000,000 1,000,000 54,765 41,902 -7.93 327.65
December 31, 1996....... 64,000 1,000,000 1,000,000 79,347 66,484 1.76 173.87
December 31, 1997....... 80,000 1,000,000 1,000,000 122,151 109,288 11.86 112.58
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.......... $16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1993....... 16,000 1,000,000 1,000,000 14,847 8,779 -59.11% --
December 31, 1994....... 32,000 1,000,000 1,000,000 28,208 22,140 -27.80 1,028.55%
December 31, 1995....... 48,000 1,000,000 1,000,000 53,325 40,462 -9.91 327.65
December 31, 1996....... 64,000 1,000,000 1,000,000 76,758 63,895 -.08 173.87
December 31, 1997....... 80,000 1,000,000 1,000,000 105,505 92,642 5.53 112.58
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............. $16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 12,455 6,387 -74.82% --
December 31, 1995....... 32,000 1,000,000 1,000,000 31,978 25,910 -16.87 1,038.05%
December 31, 1996....... 48,000 1,000,000 1,000,000 57,127 44,264 -4.79 329.07
December 31, 1997....... 64,000 1,000,000 1,000,000 87,879 75,016 7.45 174.35
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 13,138 7,070 -- --
December 31, 1995....... 32,000 1,000,000 1,000,000 31,826 25,758 -29.38% 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 49,770 36,907 -21.48 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 75,888 63,025 -.92 230.16
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........ $16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 13,891 7,823 -98.62% --
December 31, 1995....... 32,000 1,000,000 1,000,000 30,465 24,397 -35.80 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 49,478 36,615 -22.10 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 71,056 58,193 -5.67 230.16
</TABLE>
A-77
<PAGE>
ZENITH VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 13,463 7,395 -- --
December 31, 1995....... 32,000 1,000,000 1,000,000 31,801 25,733 -29.49% 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 54,051 41,188 -12.75 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 85,681 72,818 7.82 230.16
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 14,232 8,164 -98.22% --
December 31, 1995....... 32,000 1,000,000 1,000,000 28,599 22,531 -44.58 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 44,142 31,279 -34.00 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 56,644 43,781 -22.21 230.16
EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1986....... 16,000 1,000,000 1,000,000 13,953 7,885 -95.55% --
December 31, 1987....... 32,000 1,000,000 1,000,000 24,098 18,030 -60.67 2,723.89%
December 31, 1988....... 48,000 1,000,000 1,000,000 42,671 29,808 -35.59 490.23
December 31, 1989....... 64,000 1,000,000 1,000,000 63,581 50,718 -13.23 221.84
December 31, 1990....... 80,000 1,000,000 1,000,000 67,546 54,683 -17.00 133.88
December 31, 1991....... 96,000 1,000,000 1,000,000 102,729 90,212 -2.28 92.44
December 31, 1992....... 112,000 1,000,000 1,000,000 134,252 123,120 2.92 68.91
December 31, 1993....... 128,000 1,000,000 1,000,000 171,250 161,503 6.17 53.96
December 31, 1994....... 144,000 1,000,000 1,000,000 195,178 186,815 6.06 43.72
December 31, 1995....... 160,000 1,000,000 1,000,000 277,751 270,773 10.77 36.31
December 31, 1996....... 176,000 1,000,000 1,000,000 327,854 322,286 11.10 30.74
December 31, 1997....... 192,000 1,000,000 1,000,000 430,576 426,493 13.17 26.41
OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 1,000,000 11,648 5,580 -68.05% --
December 31, 1988....... 32,000 1,000,000 1,000,000 28,084 22,016 -23.59 707.99%
December 31, 1989....... 48,000 1,000,000 1,000,000 50,973 38,110 -11.54 272.18
December 31, 1990....... 64,000 1,000,000 1,000,000 63,523 50,660 -9.42 154.15
December 31, 1991....... 80,000 1,000,000 1,000,000 82,844 69,981 -4.54 103.01
December 31, 1992....... 96,000 1,000,000 1,000,000 85,309 73,831 -7.63 75.31
December 31, 1993....... 112,000 1,000,000 1,000,000 134,365 124,272 2.65 58.22
December 31, 1994....... 128,000 1,000,000 1,000,000 148,145 139,437 1.93 46.75
December 31, 1995....... 144,000 1,000,000 1,000,000 178,682 171,358 3.51 38.57
December 31, 1996....... 160,000 1,000,000 1,000,000 214,502 208,563 4.83 32.48
December 31, 1997....... 176,000 1,000,000 1,000,000 252,891 248,437 5.72 27.80
</TABLE>
A-78
<PAGE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1985....... 16,000 1,000,000 1,000,000 14,622 8,554 -89.13% --
December 31, 1986....... 32,000 1,000,000 1,000,000 30,459 24,391 -30.84% 2,337.90%
December 31, 1987....... 48,000 1,000,000 1,000,000 44,065 31,202 -31.02 463.37
December 31, 1988....... 64,000 1,000,000 1,000,000 62,671 49,808 -13.79 214.72
December 31, 1989....... 80,000 1,000,000 1,000,000 72,625 59,762 -12.70 130.87
December 31, 1990....... 96,000 1,000,000 1,000,000 83,995 71,593 -10.59 90.84
December 31, 1991....... 112,000 1,000,000 1,000,000 126,861 115,844 1.03 67.95
December 31, 1992....... 128,000 1,000,000 1,000,000 168,743 159,111 5.70 53.32
December 31, 1993....... 144,000 1,000,000 1,000,000 215,883 207,636 8.38 43.27
December 31, 1994....... 160,000 1,000,000 1,000,000 224,476 217,614 6.30 35.98
December 31, 1995....... 176,000 1,000,000 1,000,000 283,070 277,626 8.35 30.49
December 31, 1996....... 192,000 1,000,000 1,000,000 333,670 329,711 8.98 26.21
December 31, 1997....... 208,000 1,000,000 1,000,000 403,545 401,070 9.93 22.81
ASSET MANAGER SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 16,000 $1,000,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1989....... 16,000 1,000,000 1,000,000 13,914 7,846 -89.38% --
December 31, 1990....... 32,000 1,000,000 1,000,000 28,254 22,186 -38.32 2,130.09%
December 31, 1991....... 48,000 1,000,000 1,000,000 48,561 35,698 -21.27 447.21
December 31, 1992....... 64,000 1,000,000 1,000,000 67,997 55,134 -8.10 210.30
December 31, 1993....... 80,000 1,000,000 1,000,000 96,401 83,538 1.87 128.98
December 31, 1994....... 96,000 1,000,000 1,000,000 102,550 90,149 -2.23 89.83
December 31, 1995....... 112,000 1,000,000 1,000,000 133,928 122,912 2.79 67.33
December 31, 1996....... 128,000 1,000,000 1,000,000 166,813 157,182 5.33 52.92
December 31, 1997....... 144,000 1,000,000 1,000,000 213,658 205,411 8.07 42.98
</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-79
<PAGE>
APPENDIX C
LONG TERM MARKET TRENDS
The information below is a comparison of the average annual returns of
common stock, high grade corporate bonds and 30-day U.S. Treasury bills over
20-year and 30-year holding periods.* The average annual returns assume the
reinvestment of dividends, capital gains and interest. This is an historical
record and is not intended as a projection of future performance. Charges
associated with a variable life policy are not reflected.
The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods
of time. These trends indicate the potential advantages of holding a variable
life insurance policy for a long period of time.
Over the 53 20-year time periods beginning in 1926 and ending in 1997 (i.e.,
1926-1945, 1927-1946, and so on through 1978-1997):
-- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 50 of the 53 periods.
-- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 53 periods.
-- Common stock average annual returns exceeded the average annual rate of
inflation in each of the 53 periods.
Over the 43 30-year time periods beginning in 1926 and ending in 1997, the
average annual return of common stocks was superior to that of high grade,
long-term corporate bonds, U.S. Treasury bills and inflation in all 43
periods.
From 1926 through 1997 the average annual return for common stocks was
11.0%, compared to 5.7% for high grade, long-term corporate bonds, 3.8% for
U.S. Treasury bills and 3.1% for the Consumer Price Index.
- --------
* Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
A-80
<PAGE>
---------------------
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
5.01- 10.01- 15.01- THAN
HOLDING NEGATIVE 0-5.00% 10.00% 15.00% 20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
------- -------- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
1 year........................ 28% 4% 11% 7% 11% 39%
5 years....................... 10% 15% 15% 31% 19% 10%
10 years....................... 3% 10% 34% 24% 27% 2%
20 years....................... 0% 6% 32% 55% 7% 0%
</TABLE>
- --------
Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
A-81
<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-82
<PAGE>
APPENDIX D
USES OF SURVIVORSHIP LIFE INSURANCE
The following are examples of ways in which the Policy can be used to
address certain personal, estate and business planning objectives.
ESTATE TAX PAYMENT
Federal estate taxes may be deferred for a married couple until the second
death. At that time, the estate tax liability may exceed 50% of a family's
estate. Survivorship life is especially suited to fund for this liability at
the second death.
EDUCATION AND SUPPORT OF CHILDREN
Often, parents will have sufficient insurance to provide for children if
either of the parents dies. However, few have sufficient insurance to provide
for children in the event both parents die while the children are in need of
education and support. Survivorship life can provide protection against the
extraordinary expenses that arise if both parents die while the children are
dependent.
CHARITABLE GIVING
Life insurance can be used to facilitate charitable giving, and survivorship
life is especially well suited for this purpose. Assets left to charity at
death can be deductible from a decedent's taxable estate. An individual may be
reluctant to give assets to charity if a surviving spouse may need those
assets for support or if the individual may want the children to receive the
value of those assets. Survivorship life can enable a client to defer the
charitable gift until the spouse dies. At the spouse's death, assets that
otherwise would be subject to estate tax can pass to charity. The children can
be provided for using survivorship life, which provides for payment of death
benefit proceeds directly to the children at the same time that the assets in
the spouse's estate pass to charity. Children can receive those life insurance
proceeds free of income and estate taxes.
GIFTS TO GRANDCHILDREN
Grandparents can provide substantial gifts to grandchildren using
survivorship life. For very large estates, survivorship life can take
advantage of exceptions to the generation skipping tax to maximize the gifts
grandchildren will receive.
BUSINESS USES
Survivorship life can be used in business planning to provide benefits or
funding for replacement of key people, for buy-sell agreements and the like.
The policy can cover two owners, a parent and child active in the business,
two related or unrelated key executives, an executive and the executive's
spouse, etc. The policy can be used to accumulate cash to help fund a living
buyout under a buy-sell agreement or a deferred compensation plan for
executives or for directors.
Because the Policy provides a death benefit and for the accumulation of cash
value, the Policy can be used for various individual and business planning
purposes. Purchasing the Policy in part for such purposes entails certain
risks, particularly if the Policy's cash value, as opposed to its death
benefit, will be the principal Policy feature used for such planning purposes.
If the investment performance of the Sub-Accounts to which cash value is
allocated is poorer than expected, or if sufficient premiums are not paid or
cash values maintained, the Policy may lapse or may not accumulate sufficient
cash value or net cash value to fund the purpose for which the Policy was
purchased. Because the Policy is designed to provide benefits on a long-term
basis, before purchasing a Policy for a specialized purpose, a purchaser
should consider whether the long-term nature of the Policy is consistent with
the purpose for which it is being considered. If you wish to access your
Policy's cash value, through loans, surrenders or withdrawals, you should
consult your tax advisor about possible tax consequences. (See "Tax
Considerations".)
A-83
<PAGE>
APPENDIX E
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the Treasury published
a "Report to the Congress on the Taxation of Life Insurance Company Products"
in March 1990. Page 4 of this report is Table 1.1, a "Comparison of Tax
Treatment of Life Insurance Products and Other Retirement Savings Plans".
Because it is a convenient summary of the relevant tax characteristics of
these products and plans, we have reprinted it here, and added footnotes to
reflect exceptions to the general rules.
---------------------
TABLE 1.1
COMPARISON OF TAX TREATMENT OF LIFE INSURANCE PRODUCTS AND
OTHER RETIREMENT SAVINGS PLANS
<TABLE>
<CAPTION>
CASH-VALUE NON-
LIFE QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
---------- --------- ------- ---------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as Distributions No* Yes Loans Yes,
not beyond
allowed $50,000
Income Ordering Rules (Income in- No* Yes Yes Yes
cluded in First Distribution)
Early Withdrawal Penalties No* Yes*** Yes*** Yes***
Minimum Distribution Rules by Age 70 No No Yes Yes
1/2
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-84
<PAGE>
APPENDIX F
ENHANCED DEATH BENEFIT LIMITATIONS
As noted under "Policy Values and Benefits" in the Prospectus, the
enhancement factor that applies to the Option A and B death benefits is
subject to certain limits in order to contain cost of insurance charges
against the Policy. The maximum death benefit under Option A is the lesser of
(i) the percent of the cash value at the age of the younger insured at the
start of the Policy year as shown in Table II below and (ii) the cash value of
the Policy times: the face amount divided by the Tabular Cash Value of the
Policy at the start of the Policy month. The maximum death benefit under
Option B is the lesser of (i) the percent of the cash value at the age of the
younger insured at the start of the Policy year as shown in Table II below and
(ii) the cash value of the Policy times: the sum of the face amount plus the
Tabular Cash Value, divided by the Tabular Cash Value.
In no event will the death benefit be less than the amount required to
satisfy tax law requirements.
The Tabular Cash Value at the start of each Policy month assumes: the
Guaranteed Death Benefit 1 Premium, as shown in the Policy, is paid on the
first day of each Policy year; maximum charges are charged; and the Actual
Investment Return is equivalent to an annual rate of 4% in all policy years.
---------------------
TABLE II
<TABLE>
<CAPTION>
AGE PERCENT AGE PERCENT
--- ------- --- -------
<S> <C> <C> <C>
20 through 40 362.50 63 179.80
41 352.35 64 176.90
42 342.20 65 174.00
43 332.05 66 172.55
44 321.90 67 171.10
45 311.75 68 169.65
46 303.05 69 168.20
47 294.35 70 166.75
48 285.65 71 163.85
49 276.95 72 160.95
50 268.25 73 158.05
51 258.10 74 155.15
52 247.95 75 through 90 152.25
53 237.80 91 150.80
54 227.65 92 144.20
55 217.50 93 137.70
56 211.70 94 131.30
57 205.90 95 126.25
58 200.10 96 121.20
59 194.30 97 116.15
60 188.50 98 111.10
61 185.60 99 106.05
62 182.70 100 100.00
</TABLE>
A-85
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT AUDITORS
To the Policy Owners and Board of Directors of New England Life Insurance
Company:
We have audited the accompanying statement of assets and liabilities of the
New England Variable Life Separate Account (comprised of Capital Growth Sub-
Account, Bond Income Sub-Account, Money Market Sub-Account, Stock Index Sub-
Account, Managed Sub-Account, Avanti Growth Sub-Account, Growth and Income
Sub-Account (formerly Value Growth Sub-Account), Small Cap Sub-Account, U.S.
Government Sub-Account, Balanced Sub-Account, Equity Growth Sub-Account,
International Equity Sub-Account, Venture Value Sub-Account, Bond
Opportunities Sub-Account, Equity-Income Sub-Account, Overseas Sub-Account,
High Income Sub-Account and Asset Manager Sub-Account) of New England Life
Insurance Company (formerly New England Variable Life Insurance Company) as of
December 31, 1997, and the related statements of operations and changes in net
assets for the two years then ended for all Sub-Accounts. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The statements of operations and changes in net assets of New
England Variable Life Separate Account for the year ended December 31, 1995
were audited by other auditors whose report, dated February 6, 1996, expressed
an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the respective aforementioned
sub-accounts comprising the New England Variable Life Separate Account of New
England Life Insurance Company as of December 31, 1997, and the results of
their operations and the changes in their net assets for the two years then
ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Policy Owners and Board of Directors of New England Variable Life
Separate Account of New England Variable Life Insurance Company:
We have audited the statements of operations and changes in net assets of New
England Variable Life Separate Account, comprised of Capital Growth Sub-
Account, Bond Income Sub-Account, Money Market Sub-Account, Stock Index Sub-
Account, Managed Sub-Account, Avanti Growth Sub-Account, Growth and Income
Sub-Account (formerly Value Growth Sub-Account), Small Cap Sub-Account,
Equity-Income Sub-Account, Overseas Sub-Account, High Income Sub-Account and
Asset Manager Sub-Account for the year ended December 31, 1995, and also
comprised of the Balanced Sub-Account, Equity Growth Sub-Account,
International Equity Sub-Account, and Venture Value Sub-Account for the period
May 1, 1995 (commencement of operations) through December 31, 1995, of New
England Variable Life Insurance Company. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations and
changes in net assets are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of operations and changes in net assets. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statements
of operations and changes in net assets. We believe that our audit of the
statements of operations and changes in net assets provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and changes in net assets of
the respective aforementioned sub-accounts comprising New England Variable
Life Separate Account of New England Variable Life Insurance Company for each
of the aforementioned periods ending December 31, 1995, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1996
F-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-3
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
----------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2)............................. $761,342,931 $46,779,684 $36,990,546 $66,002,486 $42,839,748 $35,698,565 $36,701,292
<CAPTION>
SHARES COST
--------- --------------
Capital Growth
Series............ 1,905,310 $ 669,976,568
Back Bay Advisors
Bond Income
Series............ 431,109 45,887,625
Back Bay Advisors
Money Market
Series............ 369,905 36,990,546
Westpeak Stock
Index Series...... 423,745 46,113,427
Back Bay Advisors
Managed Series.... 225,651 33,392,311
Loomis Sayles
Avanti Growth
Series............ 209,265 28,734,184
Westpeak Growth
and Income
Series............ 203,930 29,842,628
Loomis Sayles
Small Cap Series.. 347,003 49,723,722
Salomon Brothers
U.S. Government
Series............ 15,715 176,828
Loomis Sayles
Balanced Series... 547,678 7,495,878
Alger Equity
Growth Series..... 2,783,337 43,651,128
Morgan Stanley
International
Magnum Equity
Series............ 773,563 8,555,901
Davis Venture
Value Series...... 2,875,094 49,085,168
Salomon Brothers
Bond
Opportunities
Series............ 52,710 635,304
VIP Equity-Income
Portfolio......... 5,116,958 91,540,584
VIP Overseas
Portfolio......... 4,049,703 66,617,006
VIP High Income
Portfolio......... 622,056 7,482,998
VIP II Asset
Manager
Portfolio......... 350,236 5,336,650
--------------
Total........... $1,221,238,456
==============
Amount due and accrued (payable) from
policy-related transactions, net........... 101,231 159,544 897,289 107,549 48,961 (8,730) 9,824
Dividends receivable........................ -- -- 165,664 -- -- -- --
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total Assets............................. 761,444,162 46,939,228 38,053,499 66,110,035 42,888,709 35,689,835 36,711,116
LIABILITIES
Due New England Life Insurance Company...... 69,802,554 5,423,528 4,948,075 8,559,199 4,348,325 4,623,232 4,943,446
------------ ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES.................................... $691,641,608 $41,515,700 $33,105,424 $57,550,836 $38,540,384 $31,066,603 $31,767,670
============ =========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ----------------------------------------------------------------------------------------- ------------------------------------
SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------- ----------- ----------- ----------- ------------- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$55,145,780 $174,912 $8,138,490 $49,042,395 $8,400,895 $59,801,951 $633,048 $124,239,747 $77,754,305 $8,447,518
140,958 (1,259) 1,139 (20,153) (30,340) 168,093 (525) 127,430 31,232 10,331
-- -- -- -- -- -- -- -- -- --
- ----------- -------- ---------- ----------- ---------- ----------- -------- ------------ ----------- ----------
55,286,738 173,653 8,139,629 49,022,242 8,370,555 59,970,044 632,523 124,367,177 77,785,537 8,457,849
7,776,303 12,470 1,264,381 7,085,182 1,237,518 8,553,311 44,786 17,035,856 9,960,217 1,277,576
- ----------- -------- ---------- ----------- ---------- ----------- -------- ------------ ----------- ----------
$47,510,435 $161,183 $6,875,248 $41,937,060 $7,133,037 $51,416,733 $587,737 $107,331,321 $67,825,320 $7,180,273
=========== ======== ========== =========== ========== =========== ======== ============ =========== ==========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------------------------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
- ------------- --------------
<S> <C>
$6,307,747 $1,424,442,040
(2,214) 1,740,360
-- 165,664
- ------------- --------------
6,305,533 1,426,348,064
856,655 157,752,614
- ------------- --------------
$5,448,878 $1,268,595,450
============= ==============
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends............... $184,229,729 $3,419,409 $1,852,865 $ 1,082,727 $5,025,764 $2,781,138 $3,928,553
EXPENSE
Mortality and expense
risk charge (Note 3)... 4,170,905 253,374 241,048 333,771 229,423 207,451 190,264
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net investment income... 180,058,824 3,166,035 1,611,817 748,956 4,796,341 2,573,687 3,738,289
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
End of year............ 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,664
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net change in unrealized
appreciation
(depreciation)......... (46,643,042) 851,540 -- 12,256,046 3,309,808 2,141,065 3,751,574
Net realized gain on
investments............ 1,699,829 15,488 -- 35,165 242,079 87,159 17,721
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments......... (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295
------------ ---------- ---------- ----------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $135,115,611 $4,033,063 $1,611,817 $13,040,167 $8,348,228 $4,801,911 $7,507,584
============ ========== ========== =========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
F-6
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
---------------------------------------------------------------------------------------- -----------------------------------
SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ------------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$6,279,206 $ 9,089 $438,430 $4,721,050 $ 209,389 $ 1,822,395 $43,914 $ 8,872,794 $ 5,434,055 $393,295
275,141 2,290 50,941 265,599 51,702 276,055 9,400 676,059 447,597 41,502
---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- --------
6,004,065 6,799 387,489 4,455,451 157,687 1,546,340 34,514 8,196,735 4,986,458 351,793
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600
5,422,058 (1,916) 642,612 5,391,267 (155,006) 10,716,783 (2,256) 32,699,163 11,137,299 964,520
---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- --------
2,362,493 (1,097) 405,987 3,306,878 (291,197) 8,318,760 (1,103) 16,289,174 1,635,083 601,920
20,956 1 55,231 75,802 8,303 21,718 201 126,489 67,905 12,234
---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- --------
2,383,449 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154
---------- ------- -------- ---------- --------- ----------- ------- ----------- ----------- --------
$8,387,514 $ 5,703 $848,707 $7,838,131 $(125,207) $ 9,886,818 $33,612 $24,612,398 $ 6,689,446 $965,947
========== ======= ======== ========== ========= =========== ======= =========== =========== ========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- -------------------------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
----------- ------------
<S> <C>
$528,401 $231,072,203
33,135 7,755,657
----------- ------------
495,266 223,316,546
547,647 194,486,245
971,097 203,203,584
----------- ------------
423,450 8,717,339
5,368 2,491,649
----------- ------------
428,818 11,208,988
----------- ------------
$924,084 $234,525,534
=========== ============
</TABLE>
F-7
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI GROWTH AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends............... $32,991,113 $2,579,133 $1,306,712 $ 841,454 $2,942,415 $1,494,679 $1,804,344
EXPENSE
Mortality and expense
risk charge (Note 3)... 2,981,244 192,456 160,903 168,590 158,607 137,775 100,738
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment income
(loss)................. 30,009,869 2,386,677 1,145,809 672,864 2,783,808 1,356,904 1,703,606
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 71,963,590 997,195 -- 2,853,587 5,216,548 2,881,100 2,105,777
End of year............ 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net change in unrealized
appreciation
(depreciation)......... 66,045,815 (956,676) -- 4,779,426 921,081 1,942,216 1,001,313
Net realized gain (loss)
on investments......... 985,421 299 -- 1,808 69,775 27,429 18,964
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments......... 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277
----------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $97,041,105 $1,430,300 $1,145,809 $5,454,098 $3,774,664 $3,326,549 $2,723,883
=========== ========== ========== ========== ========== ========== ==========
</TABLE>
* For the period July 1, 1996 (Commencement of Operations) through December 31,
1996.
See Notes to Financial Statements
F-8
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------------------------------------- ------------------------------ ---------
SMALL U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME ASSET
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- MANAGER
ACCOUNT ACCOUNT* ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT* ACCOUNT ACCOUNT ACCOUNT SUB-
- ---------- ---------- -------- ---------- ------------- ---------- ------------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,624,708 $ 702 $104,939 $ 44,863 $ 71,347 $ 444,012 $1,218 $2,662,990 $1,164,550 $199,463 $174,907
90,146 28 11,713 104,685 19,385 64,656 40 428,473 325,346 19,551 20,483
- ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- --------
1,534,562 674 93,226 (59,822) 51,962 379,356 1,178 2,234,517 839,204 179,912 154,424
768,552 -- 3,769 65,901 24,089 171,931 -- 9,642,454 4,022,725 167,043 269,255
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600 547,647
- ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- --------
2,291,013 (819) 232,856 2,018,488 112,102 2,226,092 (1,153) 6,767,535 5,479,491 195,557 278,392
31,570 -- 2,318 11,723 159 4,907 -- 27,750 44,049 1,942 4,122
- ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- --------
2,322,583 (819) 235,174 2,030,211 112,261 2,230,999 (1,153) 6,795,285 5,523,540 197,499 282,514
- ---------- ----- -------- ---------- -------- ---------- ------ ---------- ---------- -------- --------
$3,857,145 $(145) $328,400 $1,970,389 $164,223 $2,610,355 $ 25 $9,029,802 $6,362,744 $377,411 $436,938
========== ===== ======== ========== ======== ========== ====== ========== ========== ======== ========
<CAPTION>
------------
TOTAL
------------
<S>
$ 50,453,549
4,984,819
------------
45,468,730
101,153,516
194,486,245
------------
93,332,729
1,232,236
------------
94,564,965
------------
$140,033,695
============
</TABLE>
See Notes to Financial Statements
F-9
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends............... $ 58,318,276 $1,844,411 $1,109,838 $ 627,118 $1,061,289 $ 535,217 $ 606,696
EXPENSE
Mortality and expense
risk charge (Note 3)... 2,173,846 143,873 112,033 95,240 113,501 77,636 52,633
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net investment income... 56,144,430 1,700,538 997,805 531,878 947,788 457,581 554,063
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 9,892,073 (2,028,893) -- (1,645,744) 703,242 205,680 1,918
End of year............ 71,963,590 997,195 -- 2,853,587 5,216,548 2,881,100 2,105,777
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net change in unrealized
appreciation
(depreciation)......... 62,071,517 3,026,088 -- 4,499,331 4,513,306 2,675,420 2,103,859
Net realized gain (loss)
on investments......... 1,613,390 7,382 -- 7,637 42,457 21,233 9,493
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net realized and
unrealized gain on
investments............ 63,684,907 3,033,470 -- 4,506,968 4,555,763 2,696,653 2,113,352
------------ ---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............. $119,829,337 $4,734,008 $ 997,805 $5,038,846 $5,503,551 $3,154,234 $2,667,415
============ ========== ========== ========== ========== ========== ==========
</TABLE>
* For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
See Notes to Financial Statements
F-10
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------- ------------------------------- --------- ------------
SMALL EQUITY INTERNATIONAL VENTURE EQUITY HIGH ASSET
CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT* ACCOUNT* ACCOUNT* ACCOUNT* ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
- ---------- -------- -------- ------------- -------- ----------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$365,015 $17,538 $195,436 $12,460 $ 86,716 $ 2,284,557 $ 282,520 $ 8,412 $ 11,896 $ 67,367,395
24,746 743 11,686 2,165 7,251 233,864 240,253 6,639 9,537 3,305,646
- ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------
340,269 16,795 183,750 10,295 79,465 2,050,693 42,267 1,773 2,359 64,061,749
4,662 -- -- -- -- 149,659 260,895 213 (1,503) 7,542,202
768,552 3,769 65,901 24,089 171,931 9,642,454 4,022,725 167,043 269,255 101,153,516
- ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------
763,890 3,769 65,901 24,089 171,931 9,492,795 3,761,830 166,830 270,758 93,611,314
1,325 223 237 (34) 203 61,089 32,279 2,817 4,661 1,804,392
- ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------
765,215 3,992 66,138 24,055 172,134 9,553,884 3,794,109 169,647 275,419 95,415,706
- ---------- ------- -------- ------- -------- ----------- ---------- -------- -------- ------------
$1,105,484 $20,787 $249,888 $34,350 $251,599 $11,604,577 $3,836,376 $171,420 $277,778 $159,477,455
========== ======= ======== ======= ======== =========== ========== ======== ======== ============
</TABLE>
See Notes to Financial Statements
F-11
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income......... $ 180,058,824 $ 3,166,035 $ 1,611,817 $ 748,956 $ 4,796,341 $ 2,573,687 $ 3,738,289 $ 6,004,065
Net realized and
unrealized gain
(loss) on
investments.... (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295 2,383,449
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations.... 135,115,611 4,033,063 1,611,817 13,040,167 8,348,228 4,801,911 7,507,584 8,387,514
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 115,563,292 9,916,442 112,790,933 11,030,326 6,066,893 8,052,822 6,483,236 12,931,007
Net transfers
(to) from other
sub-accounts... 19,184,703 2,250,884 (100,492,346) 13,670,086 2,168,458 728,467 6,112,407 13,551,252
Net transfers to
New England
Life Insurance
Company........ (103,221,618) (7,435,545) (10,617,259) (11,516,905) (6,628,199) (5,007,957) (5,507,253) (8,882,069)
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 31,526,377 4,731,781 1,681,328 13,183,507 1,607,152 3,773,332 7,088,390 17,600,190
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase in
net assets..... 166,641,988 8,764,844 3,293,145 26,223,674 9,955,380 8,575,243 14,595,974 25,987,704
NET ASSETS, AT
BEGINNING OF
THE YEAR....... 524,999,620 32,750,856 29,812,279 31,327,162 28,585,004 22,491,360 17,171,696 21,522,731
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT
END OF THE
YEAR........... $ 691,641,608 $41,515,700 $ 33,105,424 $ 57,550,836 $38,540,384 $31,066,603 $31,767,670 $47,510,435
============= =========== ============= ============ =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-12
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ------------------------------------------------------------------------------- --------------------------------------
U.S. EQUITY INTERNATIONAL VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,799 $ 387,489 $ 4,455,451 $ 157,687 $ 1,546,340 $ 34,514 $ 8,196,735 $ 4,986,458 $ 351,793
(1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
5,703 848,707 7,838,131 (125,207) 9,886,818 33,612 24,612,398 6,689,446 965,947
-- 2,146,406 14,606,449 3,056,999 13,157,429 -- 23,866,781 17,551,475 2,042,291
118,925 2,461,028 6,194,266 1,537,466 22,596,463 563,357 5,377,892 1,724,137 1,829,771
(9,482) (1,814,302) (8,772,068) (1,574,196) (10,885,947) (36,000) (18,885,322) (9,549,079) (1,756,377)
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
109,443 2,793,132 12,028,647 3,020,269 24,867,945 527,357 10,359,351 9,726,533 2,115,685
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
115,146 3,641,839 19,866,778 2,895,062 34,754,763 560,969 34,971,749 16,415,979 3,081,632
46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768 72,359,572 51,409,341 4,098,641
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
$161,183 $ 6,875,248 $41,937,060 $ 7,133,037 $ 51,416,733 $587,737 $107,331,321 $67,825,320 $ 7,180,273
======== =========== =========== =========== ============ ======== ============ =========== ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------------------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
----------- ---------------
<S> <C>
$ 495,266 $ 223,316,546
428,818 11,208,988
----------- ---------------
924,084 234,525,534
1,403,144 360,665,925
422,784 --
(881,229) (212,980,807)
----------- ---------------
944,699 147,685,118
----------- ---------------
1,868,783 382,210,652
3,580,095 886,384,798
----------- ---------------
$5,448,878 $1,268,595,450
=========== ===============
</TABLE>
See Notes to Financial Statements
F-13
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment income
(loss)................. $ 30,009,869 $ 2,386,677 $ 1,145,809 $ 672,864 $ 2,783,808 $ 1,356,904 $ 1,703,606
Net realized and
unrealized gain (loss)
on investments......... 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net Increase (decrease)
in net assets
resulting from
operations............ 97,041,105 1,430,300 1,145,809 5,454,098 3,774,664 3,326,549 2,723,883
FROM POLICY-RELATED
TRANSACTIONS
Net premiums transferred
from New England Life
Insurance Company (Note
4)..................... 111,194,198 8,517,031 79,806,482 6,566,717 5,631,293 7,140,375 5,201,936
Net transfers (to) from
other sub-accounts..... (1,541,352) 1,894,963 (61,482,739) 5,875,439 1,412,522 2,859,556 2,274,270
Net transfers to New
England Life Insurance
Company................ (76,528,987) (5,770,575) (9,089,129) (5,144,242) (4,232,475) (5,172,577) (3,338,671)
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net Increase in net
assets resulting from
policy related
transactions........... 33,123,859 4,641,419 9,234,614 7,297,914 2,811,340 4,827,354 4,137,335
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase in net
assets................. 130,164,964 6,071,719 10,380,423 12,752,012 6,586,004 8,153,903 6,861,218
NET ASSETS, AT BEGINNING
OF THE YEAR............ 394,834,656 26,679,137 19,431,856 18,575,150 21,999,000 14,337,457 10,310,478
------------ ----------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT END OF
THE YEAR............... $524,999,620 $32,750,856 $ 29,812,279 $31,327,162 $28,585,004 $22,491,360 $17,171,696
============ =========== ============ =========== =========== =========== ===========
</TABLE>
* For the period July 1, 1996 (Commencement of Operations) through December 31,
1996.
See Notes to Financial Statements
F-14
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
EQUITY
SMALL U.S. GROWTH INTERNATIONAL VENTURE BOND
CAP GOVERNMENT BALANCED SUB- EQUITY VALUE OPPORTUNITIES
SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
- ----------- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,534,562 $ 674 $ 93,226 $ (59,822) $ 51,962 $ 379,356 $ 1,178
2,322,583 (819) 235,174 2,030,211 112,261 2,230,999 (1,153)
- ----------- ------- ---------- ----------- ----------- ----------- -------
3,857,145 (145) 328,400 1,970,389 164,223 2,610,355 25
5,440,860 -- 811,932 9,286,073 1,454,605 4,876,053 --
10,060,122 46,951 2,383,695 11,496,667 2,908,047 9,510,686 27,190
(4,380,392) (769) (708,829) (6,395,345) (1,242,748) (3,721,564) (447)
- ----------- ------- ---------- ----------- ----------- ----------- -------
11,120,590 46,182 2,486,798 14,387,395 3,119,904 10,665,175 26,743
- ----------- ------- ---------- ----------- ----------- ----------- -------
14,977,735 46,037 2,815,198 16,357,784 3,284,127 13,275,530 26,768
6,544,996 -- 418,211 5,712,498 953,848 3,386,440 --
- ----------- ------- ---------- ----------- ----------- ----------- -------
$21,522,731 $46,037 $3,233,409 $22,070,282 $ 4,237,975 $16,661,970 $26,768
=========== ======= ========== =========== =========== =========== =======
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
--------------------------------------- ---------------------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
$ 2,234,517 $ 839,204 $ 179,912 $ 154,424 $ 45,468,730
6,795,285 5,523,540 197,499 282,514 94,564,965
------------ ------------- ------------ ------------ --------------
9,029,802 6,362,744 377,411 436,938 140,033,695
20,426,731 17,135,189 970,763 1,258,847 285,719,085
9,029,810 1,051,463 1,631,762 560,948 --
(13,479,623) (11,522,274) (623,788) (649,631) (152,002,266)
------------ ------------- ------------ ------------ --------------
15,976,918 6,664,378 1,978,737 1,170,164 133,716,819
------------ ------------- ------------ ------------ --------------
25,006,720 13,027,122 2,356,148 1,607,102 273,750,514
47,352,852 38,382,219 1,742,493 1,972,993 612,634,284
------------ ------------- ------------ ------------ --------------
$72,359,572 $ 51,409,341 $4,098,641 $3,580,095 $ 886,384,798
============ ============= ============ ============ ==============
</TABLE>
See Notes to Financial Statements
F-15
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK AVANTI AND
GROWTH INCOME MARKET INDEX MANAGED GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING ACTIVI-
TIES
Net investment income... $ 56,144,430 $ 1,700,538 $ 997,805 $ 531,878 $ 947,788 $ 457,581 $ 554,063
Net realized and
unrealized gain on
investments............ 63,684,907 3,033,470 -- 4,506,968 4,555,763 2,696,653 2,113,352
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net Increase in net
assets resulting from
operations............ 119,829,337 4,734,008 997,805 5,038,846 5,503,551 3,154,234 2,667,415
FROM POLICY-RELATED
TRANSACTIONS
Net premiums transferred
from New England
Life Insurance Company
(Note 4)............... 100,611,223 7,330,838 40,457,027 4,559,195 4,757,562 5,407,500 3,473,273
Net transfers (to) from
other sub-accounts..... (7,820,362) 2,481,090 (32,083,917) 2,734,513 286,111 3,131,998 2,645,617
Net transfers to New
England Life Insurance
Company................ (67,280,279) (4,616,930) (6,819,802) (3,436,368) (3,307,802) (3,767,486) (2,568,808)
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net Increase in net
assets resulting from
policy related
transactions........... 25,510,582 5,194,998 1,553,308 3,857,340 1,735,871 4,772,012 3,550,082
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase in net
assets................. 145,339,919 9,929,006 2,551,113 8,896,186 7,239,422 7,926,246 6,217,497
NET ASSETS, AT BEGINNING
OF THE YEAR............ 249,494,737 16,750,131 16,880,743 9,678,964 14,759,578 6,411,211 4,092,981
------------ ----------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT END OF
THE YEAR............... $394,834,656 $26,679,137 $ 19,431,856 $18,575,150 $21,999,000 $14,337,457 $10,310,478
============ =========== ============ =========== =========== =========== ===========
</TABLE>
* For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
See Notes to Financial Statements
F-16
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ------------------------------------------------------------------- ------------------------------------- ---------
SMALL EQUITY INTERNATIONAL VENTURE EQUITY- HIGH ASSET
CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------- ------------ ------------ ------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 340,269 $ 16,795 $ 183,750 $ 10,295 $ 79,465 $ 2,050,693 $ 42,267 $ 1,773 $ 2,359
765,215 3,992 66,138 24,055 172,134 9,553,884 3,794,109 169,647 275,419
- ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ----------
1,105,484 20,787 249,888 34,350 251,599 11,604,577 3,836,376 171,420 277,778
2,237,626 81,978 1,048,361 241,835 625,044 13,985,879 17,076,602 395,370 696,227
4,814,141 409,874 5,735,744 948,764 3,228,499 12,483,761 (2,007,296) 1,503,857 1,507,606
(1,803,085) (94,428) (1,321,495) (271,101) (718,702) (9,853,532) (8,392,295) (358,576) (709,312)
- ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ----------
5,248,682 397,424 5,462,610 919,498 3,134,841 16,616,108 6,677,011 1,540,651 1,494,521
- ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ----------
6,354,166 418,211 5,712,498 953,848 3,386,440 28,220,685 10,513,387 1,712,071 1,772,299
190,830 -- -- -- -- 19,132,167 27,868,832 30,422 200,694
- ----------- -------- ----------- --------- ---------- ----------- ----------- ---------- ----------
$ 6,544,996 $418,211 $ 5,712,498 $ 953,848 $3,386,440 $47,352,852 $38,382,219 $1,742,493 $1,972,993
=========== ======== =========== ========= ========== =========== =========== ========== ==========
<CAPTION>
--------------
TOTAL
--------------
<S>
$ 64,061,749
95,415,706
--------------
159,477,455
202,985,540
--
(115,320,001)
--------------
87,665,539
--------------
247,142,994
365,491,290
--------------
$ 612,634,284
==============
</TABLE>
See Notes to Financial Statements
F-17
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS. New England Variable Life Separate Account (the
"Account") of New England Life Insurance Company ("NELICO"), formerly New
England Variable Life Insurance Company ("NEVLICO"), was established by
NELICO's Board of Directors on January 31, 1983 in accordance with the
regulations of the Delaware Insurance Department and is now operating in
accordance with the regulations of the Commonwealth of Massachusetts Division
of Insurance. The Account is registered as a unit investment trust under the
Investment Company Act of 1940. The assets of the Account are owned by NELICO.
The net assets of the Account are restricted from use in the ordinary business
of NELICO.
Effective with the merger on August 30, 1996 of New England Mutual Life
Insurance Company ("NEMLICO") and Metropolitan Life Insurance Company ("MLI"),
NEMLICO ceased to exist, with MLI as the surviving company of the merger.
NELICO then became an indirect wholly-owned subsidiary of MLI.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. SUB-ACCOUNTS. The Account has eighteen investment sub-accounts each of
which invest in the shares of one portfolio of the New England Zenith Fund
("Zenith Fund"), the Variable Insurance Products Fund or the Variable
Insurance Products Fund II. The portfolios of the Zenith Fund, the Variable
Insurance Products Fund and the Variable Insurance Products Fund II in which
the sub-accounts invest are referred to herein as the "Eligible Funds". The
Zenith Fund, the Variable Insurance Products Fund and the Variable Insurance
Products Fund II are diversified, open-end management investment companies.
The Account purchases or redeems shares of the eighteen Eligible Funds based
on the amount of net premiums invested in the Account, transfers among the
sub-accounts, policy loans, surrender payments, and death benefit payments.
The values of the shares of the Eligible Funds are determined as of the close
of the New York Stock Exchange (normally 4:00 p.m. EST) on each day the
Exchange is open for trading. Realized gains and losses on the sale of
Eligible Funds' shares are computed on the basis of identified cost on the
trade date. Income from dividends is recorded on the ex-dividend date. Charges
for investment advisory fees and other expenses are reflected in the carrying
value of the assets of the Eligible Funds.
3. MORTALITY AND EXPENSE RISK CHARGES. NELICO charges the Account for the
mortality and expense risk NELICO assumes. The mortality risk assumed by
NELICO is the risk that insureds may live for shorter periods of time than
NELICO estimated when setting its cost of insurance charges. The expense risk
assumed by NELICO is the risk that the deductions for sales and administrative
charges may prove insufficient to cover actual cost. If these deductions are
insufficient to cover the cost of the mortality and expense risk assumed by
NELICO, NELICO absorbs the resulting losses and makes sufficient transfers to
the Fund from its general assets. Conversely, if those deductions are more
than sufficient after the establishment of any contingency reserves deemed
prudent or required by law, the excess is retained by NELICO. Currently, the
charges are made daily at an annual rate of .35% of the Account assets
attributable to fixed premium ("Zenith Life") variable policies, .45% of the
Account assets attributable to single premium ("Zenith Life One") variable
life policies, .60% of the Account assets attributable to variable ordinary
("Zenith Life Plus", "Zenith Life Plus II" and "Zenith Variable Whole Life")
life policies and limited payment ("Zenith Life Executive 65") variable life
policies, .90% of the Account assets attributable to variable survivorship
("Zenith Survivorship Life") life policies, and .75% of the Account assets
attributable to flexible premium ("Zenith Flexible Life") variable life
policies. For the modified single premium ("American Gateway") variable life
policies mortality and expense risk charges are not charged daily against the
sub-account assets but are deducted from the policy cash values monthly at an
annual rate of .90%.
4. NET PREMIUM TRANSFERS AND DEDUCTIONS FROM CASH VALUE. Certain deductions
are made from each premium payment paid to NELICO to arrive at a net premium
that is transferred to the Account. Certain deductions are made from cash
value in the sub-accounts. These deductions, depending on the policy, could
include sales loads,
F-18
<PAGE>
administrative charges, premium tax charges, risk charges, cost of insurance
charges, and charges for rider benefits and special risk charges.
5. FEDERAL INCOME TAXES. For federal income tax purposes the Account's
operations are included with those of NELICO. NELICO intends to make
appropriate charges against the Account in the future if and when tax
liabilities arise.
6. INVESTMENT ADVISERS. The adviser and sub-adviser for each series of the
Zenith Fund are listed in the chart below. TNE Advisers, Inc., which is an
indirect subsidiary of NELICO, Capital Growth Management Limited Partnership
("CGM"), and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------------------ -------------------------------------
<S> <C> <C>
Capital Growth CGM* --
Back Bay Advisors Money TNE Advisers, Inc. Back Bay Advisors, L.P.*
Market
Back Bay Advisors Bond TNE Advisers, Inc. Back Bay Advisors, L.P.*
Income
Back Bay Advisors TNE Advisers, Inc. Back Bay Advisors, L.P.*
Managed
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Westpeak Growth and TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Income
Loomis Sayles Avanti TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Growth
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Morgan Stanley TNE Advisers, Inc. Morgan Stanley Asset Management Inc.
International Magnum
Equity
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
Salomon Brothers U.S. TNE Advisers, Inc. Salomon Brothers Asset Management Inc
Government
Salomon Brothers TNE Advisers, Inc. Salomon Brothers Asset Management Inc
Strategic Bond
Opportunities
</TABLE>
* An affiliate of NELICO
Effective May 1, 1997 the Draycott International Equity Series was renamed the
Morgan Stanley International Magnum Equity Series and a new Sub-advisory
agreement between TNE Advisers, Inc. and Morgan Stanley Asset Management Inc.
went into effect replacing the prior agreement between TNE Advisers, Inc. and
Draycott Partners, Ltd.
On January 28, 1998, the Fund's Board of Trustees approved new advisory and
subadvisory agreements (the "New Agreements") relating to the Loomis Sayles
Avanti Growth Series between TNE Advisers, Inc. and the Fund on behalf of the
Series, and between TNE Advisers, Inc. and Goldman Sachs Asset Management
("Goldman Sachs"), respectively. The New Agreements, which are subject to
shareholder approval, are expected to become effective on or about May 1,
1998. Under the New Agreements, Goldman Sachs would become the subadviser of
the Series, succeeding Loomis Sayles & Company, L.P., and would become
responsible for the day-to-day management of the Series' investment operations
under the oversight of TNE Advisers, Inc. Accordingly, the name of the Series
would be changed to the "Goldman Sachs Midcap Value Series" at the time the
New Agreements take effect. Goldman Sachs is a separate operating division of
Goldman, Sachs & Co., a privately-owned global financial services company.
F-19
<PAGE>
7. INVESTMENT PURCHASES AND SALES. The following table shows the aggregate cost
of Eligible Fund shares purchased and proceeds from the sales of Eligible Fund
shares for each sub-account for the year ended December 31, 1997:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth Series $190,848,855 $152,123,058
Back Bay Advisors Money Market Series 165,843,613 162,797,235
Back Bay Advisors Bond Income Series 19,577,841 13,951,014
Back Bay Advisors Managed Series 12,248,935 9,123,459
Westpeak Stock Index Series 31,190,566 13,926,513
Westpeak Growth and Income Series 16,870,544 7,986,008
Loomis Sayles Avanti Growth Series 14,966,505 10,913,924
Loomis Sayles Small Cap Series 35,774,167 14,288,925
Loomis Sayles Balanced Series 6,944,300 3,461,274
Morgan Stanley International Magnum Equity Series 7,071,617 3,577,480
Davis Venture Value Series 41,982,387 11,519,957
Alger Equity Growth Series 27,712,451 13,170,766
Salomon Brothers U.S. Government Series 315,478 195,450
Salomon Brothers Strategic Bond Opportunities
Series 711,406 148,625
VIP Equity-Income Portfolio 43,541,020 28,601,305
VIP Overseas Portfolio 33,752,160 24,396,016
VIP High Income Portfolio 5,573,049 2,765,596
VIP II Asset Manager Portfolio 3,323,050 2,105,248
</TABLE>
F-20
<PAGE>
8. NET INVESTMENT RETURNS. The following table shows the net investment return
of the sub-account for each type of variable life insurance policy investing
in the Account. The net investment return reflects the appropriate mortality
and expense risk charge against sub-account assets, where applicable, for each
type of variable life insurance policy shown (in the case of American Gateway
Series, the mortality and expense risk charge is deducted monthly from the
cash values rather than daily from sub-account assets and, therefore, does not
impact sub-account net investment returns). These figures do not reflect
charges deducted from premiums and the cash values of the policies. Such
charges will affect the actual cash values and benefits of the policies.
Certain amounts have been restated to conform with the current calculation of
net investment return to provide greater comparability with industry
convention.
FIXED PREMIUM ("ZENITH LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.11%) 30.30% (3.82%) 53.45% (6.38%) 14.57% (7.39%) 37.55% 20.65% 23.05%
Bond Income............. 7.99% 11.91% 7.71% 17.55% 7.80% 12.22% (3.70%) 20.78% 4.24% 10.50%
Money Market............ 7.14% 8.87% 7.81% 5.84% 3.43% 2.61% 3.61% 5.33% 4.76% 4.97%
<CAPTION>
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.93% 29.70% (4.48%) 29.98% 6.92% 9.34% 0.76% 36.44% 22.04% 32.03%
Managed................. 9.10% 18.67% 2.85% 19.75% 6.33% 10.26% (1.46%) 30.81% 14.62% 26.12%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.47% (0.62%) 29.90% 17.20% 16.91%
Growth and Income.................................................... 13.97% (1.55%) 35.99% 17.68% 33.01%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity-Income........................................................ 9.29% 6.69% 34.62% 13.88% 27.66%
Overseas............................................................. 14.57% 1.37% 9.30% 12.82% 11.17%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.45%) 28.40% 30.22% 24.42%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.58%) 20.18% 13.63% 17.26%
Asset Manager................................................................. (4.41%) 16.55% 14.20% 20.23%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.84% 12.78% 25.19%
Balanced............................................................................... 13.75% 16.50% 15.77%
International Equity................................................................... 3.85% 6.30% (1.64%)
Venture Value.......................................................................... 21.64% 25.40% 33.03%
</TABLE>
F-21
<PAGE>
SINGLE PREMIUM ("ZENITH LIFE ONE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.20%) 30.17% (3.91%) 53.29% (6.47%) 14.46% (7.38%) 37.41% 20.53% 22.92%
Bond Income............. 7.88% 11.79% 7.60% 17.43% 7.69% 12.10% (3.80%) 20.66% 4.14% 10.39%
Money Market............ 7.03% 8.77% 7.71% 5.74% 3.33% 2.51% 3.35% 5.23% 4.65% 4.87%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.82% 29.57% (4.58%) 29.85% 6.81% 9.23% 0.66% 36.30% 21.91% 31.90%
Managed................. 8.99% 18.55% 2.75% 19.63% 6.22% 10.15% (1.56%) 30.67% 14.51% 25.99%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.39% (0.72%) 29.77% 17.08% 16.80%
Growth and Income.................................................... 13.90% (1.65%) 35.85% 17.56% 32.87%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity Income........................................................ 9.22% 6.59% 34.49% 13.77% 27.53%
Overseas............................................................. 14.49% 1.27% 9.19% 12.70% 11.05%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.52%) 28.27% 30.09% 24.29%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.61%) 20.06% 13.52% 17.14%
Asset Manager................................................................. (4.45%) 16.43% 14.09% 20.11%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.76% 12.66% 25.06%
Balanced............................................................................... 13.67% 16.39% 15.66%
International Equity................................................................... 3.79% 6.19% (1.74%)
Venture Value.......................................................................... 21.56% 25.27% 32.90%
</TABLE>
F-22
<PAGE>
VARIABLE ORDINARY ("ZENITH LIFE PLUS", "ZENITH LIFE PLUS II" AND "ZENITH
VARIABLE WHOLE LIFE") AND
LIMITED PAYMENT ("ZENITH LIFE EXECUTIVE 65") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.34%) 29.98% (4.06%) 53.06% (6.61%) 14.28% (7.62%) 37.21% 20.34% 22.74%
Bond Income............. 7.72% 11.63% 7.44% 17.25% 7.53% 11.94% (3.94%) 20.47% 3.98% 10.23%
Money Market............ 6.87% 8.60% 7.54% 5.58% 3.18% 2.36% 3.35% 5.07% 4.50% 4.71%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.65% 29.37% (4.72%) 29.65% 6.65% 9.07% 0.51% 36.10% 21.73% 31.70%
Managed................. 8.83% 18.37% 2.59% 19.45% 6.06% 9.99% (1.70%) 30.48% 14.34% 25.81%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.28% (0.87%) 29.57% 16.90% 16.62%
Growth and Income.................................................... 13.78% (1.80%) 35.65% 17.38% 32.67%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity-Income........................................................ 9.11% 6.43% 34.29% 13.59% 27.34%
Overseas............................................................. 14.38% 1.12% 9.02% 12.53% 10.89%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.61%) 28.08% 29.90% 24.11%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.66%) 19.88% 13.35% 16.96%
Asset Manager................................................................. (4.49%) 16.26% 13.91% 19.93%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.64% 12.49% 24.88%
Balanced............................................................................... 13.56% 16.21% 15.48%
International Equity................................................................... 3.68% 6.03% (1.89%)
Venture Value.......................................................................... 21.44% 25.08% 32.70%
</TABLE>
F-23
<PAGE>
VARIABLE SURVIVORSHIP ("ZENITH SURVIVORSHIP LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.61%) 29.59% (4.35%) 52.61% (6.90%) 13.94% (7.90%) 36.80% 19.98% 22.37%
Bond Income............. 7.40% 11.29% 7.11% 16.90% 7.21% 11.60% (4.23%) 20.12% 3.67% 9.90%
Money Market............ 6.55% 8.28% 7.22% 5.26% 2.87% 2.05% 3.04% 4.75% 4.18% 4.39%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.30% 28.99% (5.01%) 29.27% 6.33% 8.74% 0.21% 35.69% 21.36% 31.31%
Managed................. 8.50% 18.02% 2.28% 19.10% 5.74% 9.69% (2.00%) 30.09% 13.99% 25.43%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.05% (1.16%) 29.19% 16.55% 16.27%
Growth and Income.................................................... 13.55% (2.09%) 35.25% 17.03% 32.28%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity-Income........................................................ 8.89% 6.11% 33.89% 13.25% 26.96%
Overseas............................................................. 14.15% 0.82% 8.70% 12.19% 10.56%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.80%) 27.69% 29.50% 23.73%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.76%) 19.53% 13.00% 16.61%
Asset Manager................................................................. (4.59%) 15.91% 13.57% 19.57%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.39% 12.15% 24.50%
Balanced............................................................................... 13.33% 15.86% 15.14%
International Equity................................................................... 3.48% 5.71% (2.18%)
Venture Value.......................................................................... 21.20% 24.71% 32.30%
</TABLE>
F-24
<PAGE>
FLEXIBLE PREMIUM ("ZENITH FLEXIBLE LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (9.47%) 31.88% (5.73%) 52.83% (6.75%) 14.11% (7.76%) 37.00% 20.16% 22.56%
Bond Income............. 7.56% 11.46% 7.28% 17.08% 7.37% 11.77% (4.08%) 20.29% 3.82% 10.06%
Money Market............ 6.71% 8.44% 7.38% 5.42% 3.02% 2.20% 3.20% 4.91% 4.34% 4.55%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 15.47% 29.18% (4.86%) 29.46% 6.49% 8.90% 0.36% 35.90% 21.55% 31.51%
Managed................. 8.67% 18.20% 2.44% 19.28% 5.90% 9.82% (1.85%) 30.28% 14.16% 25.62%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.16% (1.01%) 29.38% 16.72% 16.45%
Growth and Income.................................................... 13.67% (1.94%) 35.45% 17.21% 32.47%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Equity-Income........................................................ 9.00% 6.27% 34.09% 13.42% 27.15%
Overseas............................................................. 14.26% 0.97% 8.86% 12.36% 10.72%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.71%) 27.88% 29.70% 23.92%
8/31/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
High Income................................................................... (0.71%) 19.71% 13.17% 16.79%
Asset Manager................................................................. (4.54%) 16.08% 13.74% 19.75%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 24.51% 12.32% 24.69%
Balanced............................................................................... 13.44% 16.03% 15.31%
International Equity................................................................... 3.58% 5.87% (2.04%)
Venture Value.......................................................................... 21.32% 24.89% 32.50%
</TABLE>
F-25
<PAGE>
MODIFIED SINGLE PREMIUM ("AMERICAN GATEWAY") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income............. 8.37% 12.30% 8.09% 17.96% 8.18% 12.61% (3.36%) 21.20% 4.61% 10.89%
Money Market............ 7.52% 9.25% 8.19% 6.21% 3.80% 2.97% 3.97% 5.70% 5.13% 5.34%
1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Stock Index............. 16.34% 30.15% (4.14%) 30.43% 7.30% 9.72% 1.12% 36.92% 22.47% 32.50%
Managed................. 9.48% 19.08% 3.21% 20.17% 6.70% 10.65% (1.11%) 31.26% 15.03% 26.56%
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- --------
Avanti Growth........................................................ 14.74% (0.27%) 30.35% 17.61% 17.32%
Growth and Income.................................................... 14.24% (1.21%) 36.47% 18.10% 33.47%
5/2/94- 1/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- --------
Small Cap..................................................................... (3.23%) 28.84% 30.68% 24.85%
5/1/95- 1/1/96- 1/1/97-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- --------
Equity Growth.......................................................................... 25.13% 13.17% 25.63%
Balanced............................................................................... 14.01% 16.91% 16.18%
International Equity................................................................... 4.01% 6.67% (1.30%)
Venture Value.......................................................................... 21.92% 25.84% 33.50%
6/28/96- 1/1/97-
SUB-ACCOUNT 12/31/96 12/31/97
- ----------- -------- --------
U.S. Government................................................................................. 4.55% 8.47%
Strategic Bond Opportunities.................................................................... 8.46% 11.07%
</TABLE>
The net investment return of a sub-account is calculated by taking the
difference between the sub-account's ending value and the beginning value for
the period and dividing it by the beginning value for the period.
F-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of New England
Life Insurance Company (formerly New England Variable Life Insurance Company)
and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the New England Life Insurance
Company and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
In 1996, as discussed in Note 1 to the financial statements, the Company (1)
adopted all applicable generally accepted accounting principles as required
for mutual life insurance enterprises (or wholly-owned stock life insurance
company subsidiaries of mutual life insurance enterprises) by Interpretation
No. 40, Applicability of Generally Accepted Accounting Principles to Mutual
Life Insurance and Other Enterprises, and Statement of Financial Accounting
Standards No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long Duration
Participating Policies; and (2) reflected the effects of the changes in
corporate organizations.
The consolidated statements of earnings, equity, and cash flows for the period
ended December 31, 1995 present the combination of the individual financial
statements of New England Variable Life Insurance Company and other entities
listed in Note 1. Such individual financial statements were audited by other
auditors before the applicable effects of the changes described in the
paragraph above and their reports on the financial statements of each of the
insurance entities listed in Note 1 expressed an adverse opinion as to the
conformity with generally accepted accounting principles and an unqualified
opinion as to conformity with statutory principles and their reports on the
financial statements of each of the other entities expressed an unqualified
opinion. We have audited the adjustments that were applied to restate the 1995
financial statements to reflect the effects of the changes for the adoption of
generally accepted accounting principles and the changes in corporate
organization as described in Note 1. In our opinion, such adjustments are
appropriate and have been properly applied.
DELOITTE & TOUCHE LLP
February 17, 1998
Boston, Massachusetts
N-1
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES 1997 1996
----- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed Maturities:
Available for Sale, at Estimated Fair Value...... 2,11 $ 734,391 $ 524,285
Held to Maturity, at Amortized Cost.............. 2 -- 29,666
Equity Securities................................. 2,11 9,399 --
Policy Loans...................................... 11 104,783 76,263
Real Estate....................................... 2,757 1,702
Short-Term Investments............................ 11 27,944 156,560
Other Invested Assets............................. 24,349 12,956
---------- ----------
Total Investments.............................. 903,623 801,432
Cash and Cash Equivalents.......................... 11 74,148 49,147
Deferred Policy Acquisition Costs.................. 565,769 434,637
Accrued Investment Income.......................... 18,712 13,713
Premiums and Other Receivables..................... 4 63,036 5,941
Other Assets....................................... 62,326 95,106
Separate Account Assets............................ 1,988,225 1,206,959
---------- ----------
TOTAL ASSETS................................... $3,675,839 $2,606,935
========== ==========
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits............................. 4 $ 500,429 $ 464,889
Policyholder Account Balances...................... 4,11 240,411 181,594
Other Policyholder Funds........................... 11 8,380 2,071
Policyholder Dividends Payable..................... 14,719 9,018
Short and Long-Term Debt........................... 8,11 85,981 84,057
Income Taxes Payable: 5
Current........................................... 9,102 6,272
Deferred.......................................... 42,066 39,463
Due to Parent...................................... 107,337 40,225
Other Liabilities.................................. 45,647 21,965
Separate Account Liabilities....................... 1,988,225 1,206,959
---------- ----------
TOTAL LIABILITIES.............................. 3,042,297 2,056,513
---------- ----------
Commitments and Contingencies (Notes 2, 4, 8 and 9)
EQUITY
Common Stock, $125.00 par value; 50,000 shares
authorized, 20,000 shares issued and outstanding.. 2,500 2,500
Contributed Capital................................ 545,477 497,946
Retained Earnings.................................. 68,218 46,249
Net Unrealized Investment Gains.................... 3 17,347 3,727
---------- ----------
TOTAL EQUITY................................... 12 633,542 550,422
---------- ----------
TOTAL LIABILITIES AND EQUITY....................... $3,675,839 $2,606,935
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
N-2
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Premiums...................................... 4 $ 63,616 $ 37,410 $ 38,566
Universal Life and Investment-Type Product
Policy Fee Income............................ 145,157 101,756 79,371
Net Investment Income......................... 3 61,059 49,628 41,815
Investment Gains (Losses), Net................ 3 890 8,822 10,514
Commissions, Fees and Other Income............ 28,302 44,930 34,555
-------- -------- --------
TOTAL REVENUES.............................. 299,024 242,546 204,821
-------- -------- --------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits......................... 4 100,180 65,520 55,810
Interest Credited to Policyholder Account
Balances..................................... 6,220 5,558 2,564
Policyholder Dividends........................ 21,325 14,830 13,954
Other Operating Costs and Expenses............ 10 144,342 143,886 99,424
-------- -------- --------
TOTAL BENEFITS AND OTHER DEDUCTIONS......... 272,067 229,794 171,752
-------- -------- --------
Earnings from Operations before Income Taxes.. 26,957 12,752 33,069
Income Taxes.................................. 5 4,988 3,051 12,303
-------- -------- --------
NET EARNINGS.................................. $ 21,969 $ 9,701 $ 20,766
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
N-3
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EQUITY
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK & NET UNREALIZED
CONTRIBUTED RETAINED INVESTMENT
CAPITAL EARNINGS GAINS (LOSSES) TOTAL
----------- -------- -------------- --------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994.... 228,057 15,782 (670) 243,169
Net Earnings..................... 20,766 20,766
Change in Net Unrealized Invest-
ment Gains (Losses)............. 27,026 27,026
Contributed Capital.............. 63,543 63,543
-------- ------- -------- --------
BALANCES AT DECEMBER 31, 1995.... 291,600 36,548 26,356 354,504
Net Earnings..................... 9,701 9,701
Change in Net Unrealized Invest-
ment Gains (Losses)............. (22,629) (22,629)
Contributed Capital.............. 208,846 208,846
-------- ------- -------- --------
BALANCES AT DECEMBER 31, 1996.... 500,446 46,249 3,727 550,422
Net Earnings..................... 21,969 21,969
Change in Net Unrealized Invest-
ment Gains (Losses)............. 13,620 13,620
Contributed Capital.............. 47,531 47,531
-------- ------- -------- --------
BALANCES AT DECEMBER 31, 1997.... $547,977 $68,218 $ 17,347 $633,542
======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
N-4
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES......... $(121,838) $ (85,674) $(111,834)
--------- --------- ---------
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Available for Sale Fixed Maturities.......... 178,003 276,420 538,297
Held to Maturity Fixed Maturities............ -- 10,519 625
Mortgage Loans on Real Estate................ -- 2,210 12
Other, Net................................... 128 -- --
Purchases of:
Available for Sale Fixed Maturities.......... (326,059) (259,713) (983,518)
Real Estate.................................. -- (480) --
Fixed Asset Property and Equipment........... (101) (3,786) --
Other Assets................................. -- (11,024) (15)
Net Change in Short-Term Investments......... 128,616 (135,731) 379,325
Net Change in Policy Loans................... (28,520) (18,052) (14,243)
Other, Net................................... 177 67 (114)
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES......... (47,756) (139,570) (79,631)
--------- --------- ---------
Cash Flows from Financing Activities:
Common Stock
Capital Contributions........................ 46,681 159,162 9,515
Borrowed Money............................... (3,181) -- 25,000
Policyholder Account Balances
Deposits..................................... 244,338 482,552 281,762
Withdrawals.................................. (95,066) (364,933) (148,403)
Financial Reinsurance Receivables............ 1,823 (37,519) --
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES..... 194,595 239,262 167,874
--------- --------- ---------
Change in Cash and Cash Equivalents........... 25,001 14,018 (23,591)
Cash and Cash Equivalents, Beginning of Year.. 49,147 35,129 58,720
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR........ $ 74,148 $ 49,147 $ 35,129
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid................................ $ 1,495 $ 1,523 $ 1,277
========= ========= =========
Income Taxes Paid............................ $ 5,470 $ 4,721 $ 6,765
========= ========= =========
NET EARNINGS.................................. 21,969 9,701 20,766
Adjustments to Reconcile Net Earnings to Net
Cash Provided by (Used in) Operating
Activities:
Change in Deferred Policy Acquisition Costs,
Net......................................... (140,578) (68,626) (45,823)
Change in Accrued Investment Income.......... (4,999) 909 (11,507)
Change in Premiums and Other Receivables..... (57,095) 4,370 (4,073)
Gains from Sales of Investments, Net......... (890) (15,979) (21,980)
Depreciation and Amortization Expenses....... 10,085 4,120 5,725
Interest Credited to Policyholder Account
Balances.................................... 6,220 5,558 2,565
Universal Life and Investment-Type Product
Policy Fee Income........................... -- (101,756) (79,371)
Change in Future Policy Benefits............. 35,540 18,202 14,539
Change in Other Policyholder Funds........... 6,309 (283) 1,789
Change in Policyholder Dividends Payable..... 5,701 1,671 114
Change in Income Taxes Payable............... 1,674 (6,634) 10,211
Other, Net................................... (5,774) 63,073 (4,789)
--------- --------- ---------
NET CASH USED BY OPERATING ACTIVITIES......... $(121,838) $ (85,674) $(111,834)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
N-5
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
New England Life Insurance Company and its subsidiaries (the Company) is a
wholly-owned stock life insurance subsidiary of Metropolitan Life Insurance
Company (MetLife). The Company principally provides variable life insurance
and variable annuity products through a network of general agencies located
throughout the United States. The Company also provides participating
traditional life insurance, annuity contracts, pension products, as well as,
group life, group medical, and group disability coverage.
Prior to the merger of New England Mutual Life Insurance Company (NEMLICO)
with MetLife on August 30, 1996, New England Life Insurance Company (NELICO),
formerly known as New England Variable Life Insurance Company (NEVLICO) was a
subsidiary of NEMLICO. NEMLICO was merged directly into MetLife and ceased to
exist as a separate mutual life insurance company. In conjunction with the
merger, NEVLICO became a subsidiary of MetLife and changed its name to New
England Life Insurance Company. NELICO has continued after the merger to
conduct its existing businesses and is also administering the business
activities of the former parent NEMLICO. (Note 13)
NELICO is headquartered in Boston, Massachusetts and became a Massachusetts
chartered company through a legal process known as redomestication. Prior to
the merger, NEVLICO was organized under Delaware law. The capital structure of
NELICO continues in the same form subsequent to the merger with common stock
authorized at 50,000 shares and 20,000 shares issued and outstanding with a
par value of $125 per share. MetLife made an additional statutory capital
contribution to NELICO at the merger date totaling $208,846 consisting of
$129,254 of cash and $79,592 of bonds, real estate, mortgages, common stock of
affiliates and furniture and equipment. Prior to the merger, NELICO received a
capital contribution from NEMLICO for $20,000 in cash. MetLife made an
additional statutory capital contribution to NELICO of $50,000 in cash during
1997, which was offset by $2,469 of returned capital.
Certain companies that were subsidiaries of NEMLICO became subsidiaries of
NELICO as of the merger. The principal subsidiaries of which NELICO owns 100%
of the outstanding common stock are: Exeter Reassurance Company, Ltd., New
England Pension and Annuity Company, and Newbury Insurance Company, Limited,
for insurance operations and New England Securities Corporation and TNE
Advisers, Inc. for other operations. On February 28, 1997, NELICO created and
became the sole owner of New England Life Holdings, Inc. which was established
as a holding company for the non-insurance operations of the Company,
principally, New England Securities and TNE Advisers, Inc. The principal
business activities of the subsidiaries are disclosed below.
Exeter Reassurance Company, Ltd., (Exeter) was incorporated in Bermuda on
November 15, 1994, and registered as an insurer under The Insurance Act 1978
(Bermuda). Exeter engages in financial reinsurance of life insurance and
annuity policies.
New England Pension and Annuity Company (NEPA) was incorporated under the laws
of the State of Delaware on September 12, 1980. NEPA holds licenses in 20
states, but is currently not actively engaged in the sale or distribution of
insurance products.
New England Securities Corporation (NES), a National Association of Securities
Dealers (NASD) registered broker/dealer, conducts business as a wholesale
distributor of investment products through the sales force of NELICO.
Established in 1968, NES offers a range of investment products including
mutual funds, investment partnerships, and individual securities. In 1994, NES
became a Registered Investment Advisor with the Securities and Exchange
Commission (SEC) and now offers individually managed portfolios. NES is the
national distributor for variable annuity and variable life products issued by
NELICO. NES is the sole owner of Hereford Insurance Agency, Inc.
N-6
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Newbury Insurance Company, Limited (Newbury) was incorporated in Bermuda on
May 1, 1987, and is registered as a Class 2 insurer under The Insurance Act
1978 (Bermuda). Newbury provides professional liability and personal injury
coverage to the agents of NELICO through a facultative reinsurance agreement
with Lexington Insurance Company. The policy applies to claims made during the
policy period or during the discovery period with limits of $1,000 each claim,
$1,000 annual aggregate each insured, $3,500, $3,500 and $3,000 annual
aggregate all insured in 1997, 1996 and 1995 respectively.
TNE Advisers, Inc. was incorporated on August 26, 1994, and is registered as
an investment adviser with the SEC, under the Investment Advisers Act of 1940.
TNE Advisers, Inc. was organized to serve as an investment adviser to certain
mutual funds of the New England Zenith Fund and does not intend to engage in
any business activities other than providing investment management and
administrative services.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP), and include
the accounts of NELICO and its subsidiaries in which NELICO has control and a
majority economic interest. The consolidated financial statements have been
prepared as though the current reporting entity had always existed.
Significant intercompany transactions and balances have been eliminated in
consolidation.
Prior to 1996, NELICO, as a wholly owned stock life insurance subsidiary of a
mutual life insurance company, prepared its financial statements in conformity
with accounting practices prescribed or permitted by the Insurance Department
of the State of Delaware (statutory financial statements), which accounting
practices were considered to be GAAP. In 1996, NELICO adopted Interpretation
No. 40, APPLICABILITY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO MUTUAL
LIFE INSURANCE AND OTHER ENTERPRISES (the "Interpretation") and Statement of
Financial Accounting Standards (SFAS) No. 120, ACCOUNTING AND REPORTING BY
MUTUAL LIFE INSURANCE ENTERPRISES AND BY INSURANCE ENTERPRISES FOR CERTAIN
LONG DURATION PARTICIPATING POLICIES (the "Standard"), of the Financial
Accounting Standards Board (FASB). The Interpretation and Standard required
mutual life insurance companies to adopt all standards promulgated by the FASB
in their general purpose financial statements. The cumulative effect of such
adoption of all applicable authoritative GAAP pronouncements as of January 1,
1994 was reflected in the financial statements of NELICO as an adjustment of
equity at January 1, 1994.
As of December 31, 1993, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", which expanded the use of fair value accounting for those
securities that a company does not have positive intent and ability to hold to
maturity. Implementation of SFAS No. 115 increased consolidated equity by
$105, net of deferred income taxes and adjustments of deferred policy
acquisition costs and future policy benefits.
Effective July 1, 1997, management realigned its fixed maturity investment
classifications and transferred all securities classified as held to maturity
to available for sale. As a result, consolidated equity at July 1, 1997
increased by $798, excluding the effects of deferred income taxes, amounts
attributable to participating pension contractholders and adjustments of
deferred policy acquisition costs and future policy benefits.
N-7
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
VALUATION OF INVESTMENTS
As mentioned above, during 1997 management reclassified all of the company's
fixed maturity securities to available for sale. Accordingly, as of December
31, all of the company's investment securities are carried at estimated fair
value. Prior to this reclassification, certain fixed maturity securities
(principally bonds) were carried at amortized cost. Unrealized investment
gains and losses on investment securities are recorded directly as a separate
component of equity net of related deferred income taxes and adjustments of
deferred policy acquisition costs and future policy benefits. Costs of
securities are adjusted for impairments in value deemed to be other than
temporary. Such adjustments are recorded as realized investment losses. All
securities transactions are recorded on a trade date basis.
Real estate is considered held for sale by management and is reported at the
lower of cost or estimated fair market value less allowances for the estimated
cost of sales. No impairment allowance is required on the property.
Policy loans are stated at unpaid principal balances which approximates fair
value.
Short-term investments are stated at amortized cost which approximates fair
value.
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less. These are carried at cost, which approximates fair value.
INVESTMENT RESULTS
Realized investment gains and losses are determined by specific identification
and are presented as a component of revenues. Valuation allowances are netted
against asset categories to which they apply and provisions for losses for
investments are included in investment gains and losses.
PROPERTY AND EQUIPMENT
Property and equipment and leasehold improvements are included in other assets
and are stated at cost, less accumulated depreciation and amortization.
Depreciation is provided using the straight line method over the estimated
useful lives of the assets which generally range from 4 to 15 years or the
term of the lease, if shorter. Amortization of leasehold improvements is
provided using the straight line method over the lesser of the term of the
leases or the estimated useful life of the improvements.
Accumulated depreciation and amortization on property and equipment and
leasehold improvements was $13,203, and $3,118 at December 31, 1997 and 1996,
respectively. Related depreciation and amortization expense was $10,085,
$3,118, and $0 for the years ended December 31, 1997, 1996 and 1995,
respectively.
RECOGNITION OF INCOME AND EXPENSES
Premiums from traditional life and annuity policies with life contingencies
are generally recognized as income when due. Benefits and expenses are matched
with such income so as to result in the recognition of profits over the life
of the contract. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
Reinsurance allowances for individual non-medical health contracts are
recognized as income when due.
Premiums from variable life, universal life and investment-type contracts are
reported as deposits to policyholder account balances. Revenues from these
contracts consist of amounts assessed during the period against policyholder
account balances for mortality charges, policy administration charges and
surrender charges. Policy benefits and claims that are charged to expense
include benefit claims incurred in the period in excess of related
policyholder account balances and interest credited to policyholder account
balances.
N-8
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, agency and
policy issue expenses, all of which vary with and are primarily related to the
production of new business, have been deferred. Deferred policy acquisition
costs are subject to recoverability testing at the time of policy issue and
loss recognition testing at the end of each accounting period.
Deferred policy acquisition costs are amortized over a period up to 40 years
for traditional life, variable life, universal life products and investment-
type products as a constant percentage of estimated gross margins or profits
arising principally from surrender charges and interest, mortality and expense
margins based on historical and anticipated future experience, updated
regularly. The effects of revisions to experience on previous amortization of
deferred policy acquisition costs are reflected in earnings in the period
estimated gross margins or profits are revised.
For non-medical health insurance contracts, deferred policy acquisition costs
are amortized over the life of the contracts (generally between 10 and 30
years) in proportion to anticipated reinsurance allowances.
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life insurance
policies are equal to the aggregate of net level premium reserve for death and
endowment policy benefits and the liability for terminal dividends. The net
level premium reserve is calculated based on the dividend fund interest rate
and mortality rates guaranteed in calculating the cash surrender values
described in such contracts. Interest rates used in establishing future policy
benefit liabilities range from 4 percent to 5 percent for life insurance
policies.
Policyholder account balances for variable life, universal life and
investment-type contracts are equal to the policy account values. The policy
account values represent an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
Benefit liabilities for non-medical health insurance are calculated as the net
GAAP liability plus the unamortized deferred acquisition costs. Benefit
liabilities for disabled lives are estimated using the present value of
benefits method and experience assumptions as to claim terminations, expenses
and interest.
INCOME TAXES
NELICO and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., files a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and nonlife
insurance direct subsidiaries. The future tax consequences of temporary
differences between financial reporting and tax basis of assets and
liabilities are measured as of the balance sheet dates and are recorded as
deferred income tax assets or liabilities.
SEPARATE ACCOUNT OPERATIONS
Separate Accounts are established in conformity with the state insurance laws
and are generally not chargeable with liabilities that arise from any other
business of the Company. Separate Account assets are subject to general
account claims only to the extent the value of such assets exceed the Separate
Account liabilities.
Investments held in the Separate Accounts (stated at estimated fair market
value) and liabilities of the Separate Accounts (including participants'
corresponding equity in the Separate Accounts) are reported separately as
assets and liabilities. Deposits to Separate Accounts are reported as
increases in Separate Account liabilities and are not reported in revenues.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues.
N-9
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
POLICYHOLDER DIVIDENDS
The amount of policyholder dividends to be paid is determined annually by the
Board of Directors. The aggregate amount of policyholder dividends is related
to actual interest, mortality, morbidity and expense experience for the year
and management's judgment as to the appropriate level of statutory surplus to
be retained by the Company.
CONSOLIDATED STATEMENTS OF CASH FLOWS--NON CASH TRANSACTIONS
For the years ended December 31, 1997, 1996 and 1995, the Company received
capital contributions in the form of transfer of assets of $0, $79,592 and
$54,028, respectively.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
The FASB has issued SFAS No. 130 REPORTING COMPREHENSIVE INCOME which
establishes standards for reporting and presentation of comprehensive income
and its components. Comprehensive income (loss) was $35,589, $(12,928), and
$47,792 in 1997, 1996, and 1995, respectively. Consolidated statements of
comprehensive income, which will be required in 1998, have not been presented
as the Company has not determined the individual amounts to be displayed in
such statements.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts to conform to
the 1997 presentation.
N-10
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
2. INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
The amortized cost, gross unrealized gain (loss) and estimated fair value of
fixed securities and equity securities, by category, are shown below.
AVAILABLE FOR SALE SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 12,105 $ 101 $ -- $ 12,206
Foreign governments.................... 2,316 67 -- 2,383
Corporate.............................. 620,916 41,564 3,308 659,172
Mortgage-backed securities............. 57,348 3,282 -- 60,630
-------- -------- ------- --------
Total Fixed Maturities............... $692,685 $ 45,014 $ 3,308 $734,391
======== ======== ======= ========
Equity Securities:
Common stocks.......................... 9,424 216 241 9,399
-------- -------- ------- --------
Total Equity Securities.............. $ 9,424 $ 216 $ 241 $ 9,399
======== ======== ======= ========
AVAILABLE FOR SALE SECURITIES
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 5,465 $ 47 $ 25 $ 5,487
Foreign governments.................... 1,577 1 57 1,521
Corporate.............................. 505,683 18,637 7,093 517,227
Mortgage-backed securities............. 49 1 -- 50
-------- -------- ------- --------
Total Fixed Maturities............... $512,774 $ 18,686 $ 7,175 $524,285
======== ======== ======= ========
HELD TO MATURITY SECURITIES
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 7,299 $ 51 $ 6 $ 7,344
States and political subdivisions...... 480 38 -- 518
Corporate.............................. 21,887 860 99 22,648
-------- -------- ------- --------
Total Fixed Maturities............... $ 29,666 $ 949 $ 105 $ 30,510
======== ======== ======= ========
</TABLE>
N-11
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Included in net unrealized investment gains (losses) are unrealized gains on
foreign currency investments as well as unrealized gains on the associated
forward foreign exchange contracts. Unrealized investment gains (losses)
consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net unrealized gains on investments................................ $281 $ 8
Unrealized gains (losses) on the maturity of forward contracts..... 14 14
---- ---
$295 $22
==== ===
</TABLE>
The amortized cost and estimated fair value of bonds classified as available
for sale, by contractual maturity, at December 31, 1997 are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less................................. $ 5,729 $ 5,723
Due after one year through five years................... 61,395 62,503
Due after five years through ten years.................. 155,795 157,820
Due after ten years..................................... 412,418 447,715
-------- --------
Subtotal.............................................. 635,337 673,761
Mortgage-backed securities.............................. 57,348 60,630
-------- --------
Total................................................. $692,685 $734,391
======== ========
</TABLE>
Bonds not due at a single maturity date have been included in the above tables
in the year of final maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without prepayment penalties.
ASSETS HELD IN TRUST FOR THE BENEFIT OF OTHER PARTIES
Exeter has deposited in a trust for the benefit of MetLife certain assets for
the purpose of allowing MetLife to record a reserve credit as permitted by
regulations of the State of New York. Under the terms of the Trust Agreement
MetLife enjoys broad powers to withdraw funds from the trust for the payment
of policyholder claims incurred by Exeter under its reinsurance treaty and to
direct the investment of funds held in the trust. The Trust Agreement limits
the types of investments that may be held in trust to cash and certificates of
deposit, U.S. Government bonds and notes and publicly traded securities of
U.S. companies having a National Association of Insurance Commissioners (NAIC)
rating of 1. At December 31, 1997 the trust held $516,491 of bonds and short-
term investments, and at December 31, 1996, the trust held $787 of cash and
$468,847 of bonds and short-term investments.
ASSETS ON DEPOSIT
As of December 31, 1997 and 1996, the Company had assets on deposit with
regulatory agencies of $7,020 and $5,884, respectively.
N-12
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
3. NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................. $50,348 $44,630 $39,264
Equity securities................................ 4,915 -- --
Mortgage loans on real estate.................... -- 110 234
Real estate...................................... 815 55 --
Policy loans..................................... 5,081 3,734 2,831
Cash, cash equivalents and short-term
investments..................................... 4,160 3,656 1,174
Other investment income.......................... 591 38 --
------- ------- -------
Gross investment income.......................... 65,910 52,223 43,503
Investment expenses.............................. (4,851) (2,595) (1,688)
------- ------- -------
Net Investment income............................ $61,059 $49,628 $41,815
======= ======= =======
</TABLE>
Investment gains (losses) are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Fixed maturities................................... $ (774) $15,467 $21,981
Other.............................................. 1,032 512 (1)
------ ------- -------
Subtotal......................................... 258 15,979 21,980
Investment gains (losses) related to accelerated
amortization of deferred
policy acquisition costs.......................... (632) 7,157 11,466
------ ------- -------
Investment gains (losses), net..................... $ 890 $ 8,822 $10,514
====== ======= =======
</TABLE>
Proceeds from the sales of bonds classified as available for sale during 1997,
1996 and 1995 were $143,107, $275,008 and $518,417 respectively. During 1997,
1996 and 1995, respectively, gross gains of $1,846, $19,109 and $22,558, and
gross losses of $1,489, $3,878, and $577 were realized on those sales.
Proceeds from the call of direct issue fixed maturities classified as held to
maturity during 1997, 1996 and 1995 were $0, $5,291 and $0, respectively.
During 1997, 1996 and 1995, respectively, gross gains of $0, $236 and $0, and
gross losses of $0, $0 and $0 were realized due to prepayment premiums
received. In 1997 the Company transferred all fixed maturities classified as
held to maturity to available for sale.
N-13
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
The net unrealized investment gains (losses), which are included in the
consolidated balance sheets as a component of equity and the changes for the
corresponding years are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Year ended December 31
Balance, beginning of year................... $ 3,727 $ 26,356 $ (670)
Change in unrealized investment gains
(losses).................................. 30,207 (46,850) 58,947
Change in unrealized investment gains
(losses) attributable to:
Deferred policy acquisition cost
allowances.............................. (9,446) 12,211 (17,884)
Deferred income tax (expense) benefit.... (7,141) 12,010 (14,037)
-------- -------- --------
Balance, end of year......................... $ 17,347 $ 3,727 $ 26,356
======== ======== ========
December 31
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed maturities......................... $ 41,706 $ 11,525 $ 58,369
Other.................................... 22 (4) 2
-------- -------- --------
41,728 11,521 58,371
Amounts of unrealized investment gains
(losses) attributable to:
Deferred policy acquisition cost
allowances................................ (15,202) (5,756) (17,967)
Deferred income tax (expense) benefit...... (9,179) (2,038) (14,048)
-------- -------- --------
Balance, end of year......................... $ 17,347 $ 3,727 $ 26,356
======== ======== ========
</TABLE>
Net unrealized investment gains at December 31, 1997, before deferred Federal
income tax, reflects gross unrealized gains of $45,014 and gross unrealized
losses of $3,308.
4. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
In the normal course of business, the Company assumes and cedes reinsurance
with other insurance companies. The accompanying consolidated statements of
earnings are presented net of reinsurance.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................................ $ 30,975 $ 2,682 $ 2,794
Reinsurance assumed............................ 62,315 67,483 69,330
Reinsurance ceded.............................. (29,674) (32,755) (33,558)
-------- -------- --------
Net premiums earned............................ $ 63,616 $ 37,410 $ 38,566
======== ======== ========
</TABLE>
N-14
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Policyholder benefits in the accompanying consolidated statements of earnings
are presented net of reinsurance recoveries of $55,445, $23,962 and $22,577
for the years ended December 31, 1997, 1996 and 1995, respectively. Premiums
and other receivables in the accompanying consolidated balance sheets include
reinsurance recoveries of $1,489 and $200 at December 31, 1997 and 1996,
respectively.
A contingent liability exists with respect to reinsurance ceded should the
reinsurers be unable to meet their obligations.
5. INCOME TAXES
Income tax expense for U.S. operations has been calculated in accordance with
the provisions of the Internal Revenue Code, as amended (the "Code").
NELICO and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., files a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and nonlife
insurance direct subsidiaries. The Company uses the liability method of
accounting for income taxes. Income tax provisions are based on income
reported for financial statement purposes. Deferred income taxes arise from
the recognition of temporary differences between income determined for
financial reporting purposes and income tax purposes.
A summary of income tax expense (benefit) in the consolidated statements of
earnings is shown below:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
1997
Federal............................................ $8,473 $(3,772) $ 4,701
State and Local.................................... 316 (29) 287
------ ------- -------
Total............................................ $8,789 $(3,801) $ 4,988
====== ======= =======
1996
Federal............................................ $5,333 $(1,531) $ 3,802
State and Local.................................... -- (751) (751)
------ ------- -------
Total............................................ $5,333 $(2,282) $ 3,051
====== ======= =======
1995
Federal............................................ $5,504 $ 6,355 $11,859
State and Local.................................... -- 444 444
------ ------- -------
Total.......................................... $5,504 $ 6,799 $12,303
====== ======= =======
</TABLE>
Reconciliations of the differences between income taxes of operations computed
at the federal statutory tax rates and consolidated provisions for income
taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income before taxes.............................. $26,957 $12,752 $33,069
Income tax rate.................................. 35% 35% 35%
------- ------- -------
Expected income tax expense at federal statutory
income tax rate................................. 9,435 4,463 11,574
Tax effect of:
Change in valuation allowance.................. -- (13,948) (413)
NOL benefit write-off.......................... -- 13,012 --
State and local income taxes................... (1,013) (488) 289
Other, net..................................... (3,434) 12 853
------- ------- -------
Income Tax Expense............................... $ 4,988 $ 3,051 $12,303
======= ======= =======
</TABLE>
N-15
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
The net deferred tax liabilities recorded represents the net temporary
differences between the tax bases of assets and liabilities and their amounts
for financial reporting. The components of the net deferred tax liabilities at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities............................ $ 63,723 $ 83,304
Net operating loss carryforward..................... -- 12,548
Other............................................... 81,988 14,690
--------- ---------
Total gross assets................................ 145,711 110,542
--------- ---------
Deferred tax liabilities:
Investments......................................... (2,456) (2,526)
Deferred policy acquisition costs................... (168,270) (132,965)
Net unrealized capital gains........................ (9,179) (2,038)
Other............................................... (7,872) (12,476)
--------- ---------
Total gross liabilities........................... (187,777) (150,005)
--------- ---------
Net deferred tax liability............................ $ (42,066) $ (39,463)
========= =========
</TABLE>
The sources of the deferred tax expense (benefit) and their tax effects are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Policyholder liabilities....................... $(23,759) $(17,818) $(4,110)
Net operating loss carryforward................ 12,548 464 --
Investments.................................... 1,319 -- --
Deferred policy acquisition costs.............. 33,621 21,828 13,878
Other, net..................................... (27,530) (6,756) (2,969)
-------- -------- -------
Total........................................ $ (3,801) $ (2,282) $ 6,799
======== ======== =======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
Prior to the merger, substantially all employees were employed by NEMLICO and
were covered under the Home Office Retirement Plan and related Select
Employees' Supplemental Retirement Plan (collectively referred to as the
Plans). Subsequent to the merger substantially all of the employees became
employees of the Company and continued to be covered by the Plans, which
became the Plans of the Company. Under the Plans retirement benefits are based
primarily on years of service and the employee's average salary. The Company's
funding policy is to contribute annually an amount that can be deducted for
federal income tax purposes using a different actuarial cost method and
different assumptions from those used for financial reporting purposes. The
Company's net pension cost charged to income in 1997, 1996, and 1995 was $277,
$159, and $150, respectively, which represents the Company's allocation of the
total net periodic pension cost of the Plans as shown below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost................................... $ 5,310 $ 5,761 $ 4,797
Interest cost on projected benefit obligation.. 13,958 12,489 11,012
Actual return on assets........................ (22,250) (15,468) (21,221)
Net amortization and deferrals................. 11,092 6,009 13,059
-------- -------- --------
Net periodic pension cost.................... $ 8,110 $ 8,791 $ 7,647
======== ======== ========
</TABLE>
N-16
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
The assumed long-term rate of return on assets used in determining the net
periodic pension cost was 8.5 percent.
The following information for the Plans includes amounts relating to NEMLICO.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of accumulated plan benefits.... $143,681 $133,000
======== ========
Projected benefit obligation............................ 193,652 182,000
======== ========
Net assets available for plan benefits.................. 150,820 130,992
======== ========
Unrecognized prior service cost......................... 2,844 224
======== ========
Unrecognized net (loss) from past experience difference
from that assumed...................................... (18,936) (37,327)
======== ========
Unamortized transition gains............................ $ 5,832 $ 4,015
======== ========
</TABLE>
The weighted average discount rate was 7.75%, 7.5% and 8.0% in 1997, 1996 and
1995, respectively. The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit was 5.0% for
1997, 1996 and 1995. Assets of the Plans consist of bonds, stocks, real
estate, and insurance contracts and have an assumed long-term rate of return
of 8.75% for 1997, and 8.5% for 1996 and 1995.
OTHER POSTRETIREMENT BENEFITS
Prior to the merger, NEMLICO provided certain health care and life insurance
benefits for retired employees. Substantially all employees would have become
eligible for these benefits had they reached retirement age while working for
NEMLICO. Subsequent to the merger, these benefits are being provided by
MetLife, with respect to benefits earned prior to the merger, and the Company,
with respect to benefits earned subsequent to the merger.
As claims were incurred, the Company made contributions to the plan in 1997
and 1996 which were considered immaterial. The total contributions made to the
plan were $3,670 and $3,386, in 1997 and 1996, respectively. The following
table sets forth the plan's fiscal year end funded status:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $33,823 $28,566
Fully eligible active plan participants................... 4,487 5,482
All other actives......................................... 11,114 11,098
------- -------
Total....................................................... 49,424 45,146
plus: unrecognized net gain............................... 15,726 19,997
------- -------
Accrued postretirement benefit liability.................... $65,150 $65,143
======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
The components of net postretirement benefit cost
were:
Service cost........................................ $ 880 $ 876 $ 876
Interest cost....................................... 3,690 3,183 3,768
Amortization of gain................................ (849) (1,155) (1,043)
------ ------ ------
Net periodic postretirement benefit cost.............. $3,721 $2,904 $3,601
====== ====== ======
</TABLE>
N-17
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Net periodic postretirement benefit costs for the years ended December 31,
1997, 1996 and 1995, includes the cost of benefits earned by active employees,
interest cost, gains and losses arising from differences between actuarial
assumptions and actual experience, and amortization of the transition
obligation. The discount rate used to determine the net periodic
postretirement benefit cost was 7.75%, 7.25% and 8.5% for 1997, 1996 and 1995,
respectively.
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.75% and 7.50% as of December 31, 1997 and 1996, respectively.
The health care cost trend rate was 7.8% graded to 5.0% over 8 years for 1997,
and 8.2% graded to 5.0% over 8 years for 1996. The health care cost trend rate
assumption has a minimal impact on the amounts reported, since the Company has
capped its contributions at 200% of 1993 levels.
7. LEASES
LEASE EXPENSE
The Company has entered into various lease agreements for office space, data
processing and other equipment. Future gross minimum rental payments under
non-cancelable leases for 1998 and the succeeding four years are $13,323,
$13,057, $11,765, $10,739 and $10,468, respectively, and $95,762 thereafter.
Minimum future sub-lease rental income on these non-cancelable leases for 1998
and the succeeding four years is $3,553, $3,620, $3,600, $3,578 and $3,578,
respectively, and $15,257 thereafter.
8. DEBT
In 1995, the Company borrowed $25,000 from a bank, bearing interest at a
variable rate, equal to the greater of the bank's base rate or money market
rates plus 0.6% per annum payable monthly, 5.8% at December 31, 1997 and 5.7%
at December 31, 1996. The loan is collateralized by sales loads and surrender
charges collected on a defined block of variable life insurance policies
issued by the Company. Repayment is structured in a manner to result in
repayment over a term of five years. The carrying value of the loan
approximates its fair value of $21,965, repayments made during 1997 were
$3,181.
Exeter privately placed $75,118 aggregate principal amount, subordinated notes
payable (the "Notes"), on December 30, 1994 which are due December 30, 2004,
with no interest payments for the first five years and semiannual interest
payments thereafter. The Notes have been discounted to yield 8.45% for the
first five years and pay interest at 8.845% thereafter. The Notes are
expressly subordinated in right of payment to the insurance liabilities of
Exeter. The Notes are not subject to redemption by Exeter or through the
operation of a sinking fund prior to maturity. Proceeds of the issuance of the
Notes, net of discount, amounted to $50,000. The issue costs of the Notes of
$130 were deducted from Notes, net of discount, to arrive at net subordinated
notes payable of $49,870. The issue cost will be amortized over the life of
the Notes. The Notes are held by MetLife, and the carrying value of the loan
approximates its fair value of $64,016, repayments made during 1997 were $0.
9. CONTINGENCIES
The Company has no contingent liabilities which might materially affect the
financial position of the Company or the results of its operations. There are
no pending legal proceedings which are beyond the ordinary course of business
which could have a material financial effect.
N-18
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
10. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Compensation costs........................... $ 58,754 $ 36,172 $ 23,630
Commissions.................................. 77,351 51,617 37,476
Debt expense................................. 6,750 6,261 5,659
Amortization of policy acquisition costs..... 17,723 22,233 21,199
Capitalization of policy acquisition costs... (157,670) (98,016) (65,850)
Rent expense, net of sub-lease income of
$719, $119 and $0........................... 4,473 3,060 1,609
Other........................................ 136,961 122,559 75,701
--------- -------- --------
Total...................................... $ 144,342 $143,886 $ 99,424
========= ======== ========
</TABLE>
11. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments presented below have
been determined by the Company using market information available as of
December 31, 1997 and 1996 and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value for financial instruments for which there
are no available market value quotations.
The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
<S> <C> <C>
DECEMBER 31, 1997:
ASSETS
Fixed Maturities......................................... $734,391 $734,391
Equity Securities........................................ 9,399 9,399
Policy loans............................................. 104,783 104,783
Short-term investments................................... 27,944 27,944
Cash and cash equivalents................................ 74,148 74,148
LIABILITIES
Policyholder account balances............................ 9,271 8,508
Other policyholder funds................................. 4,324 4,324
Short and long-term debt................................. 85,981 85,981
DECEMBER 31, 1996:
ASSETS
Fixed Maturities......................................... $553,951 $554,795
Policy loans............................................. 76,263 76,263
Short-term investments................................... 156,560 156,560
Cash and cash equivalents................................ 49,147 49,147
LIABILITIES
Policyholder account balances............................ 3,368 3,168
Other policyholder funds................................. 2,868 2,868
Short and long-term debt................................. 84,057 84,057
</TABLE>
N-19
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
For bonds that are publicly traded, estimated fair value was obtained from an
independent market pricing service. Publicly traded bonds represented
approximately 91% of the carrying value and estimated fair value of the total
bonds as of December 31, 1997 and 96% of the carrying value and estimated fair
value of the total bonds as of December 31, 1996. For all other bonds,
estimated fair value was determined by management, based primarily on interest
rates, maturity, credit quality and average life. Estimated fair values of
policy loans were based on discounted projected cash flows using U.S. Treasury
rates to approximate interest rates and Company experience to project patterns
of loan accrual and repayment. For cash and cash equivalents and short-term
investments, the carrying amount is a reasonable estimate of fair value.
The fair values for policyholder account balances are estimated using
discounted projected cash flows, based on interest rates being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued. Other policyholder funds include liabilities without
defined durations such as policy proceeds and dividends left with the Company.
The estimated fair value of such liabilities, which generally are of short
duration or have periodic adjustments of interest rates, approximates their
carrying value.
The estimated fair value of short and long-term debt was determined using
rates currently available to the Company for debt with similar terms and
remaining maturities.
12. STATUTORY FINANCIAL INFORMATION
The following reconciles statutory net income and statutory surplus and
reflects the corporate reorganization described in Note 1 determined in
accordance with accounting practices prescribed or permitted by insurance
regulatory authorities with net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income (loss)................ $ (37,358) $ (46,021) $ 375
Adjustments to GAAP for life insurance
companies:
Future policy benefits and policyholders
account balances........................ (718,229) (41,174) (9,616)
Deferred policy acquisition costs........ 139,947 68,626 45,823
Deferred Federal Income taxes............ 4,009 2,283 (6,799)
Statutory interest maintenance reserve... 342 231 --
Other, net............................... 633,258 25,756 (9,017)
--------- --------- ---------
Net GAAP Earnings.......................... $ 21,969 $ 9,701 $ 20,766
========= ========= =========
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory surplus.......................... $ 307,290 $ 355,853 $ 203,374
Adjustments to GAAP for life insurance
companies:
Future policy benefits and policyholders
account balances........................ (279,510) (195,273) (154,099)
Deferred policy acquisition costs........ 565,769 434,637 353,809
Deferred Federal Income taxes............ (43,318) (40,185) (55,201)
Valuation of investments................. 56,873 11,503 58,063
Statutory interest maintenance reserve... 571 306 74
Statutory investment valuation reserves.. 8,388 3,335 373
Surplus notes............................ (64,016) (58,911) (54,210)
Receivables from reinsurance
transactions............................ 27,519 26,030 --
Other, net............................... 53,976 13,127 2,320
--------- --------- ---------
GAAP Equity................................ $ 633,542 $ 550,422 $ 354,503
========= ========= =========
</TABLE>
N-20
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
13. RELATED PARTY TRANSACTIONS
Prior to the merger NELICO operated under a service agreement with its parent
NEMLICO to receive all executive, legal, clerical and other personnel
services. Subsequent to the merger, the Company has entered into a Service
Agreement to provide all administrative, accounting, legal and similar
services to MetLife for certain administered contracts, which are life
insurance and annuity contracts issued by NEMLICO prior to the merger of
NEMLICO and MetLife and those policies and contracts defined in the Service
Agreement as Transition Policies which were sold by the Company's field force
post-merger.
The Company charged MetLife $186,757 including accruals for administrative
services on NEMLICO administered contracts for 1997. The Company charged
MetLife $88,043 including accruals for administrative services on NEMLICO
administered contracts for the period of September 1, 1996 through December
31, 1996. Prior to the merger, the Company paid $62,643 to NEMLICO for
administrative services on variable-life and variable-annuity contracts for
the period of January 1, 1996 through August 31, 1996. In 1995, the Company
paid $50,875 to NEMLICO for administrative services. These services were
charged based upon direct costs incurred. Service fees are recorded by NELICO
as a reduction in operating expenses.
In 1997, MetLife made a capital contribution to the Company of $50,000 in
cash. In 1996, MetLife made a non-cash capital contribution to the Company of
common stock of affiliated companies consisting of Exeter, NEPA, NES, Newbury,
Omega Reinsurance Corp., TNE Advisers Inc., and TNE Information Services Inc.
with a total estimated statutory fair value of $29,558. MetLife also made non-
cash capital contributions of home-office properties of $10,301, socially-
responsible investments with a book value of $11,916, furniture, equipment and
leasehold improvements of $27,816, and a cash contribution of $128,412. Prior
to the merger, NEMLICO made a cash contribution to NELICO of $20,000.
In 1995, NEMLICO made a non-cash capital contribution to NELICO of publicly-
traded debt securities and private-placement obligations with an estimated
fair value of $54,028. NELICO received cash contributions from NEMLICO of
$8,215 in 1995.
The Company entered into a lease agreement with MetLife on August 30, 1996 for
the home-office building which it occupies on 501 Boylston Street in Boston,
Massachusetts. The Company paid lease payments to MetLife of $2,340 and $780
in 1997 and 1996, respectively.
On June 21, 1996, NEMLICO purchased a mortgage from NELICO for $2,217 which
included principal of $2,204, and interest of $13.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1997 were $16,799
and $1,127, respectively. Included in accrued income at December 31, 1997,
were amounts receivable for sales-based commissions from NEF and SSR totaling
$233 and $13, respectively. In 1997, NES earned asset-based income of $8,777
and $61 on average assets of approximately $3.9 billion and $33 million under
management with NEF and SSR, respectively.
Exeter has a privately-placed subordinated notes payable to MetLife for
$64,016 at December 31, 1997 and $58,911 at December 31, 1996.
Stockholder dividends or other distributions proposed to be paid by NELICO
must be approved by the Massachusetts Commissioner of Insurance if such
dividends or distributions, together with other dividends or distributions
made within the preceding 12 months, exceeds the greater of (1) 10% of
NELICO's statutory surplus as regards policyholders as of the previous
December 31, or (2) NELICO's statutory net gain from operations for the 12
month period ending the previous December 31.
N-21
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS,
EXCEPT AS NOTED)
Of the statutory profits earned by NELICO on participating policies and
contracts, the portion which shall inure to the benefit of NELICO's
stockholder shall not exceed the larger of (1) 10% of such statutory profits,
or (2) fifty cents per year per thousand dollars of participating life
insurance other than group term insurance in force at the end of the year.
14. SUBSEQUENT EVENTS
In February 1998, the Company signed a definitive agreement to acquire all of
the outstanding common stock of Nathan Lewis Holding Corp. (Nathan Lewis) a
broker-dealer based in New York City. Under the terms of the agreement, the
Company will pay approximately $28 million in cash at the close and $2 million
per year over the next three years subject to certain financial conditions.
Nathan Lewis had approximately $22 million in assets and earned $2.1 million
on revenues of $78.4 million for the twelve month fiscal period ended
September 30, 1997. The acquisition, which is expected to close in the second
quarter of 1998, will be accounted for as a purchase under generally accepted
accounting principles.
N-22
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholder of
New England Variable Life Insurance Company:
We have audited the statutory statements of operations, surplus, and cash
flows of New England Variable Life Insurance Company (a wholly-owned
subsidiary of New England Mutual Life Insurance Company) for the year ended
December 31, 1995. These statutory financial statements (not presented
separately herein) are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations,
surplus, and cash flows are free of material misstatement. An audit includes
examining, on test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall presentation of the statements of operations, surplus,
and cash flows. We believe that our audit of the statements of operations,
surplus, and cash flows provides a reasonable basis for our opinion.
As described more fully in Note 1 to the aforementioned financial statements,
the Company prepared the statements of operations, surplus, and cash flows
using accounting practices prescribed or permitted by the Insurance Department
of the State of Delaware (SAP), which practices after 1996 (upon issuance of
1996 financial statements) differ from generally accepted accounting
principles (GAAP).
In our report dated March 8, 1996, we expressed our opinion that the 1995
statements of operations, surplus, and cash flows, prepared using SAP,
presented fairly, in all material respects the results of operations and cash
flows of New England Variable Life Insurance Company for the year ended
December 31, 1995 in conformity with GAAP. As described in Note 1 to the
aforementioned financial statements, financial statements of wholly-owned
subsidiaries of mutual life insurance enterprises prepared in accordance with
SAP are no longer considered to be presented in conformity with GAAP.
Accordingly, our present opinion on the 1995 statements of operations,
surplus, and cash flows is different from that expressed in our previous
report.
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above (and not
included herein) do not present fairly, in conformity with GAAP, the results
of operations or cash flows of New England Variable Life Insurance Company for
the year ended December 31, 1995.
In our opinion, the statutory financial statements referred to above (and not
included herein) present fairly, in all material respects, the results of
operations and cash flows of New England Variable Life Insurance Company for
the year ended December 31, 1995, on the basis of accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 8, 1996, except for the information in the
second paragraph under "Basis of Presentation
and Principles of Consolidation" of Note 1, for which
the date is February 18, 1997
N-23
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT ON INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholder of
New England Pension and Annuity Company:
We have audited the statutory statements of operations and surplus, and cash
flows of New England Pension and Annuity Company (a wholly-owned subsidiary of
New England Mutual Life Insurance Company) for the year ended December 31,
1995. These statutory financial statements (not presented separately herein)
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations and
surplus, and cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall presentation of the statements of operations and
surplus, and cash flows. We believe that our audit of the statements of
operations and surplus, and cash flows provides a reasonable basis for our
opinion.
As described more fully in Note 1 to the aforementioned financial statements,
the Company prepared the statements of operations and surplus, and cash flows
using accounting practices prescribed or permitted by the Insurance Department
of the State of Delaware (SAP), which practices after 1996 (upon issuance of
1996 financial statements) differ from generally accepted accounting
principles (GAAP).
In our report dated March 8, 1996, we expressed our opinion that the 1995
statements of operations and surplus, and cash flows, prepared using SAP,
presented fairly, in all material respects the results of operations and cash
flows of New England Pension and Annuity Company for the year ended December
31, 1995 in conformity with GAAP. As described in Note 1 to the aforementioned
financial statements, financial statements of wholly-owned subsidiaries of
mutual life insurance enterprises prepared in accordance with SAP are no
longer considered to be presented in conformity with GAAP. Accordingly, our
present opinion on the 1995 statements of operations and surplus, and cash
flows is different from that expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above (and not
included herein) do not present fairly, in conformity with GAAP, the results
of operations or cash flows of New England Pension and Annuity Company for the
year ended December 31, 1995.
In our opinion, the statutory financial statements referred to above (and not
included herein) present fairly, in all material respects, the results of
operations and cash flows of New England Pension and Annuity Company for the
year ended December 31, 1995, on the basis of accounting practices prescribed
or permitted by the Insurance Department of the State of Delaware.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 8, 1996, except for the information in the
second paragraph under "Basis of Presentation and
Principles of Consolidation" of Note 1, for which the
date is February 18, 1997
N-24
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
April 23, 1996
To The Board of Directors and Shareholder of
Exeter Reassurance Company, Ltd.
We have audited the statutory statements of operations and surplus, and cash
flows of Exeter Reassurance Company, Ltd. (a wholly-owned subsidiary of New
England Mutual Life Insurance Company) for the year ended December 31, 1995.
These statutory financial statements (not presented separately herein) are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
statements of operations and surplus, and cash flows are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the statements of operations and surplus, and cash flows. We believe that
our audit of the statements of operations and surplus, and cash flows provides
a reasonable basis for our opinion.
The statutory statements of operations and surplus, and cash flows have been
prepared in conformity with The Insurance Act 1978, amendments thereto and
related regulations and are not intended to be presented in conformity with
accounting principles generally accepted in the United States of America
("U.S. GAAP").
In our opinion, because of the effects of the matter discussed in the
preceding paragraph, the financial statements referred to above (and not
included herein) do not present fairly in conformity with U.S. GAAP, the
results of operations or cash flows of Exeter Reassurance Company, Ltd. for
the year ended December 31, 1995. In our opinion, the statutory financial
statements referred to above (and not included herein) present fairly, in all
material respects, the results of operations and cash flows of Exeter
Reassurance Company, Ltd. for the year ended December 31, 1995 in conformity
with the Insurance Act 1978, amendments thereto and related regulations.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
N-25
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholder of
New England Securities Corporation:
We have audited the consolidated statements of operations, shareholder's
equity, and cash flows of New England Securities Corporation for the year
ended December 31, 1995. These financial statements (not presented separately
herein) are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations,
shareholder's equity, and cash flows are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements of operations,
shareholder's equity, and cash flows. We believe that our audit of the
statements of operations, shareholder's equity, and cash flows provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above (and not included
herein) present fairly, in all material respects, the consolidated results of
operations and cash flows of New England Securities Corporation for the year
ended December 31, 1995 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 9, 1996
N-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholder and Board of Directors of
TNE Advisers, Inc.:
We have audited the statements of operations, changes in shareholder's equity,
and cash flows of TNE Advisers, Inc. for the year ended December 31, 1995.
These financial statements (not presented separately herein) are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations,
changes in shareholder's equity, and cash flows are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the statements of operations, changes in shareholder's equity, and cash
flows. We believe that our audit of the statements of operations, changes in
shareholder's equity, and cash flows provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above (and not included
herein) present fairly, in all material respects, the results of operations
and cash flows of TNE Advisers, Inc. for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 29, 1996
N-27
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
March 14, 1996
To The Shareholders of
Newbury Insurance Company, Limited
We have audited the statements of earnings and retained earnings, and cash
flows of Newbury Insurance Company, Limited for the year ended December 31,
1995 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of earnings and retained
earnings, and cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statements of earnings and retained
earnings, and cash flows. We believe that our audit of the statements of
earnings and retained earnings, and cash flows provides a reasonable basis for
our opinion.
The provision for losses incurred but not reported is calculated in the manner
described in note 3(b). We have not reviewed the underlying information used
in the calculation of the provision and therefore we have been unable to
determine whether the provision for the year ended December 31, 1995 is
adequate, deficient or excessive.
In our opinion, except for the effects of such adjustments, if any, that might
have been determined to be necessary had we been able to assess fully the
matter described in the preceding paragraph, the financial statements referred
to above (and not included herein) present fairly, in all material respects,
the results of operations and cash flows of Newbury Insurance Company, Limited
for the year ended December 31, 1995, in conformity with accounting principles
generally accepted in the United States of America.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
N-28
<PAGE>
NEW ENGLAND LIFE
INSURANCE COMPANY
Zenith Survivorship Life
Flexible Premium Adjustable
Variable Survivorship Life Insurance Policies
Supplement Dated May 1, 1998 to
Prospectus Dated May 1, 1997
This supplement updates certain information contained in the prospectus
dated May 1, 1997. You should read and retain this supplement. A complete
prospectus dated May 1, 1998 is available free of charge upon written request
to New England Life Insurance Company ("NELICO"). The May 1, 1998 prospectus
describes the Policies as modified since the date you purchased your Policy;
accordingly, certain benefits and charges discussed therein will differ from
the benefits and charges of your Policy.
NELICO is an indirect wholly-owned subsidiary of Metropolitan Life Insurance
Company ("MetLife"). NELICO's Home Office is 501 Boylston Street, Boston,
Massachusetts 02116.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS SUPPLEMENT IS NOT VALID UNLESS ACCOMPANIED OR PRECEDED BY THE CURRENT
PROSPECTUS OF THE NEW ENGLAND ZENITH FUND AND OF THE VARIABLE INSURANCE
PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II, WHICH ARE ATTACHED AT
THE END OF THIS SUPPLEMENT. THE SUPPLEMENT AND PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
<PAGE>
POLICY VALUES AND BENEFITS
EXTENDING THE MATURITY DATE
This section is modified as follows:
If approved in your state, NELICO will issue or amend your Policy with an
extended maturity endorsement. (The endorsement will be added only prior to
the original Maturity Date.) If the extended maturity endorsement is added to
the Policy, the Policy will not mature until the date of the younger insured's
death (the "Extended Maturity Date"). In addition, on and after the original
Maturity Date, the death benefit will equal the cash value on the date of
death; or the greater of (1) the cash value on the date of death and (2) the
Policy face amount, if, on the original Maturity Date, the total premiums paid
in each Policy year accumulated at 4% from the first day of the Policy year,
less every partial surrender accumulated at 4% from the date of surrender, is
not less than the "Age 100 Amount" shown in the Policy. (For this purpose,
premiums paid within 20 days prior to a Policy anniversary are treated as if
paid in the next Policy year.) The Age 100 Amount is based on the Guaranteed
Death Benefit 2 premium being paid each Policy year until the original
Maturity Date (rather than until age 80 of the younger insured.) Currently, no
cost of insurance or minimum death benefit guarantee charges will be deducted
after the original Maturity Date. No premiums can be paid after the original
Maturity Date unless necessary to prevent lapse of the Policy. All riders
attached to the Policy and in effect on the original Maturity Date, other than
the extended maturity endorsement, will terminate on the original Maturity
Date.
The tax consequences associated with extending the Maturity Date beyond age
100 are unclear and a tax advisor should be consulted before effecting such an
extension. For more information about the extended maturity option, contact
your registered representative or NELICO.
CHARGES AND EXPENSES
The amount of a charge may not necessarily correspond to the costs
associated with providing the services or benefits indicated by the
designation of the charge or associated with the particular Policy. For
example, the sales charge and Deferred Sales Charges may not fully cover all
of the sales and distribution expenses actually incurred by the Company, and
proceeds from other charges, including the mortality and expense risk charge,
may be used in part to cover such expenses.
CHARGES AGAINST THE ELIGIBLE FUNDS AND THE SUB-ACCOUNTS OF THE VARIABLE
ACCOUNT
ELIGIBLE FUND EXPENSES. Charges for investment advisory fees and other
expenses are deducted from the assets of the Eligible Funds.
The 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.
2
<PAGE>
The following table shows the annual operating expenses for each series,
based on actual expenses for 1997, (for the Goldman Sachs Midcap Value Series,
anticipated expenses for 1998), after giving effect to the applicable expense
cap or expense deferral arrangement.
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER ANY
EXPENSE CAP)
<TABLE>
<CAPTION>
BACK BACK
BAY BAY BACK WESTPEAK LOOMIS
ADVISORS ADVISORS BAY WESTPEAK GROWTH SAYLES
CAPITAL BOND MONEY ADVISORS STOCK AND SMALL
GROWTH INCOME MARKET MANAGED INDEX INCOME CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee .63% .40% .35% .50% .25% .70% 1.00%
Other Expenses .04% .12% .10% .11% .15% .12% --
---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses .67% .52% .45% .61% .40% .82% 1.00%
</TABLE>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE
DEFERRAL)
<TABLE>
<CAPTION>
GOLDMAN
SACHS LOOMIS MORGAN STANLEY DAVIS ALGER
MIDCAP SAYLES INTERNATIONAL VENTURE EQUITY
VALUE BALANCED MAGNUM VALUE GROWTH
SERIES* SERIES EQUITY SERIES SERIES SERIES
------- -------- -------------- ------- ------
<S> <C> <C> <C> <C> <C>
Management Fee .75% .70% .90% .75% .75%
Other Expenses .15% .15% .40% .15% .12%
---- ---- ----- ---- ----
Total Series Operating
Expenses .90% .85% 1.30% .90% .87%
</TABLE>
- --------
* Anticipated annual operating expenses for the Goldman Sachs Midcap Value
Series are based on the management fee approved by shareholders of the
Series that became effective on May 1, 1998, and other expenses actually
incurred for the Series for 1997.
The investment adviser for the VIP Fund and VIP Fund II is Fidelity
Management & Research Company, a registered investment adviser under the
Investment Advisers Act of 1940. The Portfolios of the VIP Fund and VIP Fund
II, as part of their operating expenses, pay investment management fees to
Fidelity Management & Research Company.
The Portfolios also bear certain other expenses. For the year ended December
31, 1997, the total operating expenses incurred by the Portfolios, as a
percentage of Portfolio average net assets, were as follows:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
Equity-Income .50% .08% .58%*
Overseas .75% .17% .92%*
High Income .59% .12% .71%
Asset Manager .55% .10% .65%*
</TABLE>
- --------
* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. Had these
reductions been included, total annual expenses would have been .57% for
Equity-Income Portfolio, .90% for Overseas Portfolio, and .64% for Asset
Manager Portfolio.
Affiliates of Fidelity Management & Research Company compensate NELICO
and/or certain affiliates for administrative, distribution, or other services
relating to these Portfolios of VIP Fund and VIP Fund II. Such compensation is
based on assets of the Portfolios attributable to the Policies and certain
other variable insurance products issued by NELICO and its affiliates.
3
<PAGE>
PREMIUMS
FLEXIBLE PREMIUMS
The fifth paragraph of this section is restated as follows:
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 each of the insureds, 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 and there is no outstanding Policy loan,
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. However, no three-year
Minimum Premium death benefit guarantee will apply if you reinstate the
Policy, if you reduce the face amount or make a partial surrender that reduces
the face amount, if you add, reduce or delete a rider benefit, or if the
rating classification of your Policy is improved in the first three Policy
years.
OTHER POLICY FEATURES
LOAN PROVISION
The second paragraph of this section is revised as follows:
The Policy's loan value is equal to (i) 90% of the Policy's cash value
projected using current Policy charges and a 4% annual rate to the next Policy
anniversary or, if earlier, to the next Planned Premium due date ("projected
cash value"); less (ii) the Surrender Charge that would apply upon surrender
on the next Planned Premium due date or, if greater, on the date the loan is
made; less (iii) loan interest to the next interest due date. If required by
state law, the Policy's loan value may be a greater percentage of the cash
value, as described in your Policy. The amount of loan value available to be
borrowed at any time is reduced by the amount of any outstanding Policy loan
plus accrued interest. NELICO currently intends to base the loan value on 100%
of the Policy's projected cash value, rather than 90%, as described above in
item (i), for Policy years 16 and after.
The second paragraph after the numerical example is revised as follows:
The interest rate charged on Policy loans is an effective rate of 5.5% per
year (using simple interest during the year) and is due on the Policy
anniversary. If not paid, the interest accrued on the loan is added to the
loan, and an amount equal to the unpaid interest is deducted from the Policy's
cash value in the sub-accounts and the Fixed Account in proportion to the
amount in each. The amount taken from the Policy's sub-accounts as a result of
the loan earns interest (compounded daily) at an effective rate of not less
than 4% per year. The rate currently credited is 4% per year for the first 15
Policy years and 5% thereafter. This interest earned is credited to the
Policy's sub-accounts annually, in proportion to the cash value in each.
INVESTMENT OPTIONS
The first paragraph of this section is revised as follows:
You may allocate your Policy's premiums among the sub-accounts of the
Variable Account and the Fixed Account in any combination, provided that
allocations can be made to a maximum of nine accounts (including the Fixed
Account) at any time. The Policy provides that a minimum of 10% of the premium
must be allocated to each sub-account selected and that percentages allocated
must be in whole numbers; currently, however, NELICO is waiving the
requirement of a 10% minimum and will permit any whole percentage to be
allocated to a sub-account. Your Policy's cash value may be distributed among
no more than nine accounts (including the Fixed Account) at any one time.
4
<PAGE>
POLICY SPLIT RIDER
This section is revised as follows:
Subject to state availability and NELICO's underwriting criteria, your
Policy may be issued with a split rider which allows the Policy Owner to
"split" the Policy into two new individual flexible premium adjustable
variable life insurance policies issued by NELICO. (If your Policy was not
issued with the rider, the rider may be added to the Policy if it has been
approved in your state and if the insureds under the Policy meet NELICO's
underwriting requirements for the rider.) The rider permits the Policy to be
split at the request of the Policy Owner in the event of divorce of the
insureds, if certain federal tax law changes occur, or if certain business
circumstances change (each, a "split event"). The rider sets forth the
specific conditions that must be met in order for a split event to be deemed
to have occurred. If the split rider is exercised, this Policy will be
canceled, and its cash value will be transferred (in equal portions, unless
otherwise requested) to two new individual policies issued on the effective
date of the split. A Surrender Charge will apply to each individual policy in
accordance with such Policy's terms. Each new policy will be issued with
either a level or variable death benefit option in effect, depending on which
type of death benefit option is in effect under this Policy at the time the
split rider is exercised.
For more information about the Policy split rider and the conditions and
rules relating to the exercise of any rights under the split rider, you should
contact your registered representative or NELICO. You can also request a
prospectus and additional information regarding the individual policies to be
issued upon exercise of the split rider. For a discussion of the possible tax
consequences of splitting the Policy, see "Tax Considerations."
THE VARIABLE ACCOUNT
The Variable Account currently has 16 sub-accounts, each of which invests in
a series of an Eligible Fund. The sub-accounts of the Variable Account are:
-- The Zenith Money Market Sub-Account, which invests in the Back Bay
Advisors Money Market Series of the Zenith Fund
-- The Zenith Bond Income Sub-Account, which invests in the Back Bay
Advisors Bond Income Series of the Zenith Fund
-- The Zenith Capital Growth Sub-Account, which invests in the Capital
Growth Series of the Zenith Fund
-- The Zenith Stock Index Sub-Account, which invests in the Westpeak Stock
Index Series of the Zenith Fund
-- The Zenith Managed Sub-Account, which invests in the Back Bay Advisors
Managed Series of the Zenith Fund
-- The Zenith Growth and Income Sub-Account, which invests in the Westpeak
Growth and Income Series of the Zenith Fund
-- The Zenith Small Cap Sub-Account, which invests in the Loomis Sayles
Small Cap Series of the Zenith Fund
-- The Zenith 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
5
<PAGE>
-- 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 certain 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.
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.
6
<PAGE>
The Zenith Westpeak Growth and Income Series' investment objective is long-
term total return (capital appreciation and dividend income) through
investment in equity securities. Emphasis will be given to both undervalued
securities ("value" style) and securities of companies with growth potential
("growth" style).
The Zenith Goldman Sachs Midcap Value Series' investment objective is long-
term capital appreciation. The Series invests, under normal circumstances,
substantially all of its assets in equity securities of companies with public
stock market capitalizations within the range of the market capitalizations of
companies constituting the Russell Midcap Index at the time of investment.
The Zenith Loomis Sayles Small Cap Series' investment objective is long-term
capital growth from investments in common stocks or their equivalent. The
Series invests primarily in stocks of small cap companies with good earnings
growth potential that Loomis Sayles believes are undervalued by the market.
Normally, the Series will invest at least 65% of its assets in companies with
market capitalization in the range of the market capitalization of those
companies which make up the Russell 2000 index at the time of investment.
The Zenith Loomis Sayles Balanced Series' investment objective is reasonable
long-term investment return from a combination of long-term capital
appreciation and moderate current income. The Series is "flexibly managed" in
that sometimes it invests more heavily in equity securities and at other times
it invests more heavily in fixed-income securities. The series invests at
least 25% of its assets in fixed income securities and, under normal market
conditions, more than 50% of its assets in common stocks.
The Zenith Morgan Stanley International Magnum Equity Series' investment
objective is long-term capital appreciation through investment primarily in
equity securities of non-U.S. issuers, in accordance with the EAFE country
weightings determined by the Series' sub-adviser. Under normal circumstances
at least 65% of the total assets of the Series will be invested in equity
securities of issuers in at least three countries outside the United States.
The Zenith Davis Venture Value Series' investment objective is growth of
capital. The Series will primarily invest in domestic common stocks that the
Series' subadviser believes have capital growth potential due to factors such
as undervalued assets or earnings potential, product development and demand,
favorable operating ratios, resources for expansion, management abilities,
reasonableness of market price, and favorable overall business prospects. The
Series will generally invest predominantly in equity securities of companies
with market capitalizations of at least $250 million.
The Zenith Alger Equity Growth Series' investment objective is to seek long-
term capital appreciation. The Series' assets will be invested primarily in a
diversified, actively managed portfolio of equity securities, primarily of
companies having a total market capitalization of $1 billion or greater.
The VIP Fund Equity-Income Portfolio's investment objective is to seek
reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Equity-Income Portfolio will
also consider the potential for capital appreciation.
The VIP Fund Overseas Portfolio's investment objective is long-term growth
of capital primarily through investments in foreign securities. Foreign
investments involve greater risks than U.S. investments, including political
and economic risks and the risks of currency fluctuation.
The VIP Fund High Income Portfolio's investment objective is to obtain a
high level of current income by investing primarily in high-yielding, lower-
rated, fixed-income securities, while also considering growth of capital.
High-yielding, lower-rated debt securities present higher risks of untimely
interest and principal payments, default and price volatility than higher-
rated securities, and may present problems of liquidity and valuation.
7
<PAGE>
The VIP Fund II Asset Manager Portfolio's investment objective is to seek
high total return with reduced risk over the long-term by allocating its
assets among stocks, bonds and short-term instruments.
The basic objective of the Policy is to provide benefits which increase in
value when the investment experience of the Policy's sub-accounts is
favorable. Historically, the investment performance of common stocks over the
long term has generally been superior to that of long or short term debt
securities, although common stocks have been subject to more dramatic changes
in value over short periods of time. The Zenith Capital Growth, Zenith Midcap
Value, Zenith Equity Growth, Zenith Venture Value, Zenith Growth and Income,
Zenith Stock Index, Zenith International Magnum Equity or Zenith Small Cap
Sub-Accounts, or the Equity-Income or Overseas Sub-Accounts, or some
combination of these sub-accounts, may, therefore, be a more desirable
selection for Policy Owners who have a long term time horizon and/or are
willing to accept such risks of short term fluctuations in value. For a
demonstration of certain of these market trends, see Appendix C: Long Term
Market Trends. Historically, the investment performance of "small cap" stocks
over the long term has generally been superior to stocks of large
capitalization companies, although "small cap" stocks have been substantially
more volatile than "large cap" stocks. Historically, having a small percentage
of a portfolio invested in overseas stocks and the rest in domestic stocks has
produced a portfolio that has less, although still substantial, volatility
than a completely domestic portfolio. Equity investors should recognize that
overseas and "small cap" funds taken alone traditionally involve more risk
than most domestic stock funds.
The performance of the various financial markets over shorter periods of
time has sometimes differed from their long term historical results. Short
term interest rates were very high in the late 1970's and early 1980's, but
are now lower. Long term bond values continue to fluctuate and could lose
value if interest rates rise. Common stock prices, which have risen
substantially at times, have also had periods of significant negative returns.
Policy Owners who seek somewhat greater protection against loss of principal
in the short term than that afforded by a stock fund may prefer the High
Income Sub-Account or the Zenith Bond Income Sub-Account. However, because the
High Income Portfolio invests in higher yielding, lower rated and unrated
fixed income securities (including bonds commonly referred to as "junk"
bonds), it has a higher degree of risk associated with it relative to more
conservative fixed income funds. Those who seek even greater safety of
principal may select the Zenith Money Market Sub-Account, although it is
subject to possible rapid changes in short term interest rates. Those who
primarily seek safety of principal should consider fixed life insurance as an
alternative to variable life insurance.
NELICO guarantees the principal invested in the Fixed Account, although this
guarantee is subject to NELICO's claims paying ability.
You may wish to consider diversifying your investments by allocating the
Policy's cash value among two or more sub-accounts.
Policy Owners may also diversify by selecting the Zenith Managed Sub-
Account, Zenith Balanced Sub-Account or the Asset Manager Sub-Account, since
each generally invests its assets at most times in a combination of bonds,
stocks and short term instruments, in varying proportions depending upon the
investment adviser's evaluation of the economy and financial markets. The
Asset Manager Portfolio has the ability to invest its stock portfolio more
aggressively than the Back Bay Advisors Managed Series. You may also wish to
diversify your cash value by country. The Overseas Sub-Account and Zenith
International Magnum Equity Sub-Account allow you to participate primarily in
companies and economies outside the United States.
The selection of a Policy's sub-accounts is a matter of your own choice and
should depend on your willingness to accept investment risks, the other types
of investments you have and your own assessment of future economic and
financial market conditions.
8
<PAGE>
INVESTMENT MANAGEMENT
The adviser and sub-adviser for each series of the Zenith Fund are listed in
the chart below. TNE Advisers, which is an indirect, wholly-owned subsidiary
of NELICO, CGM, and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------------------------- ------------------------------
<S> <C> <C>
Capital Growth Capital Growth Management
Limited Partnership
("CGM")*
Back Bay Advisors Money TNE Advisers, Inc. Back Bay Advisors, L.P.*
Market
Back Bay Advisors Bond TNE Advisers, Inc. Back Bay Advisors, L.P.*
Income
Back Bay Advisors Man- TNE Advisers, Inc. Back Bay Advisors, L.P.*
aged
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors,
L.P.*
Westpeak Growth and In- TNE Advisers, Inc. Westpeak Investment Advisors,
come L.P.*
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company,
L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company,
L.P.*
Morgan Stanley TNE Advisers, Inc. Morgan Stanley Asset
International Magnum Management Inc.
Equity
Goldman Sachs Midcap TNE Advisers, Inc. Goldman Sachs Asset Management
Value
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers,
L.P.**
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
</TABLE>
- --------
* An affiliate of NELICO
** Davis Selected may also delegate any of its responsibilities to Davis
Selected Advisers--NY, Inc., a wholly-owned subsidiary of Davis Selected.
In the case of the Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series, Back Bay Advisors Managed Series, Westpeak Stock Index
Series, Westpeak Growth and Income Series, Goldman Sachs Midcap Value Series
and Loomis Sayles Small Cap Series, TNE Advisers became the adviser on May 1,
1995. Prior to that date those series were advised by their current sub-
adviser, except as follows. New England Mutual served as investment adviser to
the Back Bay Advisors Money Market and Back Bay Advisors Bond Income Series
until September 10, 1986 when Back Bay Advisors assumed New England Mutual's
responsibilities under the investment advisory agreements with those Series.
Back Bay Advisors served as investment adviser to the Westpeak Stock Index
Series until August 2, 1993, when Westpeak became the investment adviser. The
Capital Growth Series was managed by Loomis, Sayles until March 1, 1990, when
its Capital Growth Management Division was reorganized into CGM. The Morgan
Stanley International Magnum Equity Series' sub-adviser was Draycott Partners
until May 1, 1997, when Morgan Stanley Asset Management became the sub-
adviser. The Goldman Sachs Midcap Value Series' sub-adviser was Loomis, Sayles
until May 1, 1998, when Goldman Sachs Asset Management became the sub-adviser.
For more information about the Series' advisory agreements, see the Zenith
Fund prospectus attached at the end of this prospectus and the Zenith Fund's
Statement of Additional Information.
Fidelity Management & Research Company, the investment adviser for the VIP
Fund and VIP Fund II, is the original Fidelity company and was founded in
1946. It provides a number of mutual funds and other clients with investment
research and portfolio management services. It maintains a large staff of
experienced investment personnel and a full complement of related support
facilities. For more information regarding the Equity-Income, Overseas, High
Income and Asset Manager Portfolios and Fidelity Management & Research
Company, see the VIP Fund and VIP Fund II prospectus attached at the end of
this prospectus and their Statement of Additional Information.
9
<PAGE>
TAX CONSIDERATIONS
POLICY PROCEEDS
The following discussion of Federal income tax issues relating to the
Policies is general in nature and is not intended as tax advice. It describes
what NELICO believes is the Federal income tax treatment of the Policies in
the most commonly occurring circumstances and does not reflect the effect of
Federal income taxes in all situations. In addition, there is no guarantee
that the Federal income tax laws and regulations or interpretation of them
will not change. Therefore, NELICO recommends that you consult your own tax
advisor for more complete information and advice.
DEFINITION OF LIFE INSURANCE. Section 7702 of the Internal Revenue Code of
1986, as amended ("Code") defines a life insurance contract for Federal income
tax purposes.
The Section 7702 definition can be met if a life insurance contract
satisfies either one of two tests set forth in that section. The manner in
which these tests should be applied to certain features of the Policy is not
directly addressed by Section 7702 or proposed regulations issued under that
section. The presence of these Policy features, the absence of final
regulations, and the lack of other pertinent interpretations of Section 7702,
thus create some uncertainty about the application of Section 7702 to the
Policy.
Nevertheless, NELICO believes it is reasonable to conclude that the Policy
qualifies as a life insurance contract for federal income tax purposes. This
means that:
. the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
. the Policy Owner should not be considered in constructive receipt of the
cash surrender value, including any increases, unless and until they are
distributed from the Policy.
Because of the absence of final regulations or any other pertinent
interpretations, it, however, is unclear whether a Policy will meet the
statutory life insurance definition, particularly if it is a substandard risk
Policy. If a Policy were determined not to be a life insurance contract for
purposes of Section 7702, such Policy would not provide most of the tax
advantages normally provided by a life insurance contract.
NELICO thus reserves the right to make changes in the Policy if such changes
are deemed necessary to attempt to assure its qualification as a life
insurance contract for tax purposes.
TAX 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.
10
<PAGE>
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. A joint term rider could cause the Policy to be
treated less favorably for purposes of the 7-pay test. If there is a reduction
in the Policy's death benefit (for example, as a result of a partial surrender
or face amount reduction) at any time during the Policy's existence the 7-pay
test will be applied as if the Policy had originally been issued at the
reduced face amount. Any Policy received in exchange for a modified endowment
contract will also be a modified endowment contract.
Your registered representative can provide you with information about the
maximum amount of 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 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, sex and
underwriting class of the insureds, investment experience and the amount of
your previous payments.
If you exchange your policy for another life insurance policy, including a
fixed-benefit policy pursuant to the 24 month exchange right, the new
insurance policy should be reviewed to determine how the rules regarding
modified endowment contracts may apply to the new policy. (See "Exchange of
Policy During First 24 Months.")
DISTRIBUTIONS UNDER MODIFIED ENDOWMENT CONTRACTS. If a Policy is a modified
endowment contract, then the following rules will apply to distributions under
such contract:
(a) Distributions will be includible in your gross income to the extent
the cash value of the Policy exceeds your investment in the Policy (i.e.,
will be treated as income first).
(b) Loans (including any unpaid interest) are considered distributions.
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.
11
<PAGE>
(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 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.
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.
12
<PAGE>
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.
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 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. 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.
TAX TREATMENT OF POLICY SPLIT. The policy split rider permits a Policy to be
split into two individual contracts, provided certain conditions are met. A
policy split could have adverse tax consequences; for example, it is not clear
whether a policy split will be treated as a nontaxable exchange under Sections
1031 through 1043 of the Code. If the policy split is not treated as a
nontaxable exchange, a split could result in the recognition of taxable income
in an amount up to any gain in the Policy at the time of the split. In
addition, it is not clear whether the individual policies that result from a
policy split would be classified as modified endowment contracts. (See
above.)
13
<PAGE>
Before the Policy Owner exercises rights provided by the policy split rider,
it is important that he or she consult with a competent tax advisor regarding
the possible consequences of a policy split.
OTHER TAX CONSIDERATIONS. The transfer of the Policy or designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate, and generation-
skipping transfer taxes. For example, the transfer of the Policy to, or the
designation as a beneficiary of, or the payment of proceeds to, a person who
is assigned to a generation which is two or more generations below the
generation assignment of the Policy Owner, may have Generation Skipping
Transfer tax considerations under Section 2601 of the Code.
The individual situation of each Policy Owner or beneficiary will determine
the extent, if any, to which federal, state, and local transfer and
inheritance taxes may be imposed. Consult with your tax advisor for specific
information in connection with these taxes.
The particular situation of each Policy Owner or beneficiary will determine
how ownership or receipt of Policy proceeds will be treated for purposes of
federal, state and local estate, inheritance, generation skipping and other
taxes.
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
------------------ -----------------------------
<S> <C>
James M. Benson....... President and Chief Executive Officer of NELICO since
1998; formerly, President and Chief Operating Officer
1997-1998 of NELICO; President and CEO 1996-1997 of
Equitable Life Assurance Society and COO of Equitable
Companies, Inc.; Senior Vice President 1993-1996 of
Equitable Life Assurance Society.
Susan C. Crampton..... Director of NELICO since 1996 and serves as Principal of
127 Tarbox Road The Vermont Partnership, a business consulting firm
Jericho, VT 05465 located in Jericho, Vermont since 1989; formerly,
Director 1989-1996 of New England Mutual.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<S> <C>
Edward A. Fox........... Director of NELICO since 1996 and Chairman of the Board of
RR Box 67-15 SLM Holdings since 1997; formerly, Director 1994-1996 of
Harborside, ME 04642 New England Mutual and Dean 1990-1994 of The Amos Tuck
School of Business Administration at Dartmouth College.
George J. Goodman....... Director of NELICO since 1996 and author, television
Adam Smith's Money journalist, and editor.
World
50th Floor, Craig Drill
Capital
General Motors 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 firm
Howard, Darby & Levin of Howard, Darby & Levin in New York City.
1330 Avenue of the
Americas
New York, NY 10019
Harry P. Kamen.......... Director of NELICO since 1996 and Chairman of Metropolitan
Metropolitan Life Life Insurance Company since 1998; formerly, Chairman and
One Madison Avenue Chief Executive Officer 1997-1998; Chairman, President,
New York, NY 10010 and Chief Executive Officer 1995-1997 and Chairman and
CEO 1993-1995 of Metropolitan Life.
Terence Lennon.......... Director of NELICO since 1996 and Senior Vice President of
Metropolitan Life Metropolitan Life Insurance Company since 1994; formerly,
One Madison Avenue Assistant Deputy Superintendent and Chief Examiner 1984-
New York, NY 10010 1994 of the New York Insurance Department.
Bernard A. Leventhal.... Director of NELICO since 1996; formerly, Vice Chairman of
Burlington Industries the Board of Directors 1995-1998 of Burlington
1345 Avenue of the Industries, Inc., President since 1978 and Corporate
Americas Group Vice President since 1985 and Director since 1990
New York, NY 10105 of Burlington Menswear Division.
Thomas J. May........... Director of NELICO since 1996 and Chairman, President and
Boston Edison Company Chief Executive Officer of Boston Edison Company since
800 Boylston Street 1994; formerly, Director 1994-1996 of New England Mutual;
Boston, MA 02199 President and Chief Operating Officer 1993-1994 of Boston
Edison Co.
Stewart G. Nagler....... Director of NELICO since 1996 and Senior Executive Vice
Metropolitan Life President and Chief Financial Officer of Metropolitan
One Madison Avenue Life Insurance Company since 1986.
New York, NY 10010
Rand N. Stowell......... Director of NELICO since 1996 and President of United
United Timber Corp. Timber Corp. of Dixfield, Maine; formerly, Director 1990-
P.O. Box 650 1996 of New England Mutual.
Pine Street
Dixfield, ME 04224
Alexander B. Trowbridge. Director of NELICO since 1996 and President of Trowbridge
Trowbridge Partners Partners, Inc. in Washington, DC; formerly, Director
Inc. 1983-1996 of New England Mutual.
1317 F Street, NW,
Suite 500
Washington, D.C. 20004
</TABLE>
15
<PAGE>
EXECUTIVE OFFICERS OF NELICO
OTHER THAN DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
James M. Benson......... See Directors above
David W. Allen.......... Senior Vice President of NELICO since 1996; formerly,
Senior Vice President 1994-1996 and Vice President 1990-
1994 of New England Mutual.
Thom A. Faria........... President, Career Agency System (a business unit of
NELICO) since 1996; formerly, Executive Vice President in
1996, Senior Vice President 1993-1996 of New England
Mutual.
Anne M. Goggin.......... Senior Vice President and Associate General Counsel of
NELICO since 1997; formerly, Vice President and Counsel
of NELICO in 1996, Vice President and Counsel 1994-1996
and Second Vice President and Counsel 1988-1994 of New
England Mutual.
Daniel D. Jordan........ Second Vice President, Counsel and Secretary since 1996;
formerly, Counsel and Assistant Secretary 1990-1996 of
New England Mutual.
Richard D. Keidan....... Senior Vice President of NELICO since 1996; formerly, Vice
President 1994-1996 of Metropolitan Life (Chief Marketing
Officer of MetLife Brokerage) and Regional Sales and
Marketing Manager 1989-1994 of Phoenix Home Life.
Alan C. Leland, Jr. .... Senior Vice President of NELICO since 1996; formerly, Vice
President 1984-1996 of New England Mutual.
Bruce C. Long........... President, New England Annuities (a business unit of
NELICO) since 1996; formerly, President 1994-1996 New
England Annuities (a business unit of New England Mutual)
and Senior Vice President in 1994 of New England
Annuities; Vice President 1992-1994 of Keyport Life
Insurance.
George J. Maloof........ Senior Vice President of NELICO since 1996; formerly, Vice
President 1991-1996 of New England Mutual.
Thomas W. McConnell..... Senior Vice President of NELICO since 1996 and Director,
Chief Executive Officer and President of New England
Securities Corporation since 1993; formerly, National
Sales Manager 1993 of Alliance Fund Distributors;
National Sales Manager 1992-1993 of Equitable Capital
Securities.
Thomas W. Moore......... Senior Vice President of NELICO since 1996; formerly, Vice
President 1990-1996 of New England Mutual.
Robert W. Powell........ President, Life Brokerage (a business unit of NELICO)
since 1996; formerly, Officer-In-Charge 1994-1996 of
MetLife Brokerage (a subsidiary of Metropolitan Life
Insurance Company) and Marketing Vice President 1988-1994
of MetLife.
Richard A. Robinson..... Second Vice President and chief accounting officer of
NELICO since 1998; formerly, Second Vice President 1997-
1998 of NELICO; Manager of Life Insurance Accounting
1994-1997 and Chief Accountant 1992-1994 of Liberty Life
Assurance Company.
Robert E. Schneider..... Executive Vice President and Chief Financial Officer of
NELICO since 1996; formerly, Director, Executive Vice
President and Chief Financial Officer 1993-1996 and
Executive Vice President and Chief Financial Officer
1990-1993 of New England Mutual.
John G. Small, Jr....... President, New England Services (a business unit of
NELICO) since 1997; formerly, Senior Vice President 1996-
1997 of NELICO and Senior Vice President 1990-1996 of New
England Mutual.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
Ellen D. Sullivan....... Senior Vice President and Associate General Counsel of
NELICO since 1997; formerly, Vice President and Counsel
in 1996 of NELICO; Vice President and Counsel 1994-1996
and Second Vice President and Counsel 1985-1994 of New
England Mutual.
H. James Wilson......... Executive Vice President and General Counsel of NELICO
since 1996; formerly, Executive Vice President and
General Counsel 1993-1996, Senior Vice President and
General Counsel 1992-1993 of New England Mutual.
John W. Wright.......... President, New England Employee Benefits Group (a business
unit of NELICO) since 1996; formerly, President 1993-1996
New England Employee Benefits Group (a business unit of
New England Mutual), Senior Vice President 1989-1993 of
New England Employee Benefits Group of New England
Mutual.
Frederick K. Zimmermann. Executive Vice President and Chief Investment Officer of
NELICO since 1996; formerly, Executive Vice President and
Chief Investment Officer 1993-1996 and Senior Vice
President--Investments 1989-1993 of New England Mutual.
</TABLE>
The principal business address for each of the directors and officers is the
same as NELICO's except where indicated otherwise.
Like all financial services providers, NELICO utilizes systems that may be
affected by Year 2000 transition issues and it relies on a number of third
parties, including banks, custodians, and investment managers, that also may
be affected. NELICO and its affiliates have developed, and are in the process
of implementing, a Year 2000 transition plan, and are confirming that their
service providers are also so engaged. The resources that are being devoted to
this effort are substantial. It is difficult to predict with precision whether
the amount of resources ultimately devoted, or the outcome of these efforts,
will have any negative impact on NELICO. However, as of the date of this
prospectus, it is not anticipated that Owners will experience negative effects
on their investment, or on the services provided in connection therewith, as a
result of Year 2000 transition implementation. NELICO currently anticipates
that its systems will be Year 2000 compliant on or about December 31, 1998,
with systems testing and compliance verification to follow. There can,
however, be no assurance that the other service providers have anticipated
every step necessary to avoid any adverse effect on the Variable Account
attributable to Year 2000 transition.
TOLL-FREE NUMBERS
For information about historical values of the Variable Account sub-
accounts, call the toll-free number 1-800-333-2501.
For sub-account transfers, premium reallocations, or Statements of
Additional Information for the Eligible Funds, call the toll-free number 1-
800-200-2214.
You may also call our Client TeleService Center toll-free at 1-800-388-4000
to request current information about your Policy values, to change or update
Policy information such as your address, billing mode, beneficiary or
ownership, or to request Policy loans of less than $25,000. Requests must be
in writing if the Policy is owned by a corporation or a pension trust.
For all other types of Policy changes, please contact your registered
representative.
17
<PAGE>
ADVERTISING PRACTICES
The following paragraph is added:
NELICO is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
EXPERTS
The financial statements of New England Variable Life Separate Account of
New England Life Insurance Company ("NELICO") (formerly New England Variable
Life Insurance Company) and the consolidated financial statements of NELICO
and subsidiaries as of and for the years ended December 31, 1997 and 1996
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein (whose
reports express unqualified opinions and, with respect to NELICO, includes an
explanatory paragraph referring to the change in the basis of accounting and
the change in corporate organization), and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing. The adjustments that were applied to restate the 1995
financial statements to reflect the effects of the changes for adoption of
generally accepted accounting principles and the changes in corporate
organization have also been audited by Deloitte & Touche LLP.
The statutory statements of operations, surplus, and cash flows of New
England Variable Life Insurance Company and New England Pension and Annuity
Company for the year ended December 31, 1995 (not included herein), have been
incorporated herein in reliance on the reports (which reports include adverse
opinions as to generally accepted accounting principles and unqualified
opinions as to statutory accounting practices prescribed or permitted by the
Insurance Department of the State of Delaware) of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing. The statutory statements of operations and surplus,
and cash flows of Exeter Reassurance Company, Ltd. for the year ended December
31, 1995 (not included herein), have been incorporated herein in reliance on
the report (which report includes an adverse opinion as to generally accepted
accounting principles and an unqualified opinion as to conformity with The
Insurance Act 1978, amendments thereto and related regulations) of Coopers &
Lybrand, chartered accountants, given on the authority of that firm as experts
in accounting and auditing.
The consolidated statements of operations, shareholder's equity, and cash
flows of New England Securities Corporation for the year ended December 31,
1995 (not included herein); the statements of operations, changes in
shareholder's equity, and cash flows of TNE Advisers, Inc. for the year ended
December 31, 1995 (not included herein), have been incorporated herein in
reliance on the reports of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing. The
statements of earnings and retained earnings, and cash flows of Newbury
Insurance Company, Limited for the year ended December 31, 1995 (not included
herein), have been incorporated herein in reliance on the reports of Coopers &
Lybrand, chartered accountants, given on the authority of that firm as experts
in accounting and auditing.
The statements of operations and changes in net assets of New England
Variable Life Separate Account for the period ended December 31, 1995 have
been incorporated herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
18
<PAGE>
Part II
RULE 484 UNDERTAKING
Section 9 of NELICO's By-Laws provides that NELICO shall, to the extent
legally permissible, indemnify its directors and officers against liabilities
and expenses relating to lawsuits and proceedings based on such persons' roles
as directors or officers. However, Section 9 further provides that no such
indemnification shall be made with respect to any matter as to which a director
or officer is adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the corporation. Section 9
also provides that in the event a matter is disposed of by a settlement payment
by a director or officer, indemnification will be provided only if the
settlement is approved as in the best interest of the corporation by (a) a
disinterested majority of the directors then in office, (b) a majority of the
disinterested directors then in office, or (c) the holders of a majority of
outstanding voting stock (exclusive of any stock owned by any interested
director or officer).
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
NELICO pursuant to the foregoing provisions, or otherwise, NELICO has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification may be against public policy as expressed in the Act and may be,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by NELICO of expenses incurred or paid by a
director, officer, or controlling person of NELICO in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered. NELICO
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II - 1
<PAGE>
REPRESENTATIONS
New England Life Insurance Company hereby represents that the fees and
charges deducted under the flexible premium adjustable variable survivorship
life insurance policies described in this registration statement, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by New England Life Insurance
Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of the information shown in the prospectus with
the items of Form N-8B-2.
The prospectus consisting of 139 pages.
The undertaking to file reports.***
The undertaking pursuant to Rule 484(b) under the Securities Act of 1933.
The signatures.
Written consents of the following persons:
H. James Wilson, Esq. (see Exhibit 3(i) below)
Rodney J. Chandler, F.S.A., M.A.A.A.
(see Exhibit 3(ii) below)
Sutherland, Asbill & Brennan LLP
(see Exhibit 6 below)
Independent Auditors (see Exhibit 11 below)
The following exhibits:
1.A. (1) January 31, 1983 resolution of the Board of
Directors of NEVLICO ***
(2) None
(3) (a) Distribution Agreement between NEVLICO and
NELESCO ****
(b) (i) Form of Contract between NELICO and its
General Agents ***
II - 2
<PAGE>
(ii) Form of contract between NELICO and its Agents ****
(c) Commission Schedule for Policies
(d) Form of contract among NES, NELICO and other broker
dealers ####
(4) None
(5) (a) Specimen of Policy, including Applications ***
(b) Riders to Policy ***
(c) Split- Option Rider
(d) Extended Maturity Rider
(6) (a) Amended and restated Articles of Incorporation of NELICO ###
(b) Amended and restated By-Laws of NELICO ####
(7) None
(8) None
(9) None
2. See Exhibit 1.A.(5)
3. (i) Opinion and Consent of H. James Wilson, Esquire ***
(ii) Opinion and Consent of Rodney J. Chandler, F.S.A., M.A.A.A.
4. None
5. Inapplicable
6. Consent of Sutherland, Asbill & Brennan LLP
7. (i) Powers of Attorney ###
(ii) Power of Attorney for James M. Benson ####
(iii) Power of Attorney for Richard Robinson *
8. Notice of Withdrawal Right for Policies ***
9. Inapplicable
10. Computation of basis for exchange right pursuant to
Rule 6e-3(T) (b) (13) (v) under the Investment Company Act
of 1940 ***
11. Consent of Independent Auditors
12. Schedule for computation of performance quotations ****
13. (i) Consolidated memorandum describing certain procedures,
filed pursuant to Rule 6e-2(b)(12)(ii) and Rule
6e-3(T)(b)(12)(iii) ****
(ii) Addendum to Consolidated memorandum describing certain
procedures, filed pursuant to Rule 6e-3(T)(b)(12)(iii) ##
14. (i) Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and New England
Variable Life Insurance Company ****
II - 3
<PAGE>
(ii) Amendment No. 1 to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and New England Variable Life Insurance Company #
(iii) Participation Agreement among Variable Insurance Products Fund
II, Fidelity Distributors Corporation and New England
Variable Life Insurance Company #
- ---------------
# Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 33-88082,
filed June 22, 1995.
## Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Variable Account's Form S-6 Registration Statement, File No. 33-66864,
filed April 26, 1996.
### Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 333-21767, filed February 13, 1997.
#### Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 333-21767,
filed July 16, 1997.
* Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 333-46401, filed February 17, 1998.
*** Incorporated herein by reference to Post Effective Amenment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-66864,
filed February 25, 1998.
**** Incorporated herein by reference to Post-Effective Amenment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 333-52050,
filed April 24, 1998.
II - 4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
New England Variable Life Separate Account, certifies that it meets all of the
requirements for effectiveness of this amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the city of Boston, and the Commonwealth of Massachusetts, on
the 28th day of April, 1998.
New England Variable Life Separate
Account
(Registrant)
By: New England Life Insurance
Company
(Depositor)
By:
------------------------
H. James Wilson
Executive Vice President and
General Counsel
Attest:
------------------------
Marie C. Swift
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, New England
Life Insurance Company certifies that it meets all of the requirements for
effectiveness of this amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the city of Boston, and the Commonwealth of Massachusetts, on the 28th day of
April, 1998.
New England Life Insurance Company
(Seal)
Attest: By:
---------------------- ----------------------
Marie C. Swift H. James Wilson
Executive Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on April 28, 1998.
President and Chief
* Executive Officer
James M. Benson
* Director
Susan C. Crampton
* Director
Edward A. Fox
* Director
George J. Goodman
* Director
Evelyn E. Handler
* Director
Philip K. Howard
* Director
Harry P. Kamen
* Director
Terence Lennon
* Director
Bernard A. Leventhal
<PAGE>
* Director
- ---------------------------
Thomas J. May
* Director
- ---------------------------
Stewart G. Nagler
* Second Vice President and
- --------------------------- Chief Accounting Officer
Richard A. Robinson
* Executive Vice President and
- --------------------------- Chief Financial Officer
Robert E. Schneider
* Director
- ---------------------------
Rand N. Stowell
* Director
- ---------------------------
Alexander B. Trowbridge
By:
-------------------------
Anne M. Goggin, Esq.
Attorney-in-fact
* Executed by Anne M. Goggin, Esquire on behalf of those indicated pursuant
to powers of attorney filed with the Variable Account's Form S-6
Registration Statement, File No. 333-21767, on February 13, 1997, Pre-
Effective Amendment No. 1 to the Variable Account's Form S-6 Registration
Statement, File No. 333-21767, on July 16, 1997, and the Variable Account's
Form S-6 Registration Statement, File No. 333-46401, on February 17, 1998.
(vsl)
<PAGE>
EXHIBIT LIST
Sequentially
Exhibit Number Title Numbered Page*
- -------------- ----- --------------
1. A.3(c) Commission Schedule
1. A.5(c) Split Option Rider
1. A.5(d) Extended Maturity Rider
3. (ii) Opinion and Consent of Rodney J.
Chandler, F.S.A., M.A.A.A.
6. Consent of Sutherland, Asbill &
Brennan LLP
11. Consent of the Independent Auditors
- ---------
* Page numbers inserted on manually-signed copy only.
<PAGE>
Exhibit 1.A.3(c)
Commission Schedule
The following maximum percentages of the Benchmark Premium (plus any
additional portion of a premium which NELICO attributes to certain riders for
commission paying purposes) paid for each policy year will be paid to the NELICO
agent/New England Securities registered representative involved in the sale of a
Policy:
Policy Year Maximum Percentage
----------- ------------------
1 50%
2-10 5%
11 and later 4%
Agents will also receive a commission of 3% of each unscheduled payment
made.
Agents who meet certain productivity and persistency standards with respect
to policies issued by NELICO and its affiliates may be eligible for additional
compensation.
New England Securities may enter into selling agreements with other broker-
dealers registered under the Securities 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 will be based on the schedule illustrated above. 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.
<PAGE>
Exhibit 1.A.5(c)
- --------------------------------------------------------------------------------
Endorsement: Exchange Option
As of the Date of Issue of this Policy, this Endorsement is added to the Policy.
The Company agrees that the Policy to which this Endorsement is attached can be
exchanged for two new policies, one on the life of each of the Insureds.
Conditions
The Exchange Option (called "the Option") can be exercised only if:
- - (a) The Company would have issued a single life policy on the life of the
Insured on the Policy Date of this Policy; and
- - (b) A final divorce decree ending the Insureds' marriage has been in effect
for at least six months; or
- - (c) The Insureds are married to each other and a change in federal tax law
results in: the repeal of the unlimited marital deduction; or a reduction of
the maximum federal estate tax rate by at least 50% of the rate on the Date
of Issue of this Policy; or
- - (d) A business partnership involving the Insureds has been dissolved for at
least two months.
The Option must be exercised:
- - Before the final divorce decree has been in effect for more than one year; or
- - On or within six months after the later of: the effective date of the new tax
law; and the date the new tax law was enacted; or
. On or within 6 months of the date of the dissolution of the business
partnership.
Both Insureds under this Policy must be living on the Exchange Date.
Benefits provided by rider will be available on the new policies only with the
consent of the Company.
This Policy and its riders will terminate at the end of the day prior to the
Exchange Date. The new policies will take effect at the beginning of the day on
the Exchange Date.
Exchange Date
The Exchange Date is the first day of the policy month which begins on or next
follows: the approval by the Company of the exchange; or, if later, payment of
the initial premiums for both of the new policies.
The New Policies
Each new policy will be issued:
- - On a plan of flexible premium adjustable variable life insurance issued by
the Company on the Policy Date of the new policy;
- - With a current Policy Date and Date of Issue;
- - On a policy form and at premium rates in use by the Company on the Policy
Date of the new policy;
. With the Death Benefit option most comparable to the Death Benefit option of
this Policy; and
- - Subject to: any assignments on this Policy; the Company's issue age
requirements for the new policies; and payment of an initial premium of at
least 3 times the Monthly Minimum Premium of the new policies.
Premiums for each new policy will be based on the Insured's sex and age on the
Policy Date of each new policy.
The Policy Class of each new policy will not be based on the Joint Policy Class
of this Policy. It will be based on the actual underwriting class to which the
Insured was assigned by the Company on the Policy Date of this Policy.
Unless the Company agrees in writing on the Date of Issue of this Policy to
allow a different split, one-half of the Cash Value of this Policy minus one-
half of any Policy Loan Balance on this Policy at the time of the exchange will
be transferred to each new policy as all or part of the initial premium. If this
amount is less than the required initial premium as described above, payment of
an amount equal to the difference between the required premium payment and the
amount transferred to the new policy from this Policy must be made before the
new policies will be in force.
If the Company agrees to allow a different split, the actual split will be
reflected in: the split of the Cash Value of this Policy; and the amount of any
Policy Loan Balance deducted from the Cash Value of this Policy.
The Contestable and Suicide periods of the new policies will be measured from
the Date of Issue of this Policy.
<PAGE>
- --------------------------------------------------------------------------------
Face Amount of Each New Policy
Unless the Company agrees in writing on the Date of Issue of this Policy to
allow a different split, the Face Amount of each new policy cannot be larger
than: one-half of the Face Amount of this Policy; plus one-half of the amount of
any Survivorship Level Term Insurance Rider in force on this Policy on the day
prior to the Exchange Date; plus the amount of any single life level term
insurance rider in force on the day prior to the Exchange Date on the Insured
covered by the new policy.
The Face Amount of each new policy is subject to the Company's published maximum
and minimum limits of issue.
New England Life Insurance Company
501 Boylston Street, Boston, Massachusetts
ABCD ABCD
President Secretary
<PAGE>
Exhibit 1.A.5(d)
NEL-435-98
- --------------------------------------------------------------------------------
Endorsement Endorsement Date: Date of Issue
As of the Endorsement Date, the following is added to the Policy.
Extended Maturity
The Company agrees to defer the Maturity Date of the Policy to which this
Endorsement is attached to the date death proceeds become payable, if that date
occurs after the Maturity Date shown in Section 1.
Death Benefit
At age 100 the Company will compare the Net Premiums Paid to the Age 100 Amount.
If the Net Premiums Paid is greater than or equal to the Age 100 Amount, the
Death Benefit after the original Maturity Date will equal the greater of: the
Face Amount of the Policy; and the Cash Value on the date death proceeds become
payable. If the Net Premiums Paid is less than the Age 100 Amount, the Death
Benefit after the original Maturity Date will equal the Cash Value on the date
death proceeds become payable.
In this Policy, "Net Premiums Paid" means the total of the premiums paid in each
policy year accumulated at 4% from the first day of the policy year (except
premiums paid within 20 days prior to a policy anniversary which are treated as
if paid in the next policy year) less every partial surrender accumulated at 4%
from the date of surrender. In this Policy, the "Age 100 Amount" is equal to the
last value shown in the Table in Section 5 projected to age 100 assuming the
Guaranteed Death Benefit Premium is paid on the first day of each policy year
and is accumulated at 4%.
Cash Value
The Cash Value of the Policy after the original Maturity Date will be calculated
as described in the Cash Value of the Policy Section, except that the Cost of
Insurance portion of the Monthly Deductions will be equal to zero.
Riders
All riders attached to the Policy, which are in effect on the original Maturity
Date, will terminate on that Date.
Surrender of the Policy
You can surrender the Policy for its Net Cash Value at any time.
NEL-435-98
<PAGE>
NEL-435-98
Premiums
Premiums and unscheduled payments cannot be made after the original Maturity
Date, unless the Company sends you a premium notice as provided for in the Grace
Period provision.
New England Life Insurance Company
501 Boylston Street, Boston, Massachusetts
ABCD ABCD
President Secretary
<PAGE>
New England Life Insurance Company
501 Boylston Street
Boston, MA 02117
Exhibit 3(ii)
April 28, 1998
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
Gentlemen:
In my capacity as Second Vice President and Actuary of New England Life
Insurance Company (the "Company"), I have provided actuarial advice concerning:
The preparation of Post-Effective Amendment No. 10 to the registration
statement on Form S-6 (File No. 33-66864) filed by New England Variable
Life Separate Account and the Company with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to variable life
insurance policies (the "Registration Statement"); and
The preparation of policy forms for the variable life insurance policies
described in the Registration Statement (the "Policies").
It is my professional opinion that:
1. The illustrations of death benefits, net cash values, accumulated premiums,
internal rates of return on net cash values and internal rates of return on
death benefits shown in Appendix A of the Prospectus, based on the
assumptions stated in the illustrations, are consistent with the provisions
of the Policies. The rate structure of the Policies has not been designed
so as to make the relationship between premiums and benefits, as shown in
the illustrations, appear to be correspondingly more favorable to
prospective purchasers of Policies for male and female joint insureds, both
aged 55 in the underwriting class illustrated than to prospective
purchasers of Policies for joint insureds of other sexes or ages. Insureds
in other underwriting classes may have higher cost of insurance charges and
premiums.
2. The information contained in the description of historical investment
experience in Appendix B, based on the assumptions stated in the Appendix,
is consistent with the provisions of the Policies.
<PAGE>
3. The illustration of net premiums shown under the heading "Charges and
Expenses-Deductions from Premiums" in the Prospectus contains the net
premium amounts allocated to the Variable Account for a $5,000 premium
under a Policy.
4. The information contained in the example of how the maximum loanable amount
is determined under the heading "Other Policy Features-Loan Provision" in
the Prospectus is consistent with the provisions of the Policies.
I hereby consent to the filing of this opinion as an Exhibit to this Post-
Effective Amendment to the Registration Statement and to the use of my name
under the heading "Experts" in the Prospectus.
Sincerely,
Rodney J. Chandler, F.S.A., M.A.A.A.
Second Vice President and Actuary
2
<PAGE>
Exhibit 6
Sutherland, Asbill & Brennan LLP
CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Legal Matters"
in the prospectus included in Post-Effective Amendment No. 10 to the
Registration Statement on Form S-6 for certain variable life insurance policies
issued through of New England Variable Life Separate Account of New England Life
Insurance Company (File No. 33-66864). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
SUTHERLAND, ASBILL & BRENNAN LLP
Washington, D.C.
April 28, 1998
<PAGE>
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 10 to the
Registration Statement No. 33-66864 of New England Variable Life Separate
Account (the "Separate Account") of New England Life Insurance Company (the
"Company") of our reports dated February 10, 1998 and February 17, 1998, on
the financial statements of the Separate Account and the Company for the
years ended December 31, 1997 and 1996 appearing in the Prospectus and
Supplement (which expressed unqualified opinions and, with respect to the
Company, includes an explanatory paragraph referring to the change in the
basis of accounting and the change in corporate organization), which is
part of such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus and Supplement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 28, 1998
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in Post-Effective Amendment No. 10 to the
Registration Statement on Form S-6 (File No. 33-66864) of our reports, which
include adverse opinions as to generally accepted accounting principles and
unqualified opinions as to statutory accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, dated March 8,
1996, except as to the information in the second paragraph under "Basis of
Presentation and Principles of Consolidation" of Note 1, for which the date is
February 18, 1997, on our audits of the statutory financial statements of New
England Variable Life Insurance Company and New England Pension and Annuity
Company, and our report dated February 6, 1996, on our audit of New England
Variable Life Separate Account of New England Variable Life Insurance Company.
We also consent to the inclusion in this registration statement of our report,
which includes an adverse opinion as to generally accepted accounting principles
and an unqualified opinion as to conformity with The Insurance Act 1978, dated
April 23, 1996, on our audit of the statutory financial statements of Exeter
Reassurance Company, Ltd., and our report dated February 9, 1996, on our audit
of New England Securities Corporation, and our report dated February 29, 1996,
on our audit of TNE Advisors, Inc., and our report dated March 14, 1996, on our
audit of Newbury Insurance Company, Limited. We also consent to the reference
to our firm under the caption "Experts" in this Post-Effective Amendment.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 28, 1998
